WEBVTT - Economy is Doing Relatively Well, Zingales Says 0:00:00.080 --> 0:00:12.960 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.160 Bloomberg dot Com, and of course on the Bloomberg. Yeah. 0:00:32.720 --> 0:00:35.680 The earnings here in the United States continue to take 0:00:35.680 --> 0:00:39.199 the headlines. And it's Morgan Stanley this morning smashing estimates 0:00:39.200 --> 0:00:42.839 with investment banking revenue up seven percent, trading revenue for 0:00:43.600 --> 0:00:46.960 debt trading and equity trading also smashing estimates, and the 0:00:47.040 --> 0:00:50.680 stock up this morning by one point eight percent in 0:00:50.720 --> 0:00:52.879 the pre market. And please to say that joining us 0:00:52.920 --> 0:00:55.960 to react as Kate Moore, black Rock chief equity strategist 0:00:56.000 --> 0:00:58.120 and on the financials so far, Kake, just to get 0:00:58.160 --> 0:01:00.160 your thoughts, I'll go through the single names and can 0:01:00.160 --> 0:01:03.360 talk about the sector. Um JP Morgan, they beat, they 0:01:03.360 --> 0:01:06.160 deliver a record profit, and the stock is down. We 0:01:06.240 --> 0:01:08.240 sort the same thing with government sacks. We haven't seen 0:01:08.280 --> 0:01:10.759 that with Morgan Stanley, but overall we've seen really really 0:01:10.800 --> 0:01:13.399 decent numbers get a market that doesn't seem to be 0:01:13.400 --> 0:01:15.679 overly impressed. Why do you think that is. You know, 0:01:15.720 --> 0:01:18.200 I've heard a host of reasons why the market is 0:01:18.240 --> 0:01:22.120 reacting so softly to what seemed like very very strong 0:01:22.200 --> 0:01:26.280 numbers and very solid expectations for future earnings growth this year. 0:01:26.720 --> 0:01:29.280 You know. Some of them are that deposit betas are 0:01:29.720 --> 0:01:32.560 rising a little bit, i e. That there's more competition 0:01:33.240 --> 0:01:35.760 across the bank's for deposits, and so they're having to 0:01:36.160 --> 0:01:40.119 pass on the benefits of higher rates um to their customers. 0:01:40.200 --> 0:01:42.360 That might be one explanation. Some of it's been the 0:01:42.440 --> 0:01:46.440 guidance from banks around future growth and loan growth has 0:01:46.480 --> 0:01:48.600 been a little bit lower. That might be one excuse. 0:01:48.920 --> 0:01:51.000 To be honest with you, I think the sector is 0:01:51.040 --> 0:01:54.200 an outstanding shape, and I've been kind of disappointed with 0:01:54.200 --> 0:01:57.000 how the market has reacted to these exceptionally strong numbers. 0:01:57.440 --> 0:01:59.360 I think that we need to stay long the financials 0:01:59.360 --> 0:02:02.560 and particularly a cat banks, and it remains one of 0:02:02.600 --> 0:02:05.320 my favorite picks throughout this year. Okay, to what extent 0:02:05.440 --> 0:02:07.200 is there at a market that's just looking at the 0:02:07.280 --> 0:02:09.799 vis pulling back dance with fifteen handle and saying, yeah, 0:02:09.840 --> 0:02:11.880 well done, great first quarter. You're not going to repeat 0:02:11.919 --> 0:02:13.960 it on the trading side. It's too cute. Yeah, well, 0:02:14.000 --> 0:02:16.760 that's right. I mean, look, it takes some skill though 0:02:16.800 --> 0:02:20.440 to be able to really benefit from significantly higher volatility. 0:02:20.480 --> 0:02:23.400 We had these high vall days um and lots of 0:02:23.440 --> 0:02:26.040 plus and mind is one percent inter day moves much 0:02:26.040 --> 0:02:28.280 more so than we saw, of course in two thousands seventeen, 0:02:28.280 --> 0:02:31.640 where there was no movement, but volumes weren't huge. And 0:02:31.720 --> 0:02:33.480 so in order to really take advantage of it, I 0:02:33.480 --> 0:02:35.440 think you need some skill traders, and you need some 0:02:35.480 --> 0:02:37.800 great relationships. So I wouldn't say it has to just 0:02:37.880 --> 0:02:40.000 be about the vix in order to continue to benefit 0:02:40.040 --> 0:02:43.240 from the trading side. Is there an efficient frontier now? 0:02:43.680 --> 0:02:47.440 I mean, Kate, if we're