WEBVTT - Surveillance: Pelosi's Taiwan Visit with Cohen (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.160 with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:31.120 and of course on the Bloomberg terminal. Sometimes you get 0:00:31.160 --> 0:00:34.120 lucky in your scheduling. We do that with William Cohen. 0:00:34.720 --> 0:00:38.040 To say he's chairman and chief executive officer of Cohen 0:00:38.080 --> 0:00:42.159 Group barely describes it. He's a former Secretary of Defense, 0:00:42.200 --> 0:00:45.760 and of course this public service and really bipartisan approach here, 0:00:46.240 --> 0:00:50.000 but far more back to Nixon Kissinger on China, he 0:00:50.440 --> 0:00:53.680 among few is on the high ground. Maybe Mike Mansfield 0:00:53.920 --> 0:00:56.960 up in Jaman, up in Japan would be somewhat the 0:00:57.000 --> 0:01:01.160 equivalent Secretary Cohen. We're honored to have you here today. 0:01:01.360 --> 0:01:06.080 Is Speaker Pelosi making the right decision if she travels 0:01:06.120 --> 0:01:11.600 and lands in Taipei and greets the Taiwanese people. Well, 0:01:11.640 --> 0:01:14.480 I think what we have to do is understand what 0:01:14.640 --> 0:01:19.200 our policy towards China is and what our strategy is. 0:01:19.920 --> 0:01:23.880 We have taken a one China policy, Uh as far 0:01:23.959 --> 0:01:28.399 as the last fifty sixty years, and the question then becomes, 0:01:28.440 --> 0:01:31.920 what is our strategy for implementing that. Do we make 0:01:31.959 --> 0:01:34.360 a decision do we want to have any kind of 0:01:34.400 --> 0:01:37.160 a positive relationship going forward, and if so, how do 0:01:37.240 --> 0:01:39.760 we get there? And so I think what has happened 0:01:39.760 --> 0:01:43.120 with Speaker Pelosi's trip is she has raised very high 0:01:43.120 --> 0:01:47.960 expectations in Taiwan, very high anxieties in China. I believe 0:01:48.920 --> 0:01:51.840 that are how we deal with the Taiwan is a 0:01:52.040 --> 0:01:54.640 very big, bright red line as far as the Chinese 0:01:54.680 --> 0:01:59.400 are concerned, and I think they will respond, if not militarily, 0:01:59.480 --> 0:02:01.760 I don't expect that to take place. If she should 0:02:01.800 --> 0:02:04.400 go to Taiwan, I think they will find a way 0:02:04.440 --> 0:02:08.000 to respond in their own fashion that will inflict some 0:02:08.080 --> 0:02:10.639 harm upon us. So it's got a tough decision to make. 0:02:10.680 --> 0:02:14.799 The military is apparently indicated it's rather dangerous time for 0:02:14.919 --> 0:02:17.400 us in the region, and she'll have to take that 0:02:17.440 --> 0:02:20.480 into account. In the arc that we have of our 0:02:20.520 --> 0:02:25.440 relationship with China A one China and with FOREMOSTA with Taiwan, 0:02:26.080 --> 0:02:30.760 there have been assurances six assurances over time. You are 0:02:30.840 --> 0:02:35.680 directly involved with that. How strong are our six assurances 0:02:36.000 --> 0:02:42.880 to Taiwan. Well, it's the assurances are inconsistent with the 0:02:42.880 --> 0:02:45.520 passage of the Taiwan Relations Act, and I was a 0:02:45.520 --> 0:02:49.040 part of that. Going back to nine, we said that 0:02:49.120 --> 0:02:52.760 we will help provide for the defense of Taiwan. Since 0:02:52.800 --> 0:02:56.960 that time, President Biden has said we will defend Taiwan. 0:02:57.600 --> 0:03:01.040 That has caused great confusion in terms not only with China, 0:03:01.120 --> 0:03:04.800 but also our Asian allies. All of those in the 0:03:04.840 --> 0:03:09.160 Asia Pacific region are now the Indo Pacific region are concerned. 