1 00:00:00,040 --> 00:00:01,880 Speaker 1: I guess the good news is oil can only go 2 00:00:02,040 --> 00:00:04,360 Speaker 1: so low. It can only go as low zero right. 3 00:00:09,560 --> 00:00:11,400 Speaker 1: This episode is brought to you by nat X, the 4 00:00:11,560 --> 00:00:14,880 Speaker 1: Binary Options exchange. Binary options let you limit your risk 5 00:00:15,080 --> 00:00:17,880 Speaker 1: and trade stock in dissees, commodities for x and more 6 00:00:17,920 --> 00:00:21,200 Speaker 1: from a single account. Nat X is a CFTC regulated 7 00:00:21,239 --> 00:00:26,000 Speaker 1: exchange with transparency, free market data, and fairness guaranteed. The 8 00:00:26,079 --> 00:00:28,560 Speaker 1: future of trading is here now at n A d 9 00:00:28,600 --> 00:00:31,760 Speaker 1: e x, dot com futures, options and spots. Trading involves 10 00:00:31,880 --> 00:00:40,640 Speaker 1: risk and may not be appropriate for all investors. Hi, 11 00:00:40,720 --> 00:00:44,199 Speaker 1: and welcome back to Bloomberg Benchmarket podcast about the global economy. 12 00:00:44,440 --> 00:00:49,120 Speaker 1: It is Thursday January. I'm Tori Stillwell and economics reporter 13 00:00:49,159 --> 00:00:51,800 Speaker 1: with Bloomberg News in d C. And I'm joined by 14 00:00:51,840 --> 00:00:54,720 Speaker 1: my co host, Dan Moss, our executive editor for Global 15 00:00:54,760 --> 00:00:57,760 Speaker 1: Economics in New York. He Dan, Hi, Tori, it's been 16 00:00:57,800 --> 00:01:01,160 Speaker 1: a while. I know this is your first episode back 17 00:01:01,280 --> 00:01:04,920 Speaker 1: since liber Beer. That's right, I've been on paternity leave, 18 00:01:05,080 --> 00:01:08,240 Speaker 1: which was the subject of one of our final podcasts 19 00:01:08,280 --> 00:01:11,479 Speaker 1: before she was born. And yes, it's true we named 20 00:01:11,480 --> 00:01:17,640 Speaker 1: her Victoria. And how is Victoria doing? Last night? She 21 00:01:17,840 --> 00:01:21,520 Speaker 1: was pretty active I'm hoping for a better outcome tonight. 22 00:01:22,120 --> 00:01:24,520 Speaker 1: When what does an active baby look like? Just like 23 00:01:25,480 --> 00:01:31,480 Speaker 1: just rolling around a lot? This is a euphemism for 24 00:01:31,600 --> 00:01:36,080 Speaker 1: how well is the baby sleeping between say, eleven PM 25 00:01:36,200 --> 00:01:41,080 Speaker 1: and five am. I see well today, Dan, I want 26 00:01:41,120 --> 00:01:43,959 Speaker 1: to talk about oil, and I think that it's been 27 00:01:44,040 --> 00:01:47,800 Speaker 1: impossible for us at least two escape headlines about low 28 00:01:47,960 --> 00:01:51,280 Speaker 1: or falling oil prices. We're hearing a lot about how 29 00:01:51,320 --> 00:01:55,640 Speaker 1: they're contributing to the stock market declines or at least volatility. 30 00:01:55,880 --> 00:01:59,400 Speaker 1: Energy companies are also in some serious earning trouble thanks 31 00:01:59,440 --> 00:02:02,680 Speaker 1: to the oil slump, and it may weigh on inflation 32 00:02:02,760 --> 00:02:06,120 Speaker 1: as well. So let me give our listeners some specifics. 33 00:02:06,160 --> 00:02:09,640 Speaker 1: In June, which is important. Day will reference it a 34 00:02:09,639 --> 00:02:12,839 Speaker 1: couple of times in this episode. Oil was trading at 35 00:02:12,880 --> 00:02:16,480 Speaker 1: over a hundred dollars a barrel, then it started going down, 36 00:02:16,880 --> 00:02:19,520 Speaker 1: and now it's at just over thirty dollars a barrel. 37 00:02:19,919 --> 00:02:24,000 Speaker 1: Last week it touched the lowest levels since two thousand three, 38 00:02:24,080 --> 00:02:26,960 Speaker 1: at around twenty seven dollars a barrel. So how do 39 00:02:27,040 --> 00:02:30,000 Speaker 1: we get here? It's a classic instance of supply and 40 00:02:30,040 --> 00:02:34,120 Speaker 1: demand at work, right, Dan, and several explanations have been advanced. 41 00:02:34,200 --> 00:02:37,839 Speaker 1: For what's affecting that classic supply and demand right now. 42 00:02:38,280 --> 00:02:41,840 Speaker 1: We've heard people talk about a slowdown in economic growth 43 00:02:41,840 --> 00:02:44,080 Speaker 1: in China, though I have to say that's not a 44 00:02:44,120 --> 00:02:49,400 Speaker 1: particularly super news story. We've heard people talk about how 45 00:02:49,440 --> 00:02:54,160 Speaker 1: OPEC no longer packs the punch as a cartel controlling 46 00:02:54,200 --> 00:02:58,200 Speaker 1: prices that it used to. Again, not necessarily a super 47 00:02:58,240 --> 00:03:02,799 Speaker 1: news story. And we've also heard some discussion about Iran 48 00:03:03,240 --> 00:03:06,960 Speaker 1: re entering the global oil market that is more recent. 49 00:03:07,280 --> 00:03:10,360 Speaker 1: It's also a production story. We've just got too much oil. 50 00:03:10,400 --> 00:03:12,240 Speaker 1: We don't know what to do with it all. There's 51 00:03:12,280 --> 00:03:15,119 Speaker 1: been higher production here in the US thanks to new 52 00:03:15,160 --> 00:03:20,160 Speaker 1: technologies like fracking, etcetera. Um as damaged OPEC has also 53 00:03:20,200 --> 00:03:24,680 Speaker 1: been playing a role. They haven't tamped down production to 54 00:03:24,720 --> 00:03:28,480 Speaker 1: sort of get more adjusted to the new price dynamics 55 00:03:28,520 --> 00:03:30,960 Speaker 1: that we're seeing. They want to maintain that market share, 56 00:03:31,000 --> 00:03:35,080 Speaker 1: so they are continuing to pump out oil um And 57 00:03:35,240 --> 00:03:38,280 Speaker 1: there's also been a mild winter here in the Northern Hemisphere. 58 00:03:38,360 --> 00:03:42,880 Speaker 1: And again, growth prospects for the global economy, as Dan mentioned, 59 00:03:43,600 --> 00:03:47,760 Speaker 1: major emerging market economies may have weaker growth prospects. That's 60 00:03:47,760 --> 00:03:51,280 Speaker 1: something to keep an eye onto and for all these reasons. 61 00:03:51,320 --> 00:03:55,840 Speaker 1: The World Bank just lowered its forecast for crude oil 62 00:03:55,880 --> 00:03:59,560 Speaker 1: prices to thirty seven dollars per bail. That's down from 63 00:03:59,680 --> 00:04:03,280 Speaker 1: fifth d one dollars in its October projection, so already 64 00:04:03,320 --> 00:04:07,400 Speaker 1: they've had to go in and revise that. Now. Normally, 65 00:04:07,560 --> 00:04:10,840 Speaker 1: cheap oil has been viewed as unambiguously good for the 66 00:04:10,920 --> 00:04:14,240 Speaker 1: US economy. Sure it may hurt producers when oil prices 67 00:04:14,320 --> 00:04:17,560 Speaker 1: dropped because it makes their operations less profitable, but what 68 00:04:17,760 --> 00:04:21,840 Speaker 1: they lose the consumer gets for one oil is an 69 00:04:21,880 --> 00:04:25,320 Speaker 1: input into a lot of other manufactured goods, so the 70 00:04:25,360 --> 00:04:27,560 Speaker 1: prices of those things could drop or at least not 71 00:04:27,640 --> 00:04:31,040 Speaker 1: go up. Airlines can afford to let prices for flight 72 00:04:31,080 --> 00:04:34,560 Speaker 1: strifted a little lower if competition warrants it. Household heating 73 00:04:34,640 --> 00:04:38,200 Speaker 1: costs can be lower, and most notably, gas prices can 74 00:04:38,320 --> 00:04:42,360 Speaker 1: drop a lot. In Gas prices peaked for the year 75 00:04:42,400 --> 00:04:45,440 Speaker 1: in April when they reached an averaged three dollars and 76 00:04:45,560 --> 00:04:50,440 Speaker 1: seventy cents a gallon for regular gasoline. Since then, it's 77 00:04:50,480 --> 00:04:53,080 Speaker 1: been almost a straight line down. There's a small rebound 78 00:04:53,080 --> 00:04:56,559 Speaker 1: in mid but now they fall into a dollar eighty 79 00:04:56,640 --> 00:04:59,080 Speaker 1: three gallon, so literally half of what they were at 80 00:04:59,080 --> 00:05:03,200 Speaker 1: back in April. Now, because of these factors, when oil 81 00:05:03,279 --> 00:05:09,000 Speaker 1: prices started to head south in mid many economists thought, great, 82 00:05:09,200 --> 00:05:12,400 Speaker 1: this will be a boon to economic growth. Then the 83 00:05:12,560 --> 00:05:18,240 Speaker 1: energy industry started slashing jobs, cutting investment, and still prices fell. 84 00:05:18,760 --> 00:05:21,960 Speaker 1: But consumer spending, they said, don't worry, that'll take up 85 00:05:21,960 --> 00:05:24,440 Speaker 1: more of the slack. And it looks like it did 86 00:05:24,520 --> 00:05:28,599 Speaker 1: help somewhat. Consumers spent more on eating out. There were 87 00:05:28,640 --> 00:05:31,359 Speaker 1: a couple of months last year we're spending really popped. 88 00:05:31,400 --> 00:05:35,279 Speaker 1: But for the most parts, spending took a down step 89 00:05:35,839 --> 00:05:41,880 Speaker 1: last year compared to certainly not the big game that 90 00:05:41,960 --> 00:05:45,280 Speaker 1: many observers were expecting. And what's more, the savings rate 91 00:05:45,800 --> 00:05:49,520 Speaker 1: actually increased. So not only do they not spent, they 92 00:05:49,560 --> 00:05:52,800 Speaker 1: say in October it rows for three year high five 93 00:05:52,880 --> 00:05:55,640 Speaker 1: point six. It doesn't sound like much, but we are 94 00:05:55,720 --> 00:05:59,840 Speaker 1: talking about a massive population here, and in November, which 95 00:05:59,880 --> 00:06:02,239 Speaker 1: is the latest data we have, it was five point 96 00:06:02,279 --> 00:06:05,719 Speaker 1: five pretty close to that level, right, And that compares 97 00:06:05,800 --> 00:06:10,640 Speaker 1: to four point eight percent back into June when those 98 00:06:10,680 --> 00:06:13,600 Speaker 1: oil prices really started to fall. So this doesn't make 99 00:06:13,640 --> 00:06:17,000 Speaker 1: a ton of sense. When did Americans become so thrifty? 100 00:06:17,080 --> 00:06:19,680 Speaker 1: We do not save money. We spend our money, we 101 00:06:19,720 --> 00:06:22,039 Speaker 1: spend all of it. We don't we don't think about 102 00:06:22,080 --> 00:06:27,400 Speaker 1: the future. Yellow right? Dan? All right, So why does 103 00:06:27,440 --> 00:06:29,520 Speaker 1: it seem like we've been hearing more about cheap oil 104 00:06:29,680 --> 00:06:32,880 Speaker 1: being a greater negative for the economy than the positive 105 00:06:32,920 --> 00:06:36,040 Speaker 1: everyone expected it to be. To help us figure this 106 00:06:36,080 --> 00:06:38,880 Speaker 1: out more, we're bringing on Ryan Sweet. He's a senior 107 00:06:38,880 --> 00:06:42,839 Speaker 1: economists at Moody's Analytics, Inc. In Westchester, New York, and 108 00:06:42,880 --> 00:06:45,640 Speaker 1: he covers the U. S economy and all the indicators 109 00:06:45,680 --> 00:06:48,039 Speaker 1: that track its health. He's one of the economies that 110 00:06:48,080 --> 00:06:50,840 Speaker 1: I speak to the most on my beat. Hello Ryan, 111 00:06:50,920 --> 00:06:54,400 Speaker 1: thanks for joining us, Thanks for having me. Let's start 112 00:06:54,440 --> 00:06:57,040 Speaker 1: with what's going on in the oil markets right now. 113 00:06:57,080 --> 00:07:00,120 Speaker 1: A lot of investors are saying that the volatilion the 114 00:07:00,160 --> 00:07:02,960 Speaker 1: stock market has been driven apart by the oil route. 