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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and am Marie Hortern. Join us each
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Speaker 1: Day joins us now, O day. Wonderful to see you.
Speaker 1: Love having you in the studio.
Speaker 3: Can you talk about just how much in the crystal
Speaker 3: ball discussions that we've been having about artificial intelligence, why
Speaker 3: you think the price action shows we're just not bullish enough?
Speaker 4: Well, I think the market tells us that, right with
Speaker 4: the reaction to the news. The fact that the stock
Speaker 4: is up ten percent on the day tells you it
Speaker 4: was a positive surprise just by definition and so and
Speaker 4: it was. I mean it's super impressive, right, I mean
Speaker 4: you have to admit a tripling of revenue and a sevenfold,
Speaker 4: sevenfold increase in profits year over year. I mean that
Speaker 4: is that that is just you know, it's unheard of,
Speaker 4: and so you have a ten percent move and you
Speaker 4: don't have the rest of the market responding, as was
Speaker 4: discussed just a minute or so ago. But to us,
Speaker 4: what we're believers, right, we are believers that every company,
Speaker 4: every government in the world is going to have to
Speaker 4: participate in the AI age and it's either you participate
Speaker 4: or you lose. And it's that simple. And there's this
Speaker 4: concept which we believe in, which is called sovereign AI
Speaker 4: as an example, which basically states that every country is
Speaker 4: going to want its own AI. So you're just talking
Speaker 4: about just a massive global explosion of demand and you're
Speaker 4: seeing that with the video.
Speaker 1: Although you're seeing it with Nvidia. They're the winner, and
Speaker 1: it's a.
Speaker 3: Question of can they basically rise all boats or is
Speaker 3: it going to be at video game and party and
Speaker 3: only in videos, game and party as they potentially take
Speaker 3: share from AMD, from Intel, from a lot of other
Speaker 3: companies that otherwise might be getting some of these dollars.
Speaker 4: Look, we're believers in what we call the pick and
Speaker 4: shovel thesis of investing in this. Right, we want to
Speaker 4: be in the digital pick and shovel and for that
Speaker 4: that means for us rather semiconductors, okay, because they're needed
Speaker 4: for the whole process. They're the winners of this to
Speaker 4: your point, and whether you know EX company versus Y
Speaker 4: company is a different story. To us, it's quite simple.
Speaker 4: As an investor, we want to be in the pick
Speaker 4: and shovel. So in the pick and shovel in the
Speaker 4: digital age is the semiconductor space, and then the pick
Speaker 4: and shovel in the physical space is the miners. Because
Speaker 4: what's really interesting, and you touched on it with commodities earlier,
Speaker 4: what's really interesting is you're fusing the digital in physical
Speaker 4: worlds through the power demands for the data center buildouts.
Speaker 4: And again I mean I think the CEO of the
Speaker 4: video is a guy you have to pay attention to.
Speaker 4: He is at the forefront of this. He's like evon one.
Speaker 4: Musk was a couple of years ago with evs right.
Speaker 4: He was on the front end of it, and so
Speaker 4: he was seeing what was coming and Musk was right. Okay,
Speaker 4: So now you follow the CEO of Navidia and he's
Speaker 4: talking about the factories of the future. He's talking about
Speaker 4: the data centers being the modern factories of our world
Speaker 4: as we move forward, and they need power. So I'll
Speaker 4: just give you an example. You know, natural gas UNNG
Speaker 4: up forty percent in the last month. Before that, it
Speaker 4: was copper copper because you need copper for the electric
Speaker 4: electrification in the power generation, which again is going to
Speaker 4: be global, every country, every region. So it really feeds
Speaker 4: into our tripolar world. Pieces of regional deepening and regional
Speaker 4: integration in Asia, Europe, and the Americas. And you see it.
Speaker 4: The Europeans are building out AI, the Chinese are building
Speaker 4: out AI, the Americans are building out AI. Everybody has
Speaker 4: to have it, and they have to have it now.
Speaker 4: And then the last point I would make is that,
Speaker 4: and I'm a believer in this idea, is that this
Speaker 4: is going to come much faster. So I respect Ian
Speaker 4: earlier and he was saying with AI, he's not sure
Speaker 4: how it's going to come through. My feeling is that
Speaker 4: the infrastructure for AI has already been built out right.
Speaker 5: Well, can I just defend the in for a moment,
Speaker 5: because part of his thesis was.
Speaker 4: Nothing but silence.
Speaker 5: I mean, come on, John, Yeah, exactly, I'll take the
Speaker 5: combative view. If it's not here, I'll try. My son
Speaker 5: isn't keeping up with it, but my combativeness I'm trying to.
Speaker 4: Okay, No, I'm okay, okay.
Speaker 5: So Ian's argument is basically that it's not going to
Speaker 5: be adopted as soon, specifically with companies, because if you
Speaker 5: think about the Internet boom, you know, everyone and their
Speaker 5: mother could simply sign up to the Worldwide Web, get
Speaker 5: their own website, and then there you go, you take off.
Speaker 5: Integrating AI is a much more complicated and longer process.
Speaker 4: Okay. The pushback is that it took a decade or
Speaker 4: more for the Internet to be built by because every
Speaker 4: piece had to be created from the start. The point
Speaker 4: of the AI age is that it's a layering on.
Speaker 4: The infrastructure is already built out, and so it's going
Speaker 4: to accelerate much much more quickly. So I'm in the
Speaker 4: I'm in the it's going to accelerate much more quickly.
Speaker 4: Camp Ian can be in the other camp. We see
Speaker 4: how it plays out. And I go back to the
Speaker 4: idea that every company is going to have to participate
Speaker 4: in this, every country is going to have to participate this,
Speaker 4: and it's and it's a race, and so the money
Speaker 4: that's being put into this and again talked about fiscal
Speaker 4: earlier a little bit. Interest rates, governments and companies are
Speaker 4: going to spend money on this. Companies are cash rich,
Speaker 4: governments are spending The G seven just came out with
Speaker 4: their outlook or the IMF for fiscal for the next
Speaker 4: through twenty twenty nine, no change, So there is no
Speaker 4: there's no community for significant fiscal cutting. And you have
Speaker 4: the companies also spending. So there's again the video is
Speaker 4: a perfect example. It increased its cap X, it raised
Speaker 4: its civit end, it's got a stock splitch. So there's
Speaker 4: all these things that are happening because they're making so
Speaker 4: much money. They made fifteen billion dollars in a quarter.
Speaker 5: Well, you had Greenspan, for example, back in the nineties
Speaker 5: early on. It's talking about the productivity boost, the paradigm
Speaker 5: shift basically from the Internet age. Do central bankers this
Speaker 5: time around, are they aware of the potential changes to
Speaker 5: the macro landscape that you're talking about and they need
Speaker 5: to start thinking about policy potentially differently because of that.
Speaker 4: Yeah, that's an excellent question. I mean, we're believers and
Speaker 4: what we call the global macro blue sky outlook. So
Speaker 4: twenty twenty three to twenty twenty seven, we see a
Speaker 4: very bullish outcome, and this what we just talked about
Speaker 4: underpins that because it's a We wrote a piece a
Speaker 4: couple of weeks ago called the Age of Investment. We
Speaker 4: are in an age of investment. So twenty ten to
Speaker 4: twenty twenty was monetary policy driven central bankers rule the world.
Speaker 4: Now we're in the space where fiscal policymakers are going
Speaker 4: to rule the world. And again it's a recognition that
Speaker 4: we need sovereign ai we need to pay for it.
Speaker 4: We need climate mitigation, we need to pay for it.
Speaker 4: We need defense spending, we need to pay for it.
Speaker 4: And so all these things are driving, as I say,
Speaker 4: we believe in age of investment, which is going to
Speaker 4: reinforce that productivity gain, which is also being fueled by
Speaker 4: a fact that we're in a shrinkage of the global workforce.
Speaker 4: So demographically, we're in a whole new world which we
Speaker 4: think is going to continue to drive automation, drive robotics,
Speaker 4: and drive the regionalization of things so that you have
Speaker 4: a whole reshaping of the supply chain, which is happening
Speaker 4: in Asia right now with China. I mean, China is
Speaker 4: basically carving out Southeast Asia, which is the fastest growing
Speaker 4: part of the world, and they're going to dominate that space.
Speaker 4: And just look at what they're doing with EVS in
Speaker 4: Thailand and Vietnam, etc. They're setting up a regional production
Speaker 4: supply chain for evs and they're going to own that space.
Speaker 6: Well, I want to ask you about China because so
Speaker 6: much of your thesis, basically the basis is that China
Speaker 6: still integrated with the West. What happens if it's not.
Speaker 4: I don't believe that that's going to happen.
Speaker 6: If people actually think we would see what we saw
Speaker 6: with Russia's invasion of Ukraine. Within a weekend, you had
Speaker 6: companies pulling out their central bank assets locked.
Speaker 4: Yeah, well, I think we've made a queer to China
Speaker 4: that we want to control their ability to rise on
Speaker 4: the tech stack. And so they're now coming back to
Speaker 4: us and saying fine, And I think that's an opportunity
Speaker 4: right what we call our two tech stack thesis, right
Speaker 4: where the Chinese companies are going to dominate China tech sack,
Speaker 4: the American company is going to dominate the American tech stack.
Speaker 4: That's fine. Investors have cotton down to the latter. They
Speaker 4: haven't figured out about the former. Right, so you have
Speaker 4: China tech selling at a massive discount to US tech,
Speaker 4: even though the China tech space is twice as large,
Speaker 4: growing twice as fast. And so for US, we want
Speaker 4: to own the China tech space because that's where the
Speaker 4: opportunity is. And now you're seeing the same thing with evs, right,
Speaker 4: China does not want to. China is integrated into the
Speaker 4: global trade patterns. Right. They have massive trade surplus and
Speaker 4: massive exports. They cannot afford to be cut out of
Speaker 4: the global trade flows. And so you're seeing how you're
Speaker 4: seeing that in the reaction we believe to Biden's announcement
Speaker 4: last week about one hundred percent tariffs on evs. That's huge,
Speaker 4: But yet there's been no nothing from the Chinese because
Speaker 4: they know they need to keep the Europeans on.
Speaker 6: Well, they signaled they're going to potentially.
Speaker 4: Have tax and they want to do it on the
Speaker 4: European side. They need to keep the Europeans on side.
Speaker 4: The Americans, it's kind of already a done deal. So
Speaker 4: they're threatening the Europeans with big tariffs on internal combustion
Speaker 4: engine European exports into China, and that's a massive market
Speaker 4: for the Europeans, and that's where the game is being played.
Speaker 4: But they are I believe China will continue in the economy,
Speaker 4: but the tech stack is being divided up and being
Speaker 4: closed off on both sides.
Speaker 3: J Ploski of TPW Advisory Tripolar World Advisory joining us now,
Speaker 3: I'm so pleased to say nations wide, nationwide. Kathy Bustansik
Speaker 3: and Alberto Galo of Andromeda Capital Management. Kathy, what do
Speaker 3: you make of yesterday's data in particular?
Speaker 1: I really want to start with that and how.
Speaker 3: Much that has sort of forward looking in dictator indications
Speaker 3: of goods prices starting to really, I don't know, go up, reaccelerate.
Speaker 7: Yeah, good morning, Lisa, happy to be with you.
Speaker 8: Yeah, I think you know.
Speaker 7: That's you know, something that's quite interesting because goods prices,
Speaker 7: as you know, have really been the positive factor here
Speaker 7: in the inflation story and have actually the latest data
Speaker 7: sort of suggested when you look at CPI that is
Speaker 7: that we had further deflationary pressures. If that starts to
Speaker 7: temper or we see some uplift, that could really, you know,
Speaker 7: change the story here. Good gasoline prices obviously headline inflation
Speaker 7: very sensitive to that, and the reason that again matters,
Speaker 7: is that we still have this ongoing stickiness in the
Speaker 7: service side of the economy, whether it's core services or
Speaker 7: also looking at rental.
Speaker 1: Inflation and kayathy. This is the reason why people are
Speaker 1: talking about whether.
Speaker 3: There is some sort of restrictiveness currently in the system. Alberto,
Speaker 3: you wrote a fascinating note about this, just how restrictive
Speaker 3: FED policy actually is and how it's sort of, I
Speaker 3: don't know, a mirage that they're using front end of
Speaker 3: the yield curve to try to seem like they're restrictive,
Speaker 3: but they're really not so much. Please explain, because to me,
Speaker 3: this is fascinating at a time where people are pushing
Speaker 3: back their expectations of a rate cut.
Speaker 9: Good morning, Lisa.
Speaker 10: Essentially, what we're talking about is the FED trying to
Speaker 10: perform a magic trick.
Speaker 9: They have focused the audience attention.
Speaker 10: On the front end rate, and you know, they've raised
Speaker 10: front end rates by five hundred basis points.
Speaker 9: But on the other hand, what they're doing.
Speaker 10: Is to reduce in the pace of tapering, and they've
Speaker 10: reduced it by more than expected. So the FED balance
Speaker 10: sheet is still you know, very large, and it hasn't
Speaker 10: really fallen since the since the peak. At the same time,
Speaker 10: there's also a lot of fiscal and there's indirect quy.
Speaker 10: For example, the Bonk term funding program has allowed banks
Speaker 10: to fund cheaply to buy treasuries, so you know, they're
Speaker 10: hiking with one hand, they are not hiking with the other.
Speaker 10: The result is that there is a record loose financial conditions.
Speaker 10: So we definitely don't see any any restrict restrictiveness in
Speaker 10: financial conditions right now unless you are you're a weak
Speaker 10: household and you're funding with credit cards or auto loans,
Speaker 10: so you're depending on the front end rate. But for
Speaker 10: large firms, for whoever funds in the bond market or
Speaker 10: long term mortgage borrowers, funding conditions are still pretty good.
Speaker 10: And that means persistent inflation. It means that there's rates polatility,
Speaker 10: and we are a lot more worried about reacceleration in
Speaker 10: the economy or persistent inflation, you know, hurting the rates market,
Speaker 10: rather than the recession that you know, every economist has
Speaker 10: been thinking about for the past three years.
Speaker 6: Well, Berta, we got a first call from Goldman Sachs
Speaker 6: this morning saying that they now expect to cut to
Speaker 6: be in September. Initially they were talking about. Most recently
Speaker 6: they were talking about July. What do you view in
Speaker 6: terms of the timeline, given what you're saying about the
Speaker 6: policy not being so restrictive.
Speaker 10: I think here the trade is for next year. Yes,
Speaker 10: we might have one cut this year. Our forecus is
Speaker 10: still for zero, but the realities there's still a lot
Speaker 10: of cuts that are priced in for twenty twenty five,
Speaker 10: and I think that is wrong, especially with the outlook.
Speaker 9: That we have for elections.
Speaker 10: You know, we're going to have a lot of physical
Speaker 10: stimulus next year, regardless of who wins. But you know
Speaker 10: there are some scenarios where there's even more physical stimulus
Speaker 10: then the CBO is expecting for next year. So we
Speaker 10: have persistent fiscal and you know, the eighty plus basis
Speaker 10: points cuts that we are seeing in the market for
Speaker 10: next year are not going to happen in our view.
Speaker 10: So yes, we might have a cut, but it's going
Speaker 10: to look like a policy.
Speaker 9: Error in our view.
Speaker 10: And you know, even other central banks are starting to
Speaker 10: change the narrative.
Speaker 9: So we need to learn to live. We'd hire for.
Speaker 10: Longer, and there's a lot of us at a location
Speaker 10: that has been centered around the expectation of lower rates,
Speaker 10: and that's going to have to reprice.
Speaker 6: Kathy, I know you also think cuts could be delayed
Speaker 6: in a certain scenario till twenty twenty five. But Alberta
Speaker 6: there is talking about potentially the fiscal impulse we'll also
Speaker 6: get in twenty twenty five. How much harder is that
Speaker 6: going to make the FED even to cut next year?
Speaker 7: Yeah, you know, I'm not so sure we get a
Speaker 7: lot of physical stimus next year. Certainly if we do,
Speaker 7: then that would delay, you know, or dampen a FED
Speaker 7: ray cuts. But you know, I think, you know, from
Speaker 7: from my perspective, we are seeing some moderation and economic
Speaker 7: activity right now. It's just the first step and there's
Speaker 7: a long ways to go in terms of economic activity
Speaker 7: and also inflation. But we're still hopeful that we do get,
Speaker 7: you know, some further drop in inflation, particularly we think
Speaker 7: rental inflation. But the problem is it may be brief, right.
Speaker 7: It's because we've seen some signs of rental inflation picking
Speaker 7: up and home prices of picking up. The problem is
Speaker 7: there's long lags, right It typically it's about twelve months.
Speaker 7: This time it seems to be longer. But you know,
Speaker 7: so we're hopeful that we do get you know, further
Speaker 7: cooling inflation. I think that's really what matters most for
Speaker 7: the FED, and and I would agree with ROBERTA. There's
Speaker 7: like a tale of two economies going on right now.
Speaker 7: If you can come to capital markets, you're a large corporation,
Speaker 7: you're you're and you're turned out your debt, you're you're
Speaker 7: in a pretty good situation. But if you're small business,
Speaker 7: or if your middle income a household or lower income,
Speaker 7: you're a variable rate borrower, you are feeling the attention.
Speaker 7: I think higher rates have had an impact. Look at
Speaker 7: the housing market. You know, the existing home sales market
Speaker 7: has been essentially stalled.
Speaker 5: And that's potentially part of the reason that small caps,
Speaker 5: for example, haven't kept up with the games gains. Alberto
Speaker 5: in this idea that policy is easy, not just because
Speaker 5: of the fiscal but because of QT two.
Speaker 1: The FED would.
Speaker 5: Say to that that they are slowing the draw down
Speaker 5: of the balance sheet, not because they want to ultimately
Speaker 5: not draw down as much, but it allows them to
Speaker 5: do it for longer and potentially ultimately get to a
Speaker 5: lower level because they can keep drawing down without the
Speaker 5: risk of any financial accident. What would you say to that.
Speaker 10: Well, the first the first phase has been very easy
Speaker 10: for central banks because inflation came down thanks to an
Speaker 10: easing of supply constraints and also we had a very
Speaker 10: strong inflow of immigration of relatively cheap labor. Now these
Speaker 10: one off positives are going to fade, so the first
Speaker 10: phase of this inflation has been much easier. Now it's
Speaker 10: you know, the hard part is what's ahead of us.
Speaker 10: So we have less flow of immigration, and we actually
Speaker 10: have you know, still supply constraints that are persistent, and.
Speaker 9: There are some feedback loops.
Speaker 10: So the idea of keeping the balance sheet very large
Speaker 10: and and you know, making it come down very slowly
Speaker 10: in theory looks good, but in practice what it does
Speaker 10: is that it keeps financial conditions loose for a large
Speaker 10: chunk of the economy. So there's no real tightening for
Speaker 10: large firms, for mortgage borrowers that are long term.
Speaker 9: And so I think that the.
Speaker 10: Result of higher front end but also a persistent physical
Speaker 10: and a persistently large balance sheet as being that financial
Speaker 10: conditions are not as restrictive as the FED thought they
Speaker 10: would be, and the narrative is changing.
Speaker 9: The narative is changing.
Speaker 10: I think that some fat residents are already taking that
Speaker 10: into account, which means that you know, you're not you
Speaker 10: won't be able to do a lot of cuts.
Speaker 9: But the other consequence is that.
Speaker 10: Eventually some central banks will have to choose between price
Speaker 10: stability and financial stability. So it is true that it's
Speaker 10: really good to not cause any issues in the financial market,
Speaker 10: and no one wants it ahead of elections, but you know,
Speaker 10: the mandate is also price stability, and I think that
Speaker 10: there's been a lot of micro management of volatility from
Speaker 10: central banks.
Speaker 9: We see it in the allocation of risk causses.
Speaker 10: We see it in the love for credit and for
Speaker 10: carry that there is in the market right now where
Speaker 10: we're at record tight spreads and investors, you know, are
Speaker 10: essentially ignoring this front end five percent rate because the
Speaker 10: long end is inverted.
Speaker 5: Cassie, would you just say to that that Alberta is
Speaker 5: wrong because it's just a lag that that's actually what
Speaker 5: we're seeing, not that that policy isn't tight enough.
Speaker 8: Well, yeah, I.
Speaker 7: Have subsympathy to Alberto's comments. You know, certainly financial conditions
Speaker 7: are easy. Part of that's because the equity market continues
Speaker 7: to rally, so much, and we do have.
Speaker 8: An inverted curve.
Speaker 7: But long term rates are higher, you know, I think
Speaker 7: in terms of the thing about mortgage borrowers, they're still
Speaker 7: looking at seven percent rates.
Speaker 1: That's quite drag.
Speaker 7: Cony and especially compared where we were. And I think
Speaker 7: some corporations, you know, if they have to come to
Speaker 7: market and roll over their debt, you know they are fine,
Speaker 7: you know, facing higher refinancing costs. But in general, yes,
Speaker 7: I mean, if you're an asset holder and your corporation
Speaker 7: that has a lot of cash and you turned out
Speaker 7: your debt, the short term interest rates are not biting
Speaker 7: as much as the FED had thought previously, and I
Speaker 7: think that is key, and I can see the FED
Speaker 7: holding rates higher for longer, possibly if maybe would raise
Speaker 7: rates higher. So so I do I have sympathy to that.
Speaker 7: I think it just really does depend though on inflation,
Speaker 7: and if we start to see inflation trend lower than
Speaker 7: the FED will have the green light to start cutting rates,
Speaker 7: especial next year.
Speaker 3: On the show, just a couple of minutes ago, we
Speaker 3: were talking about deflation, and we were talking about deflation
Speaker 3: when it comes to gasoline prices in particular. We had
Speaker 3: this discussion around the average price going down to three
Speaker 3: dollars and twenty nine cents from the current three sixty
Speaker 3: one in the United States. Michael McKee still with us, Mike,
Speaker 3: I wanted to talk with you about how important that
Speaker 3: is from an economic perspective, from consumer spending, from what
Speaker 3: this does to the package of household budget that can
Speaker 3: go to other things. How stimulative essentially would it be
Speaker 3: if gasoline prices go down significantly.
Speaker 11: Well, the change that we've seen so far isn't that significant.
Speaker 11: What you usually see in terms of gasoline prices is
Speaker 11: when they go over the previous high. That's when people
Speaker 11: start to pull back and get nervous because it's something
Speaker 11: that they really notice.
Speaker 12: Slight changes ten twenty cents either way. They bothered more
Speaker 12: on the upside, But it hasn't had an impact overall
Speaker 12: on spending in a while because gas prices have been
Speaker 12: sort of in this range for some time.
Speaker 3: Well, this is a reason why, Kathy, a lot of
Speaker 3: people were looking at this expectation that we were going
Speaker 3: to end up with a really crimped consumer where you
Speaker 3: had savings running out and you had some of these
Speaker 3: inflationary pressures. People talking about a commodity shock, None of
Speaker 3: it materialized.
Speaker 1: So where are we on that.
Speaker 3: Do we have a consumer that has run out of
Speaker 3: savings and is increasingly strapped, or do we have a
Speaker 3: consumer that can tap leverage, that has plenty of capacity
Speaker 3: and particularly at the higher end, still tons of money.
Speaker 7: So I would say one of the former camp Lisa,
Speaker 7: that I do think you know, large portions of the
Speaker 7: consumer sector is tapped out. They have run down, you know,
Speaker 7: the two trillion worth of pandemic related savings. They've ramped
Speaker 7: up consumer credit card use, right, and we're seeing the
Speaker 7: look at the New York Fed Reserve survey, ten percent
Speaker 7: of credit card folders are now seriously delinquent. And you
Speaker 7: see that also with auto loans delinquency. You typically don't
Speaker 7: see that when the unemployment rate is, you know, less
Speaker 7: than four percent. That's usually a recessionary sign. So I
Speaker 7: do think we're hitting some roadblocks to the consumer. But
Speaker 7: what's going to matter most is employment growth and wage growth.
Speaker 8: Right.
Speaker 7: I think now the consumer is really dependent on current
Speaker 7: income stream to fund spending, and the savings rate to
Speaker 7: three point two percent, there's not a lot of extra
Speaker 7: buffer there for the consumer to run things down.
Speaker 1: A verto final word, I think there's some weakness.
Speaker 10: There's a little bit of cracks opening across the weakest
Speaker 10: part of the employment market and the credit market too,
Speaker 10: but it's not enough to create the conditions for a
Speaker 10: lot of cuts. And in the meantime, outside of the US,
Speaker 10: we see China stimulating europe spending, so you know, global
Speaker 10: financial conditions are very loose.
Speaker 9: Commodity prices are going up.
Speaker 10: You know, we're still, you know, much more worried about
Speaker 10: the right tail, so things going to well versus.
Speaker 9: The left tail, which is the typical recession rate.
Speaker 10: So you know, we're going to see more ball in
Speaker 10: rates and maybe we'll retest the highs in yos throughout the.
Speaker 1: Year, nationswide.
Speaker 3: Kathy Mistatzik and Alberto Gallo of Andromeda Capital Management, both.
Speaker 1: Of you, thank you so much.
Speaker 3: A survey from gas Buddy saying sixty percent of Americans
Speaker 3: are planning a road trip over this Memorial Day weekend.
Speaker 3: Other people are going to be flying, and they're going
Speaker 3: to be going to the airport. Patrick Jahan of gas
Speaker 3: Buddy writing this, well, Americans gripe about the cost of gasoline,
Speaker 3: it doesn't seem that too many are going to be
Speaker 3: deterred from hitting the road, great news for those who
Speaker 3: are planning to travel. Motorists are likely to see more
Speaker 3: stations lowering prices to two dollars ninety nine cents per
Speaker 3: gallon or less as a summer wears on, Patrick joins us.
Speaker 1: Now, Patrick, riddle me, this what happened.
Speaker 3: With all the people saying we didn't have enough refineries. Yes,
Speaker 3: we're pumping thirteen million barrels a day, but there's supply
Speaker 3: cuts coming from elsewhere.
Speaker 1: Gas prices are.
Speaker 3: Going to skyrocket during the busiest driving season of the year.
Speaker 1: Why do you think that's not true.
Speaker 13: Well, we've gotten a lot more breathing room here over
Speaker 13: the last six to twelve months or so. It hasn't
Speaker 13: been the US refining capacity, but there have been some
Speaker 13: global additions.
Speaker 8: I would point out, though, I think this year and
Speaker 8: kind of the post COVID world, a lot of Americans
Speaker 8: hit the road in twenty twenty two.
Speaker 13: That's why gas prices did skyrocket over five dollars a gallon.
Speaker 8: Things cooled off last summer.
Speaker 13: A lot of folks hit the road last summer, But
Speaker 13: I think this summer is also going to skew International
Speaker 13: air travel TSA reporting records. Our gasoline demand data I
Speaker 13: just looked at it did shoot up for yesterday about
Speaker 13: eleven point seven percent rise from Thursday prior.
Speaker 8: So we are starting to see Americans fill their tanks.
Speaker 8: But I don't think gasoline.
Speaker 13: Demand is going to be at record levels though a
Speaker 13: lot of folks are going to be hitting the road
Speaker 13: or traveling, they may be doing so via air. Of course,
Speaker 13: the Eedy transition is part of that discussion as well,
Speaker 13: although that has slowed down no matter.
Speaker 8: A lot of Americans hit the road this memorial there.
Speaker 3: So Patrick, let's just sit on that for a second,
Speaker 3: because some people do say this is the sort of
Speaker 3: understated aspect of demand in the gasoline market, that more
Speaker 3: people have more efficient vehicles, even if it's not electric vehicles,
Speaker 3: it could be hybrids, it could be just cars that
Speaker 3: get better mileage prefer their gas. How much is that
Speaker 3: a factor of demand for the gasoline.
Speaker 8: Well, probably a notable one.
Speaker 13: You know, you talk about the EBU transition where people
Speaker 13: completely ditch gasoline. That's probably a small but rising part
Speaker 13: of the conversation, especially in areas like California that are
Speaker 13: looking and pushing incentives for Americans.
Speaker 8: To move into those vehicles.
Speaker 13: But as you mentioned, look at manufacturers how they've skewed
Speaker 13: to plug in hybrid electric vehicles or mild hybrids. A
Speaker 13: lot of that, I mean five dollars gasoline. Americans when
Speaker 13: they buy a new vehicle often have the memory of
Speaker 13: those gas prices, and you know a vehicle, buying one
Speaker 13: is a long commitment, and so a lot of Americans
Speaker 13: have been looking at some of those more fuel efficient
Speaker 13: options in the last couple of years. Keep in mind too,
Speaker 13: that like myself at this moment, work from home is
Speaker 13: still a thing. A lot of Americans still doing that,
Speaker 13: and that's probably where some of this drop in consumption
Speaker 13: is coming from.
Speaker 8: The fact that it's been a very slow return to
Speaker 8: the office.
Speaker 6: If we start inching towards five dollars a gallon, what
Speaker 6: do you expect the White House to do? You know
Speaker 6: how important gas lean is to them. You have been
Speaker 6: a guest at the White House when ron Klain was
Speaker 6: Chief of Staff and they were obsessed with this when
Speaker 6: prices were spiking. What do you expect the administration to do?
Speaker 8: Well, they don't have a whole lot of levers.
Speaker 13: I know that every American thinks that the White House
Speaker 13: has some sort of huge lever in the White House,
Speaker 13: the Oval Office that controls prices, but there's not a
Speaker 13: whole lot. I mean, the President can offer things like
Speaker 13: a lot of eighty eight or e fifteen all summer.
Speaker 8: That's what he's done, right, that's going to be available
Speaker 8: through waivers via the EPA.
Speaker 13: But the only other thing really is just to kind
Speaker 13: of hope and pray that hurricane season isn't going to
Speaker 13: be as bad as they expect. Now again, some of
Speaker 13: the issues with summer gasoline prices come from the fact
Speaker 13: that the US is very fragmented when it comes to
Speaker 13: these summer blends that everyone's heard of. To give you
Speaker 13: one example, refineries have been struggling here in the Chicago
Speaker 13: land area.
Speaker 8: Chicago uses were.
Speaker 13: Formulated gasoline, which is different than downstate Illinois, which is
Speaker 13: different than Detroit. So there's all these different localized blends
Speaker 13: that the federal government wanted to do something.
Speaker 8: They could really simplify the system.
Speaker 13: I mean, California and Arizona both have their own different blends.
Speaker 8: It's like you get a blend, I get a blend.
Speaker 13: Everyone has different blends, and when refineries go down, that
Speaker 13: becomes problematic to supply all of these various blends.
Speaker 8: So aside from.
Speaker 13: That, I mean, the White House already shutting down now
Speaker 13: the Northeast Strategic Gasoline Reserve.
Speaker 8: Of course that was mandated by Congress. Trump tried to
Speaker 8: do it in twenty twenty. But even that is not
Speaker 8: going to really move the needle. So the White House
Speaker 8: is just kind of along for.
Speaker 13: The ride here, you know, hoping that OPEC will continue
Speaker 13: the status quo and oil prices will continue to be
Speaker 13: under eighty What do you think could.
Speaker 6: Be a bigger impact this summer, natural disasters or geopolitics.
Speaker 6: Giving me of two hot wars, one in the Middle
Speaker 6: East and of course in Ukraine, I think.
Speaker 13: Without a doubt, I think the weather is going to
Speaker 13: be a bigger factor the Middle East.
Speaker 8: I mean, Iran now.
Speaker 13: Has a lot of its own issues with the helicopter
Speaker 13: and elections coming up, so Iran and Israel.
Speaker 8: I mean, that was something to watch, but even that
Speaker 8: didn't really move the needle. I think oil markets are
Speaker 8: kind of stuck in the suppressive state right.
Speaker 13: OPEK is now saber rattling, They're going to have a
Speaker 13: meeting virtually, and oil prices this morning still under seventy seven.
Speaker 8: Dollars in Burrow.
Speaker 13: So, you know, I think weather's the big wildcard. Nobody
Speaker 13: controls it right, even the Middle East, there's some certainties,
Speaker 13: even if they're unreliable.
Speaker 8: Mother Nature is just completely question marks all over it.
Speaker 8: Will we get a major storm of the Gulf of Mexico.
Speaker 13: Is it going to be a harvey and dump, you know,
Speaker 13: one to two feet of rain on refinery, shutting them down.
Speaker 8: I think that's really the thing for this summer that
Speaker 8: keeps me awake.
Speaker 13: Will hurricane season turn into the dread like everyone's talking about.
Speaker 8: National Weather Service yesterday issuing its most.
Speaker 13: Active early forecast ever for hurricane season, and those sea
Speaker 13: surface temperatures are rising, and it's quite concerning.
Speaker 5: I'll tell you another thing that's keeping people up at night, Patrick,
Speaker 5: who are on their way to travel. It is the
Speaker 5: headline after headline about Boeing and concerns about that plane.
Speaker 5: You couple that with what we're expecting in the airports
Speaker 5: is going to be extremely busy.
Speaker 1: It's going to be chaos.
Speaker 5: Do you see any of that translating into folks more
Speaker 5: wanting to travel via their car rather than going to
Speaker 5: the airport.
Speaker 13: Well, we know Americans have an affinity for their cars,
Speaker 13: And keep in mind also the headlines over that Singapore
Speaker 13: Airlines turbulence is probably getting a lot of attention as well.
Speaker 13: But keep in mind, once you buy those tickets, especially
Speaker 13: with some of these fairs, now you're stuck with it.
Speaker 13: Oftentimes airlines now have those restrictions back in place. But
Speaker 13: I think to your point, Americas still has a love
Speaker 13: obsession with the fact that cars are mobile.
Speaker 8: You can leave whenever you want, you don't have to
Speaker 8: do security.
Speaker 13: So yes, I think Americans of anything you know, that
Speaker 13: haven't yet figured out their travel will probably skew more
Speaker 13: to using their vehicle, especially as summer wears on.
Speaker 8: Gas prices we expect.
Speaker 13: Are going to be highest on Memorial Day, lower for
Speaker 13: July four, and pending Mother Nature, even lower for Labor Day.
Speaker 13: So I think that's probably going to open the door
Speaker 13: for some of those last minute road trips.
Speaker 8: As our survey points out, Memorial Day is the most.
Speaker 13: Traveled holiday, but if you look at July four and
Speaker 13: Labor Day, plenty of people are hitting the road, they
Speaker 13: just haven't planned it yet. And those folks that haven't
Speaker 13: planned ahead are probably going to gravitate towards gasoline consumption.
Speaker 8: So we could see a little bit of a rebound there.
Speaker 3: To your point, pasta, can you put some numbers on
Speaker 3: that in terms of what price you expect things to
Speaker 3: be just heading into Labor Day?
Speaker 8: You know, again wide range of possibilities.
Speaker 13: We have the national average potentially as low as even
Speaker 13: three twenty nine, but as high as three ninety. August
Speaker 13: and September are the months that we have the least
Speaker 13: certainty out of all twelve months that we put our
Speaker 13: forecast together. August is really up in the air. Why
Speaker 13: because you get a lot of late summer demand. Will
Speaker 13: we get hurricane season that's more active before. If we
Speaker 13: don't get any hurricanes, we're probably going to skew to
Speaker 13: the lower part of that forecast range.
Speaker 8: Maybe three point thirty to three point fifty.
Speaker 13: But we've all seen the impact that something like a
Speaker 13: Hurricane Harvey can have on gasoline prices, and we could
Speaker 13: skew to the three eighties and three nineties or like
Speaker 13: last year. You'll remember that a spat of refinery issues
Speaker 13: both the West Coast and the Plane States all at
Speaker 13: once and caused a late summer surge in the national
Speaker 13: average to three ninety a gallon. So we're very mindful
Speaker 13: of what happened last year.
Speaker 3: Patrick, we just have about a minute left. There is
Speaker 3: a theory that the president can just empty the strategic
Speaker 3: petroleum Reserve and drive prices down.
Speaker 1: Is that valid?
Speaker 8: Well, I mean, that's what so many Americans forget about.
Speaker 13: We all stare at the price of oil, right there's
Speaker 13: a lot of couch analysts who say oil is this,
Speaker 13: gasoline should be that, But we all forget about the
Speaker 13: middlement the refinery.
Speaker 8: The thing what we've talked about.
Speaker 13: COVID still remember, has reached us refining capacity.
Speaker 8: So you can have all the oil in the world.
Speaker 8: The spr could be full, you could release the whole thing.
Speaker 13: It doesn't translate to usable products like gasoline, diesel, and
Speaker 13: jet fuel.
Speaker 8: List still is subject to that bottleneck of the refinery.
Speaker 8: So that's where the president is relatively powerless.
Speaker 13: This oil reserve is not going to necessarily equate to
Speaker 13: lower gasoline prices. And keep in mind too, when it
Speaker 13: comes to that gasoline reserve, it then costs two hundred
Speaker 13: million dollars to maintain over the ten years it's been
Speaker 13: in existence. The cost of that gasoline, the street value
Speaker 13: today of that gasoline one hundred and three million so
Speaker 13: it's probably a good thing we're shutting down that gasoline reserve.
Speaker 13: I would point out that's something that even President Trump
Speaker 13: tried to do back in twenty twenty.
Speaker 1: Patrick d'han of gas Buddy, thank you so much.
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Speaker 6: M hmm.