Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot com, and of course on the Bloomberg. You know,
Speaker 1: we've got a guest here that he's done forensic accounting
Speaker 1: on all these unicorns. We can bring in, Michael Holland
Speaker 1: Holland and Company, Cham and Michael. Great to have you
Speaker 1: with us in New York. Let's begin with the I
Speaker 1: p O that Watson and may not be for a
Speaker 1: long long time. What's your takeaway from this whole SANKA
Speaker 1: over the last few months. It started Jonathan before then,
Speaker 1: first of all, thank you for having me on. It
Speaker 1: started well before the we Works budding fiasco. Zoom and
Speaker 1: Slack have been crucified in the market recently. These are
Speaker 1: two companies that came out of private equity. Venture capital
Speaker 1: had treated it historically crazy numbers relative to their sales,
Speaker 1: which had been growing rapidly. But as we saw with Uber,
Speaker 1: Uber I think may have been the genesis of some
Speaker 1: of this U S German drying because people were projecting
Speaker 1: the growth in revenues to be something that would somehow
Speaker 1: relate to growth and earnings, which never occurred. There are
Speaker 1: no earnings, and when companies like Slack and Zoom should
Speaker 1: know show no indication of earnings in our lifetimes, people
Speaker 1: begin to question the valuations at thirty times revenues. What's
Speaker 1: been interesting about this drama as we focused almost exclusively
Speaker 1: over the last couple of weeks on the governance issues.
Speaker 1: But this guy's way beyond government's issues, isn't it? Michael.
Speaker 1: You don't go from a forty seven billion dollar evaluation
Speaker 1: to ten to fifty in a number of months just
Speaker 1: because of governance issues. So you're right, you're absolutely right.
Speaker 1: Now we're talking mania. Go ahead, town, thank you, you're
Speaker 1: running the show now. Um cricket. Cricket took three minutes
Speaker 1: from Michael to appreciate what I got through exactly. Michael,
Speaker 1: where are the bankers on this? These these I gotta
Speaker 1: be careful here, these good people, these young turks doing
Speaker 1: financial innovation and unicorn nous. They're supposed to have advisors
Speaker 1: that give counsel on pricing. What was the one the
Speaker 1: other day's Smile Dental Dental smile, smile, direct, that's it.
Speaker 1: So do I need it? What do you think you do?
Speaker 1: But where are the bankers here? Where are the Goldmen, Sects, Morgan, Stanleys,
Speaker 1: JP Morgan to lend advice? So these embarrassments don't happen.
Speaker 1: Nobody's listening to them, from what I can tell, correct
Speaker 1: and think the nineties where the bankers are. Unfortunately for
Speaker 1: too many of them, they're in the line collecting fees
Speaker 1: and that's their job. And when they have no earnings
Speaker 1: to price things from, they can just use comparable. So
Speaker 1: if some if if one company is trading it twenty
Speaker 1: five times of the news, you can praise at a
Speaker 1: three and say it's cheap at the praise. Meanwhile, Microsoft
Speaker 1: is it seven times revenues? What's new about all of this?
Speaker 1: You're a banker, You go to a company, the private
Speaker 1: they want to go public. You look at the last
Speaker 1: funding ground, you make up the story to get the feet,
Speaker 1: turn around and say, you know what, I think we
Speaker 1: can take this a sixty. You give us the fee,
Speaker 1: we'll take the Did you see cutting in Illinois coming?
Speaker 1: Actually knew? I knew George Baker, Yeah I know, But
Speaker 1: did you see the debacco coming, And the answer is no,
Speaker 1: it was pretty ugly. It was ugly, But did we
Speaker 1: see the reason it was so ugly because no inside coming.
Speaker 1: I mean, that's in our collective memory. That's a deep
Speaker 1: misty past, John. It was like Northern Rock, frankly, I mean,
Speaker 1: did anybody no? And perhaps we should have done, because
Speaker 1: looking back, all the signs were there. Let's focus on
Speaker 1: what's happening in private markets. That's the concern for many people.
Speaker 1: How did we ever get to evaluation of forty seven
Speaker 1: billion dollars for this company? And Michael, how distorted is
Speaker 1: that market still distorted, Jonathan, because you have you have
Speaker 1: companies still trading at extreme valuations. Albeit the prices are
Speaker 1: down in the friend the public market, but anyone who
Speaker 1: owns a private firm is now looking at very suspect
Speaker 1: valuations for their home portfolio. Do you own Amazon? You
Speaker 1: own Amazon? Everybody wants to be Amazon. I think the root,
Speaker 1: the root, the root. Yeah, And Doug has written beautifully,
Speaker 1: thank God, about the long term. He's out in a a
Speaker 1: Holland time frame on that don't like as his usual
Speaker 1: date trading that he does. Michael Holland on Amazon. The
Speaker 1: root caused John of this UNICORNUS and we dog is.
Speaker 1: They all want to be Amazon, right, but you can't
Speaker 1: rationalize the actual business plan of cardboard boxes in a
Speaker 1: lobby was some of these other unicorn this products right? Correct.
Speaker 1: Software in the case of Zoom and slack is is
Speaker 1: very different because you have Microsoft there. Amazon never had
Speaker 1: a Microsoft. They became Microsoft. What's really going on here?
