WEBVTT - Yields Aren't Likely to Rise Until the Fed Resolves Its Balance Sheet, CIBC's Tucci Says 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg p m L Podcast. I'm pim 0:00:08.400 --> 0:00:11.440 Fox along with my co host Lisa Bramowitz. 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 --> 0:00:31.880 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. 0:00:31.920 --> 0:00:33.720 I want to bring in Tom Tucci. He is the 0:00:33.760 --> 0:00:37.879 head of US Treasury Trading for a CIBC World Markets. 0:00:38.159 --> 0:00:40.400 They give us some perspective on what is happening in 0:00:40.440 --> 0:00:43.120 the bond market and its relationship to the value of 0:00:43.120 --> 0:00:45.560 the US dollar. Tom, always a pleasure, Thanks for being 0:00:45.600 --> 0:00:48.040 with us. Thank you. Um So, maybe you could just 0:00:48.080 --> 0:00:51.879 provide a little backdrop for this current market and the 0:00:51.960 --> 0:00:54.160 performance of the US dollar, because we're seeing a big 0:00:54.200 --> 0:00:56.200 sell off in bonds today. I mean, looking at the 0:00:56.200 --> 0:00:58.920 thirty year were down more than a full point right well. 0:00:59.000 --> 0:01:02.680 Last week we were dominated by what would be risk 0:01:02.760 --> 0:01:07.800 off and concerns surrounding several unknowns ranging from the hurricane 0:01:07.920 --> 0:01:12.400 to government shutdowns to geopolitical risk coming out in North Korea. 0:01:12.800 --> 0:01:14.759 I think some of that has calmed down from now, 0:01:14.959 --> 0:01:18.160 From now um, but all of it hasn't been resolved. 0:01:18.480 --> 0:01:20.200 We still don't know the full impact of what's going 0:01:20.240 --> 0:01:23.520 to happen from the hurricane. We know historically it's provided 0:01:23.520 --> 0:01:25.160 a bit of a dip in growth, but then it 0:01:25.200 --> 0:01:28.440 bounce back uh in later quarters. Um. I think the 0:01:28.440 --> 0:01:30.840 thing that really will be driving the market going forward 0:01:30.920 --> 0:01:33.520 is really what's coming out of Washington, whether or not 0:01:33.560 --> 0:01:35.600 we get any kind of tax reform and whether or 0:01:35.600 --> 0:01:38.440 not they can really show up the death ceiling limit. 0:01:38.520 --> 0:01:41.839 We're under a temporary order right now that's gonna last 0:01:41.920 --> 0:01:45.200 us probably between January and February next year, and we 0:01:45.200 --> 0:01:47.280 need to clean up some of these things. Tom, you're 0:01:47.440 --> 0:01:49.640 the head of US trading at c ib C. You 0:01:49.680 --> 0:01:53.440 are overseeing the actual day to day volumes. I'd love 0:01:53.440 --> 0:01:56.680 to get your take on the feeling in the activity. 0:01:56.840 --> 0:02:00.880 Is this just sort of humdrum, slow moveing kinds of 0:02:00.960 --> 0:02:05.880 days where people just are sort of basically doing basic 0:02:06.640 --> 0:02:10.359 maintenance on their funds. Or are you getting investors from 0:02:10.400 --> 0:02:14.320 overseas that really have conviction on treasuries one way or another. No, 0:02:14.560 --> 0:02:19.280 I think from the flow standpoint, overseas investors, particularly out 0:02:19.320 --> 0:02:22.600 of Asia, are better sellers. They've been long for quite 0:02:22.639 --> 0:02:24.560 a period of time, and they've been better sellers up 0:02:24.560 --> 0:02:27.360 around these levels. I think overall, what's happened is if 0:02:27.360 --> 0:02:29.160 you look at the dynamic of what happened to the 0:02:29.160 --> 0:02:33.000 market since November, UM, you've reported on it several times, 0:02:33.040 --> 0:02:35.760 the market price and something coming out of the election, 0:02:35.800 --> 0:02:39.120 with certain expectations coming out of this administration, and they 0:02:39.160 --> 0:02:41.280 haven't been able to deliver on any of them for 0:02:41.400 --> 0:02:44.679 various reasons. And if you look at a chart, basically 0:02:44.680 --> 0:02:46.920 what we did last week is we rechased all of 0:02:46.919 --> 0:02:49.000 that sell off, particularly in the long end of the market, 0:02:49.200 --> 0:02:51.919 and that's despite the Fed tightening a couple of times. 0:02:51.960 --> 0:02:54.640 So UM. To me, what's happened is people have been 0:02:54.680 --> 0:02:57.520 positioned for higher rates for quite a long period of time. 0:02:57.919 --> 0:03:00.600 Things have been moving against them from the inflation scenary front. 0:03:00.600 --> 0:03:03.560 In other words, inflation has been coming in below trend 0:03:03.760 --> 0:03:07.640 for six seven months now, the Feds identifying the fact 0:03:07.639 --> 0:03:11.040 that those are some structural change that they hadn't seen before, 0:03:11.520 --> 0:03:12.800 and you start to see a little bit of an 0:03:12.800 --> 0:03:16.160 adjustment as far as expectations in the long run for yields. 0:03:16.200 --> 0:03:18.120 In other words, they're not going to back up as 0:03:18.120 --> 0:03:21.280 significant as people had predicted earlier in the year. Right, Tom, 0:03:21.320 --> 0:03:22.960 what do you think the next big move is UH 0:03:23.360 --> 0:03:26.000 with yields going higher or lower? Well, to be honest 0:03:26.040 --> 0:03:29.200 with you, I still think the reality is that until 0:03:29.320 --> 0:03:32.000 there's a structural change, and what I mean by that 0:03:32.160 --> 0:03:36.240 is whether the central banks out of Europe, out of 0:03:36.240 --> 0:03:39.920 the US can really make a dent in reducing their 0:03:39.920 --> 0:03:42.600 balance sheets, I think it's gonna be very difficult for 0:03:42.760 --> 0:03:46.680 yields to rise appreciably. UM, there's still a structural demand 0:03:46.720 --> 0:03:50.640 from the demographics globally of UH, an aging population, and 0:03:50.680 --> 0:03:53.840 just an underlying demand for yield overall. You see these 0:03:53.880 --> 0:03:57.360 record numbers of corporate supply coming into the market, were 0:03:57.400 --> 0:04:00.720 into a new month now and the calendars been pretty heavy, 0:04:00.960 --> 0:04:04.360 and it's been met with very significant demand. So that 0:04:04.440 --> 0:04:07.400 yield demand is still there. Until we see something structurally 0:04:07.480 --> 0:04:10.320 change in the economy, which I think could come out 0:04:10.320 --> 0:04:12.760 of tax reform and some other things that come out 0:04:12.760 --> 0:04:16.400 of the government UM and central bank policy shift, is 0:04:16.400 --> 0:04:19.560 going to be very difficult for bond yields to rise significantly. 0:04:19.960 --> 0:04:23.279 How's Tom Tucci voting when it comes to raising interest rates? 0:04:23.960 --> 0:04:26.320 I don't think there's any need to raise interest rates. 0:04:26.360 --> 0:04:29.080 I think the FED is focused completely on reducing their 0:04:29.120 --> 0:04:31.719 balance sheet. They want to start to get They've already 0:04:31.720 --> 0:04:34.680 prepared the market for that. Um I think that will 0:04:34.720 --> 0:04:36.480 be the thing that will come this month. I don't 0:04:36.480 --> 0:04:38.960 think they'll they'll tighten again this year. I think the 0:04:39.000 --> 0:04:41.880 economic data will be fuzzy enough because of the hurricane 0:04:41.880 --> 0:04:47.720 related activity. It'll it'll sour the economic numbers that are 0:04:47.720 --> 0:04:50.159 coming out going forward, and I don't think there's any 0:04:50.160 --> 0:04:52.240 need for them to be raising short term interest rates 0:04:52.279 --> 0:04:54.800 in here. I think they're better off focused on reducing 0:04:54.800 --> 0:04:57.240 the balance sheet. Having said that, what happens to the 0:04:57.360 --> 0:05:02.280 US dollar? It was weakening against all major trading partners, 0:05:02.279 --> 0:05:04.920 the yen at one eight, eight seven, the euro one nine, 0:05:05.279 --> 0:05:07.560 and so on. Wondering if you give us your outlet 0:05:07.560 --> 0:05:09.760 for the dollar, and what does that mean for investor money. Well, 0:05:09.800 --> 0:05:12.880 I think in general, the only thing that will change 0:05:12.920 --> 0:05:15.160 for the dollar is if you start to see some 0:05:15.200 --> 0:05:18.160 other situations happen where the dollar doesn't become the dominant 0:05:18.200 --> 0:05:20.479 reserve currency. And what I mean by that is you 0:05:20.560 --> 0:05:23.320 start to see China and Russia, you know, looking at 0:05:23.480 --> 0:05:27.160 pricing oil in different currencies, not in the dollar. These 0:05:27.200 --> 0:05:29.360 are long term things that would have to happen. I 0:05:29.440 --> 0:05:32.320 think overall, the dollars pretty oversold. I think we've had 0:05:32.360 --> 0:05:34.240 a pretty good run in some of these other currencies, 0:05:34.400 --> 0:05:37.200 and you'll start to see UM some movement back to 0:05:37.560 --> 0:05:39.960 a more neutral stance with the dollar firming up some. 0:05:40.520 --> 0:05:41.920 You know, one thing that I've been thinking a lot 0:05:41.960 --> 0:05:44.880 about is if you do get a dollar that starts 0:05:44.880 --> 0:05:48.040 to strengthen again, how much does that disrupt current market positioning? 0:05:48.040 --> 0:05:50.599 And I was just looking today at the incredible record 0:05:50.600 --> 0:05:54.840 breaking flows into local currency emerging markets debt, which has 0:05:54.880 --> 0:05:59.000 basically been a cloaked currency bet on on the weaker dollar. 0:05:59.080 --> 0:06:00.800 I mean, do you think that could be a disruptive 0:06:01.200 --> 0:06:03.320 kind of event. Well, I think you know what what 0:06:03.360 --> 0:06:06.480 you're identifying as people continually looking for almost like an 0:06:06.520 --> 0:06:11.760 alternative currency, writing you've seen these cryptocurrencies benefits substantially UM. 0:06:11.880 --> 0:06:14.560 I still don't understand the fundamentals of that, but nonetheless 0:06:15.000 --> 0:06:18.400 they've it's an alternative currency. I think with what's happened 0:06:18.440 --> 0:06:21.640 with central banks and the manipulation that's taken place within 0:06:22.320 --> 0:06:25.600 UM governments, overall, people are looking for what they would 0:06:25.600 --> 0:06:28.680 consider a safer store of their wealth and I don't 0:06:28.680 --> 0:06:30.440 I don't know the answer to that. As far as 0:06:30.480 --> 0:06:33.160 the cryptocurrency is concerned, I don't have enough experience with that. 0:06:33.440 --> 0:06:36.320 But it's been since the crisis. You've seen that, You've 0:06:36.320 --> 0:06:41.279 seen money trying to find what it would consider a 0:06:41.320 --> 0:06:44.400 more secure currency. You saw what happened with the Swiss 0:06:44.400 --> 0:06:47.280 frank over time during the during the crisis, particularly in 0:06:47.279 --> 0:06:50.200 the European crisis, and that's what people are more concerned about, 0:06:50.200 --> 0:06:53.120 the more interested in the stability of the value of 0:06:53.160 --> 0:06:57.800 their currency. You mentioned, you know, this idea of looking 0:06:57.839 --> 0:07:00.480 for an alternative to the to the US all are 0:07:00.520 --> 0:07:03.320 why are they looking for an alternative? I think it's 0:07:03.440 --> 0:07:05.680 you know what you've what you're faced with. As far 0:07:05.760 --> 0:07:10.200 as the outlook for the government, the outlook for budget deficits, um, 0:07:10.240 --> 0:07:14.239 those things that have driven flows and demand from foreign 0:07:14.240 --> 0:07:16.920 investors into the market. So if you have a little 0:07:16.920 --> 0:07:20.200 bit of a concern about what's going to happen going 0:07:20.280 --> 0:07:23.440 forward as far as deficits are concerned, UM, we still 0:07:23.480 --> 0:07:27.800 haven't delivered on any of the infrastructure promises here. We 0:07:27.880 --> 0:07:31.360 have a death ceiling issue still. Um. Those kinds of 0:07:31.400 --> 0:07:34.240 things kind of detour people from having the confidence in 0:07:34.680 --> 0:07:37.800 investing in the underlying currency. So that that's where I'm saying, 0:07:37.800 --> 0:07:39.960 there's so many moving parts when it comes to central 0:07:40.000 --> 0:07:43.360 bank policy and government issues, particularly here in the U 0:07:43.520 --> 0:07:47.080 s UM, people continue to look for an alternative. Tom Tuci, 0:07:47.080 --> 0:07:49.160 thank you so much for joining us. Tom Tucci as 0:07:49.240 --> 0:07:52.560 head of US Treasury. Trading as c i BC World 0:07:52.720 --> 0:08:08.800 Markets in New York City. Tava Pharmaceutical Industries appears to 0:08:08.840 --> 0:08:13.280 have ended it's longer search for a chief executive officer 0:08:13.320 --> 0:08:17.440 today it named h Lundbeck's Car Schultz as its new 0:08:17.800 --> 0:08:20.320 chief executive officer. And here to tell us what this 0:08:20.400 --> 0:08:23.840 means for the path forward of this generics maker, I 0:08:23.880 --> 0:08:28.920 want to bring in Liz krutel Holm Kruto Hallo. She's 0:08:28.960 --> 0:08:32.920 specialty pharma and biotech analyst for Bloomberg Intelligence in London. 0:08:33.240 --> 0:08:38.040 And Yakov ben Mella, he's a reporter in Bloomberg in 0:08:38.080 --> 0:08:41.200 the Tel Aviv office. Liz, I want to start with you. 0:08:41.640 --> 0:08:45.240 Was this an expected choice? And uh, does this choice 0:08:45.240 --> 0:08:47.720 of car Schultz give you any sense of the path 0:08:47.800 --> 0:08:52.280 forward for the company? So this morning's news was definitely 0:08:52.400 --> 0:08:55.880 not expected. Lundbeck has been having a really great year. 0:08:55.960 --> 0:08:59.000 Schultz has been able to lead a turnaround there, so 0:08:59.320 --> 0:09:02.560 he was in a secure a place, so not an 0:09:02.559 --> 0:09:06.400 expected move for him in terms of his role at Teva. 0:09:06.559 --> 0:09:09.400 I think it certainly is good from a Teva perspective, 0:09:09.520 --> 0:09:12.600 as evidenced by the shares today, but you can see 0:09:12.640 --> 0:09:15.080 that this period of uncertainty is at least behind the 0:09:15.120 --> 0:09:18.959 company and he is bringing in specialty expertise which will 0:09:18.960 --> 0:09:22.439 help the branded unit, but the generic unit is not 0:09:22.600 --> 0:09:24.800 really an area that he has a lot of expertise in, 0:09:24.960 --> 0:09:28.000 so that is a bit of a surprise. You know, Kobe, 0:09:28.040 --> 0:09:29.880 I want to bring you in here because I want 0:09:29.880 --> 0:09:33.240 to if you can explain to people how urgent the 0:09:33.400 --> 0:09:37.120 situation is at Tava Pharmaceuticals and is there going to 0:09:37.200 --> 0:09:39.600 be an even greater effort to split the company from 0:09:39.600 --> 0:09:45.920 its generic versus it's a branded drug business. So yeah, 0:09:45.960 --> 0:09:49.240 I mean it's certainly been urgent, and that was really 0:09:49.600 --> 0:09:51.040 as you can see, but in the stock that they 0:09:51.080 --> 0:09:54.360 will was depressing the stock price. Urgent in the sense 0:09:54.400 --> 0:09:57.400 that Teva has a huge, huge problem. I think that 0:09:57.640 --> 0:10:00.000 is about almost twice the side of the the Vali the company, 0:10:00.000 --> 0:10:02.960 and that's really uh tied the hands of what they 0:10:02.960 --> 0:10:05.880 can induce to tag. So uh, they needed to get 0:10:05.880 --> 0:10:08.640 someone on board to to really steer the company, to 0:10:08.720 --> 0:10:13.480 really set forth a coherent strategy, you know, type of spin. Uh. 0:10:13.480 --> 0:10:15.120 This is now the fourth to you in five years, 0:10:15.120 --> 0:10:18.840 and it feels like almost the strategy has been changing 0:10:19.280 --> 0:10:22.760 lesson right so uh so yeah, so investors are really 0:10:22.760 --> 0:10:26.760 rewarding type for for getting shorts. From what I'm said, 0:10:26.760 --> 0:10:28.920 By the way, it's a pronounced car like like a 0:10:28.920 --> 0:10:34.319 Boston accident when you stay car. Thank you. I appreciate that. 0:10:36.400 --> 0:10:38.480 I had to ask as well. The chairman. Yeah, he 0:10:38.480 --> 0:10:41.960 told me how to say today. Um. But but yeah, 0:10:42.040 --> 0:10:45.480 it's it's it's uh, it's it's well received, and there's 0:10:45.559 --> 0:10:47.959 a lot of skepticism about the kind of job that 0:10:48.000 --> 0:10:51.400 you can do. But that's certainly a positive step forward 0:10:51.440 --> 0:10:54.120 for Enny. You know, Liz, I'd love to get your sense. 0:10:54.320 --> 0:10:57.240 What is the most logical step forward. Is it to 0:10:57.280 --> 0:11:00.680 continue to ramp up sales of ass it's in order 0:11:00.720 --> 0:11:02.960 to pay down some of that debt, which I believe 0:11:03.040 --> 0:11:06.360 is close to thirty billion dollars, or is it to 0:11:06.800 --> 0:11:09.760 uh sort of bolster the current generic offerings and make 0:11:09.800 --> 0:11:13.280 sure that pricing is in line in order to bring 0:11:13.480 --> 0:11:18.080 back revenue sufficient to grow into the capital structure, so 0:11:18.120 --> 0:11:20.480 it will be more of the former at this point. 0:11:20.520 --> 0:11:23.920 So the bigger concerned certainly near term, will be debt 0:11:23.960 --> 0:11:27.440 paid down. Just based on Teva's covenants, they're required to 0:11:27.480 --> 0:11:29.960 be at four point to five times net debt to 0:11:30.080 --> 0:11:32.440 ebataon by end of year and they're currently at four 0:11:32.440 --> 0:11:35.079 point five six and based on their free cashlew that 0:11:35.120 --> 0:11:37.080 we've seen so far this year and what we expect 0:11:37.160 --> 0:11:39.679 in the second half, the only way that they can 0:11:39.720 --> 0:11:43.000 meet that be through asset sales. So they have mentioned 0:11:43.040 --> 0:11:45.600 that women's health is on the chopping block as well 0:11:45.640 --> 0:11:49.760 as their European pain and oncology franchises. Those would pretty 0:11:49.800 --> 0:11:52.400 much just get them there to reach their covenants by 0:11:52.480 --> 0:11:55.040 year end, and again they have to close by your end, 0:11:55.080 --> 0:11:57.320 so that's going to be quite difficult. Uh. And then 0:11:57.360 --> 0:12:00.920 looking forward to have the risk to their leading product, 0:12:01.440 --> 0:12:04.720 which is capac Zone for multiple sclerosis, so we expect 0:12:04.760 --> 0:12:08.480 a generic second half next year, so really they've got 0:12:08.480 --> 0:12:11.280 that threat coming in which threatens their cash flow even further. 0:12:11.400 --> 0:12:13.480 So as it sails, are at the top of the 0:12:13.559 --> 0:12:16.880 list in terms of priorities. On the generic side, there's 0:12:16.920 --> 0:12:19.199 not much they can do. It's more of the sector 0:12:19.240 --> 0:12:22.640 wide pressure that we're seeing in the US on price erosion, 0:12:22.720 --> 0:12:26.560 and that's not expected to let up until about Is 0:12:26.600 --> 0:12:30.720 there a competitor that you believe Liz will benefit the 0:12:30.760 --> 0:12:36.200 most from this transition period of Tava, So that that's 0:12:36.240 --> 0:12:38.320 a good question. I think, you know, most of the 0:12:38.400 --> 0:12:41.640 generic players are really all on the same boat. You know, 0:12:41.679 --> 0:12:44.079 a good pier would be someone like Milon, and they've 0:12:44.400 --> 0:12:47.320 downgraded their guidance for the year, not expecting any new 0:12:47.360 --> 0:12:53.400 approvals until about as well. On the specialty side, there's 0:12:53.480 --> 0:12:57.880 really not anyone that would benefit from having a transition 0:12:57.880 --> 0:13:00.560 at TAVA. There is, you know, of Race in the 0:13:00.600 --> 0:13:04.560 Migraine market, where Teva is expected to come to market 0:13:04.640 --> 0:13:08.280 second behind Amina nove Artist. That's expected to be a 0:13:08.280 --> 0:13:10.400 pretty big market. It could be a seven billion dollar 0:13:10.440 --> 0:13:14.000 opportunity in the US. So that's potentially a place where 0:13:14.120 --> 0:13:18.199 if they're not focused on that launch properly appear like Eli, 0:13:18.280 --> 0:13:21.440 Lily or a small biotech like Elder could take advantage 0:13:21.440 --> 0:13:23.560 of that. I want to thank you both very much 0:13:23.600 --> 0:13:26.280 for joining us uh Kobe e Ben Malick is our 0:13:26.320 --> 0:13:29.160 Bloomberg reporter, and tel Aviv and Liz crud to Hollow, 0:13:29.440 --> 0:13:34.480 our specialty pharmaceuticals and biotech analysts for Bloomberg Intelligence, joining 0:13:34.559 --> 0:13:49.120 us from London. There was a report that caught my 0:13:49.240 --> 0:13:52.439 eye over the weekend. China said that it was going 0:13:52.520 --> 0:13:57.240 to end sales a fossil fuel powered vehicles in the 0:13:57.400 --> 0:14:00.880 upcoming years. China is just joining their nations such as 0:14:00.920 --> 0:14:04.120 the UK and France seeking a phase out vehicles using 0:14:04.160 --> 0:14:08.439 gasoline and diesel. My question is how much does this 0:14:08.720 --> 0:14:13.640 shift the landscape profoundly for automakers worldwide. Here to answer 0:14:13.640 --> 0:14:16.319 that question, hopefully, is Jamie Butter's US autos reporter for 0:14:16.679 --> 0:14:20.120 Bloomberg News, coming to us from our Detroit bureau. So, Jamie, 0:14:20.200 --> 0:14:21.920 does this how how big of a deal is this 0:14:22.600 --> 0:14:27.440 for US car manufacturers? At this point, it's it's not 0:14:27.520 --> 0:14:29.880 much of a deal at all, right, I mean, it's 0:14:29.960 --> 0:14:33.920 so far down the road that it's hard to really 0:14:34.080 --> 0:14:37.520 see how serious the Chinese are with this, you know, 0:14:37.960 --> 0:14:40.120 as so, I mean, look, I think their goals that 0:14:40.240 --> 0:14:43.840 there's that they're trying to achieve make perfect sense. They 0:14:43.880 --> 0:14:46.560 want cleaner air for their cities, they want to reduce 0:14:46.600 --> 0:14:49.960 their dependence on foreign oil, They want to be technology 0:14:50.080 --> 0:14:52.840 leaders in ways that are going to be meaningful in 0:14:52.880 --> 0:14:59.560 the twenty one and centuries. Uh. But you know they've 0:14:59.600 --> 0:15:02.080 also I been covering China and their auto industry for 0:15:02.160 --> 0:15:04.560 more than a decade and they, you know, have this 0:15:04.680 --> 0:15:08.160 policy to reduce the number of automakers that they have 0:15:08.360 --> 0:15:11.520 and instead they have more brands, more Chinese brands now 0:15:11.560 --> 0:15:15.840 than they did fifteen years ago. So, you know, we'll see, 0:15:15.920 --> 0:15:17.720 there's not a date on it. We'll see what they 0:15:17.720 --> 0:15:20.440 actually put a date. Well, but Jamie, but you know, 0:15:20.480 --> 0:15:24.520 aside from China's declaration here, which you know you can 0:15:24.560 --> 0:15:26.640 sort of say, it's sort of unclear. A lot of 0:15:26.640 --> 0:15:28.800 details have to be worked out. Just the fact that 0:15:28.840 --> 0:15:32.880 so many countries around the world are focusing on trying 0:15:32.920 --> 0:15:36.000 to reduce the number of fossil fuel vehicles and giving 0:15:36.040 --> 0:15:40.520 subsidies to electric vehicle production to me signal some kind 0:15:40.520 --> 0:15:43.120 of sea change that's going on in the industry. Do 0:15:43.160 --> 0:15:46.480 you do you think that that is overseating the issue. Well, 0:15:46.800 --> 0:15:49.520 there's definitely some politics for it. A lot of it 0:15:49.560 --> 0:15:52.240 comes down to the definitions, right, So we had a 0:15:52.240 --> 0:15:54.440 lot of it. We got really excited. It is the 0:15:54.720 --> 0:15:58.720 kind of exciting you know, Volvo and their electrication commitment. 0:15:59.440 --> 0:16:03.120 But you know, it sounds like electrification means they're going 0:16:03.160 --> 0:16:05.760 to be making electric vehicles, and they will make some, 0:16:06.640 --> 0:16:09.800 but most of the Volvos are probably still going to 0:16:09.840 --> 0:16:13.880 be hybrids technically, even mild hybrids, so more like a 0:16:14.000 --> 0:16:17.480 Toyota are more like the Honda Insight than a prius 0:16:18.000 --> 0:16:20.160 Um so I really, you know, kind of what we 0:16:20.200 --> 0:16:23.760 would consider now like pretty primitive or mild hybrid systems, 0:16:23.800 --> 0:16:25.760 so a lot of that what we saw of London 0:16:25.800 --> 0:16:28.200 and Paris. They're more city based, you know, than like 0:16:28.280 --> 0:16:30.680 the entire country or big you know, the whole of 0:16:30.720 --> 0:16:34.600 the EU, and so something like a plug in hybrid 0:16:35.040 --> 0:16:37.200 with the right technology. Some of them are kind of automatic. 