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Speaker 1: Bloomberg Audio Studios.

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Speaker 2: Podcasts.

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Speaker 3: Radio. News.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Catch us live weekdays

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Speaker 1: at 7 a.m. Eastern on Apple CarPlay or Android Auto

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Speaker 1: with the Bloomberg Business app. Listen on demand wherever you

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Speaker 1: get your podcasts or watch us live on YouTube.

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Speaker 4: Had a broad market fixed income. He's in charge of

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Speaker 4: yield at Morgan Stanley Investment Management. Vishal Kanduja joins us.

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Speaker 4: Do you and Jim Caron disagree? Like when you go

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Speaker 4: to a meeting with Jim Caron, are you on the

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Speaker 4: same page?

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Speaker 5: A lot of times you're on the same page, but

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Speaker 5: there is quite a bit of times healthy disagreement.

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Speaker 3: Good.

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Speaker 4: What's the point?

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Speaker 6: Because of time.

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Speaker 4: What's the key distinction now in that disagreement at Morgan Stanley?

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Speaker 5: I think there are two key themes right now. I

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Speaker 5: think Fed definitely was and remains to be the center stage.

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Speaker 5: We'll find out more at 10 o'clock on Friday from

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Speaker 5: Kevin Warsh, a reiteration of the 2% and maybe a

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Speaker 5: little bit more hawkish reiteration of the same. I think

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Speaker 5: the big thing now, Scott Besson, the Treasury Secretary, wants

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Speaker 5: to take the center stage. So things that have not changed, fundamentally,

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Speaker 5: we still don't have a very clear plan to for

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Speaker 5: deficit reduction. But they say that they're going to have

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Speaker 5: something for us in the next two weeks. Things that

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Speaker 5: have changed is now you have clearly gone out of

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Speaker 5: your way to come out, surprise the market, and then

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Speaker 5: give us a little bit more information that this is

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Speaker 5: some sort of a pain threshold has been reached. Either

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Speaker 5: it is the curve shape, it is absolute level of yields,

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Speaker 5: or it is a worry that these higher yields are

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Speaker 5: going to add to deficits even more.

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Speaker 2: So Vishal, one of the narratives for higher interest rates

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Speaker 2: is this whole crowding out issue that all this investment

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Speaker 2: grade AI debt is crowding out the treasury market.

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Speaker 7: Is that really happening?

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Speaker 8: It's definitely happening on the margin.

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Speaker 5: The way we measure this is just the amount of

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Speaker 5: duration that is coming out. High-quality balance sheets, which are AA, AAA,

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Speaker 5: almost by quality, are now finally trying to use the

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Speaker 5: strength of those balance sheets, the corporate ones that I'm

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Speaker 5: talking about. And they're going to use quite a bit

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Speaker 5: of that given the amount that they need for the CapEx. Now,

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Speaker 5: the same high-quality buyer of long-end duration also buys a

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Speaker 5: lot of treasuries in their balance. So definitely they're scouting out,

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Speaker 5: but size is very different. You're talking about a $ 40

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Speaker 5: trillion market versus a less than $ 2 trillion market on

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Speaker 5: the other side.

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Speaker 4: Do we need to get used to higher rates? We

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Speaker 4: had a guest earlier, Rochelle, who suggested grinding yields, you know,

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Speaker 4: just sort of a movement here, dare I say to 5%.

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Speaker 4: Are you in that camp?

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Speaker 5: So four and three quarters, I think we might spike

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Speaker 5: to five on the 10-year.

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Speaker 4: But four and three quarters.

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Speaker 5: Is a pretty fantastic threshold here. And why we say

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Speaker 5: that is because of the fundamental reasons. We do see

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Speaker 5: very clear-cut, broad-based disinflationary pressures.

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Speaker 4: In the economy.

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Speaker 5: Got a little bit delayed because of the conflict, because

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Speaker 5: of the nominal growth picking up, because of the capex

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Speaker 5: spend that you're seeing from the corporates.

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Speaker 4: But we do see quite a bit of.

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Speaker 8: Disinflationary pressures, which then.

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Speaker 5: brings down that yield or anchors that yield down over

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Speaker 5: the long term.

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Speaker 4: So, yes, quite a bit of value.

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Speaker 5: And we do see that we are topping up in

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Speaker 5: yields at these levels on the 10-year in the U.S.

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Speaker 2: Vishal, I understand a lot of smart folks are heading

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Speaker 2: out to Jackson Hole, Wyoming, which I presume is for

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Speaker 2: the bison burger thing. But I guess we're going to

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Speaker 2: hear from some economists. What do you expect to hear

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Speaker 2: from Fed Chairman Warsh? What do you think the market

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Speaker 2: would really like to hear?

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Speaker 5: I think the market would love to hear some reiteration

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Speaker 5: of the target and then a little bit more about

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Speaker 5: those five working groups or forums that we've heard about.

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Speaker 5: The leadership of those forums that has been set is

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Speaker 5: pretty fantastic and terrific. We would love to see what

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Speaker 5: the initial work from those forums.

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Speaker 8: Tells us at the moment.

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Speaker 5: So I think a little bit more on that one

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Speaker 5: and a little bit more about What is your assessment

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Speaker 5: about the economy? We don't need some forward guidance here,

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Speaker 5: but that will tell us if there is some piece

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Speaker 5: of information that is you looking at that we should

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Speaker 5: be also focused on as a market participant.

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Speaker 4: Thank you so much for the brief here into the

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Speaker 4: PCE report. joins us, head of broad market fixed income

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Speaker 4: at Morgan Stanley. And so I got red and green

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Speaker 4: in the screen, the 10-year yield into the report, 4.6208%.

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Speaker 4: Across America from New York, it's Bloomberg Surveillance.

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Speaker 9: And the government's personal consumption expenditures price index, otherwise known

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Speaker 9: as the Fed's favorite gauge of inflation, is out. And

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Speaker 9: month over month, PCE increased by two-tenths of a percent,

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Speaker 9: rebounding from a 0.1% decrease in the previous month, hotter

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Speaker 9: than the estimate of a tenth of a percent. Year

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Speaker 9: over year, the PCE price index rose by to 3.7%

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Speaker 9: in July, matching what happened in June when we saw

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Speaker 9: a rise of 3.7%, a bit hotter than the 3.6%

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Speaker 9: we were expecting. Now, if you exclude volatile food and

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Speaker 9: energy costs, core PCE month over month edging up 0.2%

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Speaker 9: versus the 0.1% rise the prior month, and that's right

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Speaker 9: in line with estimates, and the annual core rate holding

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Speaker 9: steady at 3.3%, right in line with estimates, In terms

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Speaker 9: of personal income and spending, it seems like we made

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Speaker 9: more than we spent. Personal income up four-tenths of a percent,

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Speaker 9: besting the estimate of two-tenths of a percent versus a

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Speaker 9: rise of two-tenths of a percent the prior month, spending

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Speaker 9: up two-tenths of a percent, down a bit from that

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Speaker 9: three-tenths of a percent rise we saw the prior month,

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Speaker 9: and that versus the one-tenth of a percent increase we

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Speaker 9: were expecting. So once again here, the headline number, PCE

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Speaker 9: price index year over year coming in at 3.7% right

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Speaker 9: in line with estimates. Back over to Tom and Paul.

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Speaker 4: Thanks so much, Alexis. Really, really appreciate that. It's a really...

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Speaker 4: A churning, almost confusing report with important revisions as well.

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Speaker 4: We'll get to that here in a moment. Bloomberg Surveillance

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Speaker 4: and all that we do in economics. It's brought to

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Speaker 4: you by IBKR. Trade, election, climate, and economic outcomes with

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Speaker 4: IBKR prediction markets right alongside your stocks and options. Earn

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Speaker 4: interest on your position and receive $ 1 per contract. If

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Speaker 4: you're right, learn more at IBKR.com slash economics. predictions. I'm

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Speaker 4: looking at the yield space. And I mean, it's directionally, Paul,

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Speaker 4: it wants to give me higher yields, but I'm not

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Speaker 4: getting the higher yields I thought I'd be getting here.

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Speaker 3: Yeah.

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Speaker 2: I mean, the two-year, Tom, is up about almost two

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Speaker 2: basis points, 4.19%. But that's at the level we've been

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Speaker 2: at for several weeks, if not months at this point.

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Speaker 2: So I mean, and the stock market future is really

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Speaker 2: showing No real move here. The S & P is

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Speaker 2: down eight points. The Dow is up 30 and the

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Speaker 2: Nasdaq is down 100 points.

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Speaker 4: I'm looking at the second view of GDP. This is

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Speaker 4: ancient data, folks, ending June 30. Look once, look twice,

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Speaker 4: look three times, and Michael Ball revises it five years later.

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Speaker 4: Joining us now from Bloomberg News and a macro strategist,

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Speaker 4: Michael Ball. I'm looking at a screen, and I don't

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Speaker 4: have the statistic in front of me, but it's still

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Speaker 4: a boom economy, Michael Ball, on nominal GDP. You add

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Speaker 4: real GDP, sort of, eh, big inflation ending June 30,

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Speaker 4: and this Jackson Hole is a big nominal GDP Jackson Hole.

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Speaker 10: Yeah, I mean, again, as you guys know, I love

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Speaker 10: to look at real final domestic demand because it takes out.

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Speaker 6: That sort of import noise.

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Speaker 11: Really?