to wax all theoretical right now, 0:02:47.520 --> 0:02:49.560 is there a thing out there that's all curvy and 0:02:50.000 --> 0:02:51.960 stocks and bonds and I know where I want to 0:02:52.000 --> 0:02:53.960 be and maybe I even know what to do with 0:02:54.000 --> 0:02:57.880 my cash? Is does that theory work? Still? I think 0:02:57.880 --> 0:03:00.280 we've had some sort of evolution in thinking about fully 0:03:00.360 --> 0:03:04.840 considered Well, look, we we've been in a period where 0:03:04.919 --> 0:03:08.120 it made sense to hold a significant amount of debt 0:03:08.120 --> 0:03:10.040 and a hold the signific amount of equity at the 0:03:10.080 --> 0:03:13.960 same time. If we are right about a sustained global 0:03:14.040 --> 0:03:17.000 economic expansion persisting for the next couple of quarters, for 0:03:17.080 --> 0:03:19.480 the next couple of years, that we're not kind of 0:03:19.520 --> 0:03:21.280 at the end of the cycle, and that rates will 0:03:21.280 --> 0:03:24.200 continue to rise. We need to be pretty thoughtful about 0:03:24.200 --> 0:03:26.880 how we approach fixed income. You've heard it from US 0:03:26.880 --> 0:03:30.040 many times, but we prefer short duration. We certainly perform 0:03:30.160 --> 0:03:33.200 prefer you know, parsing the margin market debt world over 0:03:33.280 --> 0:03:36.640 some of the long duration uh U S treasuries. But 0:03:37.640 --> 0:03:39.560 I know this sounds I sound like a broken record 0:03:39.760 --> 0:03:43.160 because I'm an equity strategist, But I still strongly believe 0:03:43.200 --> 0:03:45.880 that equities are the place to be, even this late 0:03:45.920 --> 0:03:48.680 in the cycle, even if your returns are not going 0:03:48.720 --> 0:03:52.280 to be north year. Maybe, Kate, what's so important here 0:03:52.440 --> 0:03:55.640 is we forget about you know, cf A one oh 0:03:55.680 --> 0:03:57.760 one like level one. I'm in a panic, and I 0:03:57.760 --> 0:03:59.920 don't know what this means. You look at way to 0:04:00.040 --> 0:04:02.880 average cost to capital. I'm looking at a major, famous 0:04:02.920 --> 0:04:06.720 consumer durable which will you know a staple almost will 0:04:06.800 --> 0:04:08.920 leave it the name of it out, It doesn't matter. 0:04:09.280 --> 0:04:13.320 They've only got nine point one percent debt. Their cost 0:04:13.440 --> 0:04:16.599 is modeled at two point one percent, which is a 0:04:16.760 --> 0:04:21.520 zero point two percent contribution to a waited average cost 0:04:21.560 --> 0:04:25.480 to capital. This isn't in the theory books. Now, that's right, 0:04:25.560 --> 0:04:28.000 And this is one of the real challenges I think 0:04:28.360 --> 0:04:31.640 when you're looking forward and trying to put together forecasts, 0:04:31.920 --> 0:04:35.160 but then you use historical relationships and historic balance sheets 0:04:35.160 --> 0:04:38.800 and historic um, you know, sort of corporate behavior as 0:04:38.839 --> 0:04:42.440 your guide. That's always this risk, whether you're thinking about 0:04:42.440 --> 0:04:45.479 asset allocation or whether you're thinking about kind of near 0:04:45.600 --> 0:04:48.040 term returns of driving your car by looking through the 0:04:48.080 --> 0:04:51.239 rear view mirror. And so your point about debt being 0:04:51.760 --> 0:04:54.520 relatively low. We've talked about this before, about how what 0:04:54.600 --> 0:04:56.560 a great job companies have done of turning out their 0:04:56.600 --> 0:04:59.520 debt and locking in low rates, and you know, how 0:04:59.720 --> 0:05:02.760 less sensitive they are and how healthy I think their 0:05:02.760 --> 0:05:05.120 balance sheets are relative to say, where they were, you know, 0:05:05.200 --> 0:05:07.800 fifteen or twenty years ago. Um, we need to be 0:05:07.800 --> 0:05:10.440 careful about using history too much as a guide. So, okay, 0:05:10.520 --> 0:05:12.480 what are you concerned about? Most of all, there's no 0:05:12.520 --> 0:05:14.960 big maturity wall coming up for many of these companies, 0:05:14.960 --> 0:05:17.359 as you said, have turned out that debt quite effectively 0:05:17.360 --> 0:05:18.920 of the last couple of years and really locked in 0:05:18.960 --> 0:05:21.360 low right, So what's the concern you know, I really 0:05:21.400 --> 0:05:23.680 worry about risk appetite. We were talking about this in 0:05:23.800 --> 0:05:26.360 terms of trade and geopolitics. I think that's very present. 0:05:26.760 --> 0:05:29.200 You know, there were three things that came up last 0:05:29.240 --> 0:05:32.360 year consistently when talking to companies and talking to investors, 0:05:32.400 --> 0:05:35.320 both on the institutional on the individual side, and they 0:05:35.360 --> 0:05:39.000 were you know, major concerns about where valuations were, anxiety 0:05:39.040 --> 0:05:43.320 around that, uh, significant anxiety around politics and the impact 0:05:43.320 --> 0:05:46.880 that politics could have on market movements. And then I 0:05:46.880 --> 0:05:48.960 think there was a lot of concern that you know, 0:05:49.000 --> 0:05:52.120 significantly higher interest rates were going to you know, be 0:05:52.160 --> 0:05:55.400 around the corner and end impact companies earnings. You know, 0:05:55.440 --> 0:05:58.480 here we are where the anxiety around valuations shouldn't really 0:05:58.520 --> 0:06:01.880 be there. We've compressed multiples, uh, you know around the 0:06:01.880 --> 0:06:05.080 world where now at levels that look much more like 0:06:05.120 --> 0:06:08.680 their five year averages. UM. You know, politics certainly has 0:06:08.760 --> 0:06:10.880 been in play, but most companies have been able to 0:06:10.920 --> 0:06:13.960 continue to operate as usual and are seeing strong growth 0:06:14.000 --> 0:06:17.440 despite the headline noise. And you know, as we were 0:06:17.440 --> 0:06:19.960 saying before, I'm not really concerned that significantly higher rates 0:06:20.000 --> 0:06:22.760 are going to have an impact on on earnings. You know, 0:06:23.320 --> 0:06:26.039 places I'm watching those small and MidCap and I'm watching 0:06:26.560 --> 0:06:30.960 you know, uh, in particular those companies that haven't been 0:06:31.000 --> 0:06:34.240 as smart or engaging in a new round of investment 0:06:34.279 --> 0:06:36.520 that is going to be financed by debt. Okay, well, 0:06:36.600 --> 0:06:38.240 it's great to have you with us to get your thoughts. 0:06:38.240 --> 0:06:40.760 Thank you very much forgiving your trying to Bloomberg Savannas 0:06:40.760 --> 0:06:43.200 on sav and Readier through the morning, Blank Rocks, Chief 0:06:43.440 --> 0:06:57.920 Equity Strategists, Chum Pharaoh at our studios, Blumberg eleventh three 0:06:58.040 --> 0:07:02.400 in New York. I'm Tom Keen and FM Studios in Washington, 0:07:02.480 --> 0:07:05.080 d C. John. Just in the distance, I can see 0:07:05.080 --> 0:07:09.040 the Gucci store, which is always a good and appropriate 0:07:09.080 --> 0:07:12.440 thing here for the World Bank. I m F meetings 0:07:12.440 --> 0:07:16.040 as well, and also today a panel with Luigis and 0:07:16.120 --> 0:07:19.800 Gallis of the Boost School in Chicago. Luigi. One of 0:07:19.800 --> 0:07:22.840 the great jewels which really folds into the modern debate 0:07:23.000 --> 0:07:25.920 right now is a paper by Michael Bordo and Anna 0:07:26.000 --> 0:07:31.120 Schwartz of years ago on the Chicago history of traditional 0:07:31.760 --> 0:07:35.440 Keynesie and economics. And the title of the paper was 0:07:35.480 --> 0:07:38.880 called I S l M and Monitorism, And what it 0:07:38.880 --> 0:07:43.960 amounts to is we set up a geometric structure about 0:07:44.000 --> 0:07:47.640 all this economy stuff works in six and ninety nine 0:07:47.640 --> 0:07:50.840 with Hicks, and we dragged it forward to Milton Friedman. 0:07:51.680 --> 0:07:56.840 Neither of those parties, Hicks, Kines, Alvin Hansen, or Milton 0:07:56.920 --> 0:08:02.200 Friedman at Chicago had to deal with trill in dour deficits. 0:08:02.200 --> 0:08:07.080 How does the fiscal debt fold in through our traditional 0:08:07.240 --> 0:08:11.720 economic models. I think they certainly did not have to 0:08:11.760 --> 0:08:15.640 deal with the deficit of this size, But also they 0:08:15.640 --> 0:08:17.160 did not have to deal with the deficits of the 0:08:17.280 --> 0:08:20.800 side in a moment where the level of debt is 0:08:20.840 --> 0:08:25.240 so high and where the economy is doing relatively well. 0:08:25.320 --> 0:08:28.360 So I think that what is surprising is not so 0:08:28.440 --> 0:08:31.560 much that we have a deficit where the huge deficit 0:08:31.640 --> 0:08:34.120 in two thousand and nine was a bigger deficit, but 0:08:34.200 --> 0:08:39.719 that was in a difficult moment, uh sort of economically, 0:08:39.800 --> 0:08:44.160 and now we are nine years into an expansion and 0:08:44.840 --> 0:08:47.200 the economy is doing relatively well. So I think that 0:08:47.880 --> 0:08:51.719 increasing the deficit at this moment of the cycle, with 0:08:52.480 --> 0:08:57.719 this level of debt coming in my reduce the ability 0:08:57.800 --> 0:09:02.200 to do contact policy when never session will come. Can 0:09:02.280 --> 0:09:07.800 you say that the rising debt and deficit lowers the 0:09:07.960 --> 0:09:12.160 degrees of freedom that monetary authorities have, whether it's the 0:09:12.200 --> 0:09:16.000 Italian government or its chairman Powell, does it? Does it 0:09:16.160 --> 0:09:21.680 give you just less choice? Given an outside chuck Um? 0:09:21.880 --> 0:09:27.200 First of all, I will differentiade between the Italian situation 0:09:27.240 --> 0:09:30.760 that you have, situation that you ask control its own currency, 0:09:31.120 --> 0:09:34.120 So they have a flexibility that Italy does not have. 0:09:34.880 --> 0:09:39.120 They said, I think that what I'm most worried about 0:09:39.520 --> 0:09:42.920 is the limited ability of the fiscal policy. So when 0:09:42.960 --> 0:09:46.880 the next recession will come, and one forecast that can 0:09:46.920 --> 0:09:49.360 make for sure there will be ever session at some point. 0:09:49.480 --> 0:09:51.520 I don't know when, but there will be another session, 0:09:51.840 --> 0:09:56.840 and we have limited ability to uh intervene from a 0:09:56.880 --> 0:09:59.960 monitory point of view because in the typical Rey session 0:10:00.000 --> 0:10:03.440 and interest rate drop by five cents a point, and 0:10:03.800 --> 0:10:07.040 where is the space for the monetary policy to act? Luigi, 0:10:07.200 --> 0:10:09.400 let me bring in my colleague. He and I have 0:10:09.440 --> 0:10:14.359 been discussing the World Cup coming up in Russia. Would 0:10:14.400 --> 0:10:21.600 be there last night in the early evening. I'm talking 0:10:21.840 --> 0:10:27.920 brighton Tottenham Premier League football, not the World Cup. John Farrell, John, 0:10:28.000 --> 0:10:30.199 I just don't get it. So let's bring him Mr 0:10:30.320 --> 0:10:33.520 Ferrell with more important items. A professor greatest speak to 0:10:33.520 --> 0:10:36.640 you again, we're talking about exhausting fiscal policy. Let's talk 0:10:36.640 --> 0:10:39.560 about exhausting monetary policy. That the FED has made a 0:10:39.600 --> 0:10:41.599 move here in the United States in a way that 0:10:41.640 --> 0:10:45.480 the ECB really hasn't. And Professor, I look at Europe 0:10:45.559 --> 0:10:48.680 right now with some concern about the next downturn in Europe, 0:10:48.920 --> 0:10:50.480 and not so much on the fiscal side, a lot 0:10:50.480 --> 0:10:52.640 of people concerned about that, but on the on the 0:10:52.640 --> 0:10:55.560 monetary policy side, with the deposit rate still as negative 0:10:55.640 --> 0:10:57.520 as it is and the ban of sheet as big 0:10:57.720 --> 0:11:00.720 as as it is, in growing Yeah, I think that 0:11:01.160 --> 0:11:05.360 if the United States UH shouldn't share, the Europe is 0:11:05.360 --> 0:11:08.720 in a war situation because there is no European fiscal 0:11:08.800 --> 0:11:11.840 policy to to know of, and as you said, the 0:11:11.880 --> 0:11:16.400 monetary policy is basically zero interest rate, so that it's 0:11:16.440 --> 0:11:20.440 not very much room. Um. I think that there is 0:11:20.720 --> 0:11:24.400 still way to go in the European expansion, so we 0:11:24.480 --> 0:11:27.400 hope that we don't have in a session soon, but 0:11:27.880 --> 0:11:30.480 if we had to add one, it wouldn't look look 0:11:30.520 --> 0:11:32.680 pretty well. Professor. The reason I bring this up is 0:11:32.720 --> 0:11:35.680 because arguably in Europe we've seen peak growth in terms 0:11:35.679 --> 0:11:37.840 of the absolute levels of growth that we had at 0:11:37.840 --> 0:11:39.640 the back end of last year, in the beginning of 0:11:39.640 --> 0:11:42.839 this year, and yet CPI is barely one and a 0:11:42.840 --> 0:11:44.640 half percent. It's at one point three and got revised 0:11:44.720 --> 0:11:47.240 lower this morning on the continents. So the e cp 0:11:47.360 --> 0:11:49.360 has got a choice to make now, haven't they, Professor. 0:11:49.440 --> 0:11:52.199 They can either sort of have their credibility question and 0:11:52.280 --> 0:11:55.080 start moving before they get back to target, or sit 0:11:55.120 --> 0:11:59.200 here and wait and ultimately it might never happen. Yeah, 0:11:59.280 --> 0:12:01.680 I think that the first thing they need to do 0:12:01.880 --> 0:12:05.360 is convinced that adding at one point three percent inflation 0:12:05.640 --> 0:12:08.679 is too low. You know, in the e c B 0:12:09.280 --> 0:12:13.120 website is still written that the price stability means to 0:12:13.240 --> 0:12:16.600 have an inflation below two percent and and some of 0:12:16.640 --> 0:12:19.560 the c B board members say below but close to 0:12:19.640 --> 0:12:23.560 two percent, and but others just saying that below two 0:12:23.600 --> 0:12:26.840 percent is fine. So I think that the first job 0:12:26.880 --> 0:12:29.560 of drug is to convince them again that one point 0:12:29.559 --> 0:12:32.360 three is too law and something needs to be done. 0:12:33.720 --> 0:12:36.800 I look, Luigia, where we are today. I want to 0:12:36.840 --> 0:12:39.199 save time for our panel today, and I guess I 0:12:39.240 --> 0:12:40.760 have to do that right now, because you've got to 0:12:40.760 --> 0:12:43.280 get on with your I m F today as well, 0:12:43.360 --> 0:12:46.120 Professors and goals. It was a panel that you know. 0:12:46.280 --> 0:12:48.560 I was thrilled that Madame m Guard's people called me 0:12:48.640 --> 0:12:50.440 up the honor to do the panel with you and 0:12:50.800 --> 0:12:54.160 Laura Tyson of Berkeley and Mr Harrington of Edelman. They're 0:12:54.240 --> 0:12:58.880 profoundly important folks. Edelement in the measurement of people's moods 0:12:58.920 --> 0:13:02.800 worldwide where they aimed eedlement trust parameter. But Luhig, I 0:13:02.800 --> 0:13:05.480 had no idea when I accepted this panel on trust 0:13:05.679 --> 0:13:10.880 and resilience we would have the political discourse of the day. 0:13:11.000 --> 0:13:16.240 The trust seems to be evaporating towards a new populous state. 0:13:17.000 --> 0:13:20.800 Is it the same populism nation the nation or is 0:13:20.840 --> 0:13:26.160 it really each culturally discreet? Of course, there are many 0:13:26.200 --> 0:13:30.160 ways to be dysfunctional, many way to be populistic. And 0:13:30.600 --> 0:13:32.680 I think that there is a web common theme, and 0:13:32.720 --> 0:13:35.800 the common theme is that the elite that tends to 0:13:35.840 --> 0:13:40.000 be a globalized elite does not appear to be trust wealthy. 0:13:40.080 --> 0:13:43.959 I think that the lack of trust is not fault 0:13:44.000 --> 0:13:47.880 of the people who don't trust us. Is our fault 0:13:48.080 --> 0:13:51.640 that we don't appear and hopefully just a p M 0:13:51.679 --> 0:13:55.600 MAB there's also some substance, but we don't appear as 0:13:55.640 --> 0:14:00.040 trust wealthy, as we should be given the responsibilities that 0:14:00.200 --> 0:14:03.480 we are in charge with. John, I think that part 0:14:03.520 --> 0:14:06.160 of this is almost media exhaustion, where you and I 0:14:06.200 --> 0:14:10.880 are buffeted every single day by the next populous crisis 0:14:10.960 --> 0:14:14.959 or populous reality, and we almost become numb to it. Yeah, 0:14:15.000 --> 0:14:17.480 I'd have to say, if we've seen a populous crisis yet, 0:14:17.880 --> 0:14:20.720 And I asked that because we had the Brexit vote 0:14:20.760 --> 0:14:22.920 and I don't see a crisis in the economy, and 0:14:23.120 --> 0:14:25.280 we've had the President of the United States do on 0:14:25.360 --> 0:14:26.840 a Trump walk into the White House, and I don't 0:14:26.840 --> 0:14:29.640 see a crisis in the economy. Quite the opposite. I'm 0:14:29.640 --> 0:14:32.240 just wondering whether we've actually seen that populous crisis that 0:14:32.360 --> 0:14:38.640 many people forecast but ultimately hasn't materialized. I think he's building. 0:14:38.840 --> 0:14:42.400 If you have paid attention to the last Italian elections, 0:14:42.520 --> 0:14:46.960 I think there was arts were quite disruptive, and we 0:14:47.000 --> 0:14:49.000 don't know when we'll have a government. So I think 0:14:49.040 --> 0:14:53.840 that there is building momentum in different places. And I 0:14:53.880 --> 0:14:56.200 agree with you, we have not seen the wars yet, 0:14:56.360 --> 0:14:58.600 And Professor, I think some people might say that maybe 0:14:58.600 --> 0:15:01.440 Italy without a government is it's a better place at 0:15:01.440 --> 0:15:04.880 the moment. Professor l which she's in Gallas University of Chicago, 0:15:05.200 --> 0:15:08.520 both School of Business professor in Washington, d C. With 0:15:08.640 --> 0:15:23.280 Tom Keane and to get to the markets and the 0:15:23.320 --> 0:15:26.160 commodity market. It's been a rally that not too many 0:15:26.200 --> 0:15:29.360 people saw coming. It's certainly not at this magnitude. By 0:15:29.400 --> 0:15:32.920 eight percent on Brent here today, by almost twelve on 0:15:33.200 --> 0:15:35.000 w t I. It's away. And I'm really pleased to 0:15:35.040 --> 0:15:38.080 say that Francisco Blanche has entered the studio the head 0:15:38.080 --> 0:15:41.800 of Global Commodities and Derivatives Research for Mary Lynch. Francisco 0:15:42.000 --> 0:15:46.160 what happened this year that maybe some people weren't positioned for. Well, look, 0:15:46.560 --> 0:15:49.680 I think I think we've had a meaningful reduction in 0:15:50.200 --> 0:15:53.760 supply on driven by the Cordel or big in Russia 0:15:54.400 --> 0:15:58.520 UM and importantly we've had strong old girls and that's 0:15:58.600 --> 0:16:01.520 led to maybe a fast at an expected invagory withdrawal 0:16:01.920 --> 0:16:05.040 still relates to oil, and that's pushed the price of 0:16:05.680 --> 0:16:09.560 crude higher. That that's that's one one thing. Obviously, metals, 0:16:09.880 --> 0:16:12.360 as you know, having performed as well, and there's smaller 0:16:12.520 --> 0:16:15.960 set of issues there and and on the on the 0:16:15.960 --> 0:16:18.560 precious side, gold has had a nice run up because 0:16:18.600 --> 0:16:20.360 I think people starting to get a little bit nervous 0:16:20.440 --> 0:16:25.040 about policy tightening, volativities picked up and that supported the pressures. 0:16:25.080 --> 0:16:27.760 So there's different reasons driving the moority prices higher, but 0:16:27.760 --> 0:16:31.200 but in general, I mean the strong global growth and 0:16:31.200 --> 0:16:34.560 and the uncertainty about about when it's gonna peak have 0:16:34.720 --> 0:16:37.640 been driving the commodity complex. So we've got three things 0:16:37.640 --> 0:16:39.760 to work through. UM. One is on oil, and we'll 0:16:39.800 --> 0:16:41.600 do that first, and then the second part is these 0:16:41.640 --> 0:16:45.600 sort of idiostocratic stories around metals like aluminum. And then 0:16:45.600 --> 0:16:47.960 the third part is only what global policy means for 0:16:48.520 --> 0:16:52.840 security a product like gold. Um, let's start with oil Francisco. 0:16:53.080 --> 0:16:55.880 The geopolitical risk premium that was injected into this market 0:16:55.880 --> 0:16:58.040 over the last couple of weeks. Seemingly it's going to 0:16:58.160 --> 0:17:01.280 drain back out. Can we keep prices elevated once that 0:17:01.320 --> 0:17:04.520 geopolitical risk premium drains back out if you do believe 0:17:04.600 --> 0:17:07.800 it will train back out. Well, first of all, I 0:17:07.880 --> 0:17:10.040 think I think there's a little bit of geo political risk, 0:17:10.080 --> 0:17:12.760 but not a lot. Um If you if you look 0:17:12.800 --> 0:17:15.879 at the well again, it depends if you call Venezuelan 0:17:15.880 --> 0:17:18.240 production falling geo political risk, then yes, you have geo 0:17:18.240 --> 0:17:20.040 political risk, but I think that's been the main driver 0:17:20.600 --> 0:17:24.080 of of prices moving higher. On the supply side, right, 0:17:24.119 --> 0:17:27.440 you've had a cartel cut, collective cut, and then you've 0:17:27.440 --> 0:17:30.000 had a collapse in Venezuelan production that really kicked off 0:17:30.400 --> 0:17:32.920 starting right around jun July of last year and it's 0:17:32.920 --> 0:17:35.520 accelerated into the start of this year, and that's been 0:17:35.560 --> 0:17:38.200 a big driver of of the upper price moving oil 0:17:38.280 --> 0:17:40.639 prices UM so I think I think the geo political 0:17:40.680 --> 0:17:44.640 risk premium is readically modest still UH, and prices could 0:17:44.720 --> 0:17:49.720 definitely push higher if if that geo political risk UH 0:17:50.000 --> 0:17:52.159 becomes more prominent. But I do think we're going to 0:17:52.240 --> 0:17:54.520 hire anyway. We have an eighty o our target by 0:17:54.560 --> 0:17:56.240 by the end of the quarter. We think we're going 0:17:56.280 --> 0:17:58.680 pretty much in a straight line to eighty from here. 0:17:59.040 --> 0:18:02.800 We have seasonal fectors, we have cyclical factors. There's a 0:18:02.840 --> 0:18:04.400 lot of reasons to believe that in the short run, 0:18:04.400 --> 0:18:06.120 in the next couple of months, oil prices are gonna 0:18:06.119 --> 0:18:08.880 move higher. But within that is move higher, And if 0:18:08.880 --> 0:18:11.240 we don't have a Memory Francisco planche of a hundred 0:18:11.240 --> 0:18:15.160 dollars a barrel, it's a terrific bowl market in oil, 0:18:15.840 --> 0:18:18.240 and the vector's garment would say is from the lower 0:18:18.359 --> 0:18:22.000 left of the upper right, why can't oil just drive 0:18:22.320 --> 0:18:25.960 higher based on to make the global economy a great again. 0:18:26.000 --> 0:18:29.879 The economy uh it can tom and and and I 0:18:29.920 --> 0:18:31.760 think one of the other issues that's popped out more 0:18:31.800 --> 0:18:34.160 recently is that even though we're seeing very strong growth 0:18:34.200 --> 0:18:36.960 in the US and and even in Canada, we're starting 0:18:36.960 --> 0:18:40.160 to hit a lot of transportation bottlenecks here. So UM 0:18:40.359 --> 0:18:43.320 much of the much of the supply that was expected 0:18:43.320 --> 0:18:45.800 to come from from North America is getting clogged up 0:18:45.840 --> 0:18:50.240 in pipes. We've seen differentials to uh W t I 0:18:50.320 --> 0:18:53.600 in in shale basins like the Permian. So the Midland 0:18:53.800 --> 0:18:58.359 UM prices have have really the coupled from prices uh 0:18:58.400 --> 0:19:00.240 in other parts of the US and around the world. 0:19:00.680 --> 0:19:04.760 Sam's happened for Western Canada prices UM and that that's 0:19:04.800 --> 0:19:07.480 I think on a slowdown investment a little bit UM so. 0:19:07.480 --> 0:19:09.760 So my sense is that that we are very reliant 0:19:09.800 --> 0:19:12.760 on on a US infrastructure system is quite clogged up. 0:19:12.760 --> 0:19:15.080 And and at the same time, the cartel is getting 0:19:15.119 --> 0:19:17.560 closer to a deal on June twenty two where they 0:19:17.600 --> 0:19:20.320 may either extend or at least keep a very very close, 0:19:20.720 --> 0:19:24.680 very tight grip on the oil market because Saudi Arabia 0:19:24.720 --> 0:19:28.960 needs it. And also now Russia, UM, with with the 0:19:29.000 --> 0:19:31.880 economic pressures they're facing, they're probably also gonna keep gonna 0:19:31.960 --> 0:19:34.800 gonna be leaning towards staying in the deal. So that 0:19:34.800 --> 0:19:38.440 that's what's going on in oil. I look at the 0:19:38.800 --> 0:19:41.479 going on an oil and I guess the money question 0:19:41.520 --> 0:19:45.159 and John Farroll is better to san I am is 0:19:45.200 --> 0:19:49.960 does it fold over into other commodities? Is oil discreet 0:19:50.760 --> 0:19:56.680 or can Francisco blancheo along Brazil this morning? Um? Well, 0:19:56.720 --> 0:19:59.760 I mean definitely oil. Oil has a lot of spill 0:19:59.800 --> 0:20:04.199 over effects. Um. And Um you know, to your to 0:20:04.240 --> 0:20:07.439 your point, there's gonna be Um if if we do 0:20:07.600 --> 0:20:10.080 break above eighty bucks and start to see a more 0:20:10.160 --> 0:20:13.840 sustained rally, that's gonna have spillover effects, gonna is going 0:20:13.840 --> 0:20:17.680 to move into other markets. Um. And And what's interesting 0:20:17.720 --> 0:20:20.760 about it is really that that we're seeing some of 0:20:20.760 --> 0:20:24.560 it already. Um. We've seen finally recovering some of the 0:20:24.640 --> 0:20:28.639 energy equities. We are seeing moves in in in the 0:20:28.720 --> 0:20:31.840 MLP sector. So even outside just the cruel oil, right 0:20:31.880 --> 0:20:34.680 outside just the the outright crueler price. We're starting to 0:20:34.680 --> 0:20:38.040 see other sectors reacting and and and that's because the 0:20:38.080 --> 0:20:41.400 back end of the price of oil might might even 0:20:41.480 --> 0:20:44.000 move on on a four basis UH in the next 0:20:44.040 --> 0:20:47.280 few weeks. Francancisco, Francisco, this is this really interesting story 0:20:47.760 --> 0:20:50.920 in aluminium over the last couple of weeks. And it's 0:20:50.920 --> 0:20:53.840 an inviously cratic event that roussel has been sanctioned by 0:20:54.080 --> 0:20:56.840 the United States, and ultimately it's very huge concern about 0:20:56.880 --> 0:20:58.960 whether supply is going to come from What are the 0:20:58.960 --> 0:21:01.119 base case? What is the base case for you guys 0:21:01.160 --> 0:21:05.440 now looking at the situation in aluminium. Well, so, so 0:21:05.560 --> 0:21:08.359 first thing, uh you have to you have to put 0:21:08.359 --> 0:21:10.359 in perspective is russ is about six percent of the 0:21:10.359 --> 0:21:15.040 global aluminium market and that's uh and and obviously that's 0:21:15.080 --> 0:21:18.639 creating a pressure on the price. But but we we 0:21:18.680 --> 0:21:21.359 already saw the first round of tariffs adding pressure to 0:21:21.400 --> 0:21:24.879 aluminum risk premium UM and and that was a direct 0:21:24.920 --> 0:21:29.040 effect of the out of the tariff UM in the US. Now, 0:21:29.080 --> 0:21:33.000 obviously we are saying a large chunk of the market 0:21:33.040 --> 0:21:36.560 being carved out. So we do think aluminium could be 0:21:36.600 --> 0:21:40.160 going to three tho dollars at on um. The pressure 0:21:40.160 --> 0:21:44.080 on the aluminium price is directly proportional to the Tariuts 0:21:44.119 --> 0:21:48.080 as well as to the to the sanctions. Right so, um, 0:21:48.160 --> 0:21:50.560 so in in our view, we're talking about one of 0:21:50.560 --> 0:21:52.919 the biggest players in the market. We're talking about a 0:21:53.040 --> 0:21:56.439 large portion of the supply side being pulled out. Can 0:21:56.480 --> 0:21:58.520 you imagine if we pulled out six percent of global 0:21:58.520 --> 0:22:01.200 oil supply, I mean in that that would be I 0:22:01.240 --> 0:22:04.639 mean six percent of global oil supply is bigger than Iraq. 0:22:04.720 --> 0:22:06.679 Iraqi is four and a half percent of global supply. 0:22:06.720 --> 0:22:09.320 To bring into context, so so this is a lot 0:22:09.359 --> 0:22:11.840 of a lot of aluminium. And uh now, aluminium is 0:22:11.840 --> 0:22:14.240 a much more common ingredient. There is some spare capacity. 0:22:14.240 --> 0:22:17.280 We're gonna probably restart smelters in parts of the world 0:22:17.280 --> 0:22:20.160 that that um had been shut down for a while. 0:22:20.600 --> 0:22:23.919