WEBVTT - Bloomberg Surveillance TV: May 29th, 2026 0:00:00.040 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordernt. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.240 Terminal and the Bloomberg Business app. We begin this out 0:00:37.280 --> 0:00:39.720 we're Stark's looking to add to record highs following Dow's 0:00:39.720 --> 0:00:43.440 blogbuster earnings report. Max Kettener of HSBC writing the close 0:00:43.479 --> 0:00:46.680 to one hundred percent EPs beat rate, coupled with strong 0:00:46.720 --> 0:00:49.120 forward guidance of the US tech sector in Q one, 0:00:49.479 --> 0:00:51.360 is cushioning the overall equity market. 0:00:51.560 --> 0:00:51.760 Max. 0:00:51.800 --> 0:00:54.680 Join just now for more. Max. We've talked about it repeatedly, 0:00:54.960 --> 0:00:58.240 Max Kenner, Max overweight and Max, we got into your 0:00:58.320 --> 0:01:00.400 danger zone at one point in this bond. Ok, this 0:01:00.520 --> 0:01:02.080 market didn't blink. What gives? 0:01:02.720 --> 0:01:04.760 Yeah? Look, thanks for having me, John. I think the 0:01:04.840 --> 0:01:07.360 danger zone for now at least we can ignore it. 0:01:07.480 --> 0:01:10.000 We can ignore these higher yields because there's a couple 0:01:10.040 --> 0:01:12.560 of things I think happening over the last two three months. 0:01:12.560 --> 0:01:16.560 We've obviously seen yields start to go up in treasuries 0:01:16.640 --> 0:01:19.959 in conjunction with that much much better earning season. You 0:01:20.000 --> 0:01:22.720 guys were just bringing up that tech head and almost 0:01:22.760 --> 0:01:24.760 one hundred percent beat rates are almost all of the 0:01:24.800 --> 0:01:27.840 companies in tach surprising to the upside. I would look 0:01:27.880 --> 0:01:29.600 also at the worst beat rate. If you look at 0:01:29.640 --> 0:01:32.880 Telcoast Telco's had an earning speed rate that was just 0:01:33.200 --> 0:01:35.319 the average beatrate of the S and P and the 0:01:35.360 --> 0:01:37.960 twenty tenths that at the moment is the worst beat 0:01:38.040 --> 0:01:41.279 rate across the sectors. That's how strong and how broad 0:01:41.319 --> 0:01:46.039 based of a reporting season and of upside surprises we had. 0:01:46.120 --> 0:01:49.960 And that of course was cushioning really the equity market 0:01:49.960 --> 0:01:52.840 and rescatsets overall, and that made us maybe little care 0:01:52.880 --> 0:01:55.360 a little less about higher yields. The other thing that 0:01:55.360 --> 0:01:57.680 I would say is if you look at yield increases 0:01:57.680 --> 0:01:59.760 in the last few years, where we went into that 0:01:59.840 --> 0:02:02.200 day zone where yields really were popping a little bit 0:02:02.520 --> 0:02:06.400 too quickly, where the velocity was much more vicious that 0:02:06.480 --> 0:02:10.160 actually was seeing volatility in rates way way higher. When 0:02:10.200 --> 0:02:12.000 you look at the move index, we've only spiked to 0:02:12.080 --> 0:02:14.640 around eighty. In the last couple of episodes. We spiked 0:02:14.680 --> 0:02:16.720 around one hundred thirty, one hundred and forty, even one 0:02:16.800 --> 0:02:19.680 hundred eighty. Now the high was only a about eighty 0:02:19.680 --> 0:02:23.000 and the move index So that lower equity volt also 0:02:23.520 --> 0:02:27.480 really led to a little bit of less of multiple compressions. 0:02:27.480 --> 0:02:30.560 So to me, that is perfectly rational what the equity 0:02:30.560 --> 0:02:33.600 market spreads and the broader risk acid complex have done 0:02:33.600 --> 0:02:34.280 in the last two week. 0:02:34.320 --> 0:02:36.560 Mass. Could you take it an additional step further? Do 0:02:36.639 --> 0:02:39.359 you think the forces driving equities right now are less 0:02:39.440 --> 0:02:42.240 right sensitive and will be even if this Feller reserve 0:02:42.280 --> 0:02:43.200 becomes more hawkish. 0:02:43.880 --> 0:02:46.240 Now I would take it one step further from your 0:02:46.280 --> 0:02:48.400 one step further. I think it's also the economy. Right 0:02:48.600 --> 0:02:52.399 Let's be honest. Let's say, for example, five years ago, 0:02:52.440 --> 0:02:54.160 I would have come on the show and would say, look, 0:02:54.320 --> 0:02:56.040 I think rates are going to go from zero to 0:02:56.080 --> 0:02:58.200 five and a half in record speed. And as a 0:02:58.200 --> 0:03:02.040 result of that, I think that nonfinancial corporate in the US, 0:03:02.360 --> 0:03:05.240 the net interest payments of those non financial corporates are 0:03:05.280 --> 0:03:07.440 now going to dive to a twenty year low. I 0:03:07.480 --> 0:03:09.800 don't think you guys would have invited me back, right, 0:03:09.880 --> 0:03:11.519 I think you guys would have been like, well, he's 0:03:11.520 --> 0:03:14.160 a funny German. But maybe he's going to have to 0:03:14.200 --> 0:03:17.120 go back to university and study econ one or one 0:03:17.160 --> 0:03:18.880 a little bit, and maybe we'll invite him back in 0:03:18.880 --> 0:03:21.080 a few years again. But that's what's happened. So I 0:03:21.080 --> 0:03:25.440 think we've, even in the economy overall, underestimated how less 0:03:25.520 --> 0:03:29.680 rate sensitive we are now, how companies have termed out maturities. 0:03:29.680 --> 0:03:32.960 Look at the SMP. Almost two thirds of debt in 0:03:33.040 --> 0:03:36.400 the SMP now it expires after twenty thirty. Look at 0:03:36.480 --> 0:03:38.920 high yields. The maturity wall that we've got in high 0:03:39.000 --> 0:03:42.160 yield is less than three percent of the index this year. 0:03:42.320 --> 0:03:44.160 In the US in particular, when you look at the 0:03:45.080 --> 0:03:47.560 amount of triple cs and you're a high yield, that's 0:03:47.560 --> 0:03:50.040 about six percent of triple c's. That used to be 0:03:50.080 --> 0:03:52.280 like ten to eleven percent. In you as high yields 0:03:52.440 --> 0:03:54.440 just ten years ago. That used to be eighteen percent. 0:03:54.720 --> 0:03:57.760 Now it's only about nine percent triple cs. So even 0:03:57.760 --> 0:04:01.840 if yields go up you know, credit is better quality nowadays. 0:04:01.840 --> 0:04:03.840 We don't have the maturity walls as much as we 0:04:03.880 --> 0:04:07.680 had in the past. We have companies, even higher rated 0:04:07.720 --> 0:04:12.560 companies termed out maturity is locked in low coupons. You know, 0:04:13.120 --> 0:04:16.520 rates really aren't this big, big danger anymore, Max. 0:04:16.880 --> 0:04:19.840 Can companies continue to make earnings like what they've been 0:04:19.880 --> 0:04:23.360 doing without some sort of participation with the forum of 0:04:23.680 --> 0:04:26.320 wage gains or a much tighter labor market? 0:04:27.000 --> 0:04:29.400 Yeah, I think so because most I mean, obviously, most 0:04:29.440 --> 0:04:32.440 of the earnings increase that we've seen now has been very, 0:04:32.560 --> 0:04:36.039 very concentrated, and that I think is maybe going forward 0:04:36.040 --> 0:04:38.880 from a strategic from a structural perspective, a bit of 0:04:38.960 --> 0:04:40.640 an issue, a bit of a problem, right that when 0:04:40.680 --> 0:04:42.400 you look at the S and P five hundred, it's 0:04:42.480 --> 0:04:45.800 not really like we're investing in five hundred companies. We're 0:04:45.800 --> 0:04:48.800 really investing in sort of thirty forty companies. The first 0:04:48.880 --> 0:04:52.080 thirty companies is almost two thirds of market cap. So, Lisa, 0:04:52.120 --> 0:04:54.479 when you're asking, can all of the five hundred companies 0:04:54.520 --> 0:04:57.160 weather this, I'm not sure. Right. When you look, for example, 0:04:57.160 --> 0:04:59.440 at the lower one hundred companies within the S and 0:04:59.440 --> 0:05:02.320 P five hundre, I think we are starting to see 0:05:03.000 --> 0:05:06.760 management guidance, corporate guidance deterior rate a little bit. That's 0:05:06.839 --> 0:05:10.080 clearly what we've seen in our own analysis on company 0:05:10.120 --> 0:05:14.600 earnings call analysis. Absolutely. The problem there is it affects 0:05:14.720 --> 0:05:19.000 more the companies that have a very very low rating 0:05:19.120 --> 0:05:21.440 in the S and P five hundred. Let's give you 0:05:21.480 --> 0:05:23.200 one example. If you look at the lower one hundred 0:05:23.760 --> 0:05:25.480 or the last one hundred companies in the S and 0:05:25.520 --> 0:05:28.040 P five hundred or the last twenty percent, they account 0:05:28.120 --> 0:05:30.600 for a little more than one percent of market cap. 0:05:30.760 --> 0:05:33.599 So it's not all companies. Surely the smaller ones. They 0:05:33.680 --> 0:05:36.560 will probably struggle a little bit if let's say the 0:05:36.600 --> 0:05:39.200 tenure goes to five percent and stays there, But for 0:05:39.279 --> 0:05:42.400 the overall market direction, that just doesn't matter. 0:05:43.120 --> 0:05:44.560 If that's a case, max, what would it take for 0:05:44.640 --> 0:05:48.039 you to actually turn less positive less overweight. 0:05:49.120 --> 0:05:51.400 I like that you said, no, not bearish, because that 0:05:51.440 --> 0:05:53.400 will that will be a big hurdle to turn me 0:05:53.560 --> 0:05:59.200 verish myself. Your ahead, very exactly. No, I think the big, 0:05:59.200 --> 0:06:03.680 big issue is position. So positioning overall still is pretty subdued. 0:06:03.760 --> 0:06:06.479 You know, on our analysis, we don't really get a 0:06:06.520 --> 0:06:10.560 proper bias signal nor a proper cell signal positioning. Even 0:06:10.600 --> 0:06:15.440 from systematic strategies, it's not even at the fiftieth percentile. Yet, 0:06:16.040 --> 0:06:18.880 when you look at equity market participation, for example, it's 0:06:18.960 --> 0:06:21.320 not very broad. Right, we know that it's mostly been 0:06:21.400 --> 0:06:24.920 tech and AI. Contrast, last year liberation date the V 0:06:25.000 --> 0:06:28.359 shaped recovery, the amount of companies in the SMP that 0:06:28.400 --> 0:06:30.520 are above the fifty day moving average. They pop from 0:06:30.600 --> 0:06:34.120 five percent to eighty five, almost ninety percent. Now we've 0:06:34.160 --> 0:06:37.120 gone from twenty percent above the fifty day moving average 0:06:37.160 --> 0:06:41.320 to only fifty, so half of the index isn't really participating. 0:06:41.680 --> 0:06:44.200 I think if we were to get some more supportive 0:06:44.240 --> 0:06:46.760 news out of the Middle East and then we get 0:06:46.800 --> 0:06:49.320 another pop, we get really sort of the rate sensitive 0:06:49.320 --> 0:06:52.799 cyclical stuff participating, which I think is the next big trade. 0:06:52.839 --> 0:06:56.560 Your regional banks, retail, you know, things like home builders. 0:06:56.600 --> 0:06:59.359 If that starts to participate, I think there is a 0:06:59.360 --> 0:07:02.719 reason of bass to say that's probably the very last leg. 0:07:02.760 --> 0:07:07.159 Then then participation rises, positioning rises, and after that I 0:07:07.160 --> 0:07:09.080 think it's time to take a couple of chips off 0:07:09.120 --> 0:07:09.880 the table. Max. 0:07:09.920 --> 0:07:11.400 There is one line that stuck out to me in 0:07:11.440 --> 0:07:13.160 your note, and it was that you doubt investors will 0:07:13.160 --> 0:07:16.200 fully embrace progress in the US around talks, and said 0:07:16.200 --> 0:07:19.240 point to lack of detail to to keep positioning low. 0:07:19.600 --> 0:07:22.600 Are you basically saying until we get a proper deal, 0:07:22.640 --> 0:07:25.920 which max could take months, we're not going to see 0:07:25.960 --> 0:07:27.080 this rally broaden out. 0:07:28.680 --> 0:07:31.240 No, that's not what I'm saying. I think progressively or 0:07:31.280 --> 0:07:35.680 incrementally better news that actually means that incrementally, I think 0:07:35.720 --> 0:07:38.560 people will give up on Oh yeah, I'm just long 0:07:38.600 --> 0:07:42.239 tech in AI and I actually cannot embrace that broad 0:07:42.320 --> 0:07:45.440 based earnings recovery that we've seen in the first quarter. 0:07:45.800 --> 0:07:49.800 I need to stick to that narrow set of stocks 0:07:49.840 --> 0:07:52.120 that have been working. Actually, I think over the next 0:07:52.120 --> 0:07:54.520 couple of weeks and months we will start to realize 0:07:54.600 --> 0:07:56.520 hold on, look at the last month and a half, 0:07:56.560 --> 0:07:59.840 for example, we've had activity data surprises in the US 0:08:00.240 --> 0:08:04.480 clearly have been going going up, so clearly improved. I 0:08:04.520 --> 0:08:07.280 think for now people are probably reluctant to put those 0:08:07.360 --> 0:08:09.680 kinds of trades on because we had that rate sell 0:08:09.760 --> 0:08:12.240 of right, we still have Hall Moves closed, so there 0:08:12.240 --> 0:08:14.920 are some sorts of warries in the background. But I 0:08:14.920 --> 0:08:18.720 think with time we'll start to realize that particularly sicklicality 0:08:18.760 --> 0:08:22.120 in the US is much much more insulated from what's 0:08:22.120 --> 0:08:24.160 happening in the Middle East than perhaps we thought three 0:08:24.160 --> 0:08:24.680 months ago. 0:08:25.120 --> 0:08:28.640 Stay with us more Bloomberg Surveillance coming up after this. 0:08:37.840 --> 0:08:40.640 You mentioned Dallat's talk about doubt soaring and pre market training. 0:08:40.640 --> 0:08:43.720 After raising its full yet guidance, the CEO David Kennedy, 0:08:43.760 --> 0:08:46.959 the CFO, telling Bloomberg the confidence and demand for its 0:08:46.960 --> 0:08:48.240 service continues to grow. 0:08:48.800 --> 0:08:51.280 It's a tremendous start to the quarter obviously in the 0:08:51.360 --> 0:08:56.280 year ahead, built on real, durable and accelerating globally the 0:08:56.280 --> 0:08:58.959 amount of infrastructure that's needed out there, so really more 0:08:59.000 --> 0:09:01.680 broad based, you know, AI demand if you like, beyond 0:09:01.679 --> 0:09:04.080 the GPU in terms of the opportunities ahead. 0:09:04.440 --> 0:09:07.400 Angelo Zeno of c FI A writing, we continue to 0:09:07.400 --> 0:09:11.800 have a positive fundamental outlook on semiconductors and hardware, driven 0:09:12.000 --> 0:09:15.520 by the AI infrastructure build out and massive earnings power. 0:09:15.840 --> 0:09:18.760 Angelo joined us now for more, Angelo, I just hear 0:09:18.800 --> 0:09:22.480 the same thing repeatedly, earnings, earnings, earnings is through a 0:09:22.559 --> 0:09:26.000 risk of normalizing the irrational, so to speak, given the 0:09:26.040 --> 0:09:28.800 moonshots we're seeing development across single names at the moment. 0:09:30.200 --> 0:09:32.200 Yeah, so, John and thanks for having me. 0:09:32.240 --> 0:09:34.120 So when we think about, I guess, you know, the 0:09:34.360 --> 0:09:36.880 earnings power in this market, I think it's you know, 0:09:36.960 --> 0:09:39.839 we're clearly seeing some sort of a reset higher right 0:09:39.880 --> 0:09:43.000 in terms of just the magnitude of the capex increases 0:09:43.400 --> 0:09:46.520 we're seeing from these hyperscalers. And I think right now 0:09:46.640 --> 0:09:49.440 the street's really trying to sliff out where the greatest 0:09:49.480 --> 0:09:52.160 earnings power is coming from. And I think we've got 0:09:52.200 --> 0:09:54.480 a pretty good sense here just going through Q one 0:09:54.520 --> 0:09:57.440 earning season of where that earning's power is coming from. 0:09:57.480 --> 0:10:00.440 And obviously you've seen, you know, the respect of move 0:10:00.600 --> 0:10:03.880 in those stock prices given the fact that you're seeing 0:10:04.320 --> 0:10:08.360 pricing increasing from increases from those companies, and that's also 0:10:08.440 --> 0:10:11.880 translating to that higher earnings power. I would say, you know, 0:10:11.960 --> 0:10:14.960 as you kind of look ahead, we think there is 0:10:15.000 --> 0:10:17.840 some sustainability, or we do think there is sustainability in 0:10:17.920 --> 0:10:21.160 terms of the reset higher from these hyper scalers, And 0:10:21.200 --> 0:10:24.920 as a result, you've got that sustainability. Once you kind 0:10:24.920 --> 0:10:27.040 of get this leg up in the earnings power maybe 0:10:27.040 --> 0:10:30.720 to your point in terms of the normalization or earnings 0:10:31.000 --> 0:10:34.760 growth normalization, that's going to start playing itself out probably 0:10:34.760 --> 0:10:37.640 as you go into twenty twenty seven, in twenty twenty eight, 0:10:37.720 --> 0:10:39.120 because you're not going to be able to have these 0:10:39.160 --> 0:10:42.880 hyperscalers continue to increase capex on one hundred percent basis year 0:10:42.920 --> 0:10:45.440 of a year, but you'll probably be able to continue 0:10:45.480 --> 0:10:48.440 at least in twenty seven and into twenty eight see 0:10:48.440 --> 0:10:50.960 increases of let's call it twenty five to thirty percent, 0:10:51.040 --> 0:10:54.319 as long as you get that cash flow from operations 0:10:54.400 --> 0:10:57.120 continue to grow, which at this point in time continues 0:10:57.160 --> 0:10:58.079 to be our base case. 0:10:58.240 --> 0:10:59.959 The issue for a lot of people is that companies 0:11:00.040 --> 0:11:03.120 won't continue to pay these massive billion dollar costs for 0:11:03.240 --> 0:11:05.880 the AI tools that they're getting unless they can prove 0:11:05.880 --> 0:11:08.520 some productivity. And we're getting to that point increasingly where 0:11:08.720 --> 0:11:11.920 executives are pushing back and saying, please stop just experimenting 0:11:11.960 --> 0:11:15.000 with it, start actually using it to prove why it's 0:11:15.040 --> 0:11:16.839 worth its money. At what point do you have to 0:11:16.880 --> 0:11:19.240 see the real economy catch up a bit to some 0:11:19.320 --> 0:11:22.600 of these big tech behemoths in order to keep the 0:11:22.640 --> 0:11:23.320 street going. 0:11:24.160 --> 0:11:27.840 Yeah, I mean, listen, I think we've actually we're starting 0:11:27.880 --> 0:11:31.240 to see some of the AI monetization themes play itself out, 0:11:31.280 --> 0:11:34.200 which is really what's getting the market excited at this 0:11:34.240 --> 0:11:35.960 point in time, right, I think you look at an 0:11:35.960 --> 0:11:39.360 Anthropic and you know, potentially looking at a fifty billion 0:11:39.360 --> 0:11:42.000 dollar run rate by you know, in June on an 0:11:42.280 --> 0:11:46.160 ARR perspective, and continuing to go up. Really at this 0:11:46.240 --> 0:11:49.680 point in time, only limited by their compute. But we're 0:11:49.720 --> 0:11:51.720 seeing the use cases we're seeing greater. 0:11:52.200 --> 0:11:52.839 We're seeing a. 0:11:52.760 --> 0:11:57.440 Lot of these pilot use cases go into AI production mode. 0:11:57.480 --> 0:11:59.960 I mean you just sort of salesforce report this week 0:12:00.400 --> 0:12:03.040 and you kind of see the usage rates really go 0:12:03.240 --> 0:12:06.320 up significantly just on a quarter of a quarter basis. 0:12:06.400 --> 0:12:08.840 We think that continues into the second half of this year. 0:12:09.120 --> 0:12:12.160 So enterprises are adopting this stuff. You're seeing those use 0:12:12.200 --> 0:12:15.320 cases go up. And as a result, as long as 0:12:15.440 --> 0:12:17.480 you know, we continue to see what we're seeing from 0:12:17.520 --> 0:12:20.599 a company like Anthropic and only you know, continue to 0:12:20.640 --> 0:12:24.000 be limited by the compute availability, I think you know 0:12:24.280 --> 0:12:26.760 this AI infrastructure built them continues to work. 0:12:26.800 --> 0:12:29.000 Here is Anthropic gatting open ayes lunch. 0:12:30.880 --> 0:12:33.120 It looks like it, right, I mean you kind of 0:12:33.120 --> 0:12:35.400 look at the headlines at this point in time, you know, 0:12:35.480 --> 0:12:38.839 clearly it seems like Anthropic was right to focus almost 0:12:38.920 --> 0:12:42.360 exclusively on the enterprise side, and you kind of look 0:12:42.400 --> 0:12:44.520 at just the tools that they've come out with at 0:12:44.559 --> 0:12:49.079 this point in time, the focus more on security, I'd say. 0:12:49.520 --> 0:12:53.360 I'd say, you kind of look at where the enterprise 0:12:53.400 --> 0:12:56.320 space is really gravitating to and it looks like, Yeah, 0:12:56.360 --> 0:12:59.640 I mean, Anthropic is definitely winning here over the last 0:12:59.720 --> 0:13:01.800 kind of two to three quarters. And again, I mean 0:13:01.880 --> 0:13:04.920 it's still early days and I won't necessarily col open 0:13:04.960 --> 0:13:07.840 AI out, but at least at this point in time, yeah, 0:13:08.080 --> 0:13:11.240 I think I think anthrop has been the clear winner 0:13:11.280 --> 0:13:12.800 here over the last couple of quarters. 0:13:13.240 --> 0:13:16.760 Stay with us. More Bloomberg surveillance coming up after this. 0:13:25.960 --> 0:13:28.880 Let's talk about the reason for this conversation. Its central 0:13:28.920 --> 0:13:31.800 banks right now, at least one of them, crude on track, 0:13:31.880 --> 0:13:34.600 at least for now, for its steepest monthly decline since 0:13:34.640 --> 0:13:37.760 twenty twenty. Optimism building for a resumption of traffic through 0:13:37.800 --> 0:13:40.400 the straight upfor mers as energy producers are highlighting the 0:13:40.480 --> 0:13:43.240 risk of an extended closure. Chefron's been warning quote, we 0:13:43.280 --> 0:13:46.960 will start to see physical shortages. The CEO, mikel Worth, 0:13:46.960 --> 0:13:49.200 I'm very pleased to say, joints still the studio. Mike's 0:13:49.200 --> 0:13:51.120 going to see you good to see you. Welcome back 0:13:51.120 --> 0:13:52.880 to the program. Sir. I get this question a lot. 0:13:52.880 --> 0:13:55.280 You're the expert. Help me answer it. Why is crude 0:13:55.320 --> 0:13:58.080 at one hundred at ninety and not close to the 0:13:58.080 --> 0:14:00.680 two hundred given this straight's been shut for three months? 0:14:01.520 --> 0:14:03.000 You know, it's a little hard to explain. 0:14:03.360 --> 0:14:09.040 We really are seeing markets Titan inventories draw demand for 0:14:09.320 --> 0:14:11.600 products around the world still very strong. 0:14:12.080 --> 0:14:14.080 I think there's this belief and. 0:14:14.280 --> 0:14:16.800 You know, we're experiencing it again the last few days 0:14:16.920 --> 0:14:20.560 that the end is near, the conflict is nearly resolved, 0:14:20.680 --> 0:14:24.120 and flow through the strait will resume very quickly, and 0:14:24.160 --> 0:14:27.400 that has kept the back end of the curve lower 0:14:27.440 --> 0:14:29.960 than it might otherwise have been. And I think the 0:14:30.040 --> 0:14:33.000 psychology the market has been this is closer to the 0:14:33.120 --> 0:14:34.480 ends rather than the beginning. 0:14:34.640 --> 0:14:37.120 But what about the physical world? When will inventories be 0:14:37.280 --> 0:14:38.160 at the very bottom? 0:14:39.160 --> 0:14:39.800 Before long? 0:14:40.840 --> 0:14:45.320 We are steadily drawing inventories down on products on crude 0:14:46.040 --> 0:14:49.560 in locations around the world. I think June and July 0:14:49.640 --> 0:14:52.920 are going to be critical months, and you can see 0:14:52.960 --> 0:14:56.000 the trajectory of these inventories in the data. And it's 0:14:56.040 --> 0:14:56.880 concerning do. 0:14:56.840 --> 0:14:59.440 You see any physical shortages right now around the world. 0:15:00.040 --> 0:15:02.400 We do see some in some Asian markets, and we've 0:15:02.400 --> 0:15:06.960 seen some rationing. We've seen work weeks adjusted other demand 0:15:07.400 --> 0:15:11.760 measures imposed in some of the countries in Asia. Markets 0:15:11.800 --> 0:15:15.200 are very efficient at moving products and barrels to where 0:15:15.200 --> 0:15:19.280 they're needed, and we haven't reached a crisis point yet, 0:15:19.280 --> 0:15:22.560 but the inertia in the system is very very strong, 0:15:22.920 --> 0:15:25.080 and turning that is not easy. 0:15:25.400 --> 0:15:27.240 One of the main sticking points the US has when 0:15:27.240 --> 0:15:29.520 it comes to negotiating with Ron is this idea of 0:15:29.800 --> 0:15:33.240 the tolling. Would Chevyn consider paying a toll? 0:15:34.160 --> 0:15:36.880 No, we wouldn't. Do you know how people are paying 0:15:36.920 --> 0:15:37.280 a toll. 0:15:38.280 --> 0:15:43.520 I've heard reports of people using cryptocurrency in various countries. 0:15:44.240 --> 0:15:45.680 I think the Treasury has come out this. 0:15:45.680 --> 0:15:50.520 Week and sanctioned the new authority that has been put 0:15:50.560 --> 0:15:54.160 in place to oversee transit through the Strait. It went 0:15:54.200 --> 0:15:57.480 from a toll to a navigation fee to something a 0:15:57.560 --> 0:16:01.640 navigation fee. I don't know enough about any of these 0:16:01.640 --> 0:16:06.440 things to say definitively, but look, freedom of navigation through 0:16:06.480 --> 0:16:10.160 international waterways is a very well established principle, and anything 0:16:10.360 --> 0:16:13.440 like this would begin to say that countries adjacent to 0:16:14.240 --> 0:16:17.680 an international waterway can charge some sort of a transit fee. 0:16:17.880 --> 0:16:20.160 There are many other places in the world where that 0:16:20.200 --> 0:16:24.280 principle could be applied, and not just to energy products, 0:16:24.280 --> 0:16:27.080 but to all freight moving through the Straits of Malacca, 0:16:27.200 --> 0:16:32.280 the Bosphorus. Pick your choke point, and so that's not 0:16:32.360 --> 0:16:34.760 a principle I think that most countries in the world 0:16:35.160 --> 0:16:36.720 would find acceptable. 0:16:36.800 --> 0:16:39.840 How far are we away from having pipelines that connects 0:16:39.840 --> 0:16:42.520 some of these countries to the mainland and their production 0:16:42.960 --> 0:16:44.720 without having to traverse the straight at all. 0:16:45.400 --> 0:16:47.680 Well, there's a couple that exists now that you've talked 0:16:47.680 --> 0:16:51.440 about in Saudi and the UAE. The UA sanctioned a 0:16:51.440 --> 0:16:54.560 project last year which is about fifty percent complete to 0:16:55.240 --> 0:16:58.200 get more of their production over to Fuji and outside 0:16:58.200 --> 0:17:02.160 of the Strait. So I think you will see more 0:17:02.160 --> 0:17:06.040 of that, Lisa. The one opportunity there is countries like 0:17:06.119 --> 0:17:08.960 Iraq and Kuwait that are deeper up in the Gulf 0:17:09.240 --> 0:17:13.240 don't have access to those pipelines, and for them the 0:17:13.320 --> 0:17:16.560 road could be through the North and ultimately then into 0:17:16.600 --> 0:17:20.320 the Mediterranean, maybe through Turkey, where we see a pipeline 0:17:20.320 --> 0:17:24.800 comes out of the Caspian Sea over into the Mediterranean 0:17:25.160 --> 0:17:27.359 in Turkey. And so I do think one of the 0:17:27.400 --> 0:17:30.879 responses to this will be infrastructure investments that will allow 0:17:30.920 --> 0:17:32.160 these energy flows. 0:17:31.840 --> 0:17:33.320 To avoid the strain and horror moves. 0:17:33.560 --> 0:17:35.760 And that's underway now and I think you'll see that 0:17:36.000 --> 0:17:37.000 in the years that follow. 0:17:37.160 --> 0:17:40.760 We started the conversation talking about why oil prices aren't higher, 0:17:40.760 --> 0:17:43.159 and you're saying that we're getting close to breaking the 0:17:43.160 --> 0:17:46.479 bottoms of some of the inventory bins. And we were 0:17:46.480 --> 0:17:48.760 speaking just a moment ago with Alex Saltman at Barclays 0:17:48.800 --> 0:17:51.320 who said we actually could see a glut of oil 0:17:51.480 --> 0:17:53.240 in six to twelve months time. If there is a 0:17:53.280 --> 0:17:56.080 resolution here based on the production levels of so many 0:17:56.080 --> 0:17:58.399 different oil companies and countries. 0:17:58.640 --> 0:17:59.480 What's your take on that. 0:17:59.520 --> 0:18:01.320 Do you think that that's a feasible interpretation. 0:18:02.160 --> 0:18:05.520 Well, history says that shortages tend to be followed by gluts, 0:18:05.680 --> 0:18:11.400 and high prices send a signal and markets work. Consumers 0:18:11.440 --> 0:18:14.439 consume less, producers produce more in response to a price signal, 0:18:14.960 --> 0:18:18.399 and there's a time lag in the way both of 0:18:18.440 --> 0:18:20.919 those manifest themselves in the market. And what has happened 0:18:20.960 --> 0:18:24.680 historically is about the time that the new supplies reach 0:18:24.800 --> 0:18:28.640 the market, demand may have turned down through conservation measures, 0:18:28.640 --> 0:18:32.000 economic slowdown, maybe a recession, and you can see those 0:18:32.000 --> 0:18:36.240 lines crossover and the price cycles down. It's why commodity 0:18:36.280 --> 0:18:40.960 markets are cyclical, is they tend to overshoot. And history 0:18:41.000 --> 0:18:43.880 says when we get into one of these situations that 0:18:44.000 --> 0:18:45.960 is somewhere out in the future. 0:18:45.680 --> 0:18:47.960 What signal do you take from the futures curve. I'd 0:18:47.960 --> 0:18:49.560 love your reaction to that, because so many people have 0:18:49.600 --> 0:18:51.840 pointed to the back end of the futures curve as 0:18:51.880 --> 0:18:54.560 a prediction of markets, of where they think crewed will be. 0:18:54.840 --> 0:18:56.600 How does an energy boss like yourself look at a 0:18:56.600 --> 0:18:57.200 futures curve? 0:18:57.640 --> 0:19:01.480 Not very frequently. It's not something we use for planning purposes. 0:19:02.320 --> 0:19:04.760 We do a certain amount of hedging in our business 0:19:04.960 --> 0:19:08.359 on commercial activity where you will use futures, but we 0:19:08.400 --> 0:19:11.560 don't look at future's curve as a prediction of future price. 0:19:11.640 --> 0:19:16.760 We do our own fundamental analysis on demand, supply, technology, policy, 0:19:17.160 --> 0:19:21.320 economic growth and arrive at our own scenarios, and we 0:19:21.359 --> 0:19:24.520 don't use a point forecast or a curve. We use 0:19:24.680 --> 0:19:27.760 a range of scenarios. Prices are hard to predict in 0:19:27.800 --> 0:19:30.600 these markets, and so we don't anchor on a single price. 0:19:30.640 --> 0:19:31.840 We use a range of prices. 0:19:32.119 --> 0:19:34.560 What's fascinating is you were talking about how typically commodity 0:19:34.600 --> 0:19:36.720 markets tend to overshoot and then you get the glut 0:19:36.840 --> 0:19:39.439 just as demand falls off. Are we overshooting because what 0:19:39.480 --> 0:19:41.800 I keep hearing is that we're not overshooting. Actually, oil 0:19:41.840 --> 0:19:44.720 prices and the future's curve is remarkably low, and that 0:19:44.760 --> 0:19:47.919 people keep consuming. And frankly, people like yourself are not 0:19:47.960 --> 0:19:50.879 investing in more production right now. You're not increasing production 0:19:50.960 --> 0:19:53.840 traumatically to offset some of what's going on. So is 0:19:53.880 --> 0:19:56.280 this time different in terms of the commodity cycle? 0:19:56.640 --> 0:19:59.040 Well, first of all, we are increasing production. Our production 0:19:59.119 --> 0:20:01.119 growth seven to ten percent this year, which is a 0:20:01.119 --> 0:20:03.960 lot in a world where demand is growing one percent 0:20:04.480 --> 0:20:11.080 on average, and so there is investment in growth. Is 0:20:11.119 --> 0:20:13.880 this time different? You know, people say that every time 0:20:14.200 --> 0:20:19.720 and often find themselves regretting having said that this time 0:20:19.840 --> 0:20:23.480 is this is the circumstances. Here are things we haven't 0:20:23.480 --> 0:20:26.200 seen before. The twenty percent of the world's energy production 0:20:26.600 --> 0:20:30.359 cut off for now nearly one hundred days. A billion 0:20:30.400 --> 0:20:32.880