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Speaker 10: Yeah, because it's just basically what people are spending domestically

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Speaker 10: versus import noise from the CapEx boom. Remember, we had

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Speaker 10: a low GDP print because we imported a lot. And

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Speaker 10: also the inventory cycle was doing what it did, which

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Speaker 10: was a boost.

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Speaker 4: So what's domestic final sales?

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Speaker 6: Strong. And this is what the upgrades are.

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Speaker 10: And they're sticking apparently in Q2, which is good because

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Speaker 10: now we're starting to see the finalization of that. So

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Speaker 10: we had good momentum coming into the third quarter. The

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Speaker 10: worry here, again, is that we're going to be losing

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Speaker 10: some of this momentum. So this personal spending number is

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Speaker 10: catching my eye a little. And we also recently had

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Speaker 10: a big note out from Goldman basically saying that their

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Speaker 10: July and August data is showing that there is a

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Speaker 10: slowing in consumer activity. Despite all the boom we're seeing

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Speaker 10: at the U.S. Open and the World Cup and all that.

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Speaker 10: So there's a little bit of a divergence here with

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Speaker 10: the momentum coming out of Q2 going into Q3 where

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Speaker 10: we're going to still have this fixed investment boom from

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Speaker 10: CapEx and from the reshoring and from the defense spending.

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Speaker 6: But the consumer itself now is looking more wavery.

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Speaker 4: Can I just say Michael Ball starts talking in the

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Speaker 4: 10-year move to basis points?

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Speaker 7: I know.

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Speaker 4: Higher yields here right now.

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Speaker 2: So you go out there, if you were at the

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Speaker 2: Fed here, what would be your big concern? What would

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Speaker 2: you want to get a little bit smarter at, maybe

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Speaker 2: at Jackson Hole here?

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Speaker 10: So, again, this probably isn't going to be a great

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Speaker 10: platform for speaking about policy in its core function because, again,

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Speaker 10: this is about future payment systems. And this might have

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Speaker 10: to do with why crypto, again, is having a couple

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Speaker 10: of good weeks here. It kind of falls into some

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Speaker 10: of that. But to your point, guys, we need to

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Speaker 10: talk about what the actual structural inflation story is versus

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Speaker 10: what the cyclical story is and what the Fed can affect.

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Speaker 4: So parse the distinction there.

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Speaker 10: So that's a great question that I think they need

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Speaker 10: to clarify. I myself am not clear on because what

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Speaker 10: do we want to do? Do we want to step

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Speaker 10: on AI capex inflation? No, probably not.

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Speaker 12: Right.

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Speaker 11: We do.

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Speaker 10: We want to actually look at wage inflation. Well, that's

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Speaker 10: not actually going to going anywhere. So then you have

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Speaker 10: a case to hold. So there are plenty of things

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Speaker 10: to cut and parse through as far as the inflation picture,

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Speaker 10: which is exactly why we hear from Warsh that he

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Speaker 10: wants to take a different look at it.

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Speaker 4: Second quarter GDP price index. 6.2, which is ginormous, and

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Speaker 4: it came in even bigger than that, 6.4%. That's not

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Speaker 4: a normal.

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Speaker 6: Economy, is it? No, again, it's a tale of two

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Speaker 6: stories here.

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Speaker 10: We have a real drive, not only from AI build out,

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Speaker 10: but also from our own government to kind of reshore.

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Speaker 10: And then obviously we have a lot of defense spending

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Speaker 10: coming through now. So the fiscal pulse has been quite strong.

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Speaker 10: That's expected to fade into year end, but that's clearly

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Speaker 10: reflected in Q2 data. And again, the momentum right now

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Speaker 10: is pretty strong. So we are looking at an economy

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Speaker 10: that is above trend. And that is a problem for

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Speaker 10: the Fed, given that inflation remains stickier in that kind

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Speaker 10: of backdrop.

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Speaker 2: W.I.R.P., the world interest rate fund probability, blah, blah, blah, blah.

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Speaker 2: Markets pricing in one rate hike by.

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Speaker 7: The end of the year.

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Speaker 4: I don't know.

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Speaker 7: How do you think that looks these days?

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Speaker 10: Yeah, after July, when we had sort of the lack

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Speaker 10: of communication from the press conference. That's exactly where it

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Speaker 10: went to. And actually, we crept into January and out

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Speaker 10: of December. Now the idea being, if they don't go

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Speaker 10: in September, which again, it's not looking too good as

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Speaker 10: far as what probability is.

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Speaker 6: Now let's keep in mind, we went into July.

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Speaker 10: I think we were somewhere around between 30% and 40%

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Speaker 10: chance anyway. And that was one of the lowest probabilities

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Speaker 10: going into a meeting, which goes to show this new

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Speaker 10: error where the chairman doesn't want to guide markets into

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Speaker 10: a meeting. So we need to get accustomed to this

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Speaker 10: new reality.

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Speaker 4: I just found this statistic I was looking for. Thank you,

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Speaker 4: Google Gemini, for this. Nominal GDP ending second quarter, first look,

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Speaker 4: an annualized rate of 7.9%. I have never perceived that

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Speaker 4: in my academic life. I've never witnessed it. That's something

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Speaker 4: I get out of Southeast Asia, you know, given a

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Speaker 4: war going on.

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Speaker 10: You know, I mean, me and you have talked about

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Speaker 10: this for a couple months now, about this reacceleration sort of,

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Speaker 10: and it's broadening as we get— the consumer was active in Q2—

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Speaker 10: This is why the market is doing quite well, the

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Speaker 10: stock market. I mean, this is why it's not about

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Speaker 10: AI anymore and momentum and higher beta trading. It's about

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Speaker 10: a broadening and a rotation and some more cyclical parts

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Speaker 10: of it.

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Speaker 4: And I don't understand Druckenmiller. I'm going to say, look,

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Speaker 4: I took this off AI. Anna Wong's smarter than me.

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Speaker 4: She's going to figure this statistic out. But Paul, 7.9%

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Speaker 4: run rate, a nominal GDP, tells me in no way, shape,

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Speaker 4: or form, is this a normal Jackson Hole?

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Speaker 2: No. It'd be interesting to see kind of how people...

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Speaker 2: factoring today's data into the discussion. AI, Michael, how much

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Speaker 2: of economic growth, of that number Tom just quoted, how

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Speaker 2: much of all this is AI spending?

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Speaker 6: A good chunk of it.

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Speaker 10: And again, that's sort of where we get this kind

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Speaker 10: of tale of two cities. And I'm, again, going back

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Speaker 10: to this real personal spending being zero. It's good that

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Speaker 10: income was up. When we adjust that, though, for inflation,

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Speaker 10: that's obviously going to be a little lower. But what

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Speaker 10: we need to see is it's not just a fixed

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Speaker 10: investment boom in a certain pocket that now has become

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Speaker 10: highly political and very uncertain and also very expensive. Meaning

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Speaker 10: that every kind of buck they're spending in CapEx now

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Speaker 10: gets less marginal compute because everyone's kind of rushing into.

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Speaker 6: One door at the same time.

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Speaker 7: Didn't think about that.

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Speaker 10: So we want to see the broadening out and we

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Speaker 10: want to see the consumer play its role. And again,

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Speaker 10: the worry is that we are going to become more

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Speaker 10: tapped out as people are going into savings, going up

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Speaker 10: in credit spending.

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Speaker 6: But this has.

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Speaker 10: Been a story I've been told for quarters now and

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Speaker 10: that the resilience of the consumer has kind of baffled

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Speaker 10: everyone and it continues.

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Speaker 6: So I'm not calling for an immediate end. I'm just

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Speaker 6: saying this is where all eyes are.

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Speaker 4: How urgent is it to get the run rate of

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Speaker 4: our economy down to begin to get inflation back to?

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Speaker 4: Forget about mandates. Forget about Taylor and the rest of it.

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Speaker 4: What's the urgency to get the vector on inflation.

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Speaker 7: Lower?

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Speaker 6: I mean, one would argue not urgent or they would

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Speaker 6: have gone in July. There's been no material change since that.

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Speaker 4: Why is it not urgent with a banana republic nominal GDP?

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Speaker 6: I mean, a lot of theories on that.

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Speaker 10: We don't want to step on sort of the overall

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Speaker 10: consumer by raising rates and tightening Main Street while trying

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Speaker 10: to pop maybe a financial bubble or some fraud scene.

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Speaker 4: In real assets. So in Jackson Hole, it's a political Fed.

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Speaker 6: Could be.

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Speaker 4: They can't step on half of America flat on their back.

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Speaker 5: Yeah.

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Speaker 4: Because somebody's paying Paul Sweeney ticket prices at the U.S. Open.

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Speaker 6: Yeah, but this is a divergence.

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Speaker 10: Like when you heard from Hammock and Logan, they're talking

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Speaker 10: about what their business, they're telling them the cost increases there,

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Speaker 10: the problems they're having with managing that. And when you

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Speaker 10: talk to some of the other guys, the more dovish guys,

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Speaker 10: they're talking about Main Street and they're talking about the consumer.

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Speaker 4: Paul wants to get one more in here quickly. Beth Hammock,

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Speaker 4: I believe, leading our coverage on Friday.

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Speaker 1: Very good.

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Speaker 7: NVIDIA after the close tonight. What's a macro guy? take

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Speaker 7: away from NVIDIA. What are you going to be looking for?

