1 00:00:00,080 --> 00:00:02,840 Speaker 1: We bring you news and analysis every day on the 2 00:00:02,880 --> 00:00:06,840 Speaker 1: Bloomberg Surveillance Podcast. But now you can get the latest 3 00:00:06,880 --> 00:00:11,639 Speaker 1: news on demand whenever you want. Subscribe to Bloomberg News 4 00:00:11,640 --> 00:00:14,400 Speaker 1: Now to get the latest headlines at the click of 5 00:00:14,440 --> 00:00:18,880 Speaker 1: a button. Get informed on your schedule. You can listen 6 00:00:18,960 --> 00:00:22,720 Speaker 1: and subscribe to Bloomberg News Now on the Bloomberg Business App, 7 00:00:22,760 --> 00:00:27,720 Speaker 1: Bloomberg dot Com plus Apple, Spotify, and anywhere else you 8 00:00:27,800 --> 00:00:35,479 Speaker 1: get your podcasts. Search Bloomberg News Now and subscribe today. 9 00:00:37,760 --> 00:00:41,080 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 10 00:00:41,120 --> 00:00:44,960 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 11 00:00:45,000 --> 00:00:49,480 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 12 00:00:49,880 --> 00:00:54,720 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 13 00:00:54,920 --> 00:00:59,200 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 14 00:00:59,240 --> 00:01:02,920 Speaker 1: the Bloomberg Criminal and the Bloomberg Business App. There are 15 00:01:03,040 --> 00:01:06,880 Speaker 1: strikes across land. There is kaiser on the West Coast. 16 00:01:07,520 --> 00:01:11,200 Speaker 1: They're nurses and others, radiologists, I believe in others. There 17 00:01:11,240 --> 00:01:15,000 Speaker 1: are auto workers in Detroit and Sundry others. Within this 18 00:01:15,120 --> 00:01:18,399 Speaker 1: labor report an important time to speak to the acting 19 00:01:18,520 --> 00:01:21,120 Speaker 1: Labor Secretary. Here is John Ferroh. 20 00:01:21,200 --> 00:01:24,040 Speaker 2: Joining us now from Washington is JUDYSU, the acting US 21 00:01:24,120 --> 00:01:27,280 Speaker 2: Secretary of Labor. Judys wonderfully catch up with you. A 22 00:01:27,280 --> 00:01:29,959 Speaker 2: hot labor market report at a time where the unions 23 00:01:29,959 --> 00:01:31,560 Speaker 2: seem to have a lot of leverage. So let's go 24 00:01:31,600 --> 00:01:35,440 Speaker 2: straight there. What's your latest read on the UAW negotiations. 25 00:01:36,840 --> 00:01:39,640 Speaker 3: Well, the parties are at the table. They continue to negotiate. 26 00:01:40,520 --> 00:01:43,680 Speaker 3: The President has made very clear something I believe in too, 27 00:01:43,880 --> 00:01:46,520 Speaker 3: that when there are record corporate profits, there should be 28 00:01:47,000 --> 00:01:51,080 Speaker 3: record contracts for working people. And that's what workers are 29 00:01:51,080 --> 00:01:55,200 Speaker 3: fighting for. So the negotiations continue and I believe that 30 00:01:55,240 --> 00:01:56,280 Speaker 3: the parties will get there. 31 00:01:56,400 --> 00:01:59,400 Speaker 2: Are you getting access to both parties to have negotiated settlement? 32 00:02:00,320 --> 00:02:01,880 Speaker 4: Yeah, we're talking to both parties. 33 00:02:01,920 --> 00:02:05,040 Speaker 3: I mean again, the collective bargaining process is about the 34 00:02:05,080 --> 00:02:10,079 Speaker 3: parties themselves coming together, working through their issues, finding common 35 00:02:10,080 --> 00:02:13,680 Speaker 3: ground and win win solutions. We support that in every 36 00:02:13,720 --> 00:02:16,040 Speaker 3: way that we can, and we are continuing to talk 37 00:02:16,080 --> 00:02:18,520 Speaker 3: to the parties in that particular situation. 38 00:02:18,520 --> 00:02:21,120 Speaker 2: What have you heard recently about current demands from UAW. 39 00:02:21,320 --> 00:02:23,600 Speaker 2: We understand that wage de balands have come down from 40 00:02:23,639 --> 00:02:26,520 Speaker 2: forty closer to thirty is that you'll read on things. 41 00:02:27,560 --> 00:02:30,120 Speaker 3: I mean, and the negotiation is always about movement on 42 00:02:30,240 --> 00:02:33,960 Speaker 3: both sides at this point. You know, I think it's 43 00:02:34,000 --> 00:02:36,440 Speaker 3: always hard to know exactly where something will land. I 44 00:02:36,440 --> 00:02:39,320 Speaker 3: think as long as they're talking to each other, that 45 00:02:39,480 --> 00:02:42,040 Speaker 3: is positive, and that is what is happening. 46 00:02:42,160 --> 00:02:44,920 Speaker 2: You're sensing the gap is closing, the spread is narrowed. 47 00:02:46,280 --> 00:02:48,160 Speaker 4: I'll say it this way. You know, I've seen this 48 00:02:48,240 --> 00:02:48,720 Speaker 4: a lot. 49 00:02:48,840 --> 00:02:51,000 Speaker 3: I think that the parties always seem like they're far 50 00:02:51,040 --> 00:02:53,520 Speaker 3: apart until they're not. So that does require it always 51 00:02:53,560 --> 00:02:57,600 Speaker 3: requires movement, and I think the continued engagement is a 52 00:02:57,639 --> 00:03:01,519 Speaker 3: positive thing, and it's part of the reflection of President 53 00:03:01,600 --> 00:03:04,639 Speaker 3: Biden and this administration's commitment to workers getting their fair 54 00:03:04,680 --> 00:03:06,960 Speaker 3: share in an economy that is doing really well. 55 00:03:07,040 --> 00:03:09,480 Speaker 2: We also have haalthcast strikes as well. I understand you've 56 00:03:09,480 --> 00:03:13,480 Speaker 2: met leadership from both sides. Jenny, How different is that 57 00:03:13,520 --> 00:03:15,880 Speaker 2: particular strike? What do you think is going on there? 58 00:03:17,200 --> 00:03:20,400 Speaker 3: I mean, every strike has its unique issues, right every 59 00:03:20,840 --> 00:03:25,440 Speaker 3: you know, the industries are different, the specific demands are different. 60 00:03:25,800 --> 00:03:28,959 Speaker 4: But I think at the bottom line is that we are. 61 00:03:28,880 --> 00:03:34,920 Speaker 3: Seeing a resurgence in worker power in support for unions 62 00:03:34,960 --> 00:03:39,160 Speaker 3: in the economy and for working people demanding their fair share, 63 00:03:39,280 --> 00:03:44,080 Speaker 3: saying you know enough of the disparities between what frontline 64 00:03:44,120 --> 00:03:47,640 Speaker 3: workers make and what CEOs make, making sure that there 65 00:03:47,760 --> 00:03:50,280 Speaker 3: is an opportunity for workers to. 66 00:03:51,880 --> 00:03:56,280 Speaker 4: Improve their working conditions and live stable lives. 67 00:03:56,480 --> 00:03:59,520 Speaker 3: Is this is not just an accident in a Biden 68 00:03:59,560 --> 00:04:02,720 Speaker 3: Harris administration. It is very much a deliberate part of 69 00:04:02,760 --> 00:04:05,600 Speaker 3: how we think a strong economy and a strong country. 70 00:04:05,280 --> 00:04:08,240 Speaker 5: Works, Madam Secretary, as you rightly said, we are seeing 71 00:04:08,280 --> 00:04:12,440 Speaker 5: a shift back in bargaining power towards labor after decades 72 00:04:12,560 --> 00:04:15,720 Speaker 5: where it went the other way. That's being reflected in 73 00:04:15,760 --> 00:04:20,960 Speaker 5: the spike higher in number of days of strikes throughout 74 00:04:21,000 --> 00:04:24,560 Speaker 5: the economy. Should we expect that number to go even higher? 75 00:04:26,360 --> 00:04:32,120 Speaker 3: I think it also reflects really a record contract results. Right, 76 00:04:32,160 --> 00:04:36,000 Speaker 3: So we've seen from the ports on the West Coast 77 00:04:36,920 --> 00:04:42,040 Speaker 3: to the teamsters and ups, really results that demonstrate workers 78 00:04:42,080 --> 00:04:47,159 Speaker 3: getting more in wages and being forced over time, dealing 79 00:04:47,200 --> 00:04:52,120 Speaker 3: with other specific issues within certain industries or automation and 80 00:04:52,160 --> 00:04:57,200 Speaker 3: the like, addressing conditions like heat and other kinds of 81 00:04:57,240 --> 00:05:00,240 Speaker 3: health and safety issues. So I think those are are 82 00:05:00,360 --> 00:05:03,000 Speaker 3: the big results, and some of them we're talking about. 83 00:05:03,040 --> 00:05:04,680 Speaker 3: You know, we don't talk about them as much, but 84 00:05:04,720 --> 00:05:08,120 Speaker 3: there are you know, graduate workers who have gone on 85 00:05:08,160 --> 00:05:08,960 Speaker 3: strike for brief. 86 00:05:08,800 --> 00:05:10,840 Speaker 4: Periods and gotten contracts that they want. 87 00:05:10,960 --> 00:05:13,520 Speaker 3: So I don't know what the average number of days is, 88 00:05:13,560 --> 00:05:16,320 Speaker 3: but I do know that workers. 89 00:05:16,040 --> 00:05:18,479 Speaker 4: Coming to the table, being able to have the right to. 90 00:05:20,160 --> 00:05:22,719 Speaker 3: Demand their fair share is something that has been positive 91 00:05:22,760 --> 00:05:25,240 Speaker 3: for workers and is very much part of the strong 92 00:05:25,360 --> 00:05:26,840 Speaker 3: economy that we've been talking about. 93 00:05:27,040 --> 00:05:29,599 Speaker 4: And the jobs report reflects this, and yet. 94 00:05:29,400 --> 00:05:32,520 Speaker 5: We have not seen that in the numbers on earnings. 95 00:05:32,680 --> 00:05:34,880 Speaker 5: So is it just a lag effect. Are we going 96 00:05:34,960 --> 00:05:37,159 Speaker 5: to see it going forward, or is that something else 97 00:05:37,200 --> 00:05:41,240 Speaker 5: going on in the economy that's offsetting those gains that 98 00:05:41,240 --> 00:05:42,479 Speaker 5: you talked about for workers. 99 00:05:43,320 --> 00:05:45,279 Speaker 4: Yeah, so earnings are up a bit. 100 00:05:46,360 --> 00:05:51,400 Speaker 3: You know, we definitely especially see that among lower wage workers. 101 00:05:51,200 --> 00:05:54,360 Speaker 4: Which is part of this idea that you know, the. 102 00:05:54,120 --> 00:05:56,279 Speaker 3: President has said, We're going to build an economy that 103 00:05:56,400 --> 00:05:58,800 Speaker 3: leaves no one behind, that starts by looking at who's 104 00:05:58,839 --> 00:06:00,200 Speaker 3: been left behind in the past. 105 00:06:00,560 --> 00:06:03,160 Speaker 4: And to the extent that those lower wage. 106 00:06:02,800 --> 00:06:07,239 Speaker 3: Workers are seeing average gains that are growing and also 107 00:06:07,320 --> 00:06:10,520 Speaker 3: that are higher than inflation, means that workers have more 108 00:06:10,560 --> 00:06:13,360 Speaker 3: money in their pockets more to spend in their local economies. 109 00:06:13,440 --> 00:06:16,440 Speaker 3: That's also partly fueling the other effects of the jobs report, 110 00:06:16,480 --> 00:06:20,520 Speaker 3: which is more job growth in leision, hospitality, for example. 111 00:06:20,880 --> 00:06:23,880 Speaker 3: All of these taken together, along with a historically low 112 00:06:23,920 --> 00:06:26,880 Speaker 3: unemployment rate still under four percent for over a year 113 00:06:26,920 --> 00:06:29,520 Speaker 3: and a half, the longest stretch of the nineteen sixties, 114 00:06:29,880 --> 00:06:33,360 Speaker 3: all signs of this economy is a place you know, yeah, 115 00:06:33,839 --> 00:06:37,040 Speaker 3: is doing well because of good economic policies and workers 116 00:06:37,040 --> 00:06:37,920 Speaker 3: having a seat at the table. 117 00:06:38,000 --> 00:06:40,920 Speaker 2: Let's talk about those policies. There is something really peculiar 118 00:06:40,920 --> 00:06:42,640 Speaker 2: going on at the moment. If you think about what's 119 00:06:42,640 --> 00:06:45,400 Speaker 2: happening in the picket line. They have serious concerns about 120 00:06:45,400 --> 00:06:48,680 Speaker 2: the ev transition and their participation in it. A transition 121 00:06:48,720 --> 00:06:52,000 Speaker 2: that you are subsidizing. Something really odd from my perspective, 122 00:06:52,000 --> 00:06:54,200 Speaker 2: and I'd love some clarity from you on it. Why 123 00:06:54,240 --> 00:06:58,320 Speaker 2: is the government offering rich people credits to buy expensive cars. 124 00:07:00,160 --> 00:07:00,960 Speaker 4: A couple of things. 125 00:07:02,040 --> 00:07:06,560 Speaker 3: There is widespread support in the country for tax credits 126 00:07:06,560 --> 00:07:09,720 Speaker 3: that will help to bring manufacturing jobs to the United States. 127 00:07:10,240 --> 00:07:12,160 Speaker 3: That's part of what we're trying to do. The other 128 00:07:12,400 --> 00:07:14,600 Speaker 3: is that we do have a climate crisis. Right We 129 00:07:14,680 --> 00:07:18,400 Speaker 3: saw record heat across the entire country. 130 00:07:18,080 --> 00:07:18,640 Speaker 4: Without a doubt. 131 00:07:18,720 --> 00:07:20,440 Speaker 2: Can I just jump in without a doubt? I totally 132 00:07:20,480 --> 00:07:23,280 Speaker 2: agree with you, But I just think we're conflating solving 133 00:07:23,280 --> 00:07:27,680 Speaker 2: a climate crisis with driving really heavy SUVs that run 134 00:07:27,680 --> 00:07:31,040 Speaker 2: on electricity. Those two things part of the same story, 135 00:07:31,080 --> 00:07:34,040 Speaker 2: because I don't get it. If I'm driving an electrified 136 00:07:34,480 --> 00:07:36,720 Speaker 2: f one point fifty, am I really safe in the planet? 137 00:07:37,880 --> 00:07:38,160 Speaker 4: Right? 138 00:07:38,200 --> 00:07:41,680 Speaker 3: Well, so we could probably have a conversation out about 139 00:07:41,800 --> 00:07:43,520 Speaker 3: personal choices relating to cars. 140 00:07:43,560 --> 00:07:46,520 Speaker 4: I do think as a policy matter, the. 141 00:07:46,360 --> 00:07:52,160 Speaker 3: More that we can invest in industries, in manufacturing, including 142 00:07:52,200 --> 00:07:56,800 Speaker 3: in transportation, that transitions us to a place where we're 143 00:07:56,880 --> 00:07:59,679 Speaker 3: not you know, we're not continue to pollute the planet. 144 00:07:59,760 --> 00:08:00,000 Speaker 4: Right. 145 00:08:00,760 --> 00:08:05,679 Speaker 3: We have a method by which we can both bring 146 00:08:05,760 --> 00:08:07,360 Speaker 3: down emissions. 147 00:08:07,000 --> 00:08:10,080 Speaker 4: And also create good jobs. And the President has always 148 00:08:10,200 --> 00:08:12,960 Speaker 4: said this solve your climate crisis. When he looks at that, 149 00:08:13,280 --> 00:08:16,200 Speaker 4: it's also about creating good jobs, and good union jobs 150 00:08:16,240 --> 00:08:17,600 Speaker 4: in communities that need them the most. 151 00:08:17,640 --> 00:08:20,000 Speaker 3: And we are really focused on making sure that that 152 00:08:20,040 --> 00:08:23,000 Speaker 3: transition does not leave workers behind, and that what's good 153 00:08:23,000 --> 00:08:24,160 Speaker 3: for the climate can be good for. 154 00:08:24,120 --> 00:08:24,760 Speaker 4: Workers as well. 155 00:08:24,880 --> 00:08:28,200 Speaker 2: Jenny appreciate the update. Jenny Say, Acting US Secretary of life. 156 00:08:38,480 --> 00:08:41,640 Speaker 1: This is our interview of this bond carnage. There's no 157 00:08:41,760 --> 00:08:43,520 Speaker 1: question about it. I've said for years at out of 158 00:08:43,520 --> 00:08:48,520 Speaker 1: Brown University, the gentleman from Chicago is our definitive financial economist. 159 00:08:48,559 --> 00:08:51,160 Speaker 1: And that's saying something at Boost School with Lars Hanson, 160 00:08:51,200 --> 00:08:54,559 Speaker 1: Austin Golesby, and Raga Rogen Darkening at the door. He's 161 00:08:54,559 --> 00:08:56,640 Speaker 1: a former Fed governor on this job. Today, we're going 162 00:08:56,679 --> 00:08:59,880 Speaker 1: to rip up the script with Randall Krasner. I am 163 00:09:00,200 --> 00:09:03,719 Speaker 1: so honored you are here with us today. Randy, I'm 164 00:09:03,720 --> 00:09:06,440 Speaker 1: going to go from a nolttle real rate analysis. Let's 165 00:09:06,480 --> 00:09:09,199 Speaker 1: go back to first principles. I never framed a two 166 00:09:09,280 --> 00:09:12,720 Speaker 1: point five zero ten year real yield. Why does the 167 00:09:12,840 --> 00:09:17,240 Speaker 1: real yield matter? And how will that new high real 168 00:09:17,320 --> 00:09:20,160 Speaker 1: yield change our listeners and viewers' lives? 169 00:09:20,640 --> 00:09:23,320 Speaker 6: This, ultimately, it is the inflation adjusted rate. It's the 170 00:09:23,360 --> 00:09:27,240 Speaker 6: real rate you said that matters for thinking about what 171 00:09:27,280 --> 00:09:29,920 Speaker 6: investments firms are going to be willing to make, because 172 00:09:29,920 --> 00:09:35,200 Speaker 6: if prices are going up, then they can and input 173 00:09:35,200 --> 00:09:39,000 Speaker 6: prices are going up, that's one thing. But if you 174 00:09:39,040 --> 00:09:42,400 Speaker 6: adjust for the inflation, so you take out that that 175 00:09:42,520 --> 00:09:45,520 Speaker 6: changes in cost and changes and prices on both sides. 176 00:09:45,760 --> 00:09:47,680 Speaker 6: You've got the real yield, and if that's going up 177 00:09:47,760 --> 00:09:50,280 Speaker 6: very significantly, that means that firms are going to be 178 00:09:50,320 --> 00:09:52,839 Speaker 6: less willing to invest, are they less willing to hire. 179 00:09:53,559 --> 00:09:56,360 Speaker 6: We've also started to see real wages grow, which is 180 00:09:56,400 --> 00:09:59,200 Speaker 6: great for workers, but that's probably at some point going 181 00:09:59,240 --> 00:10:01,920 Speaker 6: to mean a little bit less demand. Obviously not right now. 182 00:10:02,040 --> 00:10:03,320 Speaker 4: Well, that's where I wanted to go. 183 00:10:03,679 --> 00:10:06,400 Speaker 7: What's your reaction as a former FED governor to this 184 00:10:06,480 --> 00:10:09,720 Speaker 7: report that is not only a massive upside surprise almost 185 00:10:09,760 --> 00:10:12,880 Speaker 7: twice as much as what the expectation was, but also 186 00:10:12,920 --> 00:10:15,840 Speaker 7: with an upside revision to the prior month. What would 187 00:10:15,960 --> 00:10:18,319 Speaker 7: you if you were still in the FED do with this? 188 00:10:19,040 --> 00:10:20,680 Speaker 8: So I think look at two pieces. 189 00:10:20,720 --> 00:10:24,200 Speaker 6: One obviously the incredible strength of the labor market continuing 190 00:10:24,240 --> 00:10:28,000 Speaker 6: to be there. But the silver lining is that we 191 00:10:28,080 --> 00:10:31,400 Speaker 6: didn't see a lot of kickup in wages. So I'd 192 00:10:31,400 --> 00:10:33,000 Speaker 6: wanted to get into that a little bit more detail, 193 00:10:33,160 --> 00:10:36,880 Speaker 6: because that's really ultimately what is going to affect costs 194 00:10:36,960 --> 00:10:40,559 Speaker 6: and what's going to drive drive inflation. Maybe I was 195 00:10:40,600 --> 00:10:42,600 Speaker 6: being too harsh and saying there'd be a hardish landing. 196 00:10:42,640 --> 00:10:45,720 Speaker 6: Maybe we've got something that's perfect goldilocks. I find it 197 00:10:45,760 --> 00:10:48,600 Speaker 6: hard to believe it's possible after being at the FED 198 00:10:48,640 --> 00:10:51,240 Speaker 6: during the global financial crisis. I never say never about anything, 199 00:10:51,440 --> 00:10:55,520 Speaker 6: but we've never seen something so perfectly goldilocks before. But 200 00:10:55,559 --> 00:10:57,800 Speaker 6: if you can have a strong labor market but not 201 00:10:58,000 --> 00:11:01,840 Speaker 6: have real wage growth being too high, that would be 202 00:11:01,880 --> 00:11:02,559 Speaker 6: ideal for the fit. 203 00:11:02,880 --> 00:11:05,200 Speaker 7: One thing that I'm seeing is the underemployment rate coming 204 00:11:05,200 --> 00:11:08,040 Speaker 7: in a little bit seven percent from seven point one percent. 205 00:11:08,080 --> 00:11:10,920 Speaker 7: It goes to the prea misra question, which would lead 206 00:11:11,080 --> 00:11:14,120 Speaker 7: to a higher neutral rate longer term. If we get 207 00:11:14,120 --> 00:11:17,040 Speaker 7: an increase in productivity, if we see some sort of 208 00:11:17,320 --> 00:11:21,120 Speaker 7: just general growth that means a higher inflation, higher growth 209 00:11:21,200 --> 00:11:24,480 Speaker 7: kind of era. Are you hearing anything, seeing anything in 210 00:11:24,520 --> 00:11:27,719 Speaker 7: this data that suggests that has a greater likelihood than 211 00:11:27,760 --> 00:11:29,200 Speaker 7: you previously thought imaginable. 212 00:11:29,600 --> 00:11:31,680 Speaker 6: Well, not the data today, but we have been seeing 213 00:11:31,720 --> 00:11:35,360 Speaker 6: some pretty good numbers related to productivity growth, and ultimately 214 00:11:35,400 --> 00:11:37,680 Speaker 6: that's what we want to see. Higher productivity growth is 215 00:11:37,720 --> 00:11:41,480 Speaker 6: great for economic growth and great for real wage increases 216 00:11:41,520 --> 00:11:44,600 Speaker 6: for workers. Now, whether that's just sort of a one 217 00:11:44,640 --> 00:11:46,719 Speaker 6: off thing, it's going to take a lot more data 218 00:11:46,760 --> 00:11:47,680 Speaker 6: to figure that out. 219 00:11:48,000 --> 00:11:50,480 Speaker 1: Tell me at the bus School is you people own 220 00:11:50,520 --> 00:11:53,040 Speaker 1: the high ground on the analysis of our finance and 221 00:11:53,040 --> 00:11:56,840 Speaker 1: they say one emotional thing commercial real estate. The fact is, 222 00:11:56,960 --> 00:11:59,680 Speaker 1: in the carnage that we're in right now, thirty year bond, 223 00:12:01,480 --> 00:12:04,560 Speaker 1: we're going to have a normal American failure of restructuring, 224 00:12:04,640 --> 00:12:08,040 Speaker 1: failure of businesses. New fresh money will come in and 225 00:12:08,240 --> 00:12:11,200 Speaker 1: you know, at a lower distress price than that. Will 226 00:12:11,240 --> 00:12:14,760 Speaker 1: we just survive this event or can there be lasting 227 00:12:14,960 --> 00:12:18,200 Speaker 1: damage here like there was an seven eight nine? 228 00:12:18,600 --> 00:12:21,720 Speaker 6: So I think we really need to rethink the business 229 00:12:21,800 --> 00:12:24,000 Speaker 6: model of how this is financed because a lot of 230 00:12:24,000 --> 00:12:26,680 Speaker 6: small and medium sized banks have a lot of exposure 231 00:12:26,679 --> 00:12:28,640 Speaker 6: in this area. You know, the chickens are going to 232 00:12:28,679 --> 00:12:31,400 Speaker 6: come home to roost because interest rates are a lot higher, 233 00:12:31,480 --> 00:12:33,800 Speaker 6: so refinancing rates will be higher. There are a lot 234 00:12:33,840 --> 00:12:36,320 Speaker 6: fewer people going into the office, so a lot of 235 00:12:36,360 --> 00:12:39,760 Speaker 6: the commercial real estate values are going down. And I 236 00:12:39,800 --> 00:12:41,880 Speaker 6: think a lot of the small and medium sized banks 237 00:12:41,920 --> 00:12:43,960 Speaker 6: are going to be stepping away from this. So the 238 00:12:44,040 --> 00:12:45,960 Speaker 6: question is going to be who will be financing this 239 00:12:46,040 --> 00:12:48,160 Speaker 6: going forward. The big banks don't seem to have any 240 00:12:48,160 --> 00:12:50,640 Speaker 6: appetite to do that. Maybe it'll be new players like 241 00:12:50,679 --> 00:12:53,559 Speaker 6: private credit coming in, but that's very new. We will 242 00:12:53,559 --> 00:12:53,960 Speaker 6: have to see. 243 00:12:54,200 --> 00:12:57,320 Speaker 1: Kind of the matter is that Professor Krasner is for 244 00:12:57,400 --> 00:13:00,520 Speaker 1: the fossils like me, the collective memory of our of 245 00:13:00,600 --> 00:13:05,440 Speaker 1: Continental Illinois out of nowhere. What are the shadows right 246 00:13:05,480 --> 00:13:09,760 Speaker 1: now that you see of a Continental Illinois of portfolio 247 00:13:09,840 --> 00:13:13,120 Speaker 1: insurance in eighty seven, the leverage of ninety eight. What's 248 00:13:13,200 --> 00:13:16,040 Speaker 1: the Krasner's shadow right now you're most focused on. 249 00:13:16,480 --> 00:13:18,520 Speaker 6: So I do think trying to understand what's going on 250 00:13:18,559 --> 00:13:20,720 Speaker 6: with commercial real estate, how that's going to affect well 251 00:13:20,920 --> 00:13:24,080 Speaker 6: medium sized banks is very important. And then also looking 252 00:13:24,120 --> 00:13:26,880 Speaker 6: through well, trying to look through into the areas we 253 00:13:26,880 --> 00:13:28,320 Speaker 6: don't know about. This gets back to what we were 254 00:13:28,320 --> 00:13:31,160 Speaker 6: talking about before, into the non bank financial sector. So 255 00:13:31,200 --> 00:13:34,360 Speaker 6: we've got a lot of data about banks, but just 256 00:13:34,400 --> 00:13:36,280 Speaker 6: as I was describing, there a lot of non banks 257 00:13:36,280 --> 00:13:38,920 Speaker 6: who are doing traditional bank functions. We don't have as 258 00:13:39,000 --> 00:13:41,400 Speaker 6: much insight into that. So that's something that we know, 259 00:13:41,559 --> 00:13:43,319 Speaker 6: we don't know, and we have to find out a 260 00:13:43,360 --> 00:13:43,960 Speaker 6: lot more information. 261 00:13:44,040 --> 00:13:47,120 Speaker 1: It's another one hour conversation with Professor Krasner will do 262 00:13:47,160 --> 00:13:49,120 Speaker 1: that at another time. We are honored your with us 263 00:13:49,120 --> 00:13:51,600 Speaker 1: today for all of us at Bloomberg. Thank you so much, 264 00:13:51,760 --> 00:13:59,559 Speaker 1: Randall Krasner of the Boost School Chicago. We're also honored 265 00:13:59,559 --> 00:14:01,880 Speaker 1: the Jeffrey Rosenberg dart and the door he was just 266 00:14:01,920 --> 00:14:05,319 Speaker 1: looking at his Bloomberg terminal. Jeff Rosenberg, let's take this 267 00:14:05,800 --> 00:14:08,920 Speaker 1: all in nonfarm payrolls. They have the number your four 268 00:14:08,960 --> 00:14:13,120 Speaker 1: hundred and fifty five thousand with revision. Take that shock 269 00:14:13,320 --> 00:14:16,000 Speaker 1: into your shock of working at Blackrock this week in 270 00:14:16,080 --> 00:14:18,480 Speaker 1: fixed income, how do you dovetail the two? 271 00:14:19,160 --> 00:14:22,200 Speaker 9: Well, you know, I think I'm gonna talk about something 272 00:14:22,400 --> 00:14:25,400 Speaker 9: that we usually don't talk about on a payroll Friday, 273 00:14:25,600 --> 00:14:28,800 Speaker 9: and that's third quarter earnings, which begin to kick off. 274 00:14:28,840 --> 00:14:32,400 Speaker 9: And what this payroll report really, I think starts to 275 00:14:32,480 --> 00:14:36,840 Speaker 9: reconcile is a disconnect that we've been hearing between kind 276 00:14:36,880 --> 00:14:41,920 Speaker 9: of the bond market consensus soft landing, inflation, slowing labor markets, 277 00:14:42,200 --> 00:14:45,800 Speaker 9: and at the same time a very positive corporate profits 278 00:14:46,040 --> 00:14:49,160 Speaker 9: margins holding up. And here's the problem with that those 279 00:14:49,200 --> 00:14:51,840 Speaker 9: two stories is that how do you get the slowing 280 00:14:51,880 --> 00:14:55,280 Speaker 9: in labor how do you get layoffs if corporations are 281 00:14:55,280 --> 00:14:58,320 Speaker 9: doing just fine with pass through and with margins. And 282 00:14:58,360 --> 00:15:03,000 Speaker 9: so the reconciliation of those two inconsistencies is on display 283 00:15:03,480 --> 00:15:06,320 Speaker 9: right now this is a much stronger labor market. Clearly, 284 00:15:06,680 --> 00:15:08,840 Speaker 9: that's what we see in the report today. 285 00:15:08,760 --> 00:15:09,800 Speaker 8: Across the board. 286 00:15:11,120 --> 00:15:15,200 Speaker 9: And so the challenge is, and what you were relating 287 00:15:15,240 --> 00:15:18,040 Speaker 9: to with Randy Krasner, is that this is an environment 288 00:15:18,120 --> 00:15:21,680 Speaker 9: where rates are going to have to stay higher for longer, 289 00:15:21,880 --> 00:15:23,520 Speaker 9: potentially even go higher. 290 00:15:23,560 --> 00:15:24,520 Speaker 8: And the longer that. 291 00:15:24,480 --> 00:15:28,240 Speaker 9: Occurs, the more those cracks and that vulnerability has time 292 00:15:28,280 --> 00:15:30,920 Speaker 9: to eventually show up. But this is really telling you 293 00:15:31,080 --> 00:15:33,360 Speaker 9: something that the equity markets have been telling you. That 294 00:15:33,640 --> 00:15:37,800 Speaker 9: it's good for corporations, good profit margins, good earnings, isn't 295 00:15:37,840 --> 00:15:41,960 Speaker 9: a good story for labor market normalization and for the inflations. 296 00:15:42,240 --> 00:15:45,520 Speaker 1: Jeff Rozenberg, mister Fink's office called me this morning as 297 00:15:45,600 --> 00:15:47,840 Speaker 1: us coming in and they said, don't ask Jeff Rozenberg 298 00:15:47,960 --> 00:15:51,720 Speaker 1: anything about inside baseball Blackrock. I will not, but I 299 00:15:51,800 --> 00:15:55,520 Speaker 1: will ask you about the functioning of our fixed income 300 00:15:55,640 --> 00:16:00,880 Speaker 1: market off this shock report. Are there instabilities visible outside 301 00:16:00,920 --> 00:16:05,040 Speaker 1: of Blackrock that you see? Can we get transactions done 302 00:16:05,520 --> 00:16:07,440 Speaker 1: as we get ever higher yields? 303 00:16:08,000 --> 00:16:12,160 Speaker 9: You know, it's been a remarkably orderly move higher in 304 00:16:12,240 --> 00:16:16,440 Speaker 9: terms of market functioning, agreed in terms of liquidity. I 305 00:16:16,480 --> 00:16:19,160 Speaker 9: think the issue that you again just went through with 306 00:16:19,560 --> 00:16:22,239 Speaker 9: Randy about where are the cracks, where are the vulnerabilities? 307 00:16:22,360 --> 00:16:25,960 Speaker 8: Randy highlighted, you know, the change in intermediation. 308 00:16:26,400 --> 00:16:30,440 Speaker 9: The financial system is much more disintermediated today and in 309 00:16:30,560 --> 00:16:34,240 Speaker 9: different ways that we haven't seen before. And so the 310 00:16:34,280 --> 00:16:37,000 Speaker 9: story and the history is that as you have these 311 00:16:37,000 --> 00:16:38,640 Speaker 9: shocks in terms of interest rates. 312 00:16:38,440 --> 00:16:39,720 Speaker 8: There are vulnerabilities. 313 00:16:40,040 --> 00:16:43,440 Speaker 9: The challenge is this time will be different in terms 314 00:16:43,480 --> 00:16:46,680 Speaker 9: of where those vulnerabilities show up, and that will be surprising. 315 00:16:47,040 --> 00:16:50,080 Speaker 9: I think the key here is that coming off of 316 00:16:50,240 --> 00:16:53,680 Speaker 9: over a decade of zero interest rates, we established a 317 00:16:53,720 --> 00:16:56,920 Speaker 9: lot of expectation for the persistence of low interest rates. 318 00:16:57,080 --> 00:16:59,760 Speaker 9: And yes, there's a lot of liquidity still left over 319 00:17:00,120 --> 00:17:04,520 Speaker 9: private credit dry powder. The issue isn't the liquidity, it's 320 00:17:04,600 --> 00:17:07,400 Speaker 9: now the cost of that liquidity and whether or not 321 00:17:07,720 --> 00:17:09,239 Speaker 9: you can afford. 322 00:17:09,040 --> 00:17:10,600 Speaker 8: Those much higher interest rates. 323 00:17:10,640 --> 00:17:12,879 Speaker 9: I think the thing to be aware of, however, is 324 00:17:12,920 --> 00:17:15,879 Speaker 9: that in the private credit market environment, you don't have 325 00:17:15,960 --> 00:17:18,840 Speaker 9: the same kind of liquidity triggers that you have in 326 00:17:18,880 --> 00:17:21,760 Speaker 9: the banking sector. You mentioned Continental Illinois. You don't have 327 00:17:21,840 --> 00:17:25,080 Speaker 9: deposit runs, so you have a lot more flexibility to 328 00:17:25,240 --> 00:17:29,040 Speaker 9: extend the time period, a lot more flexibility to limit 329 00:17:29,160 --> 00:17:32,040 Speaker 9: any kind of spillover chakrisk, So it functions in a 330 00:17:32,040 --> 00:17:34,480 Speaker 9: different way, but it doesn't mean that there isn't still 331 00:17:34,800 --> 00:17:38,000 Speaker 9: eventually the cost to be paid for a much higher 332 00:17:38,000 --> 00:17:39,040 Speaker 9: interest rate environment. 333 00:17:39,240 --> 00:17:43,000 Speaker 7: Jeff Rosenberg of Blackrock, I am curious from your vantage point, 334 00:17:43,040 --> 00:17:45,560 Speaker 7: why you would buy bonds here if you see this 335 00:17:45,680 --> 00:17:48,120 Speaker 7: kind of strength in the labor market persisting. 336 00:17:48,480 --> 00:17:50,600 Speaker 9: Well, I think when you say why would you buy bonds, 337 00:17:50,640 --> 00:17:52,440 Speaker 9: I think one of the key things about the fixeding 338 00:17:52,480 --> 00:17:57,080 Speaker 9: of markets is there's a very different level of opportunities 339 00:17:57,400 --> 00:18:00,760 Speaker 9: opportunity set across the yield curve. So the front end 340 00:18:00,800 --> 00:18:03,680 Speaker 9: of the yield curve is really pricing in a lot 341 00:18:03,680 --> 00:18:06,960 Speaker 9: of the forward path the movement today basically pricing in 342 00:18:07,000 --> 00:18:10,600 Speaker 9: now one hundred percent of the final increase in interest rates. 343 00:18:10,760 --> 00:18:13,560 Speaker 9: You know, if inflation and the kind of one silver 344 00:18:13,640 --> 00:18:16,359 Speaker 9: lining in today's report is average hourly earnings, you know, 345 00:18:16,359 --> 00:18:19,280 Speaker 9: if that picture still maintains and the Fed can hold 346 00:18:19,400 --> 00:18:21,520 Speaker 9: rates at high levels, but it doesn't necessarily have to 347 00:18:21,560 --> 00:18:24,080 Speaker 9: go further. That's already in the price And when you 348 00:18:24,080 --> 00:18:26,400 Speaker 9: look at the back end of the curve, yes there's 349 00:18:26,480 --> 00:18:29,920 Speaker 9: more vulnerability. Yes, we still think there's more term premium 350 00:18:30,000 --> 00:18:33,919 Speaker 9: steepening to go. But you're starting now just finally to 351 00:18:33,960 --> 00:18:37,679 Speaker 9: get to levels where you're getting back to normal, and 352 00:18:37,720 --> 00:18:41,080 Speaker 9: that movement from abnormal to normal. 353 00:18:40,880 --> 00:18:41,840 Speaker 8: Is very painful. 354 00:18:42,000 --> 00:18:44,359 Speaker 9: But where you're getting closer, and that's interest rates, that 355 00:18:44,440 --> 00:18:47,960 Speaker 9: approximate nominal GDP, that's the history of where the long 356 00:18:48,040 --> 00:18:50,680 Speaker 9: term interest rates should be, and you're getting closer to that. 357 00:18:50,800 --> 00:18:53,480 Speaker 9: You may overshoot and you may have more term premium 358 00:18:53,560 --> 00:18:56,480 Speaker 9: risk because of the deficits and QT. So we're a 359 00:18:56,520 --> 00:18:58,600 Speaker 9: little bit cautious on the back end, but why would 360 00:18:58,600 --> 00:19:00,560 Speaker 9: you buy bombs? You may not want to buy like 361 00:19:00,680 --> 00:19:02,680 Speaker 9: thirty year bonds, But the front end of the curve 362 00:19:02,760 --> 00:19:05,120 Speaker 9: is really starting to get to levels that are much 363 00:19:05,160 --> 00:19:06,600 Speaker 9: more attractive for two. 364 00:19:06,480 --> 00:19:08,600 Speaker 1: Thousand and seven and on. This is one of the 365 00:19:08,680 --> 00:19:11,439 Speaker 1: historic days we've had on Bloomberg Surveillance. We welcome all 366 00:19:11,520 --> 00:19:14,399 Speaker 1: of you commercial free here through the hour. Michael McKee 367 00:19:14,440 --> 00:19:16,200 Speaker 1: with us, Jeffrey Rosenberg of Blackrock. 368 00:19:16,280 --> 00:19:18,680 Speaker 7: Jeff Rosenberg of black Rock. From your vantage point, is 369 00:19:18,720 --> 00:19:21,840 Speaker 7: this the one hedge that has worked in this period 370 00:19:21,880 --> 00:19:23,480 Speaker 7: of turmoil by the dollar. 371 00:19:23,760 --> 00:19:27,200 Speaker 9: Yeah, it's been pretty much rate driven, and I think 372 00:19:27,320 --> 00:19:30,679 Speaker 9: as you're highlighting this morning that rate move is reflective 373 00:19:31,119 --> 00:19:33,639 Speaker 9: of the I'm sorry, the move and the dollar is 374 00:19:33,680 --> 00:19:36,400 Speaker 9: reflective of that rate move. I want to go back 375 00:19:36,440 --> 00:19:39,320 Speaker 9: to what Mike McKee was just saying in terms of 376 00:19:39,359 --> 00:19:41,320 Speaker 9: the FED, and I think that is what you're seeing 377 00:19:41,359 --> 00:19:45,320 Speaker 9: in terms of pricing in the last hike. And I 378 00:19:45,320 --> 00:19:48,480 Speaker 9: think also as well, they will recognize that the market 379 00:19:48,520 --> 00:19:50,720 Speaker 9: is doing a lot of the work for them and 380 00:19:50,760 --> 00:19:53,760 Speaker 9: we're going to get the tightening and financial conditions, and 381 00:19:53,800 --> 00:19:56,400 Speaker 9: they were hoping to avoid an easing. 382 00:19:56,040 --> 00:19:58,280 Speaker 8: Of financial conditions, which is what they've gotten here. 383 00:19:58,320 --> 00:20:00,840 Speaker 9: So I think that helps to kind of move us 384 00:20:00,960 --> 00:20:03,359 Speaker 9: off of the FED tightening path. The real issue in 385 00:20:03,440 --> 00:20:05,960 Speaker 9: terms of the bond market pricing into next year is 386 00:20:06,160 --> 00:20:11,080 Speaker 9: we've priced out about half after the FMC half of 387 00:20:11,119 --> 00:20:13,159 Speaker 9: the cuts that were priced into next year. And I 388 00:20:13,200 --> 00:20:15,440 Speaker 9: think that's the next move that you can start to 389 00:20:15,440 --> 00:20:17,480 Speaker 9: see is really pricing out the cuts as you get 390 00:20:17,560 --> 00:20:21,800 Speaker 9: more of this higher restrictive for longer kind of perspective. 391 00:20:21,880 --> 00:20:24,520 Speaker 7: And we did see that thirty year treasure yield across 392 00:20:24,560 --> 00:20:27,840 Speaker 7: that five percent marked as briefly but flirting once again 393 00:20:27,960 --> 00:20:31,120 Speaker 7: with that level. Jeff, how much is this a sustainable rate? 394 00:20:31,320 --> 00:20:34,280 Speaker 7: You said, pricing out cuts going beyond twenty twenty four. 395 00:20:34,720 --> 00:20:38,639 Speaker 7: Is it sustainable economically and from a risk acid perspective. 396 00:20:39,920 --> 00:20:42,800 Speaker 9: Well, A lot of that depends on this projection in 397 00:20:42,880 --> 00:20:46,040 Speaker 9: terms of the inflation trajectory. Right, So the reason for 398 00:20:46,200 --> 00:20:48,560 Speaker 9: the cuts priced in, one of the reasons for the 399 00:20:48,560 --> 00:20:51,320 Speaker 9: cuts priced in by the bond market is the expectation 400 00:20:51,440 --> 00:20:55,000 Speaker 9: that interest, sorry, inflation starts to fall and the Fed 401 00:20:55,040 --> 00:20:57,200 Speaker 9: wants to cut rates. So that you were talking about 402 00:20:57,240 --> 00:21:01,000 Speaker 9: it earlier, Tom not having meal rates go up as 403 00:21:01,040 --> 00:21:02,200 Speaker 9: inflation goes down. 404 00:21:02,240 --> 00:21:04,840 Speaker 8: So is it sustainable, yes, but a. 405 00:21:04,800 --> 00:21:06,480 Speaker 9: Lot of that's going to go And Mike McKee, you 406 00:21:06,640 --> 00:21:09,840 Speaker 9: hit it on the head next week in the CPI report, 407 00:21:09,880 --> 00:21:12,919 Speaker 9: it is very strong jobs report. A big component of 408 00:21:12,960 --> 00:21:16,919 Speaker 9: the inflation expectations declining is that core services x housing, 409 00:21:16,920 --> 00:21:20,440 Speaker 9: which is really related to the jobs market. So good 410 00:21:20,480 --> 00:21:24,240 Speaker 9: news here so far as ahg averagile earnings not taking up. 411 00:21:24,480 --> 00:21:26,719 Speaker 9: As long as you see that inflation trajectory go down, 412 00:21:26,760 --> 00:21:29,560 Speaker 9: then I think you can get that pricing the second 413 00:21:29,600 --> 00:21:30,360 Speaker 9: half of next year. 414 00:21:30,520 --> 00:21:33,200 Speaker 1: Jeff Rosenberg, I want to cut to the chase. I've 415 00:21:33,240 --> 00:21:37,440 Speaker 1: got a multi standard deviation moveing price in a blended 416 00:21:37,480 --> 00:21:41,240 Speaker 1: bond index like the Bloomberg total return index from the 417 00:21:41,280 --> 00:21:45,960 Speaker 1: peak of the market in January in twenty twenty one. 418 00:21:46,440 --> 00:21:51,359 Speaker 1: How do you frame out, Jeff Rosenberg, that institutions, retail 419 00:21:51,520 --> 00:21:56,160 Speaker 1: and retired America will somehow get back to the pricing 420 00:21:56,560 --> 00:21:59,800 Speaker 1: of the Great Moderation. You must be looking that in. 421 00:21:59,800 --> 00:22:04,120 Speaker 8: YU, Yeah, and I'm not sure Tom. 422 00:22:04,119 --> 00:22:06,360 Speaker 9: The framing is that we're getting back to the pricing 423 00:22:06,400 --> 00:22:08,240 Speaker 9: of the Great Moderation. And I think that's part of 424 00:22:08,280 --> 00:22:10,719 Speaker 9: the adjustment here, is that you may not have that 425 00:22:10,840 --> 00:22:13,000 Speaker 9: bond market that you were used to in terms of 426 00:22:13,040 --> 00:22:17,400 Speaker 9: an upwardly sloped yield curve, falling interest rates, a high 427 00:22:17,560 --> 00:22:21,119 Speaker 9: positive total return, and most importantly. 428 00:22:20,640 --> 00:22:23,800 Speaker 8: A reliable ballast to your stocks. 429 00:22:23,800 --> 00:22:26,280 Speaker 9: It's a very different bond market, and this is the 430 00:22:26,320 --> 00:22:29,760 Speaker 9: transition period. I think investors have to really recognize that, 431 00:22:29,840 --> 00:22:32,120 Speaker 9: and so the opportunities are really changing how you hold 432 00:22:32,119 --> 00:22:33,560 Speaker 9: your bonds in your portfolio. 433 00:22:33,720 --> 00:22:36,040 Speaker 8: It's much more in the front end. It's much more. 434 00:22:35,840 --> 00:22:39,520 Speaker 9: About flight to quality. Insurance is no longer the thirty year. 435 00:22:39,680 --> 00:22:41,720 Speaker 9: It's the front end of the curve. It's a steepening 436 00:22:41,960 --> 00:22:44,359 Speaker 9: when you have a crisis, because you've got that rate 437 00:22:44,520 --> 00:22:47,119 Speaker 9: possibility priced back into the curve. So a lot of 438 00:22:47,200 --> 00:22:49,240 Speaker 9: changes in thinking about how we build portfolios. 439 00:22:49,359 --> 00:22:51,440 Speaker 7: Jeff Rosenberg, thank you so much for taking the time 440 00:22:51,560 --> 00:22:53,360 Speaker 7: on a day that truly is historic. 441 00:22:53,480 --> 00:23:05,840 Speaker 10: As Tom was saying, and Rita sent remembers a long 442 00:23:05,880 --> 00:23:08,560 Speaker 10: time ago, she looks at the geology of the permium 443 00:23:08,600 --> 00:23:11,320 Speaker 10: basin in his experanda, we're not going to do securities 444 00:23:11,320 --> 00:23:12,000 Speaker 10: analysis here. 445 00:23:12,040 --> 00:23:15,600 Speaker 1: We'll say that for another conversation on this important sixty 446 00:23:15,640 --> 00:23:20,000 Speaker 1: billion dollars potential transaction. And Rita cent of energy aspects 447 00:23:20,040 --> 00:23:23,560 Speaker 1: as well. And Rita, the stereotype of America from Lubbock 448 00:23:23,600 --> 00:23:28,040 Speaker 1: pass Midland to Odessa onto New Mexico is nineteen twenty four. 449 00:23:28,119 --> 00:23:31,080 Speaker 1: There's oil in them our hills and we went out 450 00:23:31,080 --> 00:23:34,800 Speaker 1: and find it. That's the stereotype. The movies James Dean 451 00:23:34,840 --> 00:23:38,640 Speaker 1: and all forget about it. What's the new stereotype? Why 452 00:23:38,640 --> 00:23:42,000 Speaker 1: does Exxon want to span more oil from Lubbock to 453 00:23:42,080 --> 00:23:42,760 Speaker 1: New Mexico. 454 00:23:43,640 --> 00:23:46,400 Speaker 11: I mean, look, you can see that from USHL production 455 00:23:46,680 --> 00:23:49,000 Speaker 11: as you guys were just talking about. Production has been 456 00:23:49,119 --> 00:23:53,080 Speaker 11: rising close to thirteen million barrels per day today and 457 00:23:53,200 --> 00:23:55,439 Speaker 11: it is still projected to continue rising. I think what 458 00:23:55,520 --> 00:23:59,160 Speaker 11: we have seen, however, the last decade was very much 459 00:23:59,200 --> 00:24:04,880 Speaker 11: about quantity over quality, right, everybody, every CEO was incentivized 460 00:24:04,880 --> 00:24:08,240 Speaker 11: to grow production and not to return money to shareholders. 461 00:24:08,280 --> 00:24:11,760 Speaker 11: And that's changed dramatically. And what you are seeing today 462 00:24:12,280 --> 00:24:17,400 Speaker 11: is very much like slower growth consolidated growth. And we've 463 00:24:17,400 --> 00:24:20,359 Speaker 11: seen an enormous amount of M and A activity. Companies 464 00:24:20,440 --> 00:24:23,560 Speaker 11: want to take over adjacent acreage and they are getting 465 00:24:23,560 --> 00:24:26,919 Speaker 11: more efficient and the number of amenitings. We put out 466 00:24:26,920 --> 00:24:29,479 Speaker 11: this piece a few months ago identifying eighty companies that 467 00:24:29,520 --> 00:24:33,199 Speaker 11: could be taken over. Fifteen of that's already happened. And 468 00:24:33,240 --> 00:24:35,320 Speaker 11: one of the very interesting things from you're seeing that 469 00:24:35,640 --> 00:24:38,080 Speaker 11: is if say a company acquires another company, they. 470 00:24:37,920 --> 00:24:39,760 Speaker 4: Are not continuing to run those rigs. 471 00:24:40,080 --> 00:24:43,320 Speaker 11: One plus one rigs is basically now becoming one point two, 472 00:24:43,800 --> 00:24:45,639 Speaker 11: like they are getting rid of the poor rigs. And 473 00:24:45,640 --> 00:24:48,000 Speaker 11: that's one of the big reasons why US production growth 474 00:24:48,000 --> 00:24:48,439 Speaker 11: has slowed. 475 00:24:48,560 --> 00:24:51,120 Speaker 1: We'll talk about the synergy memo's starting to come out 476 00:24:51,119 --> 00:24:53,480 Speaker 1: of our City Group with a lead memo this morning. 477 00:24:53,520 --> 00:24:55,680 Speaker 1: We'll do that later. Emory just said, I look at 478 00:24:55,680 --> 00:24:58,040 Speaker 1: this and it's number two and number four, and of 479 00:24:58,080 --> 00:25:01,800 Speaker 1: course we harken back to accidental well taking out ginormous 480 00:25:01,840 --> 00:25:05,480 Speaker 1: and wonderful and a darko. Okay, fine, are we consolidating 481 00:25:05,560 --> 00:25:09,560 Speaker 1: the industry and do a doopoly a triapoly? Are we 482 00:25:09,640 --> 00:25:11,040 Speaker 1: taking the independence out? 483 00:25:11,640 --> 00:25:13,600 Speaker 11: No? No, the independence are still there, But what we 484 00:25:13,640 --> 00:25:16,600 Speaker 11: are taking out are tons and tons of the mom 485 00:25:16,600 --> 00:25:20,880 Speaker 11: and pop shops effectively very very tiny producers private equity 486 00:25:20,920 --> 00:25:23,760 Speaker 11: owned assets as well. What you are going to have 487 00:25:23,960 --> 00:25:27,240 Speaker 11: is a much more efficient shale patch that actually produces 488 00:25:27,280 --> 00:25:31,040 Speaker 11: good quality and at a cost where shareholders are happy. 489 00:25:31,280 --> 00:25:33,720 Speaker 11: Like I was saying, last ten years, they just grew 490 00:25:33,840 --> 00:25:37,199 Speaker 11: production and nobody returned any money to anybody, which is 491 00:25:37,240 --> 00:25:39,399 Speaker 11: fine in a zero interest rate environment, but that's not 492 00:25:39,560 --> 00:25:42,080 Speaker 11: fine when interest rates are five and a half or 493 00:25:42,160 --> 00:25:44,600 Speaker 11: five six percent, depending on which part of the curve 494 00:25:44,600 --> 00:25:45,000 Speaker 11: of your room. 495 00:25:45,240 --> 00:25:47,399 Speaker 7: I Meanda, how much is this deal also fueled by 496 00:25:47,400 --> 00:25:50,320 Speaker 7: this idea that people are realizing that fossil fuels aren't 497 00:25:50,320 --> 00:25:53,320 Speaker 7: going away so quickly, and that, if anything, they're going 498 00:25:53,359 --> 00:25:55,960 Speaker 7: to be needed at all times, even during the transition 499 00:25:56,240 --> 00:25:57,399 Speaker 7: to different types of energy. 500 00:25:58,359 --> 00:26:00,439 Speaker 11: I mean, I hope that is the realization. I just 501 00:26:00,440 --> 00:26:02,680 Speaker 11: got back from a wouldhab this morning. I was there 502 00:26:02,680 --> 00:26:05,280 Speaker 11: for Adipek, and I think in the region it's very 503 00:26:05,400 --> 00:26:08,280 Speaker 11: much the main focus saying that, look, yes we need 504 00:26:08,320 --> 00:26:10,440 Speaker 11: to decarbonize, and something we've talked about right on the 505 00:26:10,480 --> 00:26:13,640 Speaker 11: show that let's talk about decarbonizing hydrocarbons, let's not talk 506 00:26:13,640 --> 00:26:17,520 Speaker 11: about not having fossil fuels at all, because if economic 507 00:26:17,560 --> 00:26:21,440 Speaker 11: growth continues, population growth continues, what will happen is energy 508 00:26:21,480 --> 00:26:24,120 Speaker 11: demand will grow. Those are like the basic truths. And 509 00:26:24,160 --> 00:26:25,960 Speaker 11: if energy demand is going to grow, we're going to 510 00:26:26,040 --> 00:26:28,640 Speaker 11: need all forms of energy because we're not even investing 511 00:26:28,720 --> 00:26:31,400 Speaker 11: enough and renewables, let alone in fossil fuelds to meet 512 00:26:31,600 --> 00:26:35,480 Speaker 11: current energy demand. Right, and that's the realization. Hopefully that 513 00:26:35,600 --> 00:26:38,240 Speaker 11: syncing in in the West as well the East gets it. 514 00:26:38,240 --> 00:26:41,080 Speaker 11: It's much more for America and Europe to come around 515 00:26:41,080 --> 00:26:41,320 Speaker 11: to that. 516 00:26:41,880 --> 00:26:44,080 Speaker 7: Meanwhile, we are looking at oil prices that have been 517 00:26:44,160 --> 00:26:46,760 Speaker 7: on a wild ride. We saw them climbing. We were 518 00:26:46,760 --> 00:26:49,240 Speaker 7: talking about one hundred dollars a barrel, and suddenly we 519 00:26:49,240 --> 00:26:52,520 Speaker 7: saw the biggest to climb this week, going back to March. 520 00:26:53,040 --> 00:26:54,320 Speaker 8: Do you view this as. 521 00:26:54,359 --> 00:26:56,520 Speaker 7: Too far, too fast, the way the Barclays does, or 522 00:26:56,520 --> 00:26:59,560 Speaker 7: do you see this as something fundamental, especially a light 523 00:26:59,760 --> 00:27:03,119 Speaker 7: of we're seeing in cooper and other commodities tracking this 524 00:27:03,280 --> 00:27:04,320 Speaker 7: type of decline. 525 00:27:04,720 --> 00:27:06,640 Speaker 11: No, I don't think this is fundamentals. It has really 526 00:27:06,680 --> 00:27:10,000 Speaker 11: been positioning driven. Open interest in options markets have been 527 00:27:10,080 --> 00:27:10,600 Speaker 11: very high. 528 00:27:10,760 --> 00:27:11,600 Speaker 4: The macro backdrop. 529 00:27:11,640 --> 00:27:14,679 Speaker 11: You know, you've had treasury treasuries rise consistently for a 530 00:27:14,720 --> 00:27:18,600 Speaker 11: while now. Oil had decoupled, but it's definitely come back 531 00:27:18,680 --> 00:27:21,840 Speaker 11: under a kind of the macro scrutiny, purely on a 532 00:27:21,880 --> 00:27:24,720 Speaker 11: fundamental basis. Look at the back radiation. Look at the 533 00:27:24,720 --> 00:27:26,879 Speaker 11: front month versus the second and third month that is 534 00:27:26,960 --> 00:27:29,720 Speaker 11: extremely steep still. Whether it be Wti, whether it be Brent, 535 00:27:29,800 --> 00:27:32,560 Speaker 11: whether it be Dubai, it's telling you that the physical 536 00:27:32,600 --> 00:27:36,320 Speaker 11: fundamentals are absolutely fine. You get flash outs like this, 537 00:27:36,440 --> 00:27:38,400 Speaker 11: and you know you don't get five dollars ten dollar 538 00:27:38,480 --> 00:27:42,240 Speaker 11: moves on fundamentals that tends to be positioning or geopolitical driven. Right, 539 00:27:42,520 --> 00:27:44,760 Speaker 11: we'll get through this, and once we rebase, we will 540 00:27:44,760 --> 00:27:47,320 Speaker 11: continue to move back higher again. But you'll always get 541 00:27:47,359 --> 00:27:48,920 Speaker 11: like you'll never go up in a straight line. 542 00:27:49,000 --> 00:27:49,320 Speaker 4: You don't know. 543 00:27:49,320 --> 00:27:50,600 Speaker 11: When I was in the studio with you guys, I 544 00:27:50,640 --> 00:27:52,680 Speaker 11: was saying that as well. Right, you get some consolidation 545 00:27:52,760 --> 00:27:54,960 Speaker 11: and volatility and then then we'll go up again. 546 00:27:55,119 --> 00:27:58,000 Speaker 1: I'm very quickly here going back to Adam Siminski and 547 00:27:58,040 --> 00:28:00,920 Speaker 1: Paul saying, you Deutsche Bank a million years ago. There's 548 00:28:00,920 --> 00:28:06,720 Speaker 1: the amortus sense spreadsheet Excel spreadsheet of demand, which is 549 00:28:06,760 --> 00:28:12,159 Speaker 1: the single line item of demand, flexibility or movement that 550 00:28:12,400 --> 00:28:16,320 Speaker 1: matters in the November of this year, Which geography, which 551 00:28:16,400 --> 00:28:19,879 Speaker 1: kind of oil signals to you where demand's heading. 552 00:28:20,400 --> 00:28:22,280 Speaker 11: I would say if right now it's going to be 553 00:28:22,320 --> 00:28:24,920 Speaker 11: the US, because that's where all the macro worries are 554 00:28:25,280 --> 00:28:26,920 Speaker 11: that are we slowing down significantly? 555 00:28:27,000 --> 00:28:27,680 Speaker 4: Is it a collapse? 556 00:28:27,720 --> 00:28:30,040 Speaker 11: I completely don't buy the gasoline demand print that came 557 00:28:30,040 --> 00:28:32,560 Speaker 11: out of the EIA this week. But that's what we'd 558 00:28:32,560 --> 00:28:34,960 Speaker 11: be focusing on on the US gasoline US diesel story. 559 00:28:35,000 --> 00:28:36,920 Speaker 11: The rest of the world's okay, we know where it's headed. 560 00:28:37,240 --> 00:28:39,000 Speaker 11: Is the US where the uncertainty is. 561 00:28:39,120 --> 00:28:40,800 Speaker 2: If a paper it just called that line m rates, 562 00:28:40,960 --> 00:28:42,040 Speaker 2: what do you mean you don't buy it? 563 00:28:42,800 --> 00:28:44,800 Speaker 11: I don't buy it because you don't get that, okay. 564 00:28:45,120 --> 00:28:47,360 Speaker 11: Very simply, you can look at how much ethanol is 565 00:28:47,400 --> 00:28:50,240 Speaker 11: being used in gasoline. You can back out gasoline demand 566 00:28:50,280 --> 00:28:52,600 Speaker 11: from the ethanol usage that still says it's close to 567 00:28:52,640 --> 00:28:55,120 Speaker 11: ten million barrels per day. The weekly EI in numbers 568 00:28:55,200 --> 00:28:57,920 Speaker 11: are all over the place. They've never been too reliable 569 00:28:57,920 --> 00:29:01,720 Speaker 11: and oftenly definitely not reliable. I won't pay too much attention. 570 00:29:01,560 --> 00:29:04,680 Speaker 1: Friday morning inorganic chemistry without meta. 571 00:29:04,560 --> 00:29:07,120 Speaker 2: Said, I'm ready to appreciate it. Just quickly. I've got 572 00:29:07,120 --> 00:29:10,320 Speaker 2: about thirty seconds. Triple digit recruit by Halloween. What's the 573 00:29:10,360 --> 00:29:10,840 Speaker 2: call now? 574 00:29:11,000 --> 00:29:12,760 Speaker 11: I want to stick It's a better call now now 575 00:29:12,760 --> 00:29:14,320 Speaker 11: that we are at eighty five rather than when it 576 00:29:14,360 --> 00:29:15,240 Speaker 11: was at ninety five, So. 577 00:29:15,160 --> 00:29:15,920 Speaker 4: I have to stick to that. 578 00:29:16,160 --> 00:29:19,160 Speaker 2: Okay, okay, we'll speak to you around Halloween. I'm ready 579 00:29:19,160 --> 00:29:22,680 Speaker 2: to thank you appreciate it. 580 00:29:23,320 --> 00:29:27,200 Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and 581 00:29:27,320 --> 00:29:31,520 Speaker 1: anywhere else you get your podcasts. Listen live every weekday 582 00:29:31,760 --> 00:29:35,280 Speaker 1: starting at seven am Eastern. 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