WEBVTT - A Big Red Flag In Nat Gas Is Exposed As Inventory Dwindles 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.440 Along with my co host Lisa A. Bramowitz. Each day 0:00:11.440 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.520 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:27.479 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:27.600 --> 0:00:31.680 Natural gas futures surging today the most at one point 0:00:31.720 --> 0:00:35.000 since October. Now just the most in a year, but 0:00:35.120 --> 0:00:38.720 still seeing people start to price in the cold spell 0:00:38.800 --> 0:00:41.800 that we're expecting pretty soon. Joining us now to talk 0:00:41.800 --> 0:00:43.600 about that as well as what's going on with you 0:00:43.640 --> 0:00:46.960 around is Stephen Short, President of the Short Group. Steven, 0:00:47.000 --> 0:00:48.720 thank you so much for being with us. Let's start 0:00:48.720 --> 0:00:51.920 with natural gas. How much further do you expect prices 0:00:51.960 --> 0:00:55.840 here to rise? I'll tell you what the disguised the 0:00:55.920 --> 0:00:58.760 limit in natural gas. The natural gas market has been 0:00:58.800 --> 0:01:02.240 getting a major flag for better part of the last 0:01:02.320 --> 0:01:05.880 year that something is not right in the complex. The 0:01:06.000 --> 0:01:09.480 bears and the perma bears in this market have continued 0:01:09.520 --> 0:01:11.880 to trump at the fact that we have record production. 0:01:12.319 --> 0:01:15.000 No doubt there. It is a fact we do have 0:01:15.040 --> 0:01:18.080 record production. But what's also a fact is we do 0:01:18.200 --> 0:01:21.760 not have enough gas in underground storage. So we are 0:01:21.800 --> 0:01:25.240 going into this winter with the lowest inventories since two 0:01:25.280 --> 0:01:29.640 thousand and five, about fift below the ten year average. 0:01:29.959 --> 0:01:32.640 So what I've been asking readers of my daily report 0:01:32.880 --> 0:01:35.959 over the past year, if we have all this production, 0:01:36.319 --> 0:01:40.039 why don't we have greater supplies now? Their response is 0:01:40.080 --> 0:01:42.480 going to be, well, we had a very hot summer, 0:01:42.520 --> 0:01:44.440 so we had a live demand for gas th run 0:01:44.480 --> 0:01:47.600 our air conditioners fair enough, but we also had the 0:01:47.680 --> 0:01:50.880 third largest draw out in inventories last winter, and last 0:01:50.880 --> 0:01:53.640 winter was one of the third warmest winters or in 0:01:53.720 --> 0:01:56.280 the bottom third winters as far as heating demand is concerned, 0:01:56.360 --> 0:01:58.880 over the last one hundred and twenty four years. So 0:01:58.920 --> 0:02:02.680 the bottom line year is demand is keeping pace with 0:02:02.800 --> 0:02:06.160 record production. Now that we get this cold front moving 0:02:06.200 --> 0:02:08.720 in all of a sudden, now we're gonna start drawing 0:02:08.760 --> 0:02:12.720 down inventories of low inventories to begin with sooner rather 0:02:12.800 --> 0:02:15.200 than later, and the market is finally waking up to 0:02:15.240 --> 0:02:19.040 this event. Stephen Short, is it also possible that because 0:02:19.080 --> 0:02:22.000 the cost of natural gas has been low for so 0:02:22.040 --> 0:02:26.280 long that oh, I was just gonna say that has 0:02:26.280 --> 0:02:28.720 been low for so long and you have had a 0:02:28.800 --> 0:02:33.240 switch over from higher cost types of electricity generation that 0:02:33.320 --> 0:02:36.760 now that you're locked into natural gas, it makes sense 0:02:36.800 --> 0:02:42.040 for them to maintain this price advantage. Absolutely there there 0:02:42.120 --> 0:02:45.480 is a situation now where we continue to put all 0:02:45.520 --> 0:02:49.600 of our eggs into one basket. Uh, We're we're working 0:02:49.639 --> 0:02:54.880 down our fleet of nuclear generation. Coal is regardless, regardless 0:02:54.919 --> 0:02:57.799 of the designs, where the intent of this administration, coal 0:02:57.880 --> 0:03:01.160 is only going one way. So you're only real choices 0:03:01.200 --> 0:03:03.120 a b to you. And look, I think wind is 0:03:03.160 --> 0:03:06.280 a wonderful thing. I think solar and specific market areas 0:03:06.280 --> 0:03:10.440 southern California, the Southwest so forth are great and help 0:03:10.560 --> 0:03:14.200 contribute UH through power generation. But at the end of 0:03:14.200 --> 0:03:18.480 the day, when we're talking about dispatchable energy, natural gas 0:03:18.520 --> 0:03:22.600 and natural guests alone is your only real choice. And 0:03:22.639 --> 0:03:26.640 when we continue to grow our demand being here domestically, commercially, 0:03:26.639 --> 0:03:29.280 in industrial or as we're seeing now with the burgeoning 0:03:29.440 --> 0:03:32.280 l en G market and of course at large exports 0:03:32.320 --> 0:03:37.440 now via pipeline going into Mexico, we have a situation where, yes, 0:03:37.560 --> 0:03:41.560 natural gas prices have been so depressed for so long, 0:03:42.280 --> 0:03:46.600 right now the massive production is masking the fact that 0:03:46.680 --> 0:03:48.720 and no one wants really wants to seem to focus 0:03:48.840 --> 0:03:52.200 on the rising demand for natural gas. Natural gas prices 0:03:52.240 --> 0:03:55.720 are cheap, very cheap compared to say oil, But I 0:03:55.760 --> 0:03:59.560 don't expect that the last any time into the foreseeable future. 0:03:59.680 --> 0:04:01.800 I just I thinking, of course, about the former t 0:04:02.040 --> 0:04:04.760 x U or Energy Future, about how they basically did 0:04:04.760 --> 0:04:07.920 this huge leverage BIO when natural gas prices were more 0:04:07.960 --> 0:04:11.400 than fifteen dollars uh, and now they're treading below four dollars. 0:04:11.680 --> 0:04:15.120 Do you see us going back to that fifteen dollar level? 0:04:15.800 --> 0:04:18.760 Should things play out the way you expect heading into 0:04:18.760 --> 0:04:23.799 your No, no, absolutely not. If we have to remember 0:04:23.839 --> 0:04:28.679 the natural guess Priver Surgeon, this is when everyone, every 0:04:28.760 --> 0:04:31.640 expert back in the two early two thousands thought the 0:04:31.680 --> 0:04:33.960 United States was running out of natural gas. So all 0:04:34.000 --> 0:04:37.280 of that fifteen dollar plus natural gas occurred before the 0:04:37.320 --> 0:04:40.760 quote unquote shale gale. So we certainly have the problem. 0:04:40.960 --> 0:04:43.840 What's been keeping gas prices so low for so long 0:04:44.120 --> 0:04:46.200 is the fact that we're producing so much of it. 0:04:46.400 --> 0:04:49.159 For instance, when Hurricane can Tune in two thousand five 0:04:49.360 --> 0:04:52.520 ripped apart the southern U the shallow water Gulf of Mexico. 0:04:52.920 --> 0:04:55.680 One fifth of the lower forty eight gas came from 0:04:55.680 --> 0:04:58.400 that one market area and it was decimated by a hurricane. 0:04:58.760 --> 0:05:01.600 Now less than four percent comes from that market area, 0:05:01.839 --> 0:05:04.800 and a third comes from the Appalachian basin. So we've 0:05:04.800 --> 0:05:08.440 had a glut in Pennsylvania, Ohio, West Virginia because we 0:05:08.520 --> 0:05:12.039 did not have enough pipeline capacity to move that gas 0:05:12.080 --> 0:05:16.040 into specific demand market areas. That is working itself out 0:05:16.160 --> 0:05:18.719 right now. So we're looking at for the next couple 0:05:18.720 --> 0:05:22.160 of years still a very volatile market, but we will ease. 0:05:22.240 --> 0:05:25.080 But as we begin to open up access to that market, 0:05:25.320 --> 0:05:29.320 prices will naturally rise. But no, we are going nowhere 0:05:29.360 --> 0:05:31.520 near the fact of when we had ten eleven, twelve 0:05:31.560 --> 0:05:34.679 fift natural gas. That's not on the table at this point, 0:05:34.680 --> 0:05:37.560 but certainly sub three dollar gas, which is what we 0:05:37.600 --> 0:05:40.240 had for most of this summer. Those days are are 0:05:40.320 --> 0:05:42.720 going to be few and far in between. As I said, 0:05:42.720 --> 0:05:46.360 into the fore foreseeable future, Stephen Short. If an investor 0:05:46.880 --> 0:05:50.159 says I like what he says, it makes sense. I 0:05:50.200 --> 0:05:52.679 want to go long natural gas. I want to capture 0:05:52.720 --> 0:05:56.599 some of this increase. Will these price increases dropped to 0:05:56.640 --> 0:06:00.200 the bottom line of companies such as Range Resources, is 0:06:00.520 --> 0:06:07.479 e QT Resources, e o G Resources. Will they benefit absolutely? Uh, 0:06:07.839 --> 0:06:13.400 they're clearly these are depending on the specific basin their end. 0:06:13.760 --> 0:06:16.560 These are companies similar to oil. What what was the 0:06:16.600 --> 0:06:19.159 big concern three or four years ago when oil prices 0:06:19.160 --> 0:06:22.520 crashed to twenty five dollars a barrel. The producers can't compete. 0:06:22.720 --> 0:06:25.040 But what has happened over the past three, three or 0:06:25.040 --> 0:06:27.960 four years The producer has learned to compete. So, whereas 0:06:28.000 --> 0:06:30.479 it's still hard to make oil a profit at thirty 0:06:30.520 --> 0:06:33.919 dollars a barrel, companies are certainly making profits at five 0:06:33.960 --> 0:06:36.800 dollars a barrel as the efficient skis have improved. And 0:06:36.839 --> 0:06:39.760 it's the same situation in natural gas. Natural gas has 0:06:39.800 --> 0:06:42.320 been even in the longer bear market that than oil 0:06:42.880 --> 0:06:45.920 up until this past year. So certainly the producers are 0:06:45.960 --> 0:06:48.600 more efficient and therefore we'll be able to squeeze out margins. 0:06:48.800 --> 0:06:52.240 Anything above three dollars thirty cents is certainly going to 0:06:52.279 --> 0:06:56.520 be a very nice return for these companies. Stephen, before 0:06:56.520 --> 0:06:58.000 we let you go, I do want to get your 0:06:58.000 --> 0:07:00.640 thoughts quickly on the price of crew it especially in 0:07:00.720 --> 0:07:03.680 light of the Iranian sanctions that went back into effect. Today, 0:07:04.160 --> 0:07:08.080 prices of of of West Texas are increasing by about 0:07:08.080 --> 0:07:10.320 a percent, and I'm just wondering how much is that 0:07:10.440 --> 0:07:12.960 due to the sanctions. Do you think that it's all 0:07:13.000 --> 0:07:15.720 been priced in at this point? What's your take it 0:07:15.840 --> 0:07:18.160 was priced in. What happened with oil is it was 0:07:18.200 --> 0:07:21.920 an absolute bubble. We got through this summer one of 0:07:21.920 --> 0:07:25.560 the strong the strongest demand seasons ever for oil. We 0:07:25.680 --> 0:07:28.720 lost access to Canadian rol because of an outage either 0:07:28.720 --> 0:07:31.800 an upgrader up in Calgary. We were exporting for the 0:07:31.840 --> 0:07:34.720 first time oil and large amounts, and yet we came 0:07:34.720 --> 0:07:38.160 through the summer relatively unscathed. But between the late summer 0:07:38.280 --> 0:07:43.760 and September, we saw a massive rally and crude all prices. 0:07:43.920 --> 0:07:47.520 That was purely speculation going ahead into the RAND sanctions, 0:07:47.560 --> 0:07:50.960 because oil was rallying when oil demand. Refiners are in 0:07:51.000 --> 0:07:54.000 their maintenance season. Oil demand is at its weakest. We've 0:07:54.040 --> 0:07:57.440 since had a six correction, so oil prices are right 0:07:57.480 --> 0:07:59.880 back to where they wore before. That bubble was Infla, 0:08:00.400 --> 0:08:02.560 so we had that that that peak, and now we've 0:08:02.560 --> 0:08:04.840 had the EBB in oil prices are now searching out 0:08:04.840 --> 0:08:08.560 of bottom. We're probably right now looking Brent crude in 0:08:08.560 --> 0:08:11.440 the low seventies, uh w G in the low sixties, 0:08:11.440 --> 0:08:14.000 were probably searching out the bottom right here. In the 0:08:14.040 --> 0:08:16.559 weeks ahead, demand is going to start to pick up again, 0:08:16.640 --> 0:08:19.120 as he was, Refiners come out of maiden season, we 0:08:19.240 --> 0:08:22.080 go into the holiday season, so we're looking at probably 0:08:22.400 --> 0:08:24.240 a support of the market right now. We've got to 0:08:24.320 --> 0:08:26.960 leave it there. Thanks very much, Stephen Short, president of 0:08:27.000 --> 0:08:31.520 the Short Group based in Villanova, Pennsylvania. Price of oil 0:08:31.840 --> 0:08:35.440 on the Nymex down seventeen per cent since the beginning 0:08:35.520 --> 0:08:43.520 of October. Oil the Middle East, Saudi Arabia, Iran's President 0:08:43.679 --> 0:08:47.400 Hassan Rohani said quote America wanted to cut to zero 0:08:47.520 --> 0:08:51.200 Iran's oil sales, but we will continue to sell our 0:08:51.320 --> 0:08:54.520 oil to break sanctions. He went on to say that 0:08:54.600 --> 0:08:59.400 we are in a situation of war against the bullying enemy, 0:08:59.559 --> 0:09:01.920 and that's us more about the region and these topics. 0:09:01.960 --> 0:09:04.480 As Ambassador Adam Arelli, he is the former U. S 0:09:04.520 --> 0:09:08.560 Ambassador to Bahrain and the former deputy spokesman of the U. S. 0:09:08.559 --> 0:09:12.520 State Department. He joins us from Washington. Ambassador, really, thank 0:09:12.559 --> 0:09:15.400 you very much for being with us. What are your 0:09:15.400 --> 0:09:19.520 thoughts about the imposition the reimposition rather of U S 0:09:19.520 --> 0:09:26.000 sanctions against Iran. I think it's a very big deal. Um, 0:09:26.040 --> 0:09:30.800 this sanctions regime that the Trump administration has put into effect. 0:09:31.800 --> 0:09:36.200 I think it's much much harder, much more comprehensive than 0:09:36.320 --> 0:09:39.680 previous Thanks sanks in regimes. And I think it's going 0:09:39.720 --> 0:09:44.679 to take a huge fight out of the Iranian economy. Ambassador, Really, 0:09:44.679 --> 0:09:47.959 I'm wondering whether you think that it's going to have 0:09:48.200 --> 0:09:52.280 positive effects, positive meaning the effects that the United States 0:09:52.360 --> 0:09:58.720 intends with respect to imposing these hardships on Iran. Yes 0:09:58.760 --> 0:10:01.959 and no. Um, I think in the short term it 0:10:02.040 --> 0:10:08.280 will have the desired effect of squeezing the Iranian regime financially, 0:10:08.679 --> 0:10:13.360 denying it resources that it uses to fund terror and 0:10:13.360 --> 0:10:17.079 and and home and instability around the region. But over 0:10:17.120 --> 0:10:20.480 the long term, the broader goal is to change your 0:10:20.520 --> 0:10:26.679 running and behavior. More more broadly, I'm I'm a little 0:10:26.679 --> 0:10:29.760 bit skeptical of that for a couple of reasons. Uh. 0:10:29.880 --> 0:10:33.720 Number one, because, as Rohani says, they they're not bad 0:10:34.400 --> 0:10:39.720 at getting around sanctions or at surviving under very stringent sanctions. 0:10:39.920 --> 0:10:43.240 And number two, Um, you know, look, they're going to 0:10:43.280 --> 0:10:46.360 try and wait out the Trump administration and there's there's 0:10:47.080 --> 0:10:50.920 in two years. Actually in one day you might have 0:10:50.960 --> 0:10:54.920 a democratic congress, which which makes it more difficult to 0:10:55.240 --> 0:10:59.000 impose sanctions or to follow through on them. And look, 0:10:59.080 --> 0:11:01.840 at the end of the day, what is it going 0:11:01.880 --> 0:11:04.280 to take to get Iran to change the regime is 0:11:04.480 --> 0:11:07.400 the regime has committed to this course. I don't think 0:11:07.400 --> 0:11:09.240 you're going to have a change in policy or a 0:11:09.320 --> 0:11:11.760 change in behavior unless you have a change in the regime, 0:11:12.120 --> 0:11:14.800 and the sanctions aren't going to produce that. At the 0:11:14.920 --> 0:11:18.160 same time that President Ruhani came out with his comments 0:11:18.160 --> 0:11:23.560 about the sanctions, Iranian state television was showing footage of 0:11:23.640 --> 0:11:28.280 defense drills taking place in the country's north, and Iran 0:11:28.440 --> 0:11:33.240 has also launched its largest war games. What does that 0:11:33.320 --> 0:11:37.960 tell you about the position of the Iranian government? I think, 0:11:38.640 --> 0:11:41.760 well a couple of things. Number One, the Iranian government 0:11:41.960 --> 0:11:45.600 obviously is defiant. They've got to put a brave face 0:11:46.200 --> 0:11:49.559 on a bad situation. But to me, what's more telling 0:11:49.640 --> 0:11:54.920 is what's happening inside Iran. And basically, you've had uninterrupted 0:11:55.000 --> 0:11:59.720 protests by key sectors of the Iranian population since December 0:11:59.800 --> 0:12:03.840 of nineteen of two thousands and seventeen uh the fact 0:12:03.880 --> 0:12:08.240 of the matter is that Iran is in uh in 0:12:08.360 --> 0:12:13.480 crisis of the people are rejecting the legitimacy of the 0:12:13.559 --> 0:12:16.240 clerical regime which is ruled since the Irani A Revolution 0:12:16.320 --> 0:12:20.120 in nineteen nine. So what you see coming out of Iran, 0:12:20.240 --> 0:12:23.319 I think is more intended for a foreign audience than 0:12:23.320 --> 0:12:27.840 a domestic audience, and domestically they've gotten real problems. Ambassador, 0:12:27.880 --> 0:12:31.120 given your role as an ambassador, I'm wondering from the 0:12:31.200 --> 0:12:36.599 United States perspective, what imposing these sanctions unilaterally does to 0:12:36.960 --> 0:12:40.880 international relations. You know that European Union countries, a variety 0:12:40.960 --> 0:12:46.439 of them have come out against the reimposition of these sanctions. Well, 0:12:46.480 --> 0:12:50.720 I guess it depends on which which allies you're talking about. 0:12:51.080 --> 0:12:53.760 The Middle Our Middle Eastern allies that the Arabia, Bahrain 0:12:53.800 --> 0:12:57.760 where I was ambassador uh, the United Arab Emirates, Egypt 0:12:57.800 --> 0:13:01.800 and others are greeting these sanctions with high fives all 0:13:01.800 --> 0:13:04.480 the way around, because they're the ones that are most 0:13:05.160 --> 0:13:09.760 at threat from Iran. The Europeans, You're right, it's a 0:13:09.760 --> 0:13:13.360 little much more ambivalent about it. They don't They don't 0:13:13.559 --> 0:13:16.640 like sanctions as a as a weapon. They see them 0:13:16.640 --> 0:13:19.560 as a last resort. They're concerned that this will drive 0:13:19.600 --> 0:13:22.840 Iran out of the nuclear agreement uh, and they will 0:13:22.880 --> 0:13:26.120 resume their nuclear program. But at the end of the day, 0:13:26.160 --> 0:13:27.880 the Europeans are going to have a choice to make 0:13:27.920 --> 0:13:31.400 between the US market of three trillion and the Iranian 0:13:31.440 --> 0:13:37.599 market of twenty billions. That's a pretty obvious choice to make. Ambassador. 0:13:37.640 --> 0:13:39.640 One of the reasons we're focused on Iran is not 0:13:39.720 --> 0:13:43.840 just oil sanctions, but also the conflict and the ongoing 0:13:43.880 --> 0:13:47.440 tension between Iran and Saudi Arabia. Can you give us 0:13:47.440 --> 0:13:52.920 any thoughts about the position of Saudi Crown Prince Mohammed 0:13:52.960 --> 0:13:58.880 bin Salmon. Is he secure in his position? I think so. Um. 0:13:58.920 --> 0:14:01.600 You know, the king, King, who is the ultimate authority 0:14:01.679 --> 0:14:05.640 in Saudi Arabia, has has doubled down on his on 0:14:05.720 --> 0:14:08.960 the kron Prince, his son. Uh. I don't see a 0:14:08.960 --> 0:14:11.640 lot of internal opposition to the to the Kron Prince, 0:14:11.720 --> 0:14:16.840 certainly not sufficient to dislodge him. And look again, at 0:14:16.880 --> 0:14:20.840 the end of the day, there are two geostrategic pillars 0:14:20.840 --> 0:14:25.080 of the Middle East, Iran and Saudi Arabia. We have 0:14:25.400 --> 0:14:27.960 cast our lot with Saudi Arabia. I think that's a 0:14:28.000 --> 0:14:31.720 smart move uh. And look, they're going to be critical 0:14:31.760 --> 0:14:35.560 to making these sanctions work by increasing production to make 0:14:35.720 --> 0:14:38.960 up for a shortfall in Iranian exports. Ambassador, do you 0:14:39.000 --> 0:14:41.240 expect regime change at some point in the near future 0:14:41.280 --> 0:14:47.640 in Iran? You know, the administration has been very careful 0:14:47.920 --> 0:14:51.880 to say that regime change is not our policy. Uh. 0:14:51.960 --> 0:14:56.840 But everything they're doing, I think is designed to create 0:14:56.920 --> 0:14:59.440 the condition to where by the Iranian stake matters into 0:14:59.480 --> 0:15:03.920 their own hand and and change course. Can you just 0:15:03.960 --> 0:15:08.600 tell us briefly your perspective about Turkey and the role 0:15:08.680 --> 0:15:12.560 that it is playing in the Middle East. Currently, Turkey 0:15:12.640 --> 0:15:15.680 is playing a very disruptive and negative role in the 0:15:15.720 --> 0:15:19.040 Middle East. They are, first of all, they're ruled by 0:15:19.040 --> 0:15:22.640 a president who is more of a more of a 0:15:22.760 --> 0:15:26.000 dictator and an authoritarian than almost anybody in the region 0:15:26.080 --> 0:15:31.520 Number one. Number two, He is motivated by political by 0:15:31.760 --> 0:15:39.040 religious ideology. He seeks to establish himself as the primary 0:15:39.080 --> 0:15:44.240 influence of Sunni Islam, and he is challenging Saudi Arabia 0:15:44.320 --> 0:15:48.200 in that role. Um. I don't think that Turkey is 0:15:48.240 --> 0:15:51.200 playing a positive role, and they're certainly not acting as 0:15:51.240 --> 0:15:54.560 a good ally of the United States. Ambassador Adam Morelli, 0:15:54.600 --> 0:16:00.800 thank you so much for being with us. This eighty 0:16:00.800 --> 0:16:05.320 three billion dollars of US government bonds and notes are 0:16:05.360 --> 0:16:08.120 going to be sold, a record and it comes in 0:16:08.200 --> 0:16:11.280 a sort of perilous time considering the mid term elections. 0:16:11.320 --> 0:16:14.240 Joining us down to discuss John Others, senior editor for 0:16:14.360 --> 0:16:17.600 Bloomberg Markets and a recent acquire of Bloomberg's from the 0:16:17.600 --> 0:16:20.640 Financial Times, long time Financial Times columnists. We're very very 0:16:20.720 --> 0:16:22.240 happy to have you, John, Thank you so much for 0:16:22.280 --> 0:16:24.720 being here. So let's just start with that this record 0:16:24.800 --> 0:16:28.400 amount of US debt sales, government debt sales at a 0:16:28.480 --> 0:16:31.480 time when the midterm elections are kind of injecting quite 0:16:31.480 --> 0:16:34.800 a bit of uncertainty here. Yes, it's it's very concerning. 0:16:34.800 --> 0:16:36.840 I mean my latest column, I drew the analogy with 0:16:36.880 --> 0:16:39.760 the shark from Jaws. You know, if you're worried about 0:16:40.000 --> 0:16:44.560 the stock market, then you should be worried about bond yields. 0:16:45.840 --> 0:16:48.680 And that ultimately has been the story for the last 0:16:49.240 --> 0:16:51.680 twelve months or so, that every time people think that 0:16:51.880 --> 0:16:53.600 it's safe to go back in the water, you get 0:16:53.640 --> 0:16:58.320 a reminder from the bond market that that it's being 0:16:58.360 --> 0:17:00.600 asked to bite off an all a lot, that the 0:17:00.680 --> 0:17:05.200 Fed is actually into true QT and that the government 0:17:05.240 --> 0:17:07.679 is needing to fund a very aggressive tax cut. So 0:17:07.720 --> 0:17:10.080 what's the worst case scenario for bond investors this week? 0:17:11.359 --> 0:17:16.400 My faint, faint hunch if you look at the past, 0:17:16.440 --> 0:17:20.320 there is there is this urban myth that that congressional 0:17:20.320 --> 0:17:23.840 gridlock is good for the stock market, which actually doesn't 0:17:23.880 --> 0:17:26.919 hold water, but it is good for the bond market. 0:17:27.160 --> 0:17:29.480 And there's a clear enough reason why that might be 0:17:29.520 --> 0:17:32.359 the case. That administrations in the last two years before 0:17:32.880 --> 0:17:35.760 before a presidential election plainly have an incentive to prime 0:17:35.800 --> 0:17:41.080 the pump uh and and borrow more. And if you 0:17:41.160 --> 0:17:43.959 have gridlock, if you have a majority against the administration 0:17:43.960 --> 0:17:45.480 in the House, then plainly they're going to try to 0:17:45.520 --> 0:17:48.919 stop them doing that. That is good for bonds. I suspect. 0:17:49.200 --> 0:17:52.080 I think you're right. The degree of supply we're seeing 0:17:52.080 --> 0:17:54.960 at the moment is going to get very problematic. Indeed 0:17:55.000 --> 0:17:58.080 for the bond market. We are now possibly in the 0:17:58.280 --> 0:18:03.440 really weird Allison ones are and situation where a democratic 0:18:03.600 --> 0:18:07.720 majority in the House possibly were probably one of the 0:18:07.760 --> 0:18:13.280 most left wing democratic majorities in generations, would be good 0:18:13.680 --> 0:18:16.520 for the bond market because they're not going to let 0:18:16.840 --> 0:18:21.000 another irresponsible tax cuts happen. They're probably going to play 0:18:21.000 --> 0:18:24.439 politics and not let the Trump administration spend all that 0:18:24.480 --> 0:18:26.320 it like, all that it would like to spend on. 0:18:26.960 --> 0:18:30.800 So I feel slightly strange saying this because you wouldn't 0:18:30.840 --> 0:18:35.840 normally regards the rise of a fairly left wing democratic 0:18:35.920 --> 0:18:38.720 leadership group to the House as being good for the 0:18:38.760 --> 0:18:41.440 bond market. But I suspect at this point it might 0:18:41.480 --> 0:18:47.960 be if money becomes more expensive, doesn't that help inflate 0:18:48.040 --> 0:18:53.160 away the debt? I suppose it does, but you still 0:18:53.200 --> 0:18:56.800 need to issue plenty more of it in the in 0:18:56.880 --> 0:18:59.760 the in the first case, I mean, are you talk 0:18:59.800 --> 0:19:03.840 about isn't there but isn't there already appetite for treasuries? 0:19:03.880 --> 0:19:05.440 I mean, you know, you got back into history and 0:19:05.440 --> 0:19:07.639 people have been talking about how high interest rates are 0:19:07.640 --> 0:19:10.479 going to kill everything. You go back to two there 0:19:10.520 --> 0:19:12.960 were fourteen percent, and the world didn't come to an end. 0:19:13.480 --> 0:19:15.800 The world didn't come to an end. The process of 0:19:15.840 --> 0:19:18.600 getting to fourteen percent from five or six percent or 0:19:18.600 --> 0:19:22.360 wherever we were in the early seventies wasn't particularly good 0:19:22.400 --> 0:19:26.520 for the stock market and wasn't particularly good for the economy. Uh, 0:19:26.560 --> 0:19:28.560 I'm not. I'm not saying they're bad in their own right. 0:19:28.640 --> 0:19:31.320 Markets a balancing mechanisms. You've you've got to try to 0:19:31.440 --> 0:19:36.240 clear markets. You've got to reconcile, find some equilibrium. The 0:19:36.359 --> 0:19:40.040 journey to an equilibrium that will deal with whatever in 0:19:40.119 --> 0:19:42.720 balance you have at the moment may well be very painful. 0:19:42.800 --> 0:19:46.560 I'm not suggesting I personally think that the interest rates 0:19:46.600 --> 0:19:48.919 will have to be higher than than they are at present, 0:19:49.119 --> 0:19:52.120 and that that ultimately will be in the long term 0:19:52.200 --> 0:19:57.640 interests of our children, grandchildren, whatever kind of political term 0:19:57.640 --> 0:19:59.200 you want to use. In the short term, it might 0:19:59.320 --> 0:20:01.000 hurt if you have and to want to make money 0:20:01.040 --> 0:20:03.040 in the stock market. Well, one thing that I'm struggling 0:20:03.080 --> 0:20:06.600 to understand is how the trade war that seems to 0:20:06.640 --> 0:20:10.880 be ongoing between the US and China effects bonds, because 0:20:11.200 --> 0:20:14.760 on one hand, it raises the price of certain goods. 0:20:14.840 --> 0:20:18.040 On the other hand, it does seem to tamp down growth, 0:20:18.119 --> 0:20:21.320 which is actually a headwind for inflation, and thus would 0:20:21.320 --> 0:20:23.320 seem to suggest you would have a bid for bonds. 0:20:23.359 --> 0:20:27.040 So when you sort of equal everything out, is sort 0:20:27.040 --> 0:20:29.200 of protectionism and a trade war good for bonds or 0:20:29.240 --> 0:20:31.200 bad for bonds, Well, you've got to throw in one 0:20:31.240 --> 0:20:35.879 other aspect as well, which is the the demand for 0:20:36.000 --> 0:20:40.720 treasuries from China. If China is making making much less 0:20:40.720 --> 0:20:44.919 in the way of a surplus, it's buying fewer treasuries um. 0:20:45.040 --> 0:20:47.199 So that you know, there are a number of different 0:20:47.240 --> 0:20:53.679 factors that that feed in there my ultimate suspicion. My 0:20:53.840 --> 0:20:59.439 suspicion is that we have a trade war if China 0:20:59.560 --> 0:21:03.159 feels strong enough to have one. And if you have 0:21:03.280 --> 0:21:09.200 a trade war, then that ultimately is very probably good 0:21:09.200 --> 0:21:11.959 for bonds for bad reasons, that they become a haven 0:21:12.119 --> 0:21:15.520 and people are getting out of risk assets. The reason 0:21:15.600 --> 0:21:19.919 we might not have a trade warm. There is an 0:21:19.920 --> 0:21:23.840 analogy here, I think with Reagan and Gorbatov and and 0:21:23.960 --> 0:21:26.480 the Cold War in the eighties. There are two arguments 0:21:26.520 --> 0:21:29.560 about One is that Reagan won the Cold War by 0:21:29.600 --> 0:21:33.440 being aggressive and building up arms. The other argument he 0:21:33.560 --> 0:21:36.520 is lucky because he happened to be there when the 0:21:36.520 --> 0:21:40.080 Soviet Union, which was already about to collapse under its 0:21:40.119 --> 0:21:44.600 own contradictions, did indeed collapse under its own contradictions. It 0:21:44.840 --> 0:21:49.840 is possible looking at how the Chinese government is now 0:21:50.480 --> 0:21:57.240 obviously anxious about credit, talking about Minsky moments um very 0:21:57.280 --> 0:22:02.600 obviously very concerned about this, but resulting to um more stimulus, 0:22:02.600 --> 0:22:05.760 it's possible that that that's that Trump could be lucky 0:22:05.800 --> 0:22:08.399 like Reagan was. Thanks very much for being with us. 0:22:08.440 --> 0:22:10.560 We're lucky to have you, John Authors as the senior 0:22:10.680 --> 0:22:16.320 editor for Bloomberg Markets. You're listening to Bloomberg Markets with 0:22:16.480 --> 0:22:21.040 Pim Fox and Lisa Braunwitz on Bloomberg Radio. We're broadcasting 0:22:21.040 --> 0:22:24.520 from the Bloomberg Interactor Broker's studios, and the topic now 0:22:24.640 --> 0:22:28.440 is hotels and hotel development. Joining us as an expert 0:22:28.600 --> 0:22:33.399 is Gilda Perez Alvarado, the chief executive of America's Hotels 0:22:33.400 --> 0:22:36.760 and Hospitality group for J A. L. Some people may 0:22:36.840 --> 0:22:40.080 know it as Jones Lang Lasal. Thank you very much 0:22:40.160 --> 0:22:42.959 for joining us. Tell us a little bit about J 0:22:43.440 --> 0:22:47.760 L L and it's participation in the hotel industry, because 0:22:47.760 --> 0:22:51.560 many people look at j A J L. L as brokers, 0:22:51.600 --> 0:22:53.919 but they don't know that you've got a big remit 0:22:53.960 --> 0:22:57.000 when it comes to the hospitality industry. That's right, So 0:22:57.119 --> 0:22:59.280 first of all, thank you for having me. In terms 0:22:59.359 --> 0:23:02.320 of what jail us, you are absolutely correct. We are 0:23:02.400 --> 0:23:06.400 investment advisors, so our investment sales where we represent sellers 0:23:06.400 --> 0:23:09.040 on an exclusive basis as our bread and butter. But 0:23:09.119 --> 0:23:12.040 in addition to that, we also facilitate financing and we 0:23:12.119 --> 0:23:16.840 have a very big strategic advisory and asset management division. Okay, 0:23:16.840 --> 0:23:19.840 So right now, given sort of some of the softening 0:23:19.880 --> 0:23:22.520 that we're seeing in commercial real estate prices, given the 0:23:22.560 --> 0:23:25.080 fact that we did see that glut of hotels in 0:23:25.240 --> 0:23:29.280 New York City, where are you seeing the biggest opportunities 0:23:29.320 --> 0:23:33.200 for your clients YIELDA, So definitely New York. We are 0:23:33.280 --> 0:23:35.680 now in the midst of a recovery story. This is 0:23:35.720 --> 0:23:39.159 a surprise because New York was number one territory that 0:23:39.200 --> 0:23:42.480 people said was overbuilt, overbuilt with hotels. It's listen, it's 0:23:42.560 --> 0:23:46.000 the most resilient market worldwide. We have Ciena tremendous amount 0:23:46.000 --> 0:23:49.479 of inventory come in over fift of new room supply. 0:23:50.200 --> 0:23:52.359 Uh you and I were speaking earlier. There's also the 0:23:52.400 --> 0:23:56.320 shadow inventory that is being propelled by Airbnb. But having 0:23:56.359 --> 0:23:59.000 said that all of the new rooms have been absorbed, 0:23:59.119 --> 0:24:01.600 demand is at an time high and we're finally seeing 0:24:01.600 --> 0:24:04.200 recovery at the bottom line. Do you see that there's 0:24:04.240 --> 0:24:07.840