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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Faroe and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, financing, investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. So I'm

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Speaker 1: gonna get right to it. With Jobs Day coming up

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Speaker 1: on Friday, ism statistics today, all of it coming back

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Speaker 1: down to fellow reserve policy and what is so important

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Speaker 1: understand and folks, this is out at the Arch of

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Speaker 1: Saint Louis on the Mississippi River. It's important when you

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Speaker 1: are a Saint Louis Cardinal and you're on injured reserve.

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Speaker 1: So Adam Wainwright of the Saint Louis Cardinals saying the

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Speaker 1: Star Spangled banner on opening Day for the Cardinals, which

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Speaker 1: clearly sets us up for next year. On opening day,

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Speaker 1: Michael McKee, we expect James Bullard of the Saint Louis

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Speaker 1: fed to sing Opening Day for the Cardinals. Well, I

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Speaker 1: suppose I could make that my first question Tom to

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Speaker 1: Jim Bullard. He is the president of the Saint Louis

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Speaker 1: FED and he joins us now good morning, Jim. Tom

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Speaker 1: wants to know if you're going to sing the national

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Speaker 1: anthem on opening day next half. I have no plans

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Speaker 1: to do that. Well, as Rosanne Rosenta dat I used

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Speaker 1: to say on Saturday Night Live, it's always something. We

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Speaker 1: were in the middle of a quote unquote banking crisis

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Speaker 1: and now we've got another oil shock this morning. Everybody

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Speaker 1: waking up to headlines and say maybe we go to

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Speaker 1: one hundred dollars. So, as a FED official, when you

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Speaker 1: see that, how are you reacting well on the financial stress?

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Speaker 1: I think you know this is a post Dodd Frank world,

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Speaker 1: and I do think that the reaction to the banking

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Speaker 1: problems was swift and was appropriate and both here in

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Speaker 1: the US and overseas, and so I think you know

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Speaker 1: the idea that there are macro predential tools that you

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Speaker 1: can use in that kind of situation to calm things down.

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Speaker 1: That seems to have worked so far. You never know

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Speaker 1: if there's further things happening, but if if there are,

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Speaker 1: we can react with macro predential tools again. And then

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Speaker 1: on the policy the monetary policy side, we can still

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Speaker 1: proceed to fight inflation and get inflation down during twenty

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Speaker 1: twenty three and twenty twenty four back to targets. So

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Speaker 1: I think you know this idea that you can walk

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Speaker 1: and chew gum at the same time. You've got the

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Speaker 1: macro predential tools for financial stress and you've got monetary

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Speaker 1: policy to fight inflation. We can do both as long

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Speaker 1: as the financial stress doesn't morph into something much larger.

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Speaker 1: And so far, so good. But knock on wood, you're

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Speaker 1: never sure what's going to be around the corner. But

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Speaker 1: does one hundred dollars oil or the idea at least

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Speaker 1: of this oil shock complicate your job? Yeah, well, of

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Speaker 1: course oil is always the oil prices is always important.

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Speaker 1: I would have expected somewhat higher oil prices anyway, with

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Speaker 1: China coming back sooner than expected during the first half

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Speaker 1: here of twenty twenty three, and with Europe scurring recession,

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Speaker 1: so both of those and strong data in the US,

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Speaker 1: all of those are pretty bullish factors I would say

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Speaker 1: for the oil market. This was a surprise, that OPEC decision,

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Speaker 1: but whether it will have a lasting impact, I think

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Speaker 1: is an open question. Now you had already moved up

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Speaker 1: your estimate of where the Fed funds rate needed to

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Speaker 1: be to bring down inflation. You were talking an effective

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Speaker 1: radar around five point six percent. Does this change that

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Speaker 1: calculation at all? And can you explain why you think

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Speaker 1: we need to go that high to hit the terminal rate?

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Speaker 1: I think, well we will need I think we'll need

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Speaker 1: to get over five percent. The committee says that the

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Speaker 1: median person on the committee says a little over five percent.

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Speaker 1: I'm a little higher than that. I think inflation will

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Speaker 1: be stickier. And you know, I'd look mostly at the

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Speaker 1: core measures of inflation, like PC core inflation or the

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Speaker 1: Dallas Fed trim mean, which really hasn't come down very

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Speaker 1: much at all, still in the four percent range, so,

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Speaker 1: you know, four point six or something like that. So

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Speaker 1: so we're still talking about a lot of inflation, more

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Speaker 1: than double our inflation target on that basis, and oil

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Speaker 1: prices fluctuated around it's hard, it's hard to track exactly

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Speaker 1: some of that might feed into inflation and make our

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Speaker 1: job a little bit more difficult. Just north of us

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Speaker 1: this morning, in Oakbrook, Illinois, McDonald's has told its corporate

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Speaker 1: officials to stay home this week because they're going to

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Speaker 1: start notifying people that they're being laid off. How concern

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Speaker 1: are you with all these headlines about layoffs coming in

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Speaker 1: that you may go too far? Yeah, the labor market

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Speaker 1: is super strong still, many more job openings, and there

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Speaker 1: are unemployed workers. I think if a worker does get

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Speaker 1: disrupted today that they should, you know, let's hope and

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Speaker 1: pray for them that they'll be able to get a

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Speaker 1: new job. But it's still a very robust labor market

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Speaker 1: with three point eight percent unemployment. You know, the Kansas

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Speaker 1: City FEDS Labor Market Conditions Index still at a super

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Speaker 1: high level. Jobs reports have been very very strong in

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Speaker 1: twenty twenty three here, so you're really not seeing much

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Speaker 1: ebbing in the labor market. I think there's structural issues

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Speaker 1: where labor supplies running under labor demand, and that's going

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Speaker 1: to take quite a while to settle down. What are

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Speaker 1: you expecting for Friday the job's reporting? I don't I

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Speaker 1: don't have a number for you, but anecdotal information seems

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Speaker 1: to indicate that their firms are still scrambling for workers.

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Speaker 1: They're doing some other things that are strategies that might

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Speaker 1: slow this down a little bit. There's substituting capital for labor.

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Speaker 1: That makes a lot of sense in this situation, but

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Speaker 1: I just think that on the whole, they still need workers. Well,

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Speaker 1: if they still need workers and supply is running below demand,

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Speaker 1: that has to complicate the idea of monetary policy, because

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Speaker 1: that's not what's supposed to happen when you're raising rates

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Speaker 1: as much as you have. That's true, although I'm not

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Speaker 1: as oriented towards the Phillips curve as many, But I

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Speaker 1: think the way I would state it is that the

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Speaker 1: strong labor market gives us headroom to fight inflation. It's

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Speaker 1: a good time to be fighting inflation and trying to

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Speaker 1: get inflation back to target while the labor market is

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Speaker 1: as strong as it is, and even workers that get

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Speaker 1: disrupted hopefully will be able to find a new job

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Speaker 1: and maybe a better job. In this situation, you have

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Speaker 1: critics around the country and certainly on Capitol Hill. That's

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Speaker 1: say workers are finally getting their share, wages are going up,

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Speaker 1: not quite keeping up with inflation, but much better than

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Speaker 1: they had been, and here comes the Fed wants to

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Speaker 1: squash them down again and cut the wage increases in

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Speaker 1: order to bring down inflation. What do you say to

