Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Bramowitz. 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. Ron Temple makes
Speaker 1: it smarter this morning, go ahead, a multi asset head
Speaker 1: and with lasired asset Management and Ron, I want to
Speaker 1: cut right to the equity paragraph. And you're always crystal
Speaker 1: clear note, which is you are focused on the grand
Speaker 1: conundrum in the next year, which is measuring the persistency
Speaker 1: of cash flow, the persistency of free cash flow. How
Speaker 1: do you actually do that? Well, this is all about
Speaker 1: doing the bottom up fundamental analysis, Tom, I'm sure you're
Speaker 1: familiar with that. I mean looking out and trying to
Speaker 1: un understand what makes a company generate higher returns on
Speaker 1: capitol and what are the drivers of whether that return
Speaker 1: on capital can stay high or whether it declines. And
Speaker 1: so we're really focused here in terms of you know,
Speaker 1: what I'm looking at in the equity market is trying
Speaker 1: to avoid the speculative growth stocks that are all about
Speaker 1: earnings that might come down the pike, say five, seven,
Speaker 1: ten years, where all of the value of the companies
Speaker 1: in that terminal value and it's much more vulnerable to
Speaker 1: hire discount rates and avoiding the deep value cyclical stocks.
Speaker 1: They are most at risk if you have a recession
Speaker 1: and sticking right in the middle of that kind of continuum.
Speaker 1: On the quality stocks, the companies with high returns on capital,
Speaker 1: that a pricing power, brand advantages, um, strong management, strong
Speaker 1: balance sheets, and that's where you really want to do
Speaker 1: the work to understand what makes a company so strong
Speaker 1: and how they can maintain that position over time. Rod,
Speaker 1: We've heard this before from other people who are trying
Speaker 1: to gird for a recession, But it feels like the
Speaker 1: mood shifted this week. Have you shifted anything about your
Speaker 1: thesis and the heels of the CPI report and p
Speaker 1: p I and even what we're seeing in terms of
Speaker 1: Fed funds futures. I think the market is reacting to
Speaker 1: the positive sign that we've probably seen the peak and inflation.
Speaker 1: We've finally seen inflation roll over, and it's more of
Speaker 1: those cyclical items, the items that we all thought were
Speaker 1: transitory about a year ago that are rolling over. If
Speaker 1: you look at the decline and cp I that we
Speaker 1: saw this week from last month from June to July
Speaker 1: basis points of the forty basis point deceleration was cars
Speaker 1: and airfare. So those are factors that we knew would
Speaker 1: roll over at some point. What I'm really watching is
Speaker 1: rent of shelter. What I'm watching is wage growth. And
Speaker 1: so I think investors should be careful because you know,
Speaker 1: as I listened to you for the last few minutes,
Speaker 1: I think there's a propensity in the market to say, Okay,
Speaker 1: this story is over. We're gonna go back to the
Speaker 1: old playbook. The FED won't have to raise rates as much,
Speaker 1: and I can buy these companies that are growthy kind
Speaker 1: of call options. I don't think that's the right call.
Speaker 1: I think we're in the midst of a paradigm shift
Speaker 1: on inflation, and when inflation does settle, I think it's
Speaker 1: going to settle with a three handle, not a one
Speaker 1: and a half to two percent like we saw for
Speaker 1: the decade into nine. So I would be a little
Speaker 1: a lot more careful than I think I'm seeing in
Speaker 1: the markets of kind of overreacting to data in the
Speaker 1: short term Okay, so Ron, if you're more careful, does
Speaker 1: that mean you still view what we've seen is more
Speaker 1: of a bear market rally than a bona fide sustainable rally.
Speaker 1: I I do still believe it's a bear market rally.
Speaker 1: I could always be proven wrong. We always have that risk.
Speaker 1: But when I look at is, I think we need
Speaker 1: to wait for data next month. I expect CPI to
Speaker 1: come down again. I'm very interested to see the job numbers.