Speaker 1: His kids told him, Dad, lone up, load up on
Speaker 1: slack out. Kids got into this whenever Michael comes by,
Speaker 1: But I want to just talk about single names. I'd
Speaker 1: like to lean on his experience in China as well.
Speaker 1: Let's just get the macro back drop ready as well, Michael,
Speaker 1: the dates when China is really not improving. This stimulus
Speaker 1: effort so far has been targeted and gradual, and I
Speaker 1: just wonder whether it stays that way as they try
Speaker 1: and stabilize the situation, or whether we're about to get
Speaker 1: something new, something different. What's your reading? What's happening there
Speaker 1: right now? Michael Jonathan that you've watch says as I
Speaker 1: have this current regime, UH doesn't like to be bullied
Speaker 1: into doing things, so they don't want to appear that
Speaker 1: they're being frantic. And what they do read that Hong
Speaker 1: Kong or what's going on with Trump in the case
Speaker 1: of Mr she and I think that when you get
Speaker 1: the reserve ratio requirement residuced a little bit and you
Speaker 1: get different things going on, those are minor things that
Speaker 1: they're doing. I think they are very concerned about as
Speaker 1: they always are, about unemployment and the economy. They that's
Speaker 1: a big problem for them and if they if they
Speaker 1: can't get this economy moving better. And they say they
Speaker 1: have lots of tools, and they have some, but I
Speaker 1: don't think they've used a lot of them yet. I
Speaker 1: think they have to do what you're talking about. I
Speaker 1: think we will see sometimes then they're not too distant future. Uh,
Speaker 1: if they don't do a deal with Trump, which I
Speaker 1: don't think they're gonna do, but if they do. Um,
Speaker 1: if they don't do it, they're gonna have to come
Speaker 1: up with a lot of things. Final theme, banks banks
Speaker 1: for John Can we say banks for disappointment for two
Speaker 1: thousand and eighteen. In the last couple of weeks, banks,
Speaker 1: I mean the American financial institutions prospered out of the crisis,
Speaker 1: unlike the European banks. Do you buy the value trap
Speaker 1: or the value of deeply discounted Europe or do you
Speaker 1: climb on board the existing American banking structure. Europe's a
Speaker 1: big stretch for me, Tom, I don't really understand the
Speaker 1: problems and how when it can solve them over there.
Speaker 1: I think the US banks, led by Jamie diamond are
Speaker 1: where I want to be, and Jamie Diamonds Bank is
Speaker 1: one of my larger holdings. So and and once again,
Speaker 1: as we were talking a little bit earlier this morning,
Speaker 1: very reasonably priced twelve times runnings and two and a
Speaker 1: half times, how do you respond to the actual assumption
Speaker 1: of four point one percent the United Kingdom annuities right now?
Speaker 1: It just keeps coming down, down down. Do you have
Speaker 1: single digit gloom about equities or they can they do
Speaker 1: better than that? I don't know, but I think we
Speaker 1: would be foolish to presume we're going to have the
Speaker 1: next ten years like the last TURS. Doesn't make any
Speaker 1: sense to me. It could happen, but I don't think so. Yeah,
Speaker 1: Muhamma Hilarian just uh emailed and he says, say please
Speaker 1: say hello to Michael holl And. He wants to know
Speaker 1: could you be a quarterback for the New York Jets.
Speaker 1: Who it's too bad. Odell Beckham Jr. Did a number
Speaker 1: last night. They went through Michael Barr. Would they go
Speaker 1: through four or five quarterbacks? Oh? That that was awful.
Speaker 1: First you have and then then the I mean the mono,
Speaker 1: then you have the injury to the back up and
Speaker 1: for the third string. Monday. Miss you missed, missed this
Speaker 1: You miss jeffs Browns. Lucky you miss Jeff Browns. I'm sorry.
Speaker 1: What do we go on? Michael Holland, thank you very much.
Speaker 1: Tom a word on the banks just quickly, Jp Morgan.
Speaker 1: This year City City up. So it might feel bad,
Speaker 1: but it's actually been pretty deep. So drinks around. Michael
Speaker 1: definitely on Michael and Michael get to see you. Thank you.
