1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:09,200 --> 00:00:12,720 Speaker 1: with Jonathan Ferrell and Lisa A. Brawmowitz jay Lee, we 3 00:00:12,840 --> 00:00:16,760 Speaker 1: bring you insight from the best and economics, finance, investment, 4 00:00:17,079 --> 00:00:22,440 Speaker 1: and international relations. To find Bloomberg Surveillance on Apple Podcast, Suncloud, 5 00:00:22,800 --> 00:00:26,280 Speaker 1: Bloomberg dot com and of course on the Bloomberg terminal. 6 00:00:29,320 --> 00:00:31,400 Speaker 1: Jinn and Emmanuel with a surround a table from a 7 00:00:31,600 --> 00:00:34,440 Speaker 1: court Julian. Wonderful to have you with us. Proper introductions, sir, 8 00:00:34,600 --> 00:00:36,960 Speaker 1: which you deserve. What a runny we've just seen in 9 00:00:37,000 --> 00:00:40,159 Speaker 1: October spose over to November. This morning. We asked the 10 00:00:40,159 --> 00:00:42,720 Speaker 1: guest a little bit earlier, Eric Freedom, what he thought 11 00:00:42,760 --> 00:00:44,519 Speaker 1: of it, and he said he'd faith this. Do you 12 00:00:44,560 --> 00:00:49,760 Speaker 1: agree with that? Now? Uh? From our point of view, Uh, Look, 13 00:00:49,880 --> 00:00:53,199 Speaker 1: the next week or two could be very choppy. Obviously, 14 00:00:53,200 --> 00:00:57,360 Speaker 1: we've got the FED tomorrow, you've got the elections next Tuesday, 15 00:00:57,960 --> 00:01:00,520 Speaker 1: and there's likely going to be back in fourth as 16 00:01:00,560 --> 00:01:02,680 Speaker 1: we've seen in the last couple of days. But from 17 00:01:02,680 --> 00:01:07,760 Speaker 1: our point of view, look, we know the FED is 18 00:01:07,800 --> 00:01:10,320 Speaker 1: about the downshift. I don't want to call it plause 19 00:01:10,600 --> 00:01:13,120 Speaker 1: I don't want to get whatever. But we know the 20 00:01:13,280 --> 00:01:16,319 Speaker 1: trajectory is going to change and the market is getting 21 00:01:16,319 --> 00:01:19,760 Speaker 1: comfortable with that. At the same time, just like the 22 00:01:19,840 --> 00:01:23,800 Speaker 1: July earning season, we know the numbers are coming down, okay, 23 00:01:23,840 --> 00:01:27,280 Speaker 1: and it didn't matter stocks in in July, and it 24 00:01:27,319 --> 00:01:31,640 Speaker 1: doesn't matter now because frankly, people have been for the 25 00:01:31,680 --> 00:01:36,280 Speaker 1: most part underinvested. And the last thing, the stock bond correlation. 26 00:01:36,520 --> 00:01:40,080 Speaker 1: You can't get away from that. The UK set the 27 00:01:40,160 --> 00:01:43,600 Speaker 1: line in the sand when we resolve the political issues 28 00:01:43,959 --> 00:01:47,240 Speaker 1: that at least stopped the parabolic move up and yields 29 00:01:47,280 --> 00:01:49,160 Speaker 1: and that supportive for stock. We've got you for the 30 00:01:49,160 --> 00:01:51,280 Speaker 1: whole half hour, which is a real pleasure. I want 31 00:01:51,280 --> 00:01:52,920 Speaker 1: to go into some of the machinery of what you're 32 00:01:52,960 --> 00:01:55,080 Speaker 1: doing day to day that everybody on wall streets treat. 33 00:01:55,120 --> 00:01:57,080 Speaker 1: We'll do that later. Right now, you have a single 34 00:01:57,120 --> 00:02:00,640 Speaker 1: statistic the morning it keeps coming up. Revenues keep taking 35 00:02:00,760 --> 00:02:04,880 Speaker 1: up on your earnings edge nine point five. What's the 36 00:02:04,960 --> 00:02:08,400 Speaker 1: glide path of revenues you see with your optimism and 37 00:02:08,440 --> 00:02:11,600 Speaker 1: to say June of next year, well again, look, we 38 00:02:11,720 --> 00:02:14,840 Speaker 1: know the story is the story that none of us 39 00:02:14,960 --> 00:02:18,200 Speaker 1: as adults have a faced faced in our investing lifetime, 40 00:02:18,400 --> 00:02:21,080 Speaker 1: and the revenues are being driven by the ability to 41 00:02:21,120 --> 00:02:26,720 Speaker 1: pass on prices in an inflationary Absolutely, absolutely, Look, the 42 00:02:26,800 --> 00:02:30,440 Speaker 1: glide path is going to moderate. The question is can 43 00:02:30,760 --> 00:02:34,320 Speaker 1: margins be maintained. They've slipped, there's likely going to be 44 00:02:34,360 --> 00:02:37,680 Speaker 1: some more slippage, but can we maintain And that's really 45 00:02:37,720 --> 00:02:42,000 Speaker 1: the question uh confronting corporate America to politicians want to 46 00:02:42,040 --> 00:02:44,520 Speaker 1: see those profit margins maintained as the federal reserve. In 47 00:02:44,560 --> 00:02:46,800 Speaker 1: other words, the more that profit margins are maintained, the 48 00:02:46,840 --> 00:02:49,840 Speaker 1: higher rates will go at a time when there is 49 00:02:49,880 --> 00:02:53,480 Speaker 1: the lack of sensitivity right now between monetary policy and 50 00:02:53,520 --> 00:02:58,000 Speaker 1: the market response. Look, this again is part of the narrative. 51 00:02:58,000 --> 00:03:01,919 Speaker 1: There are a number of ways the policy titans and 52 00:03:01,919 --> 00:03:05,080 Speaker 1: and certainly and again this is part of the dialogue 53 00:03:05,120 --> 00:03:08,359 Speaker 1: we've seen in the last twenty four hours in pointing 54 00:03:08,360 --> 00:03:11,960 Speaker 1: out the energy industry and in particular that we do 55 00:03:12,040 --> 00:03:15,960 Speaker 1: want to see margins come in. But again that this 56 00:03:16,040 --> 00:03:19,640 Speaker 1: is why the challenge of the soft Ish landing is 57 00:03:19,720 --> 00:03:22,480 Speaker 1: so intense, because there's a lot of things that have 58 00:03:22,600 --> 00:03:24,919 Speaker 1: to go right. Triple overage, all cash fun I have 59 00:03:24,960 --> 00:03:28,680 Speaker 1: no tax losses. Okay, other people have a lot of 60 00:03:28,760 --> 00:03:31,440 Speaker 1: tax losses. How do you play the shell game of 61 00:03:31,480 --> 00:03:36,800 Speaker 1: tax lost candidates into January three. So we are very 62 00:03:36,800 --> 00:03:40,400 Speaker 1: strongly convicted in the idea that you don't want to 63 00:03:40,400 --> 00:03:44,760 Speaker 1: take money out of the market here. Okay, look, could 64 00:03:44,760 --> 00:03:48,240 Speaker 1: we go lower at some point next year, absolutely, but 65 00:03:48,360 --> 00:03:52,040 Speaker 1: that is contingent on We've moved from contingent on a 66 00:03:52,080 --> 00:03:55,920 Speaker 1: recession to contingent on a deep recession. Boom Radio. You 67 00:03:55,920 --> 00:03:57,920 Speaker 1: don't see this, But to put a manual over here 68 00:03:57,960 --> 00:03:59,880 Speaker 1: with me, because Lisa just didn't want to sit next 69 00:03:59,880 --> 00:04:03,440 Speaker 1: to that much optimism to constructive to constructive, at least 70 00:04:03,480 --> 00:04:06,240 Speaker 1: we'll said that the consensus view that has shifted so much, Judy, 71 00:04:06,320 --> 00:04:08,320 Speaker 1: and we've gone from the fence not going to hike 72 00:04:08,360 --> 00:04:10,720 Speaker 1: too much too. It's not gonna hike fifty, it's not 73 00:04:10,760 --> 00:04:13,320 Speaker 1: gonna hike seventy five, or maybe it won't hike seventy 74 00:04:13,320 --> 00:04:15,440 Speaker 1: five again, they're set to do a fourth seventy five 75 00:04:15,440 --> 00:04:17,839 Speaker 1: basis point hike. When it came to the recession, it 76 00:04:17,880 --> 00:04:22,200 Speaker 1: was no recession. That's recession but short and shallow. We're 77 00:04:22,200 --> 00:04:24,679 Speaker 1: a long way from where we started the year, Julian, 78 00:04:24,839 --> 00:04:27,120 Speaker 1: and we've been wrong, wrong, wrong, the whole way through. 79 00:04:29,360 --> 00:04:33,839 Speaker 1: What gives you any confidence about three. Look, we do 80 00:04:33,960 --> 00:04:36,320 Speaker 1: have to understand the fact that when you have a 81 00:04:36,400 --> 00:04:40,720 Speaker 1: year like two, both the left tail and the right tail, 82 00:04:40,760 --> 00:04:42,840 Speaker 1: and you know we talked about options planning at every 83 00:04:42,920 --> 00:04:46,960 Speaker 1: car I s I are very large and frankly, when 84 00:04:46,960 --> 00:04:48,320 Speaker 1: you look at it, and this is one of our 85 00:04:48,360 --> 00:04:52,320 Speaker 1: favorite graphs, the bond stock return quadrant. It's been the 86 00:04:52,360 --> 00:04:57,760 Speaker 1: lower left in an unprecedented nature over the last sixty years. Two. 87 00:04:58,000 --> 00:05:01,200 Speaker 1: But actually the upside of that is the year after 88 00:05:01,360 --> 00:05:05,360 Speaker 1: the only other time it was lower left, you had 89 00:05:05,400 --> 00:05:08,520 Speaker 1: a massive return here for both bonds and stocks. And 90 00:05:08,560 --> 00:05:12,039 Speaker 1: again we respect the concept of seasonality. It's not the 91 00:05:12,120 --> 00:05:14,240 Speaker 1: be all and end all in the markets, but we 92 00:05:14,360 --> 00:05:17,839 Speaker 1: all know the data that supports good years after mid time. 93 00:05:17,880 --> 00:05:19,600 Speaker 1: Can we give him in a shout out? Just quickly? 94 00:05:19,839 --> 00:05:23,760 Speaker 1: Did you say the latest institutional investor survey at him 95 00:05:23,839 --> 00:05:27,000 Speaker 1: and top economist, a title he has earned forty two 96 00:05:27,040 --> 00:05:33,719 Speaker 1: times in the history of the equity racess. I'm sorry, 97 00:05:33,960 --> 00:05:36,960 Speaker 1: forty two fifty one. Well, this is what you're going. 98 00:05:37,000 --> 00:05:39,200 Speaker 1: And you know he's smart enough to hire Michael Chew 99 00:05:39,279 --> 00:05:41,920 Speaker 1: and Julian Emmanuel. You work for Chew, right, That's how 100 00:05:41,960 --> 00:05:45,760 Speaker 1: it works. We'll talk. But the basic idea here John 101 00:05:45,760 --> 00:05:48,160 Speaker 1: has been doing it since C. J. Lawrence, And here's 102 00:05:48,160 --> 00:05:52,360 Speaker 1: how he does it. Granularity. No one is as granular 103 00:05:52,920 --> 00:05:55,880 Speaker 1: is Edward Hyman. He's got a black pencil. He's ruined 104 00:05:55,920 --> 00:05:58,000 Speaker 1: three of his light Grace shoot suits. He's got the 105 00:05:58,040 --> 00:06:01,200 Speaker 1: sharpie thing going. He ruins like a three shoots using 106 00:06:01,240 --> 00:06:05,120 Speaker 1: the sharp uses a black sharpie, and he's got a 107 00:06:05,360 --> 00:06:09,599 Speaker 1: he's looking at railroad crossings in Kansas City. Value. Add 108 00:06:10,040 --> 00:06:13,000 Speaker 1: this is real value. You just take a sharpie and 109 00:06:13,000 --> 00:06:19,120 Speaker 1: you talk about rabbit cross secrets. Yeah, exactly. I had 110 00:06:19,160 --> 00:06:21,119 Speaker 1: a deal once and I had a paragraph on page 111 00:06:21,160 --> 00:06:23,880 Speaker 1: forty two that said, up, I didn't get ed Hyman's literature, 112 00:06:23,920 --> 00:06:26,359 Speaker 1: I wouldn't work there. I was literally give the proper 113 00:06:26,400 --> 00:06:29,200 Speaker 1: shout out, and you just went on around about pencils 114 00:06:29,200 --> 00:06:43,919 Speaker 1: and sharp Pia's Jude Emmanuel the Weekend. Head over to 115 00:06:43,960 --> 00:06:46,600 Speaker 1: our good friend Manace Crowning morning Manus John, thank you 116 00:06:46,680 --> 00:06:50,719 Speaker 1: very much. Yeah, Joimy nive is amatox seeing the Special 117 00:06:50,760 --> 00:06:54,200 Speaker 1: Presidential Coordinator, and what's good to see you in the daby. 118 00:06:54,640 --> 00:06:56,360 Speaker 1: We were just buying some of the presidents on there 119 00:06:56,360 --> 00:07:02,479 Speaker 1: talking about uh, you know, continuing buybacks and dividends would 120 00:07:02,480 --> 00:07:05,480 Speaker 1: perhaps bring the wrath of the wide House upon them 121 00:07:05,480 --> 00:07:09,200 Speaker 1: in terms of taxes. But to speech last night, let's 122 00:07:09,200 --> 00:07:13,160 Speaker 1: talk about last night. The President warned, I'm paraphrasing that 123 00:07:13,200 --> 00:07:15,000 Speaker 1: there's a risk of a windfall tax if you don't 124 00:07:15,080 --> 00:07:18,280 Speaker 1: be invest Is this just political kite find ahead of 125 00:07:18,320 --> 00:07:22,640 Speaker 1: mid terms? Is there any built possibility of windfall taxes? Well, Master, 126 00:07:22,640 --> 00:07:23,920 Speaker 1: first of all, it's great to be here with you 127 00:07:24,040 --> 00:07:26,920 Speaker 1: in uh In Abugabi and I'm Bloomberg. It's it's always great, 128 00:07:27,640 --> 00:07:30,679 Speaker 1: look the president is. This has been a consistent message 129 00:07:30,720 --> 00:07:36,360 Speaker 1: from the President, from the administration asking companies to take 130 00:07:36,400 --> 00:07:40,120 Speaker 1: their profits and invest them back in America, back in 131 00:07:40,240 --> 00:07:47,000 Speaker 1: production and refining. We have been experiencing elevated prices as 132 00:07:47,000 --> 00:07:51,520 Speaker 1: a result of geopolitical dynamics, not because of markets, but 133 00:07:51,600 --> 00:07:54,720 Speaker 1: because we have a war, devastating war in Europe where 134 00:07:54,760 --> 00:07:57,320 Speaker 1: the perpetrator of the war is one of the largest 135 00:07:57,320 --> 00:07:59,480 Speaker 1: oil producers in the world, one of the largest gas 136 00:07:59,480 --> 00:08:02,160 Speaker 1: exporters in the world, and it's using energy as a weapon. 137 00:08:02,440 --> 00:08:06,040 Speaker 1: This has seen a massive increase in prices. Well, of course, 138 00:08:06,080 --> 00:08:10,280 Speaker 1: we're still have a huge economic growth from post COVID 139 00:08:10,440 --> 00:08:13,720 Speaker 1: that is also creating demands growth. So we're telling companies 140 00:08:14,000 --> 00:08:18,760 Speaker 1: make a profit. Hey, your shareholders, but there's a level 141 00:08:18,800 --> 00:08:21,800 Speaker 1: and a limit to how much profit you can tell 142 00:08:21,800 --> 00:08:24,800 Speaker 1: you without investing. You weren't saying not to oil companies 143 00:08:24,800 --> 00:08:27,040 Speaker 1: when oil was at twenty bucks in the United States 144 00:08:27,040 --> 00:08:29,520 Speaker 1: of America. I think I think the point that at 145 00:08:30,240 --> 00:08:35,720 Speaker 1: twenty dollars is when naturally companies don't invest. A hundred dollars, 146 00:08:35,800 --> 00:08:38,920 Speaker 1: ninety dollars is naturally historically when companies do invest. The 147 00:08:38,960 --> 00:08:41,760 Speaker 1: problem now is that they're not doing what they always 148 00:08:41,920 --> 00:08:45,320 Speaker 1: used to do. I'm not here to represent big oil 149 00:08:45,520 --> 00:08:48,320 Speaker 1: and US. I'm here maybe put the problemsation, which is 150 00:08:49,200 --> 00:08:51,520 Speaker 1: people have said to me, you look at this administration's 151 00:08:51,600 --> 00:08:56,280 Speaker 1: guidance to big oil. Day one keystone was bins. We 152 00:08:56,400 --> 00:09:00,800 Speaker 1: have neither discussion about a new taxation format, and we 153 00:09:00,880 --> 00:09:03,200 Speaker 1: have a host of sort of no drilling on on 154 00:09:03,280 --> 00:09:08,640 Speaker 1: federal land. We have various messages which are respectfully schizophrenic. 155 00:09:08,679 --> 00:09:11,360 Speaker 1: How can you plan for five years, ten years, copex 156 00:09:11,440 --> 00:09:15,160 Speaker 1: aim us with schizophrenic policy changes like this? This is 157 00:09:15,160 --> 00:09:17,319 Speaker 1: how it's been described to me. What's your response to that. 158 00:09:17,640 --> 00:09:19,600 Speaker 1: I don't think it's been schizophrenic. I think we've been 159 00:09:19,679 --> 00:09:23,280 Speaker 1: very clear to craft. Look, we're in a we have 160 00:09:23,360 --> 00:09:26,160 Speaker 1: to deal with the short term, medium term, and laun terms. 161 00:09:26,280 --> 00:09:29,600 Speaker 1: We're in a a time when we have to increase 162 00:09:29,679 --> 00:09:33,400 Speaker 1: production because we need to make sure to ensure global 163 00:09:33,480 --> 00:09:38,440 Speaker 1: economic growth. Yes, we have to have reasonably brice affordable 164 00:09:38,559 --> 00:09:43,480 Speaker 1: energy resources oil and gas to meet our goals of 165 00:09:43,520 --> 00:09:48,280 Speaker 1: where we want the world to go. We have to 166 00:09:48,320 --> 00:09:52,120 Speaker 1: accelerate our investments in renewable energy. Those are consistent with 167 00:09:52,200 --> 00:09:55,880 Speaker 1: each other, they're not competing with each other. So investing 168 00:09:55,960 --> 00:09:58,560 Speaker 1: right now, we here's a certainty we're giving oil companies. 169 00:09:59,400 --> 00:10:01,920 Speaker 1: We've said we are going now that we have released 170 00:10:01,960 --> 00:10:04,760 Speaker 1: a hundred and eighty million barrels. Yeah, I've oil onto 171 00:10:04,800 --> 00:10:07,520 Speaker 1: the market from the spr for our national security, and 172 00:10:07,600 --> 00:10:09,760 Speaker 1: just we need to buy it back. We need to 173 00:10:09,760 --> 00:10:11,840 Speaker 1: buy another two hundred million barrels back over the next 174 00:10:11,880 --> 00:10:15,679 Speaker 1: several years, we have said. The President himself has told companies, 175 00:10:16,400 --> 00:10:18,360 Speaker 1: I will get I will tell you what price. I 176 00:10:18,360 --> 00:10:21,360 Speaker 1: will buy it back at seventy dollars or so I 177 00:10:21,400 --> 00:10:25,080 Speaker 1: will start buying back at large amounts. So I will 178 00:10:25,160 --> 00:10:29,280 Speaker 1: provide you with certainty of price to some degree, so 179 00:10:29,400 --> 00:10:32,160 Speaker 1: to enable to answer the questions you've asked, Well, there's 180 00:10:32,160 --> 00:10:34,040 Speaker 1: one way to push a market against you, and that's 181 00:10:34,080 --> 00:10:36,040 Speaker 1: to tell them about what price you want to replenished 182 00:10:36,040 --> 00:10:38,520 Speaker 1: the spr But I know it's a lengthy document and 183 00:10:38,559 --> 00:10:40,720 Speaker 1: I know it has detailed We can we move on, 184 00:10:40,920 --> 00:10:43,160 Speaker 1: which is about the price cap from the United States 185 00:10:43,200 --> 00:10:46,160 Speaker 1: of America. I think the language is an effective and 186 00:10:46,200 --> 00:10:48,200 Speaker 1: a strong level of forty to sixty dollars is what 187 00:10:48,240 --> 00:10:51,560 Speaker 1: I understand. The numbers that's in the Blomberg stories. Do 188 00:10:51,640 --> 00:10:54,280 Speaker 1: you really believe sixty bucks is going to keep Russian 189 00:10:54,280 --> 00:10:57,480 Speaker 1: oil flowing onto the market, because the conversation I've had 190 00:10:57,480 --> 00:11:00,280 Speaker 1: with everybody here, everybody's worried about the sanctions coming to 191 00:11:00,360 --> 00:11:03,080 Speaker 1: bear here in our at home in Europe. To sixty 192 00:11:03,080 --> 00:11:06,920 Speaker 1: bucks keep Russia oil flowing in your mind? So, outside 193 00:11:06,920 --> 00:11:08,560 Speaker 1: of a Bloomberg article, which I would never want to 194 00:11:08,600 --> 00:11:13,560 Speaker 1: argue with Bloomberg, I don't think so. I we are 195 00:11:13,640 --> 00:11:15,280 Speaker 1: going to set the price. When we do that, and 196 00:11:15,280 --> 00:11:18,160 Speaker 1: we'll announce it. I think all these numbers out there 197 00:11:18,200 --> 00:11:20,719 Speaker 1: that are just rumors and leaks that I can tell 198 00:11:20,720 --> 00:11:23,920 Speaker 1: you are not substantiated by reality. Uh, and people should 199 00:11:23,960 --> 00:11:26,400 Speaker 1: just ignore those. I really would hope people would ignore 200 00:11:26,440 --> 00:11:30,280 Speaker 1: those numbers. We are We've always said that our goal 201 00:11:30,520 --> 00:11:33,400 Speaker 1: was to keep the Russian barrels on the market while 202 00:11:34,720 --> 00:11:38,360 Speaker 1: we restrict the revenues to Russia at a point when 203 00:11:38,400 --> 00:11:41,640 Speaker 1: they're using those revenues to finance the war. There's a 204 00:11:41,640 --> 00:11:44,000 Speaker 1: balance here and we have to figure that out. There's 205 00:11:44,040 --> 00:11:46,280 Speaker 1: a difference in the balance between when we were at 206 00:11:46,280 --> 00:11:48,840 Speaker 1: a hundred twenty dollars of arrow versus when we were 207 00:11:48,840 --> 00:11:51,679 Speaker 1: at seventy six dollars of arrow. So we are going 208 00:11:51,720 --> 00:11:54,640 Speaker 1: to have to figure out we're doing that now of 209 00:11:54,679 --> 00:11:57,040 Speaker 1: what the right price is going to be in order 210 00:11:57,080 --> 00:12:00,040 Speaker 1: to make sure that Russia's still incentiviz is so on 211 00:12:00,080 --> 00:12:04,959 Speaker 1: the market while we make sure that they're not overprofiting 212 00:12:05,760 --> 00:12:08,080 Speaker 1: beyond that level. Will it be materially higher than sixty 213 00:12:08,880 --> 00:12:10,400 Speaker 1: I can't tell you what the price is because if 214 00:12:10,400 --> 00:12:13,080 Speaker 1: I say anything now, you're gonna they're gonna have rumors 215 00:12:13,120 --> 00:12:16,040 Speaker 1: again on that. But we look, we get it, We 216 00:12:16,160 --> 00:12:18,679 Speaker 1: understand how the market works, and we want to make 217 00:12:18,679 --> 00:12:22,520 Speaker 1: sure that our goals are achieved to terrify ideal in fact, 218 00:12:22,920 --> 00:12:25,199 Speaker 1: not rumor. And with that in mind, I want to 219 00:12:25,240 --> 00:12:27,199 Speaker 1: understand the potency of the price cap when it comes. 220 00:12:27,240 --> 00:12:29,760 Speaker 1: Because I call up the Indian Oil Ministry yesterday, it's 221 00:12:29,840 --> 00:12:32,679 Speaker 1: very unlikely. The speculation is it's very unlikely Indian China 222 00:12:32,720 --> 00:12:37,600 Speaker 1: to If the biggest customers either for Russian oil will 223 00:12:37,679 --> 00:12:43,480 Speaker 1: sign up, we don't know, but given the price cap, 224 00:12:43,800 --> 00:12:47,360 Speaker 1: it's a fairy impotent proposition if two of the biggest 225 00:12:47,360 --> 00:12:54,439 Speaker 1: customers of Russia won't sign up. I disagree because, um 226 00:12:54,640 --> 00:12:56,480 Speaker 1: the country. What we're telling people, you don't have to 227 00:12:56,520 --> 00:12:59,800 Speaker 1: sign up. It's not you know, a membership. Uh. You 228 00:13:00,160 --> 00:13:03,120 Speaker 1: as long as you are purchasing Russian oil at a 229 00:13:03,160 --> 00:13:06,720 Speaker 1: lower price, that's what we want to achieve. You have 230 00:13:06,720 --> 00:13:09,920 Speaker 1: a market price of brant. Everybody negotiates. You know that 231 00:13:09,960 --> 00:13:13,960 Speaker 1: nobody buys strictly brant. There's all kinds of negotiations. Do 232 00:13:14,040 --> 00:13:17,040 Speaker 1: you really believe that India and China are not going 233 00:13:17,080 --> 00:13:19,280 Speaker 1: to be negotiating and are not already? We know that 234 00:13:19,320 --> 00:13:21,360 Speaker 1: Russian oil is not selling a brant right now. No, 235 00:13:21,440 --> 00:13:25,160 Speaker 1: it's at a discount, So it's just amount. How much 236 00:13:25,160 --> 00:13:27,559 Speaker 1: of a discount? Okay, Well, let's see what you produced 237 00:13:27,640 --> 00:13:32,360 Speaker 1: at your hair in Adipec. How would you describe Starry 238 00:13:32,520 --> 00:13:35,840 Speaker 1: US relations at the moment are they broken, Are they fractured? 239 00:13:35,880 --> 00:13:38,720 Speaker 1: What is the word that describes it at the moment? Well, 240 00:13:38,760 --> 00:13:41,320 Speaker 1: I think people attach too much to the drama of 241 00:13:41,360 --> 00:13:45,280 Speaker 1: things and the soap opera of things. Satura Abrabian the 242 00:13:45,360 --> 00:13:47,880 Speaker 1: United States have had an eight year relationship. We've had 243 00:13:47,880 --> 00:13:50,080 Speaker 1: some ups, we've had some downs. We usually come back 244 00:13:50,120 --> 00:13:52,720 Speaker 1: from the up. We have a broad range of interest 245 00:13:53,120 --> 00:13:58,360 Speaker 1: from security to economic. We had a significant disagreement that 246 00:13:58,400 --> 00:14:00,120 Speaker 1: we're you know, I don't try away from that. We 247 00:14:00,160 --> 00:14:02,400 Speaker 1: had a disagreement about the OPEC decision. We think it 248 00:14:02,480 --> 00:14:05,560 Speaker 1: was a mistake to announce a cut of two million barrels, 249 00:14:06,640 --> 00:14:09,280 Speaker 1: But we all we continue to talk to them, and 250 00:14:09,320 --> 00:14:11,720 Speaker 1: we're going to continue to have a relationship that serves 251 00:14:11,720 --> 00:14:14,160 Speaker 1: our interests. We're just gonna have to evaluate how that is, 252 00:14:14,280 --> 00:14:17,640 Speaker 1: how that best works. In all ways, the last time 253 00:14:17,720 --> 00:14:21,600 Speaker 1: you were in the region, you left here? Did you 254 00:14:21,680 --> 00:14:26,560 Speaker 1: leave here? Did you leave Saudi Arabia with a conviction 255 00:14:26,840 --> 00:14:28,680 Speaker 1: and a solid belief that you were going to get 256 00:14:28,680 --> 00:14:31,040 Speaker 1: more oil on the market. From the side, he's were 257 00:14:31,040 --> 00:14:34,480 Speaker 1: you miss guy? You did? Did you walk away with 258 00:14:34,520 --> 00:14:37,960 Speaker 1: that belief? Clarify for us today. So one of the 259 00:14:37,960 --> 00:14:39,360 Speaker 1: things that I never do was talking about what we 260 00:14:39,440 --> 00:14:42,520 Speaker 1: talked about. What I my conversations with government officially understand 261 00:14:42,520 --> 00:14:45,760 Speaker 1: the scenes. So I will say that we were very 262 00:14:46,000 --> 00:14:49,200 Speaker 1: The good thing about my conversation and folks, I'm always 263 00:14:49,240 --> 00:14:51,360 Speaker 1: very straightforward and I appreciate that they can be with me. 264 00:14:52,200 --> 00:14:55,040 Speaker 1: They knew that we believe that a cut right now 265 00:14:55,400 --> 00:14:59,240 Speaker 1: in this environment, under these conditions was not good for 266 00:14:59,280 --> 00:15:01,880 Speaker 1: the global eco. What I mean, it was not good 267 00:15:01,960 --> 00:15:05,800 Speaker 1: for their consumers. It's not good for our economy consumers. 268 00:15:06,320 --> 00:15:08,480 Speaker 1: We thought it was a mistake. I also, I think 269 00:15:08,520 --> 00:15:12,600 Speaker 1: that we from trip to Saudi Arabia was about oil 270 00:15:13,400 --> 00:15:16,160 Speaker 1: all along. No, it was never about oil. Think about 271 00:15:16,160 --> 00:15:18,280 Speaker 1: the things that we've done. We look, we are the 272 00:15:18,320 --> 00:15:23,520 Speaker 1: United States, Our interests are are varied and deep. And 273 00:15:24,280 --> 00:15:26,200 Speaker 1: look at what we achieved on that trip that I 274 00:15:26,200 --> 00:15:29,120 Speaker 1: think was really important. They were over flights from Israel, 275 00:15:29,200 --> 00:15:33,560 Speaker 1: security arrangements, security integration, security, economic integration of Iraq, visa 276 00:15:33,600 --> 00:15:38,200 Speaker 1: vi Iran, extending the ceasefire with Yemen. I mean, these 277 00:15:38,200 --> 00:15:40,640 Speaker 1: are really important things. We announced all kinds of other 278 00:15:40,840 --> 00:15:43,640 Speaker 1: achievements at the in the wall on that trip that 279 00:15:43,680 --> 00:15:45,840 Speaker 1: I'm nothing to do with oil. At the same time, 280 00:15:47,040 --> 00:15:50,440 Speaker 1: when we announced the trip. We also so after the trip, 281 00:15:50,560 --> 00:15:53,920 Speaker 1: a increase in production in July, an increase in production 282 00:15:54,000 --> 00:15:58,320 Speaker 1: in August, an increase in production in September. Uh the 283 00:15:58,440 --> 00:16:02,720 Speaker 1: com sauity in August had its highest production levels continuity 284 00:16:02,800 --> 00:16:05,520 Speaker 1: of them shock and it provoked immediate press releases. In 285 00:16:05,560 --> 00:16:08,480 Speaker 1: the news conference I was in in Vienna that night, 286 00:16:08,680 --> 00:16:10,880 Speaker 1: the question the market wants to know is how serious 287 00:16:10,920 --> 00:16:15,440 Speaker 1: is the white hot abide a retaliation? You know, is 288 00:16:15,480 --> 00:16:17,840 Speaker 1: retaliation the right word? What are you gonna do? Is it? 289 00:16:17,880 --> 00:16:20,440 Speaker 1: Is it gonna be on sales? Is it gonna be 290 00:16:20,520 --> 00:16:23,840 Speaker 1: no peck? Is it gonna be let's say more additional 291 00:16:23,960 --> 00:16:26,680 Speaker 1: spr releases? What is this retaliation that's been so much 292 00:16:26,720 --> 00:16:29,200 Speaker 1: made off in the media. So again I have to 293 00:16:29,200 --> 00:16:31,080 Speaker 1: deal with the relationship less with what it's made of 294 00:16:31,080 --> 00:16:34,200 Speaker 1: in the media. And we are looking at what the 295 00:16:34,240 --> 00:16:36,600 Speaker 1: interests in the United States are, how we see for 296 00:16:36,680 --> 00:16:39,480 Speaker 1: our own interests and for our interests here in the region. 297 00:16:39,840 --> 00:16:42,520 Speaker 1: We have very strong interests here in the Gulf, across 298 00:16:42,560 --> 00:16:45,960 Speaker 1: the board with you A, with Saudi, with the rest 299 00:16:45,960 --> 00:16:48,360 Speaker 1: of the region. And we are going to continue to 300 00:16:48,400 --> 00:16:50,560 Speaker 1: look at what other actions that we need to take 301 00:16:51,720 --> 00:16:55,360 Speaker 1: that best serve the American interests and what we think 302 00:16:55,400 --> 00:16:58,200 Speaker 1: are the best security interests for this region and the 303 00:16:58,200 --> 00:17:01,960 Speaker 1: economic interests around the world. That's what will guide every 304 00:17:02,000 --> 00:17:04,040 Speaker 1: decision that we make. And I thank you very much 305 00:17:04,040 --> 00:17:05,280 Speaker 1: to taking the time. I know you've got a busy 306 00:17:05,280 --> 00:17:08,240 Speaker 1: schedule and it's been good to catch up and on 307 00:17:08,440 --> 00:17:10,840 Speaker 1: I'll make sure i'll go down fact check my forty 308 00:17:10,880 --> 00:17:13,520 Speaker 1: to sixty dollar oiler price in terms of where the 309 00:17:13,520 --> 00:17:18,680 Speaker 1: cop comes and team Special Presidential Coordinator in OUTA two. 310 00:17:18,720 --> 00:17:21,760 Speaker 1: My final guest, it's a wrapper from the hallowed halls 311 00:17:22,640 --> 00:17:33,600 Speaker 1: where oil dealers are dumb. Jonathan Jane Folly will No, 312 00:17:33,760 --> 00:17:35,760 Speaker 1: I would actually like it. Let's be about the company. 313 00:17:35,760 --> 00:17:37,800 Speaker 1: It's just fun to say the name Billy, Billy say it. 314 00:17:37,800 --> 00:17:44,200 Speaker 1: It's fun. Alright, let's be please, let's move on. Royal 315 00:17:44,280 --> 00:17:47,440 Speaker 1: Dutch show is maybe just as fun to say, Jane Folly. 316 00:17:48,680 --> 00:17:51,320 Speaker 1: Strategy Jane, I did a fancy log study on the 317 00:17:51,359 --> 00:17:55,200 Speaker 1: Bloomberg on Chinese you won USDC N Y and if 318 00:17:55,240 --> 00:17:58,600 Speaker 1: you extrapolated out on this moon shot of weakness, you 319 00:17:58,680 --> 00:18:01,880 Speaker 1: get to eight you want in the summer of next year. 320 00:18:02,440 --> 00:18:05,840 Speaker 1: Can you go through that exercise? Can you extrapolate out 321 00:18:06,280 --> 00:18:11,320 Speaker 1: some of these beleaguered EM currencies and particularly China. Well 322 00:18:11,359 --> 00:18:13,240 Speaker 1: you know again that the news that you were just 323 00:18:13,280 --> 00:18:16,000 Speaker 1: referring to, will they pull out of COVID zero or not, 324 00:18:16,080 --> 00:18:18,280 Speaker 1: Well that's going to have a big, big leaning really 325 00:18:18,320 --> 00:18:21,800 Speaker 1: on the markets expectations for growth in China and therefore 326 00:18:21,880 --> 00:18:24,399 Speaker 1: on the the value of the the remember, because we 327 00:18:24,440 --> 00:18:27,040 Speaker 1: all know that Chinese growth this year is it's really 328 00:18:27,080 --> 00:18:29,200 Speaker 1: disappointing now. And we all know that of course that 329 00:18:29,280 --> 00:18:31,439 Speaker 1: we can economy means that we can exchange rate. So 330 00:18:32,160 --> 00:18:34,879 Speaker 1: those two things that are really really aligned. But you know, 331 00:18:34,960 --> 00:18:38,960 Speaker 1: for many of the e M currencies or the economies, 332 00:18:38,960 --> 00:18:40,720 Speaker 1: I think it really depends whether or not we're talking 333 00:18:40,760 --> 00:18:44,439 Speaker 1: about commodities exporters, commodities importers and certainly the ones that 334 00:18:44,480 --> 00:18:47,160 Speaker 1: have been really struck by the energy yet at crisis 335 00:18:47,720 --> 00:18:49,920 Speaker 1: really in some dire straits or that or the food 336 00:18:49,920 --> 00:18:52,679 Speaker 1: price crisis for many em and you know, there is 337 00:18:52,760 --> 00:18:55,000 Speaker 1: some degree of a doom look for for for many 338 00:18:55,040 --> 00:18:57,320 Speaker 1: of these now and that's going to be really tough 339 00:18:57,400 --> 00:18:59,720 Speaker 1: to break. And of course I think we've talked about 340 00:18:59,720 --> 00:19:01,440 Speaker 1: before if you can look at the doom loop for 341 00:19:01,440 --> 00:19:04,600 Speaker 1: for emerging markets as their fundamentals keep on driving them lower, 342 00:19:05,119 --> 00:19:07,240 Speaker 1: and then of course refers to to do that feedback 343 00:19:07,280 --> 00:19:09,720 Speaker 1: loop with respect to the dollar, to people keep on 344 00:19:10,119 --> 00:19:13,280 Speaker 1: holding the dollar and instead let's go to the first principles. 345 00:19:13,320 --> 00:19:15,680 Speaker 1: Off a FED meeting tomorrow and folks will have our 346 00:19:15,680 --> 00:19:19,640 Speaker 1: college very coverage, very dollar centric. Jane Fawley, Can central 347 00:19:19,720 --> 00:19:24,120 Speaker 1: banks manage a dollar turnaround? Well, you know, I think 348 00:19:24,119 --> 00:19:26,879 Speaker 1: central banks would like a dollar turnaround. I mean, you know, 349 00:19:26,920 --> 00:19:28,680 Speaker 1: there has been keeping up with the jones Is to 350 00:19:29,000 --> 00:19:31,720 Speaker 1: some extent, and that's not just an e M. And 351 00:19:31,760 --> 00:19:34,440 Speaker 1: we saw the emerging market central banks at start hiking 352 00:19:34,480 --> 00:19:38,400 Speaker 1: interest rates really before detenant in many cases. And of course, 353 00:19:38,600 --> 00:19:40,399 Speaker 1: you know you look at the Bank of England, you 354 00:19:40,400 --> 00:19:43,080 Speaker 1: look at the u c B. You know they next 355 00:19:43,080 --> 00:19:45,520 Speaker 1: time they go, I mean the Bank of England obviously 356 00:19:45,520 --> 00:19:47,760 Speaker 1: this week, but next time they go, they could be 357 00:19:47,840 --> 00:19:50,640 Speaker 1: hiking into an interest rate hike into a recession. That's 358 00:19:50,680 --> 00:19:52,840 Speaker 1: not something they want and they don't really want to 359 00:19:52,840 --> 00:19:55,639 Speaker 1: be doing seventy five basis points even fifty basis points 360 00:19:55,680 --> 00:19:57,600 Speaker 1: into a recession. But of course, as long as the 361 00:19:57,680 --> 00:20:01,439 Speaker 1: FED does large increments, then because of the the impact 362 00:20:01,520 --> 00:20:03,959 Speaker 1: or the potential impact on their currencies, you know that 363 00:20:04,040 --> 00:20:06,520 Speaker 1: really keeps alive the possibility that they may have to 364 00:20:06,560 --> 00:20:10,200 Speaker 1: go by large incumments to which crushes demand. This isn't 365 00:20:10,240 --> 00:20:13,560 Speaker 1: just about a doom look for em it's happening here too. 366 00:20:13,640 --> 00:20:17,199 Speaker 1: It crushes demand even more, which is clearly not what 367 00:20:17,280 --> 00:20:21,119 Speaker 1: you want when you've got energy prices crushing demand as well. So, um, 368 00:20:21,160 --> 00:20:23,399 Speaker 1: if the FED were to ease up, I think it 369 00:20:23,400 --> 00:20:25,800 Speaker 1: would be a relief to huge amount of economies around 370 00:20:25,800 --> 00:20:27,800 Speaker 1: the world. Okay, so if there is a step down, 371 00:20:27,960 --> 00:20:31,399 Speaker 1: does that mean that we've seen peak dollar? Well, you know, 372 00:20:31,680 --> 00:20:34,440 Speaker 1: not necessarily. And and this is the interesting thing. Because 373 00:20:34,440 --> 00:20:36,760 Speaker 1: the dollar is a safe haven, the dollar also reacts 374 00:20:36,760 --> 00:20:39,119 Speaker 1: to to slower world growth. And so you know, I 375 00:20:39,440 --> 00:20:43,119 Speaker 1: still come back to the question until you can really answer, 376 00:20:43,200 --> 00:20:44,560 Speaker 1: you know, what else are you going to buy if 377 00:20:44,560 --> 00:20:46,880 Speaker 1: it's not the dollar and you can really say, yeah, 378 00:20:46,880 --> 00:20:48,919 Speaker 1: you know, I really want to go and buy risky assets, 379 00:20:48,960 --> 00:20:50,720 Speaker 1: I want to go back into em or you know, 380 00:20:50,760 --> 00:20:53,919 Speaker 1: I'm confident in the Euro. Until you can answer those questions, 381 00:20:53,960 --> 00:20:56,520 Speaker 1: I think the dollar retains a fair amount of strength. 382 00:20:56,520 --> 00:20:59,080 Speaker 1: And you know, with respect to the Euro, yes, you know, 383 00:20:59,160 --> 00:21:02,080 Speaker 1: the energy prices have come lower in October and that's 384 00:21:02,160 --> 00:21:05,359 Speaker 1: great news, but you know it won't stop. It hasn't stopped. 385 00:21:05,359 --> 00:21:09,800 Speaker 1: You know, big chemical companies, aluminium smelters help manufacturers moving 386 00:21:09,800 --> 00:21:11,840 Speaker 1: out of Europe because they know that it's not just 387 00:21:11,920 --> 00:21:14,280 Speaker 1: about the cost of energy this winter. It's next winter 388 00:21:14,320 --> 00:21:16,159 Speaker 1: and the one after that. Where is that energy going 389 00:21:16,160 --> 00:21:18,280 Speaker 1: to come from? And I don't think that's something that 390 00:21:18,320 --> 00:21:20,600 Speaker 1: the euro is is really priced for yet. So how 391 00:21:20,640 --> 00:21:22,840 Speaker 1: much can we see the dollar continued to rally based 392 00:21:22,920 --> 00:21:25,719 Speaker 1: on that backdrop, which is really a poign to think 393 00:21:25,760 --> 00:21:29,439 Speaker 1: about industries moving out wholesale of Europe because they know 394 00:21:29,560 --> 00:21:32,600 Speaker 1: this is not a one winter problem. Well, you know, 395 00:21:33,160 --> 00:21:35,280 Speaker 1: I think, you know, we could still have euro dollar 396 00:21:35,440 --> 00:21:37,880 Speaker 1: going lower, maybe not right in the in the near term, 397 00:21:37,920 --> 00:21:40,879 Speaker 1: because the market is is getting excited about that the 398 00:21:40,920 --> 00:21:43,760 Speaker 1: story that we've got this this warm period and energy 399 00:21:43,760 --> 00:21:46,000 Speaker 1: prices aren't as expensive as they could have been. But 400 00:21:46,280 --> 00:21:48,680 Speaker 1: I think if we move into the proper winter over 401 00:21:49,000 --> 00:21:51,240 Speaker 1: you know, after Christmas into January February, if it gets 402 00:21:51,280 --> 00:21:54,080 Speaker 1: cold then and I think the reality of this weak 403 00:21:54,200 --> 00:21:56,200 Speaker 1: set of data that we've had from Germany in terms 404 00:21:56,240 --> 00:21:59,840 Speaker 1: of industrial production and manufacturing production, the prems, etcetera, that 405 00:21:59,880 --> 00:22:02,600 Speaker 1: the warning is about recession if they come into fruition. 406 00:22:02,960 --> 00:22:05,520 Speaker 1: I think that's the sort of environment where we could see, 407 00:22:05,560 --> 00:22:07,760 Speaker 1: you know, you were a dollar moving back, maybe towards 408 00:22:08,520 --> 00:22:11,040 Speaker 1: or so. In final word on sterling, if you'd asked 409 00:22:11,080 --> 00:22:13,000 Speaker 1: me just a few weeks ago whether this Bank of 410 00:22:13,040 --> 00:22:16,040 Speaker 1: England will be selling assets, I would have said I 411 00:22:16,080 --> 00:22:18,919 Speaker 1: don't think so. But they are. And it's that currency 412 00:22:18,960 --> 00:22:22,240 Speaker 1: positive or negative. Well, I suppose you know that the 413 00:22:22,240 --> 00:22:24,919 Speaker 1: fact that they managed to pull their credibility back from 414 00:22:24,960 --> 00:22:27,199 Speaker 1: the abyss, you know, is a positive thing. We have 415 00:22:27,240 --> 00:22:30,200 Speaker 1: to see how this this auction is soaked up. But 416 00:22:30,320 --> 00:22:32,840 Speaker 1: for now I think the Bank of England yet credibility. 417 00:22:32,880 --> 00:22:34,320 Speaker 1: It's a good thing. But you know, I think the 418 00:22:34,359 --> 00:22:38,240 Speaker 1: jury is out. I've still got a negative forecast for sterling, 419 00:22:38,320 --> 00:22:40,600 Speaker 1: and that's really because you know, all of this, So 420 00:22:40,600 --> 00:22:43,720 Speaker 1: our fundamentals that existed before that Many budget on September 421 00:22:43,880 --> 00:22:46,639 Speaker 1: twenty three fundamentally still there. In fact the worse, because 422 00:22:46,840 --> 00:22:50,040 Speaker 1: confidences as worse, and business confidence, consumer confidence, that sort 423 00:22:50,040 --> 00:22:52,160 Speaker 1: of thing. We are headed into the recession if we're 424 00:22:52,160 --> 00:22:55,360 Speaker 1: not already in it. So yes, you know, in terms 425 00:22:55,400 --> 00:22:58,760 Speaker 1: of credibility, both the new Prime Minister and the Bank 426 00:22:58,760 --> 00:23:01,160 Speaker 1: of England. Yeah, that's that's certainly a little more solid 427 00:23:01,200 --> 00:23:03,600 Speaker 1: than it was just a few weeks ago. But this 428 00:23:03,680 --> 00:23:06,440 Speaker 1: is a this is a tough set of environments in 429 00:23:06,720 --> 00:23:09,560 Speaker 1: the UK that that both are facing, and I think 430 00:23:09,760 --> 00:23:12,600 Speaker 1: Sterling is still headed for a pretty bumpy ride. The 431 00:23:12,600 --> 00:23:15,440 Speaker 1: pan against the US stellar right now, one fifteen thirty five, 432 00:23:15,520 --> 00:23:18,280 Speaker 1: that dollar week through all the get ten. Jane, thank 433 00:23:18,359 --> 00:23:31,000 Speaker 1: you as always, Jane Pony, there's rather thank you speaking 434 00:23:31,040 --> 00:23:34,840 Speaker 1: from sixty thou feet Carracadanna's on a glide path landing 435 00:23:34,840 --> 00:23:37,280 Speaker 1: with the Fed. Tomorrow we'll have our coverage. He joins 436 00:23:37,320 --> 00:23:40,679 Speaker 1: US now chief US economist at BNP Perry Carl. I 437 00:23:40,680 --> 00:23:43,879 Speaker 1: want to drill right down to the press conference. Everyone's 438 00:23:43,880 --> 00:23:47,080 Speaker 1: gonna want to look out to December. How does Powell 439 00:23:47,440 --> 00:23:54,239 Speaker 1: frame December tomorrow in the vicinity of two pm? Well, 440 00:23:54,280 --> 00:23:57,480 Speaker 1: good morning, Tom. I think that the challenge for tomorrow's 441 00:23:57,640 --> 00:24:01,240 Speaker 1: press conference, obviously November is all about December, but the 442 00:24:01,280 --> 00:24:04,479 Speaker 1: focus is going to be on the Fed's credibility around 443 00:24:04,480 --> 00:24:07,840 Speaker 1: this messaging, and they've previously highlighted that they need to 444 00:24:07,840 --> 00:24:11,120 Speaker 1: see some realized improvement in the inflation numbers, not just 445 00:24:11,520 --> 00:24:14,600 Speaker 1: wishful thinking about a turn on the inflation data, and 446 00:24:14,640 --> 00:24:16,679 Speaker 1: if we look at, for example, the Core cp I, 447 00:24:17,640 --> 00:24:20,560 Speaker 1: the six month annualized rate of change relative to the 448 00:24:20,560 --> 00:24:23,840 Speaker 1: twelve month is not telling us things are moderating. So 449 00:24:24,040 --> 00:24:25,960 Speaker 1: I think, what could happen? I mean, the Fed is 450 00:24:26,000 --> 00:24:30,320 Speaker 1: obviously eager for a downshift at some point, but I 451 00:24:30,359 --> 00:24:33,360 Speaker 1: think that maybe Pal will take a step away from 452 00:24:33,359 --> 00:24:37,200 Speaker 1: that and rather than committing to December, he'll say, well, 453 00:24:37,240 --> 00:24:40,000 Speaker 1: the time is approaching for a downshift. We'll let the 454 00:24:40,080 --> 00:24:43,080 Speaker 1: data do the talking. And we have before the December 455 00:24:43,119 --> 00:24:46,760 Speaker 1: meeting two jobs reports, two more inflation reports, and also 456 00:24:47,040 --> 00:24:49,840 Speaker 1: two more rounds of inflation expectations numbers which I think 457 00:24:49,840 --> 00:24:54,040 Speaker 1: are exceptionally important at this moment. Is the rate regime 458 00:24:54,520 --> 00:24:57,080 Speaker 1: now or what we're going to see in December or 459 00:24:57,200 --> 00:25:01,520 Speaker 1: January the same as it felt the last time we 460 00:25:01,520 --> 00:25:07,120 Speaker 1: were at this level of nominal rate? Well, I think 461 00:25:07,240 --> 00:25:09,679 Speaker 1: that debt levels have gone up in the economy, and 462 00:25:09,760 --> 00:25:14,320 Speaker 1: so interest rate sensitivity has only increased. And that's true 463 00:25:14,440 --> 00:25:16,399 Speaker 1: relative to the last time we are at these levels, 464 00:25:16,440 --> 00:25:19,640 Speaker 1: and it's true over the last fifty years as well. 465 00:25:19,840 --> 00:25:25,000 Speaker 1: So absolutely monetary policy is biting into economic activity. We 466 00:25:25,119 --> 00:25:28,240 Speaker 1: see that very clearly in the housing sector. We'll see 467 00:25:28,280 --> 00:25:31,560 Speaker 1: it through some other channels. You alluded to the manufacturing 468 00:25:31,600 --> 00:25:33,840 Speaker 1: I s M out at ten o'clock this morning, the 469 00:25:33,880 --> 00:25:37,800 Speaker 1: strong dollar taking a very significant toll on the factory sector. 470 00:25:37,840 --> 00:25:41,159 Speaker 1: We've seen new export orders slide into contraction, and I 471 00:25:41,200 --> 00:25:43,960 Speaker 1: think that means that finally today the I s M 472 00:25:44,000 --> 00:25:47,960 Speaker 1: headline will also slide into contraction as well. So we're 473 00:25:47,960 --> 00:25:52,600 Speaker 1: absolutely experiencing multiple channels through which policy is tightening and 474 00:25:52,760 --> 00:25:55,400 Speaker 1: rating and activity, and I think that means we're heading 475 00:25:55,440 --> 00:25:58,720 Speaker 1: into recession next year. Maybe not so early as the 476 00:25:58,760 --> 00:26:01,080 Speaker 1: first quarter, but I think by the time Q two 477 00:26:01,240 --> 00:26:04,639 Speaker 1: rolls around, we will have seen pay rolls slip below 478 00:26:04,800 --> 00:26:09,160 Speaker 1: zero on a monthly basis, and consumers will have exhausted 479 00:26:09,200 --> 00:26:12,000 Speaker 1: their excess savings from the pandemic, and the FED will 480 00:26:12,040 --> 00:26:15,080 Speaker 1: be at level of about five and a quarter on 481 00:26:15,119 --> 00:26:18,000 Speaker 1: the terminal FED funds rate. This will ultimately fix the 482 00:26:18,040 --> 00:26:21,919 Speaker 1: inflation problem, but through the process, it will steer us 483 00:26:21,920 --> 00:26:24,840 Speaker 1: into recession. To fix the inflation problem, how long does 484 00:26:24,840 --> 00:26:27,280 Speaker 1: it FED, in your estimation have to hold rates at 485 00:26:27,320 --> 00:26:31,400 Speaker 1: that five and a quarter percent level. In my estimation, 486 00:26:31,440 --> 00:26:33,960 Speaker 1: my team's estimation, we think that the FED will be 487 00:26:34,000 --> 00:26:36,720 Speaker 1: holding at that terminal rate of five and a quarter 488 00:26:37,440 --> 00:26:42,119 Speaker 1: THROUGHOUTE and then rate cuts could start in four. But 489 00:26:42,200 --> 00:26:44,360 Speaker 1: don't look for the Fed to be the white Knight 490 00:26:44,440 --> 00:26:47,600 Speaker 1: at historically has been riding to the rescue quickly and 491 00:26:47,600 --> 00:26:52,040 Speaker 1: aggressively with rate cuts. Rather, they will be much stingier 492 00:26:52,600 --> 00:26:55,359 Speaker 1: with the lowering of the FED funds rate, keeping it 493 00:26:55,359 --> 00:26:59,439 Speaker 1: in restrictive territory. We're looking for maybe uh fifty basis 494 00:26:59,440 --> 00:27:04,360 Speaker 1: points of cut per quarter after at the start of four. 495 00:27:04,440 --> 00:27:07,159 Speaker 1: So it's going to be a gradual moderation of that 496 00:27:07,400 --> 00:27:09,920 Speaker 1: restrictive stance of policy because it is going to take 497 00:27:09,960 --> 00:27:13,560 Speaker 1: time to choke the inflation pressures out of the economy. 498 00:27:13,600 --> 00:27:17,200 Speaker 1: We're seeing inflation at the moment in very sticky categories 499 00:27:17,200 --> 00:27:22,040 Speaker 1: places like rents UH and services excluding rents, and historically 500 00:27:22,080 --> 00:27:25,720 Speaker 1: it's taken more forceful policy action to bend the trend 501 00:27:26,080 --> 00:27:28,080 Speaker 1: in those types of categories. A lot of people listening 502 00:27:28,080 --> 00:27:30,600 Speaker 1: to this might say five and a quarter percent rates 503 00:27:30,640 --> 00:27:32,520 Speaker 1: for a full year at a time when we haven't 504 00:27:32,520 --> 00:27:35,080 Speaker 1: seen as much sensitivity this year because of some of 505 00:27:35,119 --> 00:27:37,840 Speaker 1: the immunization of balance sheets that we've seen. Next year 506 00:27:37,840 --> 00:27:40,000 Speaker 1: starts to get a little bit different. What are the 507 00:27:40,040 --> 00:27:43,200 Speaker 1: contours of a recession with a full year or more 508 00:27:43,359 --> 00:27:48,200 Speaker 1: of five and a quarter percent fed funds rates. Well, again, Lisa, 509 00:27:48,240 --> 00:27:51,159 Speaker 1: I think the recession probably starts in Q two of 510 00:27:51,280 --> 00:27:54,600 Speaker 1: next year. We have to be careful not to succumb 511 00:27:54,600 --> 00:27:59,119 Speaker 1: to recency bias, as psychologists call it, and draw parallels 512 00:27:59,160 --> 00:28:03,119 Speaker 1: to the last few sessions which were exceptionally deep recessions, 513 00:28:03,160 --> 00:28:06,919 Speaker 1: the COVID recession UH and the global financial crisis before that. 514 00:28:07,040 --> 00:28:10,280 Speaker 1: I think the contours of this recession look more like 515 00:28:10,840 --> 00:28:13,000 Speaker 1: a run of the mill recession, if you will. And 516 00:28:13,080 --> 00:28:15,800 Speaker 1: so why if I had to draw a historical period 517 00:28:15,840 --> 00:28:20,359 Speaker 1: with the closest step parallels, maybe it's the nine recession. 518 00:28:20,440 --> 00:28:22,960 Speaker 1: So I would look for again between three and five 519 00:28:23,040 --> 00:28:27,200 Speaker 1: quarters of recession, probably four quarters of economic contraction, and 520 00:28:27,240 --> 00:28:29,960 Speaker 1: look for the unemployment rate to back up from three 521 00:28:29,960 --> 00:28:32,359 Speaker 1: and a half as it currently stands to something in 522 00:28:32,400 --> 00:28:34,879 Speaker 1: the vicinity of six percent at the peak. But the 523 00:28:34,960 --> 00:28:37,479 Speaker 1: critical thing here, Carl, and you've been a great student 524 00:28:37,480 --> 00:28:39,840 Speaker 1: of history, you know, for years, rolling back to your 525 00:28:39,880 --> 00:28:42,479 Speaker 1: time at Deuts, your bank, and and to me, the 526 00:28:42,520 --> 00:28:46,440 Speaker 1: critical thing here is life goes on. If we get 527 00:28:46,440 --> 00:28:49,920 Speaker 1: a Rick and Dona view, life goes on doesn't it. 528 00:28:49,960 --> 00:28:51,800 Speaker 1: I mean, there's a whole gloom crew out there. We 529 00:28:51,880 --> 00:28:55,480 Speaker 1: roll over and die. I just don't buy it. Well, 530 00:28:55,520 --> 00:28:58,000 Speaker 1: we don't roll over and die. Uh. There's a you know, 531 00:28:58,040 --> 00:29:01,440 Speaker 1: still a decent demographic tray and in the US, especially 532 00:29:01,480 --> 00:29:05,440 Speaker 1: compared to a lot of our developed economy, appears in 533 00:29:05,440 --> 00:29:08,400 Speaker 1: in in Asia and Europe for that matter. So there's 534 00:29:08,440 --> 00:29:12,520 Speaker 1: population growth, maybe we see some improvement on the immigration front. Uh, 535 00:29:12,560 --> 00:29:15,680 Speaker 1: And all of these demographic factors mean that life goes 536 00:29:15,720 --> 00:29:18,920 Speaker 1: on as the population grows, then the economy gets dragged 537 00:29:18,920 --> 00:29:21,440 Speaker 1: along with it, so you get you get hiccups along 538 00:29:21,480 --> 00:29:24,840 Speaker 1: the way, and those hiccups are recessions, but structurally there 539 00:29:24,920 --> 00:29:28,840 Speaker 1: is still a growth paradigm in place. Meanwhile, Senator Warren 540 00:29:29,000 --> 00:29:32,880 Speaker 1: and Bernie Sanders putting out a note basically talking about 541 00:29:32,920 --> 00:29:35,600 Speaker 1: how they want to talk better with FED Chair J. 542 00:29:35,720 --> 00:29:37,720 Speaker 1: Powell about the path of rate hikes and some of 543 00:29:37,760 --> 00:29:40,000 Speaker 1: the pain that it's going to inflict on the economy. 544 00:29:40,040 --> 00:29:43,520 Speaker 1: If the Fed lacks the political will for whatever reason 545 00:29:43,600 --> 00:29:45,680 Speaker 1: to get to that five and a quarter percent level, 546 00:29:46,160 --> 00:29:49,240 Speaker 1: how high could inflation be? I mean, what's necessarily going 547 00:29:49,280 --> 00:29:52,320 Speaker 1: to be the length of time that inflation could remain 548 00:29:52,440 --> 00:29:56,960 Speaker 1: high and the ramifications for the economy, well, if they 549 00:29:57,040 --> 00:30:01,480 Speaker 1: lack the political will to really force full react against inflation, 550 00:30:01,520 --> 00:30:03,480 Speaker 1: and I don't think that's a case by any stretch. 551 00:30:03,480 --> 00:30:07,720 Speaker 1: At the moment, UH, A slew of FED officials have 552 00:30:07,880 --> 00:30:11,320 Speaker 1: made it very clear that inflation is Job one priority 553 00:30:11,400 --> 00:30:14,160 Speaker 1: number one, and they will do whatever it takes to 554 00:30:14,480 --> 00:30:17,400 Speaker 1: accomplish those goals. So as long as J. Powell is 555 00:30:17,440 --> 00:30:20,040 Speaker 1: at the HELM, I think they will have the political 556 00:30:20,040 --> 00:30:23,400 Speaker 1: will to make sure this plays out in an appropriate fashion. 557 00:30:23,440 --> 00:30:26,800 Speaker 1: But if they don't act forcefully, then not only do 558 00:30:26,800 --> 00:30:30,160 Speaker 1: you have a higher inflation over a medium term horizon, 559 00:30:30,760 --> 00:30:34,000 Speaker 1: but possibly some dis anchoring of inflation expectations. And and 560 00:30:34,000 --> 00:30:37,240 Speaker 1: that for me was really the last straw. John had mentioned. 561 00:30:37,400 --> 00:30:40,960 Speaker 1: Crude oil prices at the start of the segment. Crude 562 00:30:40,960 --> 00:30:44,360 Speaker 1: oil prices in the eight to ninety dollar range mean 563 00:30:44,440 --> 00:30:47,480 Speaker 1: that the relief we've seen in gasoline prices UH over 564 00:30:47,520 --> 00:30:50,640 Speaker 1: the last one days or so may prove short lived 565 00:30:50,680 --> 00:30:53,320 Speaker 1: and we could start to drift higher in the coming months. 566 00:30:53,360 --> 00:30:57,840 Speaker 1: And nothing antagonizes inflation expectations in the United States, including 567 00:30:57,880 --> 00:31:01,200 Speaker 1: longer run inflation expectations UH than rising prices at the 568 00:31:01,200 --> 00:31:04,560 Speaker 1: pump We've seen this in the latest University of Michigan 569 00:31:04,920 --> 00:31:08,560 Speaker 1: details for longer run. We've also seen it in the 570 00:31:08,600 --> 00:31:11,640 Speaker 1: New York FEDS survey of consumer expectations on three and 571 00:31:11,800 --> 00:31:14,360 Speaker 1: five year horizons. So I think in the back of 572 00:31:14,400 --> 00:31:17,480 Speaker 1: their minds uh FED officials are looking at that notch 573 00:31:17,560 --> 00:31:21,720 Speaker 1: up in inflation expectations. It's still in territory consistent with 574 00:31:21,760 --> 00:31:23,600 Speaker 1: them moving back to their goal, but it's moving in 575 00:31:23,600 --> 00:31:26,080 Speaker 1: the wrong direction, and I think this is part of 576 00:31:26,120 --> 00:31:30,560 Speaker 1: the reason they may have some pause about really convincingly 577 00:31:30,680 --> 00:31:34,080 Speaker 1: signaling a down shift for the December meeting, and instead 578 00:31:34,160 --> 00:31:36,160 Speaker 1: they'll say, well, let's let the data do the talking, 579 00:31:36,200 --> 00:31:38,720 Speaker 1: and if we do see some relief, maybe they can 580 00:31:38,800 --> 00:31:41,680 Speaker 1: down shift to fifty and December. But I don't think 581 00:31:41,880 --> 00:31:45,640 Speaker 1: we'll get kind of convincing, table pounding confidence on that 582 00:31:45,720 --> 00:31:48,200 Speaker 1: point in tomorrow's press conference. Count thank you go to 583 00:31:48,280 --> 00:31:53,000 Speaker 1: Nave that down that. This is the Bloomberg Surveillance Podcast. 584 00:31:53,280 --> 00:31:56,640 Speaker 1: Thanks for listening. Join us live weekdays from seven to 585 00:31:56,720 --> 00:32:00,760 Speaker 1: ten am Eastern. I'm Bloomberg Radio and I'm bloom Television 586 00:32:01,120 --> 00:32:05,160 Speaker 1: each day from six to nine am for insight from 587 00:32:05,160 --> 00:32:09,720 Speaker 1: the best in economics, finance, investment, and international Relations and 588 00:32:09,840 --> 00:32:15,000 Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg 589 00:32:15,000 --> 00:32:18,760 Speaker 1: dot com, and of course on the terminal. I'm Tom Keene, 590 00:32:18,760 --> 00:32:20,760 Speaker 1: and this is Bloomberg