1
00:00:02,360 --> 00:00:06,720
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

2
00:00:11,640 --> 00:00:15,440
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

3
00:00:15,480 --> 00:00:18,680
Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day

4
00:00:18,720 --> 00:00:22,280
Speaker 2: for insight from the best in markets, economics, and geopolitics

5
00:00:22,400 --> 00:00:24,880
Speaker 2: from our global headquarters in New York City. We are

6
00:00:24,920 --> 00:00:27,680
Speaker 2: live on Bloomberg Television weekday mornings from six to nine

7
00:00:27,720 --> 00:00:31,280
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

8
00:00:31,320 --> 00:00:33,919
Speaker 2: anywhere else you listen, and as always on the Bloomberg

9
00:00:34,000 --> 00:00:37,320
Speaker 2: Terminal and the Bloomberg Business app. Stephen Kirk of the

10
00:00:37,360 --> 00:00:39,960
Speaker 2: Council on Foreign Relations right in the following, President Trump

11
00:00:40,040 --> 00:00:44,080
Speaker 2: must get clear, verifiable constraints on a Rand's nuclear program

12
00:00:44,080 --> 00:00:47,199
Speaker 2: and re establish freedom of navigation through the strain offormos,

13
00:00:47,440 --> 00:00:50,400
Speaker 2: or it is a strategic defeat for the US. Stephen

14
00:00:50,440 --> 00:00:52,360
Speaker 2: joins us now from more. Steve, welcome to the program.

15
00:00:52,600 --> 00:00:54,880
Speaker 2: If I want to call Iran, who do I call

16
00:00:55,000 --> 00:00:56,240
Speaker 2: right now? Who do I speak to?

17
00:00:57,160 --> 00:01:00,800
Speaker 3: Well, that's a very good question. The report is that

18
00:01:00,840 --> 00:01:05,600
Speaker 3: the United States was able to reach the speaker of

19
00:01:05,720 --> 00:01:08,560
Speaker 3: Iran's parliament, who is quite powerful. He of course, has

20
00:01:08,600 --> 00:01:12,240
Speaker 3: denied that any negotiations are going on. There's also some

21
00:01:12,480 --> 00:01:16,600
Speaker 3: indication that the Egyptian Foreign Minister was able to reach

22
00:01:16,680 --> 00:01:20,360
Speaker 3: people within the Islamic Revolutionary Guard Corps. They have also

23
00:01:20,480 --> 00:01:23,360
Speaker 3: denied the fact that there are going to be negotiations,

24
00:01:23,800 --> 00:01:27,039
Speaker 3: regardless of whether there are there aren't, it does seem

25
00:01:27,040 --> 00:01:30,200
Speaker 3: that the President is in keeping with his timeline of

26
00:01:30,240 --> 00:01:32,640
Speaker 3: four to six weeks looking for a way to wind

27
00:01:32,760 --> 00:01:33,800
Speaker 3: this conflict down.

28
00:01:34,080 --> 00:01:36,319
Speaker 4: Steven, you know these countries really well, especially when it

29
00:01:36,360 --> 00:01:38,760
Speaker 4: comes to Egypt, Pakistan, I know, Turkey, you spent a

30
00:01:38,800 --> 00:01:40,640
Speaker 4: lot of time. And who do you think could be

31
00:01:40,840 --> 00:01:44,640
Speaker 4: a real viable intermediary right now between Tehran and Washington.

32
00:01:45,240 --> 00:01:47,600
Speaker 3: Well, it seems that the Pakistanis are taking the lead

33
00:01:47,680 --> 00:01:51,480
Speaker 3: with a lot of help from the Egyptians. The Egyptians

34
00:01:51,480 --> 00:01:55,120
Speaker 3: have improved their relations with Pakistan. Pakistan has improved this

35
00:01:55,240 --> 00:01:58,280
Speaker 3: relations with Iran, and the Egyptians have also improved their

36
00:01:58,320 --> 00:02:00,000
Speaker 3: relations with Iran and the run up to this content.

37
00:02:00,720 --> 00:02:02,880
Speaker 3: So those are the countries that seem to be playing

38
00:02:02,920 --> 00:02:08,440
Speaker 3: the most behind the scenes role in trying to establish

39
00:02:08,480 --> 00:02:14,040
Speaker 3: some type of communication between Washington and Tehran. But the

40
00:02:14,040 --> 00:02:17,400
Speaker 3: Iranian position is we've been negotiating with Trump and twice

41
00:02:17,880 --> 00:02:20,919
Speaker 3: in the middle of negotiations, he is taking military action.

42
00:02:21,320 --> 00:02:24,600
Speaker 3: So there's going to be a tremendous amount of skepticism

43
00:02:24,639 --> 00:02:28,400
Speaker 3: within Tehran about getting to the table. And as we've seen,

44
00:02:28,480 --> 00:02:30,280
Speaker 3: the Iranians still have a lot of fight in them.

45
00:02:30,440 --> 00:02:32,280
Speaker 3: There doesn't seem to be a lot of incentive on

46
00:02:32,320 --> 00:02:35,079
Speaker 3: their part despite what the President is saying to engage

47
00:02:35,160 --> 00:02:37,040
Speaker 3: in negotiations to bring this to an end.

48
00:02:37,240 --> 00:02:39,040
Speaker 4: Picking up in our point that they want that the

49
00:02:39,120 --> 00:02:41,519
Speaker 4: US needs to re establish the freedom of navigation in

50
00:02:41,560 --> 00:02:44,720
Speaker 4: the Strait of Hormuz or it is a strategic failure.

51
00:02:45,200 --> 00:02:46,840
Speaker 1: How do you perceive the.

52
00:02:46,800 --> 00:02:50,000
Speaker 4: Strait of Hormus will be basically operate in the future,

53
00:02:50,040 --> 00:02:52,160
Speaker 4: Because the President said yesterday is a little bit tongue

54
00:02:52,160 --> 00:02:54,120
Speaker 4: in cheek, but he did say maybe me and Iatola

55
00:02:54,160 --> 00:02:54,880
Speaker 4: will do it together.

56
00:02:55,680 --> 00:02:58,840
Speaker 3: Yeah, this is a huge problem. The United States cannot

57
00:02:58,880 --> 00:03:01,639
Speaker 3: come out of this war with the Iranian regime intact,

58
00:03:01,919 --> 00:03:06,680
Speaker 3: the Iran's ability to fire on its neighbors, no clear

59
00:03:07,919 --> 00:03:11,799
Speaker 3: verifiable limits on Iran's nuclear program, and the Iranians in

60
00:03:11,840 --> 00:03:13,080
Speaker 3: control of the Strait of Remooves.

61
00:03:13,120 --> 00:03:14,239
Speaker 1: That would be a worse.

62
00:03:14,040 --> 00:03:17,080
Speaker 3: Position than the United States was in before the President

63
00:03:17,120 --> 00:03:20,200
Speaker 3: started hostilities. On February twenty eighth. They're going to have

64
00:03:20,280 --> 00:03:24,560
Speaker 3: to re establish freedom of navigation through the strait. That

65
00:03:24,639 --> 00:03:27,639
Speaker 3: means that the Iranians will have no control over who

66
00:03:27,680 --> 00:03:28,880
Speaker 3: goes through that waterway.

67
00:03:29,200 --> 00:03:31,480
Speaker 4: Isn't that genie already out of the bottle. The Iranians

68
00:03:31,480 --> 00:03:33,000
Speaker 4: have control it is.

69
00:03:33,000 --> 00:03:35,040
Speaker 3: And it's going to be extremely difficult to put that

70
00:03:35,080 --> 00:03:37,280
Speaker 3: genie back into the bottle. And it seems to me

71
00:03:37,360 --> 00:03:38,960
Speaker 3: that the way to do that is going to be

72
00:03:39,000 --> 00:03:42,720
Speaker 3: through military action. It's hard to imagine a negotiation given

73
00:03:42,760 --> 00:03:44,760
Speaker 3: the position that the Iranians are in right now, where

74
00:03:44,800 --> 00:03:48,240
Speaker 3: they have established essentially a new regime for passage through

75
00:03:48,240 --> 00:03:51,640
Speaker 3: the Strait of Remoovese, that they're going to go back voluntarily.

76
00:03:51,600 --> 00:04:04,480
Speaker 2: Stay with US, Multilanpex, saveillance coming up off to this,

77
00:04:04,480 --> 00:04:06,120
Speaker 2: This is what the Department of Energy has got to

78
00:04:06,160 --> 00:04:08,480
Speaker 2: say bad things right now. The US Energy Secretary Chris

79
00:04:08,520 --> 00:04:11,240
Speaker 2: Right down playing the market impact of the war, urging

80
00:04:11,320 --> 00:04:13,600
Speaker 2: energy companies to ramp up production.

81
00:04:14,080 --> 00:04:15,200
Speaker 5: Marcus, do what markets do.

82
00:04:15,360 --> 00:04:18,760
Speaker 6: Prices went up to send signals to everyone that can.

83
00:04:18,640 --> 00:04:20,320
Speaker 1: Produce more, please produce more.

84
00:04:21,760 --> 00:04:24,720
Speaker 6: The prices have not risen high enough yet to drive

85
00:04:24,880 --> 00:04:29,960
Speaker 6: meaningful demand destruction, but Americans and energy entrepreneurs around the

86
00:04:30,000 --> 00:04:33,120
Speaker 6: world are in genius, so are things are being done.

87
00:04:33,320 --> 00:04:38,080
Speaker 6: But these are mitigants of a of a situation that's temporary.

88
00:04:38,200 --> 00:04:40,279
Speaker 2: So Brent is holding there one hundred dollars a barrel

89
00:04:40,320 --> 00:04:43,520
Speaker 2: as uncertainty linkers around the conflict's outcome. Vicus to a

90
00:04:43,600 --> 00:04:47,640
Speaker 2: Ada of Macquarie, writing, if the stratiformers remains effectively shut

91
00:04:47,839 --> 00:04:50,440
Speaker 2: until the end of April, Brent could still reach one

92
00:04:50,560 --> 00:04:53,640
Speaker 2: hundred and fifty dollars a barrel. Vecus joints it's now

93
00:04:53,720 --> 00:04:56,240
Speaker 2: before more Vecus, welcome to the program. Can I start

94
00:04:56,240 --> 00:04:58,159
Speaker 2: with this? What is your base case at the moment,

95
00:04:58,200 --> 00:05:01,640
Speaker 2: and perhaps more importantly, what informs that base caps?

96
00:05:02,160 --> 00:05:06,080
Speaker 7: Yeah, our base cases for Brent to revisit the one

97
00:05:06,160 --> 00:05:10,640
Speaker 7: twenty range. You know, as you mentioned earlier, you know

98
00:05:10,680 --> 00:05:12,960
Speaker 7: there is a big disconnect between the physical and the

99
00:05:13,000 --> 00:05:17,080
Speaker 7: financial markets. We think that disconnect will close if the

100
00:05:17,120 --> 00:05:20,919
Speaker 7: strait remains you know, largely shut. It's not completely shut,

101
00:05:21,760 --> 00:05:25,000
Speaker 7: so we think one twenty maybe one twenty five is

102
00:05:25,080 --> 00:05:29,760
Speaker 7: kind of the the most likely area that price will revisit.

103
00:05:29,880 --> 00:05:33,440
Speaker 7: But to your other point, if the straight remains largely

104
00:05:33,480 --> 00:05:36,280
Speaker 7: shut through April, you know, even if you get a

105
00:05:37,920 --> 00:05:41,920
Speaker 7: single day resolution right like, hey, we're done, you won't

106
00:05:41,960 --> 00:05:45,680
Speaker 7: get flows back to normal till May. By then, the

107
00:05:45,760 --> 00:05:48,599
Speaker 7: amount of oil that didn't make it to refiners and

108
00:05:48,640 --> 00:05:52,400
Speaker 7: petrochemical plants will have been so large that, you know,

109
00:05:52,440 --> 00:05:55,880
Speaker 7: we think one fifty brent something that closes in on

110
00:05:56,080 --> 00:05:59,679
Speaker 7: Oman pricing to Baio pricing. Some of the physical markets

111
00:05:59,680 --> 00:06:02,600
Speaker 7: that you as mentioned are considerably above rent.

112
00:06:02,920 --> 00:06:04,640
Speaker 5: We think that gap will have to close.

113
00:06:05,360 --> 00:06:08,359
Speaker 4: That's the base case if the strait of Hermose opens

114
00:06:08,440 --> 00:06:12,000
Speaker 4: in the short term. What happens if it doesn't open

115
00:06:12,080 --> 00:06:15,200
Speaker 4: in the short term and countries like Saudi Arabia or

116
00:06:15,200 --> 00:06:18,560
Speaker 4: the UAE also engage in a more material way in

117
00:06:18,600 --> 00:06:19,280
Speaker 4: this conflict.

118
00:06:20,160 --> 00:06:26,040
Speaker 7: Yeah, in that scenario, there are numerous mitigations that can

119
00:06:26,520 --> 00:06:29,640
Speaker 7: come to the market to limit oil from going to

120
00:06:29,680 --> 00:06:31,960
Speaker 7: two hundred on the futures market. You know, we've seen

121
00:06:32,040 --> 00:06:36,920
Speaker 7: refined products go well above that already, but global strategic

122
00:06:37,000 --> 00:06:40,279
Speaker 7: petroleum reserve releases we think could reach about three million

123
00:06:40,279 --> 00:06:43,880
Speaker 7: barrels a day. The East West pipeline that crosses across

124
00:06:43,880 --> 00:06:46,720
Speaker 7: Saudi Arabia to circumvent her moves.

125
00:06:47,040 --> 00:06:48,960
Speaker 5: You know, that could do another three and a half.

126
00:06:50,760 --> 00:06:53,680
Speaker 7: You know, you've got refining run cuts, which will then

127
00:06:53,720 --> 00:06:56,400
Speaker 7: translate into even higher refined product prices, but it will

128
00:06:56,440 --> 00:07:00,280
Speaker 7: alleviate some of the crude shortages. So there's a a

129
00:07:00,320 --> 00:07:03,400
Speaker 7: bunch of big ones, right and OPEC also has about

130
00:07:03,440 --> 00:07:06,280
Speaker 7: two hundred million of stores outside of the Middle East.

131
00:07:06,279 --> 00:07:06,920
Speaker 5: They can use that.

132
00:07:07,440 --> 00:07:10,400
Speaker 7: So we have If everything can come to the market

133
00:07:10,560 --> 00:07:13,679
Speaker 7: in a timely way without all the normal bureaucratic friction,

134
00:07:14,360 --> 00:07:17,880
Speaker 7: you can actually rebalance the market largely, not fully. You

135
00:07:17,960 --> 00:07:23,400
Speaker 7: still are cutting refining runs, so that's a you know,

136
00:07:23,480 --> 00:07:27,640
Speaker 7: Peter to pay Paul situation, But you can close that

137
00:07:27,760 --> 00:07:30,480
Speaker 7: deficit from what we estimated about thirteen million a day,

138
00:07:30,480 --> 00:07:32,480
Speaker 7: you can close it down to about three million, much

139
00:07:32,520 --> 00:07:36,040
Speaker 7: more manageable. But you can't do that forever, right Like,

140
00:07:36,120 --> 00:07:38,120
Speaker 7: even that has a time limit.

141
00:07:38,520 --> 00:07:40,600
Speaker 4: The East West Pipeline, I'm glad you mentioned it. It's

142
00:07:40,640 --> 00:07:43,680
Speaker 4: looking very prudent of Saudi Arabia to have invested billions

143
00:07:43,680 --> 00:07:46,200
Speaker 4: of dollars of this to bring their crew to Yanboo,

144
00:07:46,280 --> 00:07:49,240
Speaker 4: to the Red Sea. But individuals I'm talking about are

145
00:07:49,240 --> 00:07:52,000
Speaker 4: putting higher probability now that the Houthis would get involved

146
00:07:52,120 --> 00:07:55,920
Speaker 4: and cut some of that production off. Are you starting

147
00:07:55,920 --> 00:07:57,840
Speaker 4: to bake some of that concern in.

148
00:07:58,840 --> 00:08:01,880
Speaker 5: Absolutely. Yeah, we think that should be a big concern.

149
00:08:02,840 --> 00:08:05,360
Speaker 7: You know, we think where it's where, where Yambu is,

150
00:08:05,480 --> 00:08:09,520
Speaker 7: the pipeline route, all of it is at risk. And

151
00:08:10,160 --> 00:08:12,400
Speaker 7: to your point that who these have in strangely quiet,

152
00:08:12,880 --> 00:08:16,280
Speaker 7: The Red Sea issues have been strangely quiet. We don't

153
00:08:16,280 --> 00:08:19,080
Speaker 7: know any reason why those cannot flare back up again

154
00:08:19,120 --> 00:08:22,160
Speaker 7: and cause a real problem. So yeah, that's a and

155
00:08:22,200 --> 00:08:24,160
Speaker 7: you know, if you knock that out in any in

156
00:08:24,200 --> 00:08:30,120
Speaker 7: any manner, suddenly, you know, roughly six million, five and

157
00:08:30,160 --> 00:08:33,800
Speaker 7: a half million a day of the mitigation around Hormuz

158
00:08:34,080 --> 00:08:37,439
Speaker 7: would be gone, right, And then that's a whole different

159
00:08:37,520 --> 00:08:39,320
Speaker 7: complexion to this market.

160
00:08:39,000 --> 00:08:41,400
Speaker 2: Again, because I think we're all thankful we're not there

161
00:08:41,440 --> 00:08:43,800
Speaker 2: this morning, and hopefully we don't experience that in the

162
00:08:43,800 --> 00:08:46,520
Speaker 2: coming days and weeks, because what we hear a lot

163
00:08:46,520 --> 00:08:49,440
Speaker 2: about on this program is that even after this war

164
00:08:49,520 --> 00:08:53,439
Speaker 2: has resolved itself, that from here we will have structurally

165
00:08:53,520 --> 00:08:58,400
Speaker 2: high demand through stockpiling. The countries will become conditioned to

166
00:08:58,520 --> 00:09:02,000
Speaker 2: avoid this situation happening to them again, that particularly the

167
00:09:02,080 --> 00:09:04,880
Speaker 2: nations in Asia, the big oil importers, like what we've

168
00:09:04,880 --> 00:09:07,600
Speaker 2: experienced with China will see our swear. Do you see

169
00:09:07,600 --> 00:09:11,880
Speaker 2: that increase in structural demand a regime shift following this experience?

170
00:09:12,520 --> 00:09:15,240
Speaker 5: We do, we do? We think this will.

171
00:09:15,760 --> 00:09:18,040
Speaker 7: You know, if this didn't send the signal, then nothing

172
00:09:18,080 --> 00:09:21,319
Speaker 7: would have to any country saying hey we need ninety

173
00:09:21,400 --> 00:09:25,680
Speaker 7: days inside our own borders, right or whatever day they picked,

174
00:09:25,679 --> 00:09:29,120
Speaker 7: But that nineties are typical, and now China looks extremely

175
00:09:29,280 --> 00:09:30,880
Speaker 7: prudent in doing what they did. I know there are

176
00:09:30,880 --> 00:09:33,040
Speaker 7: a lot of theories about, you know, are they doing

177
00:09:33,080 --> 00:09:37,760
Speaker 7: it for an eventual Taiwan? But what they said is, look,

178
00:09:37,760 --> 00:09:41,440
Speaker 7: we've imported an enormous amount of oil and as far

179
00:09:41,480 --> 00:09:44,280
Speaker 7: away we have a fragile supply chain. We need the

180
00:09:44,320 --> 00:09:47,040
Speaker 7: extra storage, right, And it looks very prudent today. I

181
00:09:47,080 --> 00:09:48,359
Speaker 7: think everybody will follow.

182
00:09:48,120 --> 00:09:50,319
Speaker 2: That model because I know this is difficult to put

183
00:09:50,320 --> 00:09:53,040
Speaker 2: a number on, but what kind of premium does that introduce?

184
00:09:53,080 --> 00:09:55,080
Speaker 2: What kind of new flaw does that introduce for this

185
00:09:55,160 --> 00:09:56,240
Speaker 2: market for the time ping.

186
00:09:57,240 --> 00:10:00,679
Speaker 7: Yeah, you know, we think it could add all lsequel

187
00:10:00,720 --> 00:10:04,560
Speaker 7: about half a million a day of extra demand as

188
00:10:04,600 --> 00:10:09,119
Speaker 7: countries refill and add new spr storage. You can translate

189
00:10:09,160 --> 00:10:13,280
Speaker 7: that to somewhere between five and seven dollars a barrel

190
00:10:13,360 --> 00:10:16,200
Speaker 7: to what your previous base case might have been. So

191
00:10:16,240 --> 00:10:18,600
Speaker 7: that would move us, you know, kind of into the

192
00:10:18,640 --> 00:10:22,160
Speaker 7: mid sixties instead of the high fifties low sixties.

193
00:10:22,640 --> 00:10:25,000
Speaker 4: But does that mean this is for the rest of

194
00:10:25,040 --> 00:10:26,720
Speaker 4: the world barring the United States?

195
00:10:27,640 --> 00:10:32,040
Speaker 7: Yeah, yeah, you know, we think you know, there might

196
00:10:32,080 --> 00:10:37,240
Speaker 7: be aggregation as well, right, where countries decide to have

197
00:10:38,200 --> 00:10:42,120
Speaker 7: like a joint storage between themselves, right, so they don't

198
00:10:42,120 --> 00:10:45,920
Speaker 7: necessarily all have to build new tanks in every single country.

199
00:10:46,600 --> 00:10:50,080
Speaker 5: But there's a cooperation in the US.

200
00:10:50,960 --> 00:10:54,120
Speaker 7: You know, we we're at four hundred million, four hundred

201
00:10:54,120 --> 00:10:58,040
Speaker 7: and twenty million. We're a net exporter but of a

202
00:10:58,080 --> 00:11:01,120
Speaker 7: petroleum so technically we don't need anything by that normal

203
00:11:01,280 --> 00:11:01,920
Speaker 7: rule of thumb.

204
00:11:02,400 --> 00:11:04,000
Speaker 5: But there again it would be improved.

205
00:11:04,160 --> 00:11:07,520
Speaker 7: Right, we probably should be around the five hundred million

206
00:11:07,600 --> 00:11:08,520
Speaker 7: range at all times.

207
00:11:09,120 --> 00:11:12,640
Speaker 2: Stay with US mult Bloomberg surveillance coming up after this,

208
00:11:22,000 --> 00:11:25,240
Speaker 2: Emily Rodent of John Hancock Investments right in the following.

209
00:11:25,440 --> 00:11:29,600
Speaker 2: We are trying to minimize geopolitics as an asset allocation input,

210
00:11:29,720 --> 00:11:33,280
Speaker 2: especially now with talks moving markets so significantly. One thing

211
00:11:33,320 --> 00:11:36,840
Speaker 2: we're sure of is that sentiment can change on a dime.

212
00:11:37,120 --> 00:11:39,440
Speaker 2: Emily joins us now for more. Emily, welcome to the program.

213
00:11:39,559 --> 00:11:41,679
Speaker 2: How avoidable is some of that at the moment.

214
00:11:42,880 --> 00:11:45,240
Speaker 8: It's so tricky right now, John, I mean my heart

215
00:11:45,320 --> 00:11:46,680
Speaker 8: sank when I saw it was going to be on

216
00:11:46,720 --> 00:11:49,280
Speaker 8: the show this morning. Only kidding, but it's just so

217
00:11:49,400 --> 00:11:52,760
Speaker 8: difficult to determine what's going to happen next in this market.

218
00:11:52,800 --> 00:11:57,120
Speaker 8: You know, yesterday we're watching really mixed messages across asset classes.

219
00:11:57,240 --> 00:12:01,120
Speaker 8: You have you know, the dollar declining, You've got gaset's surging.

220
00:12:01,160 --> 00:12:04,320
Speaker 8: It's back to the momentum darlings of the past twelve

221
00:12:04,320 --> 00:12:07,679
Speaker 8: months or so. European banks, the costs be and meanwhile

222
00:12:07,720 --> 00:12:10,120
Speaker 8: bonds are telling you a different story that the war

223
00:12:10,480 --> 00:12:13,800
Speaker 8: is still going to be ongoing, with yields remaining elevated here.

224
00:12:13,840 --> 00:12:16,320
Speaker 8: So we're trying to control the things that we can

225
00:12:16,440 --> 00:12:20,680
Speaker 8: control in this environment, and we're looking for opportunities and

226
00:12:20,800 --> 00:12:23,760
Speaker 8: areas that have great earnings growth prospects. We're looking for income,

227
00:12:23,800 --> 00:12:25,880
Speaker 8: We're trying to find things on sale. We're looking for

228
00:12:25,960 --> 00:12:29,800
Speaker 8: diversifiers and portfolios in a world where the macro environment

229
00:12:29,920 --> 00:12:31,839
Speaker 8: just remains sort of dazed and confused.

230
00:12:31,960 --> 00:12:33,800
Speaker 2: Well, bonds are on sale, and I know you like

231
00:12:33,840 --> 00:12:35,839
Speaker 2: the bond market coming into this. You like it more

232
00:12:35,880 --> 00:12:37,520
Speaker 2: now we do?

233
00:12:37,600 --> 00:12:41,280
Speaker 8: I mean, we would you look at opportunities where yields

234
00:12:41,280 --> 00:12:44,439
Speaker 8: are backing up as an opportunity to lean in. Obviously,

235
00:12:44,480 --> 00:12:47,760
Speaker 8: the myopic focus here is on energy prices and the

236
00:12:47,800 --> 00:12:52,000
Speaker 8: potential impact to inflation, but we're focusing on the old adage.

237
00:12:52,120 --> 00:12:56,640
Speaker 8: The cure for higher oil prices is higher oil prices,

238
00:12:56,720 --> 00:12:59,079
Speaker 8: and what I mean by that is that it will

239
00:12:59,200 --> 00:13:02,840
Speaker 8: likely lead to demand destruction. We're hearing from Asian economies

240
00:13:02,880 --> 00:13:08,480
Speaker 8: that there's hoarding of oil resources there. People are being

241
00:13:08,480 --> 00:13:11,040
Speaker 8: told not to go to work. We're seeing it impacted

242
00:13:11,040 --> 00:13:14,760
Speaker 8: in airline prices. I was hoping for a vacation coming

243
00:13:14,880 --> 00:13:16,559
Speaker 8: up here and those prices aren't looking good.

244
00:13:16,600 --> 00:13:17,920
Speaker 1: So at some point people are going.

245
00:13:17,840 --> 00:13:20,679
Speaker 8: To pull back in terms of demand as oil prices

246
00:13:20,760 --> 00:13:21,320
Speaker 8: move higher.

247
00:13:21,320 --> 00:13:21,560
Speaker 1: Here.

248
00:13:21,600 --> 00:13:25,679
Speaker 8: The other element, John that we're watching is the bigger

249
00:13:25,720 --> 00:13:29,720
Speaker 8: components of inflation, which we think are significant, especially around.

250
00:13:29,600 --> 00:13:30,679
Speaker 1: Shelter or howsing.

251
00:13:30,880 --> 00:13:34,760
Speaker 8: Nillo has home prices up zero percent year over year.

252
00:13:34,920 --> 00:13:37,320
Speaker 8: Rental prices are down about one and a half percent

253
00:13:37,440 --> 00:13:41,760
Speaker 8: year over year. We think that transmission into headline inflation

254
00:13:41,880 --> 00:13:44,719
Speaker 8: and core inflation readings. There is going to be significant,

255
00:13:44,960 --> 00:13:48,559
Speaker 8: and it could be enough to overcome any potential inflationary

256
00:13:48,640 --> 00:13:52,120
Speaker 8: impact we see here from commodity prices. For that reason,

257
00:13:52,160 --> 00:13:54,880
Speaker 8: we think eventually that bonds are going to our bond

258
00:13:54,920 --> 00:13:59,360
Speaker 8: investors will kind of wake up and smell that disinflation coming.

259
00:13:59,440 --> 00:14:02,120
Speaker 8: But for now, we're just continuing to see more volatility

260
00:14:02,160 --> 00:14:03,280
Speaker 8: on the rate side.

261
00:14:03,320 --> 00:14:05,840
Speaker 2: Everything kind of just heard Emily was an argument for

262
00:14:05,920 --> 00:14:09,400
Speaker 2: lower growth. It was a big argument for much lower growth,

263
00:14:09,720 --> 00:14:11,880
Speaker 2: reflected in your call to buy the bond market. Now,

264
00:14:11,880 --> 00:14:13,840
Speaker 2: this is where the stock market starts to get interesting.

265
00:14:14,360 --> 00:14:17,079
Speaker 2: What's going to keep earnings insulated as you put a

266
00:14:17,080 --> 00:14:18,600
Speaker 2: big bet on lower growth.

267
00:14:19,440 --> 00:14:22,240
Speaker 8: Yeah, you know, we're not saying that growth is falling

268
00:14:22,280 --> 00:14:24,520
Speaker 8: off a cliff, but we're seeing it in places like

269
00:14:24,560 --> 00:14:25,360
Speaker 8: the labor market.

270
00:14:25,400 --> 00:14:28,920
Speaker 1: It's not great. We had six negative jobs reports.

271
00:14:29,680 --> 00:14:32,400
Speaker 8: The labor market you know, is you know, holding in

272
00:14:32,440 --> 00:14:34,200
Speaker 8: as it relates to things like initial claims.

273
00:14:34,240 --> 00:14:36,040
Speaker 1: It's not terrible, but it's.

274
00:14:35,960 --> 00:14:41,320
Speaker 8: Just difficult to see accelerating economic growth in this in

275
00:14:41,520 --> 00:14:43,520
Speaker 8: you know, with a jobless backdrop.

276
00:14:43,600 --> 00:14:45,280
Speaker 1: So we want to be really mindful of that.

277
00:14:45,360 --> 00:14:48,360
Speaker 8: It's a key reason we still like quality in a

278
00:14:48,480 --> 00:14:50,160
Speaker 8: decelerating growth environment.

279
00:14:50,320 --> 00:14:53,480
Speaker 1: Quality sectors. Quality stocks should hold up better.

280
00:14:54,320 --> 00:14:58,520
Speaker 8: Things like looking at return on equity, looking at cash balances,

281
00:14:58,560 --> 00:15:02,960
Speaker 8: free cash flow, companies that can really maintain that earnings

282
00:15:03,000 --> 00:15:06,800
Speaker 8: growth prospect even in the despite despite slowing growth. And

283
00:15:07,080 --> 00:15:09,600
Speaker 8: that's not what we're seeing get rewarded in this market.

284
00:15:09,640 --> 00:15:12,240
Speaker 8: It's been about lower quality. It's been about technical as

285
00:15:12,360 --> 00:15:15,880
Speaker 8: momentum sentiment sort of driving these riskier parts.

286
00:15:15,560 --> 00:15:16,800
Speaker 1: Of the market.

287
00:15:16,840 --> 00:15:18,920
Speaker 8: And we want to trim into that strength and think

288
00:15:18,920 --> 00:15:22,400
Speaker 8: about redeploying assets into more defensive parts of the market

289
00:15:22,760 --> 00:15:26,000
Speaker 8: and higher quality areas. We're looking at areas like infrastructure

290
00:15:26,040 --> 00:15:31,240
Speaker 8: related equities, utilities, you know, even alternative type strategies that

291
00:15:31,320 --> 00:15:34,000
Speaker 8: can do well in that slow and growth environment.

292
00:15:34,320 --> 00:15:37,240
Speaker 4: Emily, when you mentioned the fact that when it comes

293
00:15:37,240 --> 00:15:39,680
Speaker 4: to the energy market, the cure is going to be

294
00:15:39,720 --> 00:15:43,200
Speaker 4: potentially demand destruction, do you have prices in mind about

295
00:15:43,240 --> 00:15:45,720
Speaker 4: how high prices we need to go until that we

296
00:15:45,760 --> 00:15:47,240
Speaker 4: actually see that demand destruction.

297
00:15:48,200 --> 00:15:50,600
Speaker 8: Yeah, that's the question of the day. You know, I

298
00:15:50,680 --> 00:15:53,160
Speaker 8: look back at history in two thousand and eight and

299
00:15:53,240 --> 00:15:55,680
Speaker 8: twenty twenty two were the last time is that we

300
00:15:55,760 --> 00:15:59,360
Speaker 8: saw significant spikes and oil prices. It's right around one

301
00:15:59,440 --> 00:16:01,560
Speaker 8: hundred and twenty eight dollars a barrel that we've seen

302
00:16:01,640 --> 00:16:03,200
Speaker 8: that demand destruction set in.

303
00:16:04,120 --> 00:16:06,960
Speaker 1: You know, we're not there yet, but you know, certainly the.

304
00:16:08,560 --> 00:16:11,560
Speaker 8: War escalating could potentially bring us there. That's sort of

305
00:16:11,600 --> 00:16:13,920
Speaker 8: the general price point that we'd be looking at.

306
00:16:14,760 --> 00:16:18,320
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best

307
00:16:18,320 --> 00:16:21,880
Speaker 2: in markets, economics, angiopolitics. You can watch the show live

308
00:16:22,000 --> 00:16:25,000
Speaker 2: on Bloomberg TV weekday mornings from six am to nine

309
00:16:25,040 --> 00:16:28,760
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or

310
00:16:28,800 --> 00:16:31,400
Speaker 2: anywhere else you listen, and as always, on the Bloomberg

311
00:16:31,480 --> 00:16:33,360
Speaker 2: Terminal and the Bloomberg Business app