WEBVTT - Stocks Struggle as Gold Rout Deepens 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:26.960 us live on YouTube. 0:00:27.120 --> 0:00:31.080 Yley joins us this morning for an extended conversation. Waly, 0:00:31.120 --> 0:00:33.400 I want to go back to first principles. My great 0:00:33.440 --> 0:00:37.280 mentor in the United Kingdom, he has recently died. Meg 0:00:37.320 --> 0:00:40.519 didn't decigh. Lord de Siah of India and of the 0:00:40.640 --> 0:00:44.479 United Kingdom would say, it's just about profit. What is 0:00:44.520 --> 0:00:49.920 the quality the physics of technology profit that makes you 0:00:50.080 --> 0:00:51.680 committed to mag seven. 0:00:53.520 --> 0:00:56.480 Well, it is about quality of profit. It is about 0:00:56.800 --> 0:01:00.360 it is also about the reality of Ernie's coming through 0:01:00.840 --> 0:01:01.560 really strong. 0:01:01.640 --> 0:01:01.760 Right. 0:01:01.800 --> 0:01:05.400 We're not putting hypothesis out there. We're just looking at 0:01:05.440 --> 0:01:10.600 the ability of these companies to generate earnings, to generate profits, 0:01:10.880 --> 0:01:14.360 and so far, if you look at equity attribution of 0:01:15.240 --> 0:01:20.240 various markets globally, US really stood out in being able 0:01:20.280 --> 0:01:25.240 to deliver earnings to justify the performance and tag Magnificant 0:01:25.280 --> 0:01:29.360 seven in particularly really stood out in terms of their 0:01:29.360 --> 0:01:33.399 earnings basically explaining almost all of their performance so far 0:01:33.440 --> 0:01:33.880 this year. 0:01:34.080 --> 0:01:34.839 When will you. 0:01:34.920 --> 0:01:39.959 Know the profit of all this CAPEX investment? Are you 0:01:40.040 --> 0:01:42.440 going to know that somewhere next year or do we 0:01:42.480 --> 0:01:43.120 have to wait. 0:01:43.000 --> 0:01:47.000 Ten years to know maybe somewhere in between. Actually that's 0:01:47.040 --> 0:01:50.680 a very good point. So far, Phase one of this 0:01:50.800 --> 0:01:55.280 buildout has been really companies spending their free cash flow 0:01:55.400 --> 0:01:58.440 and they are awash with cash to invest in this 0:01:58.600 --> 0:02:02.640 mega deal. But we're now entering phase two where perhaps 0:02:02.640 --> 0:02:06.040 the buildout is more capital intensive. We're talking about some 0:02:06.160 --> 0:02:10.399 new entrants tapping into bond market, into private credit, into 0:02:10.440 --> 0:02:14.280 joint ventures to fund some of this investment, and vendor 0:02:14.520 --> 0:02:17.800 financing is seeing as well. Right so phase two is 0:02:17.840 --> 0:02:21.840 more capital intensive and timing is everything. You know, we 0:02:21.919 --> 0:02:26.040 can be right about the revolutionary nature of the technology, 0:02:26.080 --> 0:02:28.720 but we can still have a very rocky market on 0:02:28.720 --> 0:02:31.840 our hand. So what we're seeing right now is the 0:02:31.880 --> 0:02:35.320 trillions of copecks being kind of talked about and estimated 0:02:35.360 --> 0:02:38.880 in the coming years. But time will tell if we 0:02:39.040 --> 0:02:45.240 have the right regional investment to justify those investments, those 0:02:45.320 --> 0:02:49.440 copex commitment. But in the meanwhile, we cannot afford to 0:02:49.480 --> 0:02:53.240 stay out of this market. So sign posting is everything, 0:02:53.280 --> 0:02:56.280 looking at earnings, looking at free cash flow in particular 0:02:56.360 --> 0:02:58.519 of those companies that are going to be consumers of 0:02:58.600 --> 0:03:02.520 this copex invest is how we are navigating this moment. 0:03:03.440 --> 0:03:06.320 Well, we are, in fact in the middle of earning season. 0:03:06.400 --> 0:03:07.119 That's a good thing. 0:03:07.160 --> 0:03:09.760 We saw some pretty strong numbers out of the big 0:03:09.800 --> 0:03:13.080 money center banks and now we're getting some industrial companies reporting. 