115 00:07:03,040 --> 00:07:05,920 Speaker 1: But wasn't cheap oils supposed to be good for the economy. 116 00:07:05,960 --> 00:07:10,240 Speaker 1: What happened here? I think economists underestimated the hit to 117 00:07:10,840 --> 00:07:14,040 Speaker 1: investment that was going to be that that occurred because 118 00:07:14,040 --> 00:07:17,000 Speaker 1: of the enormous drop in oil prices. So business investment 119 00:07:17,680 --> 00:07:22,520 Speaker 1: fell significantly in and that really offset a good portion 120 00:07:22,600 --> 00:07:25,080 Speaker 1: but not all of the boost that we got from uh, 121 00:07:25,160 --> 00:07:28,480 Speaker 1: increased consumer spending from lower oil prices. And Ryan, is 122 00:07:28,480 --> 00:07:32,320 Speaker 1: it the drop or the magnitude of the drop, It's both. 123 00:07:33,240 --> 00:07:35,640 Speaker 1: That sounds like the perfect economist answer, but it true. 124 00:07:35,720 --> 00:07:39,800 Speaker 1: It is true. Uh. Typically when gasoling prices are going up, 125 00:07:40,160 --> 00:07:42,640 Speaker 1: it's how quickly they're rising that can affect consumer spending 126 00:07:42,640 --> 00:07:47,240 Speaker 1: and ultimately how high gasoling prices rise and what that 127 00:07:47,240 --> 00:07:49,440 Speaker 1: would do to consumer spending. And on the flip side, 128 00:07:49,440 --> 00:07:53,880 Speaker 1: it's how fast they're falling and ultimately what uh how 129 00:07:53,920 --> 00:07:56,640 Speaker 1: low they go matters for consumer spending. And I think 130 00:07:56,840 --> 00:08:00,840 Speaker 1: your point is very important in explaining why consumers didn't 131 00:08:00,880 --> 00:08:03,800 Speaker 1: rush out and spend the initial savings from gasoline prices 132 00:08:03,840 --> 00:08:07,120 Speaker 1: because I think they were a little bit hesitant or uh, 133 00:08:07,320 --> 00:08:11,000 Speaker 1: they didn't expect lower gasoline prices to stick because it 134 00:08:11,080 --> 00:08:13,560 Speaker 1: had been very very rare for oil prices to be 135 00:08:13,800 --> 00:08:16,320 Speaker 1: or gasoline prices to be below three dollars per gallon. 136 00:08:16,840 --> 00:08:19,400 Speaker 1: So initially, when they fell below that threshold, I think 137 00:08:19,640 --> 00:08:22,360 Speaker 1: you know, the rational consumer was thinking, you know, they're 138 00:08:22,360 --> 00:08:24,160 Speaker 1: likely going to go back up, so I'll save some 139 00:08:24,200 --> 00:08:27,120 Speaker 1: of that windfall from lower gasoline prices, right, just wait 140 00:08:27,200 --> 00:08:29,520 Speaker 1: it out. Yeah, exactly, and I think they waited it out, 141 00:08:29,760 --> 00:08:32,320 Speaker 1: which is which is fair. I mean that's the rational 142 00:08:32,360 --> 00:08:35,120 Speaker 1: thing to expect because typically, you know, sharp declines and 143 00:08:35,120 --> 00:08:38,360 Speaker 1: gasoline prices don't stick too long. But now we've seen 144 00:08:38,360 --> 00:08:41,360 Speaker 1: gasoline prices remain low for an extended period of time. 145 00:08:41,360 --> 00:08:43,840 Speaker 1: I think we've seen consumers spend more and more of 146 00:08:43,880 --> 00:08:46,440 Speaker 1: that of that windfall, so we still think it's going 147 00:08:46,480 --> 00:08:50,000 Speaker 1: to happen. I think it's happening, and I think it 148 00:08:50,040 --> 00:08:54,280 Speaker 1: will continue to happen. As you know, wholesale prices indicate 149 00:08:54,360 --> 00:08:56,599 Speaker 1: that retail gasoline prices are going to go even a 150 00:08:56,640 --> 00:08:59,559 Speaker 1: little bit further lower. So I think we're gonna get 151 00:09:00,000 --> 00:09:03,240 Speaker 1: aditional boost to consumer we're spending in that regard. And 152 00:09:03,280 --> 00:09:06,080 Speaker 1: I also think lower gasoline prices will be more of 153 00:09:06,120 --> 00:09:10,920 Speaker 1: a positive in early for overall GDP growth because we're 154 00:09:10,960 --> 00:09:13,320 Speaker 1: not going to get as sharp as a decline in 155 00:09:14,040 --> 00:09:17,640 Speaker 1: UH energy related investment. Because the job that we got 156 00:09:17,640 --> 00:09:20,439 Speaker 1: in was almost as big as we saw during the 157 00:09:20,480 --> 00:09:23,640 Speaker 1: Great Recession. Now it doesn't feel like there's a big 158 00:09:23,640 --> 00:09:26,760 Speaker 1: consumer boom going on. I hear on what the surveys 159 00:09:26,800 --> 00:09:30,480 Speaker 1: of sentiments say, is it possible with saying one thing 160 00:09:30,559 --> 00:09:33,600 Speaker 1: to polsters and then doing another when it comes to 161 00:09:33,640 --> 00:09:36,480 Speaker 1: opening in wallets. I actually have some numbers on this 162 00:09:36,559 --> 00:09:38,800 Speaker 1: because I looked at it right before I came here, 163 00:09:39,040 --> 00:09:41,440 Speaker 1: and when I was looking at the Commerce Department data. 164 00:09:41,640 --> 00:09:45,520 Speaker 1: In the year ended third quarter, which is the latest 165 00:09:45,559 --> 00:09:49,079 Speaker 1: data that we have right now, consumers spent about eighty 166 00:09:49,120 --> 00:09:52,880 Speaker 1: six billion dollars less on gasoline. And during that same 167 00:09:52,920 --> 00:09:57,559 Speaker 1: time frame, so the year ended third quarter, personal savings 168 00:09:57,600 --> 00:10:00,679 Speaker 1: were up by about sixty two billion, So that basically 169 00:10:00,720 --> 00:10:04,040 Speaker 1: shows that consumers have you know, it looks like they've 170 00:10:04,080 --> 00:10:07,440 Speaker 1: saved almost three quarters of their savings from cheap gas. 171 00:10:08,679 --> 00:10:11,480 Speaker 1: So it looks like Ryan the model is being defied. 172 00:10:12,240 --> 00:10:14,319 Speaker 1: I think it has a little bit, at least initially, 173 00:10:14,360 --> 00:10:17,440 Speaker 1: but I do think they'll ultimately spend it over the 174 00:10:17,440 --> 00:10:19,240 Speaker 1: course of this year. To give you a good rule 175 00:10:19,240 --> 00:10:25,160 Speaker 1: of thumb, a penny change in gasoline prices typically increases 176 00:10:25,280 --> 00:10:28,480 Speaker 1: or decreases consumer spending by one billion dollars over the 177 00:10:28,520 --> 00:10:30,760 Speaker 1: course of a year, So it does take time for 178 00:10:30,840 --> 00:10:34,160 Speaker 1: consumers to realize that they've got extra money in their 179 00:10:34,160 --> 00:10:37,439 Speaker 1: pockets from lower gasoling prices and go out and begin 180 00:10:37,520 --> 00:10:40,559 Speaker 1: to spend that windfall. I think it's very difficult to 181 00:10:40,600 --> 00:10:44,280 Speaker 1: parse out from the spending and the savings data some 182 00:10:44,320 --> 00:10:47,040 Speaker 1: of the other effects that are weighing on consumer spending. 183 00:10:47,120 --> 00:10:50,040 Speaker 1: So they may have a lot of windfall from lower 184 00:10:50,040 --> 00:10:54,120 Speaker 1: gasoline prices, but the volatility in the stock market, uh, 185 00:10:54,240 --> 00:10:57,240 Speaker 1: some concerns about the global economy may be forcing them 186 00:10:57,240 --> 00:10:59,959 Speaker 1: to save some of that windfall for a rain. Get 187 00:11:00,760 --> 00:11:04,000 Speaker 1: This just seems to be another of these examples where 188 00:11:04,120 --> 00:11:08,040 Speaker 1: the textbook models of economics about what should happen when 189 00:11:08,080 --> 00:11:12,319 Speaker 1: one thing happens, it doesn't really seem to apply. Ryan. 190 00:11:12,880 --> 00:11:15,840 Speaker 1: It's like the tightening labor market was supposed to produce 191 00:11:16,240 --> 00:11:21,679 Speaker 1: and is supposed to produce higher wages than ultimately greater 192 00:11:21,800 --> 00:11:25,200 Speaker 1: rates of inflation, which would actually be welcomed by people. 193 00:11:26,000 --> 00:11:30,360 Speaker 1: The consumer oil boom seems to be much of the 194 00:11:30,440 --> 00:11:33,360 Speaker 1: same thing the models, not really happening, and yet and 195 00:11:33,440 --> 00:11:37,000 Speaker 1: yet we're still convinced that it ultimately will. Can you 196 00:11:37,040 --> 00:11:40,000 Speaker 1: talk a bit about that. Yeah, it may appear that 197 00:11:40,200 --> 00:11:43,680 Speaker 1: economists are wed through their models, but you know, a 198 00:11:43,720 --> 00:11:47,760 Speaker 1: good philosophy to always it hereby is that when the 199 00:11:47,800 --> 00:11:51,920 Speaker 1: facts change, opinions change, and your view should change. And 200 00:11:51,960 --> 00:11:55,720 Speaker 1: I think you know the what we're seeing in response 201 00:11:55,760 --> 00:11:59,880 Speaker 1: to lower gasoline prices by consumers. You know, I think 202 00:12:00,120 --> 00:12:04,760 Speaker 1: does justify relook taking another look at how we view 203 00:12:04,800 --> 00:12:08,120 Speaker 1: the impact of lower gasoline prices and its effect on consumers. 204 00:12:08,480 --> 00:12:11,480 Speaker 1: And we've done that, and we've been looking at UH 205 00:12:11,520 --> 00:12:14,480 Speaker 1: the mix, and I think the mix is very important. 206 00:12:14,520 --> 00:12:17,240 Speaker 1: And what I mean by that is who accounts for 207 00:12:17,280 --> 00:12:21,360 Speaker 1: the large share of spending on gasoline? And surprisingly, UH, 208 00:12:21,600 --> 00:12:24,920 Speaker 1: it's high income earners. So those that are high income 209 00:12:24,960 --> 00:12:30,319 Speaker 1: earners account for allion share of total UH consumption on gasoline. 210 00:12:30,840 --> 00:12:34,240 Speaker 1: And typically those consumers have a a smaller marginal propendency 211 00:12:34,240 --> 00:12:36,640 Speaker 1: to consume, meaning that you put another dollar in their pocket, 212 00:12:36,920 --> 00:12:40,120 Speaker 1: they're going to spend a smaller share of that, whereas 213 00:12:40,280 --> 00:12:43,960 Speaker 1: low income earners, UH, they don't make as much of UH, 214 00:12:44,040 --> 00:12:46,240 Speaker 1: and they don't account for as large of an increase 215 00:12:46,360 --> 00:12:51,880 Speaker 1: or as large of a total conspending on gasoline. Therefore, 216 00:12:52,440 --> 00:12:54,520 Speaker 1: you know, this mixed issue is I think kind of 217 00:12:54,640 --> 00:12:57,959 Speaker 1: accounting for why all the money from lower gasoline prices 218 00:12:58,000 --> 00:13:00,959 Speaker 1: hasn't made it into consumer spending. So it doesn't sound 219 00:13:01,000 --> 00:13:05,160 Speaker 1: like you think that there's been this fundamental shift then 220 00:13:05,320 --> 00:13:10,160 Speaker 1: in how consumers approach unexpected wind falls to their income 221 00:13:10,920 --> 00:13:13,280 Speaker 1: I don't think so, because there's there's a lot going 222 00:13:13,320 --> 00:13:15,920 Speaker 1: on in the economy. Uh, the stock market is very volatile. 223 00:13:15,960 --> 00:13:19,240 Speaker 1: Wage growth, as you pointed out earlier, hasn't really accelerated 224 00:13:19,280 --> 00:13:21,640 Speaker 1: as much as the tightening and the job market would 225 00:13:21,679 --> 00:13:24,840 Speaker 1: otherwise suggests. So I think consumers are being rational in 226 00:13:24,920 --> 00:13:28,280 Speaker 1: saving some of the windfall because I think the scars 227 00:13:28,360 --> 00:13:31,760 Speaker 1: in the shadow of the Great Recession is still linkering 228 00:13:31,760 --> 00:13:34,800 Speaker 1: with us. Well, let's pick back up with this conversation 229 00:13:35,040 --> 00:13:37,719 Speaker 1: after a short break to hear from our sponsors. When 230 00:13:37,760 --> 00:13:41,120 Speaker 1: we come back, let's talk about why we're worried about 231 00:13:41,120 --> 00:13:43,240 Speaker 1: what consumers are doing in the first place, which is 232 00:13:43,280 --> 00:13:46,120 Speaker 1: that producers have been taking such a huge hit as well. 233 00:13:46,280 --> 00:13:52,560 Speaker 1: After the break, what do traders want to limit risk? 234 00:13:52,640 --> 00:13:55,559 Speaker 1: Access every opportunity and trade on a level playing field. 235 00:13:55,800 --> 00:13:58,400 Speaker 1: Nate x binary options let you set your maximum profit 236 00:13:58,440 --> 00:14:01,200 Speaker 1: and loss before the trade, so risk is always limited. 237 00:14:01,520 --> 00:14:04,920 Speaker 1: Find opportunities in multiple markets, stock indussees commodities for US, 238 00:14:05,040 --> 00:14:09,440 Speaker 1: even economic numbers, and bitcoin, all from one account and platform. 239 00:14:09,559 --> 00:14:13,080 Speaker 1: Nat X is a CSTC regulated exchange with transparency, free 240 00:14:13,080 --> 00:14:17,439 Speaker 1: market data, and fairness guaranteed. Innovations of financial industry needs 241 00:14:17,760 --> 00:14:20,520 Speaker 1: and nat X already has. That's why we think binary 242 00:14:20,560 --> 00:14:23,360 Speaker 1: options are the future of trading, and it's here now 243 00:14:23,440 --> 00:14:26,560 Speaker 1: at n A d e X dot com futures options 244 00:14:26,560 --> 00:14:28,760 Speaker 1: and swaps. Trading involves risk and may not be appropriate 245 00:14:28,800 --> 00:14:36,560 Speaker 1: for all investors, all right. So one of the reasons 246 00:14:36,640 --> 00:14:39,600 Speaker 1: why we're sort of waiting for this other shoe to 247 00:14:39,720 --> 00:14:43,320 Speaker 1: drop with the consumer, when will they spend this supposed 248 00:14:43,320 --> 00:14:47,600 Speaker 1: windfall from gas savings UM is because producers have been 249 00:14:47,640 --> 00:14:52,160 Speaker 1: taking such a huge hit. Just Tuesday, hess Court said 250 00:14:52,240 --> 00:14:56,080 Speaker 1: that it will cut capital spending on exploration and production 251 00:14:56,400 --> 00:15:01,520 Speaker 1: by this year from due to the low oil prices. 252 00:15:02,120 --> 00:15:04,720 Speaker 1: So let's talk a little bit about what's going on 253 00:15:04,840 --> 00:15:09,520 Speaker 1: with energy producers and why this this lack of a 254 00:15:09,600 --> 00:15:12,600 Speaker 1: pickup from the consumers has been a little bit concerning 255 00:15:12,920 --> 00:15:14,920 Speaker 1: due to what's going on in their world right now. 256 00:15:15,480 --> 00:15:19,480 Speaker 1: The producer has been hit particularly hard, particularly the energy producer, 257 00:15:19,760 --> 00:15:23,840 Speaker 1: because of lower oil prices. Because the oil market is 258 00:15:23,920 --> 00:15:26,680 Speaker 1: we're just a wash in it. We're essentially swimming in 259 00:15:26,800 --> 00:15:29,400 Speaker 1: excess oil, and that's been a big factor of why 260 00:15:29,480 --> 00:15:32,600 Speaker 1: oil prices are you know, trading roughly around thirty dollars 261 00:15:32,640 --> 00:15:34,960 Speaker 1: per barrel. I mean, did this happen all at once, though, 262 00:15:35,040 --> 00:15:36,640 Speaker 1: I mean it seems like it's sort of been a 263 00:15:36,680 --> 00:15:39,240 Speaker 1: long time coming, just the trends that have been in place. 264 00:15:40,200 --> 00:15:42,840 Speaker 1: It has, uh, you know, the the excess supply has 265 00:15:42,880 --> 00:15:46,280 Speaker 1: built over time. But I also think there's other factors 266 00:15:46,320 --> 00:15:49,160 Speaker 1: behind why oil prices are thirty dollars today. For example, 267 00:15:49,680 --> 00:15:52,840 Speaker 1: the the US dollar has appreciated significantly over the last 268 00:15:52,880 --> 00:15:55,680 Speaker 1: couple of years, and because oil is priced in dollars, 269 00:15:55,720 --> 00:15:59,800 Speaker 1: that's driven the price lower. Uh. The Iran nuclear deal 270 00:16:00,040 --> 00:16:03,720 Speaker 1: think that also had a significant significant effect on oil prices. 271 00:16:03,760 --> 00:16:06,440 Speaker 1: And then there's demand concerns, and the Chinese economy isn't 272 00:16:06,760 --> 00:16:09,680 Speaker 1: doing very well. It slows substantially, and I think that's 273 00:16:09,800 --> 00:16:12,880 Speaker 1: led investors to re evaluate their their expectations for the 274 00:16:12,880 --> 00:16:17,400 Speaker 1: global economy and ultimately what the price of oil should be. Ryan. 275 00:16:17,480 --> 00:16:22,040 Speaker 1: These are all perfectly plausible explanations which we here advanced 276 00:16:22,800 --> 00:16:27,560 Speaker 1: um on media outlets each day. Is there something I 277 00:16:27,680 --> 00:16:29,480 Speaker 1: just want to push you a little bit? Is there 278 00:16:29,600 --> 00:16:36,600 Speaker 1: something deeper going on here? Is the world economy going 279 00:16:36,600 --> 00:16:42,840 Speaker 1: through a fundamental structural, not cyclical, but structural change which 280 00:16:42,960 --> 00:16:46,640 Speaker 1: is just throwing some of these models and assumptions we've 281 00:16:46,680 --> 00:16:50,240 Speaker 1: all grown up without the window. Yeah, I think we 282 00:16:50,320 --> 00:16:53,200 Speaker 1: are going through a lot of changes. I mean, the 283 00:16:53,240 --> 00:16:57,880 Speaker 1: global economy in the post Great Recession era is likely 284 00:16:57,880 --> 00:17:00,720 Speaker 1: going to look different than it was fire to it. 285 00:17:00,760 --> 00:17:04,080 Speaker 1: But it already does, doesn't it does. I'm talking about 286 00:17:04,160 --> 00:17:07,720 Speaker 1: something that might not be right staring us in the face, 287 00:17:07,800 --> 00:17:10,760 Speaker 1: but it's building and building, and these things we've been 288 00:17:10,800 --> 00:17:14,639 Speaker 1: describing are really just symptoms of it. It could be 289 00:17:14,640 --> 00:17:18,240 Speaker 1: I mean, we could be underestimating the weakness in the 290 00:17:18,320 --> 00:17:22,400 Speaker 1: Chinese economy, because as everyone knows, you've got to take 291 00:17:22,560 --> 00:17:25,800 Speaker 1: the Chinese economic data of a grain of salt, so 292 00:17:25,960 --> 00:17:28,240 Speaker 1: that economy could be doing a lot worse than we 293 00:17:28,320 --> 00:17:32,159 Speaker 1: anticipate or is visible in the economic data. But I 294 00:17:32,760 --> 00:17:35,639 Speaker 1: you know, looking around looking for for bubbles or looking 295 00:17:35,640 --> 00:17:40,680 Speaker 1: for you know, the these uh potential issues is very difficult. 296 00:17:41,520 --> 00:17:43,840 Speaker 1: It's difficult to find anything that would be explaining why 297 00:17:43,880 --> 00:17:47,679 Speaker 1: oil is thirty dollars today based on fundamental I mean, 298 00:17:47,680 --> 00:17:50,080 Speaker 1: the fundamental price of oil is substantially higher than it 299 00:17:50,200 --> 00:17:53,680 Speaker 1: is trading at today. I think financial demand for oil 300 00:17:53,800 --> 00:17:55,399 Speaker 1: is very, very low, and I don't think that's getting 301 00:17:55,400 --> 00:17:57,639 Speaker 1: a lot of attention in the press. UH. And I 302 00:17:57,640 --> 00:18:00,480 Speaker 1: think that's another reason why oil prices are are where 303 00:18:00,520 --> 00:18:02,320 Speaker 1: they are today. Can you talk a little bit more 304 00:18:02,320 --> 00:18:07,640 Speaker 1: about that last point. Yeah, of course. Um, if financial 305 00:18:07,680 --> 00:18:10,040 Speaker 1: demand plays an important role, you can take a financial 306 00:18:10,080 --> 00:18:13,000 Speaker 1: demand to speculation. Uh So, speculators can cause the price 307 00:18:13,000 --> 00:18:15,720 Speaker 1: of oil to increase and decrease from day to day, 308 00:18:15,800 --> 00:18:18,280 Speaker 1: week to week, and even want the month. But in 309 00:18:18,320 --> 00:18:22,000 Speaker 1: the long run, fundamentals typically went out, So it boils 310 00:18:22,000 --> 00:18:24,600 Speaker 1: down to supply and demand how people are using it, 311 00:18:24,680 --> 00:18:28,840 Speaker 1: basically exactly. And you know, given that, you know, if 312 00:18:28,880 --> 00:18:32,280 Speaker 1: our view of the world unfolds, we think the global 313 00:18:32,320 --> 00:18:34,240 Speaker 1: economy is going to pick up over the next couple 314 00:18:34,240 --> 00:18:37,440 Speaker 1: of years. That applies stronger demand for oil will start 315 00:18:37,480 --> 00:18:40,560 Speaker 1: to a road or work off some of the excess 316 00:18:40,560 --> 00:18:44,760 Speaker 1: supply in the oil market today, and that the price 317 00:18:44,800 --> 00:18:48,760 Speaker 1: will gradually move back towards its equilibrium. When you talk 318 00:18:48,760 --> 00:18:52,119 Speaker 1: about questions from your relatives or questions in a restaurant 319 00:18:52,160 --> 00:18:56,080 Speaker 1: and you just find yourself shaking your head, it's part 320 00:18:56,119 --> 00:18:58,920 Speaker 1: of this because people think, uh ha, but no one 321 00:18:59,040 --> 00:19:04,320 Speaker 1: foresaw a national housing crash either. We were told it 322 00:19:04,400 --> 00:19:08,040 Speaker 1: was quote contained unquote. Is that part of the thing 323 00:19:08,080 --> 00:19:10,399 Speaker 1: that's going on with consumer psyche here. I mean, you 324 00:19:10,480 --> 00:19:14,880 Speaker 1: did refer to scars of the recession. Is that partly 325 00:19:14,920 --> 00:19:18,600 Speaker 1: what's going on in terms of why such a slide 326 00:19:18,600 --> 00:19:21,960 Speaker 1: and oil prices hasn't translated to a consumer booments because 327 00:19:22,119 --> 00:19:25,439 Speaker 1: belief is gone. That's a very good point, and I 328 00:19:25,480 --> 00:19:29,520 Speaker 1: think pessimism has become very popular. You know, during the recession, 329 00:19:29,960 --> 00:19:32,040 Speaker 1: there was just cost to that because you know, our 330 00:19:32,080 --> 00:19:35,840 Speaker 1: economy was undrapping very very very quickly, and I think 331 00:19:35,840 --> 00:19:38,480 Speaker 1: the scars from that have taken a long time to heal, 332 00:19:38,640 --> 00:19:42,639 Speaker 1: and understandably because for many people, uh, you know, it 333 00:19:42,720 --> 00:19:45,520 Speaker 1: still feels like a recession to them, because there's a 334 00:19:45,600 --> 00:19:48,280 Speaker 1: large number of people that are not in the labor 335 00:19:48,320 --> 00:19:51,199 Speaker 1: force but want a job. Wage growth is very, very 336 00:19:51,320 --> 00:19:54,760 Speaker 1: very weak from a historical perspective, so for many people 337 00:19:54,760 --> 00:19:59,600 Speaker 1: it's still you know, has has that feel of recessionary conditions. 338 00:19:59,600 --> 00:20:04,800 Speaker 1: But what makes me worried is that the collective psyche 339 00:20:04,920 --> 00:20:08,360 Speaker 1: can be very important at turning points, because typically when 340 00:20:08,359 --> 00:20:11,280 Speaker 1: the economy is doing well, consumers are feeling optimistic and 341 00:20:11,359 --> 00:20:15,280 Speaker 1: the commis falling apart, pessimism becomes more popular. But at 342 00:20:15,320 --> 00:20:18,479 Speaker 1: turning points, at changing the collective psychic can be very 343 00:20:18,600 --> 00:20:22,640 Speaker 1: very important in determining whether the expansion moves on or 344 00:20:22,680 --> 00:20:25,760 Speaker 1: if the economy becomes at serious risk of falling into recession. 345 00:20:26,160 --> 00:20:28,480 Speaker 1: And that's one reason why the impact on the stock 346 00:20:28,520 --> 00:20:31,359 Speaker 1: market is uh and it's a it's full over effect 347 00:20:31,400 --> 00:20:34,600 Speaker 1: on consumer confidence. Business confidence is going to be very 348 00:20:34,680 --> 00:20:37,440 Speaker 1: very important to watch over the next few months. Yeah, 349 00:20:37,520 --> 00:20:40,000 Speaker 1: and we actually talked about that exact issue in an 350 00:20:40,000 --> 00:20:43,159 Speaker 1: episode just two weeks ago, so listeners should go in 351 00:20:43,200 --> 00:20:45,480 Speaker 1: and tune into that. But before we wrap up, I 352 00:20:45,560 --> 00:20:48,639 Speaker 1: do want to kind of address head on this question 353 00:20:48,680 --> 00:20:51,719 Speaker 1: that we are wondering. At what point does does all 354 00:20:51,760 --> 00:20:54,760 Speaker 1: this cheap oil become bad for the economy. I guess 355 00:20:54,760 --> 00:20:57,000 Speaker 1: the good news is oil can only go so low, 356 00:20:57,520 --> 00:21:00,160 Speaker 1: But I mean, is there is there a point where 357 00:21:00,200 --> 00:21:02,480 Speaker 1: it becomes bad for us? Do you are we there 358 00:21:02,520 --> 00:21:04,879 Speaker 1: yet or do you anticipate that we will get there 359 00:21:04,920 --> 00:21:08,600 Speaker 1: anytime soon? It's a very interesting question. I guess it 360 00:21:08,600 --> 00:21:12,360 Speaker 1: can only go as low zero, but hopefully we won't 361 00:21:12,400 --> 00:21:16,320 Speaker 1: get to that point in anytime soon. I think low 362 00:21:16,400 --> 00:21:21,160 Speaker 1: oil prices haven't been as positive for the economy as 363 00:21:21,200 --> 00:21:23,639 Speaker 1: we anticipated, you know, when they were you know, falling 364 00:21:23,640 --> 00:21:29,960 Speaker 1: in late um excuse me, partly because of the investment side. 365 00:21:30,040 --> 00:21:32,840 Speaker 1: You know, they took it on the chin consumers. They 366 00:21:32,840 --> 00:21:37,040 Speaker 1: were more cautious than we we had anticipated. But I 367 00:21:37,080 --> 00:21:40,760 Speaker 1: think oil prices, hopefully they stabilize and begin to increase, 368 00:21:40,920 --> 00:21:45,159 Speaker 1: because our economy needs a little bit more inflation, and 369 00:21:45,240 --> 00:21:48,760 Speaker 1: inflation is just too low right now. And if inflation 370 00:21:48,800 --> 00:21:51,000 Speaker 1: doesn't pick up, then I think, you know, the Fed's 371 00:21:51,040 --> 00:21:54,159 Speaker 1: going to have to be very very cautious and normalizing 372 00:21:54,160 --> 00:21:57,280 Speaker 1: interest rates. They're likely punt on a few meetings here 373 00:21:57,280 --> 00:22:01,040 Speaker 1: and there on raising interest rates, and that's gonna raise 374 00:22:01,119 --> 00:22:06,680 Speaker 1: concerns about financial stability in so essentially, you know, bubbles 375 00:22:07,000 --> 00:22:11,080 Speaker 1: will have a greater odds of developing down down the 376 00:22:11,160 --> 00:22:13,600 Speaker 1: road the longer the Fed weights to to start this process. 377 00:22:13,880 --> 00:22:18,240 Speaker 1: The other concern is oil prices and inflation expectations are 378 00:22:18,280 --> 00:22:21,600 Speaker 1: becoming strongly correlated, which is a little bit puzzling to me. 379 00:22:21,840 --> 00:22:25,320 Speaker 1: Uh you know, it's it's difficult for uh me to 380 00:22:25,400 --> 00:22:29,119 Speaker 1: understand why consumers expectations of where inflation will be ten 381 00:22:29,160 --> 00:22:31,560 Speaker 1: years from now is dependent on the price of oil today. 382 00:22:32,000 --> 00:22:34,160 Speaker 1: But then it's just the whole link with gas prices 383 00:22:34,200 --> 00:22:36,439 Speaker 1: and that being the price that they see so often 384 00:22:37,320 --> 00:22:38,840 Speaker 1: I think that I think that's true. You know, I 385 00:22:38,840 --> 00:22:41,040 Speaker 1: think they do base their inflation expectations on when they 386 00:22:41,080 --> 00:22:43,040 Speaker 1: drive by, they see the gasoline pump and you know, 387 00:22:43,119 --> 00:22:46,440 Speaker 1: that's that milk. I think is a big influence on 388 00:22:46,720 --> 00:22:50,320 Speaker 1: consumers expectations for inflation. But the FED is very very 389 00:22:50,760 --> 00:22:55,080 Speaker 1: sensitive to fluctuations in long term inflation expectations. So um, 390 00:22:55,119 --> 00:22:57,199 Speaker 1: I think oil prices are going to be very very 391 00:22:57,240 --> 00:23:01,199 Speaker 1: important in where monetary policies headed over the next year 392 00:23:01,280 --> 00:23:04,480 Speaker 1: or so. Well. On that note, we are going to 393 00:23:04,560 --> 00:23:06,919 Speaker 1: wrap up for today. Thank you so much Ryan for 394 00:23:07,119 --> 00:23:09,320 Speaker 1: joining us. It's been great being able to chat this 395 00:23:09,440 --> 00:23:12,359 Speaker 1: over with you. Thank you for having me with my pleasure. 396 00:23:12,480 --> 00:23:17,040 Speaker 1: Thanks and thanks to you all for listening to Bloomberg Benchmark. 397 00:23:17,119 --> 00:23:19,640 Speaker 1: We'll be back next week. Until then, you can find 398 00:23:19,720 --> 00:23:22,400 Speaker 1: us on the Bloomberg terminal and Bloomberg dot com, as 399 00:23:22,440 --> 00:23:26,359 Speaker 1: well as on iTunes, Podecast, Stitcher, Google Play, and while 400 00:23:26,400 --> 00:23:28,919 Speaker 1: you're there, please take a minute to rate and review 401 00:23:28,920 --> 00:23:31,480 Speaker 1: the show. Some more listeners can find us and do 402 00:23:31,600 --> 00:23:33,720 Speaker 1: let us know what you thought of the show. You 403 00:23:33,760 --> 00:23:37,000 Speaker 1: can talk to and follow us on Twitter at Daniel 404 00:23:37,040 --> 00:23:40,760 Speaker 1: Moss d C and at Tory Stillwell, and please let 405 00:23:40,840 --> 00:23:43,600 Speaker 1: us know what topics you'd like to hear more about 406 00:23:43,680 --> 00:23:53,879 Speaker 1: in future episodes. See you next week. We're proud of 407 00:23:53,880 --> 00:23:57,200 Speaker 1: our new and growing suite of original podcasts, all designed 408 00:23:57,240 --> 00:24:00,760 Speaker 1: to help you navigate the complexities of business for fancial, markets, 409 00:24:00,760 --> 00:24:04,240 Speaker 1: and the global economy. In addition to Bloomberg Benchmark, which 410 00:24:04,240 --> 00:24:07,359 Speaker 1: you're listening to now, don't miss Odd Lots, a deep 411 00:24:07,400 --> 00:24:10,480 Speaker 1: dive into the intersection of markets, economics, and finance with 412 00:24:10,600 --> 00:24:13,639 Speaker 1: Joe Wisenha and Tracy Alloway. There's also a Deal the 413 00:24:13,680 --> 00:24:17,440 Speaker 1: Week with our Mergers and Acquisitions reporter Alex Sherman, looking 414 00:24:17,480 --> 00:24:19,879 Speaker 1: at a breakdown of the biggest deals and giving you 415 00:24:19,920 --> 00:24:23,520 Speaker 1: an inside peek into corporate boardrooms. All three shows are 416 00:24:23,560 --> 00:24:28,320 Speaker 1: available on iTunes, SoundCloud, pocket casts for Android, Bloomberg dot Com, 417 00:24:28,400 --> 00:24:31,000 Speaker 1: and of course, the Bloomberg Terminal. Check them out and 418 00:24:31,040 --> 00:24:34,639 Speaker 1: subscribe today. This episode was brought to you by nat X. 419 00:24:34,800 --> 00:24:36,919 Speaker 1: You know any long term investment is going to go 420 00:24:37,000 --> 00:24:40,320 Speaker 1: through short term dips and price fluctuations. Nat X Binary 421 00:24:40,359 --> 00:24:43,760 Speaker 1: options that you turn those short term movements into trading opportunities. 422 00:24:44,240 --> 00:24:46,959 Speaker 1: You decide your maximum profit and loss before each trade, 423 00:24:47,200 --> 00:24:50,840 Speaker 1: so your risk is always limited. Trade stock indussees commodities 424 00:24:50,840 --> 00:24:54,000 Speaker 1: for X, even Bitcoin in economic numbers, all from one 425 00:24:54,000 --> 00:24:58,199 Speaker 1: account on a CFTC regulated US exchange. Instead of just 426 00:24:58,280 --> 00:25:00,840 Speaker 1: watching the markets ups and downs, turn them into trading 427 00:25:00,880 --> 00:25:04,320 Speaker 1: opportunities at nate x dot com. It's the future of 428 00:25:04,320 --> 00:25:09,000 Speaker 1: trading n A d e X dot com, futures, options 429 00:25:09,000 --> 00:25:11,800 Speaker 1: and swaps. Trading involves risk and may not be appropriate 430 00:25:11,880 --> 00:25:13,000 Speaker 1: for all investors.