WEBVTT - Surveillance: Energy Policy with Malpass (Podcast)

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<v Speaker 1>Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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<v Speaker 1>with Jonathan Ferroll and Lisa Abramowitz. Daily we bring you

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<v Speaker 1>insight from the best and economics, finance, investment, and international relations.

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<v Speaker 1>To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot

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<v Speaker 1>Com and of course on the Bloomberg terminal. Right now,

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<v Speaker 1>we're gonna digress an importantly digress with David mel Pass.

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<v Speaker 1>He's President of the World Bank and with his work

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<v Speaker 1>at bear Stearns over the years, a student of detail

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<v Speaker 1>and at the World Bank, which is surrounded by experts

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<v Speaker 1>much like the United Nations on food, Mr mal Pass

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<v Speaker 1>has the services of John Baff's he's out of Greece

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<v Speaker 1>and out of the United States PhD from Maryland and

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<v Speaker 1>John Bass. David mal Pass is exquisite on this linkage

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<v Speaker 1>of energy to food, od ser fertilizer and fertilizers, something

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<v Speaker 1>we're not talking enough about. The World Bank is focused

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<v Speaker 1>on this linkage. Hi, Tim, that's right, and we have

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<v Speaker 1>a lot of experts as you as you mentioned, and

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<v Speaker 1>the linkage is pretty tight. The world is going through

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<v Speaker 1>these two major shifts, one on interest rates and bond

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<v Speaker 1>yields that you talk a lot about it, and it it

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<v Speaker 1>effects currency values. Uh. And then on on energy, it's

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<v Speaker 1>reducing that dependence on Russia, which is a huge shift

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<v Speaker 1>for the world and has I think several more innings

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<v Speaker 1>to go to really get it right. Nuclear and natural

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<v Speaker 1>gas probably are parts of the solution in the long run.

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<v Speaker 1>But right now Europe is drawing in natural gas from

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<v Speaker 1>around the world, which leaves these shortages of fertilizer and

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<v Speaker 1>food elsewhere. Does the World Bank of any form of

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<v Speaker 1>dialogue or new dialogue with Russia and Mr Putin, No, Uh,

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<v Speaker 1>that's not what we're doing. We're very involved. Yesterday I

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<v Speaker 1>met with the Prime Minister of Moldova right here in

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<v Speaker 1>this room. Uh and uh. We talked about the the

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<v Speaker 1>major shift going on in Moldovan energy. The electricity grid

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<v Speaker 1>is being shift shifted, the natural gas sources are being

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<v Speaker 1>shifted away from Russia. UH. And that's that's where the

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<v Speaker 1>world is heading right now. As we talk about where

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<v Speaker 1>the world is right now, and we talk about the

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<v Speaker 1>prospect of natural gas flows to Europe being cut off

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<v Speaker 1>if North Room one does not in fact resume operations

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<v Speaker 1>come Thursday, we have to keep in mind that also

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<v Speaker 1>happens against the backdrop of record temperatures in the UK

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<v Speaker 1>with forty degrees celsius just lagged. Climate a very real

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<v Speaker 1>issue here, and as we talk about investing in some

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<v Speaker 1>of these more traditional fossil fuel type sources for energy,

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<v Speaker 1>does that not risk setting us further behind in the

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<v Speaker 1>long term on climate issues which we know affect lower

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<v Speaker 1>income countries more dramatically than others. The the natural gas

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<v Speaker 1>is cleaner than other fossil fuels, and nuclear is cleaner,

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<v Speaker 1>is very clean from a carbon dioxide standpoint. I think

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<v Speaker 1>the world has to has to really prioritize where it's

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<v Speaker 1>going with regard to the climate change issues. One of

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<v Speaker 1>the things we're finding in our diagnostics that we're putting

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<v Speaker 1>out that are that are very significant country by country

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<v Speaker 1>is the things that they can do to protect themselves

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<v Speaker 1>and to be more efficient in their development practices. It's

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<v Speaker 1>integrating climate and development that I think is the way forward. Okay,

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<v Speaker 1>so investing in development, Let's talk about what else you

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<v Speaker 1>think is is vital here. What kind of debt relief

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<v Speaker 1>efforts do we need to see right now? This is

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<v Speaker 1>a major of major importance for the world because interest

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<v Speaker 1>rates are going up. The debt was already to to burdensome,

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<v Speaker 1>and now the countries are losing our currency, experiencing currency

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<v Speaker 1>depreciation which causes inflation, and they also have a loss

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<v Speaker 1>of international reserves. The debt reduction efforts have really been

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<v Speaker 1>stalled for some years. We know that there are countries

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<v Speaker 1>that have unsustainable debt. There's not really a process to

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<v Speaker 1>reduce that debt. We saw that at the G twenty

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<v Speaker 1>just completed last week. No forward progress. I'm hopeful that

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<v Speaker 1>Zambia may be able to get UHBT debt relief in

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<v Speaker 1>the next few days. There was just a creditors meeting yesterday,

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<v Speaker 1>so that gives some sign of hope that it has

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<v Speaker 1>to be put into practice with actual reduction of debt,

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<v Speaker 1>massive reduction of debt for some of the poorest developing countries.

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<v Speaker 1>Otherwise the poverty rate goes up and the instability that

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<v Speaker 1>you're seeing in these countries worsens. David, you've touched on

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<v Speaker 1>the most important point. The biggest killer is poverty. Do

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<v Speaker 1>you think the West needs a bit of a reality

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<v Speaker 1>check about the speed at which you can move away

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<v Speaker 1>from fossil fuels given the concerns that you have. I

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<v Speaker 1>think there has to be a prioritization of energy policies

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<v Speaker 1>in the in the West that that includes uh, massive

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<v Speaker 1>increases in production of less carbon intensive energy sources that

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<v Speaker 1>may lead the world to nuclear into natural gas, because

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<v Speaker 1>you know, natural gas has the added benefit of producing fertilizer.

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<v Speaker 1>It's the source of crop yields that is so important

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<v Speaker 1>for poverty reduction and malnutrition, and so we have to

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<v Speaker 1>have a direction on that. Right now, Europe is buying

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<v Speaker 1>up the global sources of natural gas, and uh importantly,

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<v Speaker 1>the world is shifting back to coal and even to

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<v Speaker 1>fuel oil. Every day I meet with global leaders whose

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<v Speaker 1>countries are either selling cold to Europe or themselves shifting

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<v Speaker 1>back to more carbon intensive energy sources in order to

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<v Speaker 1>try to keep the electricity grids running. So it's a

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<v Speaker 1>very practical effort by the world to this major shift

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<v Speaker 1>in energy and in interest rates that's underway. David wonderful

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<v Speaker 1>to get your thoughts at an important time photical level economy.

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<v Speaker 1>David mouth pass that a World Bank President Ander seats

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<v Speaker 1>in this July My head is spinning. Give us the

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<v Speaker 1>keel of your strategy right now? What is the thing

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<v Speaker 1>keeping you on a straight and narrow path into Q

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<v Speaker 1>three in Q four great, well, it's it's great to

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<v Speaker 1>be here with you. I think a key message is patients,

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<v Speaker 1>you know we're in a bear market. We are going

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<v Speaker 1>through the different cycles and parts of a bear market,

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<v Speaker 1>but this is a process that still has further to

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<v Speaker 1>play out. And I think the market has made good

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<v Speaker 1>progress on the inflation front, and we started to see

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<v Speaker 1>inflation break evens come down. I think the market is

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<v Speaker 1>clearly getting more comfortable with the long term inflation story.

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<v Speaker 1>I think we've done made good progress in pricing in

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<v Speaker 1>more from the FED, but there's still a gross slow

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<v Speaker 1>down ahead of us, and we still think that not

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<v Speaker 1>enough of that is in the price and not enough

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<v Speaker 1>of that is reflected in earnings expectations. So you know,

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<v Speaker 1>there's been good progress. Valuations have adjusted, sentiment is more negative.

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<v Speaker 1>Both those things are good, but I think we want

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<v Speaker 1>to see more signs that were closer to that trough

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<v Speaker 1>and growth and that we've seen more resetting in earnings expectations.

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<v Speaker 1>You touched on the answer to this question just there

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<v Speaker 1>at the end their Andrew build on it. You said,

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<v Speaker 1>we're in a bear market. How do you know when

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<v Speaker 1>we're not in a bear market, and when you get

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<v Speaker 1>to that point, is it often too light? Yeah, it's

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<v Speaker 1>it's a fair point. I think if we think about,

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<v Speaker 1>you know, dynamics of this bear market, there's obviously the

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<v Speaker 1>scale of the drawdown that qualifies. There's the nature of

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<v Speaker 1>the market leadership, which is very defensive. You know, there's

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<v Speaker 1>the fact that you know, we've seen uh, certain conditions

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<v Speaker 1>that often go along with bear markets, policy tightening, curve, inversion, declining,

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<v Speaker 1>p M. I s. All those elements are there. But

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<v Speaker 1>but you're right, you know, by the time the economic

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<v Speaker 1>data really turns, usually it's it's too late. So you know,

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<v Speaker 1>in terms of things that we're looking for, I think,

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<v Speaker 1>you know p M is being below fifty is usually

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<v Speaker 1>a better indication that the market is closer to that

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<v Speaker 1>growth trough. I think we'd like to see more signs

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<v Speaker 1>that analysts are cutting numbers more aggressively, which is usually

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<v Speaker 1>a sign that again sentiment on the analyst side is

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<v Speaker 1>getting a lot more cautious. Signs that individual investors are

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<v Speaker 1>getting more negative on the market again, I think would

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<v Speaker 1>be a good sign that you're closer to that trough,

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<v Speaker 1>and you know, we're making progress on that front. But

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<v Speaker 1>I think not quite there yet, Andrew looking for that

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<v Speaker 1>relative a performance on the way down and hopefully some

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<v Speaker 1>absolute positive returns to you. Guys have focused on defensive now, Andrew.

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<v Speaker 1>Some people might hear defensives and they start to gravitate

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<v Speaker 1>towards some of the tech names. Andrew want you to

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<v Speaker 1>really define what you mean my defensive and why you

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<v Speaker 1>want to stay there still, So we've been thinking about

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<v Speaker 1>defensives in the traditional utilities, staples, healthcare baskets and those

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<v Speaker 1>those have become more expensive sectors. They've rerated um or

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<v Speaker 1>relatively re rate in a pretty significant way, which again

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<v Speaker 1>is never great. I mean, I think it's a sign

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<v Speaker 1>of how difficult this market is that the places to

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<v Speaker 1>hide or the traditional places to hide have become more expensive,

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<v Speaker 1>which makes it more difficult to hide in them. But

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<v Speaker 1>you know, we're still overweight utilities and healthcare. We still

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<v Speaker 1>think the market will gravitate and pay an increasing premium

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<v Speaker 1>for those sectors is as growth risks continue to abound.

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<v Speaker 1>We think also that the market is is under positioned

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<v Speaker 1>in those areas still. And you know, those are areas

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<v Speaker 1>where we were least worried about growth slowing down utilities

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<v Speaker 1>because we think the demand is relatively non cyclical healthcare

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<v Speaker 1>because I think that's a sector that could actually benefit

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<v Speaker 1>as demand shifts from goods to services and the economy

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<v Speaker 1>healthcare is very exposed to a lot of services type

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<v Speaker 1>of spending as things renormalized. So you know, that's currently

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<v Speaker 1>still where where our US equity strategy team is overweight,

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<v Speaker 1>where we think investors can still find out performance, but

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<v Speaker 1>it clearly has become uh more expensive as the as

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<v Speaker 1>the market is declined. Okay, Andrew, So that's what you're

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<v Speaker 1>buying in equities. What else people have been buying over

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<v Speaker 1>the course of the year so far as commodities and

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<v Speaker 1>the dollar? How close are we to the peak of

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<v Speaker 1>those traits? So we think the dollar can still rise further.

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<v Speaker 1>We think the d X Y will move up to

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<v Speaker 1>around one twelve by by the third quarters. So that's

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<v Speaker 1>a relatively sharp near term move that that our foreign

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<v Speaker 1>exchange team is expecting. And that's on the back of

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<v Speaker 1>the fact that we think the FED is much more

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<v Speaker 1>likely to meet or beat implied rate expectations than the

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<v Speaker 1>e c B, where we think weak growth will ultimately

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<v Speaker 1>raise the risk that the ECB won't be able to

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<v Speaker 1>hike as much as the market expects that the Bank

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<v Speaker 1>of England won't be able to hike as much as

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<v Speaker 1>the market expects. And on commodities, I think it remains

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<v Speaker 1>a story of energy versus metals. On the energy side,

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<v Speaker 1>we still think further gains are are possible, especially against

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<v Speaker 1>the forward curve which is implying large price declines. We

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<v Speaker 1>are forecasting higher energy prices into the third quarter. I

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<v Speaker 1>think the metals case remains much more challenging, where a

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<v Speaker 1>lot more of that is driven by uncertain Chinese demand.

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<v Speaker 1>But for oil prices, we think they're moving higher over

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<v Speaker 1>the next three months. And did you just cite d

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<v Speaker 1>x y one swave? Yes, wow, Andre, that is a

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<v Speaker 1>monster move. Andry sheets there of mortgage Stanley. As you know,

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<v Speaker 1>we protect the copyright of all of our guests. It's

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<v Speaker 1>something sacred here at Bloomberg Surveillance. It is their meal ticket.

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<v Speaker 1>That's how I'm read to send pays for air conditioning.

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<v Speaker 1>She's chief Oil Analysts and Energy Aspects and her research

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<v Speaker 1>is absolutely exquisite. She walks through in her latest note

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<v Speaker 1>why she is structurally an oil bull and reading my

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<v Speaker 1>head spinning up up up we go, down down, down

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<v Speaker 1>we go. Why do you suggest at some point oil

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<v Speaker 1>gets a bid and moves higher. Well, that's kind of

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<v Speaker 1>why I say there's a difference between tactical instructor Right

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<v Speaker 1>like right now liquid these thing people are away on

0:12:03.000 --> 0:12:06.520
<v Speaker 1>holiday machines. There's more machines and humans, and we can

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<v Speaker 1>continue to kind of trade in this very technical band

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<v Speaker 1>um going up five dollars in a day, going down

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<v Speaker 1>ten dollars in another day. No, no problems with structurally,

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<v Speaker 1>this is a market defined by under investment. We just

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<v Speaker 1>haven't been investing enough for eight years now, right This

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<v Speaker 1>isn't because of Russia, This isn't because of COVID. It

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<v Speaker 1>has been going on for a long time, so that

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<v Speaker 1>doesn't change overnight. And right now, even above hundred dollars,

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<v Speaker 1>there isn't really an incentive to increase investment, and I

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<v Speaker 1>think that's why we remain structurally bullish this space. What

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<v Speaker 1>do you think that means for gasoline prices with the

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<v Speaker 1>average price below four fifty in the United States, now

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<v Speaker 1>rates are thirty five day slide, what do you make

0:12:46.720 --> 0:12:51.800
<v Speaker 1>of that? I mean, look right now, again, these have

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<v Speaker 1>been driven by recessionary fears, and I still think in

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<v Speaker 1>the short term prices can correct lower. Once again, that

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<v Speaker 1>doesn't change the fact that overall refining capacity is extremely tight. Remember,

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<v Speaker 1>gasoline does have seasonality in its favor. We are going

0:13:08.320 --> 0:13:10.600
<v Speaker 1>to come out of the peak summer driving season and

0:13:10.640 --> 0:13:15.800
<v Speaker 1>we do do foresee a much weaker winter gasoline pricing,

0:13:15.840 --> 0:13:18.000
<v Speaker 1>but then next summer we're going to have again very

0:13:18.040 --> 0:13:21.840
<v Speaker 1>similar high prices. Right whereas diesel is the one to

0:13:21.880 --> 0:13:24.560
<v Speaker 1>watch out for. That's really been the tightness in the market,

0:13:24.960 --> 0:13:28.720
<v Speaker 1>and again with the European embargo kicking in early next

0:13:28.800 --> 0:13:32.400
<v Speaker 1>year for products, Russia exports a lot of diesel, about

0:13:32.440 --> 0:13:35.600
<v Speaker 1>six barrels per day to Europe. That's where the real

0:13:35.679 --> 0:13:38.880
<v Speaker 1>tightness is going to be much more than gasoline. Well, Emrina,

0:13:38.920 --> 0:13:40.720
<v Speaker 1>we know that the prices of the plump have dogged

0:13:40.760 --> 0:13:42.920
<v Speaker 1>President Biden for some time. He is trying to take

0:13:43.000 --> 0:13:45.280
<v Speaker 1>whatever measure he can to get those down in a

0:13:45.320 --> 0:13:47.600
<v Speaker 1>sustainable way. Hence the trip to the Middle East. In

0:13:47.600 --> 0:13:51.119
<v Speaker 1>the visit at Saudi Arabia, the Biden administration seemed optimistic

0:13:51.160 --> 0:13:53.000
<v Speaker 1>that we were going to see Sardi the U a

0:13:53.080 --> 0:13:55.720
<v Speaker 1>E start to pump more tap into that access capacity.

0:13:55.920 --> 0:13:58.240
<v Speaker 1>What do you actually expect OPEC plus to do come

0:13:58.240 --> 0:14:04.880
<v Speaker 1>August three, we are expecting them to increase production gradually. Um.

0:14:04.920 --> 0:14:08.800
<v Speaker 1>I mean, look, in theory, the deal ends in December,

0:14:09.000 --> 0:14:12.280
<v Speaker 1>so they shouldn't be changing anything after they've unwound all

0:14:12.320 --> 0:14:15.640
<v Speaker 1>the cuts, which was for August. Right now, that doesn't

0:14:15.679 --> 0:14:17.280
<v Speaker 1>mean that all pepplasts are just going to sit on

0:14:17.280 --> 0:14:21.080
<v Speaker 1>their hands, because not increasing production for four months would

0:14:21.360 --> 0:14:24.960
<v Speaker 1>massively overtightened this already tight market. So the market is

0:14:25.040 --> 0:14:27.840
<v Speaker 1>we are we're all expecting them to continue adding in

0:14:27.880 --> 0:14:30.520
<v Speaker 1>small increments, just like they have been over the last

0:14:30.560 --> 0:14:32.880
<v Speaker 1>four months of the year as well. But I reckon

0:14:32.920 --> 0:14:35.760
<v Speaker 1>the Biden administration will take that as a win. They'll

0:14:35.760 --> 0:14:37.560
<v Speaker 1>probably spend that as a win and say, look, it's

0:14:37.600 --> 0:14:39.800
<v Speaker 1>because of the trip to the Mid least, whereas the

0:14:39.840 --> 0:14:42.320
<v Speaker 1>reality is that that was always going to happen. And

0:14:42.800 --> 0:14:46.360
<v Speaker 1>I want you to describe just briefly, what would happen

0:14:46.360 --> 0:14:49.600
<v Speaker 1>in Europe if north Stream one doesn't come back online

0:14:50.000 --> 0:14:52.960
<v Speaker 1>this Thursday. What does the situation look like? Where does

0:14:53.000 --> 0:14:55.440
<v Speaker 1>Germany get his energy from? Just walk us all through it.

0:14:57.760 --> 0:15:00.640
<v Speaker 1>So look on our balances, we're actually not been expecting

0:15:00.680 --> 0:15:04.040
<v Speaker 1>them to come back next week. I know that's obviously

0:15:04.080 --> 0:15:07.040
<v Speaker 1>the focus in the market. Um, we have been building

0:15:07.080 --> 0:15:09.440
<v Speaker 1>a scenario where it takes a lot longer to come back.

0:15:10.080 --> 0:15:15.560
<v Speaker 1>We do think if Russia is actually playing logically and economically,

0:15:15.880 --> 0:15:18.480
<v Speaker 1>they will have to bring not three one back by

0:15:18.480 --> 0:15:20.960
<v Speaker 1>the end of October. Otherwise they will have to shut

0:15:21.000 --> 0:15:24.720
<v Speaker 1>down fields domestically. That might lead to more long term

0:15:24.760 --> 0:15:27.320
<v Speaker 1>damage for their gas field So that's yet to be serious.

0:15:27.640 --> 0:15:30.240
<v Speaker 1>Of course, if they choose to go down a political route,

0:15:30.400 --> 0:15:33.640
<v Speaker 1>then that's very different, but they still have until October

0:15:33.760 --> 0:15:36.600
<v Speaker 1>to make that mind up. EMA. This is critical because

0:15:36.760 --> 0:15:39.720
<v Speaker 1>the non sophisticates like me sort of go, well, if

0:15:39.760 --> 0:15:42.040
<v Speaker 1>Russia doesn't sell the Europe, they can sell to other

0:15:42.080 --> 0:15:45.960
<v Speaker 1>people in the China, etcetera, etcetera. If they have to

0:15:46.000 --> 0:15:48.440
<v Speaker 1>play with north Stream too is John is an expert

0:15:48.560 --> 0:15:52.120
<v Speaker 1>on can they move the hydro carbons over to other

0:15:52.200 --> 0:15:57.080
<v Speaker 1>countries or not. See you could do that for oil,

0:15:57.160 --> 0:15:59.640
<v Speaker 1>you can't do it for gas. Gas and Russia particularly

0:16:00.080 --> 0:16:04.280
<v Speaker 1>very very distinct. The gas that comes to Europe simply

0:16:04.320 --> 0:16:08.320
<v Speaker 1>cannot be redirected to the East. It will take years

0:16:08.440 --> 0:16:11.360
<v Speaker 1>to build new pipelines to redirect the flows. And that's

0:16:11.400 --> 0:16:15.600
<v Speaker 1>where this becomes a real, real struggle for both sides right,

0:16:15.600 --> 0:16:18.360
<v Speaker 1>And to John's point that Europe, I mean, you've already

0:16:18.400 --> 0:16:23.400
<v Speaker 1>seen Germany come out putting measures to cut down consumption,

0:16:23.880 --> 0:16:26.640
<v Speaker 1>nationalize some of the utility companies. This is just the start.

0:16:26.760 --> 0:16:29.560
<v Speaker 1>Things are going to get materially worse for Europe when

0:16:29.560 --> 0:16:31.560
<v Speaker 1>it comes to its power situation. I'm racing. You've got

0:16:31.600 --> 0:16:33.760
<v Speaker 1>to the heart of it in your assumption. Do you

0:16:33.840 --> 0:16:37.720
<v Speaker 1>assume the Vladimir Putin is still a rational economic actor

0:16:41.360 --> 0:16:43.880
<v Speaker 1>for now? Yes, I mean that's look, let's let's put

0:16:43.880 --> 0:16:47.160
<v Speaker 1>it this way. Um, we are saying that should North

0:16:47.240 --> 0:16:49.600
<v Speaker 1>Stream one not come back by October, then we will

0:16:49.680 --> 0:16:51.880
<v Speaker 1>very clearly know that he is not. But our base

0:16:51.960 --> 0:16:54.480
<v Speaker 1>case still is that it does come back, but with

0:16:54.560 --> 0:16:58.040
<v Speaker 1>a very very high probability and risk that you know,

0:16:58.600 --> 0:17:01.200
<v Speaker 1>it could get delayed further and probably just not come back,

0:17:01.240 --> 0:17:05.320
<v Speaker 1>because again that's where the swing factor really comes in,

0:17:05.400 --> 0:17:07.200
<v Speaker 1>that you know, what's what's the signal that he's trying

0:17:07.200 --> 0:17:09.760
<v Speaker 1>to send. But even if it is end August, sorry,

0:17:09.800 --> 0:17:13.760
<v Speaker 1>end October, for Europe, I mean, given the heat wave

0:17:13.840 --> 0:17:15.960
<v Speaker 1>that's going on right now, the call on gas is

0:17:16.119 --> 0:17:18.720
<v Speaker 1>very very high, and then we just will not be

0:17:18.880 --> 0:17:21.919
<v Speaker 1>building into the winter. I think that is. I mean,

0:17:22.000 --> 0:17:24.640
<v Speaker 1>I cannot stress how important that is and how much

0:17:24.760 --> 0:17:27.360
<v Speaker 1>upside there is two gas prices. One of the things

0:17:27.440 --> 0:17:30.439
<v Speaker 1>we're seeing right now with gas so high, we're getting

0:17:30.440 --> 0:17:32.879
<v Speaker 1>oil back into the power mix as a result of this.

0:17:33.280 --> 0:17:35.480
<v Speaker 1>What a tough situation. I'm ready to send thank you

0:17:35.840 --> 0:17:42.639
<v Speaker 1>of energy aspects there. Russ Coastreet joins us now to

0:17:42.680 --> 0:17:45.520
<v Speaker 1>talk about equities and bonds, portfolio manager for the black

0:17:45.600 --> 0:17:49.000
<v Speaker 1>Rock Global Adocation Fund. Russ, you have been conservative through

0:17:49.000 --> 0:17:50.480
<v Speaker 1>a bunch of this year. Do you have not been

0:17:50.520 --> 0:17:53.399
<v Speaker 1>constructive on the equity market? Has any of that changed

0:17:53.640 --> 0:17:57.800
<v Speaker 1>in the last month, John, You know, I think the

0:17:57.800 --> 0:18:01.880
<v Speaker 1>short answer is not really. Uh. We're still in environment

0:18:01.880 --> 0:18:03.840
<v Speaker 1>where you have the same headwinds we've had for most

0:18:03.920 --> 0:18:06.840
<v Speaker 1>of the year. You've got tightening liquidity, which has been

0:18:06.880 --> 0:18:09.720
<v Speaker 1>a huge head wind, particularly for the growth sector. You've

0:18:09.720 --> 0:18:13.280
<v Speaker 1>got a slowing economy. Uh, these have not gone away.

0:18:13.280 --> 0:18:16.360
<v Speaker 1>What I would say is that valuations already a much

0:18:16.400 --> 0:18:19.480
<v Speaker 1>more reasonable place than they were twelve months ago. Globally,

0:18:19.520 --> 0:18:23.360
<v Speaker 1>you've seen multiples of compressed around thirty. They're down about

0:18:23.800 --> 0:18:26.159
<v Speaker 1>in Europe, so I think we're close to go bottom.

0:18:26.160 --> 0:18:28.400
<v Speaker 1>I think the markets in the process of making the bottom.

0:18:28.800 --> 0:18:33.600
<v Speaker 1>But all of the conditions that led to the volatility, unfortunately,

0:18:33.640 --> 0:18:36.800
<v Speaker 1>they have not gone away yet. Russ Julian Emmanuel Over

0:18:36.800 --> 0:18:39.040
<v Speaker 1>whatever course I s, I gives me the first look

0:18:39.080 --> 0:18:42.800
<v Speaker 1>with eleven percent of SPX earnings in, he's got a nice,

0:18:42.920 --> 0:18:47.879
<v Speaker 1>nice inflation revenue lift. But critically he's modeling out earnings

0:18:48.000 --> 0:18:53.000
<v Speaker 1>at four point eight percent growth. That's not bad. You know,

0:18:53.240 --> 0:18:55.399
<v Speaker 1>I know things are down, but it is the pendulum

0:18:55.480 --> 0:19:00.359
<v Speaker 1>just overestimating the gloom. Well, it's a it's a great question.

0:19:00.400 --> 0:19:02.160
<v Speaker 1>I think you hit on what really is the big

0:19:02.160 --> 0:19:04.960
<v Speaker 1>issue going forward? You know, again I've spoke about evaluations,

0:19:05.359 --> 0:19:07.439
<v Speaker 1>and that's been all of the losses here today, all

0:19:07.480 --> 0:19:09.760
<v Speaker 1>of the loss in the SMP, it's all been about

0:19:09.760 --> 0:19:13.000
<v Speaker 1>that been multiple compression. But your point, what really is

0:19:13.000 --> 0:19:15.119
<v Speaker 1>the issue going forward now is how much is the

0:19:15.160 --> 0:19:18.240
<v Speaker 1>economy going to slow? How much is nominal GDP GONN

0:19:18.320 --> 0:19:21.360
<v Speaker 1>slow and what does that mean for earnings? Earnings so

0:19:21.440 --> 0:19:24.680
<v Speaker 1>far through the second quarter don't look bad. The real

0:19:24.760 --> 0:19:27.919
<v Speaker 1>question is that we continue to see the is a

0:19:27.960 --> 0:19:30.600
<v Speaker 1>result of FED tightening the economy slows in Q three

0:19:30.600 --> 0:19:33.600
<v Speaker 1>and Q four or those earnings estimates in the back

0:19:33.640 --> 0:19:35.879
<v Speaker 1>half of the year realistic, and this is why I

0:19:35.920 --> 0:19:39.760
<v Speaker 1>think the market is struggling to break out of this range. Okay,

0:19:39.800 --> 0:19:42.040
<v Speaker 1>so if equities are struggling to break out of a range,

0:19:42.040 --> 0:19:44.280
<v Speaker 1>if you are not yet seeing the signal that we've

0:19:44.280 --> 0:19:47.200
<v Speaker 1>actually reached a bottom. How much do you like treasuries?

0:19:47.240 --> 0:19:51.320
<v Speaker 1>Hear us, Well, the short answers really don't. We're still underweight,

0:19:51.359 --> 0:19:53.680
<v Speaker 1>but we we disliked in less than we did a

0:19:53.760 --> 0:19:55.919
<v Speaker 1>year ago. You you've already chopped a lot of wood.

0:19:56.280 --> 0:19:58.359
<v Speaker 1>We've seen that real rate on the long and the

0:19:58.359 --> 0:20:00.919
<v Speaker 1>curve have actually gone back to where they were in

0:20:00.960 --> 0:20:03.919
<v Speaker 1>the post GFC environment. I still think you might have

0:20:04.000 --> 0:20:07.600
<v Speaker 1>more pressure as the FED continues the tighten, but you're

0:20:07.600 --> 0:20:10.040
<v Speaker 1>starting to get better really yields, and I say, really, well,

0:20:10.080 --> 0:20:13.480
<v Speaker 1>we're starting to The opportunity is in the credit markets,

0:20:13.520 --> 0:20:16.359
<v Speaker 1>in the US investment grade, in U S high yield,

0:20:16.440 --> 0:20:20.200
<v Speaker 1>where the spreads of wide and considerably and if we're

0:20:20.200 --> 0:20:22.880
<v Speaker 1>going to be in an environment we're equity is gonna

0:20:22.880 --> 0:20:24.919
<v Speaker 1>be chopping over the next several months. One of the

0:20:24.960 --> 0:20:27.360
<v Speaker 1>things you can do in your portfolio is you can

0:20:27.400 --> 0:20:30.080
<v Speaker 1>add carrot, you can add income, and right now that's

0:20:30.119 --> 0:20:32.679
<v Speaker 1>an ass a class, we're starting to see better value.

0:20:32.840 --> 0:20:35.080
<v Speaker 1>Are you making an assumption the RUSS about how sticky

0:20:35.080 --> 0:20:37.960
<v Speaker 1>inflation might be through the next several years, not just

0:20:38.040 --> 0:20:41.920
<v Speaker 1>this year. Well, we're certainly assuming it's going to be,

0:20:42.119 --> 0:20:44.639
<v Speaker 1>you know, difficult for inflation to get back to the

0:20:45.040 --> 0:20:49.600
<v Speaker 1>two post GFC norm anytime soon, which means that at

0:20:49.640 --> 0:20:53.040
<v Speaker 1>some point up while the Fed may have to slow down,

0:20:53.600 --> 0:20:56.119
<v Speaker 1>we're not envisioned in the world where you're gonna go

0:20:56.160 --> 0:21:00.320
<v Speaker 1>back to this very easy environment of low interest rates UEE,

0:21:00.400 --> 0:21:03.879
<v Speaker 1>which obviously was this huge tailwind for financial assets to

0:21:04.000 --> 0:21:06.680
<v Speaker 1>the better part of the decade. Russels to catch out

0:21:06.800 --> 0:21:09.160
<v Speaker 1>RUSS constrict that of black Rock West closely, of course,

0:21:09.440 --> 0:21:14.800
<v Speaker 1>with refredris Well. This is the Bloomberg Surveillance Podcast. Thanks

0:21:14.800 --> 0:21:18.120
<v Speaker 1>for listening. Join us live weekdays from seven to ten

0:21:18.200 --> 0:21:22.639
<v Speaker 1>am Eastern on Bloomberg Radio and on Bloomberg Television each

0:21:22.760 --> 0:21:26.480
<v Speaker 1>day from six to nine am for insight from the

0:21:26.520 --> 0:21:31.720
<v Speaker 1>best in economics, finance, investment, and international relations. And subscribe

0:21:31.760 --> 0:21:36.720
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0:21:36.760 --> 0:21:40.000
<v Speaker 1>and of course on the terminal. I'm Tom Keene and

0:21:40.160 --> 0:21:42.000
<v Speaker 1>this is Bloomberg