Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Matt, you know, I
Speaker 1: think I'm probably like a lot of people trying to
Speaker 1: figure out what exactly happened in Poland. I thought you're
Speaker 1: gonna say, no, we're gonna go a little bit ten
Speaker 1: fifteen minutes free here of that, We're gonna talk some
Speaker 1: real stuff. Uh NATO and Poland see no intentional Russian
Speaker 1: strike as crisis eases. That's the Bloomberg headline. But I
Speaker 1: need to get the expert opinion, the boots on the ground,
Speaker 1: and for that returned to Maria today. Oh she's your reporter, Bloomberg.
Speaker 1: You're not Bloomberg Opinion anymore. You're back to Bloomberg News,
Speaker 1: I believe, But no, I'm not. Guys, Yes, I know
Speaker 1: that I caught that Maria in our notes, So you're
Speaker 1: not a Bloomberg back backup Bloomberg News thankfully, because we
Speaker 1: need or objective reporting here. What do we know now
Speaker 1: about what happened in Poland yesterday? No opinion, just fact.
Speaker 1: And I think we're mat Miller if I believe that
Speaker 1: was his his side of relief, that that I overheard
Speaker 1: that really yeah, I had even really actually encapsulates a
Speaker 1: lot of the responses and and and and some of
Speaker 1: the text messages that I've been exchanging with a number
Speaker 1: of diplomats today in in Brussels. There was real concerned
Speaker 1: yesterday when that AP headline hit two people that in
Speaker 1: Poland a Russian missile that went over the border into Poland.
Speaker 1: Of course, not to give anyone a history lesson here,
Speaker 1: but we know that Poland is a member of NATO,
Speaker 1: is a member of the European Union, had a very
Speaker 1: very difficult relationship with Russia for a number of historical
Speaker 1: reasons that I'm sure Mam Miller also uh well knows well,
Speaker 1: going back to the Nazi Soviet Pact. This is a
Speaker 1: very tense relationship that they have, and of course this
Speaker 1: could have been a real game changer if Russia had
Speaker 1: indeed intentionally no targeted Poland. Well, we've heard even accidentally right,
Speaker 1: because the initial I think report, everybody thought, Okay, Russia
Speaker 1: accidentally lobbed a missile into Poland because they're fighting close
Speaker 1: to the border. If they don't, obviously the Ukrainian soldiers
Speaker 1: will amass there as kind of a safe zone. Um,
Speaker 1: that still would be bad. And now it seems like
Speaker 1: everyone is trying as hard as possible to come up
Speaker 1: with any other possibility. You know, maybe it was a
Speaker 1: Ukrainian air defense missile that knocked the Russian missile into Poland.
Speaker 1: Maybe it was a Ukrainian air defense missile itself that
Speaker 1: caused the explosion in Poland. So what do we know? Indeed,
Speaker 1: and you know, just too got trad actually answer the question.
Speaker 1: Uh yeah, basically that's what we heard very early on
Speaker 1: today from President Biden. A lot of people that I
Speaker 1: was texting at seven a m. In the morning were
Speaker 1: kind of very relieved by that, where he said the
Speaker 1: trajectory of this uh well, miss ilead or air defense
Speaker 1: potentially too, would suggest that it did not come directly
Speaker 1: from Russia. Then of course you have the Polish uh
Speaker 1: themselves come out and say we do not believe this
Speaker 1: was intentional, and then NATO suggesting In fact, what happened
Speaker 1: here is that on a day where Ukraine was pounded
Speaker 1: by Russian missiles, and just to give you a little
Speaker 1: bit of color here, it was so bad that even
Speaker 1: neighboring countries like Moldova lost power. Because sometimes we talk
Speaker 1: about the war in Ukraine, but just just imagine that
Speaker 1: in your head for a moment. It was so bad
Speaker 1: that even the neighbors had blackouts, they had powered down,
Speaker 1: and they're not even related or fighting this war. And
Speaker 1: essentially what happens is, you know very well, or defense
Speaker 1: will try to blow up a missile in the air,
Speaker 1: but then of course it falls down and you never
Speaker 1: know where it's going to fall, the damage you can
Speaker 1: do on the fall, and then allegedly, well today nature
Speaker 1: suggesting this is exactly what happened Ukraine and our defense
Speaker 1: shot it down. The ben fell on the Polish side,
Speaker 1: and for a lot of people, that's massive lead in
Speaker 1: a real reminder by the way, that this war is
Speaker 1: in a very active stage and the risk of a
Speaker 1: spillover are many and very real. By the way. Yeah,
Speaker 1: and you know, one of the things I noticed yesterday, Maria,
Speaker 1: after the initial reports was the number of I guess
Speaker 1: tweets coming from countries all in that region, all around
Speaker 1: NATO voicing very strong support for Poland going forward. So
Speaker 1: and they and they have to I mean a NATO
Speaker 1: member if they invoke Article five, then you know NATO
Speaker 1: has to go to their defense. Now before that, as
Speaker 1: a precursor, you invoke Article four. And the question I
Speaker 1: think is will Poland today or this week invoke Article four?
Speaker 1: What do we know on that you know it might
Speaker 1: view they won't smack. I think the version that everyone
Speaker 1: has agreed with, or that kind of sticks with, is
Speaker 1: do you have use intelligence suggesting this is not Russia?
Speaker 1: You have NATO come out Today's Secretary General say this
Speaker 1: is our defense. Nobody, by the way, blaming Ukraine on
Speaker 1: that too. They said, this is not Ukraine's faults. These
Speaker 1: are the risks that happened when Russia, knowing full well
Speaker 1: by the way, they're very close to the Polish border,
Speaker 1: can actually happen. Nobody's blaming Ukraine. But I think what
Speaker 1: I get today is that there's a sense that this
Speaker 1: was so close to the brink everyone wants a breather.