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Speaker 10: Yeah, so I've been looking sort of for NVIDIA to

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Speaker 10: reassert this kind of AI capex winter momentum, which is cool,

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Speaker 10: then actually kind of split open, right? So there's certain

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Speaker 10: parts of AI still doing well, like optics and memory,

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Speaker 10: where you've seen some of the.

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Speaker 6: Core chip guys and others lose momentum.

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Speaker 10: And it's been more of a divergent trade versus this

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Speaker 10: just higher beta, all ships rising, anything to do with AI.

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Speaker 10: So what we need from NVIDIA is maybe to settle

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Speaker 10: some of that. Just the passage of that event being

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Speaker 10: in line would help cool that. And then you get,

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Speaker 10: you know, the volatility picture sort of settles. And again,

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Speaker 10: more participation. Because that really has been a lagger, sort of,

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Speaker 10: you know, semis have been one of the bigger laggers

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Speaker 10: and they're right on top of momentum. All that kind

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Speaker 10: of needs to settle a little for the market's breadth

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Speaker 10: and the broadening that we see to continue in a

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Speaker 10: healthier way. Like, we don't want to see AI left behind.

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Speaker 10: We want to see everyone to participate if you want

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Speaker 10: to keep going to 8,000 XPX.

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Speaker 4: It sounds like he's running for office.

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Speaker 7: I'd vote for him.

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Speaker 6: Stock market mayor. If I'm elected, I'm going to be

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Speaker 6: your Michael Paul. Yes, exactly.

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Speaker 11: We'll see how that goes.

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Speaker 2: So, again, the next thing for this market here, what

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Speaker 2: is it?

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Speaker 8: What do we need to focus on?

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Speaker 6: Yeah, it is NVIDIA, I think, to your point. We

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Speaker 6: need the passage of this earnings season.

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Speaker 10: I mean, someone was saying that we've got banks coming

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Speaker 10: in a week or two, so we're right back in

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Speaker 10: it now. But to your point, Jackson Hole is starting

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Speaker 10: to smell like it may not be a risk event

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Speaker 10: as much as we like to hype it up.

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Speaker 4: I agree.

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Speaker 6: Because I think he's got a.

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Speaker 11: Kind of bulk.

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Speaker 10: Which leaves us status quo, which means it's probably a

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Speaker 10: more dovish tilt to the Fed. So we don't have

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Speaker 10: to worry about tightening there, which is good for stocks.

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Speaker 10: And back to Tom's point, like nominal GDP is so high,

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Speaker 10: the earnings picture has broadened so well in Q2 that

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Speaker 10: it's just like everything is kind of working, even though

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Speaker 10: we all still have this mainstream kind of affordability crisis

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Speaker 10: going on in the backdrop.

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Speaker 6: And geopolitics, obviously, are still not settled.

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Speaker 4: It's a $ 23 honey deuce cocktail at the US Open.

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Speaker 6: That goes up every year.

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Speaker 7: We have like a thousand cups at our house.

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Speaker 4: But is it like 16 ounce?

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Speaker 11: No.

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Speaker 7: It's a 12 ounce. And it's like that much vodka.

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Speaker 4: Yeah, exactly. They put like eight buckets of ice in it.

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Speaker 11: Yes.

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Speaker 7: And I buy it every year.

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Speaker 4: You buy it for him. Don't get me wrong.

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Speaker 6: You kind of have to. You're already all in at

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Speaker 6: that point.

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Speaker 11: Michael Ball, brilliant.

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Speaker 4: Thank you so much. We've got to do better. Ball

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Speaker 4: was okay, but Jess Benton will be better. Michael Ball,

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Speaker 4: thank you so much. here this morning. Red and green

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Speaker 4: on the screen right now. It's a really quiet screen.

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Speaker 4: It's got that August feel after the PCE and the

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Speaker 4: churn of it. The yields finally changed. Michael Ball was talking,

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Speaker 4: and we finally got price down, yield up. 30-year bond

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Speaker 4: up just a point. 10-year yield gives me more, up

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Speaker 4: two basis points. In the Sweeney two year, the Fed

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Speaker 4: sensitive yield up a big four basis points as well.

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Speaker 4: Why don't you bring in our next guest?

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Speaker 6: Absolutely.

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Speaker 2: Jess Metten, she is deputy team lead for the equities

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Speaker 2: group over there at Bloomberg News. Jess, I mean, inflation,

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Speaker 2: it's there. It's kind of in line with what. I

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Speaker 2: guess the market was kind of discounting here. Not much

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Speaker 2: happening in the equity markets here. Or maybe the yields.

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Speaker 6: Lift a little bit.

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Speaker 7: But what are you looking at in the equities market

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Speaker 7: this morning?

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Speaker 13: Well, part of it and why it looks like there's

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Speaker 13: not a lot happening is it's still been more of

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Speaker 13: a micro story rather than a macro. Anytime like Mandy

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Speaker 13: Zhu over at Subo's talked a lot about this if

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Speaker 13: you're looking at the options side of things. And especially

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Speaker 13: during earnings season, of course, we have NVIDIA. reporting after

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Speaker 13: the bell today. So that's more when I'm talking to

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Speaker 13: portfolio managers, what their focus is on today. Even though

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Speaker 13: we have, of course, Jackson Hole, Kevin Moore speaking, his

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Speaker 13: first speech at Jackson Hole. Typically, I've compiled some data.

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Speaker 13: It's a little preview here for a story I'm going

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Speaker 13: to have Friday morning looking for a taking stock column.

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Speaker 13: But this is really about historically, there tends not to

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Speaker 13: be a gigantic move a week post that presser because

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Speaker 13: it's really more when you're at an inflection point with

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Speaker 13: monetary policy, say like back in 2022 or when former

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Speaker 13: Fed Chair Jerome Powell was speaking. That was when we

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Speaker 13: were sort of in the middle of those 75 basis

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Speaker 13: point hikes.

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Speaker 7: It happened four times.

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Speaker 13: That was when we had already had two of them.

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Speaker 13: So it's a little bit different because also Kevin Warsh

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Speaker 13: clearly has made it his focus of not putting out

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Speaker 13: forward guidance. But it's been more of a micro story

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Speaker 13: when you're seeing much more volatility underneath the hood of

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Speaker 13: the major indexes. So it's most likely going to continue

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Speaker 13: that today. And even if you look, it's interesting with

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Speaker 13: NVIDIA because, of course, this has been one of the

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Speaker 13: main stocks that has been driven the bull market rallies

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Speaker 13: since October of 2022. And it first had that huge

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Speaker 13: revenue forecast in May of 2023. So when you're looking

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Speaker 13: at this, even if you look at SERP, what the

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Speaker 13: one day implied move is, it's around 5% for Nvidia

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Speaker 13: post those earnings. If you look at the S &

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Speaker 13: P 500, the move for tomorrow, which is when Jackson

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Speaker 13: Hole starts. It's actually 70 basis points swing. But of course,

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Speaker 13: that matches in line when Fed Chair Kevin Warr speaks

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Speaker 13: on Friday. So that would be the third highest mood

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Speaker 13: we see over the next three weeks behind CPI. And then,

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Speaker 13: of course, Fed Day on September 16th.

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Speaker 4: So getting from NVIDIA this afternoon to the madness of

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Speaker 4: headlines at 10 a.m. on Friday, is it 10 a.m.

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Speaker 4: Mountain Time or Eastern Time? I think Eastern time.

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Speaker 7: I think Eastern time. Yeah.

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Speaker 4: Eastern time. It's two zip codes away.

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Speaker 11: They are. They are.

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Speaker 4: In the mountains.

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Speaker 11: I could.

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Speaker 4: Bruno's in charge of the clock. What can I say?

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Speaker 4: To get from NVIDIA to Friday, is that like a

441
00:19:46,290 --> 00:19:50,260
Speaker 4: big deal for equity animals trading every five minutes? Yes.

442
00:19:50,660 --> 00:19:52,780
Speaker 13: Well, and also I want to point out because if

443
00:19:53,359 --> 00:19:55,340
Speaker 13: you look at where NVIDIA stock is year to date,

444
00:19:55,380 --> 00:19:56,699
Speaker 13: it's up 14%.

445
00:19:56,700 --> 00:19:57,520
Speaker 6: If you compare that.

446
00:19:57,420 --> 00:20:00,380
Speaker 13: To Micron technology, that stock's up over 200% and SanDisk

447
00:20:00,420 --> 00:20:04,550
Speaker 13: over 500%. The reason I bring up SanDisk and Micron.

448
00:20:04,590 --> 00:20:06,830
Speaker 13: Those were the two best performers in the S &

449
00:20:06,250 --> 00:20:08,770
Speaker 13: P 500 in the first half of the year. Of course,

450
00:20:08,790 --> 00:20:12,150
Speaker 13: I have to mention that the SOX, the Philadelphia Semiconductor Index,

451
00:20:12,250 --> 00:20:14,970
Speaker 13: peaked on June 22nd. So since then, the SOX is

452
00:20:14,990 --> 00:20:17,680
Speaker 13: down close to 20%. But if you look at NVIDIA

453
00:20:17,720 --> 00:20:19,960
Speaker 13: in that time, it's up around 1%. But those other

454
00:20:19,980 --> 00:20:23,460
Speaker 13: stocks are down double digits. So my point is, right now,

455
00:20:23,520 --> 00:20:26,480
Speaker 13: when I'm speaking with portfolio managers, look at the PE

456
00:20:26,600 --> 00:20:28,510
Speaker 13: on NVIDIA. I mean, it's around 18.

