WEBVTT - Surveillance: BOE Rate Hikes with Davies (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferrell and Lisa A. Brownwitz. Daily we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance on Ample podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:28.680 dot Com and of course on the Bloomberg Terminal. We've 0:00:28.680 --> 0:00:31.400 been talking all week about the pound and how weak 0:00:31.440 --> 0:00:33.600 it is and how it really is between a rocket 0:00:33.640 --> 0:00:36.720 and hard place for the Bank of England. And then 0:00:36.920 --> 0:00:40.640 someone comes out after writing a book with incredible expertise 0:00:40.760 --> 0:00:43.360 on the history of crises in England, and that is 0:00:43.400 --> 0:00:46.360 no one other than Sir Howard Davies, who has chair 0:00:46.440 --> 0:00:50.040 at NatWest Group, an author of this book The Chancellors. 0:00:50.680 --> 0:00:53.559 Sir Howard, what did you start writing this? I mean, honestly, 0:00:53.560 --> 0:00:56.560 it comes to such an amazing time of crisis where 0:00:56.560 --> 0:01:00.440 people are looking for history and anything as a guide. Yeah. 0:01:00.440 --> 0:01:03.040 Well it was a lockdown project, you know. I felt 0:01:03.040 --> 0:01:06.720 guilty in the lockdown, had to use somehow the time 0:01:06.760 --> 0:01:09.520 that I was saving, so I thought, well, maybe it 0:01:09.520 --> 0:01:12.480 would be a good point at which to reflect on 0:01:12.560 --> 0:01:14.200 the history of the last twenty five years, which has 0:01:14.240 --> 0:01:17.760 been pretty pretty exciting in the UK, and that we 0:01:17.840 --> 0:01:20.440 had the great financial crisis, Bank of England independence, We've 0:01:20.440 --> 0:01:24.399 had Brexit referendum, Scottish referendum, and I asked the various 0:01:24.520 --> 0:01:26.800 chancellors who'd served in this period if they were prepared 0:01:26.840 --> 0:01:29.520 to reflect on it, and of course they had time 0:01:29.560 --> 0:01:32.000 on their hands as well, so in fact they were 0:01:32.200 --> 0:01:34.199 very happy to talk to me about it, as indeed 0:01:34.240 --> 0:01:36.320 were quite a lot of officials. So what I've tried 0:01:36.360 --> 0:01:38.759 to do is to tell the story of the last 0:01:39.120 --> 0:01:43.199 twenty five years as seen from the Treasury, which turns 0:01:43.240 --> 0:01:45.880 out now to be quite a relevant thing. I think, 0:01:46.240 --> 0:01:48.800 Sir Howard, we were talking earlier this week about how 0:01:48.840 --> 0:01:51.720 the Bank of England raised rates because they were concerned. 0:01:51.920 --> 0:01:54.040 The raised rates only twenty five basis points, because they 0:01:54.080 --> 0:01:57.360 were more concerned about the labor markets softening or perhaps 0:01:57.360 --> 0:02:00.760 at consumer demand getting crimped and discretionary spell ending. Then 0:02:00.800 --> 0:02:04.840 they were about the inflationary inputs that continue to create 0:02:04.960 --> 0:02:07.400 huge pressures on the economy. Was that the right move 0:02:07.480 --> 0:02:11.400 based on all of those conversations you had, well, I 0:02:11.560 --> 0:02:15.480 think I was with the three in the minority. I 0:02:15.520 --> 0:02:17.400 mean it was a six three vote on the monitor 0:02:17.440 --> 0:02:23.600 policy committee. Interestingly, of the four external economists, three voted 0:02:23.840 --> 0:02:27.800 for a fifty basis point rise and one voted with 0:02:27.919 --> 0:02:31.480 the Bank of England insiders and for the rise. And 0:02:31.520 --> 0:02:34.360 I was with the three out of the four externals. 0:02:34.400 --> 0:02:36.720 I have to say because I think one of the 0:02:36.760 --> 0:02:39.440 problems that we have, and you just referred to it, 0:02:39.520 --> 0:02:44.880 is that the weakness of sterling is contributing to inflationary 0:02:44.880 --> 0:02:48.320 pressures as well. And if you look back at you 0:02:48.360 --> 0:02:51.160 know the experience of oil prices, and one reason why 0:02:51.600 --> 0:02:56.640 we're now facing a two pound alter diesel price is 0:02:56.680 --> 0:02:59.760 because the pound has slipped down to one twenty something, 0:03:00.360 --> 0:03:02.120 and you know so long ago that we were at 0:03:02.120 --> 0:03:06.160 one forty. So we are making our problem more serious 0:03:06.360 --> 0:03:09.040 by the fact that Sterling is weak. And I think 0:03:09.040 --> 0:03:12.600 in part that is weak because of the perception that 0:03:12.800 --> 0:03:15.320 rates will not rise as much here as they're going 0:03:15.360 --> 0:03:18.520 to rise in the US. Sir, how are you rightly 0:03:18.560 --> 0:03:21.360 call out central banks for openly claiming that they can't 0:03:21.400 --> 0:03:24.520 tame inflation but in reality they can. I mean, they 0:03:24.520 --> 0:03:26.640 have a blunt tool they can raise rates choke demanded 0:03:26.760 --> 0:03:28.840 drive an economy in through recession. By question for you 0:03:29.000 --> 0:03:31.839 is is there any way that central banks can do 0:03:31.919 --> 0:03:34.800 that with out driving an economy into recession, or there 0:03:34.800 --> 0:03:37.680 are the policy tools at their disposal, or perhaps it's 0:03:37.680 --> 0:03:40.120 not providing as much forward transparency. I'm curious to hear 0:03:40.120 --> 0:03:44.040 your thoughts on that. Yeah, I think what's one got 0:03:44.080 --> 0:03:48.880 to look at is the time dimension here. And obviously, 0:03:49.000 --> 0:03:54.760 if you get a very sharp exogenous shock, like an 0:03:55.520 --> 0:03:58.640 increase on the sort we've had and the war, then 0:03:58.680 --> 0:04:02.120 you can't expect central bank to deal with that instantly. 0:04:02.640 --> 0:04:06.920 But in fact, the inflation target formula explicitly recognizes that, 0:04:07.000 --> 0:04:10.920 and inflation targeting is meant to target an inflation rate 0:04:11.280 --> 0:04:15.240 at eighteen months two years ahead. So I think whereas 0:04:15.480 --> 0:04:18.799 I can accept the central bank saying, look, we can't 0:04:18.839 --> 0:04:22.039 respond to this immediate spike, that's fine, that's understood, but 0:04:22.160 --> 0:04:26.760 what they must do is present a plausible path of 0:04:26.920 --> 0:04:29.520 interest rates which is going to deliver them back to 0:04:29.560 --> 0:04:31.880 the inflation target in eighteen months or two years time. 0:04:32.240 --> 0:04:35.440 And that's why I think you need a higher rate 0:04:35.480 --> 0:04:39.359 at the moment in order to give credibility to this 0:04:39.600 --> 0:04:43.600 medium term inflation outlook. And I don't think that's where 0:04:43.600 --> 0:04:46.479 we are at the moment. Unfortunately, in the UK. So Howard, 0:04:46.520 --> 0:04:48.200 Let's character script the bit. You've been a member of 0:04:48.200 --> 0:04:51.800 the International Advisory Council for the China Securities Regulatory Commission 0:04:51.839 --> 0:04:56.000 since two thousand three. UM there's about two hundred China 0:04:56.080 --> 0:05:00.200 liftings on US exchanges, I think roughly one point seven 0:05:00.240 --> 0:05:02.960 trillion in assets. But all that's going on with the 0:05:03.040 --> 0:05:04.960 lack of transparency with the p C A O B. 0:05:05.400 --> 0:05:07.320 I'm just curious to hear thoughts on that. I mean, 0:05:07.360 --> 0:05:09.320 what is China's approach to all this? Do you think 0:05:09.880 --> 0:05:11.960 companies like buy do j D? I mean, are they 0:05:11.960 --> 0:05:15.720 going to avoid having to delist? In your term? Well, 0:05:15.760 --> 0:05:21.040 the Chinese approaches evidently changing. Up to now, the c 0:05:21.560 --> 0:05:25.280 s r C, the Chinese equivalent of the SEC, if 0:05:25.279 --> 0:05:31.080 you like, has had a general policy orientation towards opening 0:05:31.160 --> 0:05:34.680 up Chinese markets. They established a link between Shanghai and 0:05:34.720 --> 0:05:38.880 Hong Kong, link between Shanghai and London, and that's been 0:05:39.279 --> 0:05:43.600 the direction of travel. Now. There are, however, signs recently, 0:05:43.640 --> 0:05:47.200 as you say, of the Chinese wishing to pull back 0:05:47.240 --> 0:05:52.520 because they're unhappy about the influence that external regulators have 0:05:53.360 --> 0:05:57.480 via a Chinese company listing in other markets. I think 0:05:57.480 --> 0:06:00.560 it's very difficult to say at the moment where the 0:06:00.839 --> 0:06:03.400 where this is going to go, And of course for 0:06:03.440 --> 0:06:05.760 the last two years COVID has got in the way 0:06:05.800 --> 0:06:09.240 of direct connections. You know, I remain on that Advisory 0:06:09.240 --> 0:06:11.320 Council that time chair of it, but we haven't actually 0:06:11.360 --> 0:06:13.240 had a physical face to face meeting, and it's in 0:06:13.240 --> 0:06:15.520 the face to face meetings where you really understand what's 0:06:15.520 --> 0:06:19.320 going on. So I'm not trying to avoid your question, 0:06:19.560 --> 0:06:23.080 but it's honestly quite difficult to answer in circumstances where 0:06:23.080 --> 0:06:26.240 you haven't actually met people for well over two years now, 0:06:26.560 --> 0:06:28.320 Sir Howard, before we let you go, do you think 0:06:28.360 --> 0:06:30.320 that the pound is ever going to get above that 0:06:30.360 --> 0:06:33.520 one mark versus the dollar that we saw pre Brexit? 0:06:36.279 --> 0:06:41.120 Unlikely would be my guess. I can't quite see why. 0:06:41.440 --> 0:06:43.479 There are the short term issues I've been talking about 0:06:44.279 --> 0:06:48.040 involving interest rates, but also in the longer term. You know, 0:06:48.200 --> 0:06:52.920 we do have a structural trade deficit and that's been 0:06:53.400 --> 0:06:56.240 offset by capital flows for a long period of time. 0:06:56.680 --> 0:06:58.839 But you know, you can only sell the London property 0:06:58.880 --> 0:07:02.960 market once externally um net if you see what I mean, 0:07:03.000 --> 0:07:06.640 they can traded amongst themselves. You any sided ones so 0:07:07.240 --> 0:07:09.840 I don't see quite what is going to push the 0:07:09.880 --> 0:07:13.160 pound up. Sir Howard Davies, thank you so much for 0:07:13.240 --> 0:07:20.480 taking this time in congratulations on writing this book. Jonathan 0:07:20.480 --> 0:07:22.880 Gollup joins US now the chief US Equity Strategistic Credit 0:07:22.960 --> 0:07:25.120 Sweets John. Great to catch up this so and thanks 0:07:25.160 --> 0:07:27.520 for coming into the studio too. You've been constructive on 0:07:27.520 --> 0:07:30.440 this equity market. It's been difficult. You can't get them 0:07:30.480 --> 0:07:32.200 right all the time. Walk me through what you're learning 0:07:32.280 --> 0:07:35.120 is this year progresses and how you're thinking about the future. Now, Well, 0:07:35.320 --> 0:07:38.520 I think you guys are actually like right on points. 0:07:38.520 --> 0:07:41.920 So let's let's start with with Damien's comments. Um, credit 0:07:41.960 --> 0:07:46.080 spreads have blown out, but there's not a credit performance problem. 0:07:46.120 --> 0:07:48.040 And what I what I mean by that is you 0:07:48.040 --> 0:07:50.800 know people are paying there, you know are making their 0:07:50.800 --> 0:07:53.840 interest payments and and people aren't going bankrupts. And companies 0:07:53.880 --> 0:07:56.640 have lots of cash and they've turned out, they've turned 0:07:56.640 --> 0:07:59.880 out their liabilities so they don't have this rollover risk. 0:08:00.080 --> 0:08:03.400 So the credit is performing as if we have this 0:08:03.480 --> 0:08:08.920 incredibly healthy economy, and yet you have credit spreads really wide. 0:08:08.920 --> 0:08:10.800 And I think one of the things that are going 0:08:10.840 --> 0:08:14.040 to drive equities higher between now and your end is 0:08:14.200 --> 0:08:16.360 if we don't have a recession between now and the 0:08:16.400 --> 0:08:19.360 end of the year, which I think is unlikely. Um, 0:08:19.480 --> 0:08:22.000 then I think that the credit spreads actually come down 0:08:22.360 --> 0:08:25.120 because there's not a credit problem, and yet the market 0:08:25.200 --> 0:08:28.400 is pricing one. Now there's a second issue, John, which 0:08:28.560 --> 0:08:32.440 you raise, which is so far you're to date, the 0:08:32.480 --> 0:08:36.719 market is really discounted a higher cost of capital, not 0:08:36.920 --> 0:08:39.640 a recession. And people who are saying is a market 0:08:39.640 --> 0:08:42.079 discounting and earning this problem? This is that not really? 0:08:42.440 --> 0:08:46.439 I would say though the last week the market is 0:08:46.480 --> 0:08:49.679 starting to say it's not just a higher cost of 0:08:49.760 --> 0:08:53.560 capital or higher discount rate, it's actually the damage that 0:08:53.600 --> 0:08:55.400 the Fed is gonna do. And are we getting a 0:08:55.400 --> 0:08:58.560 recession sooner? And there? I think the debate is mean, 0:08:58.600 --> 0:09:00.800 it's a simple debate. It's hard to figure it out. 0:09:00.960 --> 0:09:04.680 Is when does the recession start? If you think that 0:09:04.679 --> 0:09:07.280 we have a recession in six to nine months, the 0:09:07.440 --> 0:09:10.960 downside from here is substantial. If you believe that the 0:09:11.000 --> 0:09:14.400 recession is in the latter half of twenty three or 0:09:14.559 --> 0:09:17.600 further out, then you've got to buy stocks right here 0:09:17.640 --> 0:09:20.439 because the earnings will come through and there won't be 0:09:20.480 --> 0:09:23.160 an earnings problem. Jonathan I wanted to go there, the range, 0:09:23.240 --> 0:09:26.240 the range of outcomes and just how big the extremes 0:09:26.240 --> 0:09:28.680 are actually go back to what Andrew Holland Horse said, 0:09:29.000 --> 0:09:32.280 volatility may prevail now that the market will were price 0:09:32.400 --> 0:09:35.960 fed policy based on each monthly inflation reading. How wide 0:09:36.160 --> 0:09:39.760 is your bear case scenario and your bookcase scenario, you know, Lisa, 0:09:39.880 --> 0:09:43.439 So we we actually we put out a report yesterday 0:09:43.480 --> 0:09:45.880 which was like like it was kind of like a 0:09:46.400 --> 0:09:49.400 wonky report for guys who kind of love like marketing journals, 0:09:49.440 --> 0:09:51.360 and and it got a lot of attention. We looked 0:09:51.360 --> 0:09:54.040 at the dispersion of analysts estimates. So let's say you're 0:09:54.040 --> 0:09:56.760 covering you pick the stock Microsoft, and are all the 0:09:56.800 --> 0:10:00.839 analysts you know clustered at a very similar outlook or 0:10:00.960 --> 0:10:03.679 are they all over the map. The more that the 0:10:03.880 --> 0:10:06.120 estimates are all over the map, the more it tells 0:10:06.160 --> 0:10:09.400 you that people are concerned about recessionary outcomes in the 0:10:09.440 --> 0:10:13.240 direction of economy. And we're seeing that in nine of 0:10:13.280 --> 0:10:17.280 eleven sectors you are below average in dispersion, meaning that 0:10:17.320 --> 0:10:22.320 there's very little doubt from analysts on the direction of profits. Now, 0:10:22.400 --> 0:10:24.320 where where did the analysts come from this. It's not 0:10:24.400 --> 0:10:26.400 like they're pulling it out of their head. They're talking 0:10:26.400 --> 0:10:29.400 to company management, and company management is saying is we 0:10:29.480 --> 0:10:32.440 actually have a surprising amount of clarity. Things seem okay, 0:10:32.640 --> 0:10:35.880 we're not seeing stress with our clients. Margins are under pressure, 0:10:36.200 --> 0:10:38.960 but a little, not a lot. So it was it 0:10:39.040 --> 0:10:40.960 was actually pretty surprising to me when we looked at 0:10:40.960 --> 0:10:45.440 the data, how clean the earning story looks, not only 0:10:45.440 --> 0:10:48.360 in terms of the earnings being good, but how there's 0:10:48.520 --> 0:10:50.760 there's lack you know, there's this pretty high level of 0:10:50.760 --> 0:10:53.280 conviction on both the part of company management of Wall 0:10:53.280 --> 0:10:56.040 Street analysts. Jonathan, I think, you know, we've seen the 0:10:56.040 --> 0:10:58.640 two main factors that are driving um, you know, equity 0:10:58.640 --> 0:11:00.880 earnings expectations, I think a rise in bond yields at 0:11:00.960 --> 0:11:03.480 higher commodity prices. So my question for you is the 0:11:03.520 --> 0:11:05.480 pace d v v V. Are you comfortable with the 0:11:05.480 --> 0:11:07.960 pace of downward revisions going forward? Do you think it's 0:11:08.000 --> 0:11:11.240 gonna be accelerate or I mean, are we there yet? 0:11:11.920 --> 0:11:15.479 So if you look yere to date, the earnings revisions 0:11:15.480 --> 0:11:19.160 have been have been solidly positive. So let's say at 0:11:19.160 --> 0:11:21.360 the beginning of this year, if you look at the 0:11:21.400 --> 0:11:24.160 twelvemonth outlook for earnings and then you do the same thing. 0:11:24.440 --> 0:11:27.839 Today we're seven and a half percent higher than we are. 0:11:27.880 --> 0:11:30.959 So the markets, you know, the markets down or something 0:11:31.000 --> 0:11:33.160 like that, but you have a positive seven and a 0:11:33.240 --> 0:11:37.240 half on the earnings and a negative thirty one percent 0:11:37.720 --> 0:11:40.880 on the stock multiple. So it really says, is we 0:11:41.000 --> 0:11:43.760 have a problem. Listen, you have you have cash flows, 0:11:43.760 --> 0:11:46.000 you discount im at a higher discount rate. They're worth 0:11:46.280 --> 0:11:50.120 They're worth less money, um. And it's so it makes 0:11:50.120 --> 0:11:52.680 sense to people would say, yeah, but maybe the markets 0:11:52.679 --> 0:11:55.679 really telling you the earnings aren't good. I don't think 0:11:55.760 --> 0:11:57.520 that's the case. I think that what you have is 0:11:58.120 --> 0:12:00.880 a real downgrade to what you're willing to pay for 0:12:00.920 --> 0:12:03.000 a dollar earnings, not the other way around. We go 0:12:03.120 --> 0:12:06.080 to finish on this everything you've said, is it enough 0:12:06.080 --> 0:12:08.640 to get us back towards five kg on the SMP? 0:12:09.480 --> 0:12:13.200 You know? You know, I think the answer is directionally yes. 0:12:13.360 --> 0:12:16.280 You know, I think that right now the market is 0:12:16.400 --> 0:12:19.240 really oversold if you look at the way that you know, 0:12:19.440 --> 0:12:23.040 how how intense the daily moves are and how much 0:12:23.080 --> 0:12:25.680 volatility there is. The key is that we have to 0:12:25.720 --> 0:12:28.840 be confident that we're not that the FEDS not driving 0:12:28.920 --> 0:12:31.640 us into recession. If if if we start to see, 0:12:31.679 --> 0:12:34.920 for example, the next couple of job reports, if we see, 0:12:35.559 --> 0:12:38.280 you know, god forbid a negative print where you actually 0:12:38.280 --> 0:12:41.080 have a loss of jobs or something, well, then the 0:12:41.120 --> 0:12:43.000 market's going to freak out and you and you're looking 0:12:43.080 --> 0:12:45.400 much lower numbers. But look at what we've had. The 0:12:45.440 --> 0:12:47.840 I s M, which is an indication of industrial activity 0:12:48.200 --> 0:12:51.960 well above normal. UM. The last job report very strong 0:12:52.000 --> 0:12:56.600 in terms of jobs earning season, really big beats so UM. 0:12:56.920 --> 0:13:00.400 I think that ultimately the fundamentals went out up. But 0:13:00.240 --> 0:13:02.720 I but I will tell you that the last you know, 0:13:02.880 --> 0:13:05.760 week or so shakes everybody's confidence in a big way. John, 0:13:05.760 --> 0:13:07.439 I'm just going through the numbers, and I don't want 0:13:07.440 --> 0:13:09.280 to beat up on you. You're not alone. I've got 0:13:09.280 --> 0:13:12.600 Oppenheimer at fifty three thirty year end, you're at forty 0:13:12.679 --> 0:13:15.880 nine hundred, got Bowski over a Beama at forty eight hundred, 0:13:16.240 --> 0:13:18.800 got others, Bank of America, Ceveta, who hasn't been constructive, 0:13:18.800 --> 0:13:21.360 cebsa su Mamonium at the best of times, and she's 0:13:21.400 --> 0:13:24.640 at four hundred. I just wonder as an analyst, as 0:13:24.640 --> 0:13:27.080 a strategist John, and you look at this market run 0:13:27.080 --> 0:13:29.360 away in the other direction. What do you have to do? 0:13:30.120 --> 0:13:33.680 What should you do? Well? I mean, so you know, 0:13:33.720 --> 0:13:36.880 we we actually lowered our our numbers. Um, I don't know, 0:13:36.880 --> 0:13:38.600 about eight weeks ago a little bit. And when we 0:13:38.640 --> 0:13:41.520 went back to the you know, to the to the pieces, 0:13:42.080 --> 0:13:44.000 we're not. The right thing to do is not to 0:13:44.080 --> 0:13:46.199 forecast the market. It's to say, okay, let's start with 0:13:46.240 --> 0:13:49.240 the earnings. My earnings, right, are they too hired? Too low? 0:13:49.280 --> 0:13:52.440 When we went back and tested them, and the earnings 0:13:52.480 --> 0:13:55.280 if if you know, looked incredibly solid. I mean, we 0:13:55.280 --> 0:13:57.400 looked at and numbers said if we're gonna make a change, 0:13:57.559 --> 0:13:59.400 maybe we should move higher. I mean, the earnings were 0:13:59.440 --> 0:14:02.760 looking pristine. Some of that is more coming from energy, 0:14:02.880 --> 0:14:05.480 but but nonetheless, and then we look at the multiple 0:14:05.720 --> 0:14:08.560 and we and this is why we actually lowered our estimates. Um, 0:14:09.200 --> 0:14:11.720 is it No? I mean, you have to lower your 0:14:11.760 --> 0:14:16.000 expectations for stock multiples, for pe s when the cost 0:14:16.040 --> 0:14:19.200 of capital goes up. Now, if we were to downgrade 0:14:19.200 --> 0:14:21.360 our number, it wouldn't be because we think that our 0:14:21.360 --> 0:14:23.680 earnings are off. It would be because we say, listen, 0:14:23.880 --> 0:14:26.080 these are these you know that those credit spreads that 0:14:26.160 --> 0:14:29.720 Damien was talking about before, if they stay wide, then 0:14:29.800 --> 0:14:32.120 then stocks can't rebound. They have to come in. I 0:14:32.120 --> 0:14:34.760 had to squeeze that inch on. It's gonna get your perspective. Johnath, 0:14:34.760 --> 0:14:44.160 thank all of the credit sweez This inflationary bank drop 0:14:44.240 --> 0:14:46.080 is a big challenge to everyone in this country. It's 0:14:46.080 --> 0:14:47.560 a big challenge to this White House too, And I'm 0:14:47.560 --> 0:14:49.680 pleased to say that joining us now is how to bouchet. 0:14:49.960 --> 0:14:52.880 The member of the White House Council of Economic Advisors 0:14:52.880 --> 0:14:54.960 had the fantastic to catch up with you. You guys 0:14:54.960 --> 0:14:57.720 have taken this very seriously. The Washington Post is out 0:14:57.720 --> 0:14:59.840 with a story this morning on a range of issues 0:14:59.840 --> 0:15:02.480 for Postles that you're putting forward at the moment. One 0:15:02.520 --> 0:15:06.600 of them is imposing price controls and fanning exports of 0:15:06.720 --> 0:15:08.960 US energy. And I'd just like to know first up 0:15:09.240 --> 0:15:13.800 how seriously we should be taking that reporting this morning. Well, certainly, 0:15:13.800 --> 0:15:17.160 as the President made clear over the course of this week, 0:15:17.440 --> 0:15:20.720 all options are on the table in terms of energy. Um. 0:15:20.760 --> 0:15:22.920 You know, he sent a letter this week to oil 0:15:22.960 --> 0:15:25.640 refiners to say, hey, you all need to do your part, 0:15:26.000 --> 0:15:28.800 and that was part of showing just how important this 0:15:28.840 --> 0:15:31.560 issue of inflation and gas prices is to the president. 0:15:31.800 --> 0:15:35.760 He understands that this affects the pocketbooks of American families 0:15:35.800 --> 0:15:38.240 all over the country and is doing what he can 0:15:38.360 --> 0:15:40.360 to make sure that the prices that people pay at 0:15:40.400 --> 0:15:43.440 the pump are fair. Um even given you know the 0:15:43.440 --> 0:15:46.640 fact that we are in the midst of this unprovoked 0:15:46.720 --> 0:15:49.600 war by Putin in the Ukraine, that his up ended 0:15:50.040 --> 0:15:54.480 oil markets, leading to shorter supplies and increases in prices. 0:15:54.800 --> 0:15:56.840 But one of the things we also know is that 0:15:56.960 --> 0:16:00.400 refiners are you know that there's a gap, but now 0:16:00.440 --> 0:16:02.640 a growing gap between how much they are paying for 0:16:02.640 --> 0:16:04.480 the oil that they bring in and how much they 0:16:04.480 --> 0:16:06.560 are charging at the other end. That gap used to 0:16:06.600 --> 0:16:09.200 be about fifty cents. It's now over a dollar. And 0:16:09.240 --> 0:16:10.920 so that is one of the things that the presidents 0:16:10.920 --> 0:16:12.800 focused on this week. And then, as he said in 0:16:12.840 --> 0:16:15.160 the letter to them, he is willing to use all 0:16:15.200 --> 0:16:18.800 of his powers that he is available to him to 0:16:18.880 --> 0:16:21.040 take next steps, but he wants to talk to them first, 0:16:21.040 --> 0:16:22.840 figure out what they can do together and the less 0:16:22.840 --> 0:16:24.400 flesh some of this out, and give me some time 0:16:24.440 --> 0:16:26.160 to do so. If you can, I'll go through it. 0:16:26.200 --> 0:16:28.440 This is what the President said. Xon made more money 0:16:28.480 --> 0:16:30.560 than God this year, buying back their stock and making 0:16:30.600 --> 0:16:32.600 no new investments. A quote from the President. This is 0:16:32.600 --> 0:16:35.640 what Excen said. Globally, we've invested double what we've earned 0:16:35.640 --> 0:16:38.080 over the past five years, a hundred and eighteen billion 0:16:38.320 --> 0:16:40.560 on New Orleans gas supplies compared to net income of 0:16:40.600 --> 0:16:42.960 fifty five. This is what the President said at a 0:16:43.000 --> 0:16:45.600 time of war, historically high refinery profit march is being 0:16:45.640 --> 0:16:49.160 passed directly onto American families are not acceptable. He's alluding 0:16:49.440 --> 0:16:53.280 to them deliberately holding back capacity, alluding to price gouging. 0:16:53.280 --> 0:16:57.240 You've done the same. Your own Energy Information Administration has 0:16:57.280 --> 0:17:01.360 reported only recently that the industry was an incredible levels 0:17:01.440 --> 0:17:06.080 of capacity utilization of over your own Treasury Secretary has said, 0:17:06.119 --> 0:17:10.000 it's not price couching, it's demanded supply that's largely driving inflation. 0:17:10.119 --> 0:17:11.840 So have my question to you, and thank you for 0:17:11.840 --> 0:17:14.080 allowing me to flesh that out, is who's given the 0:17:14.080 --> 0:17:17.960 president these talking points because they do not add up. Well, 0:17:18.080 --> 0:17:19.760 here's the thing. One of the things that we have 0:17:19.840 --> 0:17:23.200 seen again in large part due to both the pandemic 0:17:23.400 --> 0:17:25.800 and the war in Ukraine, that putin has been waging 0:17:26.359 --> 0:17:30.120 has been there have been a capacity at refiners globally 0:17:30.240 --> 0:17:33.639 has been taken offline. So over the course of the 0:17:33.640 --> 0:17:37.120 pandemic um here in the United States about eight eight 0:17:37.160 --> 0:17:41.239 hundred thousand barrels per day we're taken offline. And so 0:17:41.280 --> 0:17:44.400 the President is saying, hey, can we work together to 0:17:44.440 --> 0:17:46.359 figure out how to get that back online as quickly 0:17:46.400 --> 0:17:51.200 as possible. Is not just doing that, He's suggesting something 0:17:51.240 --> 0:17:55.200 nefarious is going gone here at the same time. That's 0:17:55.240 --> 0:17:57.560 that's the politics of it. I hear it. He's alluding 0:17:57.920 --> 0:18:00.840 to price couching. He's saying, they made more money than God. 0:18:01.119 --> 0:18:04.400 They're buying back their own stock. They're making no new investments. Yes, 0:18:04.440 --> 0:18:07.439 they are buying back their stock. Yes, they are also 0:18:07.520 --> 0:18:10.199 making investments as well. As I said earlier, your own 0:18:10.240 --> 0:18:13.880 tracery secretary says, this is supply and demand. We're having 0:18:13.880 --> 0:18:18.760 a policy conversation. The president isn't He's speaking just about politics. 0:18:18.840 --> 0:18:21.680 He's trying to make out something that faris is happening 0:18:22.320 --> 0:18:25.919 in Texas. I've just read all the quotes, direct quotes, 0:18:26.000 --> 0:18:28.560 which bit of it isn't true. It is not true 0:18:28.640 --> 0:18:31.399 that the president is having a policy conversation. He is 0:18:31.440 --> 0:18:33.320 looking at the data and the evidence in front of 0:18:33.400 --> 0:18:36.040 him about what is happening in this industry. And what 0:18:36.160 --> 0:18:40.040 you cannot deny is that the last time that oil 0:18:40.119 --> 0:18:44.800 barrels were priced at a y barrels hundred twenty per barrel, 0:18:45.440 --> 0:18:48.919 gas prices of the pump were about now at this 0:18:49.040 --> 0:18:51.240 same price level. Of course, it fluctuates every day, but 0:18:51.280 --> 0:18:53.240 now at this price level, you're seeing prices at the 0:18:53.240 --> 0:18:56.680 pump it over five dollars. There there is a gap there, 0:18:56.720 --> 0:18:59.280 and this is what the President is focused on. That doesn't, 0:18:59.320 --> 0:19:01.960 you know, obliterate anything that has happened in between, and 0:19:02.200 --> 0:19:04.280 certainly investments have been made, but the President is saying, 0:19:04.480 --> 0:19:07.639 what more can we do because we need to get 0:19:08.119 --> 0:19:11.040 this oil supply to consumers at this moment, you know, 0:19:11.119 --> 0:19:14.720 people can't very quickly change their demand for gas. People 0:19:14.760 --> 0:19:17.000 need drive their cars to get to work. So he 0:19:17.119 --> 0:19:19.879 is focused on what else the refiners can do. And 0:19:19.920 --> 0:19:23.760 there is evidence that that they are bringing in exceptionally 0:19:23.840 --> 0:19:26.320 high profits and that there is this gap between the 0:19:26.359 --> 0:19:28.760 prices that they are paying and the prices that they 0:19:28.760 --> 0:19:31.480 are charging that is larger than before. So that there's 0:19:31.520 --> 0:19:34.120 all evidence and that is still about supplying demand. Well, 0:19:34.160 --> 0:19:36.840 but Heather, let's say you cannot get that supply on 0:19:37.080 --> 0:19:38.960 in the way that the President would like in the 0:19:39.000 --> 0:19:42.679 short term. How worried are you about essentially going against 0:19:42.720 --> 0:19:45.040 what the FETE is trying to do with dampening demand 0:19:45.160 --> 0:19:48.119 by things like rebake cards are subsidizing the prices of 0:19:48.200 --> 0:19:50.680 gas and other goods at a time when the Fed 0:19:50.920 --> 0:19:55.000 ultimately is trying to get demand to come down. So 0:19:55.160 --> 0:19:58.200 that is such a great question. You've elevated how this 0:19:58.280 --> 0:20:01.720 particular economic moment is very tricky because we have so 0:20:01.800 --> 0:20:05.639 many supply side challenges um as the as J. Powell 0:20:05.720 --> 0:20:08.560 himself noted, you know, the Fed's tools are blunt and 0:20:08.600 --> 0:20:11.359 they are essentially on the demand side. But we have 0:20:11.520 --> 0:20:13.480 these and we've seen them over the past few years, 0:20:13.520 --> 0:20:18.520 these incredible supply chain snarls. We're seeing these challenges in 0:20:18.600 --> 0:20:20.679 large part because of the pandemic, and so that is 0:20:20.720 --> 0:20:23.800 why the President is that a multi pronged approach to 0:20:23.840 --> 0:20:26.200 figure out all of the different ways we can attact 0:20:26.520 --> 0:20:29.080 where prices are too high consumers. We don't have a 0:20:29.080 --> 0:20:31.359 lot of time left, but just quickly. The point is 0:20:31.560 --> 0:20:34.520 it's very hard to deal with the supply chain disruptions 0:20:34.520 --> 0:20:38.040 and it takes time. So without that really getting remedied 0:20:38.040 --> 0:20:40.840 in the short term, why is it good not to 0:20:40.960 --> 0:20:44.600 seek demand come down a little bit. Well, certainly that 0:20:44.800 --> 0:20:47.600 the President is letting the Fed do their job. But 0:20:47.640 --> 0:20:51.000 you know, so yesterday the President signed new legislation on 0:20:51.200 --> 0:20:54.720 ocean shipping. Here's a place where that legislation and the 0:20:54.720 --> 0:20:57.360 work that the Federal Maritime Commission is doing right now 0:20:57.480 --> 0:21:00.359 could have an impact on prices that consumers pay for 0:21:00.560 --> 0:21:03.760 goods that are being shipped from overseas. So the President 0:21:03.800 --> 0:21:06.640 is doing everything he can to lower prices, using all 0:21:06.640 --> 0:21:08.679