Speaker 1: Let's take a step back, Okay. I just and we
Speaker 1: we reported that the President of Poland andre Duda said
Speaker 1: his country is unlikely to invoke article for I have
Speaker 1: seen the Fox News headline that says they're expected to.
Speaker 1: So this once again is one of those confusing situations,
Speaker 1: and I guess it will be we have to wait
Speaker 1: for the smoke to clear to some extent. Maria, what
Speaker 1: what should be the next data point that we should
Speaker 1: look for in the next couple of days. Look, I
Speaker 1: think in terms of data point, this this is anything
Speaker 1: and and for a lot of Europeans this morning this
Speaker 1: is really the reality check. We've kind of gotten used
Speaker 1: to this idea that yes, there's a war going on
Speaker 1: in Ukraine. Yes as brutal, Yes people die, Yes they're
Speaker 1: fighters on. Yes, Vladimir Putting can be world less, Yes,
Speaker 1: Ukraine answered fighting back. But today, I think for a
Speaker 1: lot of Europeans was a real reminder that the war
Speaker 1: is happening at the heart of Europe. Matt, you lived
Speaker 1: in Berlin. I mean, you know the geography of this
Speaker 1: place is this is really in the center of Europe.
Speaker 1: This is not just somewhere in the middle of nowhere,
Speaker 1: far from everything. And I think you alluded to this
Speaker 1: in your question the Eastern Europeans yesterday came out of
Speaker 1: Fort Seeing was a born NATO. We are NATO with
Speaker 1: stand with Ukraine and with sand with poor and and
Speaker 1: for them it is always this idea that Russia is
Speaker 1: always a threat. Ye, Maria, thank you so much for
Speaker 1: your time. We know you're super busy. You're based in Brussels,
Speaker 1: so you're right in the middle of all of what's
Speaker 1: happening in Europe. That's Maria today. Oh, she is our
Speaker 1: outstanding European reporter for Bloomberg News, getting the latest on
Speaker 1: Ukraine and appears they have avoided the worst case sent
Speaker 1: there a little more coming up. This is Bloomberg. Let's
Speaker 1: suck a little commodities here, and you want to talk
Speaker 1: commodities in a serious way. On the Bloomberg terminal, you
Speaker 1: type in BI space c O M D. That brings
Speaker 1: up the Bloomberg Intelligence Commodities Dashboard. It's got it all
Speaker 1: that you could ever need, the best research analysis on
Speaker 1: the street, the best data for energy metals aggs, all
Speaker 1: that kind of stuff, and now cryptos. And the person
Speaker 1: who kind of runs this dashboarder runs our commodities researchers.
Speaker 1: Mike mcgloan joins us here in a Bloomberg interactor broker
Speaker 1: studio Mike, before we get the crypto, just give me
Speaker 1: one real commodities thing that I need to focus on.
Speaker 1: Here am I buying pork bellies? My buying corn? What
Speaker 1: am I doing here? Gold? Gold? Let's bring it back
Speaker 1: to little history. In ninety six, I did a report
Speaker 1: for Social Studies class and the energy crisis and who
Speaker 1: doesn't well exactly, And I just remember the key theme
Speaker 1: back there when you're impressionable twelve year old was we
Speaker 1: don't have enough supply, We're gonna run out of crude
Speaker 1: oil and we're gonna go into recession. That was seventy six.
Speaker 1: It's the same thing every time I remember hearing it,
Speaker 1: you know, years ago, peak supply, and again again this
Speaker 1: year peaks. Who was that, Charlie weiss er Um. Peak
Speaker 1: oil just never kind of happened. It's peak consumption happened
Speaker 1: in this country. We peaked around two thousand five, and
Speaker 1: it's the same thing. So I think what's happening now
Speaker 1: is we're entering I think one of the greatest macroeconomic
Speaker 1: resets of our lifetimes. And it was somewhat spiked by
Speaker 1: crude oil spiking, baiting the FED, the Titan More. Now
Speaker 1: Crudel is doing what it always does, is going back down.
Speaker 1: So I see it's still heading towards fifty. It's around
Speaker 1: eighty six now and it's doing what it always does.
Speaker 1: We're heading to a significant recession and this is Bloomberg
Speaker 1: economics across the board. And the key thing I asked
Speaker 1: myself is what stops this? And right now it's not
Speaker 1: gonna be the fat but how so Bloomberg Economics does
Speaker 1: say we're gonna have we have a chance of recession, right,
Speaker 1: which is not so? But um, is it going to
Speaker 1: be a deep, long recession or is it going to be,
Speaker 1: you know, like a short, sharp shock. Is it going
Speaker 1: to be shallow and hardly noticeable? That That's the key
Speaker 1: question in my bias is how could we avoid a
Speaker 1: deep recession after what happened? This is historic? Now we
Speaker 1: had the biggest pump in money supply ever on the
Speaker 1: back of the plague and we're now we're getting to
Speaker 1: miss the biggest dump ever on a global scale. So
Speaker 1: where is the demand pool going to come from? Clearly
Speaker 1: not China, Clearly not Europe and our models from the US,
Speaker 1: so to me, this is the big one and right now.
Speaker 1: Typically by this stage we'd see signs of FED easing
Speaker 1: on the forward curve at least a year from now,
Speaker 1: and it's still at tightening. But why do you say,
Speaker 1: why would you buy gold here, especially as inflation comes
Speaker 1: down and UH monetary policy gets tight everywhere. Nobody can
Speaker 1: open the fiscal gates anymore. Not yet, But it's typically
Speaker 1: a sign that overall gold is one of the best
Speaker 1: performing commodities on a totally turn basis, most notably versus
Speaker 1: crude oil. But it's when you see that signs of
Speaker 1: the FED, as as noorla Roubini says, wimping out. And
Speaker 1: it's also key. Think piggyback in my colleaguey or Jersey,
Speaker 1: he's nailed this year. He thinks yields have pete. If
Speaker 1: that's the case, if that sledgehammer is done pounding, I'm
Speaker 1: not saying they're gonna ease. Gold should be one of
Speaker 1: the best performers as we tilt towards the res seshion,
Speaker 1: So so as we get closer to a pause or
Speaker 1: even dare I say a pivot, gold will soar on that. Yeah,
Speaker 1: well it should. I mean that's been the key thing
Speaker 1: holding it down this year. And again we're the signs
Speaker 1: already there. Gold seems like it's bottom pretty good from that.
Speaker 1: It got down around sixteen hundred for a while. Now
Speaker 1: the dollars is peeked in the short term. But that's
Speaker 1: the macro. It's that's pounding sledgehammer on a on a
Speaker 1: scale one to ten, that's a ten everywhere fed pounding hard,
Speaker 1: and it's already still showing signs of pivoty and oil
Speaker 1: to fifty. Yes. So the key thing about that is now,
Speaker 1: I he's got the big truck, so he needs that
Speaker 1: bread Is that you gotta say? Even my wife's hybrid
Speaker 1: as soon as the electric power ends, you know, after
Speaker 1: fifty sixty miles or whatever, right then she gets the
Speaker 1: same mileage as I get in my truck, but she
Speaker 1: has it. I have the same thing. I have a
Speaker 1: plug in hybrid and I've had it for almost ten years.
Speaker 1: It's a wonderful vehicle. The vote we talked about that,
Speaker 1: Ye love the thing about fifties, it's really not profound
Speaker 1: if we have this recession, which we view as a
Speaker 1: hundred percent Now it's not just us. You look at
Speaker 1: demand pull you look imports from trying to have rolled
Speaker 1: over Now people say that's because the COVID lockdowns, but
Speaker 1: if you see what's happening with the property crisis and
Speaker 1: the political situation, that's badness. Well, you know, we pointed
Speaker 1: out for years, US unlended gas peaked on a fifty
Speaker 1: two week basis unlended gas deman in June, which was
Speaker 1: prime driving scenes. So that's rolling over just like two
Speaker 1: eight fifty dollars is still above the US cost of production,
Speaker 1: the world's largest producer. Average cost of production in this
Speaker 1: country is around forty. And also the key thing that
Speaker 1: people are missing its stocks to use, it's bottoming stocks
Speaker 1: to use. Is just um it's a sign of the
Speaker 1: stocks well to demand in the US, it's bottoming and
Speaker 1: in the global basis body and typically signed a peak
Speaker 1: and prices, but it's also not profound. Fifty is basically
Speaker 1: about the average price since the big breakdown in two
Speaker 1: thousand four for a barrel of what west X interviewed
Speaker 1: w t I, w t I. It's a key thing.
Speaker 1: Also recently Brent reached good resistance around hunter bucks of
Speaker 1: barrel and I checked out the open interest plunging open
Speaker 1: interests of futures, which meant shortcovering do you want to
Speaker 1: talk crypto. I mean, we held off as long as
Speaker 1: we pustle otherwise I'm going into port bellage. We kind
Speaker 1: of I thought we kind of were. I mean, so
Speaker 1: crypto affects all of these assets, and you do see
Speaker 1: it as small as it is relative to obviously giant
Speaker 1: markets like um oil and uh f X, it really
Speaker 1: has affected for example, UM. Peter Cheer from Academy Securities
Speaker 1: the other day was saying the f t X blow
Speaker 1: up was responsible for a crappy ten year auction. That
Speaker 1: was it's the contagion. I mean, it's the fastest horse
Speaker 1: in the race. And man, you nailed this back in January.
Speaker 1: You would get on air and you point out, well,
Speaker 1: bitcoins moving. It was moving on Saturday and Sun and
Speaker 1: giving indication where things are going. Obviously it started going down,
Speaker 1: but it's not just bitcoin, it's crypto. So I like
Speaker 1: to point out the boombergal because the crypto inex has
Speaker 1: been still a good perform and went up too far,
Speaker 1: too fast. But Bitcoin is the number one and it's
Speaker 1: set contagion factors. So that some of my other colleagues
Speaker 1: and b I started write about this means people are
Speaker 1: more likely hit that trigger stop and I look at it.
Speaker 1: I'm x X traitor, X hedge fund guy, and cover
Speaker 1: those guys on the phones and they're just sitting there
Speaker 1: with their algorithm systems, with their value at risk models,
Speaker 1: and if it triggers something, they'll hit a stop and
Speaker 1: it triggered. It's the it's the domino effect. By the way,
Speaker 1: I don't know how many times we've left bitcoin for dead, um,
Speaker 1: and I've been covering it for ten years, and every uh,
Speaker 1: every time we have one of these draw downs, they
Speaker 1: are huge, seventy five eight percent, you know. Um. People
Speaker 1: are like, oh, that's the end of bitcoin, and now
Speaker 1: you know the reputational damage is going to kill the
Speaker 1: whole thing. But I just can't believe it will. I
Speaker 1: completely agree with you there. But in the meantime, it's
Speaker 1: the hammer hitting hard. And I like to use the
Speaker 1: example bitcoins like the dollar. It never goes down a
Speaker 1: lot unless it goes up a lot first. It has
Speaker 1: to get those new highs. So it's bitcoin. Did cryptos dada?
Speaker 1: We got really expensive last year. We're backing up. But
Speaker 1: look at the theory. UM. Just a couple of years ago,
Speaker 1: it was trained around a hundred bucks of a hundred dollars.
Speaker 1: I'm sorry. Right now it's twelve, so it's up ten x.
Speaker 1: It's gone up way too much. But it's part of
Speaker 1: that revolution of this system. I look at it like futures,
Speaker 1: what futures did into finance, Like what ets did for investing.
