1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:09,200 --> 00:00:13,039 Speaker 1: with Jonathan Ferrell and Lisa A. Brownwitz. Daily we bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment and 4 00:00:17,239 --> 00:00:23,320 Speaker 1: international relations. Find Bloomberg Surveillance on Ample podcast, SoundCloud, Bloomberg 5 00:00:23,360 --> 00:00:28,680 Speaker 1: dot Com and of course on the Bloomberg Terminal. We've 6 00:00:28,680 --> 00:00:31,400 Speaker 1: been talking all week about the pound and how weak 7 00:00:31,440 --> 00:00:33,600 Speaker 1: it is and how it really is between a rocket 8 00:00:33,640 --> 00:00:36,720 Speaker 1: and hard place for the Bank of England. And then 9 00:00:36,920 --> 00:00:40,640 Speaker 1: someone comes out after writing a book with incredible expertise 10 00:00:40,760 --> 00:00:43,360 Speaker 1: on the history of crises in England, and that is 11 00:00:43,400 --> 00:00:46,360 Speaker 1: no one other than Sir Howard Davies, who has chair 12 00:00:46,440 --> 00:00:50,040 Speaker 1: at NatWest Group, an author of this book The Chancellors. 13 00:00:50,680 --> 00:00:53,559 Speaker 1: Sir Howard, what did you start writing this? I mean, honestly, 14 00:00:53,560 --> 00:00:56,560 Speaker 1: it comes to such an amazing time of crisis where 15 00:00:56,560 --> 00:01:00,440 Speaker 1: people are looking for history and anything as a guide. Yeah. 16 00:01:00,440 --> 00:01:03,040 Speaker 1: Well it was a lockdown project, you know. I felt 17 00:01:03,040 --> 00:01:06,720 Speaker 1: guilty in the lockdown, had to use somehow the time 18 00:01:06,760 --> 00:01:09,520 Speaker 1: that I was saving, so I thought, well, maybe it 19 00:01:09,520 --> 00:01:12,480 Speaker 1: would be a good point at which to reflect on 20 00:01:12,560 --> 00:01:14,200 Speaker 1: the history of the last twenty five years, which has 21 00:01:14,240 --> 00:01:17,760 Speaker 1: been pretty pretty exciting in the UK, and that we 22 00:01:17,840 --> 00:01:20,440 Speaker 1: had the great financial crisis, Bank of England independence, We've 23 00:01:20,440 --> 00:01:24,399 Speaker 1: had Brexit referendum, Scottish referendum, and I asked the various 24 00:01:24,520 --> 00:01:26,800 Speaker 1: chancellors who'd served in this period if they were prepared 25 00:01:26,840 --> 00:01:29,520 Speaker 1: to reflect on it, and of course they had time 26 00:01:29,560 --> 00:01:32,000 Speaker 1: on their hands as well, so in fact they were 27 00:01:32,200 --> 00:01:34,199 Speaker 1: very happy to talk to me about it, as indeed 28 00:01:34,240 --> 00:01:36,320 Speaker 1: were quite a lot of officials. So what I've tried 29 00:01:36,360 --> 00:01:38,759 Speaker 1: to do is to tell the story of the last 30 00:01:39,120 --> 00:01:43,199 Speaker 1: twenty five years as seen from the Treasury, which turns 31 00:01:43,240 --> 00:01:45,880 Speaker 1: out now to be quite a relevant thing. I think, 32 00:01:46,240 --> 00:01:48,800 Speaker 1: Sir Howard, we were talking earlier this week about how 33 00:01:48,840 --> 00:01:51,720 Speaker 1: the Bank of England raised rates because they were concerned. 34 00:01:51,920 --> 00:01:54,040 Speaker 1: The raised rates only twenty five basis points, because they 35 00:01:54,080 --> 00:01:57,360 Speaker 1: were more concerned about the labor markets softening or perhaps 36 00:01:57,360 --> 00:02:00,760 Speaker 1: at consumer demand getting crimped and discretionary spell ending. Then 37 00:02:00,800 --> 00:02:04,840 Speaker 1: they were about the inflationary inputs that continue to create 38 00:02:04,960 --> 00:02:07,400 Speaker 1: huge pressures on the economy. Was that the right move 39 00:02:07,480 --> 00:02:11,400 Speaker 1: based on all of those conversations you had, well, I 40 00:02:11,560 --> 00:02:15,480 Speaker 1: think I was with the three in the minority. I 41 00:02:15,520 --> 00:02:17,400 Speaker 1: mean it was a six three vote on the monitor 42 00:02:17,440 --> 00:02:23,600 Speaker 1: policy committee. Interestingly, of the four external economists, three voted 43 00:02:23,840 --> 00:02:27,800 Speaker 1: for a fifty basis point rise and one voted with 44 00:02:27,919 --> 00:02:31,480 Speaker 1: the Bank of England insiders and for the rise. And 45 00:02:31,520 --> 00:02:34,360 Speaker 1: I was with the three out of the four externals. 46 00:02:34,400 --> 00:02:36,720 Speaker 1: I have to say because I think one of the 47 00:02:36,760 --> 00:02:39,440 Speaker 1: problems that we have, and you just referred to it, 48 00:02:39,520 --> 00:02:44,880 Speaker 1: is that the weakness of sterling is contributing to inflationary 49 00:02:44,880 --> 00:02:48,320 Speaker 1: pressures as well. And if you look back at you 50 00:02:48,360 --> 00:02:51,160 Speaker 1: know the experience of oil prices, and one reason why 51 00:02:51,600 --> 00:02:56,640 Speaker 1: we're now facing a two pound alter diesel price is 52 00:02:56,680 --> 00:02:59,760 Speaker 1: because the pound has slipped down to one twenty something, 53 00:03:00,360 --> 00:03:02,120 Speaker 1: and you know so long ago that we were at 54 00:03:02,120 --> 00:03:06,160 Speaker 1: one forty. So we are making our problem more serious 55 00:03:06,360 --> 00:03:09,040 Speaker 1: by the fact that Sterling is weak. And I think 56 00:03:09,040 --> 00:03:12,600 Speaker 1: in part that is weak because of the perception that 57 00:03:12,800 --> 00:03:15,320 Speaker 1: rates will not rise as much here as they're going 58 00:03:15,360 --> 00:03:18,520 Speaker 1: to rise in the US. Sir, how are you rightly 59 00:03:18,560 --> 00:03:21,360 Speaker 1: call out central banks for openly claiming that they can't 60 00:03:21,400 --> 00:03:24,520 Speaker 1: tame inflation but in reality they can. I mean, they 61 00:03:24,520 --> 00:03:26,640 Speaker 1: have a blunt tool they can raise rates choke demanded 62 00:03:26,760 --> 00:03:28,840 Speaker 1: drive an economy in through recession. By question for you 63 00:03:29,000 --> 00:03:31,839 Speaker 1: is is there any way that central banks can do 64 00:03:31,919 --> 00:03:34,800 Speaker 1: that with out driving an economy into recession, or there 65 00:03:34,800 --> 00:03:37,680 Speaker 1: are the policy tools at their disposal, or perhaps it's 66 00:03:37,680 --> 00:03:40,120 Speaker 1: not providing as much forward transparency. I'm curious to hear 67 00:03:40,120 --> 00:03:44,040 Speaker 1: your thoughts on that. Yeah, I think what's one got 68 00:03:44,080 --> 00:03:48,880 Speaker 1: to look at is the time dimension here. And obviously, 69 00:03:49,000 --> 00:03:54,760 Speaker 1: if you get a very sharp exogenous shock, like an 70 00:03:55,520 --> 00:03:58,640 Speaker 1: increase on the sort we've had and the war, then 71 00:03:58,680 --> 00:04:02,120 Speaker 1: you can't expect central bank to deal with that instantly. 72 00:04:02,640 --> 00:04:06,920 Speaker 1: But in fact, the inflation target formula explicitly recognizes that, 73 00:04:07,000 --> 00:04:10,920 Speaker 1: and inflation targeting is meant to target an inflation rate 74 00:04:11,280 --> 00:04:15,240 Speaker 1: at eighteen months two years ahead. So I think whereas 75 00:04:15,480 --> 00:04:18,799 Speaker 1: I can accept the central bank saying, look, we can't 76 00:04:18,839 --> 00:04:22,039 Speaker 1: respond to this immediate spike, that's fine, that's understood, but 77 00:04:22,160 --> 00:04:26,760 Speaker 1: what they must do is present a plausible path of 78 00:04:26,920 --> 00:04:29,520 Speaker 1: interest rates which is going to deliver them back to 79 00:04:29,560 --> 00:04:31,880 Speaker 1: the inflation target in eighteen months or two years time. 80 00:04:32,240 --> 00:04:35,440 Speaker 1: And that's why I think you need a higher rate 81 00:04:35,480 --> 00:04:39,359 Speaker 1: at the moment in order to give credibility to this 82 00:04:39,600 --> 00:04:43,600 Speaker 1: medium term inflation outlook. And I don't think that's where 83 00:04:43,600 --> 00:04:46,479 Speaker 1: we are at the moment. Unfortunately, in the UK. So Howard, 84 00:04:46,520 --> 00:04:48,200 Speaker 1: Let's character script the bit. You've been a member of 85 00:04:48,200 --> 00:04:51,800 Speaker 1: the International Advisory Council for the China Securities Regulatory Commission 86 00:04:51,839 --> 00:04:56,000 Speaker 1: since two thousand three. UM there's about two hundred China 87 00:04:56,080 --> 00:05:00,200 Speaker 1: liftings on US exchanges, I think roughly one point seven 88 00:05:00,240 --> 00:05:02,960 Speaker 1: trillion in assets. But all that's going on with the 89 00:05:03,040 --> 00:05:04,960 Speaker 1: lack of transparency with the p C A O B. 90 00:05:05,400 --> 00:05:07,320 Speaker 1: I'm just curious to hear thoughts on that. I mean, 91 00:05:07,360 --> 00:05:09,320 Speaker 1: what is China's approach to all this? Do you think 92 00:05:09,880 --> 00:05:11,960 Speaker 1: companies like buy do j D? I mean, are they 93 00:05:11,960 --> 00:05:15,720 Speaker 1: going to avoid having to delist? In your term? Well, 94 00:05:15,760 --> 00:05:21,040 Speaker 1: the Chinese approaches evidently changing. Up to now, the c 95 00:05:21,560 --> 00:05:25,280 Speaker 1: s r C, the Chinese equivalent of the SEC, if 96 00:05:25,279 --> 00:05:31,080 Speaker 1: you like, has had a general policy orientation towards opening 97 00:05:31,160 --> 00:05:34,680 Speaker 1: up Chinese markets. They established a link between Shanghai and 98 00:05:34,720 --> 00:05:38,880 Speaker 1: Hong Kong, link between Shanghai and London, and that's been 99 00:05:39,279 --> 00:05:43,600 Speaker 1: the direction of travel. Now. There are, however, signs recently, 100 00:05:43,640 --> 00:05:47,200 Speaker 1: as you say, of the Chinese wishing to pull back 101 00:05:47,240 --> 00:05:52,520 Speaker 1: because they're unhappy about the influence that external regulators have 102 00:05:53,360 --> 00:05:57,480 Speaker 1: via a Chinese company listing in other markets. I think 103 00:05:57,480 --> 00:06:00,560 Speaker 1: it's very difficult to say at the moment where the 104 00:06:00,839 --> 00:06:03,400 Speaker 1: where this is going to go, And of course for 105 00:06:03,440 --> 00:06:05,760 Speaker 1: the last two years COVID has got in the way 106 00:06:05,800 --> 00:06:09,240 Speaker 1: of direct connections. You know, I remain on that Advisory 107 00:06:09,240 --> 00:06:11,320 Speaker 1: Council that time chair of it, but we haven't actually 108 00:06:11,360 --> 00:06:13,240 Speaker 1: had a physical face to face meeting, and it's in 109 00:06:13,240 --> 00:06:15,520 Speaker 1: the face to face meetings where you really understand what's 110 00:06:15,520 --> 00:06:19,320 Speaker 1: going on. So I'm not trying to avoid your question, 111 00:06:19,560 --> 00:06:23,080 Speaker 1: but it's honestly quite difficult to answer in circumstances where 112 00:06:23,080 --> 00:06:26,240 Speaker 1: you haven't actually met people for well over two years now, 113 00:06:26,560 --> 00:06:28,320 Speaker 1: Sir Howard, before we let you go, do you think 114 00:06:28,360 --> 00:06:30,320 Speaker 1: that the pound is ever going to get above that 115 00:06:30,360 --> 00:06:33,520 Speaker 1: one mark versus the dollar that we saw pre Brexit? 116 00:06:36,279 --> 00:06:41,120 Speaker 1: Unlikely would be my guess. I can't quite see why. 117 00:06:41,440 --> 00:06:43,479 Speaker 1: There are the short term issues I've been talking about 118 00:06:44,279 --> 00:06:48,040 Speaker 1: involving interest rates, but also in the longer term. You know, 119 00:06:48,200 --> 00:06:52,920 Speaker 1: we do have a structural trade deficit and that's been 120 00:06:53,400 --> 00:06:56,240 Speaker 1: offset by capital flows for a long period of time. 121 00:06:56,680 --> 00:06:58,839 Speaker 1: But you know, you can only sell the London property 122 00:06:58,880 --> 00:07:02,960 Speaker 1: market once externally um net if you see what I mean, 123 00:07:03,000 --> 00:07:06,640 Speaker 1: they can traded amongst themselves. You any sided ones so 124 00:07:07,240 --> 00:07:09,840 Speaker 1: I don't see quite what is going to push the 125 00:07:09,880 --> 00:07:13,160 Speaker 1: pound up. Sir Howard Davies, thank you so much for 126 00:07:13,240 --> 00:07:20,480 Speaker 1: taking this time in congratulations on writing this book. Jonathan 127 00:07:20,480 --> 00:07:22,880 Speaker 1: Gollup joins US now the chief US Equity Strategistic Credit 128 00:07:22,960 --> 00:07:25,120 Speaker 1: Sweets John. Great to catch up this so and thanks 129 00:07:25,160 --> 00:07:27,520 Speaker 1: for coming into the studio too. You've been constructive on 130 00:07:27,520 --> 00:07:30,440 Speaker 1: this equity market. It's been difficult. You can't get them 131 00:07:30,480 --> 00:07:32,200 Speaker 1: right all the time. Walk me through what you're learning 132 00:07:32,280 --> 00:07:35,120 Speaker 1: is this year progresses and how you're thinking about the future. Now, Well, 133 00:07:35,320 --> 00:07:38,520 Speaker 1: I think you guys are actually like right on points. 134 00:07:38,520 --> 00:07:41,920 Speaker 1: So let's let's start with with Damien's comments. Um, credit 135 00:07:41,960 --> 00:07:46,080 Speaker 1: spreads have blown out, but there's not a credit performance problem. 136 00:07:46,120 --> 00:07:48,040 Speaker 1: And what I what I mean by that is you 137 00:07:48,040 --> 00:07:50,800 Speaker 1: know people are paying there, you know are making their 138 00:07:50,800 --> 00:07:53,840 Speaker 1: interest payments and and people aren't going bankrupts. And companies 139 00:07:53,880 --> 00:07:56,640 Speaker 1: have lots of cash and they've turned out, they've turned 140 00:07:56,640 --> 00:07:59,880 Speaker 1: out their liabilities so they don't have this rollover risk. 141 00:08:00,080 --> 00:08:03,400 Speaker 1: So the credit is performing as if we have this 142 00:08:03,480 --> 00:08:08,920 Speaker 1: incredibly healthy economy, and yet you have credit spreads really wide. 143 00:08:08,920 --> 00:08:10,800 Speaker 1: And I think one of the things that are going 144 00:08:10,840 --> 00:08:14,040 Speaker 1: to drive equities higher between now and your end is 145 00:08:14,200 --> 00:08:16,360 Speaker 1: if we don't have a recession between now and the 146 00:08:16,400 --> 00:08:19,360 Speaker 1: end of the year, which I think is unlikely. Um, 147 00:08:19,480 --> 00:08:22,000 Speaker 1: then I think that the credit spreads actually come down 148 00:08:22,360 --> 00:08:25,120 Speaker 1: because there's not a credit problem, and yet the market 149 00:08:25,200 --> 00:08:28,400 Speaker 1: is pricing one. Now there's a second issue, John, which 150 00:08:28,560 --> 00:08:32,440 Speaker 1: you raise, which is so far you're to date, the 151 00:08:32,480 --> 00:08:36,719 Speaker 1: market is really discounted a higher cost of capital, not 152 00:08:36,920 --> 00:08:39,640 Speaker 1: a recession. And people who are saying is a market 153 00:08:39,640 --> 00:08:42,079 Speaker 1: discounting and earning this problem? This is that not really? 154 00:08:42,440 --> 00:08:46,439 Speaker 1: I would say though the last week the market is 155 00:08:46,480 --> 00:08:49,679 Speaker 1: starting to say it's not just a higher cost of 156 00:08:49,760 --> 00:08:53,560 Speaker 1: capital or higher discount rate, it's actually the damage that 157 00:08:53,600 --> 00:08:55,400 Speaker 1: the Fed is gonna do. And are we getting a 158 00:08:55,400 --> 00:08:58,560 Speaker 1: recession sooner? And there? I think the debate is mean, 159 00:08:58,600 --> 00:09:00,800 Speaker 1: it's a simple debate. It's hard to figure it out. 160 00:09:00,960 --> 00:09:04,680 Speaker 1: Is when does the recession start? If you think that 161 00:09:04,679 --> 00:09:07,280 Speaker 1: we have a recession in six to nine months, the 162 00:09:07,440 --> 00:09:10,960 Speaker 1: downside from here is substantial. If you believe that the 163 00:09:11,000 --> 00:09:14,400 Speaker 1: recession is in the latter half of twenty three or 164 00:09:14,559 --> 00:09:17,600 Speaker 1: further out, then you've got to buy stocks right here 165 00:09:17,640 --> 00:09:20,439 Speaker 1: because the earnings will come through and there won't be 166 00:09:20,480 --> 00:09:23,160 Speaker 1: an earnings problem. Jonathan I wanted to go there, the range, 167 00:09:23,240 --> 00:09:26,240 Speaker 1: the range of outcomes and just how big the extremes 168 00:09:26,240 --> 00:09:28,680 Speaker 1: are actually go back to what Andrew Holland Horse said, 169 00:09:29,000 --> 00:09:32,280 Speaker 1: volatility may prevail now that the market will were price 170 00:09:32,400 --> 00:09:35,960 Speaker 1: fed policy based on each monthly inflation reading. How wide 171 00:09:36,160 --> 00:09:39,760 Speaker 1: is your bear case scenario and your bookcase scenario, you know, Lisa, 172 00:09:39,880 --> 00:09:43,439 Speaker 1: So we we actually we put out a report yesterday 173 00:09:43,480 --> 00:09:45,880 Speaker 1: which was like like it was kind of like a 174 00:09:46,400 --> 00:09:49,400 Speaker 1: wonky report for guys who kind of love like marketing journals, 175 00:09:49,440 --> 00:09:51,360 Speaker 1: and and it got a lot of attention. We looked 176 00:09:51,360 --> 00:09:54,040 Speaker 1: at the dispersion of analysts estimates. So let's say you're 177 00:09:54,040 --> 00:09:56,760 Speaker 1: covering you pick the stock Microsoft, and are all the 178 00:09:56,800 --> 00:10:00,839 Speaker 1: analysts you know clustered at a very similar outlook or 179 00:10:00,960 --> 00:10:03,679 Speaker 1: are they all over the map. The more that the 180 00:10:03,880 --> 00:10:06,120 Speaker 1: estimates are all over the map, the more it tells 181 00:10:06,160 --> 00:10:09,400 Speaker 1: you that people are concerned about recessionary outcomes in the 182 00:10:09,440 --> 00:10:13,240 Speaker 1: direction of economy. And we're seeing that in nine of 183 00:10:13,280 --> 00:10:17,280 Speaker 1: eleven sectors you are below average in dispersion, meaning that 184 00:10:17,320 --> 00:10:22,320 Speaker 1: there's very little doubt from analysts on the direction of profits. Now, 185 00:10:22,400 --> 00:10:24,320 Speaker 1: where where did the analysts come from this. It's not 186 00:10:24,400 --> 00:10:26,400 Speaker 1: like they're pulling it out of their head. They're talking 187 00:10:26,400 --> 00:10:29,400 Speaker 1: to company management, and company management is saying is we 188 00:10:29,480 --> 00:10:32,440 Speaker 1: actually have a surprising amount of clarity. Things seem okay, 189 00:10:32,640 --> 00:10:35,880 Speaker 1: we're not seeing stress with our clients. Margins are under pressure, 190 00:10:36,200 --> 00:10:38,960 Speaker 1: but a little, not a lot. So it was it 191 00:10:39,040 --> 00:10:40,960 Speaker 1: was actually pretty surprising to me when we looked at 192 00:10:40,960 --> 00:10:45,440 Speaker 1: the data, how clean the earning story looks, not only 193 00:10:45,440 --> 00:10:48,360 Speaker 1: in terms of the earnings being good, but how there's 194 00:10:48,520 --> 00:10:50,760 Speaker 1: there's lack you know, there's this pretty high level of 195 00:10:50,760 --> 00:10:53,280 Speaker 1: conviction on both the part of company management of Wall 196 00:10:53,280 --> 00:10:56,040 Speaker 1: Street analysts. Jonathan, I think, you know, we've seen the 197 00:10:56,040 --> 00:10:58,640 Speaker 1: two main factors that are driving um, you know, equity 198 00:10:58,640 --> 00:11:00,880 Speaker 1: earnings expectations, I think a rise in bond yields at 199 00:11:00,960 --> 00:11:03,480 Speaker 1: higher commodity prices. So my question for you is the 200 00:11:03,520 --> 00:11:05,480 Speaker 1: pace d v v V. Are you comfortable with the 201 00:11:05,480 --> 00:11:07,960 Speaker 1: pace of downward revisions going forward? Do you think it's 202 00:11:08,000 --> 00:11:11,240 Speaker 1: gonna be accelerate or I mean, are we there yet? 203 00:11:11,920 --> 00:11:15,479 Speaker 1: So if you look yere to date, the earnings revisions 204 00:11:15,480 --> 00:11:19,160 Speaker 1: have been have been solidly positive. So let's say at 205 00:11:19,160 --> 00:11:21,360 Speaker 1: the beginning of this year, if you look at the 206 00:11:21,400 --> 00:11:24,160 Speaker 1: twelvemonth outlook for earnings and then you do the same thing. 207 00:11:24,440 --> 00:11:27,839 Speaker 1: Today we're seven and a half percent higher than we are. 208 00:11:27,880 --> 00:11:30,959 Speaker 1: So the markets, you know, the markets down or something 209 00:11:31,000 --> 00:11:33,160 Speaker 1: like that, but you have a positive seven and a 210 00:11:33,240 --> 00:11:37,240 Speaker 1: half on the earnings and a negative thirty one percent 211 00:11:37,720 --> 00:11:40,880 Speaker 1: on the stock multiple. So it really says, is we 212 00:11:41,000 --> 00:11:43,760 Speaker 1: have a problem. Listen, you have you have cash flows, 213 00:11:43,760 --> 00:11:46,000 Speaker 1: you discount im at a higher discount rate. They're worth 214 00:11:46,280 --> 00:11:50,120 Speaker 1: They're worth less money, um. And it's so it makes 215 00:11:50,120 --> 00:11:52,680 Speaker 1: sense to people would say, yeah, but maybe the markets 216 00:11:52,679 --> 00:11:55,679 Speaker 1: really telling you the earnings aren't good. I don't think 217 00:11:55,760 --> 00:11:57,520 Speaker 1: that's the case. I think that what you have is 218 00:11:58,120 --> 00:12:00,880 Speaker 1: a real downgrade to what you're willing to pay for 219 00:12:00,920 --> 00:12:03,000 Speaker 1: a dollar earnings, not the other way around. We go 220 00:12:03,120 --> 00:12:06,080 Speaker 1: to finish on this everything you've said, is it enough 221 00:12:06,080 --> 00:12:08,640 Speaker 1: to get us back towards five kg on the SMP? 222 00:12:09,480 --> 00:12:13,200 Speaker 1: You know? You know, I think the answer is directionally yes. 223 00:12:13,360 --> 00:12:16,280 Speaker 1: You know, I think that right now the market is 224 00:12:16,400 --> 00:12:19,240 Speaker 1: really oversold if you look at the way that you know, 225 00:12:19,440 --> 00:12:23,040 Speaker 1: how how intense the daily moves are and how much 226 00:12:23,080 --> 00:12:25,680 Speaker 1: volatility there is. The key is that we have to 227 00:12:25,720 --> 00:12:28,840 Speaker 1: be confident that we're not that the FEDS not driving 228 00:12:28,920 --> 00:12:31,640 Speaker 1: us into recession. If if if we start to see, 229 00:12:31,679 --> 00:12:34,920 Speaker 1: for example, the next couple of job reports, if we see, 230 00:12:35,559 --> 00:12:38,280 Speaker 1: you know, god forbid a negative print where you actually 231 00:12:38,280 --> 00:12:41,080 Speaker 1: have a loss of jobs or something, well, then the 232 00:12:41,120 --> 00:12:43,000 Speaker 1: market's going to freak out and you and you're looking 233 00:12:43,080 --> 00:12:45,400 Speaker 1: much lower numbers. But look at what we've had. The 234 00:12:45,440 --> 00:12:47,840 Speaker 1: I s M, which is an indication of industrial activity 235 00:12:48,200 --> 00:12:51,960 Speaker 1: well above normal. UM. The last job report very strong 236 00:12:52,000 --> 00:12:56,600 Speaker 1: in terms of jobs earning season, really big beats so UM. 237 00:12:56,920 --> 00:13:00,400 Speaker 1: I think that ultimately the fundamentals went out up. But 238 00:13:00,240 --> 00:13:02,720 Speaker 1: I but I will tell you that the last you know, 239 00:13:02,880 --> 00:13:05,760 Speaker 1: week or so shakes everybody's confidence in a big way. John, 240 00:13:05,760 --> 00:13:07,439 Speaker 1: I'm just going through the numbers, and I don't want 241 00:13:07,440 --> 00:13:09,280 Speaker 1: to beat up on you. You're not alone. I've got 242 00:13:09,280 --> 00:13:12,600 Speaker 1: Oppenheimer at fifty three thirty year end, you're at forty 243 00:13:12,679 --> 00:13:15,880 Speaker 1: nine hundred, got Bowski over a Beama at forty eight hundred, 244 00:13:16,240 --> 00:13:18,800 Speaker 1: got others, Bank of America, Ceveta, who hasn't been constructive, 245 00:13:18,800 --> 00:13:21,360 Speaker 1: cebsa su Mamonium at the best of times, and she's 246 00:13:21,400 --> 00:13:24,640 Speaker 1: at four hundred. I just wonder as an analyst, as 247 00:13:24,640 --> 00:13:27,080 Speaker 1: a strategist John, and you look at this market run 248 00:13:27,080 --> 00:13:29,360 Speaker 1: away in the other direction. What do you have to do? 249 00:13:30,120 --> 00:13:33,680 Speaker 1: What should you do? Well? I mean, so you know, 250 00:13:33,720 --> 00:13:36,880 Speaker 1: we we actually lowered our our numbers. Um, I don't know, 251 00:13:36,880 --> 00:13:38,600 Speaker 1: about eight weeks ago a little bit. And when we 252 00:13:38,640 --> 00:13:41,520 Speaker 1: went back to the you know, to the to the pieces, 253 00:13:42,080 --> 00:13:44,000 Speaker 1: we're not. The right thing to do is not to 254 00:13:44,080 --> 00:13:46,199 Speaker 1: forecast the market. It's to say, okay, let's start with 255 00:13:46,240 --> 00:13:49,240 Speaker 1: the earnings. My earnings, right, are they too hired? Too low? 256 00:13:49,280 --> 00:13:52,440 Speaker 1: When we went back and tested them, and the earnings 257 00:13:52,480 --> 00:13:55,280 Speaker 1: if if you know, looked incredibly solid. I mean, we 258 00:13:55,280 --> 00:13:57,400 Speaker 1: looked at and numbers said if we're gonna make a change, 259 00:13:57,559 --> 00:13:59,400 Speaker 1: maybe we should move higher. I mean, the earnings were 260 00:13:59,440 --> 00:14:02,760 Speaker 1: looking pristine. Some of that is more coming from energy, 261 00:14:02,880 --> 00:14:05,480 Speaker 1: but but nonetheless, and then we look at the multiple 262 00:14:05,720 --> 00:14:08,560 Speaker 1: and we and this is why we actually lowered our estimates. Um, 263 00:14:09,200 --> 00:14:11,720 Speaker 1: is it No? I mean, you have to lower your 264 00:14:11,760 --> 00:14:16,000 Speaker 1: expectations for stock multiples, for pe s when the cost 265 00:14:16,040 --> 00:14:19,200 Speaker 1: of capital goes up. Now, if we were to downgrade 266 00:14:19,200 --> 00:14:21,360 Speaker 1: our number, it wouldn't be because we think that our 267 00:14:21,360 --> 00:14:23,680 Speaker 1: earnings are off. It would be because we say, listen, 268 00:14:23,880 --> 00:14:26,080 Speaker 1: these are these you know that those credit spreads that 269 00:14:26,160 --> 00:14:29,720 Speaker 1: Damien was talking about before, if they stay wide, then 270 00:14:29,800 --> 00:14:32,120 Speaker 1: then stocks can't rebound. They have to come in. I 271 00:14:32,120 --> 00:14:34,760 Speaker 1: had to squeeze that inch on. It's gonna get your perspective. Johnath, 272 00:14:34,760 --> 00:14:44,160 Speaker 1: thank all of the credit sweez This inflationary bank drop 273 00:14:44,240 --> 00:14:46,080 Speaker 1: is a big challenge to everyone in this country. It's 274 00:14:46,080 --> 00:14:47,560 Speaker 1: a big challenge to this White House too, And I'm 275 00:14:47,560 --> 00:14:49,680 Speaker 1: pleased to say that joining us now is how to bouchet. 276 00:14:49,960 --> 00:14:52,880 Speaker 1: The member of the White House Council of Economic Advisors 277 00:14:52,880 --> 00:14:54,960 Speaker 1: had the fantastic to catch up with you. You guys 278 00:14:54,960 --> 00:14:57,720 Speaker 1: have taken this very seriously. The Washington Post is out 279 00:14:57,720 --> 00:14:59,840 Speaker 1: with a story this morning on a range of issues 280 00:14:59,840 --> 00:15:02,480 Speaker 1: for Postles that you're putting forward at the moment. One 281 00:15:02,520 --> 00:15:06,600 Speaker 1: of them is imposing price controls and fanning exports of 282 00:15:06,720 --> 00:15:08,960 Speaker 1: US energy. And I'd just like to know first up 283 00:15:09,240 --> 00:15:13,800 Speaker 1: how seriously we should be taking that reporting this morning. Well, certainly, 284 00:15:13,800 --> 00:15:17,160 Speaker 1: as the President made clear over the course of this week, 285 00:15:17,440 --> 00:15:20,720 Speaker 1: all options are on the table in terms of energy. Um. 286 00:15:20,760 --> 00:15:22,920 Speaker 1: You know, he sent a letter this week to oil 287 00:15:22,960 --> 00:15:25,640 Speaker 1: refiners to say, hey, you all need to do your part, 288 00:15:26,000 --> 00:15:28,800 Speaker 1: and that was part of showing just how important this 289 00:15:28,840 --> 00:15:31,560 Speaker 1: issue of inflation and gas prices is to the president. 290 00:15:31,800 --> 00:15:35,760 Speaker 1: He understands that this affects the pocketbooks of American families 291 00:15:35,800 --> 00:15:38,240 Speaker 1: all over the country and is doing what he can 292 00:15:38,360 --> 00:15:40,360 Speaker 1: to make sure that the prices that people pay at 293 00:15:40,400 --> 00:15:43,440 Speaker 1: the pump are fair. Um even given you know the 294 00:15:43,440 --> 00:15:46,640 Speaker 1: fact that we are in the midst of this unprovoked 295 00:15:46,720 --> 00:15:49,600 Speaker 1: war by Putin in the Ukraine, that his up ended 296 00:15:50,040 --> 00:15:54,480 Speaker 1: oil markets, leading to shorter supplies and increases in prices. 297 00:15:54,800 --> 00:15:56,840 Speaker 1: But one of the things we also know is that 298 00:15:56,960 --> 00:16:00,400 Speaker 1: refiners are you know that there's a gap, but now 299 00:16:00,440 --> 00:16:02,640 Speaker 1: a growing gap between how much they are paying for 300 00:16:02,640 --> 00:16:04,480 Speaker 1: the oil that they bring in and how much they 301 00:16:04,480 --> 00:16:06,560 Speaker 1: are charging at the other end. That gap used to 302 00:16:06,600 --> 00:16:09,200 Speaker 1: be about fifty cents. It's now over a dollar. And 303 00:16:09,240 --> 00:16:10,920 Speaker 1: so that is one of the things that the presidents 304 00:16:10,920 --> 00:16:12,800 Speaker 1: focused on this week. And then, as he said in 305 00:16:12,840 --> 00:16:15,160 Speaker 1: the letter to them, he is willing to use all 306 00:16:15,200 --> 00:16:18,800 Speaker 1: of his powers that he is available to him to 307 00:16:18,880 --> 00:16:21,040 Speaker 1: take next steps, but he wants to talk to them first, 308 00:16:21,040 --> 00:16:22,840 Speaker 1: figure out what they can do together and the less 309 00:16:22,840 --> 00:16:24,400 Speaker 1: flesh some of this out, and give me some time 310 00:16:24,440 --> 00:16:26,160 Speaker 1: to do so. If you can, I'll go through it. 311 00:16:26,200 --> 00:16:28,440 Speaker 1: This is what the President said. Xon made more money 312 00:16:28,480 --> 00:16:30,560 Speaker 1: than God this year, buying back their stock and making 313 00:16:30,600 --> 00:16:32,600 Speaker 1: no new investments. A quote from the President. This is 314 00:16:32,600 --> 00:16:35,640 Speaker 1: what Excen said. Globally, we've invested double what we've earned 315 00:16:35,640 --> 00:16:38,080 Speaker 1: over the past five years, a hundred and eighteen billion 316 00:16:38,320 --> 00:16:40,560 Speaker 1: on New Orleans gas supplies compared to net income of 317 00:16:40,600 --> 00:16:42,960 Speaker 1: fifty five. This is what the President said at a 318 00:16:43,000 --> 00:16:45,600 Speaker 1: time of war, historically high refinery profit march is being 319 00:16:45,640 --> 00:16:49,160 Speaker 1: passed directly onto American families are not acceptable. He's alluding 320 00:16:49,440 --> 00:16:53,280 Speaker 1: to them deliberately holding back capacity, alluding to price gouging. 321 00:16:53,280 --> 00:16:57,240 Speaker 1: You've done the same. Your own Energy Information Administration has 322 00:16:57,280 --> 00:17:01,360 Speaker 1: reported only recently that the industry was an incredible levels 323 00:17:01,440 --> 00:17:06,080 Speaker 1: of capacity utilization of over your own Treasury Secretary has said, 324 00:17:06,119 --> 00:17:10,000 Speaker 1: it's not price couching, it's demanded supply that's largely driving inflation. 325 00:17:10,119 --> 00:17:11,840 Speaker 1: So have my question to you, and thank you for 326 00:17:11,840 --> 00:17:14,080 Speaker 1: allowing me to flesh that out, is who's given the 327 00:17:14,080 --> 00:17:17,960 Speaker 1: president these talking points because they do not add up. Well, 328 00:17:18,080 --> 00:17:19,760 Speaker 1: here's the thing. One of the things that we have 329 00:17:19,840 --> 00:17:23,200 Speaker 1: seen again in large part due to both the pandemic 330 00:17:23,400 --> 00:17:25,800 Speaker 1: and the war in Ukraine, that putin has been waging 331 00:17:26,359 --> 00:17:30,120 Speaker 1: has been there have been a capacity at refiners globally 332 00:17:30,240 --> 00:17:33,639 Speaker 1: has been taken offline. So over the course of the 333 00:17:33,640 --> 00:17:37,120 Speaker 1: pandemic um here in the United States about eight eight 334 00:17:37,160 --> 00:17:41,239 Speaker 1: hundred thousand barrels per day we're taken offline. And so 335 00:17:41,280 --> 00:17:44,400 Speaker 1: the President is saying, hey, can we work together to 336 00:17:44,440 --> 00:17:46,359 Speaker 1: figure out how to get that back online as quickly 337 00:17:46,400 --> 00:17:51,200 Speaker 1: as possible. Is not just doing that, He's suggesting something 338 00:17:51,240 --> 00:17:55,200 Speaker 1: nefarious is going gone here at the same time. That's 339 00:17:55,240 --> 00:17:57,560 Speaker 1: that's the politics of it. I hear it. He's alluding 340 00:17:57,920 --> 00:18:00,840 Speaker 1: to price couching. He's saying, they made more money than God. 341 00:18:01,119 --> 00:18:04,400 Speaker 1: They're buying back their own stock. They're making no new investments. Yes, 342 00:18:04,440 --> 00:18:07,439 Speaker 1: they are buying back their stock. Yes, they are also 343 00:18:07,520 --> 00:18:10,199 Speaker 1: making investments as well. As I said earlier, your own 344 00:18:10,240 --> 00:18:13,880 Speaker 1: tracery secretary says, this is supply and demand. We're having 345 00:18:13,880 --> 00:18:18,760 Speaker 1: a policy conversation. The president isn't He's speaking just about politics. 346 00:18:18,840 --> 00:18:21,680 Speaker 1: He's trying to make out something that faris is happening 347 00:18:22,320 --> 00:18:25,919 Speaker 1: in Texas. I've just read all the quotes, direct quotes, 348 00:18:26,000 --> 00:18:28,560 Speaker 1: which bit of it isn't true. It is not true 349 00:18:28,640 --> 00:18:31,399 Speaker 1: that the president is having a policy conversation. He is 350 00:18:31,440 --> 00:18:33,320 Speaker 1: looking at the data and the evidence in front of 351 00:18:33,400 --> 00:18:36,040 Speaker 1: him about what is happening in this industry. And what 352 00:18:36,160 --> 00:18:40,040 Speaker 1: you cannot deny is that the last time that oil 353 00:18:40,119 --> 00:18:44,800 Speaker 1: barrels were priced at a y barrels hundred twenty per barrel, 354 00:18:45,440 --> 00:18:48,919 Speaker 1: gas prices of the pump were about now at this 355 00:18:49,040 --> 00:18:51,240 Speaker 1: same price level. Of course, it fluctuates every day, but 356 00:18:51,280 --> 00:18:53,240 Speaker 1: now at this price level, you're seeing prices at the 357 00:18:53,240 --> 00:18:56,680 Speaker 1: pump it over five dollars. There there is a gap there, 358 00:18:56,720 --> 00:18:59,280 Speaker 1: and this is what the President is focused on. That doesn't, 359 00:18:59,320 --> 00:19:01,960 Speaker 1: you know, obliterate anything that has happened in between, and 360 00:19:02,200 --> 00:19:04,280 Speaker 1: certainly investments have been made, but the President is saying, 361 00:19:04,480 --> 00:19:07,639 Speaker 1: what more can we do because we need to get 362 00:19:08,119 --> 00:19:11,040 Speaker 1: this oil supply to consumers at this moment, you know, 363 00:19:11,119 --> 00:19:14,720 Speaker 1: people can't very quickly change their demand for gas. People 364 00:19:14,760 --> 00:19:17,000 Speaker 1: need drive their cars to get to work. So he 365 00:19:17,119 --> 00:19:19,879 Speaker 1: is focused on what else the refiners can do. And 366 00:19:19,920 --> 00:19:23,760 Speaker 1: there is evidence that that they are bringing in exceptionally 367 00:19:23,840 --> 00:19:26,320 Speaker 1: high profits and that there is this gap between the 368 00:19:26,359 --> 00:19:28,760 Speaker 1: prices that they are paying and the prices that they 369 00:19:28,760 --> 00:19:31,480 Speaker 1: are charging that is larger than before. So that there's 370 00:19:31,520 --> 00:19:34,120 Speaker 1: all evidence and that is still about supplying demand. Well, 371 00:19:34,160 --> 00:19:36,840 Speaker 1: but Heather, let's say you cannot get that supply on 372 00:19:37,080 --> 00:19:38,960 Speaker 1: in the way that the President would like in the 373 00:19:39,000 --> 00:19:42,679 Speaker 1: short term. How worried are you about essentially going against 374 00:19:42,720 --> 00:19:45,040 Speaker 1: what the FETE is trying to do with dampening demand 375 00:19:45,160 --> 00:19:48,119 Speaker 1: by things like rebake cards are subsidizing the prices of 376 00:19:48,200 --> 00:19:50,680 Speaker 1: gas and other goods at a time when the Fed 377 00:19:50,920 --> 00:19:55,000 Speaker 1: ultimately is trying to get demand to come down. So 378 00:19:55,160 --> 00:19:58,200 Speaker 1: that is such a great question. You've elevated how this 379 00:19:58,280 --> 00:20:01,720 Speaker 1: particular economic moment is very tricky because we have so 380 00:20:01,800 --> 00:20:05,639 Speaker 1: many supply side challenges um as the as J. Powell 381 00:20:05,720 --> 00:20:08,560 Speaker 1: himself noted, you know, the Fed's tools are blunt and 382 00:20:08,600 --> 00:20:11,359 Speaker 1: they are essentially on the demand side. But we have 383 00:20:11,520 --> 00:20:13,480 Speaker 1: these and we've seen them over the past few years, 384 00:20:13,520 --> 00:20:18,520 Speaker 1: these incredible supply chain snarls. We're seeing these challenges in 385 00:20:18,600 --> 00:20:20,679 Speaker 1: large part because of the pandemic, and so that is 386 00:20:20,720 --> 00:20:23,800 Speaker 1: why the President is that a multi pronged approach to 387 00:20:23,840 --> 00:20:26,200 Speaker 1: figure out all of the different ways we can attact 388 00:20:26,520 --> 00:20:29,080 Speaker 1: where prices are too high consumers. We don't have a 389 00:20:29,080 --> 00:20:31,359 Speaker 1: lot of time left, but just quickly. The point is 390 00:20:31,560 --> 00:20:34,520 Speaker 1: it's very hard to deal with the supply chain disruptions 391 00:20:34,520 --> 00:20:38,040 Speaker 1: and it takes time. So without that really getting remedied 392 00:20:38,040 --> 00:20:40,840 Speaker 1: in the short term, why is it good not to 393 00:20:40,960 --> 00:20:44,600 Speaker 1: seek demand come down a little bit. Well, certainly that 394 00:20:44,800 --> 00:20:47,600 Speaker 1: the President is letting the Fed do their job. But 395 00:20:47,640 --> 00:20:51,000 Speaker 1: you know, so yesterday the President signed new legislation on 396 00:20:51,200 --> 00:20:54,720 Speaker 1: ocean shipping. Here's a place where that legislation and the 397 00:20:54,720 --> 00:20:57,360 Speaker 1: work that the Federal Maritime Commission is doing right now 398 00:20:57,480 --> 00:21:00,359 Speaker 1: could have an impact on prices that consumers pay for 399 00:21:00,560 --> 00:21:03,760 Speaker 1: goods that are being shipped from overseas. So the President 400 00:21:03,800 --> 00:21:06,640 Speaker 1: is doing everything he can to lower prices, using all 401 00:21:06,640 --> 00:21:08,679 Speaker 1: the tools at his disposal, and trying to work with 402 00:21:08,720 --> 00:21:10,800 Speaker 1: Congress to do so. Have I promise to let you 403 00:21:10,800 --> 00:21:13,600 Speaker 1: go at five seconds left, So I'm going to do 404 00:21:13,640 --> 00:21:15,359 Speaker 1: exactly as we promised. Thank you for catching up with 405 00:21:15,400 --> 00:21:17,359 Speaker 1: us today. How do we share that of the Council 406 00:21:17,520 --> 00:21:24,560 Speaker 1: of Economic Advisors. Stephen Shaw joins US now principal and 407 00:21:24,600 --> 00:21:26,840 Speaker 1: co founder of the Show Group. Stephen, let's start here. 408 00:21:27,200 --> 00:21:29,040 Speaker 1: If I could be a fly on the wall of 409 00:21:29,080 --> 00:21:33,760 Speaker 1: a meeting between the Energy Secretary and oil executives that's 410 00:21:33,760 --> 00:21:36,840 Speaker 1: set to happen in amazing Stephen, what you expect will 411 00:21:36,880 --> 00:21:40,120 Speaker 1: happen in that room. Yeah, I would expect a lot 412 00:21:40,119 --> 00:21:43,119 Speaker 1: of pushback right now. It does appear that both the 413 00:21:43,200 --> 00:21:46,200 Speaker 1: industry and the White House are talking past one another. 414 00:21:46,800 --> 00:21:50,320 Speaker 1: The White House is has refused. This is the first 415 00:21:50,400 --> 00:21:55,200 Speaker 1: real outreach that they've made to uh to the industry, 416 00:21:55,720 --> 00:21:58,800 Speaker 1: and uh, you know, and they've gone to uh some 417 00:21:58,920 --> 00:22:02,720 Speaker 1: nefarious characters prior to this, and yet they're going to 418 00:22:02,720 --> 00:22:05,040 Speaker 1: continue to double down and tell us we don't need 419 00:22:05,080 --> 00:22:07,040 Speaker 1: to drill. We don't you don't need to drill. You 420 00:22:07,200 --> 00:22:10,560 Speaker 1: just have to raise capacity. UH tell you what capacity 421 00:22:10,680 --> 00:22:13,359 Speaker 1: is already there at this time of the year. Refinery 422 00:22:13,359 --> 00:22:17,240 Speaker 1: capacity is that that is extremely high for this early 423 00:22:17,680 --> 00:22:20,760 Speaker 1: in the season. So the industry, it has responded. Guest 424 00:22:20,840 --> 00:22:23,119 Speaker 1: line production is over ten million barrels a day for 425 00:22:23,200 --> 00:22:28,280 Speaker 1: two consecutive weeks. Crudal production has risen. Unfortunately, at the 426 00:22:28,320 --> 00:22:31,280 Speaker 1: heart of this is the lack of refinery capacity, and 427 00:22:31,320 --> 00:22:35,320 Speaker 1: there's nothing anyone can do about that. Here in Philadelphia, 428 00:22:35,760 --> 00:22:40,320 Speaker 1: we had, uh, the South Gerard refinery that was producing 429 00:22:40,400 --> 00:22:43,720 Speaker 1: three thirty thousand barrels of crude all a day. Forty 430 00:22:43,800 --> 00:22:46,520 Speaker 1: percent of that was gasoline. We no longer have that. 431 00:22:46,560 --> 00:22:49,040 Speaker 1: You go to South Philly. That is no like refineries 432 00:22:49,040 --> 00:22:51,040 Speaker 1: no longer there. It's a brown field, so you're not 433 00:22:51,119 --> 00:22:55,200 Speaker 1: bringing that back. So we've slashed capacity over the last 434 00:22:55,280 --> 00:22:58,120 Speaker 1: five years. We don't have the same ability. So now 435 00:22:58,119 --> 00:23:03,399 Speaker 1: we're more reliant on for foreign production coming from Europe 436 00:23:03,400 --> 00:23:06,240 Speaker 1: and from Houston, and there are guys. Is the real problem, 437 00:23:06,240 --> 00:23:09,600 Speaker 1: and that's the one thing the administration and I do know. 438 00:23:10,040 --> 00:23:12,359 Speaker 1: This is what part of what the executives are telling 439 00:23:12,400 --> 00:23:16,120 Speaker 1: the Secretary of Energy. We evoke the Jones Act. Now, 440 00:23:16,160 --> 00:23:19,560 Speaker 1: for those not familiar, the Jones Act is a maritime 441 00:23:19,640 --> 00:23:23,160 Speaker 1: law passed about a thousand years ago meant to protect 442 00:23:23,240 --> 00:23:27,120 Speaker 1: the merchant marine industry, domestic merchant marine industry. The problem 443 00:23:27,200 --> 00:23:30,280 Speaker 1: now here is, since we don't have enough pipeline capacity, 444 00:23:30,400 --> 00:23:33,719 Speaker 1: we don't have enough refinery capacity here on the East Coast. 445 00:23:34,000 --> 00:23:36,640 Speaker 1: We need to ship that guest line diesel fuel out 446 00:23:36,640 --> 00:23:40,359 Speaker 1: of Houston and into New York Harbor. But the Jones 447 00:23:40,400 --> 00:23:44,439 Speaker 1: Act says that commerce interstate has to be transacted on 448 00:23:44,560 --> 00:23:48,200 Speaker 1: a foreign excuse me an American flagged vessel. We simply 449 00:23:48,240 --> 00:23:51,560 Speaker 1: don't have enough American flag vessels. Stephen barring some sort 450 00:23:51,600 --> 00:23:54,560 Speaker 1: of change to the Jones Act and frankly some sort 451 00:23:54,600 --> 00:23:57,320 Speaker 1: of wholesale shift that we're not going to see in time. 452 00:23:57,640 --> 00:23:59,920 Speaker 1: The tightness of the market has raised concerns the likes 453 00:23:59,920 --> 00:24:03,000 Speaker 1: of Goldman's Access. Jeff Curry, how much are we looking 454 00:24:03,080 --> 00:24:05,320 Speaker 1: at gas prices that will continue to climb? They have 455 00:24:05,400 --> 00:24:08,520 Speaker 1: been plateauing recently, but will continue to climb throughout the summer. 456 00:24:08,680 --> 00:24:12,400 Speaker 1: Two levels that we can't really imagine right now. Yeah, absolutely, 457 00:24:13,200 --> 00:24:16,399 Speaker 1: A hundred twenty dollar barrel oil. Crude oil both in Brenton, 458 00:24:16,520 --> 00:24:18,920 Speaker 1: w Tah, which is pretty much where the market has 459 00:24:18,960 --> 00:24:21,640 Speaker 1: been holding to your point, has stated out around there, 460 00:24:21,840 --> 00:24:25,000 Speaker 1: but as demand continues to pick up. As we approached 461 00:24:25,000 --> 00:24:28,160 Speaker 1: the fourth of July holiday, the triple A national average 462 00:24:28,200 --> 00:24:31,439 Speaker 1: is slightly right around five dollars a gallon at the pump. 463 00:24:32,240 --> 00:24:35,360 Speaker 1: Right now, fourth of July, we are forecasting five dollars 464 00:24:35,359 --> 00:24:39,280 Speaker 1: and forty cents on a national average, So there's still 465 00:24:39,320 --> 00:24:41,840 Speaker 1: more pain at the pump to come. And this is 466 00:24:41,880 --> 00:24:45,760 Speaker 1: contingent upon oil holding at hundred twenty dollars a barrel. 467 00:24:46,040 --> 00:24:49,480 Speaker 1: Every dollar oil goes higher, you're gonna look at another 468 00:24:49,560 --> 00:24:51,840 Speaker 1: to two and a half sent rise at the pump. 469 00:24:52,280 --> 00:24:55,479 Speaker 1: Stephen Forward curves are pricing in a sharper price decline 470 00:24:55,480 --> 00:24:57,560 Speaker 1: in that guest in oil. You know. For me, I'm wondering, 471 00:24:57,600 --> 00:24:59,399 Speaker 1: do you think that the price rise in oil is 472 00:24:59,440 --> 00:25:01,919 Speaker 1: stickier than that of that gas and if so, what 473 00:25:02,000 --> 00:25:04,920 Speaker 1: are the implications for for example, integrated oil companies out 474 00:25:04,920 --> 00:25:07,239 Speaker 1: of lad Am or the Canadian oil sands companies, all 475 00:25:07,280 --> 00:25:11,520 Speaker 1: of which are more focused on oil. Yeah, absolutely, natural gas. 476 00:25:11,720 --> 00:25:15,560 Speaker 1: It is a more seasonal market. You have two distinct markets. 477 00:25:15,600 --> 00:25:18,080 Speaker 1: You have the winter in the summer in the shoulder months, 478 00:25:18,520 --> 00:25:22,440 Speaker 1: you have uh the refill seasons. So at this point, 479 00:25:22,480 --> 00:25:26,960 Speaker 1: that backudation is telling us that there is not enough 480 00:25:27,000 --> 00:25:29,720 Speaker 1: supply right now. The month of main June is when 481 00:25:29,760 --> 00:25:34,240 Speaker 1: we store the most natural gas, getting ready for next winter. Now, 482 00:25:34,280 --> 00:25:37,800 Speaker 1: this year it has been hampered of course by uh 483 00:25:37,960 --> 00:25:41,119 Speaker 1: L en G exports of European demand for exports because 484 00:25:41,200 --> 00:25:44,280 Speaker 1: they too have have to build natural gas. So that's 485 00:25:44,280 --> 00:25:48,280 Speaker 1: steep backudation. Priceton is telling us the market is clamoring 486 00:25:48,600 --> 00:25:51,360 Speaker 1: to get gas into the ground for next winter. Now 487 00:25:51,480 --> 00:25:54,840 Speaker 1: lest we we had an explosion and a fire at 488 00:25:54,840 --> 00:25:58,480 Speaker 1: an L and G export facility down in Texas. Now 489 00:25:58,520 --> 00:26:02,720 Speaker 1: that export facility accounted for about one five of US 490 00:26:02,880 --> 00:26:06,960 Speaker 1: leg exports. So that excuse me that l G plant 491 00:26:07,000 --> 00:26:09,600 Speaker 1: is going to be closed now to probably at least October, 492 00:26:09,720 --> 00:26:12,880 Speaker 1: if not November. So that's a lot more gas that's 493 00:26:12,880 --> 00:26:15,919 Speaker 1: not leaving the United States that's gonna be set for 494 00:26:16,119 --> 00:26:21,119 Speaker 1: domestic consumption and storage. So with that added gas coming 495 00:26:21,160 --> 00:26:24,280 Speaker 1: to the market, at this point, you're looking at a 496 00:26:24,280 --> 00:26:27,240 Speaker 1: correction in the yield curve and the backwardation that is, 497 00:26:27,240 --> 00:26:30,720 Speaker 1: the front month prices have an extremely high relative to 498 00:26:30,800 --> 00:26:33,560 Speaker 1: back end, but that's starting the correct lower because we've 499 00:26:33,600 --> 00:26:36,600 Speaker 1: have all this found natural gas. Now, as far as 500 00:26:36,640 --> 00:26:40,600 Speaker 1: the integrated oil companies go, uh, look, natural gas is 501 00:26:40,640 --> 00:26:43,040 Speaker 1: a fossil fuel as well, so it's in the same 502 00:26:43,920 --> 00:26:48,680 Speaker 1: sites as oil with regard to policy and the lack 503 00:26:48,720 --> 00:26:51,800 Speaker 1: of policy with regard to promoting of both natural gas 504 00:26:51,840 --> 00:26:55,440 Speaker 1: production and crude oil production, and therefore it does set 505 00:26:55,440 --> 00:26:59,240 Speaker 1: the table for continued higher prices and a squeeze on 506 00:26:59,320 --> 00:27:01,960 Speaker 1: margins for the companies. Stephen, I've got thirty seconds left. 507 00:27:02,000 --> 00:27:03,520 Speaker 1: I want you to throw a number on it. We're 508 00:27:03,520 --> 00:27:06,000 Speaker 1: have five got a gas right now. Gasoline prices on 509 00:27:06,040 --> 00:27:08,520 Speaker 1: average in American right now by the end of the summer, 510 00:27:08,560 --> 00:27:10,280 Speaker 1: do you share the JP mulgan view that this is 511 00:27:10,280 --> 00:27:13,240 Speaker 1: going to have a six handle. Yeah, we're about it. 512 00:27:13,320 --> 00:27:16,200 Speaker 1: A four tr modeling is at a fourteen percent probability. 513 00:27:16,280 --> 00:27:18,960 Speaker 1: We see that. The problem now is it's a race. 514 00:27:19,520 --> 00:27:22,160 Speaker 1: Uh do we see at six dollars which I said 515 00:27:22,200 --> 00:27:24,720 Speaker 1: is a fourteen percent probability, or do we see such 516 00:27:24,720 --> 00:27:28,720 Speaker 1: a severe economic down to receive demands, destruction and prices fall, 517 00:27:28,960 --> 00:27:32,119 Speaker 1: because that's where we're headed. We're headed for recession if 518 00:27:32,160 --> 00:27:34,359 Speaker 1: we're not already in it at these high food and 519 00:27:34,640 --> 00:27:37,240 Speaker 1: energy prices. So yeah, I'll give a four teen percent. 520 00:27:37,440 --> 00:27:39,400 Speaker 1: I'm on board fourteen percent of the time with JP 521 00:27:39,520 --> 00:27:43,720 Speaker 1: Morgan and I productive just just four Saint Stephen stay 522 00:27:43,840 --> 00:27:45,720 Speaker 1: show at the show a crew. If I light JP Mulgan, 523 00:27:45,800 --> 00:27:48,200 Speaker 1: just on board with them fourteen percent at the time. 524 00:27:48,480 --> 00:27:52,240 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 525 00:27:52,359 --> 00:27:55,760 Speaker 1: us live weekdays from seven to ten AMI Eastern. I'm 526 00:27:55,800 --> 00:27:59,960 Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six 527 00:28:00,160 --> 00:28:05,000 Speaker 1: to nine am for insight from the best in economics, finance, investment, 528 00:28:05,119 --> 00:28:10,159 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 529 00:28:10,240 --> 00:28:14,040 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 530 00:28:14,160 --> 00:28:18,280 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg.