1 00:00:06,320 --> 00:00:13,040 Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,880 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Tell. 5 00:00:27,960 --> 00:00:30,280 Speaker 1: Michelle joining us on the phone as he always does. 6 00:00:30,640 --> 00:00:32,760 Speaker 1: On next season for the Big Banks on Wall Street 7 00:00:32,840 --> 00:00:36,160 Speaker 1: k b WCO. Tom, fantastic to catch up with you. 8 00:00:36,360 --> 00:00:39,400 Speaker 1: Just walk us through the unprecedented environment we're working through 9 00:00:39,479 --> 00:00:43,440 Speaker 1: right now with Wall Street's biggest names. Well, first of all, 10 00:00:44,040 --> 00:00:48,159 Speaker 1: I've never seen a recession come this quickly in this 11 00:00:48,400 --> 00:00:51,479 Speaker 1: hard so this is somewhat unprecedented. But I was just 12 00:00:51,640 --> 00:00:56,360 Speaker 1: listening to your conversation just now, um, and you know 13 00:00:56,440 --> 00:00:58,120 Speaker 1: there are going to be a couple of ways that 14 00:00:58,120 --> 00:01:00,279 Speaker 1: that Wall Street is gonna interpret These are things, and 15 00:01:00,280 --> 00:01:02,680 Speaker 1: you have to also understand I just saw them myself. 16 00:01:02,920 --> 00:01:05,480 Speaker 1: We were looking for a three point nine billion dollar 17 00:01:05,600 --> 00:01:09,199 Speaker 1: provision came in much higher. The question is does JP 18 00:01:09,360 --> 00:01:13,679 Speaker 1: Morgan see something that makes them terribly more cautious or 19 00:01:13,760 --> 00:01:16,640 Speaker 1: in some ways you could think that the company is 20 00:01:16,800 --> 00:01:20,920 Speaker 1: enormously well capitalized, has a great top line of earnings 21 00:01:21,160 --> 00:01:24,600 Speaker 1: and in some ways just go big, take a big provision, 22 00:01:25,000 --> 00:01:26,840 Speaker 1: And in some ways there's going to be some folks 23 00:01:26,880 --> 00:01:29,600 Speaker 1: to just use a non financial term. Are you ripping 24 00:01:29,640 --> 00:01:32,720 Speaker 1: the band aid? Building a fortress balance sheet? This is 25 00:01:32,760 --> 00:01:35,960 Speaker 1: your first quarter to do that since the virus arrived? 26 00:01:36,440 --> 00:01:39,760 Speaker 1: And and was it was it more precautionary or was 27 00:01:39,800 --> 00:01:42,080 Speaker 1: it in reaction to something that they believe is going 28 00:01:42,120 --> 00:01:44,240 Speaker 1: to happen? And I think that's going to be what 29 00:01:44,360 --> 00:01:47,160 Speaker 1: the streets looking for when we hear their eight thirty 30 00:01:47,160 --> 00:01:49,880 Speaker 1: conference call today. So Tom, let's explore that further. I 31 00:01:49,920 --> 00:01:52,080 Speaker 1: don't think anyone can tell us when we're going to reopen. 32 00:01:52,160 --> 00:01:54,000 Speaker 1: Nobody can tell us when we're going to normalize. We 33 00:01:54,000 --> 00:01:56,160 Speaker 1: can game out a series of things, though. We can 34 00:01:56,200 --> 00:01:58,960 Speaker 1: work out what any individual company is preparing for. Are 35 00:01:58,960 --> 00:02:01,760 Speaker 1: they preparing for a one months shutdown, a two months shutdown? 36 00:02:02,040 --> 00:02:03,800 Speaker 1: As you look at the numbers this morning, Tom, what 37 00:02:03,880 --> 00:02:06,520 Speaker 1: is that a bank preparing for? What kind of preparation 38 00:02:06,560 --> 00:02:09,440 Speaker 1: are they taking for a duation that lost the quarter, 39 00:02:09,800 --> 00:02:14,040 Speaker 1: two quarters slowdown that goes beyond that. So we were 40 00:02:14,120 --> 00:02:17,359 Speaker 1: looking for a loan loss provision of four billion dollars 41 00:02:17,360 --> 00:02:20,320 Speaker 1: in this quarter, and then and then increasing to something 42 00:02:20,360 --> 00:02:23,640 Speaker 1: more like maybe let's say twelve billion dollars in the 43 00:02:23,680 --> 00:02:27,200 Speaker 1: second quarter. So the question is how much of that 44 00:02:27,520 --> 00:02:30,960 Speaker 1: first half low loss provisioning happened in the first quarter 45 00:02:31,080 --> 00:02:33,800 Speaker 1: instead of in the second quarter. And I'll give you 46 00:02:33,840 --> 00:02:37,560 Speaker 1: another dimension that's not actually embedded in this press release 47 00:02:37,840 --> 00:02:41,040 Speaker 1: but should be talked about, which is what are the 48 00:02:41,080 --> 00:02:45,240 Speaker 1: credit losses that are expected over the cycle. If we're 49 00:02:45,280 --> 00:02:48,320 Speaker 1: going to do the global financial crisis again, then that 50 00:02:48,320 --> 00:02:51,120 Speaker 1: would be a very high single digit like let's say 51 00:02:51,200 --> 00:02:54,040 Speaker 1: you'd have eight percent of the loan portfolio would be 52 00:02:54,040 --> 00:02:57,320 Speaker 1: would be charged off over a period of several years. 53 00:02:58,240 --> 00:03:01,560 Speaker 1: We have been modeling something sort of maybe four percent 54 00:03:02,120 --> 00:03:05,280 Speaker 1: for this cycle. If it turns out to be something 55 00:03:05,400 --> 00:03:08,680 Speaker 1: more extended, then that I think that will change the 56 00:03:08,760 --> 00:03:12,120 Speaker 1: dynamic a little bit because everything that we've modeled with 57 00:03:12,160 --> 00:03:14,480 Speaker 1: more like a four percent, even up to a six 58 00:03:14,800 --> 00:03:18,080 Speaker 1: percent is something that could be well handled by the 59 00:03:18,160 --> 00:03:21,280 Speaker 1: capital base and the earnings power of the banks. And 60 00:03:21,280 --> 00:03:24,440 Speaker 1: and so I think that's the framework. Because this new 61 00:03:24,480 --> 00:03:29,000 Speaker 1: accounting provision, which is called CECIL, requires the banks to 62 00:03:29,360 --> 00:03:33,240 Speaker 1: provide for their expected credit losses over the life of 63 00:03:33,280 --> 00:03:37,120 Speaker 1: the loan that is very different than prior crisis where 64 00:03:37,120 --> 00:03:40,920 Speaker 1: banks met the losses more real time, and so that's 65 00:03:40,920 --> 00:03:42,880 Speaker 1: what the market has to understand. That's why I was 66 00:03:42,920 --> 00:03:45,720 Speaker 1: thinking my earlier comment that is this kind of a 67 00:03:45,760 --> 00:03:48,920 Speaker 1: go big moment for JP. Morgan ripped the band aid, 68 00:03:48,960 --> 00:03:50,960 Speaker 1: take a bigger provision. Let's get out ahead of this 69 00:03:51,120 --> 00:03:54,600 Speaker 1: because we're financially strong and we can or do they 70 00:03:54,640 --> 