1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 2 00:00:09,200 --> 00:00:13,080 Speaker 1: with Jonathan Ferrell and Lisa A. Brawmowitz Jailely. We bring 3 00:00:13,119 --> 00:00:17,119 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,239 --> 00:00:23,320 Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg 5 00:00:23,360 --> 00:00:29,400 Speaker 1: dot Com and of course on the Bloomberg terminal. But 6 00:00:29,600 --> 00:00:32,280 Speaker 1: Michael J. F Margan Aid Management alongside us. Great to 7 00:00:32,320 --> 00:00:34,840 Speaker 1: catch out with you above. As always, should we save 8 00:00:34,960 --> 00:00:37,280 Speaker 1: Liverpool for later in the conversations? You want to start 9 00:00:37,320 --> 00:00:40,040 Speaker 1: with markets. You had an interview with bloom Bake News yesterday. 10 00:00:40,159 --> 00:00:43,120 Speaker 1: It was really really interesting about the risk that maybe 11 00:00:43,120 --> 00:00:45,839 Speaker 1: this FED does not do enough. Can you talk to 12 00:00:45,880 --> 00:00:49,519 Speaker 1: us about that risk? Yeah? I can't get two thousand 13 00:00:49,560 --> 00:00:52,360 Speaker 1: and six out of my mind. The FED had raised 14 00:00:52,440 --> 00:00:54,960 Speaker 1: rates from one percent to five and a quarter percent, 15 00:00:55,320 --> 00:00:58,520 Speaker 1: four and twenty five basis points. Here we are today. 16 00:00:58,720 --> 00:01:01,760 Speaker 1: They've raised rates by four hundred and twenty five basis 17 00:01:01,800 --> 00:01:06,399 Speaker 1: points and then they stopped and was it enough or 18 00:01:06,520 --> 00:01:09,360 Speaker 1: wasn't it enough? It took a while for things to 19 00:01:09,360 --> 00:01:13,480 Speaker 1: slow down, and ultimately it ended in a financial crisis. 20 00:01:14,240 --> 00:01:17,559 Speaker 1: But they got to five and a quarter. We're still 21 00:01:17,600 --> 00:01:19,920 Speaker 1: at four in a quarter. Will they get to five? 22 00:01:21,000 --> 00:01:23,279 Speaker 1: I think there's still a lot going on the labor 23 00:01:23,319 --> 00:01:28,119 Speaker 1: markets type. China's reopening the housing market. Although prices are 24 00:01:28,120 --> 00:01:31,440 Speaker 1: coming down, the competition for houses still very very high. 25 00:01:31,640 --> 00:01:33,720 Speaker 1: So how conservative are you when it comes to this 26 00:01:33,880 --> 00:01:36,240 Speaker 1: rally that was seeing a merge in the last couple 27 00:01:36,240 --> 00:01:39,679 Speaker 1: of weeks, the last few months. Well, we've we've been 28 00:01:39,800 --> 00:01:42,120 Speaker 1: part of it. We thought at the end of last 29 00:01:42,200 --> 00:01:44,600 Speaker 1: year the markets were ripe for a rally. I was 30 00:01:44,640 --> 00:01:47,680 Speaker 1: out meeting lots of clients in a lot of places, 31 00:01:47,760 --> 00:01:50,440 Speaker 1: and a lot of them were telling me they're going 32 00:01:50,520 --> 00:01:52,760 Speaker 1: back into the bond market for the first time in 33 00:01:52,760 --> 00:01:54,920 Speaker 1: a while. And they didn't mean a year. A lot 34 00:01:55,040 --> 00:01:56,680 Speaker 1: of them meant for the first time in sevent to 35 00:01:56,720 --> 00:01:58,840 Speaker 1: eight years. But a lot of them were saying this 36 00:01:58,920 --> 00:02:00,680 Speaker 1: is the first time they've been in the bond market 37 00:02:00,720 --> 00:02:03,640 Speaker 1: since the financial crisis. So there was a lot of 38 00:02:03,680 --> 00:02:06,680 Speaker 1: money desperate to get into bonds, waiting for high really 39 00:02:06,720 --> 00:02:09,800 Speaker 1: else they got it. It's come in. The Fete's thrown 40 00:02:09,800 --> 00:02:13,360 Speaker 1: a lot at this market. They're probably ripe for a pause. 41 00:02:13,639 --> 00:02:16,200 Speaker 1: I think the market runs a bit more and then 42 00:02:16,200 --> 00:02:18,200 Speaker 1: it pauses when the Fete pauses, I want to go 43 00:02:18,240 --> 00:02:21,119 Speaker 1: back to two thousand six and your observation pre GFC 44 00:02:21,680 --> 00:02:24,320 Speaker 1: and what's so important to me? And this goes without 45 00:02:24,440 --> 00:02:27,440 Speaker 1: question the observation of the year last year, not seeing 46 00:02:27,480 --> 00:02:31,480 Speaker 1: Toleb saying the gravity has returned to the system all 47 00:02:31,520 --> 00:02:34,840 Speaker 1: of a sudden, the dynamics hearkened back to two thousand six, 48 00:02:35,280 --> 00:02:38,919 Speaker 1: And what I remember then was the overshoot in real estate. 49 00:02:38,960 --> 00:02:42,720 Speaker 1: It was hugely advanced, hugely inflated down we came in 50 00:02:42,919 --> 00:02:46,119 Speaker 1: overshot through the lag regression. Are we going to see 51 00:02:46,160 --> 00:02:49,400 Speaker 1: that this year with bonds where the yields the price 52 00:02:49,560 --> 00:02:53,320 Speaker 1: moves so much that we overshoot in certain ways. Well, well, 53 00:02:53,320 --> 00:02:58,640 Speaker 1: the overshooting real estate occurred because the apple supply of 54 00:02:59,080 --> 00:03:03,240 Speaker 1: pretty much low cost money was around everywhere, and that's 55 00:03:03,320 --> 00:03:07,399 Speaker 1: happened over the last couple of years. So that costless 56 00:03:07,480 --> 00:03:11,560 Speaker 1: liquidity has been slashing around for a few years, and 57 00:03:11,600 --> 00:03:15,880 Speaker 1: we've only recently started to remove it from the system. 58 00:03:15,960 --> 00:03:19,360 Speaker 1: So yeah, I do get concerned that there will be 59 00:03:19,400 --> 00:03:23,360 Speaker 1: an overshoot. We do get concerned that there are bubbles 60 00:03:23,360 --> 00:03:27,000 Speaker 1: out there that will burst. It's really hard to identify them. 61 00:03:27,240 --> 00:03:29,920 Speaker 1: But the one thing we're pretty sure of is the 62 00:03:29,960 --> 00:03:33,440 Speaker 1: only way this ends is with the recession. You have 63 00:03:33,560 --> 00:03:37,600 Speaker 1: to have a recession to really cool things down and reset. 64 00:03:37,680 --> 00:03:40,800 Speaker 1: And REVS appreciated the Telegraph yesterday with Ken Rogoff. Lisa 65 00:03:40,840 --> 00:03:44,000 Speaker 1: bram was talking with Kennan Dabos and Ken Roof may 66 00:03:44,080 --> 00:03:47,240 Speaker 1: clear this is a different shadow bank than two thousand six, 67 00:03:47,600 --> 00:03:51,040 Speaker 1: but nevertheless there are shadows within the banking system. How 68 00:03:51,080 --> 00:03:54,520 Speaker 1: does that devolve in the JP Morgan fixed income? Well, 69 00:03:54,800 --> 00:03:59,440 Speaker 1: by definition, shadow banking is shadowy. Um, so we need 70 00:03:59,520 --> 00:04:03,960 Speaker 1: to be we can yeah, we need to be concerned 71 00:04:04,120 --> 00:04:07,600 Speaker 1: about that, um. But there's a lot of shadow banking 72 00:04:07,680 --> 00:04:11,520 Speaker 1: that's occurred in the private capital markets that have financed 73 00:04:11,600 --> 00:04:14,640 Speaker 1: a lot of things that may have made sense two 74 00:04:14,720 --> 00:04:17,640 Speaker 1: or three years ago, do they make sense today? Are 75 00:04:17,680 --> 00:04:22,720 Speaker 1: there rightdowns coming there? Where? Will? There is there existence 76 00:04:22,920 --> 00:04:27,159 Speaker 1: within private equity? I think we look at private capital 77 00:04:27,680 --> 00:04:29,599 Speaker 1: in total, and we look at a lot of the 78 00:04:29,640 --> 00:04:32,640 Speaker 1: private credit transactions. For sure, there are going to be 79 00:04:32,760 --> 00:04:37,360 Speaker 1: restructuring exchanges. Is he talking about Menu? I'm not sure. 80 00:04:37,400 --> 00:04:39,920 Speaker 1: I don't think so. Given us about this company, can 81 00:04:39,920 --> 00:04:42,960 Speaker 1: we talk about how what's happening in private markets could 82 00:04:42,960 --> 00:04:45,520 Speaker 1: introduce a new set of risk into public markets. I'm 83 00:04:45,560 --> 00:04:48,640 Speaker 1: told repeatedly you are too that how you're the stronger, 84 00:04:49,040 --> 00:04:51,960 Speaker 1: that the quality is much higher than it was maybe 85 00:04:51,960 --> 00:04:54,320 Speaker 1: a few years ago, five, ten years ago, especially in 86 00:04:54,320 --> 00:04:56,680 Speaker 1: the last decade. But do you push back against that 87 00:04:56,760 --> 00:04:58,960 Speaker 1: knowing that there is this risk here in private markets 88 00:04:59,000 --> 00:05:03,240 Speaker 1: that could spill into public markets. So I've heard those 89 00:05:03,360 --> 00:05:09,080 Speaker 1: arguments before every single recession. This time, high yield will 90 00:05:09,160 --> 00:05:12,400 Speaker 1: hold in. We have to remember, really the high yield 91 00:05:12,440 --> 00:05:15,800 Speaker 1: market got started in the eighties when it became public 92 00:05:16,080 --> 00:05:19,080 Speaker 1: and investors could get invested in it. So it's not 93 00:05:19,160 --> 00:05:22,279 Speaker 1: been around for a long time and there have only 94 00:05:22,360 --> 00:05:26,320 Speaker 1: been a handful of recessions. Every single time headed into 95 00:05:26,320 --> 00:05:29,960 Speaker 1: a recession, it holds in well because this time is different, 96 00:05:30,160 --> 00:05:33,320 Speaker 1: and every single time in a recession, credit spreads blow 97 00:05:33,360 --> 00:05:37,039 Speaker 1: out to the minimum of eight hundred over and yes, 98 00:05:37,360 --> 00:05:41,000 Speaker 1: it may look higher quality, but when defaults start to hit, 99 00:05:41,279 --> 00:05:44,960 Speaker 1: when the economy goes into recession, when corporate profitability comes 100 00:05:45,040 --> 00:05:48,320 Speaker 1: under a lot of pressure, investors will reprice that market. 101 00:05:48,720 --> 00:05:50,479 Speaker 1: The one thing that I wearry about this time that 102 00:05:50,640 --> 00:05:53,880 Speaker 1: is genuinely different is the amount of investment in the 103 00:05:53,960 --> 00:05:57,520 Speaker 1: private credit markets. And if you start to have problems 104 00:05:57,560 --> 00:06:00,880 Speaker 1: there where you start to get restructurings to fall exchanges 105 00:06:01,240 --> 00:06:06,320 Speaker 1: that are in the neighborhood. Investors in no spaces may 106 00:06:06,360 --> 00:06:09,599 Speaker 1: only have the public markets as their relief valve. You 107 00:06:09,640 --> 00:06:12,760 Speaker 1: sound what you can, not what you want, defeature of 108 00:06:12,800 --> 00:06:14,880 Speaker 1: what we could say. There's a question that's just been 109 00:06:14,920 --> 00:06:17,360 Speaker 1: asked on the Bloomberg by a terminal subscribe, but I'd 110 00:06:17,400 --> 00:06:19,799 Speaker 1: like to share with you. Could you ask Bob about 111 00:06:19,839 --> 00:06:22,680 Speaker 1: how what's different this time versus two thousand and eight, 112 00:06:22,839 --> 00:06:25,080 Speaker 1: and that we know the fen has que and they 113 00:06:25,120 --> 00:06:27,080 Speaker 1: know how to use it. The risk of severe credit 114 00:06:27,160 --> 00:06:30,800 Speaker 1: risk contagion was real back then, not anymore. Question mark, 115 00:06:30,920 --> 00:06:35,279 Speaker 1: how would you respond to that? Um? I think what 116 00:06:35,279 --> 00:06:39,800 Speaker 1: what is different this time is everyone's on the lookout 117 00:06:40,000 --> 00:06:43,839 Speaker 1: for a bubble. There is there complacency or not. We've 118 00:06:43,880 --> 00:06:47,760 Speaker 1: all been expecting a recession. It hasn't come yet. There 119 00:06:47,760 --> 00:06:50,640 Speaker 1: are a lot of reasons why it may be pushed 120 00:06:50,680 --> 00:06:54,760 Speaker 1: off until the back half of this year or maybe 121 00:06:54,800 --> 00:06:58,320 Speaker 1: into two next year, and you do have new tools 122 00:06:58,360 --> 00:07:00,640 Speaker 1: out there. I think one of the problem Albems is 123 00:07:00,880 --> 00:07:03,719 Speaker 1: that while we have QUEE, we're also running QT now 124 00:07:04,160 --> 00:07:08,000 Speaker 1: and that's an experiment that we haven't lived through before. 125 00:07:08,240 --> 00:07:11,720 Speaker 1: I mean, let's face it, we are living through history 126 00:07:12,240 --> 00:07:14,480 Speaker 1: and we don't know how it will be written. But 127 00:07:14,560 --> 00:07:17,600 Speaker 1: we shut down the world for some period over the 128 00:07:17,680 --> 00:07:21,280 Speaker 1: last three years, and now the last of it is 129 00:07:21,360 --> 00:07:24,920 Speaker 1: just starting to emerge and return to normal, and we've 130 00:07:24,920 --> 00:07:28,800 Speaker 1: got to adjust for all of that. It just seems 131 00:07:28,920 --> 00:07:32,560 Speaker 1: very aspirational to me that it's all going to end 132 00:07:32,760 --> 00:07:36,280 Speaker 1: in a soft landing, will reset and move on. Nothing 133 00:07:36,320 --> 00:07:38,960 Speaker 1: about this is normal, that's for sure. But Michael J 134 00:07:39,080 --> 00:07:40,640 Speaker 1: p muk and ASI management is going to be sticking 135 00:07:40,640 --> 00:07:42,960 Speaker 1: with someplace to say going through to retail sales in 136 00:07:42,960 --> 00:07:44,960 Speaker 1: about twenty minutes time. I think we can squeeze in 137 00:07:45,000 --> 00:07:48,640 Speaker 1: some sport now. But what's going on your beloved Liverpool. 138 00:07:48,680 --> 00:07:50,320 Speaker 1: We can talk about the Eagles in a moment because 139 00:07:50,320 --> 00:07:53,120 Speaker 1: that's a better story, but your beloved Liverpool. I can 140 00:07:53,160 --> 00:07:56,280 Speaker 1: take it this year last year with a bond bear market. 141 00:07:56,560 --> 00:07:58,800 Speaker 1: If Liverpool had gone off the rows, that would have 142 00:07:58,800 --> 00:08:01,800 Speaker 1: been a disaster. Right out there is a bond ball market. 143 00:08:01,840 --> 00:08:04,520 Speaker 1: There has been some reset money's coming into the market. 144 00:08:04,840 --> 00:08:07,600 Speaker 1: I can live with some restructuring of Liverpool. I like 145 00:08:07,720 --> 00:08:10,160 Speaker 1: what Klop did in the f A club. He played 146 00:08:10,160 --> 00:08:13,560 Speaker 1: the younger players. I'm hungrier they were live. You know, 147 00:08:13,600 --> 00:08:17,000 Speaker 1: I'm the amateur here. Does the World Cup screw this up? 148 00:08:17,040 --> 00:08:20,520 Speaker 1: I mean the TODs are playing in a cloud. Liverpool's 149 00:08:20,640 --> 00:08:23,440 Speaker 1: SUBPARTI say the least. I mean, I get Arsenal there 150 00:08:23,440 --> 00:08:25,560 Speaker 1: in the World Cup too, But the World Cup, as 151 00:08:25,600 --> 00:08:28,120 Speaker 1: you say, in the middle of the season, has that 152 00:08:28,640 --> 00:08:31,960 Speaker 1: it's disrupted. It's just it's disrupted me. I mean, I 153 00:08:32,040 --> 00:08:35,959 Speaker 1: was just so I thought it might disrupt the teams 154 00:08:36,000 --> 00:08:38,880 Speaker 1: with momentum in the Premier League. That was Arsenal in Italy, 155 00:08:38,920 --> 00:08:43,360 Speaker 1: that was Napoli. We've restarted the season. No, I just thought. 156 00:08:43,400 --> 00:08:45,880 Speaker 1: I just thought stopping for a month would disrupt the 157 00:08:45,880 --> 00:08:48,520 Speaker 1: momentum of the high flying teams. And that hasn't happened. 158 00:08:48,520 --> 00:08:54,400 Speaker 1: That was such a I'm learning every day. NOI they 159 00:08:54,440 --> 00:08:57,400 Speaker 1: pulled it off. It was a great World Cup. Before 160 00:08:57,440 --> 00:09:01,040 Speaker 1: we come back, Come on, is that a which one? 161 00:09:01,160 --> 00:09:06,559 Speaker 1: Liverpool Chelsea not about thank Everton. There's another blue team 162 00:09:06,640 --> 00:09:10,160 Speaker 1: up in Merseyside something code Evertson or you would code Avidson. 163 00:09:12,280 --> 00:09:13,920 Speaker 1: So so full hamm is on the way in the 164 00:09:13,960 --> 00:09:18,360 Speaker 1: Heathrow where so that would be a West London Derby 165 00:09:19,120 --> 00:09:23,320 Speaker 1: Chelsea Fullham well it, thank you. The dysfunction here of 166 00:09:23,360 --> 00:09:27,000 Speaker 1: the flows in the capital ownership of debt is tangible, 167 00:09:27,360 --> 00:09:30,000 Speaker 1: and you see it with a Japanese another percentage of debt. 168 00:09:30,160 --> 00:09:33,240 Speaker 1: Do you have an inherent fear within your strategy when 169 00:09:33,240 --> 00:09:37,400 Speaker 1: you see ratios like two or where another nation on 170 00:09:37,520 --> 00:09:41,319 Speaker 1: the eight percent of France's debt. I've got so many 171 00:09:41,360 --> 00:09:44,080 Speaker 1: thoughts on the Bank of Japan one. I think they 172 00:09:44,120 --> 00:09:47,959 Speaker 1: missed an opportunity. I would have done something today and 173 00:09:48,040 --> 00:09:51,760 Speaker 1: keep the process going of get to something that looks 174 00:09:51,840 --> 00:09:54,120 Speaker 1: normal while the rest of the world is doing it. 175 00:09:54,360 --> 00:09:57,199 Speaker 1: We talk about the top end of the band is 176 00:09:57,280 --> 00:10:01,160 Speaker 1: half a percent, the targets actually zero, and official rates 177 00:10:01,160 --> 00:10:04,920 Speaker 1: are actually minus ten basis points. So there's a lot 178 00:10:04,960 --> 00:10:08,840 Speaker 1: of room to get things looking somewhat normal while you're 179 00:10:08,840 --> 00:10:13,120 Speaker 1: printing for percent inflation, and then start the process of 180 00:10:13,160 --> 00:10:16,199 Speaker 1: transitioning the bond market out of the b o J 181 00:10:16,520 --> 00:10:22,679 Speaker 1: hands into public hands, into private investor hands. Get that 182 00:10:22,760 --> 00:10:26,520 Speaker 1: process going. Now. As I'm saying that, I also get 183 00:10:26,520 --> 00:10:30,920 Speaker 1: concerned about what that means for assets in the rest 184 00:10:30,960 --> 00:10:33,640 Speaker 1: of the world, because many of us in the markets 185 00:10:33,679 --> 00:10:37,600 Speaker 1: for a long time have known that Japan is the 186 00:10:37,640 --> 00:10:42,760 Speaker 1: mother of the carry trade that Japan finances carry trades 187 00:10:43,080 --> 00:10:47,520 Speaker 1: in the US market car market someone from the Todds 188 00:10:47,520 --> 00:10:50,320 Speaker 1: and borrows that. I get that that's jargon. What is 189 00:10:50,320 --> 00:10:53,160 Speaker 1: a carry trade? A carry trade is to use the 190 00:10:53,400 --> 00:10:58,160 Speaker 1: very low cost of funding in Japan and then take 191 00:10:58,200 --> 00:11:01,280 Speaker 1: your capital at your call to funding and then send 192 00:11:01,320 --> 00:11:04,800 Speaker 1: it to somebody like me to invest in the US 193 00:11:04,880 --> 00:11:08,800 Speaker 1: bond market, in the corporate bond market at yields of 194 00:11:08,920 --> 00:11:12,360 Speaker 1: four or five percent or higher. So you're enjoying a 195 00:11:12,520 --> 00:11:15,079 Speaker 1: much higher yield than you would have by staying in 196 00:11:15,160 --> 00:11:18,440 Speaker 1: the Do you think these changes that we're seeing in 197 00:11:18,440 --> 00:11:21,440 Speaker 1: the last month, potentially again in March will change how 198 00:11:21,640 --> 00:11:23,440 Speaker 1: you do business and ultimately on the behalf of other 199 00:11:23,440 --> 00:11:25,960 Speaker 1: people who want to invest abroad from Japan. Well, I 200 00:11:25,960 --> 00:11:29,800 Speaker 1: think we're already starting to see some signs of repatriation. 201 00:11:30,240 --> 00:11:33,000 Speaker 1: We're starting to see some clients that have had money 202 00:11:33,520 --> 00:11:37,120 Speaker 1: um in the US market start to take it back 203 00:11:37,200 --> 00:11:40,920 Speaker 1: and put it back into the Japan bond market. And 204 00:11:41,160 --> 00:11:44,439 Speaker 1: when you look at US assets hedge back to end, 205 00:11:44,720 --> 00:11:48,160 Speaker 1: you're actually coming out at a yield that's significantly lower 206 00:11:48,480 --> 00:11:51,080 Speaker 1: than where the j GB market is. So a lot 207 00:11:51,120 --> 00:11:54,000 Speaker 1: of it is the dynamic of the inverted yield curve 208 00:11:54,040 --> 00:11:57,160 Speaker 1: in the U S, so so that's pretty punitive. I 209 00:11:57,200 --> 00:12:00,200 Speaker 1: think the Bank of Japan has to be careful how 210 00:12:00,240 --> 00:12:03,959 Speaker 1: they unwind all these things so they don't create this 211 00:12:04,240 --> 00:12:09,760 Speaker 1: frenzy of repatriation. But as I said, I think they 212 00:12:09,800 --> 00:12:14,520 Speaker 1: can be consistent without creating this sort of frenzy. There 213 00:12:14,559 --> 00:12:17,800 Speaker 1: is a part of me that thinks, great price discovery returns, 214 00:12:17,800 --> 00:12:21,240 Speaker 1: we can start calling these places markets again. Then I 215 00:12:21,240 --> 00:12:22,800 Speaker 1: look at the size of the balance sheets and I 216 00:12:22,840 --> 00:12:25,040 Speaker 1: just think, well, there's a real stock effect here that's 217 00:12:25,040 --> 00:12:27,560 Speaker 1: going to exist for a long long time. But there's 218 00:12:27,559 --> 00:12:28,960 Speaker 1: two ways of looking at it. Isn't that this is 219 00:12:28,960 --> 00:12:32,000 Speaker 1: the final anchor around the neck global bond yields about 220 00:12:32,000 --> 00:12:35,000 Speaker 1: to be released by Japan and that should should have 221 00:12:35,080 --> 00:12:37,800 Speaker 1: some real consequences. The other way of looking at it 222 00:12:37,840 --> 00:12:40,120 Speaker 1: is still we have these massive balance sheets at the ECB, 223 00:12:40,240 --> 00:12:42,160 Speaker 1: the Federal Reserve, the b LJ. They're going to be 224 00:12:42,160 --> 00:12:45,160 Speaker 1: around for a long time. Which one is it? I 225 00:12:45,200 --> 00:12:48,280 Speaker 1: think it's both of those. This is the conversation I'm 226 00:12:48,320 --> 00:12:52,160 Speaker 1: having a lot with our clients because we think we 227 00:12:52,240 --> 00:12:55,560 Speaker 1: have put in a secular low and bond yields and 228 00:12:56,000 --> 00:12:59,200 Speaker 1: a secular, the end of the secular free for all 229 00:12:59,520 --> 00:13:03,839 Speaker 1: in ustless capital, and and we're in a trend that 230 00:13:03,920 --> 00:13:07,800 Speaker 1: will return the cost of funding to something that looks 231 00:13:07,840 --> 00:13:12,880 Speaker 1: historically more normal central bank rates, bond market rates to 232 00:13:13,000 --> 00:13:15,679 Speaker 1: something that looks more normal. But it doesn't happen all 233 00:13:15,720 --> 00:13:18,880 Speaker 1: at once. You don't go from zero to but on 234 00:13:19,000 --> 00:13:22,520 Speaker 1: their time continuing, whatation are you in two years, two months, 235 00:13:23,200 --> 00:13:26,040 Speaker 1: in three months, library to diamond. We got to be 236 00:13:26,040 --> 00:13:29,320 Speaker 1: in three month library com It took twenty seven years 237 00:13:29,360 --> 00:13:33,400 Speaker 1: to get the Fed funds rate from t to zero person, 238 00:13:33,960 --> 00:13:39,240 Speaker 1: and you had a series of lower lows and lower highs. 239 00:13:39,280 --> 00:13:42,160 Speaker 1: I think we're seeing the mirror image of that. We're 240 00:13:42,160 --> 00:13:45,720 Speaker 1: going where we're going to have a series of higher 241 00:13:45,840 --> 00:13:50,360 Speaker 1: highs and higher lows. But every three to five hundred 242 00:13:50,360 --> 00:13:53,880 Speaker 1: basis points shift in the cost of funding through central 243 00:13:53,880 --> 00:13:56,480 Speaker 1: bank rates will have an impact, and then they'll have 244 00:13:56,559 --> 00:13:58,960 Speaker 1: to come back and take some of that back, and 245 00:13:59,000 --> 00:14:01,079 Speaker 1: then they'll start up again. I got two minutes on 246 00:14:01,080 --> 00:14:02,760 Speaker 1: the clock. I've got to fit this in. And I've 247 00:14:02,760 --> 00:14:04,840 Speaker 1: talked about this before. This is a huge thing that 248 00:14:04,880 --> 00:14:07,640 Speaker 1: I think you're really at the forefront of. You're basically 249 00:14:07,640 --> 00:14:10,000 Speaker 1: saying that it's going to take several cycles to basically 250 00:14:10,080 --> 00:14:13,240 Speaker 1: unwind what we've seen over the last several decades. Can 251 00:14:13,280 --> 00:14:15,880 Speaker 1: you tell me what's changing the secular story of the 252 00:14:15,960 --> 00:14:18,920 Speaker 1: last thirty years and why you're projecting that out the 253 00:14:18,960 --> 00:14:22,320 Speaker 1: next several cycles. What's changed? What's that powerful story that's 254 00:14:22,320 --> 00:14:25,840 Speaker 1: going to unwind all of this? Well, there's one, certainly 255 00:14:25,880 --> 00:14:28,400 Speaker 1: in the developed markets. I remember after the financial crisis, 256 00:14:28,400 --> 00:14:30,680 Speaker 1: we're all sitting there going, oh my god, what do 257 00:14:30,720 --> 00:14:33,960 Speaker 1: we do with all this housing stock? The baby boomers 258 00:14:33,960 --> 00:14:37,800 Speaker 1: are rolling over into retirement, and the millennials are too young. 259 00:14:37,920 --> 00:14:42,720 Speaker 1: The one burst at the time were what they were 260 00:14:42,760 --> 00:14:48,480 Speaker 1: seventeen years old. Well, guess what, fourteen years has just passed. 261 00:14:48,800 --> 00:14:53,480 Speaker 1: The births are now thirty two years old, still living 262 00:14:53,560 --> 00:14:58,680 Speaker 1: with me, but well they're they're hitting their peak of earning, spending, 263 00:14:58,880 --> 00:15:01,840 Speaker 1: and saving, much like the baby boomers did in the 264 00:15:01,960 --> 00:15:05,240 Speaker 1: nineteen eighties, and suddenly all the housing we didn't invest 265 00:15:05,360 --> 00:15:08,400 Speaker 1: in after the financial crisis we need it back again. 266 00:15:08,680 --> 00:15:12,800 Speaker 1: So there are some real capital expenditure plans out there, 267 00:15:12,800 --> 00:15:20,240 Speaker 1: sustainable investment, defense, infrastructure, healthcare, education, Those are things that 268 00:15:20,600 --> 00:15:24,720 Speaker 1: a new emerging population of millennials X Y Z whatever 269 00:15:24,800 --> 00:15:27,480 Speaker 1: you want to call it, they're going to be willing 270 00:15:27,520 --> 00:15:30,920 Speaker 1: to spend an invest in. But Michael, this is awesome 271 00:15:31,120 --> 00:15:34,280 Speaker 1: from Jay fantastic. It was too smart. I couldn't you go? 272 00:15:34,600 --> 00:15:48,560 Speaker 1: Second question? Maybe next? Well, I want to try and 273 00:15:48,640 --> 00:15:51,800 Speaker 1: understand from the Europeans time is whether the situation we 274 00:15:51,840 --> 00:15:55,720 Speaker 1: went through this summer, last summer fearing this winter, whether 275 00:15:55,760 --> 00:15:59,000 Speaker 1: we repeat that act this coming summer approaching next winter. 276 00:15:59,360 --> 00:16:01,800 Speaker 1: Someone who help us with that? Simon French chief economist 277 00:16:01,800 --> 00:16:05,000 Speaker 1: Pamer Gordon in the British media, particularly writing some really 278 00:16:05,040 --> 00:16:08,320 Speaker 1: thoughtful essays. Simon, thank you so much for joining today. 279 00:16:08,400 --> 00:16:12,520 Speaker 1: At the margin, it seems like Europe is being buffeted 280 00:16:12,560 --> 00:16:16,800 Speaker 1: by good news, including Chinar reopening his Pam your Gordon 281 00:16:17,360 --> 00:16:22,960 Speaker 1: shifted the two thousand twenty three euro call. No we haven't. 282 00:16:23,080 --> 00:16:26,480 Speaker 1: We went into the year thinking that it's actually the 283 00:16:26,520 --> 00:16:30,320 Speaker 1: behavioral response you were looking for across two parameters would 284 00:16:30,360 --> 00:16:33,120 Speaker 1: play out in terms of a more dynamic behavior. One 285 00:16:33,120 --> 00:16:36,560 Speaker 1: of those two parameters first of all, energy usage, and 286 00:16:36,600 --> 00:16:38,360 Speaker 1: I think Jonathan gave a good sort of tea up 287 00:16:38,360 --> 00:16:41,960 Speaker 1: in terms of next winter, what are the dynamics. Well, 288 00:16:42,000 --> 00:16:44,800 Speaker 1: the strongest argument for why the dynamics might be more 289 00:16:44,840 --> 00:16:49,360 Speaker 1: favorable than consensus, is that you're seeing quite significant behavior 290 00:16:49,480 --> 00:16:52,000 Speaker 1: change in terms of energy consumption, which there is no 291 00:16:52,080 --> 00:16:55,080 Speaker 1: reason with the extra twelve months why that can't actually 292 00:16:55,080 --> 00:16:58,280 Speaker 1: be amplified. And the second thing we're seeing in corporate results, 293 00:16:58,280 --> 00:17:01,120 Speaker 1: not just across Europe, but you mentioned, you know, corporate 294 00:17:01,160 --> 00:17:03,920 Speaker 1: results in the United States as well, is signs now 295 00:17:03,960 --> 00:17:09,280 Speaker 1: that households, which have paradoxically strengthened their balance sheets over 296 00:17:09,280 --> 00:17:13,240 Speaker 1: the last two to three years, starting to divest more rapidly. 297 00:17:13,240 --> 00:17:15,479 Speaker 1: Actually in the US them all the way through that cycle. 298 00:17:15,520 --> 00:17:18,240 Speaker 1: But we're starting to see the data in Europe suggesting 299 00:17:18,280 --> 00:17:20,400 Speaker 1: that the backing of Q four, where it was thought 300 00:17:20,480 --> 00:17:23,480 Speaker 1: of a slamming shut of the European wallets, was not 301 00:17:23,600 --> 00:17:26,520 Speaker 1: that path. We saw both those behavioral changes coming to pass. 302 00:17:26,800 --> 00:17:28,480 Speaker 1: I think the data is on our side, but look, 303 00:17:28,520 --> 00:17:31,439 Speaker 1: we're still early days. There could be a new year hangover, right, Simon. 304 00:17:31,600 --> 00:17:34,440 Speaker 1: We're talking earlier about the glide path and interest rates. 305 00:17:34,440 --> 00:17:37,280 Speaker 1: There's an idea of disinflation, maybe ever so slight in 306 00:17:37,320 --> 00:17:40,119 Speaker 1: the United Kingdom as well. There's a I'm gonna call 307 00:17:40,240 --> 00:17:43,240 Speaker 1: the zeitgeist understanding in the United States. We come down, 308 00:17:43,280 --> 00:17:46,240 Speaker 1: we don't know where to five percent four percent? Dare 309 00:17:46,280 --> 00:17:49,240 Speaker 1: I say three percent? Maybe not two percent? Is there 310 00:17:49,280 --> 00:17:53,240 Speaker 1: a consensus understanding of a disinflationary vector in Europe? I 311 00:17:53,240 --> 00:17:56,840 Speaker 1: don't see it. No, No, there isn't in your the 312 00:17:56,920 --> 00:18:00,600 Speaker 1: ECB commentary which you've been alluding to, if you like, 313 00:18:00,760 --> 00:18:04,520 Speaker 1: reflect the national interests of the national governments in terms 314 00:18:04,560 --> 00:18:08,439 Speaker 1: of how their economies may have quite different experience of 315 00:18:08,520 --> 00:18:11,280 Speaker 1: stubborn core inflation, which really is going to be the 316 00:18:12,560 --> 00:18:15,919 Speaker 1: headline piece of data, perhaps not on our screens each morning, 317 00:18:16,160 --> 00:18:18,360 Speaker 1: but in terms of what's going to affect the ECB 318 00:18:18,560 --> 00:18:22,800 Speaker 1: response function in each of the ECB Governing Councils decisions. 319 00:18:22,840 --> 00:18:25,680 Speaker 1: So the fact that we have amongst investors a very 320 00:18:25,800 --> 00:18:28,200 Speaker 1: very different view as to whether actually you mentioned a 321 00:18:28,280 --> 00:18:31,760 Speaker 1: glide to five for three. I mean, there are quite 322 00:18:31,760 --> 00:18:34,800 Speaker 1: a number of people who think will see active disinflation 323 00:18:35,000 --> 00:18:39,119 Speaker 1: over or deflation by the sort of middle part of 324 00:18:39,119 --> 00:18:42,560 Speaker 1: twenty four versus those people, and I think I sit 325 00:18:42,600 --> 00:18:45,760 Speaker 1: in the latter camp who expect quite a lot of 326 00:18:45,960 --> 00:18:49,600 Speaker 1: quite stubborn, quite sticky inflation because a lot of corporates 327 00:18:49,600 --> 00:18:52,240 Speaker 1: are trying to rebuild margins, trying to delay the past 328 00:18:52,280 --> 00:18:54,679 Speaker 1: through that they couldn't do in one go because of 329 00:18:54,680 --> 00:18:57,160 Speaker 1: the price shocks of twenty twenty two, and therefore they're 330 00:18:57,160 --> 00:19:00,560 Speaker 1: going to pass them through in twenty five as part 331 00:19:00,560 --> 00:19:03,639 Speaker 1: of rebuilding their corporate margins and a delayed pastor of 332 00:19:03,640 --> 00:19:06,000 Speaker 1: invasionary pressures. Something. Can we talk about who's in the 333 00:19:06,119 --> 00:19:09,040 Speaker 1: driving seat at the European Central Bank? I got the 334 00:19:09,080 --> 00:19:11,280 Speaker 1: impression at the last meeting with President the Guard that 335 00:19:11,359 --> 00:19:13,600 Speaker 1: really felt like the bunders Bank was back in control. 336 00:19:13,920 --> 00:19:16,639 Speaker 1: It was so punchy, the most hawkish I've ever heard 337 00:19:16,640 --> 00:19:18,600 Speaker 1: her in a news conference. What did you make of 338 00:19:18,680 --> 00:19:22,960 Speaker 1: that that it was going to be data dependent? Yes, 339 00:19:22,960 --> 00:19:26,840 Speaker 1: it was hawkish, but as always, and we mustn't you know, 340 00:19:26,920 --> 00:19:29,960 Speaker 1: this is far too clever an audience to fall into 341 00:19:30,000 --> 00:19:33,600 Speaker 1: the idea that these are unconditional statements. For years both 342 00:19:33,720 --> 00:19:37,320 Speaker 1: you know, when policy was left to the zero bound 343 00:19:37,320 --> 00:19:38,720 Speaker 1: and we were talking about when we were going to 344 00:19:38,800 --> 00:19:42,200 Speaker 1: leave that, and now when we're talking about the pathway 345 00:19:42,240 --> 00:19:45,159 Speaker 1: through to a plateau through a terminal rate, we have 346 00:19:45,240 --> 00:19:48,440 Speaker 1: to recognize that statements, even one as punchy as Decembers, 347 00:19:48,680 --> 00:19:51,399 Speaker 1: was conditional to how the data revolves. And though the 348 00:19:51,480 --> 00:19:54,080 Speaker 1: fact that we have now in devils this week and 349 00:19:54,119 --> 00:19:55,520 Speaker 1: we're going to get in the run up to the 350 00:19:55,560 --> 00:20:00,159 Speaker 1: next ECB Governing Council different takes on that data is 351 00:20:00,200 --> 00:20:02,480 Speaker 1: that if you like turf war going on on, how 352 00:20:02,520 --> 00:20:05,240 Speaker 1: you interpret that stickiness of involation and the degree to 353 00:20:05,240 --> 00:20:08,840 Speaker 1: which that commentary and December persists through Q one there 354 00:20:08,880 --> 00:20:11,919 Speaker 1: was a phrase that echoed in December. It was sufficiently restrictive, 355 00:20:12,240 --> 00:20:14,000 Speaker 1: started with the Fed. We heard it at the e 356 00:20:14,040 --> 00:20:16,399 Speaker 1: c B as well. If you'd ask me, Simon, what 357 00:20:16,480 --> 00:20:18,840 Speaker 1: was sufficient restrictive for this c c B maybe a 358 00:20:18,920 --> 00:20:21,919 Speaker 1: year ago, I'd say they're struggling to get to one, two, 359 00:20:22,320 --> 00:20:25,040 Speaker 1: not three, because I thought this market would just completely 360 00:20:25,080 --> 00:20:26,840 Speaker 1: collapse under the weight of what they were doing. Simon, 361 00:20:26,880 --> 00:20:28,719 Speaker 1: that hasn't happened in a way that many people, including 362 00:20:28,760 --> 00:20:31,640 Speaker 1: myself anticipated. I guess my question to you is, first 363 00:20:31,640 --> 00:20:33,560 Speaker 1: of all, why do you think that is? Is the 364 00:20:33,560 --> 00:20:36,760 Speaker 1: bondmarket more resilient than we thought it would be? And secondly, 365 00:20:36,760 --> 00:20:41,320 Speaker 1: where do you see sufficient restrictive now? With that in mind? Well, look, 366 00:20:41,359 --> 00:20:43,880 Speaker 1: that's very honest, Jonathan. Myself, I would put also put 367 00:20:43,920 --> 00:20:46,159 Speaker 1: myself in the camp the urine, which I didn't. I 368 00:20:46,200 --> 00:20:47,760 Speaker 1: didn't see this so We have to have a degree 369 00:20:47,760 --> 00:20:51,080 Speaker 1: of humility, don't we when we're appraising what happens next. 370 00:20:51,160 --> 00:20:54,520 Speaker 1: But in terms of why we haven't seen the level 371 00:20:54,800 --> 00:20:57,960 Speaker 1: of if you like, market capitulation in the face of 372 00:20:57,960 --> 00:20:59,800 Speaker 1: a rising rescree rate, there are two things to know 373 00:21:00,040 --> 00:21:03,560 Speaker 1: on There is a delayed pass through. Monetary policy has 374 00:21:03,600 --> 00:21:06,200 Speaker 1: famously long and variable lags. Have we seen the full 375 00:21:06,240 --> 00:21:10,240 Speaker 1: impact of monetary tightening, particularly in private markets in fixed 376 00:21:10,280 --> 00:21:13,560 Speaker 1: US every pricing the revaluation cycle though, I don't think 377 00:21:13,600 --> 00:21:15,960 Speaker 1: we have, so the jury is still out in terms 378 00:21:16,000 --> 00:21:18,800 Speaker 1: of long term economic impact. But and I've written quite 379 00:21:18,800 --> 00:21:20,439 Speaker 1: a lot about this, and I think Tom has alluded 380 00:21:20,480 --> 00:21:24,240 Speaker 1: to this in is very kind intro is potentially a 381 00:21:24,359 --> 00:21:27,120 Speaker 1: return to a higher risk free rate has a nice 382 00:21:27,119 --> 00:21:30,760 Speaker 1: side effect in terms of productivity improvement, the allocation of capital, 383 00:21:31,040 --> 00:21:35,120 Speaker 1: the type of thing that has undermined economic growth. You know, Tom, 384 00:21:35,160 --> 00:21:36,960 Speaker 1: I know you've talked a lot about the impact of 385 00:21:37,000 --> 00:21:42,320 Speaker 1: financial repression on trend economic growth, on productivity. Potentially investors, 386 00:21:42,320 --> 00:21:44,440 Speaker 1: and I've talked a lot investors who see the potential 387 00:21:44,520 --> 00:21:47,600 Speaker 1: corallary of a high risk free rate return to more 388 00:21:47,640 --> 00:21:50,399 Speaker 1: normalized levels of productivity and a welcome return that may 389 00:21:50,440 --> 00:21:52,720 Speaker 1: be one of the explanatory factors. I mean, this is 390 00:21:52,760 --> 00:21:56,000 Speaker 1: really important, folks in this centers on my optimism here 391 00:21:56,040 --> 00:22:01,119 Speaker 1: and things clear. Corporations change if there's a misjudge. I 392 00:22:01,240 --> 00:22:05,359 Speaker 1: was suggest Simon's led by the European, the American, the 393 00:22:05,400 --> 00:22:09,840 Speaker 1: Pacific rim consumer is well, it pam your gordons some 394 00:22:10,119 --> 00:22:16,399 Speaker 1: together your confidence the consumer can deliver the goods well 395 00:22:16,520 --> 00:22:18,840 Speaker 1: if you take the data points in terms of the 396 00:22:18,920 --> 00:22:25,240 Speaker 1: excess savings that took place throughout the pandemic years one. 397 00:22:26,520 --> 00:22:30,440 Speaker 1: With the U S consumer has begun quite a considerable 398 00:22:30,480 --> 00:22:33,520 Speaker 1: divestment phase, but they still have While the savings ratio 399 00:22:33,640 --> 00:22:37,119 Speaker 1: is normalized and will possibly unders it is starting to undershoot. 400 00:22:37,440 --> 00:22:39,880 Speaker 1: There is still a stock effect that can support consumer 401 00:22:39,920 --> 00:22:43,200 Speaker 1: spending Europe and I include the UK, and this is 402 00:22:43,240 --> 00:22:46,040 Speaker 1: on a much more delayed pathway. We've only just begun 403 00:22:46,119 --> 00:22:50,080 Speaker 1: that divestment phase. But it's it circles round to consumer confidence, 404 00:22:50,119 --> 00:22:53,119 Speaker 1: to sentiment. The degree to which balance she flecks from 405 00:22:53,160 --> 00:22:57,280 Speaker 1: consumers is buttressed by the fact that the labor market 406 00:22:57,320 --> 00:23:00,480 Speaker 1: remains strong. You think, UK, you don't need as much 407 00:23:00,480 --> 00:23:04,040 Speaker 1: of a rainy day fund for potential redundancy unemployment because 408 00:23:04,080 --> 00:23:07,080 Speaker 1: you think the labor mark will main strong. Those indicators 409 00:23:07,240 --> 00:23:09,840 Speaker 1: are still very robust, and that allows if you like 410 00:23:09,920 --> 00:23:12,960 Speaker 1: a divestment cycle to support the consumer. If the labor 411 00:23:13,000 --> 00:23:15,280 Speaker 1: market starts turn, then we get a very very different 412 00:23:15,280 --> 00:23:18,960 Speaker 1: response function in terms of consumers. And we'll see corporate 413 00:23:19,000 --> 00:23:23,720 Speaker 1: reporting replicate that sentiment. Simon super smart as always, buddy, 414 00:23:23,760 --> 00:23:25,879 Speaker 1: And it has been way too long as said this 415 00:23:25,920 --> 00:23:28,280 Speaker 1: against so Simon French. There of Penmilk, Gord and some 416 00:23:28,720 --> 00:23:30,679 Speaker 1: on the latest on the European and I guess global 417 00:23:30,680 --> 00:23:36,920 Speaker 1: economy as well. Let's get the economic look and John, 418 00:23:36,920 --> 00:23:38,840 Speaker 1: I want you to help me out your Veronica Clark 419 00:23:39,880 --> 00:23:44,119 Speaker 1: conframe for the city group conundrum, which John I believe 420 00:23:44,200 --> 00:23:47,480 Speaker 1: is Mr Hall and Hors discusses fifty or twenty five 421 00:23:47,480 --> 00:23:49,600 Speaker 1: basis points? Do you want to bring Ms Clark in 422 00:23:50,680 --> 00:23:52,680 Speaker 1: so we can decide and make some news that they 423 00:23:52,680 --> 00:23:57,119 Speaker 1: had called a wonderful two let's talk about twenty three. Veronica, 424 00:23:57,160 --> 00:23:59,439 Speaker 1: thank you for being with us. You've been leaning towards 425 00:23:59,480 --> 00:24:01,680 Speaker 1: this idea. It that we get another fifty basis point 426 00:24:01,680 --> 00:24:04,000 Speaker 1: move from this feder reserve. How challenge do you think 427 00:24:04,000 --> 00:24:07,560 Speaker 1: that for you is now with the incoming information? Yeah, 428 00:24:07,560 --> 00:24:09,199 Speaker 1: I mean it was already a close call. I think 429 00:24:09,280 --> 00:24:11,280 Speaker 1: even going back a week ago when we got cp 430 00:24:11,359 --> 00:24:13,480 Speaker 1: I UM and certainly what we've we've heard from FED 431 00:24:13,560 --> 00:24:15,560 Speaker 1: ever since. UM. I do still think though that the 432 00:24:15,600 --> 00:24:18,480 Speaker 1: market could be under appreciating, you know, the chance that 433 00:24:18,520 --> 00:24:20,840 Speaker 1: the FED would opt to go fifty UM. I think 434 00:24:20,840 --> 00:24:24,000 Speaker 1: the market is misinterpreting. You know that the FEDS commitment 435 00:24:24,040 --> 00:24:27,440 Speaker 1: to getting rates above five percent. Certainly, Veronica, we're all 436 00:24:27,600 --> 00:24:31,080 Speaker 1: slaves to the data. Every FED in every textbook and 437 00:24:31,160 --> 00:24:35,440 Speaker 1: every history book is data dependent. You guys got out 438 00:24:35,560 --> 00:24:38,119 Speaker 1: front of this, and the data has backed up the 439 00:24:38,200 --> 00:24:42,080 Speaker 1: city group. Uh call, what is the data that matters 440 00:24:42,119 --> 00:24:46,080 Speaker 1: to you? Less to February one and much more to 441 00:24:46,240 --> 00:24:52,400 Speaker 1: look on to what we see May three or June fourteen. Yeah, 442 00:24:52,440 --> 00:24:54,560 Speaker 1: I mean, I think the most important data is still 443 00:24:54,600 --> 00:24:57,560 Speaker 1: inflation data UM and I would bump along with that, 444 00:24:57,680 --> 00:25:00,639 Speaker 1: you know, wage data. Maybe we've seen some signs of 445 00:25:00,640 --> 00:25:02,520 Speaker 1: of wage growth slowing, but you still have such a 446 00:25:02,520 --> 00:25:06,119 Speaker 1: tight labor market that I wouldn't necessarily expect wages slowing 447 00:25:06,160 --> 00:25:09,560 Speaker 1: back to something consistent with supercent inflation UM and and 448 00:25:09,600 --> 00:25:12,199 Speaker 1: the most important inflation data I think should be the 449 00:25:12,200 --> 00:25:14,960 Speaker 1: Fed's preferred core PC measure UM and some of the 450 00:25:15,000 --> 00:25:16,880 Speaker 1: details of pp I that we got this morning will 451 00:25:16,920 --> 00:25:20,080 Speaker 1: matter for that we are still expecting, you know, stronger 452 00:25:20,119 --> 00:25:22,879 Speaker 1: COREPC than than what the Fed even has UM, certainly 453 00:25:22,880 --> 00:25:25,200 Speaker 1: than what the markets expecting. Are you going to reaffirm 454 00:25:25,320 --> 00:25:28,960 Speaker 1: right now? Fifty basis points? Is that what I'm hearing? Yeah, 455 00:25:29,000 --> 00:25:30,919 Speaker 1: I think that that chance is still under appreciate it. 456 00:25:30,920 --> 00:25:32,879 Speaker 1: We do have some some important FED speakers still to 457 00:25:32,960 --> 00:25:35,399 Speaker 1: hear from UM, and the chances is lower, you know, 458 00:25:35,480 --> 00:25:39,000 Speaker 1: certainly UM. But we also wouldn't necessarily adjust how high 459 00:25:39,040 --> 00:25:41,200 Speaker 1: we think rates will end up going, even if it's 460 00:25:41,200 --> 00:25:43,879 Speaker 1: not a fifty in February, would just expect that the 461 00:25:43,880 --> 00:25:47,399 Speaker 1: Feds hiking for longer. Did she make news? Then start 462 00:25:47,440 --> 00:25:50,840 Speaker 1: to the script I'm trying it calls any Trump trying 463 00:25:51,160 --> 00:25:53,200 Speaker 1: for that was great. Thank you for the clock their 464 00:25:53,280 --> 00:26:08,719 Speaker 1: City Global Markets, Lisa Brando's They're justin from the piano bar. 465 00:26:08,840 --> 00:26:11,000 Speaker 1: Let me get my surveillance watch out and look at 466 00:26:11,040 --> 00:26:14,760 Speaker 1: the time changes. Lisa Brandmos was one of my favorite people. 467 00:26:15,359 --> 00:26:18,080 Speaker 1: Foughty b Roll of I e a good morning, Lisa, 468 00:26:18,840 --> 00:26:21,120 Speaker 1: Good morning Tom, and thank you for that. I am 469 00:26:21,160 --> 00:26:23,800 Speaker 1: here with Fotty b Roll executive director of the International 470 00:26:24,200 --> 00:26:27,400 Speaker 1: Agency for Energy, And there is this question here at 471 00:26:27,400 --> 00:26:29,560 Speaker 1: a time when you are the busiest ever of trying 472 00:26:29,560 --> 00:26:31,239 Speaker 1: to get a handle in an energy market that has 473 00:26:31,280 --> 00:26:33,960 Speaker 1: defied everyone. I was speaking yesterday with Chevron CEO and 474 00:26:33,960 --> 00:26:36,119 Speaker 1: he said he could see an argument for oil prices 475 00:26:36,119 --> 00:26:38,600 Speaker 1: going to a hundred and fifty are going to fifty dollars? 476 00:26:38,680 --> 00:26:42,120 Speaker 1: Do you agree? I think he's a businessman. I am 477 00:26:42,160 --> 00:26:45,720 Speaker 1: sure he knows what he's talking about because he makes 478 00:26:45,760 --> 00:26:49,800 Speaker 1: money or loses money, and I hope he is a 479 00:26:49,840 --> 00:26:52,680 Speaker 1: good view about the markets. But an allocate the markets 480 00:26:53,640 --> 00:26:58,560 Speaker 1: this two empty three. There are many many uncertainties. But 481 00:26:58,640 --> 00:27:02,280 Speaker 1: if you ask me who is the big biggest uncertainty, 482 00:27:02,359 --> 00:27:06,040 Speaker 1: I would say it is China. The reason is very simple. 483 00:27:07,640 --> 00:27:12,800 Speaker 1: Last year two, for the first time since forty years, 484 00:27:13,920 --> 00:27:18,520 Speaker 1: Chinese oil and gas demand declined, so it never happened 485 00:27:18,560 --> 00:27:23,680 Speaker 1: in the last fourty years. And this year Chinese economy 486 00:27:23,720 --> 00:27:28,640 Speaker 1: is reopening, and we may see Chinese economy growing strongly. 487 00:27:28,960 --> 00:27:33,359 Speaker 1: And if Chinese demand for oil is strong, it would 488 00:27:33,680 --> 00:27:37,919 Speaker 1: put upward pressure on the process. So China is for 489 00:27:38,080 --> 00:27:43,560 Speaker 1: me the biggest perhaps uncertainty, followed by the oil producing 490 00:27:43,600 --> 00:27:47,000 Speaker 1: countries policies. Okay, so we'll get into the oil produces 491 00:27:47,119 --> 00:27:49,960 Speaker 1: countries policies. Sticking with China for a moment, do you 492 00:27:49,960 --> 00:27:52,480 Speaker 1: have a sense of how much energy, how much call, 493 00:27:52,760 --> 00:27:56,119 Speaker 1: how much crude they've already stockpiled to get ahead of 494 00:27:56,119 --> 00:28:00,240 Speaker 1: a reopening they could potentially dampen, how much activity could 495 00:28:00,280 --> 00:28:03,680 Speaker 1: translate directly into demand for cruite. No. I think the 496 00:28:03,920 --> 00:28:08,280 Speaker 1: Chinese oil demand will definitely increase this year. The question 497 00:28:08,400 --> 00:28:11,080 Speaker 1: is how much. There is no question that. I don't 498 00:28:11,119 --> 00:28:14,520 Speaker 1: believe that if there's a reopening of China which cost smoothly, 499 00:28:14,840 --> 00:28:19,879 Speaker 1: as the Chinese leaders here and in China claim, it 500 00:28:20,520 --> 00:28:24,640 Speaker 1: may mean and that the Chinese oil demand will increase 501 00:28:24,960 --> 00:28:28,680 Speaker 1: unluck last which decline. So it means that it will 502 00:28:28,720 --> 00:28:31,960 Speaker 1: be the biggest driver of the global oil demand because 503 00:28:31,960 --> 00:28:34,640 Speaker 1: when you look at it in the in a normal year, 504 00:28:35,080 --> 00:28:38,840 Speaker 1: about half of the global oil demand growth comes from China. 505 00:28:39,120 --> 00:28:41,479 Speaker 1: Other half of the growth comes to everybody put together. 506 00:28:41,720 --> 00:28:45,960 Speaker 1: So therefore Chinese oil demand will bring about eight hundred 507 00:28:46,040 --> 00:28:49,720 Speaker 1: nine day additional oil demand growth to the markets. You 508 00:28:49,800 --> 00:28:52,320 Speaker 1: just put out a paper that said that we're actually 509 00:28:52,320 --> 00:28:55,400 Speaker 1: oversupplied right now, that there is more oil than there 510 00:28:55,520 --> 00:28:58,960 Speaker 1: is demand in the markets. How much would it take 511 00:28:59,000 --> 00:29:02,000 Speaker 1: to change that? Very little, because the cushion is not 512 00:29:02,160 --> 00:29:06,440 Speaker 1: as big as the consumers of the would like to see. 513 00:29:06,680 --> 00:29:09,840 Speaker 1: It's a very tiny bit. If the Chinese economy, for exams, 514 00:29:09,840 --> 00:29:14,000 Speaker 1: surprises us on the higher side, if the economic grows 515 00:29:14,320 --> 00:29:17,640 Speaker 1: instead of four persons in five six percent, that cushion 516 00:29:17,680 --> 00:29:21,400 Speaker 1: will disappear very quickly. So therefore, VI should be relaxed 517 00:29:21,600 --> 00:29:24,920 Speaker 1: to see that the oil markets this year will be 518 00:29:25,440 --> 00:29:28,640 Speaker 1: comfortable and we have that any problems this will be 519 00:29:28,720 --> 00:29:32,800 Speaker 1: more on the optimistic side. Looking from the the words 520 00:29:32,920 --> 00:29:35,680 Speaker 1: consumers point of view, are there any lessons taken? And 521 00:29:35,720 --> 00:29:37,720 Speaker 1: from what we saw in the summer of last year 522 00:29:38,320 --> 00:29:41,440 Speaker 1: with respect to demand destruction? At what level the price 523 00:29:41,760 --> 00:29:44,280 Speaker 1: has to get to include where people to stop buying? 524 00:29:44,280 --> 00:29:46,520 Speaker 1: And there's sort of a natural ceiling. And it's depending 525 00:29:46,560 --> 00:29:49,000 Speaker 1: on the country. I mean, it's different in the United States, 526 00:29:49,000 --> 00:29:54,080 Speaker 1: different in Europe, different in India and the lower income countries. 527 00:29:54,520 --> 00:29:57,680 Speaker 1: But I see that if the process come around seventy 528 00:29:57,760 --> 00:30:01,360 Speaker 1: seventy five dollars, it is that a good signal for 529 00:30:01,480 --> 00:30:05,200 Speaker 1: the consumers around the world, but that that's a good 530 00:30:05,200 --> 00:30:07,680 Speaker 1: conflict that they will continue to buy. But higher than that, 531 00:30:07,760 --> 00:30:10,600 Speaker 1: not so much. It's especially for the value located numbers. 532 00:30:10,680 --> 00:30:13,480 Speaker 1: It's especially for the developing world, which is the most 533 00:30:13,520 --> 00:30:17,760 Speaker 1: important one, because their financial musters are much weaker compared 534 00:30:17,800 --> 00:30:21,960 Speaker 1: to North American or the European or the Japanese consumers. 535 00:30:22,240 --> 00:30:26,640 Speaker 1: I think it's above SI it becomes a very difficult 536 00:30:26,880 --> 00:30:29,520 Speaker 1: for them to absorb that increase In the presence, Do 537 00:30:29,560 --> 00:30:31,840 Speaker 1: you feel like there needs to be more investment in 538 00:30:31,880 --> 00:30:34,400 Speaker 1: fossil fuel companies that have been abandoned in the past 539 00:30:34,440 --> 00:30:37,200 Speaker 1: couple of years for E s G types of priorities. 540 00:30:37,800 --> 00:30:41,160 Speaker 1: I think the when talk about for some United States, 541 00:30:41,240 --> 00:30:45,600 Speaker 1: I don't think that the oil companies have difficulties to 542 00:30:45,640 --> 00:30:47,720 Speaker 1: invest in terms of available toy of the money. They 543 00:30:47,720 --> 00:30:50,520 Speaker 1: have a lot of money in their pocket, and I 544 00:30:50,560 --> 00:30:53,720 Speaker 1: think what they have preferred instead of investing, they have 545 00:30:53,880 --> 00:30:58,400 Speaker 1: preferred to pay it back to the the shareholders. And 546 00:30:58,640 --> 00:31:02,320 Speaker 1: when you look at the last year twenty two the 547 00:31:02,360 --> 00:31:08,080 Speaker 1: oil and gas industry, the windfall revenues reach for trillion 548 00:31:08,280 --> 00:31:11,960 Speaker 1: US dollars. In a normal year, normal it's about one 549 00:31:12,000 --> 00:31:14,959 Speaker 1: point five trillion, and last year they make four trillion. 550 00:31:15,200 --> 00:31:17,680 Speaker 1: So nobody can commission that they don't have enough money 551 00:31:17,760 --> 00:31:19,840 Speaker 1: to invest. To be honest with you, it missed. They 552 00:31:19,840 --> 00:31:23,480 Speaker 1: don't have the intention they pay back to their shareholders. 553 00:31:23,640 --> 00:31:26,120 Speaker 1: We've been talking about the potential for an upside surprise 554 00:31:26,600 --> 00:31:29,400 Speaker 1: with respect to demand if China comes back online. What 555 00:31:29,520 --> 00:31:32,080 Speaker 1: if there is a fairly deep recession or even a 556 00:31:32,120 --> 00:31:35,240 Speaker 1: mild recession. How much could oil prices fall from here 557 00:31:35,560 --> 00:31:38,440 Speaker 1: just because of people honkering down and not being as active. 558 00:31:38,840 --> 00:31:41,680 Speaker 1: I think if depending on how deep recession is, how 559 00:31:41,840 --> 00:31:45,239 Speaker 1: vital recession is. But if it's a mild recession, I 560 00:31:45,280 --> 00:31:47,560 Speaker 1: don't think that we will see a big drop of 561 00:31:47,680 --> 00:31:50,720 Speaker 1: the the oil process as we have seen during the 562 00:31:50,840 --> 00:31:54,160 Speaker 1: COVID times, but it would definitely put a downward pressure 563 00:31:54,200 --> 00:31:57,080 Speaker 1: on the process if there's a wide spread session around 564 00:31:57,080 --> 00:31:59,960 Speaker 1: the world. But I don't believe that China, the largest 565 00:32:00,080 --> 00:32:02,880 Speaker 1: oil important of the world, we'll go to a recession, 566 00:32:03,320 --> 00:32:06,600 Speaker 1: hopefully not this year. How do you think that the refueling, 567 00:32:06,720 --> 00:32:09,560 Speaker 1: the refilling I should say, of the strategic patrol reserve 568 00:32:09,640 --> 00:32:12,560 Speaker 1: in the US this year, potentially starting next month, will 569 00:32:12,600 --> 00:32:14,640 Speaker 1: affect pricing. Do you think that this is sort of 570 00:32:15,080 --> 00:32:18,000 Speaker 1: going to be a swing factor in I don't believe so. 571 00:32:18,080 --> 00:32:20,760 Speaker 1: I believe the US government will make it in a 572 00:32:20,800 --> 00:32:23,840 Speaker 1: gradual manner and a careful manner so that it doesn't 573 00:32:24,480 --> 00:32:27,840 Speaker 1: create a major challenge for the oil markets. And we 574 00:32:27,840 --> 00:32:31,160 Speaker 1: should not forget it when the process shoot up about 575 00:32:31,160 --> 00:32:34,080 Speaker 1: our hundred dollar The spr created a very good role 576 00:32:34,160 --> 00:32:36,840 Speaker 1: for US and for the global oil markets. So you 577 00:32:36,840 --> 00:32:39,120 Speaker 1: actually thought it was a positive move very much. So 578 00:32:39,200 --> 00:32:41,720 Speaker 1: I think I believe all U S citizens and the 579 00:32:41,840 --> 00:32:44,320 Speaker 1: entire gold should be very hippy to have sprs in 580 00:32:44,360 --> 00:32:47,080 Speaker 1: the United States and many other countries in the world. 581 00:32:47,320 --> 00:32:49,720 Speaker 1: Fatty buall of the I A A thank you so 582 00:32:49,800 --> 00:32:52,080 Speaker 1: much for being with us, John setting it back to you. 583 00:32:52,840 --> 00:32:55,440 Speaker 1: Thank you fantastic work Ans always she missed over here 584 00:32:55,680 --> 00:32:58,680 Speaker 1: in New York City. Laser pramis alongside Fanny Baby Robert 585 00:32:58,720 --> 00:33:02,920 Speaker 1: of the I A with the iconic Bank Trump in Dallas, Switzerland, SUMP. 586 00:33:03,080 --> 00:33:06,800 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 587 00:33:06,880 --> 00:33:09,920 Speaker 1: us live weekdays from seven to ten a m Eastern 588 00:33:10,160 --> 00:33:14,240 Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from 589 00:33:14,280 --> 00:33:19,560 Speaker 1: six to nine am for insight from the best in economics, finance, investment, 590 00:33:19,680 --> 00:33:24,720 Speaker 1: and international relations. And subscribe to the Surveillance Podcast on 591 00:33:24,800 --> 00:33:28,600 Speaker 1: Apple Podcast SoundCloud, Bloomberg dot com, and of course, on 592 00:33:28,720 --> 00:33:32,920 Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg