1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma Waits. Each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money, Whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,960 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:23,560 Speaker 1: at Bloomberg dot com. We are seeing the repo rate 8 00:00:23,600 --> 00:00:25,200 Speaker 1: that got a lot of people all bent out of 9 00:00:25,200 --> 00:00:27,560 Speaker 1: shape a couple of days ago come down further as 10 00:00:27,600 --> 00:00:30,120 Speaker 1: a New York Fed engages in a third day of 11 00:00:30,160 --> 00:00:34,080 Speaker 1: its repo facility, trying to inject calm into this basic 12 00:00:34,200 --> 00:00:37,120 Speaker 1: plumbing of the financial system. Here joining us, Tom Kennedy, 13 00:00:37,280 --> 00:00:39,800 Speaker 1: Global head of Macro and fixed Income Strategy at JPMorgan 14 00:00:39,840 --> 00:00:43,360 Speaker 1: Private Bank. Here in our Bloomberg and Active Broker Studios. Tom, 15 00:00:43,400 --> 00:00:45,960 Speaker 1: I'm wondering if we could start talking about the takeaways 16 00:00:46,000 --> 00:00:48,800 Speaker 1: from this whole episode. Does this mean that the Federal 17 00:00:48,840 --> 00:00:51,800 Speaker 1: Reserve allowed its balance sheet to just get too small 18 00:00:51,880 --> 00:00:56,319 Speaker 1: as it allowed it to shrink with quantitative tightening? Yes, yes, 19 00:00:56,400 --> 00:01:01,600 Speaker 1: all right, So why why the amount of liquidity that 20 00:01:01,680 --> 00:01:05,840 Speaker 1: a very dynamic US economy needs is impossible to know 21 00:01:05,920 --> 00:01:08,280 Speaker 1: in exact real time. You can see it and see 22 00:01:08,280 --> 00:01:11,840 Speaker 1: indicators of a certain amount of excess reserves, which I'm 23 00:01:11,840 --> 00:01:14,959 Speaker 1: gonna call liquidity for the sake of this discussion, um 24 00:01:15,080 --> 00:01:17,640 Speaker 1: that you need for the economy to function. The analogy 25 00:01:17,720 --> 00:01:19,920 Speaker 1: is that I use this in my own personal life. 26 00:01:20,120 --> 00:01:23,080 Speaker 1: When I was in college, didn't have a job, wasn't 27 00:01:23,080 --> 00:01:25,920 Speaker 1: really spending much. My checking account could have relatively small 28 00:01:25,959 --> 00:01:29,919 Speaker 1: balance in it. It was very small. Trust me. Fast forward, 29 00:01:30,040 --> 00:01:32,360 Speaker 1: you have a family, you have a job, you have debt, 30 00:01:32,840 --> 00:01:35,360 Speaker 1: you have more liability needs, and you need to have 31 00:01:35,360 --> 00:01:38,160 Speaker 1: more cash in your checking checking account. Same analogy can 32 00:01:38,160 --> 00:01:41,920 Speaker 1: be applied to the US economy. This economy has grown 33 00:01:42,200 --> 00:01:45,520 Speaker 1: remarkably over the last ten years, and the repo market 34 00:01:45,560 --> 00:01:47,800 Speaker 1: signals this week are telling us about one point three 35 00:01:47,840 --> 00:01:50,600 Speaker 1: trillion in reserves. Is just not enough liquidity. And I'm 36 00:01:50,600 --> 00:01:53,840 Speaker 1: fully aware of the the technical issues of the supply 37 00:01:53,840 --> 00:01:55,640 Speaker 1: and demand that happened over the last couple of weeks, 38 00:01:55,680 --> 00:01:58,040 Speaker 1: But I think we can, for for most people out there, 39 00:01:58,080 --> 00:02:00,840 Speaker 1: smooth through that and say there's just not enough liquidity 40 00:02:00,840 --> 00:02:04,080 Speaker 1: in the system. Despite the popular belief that liquidity is 41 00:02:04,080 --> 00:02:07,400 Speaker 1: a wash in the system and repo markets. This this week, 42 00:02:07,400 --> 00:02:11,079 Speaker 1: I've been telling us that the FED comes out with 43 00:02:11,320 --> 00:02:15,440 Speaker 1: temporary operations. They're just putting cash and liquidity into the system. 44 00:02:15,560 --> 00:02:19,280 Speaker 1: They this is a temporary fix for a permanent problem. 45 00:02:19,320 --> 00:02:22,440 Speaker 1: They are going to need eventually to have the balance 46 00:02:22,480 --> 00:02:25,720 Speaker 1: sheet continue to Expand that's not QUEI, that's just to 47 00:02:25,760 --> 00:02:28,840 Speaker 1: make sure there's enough liquidity in the system. Shouldn't be inflationary. 48 00:02:29,200 --> 00:02:31,079 Speaker 1: If it's not, que how do they do it? Yeah? 49 00:02:31,080 --> 00:02:33,680 Speaker 1: The good pointly so that the mechanics are the same, 50 00:02:34,400 --> 00:02:37,560 Speaker 1: but the objective and the end goal are different. In 51 00:02:37,680 --> 00:02:39,560 Speaker 1: a place where you need to make sure there's enough liquidity, 52 00:02:39,639 --> 00:02:43,480 Speaker 1: you're injecting just enough to make sure markets function shouldn't 53 00:02:43,520 --> 00:02:46,280 Speaker 1: be inflationary because you're just making sure you're checking account 54 00:02:46,360 --> 00:02:48,560 Speaker 1: for the sake of this example, has enough to meet 55 00:02:48,560 --> 00:02:52,760 Speaker 1: your demands. QUEI is by even more bonds that are 56 00:02:52,840 --> 00:02:56,520 Speaker 1: that are necessary for liquidity in the in the attempt 57 00:02:56,600 --> 00:02:59,960 Speaker 1: to really pull you lower and stimulate inflation. Different objective, 58 00:03:00,480 --> 00:03:04,720 Speaker 1: same mechanical um implementation that needs to be done. What 59 00:03:04,800 --> 00:03:07,040 Speaker 1: if the FED decides doesn't agree with you and decides 60 00:03:07,320 --> 00:03:08,840 Speaker 1: this is just a short term blip. We don't need 61 00:03:08,840 --> 00:03:10,360 Speaker 1: to do really anything. We don't have to grow this 62 00:03:10,360 --> 00:03:14,440 Speaker 1: balance too much. Repo rates will continue to remain high. 63 00:03:14,639 --> 00:03:17,720 Speaker 1: And I mean this week, overnight repo traded north of 64 00:03:17,800 --> 00:03:21,320 Speaker 1: nine percent for a period of time. It's quite simple 65 00:03:21,360 --> 00:03:23,680 Speaker 1: to realize that if you're receiving a yield on an 66 00:03:23,720 --> 00:03:26,280 Speaker 1: instrument that you own. Let's just say it's a ten 67 00:03:26,320 --> 00:03:29,080 Speaker 1: year treasury that holds a coupon of two, and to 68 00:03:29,240 --> 00:03:32,400 Speaker 1: finance that security at nine percent, obviously that's a negative 69 00:03:32,440 --> 00:03:34,600 Speaker 1: carry position and can't go on for very long. So 70 00:03:34,760 --> 00:03:37,560 Speaker 1: levered players in a system, if the FED doesn't address this, 71 00:03:38,240 --> 00:03:41,040 Speaker 1: will not be able to function. So the FED currently 72 00:03:41,080 --> 00:03:44,600 Speaker 1: has one point three trillion dollars of non treasury or 73 00:03:44,600 --> 00:03:47,880 Speaker 1: mortgage backed securities debt that is liquidity for this purpose 74 00:03:47,920 --> 00:03:52,880 Speaker 1: corrects the excess reserves on the liability on the liability side, 75 00:03:52,920 --> 00:03:55,360 Speaker 1: or is about one point three one point three trillion dollars? 76 00:03:55,360 --> 00:03:58,560 Speaker 1: How much should it be? I don't know. I don't 77 00:03:58,600 --> 00:04:01,080 Speaker 1: think that they know either. I think that all they're 78 00:04:01,080 --> 00:04:04,320 Speaker 1: realizing is it's not enough right now. And this is 79 00:04:04,360 --> 00:04:06,280 Speaker 1: this is kind of the This is where the art 80 00:04:06,360 --> 00:04:09,240 Speaker 1: of central banking meets what I think is perceived science. 81 00:04:09,720 --> 00:04:12,080 Speaker 1: Um the economy is so dynamic. They don't know the 82 00:04:12,160 --> 00:04:14,080 Speaker 1: dot on this dot on this day, we need one 83 00:04:14,120 --> 00:04:16,719 Speaker 1: point four chilion. They don't know, so they have to 84 00:04:16,800 --> 00:04:19,800 Speaker 1: feel it a little bit, and the repo market is 85 00:04:19,920 --> 00:04:22,440 Speaker 1: sending them a signal they don't have enough. Okay, So 86 00:04:23,000 --> 00:04:25,159 Speaker 1: the consequences are pretty dire, right that we could end 87 00:04:25,240 --> 00:04:28,159 Speaker 1: up with a liquidity crunch, even a downturn or some 88 00:04:28,200 --> 00:04:30,680 Speaker 1: sort of seizure. You know, levered players could get blown 89 00:04:30,720 --> 00:04:32,920 Speaker 1: out of the water. UH could pull back. This is 90 00:04:32,920 --> 00:04:35,400 Speaker 1: a private debt, private equity, you know, all sorts of 91 00:04:35,760 --> 00:04:40,799 Speaker 1: levered currency funds um Looking at that right, I'm wondering 92 00:04:40,880 --> 00:04:43,119 Speaker 1: on the flip side, the fasure serve comes out starts 93 00:04:43,160 --> 00:04:45,279 Speaker 1: to buy a lot more bonds that we're just trying 94 00:04:45,320 --> 00:04:48,799 Speaker 1: to manage the situation. How do they distinguish that from 95 00:04:48,839 --> 00:04:52,280 Speaker 1: trying to ease financial conditions. The communication there's a communication 96 00:04:52,360 --> 00:04:55,280 Speaker 1: challenge with this. This hasn't been a part of their 97 00:04:55,320 --> 00:04:58,160 Speaker 1: tool kit for ten years. They over the next six 98 00:04:58,240 --> 00:04:59,920 Speaker 1: eight weeks ahead of the actor re meaning there's gonna 99 00:05:00,040 --> 00:05:02,520 Speaker 1: you're gonna hear lots of education from them to distinguish 100 00:05:02,560 --> 00:05:05,320 Speaker 1: the two UH, and that's gonna be vitally important. There 101 00:05:05,400 --> 00:05:07,920 Speaker 1: is no one in the United States better position to 102 00:05:07,960 --> 00:05:09,839 Speaker 1: do this than the New York FED. They're gonna do 103 00:05:09,960 --> 00:05:12,200 Speaker 1: a great job doing it, but there's there needs to 104 00:05:12,200 --> 00:05:14,000 Speaker 1: be more education on this, and I expect them to 105 00:05:14,000 --> 00:05:16,800 Speaker 1: start that as soon as possible. Did you hear anything 106 00:05:16,800 --> 00:05:20,479 Speaker 1: from Chairman Pal yesterday on that issue? Yeah? I think he. 107 00:05:20,960 --> 00:05:22,600 Speaker 1: I read him as saying we're gonna learn a lot 108 00:05:22,600 --> 00:05:24,880 Speaker 1: over the next six weeks as they try to feel 109 00:05:25,000 --> 00:05:28,479 Speaker 1: where the level of access reserves is required. Um and 110 00:05:28,520 --> 00:05:30,040 Speaker 1: I also interpreted him as they're going to do a 111 00:05:30,080 --> 00:05:32,320 Speaker 1: lot of work on how much the balance sheet needs 112 00:05:32,320 --> 00:05:34,760 Speaker 1: to grow. And my expectation out of yesterday is that 113 00:05:34,760 --> 00:05:36,480 Speaker 1: they're going to come up with an announcement in October 114 00:05:36,520 --> 00:05:39,200 Speaker 1: about how to start expanding the balance sheet again to 115 00:05:39,279 --> 00:05:42,880 Speaker 1: meet these liquidity needs. Just not do kuwie, just real quick. 116 00:05:42,920 --> 00:05:45,159 Speaker 1: Giving your experience at the New York FED, do you 117 00:05:45,200 --> 00:05:47,200 Speaker 1: think that they will get it right eventually or do 118 00:05:47,240 --> 00:05:49,719 Speaker 1: you think that this will remain a real problem. Confident 119 00:05:49,720 --> 00:05:52,480 Speaker 1: they're gonna get it right. The team there can do it. 120 00:05:53,000 --> 00:05:56,280 Speaker 1: I think the art of doing this is is what's 121 00:05:56,279 --> 00:05:58,560 Speaker 1: important here. They had to feel where the stress points 122 00:05:58,560 --> 00:06:01,440 Speaker 1: were I think it caught and by surprise, quite candidly, 123 00:06:01,960 --> 00:06:04,359 Speaker 1: this came a lot sooner than than myself and I 124 00:06:04,360 --> 00:06:06,640 Speaker 1: thought then. I think they thought as well, and Powell 125 00:06:06,720 --> 00:06:09,839 Speaker 1: more or less admitted that yesterday. Um, but they're gonna 126 00:06:09,880 --> 00:06:13,760 Speaker 1: fix it, and these temporary market operations are vital and 127 00:06:13,760 --> 00:06:16,080 Speaker 1: they're doing them. But again it's a temporary fix. They 128 00:06:16,080 --> 00:06:18,640 Speaker 1: need the permanent fix. Uh, and they'll give it to us. 129 00:06:18,920 --> 00:06:21,320 Speaker 1: Tom Kennedy thinks so much for joining us. Tom Kennedy's 130 00:06:21,360 --> 00:06:23,719 Speaker 1: global head of macro and fixing come strategy at JP 131 00:06:23,839 --> 00:06:27,680 Speaker 1: Morgan Private Bank. Educating us and our listeners on the 132 00:06:27,760 --> 00:06:32,159 Speaker 1: repo market clearly a challenge head for the Federal Reserve 133 00:06:32,240 --> 00:06:50,520 Speaker 1: to manage that part of the yield curve is people 134 00:06:50,560 --> 00:06:52,680 Speaker 1: doubt with our Saudi Arabia really will be able to 135 00:06:52,720 --> 00:06:55,479 Speaker 1: bring all their production back online all that soon. The 136 00:06:55,560 --> 00:06:59,000 Speaker 1: question is how much higher will it go? Joining us now, 137 00:06:59,240 --> 00:07:01,680 Speaker 1: we are so pleased to say, Bob Ryan, she's trying 138 00:07:01,720 --> 00:07:04,520 Speaker 1: to just focused on commodity and energy strategy for b 139 00:07:04,680 --> 00:07:07,520 Speaker 1: c A research. Bob, where do you think the price 140 00:07:07,560 --> 00:07:09,680 Speaker 1: of oil is going? I'm looking at crude on then 141 00:07:09,680 --> 00:07:15,560 Speaker 1: IMEX right now at fifty and sly three cents of barrel. Yeah, 142 00:07:15,600 --> 00:07:19,680 Speaker 1: thank you for having me. UM. That's tough to say. UM. 143 00:07:19,720 --> 00:07:22,640 Speaker 1: You know, we're UM right now trying to figure out 144 00:07:23,440 --> 00:07:26,520 Speaker 1: how fast storage is going to be drawn while Saudia 145 00:07:26,640 --> 00:07:32,360 Speaker 1: is repairing Opcake. Mostly we did some scenario analysis just 146 00:07:32,560 --> 00:07:35,760 Speaker 1: at the margin, not saying this is where UM prices 147 00:07:35,800 --> 00:07:38,320 Speaker 1: are going to go. But you know, the marginal impact 148 00:07:38,480 --> 00:07:44,080 Speaker 1: of UM delays in bringing these facilities back online UM 149 00:07:44,480 --> 00:07:48,960 Speaker 1: could push you, you know, through eighty dollars UH in 150 00:07:49,080 --> 00:07:53,600 Speaker 1: the first half of next year. So UM. That's not 151 00:07:53,640 --> 00:07:57,960 Speaker 1: to say it will happen. UM. What most likely happens 152 00:07:58,080 --> 00:08:01,960 Speaker 1: is commercial inventory keeps drawing down and at a certain point, 153 00:08:02,040 --> 00:08:06,160 Speaker 1: if you know, we see the forward curves in crude oil, 154 00:08:06,240 --> 00:08:09,640 Speaker 1: the Brent and the w t I start to really backwardate, UM, 155 00:08:09,680 --> 00:08:13,600 Speaker 1: that'll be a signal or an indication that UM spr 156 00:08:13,680 --> 00:08:16,640 Speaker 1: barrels are probably going to be needed. UM. And you 157 00:08:16,680 --> 00:08:18,560 Speaker 1: know it wouldn't surprise me at all if the d 158 00:08:18,640 --> 00:08:21,880 Speaker 1: o E in the US is keeping track of that. UM. 159 00:08:21,920 --> 00:08:24,080 Speaker 1: You know what's happening to the evolution of the curve. 160 00:08:24,600 --> 00:08:26,280 Speaker 1: You know, if I'm looking at Brent right now, it 161 00:08:26,280 --> 00:08:29,160 Speaker 1: looks like the curve is steepening just a little bit 162 00:08:29,920 --> 00:08:32,720 Speaker 1: as the market works through this. So I think that's 163 00:08:32,760 --> 00:08:36,600 Speaker 1: the big thing to start keeping track of m as 164 00:08:36,600 --> 00:08:39,640 Speaker 1: we go to the end of September, when you know, 165 00:08:39,640 --> 00:08:43,120 Speaker 1: the Aramco folks have been saying that, um, you know, 166 00:08:43,160 --> 00:08:46,480 Speaker 1: the repair should be mostly done. You know, markets waiting 167 00:08:46,679 --> 00:08:50,160 Speaker 1: and waiting to see what happens. But my expectations we 168 00:08:50,200 --> 00:08:53,719 Speaker 1: do see storage start to draw, prices move up backwardation, 169 00:08:54,200 --> 00:08:57,400 Speaker 1: Uh Stevens, So, Bob, what is what do you think 170 00:08:57,440 --> 00:09:00,600 Speaker 1: the market is kind of discounting today about maybe an 171 00:09:00,760 --> 00:09:05,600 Speaker 1: escalation even of tensions between Iran and Saudi Arabian perhaps 172 00:09:05,920 --> 00:09:07,839 Speaker 1: the U S. I know it's you know, almost impossible 173 00:09:07,880 --> 00:09:10,760 Speaker 1: to handicap, but do you think the market is expecting 174 00:09:11,080 --> 00:09:12,600 Speaker 1: this thing to get maybe even a little bit worse 175 00:09:14,320 --> 00:09:18,120 Speaker 1: it could? Um, you know, our our assumption is is 176 00:09:18,160 --> 00:09:23,200 Speaker 1: that the Trump administration is going to more than likely 177 00:09:23,240 --> 00:09:28,079 Speaker 1: retaliate in some form militarily, but not in a way 178 00:09:28,120 --> 00:09:31,120 Speaker 1: that escalates this to a full out you know war 179 00:09:31,520 --> 00:09:34,040 Speaker 1: between the US and Iran or between the US and 180 00:09:34,040 --> 00:09:39,079 Speaker 1: it's GCC allies and Iran. UM more than likely. Um, 181 00:09:39,120 --> 00:09:42,520 Speaker 1: you know, it's it's going to be a message it's 182 00:09:42,559 --> 00:09:46,680 Speaker 1: not going to be um, you know, a declaration of war. Um. 183 00:09:46,880 --> 00:09:49,719 Speaker 1: It's interesting also the Iranian foreign minister I saw a 184 00:09:49,800 --> 00:09:53,360 Speaker 1: headline going across was saying that any attack on Iran 185 00:09:53,400 --> 00:09:56,400 Speaker 1: itself would be or would result in all out war. 186 00:09:56,520 --> 00:09:59,800 Speaker 1: So that you know, both sides are are as. We 187 00:10:00,000 --> 00:10:02,680 Speaker 1: that in our morning meeting this morning. Um, you know, 188 00:10:02,760 --> 00:10:05,040 Speaker 1: there's there's a lot of loud barking on both sides, 189 00:10:05,080 --> 00:10:09,080 Speaker 1: but um, we don't think it escalates to that extent. 190 00:10:09,679 --> 00:10:12,400 Speaker 1: But you don't know. I mean that the big thing 191 00:10:12,960 --> 00:10:16,880 Speaker 1: with these kinds of confrontations is that, um, you know, 192 00:10:16,920 --> 00:10:19,400 Speaker 1: they could spin out. You know, you could have inadvertent 193 00:10:19,840 --> 00:10:25,400 Speaker 1: um uh you know, consequences that quickly get out of 194 00:10:25,400 --> 00:10:28,120 Speaker 1: control and and and the hard thing is containing it. Uh, 195 00:10:28,280 --> 00:10:30,520 Speaker 1: you know, once you set something in motion. Well, so 196 00:10:30,600 --> 00:10:33,840 Speaker 1: let's talk about sort of the asymmetric risks associated with 197 00:10:33,880 --> 00:10:39,000 Speaker 1: a potential conflict over the escalation that we've seen with Iran. 198 00:10:39,840 --> 00:10:43,760 Speaker 1: How high could oil prices go versus decline if there 199 00:10:43,840 --> 00:10:46,679 Speaker 1: is no conflict, if it gets resolved, if Saudi Arabia 200 00:10:46,720 --> 00:10:49,400 Speaker 1: gets the production on board, and things just chug along 201 00:10:49,440 --> 00:10:53,600 Speaker 1: the way they had been. Um, you know, prices would 202 00:10:53,600 --> 00:10:57,559 Speaker 1: be probably fairly well contained, and then you know, you'd 203 00:10:57,679 --> 00:11:00,199 Speaker 1: go back to the OPEQ plus or what we call 204 00:11:00,280 --> 00:11:04,360 Speaker 1: OPEC two point oh UM managing production trying to you know, 205 00:11:04,480 --> 00:11:08,440 Speaker 1: get control of the storage levels globally. UM. The eighth 206 00:11:08,480 --> 00:11:13,480 Speaker 1: symmetry is if you do get something, um, you know, 207 00:11:13,559 --> 00:11:17,640 Speaker 1: some kinetic activity between uh, you know, the US and Iran, 208 00:11:17,720 --> 00:11:21,199 Speaker 1: just as an example, that threatens the street of hor moves, 209 00:11:21,800 --> 00:11:25,200 Speaker 1: then markets would really start to price in you know, 210 00:11:25,679 --> 00:11:29,640 Speaker 1: large price moves to the upside. UM. If we uh 211 00:11:29,880 --> 00:11:32,680 Speaker 1: see this thing resolved and you know, we go back 212 00:11:32,679 --> 00:11:35,560 Speaker 1: to status quo ante as it were, UM, you know, 213 00:11:35,600 --> 00:11:38,400 Speaker 1: we probably come back down to you know, holding around 214 00:11:39,720 --> 00:11:44,679 Speaker 1: this year, you know, maybe into the seventies next year. UM. 215 00:11:44,720 --> 00:11:47,280 Speaker 1: You know, a lot of it depends on what happens 216 00:11:47,280 --> 00:11:52,520 Speaker 1: to the UM production management of OPEC plus and the 217 00:11:52,840 --> 00:11:57,200 Speaker 1: impact on demand. UM. As we move forward, high prices 218 00:11:57,280 --> 00:12:02,760 Speaker 1: will oil sequel h more than likely start destroying demand, 219 00:12:02,760 --> 00:12:04,959 Speaker 1: particularly if you get a dollar rally on the back 220 00:12:05,000 --> 00:12:08,800 Speaker 1: of that, you know, everybody uh flies to safe havens, 221 00:12:09,320 --> 00:12:13,160 Speaker 1: the US dollar being one of them. That'll effectively raise 222 00:12:13,280 --> 00:12:16,480 Speaker 1: the local currency cost of oil around the world outside 223 00:12:16,520 --> 00:12:20,280 Speaker 1: the US, and UM, you'll get demand destruction on the 224 00:12:20,280 --> 00:12:22,400 Speaker 1: back of that. So you'll have high absolute prices in 225 00:12:22,520 --> 00:12:26,840 Speaker 1: US dollars, but you will also have high local currency prices, 226 00:12:26,920 --> 00:12:31,000 Speaker 1: and that will start to a road demand and and 227 00:12:31,040 --> 00:12:34,360 Speaker 1: the higher goes the more significant that erosion will become. So, 228 00:12:34,440 --> 00:12:38,080 Speaker 1: but before the attacks on the Saudi facility, I think 229 00:12:38,080 --> 00:12:40,760 Speaker 1: the narrative in the in the oil market was people 230 00:12:40,760 --> 00:12:44,000 Speaker 1: really focusing on demand and what a slowing global economy 231 00:12:44,040 --> 00:12:47,560 Speaker 1: means for oil putting some pressure on on crude. What 232 00:12:47,600 --> 00:12:51,120 Speaker 1: does your demand model say, you know, you know, x 233 00:12:51,160 --> 00:12:55,199 Speaker 1: out some of the concerns in the Middle East. Yeah, 234 00:12:55,200 --> 00:12:58,320 Speaker 1: if we just you know, take our base case, you know, 235 00:12:58,600 --> 00:13:01,840 Speaker 1: exactly as you say, X that out. Um, you know, 236 00:13:01,880 --> 00:13:05,040 Speaker 1: our expectation is that demand this year grows on average 237 00:13:05,080 --> 00:13:07,160 Speaker 1: like one point two million barrels a day, So we're 238 00:13:07,200 --> 00:13:10,920 Speaker 1: a little above the I E A. And I think 239 00:13:10,960 --> 00:13:12,959 Speaker 1: the E I A is probably at about one million 240 00:13:12,960 --> 00:13:15,480 Speaker 1: a day. Next year, we're at one point four one 241 00:13:15,520 --> 00:13:18,680 Speaker 1: point five all l sequel, Right, you know, we we 242 00:13:18,760 --> 00:13:24,000 Speaker 1: get this massive fiscal and monetary stimulus globally. Um, you know, 243 00:13:24,120 --> 00:13:27,440 Speaker 1: it revives demand, it starts to it not starts to 244 00:13:27,559 --> 00:13:32,880 Speaker 1: it undoes a lot of the uh tightness and financial 245 00:13:32,920 --> 00:13:36,080 Speaker 1: conditions that were brought on by the FED tightening cycle 246 00:13:36,200 --> 00:13:39,080 Speaker 1: last year, as well as the d leveraging campaign in 247 00:13:39,160 --> 00:13:42,240 Speaker 1: China which took a lot of liquidity from the system. 248 00:13:42,280 --> 00:13:46,319 Speaker 1: So those two things we're just starting to show up 249 00:13:46,559 --> 00:13:48,640 Speaker 1: or had started to show up, you know, in second 250 00:13:48,640 --> 00:13:51,240 Speaker 1: half of last year, first half of this year. That 251 00:13:51,280 --> 00:13:54,200 Speaker 1: should be undone with all that stimulus coming into the system. 252 00:13:54,280 --> 00:13:59,200 Speaker 1: So we would be much more bullish demand growth next 253 00:13:59,280 --> 00:14:01,840 Speaker 1: year as all the stimulus comes in. But you know, 254 00:14:01,880 --> 00:14:04,960 Speaker 1: we are in uncertain territory here. Yeah, very good, Bob, 255 00:14:05,000 --> 00:14:07,199 Speaker 1: Thanks so much for joining us. Bob Bryan, chief Strategist 256 00:14:07,240 --> 00:14:10,400 Speaker 1: Commodity and Energy Strategy for bc A Research, giving us 257 00:14:10,400 --> 00:14:13,520 Speaker 1: his thoughts on the global oil market. Obviously a tremendous 258 00:14:13,559 --> 00:14:16,640 Speaker 1: amount of volatility experienced over the last week or so 259 00:14:16,800 --> 00:14:20,160 Speaker 1: given the attack on the Saudi facility and what that 260 00:14:20,200 --> 00:14:40,320 Speaker 1: means for the supply side of the equation. So to 261 00:14:40,400 --> 00:14:42,160 Speaker 1: get some more data there, we welcome our next guest, 262 00:14:42,200 --> 00:14:46,520 Speaker 1: automan A Zilder, Senior Director Economics and Global Research Chair 263 00:14:46,600 --> 00:14:49,200 Speaker 1: at the Conference Board. Automan he joined us in our 264 00:14:49,200 --> 00:14:52,320 Speaker 1: Bloomberg Interactive Broker Studio. Thanks so much for coming in 265 00:14:52,680 --> 00:14:56,080 Speaker 1: what is your data telling you? I know you've reported 266 00:14:56,080 --> 00:14:59,360 Speaker 1: the data for August. Good morning, great to be here, 267 00:14:59,400 --> 00:15:03,160 Speaker 1: thanks for having me. And um, the ALII for August 268 00:15:03,280 --> 00:15:08,080 Speaker 1: just came out, and as your viewers listeners now that 269 00:15:08,840 --> 00:15:12,160 Speaker 1: the ALII is a forward looking gauge of the economy, 270 00:15:12,400 --> 00:15:16,960 Speaker 1: and in August it remained unchanged. So what's the implication, 271 00:15:17,040 --> 00:15:19,160 Speaker 1: I mean, is that good, bad, or just basically just 272 00:15:19,240 --> 00:15:22,480 Speaker 1: don't even think about it now? So the ALII trends 273 00:15:22,520 --> 00:15:26,960 Speaker 1: have been kind of flattening, um, and they're still rising 274 00:15:27,080 --> 00:15:30,360 Speaker 1: around the same level as earlier in the year, but 275 00:15:30,480 --> 00:15:33,280 Speaker 1: not as fast as we had seen in the previous years. 276 00:15:33,360 --> 00:15:36,800 Speaker 1: So that just tells me that we are settling into 277 00:15:37,000 --> 00:15:40,560 Speaker 1: a slower growth economy. Uh, kind of going back to 278 00:15:40,640 --> 00:15:43,240 Speaker 1: the long term trend? What is the long term trend? 279 00:15:43,320 --> 00:15:46,200 Speaker 1: Kind of from your perspective. So at the conference board, 280 00:15:46,240 --> 00:15:48,680 Speaker 1: we estimate that long term trend to be right around 281 00:15:48,680 --> 00:15:51,360 Speaker 1: two percent growth. Okay, So right now, as we look 282 00:15:51,400 --> 00:15:53,360 Speaker 1: at the economy, look at all the data that's coming 283 00:15:53,360 --> 00:15:55,320 Speaker 1: out and even some of the micro data we see 284 00:15:55,320 --> 00:15:57,200 Speaker 1: from companies and earnings and so on and so forth, 285 00:15:57,480 --> 00:16:00,400 Speaker 1: the US economies seems to be a story of Okay, 286 00:16:00,480 --> 00:16:04,880 Speaker 1: manufacturing not so good and maybe even worrisome not so good, 287 00:16:04,920 --> 00:16:07,400 Speaker 1: but the consumer is still very strong. Is that kind 288 00:16:07,400 --> 00:16:09,760 Speaker 1: of what your data is showing you. That's essentially what 289 00:16:09,800 --> 00:16:11,920 Speaker 1: we see in the leading indicators to when you look 290 00:16:11,960 --> 00:16:15,440 Speaker 1: at the households and consumers, they're kind of holding up 291 00:16:15,480 --> 00:16:19,160 Speaker 1: the economy. But when you look at manufacturing, new orders 292 00:16:19,160 --> 00:16:23,240 Speaker 1: and manufacturing, especially for capital goods, there's a lot more 293 00:16:23,320 --> 00:16:26,200 Speaker 1: weakness that's kind of holding the index down. One thing 294 00:16:26,200 --> 00:16:29,040 Speaker 1: that's kind of interesting, we keep getting a positive reads 295 00:16:29,160 --> 00:16:33,640 Speaker 1: on housing data today. Another one with used sales, used 296 00:16:33,680 --> 00:16:36,880 Speaker 1: home sales coming in stronger than expected and as one 297 00:16:37,040 --> 00:16:40,600 Speaker 1: part of the leading economic indicator. That is one area 298 00:16:40,960 --> 00:16:42,880 Speaker 1: that's that was sort of a big positive, right, a 299 00:16:42,880 --> 00:16:46,640 Speaker 1: big contributor. Yeah, housing permits made a positive contribution to 300 00:16:46,760 --> 00:16:49,560 Speaker 1: the index, and that is good news for the economy 301 00:16:49,560 --> 00:16:53,360 Speaker 1: because housing overall is a leading sector for the overall 302 00:16:53,440 --> 00:16:57,960 Speaker 1: US economy. But jobless claims was a negative contributor. And 303 00:16:57,960 --> 00:16:59,560 Speaker 1: I want you to talk about that since we do 304 00:16:59,640 --> 00:17:02,040 Speaker 1: talk at the consumer kind of holding up the entire 305 00:17:02,080 --> 00:17:06,120 Speaker 1: expansion here, is that sort of a warning sign, right, 306 00:17:06,200 --> 00:17:09,919 Speaker 1: So the consumer of obviously is uh supported by the 307 00:17:10,520 --> 00:17:14,240 Speaker 1: good jobs growth and where we would be worried if 308 00:17:14,280 --> 00:17:17,520 Speaker 1: that's going to be changing. And the leading indicators for 309 00:17:17,640 --> 00:17:21,920 Speaker 1: employment have started to soften, and unemployment claims is one 310 00:17:21,960 --> 00:17:25,360 Speaker 1: of those. So it's not really surprising to see some 311 00:17:25,480 --> 00:17:30,040 Speaker 1: softening in the labor market um, but employment is still 312 00:17:30,080 --> 00:17:35,080 Speaker 1: growing and that's supporting jobs, income and consumer spending. When 313 00:17:35,119 --> 00:17:38,880 Speaker 1: do you when does your data, you're leading economic indicator 314 00:17:39,200 --> 00:17:41,600 Speaker 1: start flashing a red sign to you when you see 315 00:17:41,760 --> 00:17:45,560 Speaker 1: multiple months of declines, is it is what's kind of 316 00:17:45,040 --> 00:17:49,280 Speaker 1: the big flash point for your indicator exactly. So what 317 00:17:49,320 --> 00:17:52,320 Speaker 1: I'm looking for in the leading indicators is where whether 318 00:17:52,560 --> 00:17:57,280 Speaker 1: it's falling consistently over several months, it's a gauge of 319 00:17:57,640 --> 00:18:01,600 Speaker 1: future economic activity that's six to nine months ahead. And 320 00:18:01,720 --> 00:18:06,800 Speaker 1: the peak in the leading index forms on average about 321 00:18:06,840 --> 00:18:10,399 Speaker 1: twelve months ahead of the economy turning down. So that 322 00:18:10,560 --> 00:18:14,199 Speaker 1: is the leading relationship and uh, so far we're not 323 00:18:14,320 --> 00:18:16,719 Speaker 1: really seeing that sort of a peak forming in the 324 00:18:16,840 --> 00:18:21,080 Speaker 1: leading indicators. So I'm looking right now and many Roman, 325 00:18:21,160 --> 00:18:24,760 Speaker 1: the CEO of PIMCO, said that he expects US growth 326 00:18:24,760 --> 00:18:27,800 Speaker 1: to hover slightly above one percent for the first half 327 00:18:27,880 --> 00:18:31,240 Speaker 1: of which is substantially lower than it is currently do 328 00:18:31,280 --> 00:18:34,280 Speaker 1: you think that's plausible based on these indicators. So the 329 00:18:34,359 --> 00:18:39,639 Speaker 1: indicators are really consistent with the economy slowing um just 330 00:18:39,880 --> 00:18:43,000 Speaker 1: around two percent, So that's a little more pessimistic than 331 00:18:43,040 --> 00:18:46,680 Speaker 1: what we're seeing in sort of the fundamentals of the economy. 332 00:18:47,440 --> 00:18:50,520 Speaker 1: A lot of people are nervous about the future because 333 00:18:50,560 --> 00:18:53,879 Speaker 1: they look at interest rates yield spreads, but that's really 334 00:18:53,880 --> 00:18:56,880 Speaker 1: only one part of the leading indicators, uh, and it's 335 00:18:56,880 --> 00:19:01,560 Speaker 1: not really widespread across other components. So it's perhaps a 336 00:19:01,600 --> 00:19:05,199 Speaker 1: little bit more pessimistic than what the leading economic indicators 337 00:19:05,760 --> 00:19:08,119 Speaker 1: may show. Adamana Aziel Durham, thank you so much for 338 00:19:08,160 --> 00:19:11,640 Speaker 1: being with us, Senior director of Economics and Global Research 339 00:19:12,000 --> 00:19:15,160 Speaker 1: at the conference board, joining us here in our Bloomberg 340 00:19:15,200 --> 00:19:18,600 Speaker 1: Interactive Broker Studios. Thanks for listening to the Bloomberg P 341 00:19:18,680 --> 00:19:21,240 Speaker 1: and L podcast. You can subscribe and listen to interviews 342 00:19:21,240 --> 00:19:25,040 Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, 343 00:19:25,119 --> 00:19:27,879 Speaker 1: I'm on Twitter at pt Sweeney, I'm Lisa Abram Woyd's 344 00:19:27,880 --> 00:19:30,920 Speaker 1: I'm on Twitter at Lisa abram woits one before the podcast. 345 00:19:30,920 --> 00:19:33,520 Speaker 1: You can always catch us worldwide on Bloomberg Radio.