Speaker 1: There's their mixed signals in the job market. We had
Speaker 1: a great payroll number last Friday, but if you look
Speaker 1: at the Jolt State of the Job Opening Labor Turnover Survey,
Speaker 1: we've seen a million job decrease in the number of
Speaker 1: unfilled positions in the last two months. Now, again that
Speaker 1: data is a month lagged relative to payroll data. But
Speaker 1: what I want to see is are those unfilled jobs
Speaker 1: going away, which then means labor has less negotiating power,
Speaker 1: which then means you're less likely to see wage with
Speaker 1: which would is less likely than to pass through the
Speaker 1: prices going up for goods and services. So so I
Speaker 1: think we need to watch more data. But right now
Speaker 1: I think this is a bear market rally. As a
Speaker 1: base case assumption. And again, I would be careful of
Speaker 1: running back to the playbook that worked for the last
Speaker 1: ten fifteen years, because I think that playbooks should probably
Speaker 1: be thrown out. We're on a temple. If we throw
Speaker 1: out quality large cap stocks, which is the mantra right now,
Speaker 1: we're all going to read about it five times this weekend.
Speaker 1: What is the new mantra going to be? Well, to
Speaker 1: be careful, I think quality is the playbook you want.
Speaker 1: I think the playbook for the last ten fifteen years
Speaker 1: that worked was by the call option by the company
Speaker 1: that is a really cool business plan that's getting access
Speaker 1: to capital at zero interest rates, unlimited capital. I think
Speaker 1: that's gonna be much tougher. So it's that into the
Speaker 1: spectrum I think is more at risk. I think quality.
Speaker 1: It's interesting, Tom, there's been a Venn diagram overlap right
Speaker 1: where a lot of the quality and the growth were
Speaker 1: the same company. I still like the quality growth companies,
Speaker 1: you know, those companies that can generate high cash flow
Speaker 1: and grow. That's great to share at the right valuation.
Speaker 1: Ronald Temple, thank you is by the way, the valuations
Speaker 1: have come down, so thank you. Well they have Ronald
Speaker 1: Temple thank you so much for starting us off strong
Speaker 1: with lazard asset management. Right now and hugely anticipated for
Speaker 1: November is a book. But when Stephen Roach writes a
Speaker 1: book on China, it has a focus and intent on
Speaker 1: their economics and politics like no other. The book is
Speaker 1: Accidental Conflict America, China and the Clash of False Narratives.
Speaker 1: This is hugely anticipated by the Chinese watching community. The
Speaker 1: gentleman from Yale in the Saudi China Center at Yale
Speaker 1: Law School joins us this morning. Dr Roach, thank you
Speaker 1: so much for joining. You've written three or four books
Speaker 1: on China. Why is this one different? What is the
Speaker 1: tension at this moment? Is Mr She goes to the
Speaker 1: Party Congress. Well, Tom. In the past five years, we've
Speaker 1: gone from trade war to tech War two, now a
Speaker 1: cold war conflict is escalating. There is no real framework
Speaker 1: to manage this conflict effectively, let alone conceive of even
Speaker 1: the slightest semblance of resolution. And in a period of
Speaker 1: escalating conflict, the smallest spark can lead to a major
Speaker 1: uh clash, and we certainly have seen one in the
Speaker 1: last week over Taiwan. And I'm very worried about the
Speaker 1: possibility of you know, a military accident in the Taiwan
Speaker 1: Straits occurring in the context of this escalating economic and
Speaker 1: technology conflict that could really lead to a serious UH
Speaker 1: outbreak between the United States and China. The thesis of
Speaker 1: the book is the conflict would not have happened were
Speaker 1: it not for the false narratives that both the nation's
Speaker 1: harbor with respect to other and I developed these narratives
Speaker 1: in detail in the new book. Well, what is important
Speaker 1: here is what matter of diplomacy has needed. What is
Speaker 1: the roach approach to a new diplomacy that can perhaps
Speaker 1: calm down these pressure points. Well, my idea and I
Speaker 1: developed it in detail on the final part of the book,
Speaker 1: is that the current structure of engagement, whether it's you know,
Speaker 1: leader to leader phone calls between Biden and hijin Ping
Speaker 1: or earlier strategic and economic dialogues as grand summons, has
Speaker 1: failed miserably. And so I am proposing a permanent institution
Speaker 1: that I call for lack of a better term, at
Speaker 1: US China Secretariat that meets full time seven UH staffed
Speaker 1: by an equal number of professionals on both sides of
Speaker 1: the the relationship, whose full time job is to deal
Speaker 1: with all aspects of the relationship, from economics and trade
Speaker 1: to cyber and human rights. And we need a new approach.
Speaker 1: And this is uh, you know, one idea may not
Speaker 1: be perfect, but it certainly beats the current failed approach Stephen.
Speaker 1: There might be a lot of uncertainty on the policy side,
Speaker 1: but businesses have to make moves. They have to either
Speaker 1: expand and double down on their expansion plans in China,
Speaker 1: or they have to withdraw, which we've seen a number
Speaker 1: of companies do on the margins. And we hear more
Speaker 1: and more about reshoring or on shoring of US companies
Speaker 1: away from China. How materially will that shift the dynamic
Speaker 1: of trade at a time when a lot of people
Speaker 1: say this will be inflationary, Well, I think I think
Speaker 1: it will be inflationary. I think that the trench word
Speaker 1: re short reshoring is an unmistakable our growth of geostrategic
Speaker 1: tensions between the United States and China. They can better
Speaker 1: be addressed through a structure such as the one I
Speaker 1: just outlined, Lisa. But you know, make no mistake, this
Speaker 1: is very destabilizing, uh, not just for the US and inflation,
Speaker 1: but also for China. China benefited the most of any
Speaker 1: nation in the world from the upswing of globalization, and
Speaker 1: it has the most to lose. I think as we
Speaker 1: now move from globalization to deglobalization. There's a larger issue
Speaker 1: though for the economy. And this is something that we
Speaker 1: were just hearing about from Ron Temple. How he thinks
Speaker 1: that perhaps will get back down to a three percent
Speaker 1: inflation rate, but not much below that because we are
Speaker 1: in a new paradigm. And I wonder how much is
Speaker 1: China the main part of that. If you have reshoring,
Speaker 1: which incurs more expense, and you have slower growth in
Speaker 1: China because of exactly what you said, Because this is
Speaker 1: going to affect the world's second biggest economy significantly, how
Speaker 1: much does this portend a slower growth, higher inflation environment
Speaker 1: for a longer term. Well, you know, we debate how
Speaker 1: much China has held down US inflation over the past
Speaker 1: twenty years, but it's been significant, as has uh the
Speaker 1: rapid expansion of global value chains or global supply chains,
Speaker 1: and as supply chains are disrupted by China and other
Speaker 1: developments around the world as we moved from offshore to onshore.
Speaker 1: Good luck in getting inflation down to three It's it's
Speaker 1: gonna be a very difficult goal to achieve. Steph, I've
Speaker 1: been trying to ask you this. She built Morgan Stanley Economics.
Speaker 1: You were the first American economists I know that tried
Speaker 1: to make a three leg FED policy of unemployment inflation
Speaker 1: and you said, watch the balance sheet, the expansion of
Speaker 1: the balance sheet. All that came true as you wrote
Speaker 1: about years ago. What's the FED theory now, if you
Speaker 1: were to if you were to parachute into Jackson Hall
Speaker 1: here at the end of office, what is the theory
Speaker 1: you're gonna find about central banking? Well, you know, hard
Speaker 1: for me to know how they're in a phrase of
Speaker 1: Tom but I think the FED theory has got to
Speaker 1: go back to basics. You know, forget this UH QUI
Speaker 1: balance sheet asset dependent economy. It's blown up repeatedly since
Speaker 1: Greenspan and Bernankey tried to UH in the the nineties
Speaker 1: and in the early two thousands. The FETs got to
Speaker 1: go back to inflation targeting, not average inflation targeting, but
Speaker 1: plain old inflation targeting. UH and UH we need a
Speaker 1: you know, a dose of the very simplistic but tough
Speaker 1: and disciplined approach by Paul Vulker. J. Powell is you know,
Speaker 1: says he's very much committed to doing this. The FET's
Speaker 1: taken some big steps, but you know, child played compared
Speaker 1: to what they have to do, the real federal funds
Speaker 1: rate is still sharply negative. You're not going to control
Speaker 1: inflation with a sharply negative federal that's on that's on
Speaker 1: the LM side. Okay, help me here with the real
Speaker 1: economy and the unemployment rate. If we go Laurence Summers
Speaker 1: this morning and pop it up, as Annawanga Bloomberg says,
Speaker 1: to a four percent or five percent regime, what does
Speaker 1: that do to America's unemployment rate? It's gonna go up. Tom.
Speaker 1: I mean, you know, we give me a magnitude here,
Speaker 1: no one's watching. Give me, give me a magnitude somewhere
Speaker 1: in the four to five percent zone, which is, you know,
Speaker 1: a small price to pay, not for those who are
Speaker 1: affected by of course, but a small price to pay
Speaker 1: to to get inflation back under a more UH stable
Speaker 1: UH path consistent with sustainable growth in the US. The
Speaker 1: path we're on right now doesn't cut it, okay, So Stephen,
Speaker 1: obviously there is a trade off potentially between keeping inflation
Speaker 1: in check and supporting growth and to tie it back
Speaker 1: to China. The PBOC earlier this week was saying, we
Speaker 1: aren't going to go with massive stimulus to support the
Speaker 1: economy despite the turmoil and the property sector of the
Speaker 1: COVID zero policy causing issues, because we are worried about
Speaker 1: the specter of inflation. Do you expect that eventually, if
Speaker 1: China isn't going to take steps to breach a five
Speaker 1: and a half percent growth target, that the Federal Reserve
Speaker 1: is going to BOK two? Well, I think you know.
Speaker 1: Are you asking about the Fed's concerns over US economic growth?
Speaker 1: I think you know the mandate is going from duel
Speaker 1: to single. Inflation is the focus, and they can't afford
Speaker 1: to flinch on bringing inflation back because of political pressures
Speaker 1: that will be evident as the unemployment rate starts to rise,
Speaker 1: and and the Fed has just got to be fierce
Speaker 1: and focused on its independence and on its desire to
Speaker 1: bring inflation down as soon as possible. Steven Roads, wonderful
Speaker 1: to catch up with you today, of course at Yale
Speaker 1: Law School and formally where the Wall Street firm name
Speaker 1: Morgan Stanley. Right now, we're gonna it's a digress here.
Speaker 1: I thought what Lisa was talking when Dr Schiller about
Speaker 1: on the break was really really important. Wendy schillers with
Speaker 1: Brown University, director of the Talbin Center for American Politics
Speaker 1: and a writer of core textbooks on our civics as well.
Speaker 1: We've alluded to this before, Wendy, but I want to
Speaker 1: talk about two candidates who I believe will be seventy
Speaker 1: eight and eight d two in two thousand twenty four,
Speaker 1: and that means, if my math is right, there'll be
Speaker 1: eighty two and eighties six on the way out the
Speaker 1: door in two thousand. How did we get the fossils
Speaker 1: running for president? Well, I think general trends and aging
Speaker 1: are are good, and people are aging better across the country,
Speaker 1: so that's a good thing. I think in time, we
Speaker 1: came out of a very long where people thought it
Speaker 1: was a very long recession. Uh, and the world has
Speaker 1: become less stable. Obviously, Cold War ended and we all
Speaker 1: celebrated freedom around the world, but freedom brought with it
Speaker 1: a lot of unpredictability, and then of course we had
Speaker 1: the wars in Iraq and Afghanistan. And when you have
Speaker 1: that much tumult and uncertainty, and certainly even the not
Speaker 1: eleven attacks. People want comfort, They want people who've been
Speaker 1: around a long time. You can tell them this too,
Speaker 1: this too shall pass. People look to the familiar. They
Speaker 1: look to people with quote unquote experience. Donald Trump had
Speaker 1: business experience that he touted, and Joe Biden had more
Speaker 1: than thirty years in government. Wendy, I'm struggling with that
Speaker 1: idea because we've seen poll after pole is saying that
Speaker 1: they would like to see new blood who leading the
Speaker 1: Democratic Party. They would like to see a younger slew
Speaker 1: of Congress members across the board as we enter into
Speaker 1: a very new phase. Is it a good thing or
Speaker 1: a bad thing for the Democrats that President Biden denounced
Speaker 1: his intention to run again. I think it's a good thing.
Speaker 1: You can't have a president not even ending his second year,
Speaker 1: full year in office, who says, well, I'm not in anymore.
Speaker 1: I mean, even if there's the slightest chance Biden can
Speaker 1: still beat President a couple of years from now, that
Speaker 1: makes a difference in terms of influence, That makes the
Speaker 1: difference in terms of public opinion. You just can't be
Speaker 1: written off. We saw this with Clinton after the Republicans
Speaker 1: won the mid terms in ninety four, you know, always irrelevant.
Speaker 1: He doesn't. He won two years later relatively easily. You
Speaker 1: have to maintain the exercise of power and the illusion
Speaker 1: that you want to keep that power. So I think
Speaker 1: that's a strategically important thing for Biden to do, and
Speaker 1: there is no reason for him not to do it.
Speaker 1: So you think that this is more about the visual,
Speaker 1: it's more about the illusion and less about a true
Speaker 1: intention to run. Well, I think he can stay. He
Speaker 1: can stay in this race until somebody in the primary
Speaker 1: starts to beat him. And and you know, the myth
Speaker 1: that primaries are bad for our parties at the presidential
Speaker 1: levels and has been debunked. Now we know that it
Speaker 1: generates more turnout, It generates people registering to vote, knowing
Speaker 1: a pulling places, they get out the door. There's you know,
Speaker 1: we know that it increases turnout amongst the party members.
Speaker 1: So that means that it's a good thing to have
Speaker 1: some fighting, some challenging, uh, some anticipation. So if he's
Speaker 1: in it and other people want to challenge him, that
Speaker 1: just means more Democrats get in the games to vote,
Speaker 1: and we know the Republicans will be very, very energized
Speaker 1: in twenty four, about whom they will be loyal. We
Speaker 1: don't know who they're gonna pick. You know, I think
Speaker 1: there'll be more than one person in that race. Yeah,
Speaker 1: it's a good point, Wendy. Obviously there's multiple variables at play.
Speaker 1: Let's just assume for the moment that candidate on the
Speaker 1: Republican side hypothetically would be President Trump. Is there anyone
Speaker 1: on the Democratic side of likely potential candidates who would
Speaker 1: be able to beat him other than President Biden? Well,
Speaker 1: if the election were held today, unclear to me that
Speaker 1: anybody could accept for Biden. And again, people like what
Speaker 1: they're used to. There's been a lot of victories lately
Speaker 1: for the Democrats, you know, of economications, you know, ease up.
Speaker 1: I think that you know, the president, former President Trump
Speaker 1: is facing a lot of different inquiries. Some of them
Speaker 1: aren't more scary than others. I think to voters, and
Speaker 1: again that that core of independent suburban voters is key.
Speaker 1: They rejected Trump in twenty uh and I think there
Speaker 1: isn't any reason to think they're gonna welcome them back
Speaker 1: local arms in twenty four. So I think that's what
Speaker 1: the Democrats are counting on. But you know, we got
Speaker 1: Pritzkur in Illinois, big state go Gavin Newsom, the California
Speaker 1: big state Kathy Hokele if she wins again, big in
Speaker 1: New York becomes a player. And then of course it's
Speaker 1: got a couple of ones cabinet that might want to run,
Speaker 1: which makes for awkward cabinet meetings theoretically later on. But
Speaker 1: you know, we we are seeing energy, energy on the
Speaker 1: Republican side, and now we're starting to see a little
Speaker 1: bit more energy on the Democratic side. You have to
Speaker 1: maintain the energy, so you have to give him choice.
Speaker 1: But you are the most powerful person in the world.
Speaker 1: And why you would walk away from that two years early,
Speaker 1: you know, that's just that's political malpractice. And when he
Speaker 1: finally if we could just look to the more immediate
Speaker 1: future and the mid terms in November, there was a
Speaker 1: sense prior to this week that Democratic momentum was building.
Speaker 1: You have the inflation reduction, at gas prices are coming down.
Speaker 1: It is looking a little bit more optimistic for the
Speaker 1: Biden administration. And yet, as you allude to, you now
Speaker 1: have this galvanizing force when it comes to President Trump's
Speaker 1: base because of the FBI search of Mara Lago. Do
Speaker 1: those two forces cancel each other out, and we're now
Speaker 1: left with kind of the same outlook on the mid
Speaker 1: terms as we had before. That's an outstanding question I
Speaker 1: think for Democrats though, and again, this independent group if
Speaker 1: Trump looks like this base of Trump's is going to
Speaker 1: get out the door and there and they are behaving
Speaker 1: in ways that are frightening to some people, like trying
Speaker 1: to bust into an FBI office with you know, being armored,
Speaker 1: U being armed. I think that scares suburban voters, that
Speaker 1: scares independent voters, And it looks like this will give
Speaker 1: Trump momentum. I think the same forces that go out
Speaker 1: the door in eighteen on the Democratic side will get
Speaker 1: out the door again. You load up abortion on that
Speaker 1: and key states it's gonna be a referend statewide. I
Speaker 1: think that is going to help the Democrats. I don't
Speaker 1: know if it saves them for the House, but it
Speaker 1: could very well save them for the Senate. Many shoulders.