457
00:20:28,510 --> 00:20:29,430
Speaker 6: That's less than the.

458
00:20:29,450 --> 00:20:31,990
Speaker 4: S & P 500. Stop, stop. That's too important. Folks,

459
00:20:32,030 --> 00:20:34,490
Speaker 4: what you just heard there from Ms. Benton is too important.

460
00:20:34,730 --> 00:20:36,609
Speaker 6: Well, it's also cheaper than Hershey's.

461
00:20:36,690 --> 00:20:38,570
Speaker 4: Hershey's is a staple.

462
00:20:38,590 --> 00:20:41,480
Speaker 6: And NVIDIA is cheaper than Hershey's right now.

463
00:20:41,840 --> 00:20:43,780
Speaker 13: So I feel like that's important just to point out

464
00:20:43,800 --> 00:20:45,400
Speaker 13: that people are going to still jump in and buy

465
00:20:45,420 --> 00:20:46,220
Speaker 13: that regardless.

466
00:20:45,960 --> 00:20:51,250
Speaker 4: Of its earnings. NVIDIA's forward PE based on earnings growth

467
00:20:51,770 --> 00:20:54,189
Speaker 4: is cheaper than Hershey's chocolate. Yes.

468
00:20:54,950 --> 00:20:55,170
Speaker 5: Yes.

469
00:20:56,170 --> 00:20:57,010
Speaker 4: I did not know that.

470
00:20:57,150 --> 00:20:57,410
Speaker 12: Right.

471
00:20:57,650 --> 00:20:58,149
Speaker 7: So look at it.

472
00:20:58,210 --> 00:21:01,730
Speaker 13: It's around 18.8 for NVIDIA, and it's a little less

473
00:21:01,750 --> 00:21:04,530
Speaker 13: than 20 for Hershey's and for the S.

474
00:21:04,260 --> 00:21:04,930
Speaker 6: & P 500.

475
00:21:04,930 --> 00:21:06,550
Speaker 13: So I think that's something that people should keep in

476
00:21:06,590 --> 00:21:07,210
Speaker 13: context here.

477
00:21:07,250 --> 00:21:09,550
Speaker 4: Jess, thank you so much for having equity coverage here,

478
00:21:09,609 --> 00:21:12,730
Speaker 4: and particularly the volatility measurement of what we see in

479
00:21:12,770 --> 00:21:19,320
Speaker 4: the indices versus the underlying day-to-day movement. Stay with us.

480
00:21:19,619 --> 00:21:22,860
Speaker 4: More from Bloomberg Surveillance coming up after this.

481
00:21:30,119 --> 00:21:33,720
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live

482
00:21:33,800 --> 00:21:35,880
Speaker 1: weekday afternoons from 7 to 10 a.m.

483
00:21:35,920 --> 00:21:36,320
Speaker 4: Eastern.

484
00:21:36,420 --> 00:21:39,700
Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg

485
00:21:39,740 --> 00:21:42,270
Speaker 1: Business app or watch us live on YouTube.

486
00:21:42,850 --> 00:21:46,730
Speaker 4: In charge of that stuff at Wolf Research, head of U.S.

487
00:21:46,790 --> 00:21:51,090
Speaker 4: public policy, Tobin Marcus joins us right now. Tobin, this

488
00:21:51,390 --> 00:21:55,649
Speaker 4: uproar that we're in of the demarcation of Besson and Warsh,

489
00:21:56,310 --> 00:21:59,070
Speaker 4: and all the rest of it, does it link back

490
00:21:59,310 --> 00:22:03,300
Speaker 4: into the midterm elections, or is it discrete and separate?

491
00:22:04,859 --> 00:22:05,560
Speaker 11: Good to be here, Tom.

492
00:22:06,100 --> 00:22:09,659
Speaker 14: I don't read it as particularly closely driven by the midterms.

493
00:22:09,760 --> 00:22:11,720
Speaker 14: In general, I don't think the Trump administration has been

494
00:22:11,800 --> 00:22:14,320
Speaker 14: executing against the midterms as a goal very much recently.

495
00:22:14,740 --> 00:22:16,479
Speaker 14: That's come up a lot in Iran, where there's been

496
00:22:16,500 --> 00:22:18,580
Speaker 14: a theory of the case that the midterms would force

497
00:22:18,600 --> 00:22:21,090
Speaker 14: them into some sort of capitulatory posture.

498
00:22:21,150 --> 00:22:21,810
Speaker 8: We haven't seen that.

499
00:22:22,230 --> 00:22:24,570
Speaker 14: And here, too, I think they'd prefer to lose a

500
00:22:24,609 --> 00:22:26,270
Speaker 14: couple fewer seats at the margin in the House, but

501
00:22:26,290 --> 00:22:28,710
Speaker 14: the House is basically a foregone conclusion. I think Besson's

502
00:22:28,750 --> 00:22:30,350
Speaker 14: doing this because he doesn't like how the prices look.

503
00:22:30,630 --> 00:22:33,670
Speaker 4: I mean, the bottom line is, as Paul just correctly stated—

504
00:22:34,520 --> 00:22:39,720
Speaker 4: It's about the data. I got PCE at 3.6% survey.

505
00:22:39,740 --> 00:22:45,930
Speaker 4: I got core PCE a little bit south, 3.3%. That's

506
00:22:46,070 --> 00:22:48,389
Speaker 4: untenable for most of America, isn't it?

507
00:22:49,869 --> 00:22:50,950
Speaker 6: Yeah, I completely agree.

508
00:22:51,109 --> 00:22:56,690
Speaker 14: Ultimately, both voter economic sentiment and the movements in the

509
00:22:56,730 --> 00:22:57,990
Speaker 14: long end of the curve are going to be driven

510
00:22:58,030 --> 00:23:01,189
Speaker 14: by fundamentals, with inflation being a big part of that.

511
00:23:01,260 --> 00:23:02,720
Speaker 14: I mean, you know, there was some debate yesterday as

512
00:23:02,760 --> 00:23:05,520
Speaker 14: to whether the little leg down in yields at the

513
00:23:05,560 --> 00:23:07,899
Speaker 14: long end of the curve was showing that the best

514
00:23:07,920 --> 00:23:10,040
Speaker 14: intervention is in fact working. I think that's more a

515
00:23:10,080 --> 00:23:13,160
Speaker 14: reflection of sort of improving sentiment on the Iran war. I'm, again,

516
00:23:13,180 --> 00:23:15,320
Speaker 14: a little skeptical that we're going to actually get that de-escalation,

517
00:23:15,359 --> 00:23:17,060
Speaker 14: but the oil price moves, I think, are what drove that.

518
00:23:17,850 --> 00:23:21,320
Speaker 2: So Tobin, with several days now of some hindsight here,

519
00:23:21,380 --> 00:23:26,139
Speaker 2: how do we think about Secretary Besson's bond buying announcement

520
00:23:26,180 --> 00:23:26,639
Speaker 2: and policy?

521
00:23:26,680 --> 00:23:28,179
Speaker 7: How do we should we think about that?

522
00:23:29,730 --> 00:23:32,070
Speaker 14: To me, it looks kind of like an opportunistic attempt

523
00:23:32,090 --> 00:23:33,090
Speaker 14: to come into the market.

524
00:23:32,890 --> 00:23:34,410
Speaker 8: In a place where he thought liquidity was thin.

525
00:23:35,250 --> 00:23:37,710
Speaker 14: Not that it was a real response to liquidity conditions,

526
00:23:37,750 --> 00:23:39,270
Speaker 14: but he's like, ah, you know, I have a chance

527
00:23:39,290 --> 00:23:41,010
Speaker 14: to take a shot here, maybe bring prices down a

528
00:23:41,030 --> 00:23:43,650
Speaker 14: little bit at the margin. I'm not reading anything he's

529
00:23:43,690 --> 00:23:46,490
Speaker 14: said or done as projecting the kind of whatever it

530
00:23:46,510 --> 00:23:49,070
Speaker 14: takes resolve that you would really need if you're intending

531
00:23:49,090 --> 00:23:51,350
Speaker 14: to draw a line in the sand and say, yields

532
00:23:51,390 --> 00:23:52,930
Speaker 14: go no higher and we're going to force them down.

533
00:23:54,090 --> 00:23:57,910
Speaker 2: Tobin, sticking with Secretary Besant, making news on another front.

534
00:23:57,970 --> 00:23:59,169
Speaker 7: This is in Iran.

535
00:24:00,230 --> 00:24:03,170
Speaker 2: D-Day, this economic D-Day, is there any reason to believe

536
00:24:03,790 --> 00:24:06,580
Speaker 2: an incremental layer of sanctions on Iran will have any

537
00:24:07,060 --> 00:24:09,600
Speaker 2: effect here? It seems like they've been the most sanctioned

538
00:24:09,660 --> 00:24:11,119
Speaker 2: country out there for a long time.

539
00:24:12,460 --> 00:24:13,040
Speaker 11: Yeah, I mean, the.

540
00:24:13,000 --> 00:24:16,560
Speaker 14: Original maximum pressure sanctions campaign in Trump 1.0 began more

541
00:24:16,580 --> 00:24:17,920
Speaker 14: than six years ago at this point.

542
00:24:17,940 --> 00:24:20,070
Speaker 11: So certainly economic isolation is not new for them.

543
00:24:20,590 --> 00:24:23,629
Speaker 14: You know, the pressure continues ratcheting tighter and their economy

544
00:24:23,670 --> 00:24:27,780
Speaker 14: is under very severe strain. So it's inflicting pain, but

545
00:24:27,800 --> 00:24:30,180
Speaker 14: I don't think that that pain is going to cause

546
00:24:30,200 --> 00:24:32,310
Speaker 14: the regime to crumble or give up.

547
00:24:32,330 --> 00:24:36,050
Speaker 4: To summarize this, I think it's really important. Dan Tannenbaum

548
00:24:36,070 --> 00:24:37,550
Speaker 4: is going to be on the 9 o'clock hour. He's

549
00:24:37,570 --> 00:24:40,570
Speaker 4: an expert on this. And it's all this sanction, sanction, this,

550
00:24:40,670 --> 00:24:43,710
Speaker 4: and limit, limit, this. The bottom line is China gets

551
00:24:43,770 --> 00:24:46,510
Speaker 4: its oil from Iran, right? And the answers are going

552
00:24:46,530 --> 00:24:47,830
Speaker 4: to continue to, right?

553
00:24:47,850 --> 00:24:51,050
Speaker 14: Yeah, I have no expectation that China is going to

554
00:24:51,070 --> 00:24:52,670
Speaker 14: alter their behavior in any way based on this.

555
00:24:53,530 --> 00:24:56,330
Speaker 4: OK, then I don't apply. I'm absolutely baffled.

556
00:24:56,430 --> 00:24:58,649
Speaker 2: Well, I think, Tom, this brings up and Tobin, I'd

557
00:24:58,690 --> 00:25:02,310
Speaker 2: love to get your thoughts here about President Xi still

558
00:25:02,350 --> 00:25:04,810
Speaker 2: scheduled to come and meet with President Trump here, I guess,

559
00:25:05,010 --> 00:25:05,770
Speaker 2: next month.

560
00:25:06,310 --> 00:25:07,830
Speaker 7: Boy, how do we handicap that thing now?

561
00:25:09,540 --> 00:25:12,000
Speaker 14: I mean, from the Chinese side, I think that the

562
00:25:12,520 --> 00:25:15,480
Speaker 14: fact of that meeting happening is a win at some level.

563
00:25:15,680 --> 00:25:18,610
Speaker 14: What they want is to reinforce this dynamic of constructive

564
00:25:18,630 --> 00:25:20,970
Speaker 14: strategic stability, which to them means that the U.S.

565
00:25:20,990 --> 00:25:22,129
Speaker 11: Needs to treat them as a peer.

566
00:25:22,450 --> 00:25:24,320
Speaker 14: We can't just reach out and slap them around with

567
00:25:24,359 --> 00:25:27,230
Speaker 14: long-arm sanctions and export controls. And so I think continuing

568
00:25:27,250 --> 00:25:29,869
Speaker 14: the sort of parade of meetings where we're embracing each

569
00:25:29,890 --> 00:25:32,510
Speaker 14: other as equals, that's a win from their perspective. So

570
00:25:32,590 --> 00:25:34,960
Speaker 14: I suspect that that summit will go forward even with

571
00:25:35,000 --> 00:25:37,919
Speaker 14: some recent ratcheting of export controls in terms of these

572
00:25:38,060 --> 00:25:41,810
Speaker 14: FCC actions on optical transceivers or the polysilicon tariffs or

573
00:25:41,850 --> 00:25:43,530
Speaker 14: those kinds of confrontational steps by the U.S.

574
00:25:44,619 --> 00:25:46,120
Speaker 4: Look, can we switch geographies?

575
00:25:46,200 --> 00:25:46,639
Speaker 11: Oh, yeah.

576
00:25:46,820 --> 00:25:50,570
Speaker 4: Canada. What did you think of what Mr. Carney and

577
00:25:50,670 --> 00:25:53,870
Speaker 4: all of Canada did yesterday in their, I guess, their

578
00:25:53,910 --> 00:25:57,890
Speaker 4: tariff tit for tat? Does it really limit a lot

579
00:25:57,930 --> 00:26:01,770
Speaker 4: of our industrial ability? Let's start with, are you ready? Three, two, one.

580
00:26:02,190 --> 00:26:03,010
Speaker 11: Aluminium.

581
00:26:03,270 --> 00:26:03,590
Speaker 5: Oh, yes.

582
00:26:06,080 --> 00:26:08,139
Speaker 14: Yeah, I mean, look, the actual scale of the tariffs

583
00:26:08,180 --> 00:26:10,639
Speaker 14: imposed in both directions is quite small. You know, the

584
00:26:10,700 --> 00:26:13,180
Speaker 14: rate's high, but the base is very narrow. It's about 5%

585
00:26:13,180 --> 00:26:14,300
Speaker 14: of the trade in each direction.

586
00:26:14,700 --> 00:26:15,900
Speaker 7: So at some level, it's symbolic.

587
00:26:15,920 --> 00:26:18,690
Speaker 14: I mean, they're a proud nation like we are. I

588
00:26:18,730 --> 00:26:20,470
Speaker 14: do ultimately think that the relationship is going to get

589
00:26:20,510 --> 00:26:23,170
Speaker 14: back on track. I think the USMCA will be extended

590
00:26:23,550 --> 00:26:25,950
Speaker 14: with some revisions probably sometime next year. I don't think

591
00:26:25,970 --> 00:26:28,159
Speaker 14: that the US administration is willing to blow it all up.

592
00:26:28,609 --> 00:26:33,129
Speaker 4: But did you see anything that Canada was tariffing Is

593
00:26:33,150 --> 00:26:37,879
Speaker 4: that a word? Tariffing that really struck you as being

594
00:26:37,960 --> 00:26:41,879
Speaker 4: politically or from an industrial standpoint limiting.

595
00:26:43,560 --> 00:26:45,900
Speaker 14: I don't see any concentrated industrial impacts.

596
00:26:46,109 --> 00:26:46,880
Speaker 8: The sort of U.S.

597
00:26:47,070 --> 00:26:49,990
Speaker 14: Metal sales to Canada, ultimately, again, it's just not that

598
00:26:50,050 --> 00:26:52,250
Speaker 14: big of a market as a share of our sort.

599
00:26:52,150 --> 00:26:52,909
Speaker 11: Of global sales.

600
00:26:53,390 --> 00:26:56,590
Speaker 14: To me, what stands out in terms of the concentrated

601
00:26:56,650 --> 00:26:59,190
Speaker 14: impact of the Canada tariffs is the political geography of it,

602
00:26:59,290 --> 00:27:02,740
Speaker 14: where Michigan and Maine in particular are really high leverage

603
00:27:02,760 --> 00:27:06,300
Speaker 14: states in the midterms in the Senate. And they're obviously

604
00:27:06,340 --> 00:27:08,419
Speaker 14: border states and rely a lot on trade back and

605
00:27:08,440 --> 00:27:10,580
Speaker 14: forth with Canada. So you have Maine lobstermen, for example,

606
00:27:11,000 --> 00:27:13,619
Speaker 14: up in arms. So that to me, I think, is

607
00:27:13,680 --> 00:27:15,709
Speaker 14: the sort of political shortcoming of this strategy. And you

608
00:27:15,750 --> 00:27:18,310
Speaker 14: do have people in the Senate prevailing upon the president

609
00:27:18,330 --> 00:27:18,990
Speaker 14: to try and cool it.

610
00:27:19,890 --> 00:27:22,770
Speaker 2: So, I mean, that kind of goes to Tom's midterm

611
00:27:22,850 --> 00:27:26,270
Speaker 2: question earlier. It feels like the president is not really

612
00:27:26,350 --> 00:27:30,740
Speaker 2: attuned at all to the midterms in terms of trying

613
00:27:30,760 --> 00:27:34,300
Speaker 2: to support Republican candidates, because a lot of his policies

614
00:27:34,320 --> 00:27:37,200
Speaker 2: are whether it is tariffs, whether it is around, just

615
00:27:37,340 --> 00:27:40,709
Speaker 2: simply don't poll well, yet he seems to be double

616
00:27:41,290 --> 00:27:43,629
Speaker 2: down on these types of things right before the elections.

617
00:27:44,880 --> 00:27:47,320
Speaker 11: Yeah, I think he's pursuing his agenda because he believes

618
00:27:47,359 --> 00:27:47,540
Speaker 11: in it.

619
00:27:48,500 --> 00:27:51,300
Speaker 14: And the chips will fall where they may from a

620
00:27:51,340 --> 00:27:55,340
Speaker 14: Republican congressional prospect's perspective. I think he basically thinks that

621
00:27:55,359 --> 00:27:58,050
Speaker 14: congressional Republicans are there to support his agenda. And so

622
00:27:58,109 --> 00:28:00,290
Speaker 14: if the price of getting some elements of his agenda

623
00:28:00,310 --> 00:28:05,430
Speaker 14: move forward, either in trade or in the U.S.-Iran conflict,

624
00:28:05,970 --> 00:28:08,430
Speaker 14: is that some of them lose their seats, then that's

625
00:28:08,470 --> 00:28:10,400
Speaker 14: a noble sacrifice by them in service of the cause.

626
00:28:11,180 --> 00:28:13,659
Speaker 4: Tobin, thank you so much. Tobin Marcus, really appreciate it.

627
00:28:13,760 --> 00:28:13,960
Speaker 8: U.S.