Speaker 1: It's an important book, John Ferrell diving into it cover
Speaker 1: to cover, and it's on a set of narratives. He
Speaker 1: joins us. Now the author of that book, Robert Shillen
Speaker 1: University Professor, Bold Prize winner and the author of Narrative Economics,
Speaker 1: How Stories Go viral and drive major economic events. Professor,
Speaker 1: let's just begin with how important this field is, and
Speaker 1: how relatively new it is, and how much work still
Speaker 1: needs to be done. Just talk to us about it. Well,
Speaker 1: I think there's a revolution going on in economics starting
Speaker 1: with the new UH data on. You can now search
Speaker 1: you can search everything, newspapers, magazines, shows, um diaries, sermons
Speaker 1: all over, and so we we we can now get
Speaker 1: closer to reality than before when we just had aggregates
Speaker 1: like GDP to to study. Now we can get into
Speaker 1: what I think really drives the economy. It's changing patterns
Speaker 1: of thinking and changing narratives that interpret the events for
Speaker 1: us and also give an emotional color to it and
Speaker 1: can shape the events as well. And I think that's
Speaker 1: what's crucial to the to the field you're talking about
Speaker 1: at the moment. Talk to me about how this is
Speaker 1: different to say, the theory of reflexivity that George Sorice
Speaker 1: has really pushed along for markets, that markets can influence
Speaker 1: and shape the events they anticipate this feedback leak. There's
Speaker 1: two way loops. Why is this different and how does
Speaker 1: this build on that work in any way shape or form. Well,
Speaker 1: I read Sorrows book years ago and I thought that
Speaker 1: it was uh, it was intuitive and on target. I
Speaker 1: thought he wasn't good at citing earlier people who said
Speaker 1: similar things. It goes back to For example, in the
Speaker 1: nineteen forties, Robert K. Merton, sociologist, invented the term self
Speaker 1: fulfilling prophecy. So it goes it goes back to the
Speaker 1: nineteenth century if you searched properly. This is my habit.
Speaker 1: I always try to find win an idea appeared, So
Speaker 1: Reflectivity wasn't. It was a good book because it was
Speaker 1: written by a successful man who was writing it from
Speaker 1: the straight from the heart. He really believed this, and
Speaker 1: I think he was on target. You focus on a
Speaker 1: range of things. What I'd like to focus on with
Speaker 1: you this morning is how public confidence is shaped and
Speaker 1: influenced and where we are now. For those of you
Speaker 1: that don't get hold of the book, there was a
Speaker 1: great article of the weekend altered by you, I believe
Speaker 1: in the New York Times, setting off a recession with
Speaker 1: words I believe that came out last week told to
Speaker 1: me about how public opinion is right now, and used
Speaker 1: that as an example to explain to our listeners why
Speaker 1: this field is so important. It's an important new field.
Speaker 1: That doesn't mean that I've conquered it. I think it
Speaker 1: will take decades for research to really give us some
Speaker 1: kind of accounting of the impact of narrative. There's always
Speaker 1: many narratives. A lot of them are not what I
Speaker 1: call economic narratives. They don't have anything to do with
Speaker 1: economic activity, but it's certain ones of them do have. So.
Speaker 1: For example, the best example of a narrative is our
Speaker 1: president Donald Trump. He has captured the imagination of the
Speaker 1: entire world. It's all over. Uh, And why is it
Speaker 1: so fascinating? This is this is Uh? Why is he
Speaker 1: so fascinating? Well, obviously he got elected president, but how
Speaker 1: did he get there? I think that these things are
Speaker 1: poorly understood. And also the direct impact act that he
Speaker 1: has on economic confidence and on willingness to spend are
Speaker 1: also complicated. But did we get President Trump in the
Speaker 1: many new populisms that we have simply because of a
Speaker 1: new damp and GDP growth and indeed possibly a generational
Speaker 1: terminal value that's less than acceptable for society and for politicians.
Speaker 1: GDP growth first became popular in the nineteen thirties. That's
Speaker 1: a narrative, uh, and uh, it's a religion now Uh yeah, well, uh.
Speaker 1: I think narratives tap into our deep feelings. And you
Speaker 1: might sometimes think of narratives as representing a religion. So
Speaker 1: the idea that GDP growth is the primal measurement of
Speaker 1: success is obviously wrong because GDP growth is highest in wartime,
Speaker 1: when we're generally not happy at all, or maybe some
Speaker 1: people are happy in wartime. I don't know. I mentioned
Speaker 1: it increasingly polarized at times of war. Professor, Let's just
Speaker 1: finish up by talking about a news event this week,
Speaker 1: the Federal Reserve, and then fold in this field that
Speaker 1: you're starting to explore in a much deeper way, how
Speaker 1: policymakers can influence beliefs and shape outcomes. How the chairman
Speaker 1: of the Federal Reserve can identify what the popular narrative
Speaker 1: is right now in the public and then influence shape outcomes. Well,
Speaker 1: I think Federal Reserve chair people know that it's very
Speaker 1: important not just what they do, but what they say,
Speaker 1: uh and uh and so the problem is they don't
Speaker 1: have a discipline. They don't have scholarly research that will
Speaker 1: help them know what. In stense, you have to read history.
Speaker 1: So a lot of people are a major in history
Speaker 1: in college because you learn examples, and if it's good history,
Speaker 1: it gets into the narratives and the stories. So in
Speaker 1: the past, uh, people have made miss So I'll give
Speaker 1: you an example of what might have been a mistake,
Speaker 1: and that is cutting the lower bound for the federal
Speaker 1: funds rate to zero uh in right after the financial crisis.
Speaker 1: That might have been considered as completing the job, but
Speaker 1: it also brings on a scary narrative. It reminds us
Speaker 1: of Japan and it's lost decade, and the narrative might
Speaker 1: have been more. Maybe they shouldn't have cut it all
Speaker 1: the way to zero. We need to think about that.
Speaker 1: We'll come back Robert Schiller with this. We have another
Speaker 1: conversation with him coming up in the weeks on negative
Speaker 1: interest rates in Europe. John True and Tom Keenan, this
Speaker 1: is great. We love when our team goes out and
Speaker 1: finds good conversation without hysterics on whatever the issue of
Speaker 1: the moment is. John, what was cool is years ago
Speaker 1: you were cool on campus if you walked around with
Speaker 1: something Robert Lacey wrote, and then you were cool. And
Speaker 1: this took forever where you had the prize by Daniel
Speaker 1: Jurgen and only twelve people read it because it was
Speaker 1: so thick. Let me tell you you were walking around
Speaker 1: with that book, you were shredded that that waits so much. Yeah,
Speaker 1: really I was cutting chiseled back then, but aways you
Speaker 1: you carried around Jurgen's surprise. Recently the book is ellen
Speaker 1: walled Saudi Inc. And it's just only like a year
Speaker 1: two old, and it's just become definitive on the machinery
Speaker 1: of the oil combine in Saudi, the Arabian Kingdom's pursuit
Speaker 1: of profit and power. Place to say that anam world
Speaker 1: is with us here in the studio of the Atlantic
Speaker 1: Council Global Energy Center. Good Monituellen, Good morning. Let's just
Speaker 1: believe we'll have a look into this story right in
Speaker 1: front of our face right now, which is what is
Speaker 1: happening with Saudi Aramco and Saudi Arabian all production. There
Speaker 1: was a little bit of daylight between what the Kingdom
Speaker 1: is towning us about the output and when it comes
Speaker 1: back online and what a Ramco is town Guess it
Speaker 1: does seem that we're getting some conflicting signals that the
Speaker 1: Kingdom is really talking about very severe damage possibly months
Speaker 1: to get back online. And then we're also hearing though
Speaker 1: from the company that they see a production coming back
Speaker 1: much more quickly and also potentially by the end of September,
Speaker 1: even most of production returning. Who's that is the question
Speaker 1: of the hour and in charge of the company. We've
Speaker 1: got Amnoster who's the CEO. Very reliable, very very professional people.
Speaker 1: This is a very professional company. It's run like an
Speaker 1: American company based on its its American roots. They really
Speaker 1: pride themselves in working basically like like Exxon. But then
Speaker 1: on the other side, you've got the Saudi royal family.
Speaker 1: You've got the government, the monarchy, and of course Mohammad
Speaker 1: bin Salman, who has other priorities in mind. Potentially you
Speaker 1: nail it with your epilog page tune in fifty three.
Speaker 1: For their sons, there's been this trance for a royal
Speaker 1: power and royal prerogative. Do the son's in your book?
Speaker 1: Did they look at a Ramco and all that oil
Speaker 1: is ours? Or is there really any understanding of spinning
Speaker 1: it off to some public ownership. And this is the
Speaker 1: real question. And I actually addressed that in a new
Speaker 1: epilogue that has just been written and comes out with
Speaker 1: the paperback version of the book, which is that's the plunk,
Speaker 1: that's the um. It's actually available now in bookstores wherever
Speaker 1: good books are sold. That's enough anyway. But but the
Speaker 1: question is is really really gets a heart of the matter,
Speaker 1: because for many years the Saudi royal family saw this
Speaker 1: company as their life blood. Do they stage well, that
Speaker 1: is the question. Do we know well? Prince Mohammed and
Speaker 1: Salma has said that he sees the company as an
Speaker 1: asset to be sold, which is very different from how
Speaker 1: his forefathers and forebears saw the company. When when you're
Speaker 1: got a RAM call, what's your knowledge of the pipes
Speaker 1: of valves? I mean, have you been out there and
Speaker 1: actually seen these refineries? Um, I've seen some of them. Yes,
Speaker 1: they're all modern, state of the art, right. Oh, this
Speaker 1: is this is top of the line equipment. This is
Speaker 1: top of the line stuff. If a RAM who is
Speaker 1: the best that? Why can't they fix this quickly? I mean,
Speaker 1: I understand there was colossal damage and we don't know yet,
Speaker 1: John Dewey, we really don't. But come on, I mean,
Speaker 1: you know, you bring in the U. S Military and
Speaker 1: the Kuwaiti Navy or whatever and you get this fixed, right.
Speaker 1: So part of the issue is that they're very concerned
Speaker 1: about safety and the sites that were hit UM contained
Speaker 1: very volatile material and so they had to shut down
Speaker 1: the entire facility in order to assess the damage. But
Speaker 1: only some of the particular goosps the gas oil separation
Speaker 1: plans were damaged. Others are completely undamaged, and it's expected
Speaker 1: that they're going to bring that back online very quickly.
Speaker 1: And then the other thing that a RAMCO does is
Speaker 1: they have a lot of built in resiliency and they
Speaker 1: know how to have the parts and bring the parts
Speaker 1: in and repair it, so we can I think we
Speaker 1: can expect that they may bring production back online faster
Speaker 1: than is expected. I've always found diplomacy within OPAQUE absolutely
Speaker 1: fascinating how countries like Saudi Arabia and Iran can get
Speaker 1: along with each other within OPEC, and then obviously outside
Speaker 1: of OPEC there's major issues. I just wonder how much
Speaker 1: more complicated it gets now Alpha has gone and he's
Speaker 1: been replaced by Prince Amtulasie has been sellow. How complicated
Speaker 1: there things now that someone a member of the family
Speaker 1: is running energy policy within OPEQ. And that's an entirely
Speaker 1: new area to get into because the Saudis have never
Speaker 1: had a royal family member running oil policy and oil diplomacy.
Speaker 1: They've always had a professional, either someone from a RAMCO
Speaker 1: or really someone dedicated in the ministry who's not a
Speaker 1: family member. So that OPEC meeting in December in Vienna
Speaker 1: is going to be a big, big deal. Are seeing
Speaker 1: how Iran and Saudi Arabia get along there? If you're
Speaker 1: just joining us, ellen Wald, with us out of Jacksonville University,
Speaker 1: and also with the Atlantic Council of course the important
Speaker 1: book Saudi inc The Arabian Kingdom's pursuit of profit and power.
Speaker 1: Thrilled that she could join John and uh Me this morning.
Speaker 1: Your future is flat, allen Wald, if if we look
Speaker 1: at the sum total of Saudi, there's always been and
Speaker 1: this is where your Middle East history expertise really comes
Speaker 1: in a narrowness or separateness to their religious Islamic experiment
Speaker 1: versus the adjacent Arab states. Is that at play here
Speaker 1: in their response or are they communicating with their adjacent
Speaker 1: states in a new more modern way. Well, believe it
Speaker 1: or not, we just had news that this howdy government
Speaker 1: is instructing the leaders in mosques to discuss what happened
Speaker 1: with a Ramco in their Friday sermons and what is
Speaker 1: the symbolism of them. Well, it's a symbolism that you
Speaker 1: really cannot totally disconnect one from the other, and that
Speaker 1: the importance of the mosque and the importance of the
Speaker 1: relationship between the Saudi monarchy and the Islamic clerical establishment
Speaker 1: is really still key and plays a key role in
Speaker 1: how they communicate with their people. Explain, I'm going to
Speaker 1: understand that the distance from Yemen to Saudi means it's
Speaker 1: clearly this was not an attack from Yemen. But explain
Speaker 1: the triangulation of riod Yemen and Tehran, so they're clearly
Speaker 1: pretty close to each other. Um, Iran is across the Gulf,
Speaker 1: and Yemen is is now below. But there is this
Speaker 1: association between the rebels and Yemen, the Hoothies and the Iranians,
Speaker 1: and for a while that that connection was a bit suspect.
Speaker 1: But I've even heard of American military people have told
Speaker 1: me that when they were on tour in the Gulf,
Speaker 1: they saw the little boats ferrying things from Iran to
Speaker 1: Yemen right across across the Gulf and ferrying the supplise.
Speaker 1: So it's it's clear that, Um, you know that there
Speaker 1: is an association between Iran and the rebels in Yemen,
Speaker 1: and that there is coordination involved in these attacks on
Speaker 1: Saudi Arabia. Why do you think we'll end up in
Speaker 1: the blame game? Just read the Ta Leaves force as
Speaker 1: you see things right now. Yeah, this is this is
Speaker 1: a big question. The US is pretty firmly identifying Iran
Speaker 1: as the culport here, but Saudi Arabia seems to be
Speaker 1: taking a step back and saying, well, we think the
Speaker 1: equipment came from Iran, but we're not going to go
Speaker 1: ahead and blame them entirely. Let's bring in the U
Speaker 1: n And I think that this is a recognition of
Speaker 1: the fact that NBS doesn't want to go to war
Speaker 1: against Iran, and if he comes out and says Iran
Speaker 1: attacked us, he would be incumbent upon him to respond,
Speaker 1: and he can't or he knows he doesn't want to
Speaker 1: get into that. We mentioned the heritage here of all
Speaker 1: of our reading on air the Arab States, Robert Lacey
Speaker 1: and Daniel Jurgen and others. How far removed are we
Speaker 1: from our myths and our stereotypes of our relationship and
Speaker 1: oil in the Arab States. In Saudi Arabia, so oil
Speaker 1: has always operated kind of outside of a lot of
Speaker 1: the traditional issues in terms of say, Sunnisia conflict. Oil
Speaker 1: has always been been kind of outside of that. And
Speaker 1: like you said, Iran and Saudi Arabia can work together
Speaker 1: in oil, whereas in other respects they can't. But they
Speaker 1: don't always get along in oil. The countries have different objectives,
Speaker 1: so they are able to step step out of that
Speaker 1: context at times. Okay, we we've learned that you're Our
Speaker 1: entourage has learned that you're a New York Giants fan.
Speaker 1: I am. Here's Manning done. I don't think he's done yet.
Speaker 1: I think he's got at least another season in him. Okay,
Speaker 1: there we go. Now we've got some real information we
Speaker 1: can use. And then thank you. I'm getting them screaming
Speaker 1: in my ass. She's got to go dr Wild. Thank
Speaker 1: you so much. Wonderful books. The Arabian Kingdom's pursuit of profits. Now,
Speaker 1: don't they don't talk to me. They just talk to
Speaker 1: you and tell me anything. Oh, I think she's going
Speaker 1: to the TV chat. Well it's good. I don't know.
Speaker 1: I'm not distressed because in the studio is the right
Speaker 1: guy to talk about oil supply and demand. Here is
Speaker 1: Paul Sanky with missol. Paul, I've got to ask you
Speaker 1: this question. I've got an Oxford Institute twenty one page
Speaker 1: uh paper on the dynamics of supply and demand as
Speaker 1: we go into Saudian and a Ramco. How tight was
Speaker 1: the market on Friday? On Friday, the market wasn't tight
Speaker 1: at all. Everyone was worried about Actually we did see
Speaker 1: inventory's drawing in the second half now um, but we
Speaker 1: had a really significant non opaque, non US growth in
Speaker 1: the market as well as the US growth, and that
Speaker 1: was looking overwhelming for all this happened. The thrust of
Speaker 1: the paper is demand really matters? What's the backdrop of
Speaker 1: global oil demand? Given what the shock that Saudi's head, well,
Speaker 1: I think the numbers were drifting as low as only
Speaker 1: six hundred thousand barrels a day of demand growth next year.
Speaker 1: That was sort of the new paradigm of concerns about
Speaker 1: the economy. All the various indicators that we see slowing
Speaker 1: down economically globally, the major agencies are still above a
Speaker 1: million of growth next year. It is very obviously very
Speaker 1: GDP sensitive, so we'll have to see. For example, these
Speaker 1: attacks are obviously a challenge for China in terms of
Speaker 1: their dependence on imported Middle Eastern oil so we'll have
Speaker 1: to see how things roll through. We're still at around
Speaker 1: a million barrels a day of growth for next year.
Speaker 1: What we've done is we've aggressively cut our Saudi numbers obviously,
Speaker 1: so Paul, it's in a sense getting a sense of
Speaker 1: where to cut your Saudi numbers. It seems like the
Speaker 1: news coming out of day out of the Kingdom is
Speaker 1: this might be a little bit longer than a that
Speaker 1: maybe what we thought yesterday, This might be in terms
Speaker 1: of disruption to play a little bit longer. Yeah, the
Speaker 1: new the new Oil Minister is doing a press conference
Speaker 1: at one fifteen Eastern New York time this afternoon, so
Speaker 1: presumably we'll get an update there. We're all struck by
Speaker 1: the accuracy of the attacks. Every tank was hit almost
Speaker 1: identical spot. Yeah. What we're also hearing is that some
Speaker 1: of the missiles didn't make it. So they have the missiles,
Speaker 1: so they're going to be able to do a lot
Speaker 1: of intelligence on the ones that didn't explode. But everyone
Speaker 1: right now is pointing towards the border of Iran Iraq
Speaker 1: as the source of the missile, so we'll see if
Speaker 1: they have anything to add on that. When the All
Speaker 1: Minister speaks no doubt the all Minister given Saudi has
Speaker 1: been very good at communicating to the market. We'll be
Speaker 1: talking about the outage and how long it's going to last.
Speaker 1: But as noted by Tom, it seems a sorry by you.
Speaker 1: It seems it seems that this outage is gonna Actually,
Speaker 1: my anti missile defenses are up, Tom, whenever I come
Speaker 1: on the radio with you, nervously waiting for you to
Speaker 1: put a humbling around me. But no, you know, I
Speaker 1: think the first reports were it's going to be back
Speaker 1: by Monday were inexplicable, inexplicable, couldn't cann't work that out
Speaker 1: at all, And we were very skeptical were coming into
Speaker 1: this particular issue. I had a kind of felt like
Speaker 1: what was really driving oil? Talking to people like you
Speaker 1: as more of the demand side of the equation, and
Speaker 1: and you know, thinking about maybe perhaps a global recession
Speaker 1: coming and that's really pushing down oil prices. But now
Speaker 1: that you have to that's the supply side of the
Speaker 1: equation of your business comes much more into play now. Yeah,
Speaker 1: all things being equal, and I'm thinking back to the
Speaker 1: global financial crisis. But let's say a normal recession, there
Speaker 1: isn't that much range on demand. You know, let's say
Speaker 1: it's between a half a million in a very bad
Speaker 1: year this population pressure obviously, and then one one and
Speaker 1: a half you know, million of growth would be a
Speaker 1: very good year. So there's only a one million range arguably.
Speaker 1: And as you know, what we've seen here is a
Speaker 1: five point seven million loss of supply from the Central
Speaker 1: Bank of Oil. You know, that's kind of far bigger
Speaker 1: than anything that will happen on the demand side, although
Speaker 1: demand can be weak too here of course on a
Speaker 1: substitute basis. Can people at the margin just put it
Speaker 1: on where we're in or Nigeria or Kuwait or Russia
Speaker 1: or America put it on at the margins, so it's
Speaker 1: the gap evapiate evaporates quickly, No, because there's no spell capacity.
Speaker 1: I mean, the only specupacity we have is in U
Speaker 1: A E and Q eight right right around where the
Speaker 1: action is. Because what we're all terrified and on tents
Speaker 1: hooks about here is what's the Saudi response is going
Speaker 1: to be. I mean, are they just going to sit
Speaker 1: back and take this or is there going to be
Speaker 1: some sort of military response? And what will the US
Speaker 1: do in that context? So there's no specpassion and Venezuela.
