WEBVTT - The Headlines Matter on the Margin, Kantor Says 0:00:06.360 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:32.960 Bloomberg dot Com, and of course, on the Bloomberg Let's 0:00:33.000 --> 0:00:35.800 get the latest on the geopolitical news show and cross 0:00:35.840 --> 0:00:38.320 over to Seul to catch up with Bloomberg Soul Bureau 0:00:38.400 --> 0:00:41.480 chief Peter pay. Peter walked me through what we've learned 0:00:41.520 --> 0:00:44.320 in the last thirty minutes or suck. Yes, it's pretty 0:00:44.360 --> 0:00:49.159 amazing about it. About thirty minutes ago. South Korea's special 0:00:49.200 --> 0:00:52.760 and envoys to North Korea returned actually a couple of 0:00:52.800 --> 0:00:56.200 hours ago and gave their briefing, basically saying that they 0:00:56.200 --> 0:00:59.400 were told by North Korea's leader, Kim Jong learn that 0:00:59.760 --> 0:01:02.920 he was willing to sit down with the United States 0:01:02.920 --> 0:01:07.120 and have a hard to hard talk, including the possibility 0:01:07.280 --> 0:01:11.640 of the nuclearizing North Korea, which is a stunning shift 0:01:11.880 --> 0:01:15.480 if that's true, considering that North Korea has always maintained 0:01:15.520 --> 0:01:19.120 that their nuclear program was not negotiable. Yeah, pac it 0:01:19.120 --> 0:01:21.639 does write the question what was the catalyst for the change? 0:01:21.680 --> 0:01:24.679 The push that led to the shift. Well, that's a 0:01:24.680 --> 0:01:28.480 good question. I mean, obviously the ditant had had significantly 0:01:28.520 --> 0:01:31.440 increased over the last month or two, mainly because North 0:01:31.520 --> 0:01:35.479 Korea decided to participate in the in the kun Channa Olympics. 0:01:36.760 --> 0:01:39.640 I think that the Trump administration will take some credit 0:01:39.680 --> 0:01:41.800 for it, maybe a large credit for it, saying that 0:01:41.880 --> 0:01:46.480 they it was because of their hardlines and increasing the 0:01:46.480 --> 0:01:50.120 the sanctions, their maximum pressure campaign that might have pushed 0:01:50.160 --> 0:01:53.840 North Korea's Kim Jong leund to insteed and and uh 0:01:53.920 --> 0:01:58.880 and come to the table again. It's uh, anybody's guests. 0:01:59.120 --> 0:02:01.960 North Korea has all has been unpredictable, and this was 0:02:02.000 --> 0:02:05.480 another case of this today for a long time. In fact, 0:02:05.480 --> 0:02:07.080 for the last year, for much of the past year, 0:02:07.120 --> 0:02:08.679 the President of the United States has said that he 0:02:08.720 --> 0:02:11.640 would back off China on trade issues if they stepped 0:02:11.680 --> 0:02:14.960 up the pressure on North Korea. From the experts you 0:02:15.000 --> 0:02:18.560 speak to, Peter, is that what's worked here? Has that 0:02:18.639 --> 0:02:23.200 helped the situation? Well, you know, uh, yeah, in some part, 0:02:23.560 --> 0:02:26.720 maybe a large part, it may have, considering that China 0:02:26.919 --> 0:02:31.160 was the largest trading partner for North Korea and provided 0:02:31.240 --> 0:02:34.440 much of their you know, their lifeline really and that 0:02:34.560 --> 0:02:41.000 had been cut back significantly. China did cooperate with the US, 0:02:41.200 --> 0:02:45.160 particularly Donald Trump's request to tighten the section. Yeah, that 0:02:45.320 --> 0:02:47.640 might have put a squeeze on North Korea. Um that 0:02:48.040 --> 0:02:50.720 you know again, will we will see Bloom Maxel and 0:02:50.760 --> 0:02:53.840 Bureau Chief Peter Page joining us from Seoul. In South Korea, 0:02:53.880 --> 0:02:57.320 the message coming from South Korea from the Special Envoy 0:02:57.440 --> 0:03:00.760 returning from pyong Yang saying that North Korea is open 0:03:00.880 --> 0:03:03.799 to d nuclearize if the regime's safety is ashore. Do 0:03:03.840 --> 0:03:06.080 you see the impact on the FX market thirty minutes 0:03:06.120 --> 0:03:08.560 ago when this news drop donal witness across the board, 0:03:08.560 --> 0:03:11.000 with the exception of the Japanese yen Dolly yen pushing 0:03:11.080 --> 0:03:13.240 higher by just a tenth of one percent after being 0:03:13.320 --> 0:03:15.640 lower