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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
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Speaker 1: the Bloomberg Criminal and the Bloomberg Business App. There are
Speaker 1: strikes across land. There is kaiser on the West Coast.
Speaker 1: They're nurses and others, radiologists, I believe in others. There
Speaker 1: are auto workers in Detroit and Sundry others. Within this
Speaker 1: labor report an important time to speak to the acting
Speaker 1: Labor Secretary. Here is John Ferroh.
Speaker 2: Joining us now from Washington is JUDYSU, the acting US
Speaker 2: Secretary of Labor. Judys wonderfully catch up with you. A
Speaker 2: hot labor market report at a time where the unions
Speaker 2: seem to have a lot of leverage. So let's go
Speaker 2: straight there. What's your latest read on the UAW negotiations.
Speaker 3: Well, the parties are at the table. They continue to negotiate.
Speaker 3: The President has made very clear something I believe in too,
Speaker 3: that when there are record corporate profits, there should be
Speaker 3: record contracts for working people. And that's what workers are
Speaker 3: fighting for. So the negotiations continue and I believe that
Speaker 3: the parties will get there.
Speaker 2: Are you getting access to both parties to have negotiated settlement?
Speaker 4: Yeah, we're talking to both parties.
Speaker 3: I mean again, the collective bargaining process is about the
Speaker 3: parties themselves coming together, working through their issues, finding common
Speaker 3: ground and win win solutions. We support that in every
Speaker 3: way that we can, and we are continuing to talk
Speaker 3: to the parties in that particular situation.
Speaker 2: What have you heard recently about current demands from UAW.
Speaker 2: We understand that wage de balands have come down from
Speaker 2: forty closer to thirty is that you'll read on things.
Speaker 3: I mean, and the negotiation is always about movement on
Speaker 3: both sides at this point. You know, I think it's
Speaker 3: always hard to know exactly where something will land. I
Speaker 3: think as long as they're talking to each other, that
Speaker 3: is positive, and that is what is happening.
Speaker 2: You're sensing the gap is closing, the spread is narrowed.
Speaker 4: I'll say it this way. You know, I've seen this
Speaker 4: a lot.
Speaker 3: I think that the parties always seem like they're far
Speaker 3: apart until they're not. So that does require it always
Speaker 3: requires movement, and I think the continued engagement is a
Speaker 3: positive thing, and it's part of the reflection of President
Speaker 3: Biden and this administration's commitment to workers getting their fair
Speaker 3: share in an economy that is doing really well.
Speaker 2: We also have haalthcast strikes as well. I understand you've
Speaker 2: met leadership from both sides. Jenny, How different is that
Speaker 2: particular strike? What do you think is going on there?
Speaker 3: I mean, every strike has its unique issues, right every
Speaker 3: you know, the industries are different, the specific demands are different.
Speaker 4: But I think at the bottom line is that we are.
Speaker 3: Seeing a resurgence in worker power in support for unions
Speaker 3: in the economy and for working people demanding their fair share,
Speaker 3: saying you know enough of the disparities between what frontline
Speaker 3: workers make and what CEOs make, making sure that there
Speaker 3: is an opportunity for workers to.
Speaker 4: Improve their working conditions and live stable lives.
Speaker 3: Is this is not just an accident in a Biden
Speaker 3: Harris administration. It is very much a deliberate part of
Speaker 3: how we think a strong economy and a strong country.
Speaker 5: Works, Madam Secretary, as you rightly said, we are seeing
Speaker 5: a shift back in bargaining power towards labor after decades
Speaker 5: where it went the other way. That's being reflected in
Speaker 5: the spike higher in number of days of strikes throughout
Speaker 5: the economy. Should we expect that number to go even higher?
Speaker 3: I think it also reflects really a record contract results. Right,
Speaker 3: So we've seen from the ports on the West Coast
Speaker 3: to the teamsters and ups, really results that demonstrate workers
Speaker 3: getting more in wages and being forced over time, dealing
Speaker 3: with other specific issues within certain industries or automation and
Speaker 3: the like, addressing conditions like heat and other kinds of
Speaker 3: health and safety issues. So I think those are are
Speaker 3: the big results, and some of them we're talking about.
Speaker 3: You know, we don't talk about them as much, but
Speaker 3: there are you know, graduate workers who have gone on
Speaker 3: strike for brief.
Speaker 4: Periods and gotten contracts that they want.
Speaker 3: So I don't know what the average number of days is,
Speaker 3: but I do know that workers.
Speaker 4: Coming to the table, being able to have the right to.
Speaker 3: Demand their fair share is something that has been positive
Speaker 3: for workers and is very much part of the strong
Speaker 3: economy that we've been talking about.
Speaker 4: And the jobs report reflects this, and yet.
Speaker 5: We have not seen that in the numbers on earnings.
Speaker 5: So is it just a lag effect. Are we going
Speaker 5: to see it going forward, or is that something else
Speaker 5: going on in the economy that's offsetting those gains that
Speaker 5: you talked about for workers.
Speaker 4: Yeah, so earnings are up a bit.
Speaker 3: You know, we definitely especially see that among lower wage workers.
Speaker 4: Which is part of this idea that you know, the.
Speaker 3: President has said, We're going to build an economy that
Speaker 3: leaves no one behind, that starts by looking at who's
Speaker 3: been left behind in the past.
Speaker 4: And to the extent that those lower wage.
Speaker 3: Workers are seeing average gains that are growing and also
Speaker 3: that are higher than inflation, means that workers have more
Speaker 3: money in their pockets more to spend in their local economies.
Speaker 3: That's also partly fueling the other effects of the jobs report,
Speaker 3: which is more job growth in leision, hospitality, for example.
Speaker 3: All of these taken together, along with a historically low
Speaker 3: unemployment rate still under four percent for over a year
Speaker 3: and a half, the longest stretch of the nineteen sixties,
Speaker 3: all signs of this economy is a place you know, yeah,
Speaker 3: is doing well because of good economic policies and workers
Speaker 3: having a seat at the table.
Speaker 2: Let's talk about those policies. There is something really peculiar
Speaker 2: going on at the moment. If you think about what's
Speaker 2: happening in the picket line. They have serious concerns about
Speaker 2: the ev transition and their participation in it. A transition
Speaker 2: that you are subsidizing. Something really odd from my perspective,
Speaker 2: and I'd love some clarity from you on it. Why
Speaker 2: is the government offering rich people credits to buy expensive cars.
Speaker 4: A couple of things.
Speaker 3: There is widespread support in the country for tax credits
Speaker 3: that will help to bring manufacturing jobs to the United States.
Speaker 3: That's part of what we're trying to do. The other
Speaker 3: is that we do have a climate crisis. Right We
Speaker 3: saw record heat across the entire country.
Speaker 4: Without a doubt.
Speaker 2: Can I just jump in without a doubt? I totally
Speaker 2: agree with you, But I just think we're conflating solving
Speaker 2: a climate crisis with driving really heavy SUVs that run
Speaker 2: on electricity. Those two things part of the same story,
Speaker 2: because I don't get it. If I'm driving an electrified
Speaker 2: f one point fifty, am I really safe in the planet?
Speaker 4: Right?
Speaker 3: Well, so we could probably have a conversation out about
Speaker 3: personal choices relating to cars.
Speaker 4: I do think as a policy matter, the.
Speaker 3: More that we can invest in industries, in manufacturing, including
Speaker 3: in transportation, that transitions us to a place where we're
Speaker 3: not you know, we're not continue to pollute the planet.
Speaker 4: Right.
Speaker 3: We have a method by which we can both bring
Speaker 3: down emissions.
Speaker 4: And also create good jobs. And the President has always
Speaker 4: said this solve your climate crisis. When he looks at that,
Speaker 4: it's also about creating good jobs, and good union jobs
Speaker 4: in communities that need them the most.
Speaker 3: And we are really focused on making sure that that
Speaker 3: transition does not leave workers behind, and that what's good
Speaker 3: for the climate can be good for.
Speaker 4: Workers as well.
Speaker 2: Jenny appreciate the update. Jenny Say, Acting US Secretary of life.
Speaker 1: This is our interview of this bond carnage. There's no
Speaker 1: question about it. I've said for years at out of
Speaker 1: Brown University, the gentleman from Chicago is our definitive financial economist.
Speaker 1: And that's saying something at Boost School with Lars Hanson,
Speaker 1: Austin Golesby, and Raga Rogen Darkening at the door. He's
Speaker 1: a former Fed governor on this job. Today, we're going
Speaker 1: to rip up the script with Randall Krasner. I am
Speaker 1: so honored you are here with us today. Randy, I'm
Speaker 1: going to go from a nolttle real rate analysis. Let's
Speaker 1: go back to first principles. I never framed a two
Speaker 1: point five zero ten year real yield. Why does the
Speaker 1: real yield matter? And how will that new high real
Speaker 1: yield change our listeners and viewers' lives?
Speaker 6: This, ultimately, it is the inflation adjusted rate. It's the
Speaker 6: real rate you said that matters for thinking about what
Speaker 6: investments firms are going to be willing to make, because
Speaker 6: if prices are going up, then they can and input
Speaker 6: prices are going up, that's one thing. But if you
Speaker 6: adjust for the inflation, so you take out that that
Speaker 6: changes in cost and changes and prices on both sides.
Speaker 6: You've got the real yield, and if that's going up
Speaker 6: very significantly, that means that firms are going to be
Speaker 6: less willing to invest, are they less willing to hire.
Speaker 6: We've also started to see real wages grow, which is
Speaker 6: great for workers, but that's probably at some point going
Speaker 6: to mean a little bit less demand. Obviously not right now.
Speaker 4: Well, that's where I wanted to go.
Speaker 7: What's your reaction as a former FED governor to this
Speaker 7: report that is not only a massive upside surprise almost
Speaker 7: twice as much as what the expectation was, but also
Speaker 7: with an upside revision to the prior month. What would
Speaker 7: you if you were still in the FED do with this?
Speaker 8: So I think look at two pieces.
Speaker 6: One obviously the incredible strength of the labor market continuing
Speaker 6: to be there. But the silver lining is that we
Speaker 6: didn't see a lot of kickup in wages. So I'd
Speaker 6: wanted to get into that a little bit more detail,
Speaker 6: because that's really ultimately what is going to affect costs
Speaker 6: and what's going to drive drive inflation. Maybe I was
Speaker 6: being too harsh and saying there'd be a hardish landing.
Speaker 6: Maybe we've got something that's perfect goldilocks. I find it
Speaker 6: hard to believe it's possible after being at the FED
Speaker 6: during the global financial crisis. I never say never about anything,
Speaker 6: but we've never seen something so perfectly goldilocks before. But
Speaker 6: if you can have a strong labor market but not
Speaker 6: have real wage growth being too high, that would be
Speaker 6: ideal for the fit.
Speaker 7: One thing that I'm seeing is the underemployment rate coming
Speaker 7: in a little bit seven percent from seven point one percent.
Speaker 7: It goes to the prea misra question, which would lead
Speaker 7: to a higher neutral rate longer term. If we get
Speaker 7: an increase in productivity, if we see some sort of
Speaker 7: just general growth that means a higher inflation, higher growth
Speaker 7: kind of era. Are you hearing anything, seeing anything in
Speaker 7: this data that suggests that has a greater likelihood than
Speaker 7: you previously thought imaginable.
Speaker 6: Well, not the data today, but we have been seeing
Speaker 6: some pretty good numbers related to productivity growth, and ultimately
Speaker 6: that's what we want to see. Higher productivity growth is
Speaker 6: great for economic growth and great for real wage increases
Speaker 6: for workers. Now, whether that's just sort of a one
Speaker 6: off thing, it's going to take a lot more data
Speaker 6: to figure that out.
Speaker 1: Tell me at the bus School is you people own
Speaker 1: the high ground on the analysis of our finance and
Speaker 1: they say one emotional thing commercial real estate. The fact is,
Speaker 1: in the carnage that we're in right now, thirty year bond,
Speaker 1: we're going to have a normal American failure of restructuring,
Speaker 1: failure of businesses. New fresh money will come in and
Speaker 1: you know, at a lower distress price than that. Will
Speaker 1: we just survive this event or can there be lasting
Speaker 1: damage here like there was an seven eight nine?
Speaker 6: So I think we really need to rethink the business
Speaker 6: model of how this is financed because a lot of
Speaker 6: small and medium sized banks have a lot of exposure
Speaker 6: in this area. You know, the chickens are going to
Speaker 6: come home to roost because interest rates are a lot higher,
Speaker 6: so refinancing rates will be higher. There are a lot
Speaker 6: fewer people going into the office, so a lot of
Speaker 6: the commercial real estate values are going down. And I
Speaker 6: think a lot of the small and medium sized banks
Speaker 6: are going to be stepping away from this. So the
Speaker 6: question is going to be who will be financing this
Speaker 6: going forward. The big banks don't seem to have any
Speaker 6: appetite to do that. Maybe it'll be new players like
Speaker 6: private credit coming in, but that's very new. We will
Speaker 6: have to see.
Speaker 1: Kind of the matter is that Professor Krasner is for
Speaker 1: the fossils like me, the collective memory of our of
Speaker 1: Continental Illinois out of nowhere. What are the shadows right
Speaker 1: now that you see of a Continental Illinois of portfolio
Speaker 1: insurance in eighty seven, the leverage of ninety eight. What's
Speaker 1: the Krasner's shadow right now you're most focused on.
Speaker 6: So I do think trying to understand what's going on
Speaker 6: with commercial real estate, how that's going to affect well
Speaker 6: medium sized banks is very important. And then also looking
Speaker 6: through well, trying to look through into the areas we
Speaker 6: don't know about. This gets back to what we were
Speaker 6: talking about before, into the non bank financial sector. So
Speaker 6: we've got a lot of data about banks, but just
Speaker 6: as I was describing, there a lot of non banks
Speaker 6: who are doing traditional bank functions. We don't have as
Speaker 6: much insight into that. So that's something that we know,
Speaker 6: we don't know, and we have to find out a
Speaker 6: lot more information.
Speaker 1: It's another one hour conversation with Professor Krasner will do
Speaker 1: that at another time. We are honored your with us
Speaker 1: today for all of us at Bloomberg. Thank you so much,
Speaker 1: Randall Krasner of the Boost School Chicago. We're also honored
Speaker 1: the Jeffrey Rosenberg dart and the door he was just
Speaker 1: looking at his Bloomberg terminal. Jeff Rosenberg, let's take this
Speaker 1: all in nonfarm payrolls. They have the number your four
Speaker 1: hundred and fifty five thousand with revision. Take that shock
Speaker 1: into your shock of working at Blackrock this week in
Speaker 1: fixed income, how do you dovetail the two?
Speaker 9: Well, you know, I think I'm gonna talk about something
Speaker 9: that we usually don't talk about on a payroll Friday,
Speaker 9: and that's third quarter earnings, which begin to kick off.
Speaker 9: And what this payroll report really, I think starts to
Speaker 9: reconcile is a disconnect that we've been hearing between kind
Speaker 9: of the bond market consensus soft landing, inflation, slowing labor markets,
Speaker 9: and at the same time a very positive corporate profits
Speaker 9: margins holding up. And here's the problem with that those
Speaker 9: two stories is that how do you get the slowing
Speaker 9: in labor how do you get layoffs if corporations are
Speaker 9: doing just fine with pass through and with margins. And
Speaker 9: so the reconciliation of those two inconsistencies is on display
Speaker 9: right now this is a much stronger labor market. Clearly,
Speaker 9: that's what we see in the report today.
Speaker 8: Across the board.
Speaker 9: And so the challenge is, and what you were relating
Speaker 9: to with Randy Krasner, is that this is an environment
Speaker 9: where rates are going to have to stay higher for longer,
Speaker 9: potentially even go higher.
Speaker 8: And the longer that.
Speaker 9: Occurs, the more those cracks and that vulnerability has time
Speaker 9: to eventually show up. But this is really telling you
Speaker 9: something that the equity markets have been telling you. That
Speaker 9: it's good for corporations, good profit margins, good earnings, isn't
Speaker 9: a good story for labor market normalization and for the inflations.
Speaker 1: Jeff Rozenberg, mister Fink's office called me this morning as
Speaker 1: us coming in and they said, don't ask Jeff Rozenberg
Speaker 1: anything about inside baseball Blackrock. I will not, but I
Speaker 1: will ask you about the functioning of our fixed income
Speaker 1: market off this shock report. Are there instabilities visible outside
Speaker 1: of Blackrock that you see? Can we get transactions done
Speaker 1: as we get ever higher yields?
Speaker 9: You know, it's been a remarkably orderly move higher in
Speaker 9: terms of market functioning, agreed in terms of liquidity. I
Speaker 9: think the issue that you again just went through with
Speaker 9: Randy about where are the cracks, where are the vulnerabilities?
Speaker 8: Randy highlighted, you know, the change in intermediation.
Speaker 9: The financial system is much more disintermediated today and in
Speaker 9: different ways that we haven't seen before. And so the
Speaker 9: story and the history is that as you have these
Speaker 9: shocks in terms of interest rates.
Speaker 8: There are vulnerabilities.
Speaker 9: The challenge is this time will be different in terms
Speaker 9: of where those vulnerabilities show up, and that will be surprising.
Speaker 9: I think the key here is that coming off of
Speaker 9: over a decade of zero interest rates, we established a
Speaker 9: lot of expectation for the persistence of low interest rates.
Speaker 9: And yes, there's a lot of liquidity still left over
Speaker 9: private credit dry powder. The issue isn't the liquidity, it's
Speaker 9: now the cost of that liquidity and whether or not
Speaker 9: you can afford.
Speaker 8: Those much higher interest rates.
Speaker 9: I think the thing to be aware of, however, is
Speaker 9: that in the private credit market environment, you don't have
Speaker 9: the same kind of liquidity triggers that you have in
Speaker 9: the banking sector. You mentioned Continental Illinois. You don't have
Speaker 9: deposit runs, so you have a lot more flexibility to
Speaker 9: extend the time period, a lot more flexibility to limit
Speaker 9: any kind of spillover chakrisk, So it functions in a
Speaker 9: different way, but it doesn't mean that there isn't still
Speaker 9: eventually the cost to be paid for a much higher
Speaker 9: interest rate environment.
Speaker 7: Jeff Rosenberg of Blackrock, I am curious from your vantage point,
Speaker 7: why you would buy bonds here if you see this
Speaker 7: kind of strength in the labor market persisting.
Speaker 9: Well, I think when you say why would you buy bonds,
Speaker 9: I think one of the key things about the fixeding
Speaker 9: of markets is there's a very different level of opportunities
Speaker 9: opportunity set across the yield curve. So the front end
Speaker 9: of the yield curve is really pricing in a lot
Speaker 9: of the forward path the movement today basically pricing in
Speaker 9: now one hundred percent of the final increase in interest rates.
Speaker 9: You know, if inflation and the kind of one silver
Speaker 9: lining in today's report is average hourly earnings, you know,
Speaker 9: if that picture still maintains and the Fed can hold
Speaker 9: rates at high levels, but it doesn't necessarily have to
Speaker 9: go further. That's already in the price And when you
Speaker 9: look at the back end of the curve, yes there's
Speaker 9: more vulnerability. Yes, we still think there's more term premium
Speaker 9: steepening to go. But you're starting now just finally to
Speaker 9: get to levels where you're getting back to normal, and
Speaker 9: that movement from abnormal to normal.
Speaker 8: Is very painful.
Speaker 9: But where you're getting closer, and that's interest rates, that
Speaker 9: approximate nominal GDP, that's the history of where the long
Speaker 9: term interest rates should be, and you're getting closer to that.
Speaker 9: You may overshoot and you may have more term premium
Speaker 9: risk because of the deficits and QT. So we're a
Speaker 9: little bit cautious on the back end, but why would
Speaker 9: you buy bombs? You may not want to buy like
Speaker 9: thirty year bonds, But the front end of the curve
Speaker 9: is really starting to get to levels that are much
Speaker 9: more attractive for two.
Speaker 1: Thousand and seven and on. This is one of the
Speaker 1: historic days we've had on Bloomberg Surveillance. We welcome all
Speaker 1: of you commercial free here through the hour. Michael McKee
Speaker 1: with us, Jeffrey Rosenberg of Blackrock.
Speaker 7: Jeff Rosenberg of black Rock. From your vantage point, is
Speaker 7: this the one hedge that has worked in this period
Speaker 7: of turmoil by the dollar.
Speaker 9: Yeah, it's been pretty much rate driven, and I think
Speaker 9: as you're highlighting this morning that rate move is reflective
Speaker 9: of the I'm sorry, the move and the dollar is
Speaker 9: reflective of that rate move. I want to go back
Speaker 9: to what Mike McKee was just saying in terms of
Speaker 9: the FED, and I think that is what you're seeing
Speaker 9: in terms of pricing in the last hike. And I
Speaker 9: think also as well, they will recognize that the market
Speaker 9: is doing a lot of the work for them and
Speaker 9: we're going to get the tightening and financial conditions, and
Speaker 9: they were hoping to avoid an easing.
Speaker 8: Of financial conditions, which is what they've gotten here.
Speaker 9: So I think that helps to kind of move us
Speaker 9: off of the FED tightening path. The real issue in
Speaker 9: terms of the bond market pricing into next year is
Speaker 9: we've priced out about half after the FMC half of
Speaker 9: the cuts that were priced into next year. And I
Speaker 9: think that's the next move that you can start to
Speaker 9: see is really pricing out the cuts as you get
Speaker 9: more of this higher restrictive for longer kind of perspective.
Speaker 7: And we did see that thirty year treasure yield across
Speaker 7: that five percent marked as briefly but flirting once again
Speaker 7: with that level. Jeff, how much is this a sustainable rate?
Speaker 7: You said, pricing out cuts going beyond twenty twenty four.
Speaker 7: Is it sustainable economically and from a risk acid perspective.
Speaker 9: Well, A lot of that depends on this projection in
Speaker 9: terms of the inflation trajectory. Right, So the reason for
Speaker 9: the cuts priced in, one of the reasons for the
Speaker 9: cuts priced in by the bond market is the expectation
Speaker 9: that interest, sorry, inflation starts to fall and the Fed
Speaker 9: wants to cut rates. So that you were talking about
Speaker 9: it earlier, Tom not having meal rates go up as
Speaker 9: inflation goes down.
Speaker 8: So is it sustainable, yes, but a.
Speaker 9: Lot of that's going to go And Mike McKee, you
Speaker 9: hit it on the head next week in the CPI report,
Speaker 9: it is very strong jobs report. A big component of
Speaker 9: the inflation expectations declining is that core services x housing,
Speaker 9: which is really related to the jobs market. So good
Speaker 9: news here so far as ahg averagile earnings not taking up.
Speaker 9: As long as you see that inflation trajectory go down,
Speaker 9: then I think you can get that pricing the second
Speaker 9: half of next year.
Speaker 1: Jeff Rosenberg, I want to cut to the chase. I've
Speaker 1: got a multi standard deviation moveing price in a blended
Speaker 1: bond index like the Bloomberg total return index from the
Speaker 1: peak of the market in January in twenty twenty one.
Speaker 1: How do you frame out, Jeff Rosenberg, that institutions, retail
Speaker 1: and retired America will somehow get back to the pricing
Speaker 1: of the Great Moderation. You must be looking that in.
Speaker 8: YU, Yeah, and I'm not sure Tom.
Speaker 9: The framing is that we're getting back to the pricing
Speaker 9: of the Great Moderation. And I think that's part of
Speaker 9: the adjustment here, is that you may not have that
Speaker 9: bond market that you were used to in terms of
Speaker 9: an upwardly sloped yield curve, falling interest rates, a high
Speaker 9: positive total return, and most importantly.
Speaker 8: A reliable ballast to your stocks.
Speaker 9: It's a very different bond market, and this is the
Speaker 9: transition period. I think investors have to really recognize that,
Speaker 9: and so the opportunities are really changing how you hold
Speaker 9: your bonds in your portfolio.
Speaker 8: It's much more in the front end. It's much more.
Speaker 9: About flight to quality. Insurance is no longer the thirty year.
Speaker 9: It's the front end of the curve. It's a steepening
Speaker 9: when you have a crisis, because you've got that rate
Speaker 9: possibility priced back into the curve. So a lot of
Speaker 9: changes in thinking about how we build portfolios.
Speaker 7: Jeff Rosenberg, thank you so much for taking the time
Speaker 7: on a day that truly is historic.
Speaker 10: As Tom was saying, and Rita sent remembers a long
Speaker 10: time ago, she looks at the geology of the permium
Speaker 10: basin in his experanda, we're not going to do securities
Speaker 10: analysis here.
Speaker 1: We'll say that for another conversation on this important sixty
Speaker 1: billion dollars potential transaction. And Rita cent of energy aspects
Speaker 1: as well. And Rita, the stereotype of America from Lubbock
Speaker 1: pass Midland to Odessa onto New Mexico is nineteen twenty four.
Speaker 1: There's oil in them our hills and we went out
Speaker 1: and find it. That's the stereotype. The movies James Dean
Speaker 1: and all forget about it. What's the new stereotype? Why
Speaker 1: does Exxon want to span more oil from Lubbock to
Speaker 1: New Mexico.
Speaker 11: I mean, look, you can see that from USHL production
Speaker 11: as you guys were just talking about. Production has been
Speaker 11: rising close to thirteen million barrels per day today and
Speaker 11: it is still projected to continue rising. I think what
Speaker 11: we have seen, however, the last decade was very much
Speaker 11: about quantity over quality, right, everybody, every CEO was incentivized
Speaker 11: to grow production and not to return money to shareholders.
Speaker 11: And that's changed dramatically. And what you are seeing today
Speaker 11: is very much like slower growth consolidated growth. And we've
Speaker 11: seen an enormous amount of M and A activity. Companies
Speaker 11: want to take over adjacent acreage and they are getting
Speaker 11: more efficient and the number of amenitings. We put out
Speaker 11: this piece a few months ago identifying eighty companies that
Speaker 11: could be taken over. Fifteen of that's already happened. And
Speaker 11: one of the very interesting things from you're seeing that
Speaker 11: is if say a company acquires another company, they.
Speaker 4: Are not continuing to run those rigs.
Speaker 11: One plus one rigs is basically now becoming one point two,
Speaker 11: like they are getting rid of the poor rigs. And
Speaker 11: that's one of the big reasons why US production growth
Speaker 11: has slowed.
Speaker 1: We'll talk about the synergy memo's starting to come out
Speaker 1: of our City Group with a lead memo this morning.
Speaker 1: We'll do that later. Emory just said, I look at
Speaker 1: this and it's number two and number four, and of
Speaker 1: course we harken back to accidental well taking out ginormous
Speaker 1: and wonderful and a darko. Okay, fine, are we consolidating
Speaker 1: the industry and do a doopoly a triapoly? Are we
Speaker 1: taking the independence out?
Speaker 11: No? No, the independence are still there, But what we
Speaker 11: are taking out are tons and tons of the mom
Speaker 11: and pop shops effectively very very tiny producers private equity
Speaker 11: owned assets as well. What you are going to have
Speaker 11: is a much more efficient shale patch that actually produces
Speaker 11: good quality and at a cost where shareholders are happy.
Speaker 11: Like I was saying, last ten years, they just grew
Speaker 11: production and nobody returned any money to anybody, which is
Speaker 11: fine in a zero interest rate environment, but that's not
Speaker 11: fine when interest rates are five and a half or
Speaker 11: five six percent, depending on which part of the curve
Speaker 11: of your room.
Speaker 7: I Meanda, how much is this deal also fueled by
Speaker 7: this idea that people are realizing that fossil fuels aren't
Speaker 7: going away so quickly, and that, if anything, they're going
Speaker 7: to be needed at all times, even during the transition
Speaker 7: to different types of energy.
Speaker 11: I mean, I hope that is the realization. I just
Speaker 11: got back from a wouldhab this morning. I was there
Speaker 11: for Adipek, and I think in the region it's very
Speaker 11: much the main focus saying that, look, yes we need
Speaker 11: to decarbonize, and something we've talked about right on the
Speaker 11: show that let's talk about decarbonizing hydrocarbons, let's not talk
Speaker 11: about not having fossil fuels at all, because if economic
Speaker 11: growth continues, population growth continues, what will happen is energy
Speaker 11: demand will grow. Those are like the basic truths. And
Speaker 11: if energy demand is going to grow, we're going to
Speaker 11: need all forms of energy because we're not even investing
Speaker 11: enough and renewables, let alone in fossil fuelds to meet
Speaker 11: current energy demand. Right, and that's the realization. Hopefully that
Speaker 11: syncing in in the West as well the East gets it.
Speaker 11: It's much more for America and Europe to come around
Speaker 11: to that.
Speaker 7: Meanwhile, we are looking at oil prices that have been
Speaker 7: on a wild ride. We saw them climbing. We were
Speaker 7: talking about one hundred dollars a barrel, and suddenly we
Speaker 7: saw the biggest to climb this week, going back to March.
Speaker 8: Do you view this as.
Speaker 7: Too far, too fast, the way the Barclays does, or
Speaker 7: do you see this as something fundamental, especially a light
Speaker 7: of we're seeing in cooper and other commodities tracking this
Speaker 7: type of decline.
Speaker 11: No, I don't think this is fundamentals. It has really
Speaker 11: been positioning driven. Open interest in options markets have been
Speaker 11: very high.
Speaker 4: The macro backdrop.
Speaker 11: You know, you've had treasury treasuries rise consistently for a
Speaker 11: while now. Oil had decoupled, but it's definitely come back
Speaker 11: under a kind of the macro scrutiny, purely on a
Speaker 11: fundamental basis. Look at the back radiation. Look at the
Speaker 11: front month versus the second and third month that is
Speaker 11: extremely steep still. Whether it be Wti, whether it be Brent,
Speaker 11: whether it be Dubai, it's telling you that the physical
Speaker 11: fundamentals are absolutely fine. You get flash outs like this,
Speaker 11: and you know you don't get five dollars ten dollar
Speaker 11: moves on fundamentals that tends to be positioning or geopolitical driven. Right,
Speaker 11: we'll get through this, and once we rebase, we will
Speaker 11: continue to move back higher again. But you'll always get
Speaker 11: like you'll never go up in a straight line.
Speaker 4: You don't know.
Speaker 11: When I was in the studio with you guys, I
Speaker 11: was saying that as well. Right, you get some consolidation
Speaker 11: and volatility and then then we'll go up again.
Speaker 1: I'm very quickly here going back to Adam Siminski and
Speaker 1: Paul saying, you Deutsche Bank a million years ago. There's
Speaker 1: the amortus sense spreadsheet Excel spreadsheet of demand, which is
Speaker 1: the single line item of demand, flexibility or movement that
Speaker 1: matters in the November of this year, Which geography, which
Speaker 1: kind of oil signals to you where demand's heading.
Speaker 11: I would say if right now it's going to be
Speaker 11: the US, because that's where all the macro worries are
Speaker 11: that are we slowing down significantly?
Speaker 4: Is it a collapse?
Speaker 11: I completely don't buy the gasoline demand print that came
Speaker 11: out of the EIA this week. But that's what we'd
Speaker 11: be focusing on on the US gasoline US diesel story.
Speaker 11: The rest of the world's okay, we know where it's headed.
Speaker 11: Is the US where the uncertainty is.
Speaker 2: If a paper it just called that line m rates,
Speaker 2: what do you mean you don't buy it?
Speaker 11: I don't buy it because you don't get that, okay.
Speaker 11: Very simply, you can look at how much ethanol is
Speaker 11: being used in gasoline. You can back out gasoline demand
Speaker 11: from the ethanol usage that still says it's close to
Speaker 11: ten million barrels per day. The weekly EI in numbers
Speaker 11: are all over the place. They've never been too reliable
Speaker 11: and oftenly definitely not reliable. I won't pay too much attention.
Speaker 1: Friday morning inorganic chemistry without meta.
Speaker 2: Said, I'm ready to appreciate it. Just quickly. I've got
Speaker 2: about thirty seconds. Triple digit recruit by Halloween. What's the
Speaker 2: call now?
Speaker 11: I want to stick It's a better call now now
Speaker 11: that we are at eighty five rather than when it
Speaker 11: was at ninety five, So.
Speaker 4: I have to stick to that.
Speaker 2: Okay, okay, we'll speak to you around Halloween. I'm ready
Speaker 2: to thank you appreciate it.
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