0:03:13.800 --> 0:03:17.519 But it seems like geopolitics is not far off the 0:03:17.639 --> 0:03:21.800 radar for this market. China in particular trade discussions with 0:03:21.880 --> 0:03:23.679 the US. How do you think about that? Is that 0:03:23.760 --> 0:03:26.760 something you just try to ignore? Do you try to 0:03:26.800 --> 0:03:28.960 play it? Because it seems like the trade talks with 0:03:29.080 --> 0:03:31.760 China and what that means for global GDP over the 0:03:31.760 --> 0:03:33.840 coming years are still front and center. 0:03:35.080 --> 0:03:38.920 It's really hard to follow the headlines blow by blow, 0:03:39.240 --> 0:03:41.520 like from one moment we heard it maybe we're going 0:03:41.600 --> 0:03:45.240 to get a good deal between US China and to 0:03:45.280 --> 0:03:47.480 the next moment where maybe. 0:03:47.280 --> 0:03:48.480 The meeting won't happen. 0:03:48.560 --> 0:03:52.480 So it's very noisy in terms of headlines right now. 0:03:52.520 --> 0:03:55.520 And if you look at the Bloomberg US Trade Policy 0:03:55.560 --> 0:03:59.040 Uncertainty Index, it picked in aprol but it recently started 0:03:59.240 --> 0:04:02.560 going higher again. So Marcus are reacting quite a lot 0:04:02.680 --> 0:04:05.480 to it, but I think it's very hard to generate 0:04:05.560 --> 0:04:09.160 alpha by just following headlines. So focusing on the things 0:04:09.200 --> 0:04:12.880 that cannot change very quickly in the near term is 0:04:12.920 --> 0:04:16.200 how we're to navigate the environment. So inflation considerations for 0:04:16.240 --> 0:04:19.000 the US, but also thinking about the balance of payment 0:04:19.040 --> 0:04:22.440 for China and how important there is, and if Marcus 0:04:22.440 --> 0:04:25.640 get carried away, we would lean against that extreme pricing 0:04:25.680 --> 0:04:28.440 because these things cannot change very quickly, which is why 0:04:28.520 --> 0:04:32.719 right now Westiell pro risk despite the very busy trade headlights. 0:04:32.400 --> 0:04:35.159 Wally with Blackrock Wethers for an extended conversation to start 0:04:35.200 --> 0:04:39.640 strong Elizabeth, economy and China in the nine o'clock hour. 0:04:39.839 --> 0:04:42.120 I just put out on LinkedIn my LinkedIn of the day. 0:04:42.279 --> 0:04:44.839 It's way Lee. I had to be polite, you know, 0:04:45.279 --> 0:04:48.480 did that. But it's a great Bloomberg screen of the 0:04:48.640 --> 0:04:53.120 margin difference between S and P and small cap excuse me, 0:04:53.360 --> 0:04:58.200 large cap versus small cap Way, Lee, it's back thirty years. 0:04:58.880 --> 0:05:01.000 Can I say it's ever been like this? 0:05:03.320 --> 0:05:08.200 I think we're seeing some extraordinary ca shaped developments. The 0:05:08.480 --> 0:05:11.760 charge that I put out, the Bloomberg screenshot that I 0:05:11.760 --> 0:05:15.640 put out on LinkedIn is the profit margin of s 0:05:15.680 --> 0:05:18.520 and P five hundred large cap and SMP six hundred 0:05:18.640 --> 0:05:21.560 small cap, and they're really starting to diverge. But that's 0:05:21.600 --> 0:05:25.760 just one manifestation of this case shaped development. Right, we 0:05:25.880 --> 0:05:29.280 see K shaped recovery of the consumers. We see K 0:05:29.480 --> 0:05:33.320 shaped kind of default type of pattern in credit and 0:05:33.320 --> 0:05:35.200 also including in private credit. 0:05:35.320 --> 0:05:38.240 I think in an environment where we don't have rising. 0:05:38.000 --> 0:05:41.520 Tide of very easy policy lifting or boat of very 0:05:41.760 --> 0:05:46.919 easy fiscal streamulus kind of supporting everything, being very selective 0:05:46.920 --> 0:05:49.359 in terms of how we deploy risk is going to 0:05:49.400 --> 0:05:52.440 be the name of the game. We see credit market. 