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Speaker 1: those people, Well, what are they talking about? Real wages

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Speaker 1: have gone down for most people, so the inflation is

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Speaker 1: hurting them. So inflation is hurting the average worker. So

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Speaker 1: you don't think the FED has a perception problem with

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Speaker 1: America these days. You'd like to get rid of the

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Speaker 1: inflation so that people can get there, get a better

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Speaker 1: labor market outcome, and be able to afford the goods

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Speaker 1: that they have to purchase. So I think there's been

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Speaker 1: a lot of confusion around this issue. It's true that

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Speaker 1: some workers and some categories got more than the increase

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Speaker 1: in wages that more than made up for inflation, but

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Speaker 1: for many workers that hasn't been the case. They've been

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Speaker 1: lagging behind in real wages. And that's why you'd like

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Speaker 1: to bring inflation under control and get a better outcome

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Speaker 1: for the labor market. Markets have been struggling this morning

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Speaker 1: to figure out what's going to happen going forward with

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Speaker 1: the oil price headlines. But going into this weekend they

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Speaker 1: were pricing four rake cuts over the coming year. Why

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Speaker 1: are you when wall streets so far apart in what

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Speaker 1: you say is likely to happen, They should listen to me.

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Speaker 1: So here's what I think. I think I put eighty

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Speaker 1: percent probability that the financial stress will decline, and then

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Speaker 1: make that your base baseline forecast. I think that's for

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Speaker 1: low growth, but growth continued, pretty strong labor market and

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Speaker 1: inflation coming down. That's got eighty percent probability. Maybe now

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Speaker 1: I'd go to eighty five percent probability or something. And

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Speaker 1: then the other branch where financial stress gets worse, you know,

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Speaker 1: then we'll have to bring out more macroprudential tools and

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Speaker 1: it'll be a stressful situation, and all bets are off

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Speaker 1: in that situation. The problem with Wall Street is they've

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Speaker 1: got too much probability on that branch and not enough

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Speaker 1: probability on the other branch. So I think they're going

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Speaker 1: to reprice to the slow growth scenario, and so I

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Speaker 1: think we'll see this change in the weeks. I had

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Speaker 1: here go back to the banks for a second. In February,

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Speaker 1: the staff at the Open Market Committee presented on the

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Speaker 1: idea of these asset mismatches on bank balance sheets. So

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Speaker 1: you were kind of aware that this could be a problem.

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Speaker 1: Was there something that the Fed missed or didn't do,

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Speaker 1: or should have done to keep the bank situation, we'll

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Speaker 1: call it from developing as it has. I can't talk

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Speaker 1: about what was presented at their home c ME, so

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Speaker 1: I will neither confirm nor deny that. But my own

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Speaker 1: staff here was certainly well aware of issues with banks.

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Speaker 1: We talked to bankers all the time. We're a regulator

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Speaker 1: of banks, and so we knew that there were issues

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Speaker 1: about let's say, some deposits running off to non bank

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Speaker 1: entities that wanted to pay a higher rate. That's occurring,

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Speaker 1: but I think at a rate that's certainly manageable for

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Speaker 1: at least for the banks that we talked to. They've

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Speaker 1: got some securities holdings that have lost value as interest

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Speaker 1: rates have gone up, but that also I think is

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Speaker 1: manageable for nearly all institutions. So that you know, they're

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Speaker 1: running businesses and they've got challenges, but they've also they're

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Speaker 1: also petitive, and they'll they figure out ways to manage

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Speaker 1: the situation. I would also say anecdotally that most banks

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Speaker 1: say loan demand is strong, and they actually haven't sentives

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Speaker 1: to make loans at the higher interest rates. If they

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Speaker 1: can in order to offset some of the older loans

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Speaker 1: that they have that are that are at lower interest rates, well,

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Speaker 1: we got to send it back to Tom. But given

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Speaker 1: how Tom introduced us, you've got predictions for interest rates,

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Speaker 1: growth GDP, the end of the year Cardinals prediction. I'm

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Speaker 1: sure it'll be a great year for the Cardinals. I

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Speaker 1: think they'll win the division and I'll do very well.

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Speaker 1: Another victory yesterday, so excellent. All right, Tom Keane, we'll

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Speaker 1: send it back to you and the folks in New

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Speaker 1: York given the fact that Jim Bullard is so optimistic

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Speaker 1: about the Cardinals, will take that as a good sign

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Speaker 1: for the economy, we hope. And we like the pictures

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Speaker 1: clock as well. Michael McKee, thank you so much for

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Speaker 1: getting back to a National League baseball Here. James Bullard

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Speaker 1: of the FED, our John G. Wilson and Don lem

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Speaker 1: report here an update on the Blackstone Real Estate Income Trust.

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Speaker 1: And they're talking about the liquidity the redemptions as well

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Speaker 1: that we're seeing. And to put this in scale, this

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Speaker 1: trust was up eight percent last year. I want to

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Speaker 1: make clear, even with the withdrawal requests they're seeing, they're

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Speaker 1: seeing some rent stability within the Blackstone Real Estate Income Trust.

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Speaker 1: Stay with us. This is Bloomberg Now with the latest

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Speaker 1: news from New York City and around the world. Here's

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Speaker 1: Michael Barr that high to hit the terminal rate, I think,

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Speaker 1: well we will need I think we'll need to get

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Speaker 1: over five percent. The committee says that the median person

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Speaker 1: on the committee says a little over five percent. I'm

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Speaker 1: a little higher than that. I think inflation will be stickier,

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Speaker 1: And you know, I'd look mostly at the core measures

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Speaker 1: of inflation, like PC core inflation or the Dallas Fed

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Speaker 1: trim mean, which really hasn't come down very much at all,

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Speaker 1: still in the four percent range, so you four point

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Speaker 1: six or something like that. So so we're still talking

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Speaker 1: about a lot of inflation, more than double our inflation

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Speaker 1: target on that basis, and oil prices fluctuated around it's

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Speaker 1: it's hard to track exactly some of that might feed

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Speaker 1: into inflation and make our job a little bit more difficult.

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Speaker 1: Just north of us this morning, in Oakbrook, Illinois, McDonald's

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Speaker 1: has told its corporate officials to stay home this week

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Speaker 1: because they're going to start notifying people that they're being

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Speaker 1: laid off. How concerned are you with all these headlines

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Speaker 1: about layoffs coming in that you may go too far? Yeah,

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Speaker 1: the labor market is super strong. Still many more job openings,

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Speaker 1: and there are unemployed workers. I think if a worker

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Speaker 1: does get disrupted today that they should you know, let's

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Speaker 1: hope and pray for them that they'll be able to

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Speaker 1: get a new job. But it's still a very robust

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Speaker 1: labor market with three point eight percent unemployment. Uh, you know,

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Speaker 1: the Kansas City FEDS Labor Market Conditions Index still at

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Speaker 1: a super high level. Jobs reports have been very, very

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Speaker 1: strong in twenty twenty three here, so you're really not

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Speaker 1: seeing much ebbing in labor market. I think there are

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Speaker 1: structural issues where labor supplies running under labor demand, and

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Speaker 1: that's going to take quite a while to settle down.

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Speaker 1: What are you expecting for Friday the jobs reporting? I

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Speaker 1: don't have an I don't have a number for you,

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Speaker 1: but anecdotal information seems to indicate that their firms are

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Speaker 1: still scrambling for workers. They're doing some other things that

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Speaker 1: are strategy. Gee, it might slow this down a little bit.

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Speaker 1: There's substituting capital for labor that makes a lot of

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Speaker 1: sense in this situation. But I just think that on

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Speaker 1: the whole, they still need workers. Well, if they still

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Speaker 1: need workers and supply is running below demand, that has

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Speaker 1: to complicate the idea of monetary policy, because that's not

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Speaker 1: what's supposed to happen when you're raising rates as much

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Speaker 1: as you have. That's true, although I'm not as oriented

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Speaker 1: towards the Phillips curve as many, But I think the

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Speaker 1: way I would state it is that the strong labor

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Speaker 1: market gives us headroom to fight inflation. It's a good

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Speaker 1: time to be fighting inflation and trying to get inflation

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Speaker 1: back to target while the labor market is as strong

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Speaker 1: as it is, and even workers that get disrupted hopefully

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Speaker 1: will be able to find a new job and maybe

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Speaker 1: a better job. In this situation, you have critics around

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Speaker 1: the country and certainly on Capitol Hill. That's say, workers

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Speaker 1: are finally getting there or share wages are going up,

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Speaker 1: not quite keeping up with inflation, but much better than

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Speaker 1: they had been, and here comes the FED wants to

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Speaker 1: squash them down again and cut the wage increases in

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Speaker 1: order to bring down inflation. What do you say to

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Speaker 1: those people, Well, what are they talking about? Real wages

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Speaker 1: have gone down for most people, so the inflation is

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Speaker 1: hurting them. So inflation is hurting the average worker. So

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Speaker 1: you don't think the FED has a perception problem with

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Speaker 1: America these days? You'd like to get rid of the

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Speaker 1: inflation so that people can get there, get a better

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Speaker 1: labor market outcome, and be able to afford the goods

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Speaker 1: if they have to purchase. So I think there's been

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Speaker 1: a lot of confusion around this issue. It's true that

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Speaker 1: some workers and some categories got more than the increase

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Speaker 1: in wages that more than made up for inflation, but

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Speaker 1: for many workers that hasn't been the case. They've been

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Speaker 1: lagging behind in real wages. And that's why you'd like

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Speaker 1: to bring inflation under control and get a better outcome

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Speaker 1: for the labor market. Markets have been struggling this morning

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Speaker 1: to figure out what's going to happen going forward with

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Speaker 1: the oil price headlines. But going into this weekend they

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Speaker 1: were pricing four rake cuts over the coming year. Why

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Speaker 1: are you when wall streets so far apart in what

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Speaker 1: you say is likely to happen? They should listen to me.

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Speaker 1: So here's what I think. I think I put eighty

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Speaker 1: percent probability that the financial stress will decline and then

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Speaker 1: make that your base baseline forecast. I think that's for

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Speaker 1: low growth, but growth continued, pretty strong, labor market and

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Speaker 1: inflation coming down. That's got eighty percent probability. Maybe now

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Speaker 1: I'd go to eighty five percent probability or something, and

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Speaker 1: then the other branch where financial stress gets worse. Then,

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Speaker 1: you know, then we'll have to bring up more macro

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Speaker 1: prudential tools and it'll be a stressful situation, and all

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Speaker 1: bets are off in that situation. The problem with Wall

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Speaker 1: Street is they've got too much probability on that branch

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Speaker 1: and not enough probability on the other branch. I think

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Speaker 1: they're going to reprice to the slow growth scenario, and

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Speaker 1: so I think we'll see this change in the weeks.

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Speaker 1: I had here go back to the banks for a second.

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Speaker 1: In February, the staff at the Open Market Committee presented

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Speaker 1: on the idea of these asset mismatches on bank balance sheets.

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Speaker 1: So you were kind of aware that this could be

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Speaker 1: a problem. Was there something that the FED missed or

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Speaker 1: didn't do, or should have done to keep the bank situation,

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Speaker 1: we'll call it from developing as it has. I can't

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Speaker 1: talk about what was presented at their homes, so I

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Speaker 1: will neither confirm nor deny that. But my own staff

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Speaker 1: here was certainly well aware of issues with banks. We

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Speaker 1: talked to bankers all the time, where a regulator of banks,

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Speaker 1: and so we knew that there were issues about let's say,

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Speaker 1: some deposits running off to non bank entities that wanted

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Speaker 1: to pay a higher rate. That's occurring, but I think

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Speaker 1: at a rate that's certainly manageable for at least for

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Speaker 1: the banks that we talked to. They've got some securities

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Speaker 1: holdings that have lost value as interest rates have gone up,

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Speaker 1: but that also, I think is manageable for nearly all institutions.

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Speaker 1: So that you know, they're running businesses and they've got challenges,

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Speaker 1: but they've also they're also competitive, and they'll they figure

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Speaker 1: out ways to manage the situation. I would also say

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Speaker 1: anecdotally that most banks say loan demand is strong and

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Speaker 1: they actually have incentives to make loans at the higher

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Speaker 1: interest rates if they can in order to offset some

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Speaker 1: of the older loans that they have that are that

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Speaker 1: are at lower interest rates. Well, we got to send

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Speaker 1: it back to Tom. But given how Tom introduced us,

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Speaker 1: you've got predictions for interest rates growth GDP, the end

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Speaker 1: of the year Cardinals prediction. I'm sure it'll be a

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Speaker 1: great year for the Cardinals. I think they'll win the

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Speaker 1: division and they'll do very well. Another victory yesterday, so excellent.

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Speaker 1: All right, Tom Keane, we'll send it back to you

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Speaker 1: and the folks in New York. Given the fact that

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Speaker 1: Jim Bullard is so optimistic about the Cardinals, will take

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Speaker 1: that as a good sign for the economy. And we

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Speaker 1: like the pitcher's clock as well. Michael McKee, thank you

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Speaker 1: so much for getting back to a National League baseball.

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Speaker 1: Here James Bullard of the Fed. Right now, the big

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Speaker 1: deal is to speak with John Writing. He's a chief

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Speaker 1: economic advisor at Breen Capital, and there's any number of

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Speaker 1: ways ago here to go here, John, I want to

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Speaker 1: talk with James Bullard of Saint Louis. I'm going to

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Speaker 1: say you have been in the camp with Bullard looking

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Speaker 1: for some form of not sustained inflation, but that the

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Speaker 1: inflation worry won't go away. Bullard making clear we're putting

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Speaker 1: too much focus on the banking crisis and not enough

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Speaker 1: a monetary policy. One oh one. Do you agree? I

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Speaker 1: do agree. I think it's very important to you just

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Speaker 1: realize that the US is a very strong capital markets

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Speaker 1: and banking system, and it's a very different situation than

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Speaker 1: back in two thousand seven, two thousand and eight, and

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Speaker 1: the financial crisis that took down bear Stearns, Lehman Brothers, AIG.

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Speaker 1: It's a it's a very different world. So I think

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Speaker 1: there is too much focus on that. The responses have

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Speaker 1: been very swift, very strong. We can argue what the

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Speaker 1: r origins of this is, but we do know that

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Speaker 1: in effect there's an implicit guarantee of all deposits, regardless

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Speaker 1: of deposit insurance. There's some reform that needs to be

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Speaker 1: considered later, but that was essentially what Powell promised the

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Speaker 1: last FMC press conference. We're going to rip up the

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Speaker 1: script here with John writing, who lived the bear Stearns crisis.

