WEBVTT - Surveillance: Russia Sanctions with Usackas 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.280 and of course on the Bloomberg terminal. We don't need 0:00:29.320 --> 0:00:32.240 a history lesson right now, John, particularly with the guests 0:00:32.280 --> 0:00:34.720 that we have now, in all that he has lived 0:00:34.800 --> 0:00:38.040 in Lithuania, but needless to say, the speech, which I 0:00:38.080 --> 0:00:43.000 read every word of was absolutely extraordinary in translation. None 0:00:43.000 --> 0:00:47.280 of this has been lost in translation. For Vigadishutzkis, he 0:00:47.360 --> 0:00:53.160 is the former European Ambassador to Russia, but beyond that 0:00:53.360 --> 0:00:57.320 has lived his Lithuania and he joins us this morning 0:00:57.360 --> 0:01:00.640 knowing that this is a short two twenties three miles 0:01:00.800 --> 0:01:05.320 across Lithuanian Vilnius to Colin and Grad. Ambassador, thank you 0:01:05.360 --> 0:01:09.520 so much for joining us. Robert Kagan Mike Robert Kagan 0:01:09.920 --> 0:01:13.640 last night in the Washington Post simply said the Baltic 0:01:13.760 --> 0:01:18.080 States are the most at risk by Mr. Putin's perception 0:01:18.600 --> 0:01:22.720 of his Russian Empire, whatever that may be. Howard Risks 0:01:22.760 --> 0:01:29.000 this morning is Estonia Latvia and you're Lithuania. Well, we consent, 0:01:29.400 --> 0:01:35.120 of course because even being lumbers of NATO, the Mightists 0:01:35.360 --> 0:01:38.280 and the largest alliance military alliance in the world and 0:01:38.400 --> 0:01:42.120 members of the EU, our history taught us we can 0:01:42.120 --> 0:01:45.800 not afford ourselves to be complacent. And of course, when 0:01:45.920 --> 0:01:51.760 the outcast Cold War is being rejected, and you know 0:01:52.040 --> 0:01:56.080 that that that the Bodhis and the twenty first century 0:01:56.480 --> 0:02:00.240 being written brutally and with a force, there's no to 0:02:00.280 --> 0:02:02.960 become glazing. And that's why we hope that one of 0:02:03.040 --> 0:02:06.640 the resolves nat TO and United States administration will demonstrate 0:02:07.080 --> 0:02:10.560 by station i pulemanent troops in the Baltic States. When 0:02:10.600 --> 0:02:14.919 we see the moments of this weekend, the question has 0:02:15.000 --> 0:02:19.519 to be the application of NATO troops and indeed United 0:02:19.560 --> 0:02:22.679 States troops. Do you need to see a more active 0:02:22.720 --> 0:02:27.400 summoning of those troops to your Lithuania. Yes, we appreciate, 0:02:27.639 --> 0:02:30.320 you know, support what the United States has been in 0:02:30.400 --> 0:02:36.000 a very demonstrating recent visit of Secretary of Defense with Austin. However, 0:02:36.360 --> 0:02:41.360 you know Kremlin respects only US boats on the ground. 0:02:41.800 --> 0:02:44.560 I know that from our experience, and that's what we 0:02:45.240 --> 0:02:50.560 what we expect pray and requests for the US to 0:02:50.680 --> 0:02:54.560 come to to rescue and prevent any kind of entertainments 0:02:54.720 --> 0:02:58.600 Gremlin may consider. So is it forced that ultimately is 0:02:58.600 --> 0:03:00.840 going to make a difference to latter where Putin forget 0:03:00.840 --> 0:03:03.280 about economic sanctions that he spent the past eight years 0:03:03.320 --> 0:03:07.880 trying to fortify his economy economy against the gaudis well. 0:03:07.919 --> 0:03:11.840 I think it will require a jew strategic stamina and 0:03:12.560 --> 0:03:16.680 Western resolves, especially European resolves, to recognize what's going on. 0:03:16.720 --> 0:03:20.400 What puts In said yesterday, Um, I may sound politically 0:03:20.480 --> 0:03:25.200 incorrect is nothing new. He's been pursuing this narrative of 0:03:25.400 --> 0:03:30.120 assertation and aggressiveness since two thousand. Certain he plainly said 0:03:30.160 --> 0:03:33.040 that he does not consider Ukraine to be a normally 0:03:33.120 --> 0:03:35.320 even the state. It's part of Russia, It's part of 0:03:35.360 --> 0:03:39.640 Russia nation. And you know, rewriting brutally the borders with 0:03:39.840 --> 0:03:44.200 disrespect to basic rules is showing experience, and that's what 0:03:44.400 --> 0:03:47.760 we hope that It will require a political stamina, will 0:03:47.800 --> 0:03:53.119 require troops of the ground, talking diplomacy but also sanctions 0:03:53.120 --> 0:03:56.640 as well well. And speaking of diplomacy, are are the 0:03:56.680 --> 0:04:01.240 Mixed A chords now dead? I think that I mean 0:04:01.400 --> 0:04:04.520 Putting the said it's it's it's over, and I I mean, 0:04:04.560 --> 0:04:08.840 you know, how how would you expect that to be written? 0:04:09.200 --> 0:04:13.440 I think it means records are gone. UH, They've been 0:04:13.480 --> 0:04:16.360 shredded by by Gremlin. And now the question is how 0:04:16.440 --> 0:04:20.040 the West will will respond. I wish that the West 0:04:20.040 --> 0:04:25.040 will respond in a strategic terms. That's how what Putting understands. 0:04:25.120 --> 0:04:29.719 And it will require sanctions most profound and severe, maybe 0:04:29.760 --> 0:04:33.680 freezing them before the summit between the President Biden and 0:04:33.680 --> 0:04:37.599 and Putin and then moving forward that would require that 0:04:37.640 --> 0:04:42.160 would require also a greater support to Ukraine because it's 0:04:42.200 --> 0:04:46.400 all about I mean independence and sovereignty of free nation. 0:04:46.960 --> 0:04:49.520 And the time is to come back to to the 0:04:50.240 --> 0:04:53.640 decisions by the West to extend membership Action Plan for 0:04:53.760 --> 0:04:57.720 Ukraine and invite for the negotiation talks into the EU. 0:04:57.880 --> 0:05:01.760 That's how the europe Secluit architecture has to be built 0:05:01.800 --> 0:05:06.040 and maintained. Alongside we stop to putting on confidence building 0:05:06.040 --> 0:05:08.839 measures on arms controls. But it's only part of the 0:05:08.960 --> 0:05:13.359 much more complex puzzle UH and the litmus tests we 0:05:13.440 --> 0:05:17.919 are witnessing the most found in history. Ambassador Jeffrey Sachs 0:05:18.000 --> 0:05:20.680 and the financial Times this weekend. Of course, with all 0:05:20.720 --> 0:05:24.440 of its experience with gorber Schev and Yelsa, Russian professor 0:05:24.520 --> 0:05:27.599 sax as, Look, it's not appeasement, but there needs to 0:05:27.640 --> 0:05:31.960 be a diplomatic negotiation. Do you fear or can you 0:05:32.120 --> 0:05:36.799 imagine that is part of a NATO diplomacy and frankly German, 0:05:36.920 --> 0:05:41.440 France and Russia diplomacy, that we would generate a strip 0:05:41.480 --> 0:05:45.400 of land from Russia across the Kalina Grad. Would that 0:05:45.440 --> 0:05:47.840 be a chip that we would have to give up 0:05:47.839 --> 0:05:53.960 with land across your Lithuania. Well, I think I'm sure 0:05:54.040 --> 0:05:57.000 that is not something what is being considered in Paris, 0:05:57.080 --> 0:06:00.680 Berlin or Washington, d C. In the wild House, we 0:06:00.680 --> 0:06:05.080 we trust, I mean the island, cloud assurances and the 0:06:05.120 --> 0:06:09.800 security into Nadom. George W. Bush, which I was a 0:06:09.839 --> 0:06:12.360 party to host as ambassador of the Swing to United 0:06:12.360 --> 0:06:15.960 States at that time, he said in business anyone as 0:06:15.760 --> 0:06:18.000 as of now who makes the enemy of this wing 0:06:18.360 --> 0:06:21.000 will be the enemy of the United States. We trust 0:06:21.040 --> 0:06:24.560 those wits and we we we count on your support. 0:06:25.160 --> 0:06:26.320 We're not going to have you on the show with 0:06:26.400 --> 0:06:28.000 us this morning, said thank you for out us A 0:06:28.000 --> 0:06:37.640 shouts cast. They form a EU ambassadors to Russia. Let 0:06:37.720 --> 0:06:41.880 us move on here to a discussion with Leslie Felconio, 0:06:42.080 --> 0:06:46.719 senior fixed income Strategies for UBS UBS Growth Wealth Management. 0:06:46.760 --> 0:06:48.560 We're through she could join us in the blur of 0:06:48.600 --> 0:06:53.240 news this morning, Leslie. The short order, is this international 0:06:53.360 --> 0:06:58.760 relations brings yield down? I believe I learned that's price up, 0:06:59.480 --> 0:07:03.279 yield down. Is this the ultimate by the dip or 0:07:03.360 --> 0:07:07.520 you run with the fortune of seeing price up, yield 0:07:07.600 --> 0:07:10.920 down and fixed income? Well, I mean, I think this 0:07:11.040 --> 0:07:13.200 is obviously a short term flight to safety, but I 0:07:13.240 --> 0:07:16.080 don't think that alters actually the long term growth prospects 0:07:16.080 --> 0:07:19.320 that we're seeing, particularly for the US economy. And if anything, 0:07:19.800 --> 0:07:22.480 we would be more in terms of you know, selling 0:07:22.480 --> 0:07:25.080 the rally right now given our outlets that we anticipate, 0:07:25.160 --> 0:07:27.280 you know, at three point eight percent real GDP that 0:07:27.320 --> 0:07:29.880 the consumer is still strong. So you're gonna have this 0:07:30.000 --> 0:07:32.440 flight to safety and sort of these pockets of vulnerability. 0:07:32.440 --> 0:07:34.480 And you know, as we know, we have this kind 0:07:34.560 --> 0:07:36.560 of risk, and we have this kind of short term 0:07:36.920 --> 0:07:40.320 bouts of volatility. You know, investors have a tendency to 0:07:40.360 --> 0:07:47.160 focus on downside side opportunity. Fold in here, UBS Economics 0:07:47.360 --> 0:07:52.280 did fifty basis did fifty point rate rate increase? Did 0:07:52.280 --> 0:07:56.320 that drift away this weekend? I think the probability is 0:07:56.440 --> 0:07:59.640 has become increasingly low, even not just just just meet 0:07:59.720 --> 0:08:02.000 this weekend, but even you know, before this week and 0:08:02.120 --> 0:08:03.840 listening to some of the FED rehetoric, I mean, we 0:08:03.880 --> 0:08:05.520 don't think that they're going to start off at the 0:08:05.520 --> 0:08:07.840 fifty basis point rad hike. I mean, I think some 0:08:07.920 --> 0:08:10.760 of the FED rhetoric last week actually showed that. I mean, 0:08:10.800 --> 0:08:12.640 it doesn't mean that they won't do fifty later on, 0:08:13.080 --> 0:08:14.520 but to start off with that might be a little 0:08:14.520 --> 0:08:16.840 bit too extreme. And look, I mean, they're still buying bonds, 0:08:16.960 --> 0:08:19.680 you know, they're still increasing their balance sheet, and I 0:08:19.680 --> 0:08:21.640 think they're going to wait to see exactly how the 0:08:21.680 --> 0:08:24.119 base case effects turn in terms of inflation the second 0:08:24.120 --> 0:08:27.280 half before they do such an aggressive move. Well, speaking 0:08:27.280 --> 0:08:30.200 of aggressive moves, obviously the West is reacting to what 0:08:30.240 --> 0:08:33.120 we saw from about Vladimir Putin over the long weekend. 0:08:33.120 --> 0:08:35.199 We're now hearing from the UK's Boris Johnson that the 0:08:35.280 --> 0:08:39.160 UK will sanction five Russian banks as well as individuals. 0:08:39.160 --> 0:08:41.559 When we look at the potential implications for the fixed 0:08:41.559 --> 0:08:45.600 income market of this geopolitical crisis Leslie, and specifically the 0:08:45.679 --> 0:08:48.240 energy complex. What's the read through and to break evens 0:08:48.240 --> 0:08:52.560 inflation expectations and therefore monetary policy ultimately. Well, you know, 0:08:52.600 --> 0:08:54.240 it's interesting because if you look at things like the 0:08:54.280 --> 0:08:56.600 five year factored forward swap, it's like a two point 0:08:56.640 --> 0:08:59.280 three percent Even if you look at the break even today, 0:08:59.480 --> 0:09:03.160 we're noting this big rise in inflation expectations. I think 0:09:03.200 --> 0:09:05.240 it's a component, but I don't think it's going to 0:09:05.280 --> 0:09:06.920 be a driver, and I don't think it's going to 0:09:07.000 --> 0:09:09.920 alter necessarily the fence path, which we do believe will 0:09:09.920 --> 0:09:11.760 be around five right types by the end of the year. 0:09:12.000 --> 0:09:14.000 It will probably be a big gradual of twenty five 0:09:14.160 --> 0:09:16.320 the data that we know right now. But I don't 0:09:16.320 --> 0:09:18.040 think this is going to have a need jerk reaction 0:09:18.080 --> 0:09:20.360 where the FET has to become even more hawkish because 0:09:20.480 --> 0:09:23.160 we're seeing rise in energy prices, all right. So there's 0:09:23.160 --> 0:09:25.920 obviously the break even component, Leslie. There's also the real 0:09:26.000 --> 0:09:30.000 yields component. Do we reach positive territory will they stay negative? 0:09:30.920 --> 0:09:33.240 Well even listen, I think five year real yields are 0:09:33.360 --> 0:09:35.520 very native. I mean, the tenure we've had a correction 0:09:35.520 --> 0:09:38.319 with we're down negative rate fifty right now. We probably 0:09:38.400 --> 0:09:40.640 go to plus or minus twenty, but that five year 0:09:40.640 --> 0:09:43.360 real yield has remained stubbornly negative, and even though nominal 0:09:43.480 --> 0:09:45.319 yields in the five year side had gotten almost a 0:09:45.360 --> 0:09:47.400 two percent, which by the way, we don't think it's 0:09:47.400 --> 0:09:49.680 going to get that much higher. However, we do think 0:09:49.679 --> 0:09:52.240 those break even inflation expectations are going to fall from 0:09:52.240 --> 0:09:54.080 that two point nine level that we see right now, 0:09:54.400 --> 0:09:56.800 probably closer to that five year five year swop about 0:09:56.800 --> 0:09:59.320 two point three. So we are expecting really yields to 0:09:59.440 --> 0:10:02.080 Risehether or not they turned positively this year is a 0:10:02.160 --> 0:10:04.640 question mark, but they could be close to it. Leslie, 0:10:04.679 --> 0:10:06.240 thank you for paying with us. What a busy morning 0:10:06.240 --> 0:10:08.960 for everybody. Leslie found County on there of UBS Global 0:10:08.960 --> 0:10:16.520 Wath Management joining us now to give perspective here, particularly 0:10:16.600 --> 0:10:19.000 for those listening in Europe. And Merita Son joins as 0:10:19.080 --> 0:10:22.679 founder director of Research at Energy Aspects. I must say 0:10:22.760 --> 0:10:26.840 she's just fabulous at the dynamics of supply and demand 0:10:27.000 --> 0:10:30.480 in energy. Emerita. My fault is I don't spend enough 0:10:30.520 --> 0:10:34.679 time talking about natural gas. What can Mr Putin, Mr 0:10:34.800 --> 0:10:43.080 Medvedev do to change the dialogue of natural gas in Europe. Well, 0:10:43.160 --> 0:10:45.040 I think natural gas, of course, you know, it's it's 0:10:45.080 --> 0:10:49.280 been very prominently featured in in the media last year, 0:10:49.720 --> 0:10:52.640 particularly because of North Stream too. But I will say 0:10:53.200 --> 0:10:55.600 Putin has come out even just a few hours ago 0:10:55.640 --> 0:11:00.079 and said that gas supplies will be uninterrupted, and I 0:11:00.120 --> 0:11:01.960 think that has been one of the big fears in 0:11:02.000 --> 0:11:05.760 the market, whether because of either Western sanctions or because 0:11:05.840 --> 0:11:09.040 Russia um decides to turn off both oil and gas 0:11:09.080 --> 0:11:11.679 supplies to Europe. But they have never done that before, 0:11:11.720 --> 0:11:15.040 including during the Cold War. So again I think Russia 0:11:15.240 --> 0:11:17.959 is not going to be the one acting on that 0:11:18.040 --> 0:11:20.920 and using energy as a weapon. But of course we've 0:11:20.960 --> 0:11:24.640 seen the headlines with Germany halting the process, which which 0:11:24.960 --> 0:11:27.240 you know, which was one of the things we were 0:11:27.360 --> 0:11:30.880 expecting should the should the tensions escalct But you know, 0:11:30.960 --> 0:11:35.400 John emailed me a Sunday morning. Emread about five am 0:11:35.600 --> 0:11:40.960 the Netherlands natural gas code t ZT one commodity And 0:11:40.960 --> 0:11:44.000 the bottom line is it was cheap and then it 0:11:44.080 --> 0:11:47.120 became expensive with a spike up here, and it's come 0:11:47.160 --> 0:11:50.960 down and been managed. Who's managing the price of natural 0:11:51.040 --> 0:11:56.040 gas in Europe right now? The recent natural gas prices 0:11:56.040 --> 0:11:59.200 have managed to come down in Europe has actually been 0:11:59.240 --> 0:12:03.120 thanks to Asia, because Asia had bought a whole lot 0:12:03.200 --> 0:12:06.360 of ellergy cargoes if you remember, not this winter, the 0:12:06.480 --> 0:12:09.120 prior winter was very very cold, they were caught short. 0:12:09.520 --> 0:12:11.800 So then as a result of them over buying and 0:12:11.880 --> 0:12:15.240 the weather was fairly mild, they had some access which 0:12:15.240 --> 0:12:18.560 they then managed to send over to Europe. That is 0:12:18.640 --> 0:12:22.360 what has helped gas prices come off. But fundamentally, I 0:12:22.400 --> 0:12:25.280 mean we saw record high TTF prices, which is the 0:12:25.400 --> 0:12:29.240 price you're referring to last year. Those fundamentals haven't changed. 0:12:29.440 --> 0:12:33.560 Demand remains very very high, and also supplies, regardless of 0:12:33.559 --> 0:12:37.160 what's going on geopolitically with Russia, Russian supplies into Europe 0:12:37.200 --> 0:12:40.920 have remained very low and we weren't even expecting north 0:12:40.920 --> 0:12:43.920 Stream to to come online till November of this year anyway, 0:12:44.000 --> 0:12:46.640 so it is still a very tight market. And reason 0:12:46.679 --> 0:12:49.040 how did you interpret the language from Chancellor Shelts earlier, 0:12:49.120 --> 0:12:51.240 was that a man putting things on ice or a 0:12:51.240 --> 0:12:56.200 man killing it. Well, look at the West has to 0:12:56.240 --> 0:12:58.959 be seen to be doing something right, and we've maintained 0:12:59.000 --> 0:13:03.640 our view that there will not be sanctions on energy supplies, 0:13:03.760 --> 0:13:06.360 prompt energy supplies, whether it be for oil or for gas. 0:13:06.760 --> 0:13:09.439 Um Europe is just way too dependent. Means thirty five 0:13:09.440 --> 0:13:12.679 percent of gas European gas comes from Russia, thirty eight 0:13:12.760 --> 0:13:15.640 and thirty nine percent of oil and diesel comes from Russia. 0:13:15.720 --> 0:13:18.160 So it's it's just going to hurt the West a 0:13:18.160 --> 0:13:21.000 lot more, especially with crude close to hundred dollars and 0:13:21.040 --> 0:13:23.440 gas still very very high. Yes it's off the record highest, 0:13:23.440 --> 0:13:25.320 but it's still high. So um they need to be 0:13:25.360 --> 0:13:28.600 doing something, but it's going to be around technology sanctions, 0:13:28.640 --> 0:13:32.120 potentially some bank some individuals being sanctioned. And again this 0:13:32.200 --> 0:13:35.280 was something where yes north Stream too, it wasn't supposed 0:13:35.280 --> 0:13:37.640 to be coming online tomorrow right it is still further 0:13:37.679 --> 0:13:40.400 down the pipeline, and it was something along the lines 0:13:40.440 --> 0:13:44.360 of future projects that could be affected and north Stream 0:13:44.400 --> 0:13:46.760 to falls under that category. And Rachel, we've got a 0:13:46.800 --> 0:13:48.560 decent understanding of where we are now and trying to 0:13:48.559 --> 0:13:50.200 work out where it will be by the time we 0:13:50.200 --> 0:13:52.120 get to the end of the year. And Redwards, our 0:13:52.160 --> 0:13:55.080 colleague good friend here at Blombergh, caught up with Russell Hardy, 0:13:55.160 --> 0:13:58.400 the chief executive officer AVITZL Group and he said on 0:13:58.440 --> 0:14:01.360 the demand side, the one d Emberil number is probably 0:14:01.400 --> 0:14:03.679 going to be excited this year. This was on crude. 0:14:03.800 --> 0:14:06.040 He went on to say demand is going to surge 0:14:06.640 --> 0:14:09.360 in the second half, and so we understand how tight 0:14:09.440 --> 0:14:11.280 things are now, how tight do you think they'll be 0:14:11.600 --> 0:14:13.240 by the time we get to the end of twenty two. 0:14:15.559 --> 0:14:17.960 I think the couple of things I would say where 0:14:18.080 --> 0:14:20.520 we could get some extra supplies. Iran is of course 0:14:20.560 --> 0:14:24.280 one of them. Potential sanctions lifting in the coming weeks, 0:14:24.280 --> 0:14:26.200 and you could get more oil out in the second 0:14:26.240 --> 0:14:28.520 half of the year. US producers again there's still being 0:14:28.600 --> 0:14:31.600 very disciplined, but potentially you could eke out a little 0:14:31.600 --> 0:14:34.400 bit more from them. But Russell Hardy is exactly right. 0:14:34.480 --> 0:14:37.040 We've been talking about this for months now that there 0:14:37.120 --> 0:14:38.960 is a lot of pent up demand. Demand is going 0:14:39.000 --> 0:14:41.720 to be rising, particularly in Asia, and we've talked about 0:14:41.760 --> 0:14:44.720 this on this show before. Asia just hasn't been able 0:14:44.760 --> 0:14:47.320 to come out unlike the West over the last few 0:14:47.800 --> 0:14:50.920 years because of COVID restrictions. So they are itching to 0:14:51.440 --> 0:14:53.560 fly and just get back to a normal life. So 0:14:53.640 --> 0:14:55.920 there is a lot of demand that we are going 0:14:55.960 --> 0:14:59.120 to see, particularly in the summer and the only way 0:14:59.160 --> 0:15:02.200 to then solve for this market, because you're not going 0:15:02.240 --> 0:15:04.560 to get much incremental supplies, is going to be through 0:15:04.640 --> 0:15:07.840 high prices because demand growth has to moderate. How much 0:15:07.920 --> 0:15:10.360 higher is one hundred dollar oil and above one hundred 0:15:10.400 --> 0:15:15.520 dollar royal sustainable aim riada Um. Well, if you think 0:15:15.560 --> 0:15:18.000 about back to two thousand and eight compared or if 0:15:18.040 --> 0:15:21.040 you do it on an inflation adjusted basis, oil prices 0:15:21.080 --> 0:15:23.920 need to be thirty higher now than in two thousand 0:15:24.000 --> 0:15:25.680 and eight if you are to have the same impact 0:15:25.720 --> 0:15:28.840 on demand. So yes, it could go significantly higher before 0:15:28.880 --> 0:15:31.280 you start having an impact on demand. And Tom's going 0:15:31.320 --> 0:15:34.600 to like this because it talks about elasticities. People have 0:15:34.720 --> 0:15:37.440 actually saved up a lot more money and governments are 0:15:37.440 --> 0:15:40.479 handing out a lot more checks, which means income elasticity 0:15:40.600 --> 0:15:43.240 right now is a lot stronger than price elasticity. So 0:15:43.440 --> 0:15:45.920 even at hundred dollar royal, even potentially at hundred twenty 0:15:45.960 --> 0:15:48.400 dollar oil, you don't see the slow down that you've 0:15:48.440 --> 0:15:51.400 seen in the past. We've already on our numbers. Oil 0:15:51.440 --> 0:15:54.160 demand is already above hundred million barrels per day. We 0:15:54.200 --> 0:15:57.800 will surpast two thousand and nineteen levels in the second 0:15:57.800 --> 0:16:00.800 half of this year, and we will be effectively growing 0:16:00.840 --> 0:16:03.600 by over three million barrels per day this year. When 0:16:03.640 --> 0:16:06.760 does supply and demand then come back into balance or 0:16:06.800 --> 0:16:09.000 more of a balance, and start to change that equation. 0:16:09.040 --> 0:16:13.840 How long is it going to take? I think this 0:16:13.920 --> 0:16:15.840 is not a short term thing, you know, a hundred 0:16:15.840 --> 0:16:17.760 dollar oil. I mean we've been calling for a hundred 0:16:17.760 --> 0:16:20.080 pluss dollar oil between twenty three and twenty six for 0:16:20.080 --> 0:16:22.840 a while, and that is precisely because this isn't a 0:16:22.880 --> 0:16:24.840 short term phenomenal show. You know, you're not going to 0:16:24.880 --> 0:16:27.520 get hundred dollar roil necessarily like this year on a 0:16:27.560 --> 0:16:31.960 sustained basis, geopolitical risk, socide. But this is ultimately about 0:16:32.000 --> 0:16:35.320 under investment. We've had years of underinvestment and now it's 0:16:35.560 --> 0:16:38.160 getting much much worse due to all the narrative around 0:16:38.240 --> 0:16:41.560 energy transition. But demand simply isn't reacting. If anything, demand 0:16:41.640 --> 0:16:45.240 is actually rising quicker than anyone had expected. So therefore 0:16:45.280 --> 0:16:47.920 there's a huge policy mismatch. Governments are coming out and 0:16:47.960 --> 0:16:50.440 talking about, you know, at the end to fossil fueld 0:16:50.480 --> 0:16:53.640 without actually doing anything to reduce demand. It's going to 0:16:53.680 --> 0:16:55.280 be here for a few years. You know, it really 0:16:55.320 --> 0:16:57.560 shows up John and I got ratios in my head 0:16:57.680 --> 0:17:01.880 and reader said that was brilliant. The responsiveness is given 0:17:01.880 --> 0:17:06.919 a higher incomes. It what barrel size, emery decent? Do 0:17:07.000 --> 0:17:10.440 we actually click in demand? Ankst Is it a hundred 0:17:10.520 --> 0:17:15.000 and thirty dollars a barrel? I don't think we know 0:17:15.200 --> 0:17:17.639 the answer quite yet, simply because of the amount of 0:17:17.680 --> 0:17:19.760 income and savings we've got in the economy. But yes, 0:17:19.800 --> 0:17:22.800 I would say it's not lower than one twenties, probably 0:17:23.040 --> 0:17:25.879 around the number you talked about, maybe even slightly higher. 0:17:26.440 --> 0:17:29.360 I'm ready to send thank you of any aspects. Thank 0:17:29.400 --> 0:17:37.639 you very much. Anthony Capiano joins us right now on 0:17:37.840 --> 0:17:40.159 your vacation plans, and I know you can't get a 0:17:40.280 --> 0:17:42.879 room anywhere. I know the drill of course, writing her 0:17:42.880 --> 0:17:46.080 as chief executive officer Marriott International, I want to span 0:17:46.200 --> 0:17:48.520 your two price points and a hundred dollars a night 0:17:48.800 --> 0:17:50.879 out to five than some nights and these are we 0:17:50.920 --> 0:17:52.240 don't need to spend a lot of time on it 0:17:52.240 --> 0:17:57.120 because Kaylee's got legitimate questions. There's big Jet TV stopping 0:17:57.200 --> 0:18:01.040 the world on Friday with the storm and London, and 0:18:01.080 --> 0:18:03.320 the next day he's from the roof of a Marriott 0:18:03.400 --> 0:18:07.359 Courtyard at Heathrow. Tell us about how you run the 0:18:07.440 --> 0:18:11.000 airport's big jet TV standing on. What's it like we're 0:18:11.000 --> 0:18:15.040 having the Courtyard franchise at a lower price point. Well, Tom, 0:18:15.200 --> 0:18:17.280 first of all, thanks for having me. It's it's one 0:18:17.320 --> 0:18:19.720 of the things that I love about our portfolio. I 0:18:19.760 --> 0:18:22.760 get questions all the time with thirty brands, do you 0:18:22.760 --> 0:18:25.280 have too many brands? What's the right number of brands? 0:18:25.480 --> 0:18:28.600 The ability to offer that breadth of price points with 0:18:28.680 --> 0:18:31.880 a hundred and sixty million loyalty members, we feel good 0:18:31.880 --> 0:18:34.520 about the ability to offer that breath for every one 0:18:34.560 --> 0:18:35.960 of our customs. Let's go the other way to the 0:18:36.080 --> 0:18:39.479 Ritz Carlton in Moscow, which is five minute summer night, 0:18:39.560 --> 0:18:44.320 highest rated hotel in the country. How do you see 0:18:44.359 --> 0:18:49.240 and perceive your business in Russia? Given all that's going on, 0:18:49.600 --> 0:18:51.639 how are you going to handle the Ritz Carlton in 0:18:51.640 --> 0:18:54.720 the coming weeks. But we've got about thirty hotels in 0:18:54.800 --> 0:18:58.000 Russia to hotels in the Ukraine as we sit here today, 0:18:58.280 --> 0:19:01.320 with a handful of deals in both entrees in the pipeline. 0:19:02.200 --> 0:19:05.680 Like every country we do business in, UH we are 0:19:05.720 --> 0:19:09.080 about safety and security for our guests and our associates. 0:19:09.720 --> 0:19:13.320 As we've watched the recovery from the pandemic, that recovery 0:19:13.320 --> 0:19:18.159 has largely been fueled by steady improvement in consumer and 0:19:18.240 --> 0:19:22.840 traveler confidence. Political instability, as we've seen over the last 0:19:22.880 --> 0:19:26.480 forty eight hours, certainly has the potential to rattle that confidence, 0:19:26.720 --> 0:19:29.600 so we're watching it closely. Well, let's tie to those 0:19:29.640 --> 0:19:31.879 two stories together in terms of what we're seeing on 0:19:31.920 --> 0:19:35.680 the geopolitical front and what we're seeing with the consumer. Obviously, 0:19:35.880 --> 0:19:39.159 one of the concerns is that if you have repercussions 0:19:39.200 --> 0:19:41.919 on Russia, it's going to disrupt energy flows that is 0:19:41.920 --> 0:19:44.760 going to be more inflationary. How does that translate into 0:19:44.800 --> 0:19:47.920 the discretionary spending of a US consumer. Are they going 0:19:47.960 --> 0:19:50.399 to be spending as much on travel and leisure in 0:19:50.400 --> 0:19:52.720 the face of some of these inflationary pressures. Well, I 0:19:52.720 --> 0:19:55.000 thought it was interesting right before I came on, I 0:19:55.080 --> 0:19:59.320 heard your your prior speaker talk about competition for consumer 0:19:59.400 --> 0:20:02.439 discretionary a spending and more and more folks that have 0:20:02.640 --> 0:20:06.479 been effectively locked down for the last two years thinking 0:20:06.520 --> 0:20:11.600 about spending on travel and tourism. Uh, we watch fuel prices, 0:20:11.680 --> 0:20:14.719 particularly for leisure travel in the US, but I can 0:20:14.760 --> 0:20:19.280 tell you even last summer, despite some variability and fuel prices, 0:20:19.320 --> 0:20:22.520 we didn't see any meaningful dilution of the of the 0:20:22.600 --> 0:20:26.520 velocity of of leisure demand recovery. How far do we 0:20:26.560 --> 0:20:29.280 still have to go in that demand recovery? Tony Well. 0:20:29.320 --> 0:20:31.679 In our fourth quarter earnings call, we talked about the 0:20:31.720 --> 0:20:36.120 fact that globally, revenue per available room was about nineteen 0:20:36.280 --> 0:20:41.399 percent behind where we were fourth quarter two thousand nineteen, 0:20:41.680 --> 0:20:44.879 But that was a forty point improvement from what we 0:20:44.960 --> 0:20:47.560 saw in the first quarter of last year, So we 0:20:47.640 --> 0:20:51.480 are seeing slow, steady improvement. Even in December of last year, 0:20:52.000 --> 0:20:55.280 RevPAR which is the acronym we use, was only down 0:20:55.320 --> 0:20:57.600 eleven percent. Now, we did see a bit of a 0:20:57.680 --> 0:21:00.560 hiccup from the O Macron variant, but we're already back 0:21:00.640 --> 0:21:03.840 to booking volumes ahead of where we were before Oh 0:21:03.920 --> 0:21:06.760 macrons started. Financier question everybody I see, and of course 0:21:06.760 --> 0:21:08.840 if it's good numbers, everybody puts at the top of 0:21:08.880 --> 0:21:10.879 the press release, and if it's not so good numbers, 0:21:10.880 --> 0:21:14.080 it goes down. Do your compare and contrast pre pandemic 0:21:14.200 --> 0:21:17.840 right now, which ratio matters? So you measure back to 0:21:18.440 --> 0:21:22.239 two thousand nineteen. Well, I think rev par matters, I 0:21:22.280 --> 0:21:26.080 think margins matter, and I think unit growth matters, which 0:21:26.080 --> 0:21:28.800 are among the metrics just because the time go to 0:21:28.880 --> 0:21:31.159 margins right now, because that's the heart and soul of it, 0:21:31.200 --> 0:21:33.240 isn't it. Well, we had to make some really tough 0:21:33.320 --> 0:21:37.359 decisions through the pandemic. Above property, we caught about thirty 0:21:37.400 --> 0:21:40.560 percent of our costs. We've seen a several hundred basis 0:21:40.600 --> 0:21:43.919 point improvement of margins at the property level, and we 0:21:44.040 --> 0:21:47.040 as we see pricing power return, we think we can 0:21:47.040 --> 0:21:49.840 preserve the vast majority of those margins. How much of 0:21:49.880 --> 0:21:52.159 that on the cost side, Tony is related to labor? 0:21:52.200 --> 0:21:55.000 What issues are you seeing there? Well, we are certainly, 0:21:55.080 --> 0:21:58.800 particularly in the markets where demand has recovered most quickly, 0:21:59.119 --> 0:22:02.000 we are seeing some wage pressure, as you might expect, 0:22:02.480 --> 0:22:05.080 But as you also might expect, that's where we're seeing 0:22:05.200 --> 0:22:09.119 pricing power uh the strongest. And we think even with 0:22:09.200 --> 0:22:12.800 wage inflation, some of the efficiencies we've identified, we can 0:22:12.840 --> 0:22:16.440 preserve the vast majority of those margin improvements. The airlines, 0:22:16.600 --> 0:22:19.879 now I can report personally in my travel agent, Kayley 0:22:19.960 --> 0:22:26.080 lines is are stupid, crazy busy pack for the summer. 0:22:27.160 --> 0:22:29.720 What is this summer going to be like I think 0:22:29.720 --> 0:22:31.440 it's going to be an all time record. I think 0:22:31.520 --> 0:22:35.439