0:05:52.600 --> 0:05:56.760 You look at the cycle, there is almost amazing credit cycle, 0:05:56.839 --> 0:06:01.200 but digging under the hoods fundamentals support the very strong 0:06:02.160 --> 0:06:05.800 large cups a wash with cash, whereas the very small 0:06:06.680 --> 0:06:12.440 players are currently under pressure. So case shaped development is 0:06:12.760 --> 0:06:15.920 a characterization of the environment that we're. 0:06:15.720 --> 0:06:18.239 In, and I think that's here to stay for a while. 0:06:19.000 --> 0:06:21.159 Well, Llie, can you talk to us about geography? Where 0:06:21.160 --> 0:06:26.200 do you see I guess best opportunities maybe US versus 0:06:26.279 --> 0:06:28.839 rest of the world. Are you focusing on Europe? How 0:06:28.839 --> 0:06:31.719 do you think about from a geographic perspective where some 0:06:31.760 --> 0:06:33.080 of the opportunities are out there. 0:06:33.839 --> 0:06:37.880 We currently actually still like US equities. 0:06:37.839 --> 0:06:43.960 And we also prefer Japanese aquities and we favor them 0:06:44.160 --> 0:06:49.400 over for example, European opportunities where we would want to 0:06:49.440 --> 0:06:54.040 be a bit more selective, you know, financials and industrials 0:06:54.080 --> 0:06:57.559 and how we want to play that together with defense theme. 0:06:57.839 --> 0:07:00.200 And the reason that we still favor USP is. 0:07:00.279 --> 0:07:03.280 You look at how markets have developed so far this year, 0:07:03.520 --> 0:07:06.000 US aquaitis became a little bit more expensive, but not 0:07:06.120 --> 0:07:07.440 as much as. 0:07:07.400 --> 0:07:09.480 How much more expensive I E. 0:07:09.720 --> 0:07:12.880 Rerating has taken place in the rest of the world 0:07:13.000 --> 0:07:17.400 because of the stronger earnings delivery in the US market. 0:07:17.600 --> 0:07:20.040 You look at the earnings revision the last two months 0:07:20.160 --> 0:07:24.160 or so, US earnings have been revised higher versus European 0:07:24.200 --> 0:07:26.480 earnings having been revised lower. 0:07:26.560 --> 0:07:28.480 So the direction of travel very. 0:07:28.400 --> 0:07:31.640 Much speaks to kind of the underlying economy and the 0:07:31.680 --> 0:07:34.840 concentration of the AI theme. So far, as long as 0:07:34.840 --> 0:07:40.160 I think we're still in this AI AI conviction AI core, 0:07:40.520 --> 0:07:43.600 it will be hard to fade the US acute market 0:07:43.720 --> 0:07:44.680 at this juncture. 0:07:45.560 --> 0:07:47.440 In the fixed income space here, I mean you can 0:07:47.480 --> 0:07:49.960 sit there to your treasury get three almost three and 0:07:50.000 --> 0:07:52.480 a half percent here that seems to be not a 0:07:52.560 --> 0:07:54.440 bad place to be here. Do you sit there in 0:07:54.480 --> 0:07:56.880 the US treasuries or do you maybe take some credit 0:07:56.960 --> 0:07:57.560 risk out there? 0:07:58.880 --> 0:08:03.480 Really, for our Q four outlook that was released now 0:08:03.480 --> 0:08:06.040 when mid October that was released almost one month ago, 0:08:06.240 --> 0:08:09.320 we upgraded the long duration US treasury is because we 0:08:09.440 --> 0:08:12.440 felt that the FED is getting lucky a little bit 0:08:12.520 --> 0:08:16.600 because it is embarking on restarting the fat cutting cycle, 0:08:17.000 --> 0:08:21.080 and the macro environment actually supports that, i e. 0:08:21.480 --> 0:08:24.640 Labor market is just weak enough for fat. 0:08:24.440 --> 0:08:29.840 Independence not to be under scrutiny as it restarts cutting cycle. Right, 0:08:29.880 --> 0:08:33.640 So as we kind of still are in this environment, 0:08:33.640 --> 0:08:36.720 the FED is still getting lucky in that, you know, 0:08:36.800 --> 0:08:39.280 like we heading into next week, I think twenty four 0:08:39.280 --> 0:08:42.720 bits of recud is a foregone conclusion. We do want 0:08:42.800 --> 0:08:45.360 to lean into this momentum and lock in some of 0:08:45.360 --> 0:08:48.880 those really attractive real news in particular, so we like 0:08:48.960 --> 0:08:51.600 treasuries at at this juncture. 0:08:51.640 --> 0:08:53.680 When I got you read my mind, Paul, I'm glad 0:08:53.720 --> 0:08:55.680 you brought it up, because I've been really like pretty 0:08:55.679 --> 0:08:56.400 century focused. 0:08:56.400 --> 0:08:58.199 I got a three ninety five ten year yield. 0:08:58.600 --> 0:09:01.079 Is this finally where we get the inertial force to 0:09:01.200 --> 0:09:04.200 lower yields. Do we finally break down to a lower 0:09:04.240 --> 0:09:06.599 real yield lower nomenal yields. 0:09:07.600 --> 0:09:10.320 Well, we do think that in the very near term 0:09:10.880 --> 0:09:13.760 markets can go with this narrative. 0:09:13.840 --> 0:09:16.480 That's because of weak labor markets. 0:09:16.520 --> 0:09:20.440 Actually the defense needs to cut and because there is 0:09:20.640 --> 0:09:24.280 micro justification for that. Maybe the long end of the 0:09:24.320 --> 0:09:27.480 curve is not going to be penalized in that tom 0:09:27.520 --> 0:09:33.280 premium may not go higher as markets challenge the independence topic. 0:09:33.360 --> 0:09:35.720 So there is a bit of a sweet spot for 0:09:35.800 --> 0:09:40.320 treasuries now. Having said it, heading into next year, if 0:09:40.360 --> 0:09:43.600 you look at the market pricing for policy path, we're 0:09:43.640 --> 0:09:47.000 talking about below two point nine percent by the end 0:09:47.080 --> 0:09:48.200 of twenty twenty six. 0:09:48.440 --> 0:09:49.240 I think given the. 0:09:49.360 --> 0:09:52.760 Still broadly inflationary environment, we're still waiting to see the 0:09:52.800 --> 0:09:56.480 impact of Taroff's feed through to CPI poet for example, 0:09:56.760 --> 0:09:59.680 I think market pricing for below two point five percent 0:09:59.720 --> 0:10:02.120 pol see two point nine percent policy rates by the 0:10:02.160 --> 0:10:05.319 end of next year is too optimistic. But we may 0:10:05.360 --> 0:10:07.559 not get to the awakening moment just yet, which is 0:10:07.559 --> 0:10:08.800 why we're taxically overweight. 0:10:09.360 --> 0:10:12.160 I've got to ask you, really, with your heritage in 0:10:12.200 --> 0:10:14.320 your academic excellence in China. 0:10:14.920 --> 0:10:18.920 We have Elizabeth Economy coming up of Stanford later. Wayle 0:10:19.080 --> 0:10:22.440 your thoughts on this important set of meetings to a 0:10:22.480 --> 0:10:24.520 new five year plan in China. 0:10:26.120 --> 0:10:31.240 Well, this is an economy that needs to go through reforms. 0:10:30.800 --> 0:10:33.640 Right like this has been talked about for many years now. 0:10:33.640 --> 0:10:37.640 It needs to go from an investment a driven type 0:10:37.640 --> 0:10:40.920 of growth model to consumption having a driven type of 0:10:41.760 --> 0:10:45.200 growth model. And right now consumer sentiment still is somewhat 0:10:45.280 --> 0:10:49.360 to tap it. So I think how to energize that 0:10:49.640 --> 0:10:52.120 is going to be very key, especially against the backdrop 0:10:52.200 --> 0:10:57.280 of aging population and structural headwainds to economy. So that's 0:10:57.760 --> 0:11:01.680 a very delicate balance. But the key here is mega 0:11:01.720 --> 0:11:06.840 forces and specifically navigating and capitalizing on the AI revolution. 0:11:07.200 --> 0:11:10.079 Wellie, thank you so much for blackgrect Stay with us. 0:11:10.360 --> 0:11:13.600 More from Bloomberg Surveillance coming up after this. 0:11:20.840 --> 0:11:24.400 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:11:24.480 --> 0:11:27.640 weekday afternoons from seven to ten am Eastern Listen on 0:11:27.720 --> 0:11:31.360 Applecarplay and Android Auto with the Bloomberg Business app, or 0:11:31.520 --> 0:11:32.959 watch us live on YouTube. 0:11:33.000 --> 0:11:35.000 This is a conversation of the week. 0:11:35.120 --> 0:11:38.360 But dare I say, folks here in October our most 0:11:38.360 --> 0:11:41.400 important hydrocarbon conversation. 0:11:41.440 --> 0:11:44.760 To the end of the year. Edward Morris is absolutely iconic. 0:11:44.840 --> 0:11:49.040 Made more so it's City Group recently screaming at the 0:11:49.080 --> 0:11:52.640 oil perpetually over one hundred dollars a barrow, people going. 0:11:53.880 --> 0:11:57.400 Maybe not. He is right, He was right, I should say, 0:11:57.440 --> 0:11:58.280 and still is right. 0:11:58.360 --> 0:12:01.560 At Hard Tree Partners, Ed Morse joins us with all 0:12:01.600 --> 0:12:06.359 of his service to the nation, Senior fellow, Consulate Foreign Relations. 0:12:06.720 --> 0:12:11.560 You open up classic Ed Moyer, Ed Morse, Supply and 0:12:11.600 --> 0:12:16.600 demand in the increase of oil on the water. What 0:12:16.720 --> 0:12:19.320 is oil on the water is that boats. 0:12:19.760 --> 0:12:23.040 It's actually tankers, and they're either moving from where the 0:12:23.080 --> 0:12:26.240 supply is coming from, going to where the demand is, 0:12:26.760 --> 0:12:29.800 or they're just not going anywhere because there's nobody who 0:12:29.840 --> 0:12:33.440 wants the oil. So we've had an incredible surge in 0:12:33.520 --> 0:12:37.840 oil on the water. That surge has come after the 0:12:37.880 --> 0:12:41.360 summer demand season is over. It's come as OPEC plus 0:12:41.440 --> 0:12:45.839 is added oil to the market. So Bessemus were two 0:12:45.880 --> 0:12:49.400 hundred and fifty million barrels of oil in transit as 0:12:49.800 --> 0:12:53.720 a week ago, and that's the most since twenty twenty, 0:12:53.720 --> 0:12:56.000 which we all remember when oil prices were negative. 0:12:56.559 --> 0:12:59.760 Well, oil prices went negative, and again you said, look 0:12:59.760 --> 0:13:03.760 for or prices the acclaim Bloomberg Business Week cover of 0:13:03.840 --> 0:13:06.880 years ago of tankers off Singapore. 0:13:06.920 --> 0:13:09.880 Just sitting in the water. Is that what twenty twenty 0:13:09.920 --> 0:13:10.640 six looks like. 0:13:11.240 --> 0:13:14.320 Well, twenty twenty five certainly looks like it's going to 0:13:14.400 --> 0:13:18.000 end that way. What happens in twenty twenty six is 0:13:18.040 --> 0:13:20.640 partly a function of what the OPEC countries decide to do. 0:13:20.720 --> 0:13:23.000 Are they going to continue to put more oil in 0:13:23.040 --> 0:13:26.920 the market. And the other big question is China. China 0:13:26.960 --> 0:13:30.320 has absorbed most of the excess amount of oil in 0:13:30.360 --> 0:13:34.000 the market. That's why inventories are so low around the world. 0:13:34.080 --> 0:13:37.199 Other than China, they were importing an average of over 0:13:37.240 --> 0:13:40.960 a million barrels a day to put in storage. That's geopolitical. 0:13:41.000 --> 0:13:45.320 Of course, they've kind of slowed down a little bit 0:13:46.040 --> 0:13:49.920 related I'm sure to US China talks, but those seem 0:13:50.000 --> 0:13:53.360 to be going nowhere. So China is part of the 0:13:53.960 --> 0:13:56.800 issue of how much they're going to suck in to 0:13:56.840 --> 0:13:59.240 build their own inventory for some future date. 0:14:01.120 --> 0:14:03.920 Oil at fifty eight dollars, with wtcude oil at fifty 0:14:03.920 --> 0:14:07.240 eight dollars a barrel, is there a global glut of 0:14:07.280 --> 0:14:08.520 oil in the marketplace. 