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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, sun Cloud, Bloomberg

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Speaker 1: dot Com and of course on the Bloomberg terminal. Right now,

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Speaker 1: a joy as we will speak to Dr Dudley, the

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Speaker 1: SEFTONEI in Ductor, Larry and other worthies on the FED.

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Speaker 1: We start strong with Edward Hyman. He is founder and chairman,

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Speaker 1: head of economic research at Evercore I S A I

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Speaker 1: s I s I. He reports to Julian Emmanuel on

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Speaker 1: on what earnings are doing. We're thrilled to dead Himan

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Speaker 1: could join us uh this morning. Add your research note

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Speaker 1: is classic Himan today and it is of things rolling

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Speaker 1: over and you. Hearken back to C. J. Lawrence when

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Speaker 1: I read you like Gospel M two is absolutely plunging.

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Speaker 1: It seems out of another time and place. Explain the

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Speaker 1: importance that M too. The monetary aggregate is plunging straight

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Speaker 1: down back near zero. Well, the growth is plunging, But boy, Tom,

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Speaker 1: you're right to pick up on this, and I like

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Speaker 1: to keep on it. Last year money growth was almost

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Speaker 1: and that's I think who inflation picked up so much.

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Speaker 1: You can put in different ways, like we've got the

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Speaker 1: stimulus checks UH and quantitative easing and the bottlenecks, but

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Speaker 1: you could just go to a Milton Freeman cut at it.

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Speaker 1: But now that's come way down UH, and that I

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Speaker 1: think explains why inflation is slowing. So right now we

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Speaker 1: have a race about three months before the funds rate

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Speaker 1: will be over the bond yield UH, which would be

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Speaker 1: a classic inverted yeal curve. You already have the two

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Speaker 1: ten as you mentioned, inverted UH. And so it looks

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Speaker 1: to me as though the economy is doing fine now,

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Speaker 1: but it's gonna slow and inflation is gonna slow significantly.

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Speaker 1: There is both ANNIGFIC. There is a divided hime in

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Speaker 1: between Let's say Mohammad oh Arian and Bill Dudley and

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Speaker 1: Lawrence Summer suggesting we need an aggressive FED to get

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Speaker 1: us anchored again in our price change, and others saying

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Speaker 1: calm down. Edyard Denny was on the other day, your

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Speaker 1: former colleague at CJ. Lawrence, and you're Denny. Has everybody

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Speaker 1: calmed down? They're gonna move and look at the data.

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Speaker 1: If Powell moves after this meeting and he observes the data,

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Speaker 1: what's he gonna see in six months. It's really three

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Speaker 1: months that I'm focused on, But six months is okay too.

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Speaker 1: I think the comedy is gonna look slower. Un'mplument is

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Speaker 1: going to be four percent or a little bit higher.

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Speaker 1: But most importantly, inflation is coming in a lot slower

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Speaker 1: than I've been expecting. Not the headline numbers yet, but

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Speaker 1: commodity prices, for example, anecdotal is coming in every day.

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Speaker 1: I'm getting evidence that there is a slowdown. There's an

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Speaker 1: article today, uh that air fares are back below three

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Speaker 1: dollars h. So in three months, which is when the

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Speaker 1: fan is going to have the fund rate at three,

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Speaker 1: I think that they'll be seeing quite a bit slower inflation.

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Speaker 1: The issue is going to be, uh, for our shop

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Speaker 1: or for Bill Dudley? Is there enough progress to slow

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Speaker 1: down the rate of increase in the funds rate? Have

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Speaker 1: we already seen the shock and financial markets among all

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Speaker 1: amid all of this gloominess, amid all of this negativity,

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Speaker 1: as we've seen for this earning season, that stocks advantage

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Speaker 1: to rally even with not screamingly amazing returns and earnings. Sure,

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Speaker 1: the first off, the FIT has gotten a lot of

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Speaker 1: bang for their buck, one of which is that the

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Speaker 1: drop in stock market has pushed down consumer net worth,

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Speaker 1: which puts a drag on consumer spending. But there's a

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Speaker 1: pretty good chance, like you're implying correctly, they said that

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Speaker 1: this has already been discounted. I'm scared to go too

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Speaker 1: far down that road because the FIT is gonna tighten.