0:16:37.240 --> 0:16:39.360 They run on electric until they run out of battery 0:16:39.360 --> 0:16:41.880 and then the gas engine turns on to make the 0:16:41.920 --> 0:16:45.040 electric power run. You can have them some of like 0:16:45.200 --> 0:16:48.040 Volvo's models or you know, they're more European minded. You 0:16:48.080 --> 0:16:50.080 can switch them on and off, so you might drive 0:16:50.080 --> 0:16:53.080 in from the suburb to your job in the city 0:16:53.480 --> 0:16:56.160 and then when you cross the border you flip it 0:16:56.200 --> 0:16:59.000 to all electric mode and you drive in electric while 0:16:59.040 --> 0:17:01.320 you're in the city where the pollution is the worst. 0:17:01.320 --> 0:17:03.600 And the congestion is the worst. And then when you're 0:17:03.600 --> 0:17:05.920 coming back, you say, Okay, do I have enough electric 0:17:05.960 --> 0:17:08.080 power to get me all the way home? Or do 0:17:08.119 --> 0:17:09.919 I just use the electric until I get out of 0:17:09.920 --> 0:17:12.919 the city and then you know, use the hybrid system. 0:17:12.960 --> 0:17:17.560 And so if you to say no, uh no, no, 0:17:17.560 --> 0:17:20.080 no burning of gas, no burning of diesel, you're just 0:17:20.160 --> 0:17:23.679 moving it to well, where is the electricity gonna come from? 0:17:23.760 --> 0:17:26.320 And in China, I mean, like the US electricity keeps 0:17:26.320 --> 0:17:30.160 getting cleaner and cleaner. We're using gas, natural gas that's 0:17:30.160 --> 0:17:36.880 pretty efficient of you know, China coal. Um, they don't 0:17:36.920 --> 0:17:39.560 have the cleanest coal technology and even the cleanest coal 0:17:39.640 --> 0:17:43.240 technology spits out a lot of carbon. So that's why 0:17:43.280 --> 0:17:45.879 I guess I'm not sure if they really mean this, 0:17:46.040 --> 0:17:49.959 and they're saying, you know, later than it's not as 0:17:50.040 --> 0:17:52.560 meaningful as what we're seeing in London and Paris and 0:17:52.680 --> 0:17:55.160 even from Volvo, and even the Volvo stuff I think 0:17:55.560 --> 0:18:00.399 gets largely overblown. Jamie. What effect does the scandal over 0:18:00.720 --> 0:18:06.080 diesel engines and pollution emissions have on the debate, particularly 0:18:06.080 --> 0:18:11.120 in Europe about introducing electric vehicles. Oh yeah, I mean 0:18:11.200 --> 0:18:13.640 you you hear right on it. That's why. I mean, 0:18:13.880 --> 0:18:16.400 there's two things driving it. Right, You've got the political 0:18:16.560 --> 0:18:21.040 negatives about diesel um you know, and it's not clear 0:18:21.200 --> 0:18:24.800 yet you know how widespread the cheating was at the minimum, right, 0:18:24.840 --> 0:18:28.240 we know the Volkswagen, the world's largest automaker, has admitted 0:18:28.280 --> 0:18:33.040 they've sold eleven million vehicles with you know, cheating software 0:18:33.080 --> 0:18:37.400 that polluted many times more than the law allows. So 0:18:37.760 --> 0:18:39.639 it's a big fight. They still have to meet these 0:18:39.760 --> 0:18:43.280 environment they still have to meet these environmental regulations. And 0:18:43.280 --> 0:18:45.480 I'll give you about twenty seconds. Well, so what's next 0:18:45.480 --> 0:18:47.280 for them? So that's why electric And the other thing 0:18:47.320 --> 0:18:49.840 is Tesla, right, that doesn't even make money, but because 0:18:49.840 --> 0:18:52.600 they make electric cars, their stock is values hugely high. 0:18:52.800 --> 0:18:54.919 So there's a there is some pull and some push, 0:18:55.240 --> 0:18:57.640 but it's very external. The economics are still a real 0:18:57.720 --> 0:19:00.439 challenge to make electric cars and make money on in 0:19:00.480 --> 0:19:02.320 the kind of scale that we need for a China 0:19:02.640 --> 0:19:05.280 let alone, you know, the US in the whole world. Indeed, 0:19:05.280 --> 0:19:08.840 well well done, thanks very much, Jamie Butters joining us 0:19:08.840 --> 0:19:13.120 as our US autos reporter talking about China and its 0:19:13.200 --> 0:19:18.719 desire to get rid of fossil fuel automobile perhaps, Yeah, right, well, uh, 0:19:18.960 --> 0:19:22.520 you know how many electric vehicles General Motors is sold 0:19:22.560 --> 0:19:25.480 in China seven thirty eight. So there's a long way 0:19:25.480 --> 0:19:40.159 to go. Right now, we're looking at a market that 0:19:40.280 --> 0:19:43.399 is trying to figure out the path forward. Yes, Irma 0:19:43.520 --> 0:19:45.840 wasn't as bad as many people expected, but Houston is 0:19:45.880 --> 0:19:49.960 still trying to dig out after the hurricane that hit them. 0:19:50.160 --> 0:19:52.240 To give us more perspective and what we can expect 0:19:52.320 --> 0:19:55.160 for oil prices going forward, Regina Mayor joins us now. 0:19:55.240 --> 0:19:59.000 She's a global sector leader for Energy and Natural Resources 0:19:59.040 --> 0:20:02.480 for kpm G based in Houston and Regina. We talked 0:20:02.480 --> 0:20:06.400 so much about Florida over the past week, but Houston 0:20:06.520 --> 0:20:08.400 still is digging out, and I would love to get 0:20:08.440 --> 0:20:11.480 your sense of just you know, where we are in 0:20:11.560 --> 0:20:16.800 the disruption of gas, in the disruption of crude refining, 0:20:17.000 --> 0:20:19.119 and uh and where we go forward with the price 0:20:19.280 --> 0:20:22.919 of oil. Excellent, Well, thank you for having me. Good morning. 0:20:23.680 --> 0:20:26.639 I think overall Houston's energy business is proving to be 0:20:26.680 --> 0:20:31.680 incredibly resilient. The production facilities by and large are back online. 0:20:32.400 --> 0:20:35.240 Many in Corpus and in Texas City, as well as 0:20:35.280 --> 0:20:38.520 in the ship channel in Houston are at full capacity. 0:20:38.920 --> 0:20:41.080 Some of the ones that were not at full capacity 0:20:41.200 --> 0:20:43.000 during the storm. It was in large part due to 0:20:43.440 --> 0:20:47.080 pipeline limitations and takeaway capabilities and less situt damage that 0:20:47.160 --> 0:20:50.440 was sustained at the facility. The longer term challenges will 0:20:50.440 --> 0:20:53.040 be in the Beaumont Port Arth area. My understanding is 0:20:53.080 --> 0:20:55.560 one or two of the refineries in those locations suffered 0:20:55.560 --> 0:20:59.920 more damage. They are already seeing gasoline futures edge lower 0:21:00.080 --> 0:21:03.400 or this morning because the impact of IRMA wasn't as 0:21:03.400 --> 0:21:07.440 bad as what traders initially thought it would be. Regina, 0:21:07.840 --> 0:21:12.600 the change in the US energy industry to one that 0:21:12.760 --> 0:21:17.119 is focused on exports with liquefied natural gas and reversal 0:21:17.359 --> 0:21:21.159 of pipeline systems, how has that changed, if at all, 0:21:21.320 --> 0:21:25.679 the reaction and the effects after effects of Hurricane Harvey 0:21:25.840 --> 0:21:29.080 on the unit on the industry. I don't see that 0:21:29.280 --> 0:21:32.840 export strategy having had a big impact yet as a 0:21:32.880 --> 0:21:36.600 result of Hurricane Harvey. Play this forward maybe five years 0:21:36.640 --> 0:21:39.480 when we have more of the energy export facilities online 0:21:39.760 --> 0:21:43.240 and we have a much larger refined products export strategy. 0:21:43.400 --> 0:21:47.080 As Mexico opens up and other other parts of the world, 0:21:47.640 --> 0:21:50.520 and a Category four or five storm hits the Texas 0:21:50.520 --> 0:21:54.400 Louisiana Gulf Coast again, then I could see potentially there 0:21:54.400 --> 0:21:58.120 being global disruption and commodity prices because the US footprint 0:21:58.200 --> 0:22:01.320 is so strong and growing. But for Harvey, we're not 0:22:01.359 --> 0:22:04.800 seeing any of those impacts yet. The export overall percentage 0:22:04.840 --> 0:22:09.320 is relatively negligible, and frankly, production wasn't offline long enough 0:22:09.320 --> 0:22:12.240 for it to have a material impact on supply. So, Regina, 0:22:12.320 --> 0:22:15.320 if there wasn't a material impact on supply, let's switch 0:22:15.359 --> 0:22:17.680 to the demand side. Because there was a big debate 0:22:18.080 --> 0:22:22.239 about whether the destruction and demand with people holding up 0:22:22.240 --> 0:22:26.680 in neighbors and friends homes elsewhere outside of Houston, whether 0:22:26.760 --> 0:22:31.159 that would offset any refining decrease. And it seems like 0:22:31.240 --> 0:22:35.640 perhaps that is the bigger story here, the destruction in demand. 0:22:35.840 --> 0:22:38.280