1 00:00:02,440 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,439 Speaker 2: with Lisa Bromwitz and am Marie Hortern. Join us each 4 00:00:18,520 --> 00:00:21,400 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,440 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,800 --> 00:00:27,440 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,520 --> 00:00:31,040 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,520 --> 00:00:35,880 Speaker 2: Bloomberg Terminal and the Bloomberg Business app. 10 00:00:36,200 --> 00:00:38,400 Speaker 1: Day joins us now, O day. Wonderful to see you. 11 00:00:38,800 --> 00:00:40,159 Speaker 1: Love having you in the studio. 12 00:00:40,479 --> 00:00:43,199 Speaker 3: Can you talk about just how much in the crystal 13 00:00:43,240 --> 00:00:46,640 Speaker 3: ball discussions that we've been having about artificial intelligence, why 14 00:00:46,720 --> 00:00:49,520 Speaker 3: you think the price action shows we're just not bullish enough? 15 00:00:49,800 --> 00:00:51,760 Speaker 4: Well, I think the market tells us that, right with 16 00:00:51,800 --> 00:00:54,320 Speaker 4: the reaction to the news. The fact that the stock 17 00:00:54,400 --> 00:00:56,680 Speaker 4: is up ten percent on the day tells you it 18 00:00:56,760 --> 00:01:00,160 Speaker 4: was a positive surprise just by definition and so and 19 00:01:00,200 --> 00:01:01,920 Speaker 4: it was. I mean it's super impressive, right, I mean 20 00:01:01,960 --> 00:01:06,520 Speaker 4: you have to admit a tripling of revenue and a sevenfold, 21 00:01:07,040 --> 00:01:10,280 Speaker 4: sevenfold increase in profits year over year. I mean that 22 00:01:10,480 --> 00:01:12,560 Speaker 4: is that that is just you know, it's unheard of, 23 00:01:12,959 --> 00:01:14,920 Speaker 4: and so you have a ten percent move and you 24 00:01:14,959 --> 00:01:18,320 Speaker 4: don't have the rest of the market responding, as was 25 00:01:18,360 --> 00:01:20,959 Speaker 4: discussed just a minute or so ago. But to us, 26 00:01:21,000 --> 00:01:24,240 Speaker 4: what we're believers, right, we are believers that every company, 27 00:01:25,360 --> 00:01:28,280 Speaker 4: every government in the world is going to have to 28 00:01:28,319 --> 00:01:32,520 Speaker 4: participate in the AI age and it's either you participate 29 00:01:32,760 --> 00:01:35,760 Speaker 4: or you lose. And it's that simple. And there's this 30 00:01:35,880 --> 00:01:39,119 Speaker 4: concept which we believe in, which is called sovereign AI 31 00:01:39,240 --> 00:01:43,039 Speaker 4: as an example, which basically states that every country is 32 00:01:43,080 --> 00:01:46,479 Speaker 4: going to want its own AI. So you're just talking 33 00:01:46,520 --> 00:01:51,400 Speaker 4: about just a massive global explosion of demand and you're 34 00:01:51,440 --> 00:01:52,960 Speaker 4: seeing that with the video. 35 00:01:53,040 --> 00:01:56,080 Speaker 1: Although you're seeing it with Nvidia. They're the winner, and 36 00:01:56,120 --> 00:01:56,360 Speaker 1: it's a. 37 00:01:56,440 --> 00:01:59,160 Speaker 3: Question of can they basically rise all boats or is 38 00:01:59,200 --> 00:02:01,240 Speaker 3: it going to be at video game and party and 39 00:02:01,400 --> 00:02:03,840 Speaker 3: only in videos, game and party as they potentially take 40 00:02:03,840 --> 00:02:06,800 Speaker 3: share from AMD, from Intel, from a lot of other 41 00:02:06,880 --> 00:02:10,000 Speaker 3: companies that otherwise might be getting some of these dollars. 42 00:02:10,800 --> 00:02:13,280 Speaker 4: Look, we're believers in what we call the pick and 43 00:02:13,280 --> 00:02:16,120 Speaker 4: shovel thesis of investing in this. Right, we want to 44 00:02:16,120 --> 00:02:19,480 Speaker 4: be in the digital pick and shovel and for that 45 00:02:19,480 --> 00:02:23,000 Speaker 4: that means for us rather semiconductors, okay, because they're needed 46 00:02:23,040 --> 00:02:25,120 Speaker 4: for the whole process. They're the winners of this to 47 00:02:25,160 --> 00:02:28,640 Speaker 4: your point, and whether you know EX company versus Y 48 00:02:28,720 --> 00:02:31,400 Speaker 4: company is a different story. To us, it's quite simple. 49 00:02:31,400 --> 00:02:33,399 Speaker 4: As an investor, we want to be in the pick 50 00:02:33,440 --> 00:02:35,200 Speaker 4: and shovel. So in the pick and shovel in the 51 00:02:35,240 --> 00:02:38,679 Speaker 4: digital age is the semiconductor space, and then the pick 52 00:02:38,720 --> 00:02:42,040 Speaker 4: and shovel in the physical space is the miners. Because 53 00:02:42,040 --> 00:02:45,400 Speaker 4: what's really interesting, and you touched on it with commodities earlier, 54 00:02:45,560 --> 00:02:49,840 Speaker 4: what's really interesting is you're fusing the digital in physical 55 00:02:49,919 --> 00:02:54,919 Speaker 4: worlds through the power demands for the data center buildouts. 56 00:02:55,360 --> 00:02:58,280 Speaker 4: And again I mean I think the CEO of the 57 00:02:58,360 --> 00:03:00,359 Speaker 4: video is a guy you have to pay attention to. 58 00:03:00,760 --> 00:03:02,800 Speaker 4: He is at the forefront of this. He's like evon one. 59 00:03:02,919 --> 00:03:05,280 Speaker 4: Musk was a couple of years ago with evs right. 60 00:03:05,600 --> 00:03:07,320 Speaker 4: He was on the front end of it, and so 61 00:03:07,400 --> 00:03:10,560 Speaker 4: he was seeing what was coming and Musk was right. Okay, 62 00:03:10,960 --> 00:03:14,760 Speaker 4: So now you follow the CEO of Navidia and he's 63 00:03:14,800 --> 00:03:18,040 Speaker 4: talking about the factories of the future. He's talking about 64 00:03:18,080 --> 00:03:21,680 Speaker 4: the data centers being the modern factories of our world 65 00:03:21,680 --> 00:03:25,320 Speaker 4: as we move forward, and they need power. So I'll 66 00:03:25,360 --> 00:03:28,640 Speaker 4: just give you an example. You know, natural gas UNNG 67 00:03:29,120 --> 00:03:33,480 Speaker 4: up forty percent in the last month. Before that, it 68 00:03:33,520 --> 00:03:36,840 Speaker 4: was copper copper because you need copper for the electric 69 00:03:37,120 --> 00:03:41,040 Speaker 4: electrification in the power generation, which again is going to 70 00:03:41,040 --> 00:03:44,640 Speaker 4: be global, every country, every region. So it really feeds 71 00:03:44,680 --> 00:03:48,000 Speaker 4: into our tripolar world. Pieces of regional deepening and regional 72 00:03:48,000 --> 00:03:51,800 Speaker 4: integration in Asia, Europe, and the Americas. And you see it. 73 00:03:51,880 --> 00:03:54,920 Speaker 4: The Europeans are building out AI, the Chinese are building 74 00:03:54,920 --> 00:03:58,960 Speaker 4: out AI, the Americans are building out AI. Everybody has 75 00:03:59,040 --> 00:04:00,600 Speaker 4: to have it, and they have to have it now. 76 00:04:00,640 --> 00:04:02,880 Speaker 4: And then the last point I would make is that, 77 00:04:03,200 --> 00:04:06,240 Speaker 4: and I'm a believer in this idea, is that this 78 00:04:06,360 --> 00:04:08,520 Speaker 4: is going to come much faster. So I respect Ian 79 00:04:08,640 --> 00:04:10,800 Speaker 4: earlier and he was saying with AI, he's not sure 80 00:04:10,800 --> 00:04:13,880 Speaker 4: how it's going to come through. My feeling is that 81 00:04:14,240 --> 00:04:16,960 Speaker 4: the infrastructure for AI has already been built out right. 82 00:04:17,000 --> 00:04:18,520 Speaker 5: Well, can I just defend the in for a moment, 83 00:04:18,560 --> 00:04:20,200 Speaker 5: because part of his thesis was. 84 00:04:23,480 --> 00:04:24,440 Speaker 4: Nothing but silence. 85 00:04:24,600 --> 00:04:28,919 Speaker 5: I mean, come on, John, Yeah, exactly, I'll take the 86 00:04:28,960 --> 00:04:33,560 Speaker 5: combative view. If it's not here, I'll try. My son 87 00:04:33,600 --> 00:04:35,920 Speaker 5: isn't keeping up with it, but my combativeness I'm trying to. 88 00:04:36,240 --> 00:04:38,400 Speaker 4: Okay, No, I'm okay, okay. 89 00:04:38,440 --> 00:04:41,120 Speaker 5: So Ian's argument is basically that it's not going to 90 00:04:41,120 --> 00:04:43,880 Speaker 5: be adopted as soon, specifically with companies, because if you 91 00:04:43,880 --> 00:04:46,320 Speaker 5: think about the Internet boom, you know, everyone and their 92 00:04:46,360 --> 00:04:48,640 Speaker 5: mother could simply sign up to the Worldwide Web, get 93 00:04:48,680 --> 00:04:51,000 Speaker 5: their own website, and then there you go, you take off. 94 00:04:51,279 --> 00:04:54,880 Speaker 5: Integrating AI is a much more complicated and longer process. 95 00:04:55,200 --> 00:04:58,520 Speaker 4: Okay. The pushback is that it took a decade or 96 00:04:58,520 --> 00:05:00,640 Speaker 4: more for the Internet to be built by because every 97 00:05:00,760 --> 00:05:03,599 Speaker 4: piece had to be created from the start. The point 98 00:05:03,640 --> 00:05:05,800 Speaker 4: of the AI age is that it's a layering on. 99 00:05:06,560 --> 00:05:09,279 Speaker 4: The infrastructure is already built out, and so it's going 100 00:05:09,360 --> 00:05:11,880 Speaker 4: to accelerate much much more quickly. So I'm in the 101 00:05:11,960 --> 00:05:14,520 Speaker 4: I'm in the it's going to accelerate much more quickly. 102 00:05:14,640 --> 00:05:17,000 Speaker 4: Camp Ian can be in the other camp. We see 103 00:05:17,000 --> 00:05:19,000 Speaker 4: how it plays out. And I go back to the 104 00:05:19,040 --> 00:05:22,520 Speaker 4: idea that every company is going to have to participate 105 00:05:22,560 --> 00:05:25,640 Speaker 4: in this, every country is going to have to participate this, 106 00:05:25,760 --> 00:05:28,479 Speaker 4: and it's and it's a race, and so the money 107 00:05:28,520 --> 00:05:31,719 Speaker 4: that's being put into this and again talked about fiscal 108 00:05:31,760 --> 00:05:36,480 Speaker 4: earlier a little bit. Interest rates, governments and companies are 109 00:05:36,520 --> 00:05:39,000 Speaker 4: going to spend money on this. Companies are cash rich, 110 00:05:39,800 --> 00:05:42,760 Speaker 4: governments are spending The G seven just came out with 111 00:05:42,839 --> 00:05:46,040 Speaker 4: their outlook or the IMF for fiscal for the next 112 00:05:46,800 --> 00:05:50,560 Speaker 4: through twenty twenty nine, no change, So there is no 113 00:05:50,800 --> 00:05:56,240 Speaker 4: there's no community for significant fiscal cutting. And you have 114 00:05:56,320 --> 00:05:59,280 Speaker 4: the companies also spending. So there's again the video is 115 00:05:59,279 --> 00:06:03,919 Speaker 4: a perfect example. It increased its cap X, it raised 116 00:06:03,920 --> 00:06:06,840 Speaker 4: its civit end, it's got a stock splitch. So there's 117 00:06:06,880 --> 00:06:09,600 Speaker 4: all these things that are happening because they're making so 118 00:06:09,680 --> 00:06:12,000 Speaker 4: much money. They made fifteen billion dollars in a quarter. 119 00:06:12,279 --> 00:06:15,080 Speaker 5: Well, you had Greenspan, for example, back in the nineties 120 00:06:15,080 --> 00:06:18,479 Speaker 5: early on. It's talking about the productivity boost, the paradigm 121 00:06:18,520 --> 00:06:22,240 Speaker 5: shift basically from the Internet age. Do central bankers this 122 00:06:22,279 --> 00:06:25,719 Speaker 5: time around, are they aware of the potential changes to 123 00:06:25,760 --> 00:06:28,320 Speaker 5: the macro landscape that you're talking about and they need 124 00:06:28,360 --> 00:06:31,360 Speaker 5: to start thinking about policy potentially differently because of that. 125 00:06:31,760 --> 00:06:34,279 Speaker 4: Yeah, that's an excellent question. I mean, we're believers and 126 00:06:34,320 --> 00:06:37,240 Speaker 4: what we call the global macro blue sky outlook. So 127 00:06:37,320 --> 00:06:39,919 Speaker 4: twenty twenty three to twenty twenty seven, we see a 128 00:06:40,000 --> 00:06:42,960 Speaker 4: very bullish outcome, and this what we just talked about 129 00:06:43,040 --> 00:06:45,800 Speaker 4: underpins that because it's a We wrote a piece a 130 00:06:45,839 --> 00:06:48,520 Speaker 4: couple of weeks ago called the Age of Investment. We 131 00:06:48,560 --> 00:06:51,520 Speaker 4: are in an age of investment. So twenty ten to 132 00:06:51,520 --> 00:06:56,239 Speaker 4: twenty twenty was monetary policy driven central bankers rule the world. 133 00:06:56,560 --> 00:06:59,359 Speaker 4: Now we're in the space where fiscal policymakers are going 134 00:06:59,400 --> 00:07:01,680 Speaker 4: to rule the world. And again it's a recognition that 135 00:07:01,920 --> 00:07:04,720 Speaker 4: we need sovereign ai we need to pay for it. 136 00:07:04,880 --> 00:07:07,640 Speaker 4: We need climate mitigation, we need to pay for it. 137 00:07:07,720 --> 00:07:10,040 Speaker 4: We need defense spending, we need to pay for it. 138 00:07:10,320 --> 00:07:12,520 Speaker 4: And so all these things are driving, as I say, 139 00:07:12,560 --> 00:07:15,040 Speaker 4: we believe in age of investment, which is going to 140 00:07:15,080 --> 00:07:18,880 Speaker 4: reinforce that productivity gain, which is also being fueled by 141 00:07:18,920 --> 00:07:22,000 Speaker 4: a fact that we're in a shrinkage of the global workforce. 142 00:07:22,800 --> 00:07:26,280 Speaker 4: So demographically, we're in a whole new world which we 143 00:07:26,320 --> 00:07:30,160 Speaker 4: think is going to continue to drive automation, drive robotics, 144 00:07:31,280 --> 00:07:34,800 Speaker 4: and drive the regionalization of things so that you have 145 00:07:34,880 --> 00:07:37,320 Speaker 4: a whole reshaping of the supply chain, which is happening 146 00:07:37,360 --> 00:07:39,880 Speaker 4: in Asia right now with China. I mean, China is 147 00:07:39,960 --> 00:07:44,119 Speaker 4: basically carving out Southeast Asia, which is the fastest growing 148 00:07:44,120 --> 00:07:46,880 Speaker 4: part of the world, and they're going to dominate that space. 149 00:07:47,000 --> 00:07:49,360 Speaker 4: And just look at what they're doing with EVS in 150 00:07:49,440 --> 00:07:54,040 Speaker 4: Thailand and Vietnam, etc. They're setting up a regional production 151 00:07:54,600 --> 00:07:57,800 Speaker 4: supply chain for evs and they're going to own that space. 152 00:07:58,560 --> 00:08:00,400 Speaker 6: Well, I want to ask you about China because so 153 00:08:00,480 --> 00:08:03,400 Speaker 6: much of your thesis, basically the basis is that China 154 00:08:03,480 --> 00:08:06,560 Speaker 6: still integrated with the West. What happens if it's not. 155 00:08:07,600 --> 00:08:10,040 Speaker 4: I don't believe that that's going to happen. 156 00:08:10,600 --> 00:08:12,760 Speaker 6: If people actually think we would see what we saw 157 00:08:12,800 --> 00:08:15,600 Speaker 6: with Russia's invasion of Ukraine. Within a weekend, you had 158 00:08:15,640 --> 00:08:18,920 Speaker 6: companies pulling out their central bank assets locked. 159 00:08:19,000 --> 00:08:21,400 Speaker 4: Yeah, well, I think we've made a queer to China 160 00:08:21,440 --> 00:08:24,880 Speaker 4: that we want to control their ability to rise on 161 00:08:24,920 --> 00:08:27,960 Speaker 4: the tech stack. And so they're now coming back to 162 00:08:28,040 --> 00:08:30,560 Speaker 4: us and saying fine, And I think that's an opportunity 163 00:08:30,640 --> 00:08:33,440 Speaker 4: right what we call our two tech stack thesis, right 164 00:08:33,480 --> 00:08:36,680 Speaker 4: where the Chinese companies are going to dominate China tech sack, 165 00:08:37,000 --> 00:08:39,920 Speaker 4: the American company is going to dominate the American tech stack. 166 00:08:39,960 --> 00:08:43,280 Speaker 4: That's fine. Investors have cotton down to the latter. They 167 00:08:43,280 --> 00:08:46,200 Speaker 4: haven't figured out about the former. Right, so you have 168 00:08:46,320 --> 00:08:49,080 Speaker 4: China tech selling at a massive discount to US tech, 169 00:08:49,400 --> 00:08:52,120 Speaker 4: even though the China tech space is twice as large, 170 00:08:52,360 --> 00:08:55,080 Speaker 4: growing twice as fast. And so for US, we want 171 00:08:55,080 --> 00:08:57,640 Speaker 4: to own the China tech space because that's where the 172 00:08:57,679 --> 00:09:01,640 Speaker 4: opportunity is. And now you're seeing the same thing with evs, right, 173 00:09:01,960 --> 00:09:05,640 Speaker 4: China does not want to. China is integrated into the 174 00:09:05,640 --> 00:09:09,439 Speaker 4: global trade patterns. Right. They have massive trade surplus and 175 00:09:09,559 --> 00:09:13,120 Speaker 4: massive exports. They cannot afford to be cut out of 176 00:09:13,160 --> 00:09:16,760 Speaker 4: the global trade flows. And so you're seeing how you're 177 00:09:16,760 --> 00:09:20,000 Speaker 4: seeing that in the reaction we believe to Biden's announcement 178 00:09:20,080 --> 00:09:23,439 Speaker 4: last week about one hundred percent tariffs on evs. That's huge, 179 00:09:23,559 --> 00:09:26,600 Speaker 4: But yet there's been no nothing from the Chinese because 180 00:09:26,640 --> 00:09:28,880 Speaker 4: they know they need to keep the Europeans on. 181 00:09:28,880 --> 00:09:31,199 Speaker 6: Well, they signaled they're going to potentially. 182 00:09:30,679 --> 00:09:33,000 Speaker 4: Have tax and they want to do it on the 183 00:09:33,559 --> 00:09:36,480 Speaker 4: European side. They need to keep the Europeans on side. 184 00:09:36,559 --> 00:09:38,640 Speaker 4: The Americans, it's kind of already a done deal. So 185 00:09:38,640 --> 00:09:43,920 Speaker 4: they're threatening the Europeans with big tariffs on internal combustion 186 00:09:44,040 --> 00:09:49,040 Speaker 4: engine European exports into China, and that's a massive market 187 00:09:49,120 --> 00:09:51,760 Speaker 4: for the Europeans, and that's where the game is being played. 188 00:09:51,880 --> 00:09:55,160 Speaker 4: But they are I believe China will continue in the economy, 189 00:09:55,520 --> 00:09:58,560 Speaker 4: but the tech stack is being divided up and being 190 00:09:58,559 --> 00:09:59,959 Speaker 4: closed off on both sides. 191 00:10:00,360 --> 00:10:15,080 Speaker 3: J Ploski of TPW Advisory Tripolar World Advisory joining us now, 192 00:10:15,160 --> 00:10:19,319 Speaker 3: I'm so pleased to say nations wide, nationwide. Kathy Bustansik 193 00:10:19,440 --> 00:10:23,720 Speaker 3: and Alberto Galo of Andromeda Capital Management. Kathy, what do 194 00:10:23,760 --> 00:10:26,000 Speaker 3: you make of yesterday's data in particular? 195 00:10:26,080 --> 00:10:27,880 Speaker 1: I really want to start with that and how. 196 00:10:27,840 --> 00:10:31,640 Speaker 3: Much that has sort of forward looking in dictator indications 197 00:10:32,120 --> 00:10:36,200 Speaker 3: of goods prices starting to really, I don't know, go up, reaccelerate. 198 00:10:37,400 --> 00:10:39,280 Speaker 7: Yeah, good morning, Lisa, happy to be with you. 199 00:10:40,400 --> 00:10:41,520 Speaker 8: Yeah, I think you know. 200 00:10:41,600 --> 00:10:46,000 Speaker 7: That's you know, something that's quite interesting because goods prices, 201 00:10:46,040 --> 00:10:50,200 Speaker 7: as you know, have really been the positive factor here 202 00:10:50,280 --> 00:10:53,720 Speaker 7: in the inflation story and have actually the latest data 203 00:10:54,040 --> 00:10:56,600 Speaker 7: sort of suggested when you look at CPI that is 204 00:10:57,200 --> 00:11:01,320 Speaker 7: that we had further deflationary pressures. If that starts to 205 00:11:01,400 --> 00:11:05,480 Speaker 7: temper or we see some uplift, that could really, you know, 206 00:11:05,600 --> 00:11:10,440 Speaker 7: change the story here. Good gasoline prices obviously headline inflation 207 00:11:10,600 --> 00:11:14,600 Speaker 7: very sensitive to that, and the reason that again matters, 208 00:11:14,679 --> 00:11:17,080 Speaker 7: is that we still have this ongoing stickiness in the 209 00:11:17,120 --> 00:11:21,000 Speaker 7: service side of the economy, whether it's core services or 210 00:11:21,080 --> 00:11:22,679 Speaker 7: also looking at rental. 211 00:11:22,320 --> 00:11:24,880 Speaker 1: Inflation and kayathy. This is the reason why people are 212 00:11:24,920 --> 00:11:26,239 Speaker 1: talking about whether. 213 00:11:26,000 --> 00:11:29,600 Speaker 3: There is some sort of restrictiveness currently in the system. Alberto, 214 00:11:29,920 --> 00:11:33,040 Speaker 3: you wrote a fascinating note about this, just how restrictive 215 00:11:33,280 --> 00:11:36,319 Speaker 3: FED policy actually is and how it's sort of, I 216 00:11:36,360 --> 00:11:39,439 Speaker 3: don't know, a mirage that they're using front end of 217 00:11:39,480 --> 00:11:42,199 Speaker 3: the yield curve to try to seem like they're restrictive, 218 00:11:42,280 --> 00:11:45,360 Speaker 3: but they're really not so much. Please explain, because to me, 219 00:11:45,480 --> 00:11:47,560 Speaker 3: this is fascinating at a time where people are pushing 220 00:11:47,600 --> 00:11:49,840 Speaker 3: back their expectations of a rate cut. 221 00:11:51,080 --> 00:11:51,880 Speaker 9: Good morning, Lisa. 222 00:11:52,000 --> 00:11:54,840 Speaker 10: Essentially, what we're talking about is the FED trying to 223 00:11:55,080 --> 00:11:56,360 Speaker 10: perform a magic trick. 224 00:11:56,920 --> 00:12:00,040 Speaker 9: They have focused the audience attention. 225 00:11:59,880 --> 00:12:02,400 Speaker 10: On the front end rate, and you know, they've raised 226 00:12:02,600 --> 00:12:04,720 Speaker 10: front end rates by five hundred basis points. 227 00:12:05,200 --> 00:12:07,400 Speaker 9: But on the other hand, what they're doing. 228 00:12:07,280 --> 00:12:10,200 Speaker 10: Is to reduce in the pace of tapering, and they've 229 00:12:10,200 --> 00:12:12,880 Speaker 10: reduced it by more than expected. So the FED balance 230 00:12:12,880 --> 00:12:16,040 Speaker 10: sheet is still you know, very large, and it hasn't 231 00:12:16,080 --> 00:12:19,840 Speaker 10: really fallen since the since the peak. At the same time, 232 00:12:19,840 --> 00:12:22,520 Speaker 10: there's also a lot of fiscal and there's indirect quy. 233 00:12:22,679 --> 00:12:26,440 Speaker 10: For example, the Bonk term funding program has allowed banks 234 00:12:26,480 --> 00:12:29,360 Speaker 10: to fund cheaply to buy treasuries, so you know, they're 235 00:12:29,440 --> 00:12:33,360 Speaker 10: hiking with one hand, they are not hiking with the other. 236 00:12:33,480 --> 00:12:37,520 Speaker 10: The result is that there is a record loose financial conditions. 237 00:12:37,559 --> 00:12:42,760 Speaker 10: So we definitely don't see any any restrict restrictiveness in 238 00:12:42,800 --> 00:12:46,720 Speaker 10: financial conditions right now unless you are you're a weak 239 00:12:46,760 --> 00:12:49,679 Speaker 10: household and you're funding with credit cards or auto loans, 240 00:12:49,720 --> 00:12:52,960 Speaker 10: so you're depending on the front end rate. But for 241 00:12:53,080 --> 00:12:57,240 Speaker 10: large firms, for whoever funds in the bond market or 242 00:12:57,400 --> 00:13:01,560 Speaker 10: long term mortgage borrowers, funding conditions are still pretty good. 243 00:13:02,120 --> 00:13:06,320 Speaker 10: And that means persistent inflation. It means that there's rates polatility, 244 00:13:06,720 --> 00:13:09,480 Speaker 10: and we are a lot more worried about reacceleration in 245 00:13:09,520 --> 00:13:13,400 Speaker 10: the economy or persistent inflation, you know, hurting the rates market, 246 00:13:13,840 --> 00:13:16,439 Speaker 10: rather than the recession that you know, every economist has 247 00:13:16,440 --> 00:13:18,600 Speaker 10: been thinking about for the past three years. 248 00:13:18,679 --> 00:13:20,600 Speaker 6: Well, Berta, we got a first call from Goldman Sachs 249 00:13:20,640 --> 00:13:23,360 Speaker 6: this morning saying that they now expect to cut to 250 00:13:23,440 --> 00:13:27,160 Speaker 6: be in September. Initially they were talking about. Most recently 251 00:13:27,160 --> 00:13:30,040 Speaker 6: they were talking about July. What do you view in 252 00:13:30,120 --> 00:13:32,720 Speaker 6: terms of the timeline, given what you're saying about the 253 00:13:32,720 --> 00:13:34,319 Speaker 6: policy not being so restrictive. 254 00:13:35,720 --> 00:13:38,520 Speaker 10: I think here the trade is for next year. Yes, 255 00:13:38,679 --> 00:13:41,800 Speaker 10: we might have one cut this year. Our forecus is 256 00:13:41,840 --> 00:13:46,360 Speaker 10: still for zero, but the realities there's still a lot 257 00:13:46,360 --> 00:13:48,319 Speaker 10: of cuts that are priced in for twenty twenty five, 258 00:13:48,320 --> 00:13:52,319 Speaker 10: and I think that is wrong, especially with the outlook. 259 00:13:52,000 --> 00:13:53,160 Speaker 9: That we have for elections. 260 00:13:53,200 --> 00:13:54,480 Speaker 10: You know, we're going to have a lot of physical 261 00:13:54,480 --> 00:13:58,240 Speaker 10: stimulus next year, regardless of who wins. But you know 262 00:13:58,280 --> 00:14:00,960 Speaker 10: there are some scenarios where there's even more physical stimulus 263 00:14:00,960 --> 00:14:03,600 Speaker 10: then the CBO is expecting for next year. So we 264 00:14:03,640 --> 00:14:07,720 Speaker 10: have persistent fiscal and you know, the eighty plus basis 265 00:14:07,720 --> 00:14:10,400 Speaker 10: points cuts that we are seeing in the market for 266 00:14:10,480 --> 00:14:12,200 Speaker 10: next year are not going to happen in our view. 267 00:14:12,240 --> 00:14:14,840 Speaker 10: So yes, we might have a cut, but it's going 268 00:14:14,920 --> 00:14:16,160 Speaker 10: to look like a policy. 269 00:14:15,880 --> 00:14:16,600 Speaker 9: Error in our view. 270 00:14:16,640 --> 00:14:19,600 Speaker 10: And you know, even other central banks are starting to 271 00:14:19,680 --> 00:14:20,520 Speaker 10: change the narrative. 272 00:14:20,560 --> 00:14:23,200 Speaker 9: So we need to learn to live. We'd hire for. 273 00:14:23,200 --> 00:14:25,680 Speaker 10: Longer, and there's a lot of us at a location 274 00:14:25,840 --> 00:14:30,640 Speaker 10: that has been centered around the expectation of lower rates, 275 00:14:30,720 --> 00:14:32,120 Speaker 10: and that's going to have to reprice. 276 00:14:32,960 --> 00:14:35,640 Speaker 6: Kathy, I know you also think cuts could be delayed 277 00:14:35,640 --> 00:14:39,280 Speaker 6: in a certain scenario till twenty twenty five. But Alberta 278 00:14:39,320 --> 00:14:42,640 Speaker 6: there is talking about potentially the fiscal impulse we'll also 279 00:14:42,680 --> 00:14:44,720 Speaker 6: get in twenty twenty five. How much harder is that 280 00:14:44,760 --> 00:14:46,760 Speaker 6: going to make the FED even to cut next year? 281 00:14:49,160 --> 00:14:53,120 Speaker 7: Yeah, you know, I'm not so sure we get a 282 00:14:53,120 --> 00:14:55,360 Speaker 7: lot of physical stimus next year. Certainly if we do, 283 00:14:55,680 --> 00:14:59,240 Speaker 7: then that would delay, you know, or dampen a FED 284 00:15:00,160 --> 00:15:03,360 Speaker 7: ray cuts. But you know, I think, you know, from 285 00:15:03,360 --> 00:15:06,760 Speaker 7: from my perspective, we are seeing some moderation and economic 286 00:15:06,880 --> 00:15:11,160 Speaker 7: activity right now. It's just the first step and there's 287 00:15:11,200 --> 00:15:13,800 Speaker 7: a long ways to go in terms of economic activity 288 00:15:13,880 --> 00:15:18,880 Speaker 7: and also inflation. But we're still hopeful that we do get, 289 00:15:19,200 --> 00:15:22,280 Speaker 7: you know, some further drop in inflation, particularly we think 290 00:15:22,360 --> 00:15:25,600 Speaker 7: rental inflation. But the problem is it may be brief, right. 291 00:15:25,720 --> 00:15:29,560 Speaker 7: It's because we've seen some signs of rental inflation picking 292 00:15:29,640 --> 00:15:32,040 Speaker 7: up and home prices of picking up. The problem is 293 00:15:32,080 --> 00:15:35,680 Speaker 7: there's long lags, right It typically it's about twelve months. 294 00:15:35,680 --> 00:15:39,440 Speaker 7: This time it seems to be longer. But you know, 295 00:15:39,520 --> 00:15:41,880 Speaker 7: so we're hopeful that we do get you know, further 296 00:15:41,960 --> 00:15:44,840 Speaker 7: cooling inflation. I think that's really what matters most for 297 00:15:44,880 --> 00:15:49,360 Speaker 7: the FED, and and I would agree with ROBERTA. There's 298 00:15:49,400 --> 00:15:51,280 Speaker 7: like a tale of two economies going on right now. 299 00:15:51,320 --> 00:15:54,440 Speaker 7: If you can come to capital markets, you're a large corporation, 300 00:15:54,920 --> 00:15:57,000 Speaker 7: you're you're and you're turned out your debt, you're you're 301 00:15:57,040 --> 00:15:59,760 Speaker 7: in a pretty good situation. But if you're small business, 302 00:16:00,240 --> 00:16:03,040 Speaker 7: or if your middle income a household or lower income, 303 00:16:03,400 --> 00:16:06,200 Speaker 7: you're a variable rate borrower, you are feeling the attention. 304 00:16:06,520 --> 00:16:08,840 Speaker 7: I think higher rates have had an impact. Look at 305 00:16:08,840 --> 00:16:11,600 Speaker 7: the housing market. You know, the existing home sales market 306 00:16:11,600 --> 00:16:13,320 Speaker 7: has been essentially stalled. 307 00:16:13,560 --> 00:16:15,640 Speaker 5: And that's potentially part of the reason that small caps, 308 00:16:15,640 --> 00:16:18,640 Speaker 5: for example, haven't kept up with the games gains. Alberto 309 00:16:18,760 --> 00:16:21,800 Speaker 5: in this idea that policy is easy, not just because 310 00:16:21,800 --> 00:16:24,000 Speaker 5: of the fiscal but because of QT two. 311 00:16:24,040 --> 00:16:24,920 Speaker 1: The FED would. 312 00:16:24,680 --> 00:16:27,240 Speaker 5: Say to that that they are slowing the draw down 313 00:16:27,320 --> 00:16:30,160 Speaker 5: of the balance sheet, not because they want to ultimately 314 00:16:30,280 --> 00:16:32,560 Speaker 5: not draw down as much, but it allows them to 315 00:16:32,600 --> 00:16:35,960 Speaker 5: do it for longer and potentially ultimately get to a 316 00:16:36,040 --> 00:16:39,160 Speaker 5: lower level because they can keep drawing down without the 317 00:16:39,280 --> 00:16:42,800 Speaker 5: risk of any financial accident. What would you say to that. 318 00:16:43,960 --> 00:16:48,200 Speaker 10: Well, the first the first phase has been very easy 319 00:16:48,400 --> 00:16:52,640 Speaker 10: for central banks because inflation came down thanks to an 320 00:16:52,640 --> 00:16:55,520 Speaker 10: easing of supply constraints and also we had a very 321 00:16:55,560 --> 00:17:00,360 Speaker 10: strong inflow of immigration of relatively cheap labor. Now these 322 00:17:00,440 --> 00:17:03,040 Speaker 10: one off positives are going to fade, so the first 323 00:17:03,040 --> 00:17:07,200 Speaker 10: phase of this inflation has been much easier. Now it's 324 00:17:07,240 --> 00:17:09,640 Speaker 10: you know, the hard part is what's ahead of us. 325 00:17:09,680 --> 00:17:13,240 Speaker 10: So we have less flow of immigration, and we actually 326 00:17:13,320 --> 00:17:17,360 Speaker 10: have you know, still supply constraints that are persistent, and. 327 00:17:17,359 --> 00:17:18,639 Speaker 9: There are some feedback loops. 328 00:17:18,680 --> 00:17:22,760 Speaker 10: So the idea of keeping the balance sheet very large 329 00:17:22,800 --> 00:17:27,560 Speaker 10: and and you know, making it come down very slowly 330 00:17:28,080 --> 00:17:30,800 Speaker 10: in theory looks good, but in practice what it does 331 00:17:30,880 --> 00:17:33,200 Speaker 10: is that it keeps financial conditions loose for a large 332 00:17:33,280 --> 00:17:35,879 Speaker 10: chunk of the economy. So there's no real tightening for 333 00:17:35,960 --> 00:17:38,680 Speaker 10: large firms, for mortgage borrowers that are long term. 334 00:17:39,800 --> 00:17:41,679 Speaker 9: And so I think that the. 335 00:17:43,280 --> 00:17:47,040 Speaker 10: Result of higher front end but also a persistent physical 336 00:17:47,320 --> 00:17:50,760 Speaker 10: and a persistently large balance sheet as being that financial 337 00:17:50,760 --> 00:17:54,159 Speaker 10: conditions are not as restrictive as the FED thought they 338 00:17:54,200 --> 00:17:56,439 Speaker 10: would be, and the narrative is changing. 339 00:17:56,520 --> 00:17:57,359 Speaker 9: The narative is changing. 340 00:17:57,359 --> 00:18:00,560 Speaker 10: I think that some fat residents are already taking that 341 00:18:00,600 --> 00:18:02,760 Speaker 10: into account, which means that you know, you're not you 342 00:18:02,800 --> 00:18:05,080 Speaker 10: won't be able to do a lot of cuts. 343 00:18:05,080 --> 00:18:06,560 Speaker 9: But the other consequence is that. 344 00:18:06,680 --> 00:18:10,600 Speaker 10: Eventually some central banks will have to choose between price 345 00:18:10,640 --> 00:18:15,119 Speaker 10: stability and financial stability. So it is true that it's 346 00:18:15,560 --> 00:18:18,679 Speaker 10: really good to not cause any issues in the financial market, 347 00:18:19,160 --> 00:18:21,479 Speaker 10: and no one wants it ahead of elections, but you know, 348 00:18:21,720 --> 00:18:24,439 Speaker 10: the mandate is also price stability, and I think that 349 00:18:24,480 --> 00:18:28,080 Speaker 10: there's been a lot of micro management of volatility from 350 00:18:28,080 --> 00:18:28,800 Speaker 10: central banks. 351 00:18:29,080 --> 00:18:31,200 Speaker 9: We see it in the allocation of risk causses. 352 00:18:31,240 --> 00:18:33,240 Speaker 10: We see it in the love for credit and for 353 00:18:33,320 --> 00:18:35,720 Speaker 10: carry that there is in the market right now where 354 00:18:35,760 --> 00:18:39,360 Speaker 10: we're at record tight spreads and investors, you know, are 355 00:18:39,480 --> 00:18:43,720 Speaker 10: essentially ignoring this front end five percent rate because the 356 00:18:43,760 --> 00:18:44,760 Speaker 10: long end is inverted. 357 00:18:45,400 --> 00:18:48,119 Speaker 5: Cassie, would you just say to that that Alberta is 358 00:18:48,160 --> 00:18:50,760 Speaker 5: wrong because it's just a lag that that's actually what 359 00:18:50,760 --> 00:18:52,840 Speaker 5: we're seeing, not that that policy isn't tight enough. 360 00:18:54,320 --> 00:18:55,040 Speaker 8: Well, yeah, I. 361 00:18:55,000 --> 00:18:59,440 Speaker 7: Have subsympathy to Alberto's comments. You know, certainly financial conditions 362 00:18:59,520 --> 00:19:02,160 Speaker 7: are easy. Part of that's because the equity market continues 363 00:19:02,200 --> 00:19:05,000 Speaker 7: to rally, so much, and we do have. 364 00:19:04,960 --> 00:19:05,840 Speaker 8: An inverted curve. 365 00:19:05,920 --> 00:19:09,840 Speaker 7: But long term rates are higher, you know, I think 366 00:19:09,880 --> 00:19:12,400 Speaker 7: in terms of the thing about mortgage borrowers, they're still 367 00:19:12,400 --> 00:19:14,520 Speaker 7: looking at seven percent rates. 368 00:19:14,600 --> 00:19:16,240 Speaker 1: That's quite drag. 369 00:19:16,119 --> 00:19:19,040 Speaker 7: Cony and especially compared where we were. And I think 370 00:19:19,160 --> 00:19:21,480 Speaker 7: some corporations, you know, if they have to come to 371 00:19:21,600 --> 00:19:25,000 Speaker 7: market and roll over their debt, you know they are fine, 372 00:19:25,080 --> 00:19:29,119 Speaker 7: you know, facing higher refinancing costs. But in general, yes, 373 00:19:29,240 --> 00:19:32,720 Speaker 7: I mean, if you're an asset holder and your corporation 374 00:19:32,880 --> 00:19:34,639 Speaker 7: that has a lot of cash and you turned out 375 00:19:34,680 --> 00:19:37,719 Speaker 7: your debt, the short term interest rates are not biting 376 00:19:37,720 --> 00:19:40,000 Speaker 7: as much as the FED had thought previously, and I 377 00:19:40,040 --> 00:19:42,760 Speaker 7: think that is key, and I can see the FED 378 00:19:42,840 --> 00:19:46,920 Speaker 7: holding rates higher for longer, possibly if maybe would raise 379 00:19:47,000 --> 00:19:50,640 Speaker 7: rates higher. So so I do I have sympathy to that. 380 00:19:50,720 --> 00:19:53,440 Speaker 7: I think it just really does depend though on inflation, 381 00:19:53,520 --> 00:19:57,000 Speaker 7: and if we start to see inflation trend lower than 382 00:19:57,040 --> 00:19:59,440 Speaker 7: the FED will have the green light to start cutting rates, 383 00:19:59,680 --> 00:20:00,800 Speaker 7: especial next year. 384 00:20:01,200 --> 00:20:03,320 Speaker 3: On the show, just a couple of minutes ago, we 385 00:20:03,320 --> 00:20:05,760 Speaker 3: were talking about deflation, and we were talking about deflation 386 00:20:05,840 --> 00:20:09,320 Speaker 3: when it comes to gasoline prices in particular. We had 387 00:20:09,880 --> 00:20:12,720 Speaker 3: this discussion around the average price going down to three 388 00:20:12,760 --> 00:20:15,480 Speaker 3: dollars and twenty nine cents from the current three sixty 389 00:20:15,520 --> 00:20:18,760 Speaker 3: one in the United States. Michael McKee still with us, Mike, 390 00:20:18,840 --> 00:20:20,639 Speaker 3: I wanted to talk with you about how important that 391 00:20:20,720 --> 00:20:23,800 Speaker 3: is from an economic perspective, from consumer spending, from what 392 00:20:23,880 --> 00:20:27,560 Speaker 3: this does to the package of household budget that can 393 00:20:27,600 --> 00:20:31,360 Speaker 3: go to other things. How stimulative essentially would it be 394 00:20:31,640 --> 00:20:33,680 Speaker 3: if gasoline prices go down significantly. 395 00:20:33,840 --> 00:20:36,480 Speaker 11: Well, the change that we've seen so far isn't that significant. 396 00:20:36,520 --> 00:20:39,600 Speaker 11: What you usually see in terms of gasoline prices is 397 00:20:39,800 --> 00:20:43,240 Speaker 11: when they go over the previous high. That's when people 398 00:20:43,359 --> 00:20:45,800 Speaker 11: start to pull back and get nervous because it's something 399 00:20:45,840 --> 00:20:47,240 Speaker 11: that they really notice. 400 00:20:47,720 --> 00:20:51,400 Speaker 12: Slight changes ten twenty cents either way. They bothered more 401 00:20:51,440 --> 00:20:56,320 Speaker 12: on the upside, But it hasn't had an impact overall 402 00:20:56,400 --> 00:20:58,960 Speaker 12: on spending in a while because gas prices have been 403 00:20:59,160 --> 00:21:00,880 Speaker 12: sort of in this range for some time. 404 00:21:01,040 --> 00:21:02,680 Speaker 3: Well, this is a reason why, Kathy, a lot of 405 00:21:02,680 --> 00:21:05,080 Speaker 3: people were looking at this expectation that we were going 406 00:21:05,119 --> 00:21:08,760 Speaker 3: to end up with a really crimped consumer where you 407 00:21:08,800 --> 00:21:10,840 Speaker 3: had savings running out and you had some of these 408 00:21:10,840 --> 00:21:13,919 Speaker 3: inflationary pressures. People talking about a commodity shock, None of 409 00:21:13,920 --> 00:21:14,959 Speaker 3: it materialized. 410 00:21:15,040 --> 00:21:16,320 Speaker 1: So where are we on that. 411 00:21:16,480 --> 00:21:18,960 Speaker 3: Do we have a consumer that has run out of 412 00:21:18,960 --> 00:21:21,639 Speaker 3: savings and is increasingly strapped, or do we have a 413 00:21:21,640 --> 00:21:24,320 Speaker 3: consumer that can tap leverage, that has plenty of capacity 414 00:21:24,359 --> 00:21:28,800 Speaker 3: and particularly at the higher end, still tons of money. 415 00:21:28,600 --> 00:21:32,600 Speaker 7: So I would say one of the former camp Lisa, 416 00:21:33,119 --> 00:21:36,800 Speaker 7: that I do think you know, large portions of the 417 00:21:36,840 --> 00:21:41,919 Speaker 7: consumer sector is tapped out. They have run down, you know, 418 00:21:41,960 --> 00:21:45,680 Speaker 7: the two trillion worth of pandemic related savings. They've ramped 419 00:21:45,760 --> 00:21:48,440 Speaker 7: up consumer credit card use, right, and we're seeing the 420 00:21:48,560 --> 00:21:52,120 Speaker 7: look at the New York Fed Reserve survey, ten percent 421 00:21:52,359 --> 00:21:56,800 Speaker 7: of credit card folders are now seriously delinquent. And you 422 00:21:56,880 --> 00:22:01,240 Speaker 7: see that also with auto loans delinquency. You typically don't 423 00:22:01,280 --> 00:22:03,920 Speaker 7: see that when the unemployment rate is, you know, less 424 00:22:03,920 --> 00:22:07,080 Speaker 7: than four percent. That's usually a recessionary sign. So I 425 00:22:07,119 --> 00:22:10,040 Speaker 7: do think we're hitting some roadblocks to the consumer. But 426 00:22:10,080 --> 00:22:13,840 Speaker 7: what's going to matter most is employment growth and wage growth. 427 00:22:13,920 --> 00:22:14,080 Speaker 8: Right. 428 00:22:14,320 --> 00:22:17,399 Speaker 7: I think now the consumer is really dependent on current 429 00:22:17,480 --> 00:22:21,240 Speaker 7: income stream to fund spending, and the savings rate to 430 00:22:21,280 --> 00:22:24,080 Speaker 7: three point two percent, there's not a lot of extra 431 00:22:24,119 --> 00:22:26,200 Speaker 7: buffer there for the consumer to run things down. 432 00:22:26,560 --> 00:22:30,800 Speaker 1: A verto final word, I think there's some weakness. 433 00:22:31,240 --> 00:22:33,920 Speaker 10: There's a little bit of cracks opening across the weakest 434 00:22:33,960 --> 00:22:37,760 Speaker 10: part of the employment market and the credit market too, 435 00:22:37,800 --> 00:22:41,439 Speaker 10: but it's not enough to create the conditions for a 436 00:22:41,480 --> 00:22:44,720 Speaker 10: lot of cuts. And in the meantime, outside of the US, 437 00:22:44,720 --> 00:22:48,800 Speaker 10: we see China stimulating europe spending, so you know, global 438 00:22:49,040 --> 00:22:50,480 Speaker 10: financial conditions are very loose. 439 00:22:50,520 --> 00:22:51,879 Speaker 9: Commodity prices are going up. 440 00:22:51,920 --> 00:22:54,359 Speaker 10: You know, we're still, you know, much more worried about 441 00:22:54,359 --> 00:22:57,880 Speaker 10: the right tail, so things going to well versus. 442 00:22:57,560 --> 00:22:59,960 Speaker 9: The left tail, which is the typical recession rate. 443 00:23:00,160 --> 00:23:01,720 Speaker 10: So you know, we're going to see more ball in 444 00:23:01,840 --> 00:23:06,560 Speaker 10: rates and maybe we'll retest the highs in yos throughout the. 445 00:23:06,600 --> 00:23:07,720 Speaker 1: Year, nationswide. 446 00:23:07,760 --> 00:23:12,160 Speaker 3: Kathy Mistatzik and Alberto Gallo of Andromeda Capital Management, both. 447 00:23:11,960 --> 00:23:12,920 Speaker 1: Of you, thank you so much. 448 00:23:22,359 --> 00:23:26,040 Speaker 3: A survey from gas Buddy saying sixty percent of Americans 449 00:23:26,040 --> 00:23:28,879 Speaker 3: are planning a road trip over this Memorial Day weekend. 450 00:23:28,920 --> 00:23:30,760 Speaker 3: Other people are going to be flying, and they're going 451 00:23:30,800 --> 00:23:33,000 Speaker 3: to be going to the airport. Patrick Jahan of gas 452 00:23:33,040 --> 00:23:36,720 Speaker 3: Buddy writing this, well, Americans gripe about the cost of gasoline, 453 00:23:36,960 --> 00:23:39,159 Speaker 3: it doesn't seem that too many are going to be 454 00:23:39,200 --> 00:23:41,640 Speaker 3: deterred from hitting the road, great news for those who 455 00:23:41,680 --> 00:23:44,520 Speaker 3: are planning to travel. Motorists are likely to see more 456 00:23:44,560 --> 00:23:48,240 Speaker 3: stations lowering prices to two dollars ninety nine cents per 457 00:23:48,280 --> 00:23:51,879 Speaker 3: gallon or less as a summer wears on, Patrick joins us. 458 00:23:51,920 --> 00:23:55,120 Speaker 1: Now, Patrick, riddle me, this what happened. 459 00:23:54,800 --> 00:23:57,680 Speaker 3: With all the people saying we didn't have enough refineries. Yes, 460 00:23:57,680 --> 00:24:00,320 Speaker 3: we're pumping thirteen million barrels a day, but there's supply 461 00:24:00,400 --> 00:24:01,800 Speaker 3: cuts coming from elsewhere. 462 00:24:02,040 --> 00:24:03,040 Speaker 1: Gas prices are. 463 00:24:02,880 --> 00:24:05,760 Speaker 3: Going to skyrocket during the busiest driving season of the year. 464 00:24:06,080 --> 00:24:07,600 Speaker 1: Why do you think that's not true. 465 00:24:08,680 --> 00:24:10,720 Speaker 13: Well, we've gotten a lot more breathing room here over 466 00:24:10,760 --> 00:24:13,280 Speaker 13: the last six to twelve months or so. It hasn't 467 00:24:13,280 --> 00:24:15,240 Speaker 13: been the US refining capacity, but there have been some 468 00:24:15,359 --> 00:24:16,359 Speaker 13: global additions. 469 00:24:16,400 --> 00:24:18,280 Speaker 8: I would point out, though, I think this year and 470 00:24:18,400 --> 00:24:21,280 Speaker 8: kind of the post COVID world, a lot of Americans 471 00:24:21,320 --> 00:24:22,600 Speaker 8: hit the road in twenty twenty two. 472 00:24:23,040 --> 00:24:26,080 Speaker 13: That's why gas prices did skyrocket over five dollars a gallon. 473 00:24:26,160 --> 00:24:27,800 Speaker 8: Things cooled off last summer. 474 00:24:28,000 --> 00:24:29,720 Speaker 13: A lot of folks hit the road last summer, But 475 00:24:29,760 --> 00:24:32,240 Speaker 13: I think this summer is also going to skew International 476 00:24:32,280 --> 00:24:36,679 Speaker 13: air travel TSA reporting records. Our gasoline demand data I 477 00:24:36,920 --> 00:24:40,000 Speaker 13: just looked at it did shoot up for yesterday about 478 00:24:40,040 --> 00:24:43,240 Speaker 13: eleven point seven percent rise from Thursday prior. 479 00:24:43,280 --> 00:24:45,960 Speaker 8: So we are starting to see Americans fill their tanks. 480 00:24:46,119 --> 00:24:48,040 Speaker 8: But I don't think gasoline. 481 00:24:47,520 --> 00:24:49,240 Speaker 13: Demand is going to be at record levels though a 482 00:24:49,240 --> 00:24:50,840 Speaker 13: lot of folks are going to be hitting the road 483 00:24:51,080 --> 00:24:53,879 Speaker 13: or traveling, they may be doing so via air. Of course, 484 00:24:53,920 --> 00:24:56,200 Speaker 13: the Eedy transition is part of that discussion as well, 485 00:24:56,240 --> 00:24:58,760 Speaker 13: although that has slowed down no matter. 486 00:24:58,880 --> 00:25:01,359 Speaker 8: A lot of Americans hit the road this memorial there. 487 00:25:01,520 --> 00:25:03,359 Speaker 3: So Patrick, let's just sit on that for a second, 488 00:25:03,400 --> 00:25:05,359 Speaker 3: because some people do say this is the sort of 489 00:25:05,800 --> 00:25:10,800 Speaker 3: understated aspect of demand in the gasoline market, that more 490 00:25:10,840 --> 00:25:14,200 Speaker 3: people have more efficient vehicles, even if it's not electric vehicles, 491 00:25:14,200 --> 00:25:16,600 Speaker 3: it could be hybrids, it could be just cars that 492 00:25:16,600 --> 00:25:20,280 Speaker 3: get better mileage prefer their gas. How much is that 493 00:25:20,320 --> 00:25:23,400 Speaker 3: a factor of demand for the gasoline. 494 00:25:23,920 --> 00:25:25,760 Speaker 8: Well, probably a notable one. 495 00:25:26,040 --> 00:25:28,000 Speaker 13: You know, you talk about the EBU transition where people 496 00:25:28,040 --> 00:25:31,120 Speaker 13: completely ditch gasoline. That's probably a small but rising part 497 00:25:31,119 --> 00:25:34,320 Speaker 13: of the conversation, especially in areas like California that are 498 00:25:34,320 --> 00:25:37,400 Speaker 13: looking and pushing incentives for Americans. 499 00:25:37,000 --> 00:25:38,000 Speaker 8: To move into those vehicles. 500 00:25:38,040 --> 00:25:40,719 Speaker 13: But as you mentioned, look at manufacturers how they've skewed 501 00:25:40,720 --> 00:25:43,800 Speaker 13: to plug in hybrid electric vehicles or mild hybrids. A 502 00:25:43,840 --> 00:25:47,160 Speaker 13: lot of that, I mean five dollars gasoline. Americans when 503 00:25:47,200 --> 00:25:50,040 Speaker 13: they buy a new vehicle often have the memory of 504 00:25:50,080 --> 00:25:53,440 Speaker 13: those gas prices, and you know a vehicle, buying one 505 00:25:53,560 --> 00:25:55,600 Speaker 13: is a long commitment, and so a lot of Americans 506 00:25:55,600 --> 00:25:57,959 Speaker 13: have been looking at some of those more fuel efficient 507 00:25:58,000 --> 00:26:00,280 Speaker 13: options in the last couple of years. Keep in mind too, 508 00:26:00,400 --> 00:26:03,000 Speaker 13: that like myself at this moment, work from home is 509 00:26:03,040 --> 00:26:04,960 Speaker 13: still a thing. A lot of Americans still doing that, 510 00:26:05,080 --> 00:26:07,440 Speaker 13: and that's probably where some of this drop in consumption 511 00:26:07,600 --> 00:26:08,800 Speaker 13: is coming from. 512 00:26:08,520 --> 00:26:10,840 Speaker 8: The fact that it's been a very slow return to 513 00:26:10,880 --> 00:26:11,600 Speaker 8: the office. 514 00:26:12,000 --> 00:26:15,159 Speaker 6: If we start inching towards five dollars a gallon, what 515 00:26:15,200 --> 00:26:17,879 Speaker 6: do you expect the White House to do? You know 516 00:26:17,960 --> 00:26:20,760 Speaker 6: how important gas lean is to them. You have been 517 00:26:20,800 --> 00:26:23,040 Speaker 6: a guest at the White House when ron Klain was 518 00:26:23,119 --> 00:26:25,280 Speaker 6: Chief of Staff and they were obsessed with this when 519 00:26:25,840 --> 00:26:29,239 Speaker 6: prices were spiking. What do you expect the administration to do? 520 00:26:30,400 --> 00:26:31,919 Speaker 8: Well, they don't have a whole lot of levers. 521 00:26:32,000 --> 00:26:34,040 Speaker 13: I know that every American thinks that the White House 522 00:26:34,080 --> 00:26:36,520 Speaker 13: has some sort of huge lever in the White House, 523 00:26:36,520 --> 00:26:39,359 Speaker 13: the Oval Office that controls prices, but there's not a 524 00:26:39,359 --> 00:26:41,760 Speaker 13: whole lot. I mean, the President can offer things like 525 00:26:42,359 --> 00:26:44,760 Speaker 13: a lot of eighty eight or e fifteen all summer. 526 00:26:44,800 --> 00:26:46,840 Speaker 8: That's what he's done, right, that's going to be available 527 00:26:46,840 --> 00:26:48,560 Speaker 8: through waivers via the EPA. 528 00:26:48,960 --> 00:26:51,120 Speaker 13: But the only other thing really is just to kind 529 00:26:51,119 --> 00:26:53,240 Speaker 13: of hope and pray that hurricane season isn't going to 530 00:26:53,240 --> 00:26:56,000 Speaker 13: be as bad as they expect. Now again, some of 531 00:26:56,040 --> 00:26:58,720 Speaker 13: the issues with summer gasoline prices come from the fact 532 00:26:58,720 --> 00:27:01,439 Speaker 13: that the US is very fragmented when it comes to 533 00:27:01,480 --> 00:27:03,879 Speaker 13: these summer blends that everyone's heard of. To give you 534 00:27:03,880 --> 00:27:07,040 Speaker 13: one example, refineries have been struggling here in the Chicago 535 00:27:07,119 --> 00:27:07,679 Speaker 13: land area. 536 00:27:07,960 --> 00:27:09,080 Speaker 8: Chicago uses were. 537 00:27:08,960 --> 00:27:12,760 Speaker 13: Formulated gasoline, which is different than downstate Illinois, which is 538 00:27:12,800 --> 00:27:16,399 Speaker 13: different than Detroit. So there's all these different localized blends 539 00:27:16,440 --> 00:27:18,680 Speaker 13: that the federal government wanted to do something. 540 00:27:18,359 --> 00:27:20,440 Speaker 8: They could really simplify the system. 541 00:27:20,480 --> 00:27:23,600 Speaker 13: I mean, California and Arizona both have their own different blends. 542 00:27:23,640 --> 00:27:25,600 Speaker 8: It's like you get a blend, I get a blend. 543 00:27:25,600 --> 00:27:28,600 Speaker 13: Everyone has different blends, and when refineries go down, that 544 00:27:28,760 --> 00:27:31,880 Speaker 13: becomes problematic to supply all of these various blends. 545 00:27:31,880 --> 00:27:32,880 Speaker 8: So aside from. 546 00:27:32,680 --> 00:27:36,320 Speaker 13: That, I mean, the White House already shutting down now 547 00:27:36,359 --> 00:27:38,840 Speaker 13: the Northeast Strategic Gasoline Reserve. 548 00:27:38,920 --> 00:27:41,720 Speaker 8: Of course that was mandated by Congress. Trump tried to 549 00:27:41,720 --> 00:27:43,919 Speaker 8: do it in twenty twenty. But even that is not 550 00:27:44,000 --> 00:27:45,840 Speaker 8: going to really move the needle. So the White House 551 00:27:45,920 --> 00:27:47,160 Speaker 8: is just kind of along for. 552 00:27:47,160 --> 00:27:51,680 Speaker 13: The ride here, you know, hoping that OPEC will continue 553 00:27:51,720 --> 00:27:54,040 Speaker 13: the status quo and oil prices will continue to be 554 00:27:54,119 --> 00:27:55,880 Speaker 13: under eighty What do you think could. 555 00:27:55,680 --> 00:28:01,240 Speaker 6: Be a bigger impact this summer, natural disasters or geopolitics. 556 00:28:01,280 --> 00:28:03,600 Speaker 6: Giving me of two hot wars, one in the Middle 557 00:28:03,640 --> 00:28:07,240 Speaker 6: East and of course in Ukraine, I think. 558 00:28:07,080 --> 00:28:08,639 Speaker 13: Without a doubt, I think the weather is going to 559 00:28:08,680 --> 00:28:10,040 Speaker 13: be a bigger factor the Middle East. 560 00:28:10,119 --> 00:28:11,600 Speaker 8: I mean, Iran now. 561 00:28:11,440 --> 00:28:14,919 Speaker 13: Has a lot of its own issues with the helicopter 562 00:28:15,640 --> 00:28:18,200 Speaker 13: and elections coming up, so Iran and Israel. 563 00:28:18,240 --> 00:28:20,000 Speaker 8: I mean, that was something to watch, but even that 564 00:28:20,040 --> 00:28:22,479 Speaker 8: didn't really move the needle. I think oil markets are 565 00:28:22,520 --> 00:28:24,920 Speaker 8: kind of stuck in the suppressive state right. 566 00:28:25,040 --> 00:28:27,359 Speaker 13: OPEK is now saber rattling, They're going to have a 567 00:28:27,400 --> 00:28:31,000 Speaker 13: meeting virtually, and oil prices this morning still under seventy seven. 568 00:28:30,880 --> 00:28:31,600 Speaker 8: Dollars in Burrow. 569 00:28:31,720 --> 00:28:34,960 Speaker 13: So, you know, I think weather's the big wildcard. Nobody 570 00:28:35,000 --> 00:28:37,960 Speaker 13: controls it right, even the Middle East, there's some certainties, 571 00:28:38,000 --> 00:28:39,400 Speaker 13: even if they're unreliable. 572 00:28:39,960 --> 00:28:42,960 Speaker 8: Mother Nature is just completely question marks all over it. 573 00:28:43,000 --> 00:28:45,440 Speaker 8: Will we get a major storm of the Gulf of Mexico. 574 00:28:45,800 --> 00:28:47,920 Speaker 13: Is it going to be a harvey and dump, you know, 575 00:28:48,000 --> 00:28:50,480 Speaker 13: one to two feet of rain on refinery, shutting them down. 576 00:28:50,520 --> 00:28:52,840 Speaker 8: I think that's really the thing for this summer that 577 00:28:52,960 --> 00:28:53,719 Speaker 8: keeps me awake. 578 00:28:54,160 --> 00:28:58,960 Speaker 13: Will hurricane season turn into the dread like everyone's talking about. 579 00:28:58,800 --> 00:29:01,360 Speaker 8: National Weather Service yesterday issuing its most. 580 00:29:01,200 --> 00:29:05,880 Speaker 13: Active early forecast ever for hurricane season, and those sea 581 00:29:05,960 --> 00:29:09,040 Speaker 13: surface temperatures are rising, and it's quite concerning. 582 00:29:09,280 --> 00:29:11,600 Speaker 5: I'll tell you another thing that's keeping people up at night, Patrick, 583 00:29:11,880 --> 00:29:13,760 Speaker 5: who are on their way to travel. It is the 584 00:29:13,800 --> 00:29:17,520 Speaker 5: headline after headline about Boeing and concerns about that plane. 585 00:29:17,560 --> 00:29:20,200 Speaker 5: You couple that with what we're expecting in the airports 586 00:29:20,320 --> 00:29:21,440 Speaker 5: is going to be extremely busy. 587 00:29:21,480 --> 00:29:22,560 Speaker 1: It's going to be chaos. 588 00:29:22,920 --> 00:29:26,560 Speaker 5: Do you see any of that translating into folks more 589 00:29:26,600 --> 00:29:30,080 Speaker 5: wanting to travel via their car rather than going to 590 00:29:30,160 --> 00:29:31,120 Speaker 5: the airport. 591 00:29:31,720 --> 00:29:34,080 Speaker 13: Well, we know Americans have an affinity for their cars, 592 00:29:34,080 --> 00:29:36,600 Speaker 13: And keep in mind also the headlines over that Singapore 593 00:29:36,640 --> 00:29:39,760 Speaker 13: Airlines turbulence is probably getting a lot of attention as well. 594 00:29:39,800 --> 00:29:42,040 Speaker 13: But keep in mind, once you buy those tickets, especially 595 00:29:42,080 --> 00:29:44,040 Speaker 13: with some of these fairs, now you're stuck with it. 596 00:29:44,840 --> 00:29:48,320 Speaker 13: Oftentimes airlines now have those restrictions back in place. But 597 00:29:48,360 --> 00:29:51,280 Speaker 13: I think to your point, Americas still has a love 598 00:29:51,360 --> 00:29:53,480 Speaker 13: obsession with the fact that cars are mobile. 599 00:29:53,560 --> 00:29:55,400 Speaker 8: You can leave whenever you want, you don't have to 600 00:29:55,440 --> 00:29:56,160 Speaker 8: do security. 601 00:29:56,480 --> 00:29:58,880 Speaker 13: So yes, I think Americans of anything you know, that 602 00:29:59,000 --> 00:30:02,240 Speaker 13: haven't yet figured out their travel will probably skew more 603 00:30:02,360 --> 00:30:05,480 Speaker 13: to using their vehicle, especially as summer wears on. 604 00:30:05,640 --> 00:30:07,160 Speaker 8: Gas prices we expect. 605 00:30:06,880 --> 00:30:09,640 Speaker 13: Are going to be highest on Memorial Day, lower for 606 00:30:09,760 --> 00:30:13,560 Speaker 13: July four, and pending Mother Nature, even lower for Labor Day. 607 00:30:13,680 --> 00:30:15,760 Speaker 13: So I think that's probably going to open the door 608 00:30:15,800 --> 00:30:17,760 Speaker 13: for some of those last minute road trips. 609 00:30:18,080 --> 00:30:21,120 Speaker 8: As our survey points out, Memorial Day is the most. 610 00:30:20,880 --> 00:30:23,240 Speaker 13: Traveled holiday, but if you look at July four and 611 00:30:23,320 --> 00:30:25,720 Speaker 13: Labor Day, plenty of people are hitting the road, they 612 00:30:25,800 --> 00:30:28,320 Speaker 13: just haven't planned it yet. And those folks that haven't 613 00:30:28,360 --> 00:30:32,240 Speaker 13: planned ahead are probably going to gravitate towards gasoline consumption. 614 00:30:32,360 --> 00:30:34,360 Speaker 8: So we could see a little bit of a rebound there. 615 00:30:34,680 --> 00:30:36,600 Speaker 3: To your point, pasta, can you put some numbers on 616 00:30:36,640 --> 00:30:38,840 Speaker 3: that in terms of what price you expect things to 617 00:30:38,880 --> 00:30:41,440 Speaker 3: be just heading into Labor Day? 618 00:30:43,360 --> 00:30:46,480 Speaker 8: You know, again wide range of possibilities. 619 00:30:46,520 --> 00:30:49,360 Speaker 13: We have the national average potentially as low as even 620 00:30:49,400 --> 00:30:52,680 Speaker 13: three twenty nine, but as high as three ninety. August 621 00:30:52,800 --> 00:30:55,800 Speaker 13: and September are the months that we have the least 622 00:30:55,840 --> 00:30:58,320 Speaker 13: certainty out of all twelve months that we put our 623 00:30:58,360 --> 00:31:01,400 Speaker 13: forecast together. August is really up in the air. Why 624 00:31:02,000 --> 00:31:04,840 Speaker 13: because you get a lot of late summer demand. Will 625 00:31:04,880 --> 00:31:07,720 Speaker 13: we get hurricane season that's more active before. If we 626 00:31:07,720 --> 00:31:09,840 Speaker 13: don't get any hurricanes, we're probably going to skew to 627 00:31:09,880 --> 00:31:11,800 Speaker 13: the lower part of that forecast range. 628 00:31:11,600 --> 00:31:13,280 Speaker 8: Maybe three point thirty to three point fifty. 629 00:31:13,840 --> 00:31:16,480 Speaker 13: But we've all seen the impact that something like a 630 00:31:16,560 --> 00:31:19,840 Speaker 13: Hurricane Harvey can have on gasoline prices, and we could 631 00:31:19,920 --> 00:31:22,320 Speaker 13: skew to the three eighties and three nineties or like 632 00:31:22,480 --> 00:31:25,680 Speaker 13: last year. You'll remember that a spat of refinery issues 633 00:31:25,920 --> 00:31:29,000 Speaker 13: both the West Coast and the Plane States all at 634 00:31:29,040 --> 00:31:31,840 Speaker 13: once and caused a late summer surge in the national 635 00:31:31,920 --> 00:31:34,800 Speaker 13: average to three ninety a gallon. So we're very mindful 636 00:31:34,800 --> 00:31:35,880 Speaker 13: of what happened last year. 637 00:31:36,040 --> 00:31:37,920 Speaker 3: Patrick, we just have about a minute left. There is 638 00:31:37,920 --> 00:31:41,040 Speaker 3: a theory that the president can just empty the strategic 639 00:31:41,080 --> 00:31:43,640 Speaker 3: petroleum Reserve and drive prices down. 640 00:31:44,200 --> 00:31:45,440 Speaker 1: Is that valid? 641 00:31:47,200 --> 00:31:49,480 Speaker 8: Well, I mean, that's what so many Americans forget about. 642 00:31:49,480 --> 00:31:51,280 Speaker 13: We all stare at the price of oil, right there's 643 00:31:51,280 --> 00:31:53,200 Speaker 13: a lot of couch analysts who say oil is this, 644 00:31:53,280 --> 00:31:55,200 Speaker 13: gasoline should be that, But we all forget about the 645 00:31:55,240 --> 00:31:56,520 Speaker 13: middlement the refinery. 646 00:31:56,600 --> 00:31:57,920 Speaker 8: The thing what we've talked about. 647 00:31:58,120 --> 00:32:01,400 Speaker 13: COVID still remember, has reached us refining capacity. 648 00:32:01,520 --> 00:32:03,640 Speaker 8: So you can have all the oil in the world. 649 00:32:03,720 --> 00:32:06,320 Speaker 8: The spr could be full, you could release the whole thing. 650 00:32:06,840 --> 00:32:09,720 Speaker 13: It doesn't translate to usable products like gasoline, diesel, and 651 00:32:09,760 --> 00:32:10,200 Speaker 13: jet fuel. 652 00:32:10,200 --> 00:32:13,040 Speaker 8: List still is subject to that bottleneck of the refinery. 653 00:32:13,120 --> 00:32:16,040 Speaker 8: So that's where the president is relatively powerless. 654 00:32:16,080 --> 00:32:20,320 Speaker 13: This oil reserve is not going to necessarily equate to 655 00:32:20,400 --> 00:32:22,760 Speaker 13: lower gasoline prices. And keep in mind too, when it 656 00:32:22,800 --> 00:32:25,640 Speaker 13: comes to that gasoline reserve, it then costs two hundred 657 00:32:25,680 --> 00:32:28,080 Speaker 13: million dollars to maintain over the ten years it's been 658 00:32:28,080 --> 00:32:31,160 Speaker 13: in existence. The cost of that gasoline, the street value 659 00:32:31,200 --> 00:32:33,680 Speaker 13: today of that gasoline one hundred and three million so 660 00:32:33,720 --> 00:32:36,400 Speaker 13: it's probably a good thing we're shutting down that gasoline reserve. 661 00:32:36,680 --> 00:32:38,880 Speaker 13: I would point out that's something that even President Trump 662 00:32:38,960 --> 00:32:40,280 Speaker 13: tried to do back in twenty twenty. 663 00:32:40,520 --> 00:32:42,800 Speaker 1: Patrick d'han of gas Buddy, thank you so much. 664 00:32:43,440 --> 00:32:47,000 Speaker 2: This is the Bloomberg Sevendans podcast, bringing you the best 665 00:32:47,000 --> 00:32:50,320 Speaker 2: in markets, economics, angiet politics. You can watch the show 666 00:32:50,400 --> 00:32:53,320 Speaker 2: live on Bloomberg TV weekday mornings from six am to 667 00:32:53,480 --> 00:32:57,160 Speaker 2: nine am Easton. Subscribe to the podcast on Apple, Spotify, 668 00:32:57,360 --> 00:32:59,560 Speaker 2: or anywhere else you listen, and as always on the 669 00:32:59,560 --> 00:33:02,000 Speaker 2: Blueberg Terminal and the bloom Bug Business Out 670 00:33:06,040 --> 00:33:06,480 Speaker 6: M hmm.