1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 5 00:00:23,920 --> 00:00:30,480 Speaker 1: and of course, on the Bloomberg terminal. Our next guest 6 00:00:30,640 --> 00:00:33,160 Speaker 1: is important because a year and two weeks ago, Lele 7 00:00:33,200 --> 00:00:36,560 Speaker 1: Brainerd was at the Boost Schools Seminar in New York. 8 00:00:36,680 --> 00:00:39,880 Speaker 1: Obviously it was you know, pandemic and all that, and 9 00:00:40,000 --> 00:00:43,680 Speaker 1: Michael Faroli, kim Shaw notes, Katherine Mann and Steve Chacchetty 10 00:00:43,680 --> 00:00:46,360 Speaker 1: wrote a definitive paper on the tools that we have 11 00:00:46,560 --> 00:00:50,519 Speaker 1: forward monetary policy. We come forward fifty four weeks and 12 00:00:50,560 --> 00:00:53,120 Speaker 1: it's a whole new world after all. Michael Faroli joins 13 00:00:53,200 --> 00:00:56,319 Speaker 1: us this morning with JP Morgan. Michael, the paper that 14 00:00:56,360 --> 00:00:59,720 Speaker 1: you wrote at the Boost School seminar a fifty four 15 00:00:59,760 --> 00:01:02,840 Speaker 1: weeks ago? Is that paper true today? Are you and 16 00:01:02,920 --> 00:01:06,880 Speaker 1: Bruce Kasman working off a new playbook? No? I think 17 00:01:07,040 --> 00:01:10,080 Speaker 1: I think the results from that paper we're actually put 18 00:01:10,120 --> 00:01:14,480 Speaker 1: into uh into use a few weeks later, right, So, uh, 19 00:01:14,560 --> 00:01:16,840 Speaker 1: that paper focused on the tools what we have that 20 00:01:16,920 --> 00:01:19,760 Speaker 1: the FED has when in a low interest rate environment 21 00:01:19,800 --> 00:01:22,120 Speaker 1: and we had we come to a recession, which is 22 00:01:22,200 --> 00:01:25,920 Speaker 1: forward guidance and quantitative using. They used both those tools 23 00:01:26,000 --> 00:01:29,120 Speaker 1: very aggressively. And one of the tools that we recommended 24 00:01:29,520 --> 00:01:31,959 Speaker 1: UH and most economists I think recommend weren't a looning. 25 00:01:32,040 --> 00:01:36,280 Speaker 1: This is outcome based guidance, which is basically saying when 26 00:01:36,280 --> 00:01:38,000 Speaker 1: the first hike will COMMA is going to be based 27 00:01:38,000 --> 00:01:41,080 Speaker 1: on certain economic conditions, which the Fed put into place 28 00:01:41,440 --> 00:01:43,520 Speaker 1: last September. What is so important here, and I believe 29 00:01:43,600 --> 00:01:46,040 Speaker 1: John Farrell mentioned in an hour ago, were the United 30 00:01:46,120 --> 00:01:48,919 Speaker 1: Kingdom and vision sub two percent GDP out a number 31 00:01:48,920 --> 00:01:52,240 Speaker 1: of years as well? You own the study of potential 32 00:01:52,280 --> 00:01:54,840 Speaker 1: g d P. Do you look at six or seven 33 00:01:54,960 --> 00:01:58,440 Speaker 1: or eight percent g d P now is one quarter 34 00:01:58,600 --> 00:02:02,120 Speaker 1: two quarters fade out or one quarters two quarters in 35 00:02:02,160 --> 00:02:06,320 Speaker 1: a real abrupt drop down to where you see potential GDP? 36 00:02:07,600 --> 00:02:10,440 Speaker 1: So first of all, I should say we see GDP 37 00:02:10,560 --> 00:02:13,320 Speaker 1: growth this year around six and a half percent, but 38 00:02:13,360 --> 00:02:17,200 Speaker 1: we also see above trend GDP growth persisting next year. 39 00:02:17,280 --> 00:02:20,160 Speaker 1: So a lot of the stimulus that we're expecting UH 40 00:02:20,360 --> 00:02:23,440 Speaker 1: should be somewhat delayed. So, for instance, a lot of 41 00:02:23,440 --> 00:02:26,320 Speaker 1: the a to state and local governments won't necessarily get 42 00:02:26,360 --> 00:02:30,080 Speaker 1: spent quickly. H. So that should support growth on into 43 00:02:30,160 --> 00:02:32,840 Speaker 1: next year. But you know, I think when we get 44 00:02:32,840 --> 00:02:35,200 Speaker 1: to perhaps twenty three or twenty four, it's reasonable to 45 00:02:35,240 --> 00:02:40,000 Speaker 1: expect a return to sub GDP growth, which is probably 46 00:02:40,000 --> 00:02:44,079 Speaker 1: still the h the potential GDP growth rate of the economy. 47 00:02:44,200 --> 00:02:46,760 Speaker 1: Tom kicked off this hour talking about the Simon Kennedy 48 00:02:46,919 --> 00:02:50,040 Speaker 1: article about the savings rate, about the glut of cash 49 00:02:50,120 --> 00:02:52,840 Speaker 1: sitting and savings accounts in the US. He pegs it 50 00:02:52,840 --> 00:02:54,880 Speaker 1: at one and a half trillion dollars. And then there's 51 00:02:54,919 --> 00:02:57,960 Speaker 1: this nugget that if everyone were to spend all of 52 00:02:58,000 --> 00:03:01,200 Speaker 1: that money, GDP would run it about nine percent. If 53 00:03:01,240 --> 00:03:03,080 Speaker 1: none of it were spent, it would be two point 54 00:03:03,160 --> 00:03:06,760 Speaker 1: two percent. A huge spread there. What gives you confidence 55 00:03:06,919 --> 00:03:08,560 Speaker 1: that people are going to go out and spend it? 56 00:03:08,680 --> 00:03:12,679 Speaker 1: And on? What? So? Uh? First of all, I would 57 00:03:12,720 --> 00:03:16,200 Speaker 1: say a lot of that saving is an accumulated stimulus 58 00:03:16,240 --> 00:03:19,320 Speaker 1: that wasn't spent last year. Uh, But we should keep 59 00:03:19,360 --> 00:03:20,919 Speaker 1: in mind that it's very likely that we're going to 60 00:03:20,960 --> 00:03:23,919 Speaker 1: see further stimulus this year. Right, so now we have 61 00:03:24,000 --> 00:03:29,400 Speaker 1: potentially checks coming uh, perhaps within a couple of weeks, 62 00:03:29,880 --> 00:03:33,720 Speaker 1: and we saw last year a lot of those checks 63 00:03:33,760 --> 00:03:36,880 Speaker 1: were spent pretty quickly. Uh this year we would expect 64 00:03:36,880 --> 00:03:39,840 Speaker 1: the same, perhaps even more so because unlike last year, 65 00:03:40,160 --> 00:03:41,840 Speaker 1: those checks may be coming out of time when the 66 00:03:41,840 --> 00:03:45,800 Speaker 1: economy as reopening and you can actually spend on a 67 00:03:45,840 --> 00:03:47,680 Speaker 1: lot of things that you couldn't spend on last year. 68 00:03:47,800 --> 00:03:49,720 Speaker 1: So it's not simply the fact that we have a 69 00:03:49,720 --> 00:03:52,640 Speaker 1: lot of accumulated saving, but there should be more income 70 00:03:52,680 --> 00:03:57,040 Speaker 1: support forthcoming that I think should be the really big 71 00:03:57,040 --> 00:03:59,200 Speaker 1: stimulus to growth this year. Give me a second. I 72 00:03:59,200 --> 00:04:00,800 Speaker 1: just want to run through the ice action at the moment, 73 00:04:00,840 --> 00:04:03,840 Speaker 1: up seven basis points on tens, up six on thirties, 74 00:04:03,880 --> 00:04:06,520 Speaker 1: and the NASTAC does roll over to NASTAC future is 75 00:04:06,600 --> 00:04:08,760 Speaker 1: now down by thirty six call it thirty five, and 76 00:04:08,760 --> 00:04:11,400 Speaker 1: off by about a thirty one percent. And just one observation, John, 77 00:04:11,480 --> 00:04:13,560 Speaker 1: we go back to where we were on Friday. We've 78 00:04:13,600 --> 00:04:16,760 Speaker 1: given up essentially Monday, Tuesday, Wednesday of dynamics. This is 79 00:04:16,800 --> 00:04:18,760 Speaker 1: the outlook gets better, and might let's put some numbers 80 00:04:18,760 --> 00:04:21,320 Speaker 1: on that better outlook you've mentioned GDP growth. I read 81 00:04:21,360 --> 00:04:22,880 Speaker 1: a note from you guys in the last couple of 82 00:04:22,920 --> 00:04:27,440 Speaker 1: days six eighty five thousand monthly average for payrolls growth 83 00:04:27,440 --> 00:04:29,839 Speaker 1: for the rest of this year. That just fat sounds 84 00:04:29,839 --> 00:04:32,320 Speaker 1: absolutely fantastic, Mike. Are they the kind of numbers you're 85 00:04:32,320 --> 00:04:35,920 Speaker 1: looking for? Now? Those are two things I would say. 86 00:04:35,960 --> 00:04:39,599 Speaker 1: One is that there's a link between GDP growth and 87 00:04:39,800 --> 00:04:43,320 Speaker 1: job growth, which or at least between the unemploymer rate, 88 00:04:43,360 --> 00:04:46,680 Speaker 1: which is called the Oakin's rule that economists use. Uh. 89 00:04:46,760 --> 00:04:49,760 Speaker 1: In addition, I would say that relative to that, to 90 00:04:49,880 --> 00:04:52,279 Speaker 1: that sort of rule of thumb, we might see more 91 00:04:52,320 --> 00:04:55,760 Speaker 1: than one might expect in terms of job growth because 92 00:04:56,240 --> 00:04:58,080 Speaker 1: we're going to see a lot of sectors come back. 93 00:04:58,160 --> 00:04:59,800 Speaker 1: We should see a lot of sectors come back. That 94 00:04:59,839 --> 00:05:03,400 Speaker 1: a are things like restaurants and movie theaters that might 95 00:05:03,440 --> 00:05:05,680 Speaker 1: be you know, services tend to be a little lower 96 00:05:05,680 --> 00:05:08,440 Speaker 1: than average productivity, but that means you're gonna have higher 97 00:05:08,440 --> 00:05:12,040 Speaker 1: than average jobs per amount of GDP growth. So uh 98 00:05:12,120 --> 00:05:13,800 Speaker 1: So I think we're set for a very good year 99 00:05:13,839 --> 00:05:17,280 Speaker 1: in terms of job growth. In addition to participation rate, 100 00:05:17,360 --> 00:05:21,080 Speaker 1: we anticipate will mostly recover some of the gain some 101 00:05:21,120 --> 00:05:24,120 Speaker 1: of the losses that suffered over the past twelve months. Uh. 102 00:05:24,160 --> 00:05:28,640 Speaker 1: In part because those who are concerned about you know, uh, 103 00:05:28,720 --> 00:05:30,480 Speaker 1: face to face job, so you can can actually get 104 00:05:30,520 --> 00:05:32,840 Speaker 1: back in the labor market, as well as hopefully the 105 00:05:32,880 --> 00:05:36,760 Speaker 1: normalization of school schedules should allow uh, you know, parents 106 00:05:36,800 --> 00:05:39,000 Speaker 1: to get back into the labor market. So it should 107 00:05:39,000 --> 00:05:40,880 Speaker 1: be good from both the perspective of the number of 108 00:05:41,200 --> 00:05:44,479 Speaker 1: jobs created as well as you know, the amount of 109 00:05:44,680 --> 00:05:47,440 Speaker 1: the population that's actually back in the workforce. And perhaps 110 00:05:47,520 --> 00:05:49,320 Speaker 1: markets have already prices in at least if you look 111 00:05:49,320 --> 00:05:51,680 Speaker 1: at the equity valuations that we're looking at, And the 112 00:05:51,760 --> 00:05:56,919 Speaker 1: question is what happens three, what happens even two, and 113 00:05:56,960 --> 00:05:59,719 Speaker 1: whether there's sort of an ongoing virtuous cycle it gets 114 00:05:59,760 --> 00:06:03,000 Speaker 1: create aided by some of the stimulus by the job creation, 115 00:06:03,040 --> 00:06:05,440 Speaker 1: and growth can go a little bit faster than people 116 00:06:05,480 --> 00:06:08,960 Speaker 1: currently are expecting. What's your view on that, given the 117 00:06:09,000 --> 00:06:12,120 Speaker 1: sort of consensus that we will see a slowing out 118 00:06:12,160 --> 00:06:14,880 Speaker 1: of growth, a slowing out of inflation, in a return 119 00:06:14,960 --> 00:06:18,200 Speaker 1: to the environment that we were in pre COVID, right, So, 120 00:06:18,360 --> 00:06:21,520 Speaker 1: as Tomas mentioned, you know, we have been somewhat cautious 121 00:06:21,600 --> 00:06:24,040 Speaker 1: on potential GDP growth, but there have been some developed 122 00:06:24,080 --> 00:06:27,520 Speaker 1: developments that have been um I think favorable When thinking 123 00:06:27,560 --> 00:06:29,960 Speaker 1: about the longer term outlook. One of those is that 124 00:06:30,080 --> 00:06:35,599 Speaker 1: capital spending has really recovered quite robustly, particularly spending on 125 00:06:35,760 --> 00:06:39,000 Speaker 1: tech R and D, things that tend to be sort 126 00:06:39,000 --> 00:06:43,320 Speaker 1: of high productivity uh categories of spending. So I think 127 00:06:43,360 --> 00:06:46,360 Speaker 1: that's one favorable development. I think if we do get 128 00:06:46,360 --> 00:06:50,080 Speaker 1: an infrastructure package later this year, which seems you know, 129 00:06:50,520 --> 00:06:54,080 Speaker 1: uh likely, Uh, there's a lot of evidence that suggest 130 00:06:54,120 --> 00:06:57,960 Speaker 1: that infrastructure is good for the economy's long run growth rate. 131 00:06:58,040 --> 00:07:00,520 Speaker 1: So there are still a lot of get us out 132 00:07:00,520 --> 00:07:03,159 Speaker 1: there in terms of slowing growth in the labor force 133 00:07:03,240 --> 00:07:06,279 Speaker 1: that will you know, keep trend GDP growth definitely below 134 00:07:06,320 --> 00:07:09,000 Speaker 1: three percent and probably below two percent. But there have 135 00:07:09,120 --> 00:07:12,119 Speaker 1: been some favorable developments when we look at the productivity picture. 136 00:07:12,280 --> 00:07:14,040 Speaker 1: Mike want to finish up on the bond market. We've 137 00:07:14,040 --> 00:07:16,120 Speaker 1: got a thirty year at two five tens at one 138 00:07:16,280 --> 00:07:19,280 Speaker 1: forty six helds bleeding high again. Chairman Power tomorrow, do 139 00:07:19,320 --> 00:07:22,200 Speaker 1: you expect Chairman Power to stay on script? I do. 140 00:07:22,280 --> 00:07:24,800 Speaker 1: I think he's going to remain quite dothersh um. I 141 00:07:24,840 --> 00:07:26,600 Speaker 1: don't know if he necessarily is going to have to 142 00:07:26,640 --> 00:07:29,520 Speaker 1: fight the market per se, but I think he wants to. Uh, 143 00:07:29,920 --> 00:07:32,440 Speaker 1: he'll have to reiterate that they're gonna hike only when 144 00:07:32,480 --> 00:07:35,440 Speaker 1: they are confident that inflation is going to be above 145 00:07:35,480 --> 00:07:37,720 Speaker 1: two percent, And right now it doesn't look like the 146 00:07:37,720 --> 00:07:43,120 Speaker 1: inflation markets are pricing persistent above two percent pc inflation. 147 00:07:43,200 --> 00:07:47,240 Speaker 1: So I think Powell have to address that that perhaps 148 00:07:47,320 --> 00:07:50,160 Speaker 1: misperception in the market that they're going to be quick 149 00:07:50,160 --> 00:07:52,320 Speaker 1: to tighten even when there's no inflation pressure out there 150 00:07:52,440 --> 00:07:55,280 Speaker 1: doesn't really I want to steal a phrase from Jean Clautrichet, 151 00:07:55,680 --> 00:07:58,320 Speaker 1: and that is the idea of diffuse. He was talking 152 00:07:58,360 --> 00:08:02,200 Speaker 1: to me about productivity diffew using. What is the diffusement 153 00:08:02,360 --> 00:08:05,800 Speaker 1: of stimulus? Do you and your combine over there under 154 00:08:05,840 --> 00:08:09,680 Speaker 1: Bruce Kasman, do you have a confidence in knowing how 155 00:08:09,760 --> 00:08:15,000 Speaker 1: stimulus will diffuse through the American system? I don't think 156 00:08:15,360 --> 00:08:17,960 Speaker 1: the economics profession really has a lot of confidence in 157 00:08:18,520 --> 00:08:22,160 Speaker 1: UH and understanding UH stimulus to you know, to the 158 00:08:22,200 --> 00:08:27,680 Speaker 1: decimal point. We do think it will UM obviously boost spending, 159 00:08:27,720 --> 00:08:32,520 Speaker 1: particularly the stimulus checks H and that should help view 160 00:08:32,520 --> 00:08:36,480 Speaker 1: overall economy and once we kind of get out of 161 00:08:35,640 --> 00:08:38,520 Speaker 1: UM this patchword and where we still have a lot 162 00:08:38,559 --> 00:08:41,880 Speaker 1: of excess labor resources, that should help you know, a 163 00:08:41,920 --> 00:08:44,960 Speaker 1: broad set of of sectors in the economy. But you know, 164 00:08:44,960 --> 00:08:46,920 Speaker 1: I think we do have to be humble and kind 165 00:08:46,960 --> 00:08:50,520 Speaker 1: of putting too much false precision on our understanding of 166 00:08:50,520 --> 00:08:53,720 Speaker 1: how fiscal stimulus affects the economy. Tocay the number for Friday, 167 00:08:53,760 --> 00:08:58,880 Speaker 1: Mike for Friday, We're looking for two. My front could 168 00:08:58,880 --> 00:09:01,320 Speaker 1: say SA and so ife more than chafe. US economists 169 00:09:01,320 --> 00:09:10,000 Speaker 1: look at two hundred thousand on Friday. Let's get a 170 00:09:10,040 --> 00:09:11,520 Speaker 1: relation of it in Bank of New York Man and 171 00:09:11,600 --> 00:09:14,120 Speaker 1: chief strategist joining us now at Lesia Great to catch up, 172 00:09:14,160 --> 00:09:16,280 Speaker 1: Let's just start with the SMP five hundred struggling at 173 00:09:16,360 --> 00:09:20,440 Speaker 1: thirty hundred. What's going on? Well, what's going on here 174 00:09:20,480 --> 00:09:23,440 Speaker 1: is the rotation trade and and higher yields and a 175 00:09:23,480 --> 00:09:27,800 Speaker 1: steeper yelker because the sectors of the market that are 176 00:09:27,840 --> 00:09:31,080 Speaker 1: outperforming and are quite strong are not the ones at 177 00:09:31,080 --> 00:09:33,200 Speaker 1: the top of the index. So all those large cap 178 00:09:33,240 --> 00:09:37,000 Speaker 1: tech docks have really peeked out on a relative basis 179 00:09:37,679 --> 00:09:41,920 Speaker 1: in the summer of so as they struggle, the index 180 00:09:42,040 --> 00:09:44,520 Speaker 1: itself will struggle. But there are plenty of sectors and 181 00:09:44,600 --> 00:09:47,800 Speaker 1: plenty of companies that are doing great year today that 182 00:09:47,800 --> 00:09:50,680 Speaker 1: that are having very clear bowl markets and as yields 183 00:09:50,720 --> 00:09:54,199 Speaker 1: move higher as as we have expectations for higher yields. 184 00:09:54,200 --> 00:09:57,400 Speaker 1: Listen the tech and the growth sectors as large cap 185 00:09:57,920 --> 00:10:00,400 Speaker 1: names that really led last year are going to struggle. 186 00:10:00,440 --> 00:10:03,280 Speaker 1: They're just going to struggle, and that's affecting the index. Alicia, 187 00:10:03,320 --> 00:10:06,079 Speaker 1: you do the macro micro was such acuity. I want 188 00:10:06,120 --> 00:10:08,640 Speaker 1: you to dove chail the easy call on the macro 189 00:10:09,320 --> 00:10:14,120 Speaker 1: with the reality of microadjustment down the income statement. Are 190 00:10:14,160 --> 00:10:16,000 Speaker 1: we at the edge of too good to be true? 191 00:10:17,120 --> 00:10:20,560 Speaker 1: So that is the great question. I think this year 192 00:10:21,000 --> 00:10:23,240 Speaker 1: we're going to see a little bit of a bifurcation 193 00:10:23,360 --> 00:10:26,719 Speaker 1: between Main Street and Wall Street. And last year was 194 00:10:26,760 --> 00:10:29,400 Speaker 1: an amazing year for Wall Street and for asset classes 195 00:10:29,880 --> 00:10:34,480 Speaker 1: because we sat on yields, and this year it's going 196 00:10:34,520 --> 00:10:36,680 Speaker 1: to be a very difficult dance for the FED and 197 00:10:36,800 --> 00:10:39,959 Speaker 1: actually a very difficult dance for the bond market because 198 00:10:39,960 --> 00:10:42,920 Speaker 1: if we actually print ten percent quarters of g d 199 00:10:43,000 --> 00:10:46,000 Speaker 1: P a couple in a row double digits, which I 200 00:10:46,040 --> 00:10:49,360 Speaker 1: think could happen given the spending and consumption numbers we're seeing, 201 00:10:50,120 --> 00:10:51,920 Speaker 1: I think it's gonna be very hard for yields just 202 00:10:52,000 --> 00:10:54,280 Speaker 1: to sit there and for the market to believe that 203 00:10:54,320 --> 00:10:57,600 Speaker 1: the FED isn't going to move sooner. That's the dance 204 00:10:57,640 --> 00:11:01,080 Speaker 1: that the market has to absorb. We do think that 205 00:11:01,200 --> 00:11:03,959 Speaker 1: the economy will reopen. You can feel it everywhere, even 206 00:11:04,080 --> 00:11:06,520 Speaker 1: in the middle of New York City where I am. 207 00:11:06,520 --> 00:11:08,720 Speaker 1: You know, you feel it. Half springs coming. People are 208 00:11:08,720 --> 00:11:12,360 Speaker 1: getting inoculated, and it's happening sooner than I think we 209 00:11:12,440 --> 00:11:15,360 Speaker 1: had hoped for six weeks ago. At Leasha Roberts Shiftment 210 00:11:15,400 --> 00:11:18,400 Speaker 1: over at Bloomberg Intelligence as a brilliant piece today on 211 00:11:18,480 --> 00:11:21,800 Speaker 1: how tight the big tech bond credits are. They're shockingly 212 00:11:21,880 --> 00:11:25,200 Speaker 1: tight and surprisingly Amazon actually doing you know, on the 213 00:11:25,280 --> 00:11:28,000 Speaker 1: edge of apple uh in tightness as well. They're up 214 00:11:28,040 --> 00:11:30,440 Speaker 1: to their eyeballs in cash. What do they do with 215 00:11:30,480 --> 00:11:34,120 Speaker 1: the cash? And particularly across the market, what do they 216 00:11:34,160 --> 00:11:37,480 Speaker 1: do with all the new cash? Look, that's a great question. 217 00:11:37,520 --> 00:11:39,880 Speaker 1: We think overall, in the aggregate, with all the new 218 00:11:39,920 --> 00:11:41,800 Speaker 1: cash that's raised, you are going to see a lot 219 00:11:41,840 --> 00:11:44,760 Speaker 1: of M and A, which will help support markets here. 220 00:11:45,080 --> 00:11:48,120 Speaker 1: But I think I think ultimately, you know, the cash 221 00:11:48,200 --> 00:11:50,520 Speaker 1: is going to be used for buybacks and things like that, 222 00:11:50,760 --> 00:11:54,360 Speaker 1: an investment, because this is a great investment year for 223 00:11:54,400 --> 00:11:58,160 Speaker 1: those companies that have large cash surpluses change the business 224 00:11:58,200 --> 00:12:01,120 Speaker 1: grow the business ad businesses. This is really the way 225 00:12:01,160 --> 00:12:03,760 Speaker 1: to use it to look forward. We were kind of 226 00:12:03,760 --> 00:12:07,120 Speaker 1: concerned about those favorite names that supported all of us 227 00:12:07,200 --> 00:12:10,280 Speaker 1: last year during the misery we all experienced. It's kind 228 00:12:10,280 --> 00:12:12,560 Speaker 1: of clear that the growth year of the year is 229 00:12:12,559 --> 00:12:14,920 Speaker 1: going to be slower this year, and I think those 230 00:12:15,000 --> 00:12:18,520 Speaker 1: names are going to struggle. We love energy, we love financials. 231 00:12:18,720 --> 00:12:22,760 Speaker 1: Invest with the yield curve, think big, big economy boom 232 00:12:22,800 --> 00:12:26,440 Speaker 1: in the economy, yields moving higher, and pick those old 233 00:12:26,440 --> 00:12:29,160 Speaker 1: economy stocks that everybody gave up for dead for years 234 00:12:29,160 --> 00:12:32,120 Speaker 1: and years and years. You know, value has an outperformed 235 00:12:32,120 --> 00:12:35,680 Speaker 1: since two thousand and seven. There are many investors who 236 00:12:35,679 --> 00:12:38,640 Speaker 1: don't remember a time when those stocks in the old 237 00:12:38,640 --> 00:12:42,000 Speaker 1: economy actually worked and gave your performance. And here we 238 00:12:42,040 --> 00:12:45,160 Speaker 1: are and it's working. Not to mention the under allocation 239 00:12:45,240 --> 00:12:48,520 Speaker 1: to energy across the investors space because of E S 240 00:12:48,559 --> 00:12:51,440 Speaker 1: G concerns and investor concerns. I mean, this is the 241 00:12:51,480 --> 00:12:56,280 Speaker 1: sectory that's outperforming, outperforming, and under owned. There's your pain trade, Felicia. 242 00:12:56,920 --> 00:12:58,760 Speaker 1: I don't want to say that I'm Debbie Downer again. 243 00:12:58,800 --> 00:13:00,480 Speaker 1: I go back to trying to see a on corners 244 00:13:00,520 --> 00:13:02,559 Speaker 1: because I think that that's sort of more how I'm 245 00:13:02,559 --> 00:13:05,400 Speaker 1: playing this. But let's say the consensus is wrong, and 246 00:13:05,480 --> 00:13:08,439 Speaker 1: let's say yields instead of rising fall a fall to 247 00:13:08,520 --> 00:13:10,920 Speaker 1: eighty basis points, as Greg Peter's of PGM was saying, 248 00:13:11,360 --> 00:13:14,480 Speaker 1: could very well happen earlier, as we've seen Scott miner 249 00:13:14,520 --> 00:13:17,160 Speaker 1: And of Guggenheim say that he could see yields going 250 00:13:17,320 --> 00:13:19,600 Speaker 1: close to zero next year on the ten year treasury. 251 00:13:19,880 --> 00:13:23,200 Speaker 1: Let's say that the structural story here of an aging 252 00:13:23,200 --> 00:13:28,280 Speaker 1: demographic of slow growth reasserts itself. What happens then, how 253 00:13:28,400 --> 00:13:31,720 Speaker 1: violent could the move be? Given how crowded this consensus 254 00:13:31,720 --> 00:13:34,720 Speaker 1: that we see today in the market really is. Look, 255 00:13:34,720 --> 00:13:36,880 Speaker 1: that's really the left tail risk, and it could be 256 00:13:36,920 --> 00:13:39,959 Speaker 1: a violent move down. You'll see a rotation very quickly 257 00:13:40,480 --> 00:13:44,599 Speaker 1: back into those defensive favorites of large large cap growers 258 00:13:44,640 --> 00:13:47,040 Speaker 1: and tech. But also, I mean, but that is really 259 00:13:47,040 --> 00:13:50,280 Speaker 1: the risk here. You know, the variant whoever invented that 260 00:13:50,320 --> 00:13:53,040 Speaker 1: word was the scary variants. I mean, that's that's really 261 00:13:53,040 --> 00:13:56,880 Speaker 1: the risk. And also that there's their stasis within the 262 00:13:56,960 --> 00:14:01,080 Speaker 1: labor market and that bottom and has really been affected 263 00:14:01,080 --> 00:14:04,960 Speaker 1: by unemployment and the closing of the service economy. Doesn't 264 00:14:04,960 --> 00:14:07,280 Speaker 1: really quite come back. So maybe you get fifty of 265 00:14:07,280 --> 00:14:10,400 Speaker 1: those jobs back, maybe sev but what do you do 266 00:14:10,480 --> 00:14:14,200 Speaker 1: with the rest? And it's very clear that retraining is 267 00:14:14,200 --> 00:14:17,200 Speaker 1: not something this country does very well on a short 268 00:14:17,320 --> 00:14:20,320 Speaker 1: term basis, So then you do have a permanently unemployed 269 00:14:20,400 --> 00:14:23,080 Speaker 1: That is the risk here. Um. We do think though, 270 00:14:23,080 --> 00:14:25,520 Speaker 1: there's so much forward momentum in the next few months, 271 00:14:25,520 --> 00:14:28,520 Speaker 1: and I think the desire to engage with the service 272 00:14:28,560 --> 00:14:32,840 Speaker 1: economy is palpable. It's real, and so I'm pretty optimistic 273 00:14:32,880 --> 00:14:35,640 Speaker 1: about what happens with the labor market going forward. Alicia 274 00:14:35,800 --> 00:14:37,680 Speaker 1: love catching up with you, Alicia Leving The Bank of 275 00:14:37,720 --> 00:14:45,200 Speaker 1: New York melon chief strategists John, is there a bag 276 00:14:45,280 --> 00:14:47,320 Speaker 1: book with a Bank of England? They do have the 277 00:14:47,440 --> 00:14:50,760 Speaker 1: report the agencies around the country report bank, Yeah, something similar, 278 00:14:50,800 --> 00:14:53,320 Speaker 1: so like you know Tottenham is terrible, they report something 279 00:14:53,360 --> 00:14:56,240 Speaker 1: like that. You get the North London report on report 280 00:14:56,360 --> 00:14:58,760 Speaker 1: back to the government. Yeah, we often do that in 281 00:14:58,800 --> 00:15:02,560 Speaker 1: London time because our wonderful to the question this morning 282 00:15:02,560 --> 00:15:05,520 Speaker 1: with Greg paid is a page Jim Senya futfolio manager. 283 00:15:05,800 --> 00:15:08,600 Speaker 1: Greg We've been asking is awake about page Jim. He 284 00:15:08,920 --> 00:15:12,040 Speaker 1: was touching one sixty one sixty one on Thursday. Have 285 00:15:12,160 --> 00:15:15,560 Speaker 1: you been a buyer? Yeah, So we've been poking around. 286 00:15:15,600 --> 00:15:19,160 Speaker 1: I mean it's been definitely an interesting journey, right, So 287 00:15:19,440 --> 00:15:22,640 Speaker 1: I mean our view, you know above, it gets more 288 00:15:22,720 --> 00:15:26,880 Speaker 1: interesting kind of one fifty uh, you know, even more interesting, uh, 289 00:15:27,120 --> 00:15:30,640 Speaker 1: and then one seventy five very interesting. And so that's 290 00:15:30,680 --> 00:15:32,600 Speaker 1: kind of how we're thinking about it from a scale. 291 00:15:33,080 --> 00:15:36,000 Speaker 1: I mean, what happened last Thursday was less about kind 292 00:15:36,040 --> 00:15:38,680 Speaker 1: of the level of yield, but more what happened in 293 00:15:38,760 --> 00:15:41,640 Speaker 1: the market itself. Right, The market really had a whiff 294 00:15:41,760 --> 00:15:44,400 Speaker 1: of March two thousand and twenty where there was just 295 00:15:44,520 --> 00:15:48,120 Speaker 1: a lot of dysfunction in the marketplace, tremendous ill liquidity. 296 00:15:48,640 --> 00:15:50,440 Speaker 1: So those are the things that we were really more 297 00:15:50,520 --> 00:15:53,640 Speaker 1: attuned to. But at the same time it has created, 298 00:15:53,800 --> 00:15:57,360 Speaker 1: i think dislocations in the curve. And so there's been 299 00:15:57,400 --> 00:15:59,840 Speaker 1: lots to talk about the seven year auction and how 300 00:16:00,000 --> 00:16:03,880 Speaker 1: at tailed and by frankly, how worrisome that was. The 301 00:16:04,000 --> 00:16:06,600 Speaker 1: twenty year part of the curve. Tread curve is also 302 00:16:06,720 --> 00:16:09,280 Speaker 1: very interesting. So to me, maybe it's not so much 303 00:16:09,280 --> 00:16:13,040 Speaker 1: about the overall level of interistrates, but really the dislocations 304 00:16:13,080 --> 00:16:15,920 Speaker 1: across treasuries themselves. Within there, we go back to basics, 305 00:16:16,000 --> 00:16:18,400 Speaker 1: Greg Peters, and there's an idea of the nominal yield, 306 00:16:18,440 --> 00:16:21,280 Speaker 1: the regular yield, the one point four or four percent yield, folks, 307 00:16:21,600 --> 00:16:24,200 Speaker 1: and around that the dynamics of inflation, and what's called 308 00:16:24,240 --> 00:16:26,400 Speaker 1: the residual, which is the real yield. It's a show 309 00:16:26,520 --> 00:16:29,720 Speaker 1: on Bloomberg TV Greg Peters. Which matters right now, the 310 00:16:29,840 --> 00:16:34,000 Speaker 1: inflation dynamics or the residual the real yield. I think 311 00:16:34,040 --> 00:16:38,000 Speaker 1: the real yield matters more here as that will actually 312 00:16:38,080 --> 00:16:41,520 Speaker 1: act as a buying constraint around activity, I think, uh 313 00:16:42,280 --> 00:16:47,480 Speaker 1: and borrowing. And so you've seen this real move in inflation, right, 314 00:16:47,520 --> 00:16:50,280 Speaker 1: So inflation was priced clearly too low in March of 315 00:16:50,400 --> 00:16:52,880 Speaker 1: last year. It was absolutely on the floor. So it's 316 00:16:52,920 --> 00:16:56,440 Speaker 1: been moving higher ever since. But I really struggle with 317 00:16:57,040 --> 00:17:01,080 Speaker 1: this narrative that inflation, uh, it's really going to continue 318 00:17:01,120 --> 00:17:04,560 Speaker 1: to pick up. So so I'm I'm kind of on 319 00:17:04,680 --> 00:17:09,000 Speaker 1: the other side of inflation continuing to rise. Will it 320 00:17:09,119 --> 00:17:12,080 Speaker 1: be around the two percent level, yes, but it's not 321 00:17:12,200 --> 00:17:14,840 Speaker 1: going to be well above uh. And I hate to 322 00:17:14,920 --> 00:17:17,680 Speaker 1: talk about base effects, but there are real base effects 323 00:17:17,800 --> 00:17:21,440 Speaker 1: coming through here that gives the optics of inflation being 324 00:17:21,560 --> 00:17:23,680 Speaker 1: much higher than it really is, and the FETE is 325 00:17:23,800 --> 00:17:26,080 Speaker 1: telling you that, and no one wants to listen. This 326 00:17:26,280 --> 00:17:30,040 Speaker 1: is so so, so so important, Lisa. I can't say 327 00:17:30,160 --> 00:17:33,200 Speaker 1: enough about this five year five year forward says exactly 328 00:17:33,280 --> 00:17:35,879 Speaker 1: what Mr Peters just described. Yeah, and that's what we've 329 00:17:35,920 --> 00:17:39,120 Speaker 1: been seeing with respect to short term inflation expectations versus 330 00:17:39,200 --> 00:17:43,120 Speaker 1: long term inflation expectations. The curve is inverted the most 331 00:17:43,280 --> 00:17:46,639 Speaker 1: ever on record, which raises a question, could we actually 332 00:17:46,760 --> 00:17:50,280 Speaker 1: see tenure treasure yields drop two new lows at some point? 333 00:17:50,320 --> 00:17:52,320 Speaker 1: And this seemed to be at Scott Minard of Guggenheim 334 00:17:52,440 --> 00:17:54,320 Speaker 1: was saying yesterday in a report where he was seeing 335 00:17:54,600 --> 00:17:57,679 Speaker 1: saying that even tenure treasure yields could go negative at 336 00:17:57,760 --> 00:17:59,800 Speaker 1: some point. I mean, Greg, are you on that side 337 00:17:59,840 --> 00:18:02,080 Speaker 1: of things that we could see an actual rally that 338 00:18:02,240 --> 00:18:04,760 Speaker 1: is pretty significant in treasuries? Are you just saying that 339 00:18:04,840 --> 00:18:06,720 Speaker 1: perhaps it's gotten a little ahead of itself in terms 340 00:18:06,760 --> 00:18:09,800 Speaker 1: of the sell off. Also, I'm not willing to say 341 00:18:09,960 --> 00:18:12,399 Speaker 1: negative at this point. I mean, let's get below one 342 00:18:12,440 --> 00:18:15,040 Speaker 1: percent and then take it from there. So I think 343 00:18:15,040 --> 00:18:19,240 Speaker 1: that's somewhat heroic. But I think the director of travels right, 344 00:18:19,800 --> 00:18:23,040 Speaker 1: But the timing is tricky. So so we think the 345 00:18:23,160 --> 00:18:26,600 Speaker 1: natural wrestling place for ten year treasuries is around a 346 00:18:26,760 --> 00:18:31,080 Speaker 1: B basis points. Uh so. Uh. That's not to say 347 00:18:31,160 --> 00:18:33,280 Speaker 1: it's going to happen over the next several months, as 348 00:18:33,320 --> 00:18:36,600 Speaker 1: the forces with stimulus and just the economic rebound is 349 00:18:36,720 --> 00:18:40,280 Speaker 1: so strong. But I think when you look out, you know, 350 00:18:40,400 --> 00:18:44,960 Speaker 1: eighteen months, two years, I do really see an environment 351 00:18:45,040 --> 00:18:47,600 Speaker 1: where yields will continue to kind of move lower. So 352 00:18:47,960 --> 00:18:50,920 Speaker 1: timing is tricky, but I do think the direction of 353 00:18:51,000 --> 00:18:54,200 Speaker 1: travel is for lower yields, not higher yields. Correct the 354 00:18:54,280 --> 00:18:55,960 Speaker 1: south side, and this is not at this on the 355 00:18:56,000 --> 00:18:59,080 Speaker 1: south side, they often predict high yields, but gradual moves. 356 00:18:59,160 --> 00:19:00,760 Speaker 1: And I think on the bis side right now, there's 357 00:19:00,760 --> 00:19:03,080 Speaker 1: more attention being paid to that volatility, that burst of 358 00:19:03,160 --> 00:19:05,399 Speaker 1: all we got last week in the treasury market, and 359 00:19:05,440 --> 00:19:07,639 Speaker 1: whether we see repeats of that. Think Apollo in the 360 00:19:07,680 --> 00:19:09,639 Speaker 1: last twenty four hours speaking of Bloomberg about this, how 361 00:19:09,680 --> 00:19:13,240 Speaker 1: to take advantage of those bursts of volatility in the future. Greg, 362 00:19:13,359 --> 00:19:15,040 Speaker 1: can you want me three how you approach things last 363 00:19:15,080 --> 00:19:16,879 Speaker 1: week and how you approach things in the future if 364 00:19:16,920 --> 00:19:21,560 Speaker 1: you expect to see that again, Well, quite frankly, it's 365 00:19:21,880 --> 00:19:25,440 Speaker 1: it's tricky though, because the markets have a tendency of 366 00:19:25,560 --> 00:19:28,920 Speaker 1: seizing up, and so if there's dysfunction and dislocation in 367 00:19:29,000 --> 00:19:32,959 Speaker 1: the treasury market, which is the most liquid market, uh 368 00:19:33,280 --> 00:19:37,520 Speaker 1: in the world, in the US for sure, everything sets 369 00:19:37,560 --> 00:19:39,440 Speaker 1: off of that. So what we saw in March of 370 00:19:39,640 --> 00:19:42,679 Speaker 1: last year was it all started with treasuries and then 371 00:19:42,800 --> 00:19:46,160 Speaker 1: the illequidity broke down everywhere else. So quite frankly, it's 372 00:19:46,240 --> 00:19:50,960 Speaker 1: difficult to do that. Being said, the derivative market is 373 00:19:51,000 --> 00:19:54,480 Speaker 1: where you continue to see real liquidity in times of 374 00:19:55,000 --> 00:19:58,680 Speaker 1: stress with cash. So I do think though, if you 375 00:19:58,800 --> 00:20:01,720 Speaker 1: get these gaps and creating kind of these vacuum moods 376 00:20:01,800 --> 00:20:06,040 Speaker 1: which which we didn't really see um, that will create 377 00:20:06,080 --> 00:20:08,600 Speaker 1: opportunity because I think the whole world on the boy 378 00:20:08,680 --> 00:20:13,840 Speaker 1: sides waiting for credit the cheapen up because uh, you know, 379 00:20:13,960 --> 00:20:16,920 Speaker 1: the strengthened economy is such where you really want to 380 00:20:17,000 --> 00:20:20,280 Speaker 1: own it. Greg always get to say so, Greg Padish, 381 00:20:20,800 --> 00:20:29,480 Speaker 1: portfolio manager. Right now in commodities and of course every 382 00:20:29,520 --> 00:20:32,760 Speaker 1: major house is really looking at the idea of a supercycle. 383 00:20:32,840 --> 00:20:36,440 Speaker 1: The nuances of commodities, the metals, the softs and of 384 00:20:36,560 --> 00:20:39,880 Speaker 1: course oil lifting Francisco. Blanche rides a herd at Bank 385 00:20:39,920 --> 00:20:44,359 Speaker 1: of America Securities, head of Global Commodities in Derivatives Research, 386 00:20:45,119 --> 00:20:48,640 Speaker 1: Francisco to cut to the chase into paragraph one. Are 387 00:20:48,720 --> 00:20:52,480 Speaker 1: we re seeing now a new commodity supercycle? Hey Tom, 388 00:20:52,560 --> 00:20:56,119 Speaker 1: thank you for having me. I do think we are saying, Uh, 389 00:20:56,440 --> 00:20:59,960 Speaker 1: definitely upside pressure sending in some cases across the commority complex. 390 00:21:00,160 --> 00:21:04,040 Speaker 1: We could see um supercycle like behavior. But I do 391 00:21:04,200 --> 00:21:05,920 Speaker 1: think I do think it's gonna be more concentrated on 392 00:21:05,960 --> 00:21:11,000 Speaker 1: the metals. Um. Unfortunately, I don't see that cycle happening 393 00:21:11,040 --> 00:21:13,679 Speaker 1: in oil. I do see upside pressure on oil prices, 394 00:21:13,800 --> 00:21:16,800 Speaker 1: but as you know, oil is the main commodity, is 395 00:21:16,840 --> 00:21:20,639 Speaker 1: the largest portion of the commodity market value, so and 396 00:21:20,680 --> 00:21:22,679 Speaker 1: it's gonna be hard for oil to see the kind 397 00:21:22,720 --> 00:21:27,840 Speaker 1: of supercycle we witness in the two thousands. The metals, then, 398 00:21:28,320 --> 00:21:31,560 Speaker 1: how do you apply capital on a bed of the 399 00:21:31,640 --> 00:21:34,399 Speaker 1: Pacific rim? Is it as simple as buying re minby? 400 00:21:34,840 --> 00:21:37,040 Speaker 1: Is there something more nuanced if you believe in the 401 00:21:37,119 --> 00:21:39,760 Speaker 1: metals play? Um? No, I mean I think you can 402 00:21:39,840 --> 00:21:42,480 Speaker 1: you can buy you can buy industrial metals for sure. Um. 403 00:21:43,040 --> 00:21:44,920 Speaker 1: You know, we do like copper a lot we we 404 00:21:45,040 --> 00:21:47,919 Speaker 1: also like UH nickel that we think it's all stretched 405 00:21:48,400 --> 00:21:52,720 Speaker 1: right now, we think aluminium will perform well. Um. And 406 00:21:52,800 --> 00:21:54,840 Speaker 1: then of course there is also some of the precious 407 00:21:54,840 --> 00:21:58,639 Speaker 1: metals that are used in new technologies, like silver or 408 00:21:58,960 --> 00:22:03,679 Speaker 1: platinum played in so so we we like those metals 409 00:22:03,960 --> 00:22:07,760 Speaker 1: UM and UH and and think those have still significant 410 00:22:07,840 --> 00:22:10,000 Speaker 1: upside over the course of the O the next few years. 411 00:22:10,200 --> 00:22:14,800 Speaker 1: But um, but yeah, that's kind of the most direct 412 00:22:14,880 --> 00:22:16,440 Speaker 1: way to do it. And then of course there is 413 00:22:16,480 --> 00:22:19,280 Speaker 1: also the the the equities in that space, which I 414 00:22:19,320 --> 00:22:22,600 Speaker 1: think are also also interesting ways to to to lever 415 00:22:22,760 --> 00:22:26,600 Speaker 1: into the metal story. Let me energy, I need to 416 00:22:26,640 --> 00:22:29,760 Speaker 1: bring in the China conversation as well. What's your reading, 417 00:22:29,800 --> 00:22:31,520 Speaker 1: what's happening with China right now? And can you be 418 00:22:31,600 --> 00:22:36,040 Speaker 1: this constructive on metals on the miners when the recovery 419 00:22:36,080 --> 00:22:41,040 Speaker 1: in China is already maturing at this stage you're not exagerating. Um, 420 00:22:41,480 --> 00:22:43,879 Speaker 1: I think you can because remember the metal, sir, not 421 00:22:43,920 --> 00:22:45,960 Speaker 1: not just throughout China. It is true to half of 422 00:22:46,000 --> 00:22:49,560 Speaker 1: the world's metals demand comes from China. But what we're 423 00:22:49,600 --> 00:22:51,720 Speaker 1: going to see in the next few years is a 424 00:22:51,800 --> 00:22:57,440 Speaker 1: huge transformation towards UM. The electrification of transportation, the actrification 425 00:22:57,520 --> 00:23:03,400 Speaker 1: of industry, and also the big organization of electricity electricity networks, 426 00:23:03,680 --> 00:23:07,639 Speaker 1: and those three elements are very very metals intensive. So 427 00:23:07,760 --> 00:23:12,000 Speaker 1: in my mind, um metals still have I think quite 428 00:23:12,200 --> 00:23:15,520 Speaker 1: quite a run ahead. Energy is probably gonna run to 429 00:23:15,840 --> 00:23:19,280 Speaker 1: and remember as those vaccines get more and more distributed, 430 00:23:19,320 --> 00:23:21,320 Speaker 1: and we heard from President by Them yesterday that we 431 00:23:21,480 --> 00:23:25,200 Speaker 1: may have vaccines for the entire population by May in 432 00:23:25,240 --> 00:23:27,679 Speaker 1: the US. M Johnson and Johnson is going to really 433 00:23:27,680 --> 00:23:31,240 Speaker 1: accelerate the vaccination process with the vaccine. That could also 434 00:23:31,320 --> 00:23:34,119 Speaker 1: lead to a pickup in UH, a pickup in in 435 00:23:34,440 --> 00:23:38,040 Speaker 1: mobility around the world. But the thing is, we have 436 00:23:38,160 --> 00:23:41,840 Speaker 1: ten million barrels they spare capacity temper cent of of 437 00:23:42,600 --> 00:23:46,359 Speaker 1: supplies still spare in the case of transplation fuels. So 438 00:23:46,520 --> 00:23:50,160 Speaker 1: that's gonna, I think lead to OPEC tomorrow opening out 439 00:23:50,200 --> 00:23:53,240 Speaker 1: the tabs and tampering the price appreciation. But you'll still 440 00:23:53,320 --> 00:23:56,960 Speaker 1: see I think the commority cycle moving higher with pretty 441 00:23:56,960 --> 00:23:58,960 Speaker 1: good with all the monetary and fiscal stimulas that we've 442 00:23:58,960 --> 00:24:02,080 Speaker 1: seen so far. Let's get numbers this morning. Brent sixty 443 00:24:02,119 --> 00:24:05,760 Speaker 1: three ninety three w c I sixty Francisco, what do 444 00:24:05,800 --> 00:24:07,359 Speaker 1: you say this topping. Now, what are the limits of 445 00:24:07,440 --> 00:24:11,000 Speaker 1: this rally? So we think for this year the limits 446 00:24:11,000 --> 00:24:13,480 Speaker 1: about seventy lords of barrel, So we don't see a 447 00:24:13,560 --> 00:24:15,560 Speaker 1: lot of upside. And we think that OPEN is gonna 448 00:24:15,560 --> 00:24:19,160 Speaker 1: be quite careful, uh, trying not to breach that seventy 449 00:24:19,720 --> 00:24:24,760 Speaker 1: dollar level on Brent because obviously that could trigger a 450 00:24:24,840 --> 00:24:29,120 Speaker 1: fair amount of UM response in the US shell patch 451 00:24:29,240 --> 00:24:32,200 Speaker 1: if if they did so. I do realize producers are 452 00:24:32,240 --> 00:24:35,040 Speaker 1: trying to be disciplined. But but obviously there's something called 453 00:24:35,080 --> 00:24:38,959 Speaker 1: price that can can change the Yeah, Francisco, actually can 454 00:24:39,000 --> 00:24:41,600 Speaker 1: you elaborate on that? This idea of the price point 455 00:24:41,640 --> 00:24:44,920 Speaker 1: at which shall comes back into the picture. Well, so 456 00:24:45,040 --> 00:24:49,080 Speaker 1: remember the curves is in very steep backwardation. Um, so 457 00:24:49,240 --> 00:24:51,520 Speaker 1: the spot price is very high righted to a forward. 458 00:24:51,720 --> 00:24:53,600 Speaker 1: If you look at prices for oil five years out 459 00:24:53,680 --> 00:24:58,120 Speaker 1: on the w t I, they're actually under barrel. So um, 460 00:24:58,359 --> 00:25:01,159 Speaker 1: what we think is OPEN wants to keep the curving backwardation. 461 00:25:01,280 --> 00:25:04,360 Speaker 1: That's definitely a key objective of the group. They want 462 00:25:04,400 --> 00:25:06,800 Speaker 1: to collect a high price on the spot basis and 463 00:25:07,040 --> 00:25:10,920 Speaker 1: give shailed players the lowest possible price on my four basis. Um. 464 00:25:11,280 --> 00:25:14,680 Speaker 1: And and again this means that that they'll try to 465 00:25:14,840 --> 00:25:18,920 Speaker 1: keep things relatively tight. But um, but I do see 466 00:25:19,000 --> 00:25:21,439 Speaker 1: eventually over the next three years there's a risk, as 467 00:25:21,480 --> 00:25:25,359 Speaker 1: I mentioned earlier, if demand accelerates beyond our expectations, and 468 00:25:25,520 --> 00:25:27,639 Speaker 1: remember the next three years are going to be the 469 00:25:27,760 --> 00:25:31,080 Speaker 1: fastest three years of oil demand growth since the seventies, 470 00:25:31,280 --> 00:25:33,960 Speaker 1: simply because we're coming from a very low base. But 471 00:25:34,080 --> 00:25:36,840 Speaker 1: if if we overshoot, that's where I think that the 472 00:25:36,920 --> 00:25:39,479 Speaker 1: upside risk over the next three years could be up 473 00:25:39,520 --> 00:25:42,400 Speaker 1: to a hundred dollors preparal. So that's that's our view 474 00:25:42,440 --> 00:25:45,600 Speaker 1: that we could see up to a hundred if demand 475 00:25:46,280 --> 00:25:51,000 Speaker 1: conditions really stand up to to UH these levels of 476 00:25:51,320 --> 00:25:53,680 Speaker 1: nine plus million barrels a day. Francisco, can you talk 477 00:25:53,680 --> 00:25:55,960 Speaker 1: a little bit about the dynamics of what that would 478 00:25:56,000 --> 00:25:59,560 Speaker 1: look like that upside surprise in terms of both GDP growth, 479 00:25:59,680 --> 00:26:02,320 Speaker 1: in terms terms of the recovery and international travel. What 480 00:26:02,400 --> 00:26:04,200 Speaker 1: would we have to see to get to the hundred 481 00:26:04,200 --> 00:26:07,199 Speaker 1: dollars a barrel? So I think, as I said, from 482 00:26:07,400 --> 00:26:10,040 Speaker 1: from an oil demand standpoint, we have to see over 483 00:26:10,240 --> 00:26:12,520 Speaker 1: nine million bells they of growth. We would have to 484 00:26:12,600 --> 00:26:18,040 Speaker 1: be above levels UH from a demand standpoint, by the 485 00:26:18,119 --> 00:26:22,120 Speaker 1: second half of next year, so again relatively quick acceleration UM. 486 00:26:23,240 --> 00:26:26,280 Speaker 1: And we will also that's from a from an oil consumption, 487 00:26:26,320 --> 00:26:30,520 Speaker 1: from a consumption standpoint, my GPS standpoint UM. Again, our 488 00:26:30,560 --> 00:26:33,080 Speaker 1: our U S economics team is calling for US GDP 489 00:26:33,200 --> 00:26:36,560 Speaker 1: of six and a half percent this year UM. Some 490 00:26:36,720 --> 00:26:39,159 Speaker 1: of this spills into next year with growth potentially in 491 00:26:39,200 --> 00:26:41,840 Speaker 1: the three to four percent range. So if that's the 492 00:26:41,880 --> 00:26:45,000 Speaker 1: case for the US, the world follows along. We see 493 00:26:45,480 --> 00:26:49,320 Speaker 1: relatively UH week dollar on the back of that. Because 494 00:26:49,359 --> 00:26:54,879 Speaker 1: some of this US growth feeds into international UH demand 495 00:26:55,000 --> 00:26:57,880 Speaker 1: for goods as we've seen so far, and that feeds 496 00:26:57,960 --> 00:27:02,320 Speaker 1: into a stronger Chinese bounced payments UM. Together with easy 497 00:27:02,480 --> 00:27:05,760 Speaker 1: monitory policy, all of that can can actually trigger US 498 00:27:06,040 --> 00:27:09,040 Speaker 1: to that higher level from a macrostandpoint. So it's those 499 00:27:09,080 --> 00:27:12,640 Speaker 1: three things really. It's it's improving micro fundamentals, it's continued 500 00:27:12,720 --> 00:27:16,520 Speaker 1: easy fiscal and monetary and it's of course UH continued 501 00:27:16,560 --> 00:27:18,840 Speaker 1: improvements in China's balance of payments. Those are the three 502 00:27:18,920 --> 00:27:22,240 Speaker 1: key elements for for a continued commority rally. Francisco, just 503 00:27:22,280 --> 00:27:24,080 Speaker 1: a final question from me, just to wrap things up 504 00:27:24,119 --> 00:27:27,120 Speaker 1: on the metals market, how supply response there because they've 505 00:27:27,160 --> 00:27:29,520 Speaker 1: been disciplined over the last few years because they got 506 00:27:29,560 --> 00:27:33,760 Speaker 1: burned coming out. Do they maintain that discipline? Do you 507 00:27:33,800 --> 00:27:35,720 Speaker 1: see them doing that this story of value of a 508 00:27:35,800 --> 00:27:38,119 Speaker 1: volume that really standed with Rio and p HP several 509 00:27:38,200 --> 00:27:42,240 Speaker 1: years back. I I think they do. I think they do, 510 00:27:42,359 --> 00:27:44,760 Speaker 1: and in fact I think what the metals and mean Ultimately, 511 00:27:44,840 --> 00:27:48,040 Speaker 1: Number one thing is very different metals versus energy is uh. 512 00:27:48,440 --> 00:27:51,280 Speaker 1: Metals don't have something like US shale. US shale is 513 00:27:51,320 --> 00:27:55,080 Speaker 1: short cycle. It can respond within six flot months. Nothing 514 00:27:55,119 --> 00:27:57,520 Speaker 1: in the metals world response in six quot months. There's 515 00:27:57,520 --> 00:28:00,359 Speaker 1: a very very long investment cycles looking at seven years. 516 00:28:01,000 --> 00:28:04,280 Speaker 1: So uh, even if they responded, this has still probably 517 00:28:04,280 --> 00:28:06,440 Speaker 1: respond by by the end of the decade. And and 518 00:28:06,680 --> 00:28:12,040 Speaker 1: and by then we will have maybe vehicles being sold 519 00:28:12,080 --> 00:28:14,840 Speaker 1: into the market will be electric and uh, and that 520 00:28:15,040 --> 00:28:17,159 Speaker 1: that's going to create some serious model legs in the 521 00:28:17,600 --> 00:28:19,440 Speaker 1: in the metal space in our I think we saw 522 00:28:19,480 --> 00:28:23,560 Speaker 1: that from Volvo yesterday looking for an electric fleet by Francisco. 523 00:28:23,640 --> 00:28:25,600 Speaker 1: Great to catch up with you, sir, Francisco Blanche that 524 00:28:25,640 --> 00:28:28,000 Speaker 1: Bank of America security has had at global commodities, and 525 00:28:28,080 --> 00:28:31,960 Speaker 1: the Rivers says, this is the Bloomberg Surveillance Podcast. Thanks 526 00:28:32,000 --> 00:28:35,280 Speaker 1: for listening. Join us live weekdays from seven to ten 527 00:28:35,359 --> 00:28:39,800 Speaker 1: AMI Eastern on Bloomberg Radio and on Bloomberg Television each 528 00:28:39,920 --> 00:28:43,640 Speaker 1: day from six to nine AM for insight from the 529 00:28:43,680 --> 00:28:48,880 Speaker 1: best in economics, finance, investment, and international relations. And subscribe 530 00:28:48,920 --> 00:28:53,800 Speaker 1: to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, 531 00:28:53,960 --> 00:28:57,200 Speaker 1: and of course on the terminal. I'm Tom Keene, and 532 00:28:57,320 --> 00:28:59,120 Speaker 1: this is Bloomberg