WEBVTT - Surveillance: U.S. Stimulus Debate With BofA's Harris 0:00:06.320 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.760 Bloomberg dot Com, and of course, on the Bloomberg James 0:00:27.760 --> 0:00:30.680 Sweeney was with Credit Sweete his wonderful call a number 0:00:30.680 --> 0:00:34.000 of years ago, fear not of deflation, He joins us 0:00:34.000 --> 0:00:37.320 now the chief economists for Credit Sweete, James Sweeney, Should 0:00:37.360 --> 0:00:41.199 we fear inflation? I don't think so. I think we 0:00:41.280 --> 0:00:44.160 may get it. I think the risks of of inflation, 0:00:44.360 --> 0:00:48.040 of higher inflation down the road are certainly going up 0:00:48.120 --> 0:00:51.320 with all this policy. But I'm not sure there's anything 0:00:51.320 --> 0:00:53.920 really to fear there. Well, there's not the fear there, 0:00:53.920 --> 0:00:56.640 but then there's a rate of change. In Antonian analysis 0:00:57.040 --> 0:00:59.760 of all this, I mean, I don't really see. I 0:01:00.200 --> 0:01:02.480 do see the vector of five year five years. I 0:01:02.560 --> 0:01:05.640 get it. It's an impulse higher inflation. But do you 0:01:05.680 --> 0:01:10.080 see your rate of change that causes concern? I don't. 0:01:09.840 --> 0:01:13.160 I think where the global fixed income market is leaves 0:01:13.200 --> 0:01:16.800 supply and demand supported for lower long term yealds. So 0:01:16.840 --> 0:01:18.240 I think they can go up, but I don't think 0:01:18.240 --> 0:01:20.000 they're gonna go up a hundred basis points. I don't 0:01:20.000 --> 0:01:22.960 think they're gonna go up enough to imparallel housing recovery 0:01:23.040 --> 0:01:25.039 or anything like that. James, I assume you read the 0:01:25.040 --> 0:01:27.679 pace from Larry Summers on Friday and to the weekend, 0:01:27.680 --> 0:01:30.039 and it's huge debate everybody's having right now. Can you 0:01:30.080 --> 0:01:31.959 weigh in on that just a little bit more for us, James, 0:01:31.959 --> 0:01:35.720 you'll take and why you sit on this discussion right now? Well, 0:01:35.760 --> 0:01:37.520 I mean I've been looking for the package to come 0:01:37.560 --> 0:01:39.760 down from one point nine trillion. At one point nine 0:01:39.840 --> 0:01:44.560 is is very large. Um So you know this is uh, 0:01:44.800 --> 0:01:47.920 this is this is stimulative relief. It's it's stimulus, and 0:01:47.960 --> 0:01:51.080 it's true. And I think we look ahead to next year. 0:01:51.080 --> 0:01:53.760 I think it is realistic to get back to full 0:01:53.840 --> 0:01:57.320 employment in two thousand twenty two. We're gonna have a 0:01:57.320 --> 0:01:59.760 little overshoot and inflation in the coming months. It is 0:01:59.760 --> 0:02:03.240 possible that we have inflation running above two percent, maybe 0:02:03.520 --> 0:02:07.760 a decent amount above two for the next twelve months. Um, 0:02:07.880 --> 0:02:10.680 we'll take it. I mean, these are these are good things. 0:02:10.919 --> 0:02:14.600 Um So I I think, yes, we may get overheated. 0:02:14.639 --> 0:02:17.720 We may get very volatile markets, we may get a 0:02:17.800 --> 0:02:20.880 cyclical whip Shaw in the economy. Um, so you're you're 0:02:20.880 --> 0:02:23.919 putting more cyclicality into growth. So there's a lot of 0:02:23.960 --> 0:02:27.880 volatility in a bill of this size, But volatility is 0:02:28.280 --> 0:02:33.200 not you know, a significant cost given the objectives involved here, 0:02:33.240 --> 0:02:35.680 which is really to get the economy back to full employment. 0:02:36.160 --> 0:02:39.720 Uh and and maybe to soothe some of its distributional consequences. 0:02:39.760 --> 0:02:42.079 Do you take issue with size alone, though, James, Or 0:02:42.200 --> 0:02:45.360 is it the composition of it as well? Oh? Composition 0:02:45.400 --> 0:02:48.680 is quite important. And and actually I would say I 0:02:48.720 --> 0:02:51.400 think about this as part one because it's clear than 0:02:51.400 --> 0:02:54.120 when that because this gets past, the administration is going 0:02:54.160 --> 0:02:57.320 to start focusing on a long term stimulus bill with 0:02:57.400 --> 0:03:00.600 green energy and infrastructure and and all that. So there's 0:03:00.639 --> 0:03:05.200 a balance between immediate stimulus, how much cash drop is 0:03:05.200 --> 0:03:08.000 in that immediate stimulus, and then what is the long 0:03:08.120 --> 0:03:11.360 term implication including the later package. Because I don't think 0:03:11.400 --> 0:03:15.079 you can think about the results of this bill, uh 0:03:15.080 --> 0:03:18.520 and the politics of this bill without realizing what's up next. 0:03:18.919 --> 0:03:21.440 So these are these are all big things, and and 0:03:21.480 --> 0:03:25.440 this is a major increase in the projected growth of 0:03:25.480 --> 0:03:27.960 the economy in the in the next few years, if 0:03:28.000 --> 0:03:31.000 both of these bills get through, and even if this 0:03:31.040 --> 0:03:32.959 one just gets through at a one point non trillion 0:03:33.000 --> 0:03:35.040 size or something close to it, James, let's talk a 0:03:35.080 --> 0:03:37.000 little bit more about composition, and I want to follow 0:03:37.040 --> 0:03:40.200 up on something John was talking about. You rightly identified 0:03:40.240 --> 0:03:43.880 the way that Democrats are painting at the checks is 0:03:43.880 --> 0:03:47.200 something perhaps a bit more than just relief, but also 0:03:47.280 --> 0:03:49.840 evening out that K shaped recovery. It is a very 0:03:49.880 --> 0:03:54.920 important point. Is the Democratic Party framing this wrong? Is 0:03:54.960 --> 0:03:57.920 there a cleaner economic argument for the money to be 0:03:57.960 --> 0:04:00.720 going to lower income families in it they will be 0:04:00.760 --> 0:04:03.680 spending it more and more quickly. Whereas if you have 0:04:03.800 --> 0:04:06.560 a certain threshold, a certain cut off that's even known, 0:04:07.000 --> 0:04:10.720 that will go directly into savings. Well, it's clear that 0:04:10.880 --> 0:04:12.840 this at one point nine trillion, or even a little 0:04:12.840 --> 0:04:15.200 bit below that this is gonna be enough money to 0:04:15.320 --> 0:04:20.160 boost savings, to boost current spending, to help balance sheets, 0:04:20.760 --> 0:04:23.560 and to boost future spending when we finally get into 0:04:23.560 --> 0:04:27.600 a proper services recovery. I think the distribution of this, 0:04:27.800 --> 0:04:30.920 especially with the payments, is going to be a very 0:04:31.040 --> 0:04:35.480 large improvement in the short term prospects of of people 0:04:35.680 --> 0:04:39.080 with you know, the bottom half of the income distribution. 0:04:39.520 --> 0:04:42.359 How they emphasize that, I think that's a political question. 0:04:42.560 --> 0:04:44.640 They're just trying to get it past. I think the 0:04:44.680 --> 0:04:48.640 beneficiaries of those checks are gonna they don't care about, 0:04:48.760 --> 0:04:51.159 you know, the political operations and how they get it through. 0:04:51.320 --> 0:04:52.839 They just want to get it through. They want to 0:04:52.839 --> 0:04:55.080 get this check, and they want to get through this pandemic, 0:04:55.480 --> 0:04:58.800 uh and get onto normal life again later this year. James, 0:04:58.839 --> 0:05:00.760 you agree with what Jenny I was saying over the 0:05:00.760 --> 0:05:02.840 weekend on Meet the Press when she was saying that 0:05:02.880 --> 0:05:05.200 if they pass this bill, we could get to full 0:05:05.279 --> 0:05:09.520 employment by perhaps next year. I think we can easily 0:05:09.520 --> 0:05:11.479 get the five percent unemployment by the end of this 0:05:11.560 --> 0:05:14.360 year with this bill, and I think late next year 0:05:14.480 --> 0:05:17.320 four percent is within reach. I think full employment is 0:05:17.360 --> 0:05:19.320 around four percent. I think it's a reasonable thing for 0:05:19.360 --> 0:05:21.920 her to say yes. And like I said, I think 0:05:21.920 --> 0:05:23.680 that next fiscal bill is going to be right around 0:05:23.680 --> 0:05:25.720 the corner. I think in three months we're gonna be 0:05:25.760 --> 0:05:29.240 talking about green energy and infrastructure. So this is this 0:05:29.320 --> 0:05:31.800 is really just the starts. The question then, is how 0:05:31.800 --> 0:05:34.240 to financial markets start to move in response to all that? 0:05:34.400 --> 0:05:37.880 Do we see meaningfully higher interest rates, inflation, etcetera. So 0:05:37.920 --> 0:05:44.200 this this really is changing the macro outlook very substantially. James, 0:05:44.240 --> 0:05:48.120 what is the inflation partition services and goods? What's that 0:05:48.320 --> 0:05:51.160 dynamic right now? Where do you foresee it to be 0:05:51.240 --> 0:05:54.080 in the next twelve months? Sure, well, right now we've 0:05:54.080 --> 0:05:56.240 had we've had a larger jump in goods inflation than 0:05:56.279 --> 0:05:59.400 services inflation because for the obvious reason that that good 0:05:59.480 --> 0:06:03.840 spending has been very strong, services spending remains lackluster due 0:06:03.880 --> 0:06:06.760 to the pandemic. We've all heard about this base effect 0:06:06.839 --> 0:06:10.200 coming in in the next few months. So core inflation 0:06:10.279 --> 0:06:12.200 inflation measures are really around the world. They're gonna be 0:06:12.240 --> 0:06:15.680 going up into June. But actually it's gonna be more 0:06:15.720 --> 0:06:20.120 pronounced at this goods versus services level. Goods inflation, non 0:06:20.200 --> 0:06:23.560 services inflation is really gonna jump. P p I inflation 0:06:23.600 --> 0:06:26.080 measures looking at intermediate goods things like that are going 0:06:26.120 --> 0:06:28.919 to really jump in the next few months. As we 0:06:28.960 --> 0:06:31.240 get into the end of the year. Maybe there's gonna 0:06:31.279 --> 0:06:36.240 be shortages of restaurant tables and flights, and then you 0:06:36.240 --> 0:06:38.839 can actually get some services inflation. But we need a 0:06:38.839 --> 0:06:41.840 pandemic recovery for that relative price shot to start to 0:06:41.880 --> 0:06:44.360 switch around. James Wilson's to catch up as always. Good 0:06:44.360 --> 0:06:47.480 to see you, buddy, James Sweeney, The chronis Sway chief economist, 0:06:56.600 --> 0:06:59.920 David Rosenberg and Rosenberg Research, and we're thrilled a good 0:07:00.040 --> 0:07:04.280 joint us today. David. When you partition our present inflation 0:07:04.920 --> 0:07:10.160 and our expectations of inflation, what do you see? Well, look, 0:07:10.480 --> 0:07:13.160 what we see is a you know, the break even 0:07:13.240 --> 0:07:19.000 levels Nutinior Treasury, you know, getting as high, uh, you 0:07:19.040 --> 0:07:22.200 know as they were practically uh, you know, attending to 0:07:22.240 --> 0:07:24.640 the peak of the last cycle. So you know, we're 0:07:24.680 --> 0:07:29.360 already well above two uh. And the market is pricing 0:07:29.440 --> 0:07:32.960 in you know, not just a significant econmount of recovery, 0:07:33.000 --> 0:07:36.480 but alongside that the closing of the output gap earlier 0:07:36.480 --> 0:07:39.760 than expected, and these inflacement expectations. I mean, the company 0:07:39.800 --> 0:07:42.560 by surprise, how quickly the market is priced in an 0:07:42.560 --> 0:07:46.840 inflation cycle so quickly, I think it's way overdone. Um. 0:07:46.920 --> 0:07:48.960 But you know, the big question isn't so much the 0:07:49.000 --> 0:07:52.560 one point nine trillion dollars. It's really ultimately how much 0:07:52.560 --> 0:07:56.119 of that one point nine trillion dollars filters through into 0:07:56.160 --> 0:07:59.440 the economy. And I would have thought actually that the 0:07:59.480 --> 0:08:03.200 markets have recognize the survey that the New York Said 0:08:03.240 --> 0:08:06.600 did a little while ago, uh, following the Cares Act, 0:08:06.960 --> 0:08:11.080 that found that only of that stimulus sound as play 0:08:11.080 --> 0:08:13.400 into the economy. You know, the rest went into savings. 0:08:13.720 --> 0:08:15.840 I guess you could say in the deadcoin and the 0:08:15.880 --> 0:08:19.080 game stock in the stock market baving, and the rest 0:08:19.160 --> 0:08:21.600 went into a debt paid down. Like what I can't 0:08:21.640 --> 0:08:25.160 correlate is desk in terms of the market mindset, how 0:08:25.200 --> 0:08:28.640 are we going to get inflation as the household sector 0:08:28.920 --> 0:08:34.839 is deleveraging unless the marketing ex temporary household household household 0:08:34.840 --> 0:08:38.079 demand for bank credit is running negative three year of 0:08:38.080 --> 0:08:42.360 the year negative three, and people think that's going to 0:08:42.400 --> 0:08:45.920 be inflationary. You're taking a different tech. Can you buy 0:08:46.000 --> 0:08:49.160 bill notes and bonds today? Can you buy today for 0:08:49.280 --> 0:08:53.320 price up, yield lower? Well, I think we're heading into 0:08:53.679 --> 0:08:57.559 a very attractive buying opportunity at the long end of 0:08:57.600 --> 0:08:59.880 the curve. I mean it's your bullish on bonds. I 0:09:00.080 --> 0:09:02.959 be heading towards the thirty year, which, as you said, 0:09:03.280 --> 0:09:06.680 touch two percent today. The bottom line here is that 0:09:06.840 --> 0:09:08.600 the set is not going to be plaid in policy 0:09:08.679 --> 0:09:10.600 for a long period of time, so there's no risk 0:09:10.679 --> 0:09:12.320 that the cost of carry is going to go up. 0:09:12.720 --> 0:09:16.360 The big debate is really is about inflation. Um. But 0:09:16.440 --> 0:09:19.400 you've got a market right now that's price for inflation 0:09:19.520 --> 0:09:22.400 heading to the peak we had the last cycle co inflation, 0:09:22.520 --> 0:09:24.920 and I think that's gonna still be very difficult to 0:09:24.960 --> 0:09:27.800 achieve even with the fiscal stimula. David. Let's build on this. 0:09:27.960 --> 0:09:30.520 When we're talking about inflation, as you correctly point out, 0:09:30.520 --> 0:09:35.160 we're talking about market based inflation expectations. How useful are they, David? 0:09:35.200 --> 0:09:38.160 How useful have they ever been? Given where we are 0:09:38.280 --> 0:09:41.720 right now? How do you move ten year inflation expectations 0:09:41.760 --> 0:09:45.800 based on what's happened in the last couple of weeks. Well, look, 0:09:46.080 --> 0:09:49.520 the biggest correlation between the break even is with the 0:09:49.520 --> 0:09:53.600 CRB index and UM. Of course that's real time Vieto. 0:09:53.679 --> 0:09:56.600 People don't see is that the biggest component of the CPI, 0:09:56.720 --> 0:09:59.600 and course CPI is rent and Bacon's reach are going up. 0:09:59.600 --> 0:10:03.040 The rental inflation is melting, and that's going to be dominating, UM. 0:10:03.040 --> 0:10:05.240 But the renal data don't come out as quickly on 0:10:05.280 --> 0:10:09.520 your Bloomberg at terminal as the CREB index. And we 0:10:09.559 --> 0:10:12.320 have a commodity boommate going on. But we had we 0:10:12.360 --> 0:10:14.680 had four or five of these commodity cycles just in 0:10:14.679 --> 0:10:17.000 the previous ten years, and that cycle from O nine 0:10:17.000 --> 0:10:20.120 and two thousand nineteen we have four or five. Incredible 0:10:20.200 --> 0:10:23.280 They look like sign ways, and people get caught offside 0:10:23.320 --> 0:10:25.319 because they believe that we're going to get inflations around 0:10:25.320 --> 0:10:28.360 the corner. Uh. And then what was the dominant feature 0:10:28.360 --> 0:10:31.160 of the last cycle? Did we get cyclical inflation? Yes, 0:10:31.280 --> 0:10:33.680 we've got some of it. But the bigger picture is 0:10:33.679 --> 0:10:36.120 that from O nine and two thousand nineteen, despite all 0:10:36.120 --> 0:10:38.560 the good dances went fiscal stimulus we had and all 0:10:38.600 --> 0:10:41.920 the monetary stimulus we had and the quintupling of the 0:10:41.960 --> 0:10:45.480 stock market, the peak and cor inflation last cycle was 0:10:45.520 --> 0:10:48.480 two point four percent. To me, the big picture is 0:10:48.520 --> 0:10:50.559 that you've got to go back to century to find 0:10:50.600 --> 0:10:53.440 that find the last time cor inflation peaked at such 0:10:53.480 --> 0:10:56.280 a low level, and we're getting to the break evens 0:10:56.320 --> 0:10:58.120 heading back to that right now. So I think that's 0:10:58.120 --> 0:11:00.520 a great buying opportunity to market right knows pricing in 0:11:00.920 --> 0:11:03.800 peak cor inflation from the last cycle when the unemployment 0:11:03.880 --> 0:11:07.320 rate was three point five percent not six point three percent, 0:11:07.960 --> 0:11:10.000 So to me, this is a great opportunity to get 0:11:10.000 --> 0:11:11.880 back into the long end of the curve. David, to 0:11:11.880 --> 0:11:14.280 build on what John was talking about, there's a difference 0:11:14.320 --> 0:11:19.520 between inflation expectations and actual belief in inflation that's being 0:11:19.520 --> 0:11:23.840 borne out throughout markets. How consistent is the reflation trade 0:11:23.840 --> 0:11:27.240 throughout all asset classes or is it mostly tied to 0:11:27.760 --> 0:11:32.240 break even and a specific subset of the market. Well, look, 0:11:32.280 --> 0:11:35.000 I think that you're seeing it across you know, a 0:11:35.040 --> 0:11:38.840 broad array of asset classes. I mean, you've got the 0:11:38.920 --> 0:11:41.920 reflation inflation trade in small cap stocks, You're seeing it 0:11:42.000 --> 0:11:45.200 in commodities. You're seeing that how value as I'll performed 0:11:45.280 --> 0:11:47.280 growth for the better part of the past few months, 0:11:47.840 --> 0:11:50.120 So it's not just in the bond market. Um, the 0:11:50.160 --> 0:11:53.520 inflation expectations and I've only been feeling called now in 0:11:53.559 --> 0:11:57.559 the past a couple of weeks over whether the inflation 0:11:57.640 --> 0:12:00.280 story is going to be the real story. I think 0:12:00.280 --> 0:12:03.040 it's us to meet to have faith. I think that 0:12:03.120 --> 0:12:05.360 the class will be about the inflation doesn't come back. 0:12:05.880 --> 0:12:08.680 That's what the people think. But it's really endemical class. 0:12:08.720 --> 0:12:11.800 Almost every after class you've seen you right now ready 0:12:11.840 --> 0:12:13.680 looking forward to getting you back to David. Always enjoy 0:12:13.720 --> 0:12:15.440 catching up. Thanks for being with us this morning. David 0:12:15.520 --> 0:12:29.880 Rosenberg there of Rosenberg Research, and Rita sent is a 0:12:29.960 --> 0:12:32.440 joy to speak to with energy aspects. What she does 0:12:32.800 --> 0:12:36.360 better maybe than anybody out there, is the elasticity the 0:12:36.520 --> 0:12:42.199 responsiveness of supply and demand worldwide. She joins us this morning, 0:12:42.200 --> 0:12:45.600 Amrita Sent, I think you nail it would demand elasticity 0:12:46.000 --> 0:12:49.400 being an absolute mystery. How much of a mystery is 0:12:49.440 --> 0:12:53.559 it right now? Oh, it continues to be a mystery. 0:12:53.600 --> 0:12:55.960 I don't think COVID has really helped the situation because 0:12:56.240 --> 0:12:59.240 you know, even when you had nine of the of 0:13:00.000 --> 0:13:03.520 a manufacturing down or industrial production shot in this was 0:13:03.559 --> 0:13:07.040 around March April last year, oil demand only felt by. 0:13:07.400 --> 0:13:09.800 It does show you how in elastic al demand is 0:13:10.280 --> 0:13:13.760 right now. Globally, all demand is down about five million 0:13:13.800 --> 0:13:17.200 barrels per day year on year um which, again, given 0:13:17.280 --> 0:13:20.040 the scale of relative lockdowns that we're still talking about, 0:13:20.160 --> 0:13:23.040 even in places like China, it is doing very very well. 0:13:23.080 --> 0:13:26.400 I think the cold weather has also really helped. We've 0:13:26.400 --> 0:13:29.480 seen l en G prices in Asia hit record highs 0:13:29.480 --> 0:13:31.480 and as a result, a lot of power plants there 0:13:31.800 --> 0:13:35.120 have switched to liquids of fuel oil LPG. That's been 0:13:35.160 --> 0:13:37.440 boosting oil as well. And now, of course in Europe 0:13:37.480 --> 0:13:39.760 and US you've also had a cold blast, so there's 0:13:39.800 --> 0:13:44.120 definitely support for heating fuels that's potentially masking some of 0:13:44.120 --> 0:13:46.000 the weakness elsewhere. Like you know, you guys just talked 0:13:46.040 --> 0:13:49.440 about airlines. Jet fuel demand isn't recovering anytime soon, but 0:13:49.520 --> 0:13:52.079 I do think the colder weather has helped at least 0:13:52.080 --> 0:13:54.560 mask part of that weakness. That's the demand side. Then 0:13:54.600 --> 0:13:57.240 there's also the supply side, the idea that OPEC plus 0:13:57.320 --> 0:14:00.760 has maintained certain output cuts and that shale producers in 0:14:00.760 --> 0:14:03.520 the United States are actually producing almost a fifth less 0:14:03.559 --> 0:14:07.000 oil then they were, say a year ago, or you know, 0:14:07.040 --> 0:14:11.120 ahead of the pandemic. How high oil prices get before 0:14:11.160 --> 0:14:16.199 all of that supply starts coming up flooding online. I 0:14:16.280 --> 0:14:18.040 think that's a million dollar question right now. I think 0:14:18.040 --> 0:14:21.120 you're exactly right. Supply has been a very critical factor. 0:14:21.160 --> 0:14:23.080 And I think full marks to OPEC for how they've 0:14:23.120 --> 0:14:26.640 handled the market. Uh, this is very much their achievement 0:14:26.840 --> 0:14:28.640 and and they will take a lot of credit for this. 0:14:28.960 --> 0:14:31.960 Saudi Arabian particular coming in with that million barrels of 0:14:32.000 --> 0:14:35.320 voluntary cuts. Uh, they will start bringing that back from 0:14:35.400 --> 0:14:38.480 April onwards. But to your point, shale production, we don't 0:14:38.480 --> 0:14:41.680 think it's going to go back to the pre COVID 0:14:41.800 --> 0:14:44.840 levels anytime soon, if ever, because they are more focused 0:14:44.880 --> 0:14:48.720 on discipline or product the shareholder returns right now. I 0:14:48.720 --> 0:14:51.720 think in terms of oil prices, part of the problem 0:14:51.800 --> 0:14:54.080 is that the market can see this rebound and demand 0:14:54.160 --> 0:14:57.520 coming and supplies remaining tight exactly what we're talking about 0:14:57.640 --> 0:14:59.840 right now. But we aren't really going to see the 0:15:00.040 --> 0:15:03.400 actual demand recovery till qto potentially even the second half 0:15:03.440 --> 0:15:05.440 of the year. But this is the futures market. We 0:15:05.520 --> 0:15:08.280 always discount stuff that's going to happen in the future. Now, 0:15:08.520 --> 0:15:11.520 that's why prices are rallying right now. Should prices today 0:15:11.960 --> 0:15:14.760 b sixty dollars, No, But we're trading April futures, and yes, 0:15:14.800 --> 0:15:18.720 things will sequentially get better. Remember, we've also got a 0:15:18.880 --> 0:15:23.040 very very like easy monetary policy, so much liquidity in 0:15:23.040 --> 0:15:26.240 the system. We've always called for eighty dollar plus oil 0:15:26.280 --> 0:15:30.000 in maybe that is hundred dollars now, given how much 0:15:30.040 --> 0:15:32.480 liquidity there is in the system, I wouldn't rule that out. 0:15:32.640 --> 0:15:34.760 We've been talking I'm read of this whole program about 0:15:34.800 --> 0:15:36.960 how people are doubling down on this reflation trade, the 0:15:37.040 --> 0:15:40.480 recovery trade. And you do have some naysayers, David Rosenberg 0:15:40.560 --> 0:15:43.680 among them, and also Mike Muller of v Toll, of 0:15:43.720 --> 0:15:46.440 the Asian operations. He said over the weekend, the market 0:15:46.480 --> 0:15:48.760 is getting ahead of itself when it talks about oil 0:15:48.800 --> 0:15:53.440 prices going much higher from here. Do you agree? I 0:15:53.520 --> 0:15:56.320 do think if you look at prompt fundamentals, yes, the 0:15:56.320 --> 0:15:59.720 market has gotten ahead of itself because right now demand 0:15:59.880 --> 0:16:02.680 is still relatively weak. It is going to get better. 0:16:03.040 --> 0:16:05.440 But again, this is a reflection trade. People are not 0:16:05.480 --> 0:16:07.920 going to wait for the event to happen to position. 0:16:08.560 --> 0:16:11.240 Why not position now? If you know if airlines will 0:16:11.280 --> 0:16:13.920 reopen whenever, that is, if not Q two, it will 0:16:13.960 --> 0:16:15.800 be Q three or Q four. And I think that 0:16:15.960 --> 0:16:18.000 is part of the problem. You've seen this across asset 0:16:18.040 --> 0:16:20.600 classes right that. The reflection trade, to your point, is 0:16:20.760 --> 0:16:24.560 very much in vogue. However, above sixty dollars there will 0:16:24.600 --> 0:16:27.480 be headwinds from supply. Yes, US production may not go 0:16:27.520 --> 0:16:30.920 back to levels, but it will start to rise, or 0:16:30.960 --> 0:16:34.000 PAK compliance might start to slip a little bit as well, 0:16:34.040 --> 0:16:36.240 So yes, I can. I don't think this is going 0:16:36.280 --> 0:16:38.520 to be a straight line higher. We are also very 0:16:38.560 --> 0:16:41.400 cautious around the prompt. There's still a lot of unsold 0:16:41.440 --> 0:16:44.600 barrels in West Africa, for instance, But it doesn't take 0:16:44.600 --> 0:16:46.240 away from the fact that the second half of the 0:16:46.320 --> 0:16:49.480 year does look much much healthier in terms of demands. 0:16:49.520 --> 0:16:53.320 Set the scene two hundred dollar crude next year, second 0:16:53.400 --> 0:16:56.560 year of the Biden presidency. Some kine it was no 0:16:56.640 --> 0:16:58.960 doubtor of a nissance macro last week. Who I think now? 0:16:59.040 --> 0:17:02.000 Did park the politics? Get rid of the politics when 0:17:02.040 --> 0:17:04.240 you start to make market calls, because if you made 0:17:04.240 --> 0:17:06.359 a market call based on the politics, you wouldn't be 0:17:06.480 --> 0:17:09.840 eighty two on crude. I mean, I mean freeing this out. 0:17:09.880 --> 0:17:13.000 There's a trading range seventy eight. No one believes in that. 0:17:13.400 --> 0:17:15.800 And then as John mentions, there's a migration back to 0:17:15.840 --> 0:17:19.920 a hundred, no one believes in that. How likely is it? 0:17:22.320 --> 0:17:24.840 Look that's an outside chance. I don't think the hundred 0:17:24.920 --> 0:17:26.960 is a base case at all for us. The base 0:17:27.000 --> 0:17:29.639 case has always been around eighty dollars next year for 0:17:29.680 --> 0:17:32.240 the simple reason that a demand is going to go 0:17:32.320 --> 0:17:34.919 back to pre COVID levels b we've even got around 0:17:34.920 --> 0:17:37.440 coming back. We've just put out a noteying Iranian production 0:17:37.440 --> 0:17:40.200 will probably come back by more in the second half 0:17:40.240 --> 0:17:42.080 of the year. We've always been very clear on the 0:17:42.080 --> 0:17:44.119 timeline that it's not going to come back before June. 0:17:44.600 --> 0:17:48.480 But with the Biden presidency or administration rather engaging or 0:17:48.560 --> 0:17:51.520 likely to engage with Iran, volumes will start to come back. 0:17:51.760 --> 0:17:54.680 But then once Iran is back, there's very little specupacity 0:17:54.720 --> 0:17:57.600 in the system. OPEC will continue to bring oil back 0:17:57.640 --> 0:18:00.880 to the market, but no OPEC supplies which nobody talks about. 0:18:00.920 --> 0:18:05.400 There's no investment. Everybody is going after net zero. Everybody 0:18:05.480 --> 0:18:07.560 wants to be in the green age or has to 0:18:07.560 --> 0:18:10.320 be guided by the Green agenda. If there's no investment 0:18:10.359 --> 0:18:13.439 in the upstream, where is the marginal barrel of supply 0:18:13.600 --> 0:18:16.800 going to come from once OPEC has exhausted whatever it 0:18:16.840 --> 0:18:19.360 can bring on to meet the increase in demand. That's 0:18:19.359 --> 0:18:21.680 the question for next year. And rates always great to 0:18:21.720 --> 0:18:24.080 catch up come back, saying rate a cent of energy 0:18:24.119 --> 0:18:36.760 aspects down the CREWD market. Let's go to serious economic matters. 0:18:36.760 --> 0:18:39.199 Ethan Harris with the Bank of America running all of 0:18:39.240 --> 0:18:42.280 their economic research Ethan, I like how you and Michelle 0:18:42.280 --> 0:18:44.800 Meyer do the math. Four percent of g d P 0:18:45.480 --> 0:18:48.200 plus nine percent of g d P is a Larry 0:18:48.200 --> 0:18:54.080 Summer's impulse of g d P. Is that too much? Well, 0:18:54.240 --> 0:18:59.120 it's unprecedented. I mean if you take the two packages together, 0:18:59.240 --> 0:19:01.760 the one past December and one on the table, now, 0:19:02.359 --> 0:19:05.640 it's as big as what we did last spring when 0:19:05.680 --> 0:19:09.280 the economy was in free fall, when the unemployment rate 0:19:09.320 --> 0:19:12.560 was fourteen point three percent. Now the unemployment rate it's 0:19:12.600 --> 0:19:17.000 only six point three. Just these two packages, not including 0:19:17.040 --> 0:19:18.960 all the stuff they did last year, just these two 0:19:19.040 --> 0:19:23.520 packages are much more than double what the US did 0:19:23.840 --> 0:19:28.640 in two nine recession. So um, I've described this as 0:19:28.760 --> 0:19:32.840 clients as it's like the big gulp at seven eleven. 0:19:33.280 --> 0:19:36.080 I would know about that. Well, this is like drinking 0:19:36.119 --> 0:19:38.480 two of those Okay, Well, Ethan, you know on the 0:19:38.520 --> 0:19:41.400 big gulf. I I look at the other debate, which 0:19:41.480 --> 0:19:44.040 is an open and closed economy, and that some of 0:19:44.080 --> 0:19:47.919 the economic templates of the past are much more closed 0:19:48.000 --> 0:19:51.840 economies that are not international. How does that fiscal stimulus 0:19:51.840 --> 0:19:57.320 affect America if we are much more an open economy? Now, well, 0:19:57.359 --> 0:19:59.800 I mean when you put that kind of demand stamulus 0:19:59.840 --> 0:20:01.399 in the economy. And by the way, it's not going 0:20:01.440 --> 0:20:03.760 to show up right away. It's going to show up 0:20:03.800 --> 0:20:07.000 when we reopened the service sector and all the money 0:20:07.040 --> 0:20:10.200 that people have been holding in their bank accounts goes 0:20:10.240 --> 0:20:12.639 out into spending. But yeah, I mean a lot of 0:20:12.680 --> 0:20:17.360 it's gonna leak overseas in terms of stronger trade. Um, 0:20:17.400 --> 0:20:21.280 it's gonna provide a modest boost to go global growth, 0:20:21.400 --> 0:20:24.560 but you know, we still are relatively closed economy. It's 0:20:24.560 --> 0:20:27.399 going to be very service focused spending. All the stuff 0:20:27.440 --> 0:20:30.400 that we've been unable to buy for a year now 0:20:31.119 --> 0:20:35.160 that will boom. Uh, and that's mainly domestic spending, So 0:20:35.720 --> 0:20:37.840 it's it's going to spill over, but most of it's 0:20:37.840 --> 0:20:40.160 going to stay at home. Even how much is two 0:20:40.200 --> 0:20:42.639 thousand and nine a correct comparison that we should be 0:20:42.680 --> 0:20:45.439 looking at, both in terms of the of the nature 0:20:45.480 --> 0:20:48.360 of the shock as well as how quickly the economy 0:20:48.359 --> 0:20:50.520 accelerated afterwards. In other words, a lot of people said 0:20:50.680 --> 0:20:53.000 we didn't move quickly enough, and that's why the recovery 0:20:53.040 --> 0:20:55.919 took so long. This time, we want to fix that mistake. 0:20:55.960 --> 0:20:59.040 What's your take? Well, I think that that it's correct 0:20:59.080 --> 0:21:01.920 that there wasn't enough escill stimulus in two thousand nine, 0:21:02.080 --> 0:21:04.120 and and we knew it at the time. We knew 0:21:04.160 --> 0:21:09.080 that uh six percent of GDP stimus was inadequate given 0:21:09.160 --> 0:21:11.680 how massive the recession was. And the other thing we 0:21:11.760 --> 0:21:14.400 knew is that they gave up too early. Um, they 0:21:14.440 --> 0:21:17.720 stopped doing additional fiscal stimulus when the unemployment rate was 0:21:17.720 --> 0:21:21.440 still over nine percent, and there was no follow through 0:21:21.480 --> 0:21:24.800 at all. But I think people are looking back at 0:21:24.840 --> 0:21:28.120 that and not taking the lesson right. We're not waiting, 0:21:28.520 --> 0:21:31.360 We're not sitting here at nine percent unemployment. We're down 0:21:31.359 --> 0:21:34.480 to six point three and we haven't even felt the 0:21:34.480 --> 0:21:38.760 effects of the latest package. So this is um a 0:21:39.040 --> 0:21:43.080 very strong reaction to what was a policy mistake back 0:21:43.119 --> 0:21:45.800 in two thousand nine. The other thing I would point 0:21:45.800 --> 0:21:48.199