00:03:58,360 Speaker 1: see something that's changed their opinion about the credit cycle 71 00:03:58,800 --> 00:04:01,640 Speaker 1: over its entirety that we need to hear about. That's 72 00:04:01,640 --> 00:04:04,080 Speaker 1: what I'm looking for, and we'll get more color hopefully 73 00:04:04,080 --> 00:04:06,840 Speaker 1: on that at eight thirty Wall Street time when they 74 00:04:06,840 --> 00:04:10,440 Speaker 1: do have their press conference. Tom. I'm wondering going forward 75 00:04:10,880 --> 00:04:14,200 Speaker 1: whether you see this as a position of strength for 76 00:04:14,240 --> 00:04:18,040 Speaker 1: the banks to act counter cyclically, as John was saying, 77 00:04:18,279 --> 00:04:21,119 Speaker 1: and the idea with Betsy Gray sick of Morgan Stanley saying, 78 00:04:21,480 --> 00:04:24,039 Speaker 1: they actually stand to benefit on the other side of 79 00:04:24,080 --> 00:04:26,880 Speaker 1: this because they have these fortress balance sheets. Do you agree? 80 00:04:28,080 --> 00:04:30,839 Speaker 1: I do? I mean, I I'll pick on City Group 81 00:04:30,920 --> 00:04:35,279 Speaker 1: for a second, and I checked last night. At the 82 00:04:35,400 --> 00:04:38,919 Speaker 1: end of two thousand and seven, City Group had two 83 00:04:38,960 --> 00:04:43,800 Speaker 1: point six percent tangible common equity ratio. Today that numbers 84 00:04:43,839 --> 00:04:47,679 Speaker 1: around seven and a half percent. So that's that's north, 85 00:04:47,720 --> 00:04:51,000 Speaker 1: the two times that's north, the three times the capital 86 00:04:51,040 --> 00:04:54,520 Speaker 1: base at the core of the balance sheet plus liquidity 87 00:04:54,680 --> 00:04:58,960 Speaker 1: is far stronger. So I think this cycle, you know, 88 00:04:59,000 --> 00:05:02,080 Speaker 1: it's gonna it's gonna to be tested. But but the 89 00:05:02,120 --> 00:05:05,120 Speaker 1: banks are in a much better position to take charges 90 00:05:05,680 --> 00:05:08,560 Speaker 1: and move forward. So but again, that doesn't mean if 91 00:05:08,600 --> 00:05:11,120 Speaker 1: we get if we get a credit lost cycle like 92 00:05:11,200 --> 00:05:15,360 Speaker 1: the global financial crisis, then things could change. John farre 93 00:05:15,400 --> 00:05:18,320 Speaker 1: and Lisa Brown with with Thomas showed to Stephile KBW. 94 00:05:18,560 --> 00:05:20,440 Speaker 1: My name is Tom Keane. I just wandered in off 95 00:05:20,440 --> 00:05:29,040 Speaker 1: the question I got delayed. I was down Madison Avenues 96 00:05:29,120 --> 00:05:31,760 Speaker 1: at JP Morgan setting up a Christmas Club account. I 97 00:05:31,800 --> 00:05:36,320 Speaker 1: got a toaster at the end of December. If Christmas 98 00:05:36,320 --> 00:05:39,240 Speaker 1: club account, Thomas showed, you know, you just alluded to 99 00:05:39,279 --> 00:05:43,000 Speaker 1: the power of Fortress Diamond or Fortress balance sheet and 100 00:05:43,000 --> 00:05:45,679 Speaker 1: all that. I get it. How many other banks, though, 101 00:05:46,160 --> 00:05:49,360 Speaker 1: are like JP Morgan And the answer is not many. 102 00:05:49,400 --> 00:05:52,200 Speaker 1: Is this going to be a big deal across five 103 00:05:52,440 --> 00:05:55,320 Speaker 1: dred banks or six hundred banks, this new accounting provision 104 00:05:55,760 --> 00:06:00,479 Speaker 1: given the pandemic shock that they're really gonna have the 105 00:06:00,640 --> 00:06:06,360 Speaker 1: financial or balance sheet power that JP Morgan enjoys. Um, Look, 106 00:06:06,520 --> 00:06:11,520 Speaker 1: I think JP Morgan is it's good that they go 107 00:06:11,680 --> 00:06:14,800 Speaker 1: first generally, even though I think First Republic did just 108 00:06:14,880 --> 00:06:17,560 Speaker 1: report also, but even though it's good done, they're a 109 00:06:17,560 --> 00:06:21,159 Speaker 1: smaller regional bank but still in the SP five. But um, 110 00:06:21,200 --> 00:06:23,360 Speaker 1: I think it's good that JP Morgan goes first because, 111 00:06:23,400 --> 00:06:26,919 Speaker 1: like you said, they are a best in class balance 112 00:06:26,960 --> 00:06:30,440 Speaker 1: sheet as well as profitability. I think that there are 113 00:06:30,520 --> 00:06:34,440 Speaker 1: other banks that have about the same capital ratios as 114 00:06:34,520 --> 00:06:37,400 Speaker 1: JP Morgan, I'd say, in the same league. What other 115 00:06:37,480 --> 00:06:41,479 Speaker 1: banks don't have, tom is the pre tax pre provision 116 00:06:41,640 --> 00:06:44,920 Speaker 1: earnings power, and that is what's really it's we call 117 00:06:44,960 --> 00:06:47,880 Speaker 1: it the earning shield. So if you've got good levels 118 00:06:47,880 --> 00:06:51,720 Speaker 1: of profitability, you know you typically it drives returns for 119 00:06:51,800 --> 00:06:54,960 Speaker 1: your shareholders, but it also protects you in a downswing. 120 00:06:55,600 --> 00:06:58,800 Speaker 1: JP Morgan has that, whereas there are other banks that 121 00:06:58,960 --> 00:07:02,599 Speaker 1: just aren't as offittable is JP Morgan. And that's where 122 00:07:02,640 --> 00:07:05,360 Speaker 1: the gap is wider, at least of the CFA definition 123 00:07:05,440 --> 00:07:09,640 Speaker 1: for what Mr Michelle was just describing is called minting money. Yeah, well, 124 00:07:09,840 --> 00:07:13,320 Speaker 1: minting money and and and consolidating money. And that's actually 125 00:07:13,360 --> 00:07:16,040 Speaker 1: where I wanted to go because there is this feeling 126 00:07:16,360 --> 00:07:19,560 Speaker 1: that the biggest banks will get bigger in this crisis, 127 00:07:19,600 --> 00:07:22,520 Speaker 1: in this downturn, because they do have the wherewithal to 128 00:07:22,560 --> 00:07:25,160 Speaker 1: withstand this and even benefit on the other side. Tom, 129 00:07:25,160 --> 00:07:28,000 Speaker 1: how much do you see that happening. Oh, it's going 130 00:07:28,040 --> 00:07:31,240 Speaker 1: to come because well, well I'm not a believer that 131 00:07:31,360 --> 00:07:33,360 Speaker 1: the world's going to be turned upside down on the 132 00:07:33,360 --> 00:07:35,560 Speaker 1: back side of this. But you know, one of the 133 00:07:35,640 --> 00:07:39,440 Speaker 1: things we don't hear is complaints about people not able 134 00:07:39,440 --> 00:07:42,880 Speaker 1: to move funds or because of all the digital access. 135 00:07:42,920 --> 00:07:45,160 Speaker 1: So what this is. I think the studies that are 136 00:07:45,160 --> 00:07:47,920 Speaker 1: going to be most interesting to read afterwards is what 137 00:07:47,960 --> 00:07:51,200 Speaker 1: did bank customers do when they couldn't get to the bank. 138 00:07:51,640 --> 00:07:53,679 Speaker 1: The reality is that they did what they did before 139 00:07:53,720 --> 00:07:57,480 Speaker 1: the crisis, They used more digital and so banks that 140 00:07:57,640 --> 00:08:01,160 Speaker 1: have the digital capabilities I think are going to really 141 00:08:01,240 --> 00:08:04,000 Speaker 1: prove that they stood up really well for their clients. 142 00:08:04,360 --> 00:08:06,680 Speaker 1: And I think banks that didn't have it are going 143 00:08:06,680 --> 00:08:08,920 Speaker 1: to re examine it, and I think that could help 144 00:08:09,040 --> 00:08:12,120 Speaker 1: cause fuel for consolidation. The other thing is on the 145 00:08:12,160 --> 00:08:14,600 Speaker 1: back end of this, I expect that we're going to 146 00:08:14,720 --> 00:08:18,240 Speaker 1: have near zero interest rates for a while and if 147 00:08:18,280 --> 00:08:22,160 Speaker 1: you're a bank that is entirely spread dependent, meaning you 148 00:08:22,160 --> 00:08:26,280 Speaker 1: don't have other businesses, it's going to put huge pressure 149 00:08:26,280 --> 00:08:28,520 Speaker 1: on your earnings, and I think it could be a 150 00:08:28,640 --> 00:08:32,480 Speaker 1: driver for consolidation. So I would expect there to be 151 00:08:32,520 --> 00:08:35,360 Speaker 1: more consolidation on the back side of this. And I 152 00:08:35,440 --> 00:08:37,920 Speaker 1: wanted to get to another top point Tom you mentioned earlier, 153 00:08:37,920 --> 00:08:41,200 Speaker 1: which is not all banks will will perform equally here. 154 00:08:41,640 --> 00:08:44,880 Speaker 1: There will be some banks that will underperform and will 155 00:08:44,920 --> 00:08:48,000 Speaker 1: have bigger issues than others. So most of the time 156 00:08:48,000 --> 00:08:50,840 Speaker 1: when I'm talking, I'm talking about broadly, but there will 157 00:08:50,880 --> 00:08:52,840 Speaker 1: be a couple, I'm sure a couple of banks that 158 00:08:52,880 --> 00:08:56,199 Speaker 1: have a harder time during this cycle. It's great to 159 00:08:56,240 --> 00:08:59,280 Speaker 1: get views, especially in earning seas. It's Almo b w 160 00:08:59,440 --> 00:09:14,360 Speaker 1: the c E wanking on JP Maulkin numbers. Laurie Kelvasin 161 00:09:14,520 --> 00:09:17,440 Speaker 1: is in the trenches on this. She's at RBC does 162 00:09:17,480 --> 00:09:20,160 Speaker 1: some wonderful work on the equity markets. Laurie to me, 163 00:09:20,400 --> 00:09:24,080 Speaker 1: everybody's trying to get a bearing. They're trying to, you know, 164 00:09:24,160 --> 00:09:27,000 Speaker 1: get to use the sailing illusion to get the keel set, 165 00:09:27,120 --> 00:09:29,920 Speaker 1: get the sails set and move forward. How are you 166 00:09:30,000 --> 00:09:34,320 Speaker 1: doing that? What are you using to establish a bearing forward? 167 00:09:35,559 --> 00:09:37,760 Speaker 1: So you know, what I've told my team is that 168 00:09:37,800 --> 00:09:39,680 Speaker 1: we are just going to keep moving the ball forward. 169 00:09:39,679 --> 00:09:41,760 Speaker 1: We're going to keep running the numbers, and we're going 170 00:09:41,800 --> 00:09:44,040 Speaker 1: to adjust as needed. But we're trying not to get 171 00:09:44,080 --> 00:09:46,640 Speaker 1: too caught up in the headlines of the day. Um. 172 00:09:46,679 --> 00:09:49,040 Speaker 1: We're really trying to think longer term to the extent 173 00:09:49,080 --> 00:09:50,720 Speaker 1: that we can, and we're just trying to process new 174 00:09:50,760 --> 00:09:53,720 Speaker 1: information as it comes in. Now. I've been very focused 175 00:09:53,760 --> 00:09:56,600 Speaker 1: on things like my earnings model, not because I think 176 00:09:56,640 --> 00:09:58,439 Speaker 1: I'm going to get it perfect right now, but because 177 00:09:58,520 --> 00:10:00,760 Speaker 1: it helps me digesting in for nation as I come 178 00:10:00,800 --> 00:10:04,280 Speaker 1: in to really understand, you know, what I know about 179 00:10:04,280 --> 00:10:06,440 Speaker 1: this reporting season. I really need to understand what the 180 00:10:06,480 --> 00:10:08,120 Speaker 1: hits are going to be to margins. That's something I 181 00:10:08,120 --> 00:10:10,720 Speaker 1: have trouble modeling. If I don't go through the process 182 00:10:10,720 --> 00:10:12,439 Speaker 1: and try to get my numbers as good as I can, 183 00:10:12,760 --> 00:10:15,520 Speaker 1: I won't have that information that thought process ready to 184 00:10:15,520 --> 00:10:18,040 Speaker 1: go as I'm trying to digest this info. So Lori, 185 00:10:18,280 --> 00:10:20,440 Speaker 1: as you look at the new information as it comes 186 00:10:20,440 --> 00:10:23,240 Speaker 1: in this morning, it's from JP Morgan and Wells Fargo, 187 00:10:23,240 --> 00:10:26,040 Speaker 1: and I'm wondering what the lone loss provisions and any 188 00:10:26,080 --> 00:10:28,679 Speaker 1: color that we may get within ten minutes time from 189 00:10:28,760 --> 00:10:32,080 Speaker 1: Jamie Diamond of JP Morgan. How big of a hit 190 00:10:32,280 --> 00:10:36,479 Speaker 1: are you sort of gleaning from the lone loss provisions, etcetera. 191 00:10:37,320 --> 00:10:39,400 Speaker 1: Are you expecting to see sort of bleed out in 192 00:10:39,520 --> 00:10:43,040 Speaker 1: main street going forward? Well, you know, we we One 193 00:10:43,120 --> 00:10:46,200 Speaker 1: things we've talked about is the idea of collateral damage, 194 00:10:46,200 --> 00:10:48,319 Speaker 1: and I think where the banks can be particularly helpful. 195 00:10:48,360 --> 00:10:50,200 Speaker 1: To be honest, I'm not really so concerned about what 196 00:10:50,200 --> 00:10:53,000 Speaker 1: they're one Q numbers look like. I'm concerned about what 197 00:10:53,000 --> 00:10:55,960 Speaker 1: their read is on the economy, how they're handling their customers, 198 00:10:55,960 --> 00:10:58,880 Speaker 1: how they're stepping up to really support this economy going 199 00:10:58,960 --> 00:11:01,280 Speaker 1: forward on. That's really the kind of thing I'm going 200 00:11:01,320 --> 00:11:03,160 Speaker 1: to be listening for. The Other thing, frankly, I'm going 201 00:11:03,160 --> 00:11:05,160 Speaker 1: to be listening for is what companies, especially on the 202 00:11:05,160 --> 00:11:08,240 Speaker 1: financial services side, are doing with their dividends. What we've 203 00:11:08,240 --> 00:11:10,360 Speaker 1: seen the past few weeks is that companies are defending 204 00:11:10,360 --> 00:11:13,120 Speaker 1: their dividends sacrificing their share buy backs. I need that 205 00:11:13,160 --> 00:11:15,640 Speaker 1: dividend story to hold up to get retail investors back 206 00:11:15,640 --> 00:11:17,880 Speaker 1: into the equity market. Well, long, let's talk about it. 207 00:11:17,880 --> 00:11:19,920 Speaker 1: How vulnerable do you think those dividends are if this 208 00:11:20,040 --> 00:11:23,040 Speaker 1: lockdown goes on for let's say, through May into June. 209 00:11:23,800 --> 00:11:26,760 Speaker 1: So as we have looked back over the press releases, 210 00:11:26,880 --> 00:11:29,559 Speaker 1: the eight k's, and the early reporters that have come 211 00:11:29,600 --> 00:11:32,199 Speaker 1: in since March fifteenth, and we pick March fifteenth because 212 00:11:32,200 --> 00:11:34,200 Speaker 1: that's the day a lot of the banks came in 213 00:11:34,360 --> 00:11:37,160 Speaker 1: and cut their their buy backs. Um, what we keep 214 00:11:37,200 --> 00:11:40,240 Speaker 1: seeing is and is the idea that this crisis will 215 00:11:40,280 --> 00:11:43,120 Speaker 1: be transitory. I haven't been counting how many times I've 216 00:11:43,160 --> 00:11:45,800 Speaker 1: read the word transitory, but it keeps popping up, and 217 00:11:45,840 --> 00:11:47,719 Speaker 1: we see that in the context of some of those 218 00:11:47,720 --> 00:11:50,840 Speaker 1: companies who have been defending their dividends. So my sense 219 00:11:51,160 --> 00:11:53,400 Speaker 1: is that as long as this crisis is viewed as 220 00:11:53,400 --> 00:11:55,240 Speaker 1: is something that's going to last a quarter or two, 221 00:11:55,600 --> 00:11:57,600 Speaker 1: not really bleed into the second half of this year, 222 00:11:57,720 --> 00:12:00,000 Speaker 1: not really bleed into next year, I think the company 223 00:12:00,000 --> 00:12:02,240 Speaker 1: these are going to be comfortable trying to ride this 224 00:12:02,320 --> 00:12:04,760 Speaker 1: out and keep those dividends intact. If it looks like 225 00:12:04,800 --> 00:12:07,160 Speaker 1: this is going to be a longer bleed, then I 226 00:12:07,200 --> 00:12:09,680 Speaker 1: think we have to worry. So there's a new information 227 00:12:09,840 --> 00:12:13,320 Speaker 1: on the earning side, which we're getting with progressive speed 228 00:12:13,480 --> 00:12:16,400 Speaker 1: over this week and next. And then there's the positioning 229 00:12:16,440 --> 00:12:18,760 Speaker 1: that John is referring to earlier in this idea that 230 00:12:18,800 --> 00:12:21,520 Speaker 1: there does seem to be a capitulation with the Bank 231 00:12:21,520 --> 00:12:23,920 Speaker 1: of America Fund Manager survey coming out and saying that 232 00:12:23,960 --> 00:12:28,679 Speaker 1: there is extreme investor pessimism, the highest cash allocation, that 233 00:12:28,760 --> 00:12:32,240 Speaker 1: highest cash levels since nine eleven two and one. Do 234 00:12:32,280 --> 00:12:34,599 Speaker 1: you think that that's enough to provide a floor to 235 00:12:34,640 --> 00:12:38,560 Speaker 1: valuations or does this mean that perhaps people could get 236 00:12:38,559 --> 00:12:41,040 Speaker 1: surprised on the downside. Yeah, so I think that when 237 00:12:41,040 --> 00:12:43,280 Speaker 1: you're looking at any of these sentiment indicate there's whether 238 00:12:43,280 --> 00:12:45,280 Speaker 1: it's their survey, my survey, or some of the weekly 239 00:12:45,320 --> 00:12:46,719 Speaker 1: staffs that come out, you have to look at the 240 00:12:46,720 --> 00:12:49,480 Speaker 1: preponderance of the evidence cash levels going from five point 241 00:12:49,480 --> 00:12:51,720 Speaker 1: one to five point nine. Frankly, that doesn't tell me 242 00:12:51,760 --> 00:12:54,040 Speaker 1: all that much, and it flies in the face of 243 00:12:54,080 --> 00:12:56,480 Speaker 1: everything that my clients have been telling me since this 244 00:12:56,559 --> 00:12:59,080 Speaker 1: crisis began, which is that they have been looking for 245 00:12:59,120 --> 00:13:02,320 Speaker 1: opportunities to upgrade their portfolio by names would have been 246 00:13:02,320 --> 00:13:04,800 Speaker 1: on their shopping lift, and our trading desk has been busy. 247 00:13:05,160 --> 00:13:07,520 Speaker 1: So you know, I hear that I don't know exactly 248 00:13:07,559 --> 00:13:09,400 Speaker 1: who they're talking to or who they're surveying. But I'll 249 00:13:09,440 --> 00:13:12,000 Speaker 1: tell you it doesn't jive with what my conversations have been. 250 00:13:12,000 --> 00:13:14,240 Speaker 1: It also doesn't jive with what my investor servey that 251 00:13:14,280 --> 00:13:16,240 Speaker 1: I took at the end of March showed, which had 252 00:13:16,280 --> 00:13:19,400 Speaker 1: fifty eight percent of those who responded were bulls, and 253 00:13:19,440 --> 00:13:22,359 Speaker 1: that's the highest level of bullishness we've seen in three years. 254 00:13:22,400 --> 00:13:25,600 Speaker 1: That's more instance with my conversations. Now, other things we've 255 00:13:25,640 --> 00:13:28,360 Speaker 1: looked at our the CFTC data on US equity future 256 00:13:28,400 --> 00:13:32,360 Speaker 1: positioning and the a AII bears. Those did show that 257 00:13:32,559 --> 00:13:36,320 Speaker 1: levels of bearishness and pessimism were achieved, but not the 258 00:13:36,360 --> 00:13:39,000 Speaker 1: most extreme levels that we've seen in the past decade. 259 00:13:39,040 --> 00:13:42,120 Speaker 1: So CFTC never got back to the lows on equity 260 00:13:42,160 --> 00:13:45,199 Speaker 1: future positioning and a AII bears topped out of ground. 261 00:13:46,080 --> 00:13:48,640 Speaker 1: It got back to seventy percent in the financial crisis. 262 00:13:48,679 --> 00:13:50,920 Speaker 1: So I will say at best, you know, I think 263 00:13:50,920 --> 00:13:53,120 Speaker 1: that the sentiment picture is a bit mixed, but you know, 264 00:13:53,280 --> 00:13:55,720 Speaker 1: my work just really doesn't jive with that via a survey, 265 00:13:56,120 --> 00:13:58,400 Speaker 1: I got any other questions, laur Kelvicina, We don't know 266 00:13:58,480 --> 00:14:10,040 Speaker 1: the time, but this has been brilliant. I'm gonna break 267 00:14:10,040 --> 00:14:12,520 Speaker 1: the rule here. J Bryson is a wonderful economist with 268 00:14:12,559 --> 00:14:16,120 Speaker 1: a big broader view of course with Wells Fargo. But 269 00:14:16,160 --> 00:14:18,800 Speaker 1: I'm gonna go narrow right now, Jay, and I'm gonna 270 00:14:18,800 --> 00:14:23,840 Speaker 1: go forward to tomorrow, and arguably the first real look 271 00:14:23,880 --> 00:14:27,720 Speaker 1: we have besides horrific claims at this new American economy, 272 00:14:28,240 --> 00:14:31,680 Speaker 1: and that is a look at retail sales. Wells Fargo, 273 00:14:31,800 --> 00:14:35,800 Speaker 1: with the heritage of John Sylvia, is wonderful at parsing 274 00:14:36,080 --> 00:14:41,240 Speaker 1: retail America. What do you see right now, Well, it's 275 00:14:41,320 --> 00:14:43,200 Speaker 1: kind of a mixed bag, tom I mean, you know, 276 00:14:43,400 --> 00:14:46,720 Speaker 1: on you know, we know that things like restaurants and 277 00:14:47,240 --> 00:14:51,120 Speaker 1: hotels and things of that nature, all that very very 278 00:14:51,120 --> 00:14:54,200 Speaker 1: weak um. On the other hand, Uh, there's gonna be 279 00:14:54,240 --> 00:14:58,000 Speaker 1: a parcel offset, and I want to stress only parcel um. 280 00:14:58,040 --> 00:15:01,960 Speaker 1: You know, people serves to grocery stores and warehouses and 281 00:15:02,040 --> 00:15:05,440 Speaker 1: things like that to stock up in in um in March, 282 00:15:05,760 --> 00:15:08,720 Speaker 1: and so tomorrow's tomorrow will probably be a come on, 283 00:15:08,840 --> 00:15:11,360 Speaker 1: somewhat of a mixed bagage should be a big negative number. 284 00:15:11,640 --> 00:15:13,600 Speaker 1: But you know when when when we look at April, 285 00:15:14,320 --> 00:15:16,240 Speaker 1: when those numbers print a month from now I think 286 00:15:16,240 --> 00:15:19,840 Speaker 1: that's going to be even you know, weaker as well. Jay, 287 00:15:19,880 --> 00:15:22,800 Speaker 1: there's also a question, I mean, looking past retail sales. 288 00:15:22,840 --> 00:15:25,560 Speaker 1: The big number this week is Thursday, where we get 289 00:15:25,600 --> 00:15:29,880 Speaker 1: the next jobless claimed number. I am still absolutely dumb 290 00:15:29,960 --> 00:15:33,320 Speaker 1: struck that nearly one in ten Americans has lost their 291 00:15:33,440 --> 00:15:36,560 Speaker 1: job in the past three weeks. And I'm wondering what 292 00:15:36,600 --> 00:15:39,800 Speaker 1: you're expecting in terms of Thursday's number and how quickly 293 00:15:39,840 --> 00:15:42,520 Speaker 1: those jobs come back, given the fact that we are 294 00:15:42,560 --> 00:15:45,920 Speaker 1: seeing destruction that cannot be replaced when it comes to 295 00:15:45,960 --> 00:15:50,720 Speaker 1: going to restaurants, are going to hotels. Yeah, so last 296 00:15:50,760 --> 00:15:53,280 Speaker 1: week it was the number of six point six million. 297 00:15:53,520 --> 00:15:55,960 Speaker 1: I don't think we're gonna get quite that bad, although 298 00:15:55,960 --> 00:15:59,680 Speaker 1: it's gonna it'll be another in the millions. Um, you know, 299 00:15:59,760 --> 00:16:02,560 Speaker 1: our guests here is when it's all said and done, 300 00:16:02,920 --> 00:16:06,040 Speaker 1: you're gonna look, you're looking at somewhere north of twenty 301 00:16:06,040 --> 00:16:09,200 Speaker 1: million people who who will will be losing their jobs, 302 00:16:09,240 --> 00:16:12,040 Speaker 1: you know, and in you know, these these weeks, Um here, 303 00:16:12,760 --> 00:16:15,160 Speaker 1: how fast does it come back? And that you know, 304 00:16:15,240 --> 00:16:18,280 Speaker 1: it really depends on how quickly that the economy opens 305 00:16:18,320 --> 00:16:21,600 Speaker 1: back up again. And that's really that's the virus's schedule, 306 00:16:21,600 --> 00:16:24,120 Speaker 1: as Dr Fauci would would say, here and and and 307 00:16:24,160 --> 00:16:27,240 Speaker 1: so we'll see what happens there. You know, all these 308 00:16:27,560 --> 00:16:30,280 Speaker 1: programs have been put into place by the federal government, 309 00:16:30,320 --> 00:16:33,200 Speaker 1: by the Federal Reserve. It's acting as a bridge to 310 00:16:33,240 --> 00:16:36,920 Speaker 1: get not all, but many businesses from where they were 311 00:16:37,040 --> 00:16:41,320 Speaker 1: in February March to some time afterwards sometime late spring, 312 00:16:41,400 --> 00:16:44,920 Speaker 1: early summer. And so some businesses you know who are 313 00:16:44,960 --> 00:16:48,760 Speaker 1: still you know intact um maybe they're not. The restaurants 314 00:16:48,760 --> 00:16:51,680 Speaker 1: that aren't aren't open right now, but they will come back. 315 00:16:51,760 --> 00:16:53,520 Speaker 1: And you know, I think there's going to be a 316 00:16:53,600 --> 00:16:56,680 Speaker 1: pent up demand among people to go out and socialize 317 00:16:56,680 --> 00:16:59,960 Speaker 1: and things of that nature. You know, that said, we're 318 00:17:00,040 --> 00:17:05,880 Speaker 1: not going back to February come September. The unemployment rate 319 00:17:05,920 --> 00:17:09,800 Speaker 1: is not going back to three point five um this year. Um. 320 00:17:10,040 --> 00:17:11,879 Speaker 1: You know, our forecast goes out to the end of 321 00:17:11,960 --> 00:17:14,360 Speaker 1: next year and we still have the unemployment rate north 322 00:17:14,440 --> 00:17:17,120 Speaker 1: of six percent next year. You know, some of these 323 00:17:17,200 --> 00:17:21,960 Speaker 1: jobs that have been lost will be lost you know, forever. Um, 324 00:17:22,000 --> 00:17:24,439 Speaker 1: not all of them, but um, you know, some of 325 00:17:24,440 --> 00:17:26,639 Speaker 1: them will will be lost forever. Jay. For a lot 326 00:17:26,680 --> 00:17:29,240 Speaker 1: of our audience, they hear repeatedly, all of these different 327 00:17:29,240 --> 00:17:32,800 Speaker 1: forecasts coming from different places, including the IMF and yourself, 328 00:17:32,920 --> 00:17:35,800 Speaker 1: a Wells farco. Can you help me understand the basic 329 00:17:35,840 --> 00:17:39,440 Speaker 1: assumptions that underpin your forecast? What are the basic assumptions 330 00:17:39,440 --> 00:17:42,240 Speaker 1: around when an economy like the United States starts to 331 00:17:42,280 --> 00:17:47,479 Speaker 1: reopen again? Right? Okay, So our assumptions are we assume 332 00:17:47,520 --> 00:17:50,520 Speaker 1: that the economy is going to start to slowly reopen 333 00:17:51,040 --> 00:17:53,600 Speaker 1: late spring, early summer. So let's call it, you know, 334 00:17:53,680 --> 00:17:56,840 Speaker 1: sometimes the end of next month, um, you know, into 335 00:17:56,880 --> 00:18:02,159 Speaker 1: into June. We also assume crucial me that um and 336 00:18:02,720 --> 00:18:04,560 Speaker 1: let me let me back up. One of the reasons 337 00:18:04,600 --> 00:18:07,080 Speaker 1: that we assume that is that we get you know, 338 00:18:07,119 --> 00:18:10,240 Speaker 1: we flatten the curve, that we get control of this thing. 339 00:18:10,280 --> 00:18:13,920 Speaker 1: If that doesn't happen, then the rest of the forecast 340 00:18:13,960 --> 00:18:16,720 Speaker 1: justus falls apart. But you know, so we assume it 341 00:18:16,760 --> 00:18:19,800 Speaker 1: slowly starts to open up late spring, early summer, and 342 00:18:19,840 --> 00:18:23,480 Speaker 1: then crucially, we're also assuming it doesn't come back in 343 00:18:23,640 --> 00:18:27,959 Speaker 1: a quote meaningful way later this year. And again, if 344 00:18:28,040 --> 00:18:30,639 Speaker 1: that's incorrect, then the rest of the forecast kind of 345 00:18:30,720 --> 00:18:33,560 Speaker 1: kind of falls apart. And you know, John, Frankly, it's 346 00:18:33,600 --> 00:18:35,680 Speaker 1: a lot of this is guesswork at this point, and 347 00:18:36,040 --> 00:18:39,040 Speaker 1: educated guesswork, but it's guesswork. We we just don't have 348 00:18:39,080 --> 00:18:42,399 Speaker 1: a road map here. We've never seen anything like a 349 00:18:42,520 --> 00:18:46,480 Speaker 1: sudden stop too, and not only the United States economy 350 00:18:46,520 --> 00:18:48,919 Speaker 1: but to the global economy. So we're all kind of 351 00:18:48,960 --> 00:18:52,399 Speaker 1: flying blind when it comes to forecasting. So J just 352 00:18:52,480 --> 00:18:55,080 Speaker 1: sort of picking up on the I M F forecast. 353 00:18:55,240 --> 00:19:00,480 Speaker 1: With the worst recession since the Great Depression, how is 354 00:19:00,520 --> 00:19:03,160 Speaker 1: it that we do see another depression given the fact 355 00:19:03,760 --> 00:19:07,280 Speaker 1: that that bounce back looks less and less likely the 356 00:19:07,359 --> 00:19:13,399 Speaker 1: longer this drags on. So I think my sense is 357 00:19:14,080 --> 00:19:16,120 Speaker 1: talk about a Great Depression, I think that's a little 358 00:19:16,119 --> 00:19:19,400 Speaker 1: bit overblown. I mean, the recession of nineteen twenty nine 359 00:19:19,520 --> 00:19:23,600 Speaker 1: nineteen thirty turned into the Great Depression because of an 360 00:19:23,680 --> 00:19:27,719 Speaker 1: utter failure of policy. The Federal Reserve did not do 361 00:19:27,800 --> 00:19:30,719 Speaker 1: its job as lender of last resort um, and so 362 00:19:30,800 --> 00:19:34,320 Speaker 1: the banking system collapsed in the early nineteen thirties, credit 363 00:19:34,440 --> 00:19:36,840 Speaker 1: dried up, and and you know, hundreds of thousands, of 364 00:19:36,880 --> 00:19:39,640 Speaker 1: not billions, of businesses went out of business, and that's 365 00:19:39,640 --> 00:19:42,000 Speaker 1: how you got the Great Depression. Plus the fact that 366 00:19:42,960 --> 00:19:47,600 Speaker 1: fiscal policy didn't really turn stimulative until nineteen thirty four 367 00:19:48,119 --> 00:19:50,840 Speaker 1: with you know, the some of the New Deal sort 368 00:19:50,840 --> 00:19:57,040 Speaker 1: of programs. This time around, policy has been very proactive, 369 00:19:57,160 --> 00:19:59,919 Speaker 1: right The Federal Reserve has just opened up the tabs 370 00:20:00,440 --> 00:20:05,040 Speaker 1: to keep all sorts of different financial markets liquefied. UH 371 00:20:05,160 --> 00:20:08,960 Speaker 1: Fiscal policy has also turned very, very stimulated. The banking 372 00:20:09,000 --> 00:20:13,159 Speaker 1: system today is much better capitalized than than it's certainly 373 00:20:13,160 --> 00:20:15,040 Speaker 1: in my lifetime and probably back there in the Great 374 00:20:15,080 --> 00:20:19,240 Speaker 1: Depression or in the nineteen twenties. And so I think 375 00:20:19,280 --> 00:20:21,800 Speaker 1: the way you potentially could get to a great depression 376 00:20:22,080 --> 00:20:25,920 Speaker 1: is if this virus comes roaring back again in the fall, 377 00:20:26,040 --> 00:20:27,800 Speaker 1: not only in the United States but in the rest 378 00:20:27,840 --> 00:20:31,000 Speaker 1: of the world, and then all these measures we put 379 00:20:31,040 --> 00:20:35,240 Speaker 1: in place up to now, Um, you guys got to 380 00:20:35,240 --> 00:20:38,800 Speaker 1: do it all. Jay is a job at Amazon, A 381 00:20:38,880 --> 00:20:41,320 Speaker 1: real job, I mean is an economist. When you look 382 00:20:41,359 --> 00:20:44,120 Speaker 1: at a hundred thousand jobs created, and I believe yesterday 383 00:20:44,160 --> 00:20:46,680 Speaker 1: Basis and Company, so they're gonna go out and find 384 00:20:46,680 --> 00:20:50,600 Speaker 1: another seventy five thousand warm bodies to do the Amazon thing. 385 00:20:51,040 --> 00:20:56,000 Speaker 1: Are those quote unquote good jobs. Well, I'm not gonna 386 00:20:56,000 --> 00:20:58,520 Speaker 1: opine on whether they're quote good jobs or not. I mean, 387 00:20:58,560 --> 00:21:01,160 Speaker 1: I I don't know about how much they're getting paid 388 00:21:01,160 --> 00:21:03,719 Speaker 1: in the benefits and things of that nature. But you know, 389 00:21:04,000 --> 00:21:06,680 Speaker 1: they are create they are creating income, They are creating 390 00:21:06,680 --> 00:21:11,000 Speaker 1: a service for people. Um. And whether or not people 391 00:21:11,080 --> 00:21:15,680 Speaker 1: decided to buy goods online via Amazon or at their 392 00:21:15,760 --> 00:21:20,160 Speaker 1: local retailer. You know, in some sense, I don't really care. 393 00:21:20,240 --> 00:21:23,639 Speaker 1: It's it's it's a job. It creates income, um, it 394 00:21:23,760 --> 00:21:28,040 Speaker 1: creates value in the economy. So um. You know, again, 395 00:21:28,080 --> 00:21:31,040 Speaker 1: I don't know anything about the level of wages and 396 00:21:31,240 --> 00:21:34,000 Speaker 1: benefits that those jobs pay, but yeah, they're they're they're 397 00:21:34,040 --> 00:21:38,280 Speaker 1: certainly jobs with you always sposed to hear from me, 398 00:21:38,359 --> 00:21:40,960 Speaker 1: ja ja. We always refer to as the acting chief economists. 399 00:21:41,040 --> 00:21:43,000 Speaker 1: Can you tell your manager that if they aren't getting 400 00:21:43,000 --> 00:21:44,560 Speaker 1: this done soon, we're just gonna start calling me the 401 00:21:44,640 --> 00:21:49,560 Speaker 1: chief economists at Wells Falco Talent. They've got a month. Yeah, 402 00:21:49,560 --> 00:21:51,320 Speaker 1: I'll say, I'll send the t on the tape of 403 00:21:51,359 --> 00:21:55,560 Speaker 1: this to him, John, I did. I looked at the 404 00:21:55,600 --> 00:21:58,520 Speaker 1: Amazon job. I believe it's seventeen dollars an hour, which 405 00:21:58,520 --> 00:22:02,040 Speaker 1: is thirty five dollars. You're sort of like a run, right, 406 00:22:02,080 --> 00:22:04,120 Speaker 1: And these are the people that we now say are essential. 407 00:22:04,359 --> 00:22:07,000 Speaker 1: So if we're gonna call them essential. Now. I think 408 00:22:07,000 --> 00:22:09,640 Speaker 1: that after this fight, I need to come back and say, well, 409 00:22:09,680 --> 00:22:22,040 Speaker 1: you guys think essential, let's start seeing some of that money. 410 00:22:24,119 --> 00:22:26,760 Speaker 1: Harry Chow and Durion with us who bmp Perry bout 411 00:22:26,840 --> 00:22:33,080 Speaker 1: with truly decades of exposure, Harry, what is the symbolism 412 00:22:33,080 --> 00:22:39,680 Speaker 1: of Western Canada hardesty closing under four dollars a barrel yesterday, 413 00:22:39,800 --> 00:22:43,080 Speaker 1: right on the cusp of a record low. What is 414 00:22:43,119 --> 00:22:47,560 Speaker 1: the symbolism of that in this conundrum of tanks up 415 00:22:47,600 --> 00:22:49,919 Speaker 1: to the rim? I mean, what is that signal to 416 00:22:49,960 --> 00:22:54,600 Speaker 1: a guy like you. Well, certainly signals that dropped in 417 00:22:54,640 --> 00:22:58,399 Speaker 1: the US refinding activity, especially in the Mid Continent, dropped 418 00:22:58,400 --> 00:23:01,560 Speaker 1: in US refinding activity on a Gulf coast. These are 419 00:23:01,720 --> 00:23:04,879 Speaker 1: really the hard lands of US refining, and it's just 420 00:23:05,119 --> 00:23:08,240 Speaker 1: the broader reflection of a big decline and demand for 421 00:23:08,280 --> 00:23:11,280 Speaker 1: oil products unless we end up with these prices of 422 00:23:11,320 --> 00:23:14,000 Speaker 1: oil that are severely discounted to the benchmarks in the 423 00:23:14,000 --> 00:23:18,080 Speaker 1: case of regional markets like Canada, Harry, I'm struggling to 424 00:23:18,160 --> 00:23:21,560 Speaker 1: understand the path forward. The idea that these production cuts 425 00:23:21,600 --> 00:23:24,480 Speaker 1: that were agreed upon, you know, for put of enforcement 426 00:23:24,640 --> 00:23:27,840 Speaker 1: and compliance to the side these cuts that were agreed upon, 427 00:23:27,880 --> 00:23:31,680 Speaker 1: almost ten million barrels a day in production cuts. They're 428 00:23:31,720 --> 00:23:35,080 Speaker 1: set to go into effect on May one. A lot 429 00:23:35,080 --> 00:23:36,960 Speaker 1: of people say that they probably won't go into effect 430 00:23:37,000 --> 00:23:39,640 Speaker 1: until June, just because of barrels that have already been 431 00:23:39,640 --> 00:23:43,600 Speaker 1: sold in the futures market for May. How much does 432 00:23:43,600 --> 00:23:47,240 Speaker 1: this actually change the equation when it comes to much 433 00:23:47,280 --> 00:23:51,520 Speaker 1: lower oil prices in the very near future. Well, I 434 00:23:51,560 --> 00:23:55,560 Speaker 1: think that's a really valid point between the time of uh, 435 00:23:55,600 --> 00:24:00,160 Speaker 1: you know, intending an agreeing production cut and the physical 436 00:24:00,240 --> 00:24:02,880 Speaker 1: implementation of that. It's going to take some time. So 437 00:24:02,920 --> 00:24:06,480 Speaker 1: even as these cuts are for effective made the first 438 00:24:07,000 --> 00:24:08,880 Speaker 1: it's not going to be till later that we see 439 00:24:08,880 --> 00:24:11,840 Speaker 1: reductions happening. So this is why that gets the market, 440 00:24:11,920 --> 00:24:15,160 Speaker 1: especially at the front of the curve, is being extremely 441 00:24:15,200 --> 00:24:19,560 Speaker 1: cautious because we're not really addressing the demand decline through 442 00:24:19,600 --> 00:24:22,880 Speaker 1: these cuts in the very short term. So it's only 443 00:24:22,920 --> 00:24:24,679 Speaker 1: going to be, you know, by the end of the 444 00:24:24,760 --> 00:24:27,960 Speaker 1: year that we're really going to see effect of these cuts, 445 00:24:28,080 --> 00:24:31,600 Speaker 1: especially when we have a demand that has been locked down, 446 00:24:31,880 --> 00:24:35,800 Speaker 1: unleashed with the progressive lifting of continent measures and other 447 00:24:35,920 --> 00:24:39,960 Speaker 1: social distancing. Harry, I'm looking right now was Texas prices 448 00:24:40,080 --> 00:24:43,320 Speaker 1: at one dollar ninety two cents a barrel, plus or 449 00:24:43,320 --> 00:24:45,560 Speaker 1: minus a few cents here there. I was looking at 450 00:24:45,600 --> 00:24:50,800 Speaker 1: projections saying that of us shall companies will go bankrupt 451 00:24:50,840 --> 00:24:53,080 Speaker 1: if prices don't get back up to three dollars a 452 00:24:53,119 --> 00:24:56,399 Speaker 1: barrel or beyond in the near future. How likely is 453 00:24:56,440 --> 00:25:00,440 Speaker 1: it that those projections are going to come to pass? Well, 454 00:25:00,440 --> 00:25:03,160 Speaker 1: I guess two things to consider there. A certain number 455 00:25:03,160 --> 00:25:06,280 Speaker 1: of these companies are actually hedged for their production, but 456 00:25:06,400 --> 00:25:09,800 Speaker 1: those that are not, probably the smaller players, will face difficulties. 457 00:25:10,200 --> 00:25:13,760 Speaker 1: Typically the break even oil price in the Permian base 458 00:25:13,840 --> 00:25:17,400 Speaker 1: and the drives US shales supply growth that break even 459 00:25:17,480 --> 00:25:21,320 Speaker 1: prices closer to forty dollars, So I guess that's one 460 00:25:21,359 --> 00:25:23,800 Speaker 1: of the aspects. The other thing, of course, is the 461 00:25:23,840 --> 00:25:26,520 Speaker 1: banks that do fund a lot of these highly leveraged companies. 462 00:25:26,560 --> 00:25:28,639 Speaker 1: The question is what are they going to do? And 463 00:25:28,680 --> 00:25:31,080 Speaker 1: I think that we're going to probably see, especially in 464 00:25:31,119 --> 00:25:34,920 Speaker 1: these extraordinary times, is that banks will probably want to 465 00:25:35,080 --> 00:25:36,880 Speaker 1: at least try to keep on board some of these 466 00:25:36,920 --> 00:25:40,359 Speaker 1: companies restructured debt and and and try to wait till 467 00:25:40,359 --> 00:25:42,640 Speaker 1: the end of the year when the oil prices rise 468 00:25:43,160 --> 00:25:45,000 Speaker 1: let's explore this question a bit further, because I think 469 00:25:45,000 --> 00:25:48,160 Speaker 1: it's really important, Harry, what Lisa asked. We've been reflecting 470 00:25:48,200 --> 00:25:52,359 Speaker 1: on cutting supply, cutting output in places like Sally Arabia, Russia, 471 00:25:52,359 --> 00:25:55,360 Speaker 1: and nolsewhere we've not been thinking about taking out capacity. 472 00:25:55,800 --> 00:25:59,040 Speaker 1: Even when this economy normalizes, these things won't pick up again. 473 00:25:59,400 --> 00:26:02,280 Speaker 1: Your thoughts on that taking out supply versus taking out 474 00:26:02,320 --> 00:26:06,880 Speaker 1: actual capacity in the United States? M Well, I think 475 00:26:06,920 --> 00:26:09,400 Speaker 1: the answer really interesting question because when you look at 476 00:26:10,040 --> 00:26:13,720 Speaker 1: now the expectations for market driven declines in production and 477 00:26:13,840 --> 00:26:17,560 Speaker 1: possible shut ins, there are two things to consider, conventional 478 00:26:17,560 --> 00:26:21,120 Speaker 1: production and what would be short cycle non conventional US 479 00:26:21,160 --> 00:26:23,720 Speaker 1: shale production. Because if you think of a place like 480 00:26:23,840 --> 00:26:28,800 Speaker 1: Canada or Brazil, shutting down production is extremely costly, whereas 481 00:26:29,000 --> 00:26:31,960 Speaker 1: uh in contrast, in the US, I guess that the 482 00:26:32,000 --> 00:26:34,800 Speaker 1: oil market is what economists would call more contestable. You 483 00:26:34,840 --> 00:26:37,000 Speaker 1: could get in and out at a lower costs, you 484 00:26:37,000 --> 00:26:39,720 Speaker 1: don't have as much sunk capital in it. So I 485 00:26:39,720 --> 00:26:41,800 Speaker 1: would think that you know, if you do have shut 486 00:26:41,800 --> 00:26:45,119 Speaker 1: ins and conventional production around the world, that may be 487 00:26:45,720 --> 00:26:48,600 Speaker 1: more difficult to bring that capacity back in, whereas in 488 00:26:48,640 --> 00:26:51,840 Speaker 1: the US just the very nature of US shale law, 489 00:26:52,680 --> 00:26:56,840 Speaker 1: it could bounce back rapidly. Now, folks, a dumb surveillance 490 00:26:56,920 --> 00:26:59,840 Speaker 1: question of the day. I'll ask it, Harry. When we 491 00:27:00,119 --> 00:27:03,880 Speaker 1: say people cheat, what do they actually do? I mean 492 00:27:04,240 --> 00:27:08,399 Speaker 1: when great cheats? Are the United States cheats? When you 493 00:27:08,480 --> 00:27:11,040 Speaker 1: hear that phrase, what's it mean in the oil world? 494 00:27:12,880 --> 00:27:16,200 Speaker 1: But I think really the the optics of cheating are 495 00:27:16,280 --> 00:27:19,280 Speaker 1: down to the fact that trying to measure that country's 496 00:27:19,320 --> 00:27:21,720 Speaker 1: production and see whether or not that country has been 497 00:27:21,760 --> 00:27:25,560 Speaker 1: reducing production in relation to a reference level or baseline 498 00:27:25,640 --> 00:27:28,720 Speaker 1: level that has been decided during meetings such as the 499 00:27:28,760 --> 00:27:32,200 Speaker 1: Old Plus meetings. It's hard to say that the US 500 00:27:32,320 --> 00:27:35,800 Speaker 1: cheats because in effect, you're not mandating a cut for 501 00:27:35,960 --> 00:27:39,520 Speaker 1: US producers. The cuts will be market driven. So it's 502 00:27:39,560 --> 00:27:41,520 Speaker 1: not a question of cheating here. It's a question of 503 00:27:41,560 --> 00:27:44,760 Speaker 1: economics and whether or not, you know, companies are responding 504 00:27:44,800 --> 00:27:47,879 Speaker 1: to those economics flashing caps for example, and so on. 505 00:27:48,200 --> 00:27:50,880 Speaker 1: So the cheating aspect is really an issue of optics 506 00:27:50,920 --> 00:27:55,680 Speaker 1: relative to measuring a country's production versus what it's I mean, 507 00:27:55,680 --> 00:27:58,440 Speaker 1: this is important. Lesa asked the brilliant question. John asked, 508 00:27:58,480 --> 00:28:01,640 Speaker 1: almost as brilliant question. I'll follow up with the dumb question, 509 00:28:02,200 --> 00:28:05,040 Speaker 1: which is which is just simple, what do you predict 510 00:28:05,840 --> 00:28:08,639 Speaker 1: on a price per barrel of all this? We're twenty 511 00:28:08,640 --> 00:28:12,280 Speaker 1: two dollars was Texas Intermediate? You said forty dollars? Is 512 00:28:12,280 --> 00:28:18,400 Speaker 1: where they click in what happens between twenty two and forty. Well, 513 00:28:18,480 --> 00:28:22,199 Speaker 1: again we're back to which companies actually have had some 514 00:28:22,320 --> 00:28:24,240 Speaker 1: of their production this year, and of course they would 515 00:28:24,240 --> 00:28:27,520 Speaker 1: have hedged that at prices closer to fifty five or 516 00:28:27,560 --> 00:28:31,040 Speaker 1: fifty dollars on a w t I basis, But there 517 00:28:31,080 --> 00:28:33,200 Speaker 1: are going to be a number of small shale players 518 00:28:33,240 --> 00:28:35,800 Speaker 1: that will suffer, and some of them will and he'd 519 00:28:35,800 --> 00:28:39,240 Speaker 1: have to close down. So in that respect, we will 520 00:28:39,320 --> 00:28:42,760 Speaker 1: have both declients and production motivated by the fact that 521 00:28:42,800 --> 00:28:45,520 Speaker 1: there's a lot less capex, so you're not going to 522 00:28:45,560 --> 00:28:48,560 Speaker 1: be drilling to sustain your production as much. And then 523 00:28:48,600 --> 00:28:51,800 Speaker 1: there's gonna be the the economics of the smaller companies 524 00:28:52,040 --> 00:28:55,320 Speaker 1: that may force their their closure. So these are the 525 00:28:55,320 --> 00:28:58,760 Speaker 1: two dynamics in the case of US shale. Hi Henry 526 00:28:59,040 --> 00:29:00,920 Speaker 1: was quite scay thoughts on this program, Harry Child and 527 00:29:00,920 --> 00:29:07,200 Speaker 1: go in that BMP paraplehead of Commodity Research, thanks for 528 00:29:07,280 --> 00:29:11,680 Speaker 1: listening to the Bloomberg Surveillance Podcast. Subscribe and listen to 529 00:29:11,840 --> 00:29:17,600 Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 530 00:29:18,120 --> 00:29:21,480 Speaker 1: I'm on Twitter at Tom Keene before the podcast. You 531 00:29:21,520 --> 00:29:24,920 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio