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Speaker 2: The first name on the list was Edward Morse. Absolutely
Speaker 2: definitive within the global zeitgeis, if you will, the Washington
Speaker 2: Consensus on Petroleum. All sorts of efforts here, including his
Speaker 2: work with the Council on Foreign at Relations, and we're
Speaker 2: honored that doctor Morris would join us in our studio today.
Speaker 2: Welcome to Bloomberg, doctor Morse. When I look at this,
Speaker 2: I think the arch question is a cup of coffee
Speaker 2: this morning with the President of the United States, how
Speaker 2: would you brief him on the timeline to get Venezuela
Speaker 2: to a new Caracas, a new Venezuela.
Speaker 3: The timeline is very, very long. The timeline includes not
Speaker 3: just what must be done on the oils patch, but
Speaker 3: also includes how do you get this government to cooperate
Speaker 3: with the United States? And yes, starting out on a
Speaker 3: good foot, but this can't be done without a change
Speaker 3: in the entire view of the government of how they
Speaker 3: do what they do. They're there to make money, they're
Speaker 3: there to control things, and they can't do that and
Speaker 3: have the oil patch resume what it was like twenty
Speaker 3: five years ago.
Speaker 2: This is a transactional president. You have lived, with your
Speaker 2: iconic work at City Group, a transactional big American banks
Speaker 2: enjoying losing big money in Latin America and other places.
Speaker 2: What do you perceive as a relationship of President Trump
Speaker 2: with mister Diamond, with mister moynihan and with other financiers
Speaker 2: of America.
Speaker 3: Well, he's got a good relationship with the financial sect
Speaker 3: for all kinds of good reasons that we can get into.
Speaker 3: That's a separate subject. But here the capital has to
Speaker 3: come from oil companies, and oil companies look at risk.
Speaker 3: They look at the risk in the marketplace, what is
Speaker 3: a supply demand balance, They look at the risks of
Speaker 3: an investment, and in the case of Venezuela, they need
Speaker 3: a lot of capital going into infrastructure, and that infrastructure
Speaker 3: has to be in place before the oil comes out
Speaker 3: of the ground. So we're talking here about billions of
Speaker 3: dollars to start to restore the infrastructure that will get
Speaker 3: things going to allow oil on a sustainable basis to
Speaker 3: rise by a mere four or five hundred thousand barrels
Speaker 3: a day. That's twenty billion dollars. Twenty billion dollars is
Speaker 3: not nothing when oil companies have opportunities in Guyana, opportunities
Speaker 3: in Argentina, opportunities in Brazil, and opportunities in Africa. So
Speaker 3: the question is what will attract companies to spend the
Speaker 3: capital that Trump needs for the transaction toward Paul.
Speaker 2: Chevron debt eleven point seven percent, that's where they are
Speaker 2: right now.
Speaker 4: Just as an example, what do you think the US
Speaker 4: government or what do you think those energy companies would
Speaker 4: need from the US government in terms of assurances or
Speaker 4: whatever to commit that capital.
Speaker 3: Do you think, well, they need the reassurance from the
Speaker 3: Venezuelan side as well as from the US government, because
Speaker 3: the US government said that it's not taking over Venezuela
Speaker 3: have good point, so it needs it needs to have
Speaker 3: the confidence, which will be step by step, and I
Speaker 3: suspect that the first step will be with Chevron to
Speaker 3: see whether they can make good in short term of
Speaker 3: capital with short term return. So I think it's going
Speaker 3: to be a slow process, but it will be trust,
Speaker 3: building on trust, and we'll see how smooth that transition goes.
Speaker 4: Takos to just describe the energy when we talk about Venezuela,
Speaker 4: what do they have, what do they need?
Speaker 2: How big are they is?
Speaker 4: How important is this because I understand there's a lot underground,
Speaker 4: it's quite important.
Speaker 3: So the world is known for a long time that
Speaker 3: Venezuela has the largest known oil reserves in the world.
Speaker 3: The problem is it's not the kind of oil that
Speaker 3: the rest of the world needs or wants. And the
Speaker 3: problem is it's in Venezuela, and it's complicated oil to
Speaker 3: get out of the ground. But they've done it before,
Speaker 3: and they've managed to go from under two million barrels
Speaker 3: a day to three and a half million barrels a
Speaker 3: day in a relatively short period of time a couple
Speaker 3: of decades ago. So if the will is there and
Speaker 3: the government is there to provide the guarantees, but to
Speaker 3: do that you need the government institutions to be rewarned.
Speaker 3: Those government institutions have themselves deteriorate it dramatically. They don't
Speaker 3: have the human resources, they don't have the personnel to
Speaker 3: be able to guide it. So part of the process
Speaker 3: will be a return of that human resource base.
Speaker 2: Edard wars with this for a lengthy conversation this morning
Speaker 2: with heart Tree and of course Definitive It's City Group,
Speaker 2: among other services to the United States over his long
Speaker 2: decades on petroleum on Hydrocarbon's I believe I've shared the
Speaker 2: stage with you and Shannon O'Neil at the Council on
Speaker 2: Foreign Relations. Doctor O'Neil was on with us recently exceptionally
Speaker 2: gloomy about Venezuela's ability to reorganize given an event like
Speaker 2: what we've seen. I assume you've been to Caracas more
Speaker 2: than forty times. You remember a Caracas from another time
Speaker 2: in place. Do you have any optimism that they can
Speaker 2: move from a Cuba like society to something that could
Speaker 2: get capitalism done.
Speaker 3: Well, you have to be a little bit optimistic given
Speaker 3: the change that has already taken place. So changing getting
Speaker 3: Maduro out of that position is a major step. And
Speaker 3: now the government is in a crisis of survival. That
Speaker 3: survival will require them to collaborate with the US. So
Speaker 3: the options that they have are quite limited. Who is
Speaker 3: going to replace the US at this moment in time?
Speaker 3: Given the US military position, the naval position surrounding Venezuela,
Speaker 3: the control that the US has over Venezuelan exports, it's
Speaker 3: not easy to imagine a replacement for that. So the
Speaker 3: good news really is that they are cooperating to start
Speaker 3: and we'll see how that goes, but it will be
Speaker 3: a long road with difficulty.
Speaker 4: Is it your understanding, just based upon the limited reporting
Speaker 4: that we have in the last forty eight hours, that
Speaker 4: the government of Venzezezuela was in contact with the Trump
Speaker 4: administration if to facilitate that mister Maduro being taken.
Speaker 3: Look, it could not have been done without there being
Speaker 3: some contact within the government. We know from reporting that
Speaker 3: the intelligence operations preceded this. They were on the ground,
Speaker 3: they had to have help to be on the ground,
Speaker 3: and undoubtedly they were not taken by surprise because of
Speaker 3: the smooth way events went on over the weekend.
Speaker 4: I do think China is viewing what's going on these days.
Speaker 3: China's in a big difficult position they have. They are
Speaker 3: massive creditor to Venezuela. Venezuela has been part of central
Speaker 3: to the Belton Road initiative enlarging China's influence in Latin America.
Speaker 3: Excuse me and it's been, frankly a failure. They have
Speaker 3: between fifty and one hundred billion of debt. Their operations
Speaker 3: right now are to export oil to pay for that debt.
Speaker 3: The US controls they are exports out of Venezuela. So
Speaker 3: they had, Yes, they came down and condemned the US government.
Speaker 3: They had to do that. But they have to take
Speaker 3: a quiet approach because there's so much at stake between
Speaker 3: them and the US on a global basis, so much
Speaker 3: at stake on a bilateral basis, including their tariffs, that
Speaker 3: they want to see.
Speaker 2: Some resolution on.
Speaker 3: So I think we'll see quiet diplomacy with China and
Speaker 3: the US rather than stamping on the foot or saying
Speaker 3: anything about military force.
Speaker 2: In my reading, I've heard that. But what does Edward Morris,
Speaker 2: I'm going to butcher the pronunciation, doctor Morris. Do we
Speaker 2: need to show the flag this morning and Kaushing Port
Speaker 2: in Taiwan? Does the US Navy need to get over there,
Speaker 2: and you know, like Perry centuries ago, show the flag, tim.
Speaker 3: I think the US showed the flag before Madua was
Speaker 3: taken out. They showed the flag with a massive military
Speaker 3: seal to Taiwan, right, and the military has been there
Speaker 3: the navy has been there. China is not in a
Speaker 3: position to fool around with the US, even with much
Speaker 3: of the US naval fleet now around Venezuela. So I
Speaker 3: think it's going to be stepping you know, very lightly
Speaker 3: on what would happen Van.
Speaker 2: Morris with his folks a special edition of Bloomberg Surveillance.
Speaker 2: We really held back the commercial interruptions to give you
Speaker 2: this conversation for America. Around the world. You have such
Speaker 2: a relationship with Faisal and on in Saudi Arabia. How
Speaker 2: does the Middle East in general, and particularly read and Jetta,
Speaker 2: how do they respond to these actions?
Speaker 3: There is my quite quietly, Riata is looking at the
Speaker 3: global setting. They know that Venezuela could be a threat
Speaker 3: to the production agreement within OPEK plus, but not in
Speaker 3: the short run. And the short run they're looking at
Speaker 3: the year ahead. The year ahead is quite uncertain and
Speaker 3: quite messy, and it was that way before the taking
Speaker 3: of Maduro. So we have Russia, Ukraine, we have uncertainty
Speaker 3: on the distortion and disruption side around the world, and
Speaker 3: the Saudis have also a military tide of the US
Speaker 3: that they don't want to lose, so they have to
Speaker 3: and they look at their budget. The budget requires a
Speaker 3: lot of borrowing. That borrowing may include in their own minds.
Speaker 3: How low can prices go for US six Where.
Speaker 2: Folks I failed the fall, I've failed. Ed Morris nailed
Speaker 2: the decline in oil. Do we have a lower oil
Speaker 2: target from her for heartreat?
Speaker 3: So we don't know how low the price will go.
Speaker 3: It's lifted a little bit by the geopolitical risk. I'd
Speaker 3: say the supply demand balance, which is higher supply than
Speaker 3: the race demand now and going forward, is for oil
Speaker 3: testing branded forty okay, And I think testing branded forty
Speaker 3: is something the Saudia's can swallow. How much lower than
Speaker 3: that they can swallow? It is not known.
Speaker 2: I want to get to say, because Paul's got any questions.
Speaker 2: So you're going to go visit Trump. President Trump is
Speaker 2: going to bean Edward Morris coffee with the President. You're
Speaker 2: going to talk about a transactional American president. And I
Speaker 2: know you're going to get a phone call from Ottawa
Speaker 2: where Mark Kearney is going to go Edmonton's playing Ottawa,
Speaker 2: Edmore's come join me at an Ottawa senator's hockey game.
Speaker 2: I mean, this is the way it's going to work.
Speaker 2: What do you say to Mark Kearney of Canada.
Speaker 3: Well, so with Trump, because I haven't answered your question
Speaker 3: if I say that Trump, and what I said to
Speaker 3: Trump is your policy on energy dominance is a wonderful strategy.
Speaker 3: But mister President, I think you're ignoring some things about
Speaker 3: energy dominance. And there are two things about it. One
Speaker 3: is that you can't get to where you want without
Speaker 3: having a significant growth because this is a world transitioning
Speaker 3: to electricity intensity, and you can't do the electricity intensity
Speaker 3: you need for AI and cloud computing and energy dominance
Speaker 3: without renewables. You can't do it even without hydrogen. So
Speaker 3: you've got to enlarge what you think about energy dominance.
Speaker 3: And then, mister President, you've got to think about the US.
Speaker 3: The US is not one country when it comes to energy.
Speaker 3: At six, we have two exporting segments in the US.
Speaker 3: They are the Gulf Coast of the US and I'm
Speaker 3: not talking about the Gulf of America or the Gulf
Speaker 3: of Mexico, but the Gulf Coast. And we have Alaska,
Speaker 3: both exporters of fossil fuels. And then we have two
Speaker 3: massive importers of fossil fuel with no tie and mister President,
Speaker 3: here is a lesson. The reason that we have two
Speaker 3: importers on the West Coast and the East Coast that
Speaker 3: are massive in scale, global in scale, is because another
Speaker 3: period of dominance around World War One, we thought we
Speaker 3: were the best shipbuilding company country in the world and
Speaker 3: we wanted to retain that dominance. So the Jones Act
Speaker 3: was enacted, and the Jones Act has meant that when
Speaker 3: it comes to energy we are importer. Is because we
Speaker 3: can't afford American chips to take oil from the Gulf
Speaker 3: Coast to the West Coast or the East Coast. We
Speaker 3: need foreign vessels and they carry farm So this is.
Speaker 2: The moment to do away with the Jones Act.
Speaker 3: This is the moment to do it, I mean, and
Speaker 3: also to tell the President energy dominance a good idea
Speaker 3: needs a little bit of massaging at the edge.
Speaker 2: I mean. The photograph of Theodore Roosevelt with a map
Speaker 2: of Venezuela behind him from I believe Paul nineteen oh
Speaker 2: nine was just stunning. I mean, this history going back here,
Speaker 2: Paul Sweeney with Edward Morris.
Speaker 4: So when you go down to Houston, you talk to
Speaker 4: these big energy companies today, are they happy with what's
Speaker 4: going on in the last twenty four or forty eight hours,
Speaker 4: or are they apprehensive that they see a big opportunity here.
Speaker 3: They see a better opportunity that than they've seen in years,
Speaker 3: but they are apprehensive. The risk of putting capital, their capital,
Speaker 3: their shareholders capital at risk looms extremely large in their minds.
Speaker 3: So there's not going to be a rush to put
Speaker 3: money into Venezuela until we see what the structure of
Speaker 3: the investment might look like.
Speaker 4: I'm surprised I don't see a move in WTI and
Speaker 4: Brent Crewe today. Now, I couldn't have told you is
Speaker 4: it going to be a five percent or down five percent?
Speaker 4: But I kind of got nothing going on here today.
Speaker 3: Well, in my prepared remarks, I thought that was the
Speaker 3: first question.
Speaker 5: I didn't know.
Speaker 3: You know that we're going to have prices go down
Speaker 3: a load.
Speaker 2: Its surveillance. You know, we make it up as we're
Speaker 2: winging it.
Speaker 3: No, I'm not surprised. Okay, there is no change in
Speaker 3: the energy market period.
Speaker 4: There you go, all right, So, but I think at
Speaker 4: some point it just feels like almost Opeck and Opeck
Speaker 4: plus become less and less relevant every day.
Speaker 3: Opeck and OUTPECK plus have become less relevant every day
Speaker 3: since the beginning of this decade. And when we look
Speaker 3: at the positions that have put this in, it's not
Speaker 3: just the rise of Guyana and Brazil and Argentina again,
Speaker 3: but it really is the US, the US, you know,
Speaker 3: I have this battle with my colleagues at work almost
Speaker 3: every day. The US is not just a crude oil producer.
Speaker 3: It is a massive liquids producer. We are a producer
Speaker 3: of twenty three to twenty four million barrels a day,
Speaker 3: and our growth has been in natural gas liquids. Natural
Speaker 3: gas liquids compete with oil out of a refinery. They
Speaker 3: compete with gasoline, they compete with dissolate, they compete with
Speaker 3: fuel oil. They're there for transportation, they're there for home
Speaker 3: heating and power generation and industrial use. So we are
Speaker 3: the disruptor of the global market, and we're the ones
Speaker 3: who put OPEC plus in a position of defense.
Speaker 2: I would be out. We're going to have to wrap
Speaker 2: it up here with Mark Champion coming up, folks from Europe,
Speaker 2: with all of his decades of experience, Doctor Morris. Some
Speaker 2: of the the highlights of my career here than with
Speaker 2: you in with Daniel Jurgen. If I was to get
Speaker 2: Jurgen in morse together and look at his the prize,
Speaker 2: just the romance that I, as a kid in college
Speaker 2: read cover to cover. We got to find the romance
Speaker 2: for Venezuela, to save a society, to save a region,
Speaker 2: maybe to support the don Road doctrine. I don't know
Speaker 2: how do we get the romance back that you knew
Speaker 2: working there, that I knew as a student. I don't
Speaker 2: know how we do that.
Speaker 3: I know that I'm not going to bring the romance back,
Speaker 3: and Dan Jurgen certainly has the ability.
Speaker 2: To do it.
Speaker 3: By the way, I was an early reader of the Prize.
Speaker 3: He and I knew each other in graduate school. We
Speaker 3: were in different graduate schools. And when he wrote The Price,
Speaker 3: the original version that I read was actually twice as
Speaker 3: long as a version in print, So he had to
Speaker 3: cut out a lot of wonderful text in order to
Speaker 3: put out that brilliant book.
Speaker 2: The book was it, Paul? It was You had to
Speaker 2: walk around even if you didn't read it. You walked
Speaker 2: a walk it. Yeah, to be cool. You're gonna talk
Speaker 2: about this unique American relationship with various and sundry banana
Speaker 2: republics Reagan and Granada and the rest. Can we develop
Speaker 2: a new process with central in Latin America or will
Speaker 2: this be the same old, same world through the rest
Speaker 2: of the Trump term.
Speaker 3: Now, I think I think there is a process going on.
Speaker 3: If we look at elections that have taken place in
Speaker 3: Latin America, there's a rebellion in those countries against corruption.
Speaker 3: There's a move from the corrupt left to the right.
Speaker 3: We've had a corrupt right in the past, but it's
Speaker 3: been a very constructive set of moves from reelections. So
Speaker 3: I think I think Latin America is in a very
Speaker 3: good position now, better position than it's been in a
Speaker 3: long time. And part of it is the lessons learned
Speaker 3: from China, overspending and having a view that all credit
Speaker 3: has to be repaid.
Speaker 2: Wow, Paul, we got to mark Champion, but doctor Morris,
Speaker 2: I got to bring this up, Paul said, you got
Speaker 2: to ask the question time, what's it mean for land Man?
Speaker 3: Thank you very much for inviting me.
Speaker 2: This had a pleasure to be more. Thank you so much.
Speaker 2: We're the hard Tree And of course doctor Morris was
Speaker 2: City Group for many years. Edward Warrice there stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 4: Keith Leernert, he's the CIO and chief market strategist at
Speaker 4: Truest Keith, So we think about twenty twenty six year,
Speaker 4: we got geopolitics front and center here today to start
Speaker 4: kind of the year off, right, let's step back to
Speaker 4: just a little bit there. What are your outlook for
Speaker 4: markets in twenty twenty six after just outstanding results and
Speaker 4: equities and bonds and commodities in twenty twenty five.
Speaker 6: Yeah, well, first, great to kind of bring in the
Speaker 6: new year with you guys.
Speaker 5: Great to be on.
Speaker 6: So our look that we published in December was called
Speaker 6: the seventh Inning Stretch, and the way we thought about
Speaker 6: it is, you know, we've come a long way in
Speaker 6: the economic cycle and the markets. It was a good
Speaker 6: time to kind of access where we are and our
Speaker 6: bottom line is, you know, our way the evidence approach
Speaker 6: suggests it is still upside in both the economy and
Speaker 6: the stock market. So let me just share a couple
Speaker 6: of stats with you.
Speaker 5: The first one is, you.
Speaker 6: Know, we just had our third year anniversary of the
Speaker 6: bullmarket late last year. When we look historically, there's been
Speaker 6: seven bull markets that has had a third year anniversary,
Speaker 6: all them sore gains over the next year. It's only
Speaker 6: a sample size of seven, but as a starting point,
Speaker 6: that's a positive. If I lay on top of that
Speaker 6: that the Fed once again in December cut rates when
Speaker 6: when the SMP was close to all time highs.
Speaker 5: When you test that out about a year.
Speaker 6: Later, the market has been up more than ninety percent
Speaker 6: of the time, so that's also a positive. And then
Speaker 6: you mentioned the earning side. You know, the pe for
Speaker 6: the overall market last year was flat. For the technology
Speaker 6: sector it was actually down. And all the games really
Speaker 6: last year were earnings. As we move forward, we expect
Speaker 6: low double digit earnings again that should support the overall market.
Speaker 6: I will say it is a mid timber election year.
Speaker 6: Those tend to be somewhere more vatile. We have our
Speaker 6: first turn ball that we saw here with the Venezuela
Speaker 6: over yesday.
Speaker 2: What I got most wrong last year was, as in
Speaker 2: the triple leverage, all cash run for the entire year.
Speaker 2: Paul cratered great. I mean that Cratered you learned. What'd
Speaker 2: you get most wrong? Last year?
Speaker 6: When I get most most wrong, I would say, I thought,
Speaker 6: you know, when think about the April trade side, we
Speaker 6: downgraded equities in February.
Speaker 5: We told a lot of investors do not sell at
Speaker 5: the lowest.
Speaker 6: But then after we had the initial pop, we took a.
Speaker 5: Little bit off the table.
Speaker 6: So I think that's probably if you say what you
Speaker 6: got most wrong. What I'm proud of is that we
Speaker 6: didn't stay there too long. We then upgraded stocks are
Speaker 6: shortly thereafter. But it was you know, we follow this
Speaker 6: way of the evidence approach, and you know it overall
Speaker 6: led us directly in the right way.
Speaker 4: So fixed income here high single did your returns in
Speaker 4: twenty twenty five in twenty six? Is it just a
Speaker 4: function of clipping the coupon?
Speaker 2: Do you think?
Speaker 5: Yeah?
Speaker 6: I think so for the most part, I mean our
Speaker 6: house views is the ten year drifts towards three seventy five,
Speaker 6: So maybe you get a little bit of price appreciation,
Speaker 6: and you know, relative to the last ten fifteen years,
Speaker 6: you know, yields are still somewhat attractive.
Speaker 5: So yeah, we think, you know, we we basically clipped
Speaker 5: the coupon.
Speaker 6: That's why I with an overall assd allocation, we still
Speaker 6: have a modest equity tilt, and we still all year along.
Speaker 6: Last year we had our position in gold, which we
Speaker 6: call the MVP, and we still like gold as we
Speaker 6: move into this year, at least from a portfolio diversification standpoint, Say.
Speaker 2: To people, Keith, like they participated, but maybe they were
Speaker 2: you know, sixty forty they were more fixed income or Paul,
Speaker 2: how I mean, how many people are in cash? The
Speaker 2: money mark fronts three point x percent. Yeah, Kathy Jones
Speaker 2: is not agen. She's the only one that hasn't. Hey,
Speaker 2: Keith Lerner, you're talking to Kathy Jones and Charles Schwab
Speaker 2: or anybody else. When did you make the shift to equities?
Speaker 6: Well, you know, you know, I don't think it's like
Speaker 6: on off switch. In our review, we actually have, you know,
Speaker 6: just kind of targeted levels of cash. We've been telling
Speaker 6: folks if you have excess cash to work that in
Speaker 6: the market. It could be inequities, it could be in
Speaker 6: fixed income. And you know you just mentioned yeah, bond's
Speaker 6: underperformed stocks. But you know, you really what you're paying
Speaker 6: for or what you're looking for for fixed income is
Speaker 6: to clip that coupone for income and some stability.
Speaker 5: So I would still be working that money in.
Speaker 6: And we still think there's upside in the equity market,
Speaker 6: in the fixed income market, and we do think that
Speaker 6: will likely see one to two rate cuts this year,
Speaker 6: which means those short term money market rates are likely
Speaker 6: to come down.
Speaker 5: Or is our fixed income.
Speaker 6: Had says the error of you know, buying the T
Speaker 6: bills and just chilling is likely over.
Speaker 5: So I think there's still opportunity.
Speaker 2: Kathy Jones is at peace sitting in her studio because
Speaker 2: Keith saying, take the coupe part and say think one
Speaker 2: more for Keith Learner.
Speaker 4: Hey, Keith, as good as the equity returns in the
Speaker 4: US in twenty twenty five, they were better outside of
Speaker 4: the US. How do you think about US versus the
Speaker 4: rest of the world in terms of the equity markets
Speaker 4: in twenty.
Speaker 6: Six Yeah, big picture, we have a modest over to
Speaker 6: the US.
Speaker 5: We have over the last fifteen.
Speaker 6: Months increased our international We have a global bull market
Speaker 6: on the way. I would just say, though a lot
Speaker 6: of focus on how much in the US underperformed last
Speaker 6: year zoom out. The year before, the US had outperformed
Speaker 6: international developed by the most in the nineties, and it's
Speaker 6: still more than about double the performance of international.
Speaker 5: Over the last five years. So listen. I think there's
Speaker 5: opportunities globally.
Speaker 6: I want to have more allocation there, but we still
Speaker 6: have a bias for the US because their earning trends
Speaker 6: still remain strongest domestically.
Speaker 2: Keith, Thank you so much. Keith lerner with us with
Speaker 2: Truis to get us started in the equity markets. Stay
Speaker 2: with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: Joining us now for Too Sure a visit. Henrietta Treys
Speaker 2: joins us from Data Partners. Henriette an open question, what
Speaker 2: will you study and listen for on Capitol Hill this morning?
Speaker 7: Yeah, that's the question of the hour.
Speaker 8: I would say that the White House likes to tell
Speaker 8: Capitol Hill that they are incredibly transparent, and I think
Speaker 8: what they mean by that is that they talk a lot,
Speaker 8: and they tell voters, they tell lawmakers what they're thinking
Speaker 8: in real time. So one of the things that's most
Speaker 8: important to me is what comes after Venezuela. Obviously we're
Speaker 8: hearing about Cuba, Colombia, and Mexico. And i'd point out
Speaker 8: one thing that I think is really important for investors
Speaker 8: right now, which is that Ambassador Greer, the USTR has
Speaker 8: stopped putting into writing the way that the United States
Speaker 8: is planning to treat the USMCA, the US Mexico Canada
Speaker 8: Trade Agreement. They're saying, we're going to basically adapt to
Speaker 8: this on the fly. We are going to be updating
Speaker 8: things as Mexico responds to our incursions in Venezuela, what
Speaker 8: might be coming in Cuba or Colombia. They're telegraphing that
Speaker 8: there's more to come. So I think when members on
Speaker 8: Capitol Hook get their briefings, they're not going to be
Speaker 8: concerned about the who, what, where, when, why, what happened
Speaker 8: over the weekend. They're looking to what comes next and
Speaker 8: getting out in front of it. And I think the
Speaker 8: White House is telegraphing that there is much more to come.
Speaker 4: Henrietta, what are you with twenty four hours of hindsight here?
Speaker 4: What do you think the political calculus was for President
Speaker 4: Trump and his advisors as it relates to going into
Speaker 4: another perhaps open ended commitment to another country versus kind
Speaker 4: of what he said on the campaign trail about that
Speaker 4: that's not what we're going to do here. We're going
Speaker 4: to get ourselves away from that type of foreign policy.
Speaker 4: How do you think that worked out?
Speaker 2: Yeah?
Speaker 8: I think so far what's happened is that no one
Speaker 8: can say anything negative about what actually went down. There's
Speaker 8: no military desk on the United States side. It was fast.
Speaker 8: Maduro and his wife are in the United States already
Speaker 8: awaiting trial right now. So it's going to be the
Speaker 8: fallout and sort of wrangling members going forward that they're
Speaker 8: going to need to do with every single piece in
Speaker 8: their arsenal. So the briefings on the Senate side today
Speaker 8: between the House Republicans and the President tomorrow, it's going
Speaker 8: to be imperative that they keep descent to a bare minimum.
Speaker 7: So I think that's going to be successful.
Speaker 8: I imagine they lose two votes on the Senate side
Speaker 8: and maybe two votes on the House side, but they
Speaker 8: can keep descent at bay, keep the war powers resolutions
Speaker 8: at bay, and that's going to be their number one priority.
Speaker 7: Keep the Republican rank and file in line.
Speaker 4: Do you think President Trump or in the midterm elections
Speaker 4: Republican Party will pay any price here for this type
Speaker 4: of farm policy, That's the question.
Speaker 8: I would say no, mostly because American voters do not
Speaker 8: care about foreign policy. So unless they're our military desks,
Speaker 8: this can go downward. But there's not an upside for
Speaker 8: the president here. Gas prices are already low. It's going
Speaker 8: to take years to bring Venezuelan and oil onto the market.
Speaker 8: You've got to put it out previously. The maybe Europe
Speaker 8: benefits here, but this is not going to bring gas
Speaker 8: prices down in the United States, is the expectation of
Speaker 8: all the investors I spoke with and energy sector experts
Speaker 8: I spoke with this weekend. So I think we're really
Speaker 8: still on affordability, inflation, jobs, prices, and it is by
Speaker 8: far and away the number one issue of voters, and
Speaker 8: they don't like the President's handling of it. And that's
Speaker 8: that's the reality that the White House and the Republican
Speaker 8: Conference have to face.
Speaker 2: Any of the trades with this Vada partner as we continue.
Speaker 2: Where they're into this closing hour of Bloomberg surveillance is
Speaker 2: seven o'clock. Are here in New York Internet our Michael mcgloan,
Speaker 2: Damien Sasa, Edward Morris, Mark Champion, I think from London,
Speaker 2: as well as Lisa Matteo Henrietta. Unspoken in the X
Speaker 2: number of briefings I've read in the last forty hours
Speaker 2: fifty hours, is the United States military and particularly our Navy.
Speaker 2: Is the feeling in your context that our military is stretched?
Speaker 8: I don't get that impression, mostly because as you've seen
Speaker 8: federal spending on the Navy, on the Coastguard, on the Marines,
Speaker 8: everything has gone up. This year, federal spending is up
Speaker 8: six percent and that's going to continue. So one of
Speaker 8: the things that we don't have is a defense appropriations
Speaker 8: bill beyond January thirtieth, And that's really important because the
Speaker 8: White House is now in a position to come and
Speaker 8: request more money for the Department of Defense, for the Pentagon,
Speaker 8: for any of the agencies associated with the military, and
Speaker 8: you can bet.
Speaker 7: Your bottom Dalla that request is coming.
Speaker 8: In one of the things you might like to do
Speaker 8: is delay that request so it doesn't look like this
Speaker 8: incursion is costing money. They can push it out into
Speaker 8: February and March. I suspect there will be a short
Speaker 8: term cr that punts on long term solutions to the
Speaker 8: Department of Defense and spending there. But there's going to
Speaker 8: be more money flowing to defense.
Speaker 2: It's Washington fighting the last war where what we need
Speaker 2: is another aircraft carrier or is the answer six million drones?
Speaker 7: Oh man, are you bringing in shipbuilding? I will talk
Speaker 7: about that all day. I mean, I know your agent shipbuilding.
Speaker 2: Your agent called me at three am and said, Tom, shipbuilding, Henrietta.
Speaker 8: Yeah, I mean, if you're going to bring up trade
Speaker 8: and you know what we're doing on tariffs and all that,
Speaker 8: it's very much associated with shipbuilding.
Speaker 7: You can see it.
Speaker 8: And the President's you know, not finished but endeavored trade
Speaker 8: deals with Japan, with South Korea, with China, bringing shipbuilding
Speaker 8: back to the United States. So that is definitely a
Speaker 8: part of what President Trump wants. Actual physical you know,
Speaker 8: almost like battleship the game.
Speaker 7: Make sure you have them ships here in the United States.
Speaker 8: They're actively working to build that out, Henrietta.
Speaker 4: We are obviously folcusing today and probably for the days
Speaker 4: to come on geopolitics. But don't we have to keep
Speaker 4: this government open? What's the status there?
Speaker 2: We sure knew.
Speaker 8: The government is prepared to shut down on February first
Speaker 8: if they don't reach a deal. The reality on that
Speaker 8: is that, as I mentioned, Defense is not even funded,
Speaker 8: the Labor Department is not funded. So we're at the
Speaker 8: same sort of negative for the market situation going into
Speaker 8: February as we were back in October, where we lapps
Speaker 8: labor data and BLS data, et cetera.
Speaker 7: So there's a lot of work to be done in.
Speaker 8: The House and the Senator on two totally different pages,
Speaker 8: which is why I suggest that maybe we'll get one
Speaker 8: to even three long term bills funding various sectors of
Speaker 8: the federal government. But for the most part, we're going
Speaker 8: to be operating on a short term basis. Probably into March.
Speaker 8: I could see another cr My odds was shutdown are
Speaker 8: low twenty five percent or lower, but it's going to
Speaker 8: be a major topic of discussion to the end of
Speaker 8: this month.
Speaker 4: What else is on the agenda for Congress? You're going
Speaker 4: forward here, because again I'm assuming geopolitics is going to
Speaker 4: supersede a lot of this at least in the coming back.
Speaker 7: Yes, yeah, for sure. And so anything that you thought
Speaker 7: was going to happen is not going to happen.
Speaker 8: So a second reconciliation bill is highly unlikely. The one
Speaker 8: caveat I'd put on that is to say that there
Speaker 8: is an effort from Lindsay Graham, the chairman of the
Speaker 8: Senate Budget Committee, to deployed military spending into a second
Speaker 8: reconciliation bill, which would be pretty novel in terms of
Speaker 8: what you can do under that authority. But that's something
Speaker 8: to be mindful of if the President really does come
Speaker 8: in with a massive request for the Pedagon in the
Speaker 8: wake of the Venezuela incursion and what's to come in Cuba,
Speaker 8: in Colombia and elsewhere, So that's worth being mindful of.
Speaker 8: But I'm low lot to twenty percent or below. We're
Speaker 8: not going to get that tire freebate dividend check. The
Speaker 8: biggest thing that's actually going to happen is the Supreme
Speaker 8: Court ruling on tariffs. Everything else that Congress wants to do,
Speaker 8: whether it's on crypto or permitting or housing whatever, and
Speaker 8: none of that's going to happen.
Speaker 2: Very quickly here a NERD question unered Greg Giroux or
Speaker 2: Greg Polling Acts. Has mister Trump lost the Latino vote
Speaker 2: and did he get back the Latino vote this weekend?
Speaker 8: That is definitely a great demographic question. The Venezuela vote
Speaker 8: is heavily concentrated in Florida. I would suggest it's maybe
Speaker 8: worth two or three percentage points from the Latino vote
Speaker 8: in the state of Florida, but it's not widespread throughout
Speaker 8: the nation, and the Latino voter from Jersey, Virginia, Tennessee,
Speaker 8: even across the country, certainly California. You've seen absolute hemorrhage
Speaker 8: support for President Trump in the week of his immigration
Speaker 8: and basically his economic handling. When you see Democrats outperforming
Speaker 8: Republicans on the handling of the economy, that goes to
Speaker 8: every voter, Latino or no. So I don't think that
Speaker 8: the Venezuela piece is big enough to move the entire
Speaker 8: Latino vote, and that's going to be a misnomer heading
Speaker 8: into the mitchem Henrietta, thank you so much.
Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance podcast. Listen live each weekday
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Speaker 2: As you mentioned, Kathy Jones joins if she's fixed income
Speaker 2: strategists at Charles Schwubb, can't you got eight ways to
Speaker 2: go here? Let me pick up on what mister Lerner
Speaker 2: said is that even if you own in Vidia, there's
Speaker 2: a place for bonds, notes and bills. Explain to the
Speaker 2: tech bro why they should be looking at your world.
Speaker 9: Yeah, I mean one of the basics of asset allocation
Speaker 9: is to have some risk assets and some less risky assets,
Speaker 9: so you get diversification, and they're not correlated with each other,
Speaker 9: so that gives you that efficient You want to be
Speaker 9: on that efficient frontier right where your return is is high,
Speaker 9: but your risk is mitigated. And that's the combination, the
Speaker 9: magic combination when you do asset allocation that you're aiming for.
Speaker 4: We've got it feels like a steepening yield curve here.
Speaker 4: How do you think about that? What does it mean
Speaker 4: for the marketplace?
Speaker 9: Yeah, We've been riding the steepening Eiel curve trade for
Speaker 9: about a year now, and I think one of the
Speaker 9: questions I have is whether that continues in light of
Speaker 9: the expectations of lower inflation due to lower oil prices.
Speaker 9: I think it's premature to make that decision right now,
Speaker 9: but as things are playing out, perhaps there will be
Speaker 9: the expectation of more supply lower oil prices in the future,
Speaker 9: therefore less inflation. But for now, you know, we still
Speaker 9: have the feti using, so that means short end probably
Speaker 9: still come down a bit. When you get to intermediate
Speaker 9: to long term, you still have problems that could keep
Speaker 9: yield sort of where they are, and that would be
Speaker 9: you know, sticky inflation so far, and the deficit and
Speaker 9: the need to deal with supply.
Speaker 2: I was channeling Paul this morning. First chart I looked
Speaker 2: at on the Bloomberg terminal was the difference in yield
Speaker 2: between a five year and a thirty year Paul. The
Speaker 2: only reason I did that was Steve Major. Yep, it wasn't.
Speaker 2: It wasn't an original thought from Tom Kane. Explain to
Speaker 2: our audience. They know that vanilla is the two ten spread.
Speaker 2: You can go three months to thirty year, like the
Speaker 2: whole curve. Explain the efficacy of pistachio the five year
Speaker 2: to thirty years spread.
Speaker 9: Yeah, I think when you're looking at five year to
Speaker 9: thirty year, what you're really trying to do is scope
Speaker 9: out the really long term, what really long duration can
Speaker 9: do for you. When you go into the thirty year,
Speaker 9: it's going to be more volatile and it's going to
Speaker 9: really reflect the long duration view. Right, you take a
Speaker 9: fair amount of duration risk in that. I take a
Speaker 9: lot of duration risk in that. So you have to
Speaker 9: be really convinced that the long term trend is towards
Speaker 9: disinflation for that to really make sense or to get
Speaker 9: you know, so much yield that it compensates you for
Speaker 9: the risk of volatility along the way and surprises along
Speaker 9: the way. And you know, if you're a trader, you
Speaker 9: may look at that. Most everyday investors don't go out
Speaker 9: to thirty years.
Speaker 4: In twenty twenty five, you got paid for taking some
Speaker 4: credit risk. How about in twenty six are you gonna
Speaker 4: get paid for credit risk? Or do I just stay
Speaker 4: a little bit closer in on my credit.
Speaker 9: Yeah, the credit spreads are still tight. We're seeing some
Speaker 9: deterioration in the underlying market. Again, we'd be cautious. It's
Speaker 9: not that you can't take some credit risk, it's that
Speaker 9: you don't want to take too much credit risk. And
Speaker 9: this is a highly unstable environment right now to try
Speaker 9: to predict, you know, where corporate profits are going to go.
Speaker 9: They look good, but you know it's priced in a
Speaker 9: lot of priced in, so we'd be kind of cautious.
Speaker 2: That don't mean to interrupt, but that sounds exactly like
Speaker 2: ninety days ago, one hundred and eighty days ago, two
Speaker 2: hundred and seventy days ago. Remember before the earning season. Yeah, OMG,
Speaker 2: we're not sure. And then what is it January fourteenth, fifteenth.
Speaker 4: Whammo, some solid earnings across the board. Here in twenty
Speaker 4: twenty six. Here are there sectors that screenwall for you.
Speaker 4: How are you thinking about finding opportunity this year?
Speaker 9: Yeah, we like tips. We think they're well priced for
Speaker 9: real return, so you get a positive real return. And
Speaker 9: I think the investors really haven't latched onto this because
Speaker 9: I've had some difficulty kind of reading the tips market.
Speaker 9: But we think tips look pretty good. We think munis
Speaker 9: are undervalued there right now, and that's because supply has
Speaker 9: been really large. But if you're in a higher tax
Speaker 9: bracket and a high tax even if you're not in
Speaker 9: a high tax bracket, they can make sense for tax equivalent.
Speaker 2: I wouldn't ask you this question in March or August,
Speaker 2: but it's January, and my jargon police are out in force.
Speaker 2: What in God's name is a tip?
Speaker 9: Oh, treasury inflation protective securities.
Speaker 2: So you're betting on inflation there.
Speaker 9: Well, what you're doing is you're buying a treasury that's
Speaker 9: index to the CPI, and it's the overall CPI, so
Speaker 9: not excluding food and energy. So right now, the way
Speaker 9: their price, you're going to get one or two percent
Speaker 9: above inflation whatever that right turns out to be. So
Speaker 9: that gives you a real positive, real return kind of
Speaker 9: no matter what happens.
Speaker 2: You and lizz Anne look look tanned and rested. Did
Speaker 2: Kevin Gordon get any time out? Did he work every day?
Speaker 9: Kevin had a good vacation in there, He had some
Speaker 9: time on. He had like twelve hours like you give
Speaker 9: a much chance every once in a while.
Speaker 2: Jathy, thank you so much again, thank you for helping
Speaker 2: us with the FED decides as well. That would be
Speaker 2: January twenty ninth, Miss Jones is with Charles Schwad.
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