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Speaker 1: And the question today is whether that they give a

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Speaker 1: little bit of room to tighten, to slow down the

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Speaker 1: tightening in the next few meetings. So what's the variable

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Speaker 1: right now? That would mean that that we have not

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Speaker 1: yet seen the financial shock, that it hasn't been baked in.

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Speaker 1: Because if people are looking at a slowdown and earnings

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Speaker 1: to slow down in consumer spending, a FED that tightens

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Speaker 1: too much and then retraces a lot of that has

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Speaker 1: been pricing. That's what people say, and we get these results,

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Speaker 1: they're okay, and people rally. At what point do we

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Speaker 1: think maybe the narrative is different? So I think in

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Speaker 1: thrim three in three months, we're on a track here

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Speaker 1: that's gonna end when funds get to three and we'll

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Speaker 1: look around and see if there's a change. Now, the

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Speaker 1: economy has been stronger than I think the people realize.

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Speaker 1: Earnings in the first quarter, we're up about it almost

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Speaker 1: a temper cent annual rate. And working with Julian Emmanuel,

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Speaker 1: like you mentioned, Tom looks at they'll be up something

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Speaker 1: close to five quarter to quarter annual rate in the

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Speaker 1: second quarter. And uh, you're dressed at tires is very

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Speaker 1: good for the summer. Uh, the summer session here, I

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Speaker 1: know you wearing flip flops this morning. For those of

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Speaker 1: you on radio. Behind Ed Hyman is a spectacular boat model,

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Speaker 1: which looks like the endeavor of to me. And you're

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Speaker 1: out in the Hampton's in the bottom line, as you

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Speaker 1: note in your research note, the Hampton's rental market is

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Speaker 1: absolutely tanked. What does that symbolize to you? I could

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Speaker 1: go on about twenty five examples like that, Tom, and

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Speaker 1: I'm big on putting the dost together. And I think

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Speaker 1: the tanking and the real market in the Hamptons in

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Speaker 1: August is just one sign that we need to take

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Speaker 1: into account that the FED tightening so far, and the

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Speaker 1: story and the money supplied and the increase in the

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Speaker 1: mortgage rates and the decline in consuming at Worth is

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Speaker 1: all having an impact. We can't complain when prices erupt

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Speaker 1: some and then complain when they're down. It's great news

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Speaker 1: that rental price in the Hamptons of town because Tom,

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Speaker 1: they were obscene scene for so long. That's true. For

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Speaker 1: the record, I'm not I'm not in the happens you know.

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Speaker 1: I mean, thanks for clarifying. I'm trying to want you

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Speaker 1: up there on Yeah, my my metric, John is a

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Speaker 1: cup of coffee at Provision out in Saga Harbor and

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Speaker 1: it's just outrageous and himen of a core I sight,

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Speaker 1: and and we love the addition that a student team fantastic.

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Speaker 1: Here's what we're gonn to do and this is really

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Speaker 1: timely and important. Alicia Levine, she wanders by with bn

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Speaker 1: Y Melon Wealth Management, had of equities in Capital markets advisory.

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Speaker 1: But what she understates is an absolutely prodigious mathematical foundation,

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Speaker 1: which is part of her strategy for Alicia, with the

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Speaker 1: mathematics of the moment, are their smooth curves and glide

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Speaker 1: pass for someone with a three year perspective, So I

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Speaker 1: wish it were the case. And after the first half

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Speaker 1: of the year, it would be a great thing to have.

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Speaker 1: We we just have too many cross currents here. So

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Speaker 1: as you've pointed out, the earnings that we got last

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Speaker 1: night from large cap tech have largely stabilized and calmed

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Speaker 1: markets because of the fear. But I'd say overall in

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Speaker 1: the equity market, if we're trading about four thousand here,

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Speaker 1: the equity market is already pricing in the FED pivot,

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Speaker 1: the bond market is pricing in the FED pivot. The

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Speaker 1: earnings estimates are still not reflecting in economic slowdown, so

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Speaker 1: those definitely need to come down. And I think the

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Speaker 1: thought that the FED is going to pivot on the

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Speaker 1: first sign of top line CPI or top line PCE

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Speaker 1: going lower because of the commodity price decrease, I think

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Speaker 1: that's a little too optimistic. And I think we're working

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Speaker 1: with an understanding of a FED from the post global

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Speaker 1: financial crisis and QUE and not the Fed of QT,

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Speaker 1: and this is a different FED, and I think that

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Speaker 1: has been largely um put to the side as a

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Speaker 1: left tail risk but not a central scenario risk. Well

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Speaker 1: said Alicia, we still got a nine handle on CPI

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Speaker 1: and it's it's FED mating and we're talking about a

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Speaker 1: fed set up for a pause. We need to think

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Speaker 1: about what's been unleashed in this economy, where we're seeing

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Speaker 1: weakness and how it spreads. Where we seeing weakness right now,

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Speaker 1: it's in housing and housing related industries. Perhaps I've got

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Speaker 1: a ton of message you this morning about Sherwin Williams

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Speaker 1: Show when Williams the Paintmaker is down by about in

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Speaker 1: early trading. This is what they have to say. The

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Speaker 1: shortfall in our second quarter results, demand pressures in Europe,

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Speaker 1: China and North American d I y, and a continuation

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Speaker 1: of the highest cost inflation scene in decades. Alicia, how

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Speaker 1: do you think this weakness that we're starting to see

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Speaker 1: is going to broaden out across this economy? Look, it's

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Speaker 1: it's it's a really great question. What's clear is that

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Speaker 1: all those industries and companies that benefited from the stay

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Speaker 1: at home bubble are are now deflating. And the question

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Speaker 1: is how much does that deflation in the state at

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Speaker 1: home sector now pass in to the rest of the

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Speaker 1: economy and the rest of the companies. This is what

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Speaker 1: we've learned from earning season. The staples companies are doing well.

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Speaker 1: They have pricing power, thus inflation will remain higher. For that.

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Speaker 1: The transition from goods to services could goods were in

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Speaker 1: a bubble is well underway, and if you're associated with

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Speaker 1: travel or leisure or restaurants at all, your earnings are

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Speaker 1: are fine. Um. The other thing that we noticed on

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Speaker 1: the consumer companies is that there's negative linearity in the quarter.

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Speaker 1: So April was better than May, which was better than June.

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Speaker 1: Something to think about as we move forward into the

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Speaker 1: rest of the year as the economy slows. So these

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Speaker 1: are just sort of really big picture of things that

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Speaker 1: tells you that transition from goods to services at some

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Speaker 1: point maybe a bubble. Also, we have these rolling bubbles

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Speaker 1: as the economy heals and as we move forward to

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Speaker 1: the next stage, and it's happening awfully quickly, as you

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Speaker 1: can see in the sexual performance of the SMP. Really

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Speaker 1: complicated market, not smooth, but the VIX is at twenty four.

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Speaker 1: The VIX isn't so worried. It's the bond market volatility

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Speaker 1: that's still there. And I think until the bond market

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Speaker 1: volatility subsides, it's very hard to go in you know

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Speaker 1: phase first. Well, Alicia to that point just sort of

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Speaker 1: underscore it. Do you think that the market reaction, the

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Speaker 1: sort of positive feel that we felt last week and

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Speaker 1: the better part of this week is incorrect, is an

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Speaker 1: inaccurate reading of earnings that aren't quite as positive as

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Speaker 1: perhaps they're being taken as So I think that when

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Speaker 1: the market reacts to really negative news with a stabilizing

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Speaker 1: stock price or perhaps a higher stock price, that's that's

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Speaker 1: a positive sign on the technicals, and I do not

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Speaker 1: want to ignore that. So we've had companies that that

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Speaker 1: have cut guidance by and their stocks are now higher

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Speaker 1: by ten percent, and they were than the day they cut.

