Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg terminal. Right now, for
Speaker 1: Global Wall Street, this is the important conversation for those
Speaker 1: pushing against the gloom crew. Neil Datta has absolutely nailed
Speaker 1: the inability to go to recession and certainly nailed the
Speaker 1: market reaction to better than good news with China opening
Speaker 1: and with a more resilient American economy with Renaissance Macro.
Speaker 1: The optim optimists hang on every word. What is the
Speaker 1: distinction of your optimism right now? What is the thing
Speaker 1: that you would describe as the data optimism. Well, I
Speaker 1: think it's the composition of growth that's improving. I was
Speaker 1: gonna say, you know, Mike, one reason why the Empire
Speaker 1: number is coming in maybe they surveyed people before the
Speaker 1: Giants win against the Vikings. I mean, that could that
Speaker 1: could be, that could be what's going on. But um,
Speaker 1: you know, Tom, I think the composition of growth is improving, right,
Speaker 1: so even though inflation is moderating, real economic growth is accelerating.
Speaker 1: And um, I think that that combination of growth is
Speaker 1: the sort of challenge for for markets to kind of
Speaker 1: deal with. Let's dove till your comments with Ken Rogoff,
Speaker 1: with Lisa brand Wanson Davos. And this is the idea
Speaker 1: of disinflation. And even if we're having this parlor game
Speaker 1: of where it moves you put out a blistering chart.
Speaker 1: I'll say eight days ago they said, wait a minute,
Speaker 1: if you get disinflation and incomes do okay, real incomes
Speaker 1: can stabilize or dare I say inflation adjusted incomes could
Speaker 1: actually go up. Well, they're accelerating right now. Real incomes
Speaker 1: net of transfer payments are accelerating. I mean, that's not
Speaker 1: even a debatable point. Um. You know, as an example,
Speaker 1: in December, we know that aggregate wages and salaries probably
Speaker 1: rose around two to three tenths and we know that
Speaker 1: headline inflation felt so that means that real incomes rose.
Speaker 1: And then you have to basically make the assumption what
Speaker 1: do people go out and do with the new founder
Speaker 1: and um, you know, my senses that they probably spend
Speaker 1: it financial conditions have been easing. I don't think you
Speaker 1: can really make much of a case right now that
Speaker 1: people are going to just spontaneously increase their rates of savings.
Speaker 1: You know that should keep you know, firm under belly
Speaker 1: to consumer spending. And we know that housing is now
Speaker 1: picking up again. So Davos, I wouldn't do algebra, But
Speaker 1: since we're in New York, we're gonna go algebra algebra Tuesday. Here.
Speaker 1: Why will see plus I plus G plus n x
Speaker 1: and all of a sudden to me, n X is
Speaker 1: a constructive mystery with China reopening, just China reopening and
Speaker 1: exporting important dynamics of America. Does that give you more
Speaker 1: data optimism that we could avoid a recession? Sure? I
Speaker 1: mean back in I think then Vice chairs to Only
Speaker 1: Fisher did a seminal speech on the impact of dollars
Speaker 1: on on inflation and growth. Remember, at the time the
Speaker 1: dollar strengthening, the FED was backing off. But now it's
Speaker 1: kind of working in reverse. And if you look at
Speaker 1: the broad dollar index, it's off about ten percent um
Speaker 1: I think since September. And you know, the dollar has
Speaker 1: a very mechanical impact on the Fed's kind of workhorse
Speaker 1: models and the fact that the dollars declining UM. I
Speaker 1: think that boost real exports um maybe three to four
Speaker 1: percent in real terms, and it introduces some upside to
Speaker 1: core inflation over the next year. So I think the
Speaker 1: dollar selling off is a sign that global growth expectations
Speaker 1: are improving, and I think it's an unambiguous positive. What
Speaker 1: is your two thousand, twenty three GDP number for the
Speaker 1: United States, I'll tell you what. It's not done. It's
Speaker 1: not zero point five percent. I think that it'll I mean,
Speaker 1: I look, I think something slightly above potential is plausible,
Speaker 1: maybe two. I mean, I think underlying growth right now
Speaker 1: is around two and a half. I'll drive me key
Speaker 1: into this right now. Is to help me here with
Speaker 1: the dots, I mean, help me here with the dispersion
Speaker 1: of the dots. Are any dots as optimistic as dotta?
Speaker 1: Is there a Dotta dot on the dots? There's not
Speaker 1: a Dotta dot on the dots right now, Which sounds
Speaker 1: silly to say, rubber baby buggy bumpers. But what you've
Speaker 1: got going is is a situation. And Neil and I
Speaker 1: actually argued this out on the Bloomberg message system the
Speaker 1: other day. The FED makes its forecasts, and they make
Speaker 1: nineteen forecasts, and we arbitrarily picked the media and say
Speaker 1: that's the FED forecast, and it's made once every three months,
Speaker 1: and Wall Street changes its mind about what growth and
Speaker 1: unemployment and UH interest rates are going to be every day,
Speaker 1: every five minutes. And so to go back and say
Speaker 1: the Fed is wrong by saying half a percentage point
Speaker 1: growth in December, that's not really fair. The FED starts
Speaker 1: to change its mind as well, and they will have
Speaker 1: a new forecast in March. But even at this upcoming meeting,
Speaker 1: I suspect you're going to hear j Pill say that
Speaker 1: growth forecasts are rising. And we heard Pat Harker, the
Speaker 1: Philadelphia FED president, the other day say he's marked his
Speaker 1: up to one percent for the right. But they're they're
Speaker 1: taking down there, they're taking let's assume that that's right there,
Speaker 1: taking up their growth forecast as we go into the
Speaker 1: March f ONEm C meeting and in February. But at
Speaker 1: the same time, the market odds of a basis point
Speaker 1: move are also solidifying, So the idea that they're going
Speaker 1: to go another fifty that's going down even as they're
Speaker 1: raising their But I look at Bloomberg, though, look at
Speaker 1: your own Bloomberg consensus e CFC going every day q
Speaker 1: Q one Q one real g d P Q ever
Speaker 1: Q percent change annualized zero point one percent Q two
Speaker 1: coming in at minus point six. These are very very
Speaker 1: depressed forecast for and this is the consensus, so the
Speaker 1: one that updates quite frequently. So I think that's dramatically offside.
Speaker 1: It's considering we're going into the year something close to
Speaker 1: three maybe if you trust the Atlanta had four percent.
Speaker 1: So I think there's the consensus had a lot of
Speaker 1: work to do and kind of adjusting their expectations. Okay, Well,
Speaker 1: in search of it, where is the dutta dot out there?
Speaker 1: When are we going to see not just a single dot,
Speaker 1: but get you know, go plural, get datta dots out
Speaker 1: there from the FED? When do they migrate, how many
Speaker 1: meetings out do they migrate? Where the dispersion lifts up?
Speaker 1: And there's some real optimism about one or two even
Speaker 1: three g d P to me, the dots. The risk
Speaker 1: with the dots right now is that the cuts that
Speaker 1: are currently baked into the four outlook get priced out
Speaker 1: because growth is coming in a lot stronger than expect it.
Speaker 1: So if the Fed I mean right, all of these
Speaker 1: are sort of premised on your your your assumptions around
Speaker 1: unemployment and so forth. The FED expects the unemployment rate
Speaker 1: to go up a full percentage point from where it
Speaker 1: is right now. And if growth is coming in slightly
Speaker 1: above potential, as I expect that, that means that there's
Speaker 1: room for the unemployment rate to fall. And if the
Speaker 1: unemployment rate remains low, then the likelihood of them cutting
Speaker 1: I think that goes away. So that to me is
Speaker 1: the risk with they. I can tell you what it
Speaker 1: hap Pitged Thomas. There is the FED meeting at which
Speaker 1: they will have a new summary of economics. We will
Speaker 1: and data DUTs help me with retail sales here Mike
Speaker 1: was setting us up for it was this grim empire number.
Speaker 1: You know where I am on this, and I'm like, okay, whatever,
Speaker 1: But the answer is retail sales matter the economy. Inflation
Speaker 1: coming in, it's going to be dampened. So how do
Speaker 1: you interpret retail sales with the dynamic of disinflation. There's
Speaker 1: some flukey season, I mean, I think, if I'm not mistaken,
Speaker 1: I think December of one was a really weird month.
Speaker 1: We had a big decline in in quar retail sales
Speaker 1: that month. And UM, I think there might be some
Speaker 1: seasonal adjustment issues that are going on, you know, following
Speaker 1: the pandemic that kind of depressed the numbers like retail
Speaker 1: sales in December, and you know, we probably make that
Speaker 1: up and seasonally adjusted terms sometime in the spring. What
Speaker 1: I can tell you is that, UM, you know, it
Speaker 1: looks like the inventory adjustment is largely over and so
Speaker 1: um right, and so I think that could be one
Speaker 1: reason why prices and things like apparel aren't really collapsing
Speaker 1: as much as this is really important. I'm glad you
Speaker 1: bring this up. Dana Telsey has been lights out the
Speaker 1: last time of the tells the advisory group folks on
Speaker 1: I don't retail. I sort of knew that was gonna happen, Mike,
Speaker 1: but school us on inventories, which is this obscure thing
Speaker 1: nobody really understand. Don't give me life of FIFO. But
Speaker 1: are you surprised, like Mr Dudda mentions here that we
Speaker 1: cleared inventories. It seems really rapidly. UM. I don't know
Speaker 1: if I'm surprised, because there's no point to a business
Speaker 1: holding on the inventories, it's not gonna sell. So if
Speaker 1: you go to t J Max or Marshals or something
Speaker 1: like that, you'll see some of that inventory and it
Speaker 1: will be marked down because people are just trying to
Speaker 1: get rid of it because you get new stuff coming
Speaker 1: in all the time. But also in the retail sales report, um,
Speaker 1: we saw in December gasoline prices continue to fall, so
Speaker 1: that'll take some off of retail sales. Autos are they
Speaker 1: fell sales? They were not as high, but it's a
Speaker 1: difficult one to translate into the retail sales report. You know,
Speaker 1: this is so important, Mike, that we've got people bring
Speaker 1: the camera over here. Uh and and they're talking about
Speaker 1: on the internet about your socks right now and the
Speaker 1: symbolism you know, low you know, I mean, these are
Speaker 1: extraordinary socks. So I could never be got dead using those.
Speaker 1: What is the economy is that those optimistic socks? Is that?
Speaker 1: What those well, if it's the donut, it was reflects
Speaker 1: the donut on headline inflation. Okay, very good, Neil, donta
Speaker 1: there or the donut socks giving us a signal of optimistic,
Speaker 1: optimistic economic growth. And what's important here is the timeline
Speaker 1: Mike Wilson's idea of a long term within you know
Speaker 1: the structure of a big Wall Street firm, as I'm
Speaker 1: gonna say, six months, nine months, maybe a year. What
Speaker 1: do you do, John, if you have a longer term
Speaker 1: time frame three years, five years, coming out of a
Speaker 1: pandemic China reopening, you've had this nice gift of a lift,
Speaker 1: then what And that's sort of where we are going
Speaker 1: into February. Let's say some of them right now with Christophe,
Speaker 1: the head off Exquvity Strategy Atlas Foco Securities. Chris, let's start.
Speaker 1: The band markets are like a whole a mirrors design
Speaker 1: to confuse investors and take their money. Is this a
Speaker 1: band market rally? Um? Bear market rally? This is a rally,
Speaker 1: no doubt, has a lot of the hallmarkings of a
Speaker 1: January effect. As your point out, credit spreads are tightening,
Speaker 1: high yield I g but but risk is rallying, smaller
Speaker 1: caps are rallying. I don't know if i'd call it
Speaker 1: a bear market rally. What I what I think is
Speaker 1: we're probably going to begin to stall out here. We
Speaker 1: think fair value in the short terms somewhere around four
Speaker 1: thousand at the end of the day. It's true that
Speaker 1: credit spread excusan not credit spreads, but margins are going
Speaker 1: to we're going to compress. EPs is going to come down.
Speaker 1: But we think we're really facing more of an economic
Speaker 1: malaise than than we are some sort a sharp recession.
Speaker 1: And so as a result, you have to be careful,
Speaker 1: you have to place your bets. We think maccap growth
Speaker 1: is that sweet spot, and overall the broader the broader
Speaker 1: market is a little bit tough. We think things will
Speaker 1: trade higher, but you can't see a pretty big downside
Speaker 1: from here. So Chris within that there was a cool
Speaker 1: on the economy and there was a cool on annings.
Speaker 1: Can we just separate it so you just from i'ming
Speaker 1: to focus on Anne's Chris, what kind of learnings are
Speaker 1: you expect in this quarter and the outlook for the
Speaker 1: rest of the year. Yeah, So let me say this,
Speaker 1: for the last two or three quarters, there's been a
Speaker 1: lot of fear mongering coming into earnings, right, and so
Speaker 1: when you fear monger, what happens is you lower expectations.
Speaker 1: We've lowered expectations so much in the last couple of
Speaker 1: quarters that the numbers haven't been great but the phrase
Speaker 1: things are better than expected has been true, and I
Speaker 1: think that's going to be true this time around. We
Speaker 1: are going to see some magic com pressure. We are
Speaker 1: going to see some revisions down. But now is not
Speaker 1: the time where you really lowered guidance, because because it
Speaker 1: is still okay. What we're worried about more so is
Speaker 1: when you report first quarter numbers. But right now we
Speaker 1: think things will be okay for now or better better
Speaker 1: than feared. It's probably the right one, Christian, your beautifully
Speaker 1: concise note. You speak of a tactical shift, and as
Speaker 1: I guess that there's been a tactical shift, everybody's gotten
Speaker 1: this mother of all recession calls wrong, wrong, wrong? Help
Speaker 1: me with April or May is June? How do I
Speaker 1: prosecute tactics now to survive in the second quarter? Tom
Speaker 1: That that's a great question, and that's a question that
Speaker 1: we're having with a lot of clients. We had a
Speaker 1: lot of clients that performed quite well last year come
Speaker 1: into this year and they've just gotten run over it.
Speaker 1: And what they're saying is, hey, do I turn, do
Speaker 1: I shift? Do I do I tactically move? Our answer
Speaker 1: is no, right, because ultimately we're going to see some
Speaker 1: sort of downside. We're going to see some sort of pain,
Speaker 1: whether it's economic, whether it's earnings, or whether it's macro.