0:03:09.280 --> 0:03:11.640 What does that mean? Are we prepared to go to 0:03:11.760 --> 0:03:15.520 war with China over Taiwan and will they be with us? 0:03:15.919 --> 0:03:18.360 So we have to get more clarity in terms of 0:03:18.400 --> 0:03:21.359 exactly what we're prepared to do. Is it just helped 0:03:21.680 --> 0:03:25.840 provide defensive equipment or actually go to war should China 0:03:25.919 --> 0:03:28.880 try to attack Taiwan. So this confusion that needs to 0:03:28.919 --> 0:03:33.360 be clarification, and that's something I would think that speak of. 0:03:33.400 --> 0:03:37.000 Pelosi has talked with the administration, has talked obviously to 0:03:37.040 --> 0:03:39.840 the military, and I think during this trip she needs 0:03:39.880 --> 0:03:42.280 to talk and we'll talk with all of our allies 0:03:42.320 --> 0:03:44.800 in the Asia Pacific region because they have a lot 0:03:44.840 --> 0:03:47.560 at stake in terms of what we'll do and what 0:03:47.560 --> 0:03:51.000 will fail to do should there be a conflict, Secretary 0:03:51.160 --> 0:03:54.640 as at tensions begin and continue to really escalate in 0:03:54.680 --> 0:03:57.560 a new way between China and the US. Is the 0:03:57.640 --> 0:04:00.720 US dealing with a weekend or an emboldened Jijian paying 0:04:00.840 --> 0:04:05.760 a strength in Jijian Ping then perhaps a few years ago. Well, 0:04:05.800 --> 0:04:09.160 I think he's much stronger than he's ever been. I 0:04:09.200 --> 0:04:11.560 think that he will not be contested in the so 0:04:11.640 --> 0:04:15.760 called election coming up. I think you'll have a third term. 0:04:15.800 --> 0:04:18.920 And I think the Chinese will regard this, even though 0:04:18.960 --> 0:04:21.479 we've tried to persuade them that this is something that 0:04:21.560 --> 0:04:27.360 we do. We defend democracies, we defend human rights, they 0:04:27.400 --> 0:04:29.920 will see this as pointing a finger in the eye 0:04:30.000 --> 0:04:32.760 of Titian pay. And I think when we talk about 0:04:32.760 --> 0:04:36.800 red lines, going back to red lines with Russia, for example, 0:04:37.200 --> 0:04:40.120 going back as early as two thousand three, Bill Burns, 0:04:40.120 --> 0:04:44.239 our current CIA director, wrote to the Bush administration said 0:04:44.720 --> 0:04:47.760 Russia will see any move on the part of Ukraine, 0:04:47.960 --> 0:04:51.200 Tornado or EU as a red line that they will 0:04:51.200 --> 0:04:54.640 not allow Ukraine to cross. Well, that was twenty years ago. 0:04:55.000 --> 0:04:57.800 I think from what my travels in the entire region 0:04:58.240 --> 0:05:00.680 China will see this as a red line and they 0:05:00.680 --> 0:05:04.640 will find a way to take reaction to the United 0:05:04.680 --> 0:05:08.200 States that will in some way impact negatively upon the 0:05:08.279 --> 0:05:11.000 US and our allies. So it's one of those issues 0:05:11.440 --> 0:05:14.680 the Chris Christofferson song is the going up worth the 0:05:14.800 --> 0:05:18.160 coming down? We will have to decide is going up 0:05:18.200 --> 0:05:21.120 in terms of ratcheting up the attentions with China with 0:05:21.200 --> 0:05:25.000 China worth coming after that? What will be the nature 0:05:25.080 --> 0:05:28.480 of the relationship. Will we still be engaged with China 0:05:28.839 --> 0:05:31.440 or do we want to follow a policy of decoupling. 0:05:31.800 --> 0:05:36.360 Can we pull our economic engagement with China out? And 0:05:36.400 --> 0:05:39.960 if we pull out, will the European allies pull out? 0:05:40.360 --> 0:05:43.640 Will the Southeast Asian allies pull out? So these are 0:05:43.680 --> 0:05:46.520 all issues tied up with our relationship with China. So 0:05:46.680 --> 0:05:51.400 it's not easy. It's very complicated. Secretary, just quickly here. 0:05:51.839 --> 0:05:54.880 Do you think that this trip by Nancy Pelosi is 0:05:54.880 --> 0:05:59.600 advisable or a grave mistake? I don't know the answer 0:05:59.600 --> 0:06:01.719 to that. I would think that one option would be 0:06:01.880 --> 0:06:06.159 to um say that you will visit Taiwan, but perhaps 0:06:06.200 --> 0:06:08.719 at a later time. That would be one option. But 0:06:08.839 --> 0:06:11.440 she may feel that she's compelled to do so now, 0:06:11.880 --> 0:06:14.960 but understanding what the risks are. I think it's going 0:06:15.040 --> 0:06:18.520 to be complicated again because of expectations that she's being 0:06:18.560 --> 0:06:22.000 pushed by Republicans and Democrats to go. I think the 0:06:22.000 --> 0:06:25.120 administration slashing a warning sign without telling her not to. 0:06:25.600 --> 0:06:28.359 So the decision ultimately will be up to her, but 0:06:28.440 --> 0:06:32.040 I think it does. It certainly has some grave dangerous involved. 0:06:32.040 --> 0:06:34.640 There are many who feel China's bluffing. I don't think 0:06:34.720 --> 0:06:37.719 China's bluffing. William Cohen, thank you so much. We looked 0:06:37.760 --> 0:06:41.560 forward to speaking to you again, particularly on the US military. 0:06:41.640 --> 0:06:44.160 In a in a fract just two thousand and twenty two, 0:06:49.880 --> 0:06:52.560 Laura Ram joins US right now FS Investments with a 0:06:52.640 --> 0:06:56.320 really really sharp note about what to watch as we 0:06:56.440 --> 0:06:59.479 vault into August. Let me take you back to March 0:06:59.680 --> 0:07:03.880 of the beginning of the pandemic. Claims exploded higher five 0:07:03.920 --> 0:07:07.640 point nine million. I believe that number is. It's a 0:07:07.720 --> 0:07:10.520 huge statistic, and we've come down to the glory two 0:07:10.640 --> 0:07:13.360 years later of a hundred and seventy one thousand with 0:07:13.440 --> 0:07:16.840 a survey this Thursday of two hundred and sixty thousand. Laura, 0:07:16.880 --> 0:07:19.960 good morning. You say it is these statistics that matters, 0:07:20.280 --> 0:07:24.200 and you benchmarketed two hundred eighty thousand, how close are 0:07:24.200 --> 0:07:27.480 we to get into the rum two hundred eighty thousand. 0:07:28.880 --> 0:07:33.000 Still think we're about a quarter away from getting to 0:07:33.080 --> 0:07:37.720 a level that much more clearly predicts a recession as 0:07:37.880 --> 0:07:42.600 defined by the body that really is the arbiter of this, 0:07:42.720 --> 0:07:46.840 the official referee um. You know, claims typically bottom about 0:07:46.920 --> 0:07:50.520 nine to twenty four months ahead of a recession, and 0:07:50.640 --> 0:07:54.119 they bottomed back in March at a very historically low level, 0:07:54.560 --> 0:07:57.080 but they've been slowly creeping up, and there's a seasonal 0:07:57.120 --> 0:07:59.680 component to that. I think that's why I'm watching something 0:07:59.760 --> 0:08:02.800 a little bit higher, more like two eight, to try 0:08:02.840 --> 0:08:07.000 to differentiate between something that's more cyclical and something that's 0:08:07.000 --> 0:08:10.520 just easy. Does the FED weight is the fed ex 0:08:10.680 --> 0:08:13.440 post where they just have to wait for the lower 0:08:13.520 --> 0:08:18.360 rain to or the act before so that you know 0:08:18.400 --> 0:08:21.240 they're acting. And I think this is the big you 0:08:21.280 --> 0:08:24.840 know question that we saw after Wednesday, right, the markets 0:08:24.840 --> 0:08:28.200 are now really pricing in rate cuts and it's caused 0:08:28.280 --> 0:08:32.560 the FED funds futures curve to diverge significantly from the 0:08:32.640 --> 0:08:36.200 dot plot um, which you know, I grant you the 0:08:36.280 --> 0:08:39.880 FED really has removed there forward guidance piece of this, 0:08:40.240 --> 0:08:42.000 but I do think that that is going to be 0:08:42.120 --> 0:08:45.760 at the core of FED speak this week. FED speakers 0:08:45.800 --> 0:08:49.720 are looking at the market reaction and the higher inflation 0:08:49.880 --> 0:08:53.760 is a game changer. You cannot price in the same 0:08:53.800 --> 0:08:56.400 FED that we had in two thousand eighteen. You can't 0:08:56.440 --> 0:09:00.640 price the same reaction function at the first sign of weakness. 0:09:00.720 --> 0:09:02.920 And we're already seeing that the FED is not gonna 0:09:02.920 --> 0:09:05.000 be able to come in and ride to the rescue 0:09:05.000 --> 0:09:08.040 with rap cuts with the same speed and flexibility that 0:09:08.080 --> 0:09:10.160 they would have, and we have inflation a super second. 0:09:10.520 --> 0:09:14.000 What's driven you crasia the recession debate or the interpretation 0:09:14.080 --> 0:09:18.320 of that meeting last week of this FED. I think 0:09:18.360 --> 0:09:23.199 the recession debate, to me, is really taking the oxygen 0:09:23.240 --> 0:09:26.959 away from what we really need to be focused on, 0:09:27.440 --> 0:09:29.720 because the start date of the recession at the end 0:09:29.720 --> 0:09:33.280 of the date is really only good for years later 0:09:33.520 --> 0:09:37.200 when we're comparing it to other recessions. The reality is 0:09:37.240 --> 0:09:40.400 the economy is weakening, It's probably going to weaken further. 0:09:40.920 --> 0:09:45.920 Job losses are the hallmark of the classic definition of 0:09:46.000 --> 0:09:51.600 recession that or they're a hallmark component of that, and 0:09:51.880 --> 0:09:56.480 looking forward there's more, probably more weakness ahead. And you 0:09:56.520 --> 0:09:59.480 know right now Q three GDP is actually shaping up 0:10:00.040 --> 0:10:04.000 to be positive, a small positive, But I think we 0:10:04.080 --> 0:10:06.240 really need to wait. That there's another shoe out there 0:10:06.280 --> 0:10:09.199 to drop, and it's the jobs. And the FED probably 0:10:09.240 --> 0:10:12.800 said that about ten times that to them, they're really 0:10:13.640 --> 0:10:17.720 going to continue to address inflation primarily until they see 0:10:17.800 --> 0:10:19.680 problem with the jobs. It's in the first line of 0:10:19.679 --> 0:10:22.080 the statement. You can see in the first paragraph they 0:10:22.080 --> 0:10:25.360 reference the jobs market, writes the question, what do you 0:10:25.400 --> 0:10:28.600 expect to see that weakness bleed into the labor market? 0:10:28.679 --> 0:10:32.040 It's Friday too soon? Is next month too soon? Yeah? 0:10:32.120 --> 0:10:35.280 It is too soon. We've seen this consistent strength. We 0:10:35.320 --> 0:10:38.640 still have the job openings. It's not it's something that 0:10:38.760 --> 0:10:41.480 I don't really affect to materialize until the fourth quarter 0:10:41.960 --> 0:10:44.080 or even early in the first quarter next year. Which 0:10:44.160 --> 0:10:46.720 raises a question, Laura, about whether the dual mandate of 0:10:46.760 --> 0:10:50.400 the Fed comes into question at that point, whether inflation 0:10:50.760 --> 0:10:53.280 starts to become less of the obvious goal if the 0:10:53.320 --> 0:10:56.079 labor market is also struggling. Do you think that when 0:10:56.120 --> 0:10:59.520 we get there, inflation will have come down significantly to 0:10:59.559 --> 0:11:02.600 a level where it will be a more comfortable discussion 0:11:02.679 --> 0:11:06.520 for the Federal Reserve to have. No it's so much 0:11:06.600 --> 0:11:09.560 has to go right to get inflation back down to 0:11:09.640 --> 0:11:13.520 anything close to where the FED can plant a flag 0:11:13.559 --> 0:11:17.760 in a clear victory. You need either deep energy price deflation, 0:11:18.280 --> 0:11:20.880 you need rents to turn around, and you need durable 0:11:20.920 --> 0:11:26.160 goods price deflation. All those three components will be required. 0:11:26.559 --> 0:11:28.640 And right now I'm looking at your end g d P, 0:11:28.840 --> 0:11:32.200 it's hard to even get it below seven percent UM. 0:11:32.240 --> 0:11:34.640 You know, my forecast still is around six percent, but 0:11:34.920 --> 0:11:38.760 that's looking increasingly optimistic with every month UM where you 0:11:38.840 --> 0:11:42.760 just get these reports filled with upside surprises and inflation 0:11:42.880 --> 0:11:46.000 bubbling up from virtually every quarter of the economy. So 0:11:46.120 --> 0:11:48.960 it's a lot of economic uncertainty over the next year. 0:11:49.440 --> 0:11:52.680 And this is something that traditional you know, equity markets 0:11:52.720 --> 0:11:55.400 just haven't wrapped their head around. They're looking at a 0:11:55.440 --> 0:11:59.439 more classic V shape recovery, and I would argue we 0:11:59.520 --> 0:12:01.520 still have an hit the bottom of that yet. Just 0:12:01.640 --> 0:12:04.680 quickly here, Laura, given the fact that FED Chair J. 0:12:04.760 --> 0:12:06.959 Powell came out and said that we are getting closer 0:12:07.000 --> 0:12:09.560 to neutral, and that Larry Summers came out and said 0:12:09.559 --> 0:12:12.800 that that was indefensible where do you see this idea 0:12:12.840 --> 0:12:16.520 of neutral kind of evening out? You know, the their 0:12:16.679 --> 0:12:19.600 estimates of neutral are so based on their Phillips curve 0:12:19.640 --> 0:12:23.240 related models, and they really take for granted this deep 0:12:23.480 --> 0:12:27.040 durable goods price deflation that we've seen from China in 0:12:27.080 --> 0:12:31.440 the face of the globalization. Neutral is likely higher. Their 0:12:31.480 --> 0:12:34.200 models haven't caught up to that yet, and I think 0:12:34.280 --> 0:12:36.520 that's what so many of us are sort of pounding 0:12:36.520 --> 0:12:39.000 the table about. It's going to have to be a 0:12:39.080 --> 0:12:42.000 higher terminal rate. It may even be three and a 0:12:42.000 --> 0:12:45.880 half percent, but even that, I think would require a 0:12:45.960 --> 0:12:49.440 hawkish pivot from where markets are positioning today. Right. Thank 0:12:49.480 --> 0:12:57.320 you of FS Investment. This is a joy Edward Moore's 0:12:57.360 --> 0:13:01.440 defines a global oil and on analysis. He's how to 0:13:01.440 --> 0:13:03.360 come out of his research at City Group. Let's get 0:13:03.440 --> 0:13:05.800 right to it, Ad Morris, I want to talk about 0:13:05.840 --> 0:13:11.680 demand responsiveness or demand elasticity nation to nation. Is the 0:13:11.760 --> 0:13:15.960 demand dynamics of less demand in the United States the 0:13:16.040 --> 0:13:21.640 same as the demand dynamics say in Germany or Singapore. Absolutely, 0:13:21.720 --> 0:13:26.520 European economic conditions are worse than they are in the US. 0:13:26.720 --> 0:13:29.320 Compound that with the higher price and yes, we're not 0:13:29.360 --> 0:13:32.480 seeing any demand growth in Europe. We're not seeing very 0:13:32.559 --> 0:13:36.160 much demand growth around the world. It's just two prices 0:13:36.160 --> 0:13:38.280 are too high, and even though they've come off, the 0:13:38.360 --> 0:13:42.400 gasoline prices have come off, the continued strength of the dollar, 0:13:42.480 --> 0:13:45.120 even they'll use you noted, it's weakening, and just the 0:13:45.400 --> 0:13:48.360 sheer high price is to turn people from using the 0:13:48.400 --> 0:13:50.160 car as much as they were in the past. Do 0:13:50.240 --> 0:13:52.959 you assume out of the bulls and you've been right, 0:13:53.040 --> 0:13:55.959 right right in the last number of months, add morse, 0:13:56.040 --> 0:13:59.000 do you assume the demand clicks in if COVID is 0:13:59.040 --> 0:14:03.440 solved in Asia? Well, certainly there's one level where demand 0:14:03.440 --> 0:14:06.600 will absolutely kicked in, and that's jet field demand. China 0:14:06.720 --> 0:14:09.839 is a very large user of jet fuel. They've shut 0:14:09.880 --> 0:14:13.320 down international travel, so they've they've they're down about a 0:14:13.320 --> 0:14:15.280 million barrels a day from where they've been just on 0:14:15.320 --> 0:14:18.320 the jet fuel side. So yes, we do expect a 0:14:18.440 --> 0:14:20.600 year from now all our sequels that we're going to 0:14:20.640 --> 0:14:24.240 see significantly more jet field demand. We don't see that happening, 0:14:24.520 --> 0:14:27.640 by the way, in the other transportation fuels. We think 0:14:27.640 --> 0:14:31.000 gasoline and diesel are likely to remain weak unless for 0:14:31.040 --> 0:14:33.720 some reason there's going to be a rebirth of global 0:14:33.720 --> 0:14:37.120 trade um and some shot in the arm to to 0:14:37.240 --> 0:14:39.560 get people driving again. If this is the case, side, 0:14:39.560 --> 0:14:43.040 why are we not seeing inventories build more? Well, we 0:14:43.080 --> 0:14:45.760 are seeing inventories build. The problem is I've been such 0:14:45.840 --> 0:14:48.400 at such a low level. That's one of the problems. 0:14:48.400 --> 0:14:50.320 The other problem is that when we look back at 0:14:50.360 --> 0:14:52.880 the second quarter, there was a good inventory build, but 0:14:53.040 --> 0:14:55.120 most of it took place in China. We had a 0:14:55.160 --> 0:14:57.560 month and a half in which demand, real demand was 0:14:57.640 --> 0:15:00.800 down about a million barrels a day a little bit more, 0:15:01.120 --> 0:15:04.920 and we had inventories building because there was another million 0:15:04.920 --> 0:15:08.920 barrels a day of imports coming out of taking advantage 0:15:08.920 --> 0:15:12.320 of the low price of Russian crude and actually stock building. 0:15:12.400 --> 0:15:14.960 They We had a lot of imports of Saudi crude, 0:15:15.160 --> 0:15:18.160 up around seven hundred thousand barrels a day alone one 0:15:18.200 --> 0:15:21.560 month after the other. So the inventory building Q two, 0:15:21.760 --> 0:15:25.960 which is unevenly distributed, we're seeing actually an inventory build 0:15:26.000 --> 0:15:28.520 west of Suez right now, which is not seeing it 0:15:28.560 --> 0:15:31.480 in the US. The US is in this bizarre position 0:15:31.680 --> 0:15:35.640 of being not one market, but three or four different markets. 0:15:36.280 --> 0:15:39.680 We are an open market. We can't export other than 0:15:39.680 --> 0:15:43.080 by pipeline, and I used the word to export euphemistically. 0:15:43.160 --> 0:15:46.080 We had export from the Gulf coast to the East coast. 0:15:46.560 --> 0:15:50.240 Um uh. We can export to Europe and other places. 0:15:50.800 --> 0:15:55.200 The turning away from Russia by European countries and companies 0:15:55.440 --> 0:15:58.320 have had them turning to the United States. But last 0:15:58.360 --> 0:16:01.720 week the data from the A had US exports that 0:16:01.800 --> 0:16:04.480 are record high of ten point nine million barrellars a 0:16:04.520 --> 0:16:09.960 day growth ten point nine million of of of including 0:16:10.440 --> 0:16:12.920 well over four million barrels a day of crude oil. 0:16:13.040 --> 0:16:18.120 So we're having the kind of this discontinuities in the market, 0:16:18.720 --> 0:16:21.800 pulling oil out of the US going into other parts 0:16:21.840 --> 0:16:24.400 of the world. But there definitely is weakness on the 0:16:24.400 --> 0:16:27.560 inventory side, and we're seeing that in the level of backgradation. 0:16:28.240 --> 0:16:32.240 Prices have gone down. PROMP prices are going down when 0:16:32.280 --> 0:16:36.040 it comes to crude at a faster rate than deferred prices. 0:16:36.080 --> 0:16:38.800 The difference between the prompt month and the second month 0:16:38.880 --> 0:16:42.880 is narrowing, and we're seeing flows coming out of commodities. 0:16:43.160 --> 0:16:45.600 The liquidity of the market is low UH, and it's 0:16:45.640 --> 0:16:50.440 getting lower as people are abandoning commodities for other other assets. 0:16:50.440 --> 0:16:52.320 At the moment, one of the reasons why the oil 0:16:52.360 --> 0:16:54.360 picture has been so complicated at it is because of 0:16:54.360 --> 0:16:57.120 how much it does hinge on the zero COVID policy 0:16:57.200 --> 0:16:59.800 in China, how much it hinges on whether that Russian 0:16:59.800 --> 0:17:03.320 oil ill can actually move around more consistently or actually 0:17:03.320 --> 0:17:06.080 not at all, whether it's restricted more. How much do 0:17:06.119 --> 0:17:09.000 you change your parameters, how much do you change what 0:17:09.160 --> 0:17:12.040 your base case is for the price if say China 0:17:12.119 --> 0:17:14.760 does reopen, or if we do get some sort of 0:17:14.760 --> 0:17:18.960 continuing of a studying in the global economy, well we 0:17:19.040 --> 0:17:21.800 do have that as a as a contingency. We think 0:17:21.840 --> 0:17:24.479 the bigger risk on the upside at the moment is 0:17:24.520 --> 0:17:28.120 not a change in the economic situation globally, but rather 0:17:28.720 --> 0:17:32.960 we understand the fragility of exports in some countries. It's 0:17:33.000 --> 0:17:35.240 not just Olivia, which has gone up by the way 0:17:35.280 --> 0:17:37.639 by seven or eight hundred thousand bars a day in 0:17:37.680 --> 0:17:40.240 the last couple of weeks. How long will that last 0:17:40.320 --> 0:17:42.560 is a barris factor of the market. Will we be 0:17:42.600 --> 0:17:47.040 seeing disruptions to supply there? Again? Also in Nigeria, uh 0:17:47.200 --> 0:17:50.760 we're noticing that the Iraq has not yet had a 0:17:50.800 --> 0:17:54.040 government since the elections of last October. We've had the 0:17:54.080 --> 0:17:59.120 Parliament house occupied twice by protesters worrying about a government 0:17:59.160 --> 0:18:03.080 that's going to be too moose to Iran. The the 0:18:03.160 --> 0:18:07.080 likelihood of disruption risks in both Iran and Iraq is 0:18:07.080 --> 0:18:10.600 not exactly zero. Uh So there are bullets factors that 0:18:10.600 --> 0:18:13.240 are hanging over the market. And I don't want to 0:18:13.240 --> 0:18:15.200 caut you on awares on this. And if City Group 0:18:15.240 --> 0:18:18.720 has a banking relationship, please speak up and I apologize. 0:18:18.880 --> 0:18:22.080 Moments ago we have a headline that a Ramco will 0:18:22.080 --> 0:18:25.760 take out the global products division of Velvioline. Folks Ed 0:18:25.800 --> 0:18:29.080 Morrison are the only ones in financial media that actually 0:18:29.160 --> 0:18:32.080 used a can of velvoline in the first car we 0:18:32.160 --> 0:18:34.280 are allowed ever to do an oil change. And there's 0:18:34.280 --> 0:18:38.840 a romance here of the troops from Lexington, Kentucky discussed 0:18:38.840 --> 0:18:42.600 that the synergies of a giant like a Ramco was 0:18:42.720 --> 0:18:49.160 something that's so absolutely iconic in America. UM, I can't 0:18:49.160 --> 0:18:53.440 speak to the synergies. I can speak to a company that, 0:18:54.160 --> 0:18:57.119 as our own my own college, who report on a 0:18:57.200 --> 0:19:00.719 rampo of noted is a wash in cash uh and 0:19:00.960 --> 0:19:03.399 is under pressure to spend it uh. And there are 0:19:03.440 --> 0:19:07.359 market niches that are highly profitable that companies like that 0:19:07.400 --> 0:19:11.400 go after so, without speaking to product issue, I think 0:19:11.440 --> 0:19:15.000 it's just has to do with what the extraordinary cash 0:19:15.000 --> 0:19:17.920 flow and cash position of that company is looking for 0:19:18.480 --> 0:19:21.560 good investments to make. And do you see this to 0:19:21.680 --> 0:19:25.120 continue across all of big oil. I mean, we think 0:19:25.160 --> 0:19:28.640 of x On and XTO, But is this the future 0:19:28.840 --> 0:19:33.040 of an oil a washing cash? Well, the question is 0:19:33.080 --> 0:19:36.840 how long will oil companies be a washing cash. We've 0:19:36.840 --> 0:19:41.600 had very unusual cracks friends. At the moment, A significant 0:19:41.600 --> 0:19:45.000 amount of that profitability doesn't come from the price of 0:19:45.000 --> 0:19:47.800 oil itself. It comes from other things in the market, 0:19:47.880 --> 0:19:51.399 and particularly the strength of the product markets. The strength 0:19:51.400 --> 0:19:54.720 of the product markets is very unusual. China has a 0:19:54.760 --> 0:19:57.960 massive role to play in it. China, as I noted earlier, 0:19:58.119 --> 0:20:01.479 was building inventory. They not only building inventory, but at 0:20:01.520 --> 0:20:04.720 the same time they've cut out exports of product and 0:20:04.800 --> 0:20:08.480 particularly diesel. A year ago they were exporting seven hundred 0:20:08.480 --> 0:20:11.680 thousand barrels today of diesel it's now zero. That's seven 0:20:11.720 --> 0:20:14.399 hundred thousand barrels a day. If it were in the market, 0:20:14.680 --> 0:20:16.800 and if there were some other adjustments, would bring that 0:20:17.320 --> 0:20:21.800 cracks and the refinery margins the profitability of reviding down significantly. 0:20:22.000 --> 0:20:24.520 And before I let you go, what's your base case 0:20:24.680 --> 0:20:27.480 for how low oil prices could go in the next 0:20:27.480 --> 0:20:31.120 six months. Well, our base cases for oils to continued 0:20:31.160 --> 0:20:34.920 to drift downward is seeing rent in the mid eighties 0:20:35.000 --> 0:20:38.880 and w t I in the low eighties for year end. Uh, 0:20:38.920 --> 0:20:43.280 and then continuing on that path into the months into 0:20:43.320 --> 0:20:46.040 the eighties. Low a t C around at Molsa City. 0:20:46.080 --> 0:20:52.960 Thank you, what a move we've had in July, the 0:20:52.960 --> 0:20:55.280 biggest month of gangs of the SMP bats in November. 0:20:56.160 --> 0:20:58.960 Off the lows of June, the June sixteenth closing low 0:20:58.960 --> 0:21:00.760 on the NASTAG one hundred, we have round eight more 0:21:00.800 --> 0:21:04.160 than sixteen percent. Stewart Kins was waiting for that move. 0:21:04.320 --> 0:21:06.680 The head efectuity thrivers. This research at ups joins this 0:21:06.840 --> 0:21:08.480 right now, Stewart, Is it too added to take a 0:21:08.560 --> 0:21:12.000 victory lap? I don't think there's any victory laps in 0:21:12.040 --> 0:21:14.200 these in these markets, John, But uh, look, I think 0:21:14.240 --> 0:21:16.760 I think the big picture here's expectations just got you know, 0:21:16.880 --> 0:21:18.800 so extremely low that it didn't take a whole lot 0:21:18.840 --> 0:21:22.080 to kind of surprise sentiment to the upside, especially given 0:21:22.080 --> 0:21:24.280 more positioning. Is But yeah, I think any any victory 0:21:24.359 --> 0:21:27.560 laps are short lived these days. I look, Stewart at 0:21:27.880 --> 0:21:32.800 the move we've had. When you synthesize all of UBS research, 0:21:32.880 --> 0:21:36.040 can you say it is a bull market? Can you say, 0:21:36.080 --> 0:21:38.760 as we've heard from a number of other guests, optimistic 0:21:38.800 --> 0:21:41.639 guests like you, that is a bottom um. I think 0:21:41.680 --> 0:21:43.359 we do see some room for the market to continue 0:21:43.400 --> 0:21:45.239 to move higher in August. I don't think I call 0:21:45.280 --> 0:21:46.920 it a bull market. You know, when when the how 0:21:46.920 --> 0:21:49.639 do you know when it's a bull market? I mean, 0:21:49.680 --> 0:21:51.040 that's a great question. I think for us, we'd like 0:21:51.080 --> 0:21:52.560 to see some follow through. I think if you look 0:21:52.560 --> 0:21:54.720 at performers in the equity markets the last five months, 0:21:55.240 --> 0:21:58.919 winners have outperformed underperformed losers that the following month for 0:21:58.960 --> 0:22:02.280 five consecutive months. So basically, people have been aggressively selling winners. 0:22:02.640 --> 0:22:05.119 And I think if we could see some a little uh, 0:22:05.160 --> 0:22:07.320 you know, follow through in August, we probably see that 0:22:07.359 --> 0:22:10.919 as a as incrementally positive. But look until until the 0:22:10.960 --> 0:22:13.879 Fed seems comfortable that inflations under control and they're willing 0:22:13.920 --> 0:22:15.720 to sort of back off a little bit of these 0:22:15.720 --> 0:22:17.600 hard landing outcomes, I think it's hard to really call 0:22:17.680 --> 0:22:20.400 for a bull market at this point, Stuart, understanding technical 0:22:20.680 --> 0:22:23.920 versus fundamental underpinnings of the rally that we just saw. 0:22:24.080 --> 0:22:26.480 There was a story that caught my attention on Friday 0:22:26.520 --> 0:22:29.840 that QUANTZ sold a huge amount of their barrished positions 0:22:29.840 --> 0:22:32.399 they had to close out over the past few weeks 0:22:32.400 --> 0:22:35.439 and that that was fueling the rally. How much is 0:22:35.440 --> 0:22:38.320 that the main factor that's really been driving a market 0:22:38.400 --> 0:22:41.520 that's been operating in thin liquidity and very uncertain economic 0:22:41.880 --> 0:22:43.919 outlooks At least, I think it's actually a pretty big 0:22:43.960 --> 0:22:45.280 part of it. If you look at the performance of 0:22:45.359 --> 0:22:48.080 hot short interest stocks, they they've rallied considerably in July, 0:22:48.160 --> 0:22:49.960 and I think that's evidence of what you've been seeing 0:22:49.960 --> 0:22:51.679 on the quant side. But you know, I think that 0:22:51.760 --> 0:22:54.480 just speaks to bigger picture that that positioning and sentiment 0:22:54.560 --> 0:22:57.720 had been so washed out that you've got a relatively 0:22:57.760 --> 0:23:00.000