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Speaker 1: That seems to suggest that in some sectors you've already

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Speaker 1: had the cut that is necessary to then go forward

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Speaker 1: and grow from there. It's not happened everywhere and most

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Speaker 1: you know, obviously, it hasn't happened in large cap tech,

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Speaker 1: which is what is holding up the market right now.

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Speaker 1: And so yeah, alesha I I Atlicia, we got to

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Speaker 1: get this in. It's really important. Something Pharaoh doesn't care about.

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Speaker 1: Deloitte says, back to school supplies now are six up

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Speaker 1: from pre pandemic. What happened. What happened is kids didn't

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Speaker 1: go to school for two years. Okay, it's the same

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Speaker 1: thing that's happening and travel. People didn't travel for two

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Speaker 1: years and children didn't go to school for two years.

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Speaker 1: So this is a celebration of life back to normal.

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Speaker 1: The question that is where the wallet is going is

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Speaker 1: going towards certain services and certain parts of the good sector.

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Speaker 1: But you have to ask yourself what happens after that bump.

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Speaker 1: What we've seen over and over again is that the

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Speaker 1: over earnings in certain sectors does stabilize and go back

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Speaker 1: to trend over time. There's been about two point four

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Speaker 1: trillion dollars extra and earnings since the pandemic started, and

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Speaker 1: we suspect that that has to come down to trend.

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Speaker 1: So that's where we are. We we we are marginally

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Speaker 1: more positive. We're still we still have a neutral rating

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Speaker 1: on equities. We never went underweight on equities because it's

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Speaker 1: too hard to time the market. We do think that

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Speaker 1: the market is over expecting a FED pivot in the

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Speaker 1: near term. I can't see how that happens. Once they

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Speaker 1: made the policy error of being too easy for too long,

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Speaker 1: the chances of overcorrecting and staying tighter for longer go

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Speaker 1: and go higher. And so the market's already rallied ten percent.

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Speaker 1: So what are you playing for at this point? Alicia,

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Speaker 1: I love you. That's just perfect. The kids come back

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Speaker 1: to school, a celebration of life getting back to normal.

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Speaker 1: Lesa's facial it up as well, Alicia Vain, I've been

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Speaker 1: one manument westh matachment. We're gonna dive into it now

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Speaker 1: and start our Fred coverage right now. We do this

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Speaker 1: with someone that has led the dialogue. Andrew Holland, Hor's

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Speaker 1: chief US economist at City Group, has really been out

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Speaker 1: front and saying this fet is behind. Let's go, let's go,

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Speaker 1: Let's go. Andrew Claudius sam this Morning and the Financial

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Speaker 1: Times with an absolute tourtive force on what she calls

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Speaker 1: the Philip cloud. The math is bad. The Phillips curve

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Speaker 1: doesn't work. Standard U c l A economics doesn't work.

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Speaker 1: Less than one third of monthly core inflation, which excludes

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Speaker 1: food and energy, is due to demand. This is all

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Speaker 1: supply side. There is no increase in the unemployment rate

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Speaker 1: that would produce microchips for new cars and China's lockdowns

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Speaker 1: defeat Vladimir Putin, drill oil and build apartments. Andrew helln Horse,

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Speaker 1: why do we need to raise the unemployment rate. I

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Speaker 1: think it's a very difficult situation for the FED, a

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Speaker 1: very difficult situation for the economy here. And you know,

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Speaker 1: it may be true that a lot of what has

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Speaker 1: gone on with inflation is due to issues on the

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Speaker 1: supply side, but it's always supply and demand together, and

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Speaker 1: I would say that's the u c l A economics,

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Speaker 1: is that those two forces work together, and we have

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Speaker 1: demand that is outstripping the supply side. So if you

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Speaker 1: can't create more semiconductors, if you can't build more autos,

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Speaker 1: the only way to bring down prices or to not

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Speaker 1: have prices continue to increase is to damn demand. So

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Speaker 1: it's an unfortunate outcome. It's not an outcome I think

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Speaker 1: anybody is pleased that we're dealing with now, But that

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Speaker 1: is the situation and that and that's standard back of economics.

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Speaker 1: So I'm very surprised to see economists coming out and

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Speaker 1: saying that there's nothing that the FAT can do. We

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Speaker 1: know exactly what the that can do, which is to

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Speaker 1: raise interest rates in damp demand if we get to

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Speaker 1: ahe Ors four percent or Bloomberg Economics Andrea Wong with

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Speaker 1: a stunning essay yesterday migrating up to five cent. What

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Speaker 1: does that do to the inflation rate? Does that drive

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Speaker 1: us back to John Taylor's two percent? John Taylor's at

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Speaker 1: a school Andrew north of Los Angeles. I don't know

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Speaker 1: if you're aware of that, But does it get us

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Speaker 1: back to a Taylor two percent or does it get

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Speaker 1: us halfway back? I'm vaguely aware of that school. I

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Speaker 1: have some intended there so but no we But what

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Speaker 1: the the issue here is that you get interest rates higher,

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Speaker 1: you tighten financial conditions, you slow down the economy, and

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Speaker 1: then you see how powerful that Phillips cur relationship is.

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Speaker 1: And that's what we really don't have a good sense of.

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Speaker 1: So there, I would really agree with the idea that

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Speaker 1: Phillips curve does not function the way that it used to.

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Speaker 1: We had a very flat Phillips curve at least up

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Speaker 1: until the pandemic period. If that Phillips curves proved to

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Speaker 1: be relatively flat, it could be hard to bring inflation

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Speaker 1: back down to two percent. I'm hoping that it's a

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Speaker 1: little bit steeper where we are right now, but that's

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Speaker 1: really something we have to find out. John. That's encamp.

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Speaker 1: We need this as a video for this afternoon when

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Speaker 1: we when we come back, get one of the interns

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Speaker 1: on and get the intern from UCLA to make the

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Speaker 1: video of what he just said. John, that's the heart

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Speaker 1: of the matter. So Andrew, let's get to the heart

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Speaker 1: of the matter in this news conference. How is Chairman

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Speaker 1: Pound going to navigate some of this stuff? And to

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Speaker 1: least this point a little bit earlier in the program,

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Speaker 1: we've been asking this question, how do you expect him

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Speaker 1: to acknowledge some of the week day to points we've

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Speaker 1: already seen it. What a tough job for chair Powell

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Speaker 1: this morning or this afternoon. Tomorrow we may get Q

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Speaker 1: two GDP that we think it will be slightly positive,

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Speaker 1: but it could be negatives. We could have two quarters

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Speaker 1: of negative growth. And then on Friday we're gonna get

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Speaker 1: the Employment Cost Index, which will probably show very strong

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Speaker 1: wage pressure. So you have an inflation situation that at

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Speaker 1: least in our view, looks more persistent, looks more problematic

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Speaker 1: um and you have growth that's slowing. It goes back

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Speaker 1: to what we were talking about initially, and it goes

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Speaker 1: back to what your power was talking about the June

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Speaker 1: fo MC, which is that it is painful to bring

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Speaker 1: inflation down once you have too high inflation. UM. I

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Speaker 1: don't think that he's going to completely stick to that

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Speaker 1: hawks hawkish message from June, like you were mentioning in

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Speaker 1: the market pricing, maybe the peak hawkishness um, in terms

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Speaker 1: of perceptions was in June. I think there does need

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Speaker 1: to be or there will be some acknowledgement of the