Speaker 1: And so you we have twelve months eleven twelve months
Speaker 1: in the year, too early to shift and is a
Speaker 1: lot of a lot of room between now that so
Speaker 1: at the end of the day we're having a bout.
Speaker 1: That bounce we kind of understand, but ultimately the worst
Speaker 1: isn't over just yet. Christo financial media is guilty of this,
Speaker 1: and frankly Bloomberg and myself we're as guilty as anyone
Speaker 1: of a complete focus on the big banks, uh and
Speaker 1: you know, and the what Wills Fargo is doing and
Speaker 1: the rest okay, great after the big banks, Which earnings
Speaker 1: matter to you, Which earnest So what we're looking for
Speaker 1: is we're looking at cyclical earnings because we think that's
Speaker 1: where where the pain is going to be. Right, cyclical earnings.
Speaker 1: The old economy stocks out outputs their weight last year,
Speaker 1: and that's where we think the pain is going to be.
Speaker 1: If you're going to believe that the economy is slowing down,
Speaker 1: which we do, that's where you should see most of
Speaker 1: the pain. That's where we should see the margin compression,
Speaker 1: and that's where I think stocks are most liable. Chris,
Speaker 1: and thanks that cycnical story that you just described. Yeah,
Speaker 1: banks are part of that. But but we're not as
Speaker 1: worried about credit as other people because one of the
Speaker 1: reasons being is the job picture is much better than
Speaker 1: many people expecting. What we expect that the job picks
Speaker 1: should be pretty robustant, at least for now, and so
Speaker 1: as a result, credit should be okay. And what we've
Speaker 1: seen so far is credit is not great, but it's
Speaker 1: normalizing it. It's okay, or it's where it should be.
Speaker 1: It's not worse than expectations. For a long time, we
Speaker 1: used to talk about tech as the secular growers, these
Speaker 1: big things that didn't worry about the cycles at the
Speaker 1: global economy. Christ do you think those tech names and
Speaker 1: now cyclicals? Um so? Someone, if you you look at
Speaker 1: semi semis are definitely cyclical software, I'd say less so.
Speaker 1: And one of the things that we're seeing is a
Speaker 1: lot of industrials are becoming a little bit more growthy um.
Speaker 1: And here here's the thing. The big debate that we're
Speaker 1: having right now is what takes leadership? Is it energy,
Speaker 1: does tech come back, And what we think is it's
Speaker 1: going to be a lot more idios and cratic market.
Speaker 1: It don't look so much for this one big trade
Speaker 1: or this this one big knockout. Really get back to
Speaker 1: the fundamentals. Look for that good school again. We think
Speaker 1: it's in that MidCap growth space and you can get
Speaker 1: some good valuations down there fifteen times earnings or so um,
Speaker 1: and don't focus so much on the macro. Okay, well
Speaker 1: that's great. I'm focusing right now on SMP five hundred
Speaker 1: four point two percent. And you know, ten days, whatever
Speaker 1: we've had this year, are you gonna give me a
Speaker 1: double digit return in two thousand twenty three. So what
Speaker 1: we think in two thousand twenty three is ultimately're gonna
Speaker 1: get toto. You're gonna get to forty two hundred. We
Speaker 1: think you're gonna come down. We think inflation is coming down,
Speaker 1: and we think the economy is slowing. And what is
Speaker 1: that that's a growth market and what is the SMP
Speaker 1: five hundred that's a growth in the see and at
Speaker 1: the end of the year, even if a FIT doesn't cut,
Speaker 1: which we don't think it will cut, the market will
Speaker 1: believe that it's going to cut and we should see
Speaker 1: that reflecting the shape of deal curtain and interest rate.
Speaker 1: Zion go to Chris on this. This is the heart
Speaker 1: of Bloomberg surveillance. Do we have two opposing views here
Speaker 1: between what we see from Welles farguing what we see
Speaker 1: from Morgan Stanley couldn't be farther apart? Are you talking
Speaker 1: about the path or points to point both because the
Speaker 1: shape of the path, I mean, Chris, didn't you talk
Speaker 1: about a potential for real downside here? So at least
Speaker 1: that's right. We we think there's downside the hundred, but
Speaker 1: ultimately do recover, right. We we do think that we
Speaker 1: earn would excuse me, that we end up higher fort
Speaker 1: is the high for this year, and we do think
Speaker 1: we get there. We think that again, what you're facing
Speaker 1: is more of an economic malaise, not a sharp sell off,
Speaker 1: not something that that's going to be horrific. And as
Speaker 1: a result, we can muddle through that. And let's not
Speaker 1: forget the FETE is going through. We think the Fed
Speaker 1: is going to stop raising rates sometime this year. That's
Speaker 1: a positive. And if we get through a situation where
Speaker 1: it's more of an economic malaise, than a sharp sell off,
Speaker 1: then their earnings they'll be dent died, but they won't
Speaker 1: be they won't collapse. Chris enjoyed this, Thank you, BUDDYGA.
Speaker 1: So why's Chris Hamphy there? Wils Farca now Seleneo's Global
Speaker 1: Ahead of Fact Strategy ABC. Join just right now, Alse
Speaker 1: we'll talk about the BJ in just a moment. I
Speaker 1: think investors not interested in good versus bad, but better
Speaker 1: versus worse as things getting better or worse. So it
Speaker 1: feels like you've got conflicting signals coming at the moment,
Speaker 1: muddeled outlook for many in that if you look at
Speaker 1: the equity market, as you highlighted at the start, huge
Speaker 1: rallies to start the years, some real optimism airing in
Speaker 1: at the same time, yields moving lower, so bonds rallying.
Speaker 1: It's that kind of bond equity rally that's the perfect
Speaker 1: storm for the U. S. Dollar. But it does feel
Speaker 1: like there's a bit of a conflict between the messages
Speaker 1: we're getting from the two sides. Do you think that
Speaker 1: move we've seen the dollar so far is sustainable? Are
Speaker 1: there some sustainable headwinds against the U. S Dollar that
Speaker 1: you think last three. We've had a ten percent plus
Speaker 1: move since the end of September our, so that's quite
Speaker 1: a move exactly. And I think the danger is we're
Speaker 1: falling into the same traps that markets fell into at
Speaker 1: the start of twenty two and at the start of
Speaker 1: twenty one, where everybody starts the year with a very
Speaker 1: strongly bearished dollar concern insis. I know it feels weird
Speaker 1: given how strong the dollar wasn't twenty two, but that
Speaker 1: was the consensus at the start of the year, and
Speaker 1: we spent all of January putting on those positions, and
Speaker 1: then it snaps back, you know, whether it's snaps back
Speaker 1: in February March, whether this year takes a little bit longer,
Speaker 1: maybe in the back half of the year. Um, it's
Speaker 1: not going to be quite straightforward. It's just sell dollars
Speaker 1: and close your eyes. Also, Lisa Abramowitz in the last
Speaker 1: hour with Kenneth Rogoff at Davos in the World Economic Forum,
Speaker 1: and they're talking there about the FED in about this
Speaker 1: relentless rate increase against that is a distraction of Japan.
Speaker 1: I thought Ambrose seven's preachered in the Telegraph with Professor
Speaker 1: Rogoff today with anad Olivier Blanchard was just brilliant. The
Speaker 1: giant wild card Japanese inflation is returned in the aftermath
Speaker 1: of COVID, pushing the country from a bed but stable
Speaker 1: equilibrium into an unstable equilibrium. And just for perspective, folks,
Speaker 1: Japan owns eight percent of Francis public debt ELSA, how
Speaker 1: do you synthesize the Japanese conundrum? Just a really interesting point, Tom,
Speaker 1: because we've actually started to see it in the data
Speaker 1: coming out from Japan. They have turned into sellers of
Speaker 1: European government dead um and as you highlight, there are
Speaker 1: big holders of French government bonds. My colleague m Call
Speaker 1: has done a lot of fantastic work on this and
Speaker 1: that they've been selling treasuries in large size for a while.
Speaker 1: The last few months have been notable in that we've
Speaker 1: seen e g b s take the lead. Why is
Speaker 1: that happening, Well, it's the cost of hedging. It's euro
Speaker 1: yen and the cost of hedging the exposure what you
Speaker 1: do on this and A P has a wonderful chart
Speaker 1: in this should take the yen swap yield versus the
Speaker 1: published yield and one folks at Johan Farrell follows so closely,
Speaker 1: and there's a huge gap. Where does dollar yen go
Speaker 1: on that presumed gap? Can you get the one twenty
Speaker 1: or dare I say an even stronger yen down to
Speaker 1: parody so that I actually look at it the other
Speaker 1: way and say, unless the Fed is going to be
Speaker 1: cutting rates dramatically in three and we're not talking one
Speaker 1: or two cards, but really slashing raids under most other scenarios,
Speaker 1: the cost of hedging continues to rise for Japanese investors,
Speaker 1: they're actually going to have to reduce those hedge ratios
Speaker 1: dollar yen goes higher. I know that's not a popular
Speaker 1: thing to say. That could be what we see for
Speaker 1: the balance of the year as a whole. Now, so
Speaker 1: can we talk about the b J this week? There
Speaker 1: is massive speculation they're going to adjust yield curve control,
Speaker 1: maybe drop it all together, adjust the band, move the
Speaker 1: maturity they focus on, what are you focused on? So
Speaker 1: it's the combination of factors, right, It's yield curve control
Speaker 1: coupled with the inflation forecast. A lot of speculation that
Speaker 1: Corona's going to want to leave a clean slate for
Speaker 1: the next incoming Bank of Japan governor in April. It
Speaker 1: may not happen today. Actually, I think most analysts expected
Speaker 1: happen in March. But as you said, a huge amount
Speaker 1: of speculation. We've actually gone long Swiss end into this
Speaker 1: meeting only because we might be getting a bit ahead
Speaker 1: of ourselves in terms of how much we're expecting for tonight.
Speaker 1: So that's a long swissy against the Japanese en looking
Speaker 1: for a weaker Japanese yen here, how sir, that's right
Speaker 1: as Selina what they call their tom long swissy against
Speaker 1: the JAMPANESEPEC, the JP rather the BJ to disappoint. And
Speaker 1: this is important, folks, and that you don't look at
Speaker 1: just dollar against a pair. There's other cross rates as well. Also,
Speaker 1: what do you do on a Pacific rim if we
Speaker 1: have an opening up? John mentions Europe on a relative
Speaker 1: basis off the mat doing better, but it's a Pacific
Speaker 1: rim play. What does OURBC capital markets look for? What's
Speaker 1: the best pair? So we've been looking at a number
Speaker 1: of pairs. The Australian dollar. We don't typically love it,
Speaker 1: but actually there have been good opportunities. We were long
Speaker 1: Aussie against CAD last week and it's something we'll look
Speaker 1: to revisit on an office the year goes on. There
Speaker 1: has been a lot of speculation, a lot of positioning
Speaker 1: around China reopening, but that may have a little bit
Speaker 1: further to run, and not just the reopening, but also
Speaker 1: apparent thawing in relations between Australian China that I think
Speaker 1: is worth paying close attention to, you know. I I
Speaker 1: look also at the moment, as John mentions, it's a
Speaker 1: Bank of Japan week. Everybody's radars off Europe. What are
Speaker 1: the degrees of freedom? And Christine lagar hairs right now,
Speaker 1: she's the most she's the least talked about, I would
Speaker 1: suggest right now, and all my radars up on that. Yeah,
Speaker 1: she's probably happy to be out of the spotlight for
Speaker 1: a bit, right But there was a really interesting article
Speaker 1: interview this morning given by Philip Laine, the Chief European Economists,
Speaker 1: and he was highlighting that rates will have to rise further,
Speaker 1: but that Europe is facing a shock in terms of
Speaker 1: energy prices that the US is not facing, and that
Speaker 1: at the end of the day that does mean rates
Speaker 1: will have to rise less in Europe than they have
Speaker 1: risen in the US. I think that's an important reminder
Speaker 1: to just you know, there are critical differences between here
Speaker 1: and on the other side of the Atlantic. I I
Speaker 1: look at uh also the moment in foreign exchange, and
Speaker 1: it is about a certain weak dollar. What is the
Speaker 1: level of week dollar? I think it's so important to
Speaker 1: reset going into the end of March into April. How
Speaker 1: much is the week dollar move going to be? Look
Speaker 1: I think in terms of the year as a whole.
Speaker 1: I actually explain, and again I know this is going
Speaker 1: to sound controversial. I actually expect the dollar to end
Speaker 1: a little bit stronger, certainly across um at the yen,
Speaker 1: and you know, probably against the U as well. Just
Speaker 1: given where we are now, how far we over extending
Speaker 1: to the end of March is really anybody's guest, because
Speaker 1: I do think that momentum for the week dollar trade
Speaker 1: has some more legs as further to run. But again,
Speaker 1: as I said, I would be looking for that as
Speaker 1: an opportunity to reposition for a slightly stronger dollar in
Speaker 1: the back half of the year. Just to final one
Speaker 1: from me, was the number one factor behind that dollar
Speaker 1: strength that you anticipate in a back half of twenty
Speaker 1: three combination of the Fed potentially not easing as much
Speaker 1: as people anticipate. Coupled with the fact that, as you
Speaker 1: said earlier, we've had a temper cent moves in September,
Speaker 1: we've priced a lot of that story and already an
Speaker 1: amazing term We've seen in a couple of weeks, nine
Speaker 1: trading days, and all of a sudden, a lot of
Speaker 1: people change in their minds, absolutely of OURBC. I can't
Speaker 1: tell you, Lisa, how my life changed in Colorado engineering
Speaker 1: under the hard wooden ruler of Ruth Rebecca Stewark. And
Speaker 1: I know Mike Worth survived the mathematics of Colorado as
Speaker 1: well well, from the hard role that you experience to
Speaker 1: the Davos Alps and what we're talking about here with
Speaker 1: Mike Worth of Chevron are a host of geopolitical issues
Speaker 1: that are coming together with Oil Front and Centel. Mike Worth,
Speaker 1: CEO of Chevron, so happy to have you with us,
Speaker 1: but I want to start there. Everyone here is talking
Speaker 1: about China, the reopening, how much it's going to reduce
Speaker 1: the global economy, what is it going to affect commodity prices?
Speaker 1: And the white people have been predicting it could be coming. Lisa,
Speaker 1: I've met with some people from China even today and
Speaker 1: what they tell me is the pandemic is largely moved
Speaker 1: through the big cities. People are back at work, the
Speaker 1: economy is beginning to move forward. We're not really seeing
Speaker 1: it in commodity markets yet, but the absence of that
Speaker 1: demand is one of the reasons why we've seen prices soften,
Speaker 1: and the return of that demand is what could start
Speaker 1: to firm them up again. Although some people say that
Speaker 1: China is getting all of their supplies geared up from Australia,
Speaker 1: from coal, from all sorts of different supplies. They have
Speaker 1: huge stockpiles that they're going to unleash to dampen any
Speaker 1: kind of sudden surge in demand. Do you agree with
Speaker 1: that assessment. Well, the data out of certain parts of
Speaker 1: the world is a little bit harder to interpret than others.
Speaker 1: In China sometimes sysmatic is um is a little bit
Speaker 1: difficult to see in the short term what's happening. But
Speaker 1: clearly in the longer term we can see that oil
Speaker 1: demand out of China has been down here during the
Speaker 1: pandemic and um and and they will use coal, they'll
Speaker 1: use liquefied natural gas, but they'll use oil as well.
Speaker 1: And uh And as their economy does return to full strength.
Speaker 1: I think we will see it in demand in a
Speaker 1: world is pretty tight right now, and so that's the
Speaker 1: I think that's the case for some upside and commodity
Speaker 1: prices this year. Is a strong return of the Chinese economy.
Speaker 1: How much upside could that be? It's really hard to say.
Speaker 1: We try not to predict prices because you're always wrong.
Speaker 1: What I will say is its supply and demand are
Speaker 1: fairly finally balanced and post the pandemic, as economies have opened,
Speaker 1: suppli has been struggling to keep up, which is why
Speaker 1: even before the war began we started, we saw some
Speaker 1: strengthened prices. And we have markets now that are constrained
Speaker 1: by rules on who can sell to, which countries can
Speaker 1: buy from from other countries, what prices things can transact it,
Speaker 1: Shipping legs are longer than they were before. There's a
Speaker 1: lot of strain on these markets. And it wouldn't take
Speaker 1: a big search from China to really start to to
Speaker 1: push against some of those constraints. Because of some of
Speaker 1: those concerns and some of the frictions that you're talking about,
Speaker 1: have you changed where you do some of your production,
Speaker 1: where you focus some of Chevron's drilling and exploration, we
Speaker 1: really haven't. Those are long term decisions that we make
Speaker 1: based on a long term view on supply demand technology.
Speaker 1: In the short term, we need to be nimble with logistics,
Speaker 1: with the way that we manage supply relationships with our
Speaker 1: customers in order to try to be sure that we
Speaker 1: meet our obligations. So there's a lot of commercial activity
Speaker 1: and logistics activity to respond to the kinds of things
Speaker 1: that we're talking about. For the long term, decisions are
Speaker 1: made on, you know, the fundamentals of the geology of
Speaker 1: the markets and a long term view of those things.
Speaker 1: Do investors reward you more for investing in production in
Speaker 1: a way that they hadn't a couple of years ago,
Speaker 1: simply because of suddenly this renewed focus at fossil fuels
Speaker 1: after they've been left for dead. Certainly, our sector for
Speaker 1: the last decade has not performed like the rest of
Speaker 1: the market and uh and some of that was I
Speaker 1: think a lack of capital discipline by companies in our sector.
Speaker 1: Some of it was the narrative that oil and gas
Speaker 1: were going away sooner than than they likely will. And
Speaker 1: we certainly saw last year of the sector performed very
Speaker 1: strongly and I do think that investors have re equated
Speaker 1: themselves with the fundamentals of the energy business, with the
Speaker 1: cash that that companies generate in this sector. We we've
Speaker 1: by the end of the third quarter last year, had
Speaker 1: had generated record cash in our business. And uh and
Speaker 1: so you know, there's more capital discipline. I think the
Speaker 1: demand is there, and I do think the market is
Speaker 1: beginning to come back to us. But what I'll say is,
Speaker 1: you know, earnings in our sector through three quarters of
Speaker 1: represented SMP earnings by market capitalization, it's only five of
Speaker 1: the SPID. So I think they're still upside. You know,
Speaker 1: earlier this year, earlier last year, the Biden administration came
Speaker 1: out and said, we're going to lower prices as as
Speaker 1: gasoline prices surged, We're going to do these releases from
Speaker 1: the Strategic Petroleum Reserve. Do you think that was a
Speaker 1: good policy? You know, I think it. Uh. It's certainly
Speaker 1: provided oil supply to a world that was concerned about
Speaker 1: the reliability of oil supply. Uh. The reserve wasn't really
Speaker 1: set up for price excursions. It was set up for
Speaker 1: true supply outages, which we didn't experience last year. Uh.
Speaker 1: So the risk in having used the supplies the way
Speaker 1: they've been used is if we were to run into
Speaker 1: something that is more serious in terms of the availability
Speaker 1: of supply, there's not as much dry powder left as
Speaker 1: as there has been for the last several decades, so
Speaker 1: it's it's run things lower. I think it did have
Speaker 1: a bit of a calming effect on markets, but it's
Speaker 1: left us in a little bit more of a delicate situation.
Speaker 1: And now they're saying that they're going to potentially repurchase
Speaker 1: around seventy dollars. Perhaps they've missed that, but they might
Speaker 1: start refilling it come February. Is this the role of
Speaker 1: the government, I mean, to sort of set a floor.
Speaker 1: Is that basically what they've done. It's very interesting, Uh,
Speaker 1: the amount of intervention we've seen governments engage in into
Speaker 1: markets that historically they really have have allowed to function
Speaker 1: on market fundamentals. Uh. My personal view is that a
Speaker 1: price that the government says will refill the spr at
Speaker 1: this price doesn't change investment decisions for our company. If
Speaker 1: we want to sell our barrels in the future at
Speaker 1: a certain price, we can go to financial markets and
Speaker 1: do that today. So, Uh, these kinds of things won't
Speaker 1: change the way that we invest. I can't speak for
Speaker 1: other companies in our industry. Do you think that this
Speaker 1: could potentially affect pricing next year if there is a
Speaker 1: push to refill, or that that pressure on the other
Speaker 1: side of supplies coming into the market is not there.
Speaker 1: I mean, are you expecting that to kind of change
Speaker 1: the dynamic in a way that the market isn't fully
Speaker 1: reflecting at this time. Well, it would certainly be incremental
Speaker 1: demand in the market that would be buying the commodity
Speaker 1: which has been selling it over the last year. Uh.
Speaker 1: My guess is, and I don't have any unique information here,
Speaker 1: is that the government will refill slowly over time and uh,
Speaker 1: and then it won't come in in a large surge,
Speaker 1: but in a more measured way that will, you know,
Speaker 1: probably be something the market can handle. A lot of
Speaker 1: people are talking about this renewed focus and fossil fuels
Speaker 1: and energy companies being their top bet for this year.
Speaker 1: So suddenly people are absolutely flooding back and saying, you know,
Speaker 1: perhaps we got carried away with E s G. Have
Speaker 1: you stopped investing quite as much in some of the renewables?
Speaker 1: Are you emphasizing that even more as sort of energy
Speaker 1: security how are you playing that given that the dynamic
Speaker 1: the conversation has shifted. Our strategy has been to leverage
Speaker 1: our strengths to provide lower carbon energy to a growing world.
Speaker 1: And so we're spending the same money, we're investing in
Speaker 1: the same technologies. We're working on the same kinds of
Speaker 1: projects in our new energies business, renewable fuels, hydrogen, carbon
Speaker 1: capture and storage technologies like geothermal. Again, we take a
Speaker 1: long term view on markets and on investment, and so
Speaker 1: the I think the dialogue being reset, and I wouldn't
Speaker 1: say it's fully reset, but it had become very polarized.
Speaker 1: And what I've been arguing for is a more balanced
Speaker 1: approach that recognizes the importance of affordability, recognizes the important
Speaker 1: of reliable supply for for national security reasons, and protects
Speaker 1: the environment, and an approach both from governments and from
Speaker 1: companies that balances these out. And that's what we've certainly
Speaker 1: been trying to do. Just lastly, I'm curious about some
Speaker 1: of these sanctions that have been put on Russian oil
Speaker 1: and some of which are going to come online come
Speaker 1: next month, particularly around diesel in Europe. How much do
Speaker 1: you think that's been priced in. How much is that
Speaker 1: going to be an additional price? Stock markets are certainly
Speaker 1: forward looking. This has been telegraphed for for quite some time,
Speaker 1: and so I think that, just as we saw when
Speaker 1: the oil price cap in the European sanctions came in,
Speaker 1: the market was generally prepared. I think people anticipate it. Uh.
Speaker 1: The risk is unintended consequences and products tend to move
Speaker 1: in smaller quantities to local markets. UH. Not moving UH
Speaker 1: steady sources supply into Europe means that supply will go
Speaker 1: to more distant markets, and Europe will have to find
Speaker 1: their supply from new markets. And so I think some
Speaker 1: of that is underway, more of it is likely to follow.
Speaker 1: So there is the risk for some disruptions. Mike Worth,
Speaker 1: thank you so much for being with us. Wonderful speaking
Speaker 1: with you. This is the Bloomberg Surveillance Podcast. Thanks for listening.
Speaker 1: Join us live weekdays from seven to ten am Eastern
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Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg