1 00:00:01,360 --> 00:00:05,720 Speaker 1: This is Bloomberg business Week Inside from the reporters and 2 00:00:05,880 --> 00:00:09,440 Speaker 1: editors who bring you America's most trusted business magazine, plus 3 00:00:09,520 --> 00:00:13,440 Speaker 1: gloom O Business Finance and tech News. The Bloomberg Business 4 00:00:13,440 --> 00:00:18,600 Speaker 1: Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 5 00:00:27,600 --> 00:00:33,440 Speaker 2: Very all right, Well, the great monetary pivot is near 6 00:00:33,640 --> 00:00:37,519 Speaker 2: a central banker's engineer, a once unthinkable soft landing in 7 00:00:37,560 --> 00:00:40,600 Speaker 2: the world's largest economy. I think to a lot of people, 8 00:00:40,680 --> 00:00:43,680 Speaker 2: that's the big picture takeaway. After yesterday, the FED gave 9 00:00:43,760 --> 00:00:48,080 Speaker 2: its clearest signal yet that its historic policy tightening campaign 10 00:00:48,159 --> 00:00:51,040 Speaker 2: is over by projecting more aggressive interest rate cuts in 11 00:00:51,080 --> 00:00:53,080 Speaker 2: twenty twenty four, in the process of igniting one of 12 00:00:53,120 --> 00:00:57,120 Speaker 2: the biggest post meeting rallies in recent memory. We're going 13 00:00:57,160 --> 00:00:59,960 Speaker 2: cross asset. We're talking stocks with Bloomberg News Markets reporter Abe. 14 00:01:00,040 --> 00:01:02,240 Speaker 2: I'll do a little. We're talking bonds with Bloomberg News 15 00:01:02,360 --> 00:01:04,080 Speaker 2: Rates reporter at Michael McKenzie. They're both here in the 16 00:01:04,080 --> 00:01:07,560 Speaker 2: Bloomberg Interactive Brokers studio. Michael, I want to start with 17 00:01:07,600 --> 00:01:09,840 Speaker 2: you with the rates moves. So is that it the 18 00:01:09,880 --> 00:01:13,440 Speaker 2: Fed's just completely done and five percent was the top 19 00:01:13,440 --> 00:01:16,760 Speaker 2: of the tenure that's it. That's it all right, interview over. 20 00:01:17,000 --> 00:01:17,959 Speaker 2: Thank you for your answer. 21 00:01:20,040 --> 00:01:23,200 Speaker 3: No, I think Waller laid out the game plan and 22 00:01:23,360 --> 00:01:26,640 Speaker 3: clearly he's the intellectual force driving this FED reserve. And 23 00:01:26,720 --> 00:01:29,360 Speaker 3: I think there are a couple of times yesterday when 24 00:01:29,440 --> 00:01:33,720 Speaker 3: journalists were asking Chairman FORED Jerome Powell, whether you know, 25 00:01:33,800 --> 00:01:36,880 Speaker 3: giving him an opportunity to walk back and sort of say, hey, 26 00:01:36,920 --> 00:01:39,520 Speaker 3: you know, Marc has run too far. He just served 27 00:01:39,600 --> 00:01:42,319 Speaker 3: up the sort of dubbish pivot on a silver platter. 28 00:01:42,440 --> 00:01:44,200 Speaker 3: I mean, the mark is run and he's going to 29 00:01:44,240 --> 00:01:48,680 Speaker 3: keep running now because frankly, the rate cuts starting as 30 00:01:48,680 --> 00:01:50,320 Speaker 3: early as March. It's on the table. 31 00:01:50,920 --> 00:01:54,560 Speaker 4: You've written multiple times this year, Mike, because I've read 32 00:01:54,560 --> 00:01:58,880 Speaker 4: these stories about how traders have been burned by piling 33 00:01:58,920 --> 00:02:01,720 Speaker 4: into bets that we're going to get cuts. Are we 34 00:02:01,800 --> 00:02:05,120 Speaker 4: in the same situation now? It was something different this time, 35 00:02:05,160 --> 00:02:06,720 Speaker 4: where you're not going to be writing that story in 36 00:02:06,720 --> 00:02:07,560 Speaker 4: three months from now. 37 00:02:07,640 --> 00:02:10,200 Speaker 3: Well, to be honest, that story changed once we got 38 00:02:10,200 --> 00:02:12,440 Speaker 3: about five percent. Because the ri is reward of buying 39 00:02:12,480 --> 00:02:16,680 Speaker 3: treasures at with a coupon of five percent, we're very compelling, 40 00:02:16,760 --> 00:02:19,520 Speaker 3: and we wrote about that in October and when I 41 00:02:19,600 --> 00:02:21,720 Speaker 3: went out to Los Angeles and southern California talked to 42 00:02:21,720 --> 00:02:25,280 Speaker 3: bond managers in November. They were optimistic that they were 43 00:02:25,320 --> 00:02:28,080 Speaker 3: on the right side of this trade. They were loading 44 00:02:28,160 --> 00:02:31,280 Speaker 3: up on bombs above five percent that I guess at 45 00:02:31,280 --> 00:02:32,800 Speaker 3: the time they didn't really think we're going to get 46 00:02:32,800 --> 00:02:36,359 Speaker 3: this kind of pivot from the Fed. But it's here, 47 00:02:36,480 --> 00:02:39,919 Speaker 3: and I think it's here now because the data is cooperating. 48 00:02:40,080 --> 00:02:43,160 Speaker 3: We are slowing. True, the market has been ahead of this. 49 00:02:43,280 --> 00:02:46,480 Speaker 3: I think Deutsche had the research saying his seventh time 50 00:02:46,520 --> 00:02:48,959 Speaker 3: a charm something, and it does look like seventh time 51 00:02:49,040 --> 00:02:50,880 Speaker 3: is going to be the charm. Because the FED is 52 00:02:50,919 --> 00:02:53,800 Speaker 3: telling you that they want a soft landing, they will 53 00:02:53,800 --> 00:02:56,360 Speaker 3: start easing. I thought one of my compelling lines from 54 00:02:56,400 --> 00:02:59,400 Speaker 3: Power yesterday was when he said, we can't wait to 55 00:02:59,560 --> 00:03:02,799 Speaker 3: cut rates. You know, we can't wait for inflation to 56 00:03:02,800 --> 00:03:04,959 Speaker 3: get to two percent before we start cutting rates. He's 57 00:03:04,960 --> 00:03:07,840 Speaker 3: telling them we're going to start cutting pretty soon if 58 00:03:07,880 --> 00:03:11,080 Speaker 3: the direction of travel and inflation is down towards that 59 00:03:11,240 --> 00:03:13,520 Speaker 3: sort of three percent two point nine to handle. So 60 00:03:14,280 --> 00:03:17,119 Speaker 3: I think the bomb market here is in good shape. 61 00:03:17,400 --> 00:03:19,600 Speaker 3: I think you're still going to have volatility because it 62 00:03:19,680 --> 00:03:22,520 Speaker 3: all will take is another you know, sticky sign of 63 00:03:22,560 --> 00:03:25,320 Speaker 3: inflation early next year, and suddenly that we are back up. 64 00:03:25,639 --> 00:03:27,639 Speaker 3: But I think what's really compelling now for the bomb 65 00:03:27,880 --> 00:03:30,440 Speaker 3: market here is that you've got six trillion dollars of 66 00:03:30,440 --> 00:03:33,320 Speaker 3: money sitting in money market funds. They now have to 67 00:03:33,360 --> 00:03:36,520 Speaker 3: make the move. They missed the boat back in November, 68 00:03:36,600 --> 00:03:38,440 Speaker 3: when you yields are at five percent, you could have 69 00:03:38,440 --> 00:03:40,800 Speaker 3: locked in a two year at five percent, five year 70 00:03:40,800 --> 00:03:41,520 Speaker 3: at five percent. 71 00:03:41,760 --> 00:03:43,040 Speaker 2: That's gone now. 72 00:03:43,080 --> 00:03:46,400 Speaker 3: Then the highest yielding coupon on the treasury curve today 73 00:03:46,560 --> 00:03:49,560 Speaker 3: is the two year at four forty. Pretty Much everything 74 00:03:49,560 --> 00:03:52,680 Speaker 3: out apart from the thirty is below four percent. So 75 00:03:53,840 --> 00:03:57,160 Speaker 3: any backup in yields from here is going to encourage 76 00:03:57,200 --> 00:03:59,920 Speaker 3: people to start saying I've got to start shifting from cash. 77 00:04:00,200 --> 00:04:02,160 Speaker 3: And that's a huge amount of money sitting there. 78 00:04:02,240 --> 00:04:04,840 Speaker 2: Yeah, the question is where they actually shift that cash. 79 00:04:04,880 --> 00:04:06,920 Speaker 2: I want to bring in Abigail do Little, market supporter 80 00:04:07,040 --> 00:04:10,800 Speaker 2: for Bloomberg News. Abigail, I want to talk about the 81 00:04:10,840 --> 00:04:13,080 Speaker 2: equity portion of this rally. You're to date, the S 82 00:04:13,120 --> 00:04:15,680 Speaker 2: and B five hundred is up almost twenty three percent. 83 00:04:16,040 --> 00:04:18,279 Speaker 2: As of this morning, we were talking about a new 84 00:04:18,560 --> 00:04:22,000 Speaker 2: record high for the Nasdaq one hundred for the Dow. 85 00:04:22,440 --> 00:04:26,880 Speaker 2: Since pulled back on these, but we're still in that area. 86 00:04:27,600 --> 00:04:29,480 Speaker 2: This is the rally that caught a lot of people 87 00:04:29,680 --> 00:04:30,320 Speaker 2: by surprise. 88 00:04:30,960 --> 00:04:34,360 Speaker 5: It is indeed, I'm one of them, truthfully, and I've. 89 00:04:34,160 --> 00:04:35,400 Speaker 2: Done you and me both friend. 90 00:04:35,960 --> 00:04:39,640 Speaker 5: From a charting perspective, the markets had been charting tactically 91 00:04:40,800 --> 00:04:43,839 Speaker 5: almost perfectly for nearly two years, just in terms of 92 00:04:43,880 --> 00:04:47,600 Speaker 5: the various moves, and when the market started to rally 93 00:04:47,600 --> 00:04:50,440 Speaker 5: at the beginning of November, the charts did reflect that. 94 00:04:50,560 --> 00:04:52,240 Speaker 5: But for me, at least, it was really hard to 95 00:04:52,240 --> 00:04:55,400 Speaker 5: believe it because FED chair J. Powell had been signaling 96 00:04:55,440 --> 00:04:58,240 Speaker 5: that the FED was going to stay higher for longer, 97 00:04:58,279 --> 00:05:00,640 Speaker 5: and even just less than two weeks, that was still 98 00:05:00,680 --> 00:05:02,919 Speaker 5: his message. You could make the case that there's two Powals. Now. 99 00:05:02,960 --> 00:05:05,160 Speaker 5: It's interesting what you're talking about, Tom, in terms of 100 00:05:05,279 --> 00:05:09,560 Speaker 5: Whiller being the intellectual heft and Powell, you know, decided 101 00:05:09,600 --> 00:05:11,039 Speaker 5: to go along with him, or maybe that was the 102 00:05:11,040 --> 00:05:14,320 Speaker 5: plan all along. We just don't know what their I 103 00:05:14,360 --> 00:05:17,320 Speaker 5: don't want to say trickery is, but their strategy is 104 00:05:17,360 --> 00:05:19,400 Speaker 5: what I'll say. And so I think that a lot 105 00:05:19,400 --> 00:05:22,120 Speaker 5: of folks had been caught off surprise by this market 106 00:05:22,440 --> 00:05:26,880 Speaker 5: starting in early November, mid November, late November, and now 107 00:05:27,000 --> 00:05:30,560 Speaker 5: certainly yesterday. Now what makes it very interesting is so 108 00:05:30,600 --> 00:05:33,520 Speaker 5: the small cap index is still up two point six percent. 109 00:05:33,560 --> 00:05:35,760 Speaker 5: You have the NAZAQ one hundred now down a quarter 110 00:05:35,800 --> 00:05:38,040 Speaker 5: of a percent, and earlier today was almost down closer 111 00:05:38,040 --> 00:05:39,719 Speaker 5: to one percent, So a little bit of a hangover 112 00:05:40,279 --> 00:05:43,640 Speaker 5: from all of the moving to the upside. But what's 113 00:05:43,680 --> 00:05:45,960 Speaker 5: really impressive is on the S and P five hundred, 114 00:05:46,120 --> 00:05:49,839 Speaker 5: the volume today is almost seventy percent above the twenty 115 00:05:49,880 --> 00:05:52,760 Speaker 5: day average. So that suggests that the market's all in 116 00:05:52,920 --> 00:05:55,479 Speaker 5: on the idea that there is in fact a FED 117 00:05:55,720 --> 00:05:58,480 Speaker 5: policy change and they want in. So the move up 118 00:05:58,520 --> 00:06:00,760 Speaker 5: two tons of one percent really says nothing, but that 119 00:06:00,920 --> 00:06:04,320 Speaker 5: volume suggests that folks are really repositioning. 120 00:06:04,400 --> 00:06:06,000 Speaker 2: I want to go to you with this question. Abagail 121 00:06:06,040 --> 00:06:08,680 Speaker 2: And asks the same question to Michael about that six 122 00:06:08,720 --> 00:06:10,960 Speaker 2: trillion dollars in money market funds. Do you think what 123 00:06:11,000 --> 00:06:12,560 Speaker 2: portion of that do you think we can expect to 124 00:06:12,600 --> 00:06:16,039 Speaker 2: go to the equity market? And when and then where 125 00:06:16,040 --> 00:06:17,159 Speaker 2: do you think it goes? If it's not in the 126 00:06:17,160 --> 00:06:18,839 Speaker 2: equity market, does it go to the bond market? 127 00:06:19,000 --> 00:06:22,440 Speaker 5: So from an equity market standpoint, each of the indexes 128 00:06:22,520 --> 00:06:25,960 Speaker 5: right now is at a real crossroads. They're basically at resistance, 129 00:06:26,000 --> 00:06:28,200 Speaker 5: so the selling pressure that has come in, So the 130 00:06:28,279 --> 00:06:30,840 Speaker 5: NAZAC one hundred, it's record high, it's basically now going 131 00:06:30,960 --> 00:06:33,200 Speaker 5: back down into the range. We've seen that sort of 132 00:06:33,279 --> 00:06:36,000 Speaker 5: action a lot of times. It's going to be interesting 133 00:06:36,000 --> 00:06:38,440 Speaker 5: to see whether or not that money does go into 134 00:06:38,520 --> 00:06:41,800 Speaker 5: equities to push it higher or more. Interested in the 135 00:06:41,839 --> 00:06:43,760 Speaker 5: FED if you can trade with the FED, I mean 136 00:06:43,800 --> 00:06:47,120 Speaker 5: it's stocks too, but the bonds your trading in the 137 00:06:47,120 --> 00:06:50,160 Speaker 5: safest asset class in the world. You know that you're 138 00:06:50,240 --> 00:06:53,120 Speaker 5: backed by the biggest balance sheet in the world. Why 139 00:06:53,160 --> 00:06:56,000 Speaker 5: not go there? Whereas stocks there's some risk. Right now 140 00:06:56,040 --> 00:06:58,960 Speaker 5: one month correlations are higher, the vix is lower. That's 141 00:06:58,960 --> 00:07:02,320 Speaker 5: a fancy way of saying that. The voltels suggest that 142 00:07:02,400 --> 00:07:05,000 Speaker 5: in two to four weeks equities could be a little 143 00:07:05,000 --> 00:07:07,080 Speaker 5: bit dicey because everybody's trying to move from the magnificent 144 00:07:07,120 --> 00:07:11,160 Speaker 5: seven into other sectors. But the problem is that magnificent 145 00:07:11,200 --> 00:07:13,880 Speaker 5: seven that's fifty percent of the Nasdaq one hundred, it's 146 00:07:14,000 --> 00:07:16,560 Speaker 5: thirty percent of the S and P five hundred, So 147 00:07:16,600 --> 00:07:19,840 Speaker 5: that only goes so far. So I don't know the 148 00:07:19,880 --> 00:07:22,200 Speaker 5: answer to the question. If I had to speculate at 149 00:07:22,200 --> 00:07:26,080 Speaker 5: this point, and also technically chart technicals on yields, there's 150 00:07:26,120 --> 00:07:27,920 Speaker 5: air pockets. They're just going to keep going lower, So 151 00:07:27,960 --> 00:07:30,240 Speaker 5: I would say probably more so bonds. 152 00:07:31,000 --> 00:07:35,480 Speaker 4: Mike, what did you think of Powell's categorization of the 153 00:07:35,560 --> 00:07:39,240 Speaker 4: loosening in financial conditions because he didn't put back on 154 00:07:39,320 --> 00:07:42,000 Speaker 4: them at all, And I'm curious, like what you think 155 00:07:42,240 --> 00:07:44,840 Speaker 4: he's thinking right now to look at the market action 156 00:07:45,000 --> 00:07:45,680 Speaker 4: right now. 157 00:07:46,400 --> 00:07:49,920 Speaker 3: I think he's and the other members of the effirmc 158 00:07:50,080 --> 00:07:52,920 Speaker 3: have discovered that once you introduce financial conditions, is best 159 00:07:52,960 --> 00:07:55,120 Speaker 3: just to stay quiet and move away from that. I 160 00:07:55,120 --> 00:07:56,520 Speaker 3: think it was an error to do that in the 161 00:07:56,560 --> 00:08:00,960 Speaker 3: last meeting. They've really set themselves in a trap. And 162 00:08:01,000 --> 00:08:02,800 Speaker 3: a lot of people have talked about this. Even when 163 00:08:02,840 --> 00:08:06,640 Speaker 3: they did introduce financial conditions as helping them restrict the 164 00:08:06,680 --> 00:08:09,000 Speaker 3: economy back in November, there are plenty of people in 165 00:08:09,040 --> 00:08:11,560 Speaker 3: the bomb market saying why are they doing this? And 166 00:08:11,640 --> 00:08:13,840 Speaker 3: I think he just dodged the question. Yes, he just 167 00:08:14,040 --> 00:08:18,080 Speaker 3: you know, it's I can understand why they did it 168 00:08:18,080 --> 00:08:21,560 Speaker 3: at the time, but I think it's it's just too 169 00:08:21,680 --> 00:08:25,680 Speaker 3: much information from the FED, and you can't really I 170 00:08:25,680 --> 00:08:29,400 Speaker 3: mean financial conditions, I mean the classic financial conditioning. Tinly, 171 00:08:29,440 --> 00:08:31,800 Speaker 3: we've already seen the mortgage market, but if you look 172 00:08:31,840 --> 00:08:35,839 Speaker 3: at the NBA weekly data, people are still trying to 173 00:08:35,840 --> 00:08:38,199 Speaker 3: get mortgages. At the end of the day, whether you 174 00:08:38,240 --> 00:08:40,800 Speaker 3: pay seven eight percent, it's a thirty year rate, you 175 00:08:40,840 --> 00:08:42,160 Speaker 3: know at some point you're going to be able to 176 00:08:42,160 --> 00:08:46,600 Speaker 3: refinance much much lower. And people who buy houses are 177 00:08:46,600 --> 00:08:49,920 Speaker 3: buying houses very much a long term perspective. 178 00:08:49,960 --> 00:08:51,440 Speaker 2: Can you think about the economy. The number of people 179 00:08:51,440 --> 00:08:53,439 Speaker 2: who are buying homes is relatively small, even though it 180 00:08:53,440 --> 00:08:55,280 Speaker 2: has a big impact on the economy because then they 181 00:08:55,280 --> 00:08:57,600 Speaker 2: go out and buy couches and they you know, redo 182 00:08:57,679 --> 00:09:00,480 Speaker 2: the homes and stuff like that. But I think that's 183 00:09:00,600 --> 00:09:03,640 Speaker 2: one of the reasons why we heard from j Powell 184 00:09:03,640 --> 00:09:05,520 Speaker 2: over the last year that there have been a lot 185 00:09:05,559 --> 00:09:09,440 Speaker 2: of Americans who are shielded from those higher mortgage rates 186 00:09:09,440 --> 00:09:13,280 Speaker 2: because they've locked in those smaller mortgage rates. Abigail, I'm 187 00:09:13,320 --> 00:09:15,760 Speaker 2: just in the last thirty seconds. What derails this rally? 188 00:09:17,080 --> 00:09:21,120 Speaker 5: That's a great question. I think just maybe too far, 189 00:09:21,240 --> 00:09:24,320 Speaker 5: too fast. And also there are a lot of people 190 00:09:24,400 --> 00:09:28,160 Speaker 5: like me who are very surprised by FED chair J. 191 00:09:28,360 --> 00:09:31,400 Speaker 5: Powell's sudden pivots. The best of my memory, it's the 192 00:09:31,440 --> 00:09:35,880 Speaker 5: fastest since December January of twenty eighteen. I think that 193 00:09:35,920 --> 00:09:39,240 Speaker 5: there's a sentiment out there that wants stocks to go down. 194 00:09:40,760 --> 00:09:42,520 Speaker 5: Whether or not that works or not, I don't know, 195 00:09:42,559 --> 00:09:44,120 Speaker 5: but I would say too far, too fast. I mean 196 00:09:44,120 --> 00:09:45,920 Speaker 5: the NAZAC one hundred this year, in the first half 197 00:09:45,920 --> 00:09:47,839 Speaker 5: it was up forty percent. It was the most ever. 198 00:09:48,760 --> 00:09:52,160 Speaker 5: You know, buy through physics. Parabolic uptrends can't last. They 199 00:09:52,160 --> 00:09:53,400 Speaker 5: have to at least consolidate. 200 00:09:53,679 --> 00:09:57,240 Speaker 2: Yeah, it's pretty pretty remarkable moves both in the equity 201 00:09:57,280 --> 00:09:59,320 Speaker 2: market hand and the bond market. A big thank you 202 00:09:59,440 --> 00:10:01,800 Speaker 2: both of you for joining us for this roundtable. It's 203 00:10:01,800 --> 00:10:05,880 Speaker 2: Blomberg News Markets reporter al Abigail Doolittle and Bloomberg News 204 00:10:06,040 --> 00:10:09,320 Speaker 2: Rates reporter Michael mackenzie, both here in the Bloomberg Interactive 205 00:10:09,360 --> 00:10:12,400 Speaker 2: Brokers studio. Emikrafao and I are just getting started on 206 00:10:12,559 --> 00:10:14,600 Speaker 2: this Thursday afternoon. It's Bloomberg Business Week. 207 00:10:16,200 --> 00:10:19,760 Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us 208 00:10:19,800 --> 00:10:23,160 Speaker 1: live weekday afternoons from three to six Eastern Listen on 209 00:10:23,200 --> 00:10:27,280 Speaker 1: Bloomberg dot com. The iHeartRadio app and the Bloomberg Business app, 210 00:10:27,520 --> 00:10:30,000 Speaker 1: or watch us live on YouTube. 211 00:10:30,360 --> 00:10:32,680 Speaker 2: Okay, Emily, you've had some time to think about this. Okay, 212 00:10:32,880 --> 00:10:35,520 Speaker 2: don't look at the notes. Pop quiz, where do you 213 00:10:35,520 --> 00:10:40,040 Speaker 2: think the majority of US electricity comes from fossil fuels? 214 00:10:40,120 --> 00:10:40,280 Speaker 3: Ah? 215 00:10:40,400 --> 00:10:42,360 Speaker 2: Ding ding ding? You're right, Okay, you win. So about 216 00:10:42,400 --> 00:10:47,720 Speaker 2: sixty point four percent comes from fossil fuels, so natural gas, coal, petroleum. 217 00:10:48,240 --> 00:10:50,760 Speaker 2: You said solar before that it wasn't when you were 218 00:10:50,800 --> 00:10:54,439 Speaker 2: right about that. Twenty one percent comes from renewables, so win, 219 00:10:54,559 --> 00:10:58,160 Speaker 2: solar hydropower. So here we are more than eighty percent. 220 00:10:58,600 --> 00:11:00,800 Speaker 2: The rest, well, that comes from nuclear energy, which has 221 00:11:00,800 --> 00:11:04,640 Speaker 2: remained stagnant over the last decade at about nineteen percent. This, 222 00:11:04,720 --> 00:11:06,920 Speaker 2: by the way, is all according to the US Energy 223 00:11:07,000 --> 00:11:10,800 Speaker 2: Information Administration, But our next guest, along with many others, 224 00:11:10,880 --> 00:11:13,439 Speaker 2: argue that in order to reach net zero goals, governments 225 00:11:13,480 --> 00:11:16,920 Speaker 2: have to go nuclear. Maria Korusnik is CEO of the 226 00:11:17,000 --> 00:11:20,040 Speaker 2: Nuclear Energy Institute. It's a nuclear industry trade association that 227 00:11:20,120 --> 00:11:23,920 Speaker 2: advocates advocates for more nuclear power generation. She joins us 228 00:11:23,920 --> 00:11:26,000 Speaker 2: on Zoom from Washington, d C. Maria, how are you. 229 00:11:26,920 --> 00:11:29,240 Speaker 6: I'm doing great? Thanks good to hear you, good. 230 00:11:29,040 --> 00:11:30,760 Speaker 2: To talk to you, and you're in luck because both 231 00:11:30,760 --> 00:11:34,120 Speaker 2: Emily and I love talking on nuclear energy here. Why 232 00:11:34,160 --> 00:11:36,559 Speaker 2: do you think, gosh, I want to go in so 233 00:11:36,600 --> 00:11:37,959 Speaker 2: many different directions, but I want to talk to you 234 00:11:37,960 --> 00:11:40,960 Speaker 2: about the challenges of nuclear energy. When people say they 235 00:11:41,040 --> 00:11:43,040 Speaker 2: know it takes it's going to take nuclear energy for 236 00:11:43,120 --> 00:11:45,520 Speaker 2: us to get to net zero, they also say, well, 237 00:11:45,559 --> 00:11:47,760 Speaker 2: we also know that it takes so long and it's 238 00:11:47,840 --> 00:11:51,720 Speaker 2: so expensive to build nuclear power plants here in the US. 239 00:11:51,760 --> 00:11:52,480 Speaker 2: What would you say to that. 240 00:11:53,679 --> 00:11:55,280 Speaker 7: It's say, you have to look at the value of 241 00:11:55,360 --> 00:11:58,840 Speaker 7: nuclear quite frankly, right, It's that seven twenty four around 242 00:11:58,840 --> 00:12:02,520 Speaker 7: the clock. Not only is a carbon free, it's highly reliable. 243 00:12:03,080 --> 00:12:05,960 Speaker 7: And I think we don't talk as much about the 244 00:12:06,080 --> 00:12:09,680 Speaker 7: value that you're getting. These power plants are built not 245 00:12:09,880 --> 00:12:13,400 Speaker 7: for forty years, not for sixty years, you know, eighty years, 246 00:12:13,400 --> 00:12:16,640 Speaker 7: one hundred years, and so you really have to look 247 00:12:17,080 --> 00:12:20,440 Speaker 7: at the complete picture that you get when you build 248 00:12:20,520 --> 00:12:24,199 Speaker 7: nuclear Yes, they're large projects, Yes they're going to cost 249 00:12:24,480 --> 00:12:27,800 Speaker 7: in order to make that happen, but the value that 250 00:12:27,840 --> 00:12:33,120 Speaker 7: they bring to the system is really incredible. And again, 251 00:12:33,120 --> 00:12:34,960 Speaker 7: I think we just need to shift a little bit 252 00:12:34,960 --> 00:12:36,240 Speaker 7: more to the value conversation. 253 00:12:36,880 --> 00:12:39,920 Speaker 4: So you were at COP twenty eight, can you give 254 00:12:40,000 --> 00:12:43,319 Speaker 4: us a sense of the narrative around nuclear energy? Was 255 00:12:43,360 --> 00:12:47,120 Speaker 4: the consensus that this is green energy? Like, how were 256 00:12:47,160 --> 00:12:50,840 Speaker 4: people actually talking about this form of energy? 257 00:12:52,080 --> 00:12:52,720 Speaker 6: Absolutely? 258 00:12:52,800 --> 00:12:56,040 Speaker 7: In fact, you know, some are coining this the nuclear 259 00:12:56,160 --> 00:12:58,600 Speaker 7: cop you know, and I've been to the last few 260 00:12:58,760 --> 00:13:01,360 Speaker 7: COPS and I would just describe nuclear as a little 261 00:13:01,400 --> 00:13:03,559 Speaker 7: bit trying to get a seat at the table, trying 262 00:13:03,600 --> 00:13:06,600 Speaker 7: to create some conversation this COP. 263 00:13:06,920 --> 00:13:10,800 Speaker 6: You know, we're in the sort of official documents from COP. 264 00:13:10,840 --> 00:13:14,920 Speaker 7: We're in what's called the stock take, you know, paragraphs 265 00:13:14,960 --> 00:13:20,760 Speaker 7: about nuclear, about wind and solar together being what's required. 266 00:13:21,720 --> 00:13:25,280 Speaker 7: The fact is that, you know, nuclear was never officially 267 00:13:25,400 --> 00:13:28,439 Speaker 7: credited and mentioned in the way that it is here. 268 00:13:28,880 --> 00:13:33,920 Speaker 7: Tripling nuclear was a pledge that was signed by twenty 269 00:13:33,960 --> 00:13:38,280 Speaker 7: four plus countries. The IAEA had a pledge on just 270 00:13:38,440 --> 00:13:43,080 Speaker 7: crediting nuclear for being part of the decarbonizing solution. Over 271 00:13:43,280 --> 00:13:47,160 Speaker 7: forty countries signed that. So I would really say this 272 00:13:47,360 --> 00:13:52,320 Speaker 7: COP was sort of a real, real recognition of the 273 00:13:52,400 --> 00:13:54,840 Speaker 7: value that nuclear is going to bring. And quite frankly, 274 00:13:55,360 --> 00:13:58,400 Speaker 7: we're not going to get anywhere close to the commitments 275 00:13:58,480 --> 00:14:01,160 Speaker 7: if we don't include nuclear in the solution, we have 276 00:14:01,280 --> 00:14:01,720 Speaker 7: to be there. 277 00:14:01,840 --> 00:14:04,240 Speaker 2: I think people are still scared of nuclear. I have 278 00:14:04,320 --> 00:14:05,880 Speaker 2: to tell you I grew up and people who've heard 279 00:14:05,920 --> 00:14:07,960 Speaker 2: me talk about this before apologies, but I grew up 280 00:14:08,000 --> 00:14:10,000 Speaker 2: near a nuclear power plant in California. It's actually the 281 00:14:10,080 --> 00:14:13,480 Speaker 2: last online nuclear power plant right now, Diablo Canyon in 282 00:14:13,640 --> 00:14:17,640 Speaker 2: San Luis, Obismo County. We would have siren drills once 283 00:14:17,679 --> 00:14:19,040 Speaker 2: a year. I think it was the first weekend in 284 00:14:19,120 --> 00:14:22,040 Speaker 2: September at noon when you know, the sirens would go 285 00:14:22,120 --> 00:14:24,840 Speaker 2: off to to you know, warn people like, Okay, this 286 00:14:24,880 --> 00:14:26,360 Speaker 2: is what would happen if there were some sort of 287 00:14:26,440 --> 00:14:32,440 Speaker 2: nuclear meltdown. People had iodine pills at their disposal. Is that, 288 00:14:32,560 --> 00:14:34,200 Speaker 2: you know. And they grew up, you know, thinking about 289 00:14:34,280 --> 00:14:39,320 Speaker 2: Chernobyl three Mile Island. You know, get what's the safety 290 00:14:39,360 --> 00:14:41,200 Speaker 2: around this stuff. For people who say, wait a second, 291 00:14:41,520 --> 00:14:43,240 Speaker 2: I'm a little scared of nuclear. 292 00:14:44,840 --> 00:14:47,480 Speaker 6: Yeah, honestly, it's incredibly safe. 293 00:14:47,560 --> 00:14:51,200 Speaker 7: And you know, I also, I'll say, grew up around 294 00:14:51,240 --> 00:14:56,320 Speaker 7: this nuclear I've operated plants. I've been a nuclear plant operator. 295 00:14:56,440 --> 00:14:58,960 Speaker 7: I've been a site vice president in charge of one plant. 296 00:14:58,960 --> 00:15:02,640 Speaker 7: I've been a chief nuclear officer in charge of five 297 00:15:02,720 --> 00:15:06,640 Speaker 7: reactors at three locations. And I just say, I know 298 00:15:06,720 --> 00:15:09,760 Speaker 7: nuclear from the inside, and I would live next to 299 00:15:09,760 --> 00:15:13,680 Speaker 7: a nuclear plant any day they're in. They're incredibly safe, 300 00:15:13,720 --> 00:15:18,080 Speaker 7: and especially as compared to other technologies that we need. 301 00:15:18,160 --> 00:15:21,760 Speaker 7: And I would also say that, you know, nuclear uses 302 00:15:21,800 --> 00:15:26,640 Speaker 7: the fewest critical minerals. Nuclear uses the lowest land space, 303 00:15:26,720 --> 00:15:29,920 Speaker 7: if you will, for the volume of energy that it produces. 304 00:15:30,760 --> 00:15:34,720 Speaker 7: From a life cycle perspective, it is in the lowest 305 00:15:34,840 --> 00:15:38,400 Speaker 7: use of carbon for the whole life cycle of the plant. 306 00:15:38,960 --> 00:15:43,000 Speaker 7: It's clean energy and uh, you know, in terms of 307 00:15:43,040 --> 00:15:47,560 Speaker 7: carbon free and in terms of other emissions and and jobs. 308 00:15:47,640 --> 00:15:49,800 Speaker 7: You get a lot of jobs with nuclear. There are 309 00:15:49,840 --> 00:15:52,479 Speaker 7: little economic engines for the local community. 310 00:15:52,920 --> 00:15:55,520 Speaker 2: I think to a lot of people it's almost perfect. 311 00:15:55,880 --> 00:15:57,600 Speaker 2: But I think a lot of people would also say, 312 00:15:57,800 --> 00:16:01,560 Speaker 2: what about the waste. We still haven't figured out what 313 00:16:01,760 --> 00:16:03,480 Speaker 2: to do with nuclear waste. 314 00:16:04,440 --> 00:16:07,080 Speaker 6: Yeah, you know, I look at that a little differently. 315 00:16:07,120 --> 00:16:10,880 Speaker 7: I'm so proud of nuclear for being able to account 316 00:16:10,880 --> 00:16:12,080 Speaker 7: for all of its waste. 317 00:16:12,240 --> 00:16:14,640 Speaker 6: You know, oftentimes we look at nuclear and say, what 318 00:16:14,640 --> 00:16:15,160 Speaker 6: are you going to do? 319 00:16:15,240 --> 00:16:16,680 Speaker 7: And I say, well, you know what, we know where 320 00:16:16,680 --> 00:16:19,800 Speaker 7: every piece of it is from all of the waste 321 00:16:20,040 --> 00:16:22,280 Speaker 7: or all of the nuclear power that we've used since 322 00:16:22,280 --> 00:16:27,040 Speaker 7: the nineteen sixties. We know where every piece of that is. 323 00:16:27,120 --> 00:16:29,760 Speaker 7: And you're absolutely right. Some of the fuel that we 324 00:16:29,840 --> 00:16:32,760 Speaker 7: have today, which we call waste, I would prefer to 325 00:16:32,800 --> 00:16:34,960 Speaker 7: say it's used fuel. And why do I say that, 326 00:16:35,280 --> 00:16:39,240 Speaker 7: because it can be used again in other types of reactors. 327 00:16:39,240 --> 00:16:41,520 Speaker 6: And those other types of reactors. 328 00:16:41,200 --> 00:16:43,880 Speaker 7: Are ones that we are trying to bring to the 329 00:16:43,920 --> 00:16:48,440 Speaker 7: marketplace literally as we speak. And so I would say 330 00:16:48,440 --> 00:16:51,200 Speaker 7: that used fuel you have today is a future resource 331 00:16:51,440 --> 00:16:52,640 Speaker 7: and we should look at it like that. 332 00:16:53,760 --> 00:16:57,160 Speaker 4: What's next for nuclear in the US? Are we trying 333 00:16:57,200 --> 00:16:59,760 Speaker 4: to build more reactors actively in. 334 00:16:59,720 --> 00:17:04,400 Speaker 7: This So we're building some down in Georgia right now. 335 00:17:04,480 --> 00:17:07,359 Speaker 7: One went online this year and the second will go 336 00:17:07,440 --> 00:17:10,119 Speaker 7: online next year. And what we're in the process of 337 00:17:10,160 --> 00:17:13,440 Speaker 7: doing right now, if you could imagine an innovation pipeline, 338 00:17:13,600 --> 00:17:18,360 Speaker 7: chocolate block full of different designs, and that is coming 339 00:17:18,440 --> 00:17:21,800 Speaker 7: out over the next five, ten, fifteen years. And these 340 00:17:21,840 --> 00:17:26,200 Speaker 7: are partnerships between our national labs and private companies and 341 00:17:26,800 --> 00:17:31,119 Speaker 7: very much one a beautiful, quite frankly innovation here in 342 00:17:31,119 --> 00:17:33,600 Speaker 7: the United States. And I'll tell you nuclear is not 343 00:17:33,680 --> 00:17:36,000 Speaker 7: just being talked about in the United States. It's being 344 00:17:36,040 --> 00:17:38,399 Speaker 7: talked about around the world. We just talked about cop 345 00:17:38,720 --> 00:17:42,320 Speaker 7: but many other countries right now are looking to expand 346 00:17:42,440 --> 00:17:46,400 Speaker 7: nuclear and they're looking at the United States to help them. 347 00:17:46,680 --> 00:17:48,359 Speaker 7: So what we need to be doing here in the 348 00:17:48,440 --> 00:17:51,679 Speaker 7: United States is bringing some of these innovations and getting 349 00:17:51,680 --> 00:17:54,240 Speaker 7: them built so that these other countries can have a 350 00:17:54,320 --> 00:17:57,320 Speaker 7: chance to see them and then choose which design they 351 00:17:57,359 --> 00:18:01,360 Speaker 7: want built in their country. At cop Poland, for example, 352 00:18:01,440 --> 00:18:03,760 Speaker 7: said we already have six sites. At each site, we 353 00:18:03,800 --> 00:18:08,080 Speaker 7: want four small modular reactors. We're teaming with a US company. 354 00:18:07,920 --> 00:18:10,000 Speaker 7: We want to put twenty four in place. 355 00:18:10,720 --> 00:18:13,840 Speaker 4: Maria, I have to ask, what do you make of 356 00:18:13,880 --> 00:18:17,720 Speaker 4: the price of uranium. It's up seventy five percent this year. 357 00:18:17,760 --> 00:18:20,879 Speaker 4: I write about ETFs and commodities markets, and there's a 358 00:18:20,920 --> 00:18:26,480 Speaker 4: lot of interest for buying into this nuclear energy uranium trade. 359 00:18:26,480 --> 00:18:28,680 Speaker 4: But why is it up so much seventy five percent 360 00:18:28,720 --> 00:18:29,120 Speaker 4: this year? 361 00:18:30,240 --> 00:18:31,200 Speaker 6: Well, a couple of things. 362 00:18:31,880 --> 00:18:35,119 Speaker 7: For one thing, we are I think that's an indication 363 00:18:35,480 --> 00:18:37,800 Speaker 7: that people are bullish, if you will, as they look 364 00:18:37,840 --> 00:18:41,840 Speaker 7: ahead for a nuclear and I think also we're looking 365 00:18:42,040 --> 00:18:46,439 Speaker 7: very much at ensuring that we have a solid and 366 00:18:46,560 --> 00:18:49,320 Speaker 7: stable fuel supply as we move forward. You've seen that 367 00:18:49,359 --> 00:18:53,000 Speaker 7: we want to invest in the US fuel supply here 368 00:18:53,040 --> 00:18:56,080 Speaker 7: so that we have not only the mining but also 369 00:18:56,200 --> 00:18:59,919 Speaker 7: conversion and enrichment services available to this industry, so that 370 00:19:00,080 --> 00:19:04,199 Speaker 7: we have a solid supply as we move forward. And 371 00:19:04,359 --> 00:19:06,200 Speaker 7: so I think a lot of that has put attension 372 00:19:06,440 --> 00:19:08,080 Speaker 7: on the front end of this fuel supply, and I 373 00:19:08,080 --> 00:19:10,000 Speaker 7: think that's causing some of that price increase. 374 00:19:10,400 --> 00:19:14,359 Speaker 2: Well, it's really interesting stuff. As I mentioned, Emily and 375 00:19:14,359 --> 00:19:16,719 Speaker 2: I both love talking nuclear so we really appreciate you 376 00:19:16,760 --> 00:19:19,600 Speaker 2: taking the time and joining us this afternoon. Maria kors 377 00:19:19,680 --> 00:19:22,720 Speaker 2: Nik a CEO of the Nuclear Energy Institute. It is 378 00:19:22,800 --> 00:19:27,280 Speaker 2: a nuclear industry trade association that advocates for more nuclear 379 00:19:27,280 --> 00:19:30,120 Speaker 2: power generations. She joined us on Zoom from Washington, DC. 380 00:19:30,840 --> 00:19:33,560 Speaker 2: The issue is just the timetable for these Emily, I 381 00:19:33,600 --> 00:19:37,520 Speaker 2: just wonder, you know, politicians don't necessarily have long term 382 00:19:37,840 --> 00:19:41,439 Speaker 2: horizons when it comes to their decision making because of 383 00:19:41,480 --> 00:19:43,880 Speaker 2: reelection campaigns, and it's so hard to do these big 384 00:19:43,920 --> 00:19:46,639 Speaker 2: infrastructure projects. So I just wonder, you know, what the 385 00:19:46,720 --> 00:19:49,040 Speaker 2: appetite is for building more nuclear power in the US. 386 00:19:49,240 --> 00:19:51,400 Speaker 4: And like you said, there's so many people that are 387 00:19:51,440 --> 00:19:53,800 Speaker 4: so excited about this and then there's still some people 388 00:19:53,800 --> 00:19:55,840 Speaker 4: that just can't shake that idea of Chernobyl. 389 00:19:56,000 --> 00:20:01,239 Speaker 1: Yeah, you're listening to the Bloomberg Business Week. Catch us 390 00:20:01,280 --> 00:20:05,320 Speaker 1: live weekday afternoons from three to six Eastern on Bloomberg Radio, 391 00:20:05,480 --> 00:20:08,760 Speaker 1: the Bloomberg Business app, and YouTube. You can also listen 392 00:20:08,880 --> 00:20:12,000 Speaker 1: live on Amazon Alexa from our flagship New York station, 393 00:20:12,440 --> 00:20:38,360 Speaker 1: Just say Alexa Play Bloomberg eleven thirty. 394 00:20:27,720 --> 00:20:29,359 Speaker 2: Out in the Cold. It's a most read story on 395 00:20:29,359 --> 00:20:31,880 Speaker 2: the Bloomberg Terminal, and it's the cover of the new 396 00:20:31,920 --> 00:20:34,480 Speaker 2: issue at Bloomberg BusinessWeek magazine. You can read it now 397 00:20:34,520 --> 00:20:37,520 Speaker 2: on newsstands, on the Bloomberg Terminal and at Bloomberg dot 398 00:20:37,520 --> 00:20:40,960 Speaker 2: com slash BusinessWeek. It's a deep dive into the cutthroat 399 00:20:41,040 --> 00:20:45,240 Speaker 2: world of commodities trading and how individuals can profit at 400 00:20:45,240 --> 00:20:48,240 Speaker 2: the expense of some of the world's least developed nations. 401 00:20:48,680 --> 00:20:50,520 Speaker 2: The trade at the center of the story involves a 402 00:20:50,560 --> 00:20:54,760 Speaker 2: Swiss based commodities firm, a state controlled Italian energy group 403 00:20:55,359 --> 00:20:59,040 Speaker 2: in Pakistan, one of the world's poorest nations, which found 404 00:20:59,040 --> 00:21:03,639 Speaker 2: itself Yeah Out in the Cold. Steven Stepchansky is senior 405 00:21:03,720 --> 00:21:05,880 Speaker 2: energy reporter at Bloomberg News and part of the team 406 00:21:05,880 --> 00:21:08,280 Speaker 2: that wrote the story. He joins us on Zoom from Japan. 407 00:21:08,560 --> 00:21:11,000 Speaker 2: Also here is the editor of Bloomberg business Week, Joel Weber. 408 00:21:11,160 --> 00:21:14,440 Speaker 2: He's with us in the Bloomberg Interactive Brokers studios, Joel. 409 00:21:14,720 --> 00:21:17,159 Speaker 2: Pakistan is a country of more than two hundred million people, 410 00:21:17,920 --> 00:21:20,439 Speaker 2: and it faced some serious consequences when it found itself 411 00:21:20,480 --> 00:21:23,240 Speaker 2: in recent years without the leg that it thought it 412 00:21:23,280 --> 00:21:26,160 Speaker 2: had signed contracts for. I mean, we're talking factories being 413 00:21:26,200 --> 00:21:29,399 Speaker 2: forced to shut down or dramatically cut their output, people 414 00:21:29,440 --> 00:21:33,440 Speaker 2: going into poverty. It even trained foreign currency result reserves. 415 00:21:33,800 --> 00:21:36,080 Speaker 2: This is a huge story. How did it get on 416 00:21:36,119 --> 00:21:37,920 Speaker 2: Business Week's radar? How did you get on your radar? 417 00:21:38,000 --> 00:21:38,320 Speaker 3: Steven? 418 00:21:39,400 --> 00:21:39,879 Speaker 8: One word? 419 00:21:40,920 --> 00:21:46,000 Speaker 9: And Stephen has been all over energy. And what's interesting 420 00:21:46,000 --> 00:21:48,040 Speaker 9: though about this was, and we're going to rewound the 421 00:21:48,040 --> 00:21:51,520 Speaker 9: clock and a'll hear directly from him, because basically, there 422 00:21:51,600 --> 00:21:56,600 Speaker 9: was a trading opportunity that the outset of the Russia's 423 00:21:56,600 --> 00:22:02,639 Speaker 9: invasion of Ukraine created. Traders we saw it coming and 424 00:22:02,680 --> 00:22:06,600 Speaker 9: were able to do something about it. What ultimately we're 425 00:22:06,600 --> 00:22:09,800 Speaker 9: going to describe here is I think a glimpse inside 426 00:22:11,000 --> 00:22:14,400 Speaker 9: the energy trading world that I think is exceedingly rare 427 00:22:14,800 --> 00:22:17,240 Speaker 9: and what Stephen was able to show us, I think 428 00:22:17,359 --> 00:22:21,760 Speaker 9: is just an amazing business story. It also speaks to 429 00:22:22,440 --> 00:22:27,440 Speaker 9: the world's energy resources and how those resources are allocated 430 00:22:27,480 --> 00:22:31,840 Speaker 9: and how they move around the world. LNG liquified natural 431 00:22:31,880 --> 00:22:33,840 Speaker 9: gas is ultimately what this story is about, and it 432 00:22:34,119 --> 00:22:37,359 Speaker 9: has in general been a very powerful tool that a 433 00:22:37,440 --> 00:22:41,440 Speaker 9: country like Pakistan, which may not have abundant natural resources 434 00:22:41,440 --> 00:22:45,440 Speaker 9: to provide energy for itself, is able to import from abroad. 435 00:22:45,480 --> 00:22:49,560 Speaker 9: But it also becomes a unique vulnerability because of that. Steven, 436 00:22:49,600 --> 00:22:52,280 Speaker 9: let's bring you in. How did this story find you? 437 00:22:53,960 --> 00:22:56,439 Speaker 10: I mean, I'm an energy reporter, right, so I'm like 438 00:22:56,480 --> 00:22:59,640 Speaker 10: the nerdiest nerd. I'm talking to traders every day. And 439 00:22:59,760 --> 00:23:01,880 Speaker 10: back in twenty twenty one, so this is years ago, 440 00:23:03,000 --> 00:23:05,480 Speaker 10: there were some rumblings, Hey, you know, there's some shipments 441 00:23:05,480 --> 00:23:06,760 Speaker 10: that aren't going to Pakistan. 442 00:23:06,760 --> 00:23:07,920 Speaker 8: They should be going to Pakistan. 443 00:23:07,920 --> 00:23:12,800 Speaker 10: They're being canceled and Pakistan has a gas shortage. And 444 00:23:12,840 --> 00:23:15,400 Speaker 10: this was happening in late, you know, twenty twenty one, 445 00:23:15,440 --> 00:23:18,480 Speaker 10: even before the war in Ukraine began, and you could 446 00:23:18,520 --> 00:23:22,040 Speaker 10: really see the start of the energy crisis. But prices 447 00:23:22,040 --> 00:23:25,639 Speaker 10: were rising at the end of twenty twenty one to basically, 448 00:23:25,720 --> 00:23:29,159 Speaker 10: you know, near record levels in Asian, record levels in Europe, 449 00:23:29,560 --> 00:23:34,920 Speaker 10: and there was this view that you know, perhaps some 450 00:23:34,960 --> 00:23:38,320 Speaker 10: of this LERG was being sold into the spot market 451 00:23:38,760 --> 00:23:41,800 Speaker 10: and not going to Pakistan because Pakistan's long term contracts 452 00:23:42,760 --> 00:23:46,199 Speaker 10: are at a more you know, set rate that's several 453 00:23:46,240 --> 00:23:49,600 Speaker 10: times lower than where spot lergy prices are, and so 454 00:23:50,119 --> 00:23:52,760 Speaker 10: taking the LERG away from the contract and selling into 455 00:23:52,840 --> 00:23:57,760 Speaker 10: the spot market can be a lucrative arbitrage, and it 456 00:23:57,760 --> 00:24:02,840 Speaker 10: can also be you know, legally acomplished because the contract 457 00:24:02,920 --> 00:24:05,919 Speaker 10: terms allow for cancelations. There are terms in there for 458 00:24:05,960 --> 00:24:09,159 Speaker 10: force masure if you're having production problems. So all that 459 00:24:09,240 --> 00:24:11,600 Speaker 10: kind of came together, and as I was watching what 460 00:24:11,640 --> 00:24:13,879 Speaker 10: was happening, it was really interesting to also see what 461 00:24:13,920 --> 00:24:16,520 Speaker 10: was happening on the ground in Pakistan because they were 462 00:24:16,560 --> 00:24:21,520 Speaker 10: starting to really curtail gas supply to households, to industries. 463 00:24:21,520 --> 00:24:25,080 Speaker 10: There was a sort of economic impact, and I was 464 00:24:25,119 --> 00:24:27,520 Speaker 10: able to because of the sourcing that I have in 465 00:24:27,560 --> 00:24:30,200 Speaker 10: the way that I cover the market. Almost for every 466 00:24:30,520 --> 00:24:32,399 Speaker 10: canceled shipment, I would track it one by one and 467 00:24:32,400 --> 00:24:34,240 Speaker 10: see when Pakistan would come back into the market to 468 00:24:34,320 --> 00:24:38,440 Speaker 10: buy it, buy some replacement leerng to help you stop 469 00:24:38,480 --> 00:24:41,159 Speaker 10: their shortage. They were able to do so sometimes but 470 00:24:41,200 --> 00:24:44,040 Speaker 10: at a very high price. And then after the war began, 471 00:24:44,119 --> 00:24:47,640 Speaker 10: prices got really high in twenty twenty two and Pakistan's 472 00:24:47,640 --> 00:24:50,200 Speaker 10: credit rating got worse. Suddenly, they weren't able to buy 473 00:24:50,359 --> 00:24:52,879 Speaker 10: LNG anymore. And I was on the forefront of that 474 00:24:52,920 --> 00:24:55,520 Speaker 10: story as well. They were failing to purchase any more 475 00:24:55,520 --> 00:24:56,640 Speaker 10: shipment store place their gas. 476 00:24:56,640 --> 00:24:58,000 Speaker 8: They were really struggling. 477 00:24:58,040 --> 00:25:01,239 Speaker 10: Fertilizer plants were shutting down for for months on end, 478 00:25:01,280 --> 00:25:04,320 Speaker 10: so it was becoming a food issue as well. It 479 00:25:04,400 --> 00:25:07,000 Speaker 10: was really fascinating to watch, and it's fantastic jol that 480 00:25:08,000 --> 00:25:10,200 Speaker 10: BusinessWeek as well had interest in the store, and I 481 00:25:10,680 --> 00:25:11,760 Speaker 10: could do it in a big way. 482 00:25:12,240 --> 00:25:16,359 Speaker 9: To pat myself in the back there, Stephen, bring us 483 00:25:16,400 --> 00:25:18,919 Speaker 9: to the beginning of a contract like this, right, because 484 00:25:19,000 --> 00:25:23,440 Speaker 9: the other important thing to mention here, despite maybe feeling 485 00:25:23,480 --> 00:25:27,320 Speaker 9: like a little icky, there's nothing necessarily illegal as far 486 00:25:27,359 --> 00:25:30,040 Speaker 9: as our reporting shows here. But there was a contract 487 00:25:30,040 --> 00:25:34,240 Speaker 9: that was signed between these trading firms and Pakistan. So 488 00:25:34,280 --> 00:25:37,719 Speaker 9: talk to us about what Pakistan thought it was going 489 00:25:37,760 --> 00:25:38,399 Speaker 9: to get out of this. 490 00:25:39,640 --> 00:25:43,800 Speaker 10: Yeah, I mean, Pakistan signed a contract that was pretty 491 00:25:43,800 --> 00:25:47,680 Speaker 10: normal for a developing nation. They signed it back in 492 00:25:47,720 --> 00:25:50,640 Speaker 10: twenty seventeen at a tender in two the sixteen, which 493 00:25:50,680 --> 00:25:53,840 Speaker 10: is basically like a public call for offers to supply 494 00:25:53,880 --> 00:25:56,000 Speaker 10: them L and G for five years and fifteen years 495 00:25:56,960 --> 00:26:02,280 Speaker 10: Gunvore in any the Italian company applied the lowest offers 496 00:26:02,359 --> 00:26:05,520 Speaker 10: for the five year and fifteen year contracts respectively, and 497 00:26:05,640 --> 00:26:08,480 Speaker 10: there was some scrutiny, of course during the tendering process, 498 00:26:08,800 --> 00:26:10,359 Speaker 10: but in the end, you know, they signed a contract 499 00:26:10,400 --> 00:26:13,800 Speaker 10: in twenty seventeen that at the time, you know, in 500 00:26:14,119 --> 00:26:17,080 Speaker 10: twenty seventeen, when there was abundant leg when people weren't 501 00:26:17,119 --> 00:26:21,040 Speaker 10: talking about you know, record level LNG prices, this was 502 00:26:21,040 --> 00:26:23,479 Speaker 10: a pretty solid contract because it had terms and said, hey, 503 00:26:23,480 --> 00:26:25,440 Speaker 10: if you don't deliver our gas, you have to pay 504 00:26:25,440 --> 00:26:26,399 Speaker 10: a thirty percent penalty. 505 00:26:26,440 --> 00:26:27,760 Speaker 8: We get thirty percent of that money back. 506 00:26:27,760 --> 00:26:30,560 Speaker 10: And when spot prices are just a little bit a 507 00:26:30,680 --> 00:26:35,760 Speaker 10: smidge over or maybe a smidge under long term you 508 00:26:35,800 --> 00:26:40,000 Speaker 10: know LNG rates, that thirty percent is enough to keep suppliers, 509 00:26:40,080 --> 00:26:42,239 Speaker 10: you know, sending the LNG to where it's supposed to go. 510 00:26:43,480 --> 00:26:46,960 Speaker 10: But of course, you know, COVID happened, so prices dropped 511 00:26:47,000 --> 00:26:49,600 Speaker 10: to a record low pacice and even considered scrapping the 512 00:26:49,640 --> 00:26:52,399 Speaker 10: contracts on those suppliers because it was cheaper to source 513 00:26:52,760 --> 00:26:53,959 Speaker 10: energy from the spot market. 514 00:26:54,720 --> 00:26:56,320 Speaker 8: But then it flipped around. 515 00:26:56,359 --> 00:26:59,119 Speaker 10: When you know, as we saw quickly economies bounce back, 516 00:27:00,000 --> 00:27:02,520 Speaker 10: there was a shortage of gas around the world, and 517 00:27:03,000 --> 00:27:04,960 Speaker 10: in the terms of the contract, if you pay a 518 00:27:04,960 --> 00:27:08,399 Speaker 10: thirty percent penalty, then you can cancel the shipment to Pakistan. 519 00:27:08,440 --> 00:27:12,480 Speaker 10: And when LNG is for spot LNG is four times 520 00:27:12,520 --> 00:27:16,280 Speaker 10: higher than a contracted rate. You're paying just a few 521 00:27:16,320 --> 00:27:19,560 Speaker 10: million dollars versus you know what you can make in 522 00:27:19,600 --> 00:27:21,840 Speaker 10: the spot market, which is upwards of one hundred and 523 00:27:21,840 --> 00:27:24,600 Speaker 10: fifty million dollars for a single shipment, So that arbitrage 524 00:27:24,640 --> 00:27:28,760 Speaker 10: exists as well. Force masures, I mean the LNG industry 525 00:27:29,119 --> 00:27:31,600 Speaker 10: using a force majority to cancel a number of shipments 526 00:27:32,320 --> 00:27:35,560 Speaker 10: had been seen before, but I think until the market 527 00:27:35,560 --> 00:27:38,160 Speaker 10: got really tight in twenty twenty two, it just wasn't 528 00:27:38,280 --> 00:27:42,439 Speaker 10: very common because LNG is a smallish industry. It's not 529 00:27:42,520 --> 00:27:45,879 Speaker 10: like oil where there are tons of players. LNG is 530 00:27:45,920 --> 00:27:49,119 Speaker 10: just a handful of suppliers, buyers and middlemen. So if 531 00:27:49,119 --> 00:27:52,560 Speaker 10: you burn one buyer, suddenly you know you have a 532 00:27:52,840 --> 00:27:55,040 Speaker 10: smaller pool to sell to So it was sort of 533 00:27:55,119 --> 00:27:58,280 Speaker 10: unheard of before twenty twenty two to burn a buyer 534 00:27:58,280 --> 00:28:00,000 Speaker 10: a supplier, but that's sort of what happened. 535 00:28:00,760 --> 00:28:03,840 Speaker 4: So who were these traders that made these fortunes and 536 00:28:04,359 --> 00:28:06,520 Speaker 4: how much money are we actually talking about here? 537 00:28:08,080 --> 00:28:11,600 Speaker 10: Yeah, I mean so one of them is a gun 538 00:28:11,720 --> 00:28:15,240 Speaker 10: War their Geneva base. They're one of the biggest commodity 539 00:28:15,280 --> 00:28:19,160 Speaker 10: trading houses in the world. They had the contract with Pakistan, 540 00:28:19,600 --> 00:28:24,760 Speaker 10: and when just the amount of money is large, it's 541 00:28:24,800 --> 00:28:26,960 Speaker 10: in the hundreds of millions how much they were able 542 00:28:27,000 --> 00:28:32,040 Speaker 10: to make by diverting supply from the Pakistan contracts into 543 00:28:32,040 --> 00:28:34,240 Speaker 10: the spot market, according to the sources that we've spoken with. 544 00:28:34,880 --> 00:28:38,840 Speaker 10: But of course there was one instance where Pakistan had 545 00:28:38,880 --> 00:28:44,000 Speaker 10: a contract with Gunvor. They had five shipments left, which 546 00:28:44,080 --> 00:28:46,240 Speaker 10: is quite a bit of gas for a country like Pakistan, 547 00:28:46,720 --> 00:28:51,880 Speaker 10: for delivery from March after March April to July twenty 548 00:28:51,880 --> 00:28:57,400 Speaker 10: twenty two, and when Gunvor canceled the contract, they were 549 00:28:57,440 --> 00:29:01,720 Speaker 10: able to siphon that gas into the spot market. Of course, 550 00:29:01,720 --> 00:29:04,640 Speaker 10: Gunbar had dispute over a payment with Pakistan. That's what 551 00:29:04,680 --> 00:29:08,640 Speaker 10: they used to cancel cancel the contract. But if they 552 00:29:08,680 --> 00:29:10,800 Speaker 10: sold those five shipments to Pakistan, they would have made 553 00:29:10,800 --> 00:29:13,800 Speaker 10: about two hundred million dollars that's the cost or that 554 00:29:13,920 --> 00:29:16,080 Speaker 10: that's the price that they have gotten on the revenue. 555 00:29:16,600 --> 00:29:19,000 Speaker 10: But by selling into the spot market they made six 556 00:29:19,080 --> 00:29:21,600 Speaker 10: hundred million. So already you're seeing there's that four hundred 557 00:29:21,680 --> 00:29:25,640 Speaker 10: million dollar charge that they or increase in value that 558 00:29:25,680 --> 00:29:27,600 Speaker 10: they can get by just selling into the spot market. 559 00:29:27,680 --> 00:29:28,360 Speaker 8: On top of that. 560 00:29:28,640 --> 00:29:32,000 Speaker 10: So you look at all the yeah, exactly, all the 561 00:29:32,040 --> 00:29:35,600 Speaker 10: other shipments that you could make, you know that those 562 00:29:35,600 --> 00:29:37,680 Speaker 10: five shipments were just part of this larger story. There 563 00:29:37,680 --> 00:29:41,200 Speaker 10: were many more cancelations, many more diversions. There's one LNG 564 00:29:41,360 --> 00:29:43,960 Speaker 10: cargo that Gunvar sent to Pakistan, were only part of 565 00:29:44,120 --> 00:29:46,320 Speaker 10: the shipment was unloaded at their port and the rest 566 00:29:46,360 --> 00:29:48,680 Speaker 10: of it went to Turkey where they received three times 567 00:29:48,720 --> 00:29:50,360 Speaker 10: the price that they have gotten from Pakistan. 568 00:29:50,440 --> 00:29:53,800 Speaker 8: So gun War is one of the interesting characters. 569 00:29:53,840 --> 00:29:55,840 Speaker 2: As you know, in the piece of single LNG tanker 570 00:29:55,840 --> 00:29:59,440 Speaker 2: provides enough gas to run Pakistan's entire industrial sector for 571 00:29:59,480 --> 00:30:02,880 Speaker 2: about five days. So when we're talking a tanker here, 572 00:30:03,240 --> 00:30:06,280 Speaker 2: that's a significant amount of fuel, especially for an economy 573 00:30:06,280 --> 00:30:09,560 Speaker 2: that is so dependent on industry and one that is 574 00:30:09,600 --> 00:30:12,200 Speaker 2: trying to grow at least until it ran out of fuel. 575 00:30:12,960 --> 00:30:15,640 Speaker 2: Talk a little bit about the implications of a country 576 00:30:16,160 --> 00:30:18,680 Speaker 2: like Pakistan losing out on a contract like this. 577 00:30:20,360 --> 00:30:24,360 Speaker 10: Yeah, I mean it's huge. So Pakistan already has. The 578 00:30:24,400 --> 00:30:27,240 Speaker 10: whole reason why they're importing LNG is because their domestic 579 00:30:27,280 --> 00:30:31,200 Speaker 10: gas supplies have been dwindling. They were basically gas rich 580 00:30:31,480 --> 00:30:34,280 Speaker 10: after the nineteen fifties. They found some really great gas 581 00:30:34,320 --> 00:30:38,120 Speaker 10: fields and they built their economy around natural gas. But 582 00:30:38,240 --> 00:30:42,320 Speaker 10: in the two thousand's early twenty tens, they realized that 583 00:30:42,320 --> 00:30:46,240 Speaker 10: they're gas supplies they weren't producing as much as it 584 00:30:46,240 --> 00:30:49,840 Speaker 10: would need to, and it actually production was being to decline. 585 00:30:50,040 --> 00:30:53,200 Speaker 10: That was partly because of mismanagement, partly because of the fields, 586 00:30:53,720 --> 00:30:57,280 Speaker 10: you know, kind of deteriorting over time, and then also 587 00:30:57,280 --> 00:30:59,640 Speaker 10: because they weren't investing enough to keep up with with 588 00:30:59,680 --> 00:31:02,000 Speaker 10: their increase in demand. And so to fill that gap, 589 00:31:02,080 --> 00:31:04,960 Speaker 10: they said, hey, we'll import energy. Look finantial gas, which 590 00:31:04,960 --> 00:31:07,760 Speaker 10: had become more available in the market in the twenty tens. 591 00:31:08,160 --> 00:31:10,959 Speaker 8: So there's now losing a shipment. Yeah, no, go ahead. 592 00:31:12,400 --> 00:31:16,040 Speaker 10: So yeah, losing a shipment suddenly gas isn't going to 593 00:31:16,080 --> 00:31:18,720 Speaker 10: household so they're curtailing gas for most of the day. 594 00:31:18,760 --> 00:31:22,200 Speaker 10: Households only get gas to cook or to heat for 595 00:31:22,480 --> 00:31:25,400 Speaker 10: sometimes two hours for breakfast, three hours for lunch, and 596 00:31:25,400 --> 00:31:28,560 Speaker 10: then two hours for dinner, compared to you know the 597 00:31:28,600 --> 00:31:30,040 Speaker 10: rest of the world where you can you know, flip 598 00:31:30,040 --> 00:31:32,560 Speaker 10: a switch and turn on your stove. Industries as well, 599 00:31:33,000 --> 00:31:35,080 Speaker 10: there are a lot of factories that are had to 600 00:31:35,120 --> 00:31:37,400 Speaker 10: shut down because they weren't getting the gas, or they 601 00:31:37,400 --> 00:31:40,400 Speaker 10: had to switch to other fuels they had to use 602 00:31:40,680 --> 00:31:43,720 Speaker 10: use dirtier fuels like diesel to power their plant, or 603 00:31:43,760 --> 00:31:47,360 Speaker 10: they're rushing to kind of set up a biomass plant, 604 00:31:47,360 --> 00:31:49,280 Speaker 10: which what I saw was just them burning a bunch 605 00:31:49,320 --> 00:31:49,880 Speaker 10: of sticks. 606 00:31:51,680 --> 00:31:54,479 Speaker 9: There is this kind of I think I call it 607 00:31:54,480 --> 00:31:59,000 Speaker 9: icky earlier obviously capitalism that we think that they're within 608 00:31:59,040 --> 00:32:01,120 Speaker 9: the bounds of the law. But I'm curious, just in 609 00:32:01,200 --> 00:32:04,240 Speaker 9: your reporting, was there any sort of moral compass that 610 00:32:04,280 --> 00:32:06,680 Speaker 9: you ran across in anyone here or was it just 611 00:32:06,840 --> 00:32:08,880 Speaker 9: dollars and cents and this is how it played out. 612 00:32:10,200 --> 00:32:13,360 Speaker 10: I mean, I think traders in general look at markets 613 00:32:13,720 --> 00:32:16,040 Speaker 10: in a way that how can we be as efficient 614 00:32:16,080 --> 00:32:20,360 Speaker 10: as possible, how can we move these supplies to where 615 00:32:21,120 --> 00:32:25,240 Speaker 10: you know they're needed? And a lot of the time 616 00:32:25,280 --> 00:32:27,680 Speaker 10: it goes to the to the highest bidder, and so 617 00:32:28,120 --> 00:32:30,520 Speaker 10: you know, I've not I got into a bit of 618 00:32:30,520 --> 00:32:33,080 Speaker 10: this story, but in previous stories, a lot of the 619 00:32:33,120 --> 00:32:37,440 Speaker 10: gas was going to richer places. So in Europe they 620 00:32:37,440 --> 00:32:40,200 Speaker 10: were able to continue operating without you know, pipeline supplies 621 00:32:40,200 --> 00:32:42,520 Speaker 10: from Russia because they had so much more LNG and 622 00:32:42,600 --> 00:32:45,040 Speaker 10: sometimes at l and G came at the expense of 623 00:32:45,240 --> 00:32:49,800 Speaker 10: shipment's not going to emerging nations. And so I think 624 00:32:50,280 --> 00:32:53,000 Speaker 10: traders often look at, you know, how can we how 625 00:32:53,000 --> 00:32:55,800 Speaker 10: can we make sure that these capitalist markets work as 626 00:32:55,800 --> 00:32:58,920 Speaker 10: efficiently as possible? And and they fill that role right 627 00:32:59,000 --> 00:33:01,520 Speaker 10: that these traders is are are doing the job that 628 00:33:01,520 --> 00:33:04,480 Speaker 10: they're hired to do, and they're working within the contracts 629 00:33:04,480 --> 00:33:07,520 Speaker 10: and the realm that they're that they have to of course, 630 00:33:08,160 --> 00:33:10,200 Speaker 10: uh you know when when you when you talk about 631 00:33:11,200 --> 00:33:16,680 Speaker 10: ethics and and things like that, it's hard for them 632 00:33:16,760 --> 00:33:20,880 Speaker 10: to I think sometimes kind of opine about it because 633 00:33:21,080 --> 00:33:22,720 Speaker 10: at the end of the day, they have a job 634 00:33:22,760 --> 00:33:24,480 Speaker 10: to do, they're under pressure to do that job. 635 00:33:24,320 --> 00:33:25,800 Speaker 8: And and and they're there to do it. 636 00:33:25,840 --> 00:33:28,600 Speaker 10: And what's interesting is when we talk to people in Pakistan, 637 00:33:29,600 --> 00:33:33,520 Speaker 10: they they don't really blame the traders that much. They 638 00:33:33,280 --> 00:33:35,000 Speaker 10: they say, hey, you know, these are the contracts that 639 00:33:35,040 --> 00:33:37,320 Speaker 10: we signed. We didn't sign a good one and people 640 00:33:37,320 --> 00:33:39,240 Speaker 10: are gonna try to make money. That that's that's the 641 00:33:39,280 --> 00:33:41,680 Speaker 10: way it goes. And we have you know, a quote 642 00:33:41,680 --> 00:33:42,400 Speaker 10: in the story like that. 643 00:33:43,000 --> 00:33:45,600 Speaker 9: And so where does that leave Pakistan as we head 644 00:33:45,640 --> 00:33:47,640 Speaker 9: toward a yet another winter here? 645 00:33:48,720 --> 00:33:51,280 Speaker 10: Yeah, I mean they're not in a great spot now. 646 00:33:51,360 --> 00:33:54,400 Speaker 10: They were able to resume buying LERG from the spot market. 647 00:33:54,440 --> 00:33:56,719 Speaker 10: Of course, energy spot prices have dropped significant flight from 648 00:33:56,800 --> 00:33:59,040 Speaker 10: last year. The energy crisis has eased a bit, but 649 00:33:59,040 --> 00:34:01,360 Speaker 10: they're still buying elgi you at a very high price. 650 00:34:01,600 --> 00:34:03,720 Speaker 10: They still have a gas shortage. There is still gas 651 00:34:03,720 --> 00:34:06,680 Speaker 10: curtailed to households. And as it gets colder, yes, not 652 00:34:06,720 --> 00:34:08,200 Speaker 10: all pack of thing is cold in the winter, but 653 00:34:08,239 --> 00:34:10,600 Speaker 10: there are parts of the country that can get quite frigid, 654 00:34:10,800 --> 00:34:12,680 Speaker 10: demand will go up and they're going to have shortages 655 00:34:12,680 --> 00:34:14,720 Speaker 10: and they might have to curtail more gas to the households. 656 00:34:14,719 --> 00:34:16,080 Speaker 8: They might have to protail more. 657 00:34:15,880 --> 00:34:19,080 Speaker 10: Gas to factories and industries, and they might have to 658 00:34:19,080 --> 00:34:21,120 Speaker 10: try to buy more LNG from the spot market, which 659 00:34:21,160 --> 00:34:23,440 Speaker 10: again is very expensive for them compared to their long 660 00:34:23,480 --> 00:34:28,280 Speaker 10: term contracts will add to their debt and cause more problems, 661 00:34:28,360 --> 00:34:30,000 Speaker 10: especially as they're entering an election. 662 00:34:29,800 --> 00:34:30,399 Speaker 8: Year next year. 663 00:34:30,800 --> 00:34:33,040 Speaker 2: Well, it is a fantastic story. It's the cover of 664 00:34:33,120 --> 00:34:36,399 Speaker 2: Bloomberg Business Week this week. You can check it out 665 00:34:36,440 --> 00:34:39,160 Speaker 2: on the Bloomberg terminal at Bloomberg dot com and of 666 00:34:39,200 --> 00:34:41,239 Speaker 2: course on newstands right now. A big thank you to 667 00:34:41,440 --> 00:34:45,040 Speaker 2: Steven step Chansky, senior energy reporter at Bloomberg News, joining 668 00:34:45,080 --> 00:34:47,520 Speaker 2: us just now in zoom from Japan. Also the editor 669 00:34:47,520 --> 00:34:50,640 Speaker 2: of Bloomberg BusinessWeek, Joe Weber. Here in our Bloomberg Interactive 670 00:34:50,640 --> 00:35:01,120 Speaker 2: Brokers studios. This is Bloomberg BusinessWeek, a journal. 671 00:35:02,120 --> 00:35:03,200 Speaker 3: Yeah about you let me drive? 672 00:35:03,440 --> 00:35:10,000 Speaker 2: Oh no, no, no, no, honey, please, I'll do gravel. I 673 00:35:10,160 --> 00:35:18,360 Speaker 2: want to drive. It's a good question. This is the 674 00:35:18,560 --> 00:35:24,080 Speaker 2: drive to the Clothes for music. Well don on Blueberg Radio, 675 00:35:24,680 --> 00:35:26,560 Speaker 2: Well here we go is We just heard from Bill 676 00:35:26,640 --> 00:35:29,759 Speaker 2: Maloney choppy session. But we are broadly in the green 677 00:35:29,800 --> 00:35:31,800 Speaker 2: at least on the Dow. Jones up three tenths of 678 00:35:31,800 --> 00:35:33,480 Speaker 2: a percent. We just heard the numbers from Charlie to 679 00:35:33,520 --> 00:35:34,960 Speaker 2: the S and P up more than one tenth of 680 00:35:35,000 --> 00:35:38,920 Speaker 2: a percent. The nasdak can posit up seven one hundred percent. Right. Now, 681 00:35:39,000 --> 00:35:41,239 Speaker 2: let's get to the drive to the clothes. We got 682 00:35:41,239 --> 00:35:45,200 Speaker 2: with us. Andrew cry the co CIO of Crescent Grove Advisors, 683 00:35:45,239 --> 00:35:48,720 Speaker 2: he's here with us in the Bloomberg Interactive Brokers studio. 684 00:35:49,000 --> 00:35:51,680 Speaker 2: I want to start with fixed income with you, because 685 00:35:52,000 --> 00:35:54,880 Speaker 2: what these moves that we are seeing when it comes 686 00:35:54,920 --> 00:35:59,319 Speaker 2: to especially you know, the tenure, given that roughly a 687 00:35:59,320 --> 00:36:01,600 Speaker 2: month ago we're at five percent on the tenure. Now 688 00:36:01,600 --> 00:36:04,720 Speaker 2: we're wow, what sub four percent? Wow? 689 00:36:04,880 --> 00:36:05,600 Speaker 8: It's extraordinary. 690 00:36:05,640 --> 00:36:08,799 Speaker 2: Did you see this coming? I would say we honest, we. 691 00:36:09,719 --> 00:36:12,759 Speaker 11: Had started to inch out on duration because you start 692 00:36:12,800 --> 00:36:15,480 Speaker 11: to get the five percent, and clients we work with, 693 00:36:15,800 --> 00:36:19,400 Speaker 11: in particular tax sensitive municipals start to become very interesting 694 00:36:19,400 --> 00:36:21,799 Speaker 11: on a taxable equivalent basis. If you can lock in 695 00:36:21,880 --> 00:36:27,040 Speaker 11: longer duration seven eight percent taxable equivalent yields, Right, that's 696 00:36:27,120 --> 00:36:29,960 Speaker 11: really attractive, particularly from where we came from, going back 697 00:36:30,000 --> 00:36:32,839 Speaker 11: to the twenty tens your interest rate policy, et cetera. Right, 698 00:36:33,360 --> 00:36:36,120 Speaker 11: So we'd started to inch out, but we weren't fully there, right, 699 00:36:36,160 --> 00:36:38,279 Speaker 11: I mean, we weren't full up on duration. And I 700 00:36:38,280 --> 00:36:40,759 Speaker 11: think this move has just been so dramatic. And now 701 00:36:40,800 --> 00:36:43,520 Speaker 11: the bond map gets pretty interesting at this point in 702 00:36:43,560 --> 00:36:45,359 Speaker 11: the sense that your cash rate five and a half, 703 00:36:45,440 --> 00:36:47,040 Speaker 11: you know, or five point three whatever you want to 704 00:36:47,120 --> 00:36:50,200 Speaker 11: pick your number of money market fund type rate relative 705 00:36:50,239 --> 00:36:52,520 Speaker 11: to going in today at least a brand new dollar 706 00:36:52,560 --> 00:36:54,440 Speaker 11: going to work at three point nine percent to ten year, 707 00:36:54,880 --> 00:36:57,919 Speaker 11: you're really expecting some additional price appreciation to make up 708 00:36:58,120 --> 00:37:01,600 Speaker 11: that gap, or pretty significant rate cuts, which is perhaps 709 00:37:01,640 --> 00:37:04,000 Speaker 11: where the market is headed at this point in terms 710 00:37:04,000 --> 00:37:06,520 Speaker 11: of thinking about Fed policy. You know, the six cuts 711 00:37:06,520 --> 00:37:08,279 Speaker 11: now being priced in in twenty twenty four. 712 00:37:08,800 --> 00:37:11,359 Speaker 4: I mean, where did treasure yield even go from here? 713 00:37:11,440 --> 00:37:13,040 Speaker 4: It was interesting. I was talking to a number of 714 00:37:13,040 --> 00:37:16,400 Speaker 4: colleagues and we were looking at outlooks, and some outlooks said, oh, 715 00:37:16,480 --> 00:37:19,160 Speaker 4: by the end of twenty twenty four, we'll see the 716 00:37:19,200 --> 00:37:23,239 Speaker 4: tenure at four percent. And that move has already been 717 00:37:23,239 --> 00:37:26,200 Speaker 4: done in just twenty four hours. So what's next. What 718 00:37:26,280 --> 00:37:28,120 Speaker 4: are we actually going to see in twenty twenty four. 719 00:37:28,360 --> 00:37:30,600 Speaker 11: Yeah, the poor folks that have to go back and 720 00:37:30,600 --> 00:37:32,879 Speaker 11: rewrite all these outlooks at this point because of what's 721 00:37:32,920 --> 00:37:36,640 Speaker 11: happened within the rates market with inequities now at price 722 00:37:36,680 --> 00:37:40,160 Speaker 11: targets that people were talking about twelve months out. Again, 723 00:37:40,320 --> 00:37:42,520 Speaker 11: extraordinary moves that we've seen now over the course of 724 00:37:42,560 --> 00:37:44,239 Speaker 11: the last couple of days, let alone, you know, the 725 00:37:44,320 --> 00:37:46,960 Speaker 11: last sort of six to eight week period. Look, I 726 00:37:46,960 --> 00:37:49,480 Speaker 11: think we've probably come a little bit too far, too fast. 727 00:37:49,840 --> 00:37:53,040 Speaker 11: That's our view. Just if you look at six rate 728 00:37:53,200 --> 00:37:55,520 Speaker 11: cuts for next year and sort of how that feeds 729 00:37:55,520 --> 00:37:58,359 Speaker 11: into the ten year pricing and the overall sort of 730 00:37:58,360 --> 00:38:01,600 Speaker 11: soft landing thesis that people or really you know, it's 731 00:38:01,680 --> 00:38:04,640 Speaker 11: underpinning that move. We just tend to think that it's 732 00:38:04,640 --> 00:38:06,919 Speaker 11: gonna be a little bit choppier than that. And there's 733 00:38:06,920 --> 00:38:08,759 Speaker 11: actually there's a great piece this morning from when your 734 00:38:08,800 --> 00:38:11,600 Speaker 11: colleagues Cameron christ talking about the FED cutting because they 735 00:38:11,600 --> 00:38:13,880 Speaker 11: think they can, as opposed to because they have to 736 00:38:14,040 --> 00:38:16,640 Speaker 11: in this environment. They feel like they've got scope to 737 00:38:16,680 --> 00:38:19,120 Speaker 11: take down rates because they're seeing the soft landing play 738 00:38:19,120 --> 00:38:21,640 Speaker 11: out when they do that. I tend to think of 739 00:38:21,719 --> 00:38:25,200 Speaker 11: more incrementalist approach is warranted as opposed to being so dramatic, 740 00:38:25,400 --> 00:38:27,719 Speaker 11: you know, the flip side of what we saw perhaps 741 00:38:28,239 --> 00:38:30,600 Speaker 11: going into the rate hiking cycle where they felt like 742 00:38:30,640 --> 00:38:32,600 Speaker 11: they really had to catch up, they were behind the curve. 743 00:38:32,960 --> 00:38:34,719 Speaker 11: So I don't think they feel like they, you know, 744 00:38:34,719 --> 00:38:36,719 Speaker 11: they're forced into a position where the economy is really 745 00:38:36,760 --> 00:38:38,960 Speaker 11: deteriorating at this point, they're going to have to take big, 746 00:38:39,040 --> 00:38:42,319 Speaker 11: chunky moves in an accelerated fashion. If that's the case, 747 00:38:42,320 --> 00:38:44,640 Speaker 11: then why not play it out a little bit more slowly, 748 00:38:44,680 --> 00:38:46,879 Speaker 11: a little bit more gradually. So we tend to think 749 00:38:46,880 --> 00:38:49,160 Speaker 11: six is too many. You know, probably three that the 750 00:38:49,200 --> 00:38:52,480 Speaker 11: Fed is talking about is more appropriate in terms of expectations. 751 00:38:52,840 --> 00:38:55,399 Speaker 2: So when you say that you think we've come too far, 752 00:38:55,440 --> 00:39:00,520 Speaker 2: too faster, you're referring specifically to you rate cut expects 753 00:39:00,560 --> 00:39:02,120 Speaker 2: Are you referring to what we see in the bond 754 00:39:02,160 --> 00:39:05,200 Speaker 2: market right now? Are you referring to just this rally 755 00:39:05,200 --> 00:39:06,640 Speaker 2: that we've seen over the last seven weeks in the 756 00:39:06,640 --> 00:39:07,520 Speaker 2: equity market. 757 00:39:07,320 --> 00:39:09,799 Speaker 11: I would say all the above, Yeah, just in terms 758 00:39:09,840 --> 00:39:14,160 Speaker 11: of the move, the dramatic amount of sort of repricing 759 00:39:14,200 --> 00:39:16,680 Speaker 11: that we've seen across the curve really but in particular 760 00:39:16,880 --> 00:39:18,200 Speaker 11: the ten year if you want to point to that 761 00:39:18,480 --> 00:39:21,040 Speaker 11: as being again an extraordinary Keep coming back to that 762 00:39:21,080 --> 00:39:25,200 Speaker 11: word move that we've seen, the rate cut expectations that 763 00:39:25,200 --> 00:39:28,160 Speaker 11: we're seeing next year, and then the repricing of equities 764 00:39:28,360 --> 00:39:31,160 Speaker 11: sort of alongside that, you know that rubber bands being 765 00:39:31,160 --> 00:39:33,960 Speaker 11: stretched pretty far at this point, we think, and ultimately, 766 00:39:34,000 --> 00:39:35,759 Speaker 11: you know, you come back. It's a supply and demand game. 767 00:39:35,920 --> 00:39:38,560 Speaker 11: At some point, the incremental buyer just sort of peters 768 00:39:38,560 --> 00:39:41,319 Speaker 11: out right. We've seen such a rapid move off the 769 00:39:41,360 --> 00:39:44,839 Speaker 11: lows eight weeks ago, roughly speaking, we just think that 770 00:39:44,960 --> 00:39:47,000 Speaker 11: probably a little bit of a breather is warranted in 771 00:39:47,080 --> 00:39:47,960 Speaker 11: that scenario. 772 00:39:48,320 --> 00:39:50,920 Speaker 4: What about for stocks? Do you think the Fed put 773 00:39:51,280 --> 00:39:51,760 Speaker 4: is back? 774 00:39:53,680 --> 00:39:57,560 Speaker 11: It certainly seems like they are. They've tilted the balance 775 00:39:57,600 --> 00:40:00,560 Speaker 11: towards being a little bit more accommodative going forward, or 776 00:40:00,719 --> 00:40:02,440 Speaker 11: they're willing to step in right if they start to 777 00:40:02,440 --> 00:40:05,920 Speaker 11: see a little bit of economic deterioration. Clearly they're still 778 00:40:06,000 --> 00:40:08,719 Speaker 11: keyed in on inflation, but they've changed the balance, they've 779 00:40:08,760 --> 00:40:11,080 Speaker 11: changed the narrative at this point. I think as we 780 00:40:11,120 --> 00:40:13,680 Speaker 11: look at stocks going into next year, really today, it'd 781 00:40:13,719 --> 00:40:15,800 Speaker 11: probably be a microcosm of what we would think about 782 00:40:15,920 --> 00:40:18,960 Speaker 11: going into twenty twenty four, meaning a rotation out of 783 00:40:19,000 --> 00:40:21,480 Speaker 11: some of the really big winners, the megacap tech names, 784 00:40:21,680 --> 00:40:23,839 Speaker 11: and into things that would sort of represent a catch 785 00:40:23,880 --> 00:40:27,320 Speaker 11: up trade, if you will, small caps, more value, you know, 786 00:40:27,400 --> 00:40:30,400 Speaker 11: cyclically sensitive types of names across the market that have 787 00:40:30,440 --> 00:40:32,680 Speaker 11: been left behind in this period where the Magnificent seven 788 00:40:32,719 --> 00:40:35,960 Speaker 11: we're outperforming so dramatically. So again we would look at 789 00:40:36,080 --> 00:40:38,279 Speaker 11: again a day like today and just say this is 790 00:40:38,360 --> 00:40:40,560 Speaker 11: probably what we'd expect into twenty twenty four. Not to 791 00:40:40,560 --> 00:40:42,880 Speaker 11: say the tech's going to be bad, but we just 792 00:40:42,880 --> 00:40:45,520 Speaker 11: think the relative value trade is now on. 793 00:40:45,920 --> 00:40:47,720 Speaker 2: If one of your clients missed out on this rally, 794 00:40:47,719 --> 00:40:50,040 Speaker 2: maybe they were hesitant to put money in because they said, 795 00:40:50,080 --> 00:40:52,080 Speaker 2: wait a second, I'm getting a little nervous that inflation 796 00:40:52,160 --> 00:40:54,440 Speaker 2: is going to be sticky, and suddenly there's this RiPP 797 00:40:54,480 --> 00:40:56,560 Speaker 2: or face off rally over the last seven eight weeks. 798 00:40:57,000 --> 00:40:58,359 Speaker 2: What's the opportunity left for them? 799 00:40:58,920 --> 00:41:00,680 Speaker 11: Well, here's what I would say for and foremost is 800 00:41:00,680 --> 00:41:03,000 Speaker 11: that the opportunity cost of that is not what it 801 00:41:03,080 --> 00:41:05,479 Speaker 11: was back in the twenty tens, Meaning if you're in cash, 802 00:41:05,520 --> 00:41:08,080 Speaker 11: if you're in short term fixed income instruments, you're still 803 00:41:08,200 --> 00:41:10,319 Speaker 11: you know, earning five to six percent. If you you know, 804 00:41:10,400 --> 00:41:12,279 Speaker 11: went out into a little bit of credit, let's say, 805 00:41:12,320 --> 00:41:16,200 Speaker 11: or short duration maybe or even make a marketing fun right, right, 806 00:41:16,280 --> 00:41:18,319 Speaker 11: So I think that for us gives us a little 807 00:41:18,360 --> 00:41:21,120 Speaker 11: bit of comfort and you feel like, again, the opportunity 808 00:41:21,120 --> 00:41:23,799 Speaker 11: cost wasn't what it was in the past. So that's 809 00:41:23,880 --> 00:41:26,799 Speaker 11: one thing at this point going forward. You know, if 810 00:41:26,800 --> 00:41:29,040 Speaker 11: you miss this, we wouldn't necessarily chase it. Based on 811 00:41:29,080 --> 00:41:31,000 Speaker 11: everything we've kind of talked about thus far, I don't 812 00:41:31,000 --> 00:41:33,480 Speaker 11: think we'd be inclined to really jump in. Maybe you 813 00:41:33,520 --> 00:41:35,080 Speaker 11: start to nibble it some of the things that I 814 00:41:35,120 --> 00:41:37,480 Speaker 11: talked about that offer more of a relative value story 815 00:41:37,719 --> 00:41:39,319 Speaker 11: small caps non US. 816 00:41:39,360 --> 00:41:41,279 Speaker 2: But then when could you see opportunity to get back in. 817 00:41:42,320 --> 00:41:45,320 Speaker 11: Well, so I think in terms of larger cap stocks, 818 00:41:45,400 --> 00:41:47,560 Speaker 11: that's where we'd be a little bit more cautious. We 819 00:41:47,600 --> 00:41:50,480 Speaker 11: think going into the beginning of next year, at some 820 00:41:50,480 --> 00:41:51,719 Speaker 11: point there's going to have to be a little bit 821 00:41:51,719 --> 00:41:54,080 Speaker 11: of a recalibration. Again, just go back to pure supply 822 00:41:54,160 --> 00:41:56,960 Speaker 11: demand dynamics. You're going to exhaust the demand side of 823 00:41:57,000 --> 00:42:00,520 Speaker 11: the equation in terms of who's the incremental buyer point. 824 00:42:00,960 --> 00:42:03,279 Speaker 11: We think whether it's five percent, ten percent, whatever, that 825 00:42:03,320 --> 00:42:05,960 Speaker 11: sort of corrective reset phase looks like is going to 826 00:42:05,960 --> 00:42:09,520 Speaker 11: offer the opportunity then to get a little bit more bullish, 827 00:42:09,719 --> 00:42:11,560 Speaker 11: you know, into the balance of twenty twenty four. 828 00:42:11,800 --> 00:42:14,799 Speaker 4: You said today's action was a microcosm of what's going 829 00:42:14,840 --> 00:42:17,319 Speaker 4: to happen. So we're seeing small caps rally, but we 830 00:42:17,360 --> 00:42:20,279 Speaker 4: just have a minute left. We're also seeing some speculative 831 00:42:20,280 --> 00:42:23,760 Speaker 4: tech rally Kathywood's Arc Innovation ETF, some of the most 832 00:42:24,000 --> 00:42:26,799 Speaker 4: shorted stocks in the market up six percent. Are we 833 00:42:26,840 --> 00:42:29,640 Speaker 4: going to see that kind of animal spirits continue as well? 834 00:42:30,480 --> 00:42:33,600 Speaker 11: I think you could see, you know, broadly speaking, if 835 00:42:33,600 --> 00:42:36,280 Speaker 11: the soft landing narrative continues to play out, that bodes 836 00:42:36,320 --> 00:42:38,840 Speaker 11: really well for risk assets. And I think that could 837 00:42:38,920 --> 00:42:41,239 Speaker 11: bring people back to the table with some of those 838 00:42:41,280 --> 00:42:43,799 Speaker 11: more speculative names, some of the things again that have 839 00:42:43,840 --> 00:42:46,600 Speaker 11: been left behind now over the last twelve to eighteen months, 840 00:42:47,200 --> 00:42:49,520 Speaker 11: we're beat up so badly as rates were moving to 841 00:42:49,560 --> 00:42:52,919 Speaker 11: the upside. I think this exuberance, you know, as rates 842 00:42:52,920 --> 00:42:55,719 Speaker 11: potentially start to move to the downside, could kick back in. 843 00:42:57,200 --> 00:42:58,919 Speaker 11: I think it's I think it's definitely something you could 844 00:42:58,920 --> 00:42:59,760 Speaker 11: see going forward. 845 00:43:00,200 --> 00:43:00,279 Speaker 5: Uh. 846 00:43:00,440 --> 00:43:01,600 Speaker 11: The other thing would be, you know, if you look 847 00:43:01,680 --> 00:43:04,960 Speaker 11: even at like private markets companies that we're waiting to ipo, 848 00:43:05,280 --> 00:43:08,560 Speaker 11: you know, the IPO window opens rounds. That's the other 849 00:43:08,600 --> 00:43:11,520 Speaker 11: big question waiting to christ right because of risk appetite. 850 00:43:11,560 --> 00:43:14,080 Speaker 11: Andrew cry Co cioa Crescent Grove Advisors here in the 851 00:43:14,120 --> 00:43:15,840 Speaker 11: Bloomberg Interactive Brokers Studios. 852 00:43:16,520 --> 00:43:21,160 Speaker 1: This is the Bloomberg Business Week podcast, available on Apple, Spotify, 853 00:43:21,320 --> 00:43:25,040 Speaker 1: and anywhere else you hit your podcast. Listen live weekday 854 00:43:25,040 --> 00:43:28,680 Speaker 1: afternoons from three to six Eastern on Bloomberg dot com, 855 00:43:28,719 --> 00:43:32,040 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business App. 856 00:43:32,080 --> 00:43:35,160 Speaker 1: You can also watch us live every weekday on YouTube 857 00:43:35,239 --> 00:43:39,320 Speaker 1: and always on the Bloomberg germanalone