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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Ferrell and Lisa Brawmowitz Jailey. We bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcast, SoundCloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg Terminal. It's nine oh

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Speaker 1: four on Wall Street Life in the Bloomberg Inactive Broker Studio.

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Speaker 1: We're now going to bring you a special interview with

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Speaker 1: the Elon Musk. The Tesla CEO talked about the quote

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Speaker 1: unquote unresolved matters in his pursuit of Twitter Must spoke

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Speaker 1: with The Bloomberg's editor in chief, John Micklethwaite from the

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Speaker 1: Cutter Economic Form in Doha, powered by Bloomberg. They're still,

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Speaker 1: um a few unresolved matters you've you've probably read about

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Speaker 1: the questions who have the number of fake and spam

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Speaker 1: users on the system is less than five cent, as

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Speaker 1: Twitter claims, which I think is probably not most people's

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Speaker 1: experience on when using Twitter. Um So we're still a

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Speaker 1: waiting resolution on that matter. Um and that that is

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Speaker 1: a very significant matter. Um So we're waiting resolution on

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Speaker 1: that UM. And then of course there is the question

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Speaker 1: of will the dead portion of the round come together?

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Speaker 1: And then will the shareholders vote in favor? So I

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Speaker 1: think those are the three things that UM standard the

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Speaker 1: you know, if that needs to be resolved before the

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Speaker 1: transaction can complete. What about the general state of the economy?

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Speaker 1: Does that weigh on you when you think about this?

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Speaker 1: I mean, you just described it. You have a super

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Speaker 1: bad feeling about the economy. Are you still in that position?

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Speaker 1: I just said to you earlier Joe Biden has just

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Speaker 1: come out and said that a recession in America is

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Speaker 1: not inevitable. How do you feel about the economy? I

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Speaker 1: think recessionally is inevitable at some point. As to whether

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Speaker 1: there is a reception in the near term, I think

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Speaker 1: that is more likely than not. Certainly isn't. It's not

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Speaker 1: a certainty, but it appears more likely than not. And

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Speaker 1: what do you think? I'm I'm I'm with you. I

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Speaker 1: agree with you, and I think it's more likely. Can

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Speaker 1: I ask you one particular thing to do with the

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Speaker 1: Twitter bid, which is you know you are one of

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Speaker 1: the biggest and fastest growing investors in China. Tesla. You've

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Speaker 1: talked about it being a third of your sales going forward.

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Speaker 1: You're not buying Twitter the kind of public forum for

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Speaker 1: free speech. The Chinese historically don't tend to be very

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Speaker 1: enthusiastic about free speech. Are you worried about whether you

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Speaker 1: can keep those two particular horses running? Is buying Twitter

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Speaker 1: going to get you in trouble with the needs? Twitter

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Speaker 1: does not operate in China, so um, And I think

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Speaker 1: China does not attempt to interview interfere with the free

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Speaker 1: speech of the of the press in the US as

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Speaker 1: far as I know, because I assume you're not under

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Speaker 1: pressure to ed Bloomberg to uh from China, So I

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Speaker 1: think there's UM. I don't think it's gonna be an issue.

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Speaker 1: And in terms generally of that issue of freedom of

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Speaker 1: speech and Twitter, you've talked about Twitter being making even

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Speaker 1: freer and letting more people onto it. Is there a

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Speaker 1: limit at all to to who you think should be

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Speaker 1: allowed onto Twitter? My aspiration for Twitter, or in general,

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Speaker 1: for the digital town square, would be that it is

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Speaker 1: as inclusive in the broader sense of the word as possible.

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Speaker 1: Um that it is. It is appealing a system to use. UM.

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Speaker 1: So I mean, ideally i'd like to get like of uh,

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Speaker 1: that's in North America and perhaps I don't know half

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Speaker 1: the world or something ultimately on on Twitter in one

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Speaker 1: form or another. And that needs what that means. It

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Speaker 1: must be something that is appealing to people. It obviously

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Speaker 1: cannot be a place where they feel uncomfortable or harassed,

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Speaker 1: um or they'll simply not use it all right. That

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Speaker 1: was Tesla Ceo Elon Musk sitting down with Bloomberg's editor

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Speaker 1: in chief John michelth Waite from the Cutter Economic Form

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Speaker 1: in Doha, powered by Bloomberg. We're gonna rip up the

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Speaker 1: script here with Prusia shrim she's US economist at Barclays,

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Speaker 1: but obviously with department from LS is always dollar in

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Speaker 1: foreign exchange based is a litmus paper of the system.

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Speaker 1: Let's go from weekend out to strong dollar. How does

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Speaker 1: a resilient dollar or strong dollar change the degrees of

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Speaker 1: freedom that Jerome Powell has well, thanks for having me, Tom.

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Speaker 1: A strong dollar is definitely something that is favorable for

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Speaker 1: import prices. Um. It's it should help in the long

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Speaker 1: term to try and relieve some pressure at least from

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Speaker 1: important inflation. So the President Trump would say, we need

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Speaker 1: to bring the dollar down to spur exports. We haven't

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Speaker 1: heard that from President By at least so far. I mean,

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Speaker 1: give me the exports side of that discussion. Well, um,

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Speaker 1: it's it's true that a stronger dollar would be um

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Speaker 1: slightly unfavorable for net exports, But I think the focus

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Speaker 1: right now is on taming inflation pressure. So from that

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Speaker 1: point of view, we think a stronger dollar absolutely absolutely.

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Speaker 1: But put going to yet your Danny's point, there is

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Speaker 1: no vulcer. They're not going to raise rates into a recession.

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Speaker 1: They don't want to trigger a recession. Is that an

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Speaker 1: accurate characterization and of what you expect from the central bank? Well, absolutely,

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Speaker 1: I think no central bank wants to engineer the recession.

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Speaker 1: But from what we saw in their summary of economic projections,

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Speaker 1: from what we heard from Chair Powell, I think they

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Speaker 1: are acutely aware that there is likely to be some

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Speaker 1: pain to the economy if they wish to bring price

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Speaker 1: pressures under control. And I think what they showed us

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Speaker 1: through the seventy five basis point rate hike in the

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Speaker 1: June f O m C and what their hawkish dot

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Speaker 1: plot shows us is they're willing to sort of push

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Speaker 1: the limit a little over here to try and and

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Speaker 1: get expeditiously to neutral. Uh. And even if that comes

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Speaker 1: at the cost of slightly lower growth and slightly more unemployment,

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Speaker 1: I think that's a chance that they're willing to take

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Speaker 1: at this point in all right, So if you go

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Speaker 1: there to the dark plot and the projections, we have

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Speaker 1: to also go to what some people have called fantasy land,

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Speaker 1: this idea of unemployment remaining fairly muted into the future,

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Speaker 1: even though we do have this hark ish shelt What

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Speaker 1: is the breaking point for the reserve for policymakers more

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Speaker 1: broadly in terms of the unemployment rate at a time

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Speaker 1: when you've got the likes of Larry Summers projecting five

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Speaker 1: percent unemployment for five years needed to bring inflation down. Yeah,

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Speaker 1: it's it's I think they are in a tough spot.

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Speaker 1: Um that the trade off between you know, achieving price

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Speaker 1: stability as well as full employment that's becoming increasingly challenging. Um.

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Speaker 1: And I think we are in a tough inflation environment. UM.

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Speaker 1: I do agree to your point that, you know, the

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Speaker 1: projections that they've laid out in in their summary over

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Speaker 1: there do seem a little optimistic. You know, some might

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Speaker 1: call it a Rosie picture. UM, aspirational even UM. But

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Speaker 1: I think what the FED is likely to look at

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Speaker 1: going forward is how the data evolves. And you know,

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Speaker 1: that's the message that check Powell has given us multiple times.

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Speaker 1: So I think that's going to be their focus as

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Speaker 1: of now. Well, what data will they be looking at

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Speaker 1: between now in July when they're deciding between fifty and

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Speaker 1: seventy five? Yeah, so we get a whole host of

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Speaker 1: data points in fact, but we now and July. But

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Speaker 1: I would say top of the list would definitely be

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Speaker 1: in the June um CPI inflation print. UM. They will

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Speaker 1: you know, see signs of whether inflation pressures continue to

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Speaker 1: accelerate UM, you know, across core categories, particularly UM, the

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Speaker 1: University of Michigan's Inflation Expectations print is going to be

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Speaker 1: another important indicator that they will look at. And then

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Speaker 1: of course we have the employment report that comes in

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Speaker 1: at the beginning of the month, and you know, outside

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Speaker 1: of that, I think they will also continue to look

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Speaker 1: at some of how, you know, some of the other

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Speaker 1: data points in terms of how retail sales evolve, what's

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Speaker 1: happening to housing. For example, we get a bunch of

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Speaker 1: home sales data UM, and you know, we're getting the

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Speaker 1: sense that housing is beginning to feel the pinch of

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Speaker 1: title financial conditions. So I think it's going to be

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Speaker 1: a whole set of these data points that they will

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Speaker 1: keep an eye on UM and you know that's what

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Speaker 1: they like you deliberate on before making their policy decisions.

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Speaker 1: So focusing on the inflation expectations data point in particular,

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Speaker 1: because Power sided that directly in the REST conference last week,

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Speaker 1: saying we saw that University of Michigan number, and that

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Speaker 1: is partly why we decided to move seventy five basis points,

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Speaker 1: not wait six weeks to do so. And we heard

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Speaker 1: Jim Bullard of the St. Louis Bed over the weekend

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Speaker 1: talking about the risk of inflation expectations running away, getting

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Speaker 1: out of control. How large of a credibility problem does

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Speaker 1: this Federal Reserve have right now? And what is the

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Speaker 1: likelihood you place around something like that happening. Well, I

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Speaker 1: think credibility was um, you know, probably an issue that

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Speaker 1: they were concerned about going into the June f O

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Speaker 1: m C meeting, and I think that's the reason why

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Speaker 1: they did such a statement hike, and you know, they

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Speaker 1: did that hawkish shift to their dot plot. But you know.

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Speaker 1: Having done that, I think to some extent they have

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Speaker 1: been successful in sort of reinstate incredibility around UM, their

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Speaker 1: price stability mandate UM as if now, um, you know,

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Speaker 1: inflation expectations still look reasonably well anchored. Yes, the move

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Speaker 1: up in the University of Michigan print was a cause

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Speaker 1: for concern UM, but right now that doesn't seem to

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Speaker 1: be running away. This is critical. I mean, July Barklay

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Speaker 1: says there's a reluctance to do seventy five weeks back

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Speaker 1: to back that put you in a you know, a

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Speaker 1: less hawkish camp. I guess that's how I put it,

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Speaker 1: not so much dervish camp. How close are they to

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Speaker 1: their comfortable neutrality? Not some fancy tailor rule or statistical ballet,

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Speaker 1: but how I mean, if it's nonlinear, how close are

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Speaker 1: they to the point where they're aware it's nonlinear and

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Speaker 1: there's a huge impact. Is it now? Is it the fall?

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Speaker 1: Is it next year? UM? I think they they're getting there.

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Speaker 1: They're getting there, They're getting they're getting there close to

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Speaker 1: their estimate of the neutral rate. And like you said,

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Speaker 1: we are slightly below consensus, and that we are calling,

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Speaker 1: you know, for a fifty basis point hike in in July,

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Speaker 1: and we think right now we are seeing signs that

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Speaker 1: type of financial conditions are lightly weighing on economic activity already. Um,

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Speaker 1: we think that these signs are, like you, to intensify

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Speaker 1: as we get into the July meeting, and um, you know,

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Speaker 1: the Fed is likely to conclude that policy is possibly

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Speaker 1: inching into restrictive territory already at least Simon remiss on this.

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Speaker 1: I'm sorry, folks. The Bloomberg Financial Conditions Index, which is

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Speaker 1: really really a good series, thank you Michael Rosenberg and team,

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Speaker 1: is one standard deviation down today. It's a negative one

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Speaker 1: point zero six at Lisa, which is Germain. To the

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Speaker 1: Barclays point, things are tightening, and you see that mortgage

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Speaker 1: rates exemplified. They're probably more than anywhere else at six percent. Putcha,

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Speaker 1: how much buying power does the consumers still have? One

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Speaker 1: of the biggest questions has really been the power of

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Speaker 1: the consumer. And we've heard about how they are so

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Speaker 1: strong and their balance sheets are terrific. Are they really

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Speaker 1: that good right now? Um? Well, to the to your point, yes,

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Speaker 1: houshold balance sheets still look reasonably you know, healthy. We

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Speaker 1: still estimate that excess savings that they accumulated over the

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Speaker 1: course of the pandemic are still about two and a

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Speaker 1: half trillion dollars um. But we are seeing signs that

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Speaker 1: consumers are likely pulling back on spending. We think the

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Speaker 1: momentum and consumption spending is slowing. We see that in

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Speaker 1: the retail sales data. For example, we track some high

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Speaker 1: frequency credit card data, and we we've seen signs that

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Speaker 1: you know, slow spending has slowed across goods and services.

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Speaker 1: And then you know, to your point, the savings rate

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Speaker 1: has also dropped well below um pre pandemic levels. So

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Speaker 1: you know, even despite the fact that they do have

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Speaker 1: you know, decent balance sheets to rely on, it looks

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Speaker 1: like they are becoming a little hesitant about spending. And

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Speaker 1: I think eroding purchasing power is a key concern among

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Speaker 1: consumers right now. Thank you so much for joining us

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Speaker 1: today Pussia, Assam. Where this with Barclays and now our

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Speaker 1: conversation of the day on your fear of recession Edward

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Speaker 1: year Danny joins us his president, Your Danny research for

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Speaker 1: far more than that, decades of experience and the ebbs

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Speaker 1: and flows of the American economic experiment, and we just

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Speaker 1: saw Carlos Good of the areas. Kellogg's say, enough, we're

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Speaker 1: thrown in a towel. We're breaking up underperformer in Battle Creek, Michigan.

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Speaker 1: In recession, in the gloom of recession? Ad isn't the

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Speaker 1: rule always corporations adjust? Well? I think everybody adjusts in

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Speaker 1: a recession. And uh, what what's interesting is if we

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Speaker 1: are in a recession or we're going to have an

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Speaker 1: imminent recession. As you know, Tom, this is probably the

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Speaker 1: most anticipated recession of all times, which in my mind

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Speaker 1: makes it either less likely or if it does occur,

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Speaker 1: it's going to be a fairly short and uh and

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Speaker 1: shallow recession, which is kind of where I'm leaning towards

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Speaker 1: at this point. I don't think a recession is yet inevitable.

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Speaker 1: I've got subjective probability of a recession happening over the

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Speaker 1: next eighteen months. But I've been raising that assessment as

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Speaker 1: as everybody else hasn't been. And let's go through some

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Speaker 1: of the components, starting with gas, and with five dollars

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Speaker 1: a gallon gas, Let's say it goes down a little

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Speaker 1: bit but stays around here. At what point is that

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Speaker 1: the trigger in and of itself in terms of how

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Speaker 1: much it really crimps consumer spending. Well, you know, it's

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Speaker 1: it's a tricky situation. When you look at UH spending

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Speaker 1: by all households, it's about four or five percent of

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Speaker 1: all households budgets relative to personal income. However, when you

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Speaker 1: look at it on a per household basis, we were

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Speaker 1: spending about hundred dollars a month on average per household

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Speaker 1: about a year ago, and now we're up to about

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Speaker 1: five thousand dollars per month. And I should say that's

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Speaker 1: at an annual rate. It's not per month. It's at

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Speaker 1: an annual rate. In other words, at the price of

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Speaker 1: five dollars UH. If it just stays here, we'll be

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Speaker 1: spending five thousand dollars on average per household, and that

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Speaker 1: hurts especially lower income households. Now, some of them have

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Speaker 1: had some pretty substantial wage increases, but unfortunately they've seen

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Speaker 1: that they've had to give the mold back at the

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Speaker 1: grocery store and filling up with gasoline. So the gasoline

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Speaker 1: situation is definitely an issue, and it's as you mentioned before,

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Speaker 1: it's really one of the main reasons that the consumer

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Speaker 1: sentiment index has taken a dive to an all time

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Speaker 1: record low, especially the expectations component. So consumers are depressed,

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Speaker 1: and they're depressed about inflation generally and gasoline prices and

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Speaker 1: grocery prices specifically. And I'm wondering how that is going

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Speaker 1: to translate into corporate earnings because as we talk about

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Speaker 1: a consumer faced with higher prices at the gas pump,

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Speaker 1: at the grocery store, they're spending less on certain discretionary items.

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Speaker 1: We've seen that with the warnings out of the likes

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Speaker 1: of Target. How much broader will that extend at as

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Speaker 1: we approach the second quarter earning season. Well, that's a

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Speaker 1: good news and bad news situation. The bad news is

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Speaker 1: that some of these retailers are getting stuck with lots

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Speaker 1: of inventories of consumer discretionary categories. And the good news

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Speaker 1: is that they're going to have to clear those inventories

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Speaker 1: by cutting price is And as you know, one of

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Speaker 1: the most significant components of inflation over the past year

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Speaker 1: has been consumer durable goods inflation, and that's gonna come down,

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Speaker 1: especially all the housing related items. So um, it's contributing

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Speaker 1: to a slower economy. On the other hand, it's going

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Speaker 1: to probably mean that the inflation news is going to

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Speaker 1: be somewhat better than expected over the rest of the year.

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Speaker 1: And you're Denny, given twenty eight flavors of recession, is

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Speaker 1: your study of history that all central banks remained data

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Speaker 1: dependent or do they throw in the tunnel and blink

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Speaker 1: at some point? Well, I don't see if Paul Bulker

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Speaker 1: out there, let me let me start out with the extreme.

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Speaker 1: I mean, you know, back in the late seventies early eighties,

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Speaker 1: Paul Workers said, you know, thank it, I gotta I

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Speaker 1: gotta bring inflation down. The only way that's going to happen.

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Speaker 1: So if I let interest rates go up to whatever

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Speaker 1: level it takes to cause a recession and bring inflation down,

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Speaker 1: and history does show it's certainly a u s. History

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Speaker 1: shows that the most effective way to bring inflation down

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Speaker 1: is to have a recession. A really hard procession will

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Speaker 1: do it, for sure. I don't think the central banks

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Speaker 1: want to go there. They've spent the past couple of

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Speaker 1: years trying to get their labor markets protected from the pandemic.

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Speaker 1: They don't want to suddenly completely reverse that around. So

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Speaker 1: I don't think we're gonna see these central banks uh

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Speaker 1: uh tighten in a way that causes the kind of

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Speaker 1: procession in the seventies. But they are tightening, There's no

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Speaker 1: doubt about that. And the fact of the matter is

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Speaker 1: the financial markets have tightened even more so. Critic conditions

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Speaker 1: are slowing the global economy down. And I think we're

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Speaker 1: gonna see a peak in commodity prices here pretty shortly.

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Speaker 1: And your Jenny, thank you so much, greatly appreciate it.

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Speaker 1: With some real tangible optimism there you're journey at research.

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Speaker 1: This warning to Kevin booked with this managing director Clearview

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Speaker 1: Energy Partners, and Kevin, I want to link in here

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Speaker 1: weaker yen in the import ramifications of Japan and others,

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Speaker 1: which is the researcher over the weekend on what Russia

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Speaker 1: is doing with their hydrocarbons. They're moving it to India,

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Speaker 1: they are moving it through the Straits of Malacca, up

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Speaker 1: the Pacific rim to other places, maybe to Japan. I'm

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Speaker 1: not going to speak for that, to China whatever. What

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Speaker 1: part of the Russian oil movement has year attention with

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Speaker 1: clear View Energy's global perspective Morning Tom First and foremost

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Speaker 1: the amount that China is buying. It's that strong alliance

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Speaker 1: between China and Russia that really shelters the Russian barrel

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Speaker 1: right now. India notable for its growth, but China for

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Speaker 1: its volume. Second is that the products don't necessarily have

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Speaker 1: the same home. Those are big refining destinations, China and India.

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Speaker 1: So take crude. They're fine, but they've got products they've

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Speaker 1: made of their own, and so they don't need as

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Speaker 1: much of the refined product that just just disappears if

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Speaker 1: it can't find a market. Kevin, I want to ask

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Speaker 1: you all these sophisticated questions, but really I just want

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Speaker 1: to know how high gas prices can potentially go in

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Speaker 1: the United States given some of the calls at a

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Speaker 1: JP Morgan and the like for six dollars a gallon gasoline? Look,

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Speaker 1: did you think we were going to be at five

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Speaker 1: right now? I think a lot of people are revising

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Speaker 1: their expectations. Were one hurricane or one major refinery outage

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Speaker 1: away from a significant uptick on its own. With that,

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Speaker 1: we have crude structurally aiming higher. If you see real

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Speaker 1: insurance sanctions going to force, I don't know how price

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Speaker 1: caps are gonna work just yet, A little skeptical that

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Speaker 1: even works in the end. Uh And so the sanctions

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Speaker 1: that you have put in place threatened to squeeze crude

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Speaker 1: even a bit more before the year ends. And so

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Speaker 1: now you've got crude going up, you've got risks to

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Speaker 1: the refining side. Six dollars is not unreasonable. So what's

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Speaker 1: the what's the pressure reliever here? Given that we've heard

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Speaker 1: about taxes and removing certain gas taxes that that probably

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Speaker 1: won't do anything. If anything, it will actually cause prices

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Speaker 1: to go higher because it will increase demand or allow

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Speaker 1: demand to keep climbing. What do you see as a

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Speaker 1: policy prescription to cap prices where they are send them lower. Well,

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Speaker 1: you just had a guest who prescribed for action. I

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Speaker 1: suppose nothing solve side prices like high prices, except also

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Speaker 1: slow growth. But the administration is looking at options that

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Speaker 1: are really at the sort of the dwindling end of

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Speaker 1: the options set. They've already drawn the spr they've already

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Speaker 1: considered products reserves, which aren't very big. Now they're looking

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Speaker 1: at things like product export limitations, not necessarily outright bands,

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Speaker 1: but caps keeping products home that could have deliterious consequences. Yes,

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Speaker 1: a gasoline price ghastly tax holiday, but as you suggested,

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Speaker 1: that could induced demand or at least preserve it and Ultimately,

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Speaker 1: the things that could put an immediate relief in price

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Speaker 1: or sort of outside of the administration's environmental comfort zone.

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Speaker 1: So things like waving air quality standards for for vapor pressure.

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Speaker 1: That doesn't look like something they're going to do well.

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Speaker 1: To that point, this is an administration that came into

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Speaker 1: office with a climate agenda that has been trying to

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Speaker 1: lead a global charge toward de carbonization and cleaner energy.

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Speaker 1: If you're leading an oil company, why would you invest

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Speaker 1: in more refineries or ramping up your production capacity knowing

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Speaker 1: that at the end of the day people want to

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Speaker 1: phase out fossil fuels. Yeah, drill today, disappear tomorrow is

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Speaker 1: not an investment thesis. One last fossil bender before America

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Speaker 1: goes green and sober is not going to convince capital

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Speaker 1: discipline to loosen. It is really a difficult proposition to

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Speaker 1: talk about transition and also ramping at the same time. Well, Kevin,

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Speaker 1: are you predicting six dollars a gallon gas? I mean,

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Speaker 1: can I narrow it down to that? Lisa, I'm asking

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Speaker 1: for a friend. Lisa wants to know we don't predict

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Speaker 1: prices that clearly we predict directions. Then we've got room

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Speaker 1: to the upside. That's his way of saying, probably I

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Speaker 1: think you said. Okay, Kevin, thank you so much, greatly

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Speaker 1: appreciate it. As he predicts were all going to be

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Speaker 1: driving VW diesels here within weeks. He's with clear View

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Speaker 1: Energy Partners. This is the Bloomberg Surveillance Podcast. Thanks for listening.

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Speaker 1: Join us live weekdays from seven to ten a m.

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Speaker 1: Eastern on Bloomberg Radio and on Bloomberg Television each day

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Speaker 1: from six to nine am for insight from the best

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Speaker 1: in economics, finance, investment, and international relations. And subscribe to

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Speaker 1: the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com,

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Speaker 1: and of course on the terminal. I'm Tom Keene, and

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Speaker 1: this is Bloomberg