0:14:08.679 --> 0:14:11.240 Well, it looks like that. That's what the oil on 0:14:11.320 --> 0:14:14.080 the water is telling us. There's a glut. It's showing up. 0:14:14.120 --> 0:14:16.680 It's beginning finally to show up in inventories. But the 0:14:16.679 --> 0:14:18.679 inventories are so low they have a long way to go. 0:14:19.680 --> 0:14:23.160 But yes, there is definitely a glut. Supply is significantly 0:14:23.280 --> 0:14:24.720 more than what demand is at the moment. 0:14:24.920 --> 0:14:27.160 So what is this. 0:14:28.600 --> 0:14:32.080 If I'm sitting down there. I watched Landman from one season, 0:14:32.120 --> 0:14:33.440 so I know all about the oil and gas. 0:14:33.760 --> 0:14:36.560 I'm an expert in Austin at the f one at 0:14:36.560 --> 0:14:37.480 the Sweeney Corner. 0:14:37.680 --> 0:14:40.360 Yes, was the big advertisement for Landman, so I. 0:14:40.280 --> 0:14:41.800 Know all about the global energy business. 0:14:42.320 --> 0:14:43.280 What's the fix that? 0:14:43.360 --> 0:14:43.560 I mean? 0:14:43.560 --> 0:14:46.360 If I'm in Houston, I want seventy five dollars a barrel, 0:14:46.480 --> 0:14:46.840 don't I? 0:14:47.280 --> 0:14:48.120 Well, if you're in use and. 0:14:48.160 --> 0:14:50.400 You want the highest price you can get, so yes, 0:14:51.040 --> 0:14:53.560 certainly is higher than WTI. 0:14:55.520 --> 0:14:56.720 And we'll see how they're doing. 0:14:56.760 --> 0:15:00.120 You know, the US hit record levels of production the 0:15:00.160 --> 0:15:03.160 month of August, where you don't have the full data yet, 0:15:03.200 --> 0:15:07.040 but there's no sign of there being a downturn in 0:15:07.080 --> 0:15:10.400 the US production. I think among the things to look 0:15:10.400 --> 0:15:13.040 at at the moment in the month of November is 0:15:13.080 --> 0:15:15.560 whether the Crown Princess Saudi Arabia is going to come 0:15:15.560 --> 0:15:17.680 to the United States in November. 0:15:17.280 --> 0:15:20.240 Eighteenth, seems to be the schedule. How will that response be. 0:15:20.440 --> 0:15:23.720 What will be the oil discussion in the Oval Office? 0:15:23.800 --> 0:15:27.520 Well, I suspect he's not going to come if earlier 0:15:27.560 --> 0:15:30.480 in November they decide to not put more oil in 0:15:30.520 --> 0:15:34.800 the market in December, so I think that'll be a signal. Okay, 0:15:34.880 --> 0:15:39.240 I think they're looking at three or four things. They've 0:15:39.280 --> 0:15:43.480 noticed that Katar has gotten a NATO like defense agreement 0:15:43.560 --> 0:15:46.840 with the US government. They would certainly like something similar 0:15:46.920 --> 0:15:50.000 to that. They are more important in many respects to 0:15:50.320 --> 0:15:54.080 the US and to Trump's desire to have lower gasoline 0:15:54.080 --> 0:15:57.680 prices at the pump. They're looking for a military deal 0:15:57.760 --> 0:15:59.600 similar to the one that was struck when Trump was 0:15:59.680 --> 0:16:03.480 visiting Riod last spring, and that was just about one 0:16:03.560 --> 0:16:06.960 hundred and fifty billion dollars worth of military equipment. They're 0:16:07.000 --> 0:16:11.640 particularly looking for F thirty five fighter jets. Are they 0:16:11.680 --> 0:16:13.240 going to get any at all? Are they going to 0:16:13.240 --> 0:16:14.960 get what they want? Is they going to be a 0:16:15.040 --> 0:16:18.840 nuclear agreement? Are they going to be seeing US technology 0:16:18.880 --> 0:16:23.560 and US material come in as they build a nuclear 0:16:23.680 --> 0:16:26.640 energy for power generation and pre up more oil for export. 0:16:26.920 --> 0:16:29.080 Ed Morse for as we continue right now with heart 0:16:29.120 --> 0:16:31.640 Tree and of course Iconic It's City Group and his 0:16:31.720 --> 0:16:36.320 assistance of the country and studying oil particularly within the 0:16:36.360 --> 0:16:37.040 Middle East. 0:16:37.440 --> 0:16:42.000 Twenty twelve. I remember this article Matt. 0:16:41.720 --> 0:16:45.960 Bessler came out of Michigan, Great great academics and economics 0:16:45.960 --> 0:16:50.680 at Michigan writing for Business Insider. It's just the classic 0:16:50.720 --> 0:16:55.119 headline cities ed Morse as a huge note blasting everyone 0:16:55.480 --> 0:16:58.760 who believes in peak oil. This is the feisty Morse 0:16:58.840 --> 0:17:03.080 from years ago peak oil biases continued a blind analyst 0:17:03.160 --> 0:17:07.640 to an emerging oil cycle turning point. You nailed it, 0:17:08.080 --> 0:17:10.320 Matt Belser, I should say, is now with Bloomberg, and 0:17:10.640 --> 0:17:12.040 that's to our advantage. 0:17:12.240 --> 0:17:15.760 You nailed it. What's the myth right now in oil 0:17:16.119 --> 0:17:16.760 that's wrong? 0:17:17.200 --> 0:17:21.000 The myth that's wrong is that oil demand is peaking, 0:17:21.600 --> 0:17:24.840 whether it's peaking in twenty twenty eight or twenty thirty two. 0:17:25.560 --> 0:17:28.160 The consensus in the market seems to be that oil 0:17:28.200 --> 0:17:32.520 demand is peaking. Yet if you try to study oil demand, 0:17:33.320 --> 0:17:38.440 you can notice that whatever the cycles have been GDP 0:17:38.680 --> 0:17:43.720 is the driver of oil demand and GDP relationship with oil. 0:17:43.760 --> 0:17:47.000 The oil intensity of GDP is certainly falling. It's been 0:17:47.040 --> 0:17:50.639 falling at a steady pace. It's a very linear line 0:17:51.040 --> 0:17:53.679 from where we were in the early seventies when for 0:17:53.800 --> 0:17:58.400 every one percent increase in GDP around the world, and 0:17:58.440 --> 0:18:01.320 we do this in constant dollars, by the way, there 0:18:01.359 --> 0:18:03.920 was over one percent demand for oil that has come 0:18:03.960 --> 0:18:07.800 down linearly. And we just looked deeply at twenty twenty 0:18:08.000 --> 0:18:10.720 through the first half of twenty twenty five, and we're 0:18:10.760 --> 0:18:13.399 on a slope that tells us that oil demand is 0:18:13.440 --> 0:18:15.520 going to peak in twenty sixty four. 0:18:16.040 --> 0:18:18.040 Oh kay, well that's out there, Lisa, make note of 0:18:18.080 --> 0:18:19.200 that twenty sixty four. 0:18:19.320 --> 0:18:21.719 Ed and I won't be around Ed Morris. What's your 0:18:21.760 --> 0:18:23.119 target on oil here? Now? 0:18:23.359 --> 0:18:25.960 You were so good at one hundred saying think eighty. 0:18:26.200 --> 0:18:29.720 At eighty, thinks sixty? Can Ed Morse think forty dollars 0:18:29.800 --> 0:18:30.280 a barrel. 0:18:30.560 --> 0:18:34.280 I think it gets to forty by over exuberants once 0:18:34.320 --> 0:18:38.320 it crashes through that fifty dollars number. So I think 0:18:38.359 --> 0:18:41.320 there'll be a lot of reactions at under fifty. 0:18:41.520 --> 0:18:43.639 What does fifty dollars barrel oil mean for the Middle 0:18:43.640 --> 0:18:45.480 East and particularly for riodd. 0:18:45.480 --> 0:18:48.400 It means a little bit of difficulty on the credit side. 0:18:48.720 --> 0:18:51.600 So yes, they have a fiscal break even that is 0:18:51.600 --> 0:18:56.439 substantially higher than sixty dollars rent. But they get in 0:18:56.480 --> 0:18:59.560 trouble with their A plus rating on credit and they 0:18:59.600 --> 0:19:02.159 need the credit. They need the lending in order to 0:19:02.160 --> 0:19:05.479 make their own energy transition, which is to diversify their 0:19:05.520 --> 0:19:07.800 economy and get off in dependence on crude oil. 0:19:07.920 --> 0:19:10.000 John from the Jersey Shore emails and he says, with 0:19:10.080 --> 0:19:12.200 my homer, h two what's a gal and a guess 0:19:12.240 --> 0:19:13.880 cost at ed Morris is forty? 0:19:14.160 --> 0:19:16.840 I mean, where are we under two bucks? Wow? Two 0:19:16.920 --> 0:19:17.760 dollars a gallon? 0:19:17.760 --> 0:19:20.439 Well, detends on we're in the country, if you're in California. 0:19:20.840 --> 0:19:21.879 More censor it is. 0:19:22.240 --> 0:19:25.720 Yeah, there's always absolutely brilliant. 0:19:25.760 --> 0:19:28.359 Are evs having an impact on the price of oil? 0:19:29.320 --> 0:19:32.040 Of course they are. They're part of the system of 0:19:33.000 --> 0:19:36.600 replacing oil with something else. And if we look at 0:19:36.640 --> 0:19:41.520 the declining intensity that oil has in GDP around the world, 0:19:41.840 --> 0:19:46.080 we're having an increase intensity of GDP in electricity and 0:19:46.119 --> 0:19:49.800 that's where the geopolitics are turning. As we look into 0:19:50.000 --> 0:19:50.760 the next decade. 0:19:50.840 --> 0:19:52.920 Yep, please come back next week. Ed Morris with this 0:19:53.040 --> 0:19:55.720 with hard Tree, folks. What a briefing there for Global 0:19:56.200 --> 0:19:56.760 Wall Street. 0:19:56.960 --> 0:19:59.680 Edward Morris with all of his service to the country, 0:20:00.200 --> 0:20:01.040 the discussion of. 0:20:00.960 --> 0:20:03.640 Oil, the geopolitics of oil. Stay with us. 0:20:03.880 --> 0:20:14.200 More from Bloomberg Surveillance coming up after this. 0:20:14.200 --> 0:20:18.120 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:20:18.119 --> 0:20:21.440 starting at seven am Eastern on Applecarplay and Android Auto 0:20:21.560 --> 0:20:24.520 with the Bloomberg Business app. You can also listen live 0:20:24.600 --> 0:20:28.199 on Amazon Alexa from our flagship New York station. Just 0:20:28.240 --> 0:20:30.760 say Alexa Play Bloomberg eleven thirty. 0:20:31.040 --> 0:20:33.240 I have been asking for days. Please. 0:20:33.400 --> 0:20:37.360 Elizabeth Economy of Stanford, Doctor Economy joins us right now. 0:20:37.400 --> 0:20:40.520 Definitive on the trans Pacific debate. 0:20:41.280 --> 0:20:44.120 Eli's Economy. Just the prism of seven. 0:20:43.920 --> 0:20:48.840 Eight, nine military commanders out the door in China, how 0:20:48.840 --> 0:20:49.840 do you interpret that? 0:20:50.200 --> 0:20:53.280 I mean, you know, honestly, this has been thirteen years 0:20:53.359 --> 0:20:56.480 worth of a continuing anti corruption purge. 0:20:56.960 --> 0:20:58.840 It sounds like a lot, and it's not. 0:20:58.960 --> 0:21:03.240 Insignificantly given that three of them are members of the 0:21:03.240 --> 0:21:07.000 Central Military Commission, which is the top body that oversees 0:21:07.200 --> 0:21:09.400 the party body that oversees the Chinese military. 0:21:09.440 --> 0:21:12.520 So that's three out of seven that were just purged. 0:21:12.800 --> 0:21:16.399 So it's not you know, inconsequential, but you know, Shejenping, 0:21:16.480 --> 0:21:20.000 this is just a continuation of, you know, a purge 0:21:20.000 --> 0:21:22.520 that just never ends for him. You know, what does 0:21:22.520 --> 0:21:25.080 that say about the nature of how he goes around 0:21:25.640 --> 0:21:29.119 dealing with corruption? I think it suggests that he hasn't 0:21:29.200 --> 0:21:32.840 found the proper method to deal with this because you know, 0:21:32.920 --> 0:21:36.000 it's it's ongoing and these are people that he himself 0:21:36.000 --> 0:21:39.400 put in place, So it's not about finding people who 0:21:39.440 --> 0:21:42.199 are more loyal to him necessarily. These were supposed to be, 0:21:43.000 --> 0:21:44.440 you know, loyal compatriots. 0:21:45.359 --> 0:21:48.000 So it's not a good look. But frankly, it's not 0:21:48.119 --> 0:21:48.560 that new. 0:21:49.160 --> 0:21:51.439 So one of the problems here, Paul, and this is 0:21:51.480 --> 0:21:54.679 like the small life that I live with Elizabeth Economy. 0:21:55.240 --> 0:21:57.280 They have a book thing in the back of Foreign 0:21:57.320 --> 0:22:01.119 Affairs magazine and Elizabeth Nay will be there and go 0:22:01.240 --> 0:22:05.360