Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm m Keene Jelie.
Speaker 1: We bring you insight from the best in economics, finance, investment,
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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. The
Speaker 1: big question, how do you tilt away from the United
Speaker 1: States when it is the home of mega cap growth stocks.
Speaker 1: I want to begin this show by asking that question
Speaker 1: to James Affy of Aberdeen Standard Investments. James helped me
Speaker 1: understand that it is the home to mega cap tech Apple, Amazon, Microsoft,
Speaker 1: surging this year and back at all time highs for
Speaker 1: all three of those stocks. Why would you tilt away
Speaker 1: from that story towards the rest of the world. Yeah,
Speaker 1: good morning, John. I mean if you had done so,
Speaker 1: for whatever reason, then then obviously you would under performed significantly,
Speaker 1: because globally equities have you had nowhere near the performance
Speaker 1: that we've seen from some of these megacaptech names that
Speaker 1: you've just described there. And that's not just in the
Speaker 1: you know, immediate pre and a media post COVID period.
Speaker 1: That is something which has been going on for some time.
Speaker 1: I mean the Eurostocks Index is not far from the
Speaker 1: same level it was at in the late nineties. When
Speaker 1: you compare that to the performance of the US indices,
Speaker 1: that the divergence is stark. So if you are a
Speaker 1: value investor and you look at things like price to
Speaker 1: earnings or price to sales, and you look at tech
Speaker 1: names and say, I just can't justify own in these
Speaker 1: names with such multiples, then obviously you've missed out to
Speaker 1: this point. It is essentially a leap of faith. There
Speaker 1: is no possible way that you can do a calculation
Speaker 1: to justify the valuation of those big tech names. You
Speaker 1: are merely investing in a narrative, in a belief that
Speaker 1: they are able to turn what are either dominant market
Speaker 1: positions currently or emerging market positions currently. In this in
Speaker 1: the case of a name like Teslaw, you believe they
Speaker 1: can convert that into you know, the winner takes all
Speaker 1: and become a true global monopoly. And again you can't
Speaker 1: prove that that is merely a leap of faith. I agree, James,
Speaker 1: if there's different companies involved in these great roth stacks.
Speaker 1: But what I find fascinating is what will be the
Speaker 1: action of the value laggers. Do you just assume we
Speaker 1: get one big combination, one big roll up of all
Speaker 1: these companies generating low single digit revenue growth, and that
Speaker 1: good cash flows well. For the way that the market
Speaker 1: has evolved in time in recent years, certainly it doesn't
Speaker 1: lend itself to that idea where there has been a
Speaker 1: movement away from truly active bottom up stock picking investment
Speaker 1: towards a factor investing, towards set to investing, towards passive
Speaker 1: investing in all its form, and towards more sort of
Speaker 1: price dominated strategies like like momentums and and such like.
Speaker 1: And that does have the tendency to lump together similar
Speaker 1: companies through various dimensions into one um, you know, analogous group,
Speaker 1: and that really does presumably look attractive then to people
Speaker 1: who are doing fundamental research and looking at the company's
Speaker 1: bottom up. But you're you're wrong until until the masses
Speaker 1: start to see the same things that you are, and
Speaker 1: that can take a lot longer than than most investors
Speaker 1: are patients can last. So it's a very tricky. It's
Speaker 1: a very tricky situation. I think in that environment, to
Speaker 1: be a value investor, to be a bottom up stock picker,
Speaker 1: you have to be very long term, and you have
Speaker 1: to accept that you may look wrong for a period
Speaker 1: of time, and you also have to accept that markets
Speaker 1: are not being moved around on a daily basis by
Speaker 1: people who are doing the same type of analysis that
Speaker 1: you are. You sound scope tical, James, and you're not alone.
Speaker 1: A lot of people are very skeptical of this rally.
Speaker 1: Yet it continues, and it continues on the heels of
Speaker 1: very cheap money as well as governments around the world
Speaker 1: pumping cash into their economies to try to keep things afloat.
Speaker 1: Or your is your negativity being translated into a barish
Speaker 1: view on US equities, on risk assets or is it
Speaker 1: just sort of a displeasure at the moment, at this
Speaker 1: uncomfortable moment that we're in. It's probably both, Lisa, to
Speaker 1: be honesty, I'm definitely skeptical. Again, I think without being
Speaker 1: so broad brush and just saying hey, big tech, you
Speaker 1: know tech, tech, tech, tech, and you just say the
Speaker 1: word tech a lot on and that that counts as
Speaker 1: as an investment thesis. You know, I would look within
Speaker 1: the tech group and say, there's quite a big difference
Speaker 1: between what Amazon is doing and what and how Amazon
Speaker 1: is able to manage its business through an economic cycle
Speaker 1: versus Facebook. And there is also probably quite a big
Speaker 1: difference between Amazon and its ability to not just survive,
Speaker 1: but probably thrive in the post cove in a world
Speaker 1: versus an auto manufacturer like Tesla. I just think that
Speaker 1: the challenges that these businesses face are dramatically different and
Speaker 1: that doesn't seem to be being reflected in stock prices,
Speaker 1: which again I think is is part of this psychological
Speaker 1: driver of equity returns that that's dominating at the moment.
Speaker 1: I don't think it's it's necessarily to do with analysis,
Speaker 1: but it's very much to do with psychology. Does that
Speaker 1: make me bearish, Yes, it does. I truly believe that.
Speaker 1: You know, my role as an investor is to is
Speaker 1: to invest based on the fundamental research that I do,
Speaker 1: that we do, and when things are expensive relative to
Speaker 1: our understanding of what's going on in reality, then it
Speaker 1: then it behooves us to to reflect that in our
Speaker 1: portfolio positioning. And you know, again, I'm just looking at
Speaker 1: some of these big tech names, looking at the change
Speaker 1: in price of Tesla. I'm going to pick on Tesla,
Speaker 1: but just looking at the change in price just in
Speaker 1: five days, I can't possibly think that the outlook for
Speaker 1: that company selling all tones of questionable quality in recent
Speaker 1: years has changed so dramatically in such a short space
Speaker 1: of time, and that would make me want to lean
Speaker 1: in the opposite direction. James, I'd love to think that
Speaker 1: the investor committee meeting Aberdeen Standard is a little bit
Speaker 1: more sophisticated than you are, screaming tech multiple times around
Speaker 1: the table for several hours. A narrative that has built
Speaker 1: up over the last several days is that tiled away
Speaker 1: from the United States, not because a style, not because
Speaker 1: the composition of the indices, but because people believe that
Speaker 1: the economic recovery that's being engineered in places like Europe,
Speaker 1: places like China is more dependable, reliable than what we're
Speaker 1: seeing play out here in the United States, which is
Speaker 1: becoming increasingly more uncertain over the last several weeks. What
Speaker 1: do you make of that argument, James, Yeah, I think
Speaker 1: it's a really interesting one. John, I'm you know, my
Speaker 1: before I'd even started to look into this, I was
Speaker 1: skeptical immediately for for really the main reason being that
Speaker 1: when the U s sneezes, the world catches a cold,
Speaker 1: and the recent history has made that view. I think
Speaker 1: stronger rather than weaker. The US is the only large
Speaker 1: major economy which permanently runs the current account deficit, therefore
Speaker 1: is a source of demand globally. China has been a
Speaker 1: source of demand globally also, but that's that demand is
Speaker 1: secondary to demand elsewhere predominantly, at least it has been
Speaker 1: through history. The Chinese consumer is not yet there, consumption
Speaker 1: maybe fifty of GDP in China, whereas it's closer to
Speaker 1: in the US. So to me, it's very difficult for
Speaker 1: the global economy to really be firing on all cylinders
Speaker 1: without the US, so first and foremost, I think that
Speaker 1: makes me skeptical. I think the other issue really is
Speaker 1: that what we're seeing at the moment is the sugar high.
Speaker 1: It doesn't really tell us anything about what the medium
Speaker 1: term trajectory for economies is. With Europe, you run into
Speaker 1: the same issues which have bedogged that region since the
Speaker 1: late nineties when they've decided to form this monetary union.
Speaker 1: And that is to say that it is it is incomplete.
Speaker 1: There are structural rigidities, There are divergences across the YS economies,
Speaker 1: and that does make it very difficult to generate sufficient
Speaker 1: demand to get those economies up to capacity and start
Speaker 1: to generate what wage and price pressures in a way
Speaker 1: which would suggest an economy really motoring forward. So I
Speaker 1: think it's interesting. I would also throw the currency in there.
Speaker 1: The currency is a bit of a problem again, it's
Speaker 1: a current account surplus region. It's more sensitive to the
Speaker 1: currency than than potentially the US is. And so if
Speaker 1: investors run too fast, too far, that can actually get
Speaker 1: in the way of the recovery, so that that will
Speaker 1: be want to watch as well, James Effete, appreciate your
Speaker 1: time this morning. You want to get from Aberdeen Standard
Speaker 1: Investments on one of the debates of the moment, Tom King,
Speaker 1: which is the rest of award versus the United States.
Speaker 1: But it's a different debate. Now there's a belief, how
Speaker 1: by somehow, by many, not by me, that maybe because
Speaker 1: the United States might be the source of instability for
Speaker 1: the global economy, given what we're seeing play out in
Speaker 1: many states in America right now, that your money, your
Speaker 1: capital is better out swear in regions like Europe and
Speaker 1: in places like China. Isaac Wilkansky out of Ohio Wesleyan
Speaker 1: has a beautiful Midwest field for the policy of all
Speaker 1: these Congress people, all these Senate people as well. He
Speaker 1: joins us down from compass research, Isaac, I love within
Speaker 1: your detailed note, how you gross up to one point
Speaker 1: five trillion. So we're talking one trillion, Isaac Boltanski is
Speaker 1: talking one point five trillion. Does that tell me the
Speaker 1: eventual bill is going to be two trillion dollars? It
Speaker 1: tells you it's going to be higher than a trillion,
Speaker 1: And it tells you that this Congress is more willing
Speaker 1: than any Congress before it to spend money. And the
Speaker 1: reality is, deficit hawks are an endangered species on Capitol Hill.
Speaker 1: And so when we know that there's going to be
Speaker 1: a legislative vehicle, which we know there will be a
Speaker 1: Phase four vehicle, it will become law before the conventions.
Speaker 1: So investors should expect it to become law by early August.
Speaker 1: That vehicle was moving and everyone is going to try
Speaker 1: to hang their ornament on the Christmas tree, and tom
Speaker 1: when that happens, the price tad gets bigger. And so
Speaker 1: I'm telling my folks a trillion and a half is
Speaker 1: a fair assumption. At this point in time, Isaac, nobody
Speaker 1: is worried about a deepening deficit in the United States,
Speaker 1: as you said, whether they be Republicans, whether they be Democrats,
Speaker 1: Which brings us to the election in November, people saying
Speaker 1: that perhaps if Joe Biden wins, it won't mark much
Speaker 1: of a change to policy. We might not get that
Speaker 1: increase in taxes, and you'll get a doubling down on
Speaker 1: some sort of infrastructure spending leading to a market neutral
Speaker 1: or even market positive event. Can you pass through your
Speaker 1: thinking there? Yeah, So when I talk to my clients
Speaker 1: about what a blue wave scenario looks like, I think
Speaker 1: it's easy just to bucket the issues into legislative and administrative.
Speaker 1: On the legislative front, we will have a torrent of proposals,
Speaker 1: everything from the Green New Deal to Medicare for all.
Speaker 1: But you have to look at the votes and the
Speaker 1: reality is if Democrats win the Senate, they will have
Speaker 1: a very slim majority, and within that majority are red
Speaker 1: state centrist Democrats like Mansion to Me Cinema. So you
Speaker 1: have that three the co work there, who I think
Speaker 1: will really dictate terms in the Senate and make it
Speaker 1: much more difficult, if not impossible, we'll get some of
Speaker 1: these priorities through. So I think that ultimately you would
Speaker 1: see a tax bill by the end of next year
Speaker 1: in a blue sweep, but it wouldn't be as onerous
Speaker 1: as the Biden campaign has proposed. I think the corporate
Speaker 1: rate would be three to four points higher, but it
Speaker 1: wouldn't be nearly as expansive as the campaign is. As outlined, Isaac,
Speaker 1: A lot of people agree with you, and we're seeing
Speaker 1: an increasing number of notes that say something similar that
Speaker 1: if we do get a Biden win as well as
Speaker 1: Democratic sweep, it wouldn't be that negative from markets, I'm
Speaker 1: wondering how much people are factoring a potential anti trust,
Speaker 1: a regulatory push to break up companies, particularly big tech,
Speaker 1: as they get bigger and bigger. So this is I
Speaker 1: think this is the most important point. While we don't
Speaker 1: need to fear the legislative agenda nearly as much, we
Speaker 1: must be as investors cognizant of the administrative agenda, especially
Speaker 1: as the administrative state has grown materially in recent decades.
Speaker 1: And so I think that the easiest way to think
Speaker 1: about this is to say, where has the proverbial pendulum
Speaker 1: swung the most under the Trump administration, and we should
Speaker 1: expect it to swing back the other direction with similar
Speaker 1: force and here we're talking about energy, the environment, and healthcare.
Speaker 1: Most notably the second tier is financial services UM and
Speaker 1: so sorry, no, it's great. I mean I'm worried about
Speaker 1: the Cleveland Indians getting renamed in the Washington Redskins. There's
Speaker 1: all these other diversions Isaac away from actual policy prescription.
Speaker 1: Come on, you're from Ohio. You know what's an election
Speaker 1: year and all that matters forward is the election. Over
Speaker 1: as John Farrell mentioned earlier, overlay the election. Now on
Speaker 1: the next six weeks of fiscal stimulus, how does that
Speaker 1: election ballet filter into getting to year one point five trillion.
Speaker 1: Politicians aren't good at taking things away in any year,
Speaker 1: especially not an election year when they're running for something.
Speaker 1: And so with that motivation, lawmakers are going to return
Speaker 1: to town and they are going to stroke a big
Speaker 1: check aimed at unemployment insurance, another's round of recovery rebates,
Speaker 1: and anywhere from five hundred to seven hundred fifty billion
Speaker 1: dollars for states and local municipalities. There will be a big,
Speaker 1: big fiscal package coming out of PC by early August,
Speaker 1: in part because there is an election in November and
Speaker 1: lawmakers are realizing that reopening is not synonymous with recovery,
Speaker 1: and so there's going to be another slug of fiscal
Speaker 1: assistance coming. Isaac. Fantastic work as a wise and appreciate
Speaker 1: your time this morning, I said Boltanski that of compass point,
Speaker 1: let's get started right now. We're gonna focus on the dollar.
Speaker 1: We have. We've really been remissing on that over the
Speaker 1: last number of days. Let's catch up quickly. Jordan Rochester
Speaker 1: with us. He writes exceptionally acute notes for Numura, usually
Speaker 1: about you know, Sterling. There was a point where Jordan
Speaker 1: was Brexit this Brexit, that Brexit, Brexit, Brexit Brexit. But
Speaker 1: right now he's really focused on this great mystery of
Speaker 1: two thousand nineteen, which was a resiliency of the dollar.
Speaker 1: Jordan Rochester, Can the dollar finally give way? And we can? Yes,
Speaker 1: it can. I mean I was a dollar ball for
Speaker 1: kuhit a long time towards the end of twenty into
Speaker 1: this year, and it was a few factors driving at
Speaker 1: the US performer story. And when it comes to the
Speaker 1: big dollar, you can talk about so many different topics
Speaker 1: to express a view, but really Tom it boils down
Speaker 1: to do you think the US growth will outperform the
Speaker 1: rest of the world. That's it. If you know those
Speaker 1: that simple variable, that that differential, you know where the
Speaker 1: dollars going to go. And what's quite different about this
Speaker 1: crisis is we've had an extra ordinary response from Europe
Speaker 1: compared to the last crisis before a decade ago, and
Speaker 1: also the policies they've used as well, So these sort
Speaker 1: of job retention schemes which are much more widespread in
Speaker 1: the Euro Area and the UK compared to the US.
Speaker 1: It should mean that when we do reopen, which we are,
Speaker 1: we have a snap back where you have everybody back
Speaker 1: at at work to some degree at least, and it's
Speaker 1: much faster as well, where in the US there's going
Speaker 1: to be a bit more of a sluggish recovery as
Speaker 1: the market's going to do the job instead, and so
Speaker 1: you just see people having to look for jobs. And yes,
Speaker 1: there will be an improvement in the jobs market as
Speaker 1: the economy reopened, but at the same time, it won't
Speaker 1: be that snap back that's merely full employment that the
Speaker 1: governments in the Euro Area have tried to construct here.
Speaker 1: So for that reason alone, we've got a much more
Speaker 1: optimistic outlook for the Euro Area this year into next,
Speaker 1: and then that's before I talk about all the other
Speaker 1: things going on, such as the sort of second wave
Speaker 1: risks in the US. The lockdown has taken place right
Speaker 1: now and the risks to that, and then there's the
Speaker 1: U S election as well. Before I get into all
Speaker 1: of that, plants. That's why I think things are. US
Speaker 1: growth underperformed the Euro area and as a result, the
Speaker 1: dollar weekend. It's Jordan's Sometimes it is really simple. Show
Speaker 1: me where global risk appetite is and I'll show you
Speaker 1: that our action of the dollar. But you're asking me
Speaker 1: to imagine something a little bit different. It's a world
Speaker 1: where the US stumbles and risk appetite remains elevated elsewhere.
Speaker 1: Is that really a world you can imagine? It's possible, John,
Speaker 1: I know it's not normal. We're used to whenever the
Speaker 1: US sneezes, the world get to cough. Well, in this circumstance,
Speaker 1: it's possible that the US still grows, John, but it
Speaker 1: doesn't grow as facts as everywhere else. So that's the
Speaker 1: scenario we're talking about. So there will be abound back
Speaker 1: in American growth. There's not be too pessimistic. The point
Speaker 1: we're making is it will the speed less than how
Speaker 1: to where and then okay, let's talk a little bit
Speaker 1: about the other factors driving this. So, because you've got
Speaker 1: rising cases in the US, it's pretty clear from the data,
Speaker 1: it's common sense to rising cases leads to less economic
Speaker 1: activity as folks are just worried about going to the restaurant,
Speaker 1: going to the bar. We're already seeing that play out
Speaker 1: in the mobility statistics for certain states and certain areas,
Speaker 1: even in this early stage of that sort of revived
Speaker 1: second wave, sort of rolling wave stories in the US.
Speaker 1: So you're going to have in this quarter in the
Speaker 1: US struggling with COVID nineteen cases. And then when we
Speaker 1: get to the August period, we'll be talking about Joe
Speaker 1: Biden vice presidential pick, We'll be talking about higher taxes
Speaker 1: in the US, and as a result, you'll have the
Speaker 1: market pricing a less optimistic view on US assets versus
Speaker 1: the rest of the world. Well, Jordan, show me where
Speaker 1: to push through that dollar weakness in a world where
Speaker 1: no one wants a stronger currency. Yes, that's good point. Well,
Speaker 1: you're seeing it play out already. You've seeing some Chinese
Speaker 1: remombi strengths this week. You're seeing euros start to go higher,
Speaker 1: and I think the way policymakers at central banks will
Speaker 1: square the circle is it's okay, John, if your currency
Speaker 1: appreciates for good reasons. In the past, we've had episodes
Speaker 1: where we were dealing with deflation risks in the Eurozone
Speaker 1: that we had a strong currency. I'm thinking back to
Speaker 1: seventeen and so that was when it was a pretty
Speaker 1: tricky issue for the e TB. But I've think policymakers
Speaker 1: globally will be happy if they're able to successfully reopen
Speaker 1: their economies without COVID nineteen picking up too strongly successfully
Speaker 1: reopened them about too much damage to the labor market.
Speaker 1: I think the current is gonna be laughing on their
Speaker 1: mind as if they can get those two things done
Speaker 1: with a good success rate. Jordan, one of the bull
Speaker 1: cases that you mentioned for the Eurozone was their supplemental
Speaker 1: income to people who had lost their jobs or lost
Speaker 1: work as a result of the coronavirus. And yet you
Speaker 1: have economists from a number of places saying this is
Speaker 1: only going to perpetuate zombie jobs and zombie companies and
Speaker 1: will lead to a lack of productivity in the region
Speaker 1: and a slower recovery going forward, especially because some of
Speaker 1: these programs may not be reupt and if they are,
Speaker 1: it will cause a huge deficit in the region. What's
Speaker 1: your counter argument to that? I guess I mean there's
Speaker 1: some points that are definitely valid. If you're propping up
Speaker 1: a job that does no longer exist, then that needs
Speaker 1: to set some come to an end. Well that the
Speaker 1: question is how many jobs no longer exists anymore? We
Speaker 1: don't know. And the other point is those workers who
Speaker 1: are currently on that job retention scheme, they're not getting
Speaker 1: that full salary, they're getting a portion of that, and
Speaker 1: they also they want to go to work too, so
Speaker 1: while they're in this furlough period, they might be looking
Speaker 1: for jobs elsewhere. So what it's doing is it's providing
Speaker 1: that social cursed suffer in the meantime to allow those
Speaker 1: workers to find the new jobs at a sort of
Speaker 1: pace that's better for them, rather than rushing into things.
Speaker 1: So my counsel ivance day is it's never going to
Speaker 1: be forever. And the second point is as long as
Speaker 1: the governments don't try to pay it back quickly, the
Speaker 1: recovery should be okay. What do I mean by that?
Speaker 1: As long as we avoid austerity in the same way
Speaker 1: we saw in two thousand and ten and eleven, things
Speaker 1: should be better to the Eurozone benefit, the global growth
Speaker 1: better for the UK as long as governments don't follow
Speaker 1: that sort of old Playbork from two thousand and ten,
Speaker 1: the recovery should remain. In fact, Jodan right, should a
Speaker 1: quick question here away from euro dollar what is the
Speaker 1: best way to express dollar weakness? Which pair works well?
Speaker 1: We're looking at sort of risk on proxies, so we
Speaker 1: have the likes of uh sort of long or kiwi
Speaker 1: long er. Again. I would usually talk about how we
Speaker 1: should see that the dollar block out performing this global
Speaker 1: growth rather such as a dollar but emerging markets might
Speaker 1: be the better play here, such as what's going on
Speaker 1: the China got the ball Chinese exuties this week, and
Speaker 1: our guys in China are saying, don't argue against it.
Speaker 1: That's saying, essentially what we wanted to see in China
Speaker 1: is actually much more fiscal steamless in the pipeline and
Speaker 1: as a result, don't fight the ball rally that was
Speaker 1: seeing in China. Tom JOHNA Rochester, always great to catch
Speaker 1: up with you joining us from Nomora right now. We
Speaker 1: could have a two hour conversation with our next guest,
Speaker 1: Edward Morris, joins us from City Group, of person known
Speaker 1: globally for just incredibly pressing global macro views on hydrocarbons
Speaker 1: and yes on commodities in general. But today we have
Speaker 1: to rip up the script. We have Ed Morris with
Speaker 1: us of City Group, and what it must be about
Speaker 1: is what Mr Buffett did yesterday. And there is upstream
Speaker 1: maybe that's the world of Ed Morris, And there's downstream
Speaker 1: where Lisa fills the homer age too full of the
Speaker 1: latest flavor of gasoline. And then there's that thing Ed
Speaker 1: Morris midstream where Mr Buffett Daly yesterday looking at pipelines
Speaker 1: of dominion tell us about the midstream value play that's
Speaker 1: out there? Are there many more dominions to be played
Speaker 1: by the big money there there are. I mean, we
Speaker 1: were in a distressed environment at the moment. You can't
Speaker 1: overexaggerate that. Uh. And we're looking forward. And as you
Speaker 1: look forward to the American production of oil and gas
Speaker 1: is going to grow UM. And as it grows, those
Speaker 1: who have the capacity to move it from wherever it's
Speaker 1: produced to wherever it's needed are going to get a
Speaker 1: throughput boost UM. And that throughput boost you know, will
Speaker 1: increase the value of those stream properties, depending of course
Speaker 1: on where they are. But yes, it's was a savvy play.
Speaker 1: Do you think all right is a savvy play on
Speaker 1: the pipeline industry or on the natural gas universe, which
Speaker 1: has been particularly beaten up. Uh, the natural gas has
Speaker 1: been beaten up in a different way from the oil side.
Speaker 1: They're both opportunities. Um. We had another thing that happened yesterday,
Speaker 1: namely a court deciding that the Dakota Access pipeline had
Speaker 1: to be shut on August five, UM, and that could
Speaker 1: create another opportunity for another condiment stream play. Uh. If
Speaker 1: you can't get it out by pipe from Dakota, you
Speaker 1: have to get it out somehow, and rail is the
Speaker 1: next best things. Uh, there are there are other other
Speaker 1: dislocations in the country other than the one that's on
Speaker 1: the East coast, and the east coast problem is in
Speaker 1: part of a problem related to the southeast, in particular,
Speaker 1: where natural gas is no longer seen as the incremental
Speaker 1: um choice of fuels for for the, for the, for the,
Speaker 1: for the for the electricity industry. So the power sector
Speaker 1: is looking at kind of stagnant growth on the end
Speaker 1: use side and in that stagnant growth, there's increase in renewables,
Speaker 1: and the increase in new renewables will come at the
Speaker 1: expense of natural gas. That's kind of un increment, But
Speaker 1: there's plenty of flow that's going to go through in
Speaker 1: the meantime. And Tom was sort of the conversation aptly
Speaker 1: talking about the difference between upstream and midstream and downstream.
Speaker 1: Notwithstanding his discussion of my hummer usage, I will say
Speaker 1: there is a question about whether Warren Buffett's play, not
Speaker 1: only with this particular purchase, but also the occidental equity
Speaker 1: investment that he made earlier this year, is a bet
Speaker 1: that the so often fossil fuels has gone too far,
Speaker 1: too fast. Do you think that that view holds merriage,
Speaker 1: that we can see further upside in the entire fossil
Speaker 1: fuel complex, given how beaten up it has gotten this year, Yes,
Speaker 1: we think so. And if you if you look at
Speaker 1: the data, uh, you know, the the biggest drop has
Speaker 1: been in the upstream side. Drilling activity has collapsed from
Speaker 1: over six d eighty oil directed ricks at the beginning
Speaker 1: of the year to under two hundred right now. Uh.
Speaker 1: PRAT crews have collapsed from the three hundred level too,
Speaker 1: well under a hundred UM and we think that's the bottom.
Speaker 1: So I think if you look back to July, from
Speaker 1: September and even more from next January, we'll see that
Speaker 1: we're probably at the bottom right now. Uh, And that
Speaker 1: given where prices are and where we expect them to go,
Speaker 1: we're going to see a pickup of of drilling activity
Speaker 1: and the pickup of completion activity. And uh, that will
Speaker 1: be the case in both the oil and gas. On
Speaker 1: the gas side, the pickup is gonna be very priced driven.
Speaker 1: In our judgment, we saw prices getting out of the
Speaker 1: Dallas seventy range for gas into above a dollar eighty
Speaker 1: very quickly. That's because of somewhere weather. As we project
Speaker 1: where the gas market is now in terms of supply
Speaker 1: and demand and think about where it will be next year.
Speaker 1: With thinking prices are going to be kind of from
Speaker 1: their second quarter average probably double by the second quarter
Speaker 1: of next year. So we are, we think at an
Speaker 1: inflection point, UM and maybe buying assets at the distress
Speaker 1: level um is is a wise move. UM. It depends
Speaker 1: on you know what you're looking at in terms of
Speaker 1: transactional analysis. But uh, you know, we think they'll be
Speaker 1: consolidation ahead, and that consolidation is probably gonna lag by
Speaker 1: another sixt eight months, but it'll certainly very likely to
Speaker 1: be on the horizon by the first quarter next year,
Speaker 1: and very quickly. Here a final question, if there is
Speaker 1: an inflection on point that means of price in flex
Speaker 1: as well, not out one year, but out two, three,
Speaker 1: four years, where do you see brent crude a settling
Speaker 1: at Is it substantially higher? Sure? I mean, if you
Speaker 1: let's look at the very short to medium term horizon
Speaker 1: and beyond the medium term horizon. So if we just
Speaker 1: look at where the curtailments and capital spending have been,
Speaker 1: where we expect US production to splyde to Canadian production
Speaker 1: to splyde two as the global economy recovers, we're looking
Speaker 1: at h at Brent at fifty h and above by
Speaker 1: the end of the year and sixty by the end.
Speaker 1: How durable that will be? Is? Is it? Very open question?
Speaker 1: If you look at the economics of pure economics of
Speaker 1: of drilling activity in the world as a whole, U
Speaker 1: the world ought to be able to sustain not much
Speaker 1: more than forty five to fift dollars about brent related
Speaker 1: on a on a long term sustainable basis, because at
Speaker 1: that price level, the world can produce an awful lot
Speaker 1: of oil out of shale, out of deep water, out
Speaker 1: of oil sat let alone, out of conventional But as
Speaker 1: we get over you know this particular short term crunch,
Speaker 1: we think Brent goes to sixty by the end of
Speaker 1: next year. Interesting, Ed Morris, Thank you so much. Edward Morris'
Speaker 1: City group, of course, how did their commodities research? Most
Speaker 1: time we are particularly on what Mr Buffett wrought yesterday.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
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Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.