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Speaker 1: weaker data that could sound a little bit do wish

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Speaker 1: at this meeting, but you know, I would look at

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Speaker 1: that more as a do wish detour still on the

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Speaker 1: way to a hawkish destination. Well, let's talk about that

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Speaker 1: do wish days or do you think that the using

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Speaker 1: of financial conditions over the last month or so will

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Speaker 1: become problematic? I think that's what the FED is trying

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Speaker 1: to figure out. Now. We had a very swift tight

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Speaker 1: ending of financial conditions, um. And really it takes months,

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Speaker 1: if not quarders for these financial conditions to kind of

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Speaker 1: work their way into the economy, slow down demand and

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Speaker 1: then eventually affect inflation. So the idea that you're going

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Speaker 1: to see financial conditions tighten and in the next monthly

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Speaker 1: inflation reports sees some kind of effect, um, I think

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Speaker 1: that's really fanciful thinking so if financial conditions have eased

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Speaker 1: a little bit now but the titans significantly before, again,

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Speaker 1: it's a it's a reason for the FED to maybe

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Speaker 1: take a breather at this meeting and not push further

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Speaker 1: on in the hawk Is direction. I think eventually they'll

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Speaker 1: need to UM, but I don't know that they'll be

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Speaker 1: particularly concerned that financial conditions have eased in some ways

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Speaker 1: UM since the last meeting Andrew. It's so difficult for

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Speaker 1: a FED at a time when no one can predict

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Speaker 1: the future and economists are very split on where things

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Speaker 1: are going. So perhaps it's more instructive to understand the

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Speaker 1: parameters of risk. Which risks the FED views as the

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Speaker 1: most likely is the risk of them tightening too quickly

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Speaker 1: now and having to cut rates bigger or smaller than

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Speaker 1: slowly and steadily raising race. This seems to be underpinning

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Speaker 1: a big debate that the more it is weight in

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Speaker 1: on basically saying that they're going to cut rates next

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Speaker 1: year and it will be net net beneficial for markets. Right,

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Speaker 1: So I think that is what markets are starting to

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Speaker 1: prices that the FED will have some kind of a pivot,

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Speaker 1: And I don't think that we're going to see that

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Speaker 1: pivot from this FED. Really we have to hear more

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Speaker 1: about the FED reaction function exactly how they plan to

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Speaker 1: address too high inflation. If I take Chair Powell seriously,

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Speaker 1: the rhetoric at the June f MC was that inflation

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Speaker 1: is the number one issue this FED is trying to address,

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Speaker 1: and the Powell is willing to do the difficult things

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Speaker 1: like a former Chair Volker did to bring inflation down.

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Speaker 1: And it really is that commitment to bringing inflation down

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Speaker 1: that does bring it down if the market starts pricing,

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Speaker 1: and I think it's beginning to that this is a

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Speaker 1: FED that's not committed to bringing down inflation, that this

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Speaker 1: is a FED that's going to pivot to more dubbish

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Speaker 1: policy before you brought inflation down. Um, that's a real

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Speaker 1: issue for the FED. So they do need to get

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Speaker 1: ahead of that at some point. Do they do that

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Speaker 1: at this meeting? Do the wait until Jackson Hole or

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Speaker 1: September meeting? I think that that's where the kind of

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Speaker 1: tactics come in. But in terms of the longer term strategy,

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Speaker 1: there has to be that commitment to fighting inflation. Andrew

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Speaker 1: this is hinged on the belief. It seems to be

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Speaker 1: the consensus right now in markets that the bigger risk

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Speaker 1: is the FED not raising rates quickly enough and allowing

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Speaker 1: inflation expectations to become unhinged. Julian Emmanuel Yesterday, I've ever

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Speaker 1: corep came out and said it's actually the opposite that

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Speaker 1: is the bigger risk. That if the FED raises too

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Speaker 1: quickly now and then has to cut next year, that

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Speaker 1: is the key that will cause inflation expectations to become unmoored.

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Speaker 1: Why do you disagree? So? I I think that the

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Speaker 1: risk of the FED is facing is not hiking fast enough.

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Speaker 1: If you don't hike fast enough, then you get higher

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Speaker 1: inflation that becomes embedded in the economy and it becomes

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Speaker 1: that much more difficult to bring it back down, and

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Speaker 1: you may need an even higher unemployment rate to bring

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Speaker 1: it back down. So if you're a FED who cares

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Speaker 1: about inflation or cares about unemployment, the right thing to

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Speaker 1: do is to address inflation head on. This is a

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Speaker 1: lesson of the nineteen seventies. Seventies. We had various scenarios

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Speaker 1: where FED officials thought that the economy had slowed down

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Speaker 1: enough they took their foot off of the gas pedal,

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Speaker 1: or maybe we would say, the break in terms of

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Speaker 1: the economy, and then you saw inflation pick up again

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Speaker 1: and become more and more embedded in the economy. So

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Speaker 1: that's exactly the scenario that I think this FED is

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Speaker 1: trying to avoid. Andrew just quickly, it's just the final

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Speaker 1: seventy five basis point hike of this cycle. I don't

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Speaker 1: think so. I think we're gonna see strong enough inflation

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Speaker 1: between now and September for them to go seventy five

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Speaker 1: again in September. Um. You know, if you, if you

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Speaker 1: kind of look at where the FED wants to get to,

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Speaker 1: I think it's still significantly higher from gear. So another

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Speaker 1: seventy five wouldn't surprise me. Interesting. Andrew also to catch

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Speaker 1: out buddy Ashy s Andrew Hunting, host of City. This

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Speaker 1: is a joy. Regina Mayor is with KPMG. She's global

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Speaker 1: out of energy and with a much different view on

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Speaker 1: energy than just trying to game out what a barrel

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Speaker 1: of oil is gonna be. It's on a large your sphere,

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Speaker 1: and Regina, I want to go to the Pacific rim.

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Speaker 1: You had the joy of of working at the Pentagon

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Speaker 1: with the Supreme Allied Command of NATO and all the

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Speaker 1: rest of it as well. So let's go global Pacific RIM.

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Speaker 1: You're in the camp that Pacific RIM demand is one

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Speaker 1: of the definitive variables here, isn't it. Yes, absolutely, Asian

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Speaker 1: demand is going to continue to grow, and you're seeing

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Speaker 1: that driving a short term l G spot prices because

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Speaker 1: Asia is worried that Europe might hoard gas in the

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Speaker 1: meantime because we're really worried about a cold winter and

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Speaker 1: what Russia is doing to the European content. Help me

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Speaker 1: with the X axis here. I'm at a KPMG seminar

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Speaker 1: and I'm the wise guy going on, you can't give

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Speaker 1: me the direction. You've got to give me a timeline.

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Speaker 1: Help me here with the X axis of an Asian

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Speaker 1: demand ex COVID clicks in. Is it immediate? Is it

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Speaker 1: a quarter out? Is it three years out? I think it.

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Speaker 1: I actually don't think it's that for out. I think

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Speaker 1: it's coming in the latter part of calendar year. Which

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Speaker 1: is why I think the temporary pullback in crude and

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Speaker 1: gas prices or or crude to all prices is a

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Speaker 1: temporary rebrief because the basic supply and demand fundamentals haven't

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Speaker 1: changed and OPEC is producing under capacity. Three million barrels

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Speaker 1: per day, and we're about to see demand continue to

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Speaker 1: go up. So I'm calling triple digits through the end

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Speaker 1: of the calendar here, and Regina, let's paint this picture

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Speaker 1: a little bit more, because it's pretty striking that you're

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Speaker 1: saying that Chinese demand is going to come back online

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Speaker 1: ex COVID by the end of the year, at the

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Speaker 1: same time that Europe could be facing a cold winter

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Speaker 1: with Nordstream one potentially curtailed or cut off completely based

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Speaker 1: on the recent actions of Russia. How much do these

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Speaker 1: two stories feed together. Does the demand for fossil fuels

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Speaker 1: crude replacing some of the natural gas take over an

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Speaker 1: and the demand that causes prices to rise heading into

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Speaker 1: the year, why, I think that's definitely the story that

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Speaker 1: we're trying to balance. He says. We have extremely rising

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Speaker 1: demand or actually back to pre pandemic demand levels without

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Speaker 1: China fully entering the global mobility process, and we continue

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Speaker 1: to have restricted supply, and as I've talked to you

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Speaker 1: all before, we can't turn on a sigot right there

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Speaker 1: is no global spigot. And I do think we're finally

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Speaker 1: realizing and it's coming true in terms of what we're

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Speaker 1: seeing in the market that opec plus does not have

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Speaker 1: the extensive spare capacity that we had hoped they might

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Speaker 1: have that would help us get through this, which goes back,

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Speaker 1: which goes back to demand destruction. And have we learned

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Speaker 1: any lessons from the previous a couple of months in

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Speaker 1: terms of the price point that really causes that demand

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Speaker 1: destruction that so many people are looking for. I was

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Speaker 1: exactly just going to go to that point because we

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Speaker 1: are at the price point where we should have seen

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Speaker 1: demand instruction, but because we have so much pent up

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Speaker 1: demand from a pre COVID perspective. During COVID, we haven't

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Speaker 1: seen people stopped driving, stop flying. Now there are some

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Speaker 1: ecommists that say a lot of those tickets were purchased

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Speaker 1: three to six months ago, so we might actually see

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Speaker 1: the dip in demand that could coincide with Chinese demand

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Speaker 1: coming back into the marketplace, which may give us a

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Speaker 1: bit of a reprieve that could help us as we

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Speaker 1: go into the winter months. But right now I'm really

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Speaker 1: worried about it when a cold winter in both Europe

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Speaker 1: and the United States. Reginia, you're in Melbourne, Australia, which

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Speaker 1: I believe is distant from Perth, and I look at

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Speaker 1: the gas prices of Perth versus Melbourne, Australia, and the

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Speaker 1: bottom line is this is a large it's expensive. It's

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Speaker 1: like eight dollars nine dollars a gallon for gas. How

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Speaker 1: is Australia dealing with that? Yeah, I mean I think

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Speaker 1: they were calculating that it was maybe closer to ten,

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Speaker 1: because I was talking about how in the US we

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Speaker 1: had we had hit record highs of five dollars per

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Speaker 1: gap per gallon of gasoline, and they were saying that

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Speaker 1: would be equivalent to US at ten. It's um, they're

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Speaker 1: not even feeling the bite here. I mean, I think

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Speaker 1: we're dealing with wealthier countries that have insatiable energy appetites,

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Speaker 1: and they're able to move around the country and take

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Speaker 1: advantage of of what their relative prosperity brings and their

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Speaker 1: relative access to natural resources. So I'm down here proselytizing

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Speaker 1: that the world needs more oil and gas in the

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Speaker 1: short term while we continue to try to drive decarbonization

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Speaker 1: for the planet. We can achieve both objectives, but let's

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Speaker 1: not starve the planet of the resources that we need

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Speaker 1: for societal benefit. Machine A. Manne Thank you KPMG. This

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Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us

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00:26:38,880 --> 00:26:42,600
Speaker 1: live weekdays from seven to ten am Eastern on Bloomberg

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00:26:42,720 --> 00:26:46,520
Speaker 1: Radio and on Bloomberg Television each day from six to

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00:26:46,680 --> 00:26:51,280
Speaker 1: nine am for insight from the best in economics, finance, investment,

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00:26:51,480 --> 00:26:56,440
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

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00:26:56,560 --> 00:27:00,399
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

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Speaker 1: the terminal. I'm Tom keene In. This is Bloomer