earlier in the session by about a third, Dolly 0:03:15.680 --> 0:03:19.120 Jenne getting up to one zero six spot thirty nine. So, 0:03:19.280 --> 0:03:21.840 Tom King, we've got to talk about geopolitical risk fading 0:03:21.919 --> 0:03:25.200 in North Korea and trade war risk rising here in 0:03:25.200 --> 0:03:28.840 the United States potentially. Well, those are the I guess 0:03:28.880 --> 0:03:31.640 for investment, those are the exaggerates, sharks and things that 0:03:31.680 --> 0:03:34.960 are out there that can surprise is clearly was taken 0:03:35.000 --> 0:03:38.120 as a surprise as we saw the tenure yield reverse 0:03:38.160 --> 0:03:42.680 and move higher. Someone John Pharaoh that has to synthesize 0:03:43.600 --> 0:03:46.280 these headlines I guess from outside, and of course to 0:03:46.320 --> 0:03:50.120 our global Wall Street audience is Charles Cantor with new 0:03:50.160 --> 0:03:52.600 Burger Berman, who has to he has an apt I 0:03:52.600 --> 0:03:56.840 believe Johnny has an optimistic take. I'm where we're heading. Yeah, 0:03:57.040 --> 0:03:59.680 and you get headlines like this and you know, futures 0:03:59.720 --> 0:04:02.840 up a heaven. It's pretty good, particularly after what we 0:04:02.920 --> 0:04:05.680 witnessed in Washington yesterday. You'd have to say, Charles that 0:04:05.720 --> 0:04:08.200 the optimism at the moment it's being rewarded. That if 0:04:08.240 --> 0:04:11.240 you faded the trade war risk through Thursday, you've been 0:04:11.240 --> 0:04:15.440 handsomely rewarded through Friday and Monday. Pessimism doesn't get rewarded 0:04:15.480 --> 0:04:18.760 these days, Charles, Does that change anytime soon? Well, it's 0:04:18.760 --> 0:04:22.840 a function of the backdrop. Pessimism gets rewarded when when 0:04:22.920 --> 0:04:27.159 you're starting points provide you with no margin of safety. 0:04:27.440 --> 0:04:31.000 UM today's starting points, I would suggest, provides you with 0:04:31.080 --> 0:04:34.160 a very reasonable margin of safety through the lens of 0:04:34.160 --> 0:04:37.680 of valuation and discount rates. UM market today on a 0:04:37.800 --> 0:04:42.400 ford Pe basis is possibly as cheap and as expensive 0:04:42.520 --> 0:04:45.080 as last year, and we know what happened last year, 0:04:45.080 --> 0:04:48.080 So there's been a surgeon corporate profits. Yes, the stock 0:04:48.120 --> 0:04:52.839 markets up, but but business and um and consumer confidence 0:04:53.000 --> 0:04:57.720 is very high. And and with confidence comes comes investment 0:04:57.920 --> 0:05:02.159 and and planning on on on in ovation. So context matters, 0:05:02.800 --> 0:05:06.800 um and starting points matter, and today's starting point is 0:05:06.839 --> 0:05:10.039 as reasonable as last year, which I would suggest is 0:05:10.040 --> 0:05:12.640 is still reasonable. When Charles Cancer picks up the front 0:05:12.640 --> 0:05:14.960 pages of the newspapers here in the United States and 0:05:15.000 --> 0:05:18.039 the trade wars plastered everywhere in the president United States 0:05:18.040 --> 0:05:21.200 with some heightened rehetoric around it, the market's fading that 0:05:21.320 --> 0:05:23.640 the view on Wall Street has changed radically compared to 0:05:23.640 --> 0:05:26.080 what you see on the front page of the national papers. 0:05:26.120 --> 0:05:28.400 But for you, Charles, to Tom's point, how do you 0:05:28.440 --> 0:05:31.919 synthesize those points that come from the nation's capital and 0:05:31.920 --> 0:05:35.440 the idea that we're drifting towards a trade war? Well 0:05:35.839 --> 0:05:39.240 it for us, it comes from from a process and 0:05:39.720 --> 0:05:42.800 how we define ourselves. And we are long term investors. 0:05:43.160 --> 0:05:46.000 We try and block out the news and make sure 0:05:46.040 --> 0:05:49.080 as we allocate capital, we get you know, we get 0:05:49.080 --> 0:05:51.640 rewarded for the risk we take in and and and 0:05:51.680 --> 0:05:57.280 the time that we've invested UM so yes on the margin. UM. 0:05:57.360 --> 0:06:01.960 The headlines matter. Anything that had the potential to disrupt 0:06:02.360 --> 0:06:06.880 supply and demand UM matters. Of course, we we dig 0:06:06.880 --> 0:06:10.000 in on on on on those that are most likely 0:06:10.080 --> 0:06:14.120 to be affected if the rules of of of the road, uh, 0:06:14.600 --> 0:06:17.279 the rules of the game were implemented as suggested, which 0:06:17.279 --> 0:06:20.200 they haven't been. And so you dig in on the industrials, 0:06:20.240 --> 0:06:23.080 you dig in on the machinery side. You you, you, 0:06:23.080 --> 0:06:25.480 you you, You call folks and and figure out how 0:06:25.520 --> 0:06:28.799 much of the steel price increase will pass We passed 0:06:28.839 --> 0:06:31.600 a long end, and and and and and how does 0:06:31.640 --> 0:06:34.880 it affect um demand? Full goods and services? You know 0:06:34.920 --> 0:06:37.680 we saw yesterday headline and full full disclosure, folks. I'm 0:06:37.680 --> 0:06:40.279 not up to speed on a story where a CEO 0:06:40.360 --> 0:06:42.760 of a railroad company were shown the door yesterday and 0:06:42.800 --> 0:06:46.279 the board talked about they needed more energy, they needed 0:06:46.279 --> 0:06:49.839 to energize, etcetera, etcetera. What this comes down to, Charles, 0:06:49.839 --> 0:06:55.240 which I know is religion for you, is corporate capital allocation. 0:06:55.680 --> 0:07:00.400 How do you identify large corporations that are poorly deploying capital? 0:07:00.640 --> 0:07:03.080 Is it in the annual report? Is it something that 0:07:03.160 --> 0:07:05.719 happens with smoking incense. How do you figure that out? 0:07:06.640 --> 0:07:08.839 There are a bunch of ways to attempt to figure 0:07:08.839 --> 0:07:11.440 that out. UM. One is to to look at the 0:07:11.480 --> 0:07:17.120 CEOs record on return on invested capital. Has his investments 0:07:17.240 --> 0:07:20.440 covered his cost of capital? Has it covered the cost 0:07:20.480 --> 0:07:23.680 of capital? Has it covered the risk of implementation? Has 0:07:23.720 --> 0:07:27.520 it covered the risk of the deal? Um? And and 0:07:27.520 --> 0:07:31.200 and nothing speaks more loudly than that metric over time 0:07:31.800 --> 0:07:35.240 and and businesses that can earn a reasonable return on 0:07:35.320 --> 0:07:38.200 capital through a business cycle or through a very large 0:07:38.240 --> 0:07:42.040 strategic deal um get placed um in a in a 0:07:42.160 --> 0:07:47.840 very pecurious place. Um and and mean meaning job at risk, 0:07:48.080 --> 0:07:53.160 board under fire. Do you assume that real rates inflation 0:07:53.400 --> 0:07:57.040 adjusted interest rates rise here or is it just a 0:07:57.120 --> 0:08:02.440 nominal interest rate exercise? I think for us it has 0:08:02.480 --> 0:08:05.080 to be a bit of both. Um. At some point, 0:08:05.400 --> 0:08:09.080 the the the the the yield itself, let's say, on 0:08:09.160 --> 0:08:13.000 the on the tenure becomes a headwind UM And think, 0:08:13.040 --> 0:08:16.960 while we've observed so far has been which I don't 0:08:17.000 --> 0:08:21.240 think gets necessarily enough attention, is there's there's been an 0:08:21.280 --> 0:08:25.600 equally large step up in real growth expectations as they 0:08:25.640 --> 0:08:31.520 have been in inflation. UM. And that's a fantastically healthy environment. 0:08:31.560 --> 0:08:34.280 The bond market is suggesting there's going to be more 0:08:34.360 --> 0:08:37.520 real growth um which we have, which which has been 0:08:37.920 --> 0:08:41.800 stubbornly low for a very long period of time. But yes, 0:08:41.960 --> 0:08:46.720 at some point um the aggregate yield on on tenure treasuries, 0:08:47.280 --> 0:08:49.320 you know, will become a headwind. I mean, I like 0:08:49.440 --> 0:08:54.200 to describe today's environment as in simple terms, we have 0:08:54.320 --> 0:08:58.600 lots of certainty on fundamentals and lots of uncertainty on rates. 0:08:58.760 --> 0:09:01.640 And that's dramatically different than the mosaic we've played with 0:09:01.640 --> 0:09:03.800 over the last five years. Charles Kinter with us a 0:09:03.880 --> 0:09:20.920 new Vermint right now with this, Kim Wallace uh joins 0:09:20.920 --> 0:09:24.600 from Erasia Group and Kim we in a spirited conversation 0:09:24.720 --> 0:09:29.880 earlier this morning about the organizational chart of Washington. You've 0:09:29.920 --> 0:09:33.520 experienced that at Treasury with President Obama, but you've also 0:09:33.559 --> 0:09:36.120 experienced it a student of the game as well. Do 0:09:36.200 --> 0:09:38.720 you know where the dotted lines and the solid lines 0:09:38.800 --> 0:09:43.720 are within Republican Washington right now? No, nor do I 0:09:43.800 --> 0:09:46.719 think they do. The dotted lines are more important. The 0:09:46.800 --> 0:09:50.320 informal relationships have built up over the last six quarters. 0:09:50.440 --> 0:09:53.520 Tom have served the leaders on the hill, and I 0:09:53.559 --> 0:09:55.600 think the staff in the White House better than the 0:09:55.640 --> 0:09:59.480 formal lines. My book this summer, and I haven't even announced, yeah, 0:09:59.520 --> 0:10:02.000 but I'll do it right now is Threat Matrix, which 0:10:02.000 --> 0:10:04.640 is a terrific book about Part of it is about 0:10:04.640 --> 0:10:07.960 the Bush administration and the security apparatus after the horror 0:10:08.360 --> 0:10:12.319 of nine eleven, and we all understand there the organizational 0:10:12.400 --> 0:10:16.120 chart was really white house centric and everybody else had 0:10:16.160 --> 0:10:19.160 better understand it was white house centric. Is that the 0:10:19.200 --> 0:10:22.000 way this administration is? I mean you you were a 0:10:22.120 --> 0:10:26.720 treasury within the Obama administration. Every administration is different. Is 0:10:26.760 --> 0:10:29.319 it white House centric now or is it something else? 0:10:30.000 --> 0:10:32.800 It's white house centric from the top line, but in 0:10:32.880 --> 0:10:35.720 terms of the functions and the actual production of policy, 0:10:36.080 --> 0:10:39.240 it's diffused from there. And that's actually a risk to 0:10:39.280 --> 0:10:43.160 the president. One of the keys of confidence building in 0:10:43.200 --> 0:10:46.440 the US as a president who understands the apparatus underneath 0:10:46.520 --> 0:10:51.000 him and or her individually and UH will use that 0:10:51.559 --> 0:10:57.720 utilize those authorities. Well, the president hasn't learned those yet. 0:10:57.760 --> 0:11:00.440 He didn't come with those skills, and so you see 0:11:00.440 --> 0:11:03.640 a bunch of his agency heads feeling the void, which 0:11:03.679 --> 0:11:05.960 happens in Washington all the time. So Kim, help us 0:11:06.040 --> 0:11:09.160 understand with that perspective, what is happening with the trade issue. 0:11:09.760 --> 0:11:14.479 These policies set to become policy or they negotiations tactics 0:11:14.559 --> 0:11:17.680 for a whole array of issues. It's pretty clear sitting 0:11:17.679 --> 0:11:20.360 here on Tuesday morning that it's a negotiation tactic, and 0:11:20.559 --> 0:11:24.840 the tying of stealing aluminum tariffs to negotiations down in 0:11:24.880 --> 0:11:28.760 Mexico City is a big reach, but nonetheless it underscores 0:11:28.800 --> 0:11:31.560 the way the president thinks about policy making. He thinks 0:11:31.559 --> 0:11:33.760 about it the same way he did in the private sector, 0:11:34.160 --> 0:11:37.760 and increasingly that's becoming more and more complicated for him. 0:11:37.800 --> 0:11:40.800 It's transactional. Does that make it difficult to execute policy 0:11:40.800 --> 0:11:43.400 in Washington, d c? And if so, how doesn't make 0:11:43.440 --> 0:11:45.280 it difficult? It's just that you have to have all 0:11:45.320 --> 0:11:48.400 of your trading partners or your negotiating partners understand that 0:11:48.400 --> 0:11:50.000 that's how you deal, and you have to have a 0:11:50.040 --> 0:11:52.240 staff that backs you up in that style. Right now, 0:11:52.240 --> 0:11:56.640 we don't have that linear thought process nor delivery of product. 0:11:56.840 --> 0:11:58.960 How rare is it to see what we're witnessing right 0:11:59.000 --> 0:12:01.480 now for the leadership up of Paul Ryan to question 0:12:01.520 --> 0:12:04.280 the president's objectives at the moment with the tarrists that 0:12:04.320 --> 0:12:06.440 he's put on the table and for the potential within 0:12:06.480 --> 0:12:09.600 the administrations, have a break from St. Gary Cone, one 0:12:09.600 --> 0:12:12.200 of his lead economic advisors, to say, hold on a minute. 0:12:12.360 --> 0:12:15.040 He said, to be conveying business leaders who consume metals 0:12:15.080 --> 0:12:17.400 to try and convince the president not to do this. 0:12:17.480 --> 0:12:19.400 How rare are these kind of things. To say that 0:12:19.440 --> 0:12:22.720 the process now in Washington is unique is an understatement. 0:12:22.800 --> 0:12:25.640 And so what you will have is you'll continue to 0:12:25.720 --> 0:12:29.319 have fits and starts and policy, which I think erodes 0:12:29.800 --> 0:12:33.680 the president's authority, not only in Washington but around the world. 0:12:33.800 --> 0:12:37.559 Have you seen a good number and where our fiscal 0:12:37.640 --> 0:12:41.720 deficits going? I I've been working just under one point 0:12:41.960 --> 0:12:45.720 for trillion. Have you seen a better study yet or 0:12:45.760 --> 0:12:47.920 do we just we just simply don't know do it? 0:12:48.000 --> 0:12:50.000 We don't know for sure? But the simple math in 0:12:50.040 --> 0:12:52.400 front of us is about one point five trillion added 0:12:52.440 --> 0:12:55.880 to the tenure baseline from the spending program in February 0:12:55.920 --> 0:12:58.240 and about the same one point for one point five 0:12:58.240 --> 0:13:03.120 trillion added from the tax program in December. Ten years, 0:13:03.280 --> 0:13:08.600 the trillion three trillion out over ten years, John, You're 0:13:08.640 --> 0:13:11.720 gonna be dazzled by this that's three billion a year. 0:13:12.760 --> 0:13:17.920 I think we will pay some of that interest cost 0:13:17.960 --> 0:13:21.040 of that because all of that is debt financed, and 0:13:21.080 --> 0:13:24.800 so the fiscal story is much more complicated than it's 0:13:24.840 --> 0:13:28.600 being given attention, and will become dangerous with that attention 0:13:28.600 --> 0:13:30.600 in the next year or two. We should point out 0:13:30.640 --> 0:13:33.120 this is one of your great acclaims, Kim Wallace. If 0:13:33.160 --> 0:13:36.680 that is the fact, when does the mystery go away? 0:13:36.760 --> 0:13:40.920 When do we actually begin to understand what we have wrought? 0:13:41.960 --> 0:13:45.080 Usually in policy making or politics, you only understand what 0:13:45.200 --> 0:13:47.320 you've wrought when somebody has pointed it out to you. 0:13:47.400 --> 0:13:49.280 In this case, we rely on the CBO and the 0:13:49.400 --> 0:13:52.120 l m B to do that. The Congressional Budget Office 0:13:52.120 --> 0:13:54.160 will come out with a re estimate of the baseline 0:13:54.160 --> 0:13:56.640 in April. That will get attention. It will generally we're 0:13:56.640 --> 0:14:01.520 waiting for CBO's changed. Nothing's changed until April. And frankly, 0:14:01.760 --> 0:14:05.479 when you have the US economy pumping on many cylinders 0:14:05.480 --> 0:14:08.239 as it is now, maybe not all cylinders, but many cylinders, 0:14:08.600 --> 0:14:11.600 it distracts from the downside story. So my guess, as 0:14:11.640 --> 0:14:14.120 you'll be into next year or sometime after the election 0:14:14.160 --> 0:14:17.520 before you start thinking seriously about fiscal policy. Drag Kim Wallace. 0:14:17.559 --> 0:14:19.880 Before we let you go, We've done trade policy, fiscal policy. 0:14:19.920 --> 0:14:23.200 Let's talk about foreign policy just briefly. Some important headlines 0:14:23.240 --> 0:14:25.480 coming out of North Korea and South Korea this morning 0:14:25.520 --> 0:14:28.720 that the North may be willing to denuclearize if the 0:14:28.840 --> 0:14:32.920 regime is protected. How does one protect a regime when 0:14:33.000 --> 0:14:35.880 history says that once the country is denuclearized, something very 0:14:35.920 --> 0:14:38.760 different happens. It's a great question. I think it points 0:14:38.760 --> 0:14:41.280 to the difficulty in reaching the kind of a deal 0:14:41.360 --> 0:14:44.480 that the headlines are suggesting. It is not to say 0:14:44.560 --> 0:14:47.040 that the South Koreans don't have an abiding interest in 0:14:47.080 --> 0:14:49.280 a deal. Obviously they do more than anyone else in 0:14:49.280 --> 0:14:52.240 the world, maybe Japan. But it does point to the 0:14:52.280 --> 0:14:55.600 fact that getting the regime that has spent the last 0:14:55.640 --> 0:14:59.440 thirty years building its national defenses to back away from 0:14:59.640 --> 0:15:02.600 what you say the sweetest part of those national defenses 0:15:02.880 --> 0:15:06.359 will be very difficult. And if that requires a superpower 0:15:06.440 --> 0:15:10.120 like the US to give concessions publicly and privately in 0:15:10.280 --> 0:15:12.360 order to get that deal, you have to believe that 0:15:12.400 --> 0:15:14.640 deal is long and coming. Would it be fat to 0:15:14.720 --> 0:15:17.200 say that this unique approach from this administration might be 0:15:17.240 --> 0:15:20.600 generating some results on the foreign policy side of things, Kim, 0:15:20.720 --> 0:15:24.360 obfuscation and foreign policy is a plus usually so long 0:15:24.400 --> 0:15:27.720 as you have a strategy. Kim Wells, thank you so much. 0:15:27.760 --> 0:15:30.640 This is brilliant. Thank you, But have you look forward 0:15:30.640 --> 0:15:35.040 to speaking to you FM Washington Studios as well. He 0:15:35.160 --> 0:15:50.320 is with your AISI group with them. Stephen Short with 0:15:50.400 --> 0:15:52.760 us now he's with us recently on oil Steve. When 0:15:52.800 --> 0:15:54.680 I want to go back to short one oh one, 0:15:55.320 --> 0:15:59.520 which is a basic question, are we energy independent that's 0:15:59.520 --> 0:16:02.760 been around own for a lifetime. Are we there yet? 0:16:03.760 --> 0:16:05.920 We are not there yet, But if you do believe 0:16:05.960 --> 0:16:09.000 the i e. A. Which is a body that studies 0:16:09.040 --> 0:16:13.160 this based on Paris, certainly within the next five years, Uh, 0:16:13.200 --> 0:16:17.400 they're projecting that not necessarily independent, but the United States 0:16:17.400 --> 0:16:21.000 will certainly be the largest krudal producer, surpassing We've already 0:16:21.000 --> 0:16:25.320 surpassed Staudi Arabia and will certainly surpass of Russia probably 0:16:25.360 --> 0:16:28.440 by the end of next year as far as rudal 0:16:28.480 --> 0:16:32.040 production goes. So at that point, guys, what I really 0:16:32.040 --> 0:16:36.080 want to emphasize is that the demand structure has completely changed. 0:16:36.200 --> 0:16:38.800 And Tom, I know this is right up your alley. Uh, 0:16:38.840 --> 0:16:45.480 the elasticities of demand are changing quite substantially, because now 0:16:45.480 --> 0:16:47.640 we have the sector factor. The second fact that that 0:16:47.720 --> 0:16:50.960 impacts consumer behavior, and that is substitutes. And of course 0:16:50.960 --> 0:16:54.240 I'm talking about electric vehicles and driverless technology, but they're 0:16:54.240 --> 0:16:56.240 not there yet. They're not there yet, So how do 0:16:56.280 --> 0:17:00.680 you just that to the present to the president? Right now? 0:17:01.160 --> 0:17:04.760 We've made a significant impact already just in the past 0:17:04.800 --> 0:17:08.879 five years, and hence we're don't we're not seeing a 0:17:08.960 --> 0:17:13.040 commensurate increase in demand a relative to what you would 0:17:13.119 --> 0:17:16.680 normally expect, giving the improvement in the economy, the improvement 0:17:16.760 --> 0:17:19.800 in incomes right now, so this is essentially telling me 0:17:19.920 --> 0:17:22.919 that we're already starting to see the impact. Uh and 0:17:23.040 --> 0:17:25.440 right now that the riding is on the wall. All 0:17:25.480 --> 0:17:28.879 of the major oil companies guys have rebranded themselves over 0:17:28.920 --> 0:17:31.560 the last couple of years. They no longer considered themselves 0:17:31.600 --> 0:17:34.639 oil companies. They now consider themselves natural gas and believe 0:17:34.640 --> 0:17:38.040 it or not, power companies. So certainly we are now 0:17:38.160 --> 0:17:41.680 in a significant paradigm shift. All right, Stephen shut come 0:17:41.720 --> 0:17:45.199 in on the idea that natural gas right now is 0:17:45.920 --> 0:17:49.639 going international. Liquefied natural gas was reading I guess it 0:17:49.680 --> 0:17:51.720 was last week that there was a shipment of natural 0:17:51.760 --> 0:17:55.800 gas that came from Russia. It was offloaded in Boston. 0:17:55.920 --> 0:17:59.959 Because of the kind of crazy dynamics of this market, 0:18:00.200 --> 0:18:03.040 can you explain what's going on to people? Sure? In 0:18:03.200 --> 0:18:06.679 Boston you have essentially the Nimby crowd, where there is 0:18:06.760 --> 0:18:12.119 considerable backlash about expanding of access to UH gas from 0:18:12.160 --> 0:18:15.560 my home state here in Pennsylvania. So the New England 0:18:15.600 --> 0:18:20.040 market has chosen to keep itself isolated from the bonanza 0:18:20.240 --> 0:18:24.639 of supply. So their supply essentially comes from liquefied natural 0:18:24.640 --> 0:18:28.760 gas the ruction that's certainly significant, but there's also offshore 0:18:28.800 --> 0:18:33.040 production UH in um UH in the Northern Atlantic there 0:18:33.320 --> 0:18:35.119 and Boston has to compete on the l en G 0:18:35.320 --> 0:18:38.200 market globally, and they also have to compete with Canadian 0:18:38.840 --> 0:18:44.440 demand in eastern Ontario in Quebec. So Boston is kind 0:18:44.440 --> 0:18:47.600 of an island on itself. But the bottom line here 0:18:47.880 --> 0:18:51.560 is demand for natural gas has been created. We're now 0:18:51.640 --> 0:18:55.120 building the infrastructure to get it out. We're deglutting the markets. 0:18:55.560 --> 0:18:58.680 Mexico is going to be a huge customer of US 0:18:58.800 --> 0:19:02.560 natural gas pipeline gas. They already are. They're their largest 0:19:02.560 --> 0:19:05.359 buyer of US LERG at this point. But we have 0:19:05.480 --> 0:19:09.119 significant amount of pipeline infrastructures that are being connected. So 0:19:09.200 --> 0:19:13.640 the demand structure is really changing here, and it's really bullish. 0:19:13.840 --> 0:19:16.560 And hence why I'm telling all of my clients on 0:19:16.600 --> 0:19:20.119 the n side who have to buy natural gas feedstocks 0:19:20.160 --> 0:19:23.240 for the manufacturing processes, if they are not locking in 0:19:23.359 --> 0:19:26.639 natural gas prices at sub three dollars now, they're doing 0:19:26.680 --> 0:19:31.080 their investors a considerable disfavor right now, because the future 0:19:31.200 --> 0:19:34.159 is extremely bright for natural gas demand and hence natural 0:19:34.200 --> 0:19:37.240 gas prices well, natural gas prices right now two dollars 0:19:37.280 --> 0:19:39.560 seventy three cents per million B tou up one and 0:19:39.600 --> 0:19:42.640 a quarter percent. Stephen Then is there a certain irony 0:19:42.680 --> 0:19:45.840 that you have President Donald Trump who supports the construction 0:19:45.920 --> 0:19:48.680 of the various pipelines, let's say, coming from Canada to 0:19:48.720 --> 0:19:52.840 the United States to bring Canadian oil into the US 0:19:52.920 --> 0:19:55.199 to be refined and then shipped out. Is there an 0:19:55.240 --> 0:19:58.800 irony that there's support there and yet there is this 0:19:58.960 --> 0:20:02.880 trade h confrontation between the United States, Canada, and now 0:20:02.960 --> 0:20:08.680 Mexico even though they import a lot of our natural gas. Yeah. Absolutely, 0:20:09.720 --> 0:20:12.800 I cannot figure out this administration and every time I do. 0:20:12.840 --> 0:20:15.800 It really makes my head hurt at this point because 0:20:15.840 --> 0:20:17.879 I don't know how much of it is smoking, mirrors 0:20:17.960 --> 0:20:21.240 and and so forth, trying to trying to manage expectations. 0:20:21.400 --> 0:20:24.479 But the bottom line here is Canada Mexico. I mean, 0:20:24.560 --> 0:20:30.840 our two greatest trading partners friends as it wore, I'm 0:20:30.880 --> 0:20:32.800 not putting a lot of faith into it. I think 0:20:32.800 --> 0:20:35.879 a lot of it is bluster at this point of 0:20:35.880 --> 0:20:38.119 a PIM, I want to go back to the issue 0:20:38.200 --> 0:20:42.720 of the pipeline infrastructure. Canada UH is just producing way 0:20:42.720 --> 0:20:45.600 too much oil. They're producing way too much natural gas. 0:20:45.760 --> 0:20:48.880 They simply don't have the off take to take away capacity, 0:20:48.920 --> 0:20:52.640 even with the construction of a start. Thanks very much, 0:20:52.640 --> 0:20:55.480 as Stephen Shorty is the editor of The Short Report. 0:21:10.760 --> 0:21:13.639 Now the most important interview of the day with a 0:21:13.720 --> 0:21:18.919 gentleman who invented a business and changed everyone's lives. Brian Kelly, 0:21:19.240 --> 0:21:21.880 were you in college? Were like, because this is romantic enough, 0:21:21.920 --> 0:21:25.040 you're in a dorm room somewhere. Well, yeah, I discovered miles. 0:21:25.040 --> 0:21:27.200 I was a student body president at the University of Pittsburgh. 0:21:27.240 --> 0:21:29.080 I was traveling all around and all of a sudden, 0:21:29.119 --> 0:21:31.520 I had elite status and I was making no money, 0:21:31.720 --> 0:21:34.960 like eighteen years old, and you were getting up. It's like, 0:21:35.000 --> 0:21:37.479 this is a really cool Why isn't everyone taken advantage 0:21:37.480 --> 0:21:39.960 of this? Brian Kelly the points guy with a website. 0:21:39.960 --> 0:21:42.280 It links the charge cards into miles and all that. 0:21:42.440 --> 0:21:44.480 Are you here to see Jamie Diamond? When you're done 0:21:44.480 --> 0:21:48.160 with us? So you go to JP Morgan, shake everybody's hand, 0:21:48.480 --> 0:21:51.400 and walk out with my suitcases. Do they speak to you? Yeah? 0:21:51.440 --> 0:21:53.440 We worked directly with Chase. You know all the credit 0:21:53.480 --> 0:21:55.439 card issues we work with because we know their products 0:21:55.440 --> 0:21:57.320 better than they do, so we know how to translate 0:21:57.640 --> 0:22:00.800 why credit cards make sense to business travels to millennials. 0:22:01.600 --> 0:22:04.840 What's the biggest mistake we make in our credit card? Idiotcy? 0:22:04.960 --> 0:22:07.080 Besides we don't pay our bill off? And then you know, 0:22:07.160 --> 0:22:09.040 well that yeah, that, I mean, if you're paying interest 0:22:09.080 --> 0:22:11.480 and fees, even if you're earning points, you're negating the 0:22:11.560 --> 0:22:13.080 value of any of them. But I think a lot 0:22:13.119 --> 0:22:15.119 of people get stuck with one card forever and then 0:22:15.400 --> 0:22:17.720 I don't want to change my you know, the card 0:22:17.760 --> 0:22:20.000 on file, and you're kind of cranky, and then you realize, well, 0:22:20.040 --> 0:22:22.640 why aren't I earning so many points? There's so many 0:22:22.680 --> 0:22:26.120 different bonuses, not just to get the card, but category bonuses, 0:22:26.160 --> 0:22:28.000 so you really takes a little bit of effort, but 0:22:28.040 --> 0:22:30.920 you should be putting certain spend for groceries on one card, 0:22:31.240 --> 0:22:33.840 uber on another. You make those little tweaks and all 0:22:33.840 --> 0:22:38.159 of a sudden you're earning, you know, to more points. Brian, 0:22:38.760 --> 0:22:41.840 Why do they make it so complicated? People already have 0:22:41.960 --> 0:22:44.240 jobs and lives they need to spend time dealing with 0:22:44.320 --> 0:22:45.840 I mean, you know, if you're going to go through 0:22:45.840 --> 0:22:48.240 and say, all right, I get bonus value of a 0:22:48.280 --> 0:22:51.760 thousand dollars for the Chase Sapphire Preferred Card and fifty 0:22:51.840 --> 0:22:54.800 thousand points on offer, good luck trying to get the flight, 0:22:54.880 --> 0:22:57.800 the seat and the timetable that you want. Well, you know, 0:22:57.840 --> 0:22:59.679 it's actually I would disagree with that because most of 0:22:59.680 --> 0:23:01.760 the credit card programs, even Chase now allows you to 0:23:01.800 --> 0:23:03.760 buy any flight at you know, if you have the 0:23:03.760 --> 0:23:05.440 Reserve card, it's one and a half cents of point, 0:23:05.440 --> 0:23:07.360 which is really rich, so you don't have to jump 0:23:07.400 --> 0:23:09.640 through those hoops. But if you do want to transfer 0:23:09.640 --> 0:23:12.840 to a frequent flyer program, you can still get insane value. 0:23:12.840 --> 0:23:15.920 I just booked my parents Hong Kong, JFK, Cathay business 0:23:15.920 --> 0:23:19.760 class one way, fifty thousand Alaska miles and twenty bucks 0:23:20.000 --> 0:23:23.240