628
00:28:14,020 --> 00:28:20,270
Speaker 4: Policy analyst, Wolf Research. Stay with us. More from Bloomberg

629
00:28:20,350 --> 00:28:22,350
Speaker 4: Surveillance coming up after this.

630
00:28:29,630 --> 00:28:33,220
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live

631
00:28:33,300 --> 00:28:35,380
Speaker 1: weekday afternoons from 7 to 10 a.m.

632
00:28:35,420 --> 00:28:35,820
Speaker 3: Eastern.

633
00:28:35,920 --> 00:28:39,220
Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg

634
00:28:39,240 --> 00:28:41,740
Speaker 1: Business app. Or watch us live on YouTube.

635
00:28:41,960 --> 00:28:44,620
Speaker 4: This is like from my ute. It's from another life, folks.

636
00:28:44,680 --> 00:28:48,410
Speaker 4: I'm so happy that Ben Cook's on, Portfolio Manager. Hennergy

637
00:28:48,610 --> 00:28:52,830
Speaker 4: Energy Transition Fund, also known as the OMG Look at

638
00:28:52,870 --> 00:28:57,790
Speaker 4: the Dividend Fund. Ben, this is way back. I'm thinking Finley, Ohio.

639
00:28:58,430 --> 00:29:04,760
Speaker 4: MPLX with a 7% yield with an Apple-like return since

640
00:29:04,800 --> 00:29:09,360
Speaker 4: the beginning of COVID, like think 25% per year. Are

641
00:29:09,400 --> 00:29:13,050
Speaker 4: we still in love with midstream and pipelines that pay

642
00:29:13,150 --> 00:29:14,090
Speaker 4: huge dividends?

643
00:29:15,530 --> 00:29:18,630
Speaker 8: Yeah, good morning, Tom, and thanks for that introduction. You know,

644
00:29:18,730 --> 00:29:19,230
Speaker 8: we are.

645
00:29:19,310 --> 00:29:22,810
Speaker 12: We think that the investment case for midstream today is

646
00:29:22,870 --> 00:29:26,190
Speaker 12: as strong as it's ever been, a combination of rising

647
00:29:26,270 --> 00:29:29,350
Speaker 12: growth and production here in the United States, strong commodity

648
00:29:29,410 --> 00:29:34,150
Speaker 12: price fundamentals, corporate governance that's vastly improved over the last

649
00:29:34,210 --> 00:29:38,070
Speaker 12: five years, and as you mentioned, cash payouts to investors,

650
00:29:38,150 --> 00:29:41,070
Speaker 12: which continue to rise on the back of those favorable

651
00:29:41,110 --> 00:29:42,290
Speaker 12: drivers that I just mentioned.

652
00:29:42,410 --> 00:29:46,370
Speaker 4: Paul, this was all the rage decades ago. You make 13%

653
00:29:46,370 --> 00:29:49,410
Speaker 4: per year like on an MLP. You know, you get

654
00:29:49,430 --> 00:29:52,830
Speaker 4: some growthiness, double digit. But then with the overlay of

655
00:29:52,870 --> 00:29:58,380
Speaker 4: a 7% yield reinvested, you're popping 25% per year since

656
00:29:58,400 --> 00:29:59,500
Speaker 4: the beginning of COVID.

657
00:29:59,600 --> 00:30:00,060
Speaker 6: Exactly.

658
00:30:00,460 --> 00:30:03,500
Speaker 2: Hey, Ben, you know, a lot of lay people like myself,

659
00:30:03,560 --> 00:30:05,240
Speaker 2: I just look at the price of, you know, Brent

660
00:30:05,290 --> 00:30:08,550
Speaker 2: crude or WTI crude. And I see some moderation today.

661
00:30:08,590 --> 00:30:11,150
Speaker 2: But experts like you tell me we should be looking

662
00:30:11,230 --> 00:30:12,790
Speaker 2: at refined products.

663
00:30:12,830 --> 00:30:13,730
Speaker 6: I guess that's the.

664
00:30:13,730 --> 00:30:15,950
Speaker 2: Distillates, the diesel, the jet fuel.

665
00:30:15,970 --> 00:30:18,740
Speaker 7: What's what's going on there with the stuff people actually use?

666
00:30:20,380 --> 00:30:22,120
Speaker 8: Yeah, that's exactly right, Paul.

667
00:30:22,140 --> 00:30:24,520
Speaker 12: You know, if you look at the global price of,

668
00:30:24,820 --> 00:30:28,820
Speaker 12: you know, whether it's diesel or gasoline, it's obviously elevated

669
00:30:28,880 --> 00:30:31,260
Speaker 12: with the tightness we're seeing based on the conflict with

670
00:30:31,360 --> 00:30:37,450
Speaker 12: Iran and with the Russia-Ukraine conflict. You know, just recently

671
00:30:37,570 --> 00:30:41,920
Speaker 12: on the second quarter call by ExxonMobil, You know, we

672
00:30:41,960 --> 00:30:46,690
Speaker 12: heard from CEO Darren Woods that global refining capacity is

673
00:30:46,790 --> 00:30:49,530
Speaker 12: off by as much as five to six million barrels.

674
00:30:50,330 --> 00:30:52,730
Speaker 12: So that's as tight as the market's ever been. And

675
00:30:52,750 --> 00:30:55,530
Speaker 12: we continue to see drawdowns in inventories. And we think

676
00:30:55,590 --> 00:30:58,760
Speaker 12: the strength in those refined product prices will continue.

677
00:30:59,760 --> 00:31:02,940
Speaker 2: How does that get addressed by the industry? You just

678
00:31:02,980 --> 00:31:05,420
Speaker 2: don't build a refinery on the Gulf of Mexico overnight.

679
00:31:05,460 --> 00:31:05,700
Speaker 11: Do you?

680
00:31:07,160 --> 00:31:07,720
Speaker 4: No, you don't.

681
00:31:08,040 --> 00:31:10,560
Speaker 12: It takes a long time, a significant amount of capital,

682
00:31:10,680 --> 00:31:13,980
Speaker 12: and obviously approvals that are required by a number of

683
00:31:14,040 --> 00:31:17,979
Speaker 12: different bodies to get a refinery built in this country.

684
00:31:19,120 --> 00:31:21,530
Speaker 12: We've seen capacity added in the industry on a global

685
00:31:21,550 --> 00:31:25,470
Speaker 12: basis in places like Mexico and West Africa over the

686
00:31:25,510 --> 00:31:26,270
Speaker 12: last several years.

687
00:31:26,350 --> 00:31:28,290
Speaker 8: But here in the U.S., it's a difficult task.

688
00:31:29,320 --> 00:31:34,400
Speaker 12: Short of killing demand, there's really not an easy way

689
00:31:34,440 --> 00:31:37,520
Speaker 12: to add supply to the market. So over time, as

690
00:31:37,780 --> 00:31:41,250
Speaker 12: prices remain elevated, we'll attract more volume here. But it

691
00:31:41,430 --> 00:31:44,410
Speaker 12: really is a matter of deferring or destroying demand, which

692
00:31:44,430 --> 00:31:45,810
Speaker 12: is going to create extra supply.

693
00:31:46,890 --> 00:31:49,270
Speaker 4: Give me an update on not in my backyard. Like,

694
00:31:49,310 --> 00:31:52,670
Speaker 4: you know, we're talking about a pipeline from the, you know,

695
00:31:52,730 --> 00:31:56,950
Speaker 4: say from the northern Arabian Peninsula across to the eastern

696
00:31:57,070 --> 00:31:59,010
Speaker 4: shore of the Red Sea. I'm making this up, folks.

697
00:31:59,050 --> 00:32:01,670
Speaker 4: Stay with me. Ben Cook, if we want to build

698
00:32:01,760 --> 00:32:05,980
Speaker 4: pipelines in America, can we? Yeah, we can.

699
00:32:06,000 --> 00:32:08,330
Speaker 12: And the Trump administration has done a lot to remove

700
00:32:08,350 --> 00:32:10,730
Speaker 12: the impediments that I think were in place during the

701
00:32:10,770 --> 00:32:15,610
Speaker 12: Biden administration. Famously, in the early days of the Biden administration,

702
00:32:15,650 --> 00:32:19,560
Speaker 12: we saw the removal of the permit for the Keystone

703
00:32:19,620 --> 00:32:23,220
Speaker 12: XL pipeline and effectively killing that project. But you know,

704
00:32:23,320 --> 00:32:28,640
Speaker 12: removing the impediments, the approval, streamlining the approval process through

705
00:32:28,660 --> 00:32:32,150
Speaker 12: the various bodies that are responsible for the permitting of

706
00:32:32,270 --> 00:32:36,470
Speaker 12: new pipeline construction and build out. That can allow for

707
00:32:36,490 --> 00:32:38,770
Speaker 12: a fast track of project expansion.

708
00:32:38,790 --> 00:32:40,250
Speaker 8: And we're seeing a number of big.

709
00:32:40,130 --> 00:32:45,970
Speaker 12: Projects being developed in areas like Texas and Ultimately, we'll

710
00:32:45,990 --> 00:32:50,050
Speaker 12: see some pipelines deliver refined products to the southwest and

711
00:32:50,150 --> 00:32:53,740
Speaker 12: ultimately the west coast of California. But it is a

712
00:32:53,780 --> 00:32:56,740
Speaker 12: process that's lengthy, and the Trump administration is doing a

713
00:32:56,760 --> 00:32:58,320
Speaker 12: lot to expedite that process.

714
00:32:59,020 --> 00:33:04,260
Speaker 2: So, Ben, if you talk to shippers and insurers of ships,

715
00:33:04,800 --> 00:33:06,320
Speaker 2: is the Strait of Hormuz ever.

716
00:33:06,180 --> 00:33:08,330
Speaker 7: Going to be open like it was before?

717
00:33:08,820 --> 00:33:11,700
Speaker 2: Before this war, or is the world just simply changed

718
00:33:11,720 --> 00:33:12,400
Speaker 2: in that part of the world?

719
00:33:12,620 --> 00:33:13,880
Speaker 8: Yeah, that's a great question, Paul.

720
00:33:13,900 --> 00:33:16,200
Speaker 12: You know, I think the reality of the situation is

721
00:33:16,240 --> 00:33:19,280
Speaker 12: the Iranians now know that they have significant leverage over

722
00:33:19,320 --> 00:33:23,560
Speaker 12: the Strait. And whatever, you know, a durable, peaceful resolution

723
00:33:23,600 --> 00:33:26,920
Speaker 12: looks like, it's hard to imagine them ceding control of

724
00:33:27,310 --> 00:33:27,770
Speaker 12: the Strait.

725
00:33:27,810 --> 00:33:29,920
Speaker 8: So I think the world has changed.

726
00:33:29,940 --> 00:33:33,110
Speaker 12: I do think the recent announcement or the headlines associated

727
00:33:33,130 --> 00:33:36,230
Speaker 12: with the Omanis and the Iranians negotiating some sort of

728
00:33:36,290 --> 00:33:39,050
Speaker 12: controls and non-starter for the U.S., It's going to be

729
00:33:39,070 --> 00:33:40,650
Speaker 12: a long time before we sort that out.

730
00:33:41,190 --> 00:33:44,310
Speaker 4: Ben, you're a legend at this. You've been doing it

731
00:33:44,350 --> 00:33:49,170
Speaker 4: for ages with Hennessy Energy Transition Fund. Do you see

732
00:33:49,230 --> 00:33:52,080
Speaker 4: a day where the energy portion of the Standard &

733
00:33:52,080 --> 00:33:54,940
Speaker 4: Poor's 500 will get back to quote-unquote normal?

734
00:33:57,680 --> 00:34:01,830
Speaker 12: The fundamentals in the industry would certainly justify today. Right now,

735
00:34:01,910 --> 00:34:04,190
Speaker 12: the energy sector, in terms of its weighting in the

736
00:34:04,350 --> 00:34:10,150
Speaker 12: S & P, is roughly 3.3%. That's amazing. For the generalist,

737
00:34:10,210 --> 00:34:13,259
Speaker 12: it hasn't really been punitive to be underweight energy because

738
00:34:13,340 --> 00:34:17,779
Speaker 12: it's not a large percentage of the index. We think

739
00:34:17,820 --> 00:34:22,049
Speaker 12: historically that the guideline of its earnings contribution to the

740
00:34:22,210 --> 00:34:24,330
Speaker 12: S & P is the right way to look at

741
00:34:24,350 --> 00:34:26,029
Speaker 12: the weighting in the S & P 500. That would

742
00:34:26,070 --> 00:34:30,009
Speaker 12: imply roughly 7% to 8%. Historically, it's been as high

743
00:34:30,070 --> 00:34:34,490
Speaker 12: as 10%, 12%. So we could certainly move up from here. Fundamentals, again,

744
00:34:34,530 --> 00:34:35,570
Speaker 12: would certainly justify it.

745
00:34:35,570 --> 00:34:37,830
Speaker 4: That's what I thought. Like a double would be sort

746
00:34:37,870 --> 00:34:40,860
Speaker 4: of what Ben Cook sees somewhere out there far in

747
00:34:40,880 --> 00:34:44,080
Speaker 4: the distance. Ben Cook, thank you so much with Hennessy

748
00:34:44,520 --> 00:34:50,280
Speaker 4: Energy Transition. Stay with us. More from Bloomberg Surveillance coming

749
00:34:50,400 --> 00:34:51,399
Speaker 4: up after this.

750
00:34:58,640 --> 00:35:02,220
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live

751
00:35:02,300 --> 00:35:04,379
Speaker 1: weekday afternoons from 7 to 10 a.m.

752
00:35:04,420 --> 00:35:04,840
Speaker 4: Eastern.

753
00:35:04,920 --> 00:35:08,219
Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg

754
00:35:08,239 --> 00:35:10,760
Speaker 1: Business app or watch us live on YouTube.

755
00:35:11,239 --> 00:35:13,760
Speaker 4: This is our interview of the day. Plain and simple.

756
00:35:14,320 --> 00:35:17,839
Speaker 4: on the unspoken in the news, which is the sanctions work.

757
00:35:17,950 --> 00:35:21,750
Speaker 4: Dan Tannenbaum is truly expert at this. He's got a

758
00:35:21,830 --> 00:35:27,490
Speaker 4: fancy title, Global Anti-Financial Crime Practice Leader at Oliver Wyman.

759
00:35:27,550 --> 00:35:32,790
Speaker 4: He is surveillance sanctions expert. Dan, can we sanction China?

760
00:35:34,760 --> 00:35:38,330
Speaker 11: We absolutely can. The question is, will we? And the U.S.

761
00:35:38,390 --> 00:35:42,950
Speaker 3: Government has historically been very reluctant to sanction any sort

762
00:35:42,989 --> 00:35:47,049
Speaker 3: of meaningful entity in China. We've sanctioned smaller businesses in

763
00:35:47,100 --> 00:35:50,020
Speaker 3: Hong Kong and the mainland, a couple of small banks

764
00:35:50,120 --> 00:35:52,739
Speaker 3: over the years, but really nothing that anyone's heard of.

765
00:35:53,300 --> 00:35:56,300
Speaker 11: The question is, will the U.S. move forward?

766
00:35:56,820 --> 00:35:59,840
Speaker 3: And go at, let's say, a Chinese financial institution, the

767
00:35:59,920 --> 00:36:04,500
Speaker 3: conduit for China's purchase of Iranian oil, which they purchased

768
00:36:04,540 --> 00:36:08,100
Speaker 3: roughly 80% of Iran's oil on the market.

769
00:36:08,160 --> 00:36:10,180
Speaker 11: So that's the big question mark this week.

770
00:36:11,120 --> 00:36:16,200
Speaker 2: So when we heard from Secretary Besant regarding Operation Economic Outcast,

771
00:36:17,050 --> 00:36:18,969
Speaker 2: what did you make of that? I mean, does this

772
00:36:18,989 --> 00:36:21,689
Speaker 2: have any teeth? It just seems like Iran has been

773
00:36:22,270 --> 00:36:25,609
Speaker 2: sanctioned more than anybody else seemingly on the planet, yet

774
00:36:25,650 --> 00:36:27,360
Speaker 2: they Keep on going.

775
00:36:28,060 --> 00:36:30,319
Speaker 3: Look, it's a little like Ted Knight waiting at the

776
00:36:30,380 --> 00:36:35,050
Speaker 3: tee box. We've been waiting for this for a while.

777
00:36:35,270 --> 00:36:39,830
Speaker 3: I mean, the sanctions that the secretary spoke about earlier

778
00:36:39,890 --> 00:36:42,109
Speaker 3: this week, the U.S.

779
00:36:42,130 --> 00:36:43,410
Speaker 11: Could have done that since 2020.

780
00:36:43,410 --> 00:36:45,590
Speaker 3: This is not new authority.

781
00:36:45,630 --> 00:36:47,800
Speaker 11: It's not new EO. It's not new regulation. It's a

782
00:36:47,840 --> 00:36:51,160
Speaker 11: new position. The question is, will the U.S. make good

783
00:36:51,420 --> 00:36:52,120
Speaker 11: on the threats?

784
00:36:52,180 --> 00:36:57,459
Speaker 3: We saw overnight The Treasury Department announced discussions between the U.S.

785
00:36:57,500 --> 00:36:58,740
Speaker 11: And Bahrain on the issue.

786
00:36:59,570 --> 00:37:01,950
Speaker 3: The Fifth Fleet is housed in Bahrain, so they were

787
00:37:02,010 --> 00:37:06,710
Speaker 3: never really in Iran proxy or relation. Will they go

788
00:37:06,810 --> 00:37:09,670
Speaker 3: to Oman after what was announced this morning on this

789
00:37:09,730 --> 00:37:13,410
Speaker 3: revenue sharing agreement? That's almost a certainty. But China's the

790
00:37:13,430 --> 00:37:17,180
Speaker 3: real linchpin here. China is their most important trading partner.

791
00:37:18,100 --> 00:37:20,960
Speaker 3: I'm not sure they necessarily will, at least at any

792
00:37:21,020 --> 00:37:21,920
Speaker 3: significant scale.

793
00:37:22,810 --> 00:37:25,790
Speaker 4: I mean, get down to the nite grite, as only

794
00:37:25,850 --> 00:37:29,359
Speaker 4: Dan Tannenbaum can do. So if somebody decides we want

795
00:37:29,380 --> 00:37:33,420
Speaker 4: to go after China, what do we actually do, Dan?

796
00:37:34,989 --> 00:37:37,930
Speaker 3: I mean, what you do is you sanction a Chinese

797
00:37:37,989 --> 00:37:41,250
Speaker 3: financial institution, not one of the state-owned banks and not

798
00:37:41,370 --> 00:37:44,910
Speaker 3: one that's large enough that's systemically important in China, basically

799
00:37:44,950 --> 00:37:47,709
Speaker 3: a bank that someone's heard of that's not significant enough

800
00:37:47,790 --> 00:37:50,129
Speaker 3: to hurt the global economy. And I think you heard

801
00:37:50,150 --> 00:37:53,550
Speaker 3: the secretary mention in the last question during that presser,

802
00:37:53,630 --> 00:37:55,969
Speaker 3: why haven't you done that? And his response is, well,

803
00:37:56,030 --> 00:37:57,630
Speaker 3: I don't want to, why would I blow up the

804
00:37:57,670 --> 00:38:02,210
Speaker 3: global economy? That calibration is likely happening now to figure

805
00:38:02,290 --> 00:38:06,990
Speaker 3: out What can you do that's significant enough that doesn't

806
00:38:07,090 --> 00:38:12,200
Speaker 3: create unintended consequences, like in 2018 when Ole Deripaska was

807
00:38:12,239 --> 00:38:15,740
Speaker 3: sanctioned and the U.S. briefly destabilized the world's aluminum sector

808
00:38:15,780 --> 00:38:16,430
Speaker 3: for two weeks?

809
00:38:18,380 --> 00:38:21,520
Speaker 2: Dan, President Xi is scheduled to come and meet with

810
00:38:21,540 --> 00:38:23,219
Speaker 2: President Trump in September.

811
00:38:24,940 --> 00:38:26,420
Speaker 7: How does that factor into all this?

812
00:38:27,100 --> 00:38:29,800
Speaker 3: And they built that fun helipad for the visit as well.

813
00:38:29,930 --> 00:38:33,569
Speaker 3: I mean, that's certainly a part of this calculus. Now,

814
00:38:34,010 --> 00:38:36,589
Speaker 3: what I'm hoping for, and as we think we've heard

815
00:38:36,630 --> 00:38:38,670
Speaker 3: at some point, hope isn't a strategy, is that the

816
00:38:38,710 --> 00:38:42,469
Speaker 3: president is leveraging his relationship with President Xi to try

817
00:38:42,510 --> 00:38:45,140
Speaker 3: and come up with a side deal to essentially push

818
00:38:45,160 --> 00:38:49,200
Speaker 3: Iran forward. further away from China based on the way

819
00:38:49,260 --> 00:38:53,820
Speaker 3: China responded yesterday overnight from the economic D-Day announcement on Monday.

820
00:38:54,219 --> 00:38:57,420
Speaker 3: I'm not so sure that's happening, but that's hugely playing

821
00:38:57,460 --> 00:39:00,089
Speaker 3: in the minds of the administration right now to not

822
00:39:00,170 --> 00:39:03,069
Speaker 3: disrupt the relative detente we've been experiencing. So that's the

823
00:39:03,110 --> 00:39:05,910
Speaker 3: real question is what are they going to do? The

824
00:39:05,930 --> 00:39:09,650
Speaker 3: secretary kind of teased a bank that could be sanctioned

825
00:39:09,680 --> 00:39:10,660
Speaker 3: by the end of this week.

826
00:39:11,060 --> 00:39:12,520
Speaker 11: We've still got a few more days left.

827
00:39:13,590 --> 00:39:18,320
Speaker 2: So net net here, it really comes down to China

828
00:39:18,420 --> 00:39:21,860
Speaker 2: and how, I guess, serious the United States wants to

829
00:39:21,880 --> 00:39:25,090
Speaker 2: get to China. But boy, that brings into discussion a

830
00:39:25,230 --> 00:39:28,509
Speaker 2: whole host of issues here. Is there a time frame

831
00:39:28,530 --> 00:39:29,950
Speaker 2: that you're kind of thinking?

832
00:39:30,130 --> 00:39:30,290
Speaker 11: About?

833
00:39:31,050 --> 00:39:33,000
Speaker 3: I mean, there is no time frame. We heard that

834
00:39:33,040 --> 00:39:35,640
Speaker 3: from the secretary. There are other countries, to be clear.

835
00:39:35,660 --> 00:39:36,380
Speaker 4: There's India.

836
00:39:36,540 --> 00:39:39,600
Speaker 3: There's the UAE, which did announce last weekend that they

837
00:39:39,640 --> 00:39:41,850
Speaker 3: were suspending trade with Iran, but it can't go to

838
00:39:41,910 --> 00:39:45,950
Speaker 3: zero instantly. There's also Turkey, although interestingly, one of the

839
00:39:45,989 --> 00:39:50,870
Speaker 3: Turkish banks was under criminal investigation for sanctions violation. That

840
00:39:50,950 --> 00:39:55,140
Speaker 3: case was dropped by the DOJ in this administration. So

841
00:39:55,300 --> 00:39:58,359
Speaker 3: it will be interesting to see where they go. There

842
00:39:58,420 --> 00:40:02,680
Speaker 3: are other targets beyond China. There were sanctions designations made

843
00:40:02,760 --> 00:40:05,210
Speaker 3: on Monday as part of this announcement, but none of

844
00:40:05,250 --> 00:40:06,490
Speaker 3: them are really moving the needle.

845
00:40:08,250 --> 00:40:09,549
Speaker 7: Dan, so it's interesting here.

846
00:40:09,570 --> 00:40:14,390
Speaker 2: You know, we get this economic operation, economic outcast here.

847
00:40:15,390 --> 00:40:19,480
Speaker 2: Does that suggest to you that military options by this

848
00:40:19,560 --> 00:40:22,480
Speaker 2: administration are essentially off the table, at least for the

849
00:40:22,520 --> 00:40:22,859
Speaker 2: near term?

850
00:40:23,750 --> 00:40:24,530
Speaker 6: I forget who.

851
00:40:24,390 --> 00:40:26,910
Speaker 3: Reported it yesterday, but that is what it sounds like.

852
00:40:26,930 --> 00:40:29,969
Speaker 3: I mean, the shift now is from the Department of

853
00:40:30,010 --> 00:40:33,900
Speaker 3: Defense slash war over to the Treasury Department to use

854
00:40:33,940 --> 00:40:36,540
Speaker 3: sanctions and enforce them. That does seem like what the

855
00:40:36,580 --> 00:40:38,700
Speaker 3: tact of the administration is. And we've heard from the

856
00:40:38,739 --> 00:40:42,529
Speaker 3: president directly that they're looking to squeeze Iran economically. But

857
00:40:42,830 --> 00:40:45,500
Speaker 3: you said it in the intro that They've been under

858
00:40:45,560 --> 00:40:50,080
Speaker 3: sanctions for 40-something years. They're good at managing their existence

859
00:40:50,180 --> 00:40:53,440
Speaker 3: under sanctions. Now, it's certainly getting harder in this environment

860
00:40:53,460 --> 00:40:56,520
Speaker 3: since February, but it's not a slam dunk that this

861
00:40:56,540 --> 00:40:58,450
Speaker 3: will happen instantly.

862
00:40:59,710 --> 00:41:02,690
Speaker 2: It's interesting also because the domestic politics here, Dan, are

863
00:41:02,710 --> 00:41:06,410
Speaker 2: kind of suggesting that I think probably most Americans are

864
00:41:06,430 --> 00:41:10,010
Speaker 2: not supportive of the swore, certainly has not polled well.

865
00:41:11,030 --> 00:41:14,540
Speaker 2: And we've got midterm elections. It seems like perhaps This

866
00:41:14,560 --> 00:41:16,950
Speaker 2: president would like to get resolution of this thing sooner

867
00:41:16,989 --> 00:41:17,689
Speaker 2: rather than later.

868
00:41:18,810 --> 00:41:21,930
Speaker 11: And Iran knows that. They're a savvy adversary.

869
00:41:22,110 --> 00:41:25,230
Speaker 3: It's highly unlikely that there would be an agreement between

870
00:41:25,250 --> 00:41:28,279
Speaker 3: the U.S. and Iran before the midterms because Iran is

871
00:41:28,300 --> 00:41:31,990
Speaker 3: going to use whatever mechanisms they have left to inflict

872
00:41:32,050 --> 00:41:33,880
Speaker 3: pain back on the U.S.

873
00:41:34,600 --> 00:41:36,580
Speaker 11: As the driver of this for the West.

874
00:41:37,120 --> 00:41:39,520
Speaker 3: So that is going to be the thing to watch

875
00:41:39,820 --> 00:41:43,140
Speaker 3: is will they even negotiate in good faith at this

876
00:41:43,239 --> 00:41:46,279
Speaker 3: point because they know that this is so deeply unpopular

877
00:41:46,320 --> 00:41:46,900
Speaker 3: in the U.S.

878
00:41:48,020 --> 00:41:51,299
Speaker 4: Thank you so much. Really, really appreciate your expertise on this.

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00:41:51,320 --> 00:41:53,460
Speaker 4: He's with Oliver Wyman.

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Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,

881
00:41:59,060 --> 00:42:03,310
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,

882
00:42:03,310 --> 00:42:08,750
Speaker 1: 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn,

883
00:42:09,070 --> 00:42:12,130
Speaker 1: and the Bloomberg Business app. You can also watch us

884
00:42:12,230 --> 00:42:16,250
Speaker 1: live every weekday on YouTube and always on the Bloomberg Terminal.

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00:42:19,070 --> 00:42:20,340
Speaker 11: Thank you.