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Speaker 1: I would say one of the great themes right now, John,

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Speaker 1: is it James Diamond standing out front of your bear

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Speaker 1: Stearns headquarters on that tumultuous day. His hindsight is he

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Speaker 1: made a massive mistake. Are we repeating the foibles of

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Speaker 1: bear Stearns and Lehman Brothers or we learned our lessons

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Speaker 1: over fifteen years? Well, I think we've learned some lessons.

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Speaker 1: There's no doubt about it that the higher capital levels,

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Speaker 1: the stress tests have done a lot to strengthen the

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Speaker 1: underlying banking system. But you have to have significant questions

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Speaker 1: about how that was implemented by supervisors, because if you

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Speaker 1: look at the case of Silicon Valley Bank, they had

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Speaker 1: over fifteen billion dollars of losses in their health to

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Speaker 1: maturity portfolio, which doesn't get run through the P and

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Speaker 1: L statement, doesn't get scored against their capital, so they

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Speaker 1: had almost all of their capital. The size of their

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Speaker 1: capital was almost the same magnitude as the size of

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Speaker 1: their losses in the health to maturity portfolio. Now, you

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Speaker 1: can only hold something to maturity if you have the

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Speaker 1: funding to hold things to maturity. And that's where there

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Speaker 1: is a similarity to two thousand and eight, which and

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Speaker 1: in many ways what happened there was so much faster.

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Speaker 1: But we know how to fix bank runs. Deposit insurance

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Speaker 1: fixes bank runs, and we've had that. We've had some

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Speaker 1: stabilization in the situation there, and the banking system as

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Speaker 1: a whole looks very different rims of the size of

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Speaker 1: their health to maturity losses against the overall capital. I

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Speaker 1: only get back on script here because the time is

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Speaker 1: so important, folks for just joining us on the radio,

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Speaker 1: John writing and bring capital with us this morning. And John,

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Speaker 1: I've got a dovetail two themes this week, and one

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Speaker 1: was Adam Two's is phenomenal essay in the ft, alluding

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Speaker 1: to the delusion or the imagery, the illusion that nominal

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Speaker 1: GDP gives us. You've written about this for years and

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Speaker 1: I pull it over to Dominic constant X credit suite

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Speaker 1: now maszooo and the idea of we've got an odd

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Speaker 1: nominal GDP because inflation is set high, we have a

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Speaker 1: certain form of restriction. And then the Constant's phrase, are

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Speaker 1: we super restrictive right now? All the dynamics that are

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Speaker 1: going on? Does Powell have a restriction he didn't expect. Well,

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Speaker 1: let's start with one definition restrictive, which is do we

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Speaker 1: have restrict in monetary policy? And I don't think that

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Speaker 1: you know, the fetch seeking that sufficiently restrict level of policy.

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Speaker 1: I don't think they're there, ye, I mean, Jim rightly,

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Speaker 1: rightly pointed out that the underlying inflation rate is in

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Speaker 1: the force, and he cited the Dallas fed all the

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Speaker 1: other measures pretty firmly in the mid four percents, which

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Speaker 1: means that interest rates, the policy rate adjusted for inflation,

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Speaker 1: that's only barely turned positive. Now there is a question

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Speaker 1: how much does a credit tightening have an impact here

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Speaker 1: and does that substitute for additional rate hikes. But Jim

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Speaker 1: also said that loan demand has been strong, so we

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Speaker 1: have to see how that plays out. But when I

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Speaker 1: said we've you know, the USC's twin markets, where that

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Speaker 1: if the banking system has issues, there's still the capital markets.

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Speaker 1: In many ways, this is the reverse of the long

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Speaker 1: term capital episode back in nineteen ninety eight, where the

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Speaker 1: capital markets froze up and the banking system was there

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Speaker 1: to lend. So we do have to remember that there

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Speaker 1: were banks as well as small banks. The big banks

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Speaker 1: will get bigger out of this as they did out

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Speaker 1: to the less financial crisis. They'll be i think, willing

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Speaker 1: to lend, willing to take market share. And then there's

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Speaker 1: also the capital market. So let's look at things like

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Speaker 1: the NFIB survey and see if the availability of credit

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Speaker 1: becomes a constraining issue on businesses. It hasn't been up

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Speaker 1: until this point major concern for them. We don't have

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Speaker 1: to turn us into a history lesson Steve Leesman with

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Speaker 1: a great essay He's over the death Star. Steve Leesman

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Speaker 1: with a great essay years ago. Neo Viccellian theory and

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Speaker 1: we don't need to go back to nineteen ten nineteen

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Speaker 1: twenty theory. But what we have here is a whole

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Speaker 1: body of people, John, who have never lived in a

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Speaker 1: normalized interest rate environment. I want you to speak to

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Speaker 1: our audience on radio and television that have never lived Oh,

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Speaker 1: that's the way the yield curve should look. Oh, we're

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Speaker 1: going to get out to the oddity of a normal

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Speaker 1: rate environment. What's going to be like? You know, it's

431
00:27:01,359 --> 00:27:04,080
Speaker 1: very funny referring to Steve Leesman's essay because that came

432
00:27:04,119 --> 00:27:07,080
Speaker 1: out of a conversation that I had with Steve and

433
00:27:07,280 --> 00:27:11,840
Speaker 1: we were talking about Vixcel before it became popularized. This

434
00:27:12,000 --> 00:27:15,560
Speaker 1: concept of the natural rate of interest. Now, the FED

435
00:27:15,800 --> 00:27:19,680
Speaker 1: has argued coming I'd work from John Williams for a

436
00:27:19,760 --> 00:27:22,520
Speaker 1: long time, that that natural interest rate of interest has

437
00:27:22,560 --> 00:27:27,960
Speaker 1: been depressed and became very low secular stagnation. Yet if

438
00:27:28,000 --> 00:27:30,760
Speaker 1: you look now in the markets, the markets are saying

439
00:27:30,840 --> 00:27:33,800
Speaker 1: real interest rates are going to be positive at a

440
00:27:33,880 --> 00:27:36,440
Speaker 1: significant level for the next decade. We got as high

441
00:27:36,440 --> 00:27:39,160
Speaker 1: as one point seven percent. That was maybe a bit high.

442
00:27:39,440 --> 00:27:41,399
Speaker 1: We were around one on a quarter percent at the

443
00:27:41,520 --> 00:27:44,240
Speaker 1: end of last week. So if you have a real

444
00:27:44,400 --> 00:27:48,760
Speaker 1: rate of one on a quarter percent, and you got

445
00:27:48,840 --> 00:27:52,920
Speaker 1: to get inflation down. But right now you're talking inflation

446
00:27:53,000 --> 00:27:56,359
Speaker 1: running underlying terms of four and a half percent. Where

447
00:27:56,440 --> 00:27:59,679
Speaker 1: does that long term rate of interest belong right now?

