WEBVTT - Libya's Returning Supply, Saudi Output, Pushing Oil Price Down 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. Brahmowitz. Each day 0:00:11.480 --> 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 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:33.320 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:33.320 --> 0:00:36.879 Oil trading on then imax below seventy dollars a barrel. 0:00:36.960 --> 0:00:39.360 Here to tell us more about oil and fossil fuel 0:00:39.440 --> 0:00:41.479 is John killed Off. He is the founding partner of 0:00:41.520 --> 0:00:45.239 Again Capital. John always a pleasure. Why do you think 0:00:45.280 --> 0:00:49.280 the price of oil is going lower? Well, there was 0:00:49.320 --> 0:00:55.800 a real sudden development in Libya yesterday morning. It was 0:00:55.840 --> 0:01:00.080 announced that the two warring factions that had basically in 0:01:00.120 --> 0:01:04.600 the process of stopping or halting Libya's oil exports resolve 0:01:04.680 --> 0:01:08.240 their differences. There's some actual rumors out there that it 0:01:08.280 --> 0:01:11.560 was spurred a bond by President Trump of all things. Uh. 0:01:11.600 --> 0:01:14.560 And this oil is rapidly coming back to the market. 0:01:14.600 --> 0:01:17.360 We're getting more and more good news almost by the 0:01:17.400 --> 0:01:19.880 hour here, Pim. And it makes a big difference. You're 0:01:19.880 --> 0:01:23.160 talking about getting about seven thousand barrels a day back 0:01:23.200 --> 0:01:26.480 online fairly rapidly. And you add that to the recent 0:01:26.560 --> 0:01:29.760 increases in production by Saudi Arabia, Russia and some others, 0:01:30.200 --> 0:01:32.400 and all of a sudden that that the dire situation 0:01:32.440 --> 0:01:36.160 that we were looking at UH is not looking so 0:01:36.240 --> 0:01:38.600 bad all of a sudden. So we're getting some relief here, 0:01:38.880 --> 0:01:41.679 all right, So John, can you pair that the idea 0:01:41.800 --> 0:01:46.440 that Libya production is increasing and we're getting that into 0:01:46.480 --> 0:01:50.120 the market given that, I mean, is that really what's 0:01:50.200 --> 0:01:53.600 driving things way more than trade work concerns and an 0:01:53.640 --> 0:01:56.280 expression of fear that the global economy is going to 0:01:56.320 --> 0:01:59.720 slow down. Well, I would argue it's a big part 0:01:59.760 --> 0:02:03.480 of it. But certainly the trade war fears are affecting 0:02:03.520 --> 0:02:08.320 commodities UH more than anything else. Obviously soybeans and getting 0:02:08.320 --> 0:02:11.800 the headlines on this, but you're seeing copper get hit, 0:02:11.840 --> 0:02:15.320 you're seeing gold get hit. Um, you're seeing dollar strength, 0:02:15.320 --> 0:02:18.320 which is driving down these prices as well. And certainly 0:02:18.360 --> 0:02:20.800 we know that although it's not on the official list, 0:02:20.960 --> 0:02:23.760 just jet that the Chinese had intimated that crude oil 0:02:23.760 --> 0:02:26.640 purchases from the US and natural gas l G purchases 0:02:27.000 --> 0:02:30.919 we're going to be part of their paraph retaliation. So 0:02:31.240 --> 0:02:34.280 we're front and oil's front and center in that as well, 0:02:34.320 --> 0:02:36.160 so that that is definitely part of it. And the 0:02:36.200 --> 0:02:38.519 fears that global demand will take a hit from the 0:02:38.560 --> 0:02:41.200 reduced economic activity. Right, so these things are all sort 0:02:41.240 --> 0:02:44.160 of coming together as the perfect storm, but really a 0:02:44.200 --> 0:02:47.440 confluence ys of of elements here. But but to sort 0:02:47.440 --> 0:02:49.480 of counter that, the i e A came out with 0:02:49.480 --> 0:02:53.840 a report today saying that even if the biggest producers 0:02:54.000 --> 0:02:58.560 in Opequ basically produce as much oil as they can 0:02:59.440 --> 0:03:02.160 that space, what would be required to offset potential loss 0:03:02.200 --> 0:03:05.919 production in other places? So that seems sort of bullish 0:03:05.960 --> 0:03:08.799 for prices given US applied demand dynamic. Can you square 0:03:08.800 --> 0:03:12.639 those things? Yeah? I think they had an unfortunate printing 0:03:12.639 --> 0:03:16.600 deadline this month because, uh, their numbers out this morning 0:03:16.600 --> 0:03:19.920 about what the deficit supply demand deficit was looking like 0:03:19.960 --> 0:03:23.000 that as a deficit of crude oil production didn't figure 0:03:23.040 --> 0:03:26.359 in this rapid return of Libyan crude oil. Um. I 0:03:26.400 --> 0:03:28.720 think their numbers on Saudi Arabia were a little low 0:03:28.800 --> 0:03:30.720 as well, so they were talking about around at one 0:03:30.760 --> 0:03:33.800 point four million barrel per day deficit later this year. 0:03:34.080 --> 0:03:35.920 That's probably going to be no more than two hundred 0:03:35.920 --> 0:03:39.640 to three hundred now. Um, if things hold up, especially 0:03:39.880 --> 0:03:42.120 in Libby, and we see more of these these gains 0:03:42.120 --> 0:03:44.960 from Saudi Arabia, who has it was probably on track 0:03:45.040 --> 0:03:47.720 to put up about a million barrels more oil on 0:03:47.800 --> 0:03:50.960 the market. Uh if you measure it from April when 0:03:50.960 --> 0:03:53.400 they were at nine point eight seven. Uh, they're pushing 0:03:53.440 --> 0:03:56.440 up towards ten point six ten point seven already and 0:03:56.520 --> 0:03:59.400 may go to eleven over the course the next couple 0:03:59.440 --> 0:04:02.040 of months. So it's it's a lot closer. That's when 0:04:02.040 --> 0:04:04.640 we were surging here recently and we got the Brent 0:04:04.760 --> 0:04:07.400 towards eighty bucks again and w t I back up 0:04:07.440 --> 0:04:12.400 towards it's because the math was looking terrible, but the 0:04:12.440 --> 0:04:15.200 Staudies really did step up, the Russians really did step up, 0:04:15.240 --> 0:04:17.080 and this Libya thing was really a bolt out of 0:04:17.080 --> 0:04:19.200 the blue. I can't I can't stay it enough. So 0:04:19.240 --> 0:04:20.880 where do you think prices are headed in the near 0:04:21.000 --> 0:04:23.719 term for both of you t I and Brent? Well, 0:04:23.760 --> 0:04:26.120 I still think it's a tough slog here for for 0:04:26.320 --> 0:04:30.200 from a consumer's perspective. Uh, the challenges you know, remain 0:04:30.320 --> 0:04:34.560 in big time in Venezuela. It was more lost production 0:04:35.279 --> 0:04:38.960 month on month. Again, that's continuing to decline. The Trump 0:04:38.960 --> 0:04:43.760 administration appears to be hell bent on strangling around economically 0:04:43.800 --> 0:04:46.600 and foreclosing their oil sales. I don't believe for a 0:04:46.640 --> 0:04:49.880 minute that a single country will get a waiver from 0:04:49.920 --> 0:04:53.640 from you know, escaping the sanctions that prevent their purchasing 0:04:54.000 --> 0:04:57.920 Bringian oil. So, um, this is probably a buying opportunity, 0:04:58.279 --> 0:05:02.559 and uh, you know, prices more likely towards eighty bucks 0:05:02.560 --> 0:05:06.039 for Brent, uh will be revisited upon us. I think, uh, 0:05:06.200 --> 0:05:07.760 you know later in the years. We're not we're not 0:05:07.800 --> 0:05:10.320 out of the woods yet. Well, although things are looking better, 0:05:10.960 --> 0:05:14.720 well better for the upside, you mean no, I mean 0:05:14.760 --> 0:05:17.000 better better for consumers, I mean him, I mean you 0:05:17.080 --> 0:05:20.919 could have easily have made the argument for barrel oil 0:05:21.200 --> 0:05:24.200 if the status quo had been maintained here, if we 0:05:24.240 --> 0:05:27.720 hadn't seen these um rapid changes from from Sadie, from 0:05:27.760 --> 0:05:31.839 Libya and others. Uh that that that that fever really 0:05:31.920 --> 0:05:35.279 has broken now from given what we're seeing production wise, 0:05:35.640 --> 0:05:37.159 Well that's where I was gonna go with this. When 0:05:37.160 --> 0:05:39.760 you mentioned you know, Libya and then you've got Russia. 0:05:40.000 --> 0:05:42.920 You have Saudi Arabia. But let's just put in for 0:05:42.960 --> 0:05:46.400 the sake of argument that Iran, for whatever reason, manages 0:05:46.480 --> 0:05:50.719 to export more oil, Nigeria continues with its exports, and 0:05:50.800 --> 0:05:54.160 maybe even Venezuela gets its act together. These countries they 0:05:54.200 --> 0:05:57.560 can't eat the oil. Uh what that if they all 0:05:57.640 --> 0:05:59.599 came back online? What do you think the price of 0:05:59.600 --> 0:06:02.880 oil would be? Give you about twenty seconds. I think 0:06:02.880 --> 0:06:05.240 we'd be trading back down towards fifty barrel if we 0:06:05.279 --> 0:06:07.560 had all that production online. Plus we'll get the return 0:06:07.560 --> 0:06:12.000 of Canada by the end of September. So um, they said. 0:06:12.040 --> 0:06:14.240 I think there's a few couple more months of rough 0:06:14.360 --> 0:06:16.880 letting PIM, but things can be looking a lot better 0:06:16.920 --> 0:06:19.320 by the end of the year from a consumers perspective. 0:06:19.360 --> 0:06:21.880 So lower. John killed Off, thank you so much for 0:06:21.920 --> 0:06:24.360 being with us. Always great to get your perspective. John 0:06:24.440 --> 0:06:27.760 killed Off is founding a partner of Again Capital in 0:06:27.800 --> 0:06:46.680 New York, talking about the oil markets. Here with us 0:06:46.960 --> 0:06:48.760 is somebody who has thought a lot about where to 0:06:48.839 --> 0:06:53.400 produce goods and how to manufacture things efficiently and well. 0:06:53.720 --> 0:06:57.080 Joseph of Bood, chief creative director at Men's Warehouse, training 0:06:57.160 --> 0:06:59.359 us here in our eleven three oh Studios. He's also 0:06:59.600 --> 0:07:02.880 the creator of Joseph A Buddha Manufacturing Corporation, which is 0:07:02.920 --> 0:07:07.960 the largest men's tailored clothing factory in the United States. Joseph, 0:07:08.200 --> 0:07:11.760 it is so good to have you here, and it's 0:07:11.800 --> 0:07:14.400 interesting because you do most of your business, or do 0:07:14.480 --> 0:07:18.040 most of your creations here in the US, most manufacturing. 0:07:18.520 --> 0:07:21.840 I'm just wondering, given that, do you think that you're 0:07:21.840 --> 0:07:24.680 going to be somewhat insulated from all of the trade 0:07:24.680 --> 0:07:27.720 talk or will it somehow come back to you. I 0:07:27.760 --> 0:07:31.040 really don't know what the ultimate result will be. We've 0:07:31.040 --> 0:07:34.880 been manufacturing in Massachusetts for thirty one years when I 0:07:34.960 --> 0:07:38.080 launched the first collection. That's where Joseph Budde Manufacturing is, 0:07:38.640 --> 0:07:41.720 and we've seen a steady growth, uh when we've had 0:07:41.760 --> 0:07:45.880 price increases or price reductions, because we've always tried to 0:07:45.920 --> 0:07:49.600 price our product fair, so the price value proposition of 0:07:49.600 --> 0:07:52.560 what we make there. As I had mentioned earlier, we 0:07:52.800 --> 0:07:58.080 um we our manufacturing in that factory where we have 0:07:58.160 --> 0:08:01.520 eight hundred people, is with our custom product and that's 0:08:01.520 --> 0:08:03.440 where young guys are now starting to come out and 0:08:03.440 --> 0:08:06.360 buy suits and making an investment. So we haven't seen 0:08:06.400 --> 0:08:09.120 any of these uh, these issues at the moment really 0:08:09.160 --> 0:08:12.680 impact us. Speak if you can about the changes in 0:08:12.720 --> 0:08:16.360 the factory and you've added workers there and what you're 0:08:16.400 --> 0:08:18.160 looking to do, because you know, when you think about 0:08:18.280 --> 0:08:21.400 custom suits, you don't necessarily think that they can be 0:08:21.440 --> 0:08:23.400 made in the United States. But that's not the case. 0:08:23.680 --> 0:08:27.680 It's interesting we we grew organically since nineteen seven. The 0:08:27.720 --> 0:08:31.040 first year, we produced about two thousand suits. In the 0:08:31.120 --> 0:08:34.280 last few years, it's been over three hundred thousand in 0:08:34.320 --> 0:08:38.319 that thirty year period. And we have increased our workforce. 0:08:38.600 --> 0:08:41.080 In the last three and a half years, we doubled 0:08:41.080 --> 0:08:44.599 our workforce. UH and New Bedford has a great uh 0:08:44.640 --> 0:08:47.040 a great character for people with a great work ethic. 0:08:47.080 --> 0:08:49.200 We're so proud, I mean, of all the things I've 0:08:49.200 --> 0:08:51.400 ever done, I'm so proud of that factory and the 0:08:51.440 --> 0:08:54.520 people who work there. It's a really feel good moment 0:08:54.559 --> 0:08:57.160 and we do create a great product. So actually speak 0:08:57.160 --> 0:09:00.040 a little bit more about that because we hear a 0:09:00.040 --> 0:09:04.000 lot about quote labor shortages, company is having trouble hiring 0:09:04.040 --> 0:09:07.640 people in the US. Are you experiencing the same? Well, 0:09:07.679 --> 0:09:10.040 it's interesting. We have a sign out. So one of 0:09:10.040 --> 0:09:11.600 the one of the signs that I love the most 0:09:11.640 --> 0:09:13.880 in our company is there's a sign outside that factory 0:09:13.920 --> 0:09:17.960 that says now hiring, And I really love that we have. UM. 0:09:17.960 --> 0:09:21.040 We really tap into the community. We have a training 0:09:21.080 --> 0:09:24.200 process when people do come in if they aren't skilled 0:09:24.320 --> 0:09:28.199 in sewing. So we see that we've supported the community, 0:09:28.240 --> 0:09:31.480 they supported us, and we want to continue to do that. 0:09:31.559 --> 0:09:33.840 We have had that growth and we really do see 0:09:33.840 --> 0:09:36.720 it through you know what we're manufacturing through our custom business. 0:09:37.400 --> 0:09:39.640 Use the word community. And I want you to speak 0:09:39.679 --> 0:09:43.680 if you can about the annual suit drive that put 0:09:43.720 --> 0:09:47.800 together because you don't just make suits, collect them. Yeah, well, 0:09:47.880 --> 0:09:51.560 I think July is our suit Drive month where we 0:09:51.760 --> 0:09:55.839 basically collect gently worn clothing. We have them come into 0:09:55.880 --> 0:09:58.760 our seven and fifty men's where house stores and then 0:09:58.800 --> 0:10:01.560 we refurbished them in get them back to folks who 0:10:01.640 --> 0:10:04.160 might want to re enter the workforce, who might not 0:10:04.240 --> 0:10:07.240 be able to afford products. And this is our eleventh year. 0:10:07.280 --> 0:10:11.600 We've raised uh, we've we've collected one point six million 0:10:11.679 --> 0:10:15.360 garments and we give them to a hundred and fifty nonprofits. 0:10:15.360 --> 0:10:18.600 So good things come from good things. And I will 0:10:18.640 --> 0:10:22.120 just say you are dressed phenomenally today. It was you 0:10:22.160 --> 0:10:24.800 walked in and I thought, Wow, a lot of pressure. 0:10:24.880 --> 0:10:28.120 But to say it's a lot of pressure, I I 0:10:28.200 --> 0:10:31.440 guess I dressed for TV and I didn't dress for radio. No, 0:10:31.559 --> 0:10:33.680 it's fabulous. I do want to get back to the 0:10:33.720 --> 0:10:36.280 idea of you know how difficult it is to hire 0:10:36.400 --> 0:10:38.720 right now in the tight labor market, and I'm just wondering, 0:10:39.040 --> 0:10:41.480 are you finding that you're having to offer higher and 0:10:41.559 --> 0:10:45.680 higher salaries and that the increases are accelerating more rapidly. Well, 0:10:45.720 --> 0:10:48.239 we obviously always want to be fair to our employees. 0:10:48.320 --> 0:10:50.280 We and we have we have a union shop. We 0:10:50.320 --> 0:10:53.400 have a great relationship with the union. UM. I've always 0:10:53.440 --> 0:10:56.280 believed that in that area that it's been a great 0:10:56.760 --> 0:11:00.360 uh uh community of people wanting to work in a 0:11:00.440 --> 0:11:03.160 great factory. So we've over the years, we've had the 0:11:03.200 --> 0:11:06.839 highs and lows of increasing the workforce, but we always 0:11:06.880 --> 0:11:09.320 really want to dedicate dedicate ourselves to the kind of 0:11:09.320 --> 0:11:12.160 people that we have because they are, in essence, the 0:11:12.200 --> 0:11:15.080 lifeblood of the business. Now, maybe the other part of 0:11:15.080 --> 0:11:17.120 the lifeblood of the business is the customer. And just 0:11:17.160 --> 0:11:20.880 to continue the theme of the suit drive, uh, if 0:11:20.920 --> 0:11:24.840 you donate a suit, you get a fifty off coupon, yes, 0:11:24.960 --> 0:11:27.280 And I think that that's also an incentive for people 0:11:27.320 --> 0:11:30.120 to think about cleaning out their closets. How many of 0:11:30.200 --> 0:11:33.000 us are hoarders. You know, you have a suit that 0:11:33.040 --> 0:11:35.240 maybe five or six years old or seven years old, 0:11:35.280 --> 0:11:37.880 probably still in good shape, but are you really going 0:11:37.960 --> 0:11:39.040 to wear it? And do you want to go out 0:11:39.040 --> 0:11:41.120 and get a new one. So it's an incentive, but 0:11:41.240 --> 0:11:43.400 I really think the whole, the very essence is to 0:11:43.440 --> 0:11:46.160 be able to donate those suits and get them on 0:11:46.200 --> 0:11:48.160 the backs of people who could really use them. Are 0:11:48.160 --> 0:11:51.800 you a hoarder of suits? Well, I I keep a 0:11:51.800 --> 0:11:54.440 lot of things because they're my archives. So I've got 0:11:54.480 --> 0:11:57.920 things I probably wouldn't wear from my first collections you 0:11:57.960 --> 0:12:01.360 would probably love, but I them because you're either a 0:12:01.400 --> 0:12:04.400 special moment or it's not a closet, it's an archive, 0:12:05.040 --> 0:12:09.520 it's a museum. Close mum. But I really think, well, 0:12:09.559 --> 0:12:12.040 for me, it's important to keep those pieces because either 0:12:12.080 --> 0:12:14.760 the historic for the brand, or they would be great 0:12:14.840 --> 0:12:18.520 design ideas to reinterpret later on. Thank you very much, 0:12:18.720 --> 0:12:20.480 a little bit of an archive. Thank you very much 0:12:20.480 --> 0:12:23.720 for dressing up and thanks for coming much appreciate Josepha 0:12:23.760 --> 0:12:27.800 bood Is the chief creative director of Men's Warehouse. Yes, him, 0:12:27.920 --> 0:12:30.559 I'm expecting you to come in and fine form tomorrow. 0:12:30.960 --> 0:12:33.680 I'll do my best. I can't keep up with Josepha Bood. 0:12:33.679 --> 0:12:36.000 All right. You can follow Joseph Bood on Twitter at 0:12:36.080 --> 0:12:39.640 Josepha Bood and just to mention the Suit drive check 0:12:39.679 --> 0:12:43.360 it out on social media. Just use the hashtag hashtag 0:12:43.520 --> 0:13:03.720 give a suit. As we continue to talk about straining 0:13:03.720 --> 0:13:07.920 relationships between the US and China, I think it's important 0:13:07.920 --> 0:13:10.480 to take a look at, you know, what that relationship 0:13:10.559 --> 0:13:13.920 actually has been over the past two decades and with 0:13:14.000 --> 0:13:16.040 us to help us do that. As Brad setser, he 0:13:16.160 --> 0:13:19.319 is Stephen A. Tannenbaum Senior Fellow for International Economics of 0:13:19.360 --> 0:13:23.000 the Council of Foreign Relations, also formally the Deputy Assistant 0:13:23.000 --> 0:13:26.240 Secretary for International Economic Analysis in the U. S. Treasury 0:13:26.240 --> 0:13:29.920 Department from two thousand and eleven. Brad, always wonderful having 0:13:29.920 --> 0:13:32.360 you on. I wanted just to start with a recent 0:13:32.600 --> 0:13:36.120 paper that you wrote taking a look at China's trade 0:13:36.160 --> 0:13:38.560 practices with the US and taking taking a look at 0:13:38.559 --> 0:13:42.760 where grapes are are legitimate that the US has with China. 0:13:42.800 --> 0:13:44.760 Can you just sort of broadly outline some of those. 0:13:45.320 --> 0:13:48.600 So you know, I think there are three broad subsets 0:13:48.600 --> 0:13:52.960 of policies where the US can sort of legitimately complain 0:13:53.760 --> 0:13:59.559 that Chinese actions have undermined the intent, if not the letter, 0:14:00.559 --> 0:14:03.319 that lay behind China's w T accession. The first is 0:14:03.360 --> 0:14:05.280 the one that gets all the attention, which is forced 0:14:05.280 --> 0:14:09.880 technology transfer. China, in theory cannot require as a matter 0:14:09.920 --> 0:14:14.760 of government policy that a US company transfer technology to 0:14:14.880 --> 0:14:18.760 a Chinese partner as a condition for market entry. However, 0:14:19.480 --> 0:14:23.360 in a state dominated economy China, the the the the 0:14:23.480 --> 0:14:26.880 viable partners UH to form a joint venture tend to 0:14:26.880 --> 0:14:29.920 be state companies, and the state companies can say, as 0:14:29.920 --> 0:14:35.320 a matter of commercial UH decision making our own commercial interest, 0:14:35.600 --> 0:14:39.040 we will require tech transfer as part of any j V, 0:14:39.760 --> 0:14:42.960 and so the net effect has been a de facto 0:14:43.080 --> 0:14:49.360 requirement for tech transfer, even though there is no disjure requirement. 0:14:49.960 --> 0:14:52.600 The second is that China just makes use of domestic 0:14:52.640 --> 0:14:56.600 subsidies on a scale that no one else does, and 0:14:56.680 --> 0:15:00.440 it has a market distorting effect that goes beyond UH 0:15:00.480 --> 0:15:04.800 that of any other economy. Domestic subsidies are not prohibited 0:15:04.840 --> 0:15:07.360 by the w T O. You can only bring a 0:15:07.480 --> 0:15:11.080 w t O case to offset the adverse impact a 0:15:11.240 --> 0:15:14.920 subsidy has on your your exports, and that processes UH 0:15:15.080 --> 0:15:19.800 is slow, UM, and it just wasn't designed for an 0:15:19.840 --> 0:15:23.880 economy where pretty much any company that has access to 0:15:23.920 --> 0:15:27.760 the state banking system de facto it has a subsidy 0:15:28.360 --> 0:15:31.600 because you're the intent was to prove a specific subsidy 0:15:31.920 --> 0:15:34.360 kind of a budget line item, and that's not quite 0:15:34.400 --> 0:15:37.040 how China subsidies work. The third is a bunch of 0:15:37.040 --> 0:15:40.840 by China policies that UH. You know, since you're selling 0:15:41.080 --> 0:15:45.160 in large measure to large Chinese state companies or companies 0:15:45.280 --> 0:15:49.120 UH with heavy state or party influence, there can be 0:15:49.160 --> 0:15:52.280 informal requirements that if you want to sell to China, 0:15:52.560 --> 0:15:55.160 you've got to produce inside China. And those don't have 0:15:55.280 --> 0:15:59.400 to be explicit procurement rules. They can just be, hey, 0:15:59.600 --> 0:16:03.280 you want to sell to the Chinese railway company to 0:16:03.360 --> 0:16:07.240 state enterprise, you better produce inside China. The cumulative effect 0:16:07.280 --> 0:16:11.160 has been I think a set of real impediments two 0:16:11.160 --> 0:16:15.360 companies that want to produce outside China and sell into China, 0:16:15.640 --> 0:16:18.600 as well as a set of require a fairly onerous 0:16:18.640 --> 0:16:21.760 requirements if you want to invest in China to produce 0:16:21.760 --> 0:16:24.560 in China, Brad, do you believe that this is part 0:16:24.600 --> 0:16:27.000 of the reason why this seems to be such political 0:16:27.080 --> 0:16:32.480 frustration with any kind of relationship that's based on quote 0:16:32.480 --> 0:16:37.240 free trade with China. I mean, I noted your description 0:16:37.520 --> 0:16:41.840 state dominated economy, and then I also think about all 0:16:41.880 --> 0:16:45.640 of the companies that have participation from let's say, the 0:16:45.680 --> 0:16:50.120 People's Liberation Army in China. Has the trading system just 0:16:50.240 --> 0:16:54.800 been set up that doesn't work when you confront that 0:16:54.880 --> 0:16:58.640 kind of state intervention on such a wholesale level. I mean, 0:16:58.760 --> 0:17:02.680 I don't think it works particularly well, uh, in an 0:17:02.680 --> 0:17:07.720 economy where the party controls the state and the party 0:17:07.760 --> 0:17:11.199 cann exercise indirect influence over such a large range of 0:17:11.200 --> 0:17:14.320 state enterprises. It undoubtedly is part of the reason why 0:17:14.320 --> 0:17:18.119 there's bipartisan frustration at China. But you know, on the 0:17:18.560 --> 0:17:22.960 flip side of all this is that after the global crisis, 0:17:23.040 --> 0:17:28.199 China reduced its export dependence through a rather massive domestic stimulus, 0:17:28.560 --> 0:17:32.119 and so a lot of the uh, you know, the 0:17:32.640 --> 0:17:36.600 macro economic distortions that China created before the global crisis 0:17:36.760 --> 0:17:39.760 have to degree faded. So it's it's always a little 0:17:39.760 --> 0:17:42.320 bit of a mixed bag. So, Brad, this has been 0:17:42.359 --> 0:17:44.879 an issue for decades. Why hasn't it been dealt with 0:17:44.920 --> 0:17:51.280 by previous administrations? Well, at every single point in time, 0:17:51.320 --> 0:17:56.480 I think people shied away from confrontation. China is a 0:17:56.520 --> 0:18:00.280 big important player, not just in the global ecou onemy, 0:18:00.400 --> 0:18:06.240 but in the the global security situation. So there's always 0:18:06.280 --> 0:18:10.840 pressure to make sure that China is cooperating in other areas, 0:18:12.160 --> 0:18:14.440 the North Korea set of issues, that kind of thing. 0:18:15.000 --> 0:18:17.199 And then for a long time, you know, there are 0:18:17.240 --> 0:18:21.440 constituencies in the US that didn't necessarily want to get 0:18:21.480 --> 0:18:25.919 too tough on China. There are companies that didn't want 0:18:25.960 --> 0:18:28.840 to get too tough on China's currency intervention because they 0:18:29.119 --> 0:18:31.680 were producing in China for export and a weak currency 0:18:31.680 --> 0:18:35.080 helped them. There are companies that are much more afraid 0:18:35.640 --> 0:18:40.800 of Chinese retaliation because they've developed successful businesses in China 0:18:40.880 --> 0:18:45.000 through joint ventures. Then they are interested in the potential 0:18:45.080 --> 0:18:49.679 gains from a more confrontational policy. So at each incremental moment, 0:18:50.080 --> 0:18:54.440 the decision was made to back away from full on confrontation. 0:18:54.600 --> 0:18:57.280 Do you think that the U s economy now is 0:18:57.359 --> 0:18:59.800 strong enough that it is a good time to take 0:18:59.800 --> 0:19:02.200 on some of these issues, as President Trump and his 0:19:02.440 --> 0:19:06.080 UH his cabinet have suggested. Look, I think there's always 0:19:06.080 --> 0:19:10.720 a debate about whether it is better to UH take 0:19:10.800 --> 0:19:14.440 on a more confrontational approach when your economy is weak 0:19:14.800 --> 0:19:17.640 and when you could really benefits, say from increased exports, 0:19:18.600 --> 0:19:22.480 when your economy is operating below potential. In theory, the 0:19:22.640 --> 0:19:26.879 gains from exporting are much larger than they are when 0:19:26.920 --> 0:19:31.040 your our economies operating at potential. The flip side is 0:19:31.119 --> 0:19:35.399 that we are better uh that you know, and you 0:19:35.400 --> 0:19:39.000 can analyze the short run drag from the trade war 0:19:39.720 --> 0:19:42.800 as a reversal of a portion of the fiscal stimulus, 0:19:43.480 --> 0:19:46.200 and since there was probably excessive stimulus in the economy 0:19:46.240 --> 0:19:49.639 to begin with, in that sense, it's a way of 0:19:49.680 --> 0:19:56.359 removing the excess stimulus and therefore won't have tremendously negative effects. Brat, 0:19:56.680 --> 0:19:59.280 give you about twenty seconds here. Um, you've served as 0:19:59.320 --> 0:20:03.520 Deputy assist and Secretary for International Economic Alliance in the U. S. 0:20:03.560 --> 0:20:06.240 Treasury just came out for us. What do you believe 0:20:06.359 --> 0:20:10.840 is really going to happen? Well, you know, I was 0:20:12.119 --> 0:20:15.600 a mid ranking official in another administration, UH, and in 0:20:15.640 --> 0:20:19.160 an administration where trade policy wasn't set in the Oval office, 0:20:19.520 --> 0:20:24.120 uh directly by the president. UH. So my general's argument 0:20:24.160 --> 0:20:27.320 now is that take what the President says on trade, 0:20:27.359 --> 0:20:30.679 both literally and seriously, and the best guide to future 0:20:30.720 --> 0:20:33.399 action is what he has said, and what he has 0:20:33.400 --> 0:20:36.400 said is that he will continue to escalate. I think 0:20:36.440 --> 0:20:39.800 the interesting question now is how China chooses to respond. 0:20:40.760 --> 0:20:44.119 Were if we go through with the two billion in tariffs, 0:20:44.160 --> 0:20:48.639 we've exceeded US exports to China, and so China in 0:20:48.720 --> 0:20:52.320 order to match would have to look at non tariff responses. 0:20:52.760 --> 0:20:55.560 Thanks very much for being with us. Brad Setser is 0:20:56.200 --> 0:21:00.480 from the Council on Foreign Relations and formerly Deputy Assistant 0:21:00.520 --> 0:21:17.680 Secretary for International Economic Analysis in the U. S. Treasury. 0:21:20.040 --> 0:21:22.439 Our next guest is a well known name in the 0:21:22.440 --> 0:21:25.200 real estate industry at Scott Lawler, founder and chief executive 0:21:25.200 --> 0:21:28.840 officer at Waypoint Residential. Normally he's in Connecticut, but he 0:21:28.920 --> 0:21:31.439 trecked in here to our eleven three oh studio. Scott. 0:21:31.440 --> 0:21:33.520 Thank you so much for being with us. You have 0:21:34.000 --> 0:21:36.320 decades of experience in the market, and I want to 0:21:36.359 --> 0:21:40.240 start with a note that that caught my attention, um 0:21:40.280 --> 0:21:42.679 that Morgan Stanley wrote where they were talking about the 0:21:42.680 --> 0:21:45.639 Bank of Ozarks and their weak earning and how some 0:21:45.720 --> 0:21:48.640 of their concern that some of their earnings will raise 0:21:48.680 --> 0:21:53.159 concerns across the banking industry because of their suggestion that 0:21:53.200 --> 0:21:57.000 commercial real estate standards were weakening and that the area 0:21:57.080 --> 0:21:59.399 is getting much riskier. What's your take on that. So, 0:21:59.400 --> 0:22:02.439 in other words, you're saying that there was concerned because 0:22:02.480 --> 0:22:04.800 the Bank of Ozarks was a very active construction lender, 0:22:04.840 --> 0:22:07.120 that they might have some difficulty if the cycle turns well, 0:22:07.160 --> 0:22:09.840 and that this signals broader weakness in the commercial real 0:22:09.920 --> 0:22:12.040 estate market, at least as far as fundamentals versus some 0:22:12.080 --> 0:22:14.440 of the valuations that are being put on them. Okay, yeah, 0:22:14.640 --> 0:22:16.159 I think it might be a bit of a stretch. 0:22:16.200 --> 0:22:18.480 I mean, um, one thing that's very very different about 0:22:18.480 --> 0:22:22.359 this cycle versus the last cycle, of course, is leverage levels. Okay, 0:22:22.840 --> 0:22:26.840 and so uh, you know, the Bank of Ozarks, my understanding, 0:22:26.840 --> 0:22:30.159 would typically play as a first mortgage lender in the 0:22:30.200 --> 0:22:34.680 construction world, making development loans at reasonable loan to value ratios, 0:22:34.680 --> 0:22:38.280 you know, fifty sixty maybe sixty. And to suggest that 0:22:38.320 --> 0:22:40.359 we have an imminent cycle that's going to impact the 0:22:40.359 --> 0:22:43.560 performance of that loans of those loans. Excuse me, Um, 0:22:43.880 --> 0:22:45.359 that's tough to see. I mean, we'd have to have 0:22:45.480 --> 0:22:48.840 something that I think, um exceeded what we experienced ten 0:22:48.920 --> 0:22:51.160 years ago for a bunch of six d l TV 0:22:51.240 --> 0:22:53.679 construction loans to jam up Bank of ozarks earnings. If 0:22:53.720 --> 0:22:55.440 that was the implication of the report, I want to 0:22:55.480 --> 0:22:59.240 ask you about senior housing and what you're seeing there 0:22:59.240 --> 0:23:03.200 in terms of the kind of build out that's happening. Well, 0:23:03.240 --> 0:23:05.919 you know, we've gotten into that space about a year 0:23:05.920 --> 0:23:07.840 and a half ago. We've done a handful of deals. 0:23:07.840 --> 0:23:09.920 We're very excited about it. There are things to love 0:23:09.920 --> 0:23:12.359 and things to hate. Like anything, the things to love 0:23:12.359 --> 0:23:15.840 are pretty obvious. Obviously, the demographic sort of tied away 0:23:15.920 --> 0:23:19.520 that's coming represents tremendous demand for the space now, of 0:23:19.560 --> 0:23:21.639 course everyone knows that, and the upshot is everyone's in 0:23:21.680 --> 0:23:24.640 the business and the challenge we're facing as a tremendous 0:23:24.640 --> 0:23:27.359 amount of capital in the apartment sector has tried to 0:23:27.440 --> 0:23:29.120