Speaker 1: It's there just right now. We're in that. Yes, we
Speaker 1: got two speculative, excessive, we got silly, you know, people
Speaker 1: like FTX got extend. Imagine how much Imagine how much
Speaker 1: ether you could fit into a barrel? Yes, exactly, all
Speaker 1: of it, all of it, exactly. All right, we need
Speaker 1: to get you at an audience with Jamie Diamond. That
Speaker 1: would be a fun conversation to watch. Mike McLoone versus
Speaker 1: Jamie Diamond. Yeah, well, you know what I guess Jamie
Speaker 1: Diamond thinks it's worthless. He said that he thinks that
Speaker 1: means it's going to zero. But when all right, we'll see,
Speaker 1: all right. Mike mcglogan, senior commodity strategist Bloomberg Intelligence. Uh,
Speaker 1: he's based out of Miami. We got him a couple
Speaker 1: of days up here in New York. So we got
Speaker 1: him in the studio, which is good stuff. I want
Speaker 1: to get right to our next guest, Fernando Valley. He's
Speaker 1: a senior energy analyst for Bloomberg Intelligence, and Fernando, we
Speaker 1: were just talking to Mike mcgloan, who covers commodities for
Speaker 1: b I, and he, you know, he's been out there
Speaker 1: with this. He think oil goes to fifty dollars a
Speaker 1: hour before it goes to one fifty. Is that kind
Speaker 1: of what you're hearing from the big companies that you
Speaker 1: talked to? Well, well, I kind of tend to agree
Speaker 1: with Mike that that that is definitely a possibility. But
Speaker 1: the companies themselves, they they typically refuse to answer questions
Speaker 1: on their oil prices. Outlook, what they will say is
Speaker 1: that there has been a lack of investment in in
Speaker 1: growth um and which we agree with. And if you
Speaker 1: look from twenty fifteen to today, UH investment levels have
Speaker 1: been about twenty three below the period before proceeding that,
Speaker 1: the twenty two thousand nine to two thousand fourteen period.
Speaker 1: So that's a supply side issue. And Mike's argument is
Speaker 1: that demand is going to fall off a cliff if
Speaker 1: we go into a big global recession. How much of
Speaker 1: a concern is that, especially with China opening, because it
Speaker 1: seems like if China opens back up, that should be
Speaker 1: a real boost to demand. Yeah, I would argue that
Speaker 1: demand is already feeling some of those crimps when you
Speaker 1: look at Europe for example. Uh, you know a lot
Speaker 1: of the ways that they've managed to refill their inventories
Speaker 1: has been by reducing industrial activity. Smelters, cement plants, refineries,
Speaker 1: you name it. Uh. And I agree the China reopening
Speaker 1: theoretically would be a big boost to consumption. The question
Speaker 1: is when and how they reopen. And then the second
Speaker 1: part is, as we saw with our own reopenings, there
Speaker 1: are still effects on your economic activity. Remember that Chinese
Speaker 1: consumer has significant leverage. Uh. They also have endured now
Speaker 1: the paying of lockdowns and that strange savings. And then
Speaker 1: you get into an issue where the real state marketing
Speaker 1: China is significantly leveraged, as are the provinces and financial
Speaker 1: systems to this real estate issue, and they are huge
Speaker 1: consumers are not just oil directly, but also plastics, which
Speaker 1: are petrochemicals, and energy in general. Hey, for now I'm
Speaker 1: looking at the sp energy sector indexes where the stocks
Speaker 1: have just ripped this year up close to when when
Speaker 1: you talk to your institutional investor clients. I mean, is
Speaker 1: the thinking the money has been made, this trade is
Speaker 1: played out, or is there more room to go on
Speaker 1: the energy space. Yeah, but we've doubled the weight of
Speaker 1: energy and the s and P and uh. We start
Speaker 1: to see folks saying the easy money has been made because,
Speaker 1: as you said, the stocks are ripped. Um. We disagree
Speaker 1: on a part of that, just because the pre cash flow,
Speaker 1: it's story is continuing. Even if we get down to
Speaker 1: sixty fifty is a little bit more challenging. But even
Speaker 1: at sixty dollars, if you look at how they've cleaned
Speaker 1: up their balance sheets, um, the kids of the Europeans,
Speaker 1: They've resized their dividends, um, and they've taken costs out
Speaker 1: of the system. These companies maintain their diffidends now even
Speaker 1: in a fifty scenario, no problem. So their distribution will continue.
Speaker 1: And then you have companies like Chevron and Exxon who
Speaker 1: actually are building so much cash they could be net
Speaker 1: cash as of the second quarter of this year. They
Speaker 1: will continue to buy back. That's that's part of their
Speaker 1: strategy is if prices dip and I guess, alluding to
Speaker 1: your previous question, less about what they say, but what
Speaker 1: they do. They're building significant cash reserves that they could
Speaker 1: either buy back stock or acquire struggling producers if there
Speaker 1: is a dip in in oil prices. UH. So we
Speaker 1: think that there is still room to go just because
Speaker 1: of how strong the balance streets are and because we've
Speaker 1: see in the second half of the next year the
Speaker 1: supply gap emergence. By the way, how well is Europe
Speaker 1: set up for this winter better than we would have expected,
Speaker 1: but because they've reduced consumption and um we we also
Speaker 1: had the mild weather in October that's helped lower the
Speaker 1: the UH, the draws and inventories, but they may still
Speaker 1: have to refill if winter is as cold as is
Speaker 1: currently expected, which is slightly above average, and we're starting
Speaker 1: to see it shift in weather patterns here and in
Speaker 1: the northern hemisphere in the northeastern from their current levels.
Speaker 1: So oh well l m G primarily UH and there
Speaker 1: there will be especially freeport comes back online, there will
Speaker 1: be enough likely that they won't they won't go cold.
Speaker 1: They may have to again restrict economic activity in order
Speaker 1: to make it last. The bigger question is where the
Speaker 1: inventories end up at the end of winter, and then
Speaker 1: how does that look filling filling inventories into the following
Speaker 1: winter because there will be less capacity from Russia, there
Speaker 1: will be even less ability to refill those inventories at
Speaker 1: the clip that they did this year. So for now,
Speaker 1: do you followed the big big integrated oil companies. Are
Speaker 1: they spending money to look for more energy like drill
Speaker 1: on different places and stuff like that. Are they just
Speaker 1: kind of keeping that in check and building up all
Speaker 1: the cash flow that they've promised they are? They raised
Speaker 1: spending by about eight percent relative to one Uh. They
Speaker 1: we expect they're part of their increased free cash will
Speaker 1: will go towards new exploration and development. There is an
Speaker 1: issue though that uh. You know, when you look at
Speaker 1: an investment in North America, it's tempered by the the
Speaker 1: push to the carbonize and you look at uh California
Speaker 1: banking ice vehicles by President Biden speaking similarly, Canada instituting
Speaker 1: a large carbon tax and the renewable fuel standard. Uh,
Speaker 1: the investments in North America become more challenging. And then
Speaker 1: when you go elsewhere, there just hasn't been a lot
Speaker 1: of money spent on exploration. So there has to be
Speaker 1: a shift of where that money is spent, and we
Speaker 1: need to find new province is to develop Brazilian giana
Speaker 1: are two of those, but they are they aren't sufficient
Speaker 1: to make up for the lack of growth that we
Speaker 1: expect to see from from you a shale and u
Speaker 1: lack of investment in other parts of the world. Right,
Speaker 1: all right, good stuff. As always in Fernando, you still
Speaker 1: owe me. You need to get me out of one
Speaker 1: of those oil rigs out like the Gulf of Mexico.
Speaker 1: I want to do it, shows you a trip to
Speaker 1: a rig, I think, so I keep telling him he's
Speaker 1: got to get me out there that I think that
Speaker 1: would be pretty pretty cool, totally like the beginning of Armageddon. Yeah,
Speaker 1: you know, and Bruce willis chasing around Ben Affleck shot on.
Speaker 1: That's so Fernando owes me that. Fernando Vali, senior Annalys
Speaker 1: Bloomberg Intelligence. He's been covering energy space for decades and
Speaker 1: we love to get his global view. Well. The United
Speaker 1: Nations Climate Change Conference that are known as COPE will
Speaker 1: be finishing up this Friday. A It's been a two
Speaker 1: week conference in Egypt. One of the key issues there
Speaker 1: in terms has been food insecurity, and I think with
Speaker 1: the war in Ukraine that's becoming an even bigger issue.
Speaker 1: We kind of want to talk a little bit about
Speaker 1: that with David Friedberg, founder of the Production Board. So, David,
Speaker 1: give us your sense, give us your view of food
Speaker 1: insecurity on a global scale, kind of where are we today,
Speaker 1: how did we get here, and maybe where should we
Speaker 1: be thinking about going over the next several years. Yeah,
Speaker 1: So the world food supply, the store of food typically
Speaker 1: gives us about ninety days of calories in terms of
Speaker 1: what's consumed around the world, and the Ukraine crisis has
Speaker 1: caused UM several acute shortfalls and a lot of the
Speaker 1: key inputs that drive agricultural production. So the price for
Speaker 1: your rea, which is like the nitrogen fertilizer that's used,
Speaker 1: it's primarily driven by natural gas prices, which as we
Speaker 1: all know, have spiked with the conflict, and that prices
Speaker 1: two to three x where it was before the conflict began.
Speaker 1: Same with FoST fates and potash they're also elevated. And
Speaker 1: so we're seeing not just the acute food um supply
Speaker 1: chain problem because we can't be exported from Russia Ukraine,
Speaker 1: but we're seeing this longer range problem start to manifest,
Speaker 1: where the amount of fertilizer that's being used to farm
Speaker 1: around the world is going down because it's gotten so expensive.
Speaker 1: And when fertilizer goes down, food production goes down. And
Speaker 1: when you only have ninety days of calories on earth,
Speaker 1: the folks that are most worried about that, that can
Speaker 1: afford to buy more food, buy up all the crops,
Speaker 1: buy up all the grains, and so then we see
Speaker 1: the rich nation stock up, prices go through the roof,
Speaker 1: and the poorer nation like Egypt, Bonisia, all the countries
Speaker 1: in the Horn of Africa start to suffer because they
Speaker 1: no longer can afford access to these crops in these grains,
Speaker 1: and people start to march towards starvation. And so the
Speaker 1: UN is estimating that an incremental million people are now
Speaker 1: marching towards starvation because of this shortfall. And it's like
Speaker 1: a slow moving train. It didn't happen overnight. It's that
Speaker 1: production level they're declining, availability of declining. Rich nations are
Speaker 1: stocking up on grain and the poorer nations are slowly
Speaker 1: starting to eat through their grain and and struggle immensely.
Speaker 1: So we could see, you know, going from a low
Speaker 1: point of about five fifty million people that around the
Speaker 1: world were declared under nourished um suddenly that number could
Speaker 1: spike to over a billion. And so this is a
Speaker 1: real humanitarian crisis. And I mean, I mean, the interesting
Speaker 1: takeaway I think is that not only is Vladimir Putin,
Speaker 1: you know, endangering the lives of a hundred million people
Speaker 1: in Ukraine with his war there, but also possibly pushing
Speaker 1: another billion people on planet Earth towards our starvation. The
Speaker 1: whole conflict is causing a massive set of unintended maybe
Speaker 1: on it in the second and third order consequences, and
Speaker 1: this being one of I think the most significant of
Speaker 1: a non economic nature. What can be done about it?
Speaker 1: By the way, David, what is there anything you know,
Speaker 1: short of stopping Putin? Is there anything the rest of
Speaker 1: the world can do to try and prevent this starvation crisis?
Speaker 1: The UN has an agency called the World Food Program
Speaker 1: UH and the World's Food Program has asked for a
Speaker 1: budget increase its twenty billion a year, which there are
Speaker 1: then going to be using to effectively by grain on
Speaker 1: the open market from the you know, at the higher
Speaker 1: prices and make them available to the nations that are
Speaker 1: most in need. That's kind of an acute solution. They're
Speaker 1: also managing the logistics of getting weak supplied out of Russia,
Speaker 1: Ukraine out of those ports and getting them to the
Speaker 1: nations in need. So that work is underway. It's a
Speaker 1: very expensive, very difficult work. The US is now covering
Speaker 1: I believe, of that budget for the U n to
Speaker 1: drive that that that availability. The longer range problem is,
Speaker 1: I think needs to be resolved not just by saying, hey,
Speaker 1: we can make more fertilizer, which we need to do, um,
Speaker 1: but the prices are high. But there's a lot of
Speaker 1: technologies and agriculture that can increase productivity without using as
Speaker 1: much fertilizer and so were you know. But the problem
Speaker 1: is that's not going to resolve in the next year.
Speaker 1: But over time, we do believe that we should be
Speaker 1: able to see a doubling of ag productivity around the
Speaker 1: world through a number of novel technologies that are that
Speaker 1: are in market or you know, starting to kind of
Speaker 1: come to market. So what role do you guys at
Speaker 1: the at the production board play do you invest in
Speaker 1: in some of these companies these technologies, Yeah, we're investors
Speaker 1: in agricultural technology businesses, were also in the process of
Speaker 1: taking the largest agricultural retailer in Latin America called Laboro
Speaker 1: Agro Public via our back vehicles, and we think that's
Speaker 1: a very strategic transaction because Latin America, the acreage to
Speaker 1: produce food in Latin America is almost as large as
Speaker 1: the US, and Latin America is the largest agg exporting
Speaker 1: market in the world, and corn farmers in Brazil are
Speaker 1: getting half the yield of what corn farmers in the
Speaker 1: United States are getting with equivalent soil and equivalent sunlight
Speaker 1: and the water. So by bringing new technology to that
Speaker 1: market and teaching farmers how to better use that technology
Speaker 1: that are used the products and tools that they have, UM,
Speaker 1: we should be able to see a massive increase in productivity.
Speaker 1: Brazil is already estimated to be the largest agg export
Speaker 1: market in the world, ahead of the US in the
Speaker 1: next few years. UM. So we're very excited about Latin
Speaker 1: America and the potential there. It's a key part of
Speaker 1: the economy. It's very well supported by the government and
Speaker 1: UM and we think that that can be a great
Speaker 1: unlock in terms of global calorie availability, which is critically
Speaker 1: needed right now. All Right, David Good stuff. We learned
Speaker 1: a lot there. Keep in touch with us and let
Speaker 1: us know how this is developing. Going to be a
Speaker 1: long obviously is a long term you sure? David Friedberg,
Speaker 1: founder of the Production Board, giving us some thoughts on
Speaker 1: what is a key topic a copy seven, which is
Speaker 1: food insecurity. And then unfortunately the war in Irand is
Speaker 1: exacerbating what was already in Ukraine. Ukraine, thank you, was
Speaker 1: already a very difficult problem on on global scales. I
Speaker 1: don't know, man, you think about this economy. Everybody's kind
Speaker 1: of got a job at once one, they're spending money
Speaker 1: at their retail sales came in today a little bit
Speaker 1: better and expected to gain of one point three percent
Speaker 1: month to month, but consensus was one but but target
Speaker 1: horrible miss on the top and bottom line, cutting their forecasts. Um,
Speaker 1: I don't understand what's going on. Maybe they just missed it. Well, no,
Speaker 1: because they say that at least shoppers their business are
Speaker 1: pulling back. I don't know Walmart had good numbers. Let's
Speaker 1: talk to a professional about this. Uh Aji Solanki, uh
Speaker 1: National Director of Retail Services for the US at Colliers
Speaker 1: that is a Nastack traded company. Uh C I g
Speaker 1: I is the symbol and so help us square the
Speaker 1: circle here. We had some good retail sales numbers, They
Speaker 1: had some good Walmart stuff, but then Target misses it
Speaker 1: a Target specific issue, do you think or is it
Speaker 1: just depending upon what consumer you're looking at. Yeah, I
Speaker 1: would say definitely that. Um it's it's a little confusing
Speaker 1: yet disappointing because we are seeing some strong numbers. So
Speaker 1: we did a bit of a deep dive into Target specifically,
Speaker 1: and this is not a Target only So what what's
Speaker 1: happening here is a couple of things. One, if you
Speaker 1: look at Target, they maintain a very balanced sales mix,
Speaker 1: you know, between food and general merchandise. And if you
Speaker 1: look at their year over year sales growth, it's still
Speaker 1: have a positive three point four per cent. However, they
Speaker 1: are starting to see a slow down as it relates
Speaker 1: to discretionary items. And when you look at discretionary items,
Speaker 1: those impulse by um items, they're going to have, you know,
Speaker 1: a higher margin and therefore they're going to see some
Speaker 1: awesome profit there in addition to discounting the inventory that
Speaker 1: they had and acquired a little too much of. Yeah,
Speaker 1: so we heard from the CEO Target Brian Cornell. He
Speaker 1: said in a statement that um guests shopping behavior increasingly
Speaker 1: is increasingly being impacted by inflation, which is clear rising
Speaker 1: interest rates, got it? And economic uncertainty uncertainty. Why isn't
Speaker 1: that hurting Walmart guests? Or is it hurting guests across
Speaker 1: the industry? And Walmart just did a better job of
Speaker 1: putting out his numbers. You know what it is between
Speaker 1: the Walmart and Targeted some a couple of really interesting facts.
Speaker 1: One is that if you look at targets food sales,
Speaker 1: the food is definitely something that you know, people are
Speaker 1: going to continue to to buy, right, we need to
Speaker 1: eat and stay healthy, etcetera. But if you look at
Speaker 1: Target food sales in terms of historical percentages versus Walmart,
Speaker 1: target food sale represents about twenty whereas Walt Walmart's is
Speaker 1: fifty five events. So when we're in this call it inflationary, um,
Speaker 1: you know, uh, mindset and being cautious we're going to
Speaker 1: spend on food. But I think Walmart's numbers are better
Speaker 1: because they have a higher percentage in terms of food sales. Auntie,
Speaker 1: you know, Matt's got his holiday shopping already done, but
Speaker 1: I haven't even thought about it. So give us a
Speaker 1: sense of how you think holiday sales will be this year.
Speaker 1: What's the expectation that some of the retailers are putting
Speaker 1: out there. Yeah, so what we're seeing right now is
Speaker 1: um in terms of holiday sales, it's really interesting. It's
Speaker 1: going to be UM, you know, we're we're kind of
Speaker 1: right now looking at still an average spend on holiday
Speaker 1: shopping around eight hundred and fifty dollars on gifts, which
Speaker 1: has been the average for the past ten years. Um.
Speaker 1: You know, we're still seeing what we're calling this, you know,
Speaker 1: um home wealth effect, where people are still feeling a
Speaker 1: little good about you know, that home equity that they have,
Speaker 1: and so um, you know, with that, you know, people
Speaker 1: are going to spend a little bit more, so those
Speaker 1: that have you know, you know, our comfort level of
Speaker 1: spending a bit more with higher incomes, we're actually going
Speaker 1: to see a rise in in holiday spent. So we're
Speaker 1: gonna I it's not going to be an extreme boom
Speaker 1: or boost, but we're going to still feel a good
Speaker 1: positive effect through through the next two months in terms
Speaker 1: of holiday spending and gift giving and getting together with families.
Speaker 1: I've noticed a couple of concerning UM shipping news items
Speaker 1: FedEx for example, it's freight units putting workers on furlough
Speaker 1: in some US markets. That adds to the evidence we've
Speaker 1: seen of a cargo slow down UM. That evidence is
Speaker 1: really the shipping rates UM getting weaker and weaker, framing
Speaker 1: a real problem for this industry in three. But what
Speaker 1: does that say about sales? Retail sale US are? You know?
Speaker 1: And I think you know, there's a couple of things
Speaker 1: that a lot of the retailers are still kind of
Speaker 1: going through. As I mentioned earlier, the the additional inventory.
Speaker 1: That inventory is still going through its correction, so there's
Speaker 1: still enough inventory to at least look as though you're
Speaker 1: walking into the stores, you're seeing inventory you're gonna you're
Speaker 1: gonna buy, you're gonna shop, you're gonna spend. It's I
Speaker 1: think it's it's that correction that's occurring that will occur
Speaker 1: through the end of three and there hopefully by that
Speaker 1: point we'll start to see some adjustments as it relates
Speaker 1: to items being you know, UM shifted and sent to
Speaker 1: the US. All right, great stuff. Really appreciate it. That
Speaker 1: kind of bringing into focus kind of what we're seeing
Speaker 1: at there in retail land on J. Slanki, National director
Speaker 1: of Retail Services for the United States at Collier's and
Speaker 1: Collier's International Group. It is a public and traded symbol
Speaker 1: c I g I is a symbol. It's got about
Speaker 1: a four billion dollar market cap. So they're out there
Speaker 1: doing their thing here. So retail sales numbers, you know,
Speaker 1: came in pretty solid today. So it kind of and
Speaker 1: if you have the the I guess the food sales,
Speaker 1: shared sales, that's big that you know, That's what I guess.
Speaker 1: That's the difference between what we saw from Warm and
Speaker 1: what we saw from Target today. You really need to
Speaker 1: get an update on what's going on in the Ukraine.
Speaker 1: It looks like the world, you know, kind of dodged
Speaker 1: the worst case scenario or bad case scenario yesterday with
Speaker 1: it missile falling into Poland. But let's get the latest
Speaker 1: with Mick Mulroy, co founder of the Lobo Institute. He's
Speaker 1: a former Deputy Assistant Secretary of Defense for the Middle
Speaker 1: East at the U s Department of Defense. He was
Speaker 1: at the c i A for like nineteen years. Former
Speaker 1: US Marine Infantry officers, so the guy has done it all.
Speaker 1: Mick again, it kind of looks like the world kind
Speaker 1: of dodged a little bit of a bullet there yesterday.
Speaker 1: It could have been a much worse scenario. But what's
Speaker 1: your latest take on what's kind of evolving over in
Speaker 1: the Ukraine. So good to be with you, and I
Speaker 1: think you're exactly right. We did dodge a bullet, and
Speaker 1: I think that's a testament to taking the time to
Speaker 1: make the assessment, look at the radars and determine exactly
Speaker 1: what happened, And it looks like although it was a
Speaker 1: Russian made missile, it was it was fired from a
Speaker 1: Ukrainian air and missile defense system which may have actually
Speaker 1: hit the incoming missile and then and from that trajectory,
Speaker 1: which is really impossible to determine, it came down into
Speaker 1: Poland uh and caused death. So it's a horrible event,
Speaker 1: certainly for the people who were killed in their families.
Speaker 1: But it did look does now look like it wasn't
Speaker 1: an intended act by Russia, so it wouldn't require Article five,
Speaker 1: which is this uh common defense under NATO. Although even
Speaker 1: if it was you know, um a missile fired by
Speaker 1: Russian troops that accidentally went into Poland, you know, that's
Speaker 1: got to be expected when they're fighting along the border,
Speaker 1: and they are right. Um, you know that doesn't matter
Speaker 1: if it was you know, with intent. I mean, if
Speaker 1: if Vladimir putin wages of war in Ukraine and then
Speaker 1: it starts, and then he starts killing people and Poland
Speaker 1: and Moldova and other neighboring countries, Um, don't we have
Speaker 1: to hold them accountable for that? Well, that's exactly right.
Speaker 1: And I think both the President of Poland and the
Speaker 1: Hope and NATO leaders have said this is directly caused
Speaker 1: by Russia's unlawful and unprovoked invasion of Ukraine, So they
Speaker 1: are the reason for this. They've Ukrainians have had to
Speaker 1: defend themselves against a sustained barrage of missiles targeting civilian
Speaker 1: infrastructure and violation and the law of arm conflict. So
Speaker 1: this is definitely Russia's fault. And this is the consequences
Speaker 1: of firing at targets near the border of Poland. Make
Speaker 1: the likelihood that some missiles, either theirs or the ones
Speaker 1: trying to defend, are going to come down in Poland.
Speaker 1: So the consequences I think obviously it will be different
Speaker 1: since we I think, right now the belief that it
Speaker 1: wasn't intentional, it wasn't Russia, but certainly economic diplomatic consequences
Speaker 1: I still think are in order. But it But as
Speaker 1: you said in the first question, it looks like the
Speaker 1: most significant concern, which was an escalation into a conflict
Speaker 1: Beteenado on Russia, is not the case. Mick. You know,
Speaker 1: this past couple of days just shows all of the risks.
Speaker 1: Are some of the risks that are out there that
Speaker 1: you know. It's not on the strictly the battle fold.
Speaker 1: It can it can spill over it and get even
Speaker 1: deeper and much more broad. Um So the question for
Speaker 1: a lot of folks is how does this end? I mean,
Speaker 1: is it up to the West to try to come
Speaker 1: up with some way to give putin, some way to
Speaker 1: save face and get out of there. So it ultimately
Speaker 1: is up to the Ukrainians as well. They are the
Speaker 1: ones that are fighting the fight. They are the ones
Speaker 1: that are taking all the losses and the consequences essentially
Speaker 1: are supporting them. Right now, the counter offenses that they've
Speaker 1: launched are successful, and it is pretty apparent that Russia
Speaker 1: cannot even keep the gains that they had made, let
Speaker 1: alone getting a new territory. So they're losing, and that's
Speaker 1: a that's a dangerous position to be in because uh,
Speaker 1: it's it's unlikely that uh the president of Russia, President Putin,
Speaker 1: can withstand losing a war and maintaining power. So how
Speaker 1: does it end? I think right now our positions be.
Speaker 1: It ends with Russia leaving all all of Ukrainian territory. Uh,
Speaker 1: They'm agreeing to reparations for the damage they cause and
Speaker 1: that those that have committed these atrocities be held responsible
Speaker 1: international criminal court. So I don't see that happening, but
Speaker 1: I think that will be the position of the Ukrainians
Speaker 1: and hopefully supported by NATO. What is your take on
Speaker 1: UM combatants targeting civilian infrastructure? I mean, we wouldn't have
Speaker 1: I think it's probably a decent argument that we wouldn't
Speaker 1: have one World War two UM when we did if
Speaker 1: we hadn't you know, fire bombed carpet bomb Dresden and
Speaker 1: knocked out UM to Japanese cities with nuclear weapons. It
Speaker 1: seems like, in fact, all major wars UM involve targeting
Speaker 1: civilian infrastructure. So it's weird to say that it's illegal. UM.
Speaker 1: Isn't it something that you know happens in war. So
Speaker 1: it certainly did, and all the examples you just brought
Speaker 1: up are good examples of that. But at the end
Speaker 1: of War War two, we had what we called the
Speaker 1: Geneva and Hague Conventions, and the whole purpose of which
Speaker 1: was to avoid what we saw in World War two
Speaker 1: with this massive deaths of civilians and targeting of infrastructures.
Speaker 1: So that was a international decision, and these are conventions
Speaker 1: that countries signed on too, so we would avoid one
Speaker 1: of the most extreme atrocities we saw in previous wars.
Speaker 1: So currently, I mean, if we went to war against Russia,
Speaker 1: let's just say, um, wouldn't we be smart to target
Speaker 1: their civilian infrastructure? So one could make a, you know,
Speaker 1: the cold dual purpose argument that you have to knock
Speaker 1: off the power because the power obviously has an effect
Speaker 1: on the oppositions military capability. Celiberately targeting civilians themselves is
Speaker 1: obviously war crime and atrocity, and I certainly would never
Speaker 1: uh support that from my own country. Uh. But and
Speaker 1: also it's important to point out that Ukraine was the
Speaker 1: one that was attacked. Russia was the one who did
Speaker 1: the invasion. There, the aggressor it's against all international rules,
Speaker 1: norms and conventions. So they have they have been in
Speaker 1: violation of the law since the day they stepped across
Speaker 1: the the Ukrainian border. Even if they would have done
Speaker 1: the trocities that they have done, they still would have
Speaker 1: been in complete violation of the law on conflict. And Mike,
Speaker 1: what WO does it tell you when Russia announces that
Speaker 1: curse On has now been annexed and then it seems
Speaker 1: like the next week they lose it. Are they really
Speaker 1: in that week of a military position? I think so?
Speaker 1: I mean you would you would think that if they
Speaker 1: if they're going to illegally, of course, but annex something
Speaker 1: that that that they didn't even think they could keep it.
Speaker 1: Just it's just fodder for everybody, uh, not just internationally
Speaker 1: but also in Russia that thinks this war is going
Speaker 1: completely the wrong direction. And I think you're seeing more
Speaker 1: and more and hearing more and more voices in Russia
Speaker 1: for an end to this conflict. Maybe that is what
Speaker 1: causes pot and ultimately decides to withdraw Alright, great stuff,
Speaker 1: make We really appreciate getting some of your time. In
Speaker 1: your perspective, of course, mc mulroy, he's the co founder
Speaker 1: of the Lobo Institute, decades of experience in the US military,
Speaker 1: uh in intelligence at c i A and then of
Speaker 1: course at the Department of the and so just an
Speaker 1: extraordinary background to get access to him. Thanks for listening
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen
Speaker 1: seventy three and on Fall Sweeney I'm on Twitter at
Speaker 1: pt Sweeney. Before the podcast. You can always catch us
Speaker 1: worldwide at Bloomberg Radio.