Speaker 1: There is maybe some in Nigeria, but they've been producing
Speaker 1: full on. There's none in One risk is Libya, which
Speaker 1: is performing quite well right now, that could go down
Speaker 1: and then of course a doubt that sanctions are going
Speaker 1: to be alleviated on Iran given the current news play.
Speaker 1: What does Kuwait do to defend those fields? I mean,
Speaker 1: this is a Falklands work question. After the exercise missile
Speaker 1: took how does Kuwait defend themselves into this this Tuesday
Speaker 1: evening into Wednesday? As a mayor, your question, if Saudi
Speaker 1: has spent as much as Saudi has spent on defense, um,
Speaker 1: you know, puts towards a hundred billion dollars of spending
Speaker 1: on on we thought defense against this kind of attack,
Speaker 1: and it seems like there was zero defense when it hits.
Speaker 1: So I'm sure the quwaities and others are all reviewing
Speaker 1: everything that you know, everything that they're doing in terms
Speaker 1: of safety because this was a totally shocking and very
Speaker 1: dramatically impactful attack. Give us a sense for here in
Speaker 1: the US, we always hear about shale shale share. We
Speaker 1: can flood the market with crewe, but that's not the issue.
Speaker 1: As you mentioned, it's just the refining capacity, it's just
Speaker 1: not there. Is that also true here in the US,
Speaker 1: And well, we're okay. For the main problem in refining
Speaker 1: at the moment is actually the type of crew that's available.
Speaker 1: So we've got too much light sweet basically and not
Speaker 1: enough heavy sour and a big part of that sweet
Speaker 1: versus heavy sour. Yeah, So essentially the refining system in
Speaker 1: the US is optimized to use a harder to refine
Speaker 1: higher sulfur barrel, which is typically cheaper than the US
Speaker 1: shale growth, which is a it's easier to refine low
Speaker 1: self for barrel. It's not the end of the world
Speaker 1: because you can actually refine light sweet in a heavy
Speaker 1: sour refinery. It's just not optimal. But you can't refine
Speaker 1: heavy sour and a light sweet refinery. So, you know,
Speaker 1: we watched carefully for for for the capacity issues that
Speaker 1: we're facing. The capex of the industry in general refining
Speaker 1: and e MP is constrained at the moment. It's a
Speaker 1: new theme for e MP, and we're urging the companies
Speaker 1: not to go out and chase the higher price, but
Speaker 1: to please finally generate free cash FLA I got twenty
Speaker 1: seconds left. What will you listen for this one pm
Speaker 1: press conference? Well he's new, so that's interesting. We know him,
Speaker 1: but it is his first major announcement as energy minister.
Speaker 1: We want to know how long this stuff is out for,
Speaker 1: you know, how when are the when are what barrel's
Speaker 1: coming back and what time frame. At the moment, we're
Speaker 1: forecasting seven million a day of Staudy production in Q four,
Speaker 1: so that's are over under For what we take away
Speaker 1: from this definitive Paul Sanky, missour, we are thrilled you
Speaker 1: could find time to come by to Mr Sank. He
Speaker 1: has been doing this for a few years. It's far back.
Speaker 1: I remember him and Adams Saminsky at Deutsche Bank. It
Speaker 1: comes to just stopped. They had a spreadsheet on the back, Paul,
Speaker 1: and you read it like gosp Of course, the Saminsky
Speaker 1: Sanky brilliance here he is. You get lucky and we
Speaker 1: do with the Natamadi. She's Parker Professor of Economics and
Speaker 1: Finance as Stanford University, squirming here uncontrollably listening to the
Speaker 1: capitalist gates James Madison. If memory angels, no government would
Speaker 1: be necessary. Is it necessary to break up the tech companies? Well,
Speaker 1: I agree with with the the gates here in the
Speaker 1: sense that we have to see what it is we
Speaker 1: don't like and we have to go at that. So
Speaker 1: breaking up by itself, it's the same for banks. It's
Speaker 1: just that sort of quickie SoundBite, but exactly what problem.
Speaker 1: In other ways, the size becomes a symptom of the problem,
Speaker 1: and so treating just a symptom is not going to
Speaker 1: necessarily take care of the underlying problem. So if the
Speaker 1: underlying problem anti competitive behaviors or dark pattern use of
Speaker 1: contract or whatever, we have to outload that. Where are
Speaker 1: the shadows right now? In banking Even your harshest critics
Speaker 1: hang on your every word so they can think smarter
Speaker 1: about what's out there. Where are the shadows in two
Speaker 1: thousand twenty, Well, I mean we have a lot of
Speaker 1: places where fragilities can can hit the banking system. I
Speaker 1: mean there's a lot of rumbling in Europe, there's uh
Speaker 1: all kinds of trade wars going on, there's lots of
Speaker 1: there's cyber always there. There could be anything that could
Speaker 1: hit a deck of cards that power um Tom. I
Speaker 1: also to bring our viewers and of course the professor
Speaker 1: up to date with what's going on right now in
Speaker 1: the nind Kingdom, which is Boris Johnson and his lawyers,
Speaker 1: though he's not actually going there himself at the High Court,
Speaker 1: but his strategy certainly is coming under scrutiny at the
Speaker 1: Supreme Court of the UK. Hearings have become in London
Speaker 1: and they will laugh about three days. The court actually
Speaker 1: has not given a ruling date, but of course we'll
Speaker 1: continuing will be continuing to watch this live stream and
Speaker 1: bring you up to date with anything that we're hearing.
Speaker 1: Let's get back to and at Mty the finance and
Speaker 1: economics professor at Stanford and professor when you look at
Speaker 1: some of the concerns right, it's basically that we still
Speaker 1: have a fragile and unhealthy financial system. What would make
Speaker 1: it better? What regulation would you look at so that
Speaker 1: we feel safer in the next crisis. Well, one thing
Speaker 1: I've been arguing for is that we have to first
Speaker 1: of all assess the level of fragility and indebtedness and
Speaker 1: interconnectedness in this market, and then that we have to
Speaker 1: act reduce it. Because the incentives in the system are
Speaker 1: to remain fragile. People within it benefit from that, and
Speaker 1: the rest of us are endangered. So a fragile system
Speaker 1: is sort of inherent in banking, but not for good reasons.
Speaker 1: So just basically, once you fragile, you want to just
Speaker 1: basically live on debt all the time, and it just
Speaker 1: gets ratcheted up and shortened maturities, and not all of
Speaker 1: it is for for for good. Everybody chasing yields now
Speaker 1: and and and going for their short term you know,
Speaker 1: dividends or pay out on their co cot securities or
Speaker 1: whatever it is, and so all of that ends up
Speaker 1: building up more fragility in the system. So I think,
Speaker 1: but we need to take care of that. The professor
Speaker 1: is the right person to regulate this, right, because I
Speaker 1: keep on being told that actually, you know, no matter what,
Speaker 1: bankers don't want to out of regulate themselves because they
Speaker 1: always try and get away with as much as they can,
Speaker 1: and regulators, you know, probably don't understand as much as
Speaker 1: the complex issues as they should it. That's right. So
Speaker 1: so regulators are using all kinds of metrics for safety
Speaker 1: and stress tess and a lot of complicated things that
Speaker 1: involve a lot of assumptions. And we saw that before
Speaker 1: the financial crisis, and I'm sorry to say that in principle.
Speaker 1: They're using some of the same approaches to this system
Speaker 1: and the same structure of the flawed structure of the regulation,
Speaker 1: and that's that's kind of dismaying. Let's say negative interest rates.
Speaker 1: You've got a lot of smart people out of Stanford.
Speaker 1: We were talking to Professor Schulder of a school on
Speaker 1: the East coast earlier about this. How do you fold
Speaker 1: a not a body, the shadows in the dynamics of
Speaker 1: the balance sheets into this thing. You didn't study it
Speaker 1: Yale when you took your PhD. You're a negative interest rates,
Speaker 1: the negative interest it's not in our textbook. We're gonna
Speaker 1: have to rewrite. That's a social extory, isn't it not?
Speaker 1: Clear markets? Right, it's upside down. Everything about negative interest
Speaker 1: rate is kind of but on a hiacheon basis we
Speaker 1: have a fear of loss, don't we? Yes? I mean we.
Speaker 1: It's it's all like, you know, puts you in a
Speaker 1: territory that we don't. I'm not sure you know your
Speaker 1: next week title. Extend and pretend. That's what we're doing here, right,
Speaker 1: Very good one, because the kicking camps down road. Extending
Speaker 1: and pretending is just the name been the name of
Speaker 1: the game in in certainly in the financial sector for
Speaker 1: forever alright, a professor does the next recession or is
Speaker 1: the next financial crisis? You know, is it around the corner?
Speaker 1: And is it because of what you've just laid out
Speaker 1: quite clearly, you know, a frangile system is just prone
Speaker 1: to to you know, something happening and triggering a collapse
Speaker 1: potentially or panic and runs. Uh. You know. Jamie Diamond
Speaker 1: told the Financial Crisis Inquiry Commission that he told his
Speaker 1: daughter around the time of the financial crisis um when
Speaker 1: she asked him what that, what's a financial crisis? He said, Oh,
Speaker 1: it's just something that happens every know what he said,
Speaker 1: five seven, ten years So by that count, we're kind
Speaker 1: of doful one since it was the big one ten
Speaker 1: years ago, and we are kind of uh extending and
Speaker 1: pretending since then. So I now have in my slides,
Speaker 1: you know, I take the latest headlines of where it's
Speaker 1: going to come from, and you know, people are gonna
Speaker 1: say it's gonna come from the same place as before,
Speaker 1: leverage loans or clos or something else. And you know,
Speaker 1: so it's not clear. Are you in New York to
Speaker 1: see James Diamond that you came. He came to talk
Speaker 1: to Mr Diamond about the future banking. No, but but
Speaker 1: there were there were bankers in a conference and to
Speaker 1: big to faime financial stability bodies. Professor, wonderful to catch
Speaker 1: up in. Congratulations on your continuing research at Stanford, Professor
Speaker 1: Body Partner, Professor at Stanford GSP. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Winter at Tom Keane before the podcast. You can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio