Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll and Lisa Brownowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot com
Speaker 1: and of course on the Bloomberg terminal. We welcome all
Speaker 1: of you again. For Nora Rubini, there any number of
Speaker 1: topics to spend a long conversation when professor at Rubini
Speaker 1: n hyu Stern School, and of course in Oriel Today
Speaker 1: dot com. But his comments the last time he appeared
Speaker 1: with us on bitcoin, those comments worldwide we get an update?
Speaker 1: What ten thousand dollars higher on bitcoin? Noil, Let's just
Speaker 1: start with the simple microeconomics to supply the demand. Why
Speaker 1: is bitcoins surging surge in because there is a massive
Speaker 1: amount of manipulation that are pumping damp schemes that is
Speaker 1: s fool thing. There's wash trading, there is front running,
Speaker 1: there's the issues by tether or a fiat currency not
Speaker 1: backed by much that's used to manipulate at the price
Speaker 1: of bitcoin. I think it's a bubble. Fundamentally, bitcoin is
Speaker 1: not a currency it's not a unit of account. It
Speaker 1: is not a scalable means of payment, is not a
Speaker 1: stable store of value. Not even bitcoin conferences accepted as
Speaker 1: a means of payment because the price flativity implies your
Speaker 1: profit margin can be wiped out. And it's not even
Speaker 1: a single numera you know, the flintstones at the better
Speaker 1: monetary system that bitcoin, because that the shells instead of
Speaker 1: having a different token for different purchase of goods and services.
Speaker 1: So these are not currencies. Calling them occurrencies them is nowhere,
Speaker 1: cannot even assets nor I want to get to the
Speaker 1: heart of it, and I'm gonna go to ruff Field
Speaker 1: hours path break breaking work with bead work correct the
Speaker 1: Bank of International Settlements. The transaction costs of big coin
Speaker 1: in retail transactions preclude its use. So do you look
Speaker 1: at Tesla is a one off and the bitcoin just
Speaker 1: simply will never be used in retail because the transaction
Speaker 1: costs are so much higher than normal currency. Well, the
Speaker 1: transaction costs are huge, but the technology proof of work
Speaker 1: doesn't allow more than fact transaction per second. The Visa
Speaker 1: network allows you twenty four thousand transaction per second. So
Speaker 1: it's not the scalable means of payment leaving aside the
Speaker 1: fact that transaction costs are so high, is never going
Speaker 1: to be used for goods and services, just used for
Speaker 1: speculation and buying other cryptocurrency. So it's a self serving system,
Speaker 1: but it's not something that's going to be used as
Speaker 1: scalable means of payment for goods and services. Ever. No,
Speaker 1: you mentioned the volume of transactions, What about just a
Speaker 1: small volume but in large size meaning what meaning if
Speaker 1: you could transact in large sums of money and move
Speaker 1: cash through bitcoin from one country to another in large numbers.
Speaker 1: So not the volume of individual transactions, but let's say
Speaker 1: you could move a billion from point A to point
Speaker 1: day with bitcoin. Well, you know, even Steve me Nuchin
Speaker 1: said that we cannot have a cryptim bitcoin becoming the
Speaker 1: next Swiss bank account being used by human traffickers, terrorists,
Speaker 1: tax invaders as a way of sheltering their worth and
Speaker 1: moving across borders right now, across borders that are slow
Speaker 1: movements of transactions because there is a ky C, there's
Speaker 1: a m a L, there's compliance. That's why it's hard
Speaker 1: to move money from one county. Now that that's why
Speaker 1: there are capital controls. So if you have a system
Speaker 1: is illegal that allows the transfer money instead dalleaging from
Speaker 1: accounting to another one without any control. Of course, that
Speaker 1: something is going to be used by crimin out or terrorists,
Speaker 1: or human traffickers or tax evaders, but no system, no
Speaker 1: count is gonna allow that. There's been a crackdown of
Speaker 1: the G twenty on those types of offshore financial centers
Speaker 1: will be similar crackdown against the total lack of m E,
Speaker 1: L and KYC in anything script of so, professor, what
Speaker 1: you make of the increased institutional find that we've seen
Speaker 1: more recently, Well, you know, I think that you have
Speaker 1: to ask yourself, is this as an asset? It's not occurrency,
Speaker 1: it's not even an asset. Usually stocks, bonds, loans, real
Speaker 1: estate give you some income, davidends, coupon interest or rent
Speaker 1: some other assets like residential real estate if you use
Speaker 1: housing services. Gold doesn't have any income, but there's a
Speaker 1: using industry as utility has jewelry and the past monitor
Speaker 1: use as a store of value. You look at bitcoin,
Speaker 1: it doesn't have any income, it doesn't have an use,
Speaker 1: it doesn't have any utility. So it's a pure speculative,
Speaker 1: self fulfilling bubble on a price appreciation is like tulip mania,
Speaker 1: but in case of tulip bank, at least tulips had
Speaker 1: some utility even today people love flowers. In this case,
Speaker 1: you have an asset that is not an asset because
Speaker 1: it doesn't have any feature of an asset. It doesn't
Speaker 1: any feature of the currency. So it's just a self
Speaker 1: fulfilling bubble. That's what it is. It's a in realistic
Speaker 1: values zero and actually, given it's hard so much energy
Speaker 1: for producing it, more than Argentina, if you had a
Speaker 1: pure carbon tax, the value will lead negative, not even zero. Well,
Speaker 1: some people would argue and neural that the idea of
Speaker 1: so much money flooding the financial system that there is
Speaker 1: value and being able to put it somewhere and not
Speaker 1: lose money. That basically not being charged to negative yield
Speaker 1: is value in and of itself in this nerve uh,
Speaker 1: this negative indestry policy world that we're living in. If
Speaker 1: this is a bubble, can it burst? Given where we
Speaker 1: are with the liquidity spickets, without many other parts of
Speaker 1: financial markets also suffering big blows. Well, you know, if
Speaker 1: it's a hedge against inflation, the basement of your currencies
Speaker 1: are a collapse of the dollar, you would see a
Speaker 1: spy king tips in the price of gold in inflation expectation. Yeah,
Speaker 1: eventually the monetary policy may lead us to those kind
Speaker 1: of outcomes, but the price of other assets will be
Speaker 1: sharply increasing. Gold went up fifty percent in the last
Speaker 1: two years, has now corrected a little bit. Why would
Speaker 1: the bigcoin go from five thousand earlier last year to
Speaker 1: something like fifty thou ten times higher just because there's
Speaker 1: a hedge against some tail risk of that sort. Other
Speaker 1: ascids will be pricing in. So that's not the explanation
Speaker 1: of the rising bicom prices. This price manipulation of one
Speaker 1: sort of another and bacon, it's not even hedge against
Speaker 1: a risk. During the February March episode last year when
Speaker 1: you had a collapse in US and global equity of
Speaker 1: thirty becouse went done by fifty percent. Another keep occurrency
Speaker 1: when done by sixty percent. So when there is a
Speaker 1: risk of they're not even hedge against those tale risks.
Speaker 1: So they don't have any hedging purpose of that sort either.
Speaker 1: You see this price manipulation. Who's doing the manipulation manipulating?
Speaker 1: I will get my words out manipulating. Well, there've been
Speaker 1: tons of articles showing that these pumping dump schemes that
Speaker 1: are all over telegram groups that essential pumping and dumping
Speaker 1: the price of it. We know that tail the issuance
Speaker 1: is literally a billion dollar every other day out of nowhere.
Speaker 1: No one has been very fined account of tether and
Speaker 1: he's being used essentially to buy bitcoin, and he's not
Speaker 1: backed by anything. And there's a whole bunch of wash
Speaker 1: trading or spoofing exchange on the front, running their own clients.
Speaker 1: It's all over the map. I mean, stuff that he
Speaker 1: just should be investigated is being investigated. The whole bunch
Speaker 1: of investigation by the adjesc F. You see the New
Speaker 1: York Attorney General Office of TED and bats that are
Speaker 1: undergoing right now. Nora. What should governments do? I mean,
Speaker 1: there's got to be a point where in the United Kingdom,
Speaker 1: the City, the chancel of the Exchequer or some FSA
Speaker 1: body steps in. Same in the United States and same
Speaker 1: in other nations as well. With your government experience with
Speaker 1: the Clinton administration, how can governments be constructive with the
Speaker 1: surgeon bitcoin? Well, you have to enforce antimony laundering and
Speaker 1: know your customer KAC rules. That's the first thing there
Speaker 1: was a proposal by the Trump administration to make sure
Speaker 1: that an allset wallets have to reveal was behind them.
Speaker 1: That rule has not yet done into fact. That lots
Speaker 1: of things you can do that could be investigation of
Speaker 1: why that there is a price manipulation. The investigation right now,
Speaker 1: but that phoenex those things have to continue because this
Speaker 1: is a bubble and eventually it's reaching now a market
Speaker 1: value crepto of one point for three dom dollar and
Speaker 1: when there's gonna be a blood bat like in two
Speaker 1: eighteen the price of bitcoin when initially from a thousand
Speaker 1: to twenty and then collapse from twenty down to three
Speaker 1: that at time. At that time the market body was
Speaker 1: very small. A couple hundred billion dollars right now is
Speaker 1: a multiple of that. So the consequences and the losses
Speaker 1: of people are going to be so much severe for
Speaker 1: institutions and for retail sackers of one sort or another.
Speaker 1: Nourial comment please, and of course, and we thank all
Speaker 1: of you out on Twitter, in your emails, watching professor
Speaker 1: we're being here on television and radio is honorial. People
Speaker 1: are transfixed by this debate. Explain to it's not the
Speaker 1: thermodynamics but the proof of work of electricity and it's artificiality.
Speaker 1: How do you see the electrical consumption to make this
Speaker 1: machine go well? Bitcot alone, it uses the energy of
Speaker 1: a medial size country like Argentina. Because instead of having,
Speaker 1: like in any legacy financial system, a few trusted individuals
Speaker 1: or institutions are validating transaction to make sure there is
Speaker 1: no double spend a bunch of banks. Now you have
Speaker 1: literally hundreds of thousands of good miners. We have to
Speaker 1: do a stupid cryptographic exercise of that one of them
Speaker 1: wins the task of verifying those transactions and that are
Speaker 1: put on a ledger in hundreds of thousands of other computers.
Speaker 1: It's the most inefficient way of essentially verifying transaction. Doesn't
Speaker 1: make any sense. And by the way, it's not the
Speaker 1: centralized either because sev of all the mining of cripto
Speaker 1: or bitcoin is being done by five or six Oligo
Speaker 1: police firms that are based where in Russia, Belarus and
Speaker 1: China that are is that no rule of law and
Speaker 1: we have the national security problem right now if we're
Speaker 1: relying on a bunch of miners in counties that are
Speaker 1: our strategic rivals, which there is no rule of law
Speaker 1: to VERI find those transactions. So people talk about the
Speaker 1: centralization is not a the centralized system, your centralization of mining,
Speaker 1: the centralization of exchanges, where transaction occurring, the centralization of
Speaker 1: developers and centralization of wealth. The gene coefficient for bitcoin
Speaker 1: is worse than the one of North Korea, where Kimon
Speaker 1: Jude and his family and chronies on the entire country
Speaker 1: his point eighty six. Well, in Korea is point eighty four.
Speaker 1: It's just a total light. This is that the centralized
Speaker 1: system is centralized where a bunch of insiders and whales
Speaker 1: and others are controlling the entire system, and they are
Speaker 1: manipulating it in space in which there is no rule
Speaker 1: of law. It's just pathetic, Professor healthy, Next time we
Speaker 1: come back, you can tell us what you really think about, professor.
Speaker 1: It's good to see here they are Raban, a professor
Speaker 1: of economics m y U Sterns called past right now.
Speaker 1: An oil definitive is Paul Sanki long ago and far
Speaker 1: away at Deutsche Bank there was absolute definitive sell side
Speaker 1: research like a bible. You read is Saminsky and Sanky
Speaker 1: on the global supply, the global demand of oil. We're
Speaker 1: thrilled at Paul Sanky could join us from Sanky Research
Speaker 1: U this morning. Paul, with the gyrations that we see
Speaker 1: in the midwest of the United States, in Texas, Permian basin,
Speaker 1: et cetera, can we get out of the assumption of
Speaker 1: range bound oil? Well, these are these are not gyrations.
Speaker 1: I mean this situation to me is is very reminiscent
Speaker 1: of Park in Katrina, where if you recall, on the
Speaker 1: Monday after Katrina, there was sort of an attitude that, uh,
Speaker 1: this hasn't been that big a deal, and then over
Speaker 1: the course of the following week, it's suddenly you emerged
Speaker 1: as a as a horrendous disaster. So gyrations in this
Speaker 1: I've observed this morning, Tom, people don't realize how about
Speaker 1: this situation is. I mean, you've got, like, as you mentioned,
Speaker 1: your previous guests mentioned, you've got basically full scale blackouts
Speaker 1: in Mexico, but you've also lost here the biggest outage
Speaker 1: in the history of US oil and gas. I mean,
Speaker 1: this thing is we have never seen a loss of
Speaker 1: this scale at a time when you know you're in midwinter.
Speaker 1: So basically we think you've lost about three million barrels
Speaker 1: a day of oil. We think you've lost about ten
Speaker 1: BCP of gas at least, and we're down at least
Speaker 1: three million barrels a day. And the finding you know,
Speaker 1: all of these for example, in the finding of the
Speaker 1: base of about sixteen million barrels a day with inventory
Speaker 1: is not that high. So this is an energy crisis.
Speaker 1: And you know, yeah, gyerations, you know you're seeing Brent
Speaker 1: at sixty four here the obvious price reaction would be. Firstly, obviously,
Speaker 1: if you lose US Texas oil, you're expecting Brent to
Speaker 1: go up, and it is and yeah, what is your
Speaker 1: price target? I mean, you give us visibility and price
Speaker 1: right now. Well, we've been talking a lot about the dollar,
Speaker 1: so we think you can get to eight this year
Speaker 1: based on the dollar. Now that obviously if the dollar
Speaker 1: strengthens a lot, that that calls it dad. But essentially
Speaker 1: oil should be around sixty five seventy just on the
Speaker 1: dollar at ninety on the d X Y. You know,
Speaker 1: if we break down to eight in below, then you
Speaker 1: can you could easy see oil at eight um. And
Speaker 1: you know, therefore there's quite a bit of upside at
Speaker 1: this point, which has been that was prior to the outage,
Speaker 1: So you know, we'll see how this thing plays out,
Speaker 1: but I think it's going to take a long time
Speaker 1: to sort this problem out. Well, Paul, can you talk
Speaker 1: about the way forward? In other words, how much federal
Speaker 1: interference has to be waged here given the fact that
Speaker 1: to upgrade texas Is infrastructure to be more weather proof
Speaker 1: would cost trillions of dollars and we're looking at a
Speaker 1: state that doesn't ensure against potential outages the way that
Speaker 1: places in the Northeast do. How do you see the
Speaker 1: federal government getting involved? Well, so far, the only comments
Speaker 1: been from AOC. You know, we haven't really seen much
Speaker 1: from the President for example, I mean Ergans following a
Speaker 1: post Trump you know, no Twitter kind of approach. But yeah,
Speaker 1: it's a major problem for the Texans and they're going
Speaker 1: to have to completely rethink this is this is really
Speaker 1: existential in terms of how much wind and how much
Speaker 1: solar you can have in a system. Given that you know,
Speaker 1: you were caught really badly shut what happens if you
Speaker 1: lose natural gas? And you know, to be honest, people
Speaker 1: haven't really thought what happens if there's a major matt
Speaker 1: gas outage at the time when there's no wind and solar?
Speaker 1: And the answer probably is, well, where are your nukes? Well,
Speaker 1: where's your cod file? Old one, get Paul. But this
Speaker 1: is really important because yesterday we had a Texas regulator
Speaker 1: come on and say that the default really was prioritizing
Speaker 1: green energy, that the wind turbines and some of the
Speaker 1: other natural resources that went offline were part of the
Speaker 1: big culprits behind this outage. If we look at data
Speaker 1: as reported by Bloomberg, it's not really the case that
Speaker 1: actually it's very much across the board, and that accounts
Speaker 1: for a much smaller proportion of the total energy output.
Speaker 1: So can you give us some perspective on how much
Speaker 1: this sort of shift to green energy really is behind
Speaker 1: this versus something much broader and more existential. As you say, yeah,
Speaker 1: I mean, look it's broader. That's exactly my point. Thank
Speaker 1: you for making that. No, I mean, you've you've had
Speaker 1: a failure of the natural gas system, You've had a
Speaker 1: nuclear power very large one two hundred bank or nuclear
Speaker 1: power plant has gone down. And obviously this is somewhat
Speaker 1: unprecedented weather. I think it's a sixties sixty year event
Speaker 1: since we've seen something like this in Texas. So all
Speaker 1: of the all of the above absolutely, and for one side,
Speaker 1: you know, exactly as you highlight for one side to
Speaker 1: say it's wind spot, for the other side to sort
Speaker 1: of say, you know, this shows you that even invest
Speaker 1: in nothing the grid is the kind of idiocy that
Speaker 1: we see around, you know, the whole energy transition debate.
Speaker 1: The thing that bugs me the most is people who
Speaker 1: are trying to get us of natural gas. You know,
Speaker 1: the idea that natural gas and the enemy because it's
Speaker 1: a fossil fuel. It's really flawed. And you know, ultimately
Speaker 1: all of us agree that basically we should be building
Speaker 1: nuclear if we really want to be emissions creed, because
Speaker 1: that's by far the best emission this pretty option pull.
Speaker 1: A couple of different conversations happen here, and I'm trying
Speaker 1: to reconcile them. You've got this eighty dollar price target,
Speaker 1: at least an eighty dollar call that you're looking for
Speaker 1: oil prices to gravitate towards. Then we're talking about a
Speaker 1: problem right now that could be fixed in a couple
Speaker 1: of weeks as we get into springs. So Paul, can
Speaker 1: you reconcile the two things for me? Yeah, I mean,
Speaker 1: the demand growth that we expect to see is going
Speaker 1: to be about three million barrels a day. In the summer,
Speaker 1: you're about five million barrels a day versus last year
Speaker 1: in OPEC with another million coming off from Saudi, So
Speaker 1: that's that leaves you about three million. At the same time.
Speaker 1: We've been drawing inventories before this crisis, that about two
Speaker 1: million a day globally. So basically the market is pretty
Speaker 1: much tight by summer. And that gets you. And that's
Speaker 1: by the way, I mean, I'm sure you guys, you know,
Speaker 1: are pretty jazzed up about the potential for a major
Speaker 1: pent up demand situations to emerge here. I think all
Speaker 1: of us, you know, desperate apply in a plane and
Speaker 1: whatever Tom does in the summer vacations. But I'm sure
Speaker 1: it involves travel and um, you know. So the point
Speaker 1: to count me out pull The point is that you're
Speaker 1: going to see a significant up searching demand. It's almost guaranteed.
Speaker 1: This is always you know, energy wise, this is a
Speaker 1: very strong point. Obviously the windsor fuels, obviously natural gas,
Speaker 1: heating oil. Propane by the way, is pretty much approaching
Speaker 1: crisis levels as well. The line that we've had before
Speaker 1: this crisis was there's no propane less than the Mississippi.
Speaker 1: So my point is that you're in an energy crisis,
Speaker 1: and I don't even see it as the top headline,
Speaker 1: you know, in the various media outlets like followed, including
Speaker 1: blue Bug. Blue Bug always does a great job, by
Speaker 1: the way, on thanks basically just to jump in forward
Speaker 1: just quickly. The more one of the more populist outlets
Speaker 1: don't seem to realize that you've got an energy crisis.
Speaker 1: Some laquetrina. Final question from me, sir, there's a difference
Speaker 1: between a rebound and crude crisis and the start of
Speaker 1: a commodity super psychole. I think that's been the big
Speaker 1: conversation amongst many people in this industry in the last
Speaker 1: couple of weeks. This was Andy Hall, of course, fain
Speaker 1: oil trader of the previous cycle, the last supercycle, he
Speaker 1: said the following in the ft, the oil and gas
Speaker 1: industry is in terminal decline. Perhaps this dead cat can
Speaker 1: bant a few more times, but would that be a
Speaker 1: super cycle. What's your take on that? Pot? Well, yeah,
Speaker 1: I used to I used to meet and the in
Speaker 1: a bar up on the upper rest side player and
Speaker 1: he's obviously a brilliant mad or is bullish actually I'm
Speaker 1: very interested to hear him not so bullish. Yeah, my concern.
Speaker 1: It's obviously it's a it's a consensus call. There's going
Speaker 1: to be a super cycle, you know, the world. And
Speaker 1: his wife is saying, yeah, you know everything, hands up,
Speaker 1: it's a super cycle. Having said that, we are bullish
Speaker 1: on our demand over the next five years, you know,
Speaker 1: the whole impact of the VS, which is so heavily
Speaker 1: discanted by the market, overvalued by the market, is going
Speaker 1: to take a lot longer to really have an impact.
Speaker 1: And it really comes down to still being at ninety
Speaker 1: five nineties six million bars in the wild demand with
Speaker 1: effectively no jet fuel demand in the US, you know,
Speaker 1: the discretionary basis, so you can easily get three to
Speaker 1: four million barrels today of extra jet field demand here,
Speaker 1: which takes you way back up to the hundred million
Speaker 1: barrel a day market, And then you're really questioning can
Speaker 1: the supplice I meet that? As you know, the key questions,
Speaker 1: one of them is going to be is the USC
Speaker 1: and P industry going to actually show capital discipline and
Speaker 1: generate returns this time? That's what's relating to me. I
Speaker 1: think they will. And yesterday we had Devon announced a
Speaker 1: variable dividend very early in its announcement of that policy.
Speaker 1: So essentially now Devon Energy is paying a standard dividend
Speaker 1: and then a variable dividend depending on the old price.
Speaker 1: And they came in with the nineteen cent boost that
Speaker 1: their dividend just based on fortify or and que Corps.
Speaker 1: That's that's a very good leadership role from from Devon
Speaker 1: to what this industry should be doing, which is paying
Speaker 1: out heavily cash to shareholders to pay them to the
Speaker 1: E s G. Pain of earning oil. I'm far more
Speaker 1: interested in how drinks went with Andy on the Upper
Speaker 1: West Side was the two thousand and seven just as
Speaker 1: like Steve Jobs right, So it's a mysterious figure. I
Speaker 1: don't know if you've ever seen the naked painting of
Speaker 1: him and his wife, but I've seen him make really
Speaker 1: interesting catch up folder at a time. Folking to see
Speaker 1: him a folk, thank you, thank you, thank you. Michael
Speaker 1: Gabon joined some Barclays right now. Michael, does this kind
Speaker 1: of data solidify a Barclay's call for buoyant economic growth?
Speaker 1: It certainly does help. At least we're looking for growth
Speaker 1: to be very solid this year and I think what
Speaker 1: this tells you is when fiscal stimulus or fiscal aid
Speaker 1: I think it's the better word arrives to household balance
Speaker 1: sheets is it does get turned around fairly quickly and
Speaker 1: materializes in economic activities. So this is largely, we think
Speaker 1: attributable to the nine plus billion aid package that was
Speaker 1: passed at the end of last year. We suspect we
Speaker 1: will be getting around to one point four one point
Speaker 1: five trillion dollar aid package by the middle to the
Speaker 1: end of March. So I think this means we should
Speaker 1: see a pretty rapid acceleration in demand and household spending
Speaker 1: as we move into the into the second quarter, which
Speaker 1: could be continued if vaccinations continue apace and mobility gradually
Speaker 1: recovers over time. So yes, Tom, it does I think
Speaker 1: confirm our expectations about growth for this year, at least initially.
Speaker 1: Obviously there's eleven more months to go. Well, Michael, can
Speaker 1: you connect retail sales and sort of a one month
Speaker 1: pop after passing this stimulus plan to longer term growth?
Speaker 1: How neat is that line? I wouldn't say it's it's
Speaker 1: entirely neat, but so there are certainly a list of
Speaker 1: things that have to happen, including vaccinations and getting on
Speaker 1: top of the pandemic and perhaps turning to an economic
Speaker 1: recovery package later this year. But but I think it
Speaker 1: does show you that when households have resources to spend,
Speaker 1: they ultimately will. So I think this does also address
Speaker 1: the question of excess saving our household balance sheets and
Speaker 1: what's going to happen to that excess saving if we
Speaker 1: can gradually normalize activity. There's one school of thought that
Speaker 1: says its wealth it's it's not really going to support
Speaker 1: consumption all that much. The wealth effective diminished. Our view
Speaker 1: is that we think a lot of it is is
Speaker 1: pent up demand or at least deferred consumption that's likely
Speaker 1: to come back and support activity. Just give you an
Speaker 1: update briefly on this price action. The move didn't hold,
Speaker 1: it didn't stick. We find just a little bit one
Speaker 1: on tens pushed one thirty three about five ten minutes
Speaker 1: ago on the dollar index, just off the highs of
Speaker 1: the session of ninety. Michael, we're talking about retail selves here,
Speaker 1: but maybe we should pay a little bit more attention
Speaker 1: to p p I facial gate prices are standard push um.
Speaker 1: We're starting to see this in China as well, and
Speaker 1: I'm trying to understand. You've got this commodity boom, you've
Speaker 1: got the supply chain issues, PPI standard to bleed higher.
Speaker 1: How do you take the read on PPI at two
Speaker 1: c p I? Michael cow consistent? Is that read across?
Speaker 1: I think first of all, we we should note this
Speaker 1: is not just a US phenomenon. You mentioned China. Across
Speaker 1: the globe. The p m I data in January said
Speaker 1: prices paid the input prices are moving are moving higher.
Speaker 1: Now this we think on net, this affects the emerging market,
Speaker 1: say central bank policy position much more because they're much
Speaker 1: more export oriented. They have a heavier focus on goods
Speaker 1: production in the in the US and in Europe and
Speaker 1: most of the developed world where still more of a
Speaker 1: services oriented economy. So how does it pass through to
Speaker 1: c p I Probably further buoyancy in in goods prices.
Speaker 1: Now services really take the weight off of that. And
Speaker 1: and so we think buoyant good goods prices are still
Speaker 1: offset by disinflation and shelter in services at least for
Speaker 1: much of this year. So I think there will be
Speaker 1: a pass through. I don't think it's going to affects,
Speaker 1: say the fed's view on on how policy should be set.
Speaker 1: But it is kind of moving the needle of bit
Speaker 1: on central banks, like in Brazil and South Africa, thinking
Speaker 1: about maybe we need to delay, or maybe we delay
Speaker 1: further cuts, or maybe we need to to move to
Speaker 1: tighter policy stands. So it's a global phenomenon right now.
Speaker 1: We don't think it affects the developed market world as
Speaker 1: much as the emerging market. Is it more than just
Speaker 1: spise effects though my code, yes, I think it's it's
Speaker 1: I think it's clearly supply constraints. Its lack of availability
Speaker 1: of labor. Uh, it's lack of inputs. It's the lack
Speaker 1: of containers. We're not moving as much cargo via air
Speaker 1: we need them versus containers. We know what's happened on
Speaker 1: shipping prices there. I just think that the cost of
Speaker 1: getting goods where they're needed globally has has risen. So
Speaker 1: I think it's more than base effects, presumably, or we
Speaker 1: expect it will diminish over the course of the year
Speaker 1: if the composition of activity shifts back in the direction
Speaker 1: of services. But in the meantime, I think it's going
Speaker 1: to be with us for at least the first half
Speaker 1: of this year getting increasingly complex. To get a read
Speaker 1: on this, Mikel's tried to catch up, so thank Michael
Speaker 1: gayfan Bacles. Right now the conversation of the day Ina
Speaker 1: Pandemic Lawrence Our with John Hopp because I know Lisa
Speaker 1: and John got a bunch of questions. We welcome all
Speaker 1: of you across this nation on radio, in television. Lawrence
Speaker 1: sour estimate for us the amount of your public that
Speaker 1: doesn't want to get the vaccine? Is it inconsequential? Is
Speaker 1: it tangible? I think it's definitely tangible. Um. We're rolling
Speaker 1: out to healthcare workers and elderly and vulnerable populations right now.
Speaker 1: You know, I think around the tenth of the population,
Speaker 1: maybe even less, has been vaccinated so far. Um. But
Speaker 1: what we know is that we're already seeing hesitancy from
Speaker 1: these vulnerable, marginalized populations. And that's within our healthcare cohorts
Speaker 1: and more broadly, as we're starting to roll out vaccine
Speaker 1: education campaigns and access campaigns. And so we don't have
Speaker 1: great numbers on the perscent of the popular Asian saying no,
Speaker 1: because there's so many people who are willing to get
Speaker 1: it right now just because they want life to go
Speaker 1: back to normal and they're not scared of the vaccine
Speaker 1: or they're not hesitant to get it. But as soon
Speaker 1: as we get to the point where the where there's
Speaker 1: a significant amount of supply increase, and we've gone through
Speaker 1: our frontline healthcare workers, we've gone through our um elderly
Speaker 1: populations that have been able to get it through things
Speaker 1: like long term care facilities, a lot of us think
Speaker 1: that we're going to see a sort of a cliff
Speaker 1: where there's this drop off of people who are willing
Speaker 1: to get it and we're gonna just be sitting on supply. Lauren,
Speaker 1: As you talk, it just strikes me that this process
Speaker 1: has been really messy. I mean, we're dealing with both
Speaker 1: the education campaigns in addition to trying to figure out
Speaker 1: the rollout campaigns because it's changing in real time, with
Speaker 1: the CDC recommending possibly delaying the second shot now to
Speaker 1: get the first shot as many people's arms. To John's
Speaker 1: point following the UK model, Lauren, is this a mess?
Speaker 1: Is there a plan? Do you think that we're moving
Speaker 1: ahead as expeditiously, expeditiously and as organized, Lee as pos
Speaker 1: of all, I will get my words out. Yeah, I
Speaker 1: mean I think there's there's a plan being built, right,
Speaker 1: but it's being built, you know, as it's going and
Speaker 1: and that's really problematic for something like this, where you
Speaker 1: potentially have multiple vaccines with multiple different uh distribution strategies,
Speaker 1: multiple different cold chain processes, and multiple different dozing approaches,
Speaker 1: and so how this has been rolled out has been
Speaker 1: left to local planners. And those are the same people
Speaker 1: who have had to plan testing campaigns, who have had
Speaker 1: to plan uh PPE access projects, who have had to
Speaker 1: do all of the case counting in their region, and
Speaker 1: and there's just not enough local resources to do that.
Speaker 1: The national strategy is being fixed UM and by fixed
Speaker 1: I mean built, I think because we didn't have a
Speaker 1: strong national strategy for vaccine rollout. It's been incredibly impressive
Speaker 1: how fast we've gotten to vaccine, but that is just
Speaker 1: one piece of the picture, you know, the actual products,
Speaker 1: and then all of these other pieces I think have
Speaker 1: been neglected while all of the focus was on getting
Speaker 1: vaccine UM that actually works. And so now it's time
Speaker 1: to really focus on UM a strategy that takes all
Speaker 1: of the responsibility out of the local health departments and
Speaker 1: local health systems hands so that they can go back
Speaker 1: to providing strong patient care and planning for all of
Speaker 1: the other day to day emergencies that they have in
Speaker 1: the meantime. President Biden last night at a town hall meeting,
Speaker 1: said that he expected things to be back to normal
Speaker 1: by Christmas. Uh, next year. What's the earliest that you
Speaker 1: see as plausible. I think that the first thing we
Speaker 1: have to do is readjust our our sense of what
Speaker 1: back to normal looks like. I mean, this is the
Speaker 1: virus that's going to be with us for a long time. Uh,
Speaker 1: We're not going to get rid of it. We are
Speaker 1: going to manage it, but probably the same way we
Speaker 1: manage flu. But um, there are some distinct different inces.
Speaker 1: And so as vaccine ruled out and more people get
Speaker 1: it and we do focus on these education campaigns, we're
Speaker 1: still going to have to maintain our masking strategies. Maintain
Speaker 1: our strategies probably well into the new year, I would say,
Speaker 1: and possibly more if we don't spend a lot of
Speaker 1: time talking to these communities who are hesitant about vaccine
Speaker 1: right now. Long we keep hearing from several sources, including yourself,
Speaker 1: just then that the national strategy to run out this
Speaker 1: vaccine needed to be fixed, just looking at the numbers
Speaker 1: right now, the average daily rate of one point six
Speaker 1: seven million. It's good and better compared to where it
Speaker 1: was when Joe Biden took the presidency and walked into
Speaker 1: the White House, but it was approaching one million then.
Speaker 1: What was wrong with the strategy then? And how has
Speaker 1: he fixed it? What's he changed? I think there's a
Speaker 1: couple of things that are happening. I think the more
Speaker 1: vaccines are coming online. Uh, people are getting messaging from
Speaker 1: their highest level public health leaders, which is absolutely critical.
Speaker 1: We were in a sort of trusted messenger gap, and
Speaker 1: and that is a problem when people want information. It's
Speaker 1: okay to say what we know has changed, It's okay
Speaker 1: to say we have more information than we did a
Speaker 1: week ago. But fundamentally, if you're not hearing from a consistent,
Speaker 1: trusted voice, um, you can't build any of these strategies
Speaker 1: to to sort of fix what's happening in this pandemic. Lauren,
Speaker 1: we appreciate your time and thank you for jointing us.
Speaker 1: Laurence Sander of Johns Hopkins on the more coherent message
Speaker 1: in the last month or so around the vaccine roll out.
Speaker 1: Charles Canton, Newberger, Berman Long short funds senior portfolio manager, Charles,
Speaker 1: let's just start here on treasuries. He was pushing her,
Speaker 1: and I think everyone in the equity market asking the
Speaker 1: same question. When does it start to buy? Not one thirty,
Speaker 1: when does it start to buy? How do you frame
Speaker 1: that for clients? For you yourself investing? Charles, what's your view? Thanks?
Speaker 1: Good money, Jonathan and Tom Okay. I think at the
Speaker 1: core of a high yield are predicting foster growth and
Speaker 1: UM and a little inflation, a little pricing power generally
Speaker 1: is good for equities. I think the speed of the
Speaker 1: move matters as much as where rates ultimately settled out UM.
Speaker 1: For the last twenty decades, we've lived in a world
Speaker 1: with rates went in one direction, and that was from
Speaker 1: from the top left to the bottom right. I think
Speaker 1: look two two and a half, two and three quarters
Speaker 1: becomes somewhat problematic, But to me, that feels like creating
Speaker 1: a long way away. I looked Charles, where we are,
Speaker 1: and I see a great adjustment in what corporations will do.
Speaker 1: You are experts at the dynamics of corporations. What are
Speaker 1: they doing right now to shape up their income statements,
Speaker 1: to shape up the need for revenue. Are they activist corporations?
Speaker 1: Are they gliding into the rest of two thousand twenty one. Look,
Speaker 1: I think corporations are feeling fantastic having stayed into the
Speaker 1: abyss and water about the survivability of their businesses and
Speaker 1: their health of their employees and and and and and
Speaker 1: their supply chains. I think they they've survived this in
Speaker 1: this roague way that that almost wiped them out, and
Speaker 1: and now feel emboldened and confident to to to invest
Speaker 1: both inside there in their businesses in terms of people
Speaker 1: and technology and and and new products and services. And
Speaker 1: I think they're thinking a lot strategically as well about
Speaker 1: how do they take advantage of this dramatic rise in
Speaker 1: in their stock crisis. On top of that, many of
Speaker 1: them have showed up their balance sheets by taking advantage
Speaker 1: of incredibly low yields. As Jonathan mentioned earlier, the yield
Speaker 1: on high yield, for example, doesn't start with the fire
Speaker 1: handle anymore. So there's been shoring up of balance sheets,
Speaker 1: lots of confidence um and many I think are thinking
Speaker 1: through at what pace they start bringing folks back to
Speaker 1: the office. And this definitely has been behind some of
Speaker 1: the moves that we've seen in equity prices, and certainly
Speaker 1: it's been helped by a very accommodative how to reserve.
Speaker 1: Is short selling dead in this environment? No, I don't
Speaker 1: think short setting is dead at all. I think we're
Speaker 1: finally in environment where security selection, stock clicking, and risk
Speaker 1: management matters again. And that played out across all of
Speaker 1: twenty and continues to play out in one. Yes, there
Speaker 1: was a moment in January where bad companies went down
Speaker 1: and sorry, bad companies went up and um, good companies
Speaker 1: went down as everyone try to bring down gross exposures
Speaker 1: by covering heavily short at stocks and funding those those
Speaker 1: those purchases by setting down really good companies. But that
Speaker 1: seems to have worked its way through the system. Now
Speaker 1: short setting is a massive opportunity to to to to
Speaker 1: create value and by understanding where companies positioned within its sector,
Speaker 1: with in its balance sheet, within its customers, within the
Speaker 1: global supply chain has never mattered more and and and
Speaker 1: the shorting opportunity is as large today I've seen it
Speaker 1: in my career. How nervous do you feel about being sure?
Speaker 1: How comfortable are your child? Surely, under the last three
Speaker 1: months you feel a little bit more nervous putting that
Speaker 1: trade on. Look, it's all about how you position the
Speaker 1: short um and it's all about understanding where others are
Speaker 1: within regard to to to to to betting against, betting
Speaker 1: against the company. We manage our short positions very cautiously.
Speaker 1: We're fully aware of of levels of short interest. But
Speaker 1: we're not betting that that a that a company goes away,
Speaker 1: and we're not betting our business that that company goes away.
Speaker 1: And when you combine those two things, I think you
Speaker 1: see pretty well at night. The shorting opportunity is the
Speaker 1: biggest in my career. I mean, child, you have got
Speaker 1: to put some numbers on that. Where in energy we've
Speaker 1: seen again of almost twenty percent year today, you've seen
Speaker 1: a similar move in small caps on a rustle as well,
Speaker 1: where you're seeing these massive opportunities. Look, we see a
Speaker 1: market that continues to be very bifurcated between value and
Speaker 1: growth and different sectors and how companies opposition our stencies.
Speaker 1: Those companies that that that are still behind in terms
Speaker 1: of digitizing their business, taking their businesses to the cloud,
Speaker 1: engaging in their customers in a very different way, UM
Speaker 1: are going to find it very difficult there are a
Speaker 1: bunch of companies out there whose stories are so fanciful
Speaker 1: they can't be validated or refuted. And and those are
Speaker 1: the companies that that I prefer not to mention, but
Speaker 1: those are the companies where a little the time um
Speaker 1: truth will get revealed. And if you can manage those
Speaker 1: positions within cautiously and and and and and small, I
Speaker 1: think at some point you get paid. Charles Character give
Speaker 1: a lesson to all of global Wall Street watching this morning.
Speaker 1: How much short interest is too much short interest? I mean,
Speaker 1: Game Stop was out well over. You've gotta be nuts
Speaker 1: to go against that. Do you have a limit in
Speaker 1: your head where you say, if it's thirty short interest,
Speaker 1: that the thirty percent of the shares out I'm betting
Speaker 1: against that they're gonna go down. Is that too much?
Speaker 1: Do you have a number? I think you've got to
Speaker 1: think about short interest and position sizing together. So the
Speaker 1: larger the short interests, the smaller of the position should
Speaker 1: be for as within the context of what what is reasonable.
Speaker 1: I think once you get north of um short beware,
Speaker 1: but that doesn't mean you don't you don't short that company.
Speaker 1: But but once you get north of twenty percent, I
Speaker 1: think there's a rule of um, um, you want to
Speaker 1: you want to start thinking critically about how he did
Speaker 1: you are, But then you want to think of actual
Speaker 1: position within the context of of of the entire short interest.
Speaker 1: How much of the short interest is you versus someone else?
Speaker 1: I mean part of the challenges. Um. You know, so
Speaker 1: many folks are on the same side of the trade
Speaker 1: at the same time, and then they'll all do the
Speaker 1: same thing at exactly the same time. I always found
Speaker 1: it curious that the retail investors got accused of group think,
Speaker 1: but the institutional short setter was also part of the
Speaker 1: group think because they were all in it at the
Speaker 1: same time, and then all do exactly the same thing
Speaker 1: to manage down their gross exposures at the same time,
Speaker 1: which creates this enormous opportunity to to to to make money. Charls,
Speaker 1: I can't believe you run down the clock without actually
Speaker 1: telling us where to find these shorts. He said, he
Speaker 1: didn't want to comment. He said, the companies are so
Speaker 1: does it rhyme with Westler Charles? It may not, but
Speaker 1: it's it's where the businesses are pursuing a total addressable
Speaker 1: market that seems massive evaluations are fanciful. Revenue doesn't seem
Speaker 1: to be very great today, but enormous five years from now.
Speaker 1: There are a lot of those businesses out there, and
Speaker 1: that piece of the market, Kennedy feels very n I mean,
Speaker 1: the market doesn't feel ninety nine at all. We need
Speaker 1: a private conversation chouse. This is the Bloomberg Surveillance Podcast.
Speaker 1: Thanks for listening. Join us live weekdays from seven to
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