448
00:27:59,760 --> 00:28:02,120
Speaker 1: The where does it below? Would We're gonna run out

449
00:28:02,119 --> 00:28:04,000
Speaker 1: of time? And this is critical Ken Rogoff's in the

450
00:28:04,080 --> 00:28:06,359
Speaker 1: camp with you versus what Olivia is saying. We're gonna

451
00:28:06,359 --> 00:28:09,320
Speaker 1: talk to Olivia Blanchard at the IMF meetings here in

452
00:28:09,480 --> 00:28:12,360
Speaker 1: ten days or so. With that said, where is your

453
00:28:12,400 --> 00:28:15,200
Speaker 1: new two percent level? Does it have to be elevated higher?

454
00:28:15,200 --> 00:28:17,400
Speaker 1: As Adam Posen says, well, what I think the Fed

455
00:28:17,520 --> 00:28:20,080
Speaker 1: has to raise its long term neutral rate of interest

456
00:28:20,200 --> 00:28:23,080
Speaker 1: from half a percent adjusted for inflation to something more

457
00:28:23,160 --> 00:28:26,520
Speaker 1: like one one at a quardum percents where the markets are.

458
00:28:27,240 --> 00:28:29,719
Speaker 1: I would say that as a long term interest rate,

459
00:28:29,760 --> 00:28:33,520
Speaker 1: allowing for inflation and certainty, probably should be thinking four percent.

460
00:28:33,920 --> 00:28:36,880
Speaker 1: You're a four percent anchor for the ten year um,

461
00:28:37,840 --> 00:28:41,200
Speaker 1: and I'm probably for the funds rate going forward. This

462
00:28:41,320 --> 00:28:43,080
Speaker 1: idea that two and a half percent so are long

463
00:28:43,200 --> 00:28:47,280
Speaker 1: run neutral rate of interest? I think it is an

464
00:28:47,400 --> 00:28:56,120
Speaker 1: outdated concept. Okay, John writing with us today, very good

465
00:28:56,280 --> 00:28:58,480
Speaker 1: let us move on into the second quarter of two

466
00:28:58,560 --> 00:29:00,600
Speaker 1: thousand and three. In the equities base. We do that

467
00:29:00,640 --> 00:29:04,200
Speaker 1: with Laurie Kelvacine ahead of US Equity Strategy at RBC

468
00:29:04,360 --> 00:29:06,760
Speaker 1: Capital Market. It's a sensitive kelvas you know, over the

469
00:29:07,000 --> 00:29:12,680
Speaker 1: weekend saying that the stock market is healing. We're all healing, Laurie,

470
00:29:12,720 --> 00:29:16,200
Speaker 1: how injured were we and how are we healing right now?

471
00:29:17,880 --> 00:29:20,080
Speaker 1: So look, I think that what happened with SBB was

472
00:29:20,080 --> 00:29:22,600
Speaker 1: a shock. I mean, and that's obviously you know, what

473
00:29:22,760 --> 00:29:25,760
Speaker 1: everybody said at the time. But you know, those companies

474
00:29:25,800 --> 00:29:28,680
Speaker 1: in particular were very well owned over time in the

475
00:29:28,720 --> 00:29:30,560
Speaker 1: small and MidCap community. There are a lot of longer

476
00:29:30,640 --> 00:29:33,280
Speaker 1: leading reactors that need those companies quite well, you know,

477
00:29:33,360 --> 00:29:35,800
Speaker 1: sort of prior to the crypto era, prior you know,

478
00:29:35,920 --> 00:29:38,360
Speaker 1: to the kind of most recent version of the tech bubble.

479
00:29:38,720 --> 00:29:41,120
Speaker 1: And I think it was just an unanticipated, you know,

480
00:29:41,400 --> 00:29:43,840
Speaker 1: kind of mini black Swan event, and you've had a

481
00:29:43,920 --> 00:29:46,200
Speaker 1: lot of investors to sort of staying quiet, digging in

482
00:29:46,240 --> 00:29:48,960
Speaker 1: their heels, doing work. And what we know is that

483
00:29:49,120 --> 00:29:52,880
Speaker 1: sentiment indicators were already pretty depressed starting to recover a bit.

484
00:29:53,160 --> 00:29:55,320
Speaker 1: And if you look at AAII for example, it shot

485
00:29:55,400 --> 00:29:57,280
Speaker 1: right back down and kind of went close to GFC

486
00:29:57,480 --> 00:30:01,600
Speaker 1: type levels. Now, the brunt of the pain was obviously

487
00:30:01,680 --> 00:30:04,080
Speaker 1: taken in the banks. Small caps were one of the babies,

488
00:30:04,080 --> 00:30:06,360
Speaker 1: I think essentially thrown out with the bathwater because of

489
00:30:06,400 --> 00:30:09,240
Speaker 1: their cyclicality and because of that bank's exposure. And what

490
00:30:09,360 --> 00:30:11,800
Speaker 1: we saw over the past week was that the banks

491
00:30:11,840 --> 00:30:15,200
Speaker 1: and the small caps performance really stabilized. And I think

492
00:30:15,280 --> 00:30:18,480
Speaker 1: that's important because the banks are the problem child essentially

493
00:30:18,520 --> 00:30:21,400
Speaker 1: of this crisis. If you look back to two thousand

494
00:30:21,400 --> 00:30:23,280
Speaker 1: and two, what we saw was at the NASTAC one

495
00:30:23,400 --> 00:30:26,840
Speaker 1: hundred really started to stabilize after the World Com bankruptcy.

496
00:30:26,920 --> 00:30:28,880
Speaker 1: And that's very different from what we're like banks to

497
00:30:29,040 --> 00:30:32,040
Speaker 1: the problem child at the GFC n O eight after

498
00:30:32,160 --> 00:30:34,760
Speaker 1: the different bankruptcies and collapses there. So I think the

499
00:30:34,880 --> 00:30:38,400
Speaker 1: market is telling you that investors are starting to exhale

500
00:30:38,440 --> 00:30:40,400
Speaker 1: a bit, even if they're not breathing easy just yet.

501
00:30:40,520 --> 00:30:42,959
Speaker 1: What's critical here, Laurie, is if I take three groups

502
00:30:42,960 --> 00:30:46,560
Speaker 1: of MidCap small cap I got the growthiness crew, very

503
00:30:46,640 --> 00:30:49,520
Speaker 1: small group, I've got everybody else, and I've got the

504
00:30:49,680 --> 00:30:53,320
Speaker 1: value trap of banks. Where do I put new money today?

505
00:30:53,880 --> 00:30:57,960
Speaker 1: Do I buy the banks? Is a value proposition or

506
00:30:58,040 --> 00:31:02,040
Speaker 1: are they a trap. I think time is going to

507
00:31:02,120 --> 00:31:04,400
Speaker 1: tell on the banks themselves. I think if you talk

508
00:31:04,480 --> 00:31:06,840
Speaker 1: to Gerard and if you talk to ARC, they would

509
00:31:06,880 --> 00:31:09,000
Speaker 1: tell you there's longer term value being created. But we

510
00:31:09,080 --> 00:31:10,480
Speaker 1: do need to see a little bit more time to

511
00:31:10,520 --> 00:31:12,480
Speaker 1: see the dust settle. I think if you look in

512
00:31:12,560 --> 00:31:14,680
Speaker 1: small cap, though, banks were not the only things that

513
00:31:14,840 --> 00:31:17,640
Speaker 1: were cheap. Energy was very cheap on a relative basis

514
00:31:17,680 --> 00:31:20,120
Speaker 1: to both the R two and the big cap names.

515
00:31:20,200 --> 00:31:23,200
Speaker 1: A consumer discretionary was something else that really jumped down

516
00:31:23,600 --> 00:31:27,000
Speaker 1: a dust in recent months as being very undervalued in

517
00:31:27,040 --> 00:31:29,560
Speaker 1: a small cap space, but still looking quite expensive frankly

518
00:31:29,600 --> 00:31:31,520
Speaker 1: in the large cap space. So it might be more

519
00:31:31,560 --> 00:31:33,400
Speaker 1: of the time now to be a stockpicker in small

520
00:31:33,440 --> 00:31:35,720
Speaker 1: cap as opposed to buying the index. But I do

521
00:31:35,840 --> 00:31:38,200
Speaker 1: think there are bargains down there to be had, especially

522
00:31:38,360 --> 00:31:42,560
Speaker 1: if GDP data and earnings data continue to forecast a recovery.

523
00:31:42,560 --> 00:31:45,280
Speaker 1: In twenty twenty four, Laurie, after we got Silicon Valley

524
00:31:45,320 --> 00:31:47,520
Speaker 1: banks demise and some of the other banks that really

525
00:31:47,600 --> 00:31:49,280
Speaker 1: ran into trouble, a lot of people said this is

526
00:31:49,320 --> 00:31:53,000
Speaker 1: a game changer. It potentially does shift the narrative quite significantly.

527
00:31:53,480 --> 00:31:55,320
Speaker 1: Is the OPEC plus news that we got over the

528
00:31:55,360 --> 00:31:59,400
Speaker 1: weekend similar. You know, it's interesting I was thinking about

529
00:31:59,520 --> 00:32:02,600
Speaker 1: that at this morning, Lisa. You know, especially in regards

530
00:32:02,640 --> 00:32:06,000
Speaker 1: to the inflation narrative, I think that they are sort

531
00:32:06,040 --> 00:32:08,800
Speaker 1: of offsetting forces with one another in terms of the

532
00:32:08,840 --> 00:32:11,680
Speaker 1: inflation debate right now, whereas SBB may have, you know,

533
00:32:11,760 --> 00:32:13,360
Speaker 1: sort of put cuts back on the table in a

534
00:32:13,400 --> 00:32:16,640
Speaker 1: bigger way. We obviously saw interest rate expectations ratchet down.

535
00:32:17,000 --> 00:32:18,640
Speaker 1: Now you may see those, you know, kind of come

536
00:32:18,680 --> 00:32:21,160
Speaker 1: back up a little bit, probably not to the same degree,

537
00:32:21,520 --> 00:32:23,760
Speaker 1: but if you sort of put those aside, I'm not

538
00:32:24,280 --> 00:32:26,560
Speaker 1: sure that there has been a lot of change in

539
00:32:26,720 --> 00:32:29,440
Speaker 1: terms of other issues right now on the inflation debate.

540
00:32:29,480 --> 00:32:31,720
Speaker 1: We know the services sector is weakening. We know that

541
00:32:32,000 --> 00:32:34,320
Speaker 1: layops are probably gonna keep wage growth in check. We

542
00:32:34,440 --> 00:32:36,880
Speaker 1: know that CFOs from the Duke survey last week are

543
00:32:36,920 --> 00:32:40,040
Speaker 1: talking about how prices and wage growth are both going

544
00:32:40,080 --> 00:32:42,600
Speaker 1: to come down this year and next year. Their optimism

545
00:32:43,240 --> 00:32:45,360
Speaker 1: is really waiting for both this and next year. So

546
00:32:45,440 --> 00:32:48,920
Speaker 1: I feel like the sources of inflation are generally on

547
00:32:49,040 --> 00:32:50,680
Speaker 1: the mend. And now we've kind of got these two

548
00:32:50,760 --> 00:32:52,920
Speaker 1: other big issues that are offsetting each other. I'm not

549
00:32:52,960 --> 00:32:55,040
Speaker 1: sure I would call each of them game changer, but

550
00:32:55,200 --> 00:32:57,440
Speaker 1: maybe major detours. So what is you here at the

551
00:32:57,480 --> 00:32:59,600
Speaker 1: beginning of the second quarter? What are your twelve months

552
00:32:59,640 --> 00:33:04,800
Speaker 1: lifting equities? So we don't do twelve month forecast, but

553
00:33:04,880 --> 00:33:07,080
Speaker 1: we've still got our year end target for December thirty first,

554
00:33:07,080 --> 00:33:09,160
Speaker 1: and that we've still got forty one hundred, and we

555
00:33:09,280 --> 00:33:11,520
Speaker 1: feel like that's a nice base case in here. We

556
00:33:11,640 --> 00:33:14,160
Speaker 1: have done some valuation work which suggests there could be

557
00:33:14,240 --> 00:33:16,840
Speaker 1: some upside from that. I think to really get downside

558
00:33:16,880 --> 00:33:18,920
Speaker 1: from that, you've got to assume that there's a recession

559
00:33:19,000 --> 00:33:21,479
Speaker 1: that bleeds into twenty twenty four, and I don't think

560
00:33:21,520 --> 00:33:24,440
Speaker 1: the case has been made for that yet. Laurie Chalvasina,

561
00:33:24,640 --> 00:33:27,040
Speaker 1: thank you so much, greatly appreciate it. With RBC Capital

562
00:33:27,120 --> 00:33:41,880
Speaker 1: Markets this morning and Ed Morris Press this morning, Ed

563
00:33:42,160 --> 00:33:46,120
Speaker 1: you divide into west of Suez Canal. In East of

564
00:33:46,240 --> 00:33:49,600
Speaker 1: Suez Canal, I want you to talk about the power

565
00:33:49,800 --> 00:33:54,000
Speaker 1: of this coalition around Saudi Arabia with the Strait of

566
00:33:54,080 --> 00:33:57,880
Speaker 1: Hermus and onto the Straits of Malacca in Singapore. What

567
00:33:58,120 --> 00:34:02,080
Speaker 1: power do they hold? Well, the power that they hold

568
00:34:02,200 --> 00:34:04,360
Speaker 1: is an ability to cut and an ability to add

569
00:34:04,400 --> 00:34:07,240
Speaker 1: oil to the market. And that's pretty incredible because it's

570
00:34:07,280 --> 00:34:10,160
Speaker 1: a group they have shut in capacity that's well over

571
00:34:10,239 --> 00:34:13,680
Speaker 1: two million dollars a day, and they're coming off a

572
00:34:13,800 --> 00:34:18,479
Speaker 1: banning here in terms of revenue generation. That's it's something

573
00:34:18,560 --> 00:34:21,000
Speaker 1: they want to keep. And if they want to cut

574
00:34:21,160 --> 00:34:22,920
Speaker 1: million dollars a day, they've just shown that they have

575
00:34:23,000 --> 00:34:25,360
Speaker 1: the power to do it. I literally have on my

576
00:34:25,480 --> 00:34:30,879
Speaker 1: coffee table at at home another firms analysis to over

577
00:34:31,000 --> 00:34:34,839
Speaker 1: one hundred dollars a barrel, which centers on em recovery

578
00:34:35,200 --> 00:34:39,840
Speaker 1: and China recovery. You were brilliant in calling for lower

579
00:34:39,960 --> 00:34:43,320
Speaker 1: quissent Brent crude prices. Do you need to reverse this

580
00:34:43,600 --> 00:34:48,600
Speaker 1: morning and to begin to consider one hundred a barrel oil? Well,

581
00:34:48,640 --> 00:34:51,759
Speaker 1: we're considering higher prices than we otherwise had. And yes,

582
00:34:51,880 --> 00:34:54,200
Speaker 1: there is a scenario of one hundred dollar barrel oil,

583
00:34:54,280 --> 00:34:56,640
Speaker 1: but I don't think we're anywhere near that yet. To

584
00:34:56,719 --> 00:34:58,560
Speaker 1: get to one hundred dollars oil, we'd have to have

585
00:34:58,680 --> 00:35:02,200
Speaker 1: significantly more taken out of the market and have a

586
00:35:02,239 --> 00:35:04,800
Speaker 1: lot of uncertainty based on that oil taken out of

587
00:35:04,840 --> 00:35:06,879
Speaker 1: the market. That is to say, it would come from

588
00:35:06,920 --> 00:35:10,840
Speaker 1: a destruction to supply in countries such as rand Iraq, Libyan,

589
00:35:10,920 --> 00:35:13,759
Speaker 1: Nigeria altogether at at the same time, and we would

590
00:35:13,760 --> 00:35:17,000
Speaker 1: have no sense because of the domestic situation in those

591
00:35:17,040 --> 00:35:19,960
Speaker 1: countries of when that oil could come back into the market.

592
00:35:20,440 --> 00:35:23,239
Speaker 1: We have what we consider to be an effort to

593
00:35:24,080 --> 00:35:27,880
Speaker 1: prevent the repeat of twenty twenty eight nine, when we

594
00:35:28,040 --> 00:35:30,879
Speaker 1: had oil prices collapsing from one hundred and forty seven

595
00:35:31,280 --> 00:35:34,920
Speaker 1: to the low forties before getting to a normalized level

596
00:35:34,960 --> 00:35:37,680
Speaker 1: of ninety dollars a barrel. It took about a year

597
00:35:37,719 --> 00:35:41,000
Speaker 1: and a half to have all of that display work out,

598
00:35:41,120 --> 00:35:44,799
Speaker 1: given financial flows and given the uncertainties in the market.

599
00:35:44,920 --> 00:35:48,400
Speaker 1: We have the financial flows now and we don't have

600
00:35:48,600 --> 00:35:51,560
Speaker 1: quite that level of uncertainty. We know that supply is

601
00:35:51,600 --> 00:35:55,520
Speaker 1: definitely coming into the market. I believe strongly that the

602
00:35:55,960 --> 00:35:58,680
Speaker 1: increase in prices that we've already had is going to

603
00:35:58,800 --> 00:36:01,560
Speaker 1: place a US production on a higher path to growth

604
00:36:01,920 --> 00:36:04,799
Speaker 1: than we otherwise might have had. And we think we're

605
00:36:04,840 --> 00:36:08,160
Speaker 1: thinking that on first plus, looking at everything at the

606
00:36:08,239 --> 00:36:11,640
Speaker 1: moment overnight, that we're going to have a fairly balanced

607
00:36:11,719 --> 00:36:15,080
Speaker 1: market of market that's going to be plus or minus

608
00:36:15,080 --> 00:36:17,840
Speaker 1: a couple hundred thousand bars a day, no big inventory build,

609
00:36:18,239 --> 00:36:23,239
Speaker 1: no big inventory draw and on the demand picture that

610
00:36:23,400 --> 00:36:26,120
Speaker 1: you were looking at, I have to say we flatly disagree.

611
00:36:26,239 --> 00:36:28,719
Speaker 1: We think we're in a period of time when we're

612
00:36:28,719 --> 00:36:32,680
Speaker 1: seeing demands last hurrah. We're seeing, to be sure, growth

613
00:36:32,760 --> 00:36:35,719
Speaker 1: in China that's formidable. It basically makes up for the

614
00:36:35,880 --> 00:36:40,000
Speaker 1: loss of demand growth demand decline in China a year ago.

615
00:36:40,400 --> 00:36:42,960
Speaker 1: And we don't think after this increase in demand from

616
00:36:43,040 --> 00:36:46,239
Speaker 1: China we're going to see a Chinese demand ratcheting up

617
00:36:46,360 --> 00:36:49,879
Speaker 1: much further. Yes, there is em growth and India leads,

618
00:36:50,000 --> 00:36:51,840
Speaker 1: but that's that's going to be in the three or

619
00:36:51,880 --> 00:36:54,720
Speaker 1: four hundred thousand barli day range, not a million bari

620
00:36:54,760 --> 00:36:57,200
Speaker 1: day range. Ed. Can you frame out then how much

621
00:36:57,200 --> 00:37:00,399
Speaker 1: of a surprise this cut was, which was on died

622
00:37:00,680 --> 00:37:02,799
Speaker 1: and comes at a time where some people are speculating

623
00:37:02,880 --> 00:37:05,440
Speaker 1: that it was politically motivated to send a message to

624
00:37:05,520 --> 00:37:09,040
Speaker 1: Washington and to possibly boost oil prices, meaning more cuts

625
00:37:09,080 --> 00:37:11,759
Speaker 1: down the road if it doesn't work. Now, I think

626
00:37:11,800 --> 00:37:14,680
Speaker 1: it was definitely designed to boost oil prices. They countries

627
00:37:14,719 --> 00:37:18,279
Speaker 1: will just looking at sixty dollars oils straight on and yes,

628
00:37:18,360 --> 00:37:20,440
Speaker 1: they've seen a rally based on a whole bunch of

629
00:37:20,560 --> 00:37:24,719
Speaker 1: things that they consider to be temporary, not permanent, And yes,

630
00:37:24,800 --> 00:37:27,840
Speaker 1: they want higher oil prices. Or the countries that we

631
00:37:27,960 --> 00:37:31,560
Speaker 1: were looking at, particularly Saudi Arabia has a significantly higher

632
00:37:31,640 --> 00:37:34,920
Speaker 1: pistol break even than a lot of other countries, and

633
00:37:35,600 --> 00:37:39,000
Speaker 1: they're more comfortable with oil certainly with an eighty dollars base,

634
00:37:39,080 --> 00:37:41,759
Speaker 1: and not bad with a ninety dollars base. They didn't

635
00:37:41,760 --> 00:37:43,560
Speaker 1: see too much in the way of damage to the

636
00:37:43,600 --> 00:37:46,920
Speaker 1: global economy at ninety dollars of barrow last year. I

637
00:37:47,000 --> 00:37:48,960
Speaker 1: don't think we're staring in the face of one hundred.

638
00:37:49,160 --> 00:37:54,279
Speaker 1: We're certainly flirting with a market which could see a

639
00:37:54,440 --> 00:37:57,320
Speaker 1: more demand in the spring and summer than we otherwise

640
00:37:57,400 --> 00:37:59,440
Speaker 1: thought might be. But I think the price is going

641
00:37:59,520 --> 00:38:02,560
Speaker 1: to cap demand and we're going to see you know,

642
00:38:02,680 --> 00:38:06,279
Speaker 1: we were looking at a world of around add one

643
00:38:06,360 --> 00:38:09,319
Speaker 1: point four one point five million varil to day demand. Yes,

644
00:38:09,440 --> 00:38:13,560
Speaker 1: OPEC at a higher level than that, and there was

645
00:38:13,600 --> 00:38:16,640
Speaker 1: some political factor I think involved in their own very

646
00:38:16,800 --> 00:38:20,920
Speaker 1: type or a supply demand balance. Even in their last report,

647
00:38:21,640 --> 00:38:25,160
Speaker 1: this goes against that and says, hey, there's something going on,

648
00:38:25,640 --> 00:38:27,640
Speaker 1: and I think it's a defense that's going on. They

649
00:38:27,680 --> 00:38:30,359
Speaker 1: want the higher oil prices. They need it in order

650
00:38:30,440 --> 00:38:34,560
Speaker 1: to revamp and reinvest in their economies as rapidly as possible.

651
00:38:35,320 --> 00:38:37,319
Speaker 1: But they have no better interest than a hundred dollars

652
00:38:37,360 --> 00:38:39,840
Speaker 1: oil than most other countries too. They don't want to

653
00:38:39,840 --> 00:38:43,000
Speaker 1: see a demand decline. They want to prevent the drop

654
00:38:43,080 --> 00:38:45,279
Speaker 1: of one hundred dollars that we saw, or a drop

655
00:38:45,400 --> 00:38:48,000
Speaker 1: of more than fifty percent in today's market that they

656
00:38:48,000 --> 00:38:50,400
Speaker 1: saw in two thousand and eight, but quickly, but quickly,

657
00:38:50,640 --> 00:38:52,880
Speaker 1: just based on what you're saying. If they want higher prices,

658
00:38:53,000 --> 00:38:56,720
Speaker 1: and perhaps eighty dollars is the floor, maybe ninety dollars,

659
00:38:56,960 --> 00:38:59,600
Speaker 1: then what's to stop OPEC plus from cutting further and

660
00:38:59,680 --> 00:39:03,400
Speaker 1: further or even as the economy slows. There are a

661
00:39:03,400 --> 00:39:05,160
Speaker 1: couple of things that stopped it. One is that the

662
00:39:05,320 --> 00:39:08,640
Speaker 1: economies would slow a lot faster than they're now slowing,

663
00:39:08,680 --> 00:39:11,600
Speaker 1: and they don't want that to happen. They understand fully

664
00:39:11,680 --> 00:39:15,359
Speaker 1: well that Chinese growth is not exploding the way people

665
00:39:15,400 --> 00:39:17,560
Speaker 1: thought it was. You look at the numbers. Yes, there

666
00:39:17,680 --> 00:39:19,320
Speaker 1: was a million barrels a day of growth, but that

667
00:39:19,440 --> 00:39:22,319
Speaker 1: was Chinese New Year, and that always happens. There's nothing

668
00:39:22,960 --> 00:39:27,279
Speaker 1: about this particular rebounded in China that you can get

669
00:39:27,960 --> 00:39:31,080
Speaker 1: reinforced in your view by what happened. They're really concerned

670
00:39:31,080 --> 00:39:33,120
Speaker 1: about a drop in oil prices. They just looked at

671
00:39:33,160 --> 00:39:36,080
Speaker 1: a drop to the sixties and they're looking back at

672
00:39:36,160 --> 00:39:38,319
Speaker 1: two thousand and eight nine, and I think they made

673
00:39:38,320 --> 00:39:40,560
Speaker 1: a terrible judgment on that. They think they'll find out

674
00:39:40,880 --> 00:39:43,520
Speaker 1: that that judgment was terrible because this is not two

675
00:39:43,560 --> 00:39:47,399
Speaker 1: thousand and eight nine. In multiple ways, do you give

676
00:39:47,440 --> 00:39:50,440
Speaker 1: an okay score to the Biden administration? They seem to

677
00:39:50,480 --> 00:39:54,400
Speaker 1: be a pinata, even pro anti oil whatever. Everybody's beaten

678
00:39:54,520 --> 00:39:59,160
Speaker 1: up on our president's energy policy. Are you piling on?

679
00:39:59,280 --> 00:40:05,320
Speaker 1: Are you beating up on President Biden's energy policy? Well, yes, certainly,

680
00:40:05,640 --> 00:40:08,360
Speaker 1: and certainly. At the beginning of the administration, there was nobody,

681
00:40:08,440 --> 00:40:11,480
Speaker 1: virtually nobody in the administration that came out of the

682
00:40:11,600 --> 00:40:14,479
Speaker 1: markets anywhere in the world. There are all people coming

683
00:40:14,560 --> 00:40:19,359
Speaker 1: from academia, people coming from a very strong pro environmental,

684
00:40:19,520 --> 00:40:23,480
Speaker 1: anti fossil fuel bias, and they didn't really understand markets.

685
00:40:23,520 --> 00:40:26,399
Speaker 1: They were forced to understand markets. They've gained a lot

686
00:40:26,520 --> 00:40:30,320
Speaker 1: better understanding of markets. We've just seen a reopening of

687
00:40:30,760 --> 00:40:34,560
Speaker 1: bids on federal lands. This legislation that's going to assure that,

688
00:40:34,680 --> 00:40:38,560
Speaker 1: and they know in the White House that they don't

689
00:40:38,600 --> 00:40:41,120
Speaker 1: want to see a higher gasoline prices. And the way

690
00:40:41,160 --> 00:40:45,040
Speaker 1: to do that is by having the USB the strong

691
00:40:45,160 --> 00:40:47,880
Speaker 1: power that it is. As by the way, now the

692
00:40:48,000 --> 00:40:51,680
Speaker 1: world's largest GROS exporter of oil at a country where

693
00:40:51,800 --> 00:40:55,359
Speaker 1: demand has already softened tremendously, where a demand is down

694
00:40:55,440 --> 00:40:57,759
Speaker 1: well over a million barrels a day year on year,

695
00:40:57,800 --> 00:41:00,480
Speaker 1: in our economy is not in bad shape. So we're

696
00:41:00,520 --> 00:41:04,279
Speaker 1: seeing a transformation at all where we've become kind of

697
00:41:04,320 --> 00:41:08,080
Speaker 1: a critical swing supplier, and Saudi Arabia is very very

698
00:41:08,239 --> 00:41:10,759
Speaker 1: sensitive and aware of that. Ed thank you so much

699
00:41:10,800 --> 00:41:13,400
Speaker 1: for joining us. Edward Morris a city group here on

700
00:41:13,520 --> 00:41:16,920
Speaker 1: the Shock announcement from OLDPEC Plus. Subscribe to the Bloomberg

701
00:41:17,000 --> 00:41:20,960
Speaker 1: Surveillance podcast on Apple, Spotify and anywhere else you get

702
00:41:21,000 --> 00:41:25,720
Speaker 1: your podcasts. Listen live every weekday starting at seven am Eastern.

703
00:41:26,239 --> 00:41:30,239
Speaker 1: I'm Bloomberg dot Com, the iHeartRadio app, tune In, and

704
00:41:30,320 --> 00:41:33,960
Speaker 1: the Bloomberg Business app. You can watch us live. I'm

705
00:41:33,960 --> 00:41:38,640
Speaker 1: Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening.

706
00:41:39,200 --> 00:41:42,000
Speaker 1: I'm Tom Keane and this is Bloomberg,