Speaker 1: Thank you so much for joining us with an August update.
Speaker 1: She is at Brown University. Here on the politics of
Speaker 1: the moment right now. Dennis Scarpan joins here with Futures
Speaker 1: of fourteen. Always good to speak. The gentleman, chairman of
Speaker 1: the University of Akron's Endowmond Fund. And he's retired. No,
Speaker 1: he's not still writing the garment letter on an hour
Speaker 1: by our basis and joins us today. Dennis Lisa wants
Speaker 1: to talk about bonds. I want to talk about hydrocarbons.
Speaker 1: You know, they're out of control in Europe. They've got
Speaker 1: a modest matter of a war. Are we going to
Speaker 1: see methane natural gas? Are we going to see different
Speaker 1: forms of gasoline in America surge like electricity in France? Probably,
Speaker 1: so propane is probably gonna go a lot higher, and
Speaker 1: that gas is probably gonna go a lot higher. At
Speaker 1: inventories are extremely limited here in the United States. They're
Speaker 1: unbelievably limited in Europe. If we start pushing nearby that
Speaker 1: gas through nine dollars per million British thermal units, and
Speaker 1: we're training about eight dollars and fifty eight dollars and
Speaker 1: sixty cents per million British thermal units. If we start
Speaker 1: moving through nine dollars, you start to go back to
Speaker 1: where we were in two thousand five, two thousand six,
Speaker 1: and two thousand seven, When we get thirteen dollars per
Speaker 1: million British thermal units, so you have to be very careful.
Speaker 1: Things are very tight and likely to get tighter. So
Speaker 1: it's it's not a pretty sign out there right now,
Speaker 1: and you're talking about natural gas tennis. But you could
Speaker 1: also apply this to certain oil inventory reports. There are
Speaker 1: some different ones, and I wonder how much we are
Speaker 1: fragile heading into the winter to see a spike in
Speaker 1: oil that could reverse some of the optimism about the
Speaker 1: disinflation that we've seen in this week's reports. Keep an
Speaker 1: eye on the term structure. That's that tells you more
Speaker 1: than anything else about what goes on in crude oil,
Speaker 1: specifically especially a historable commodities such as crude oil. We're
Speaker 1: in a small backwardation. We were at a larger backwardation
Speaker 1: a month and a half ago. The backwardation has narrowed,
Speaker 1: but in the past couple of days as prices of
Speaker 1: crude oil have fallen just a little bit taken we
Speaker 1: got what the ut I down to eighty eight dollars
Speaker 1: prepaire the other day, and the nearby backwardation began to
Speaker 1: widen marginally. Acwardation is where sophisticated and inform money leaves
Speaker 1: its footprints and If the backwardation starts to widen a bit,
Speaker 1: we're gonna start seeing crude oil start to go higher again.
Speaker 1: So I think you've seen most of the decline in
Speaker 1: crude oil dedicated upon a decline and driving miles here
Speaker 1: in the United States and the demand and decline and
Speaker 1: demand for gasoline and diesel. I think you start to
Speaker 1: see at eighty eight dollars a barrel, that's probably the
Speaker 1: low and I bet we I bet we trade seven
Speaker 1: and not too distant future. So keep an eye on
Speaker 1: the backwardation. A widening backwardation is always bullish for the
Speaker 1: crude oil market. Wow. So let's transfer that ninety six
Speaker 1: dollar barrel barrels forecast here into your projection for the
Speaker 1: economy for markets, especially because a lot of the trading
Speaker 1: activity has hinged on this lower oil price. How much
Speaker 1: does that reverse some of the gains that we've seen
Speaker 1: in stocks and send yields higher. I'm afraid that we're
Speaker 1: seeing that the low on yields. We're going to see
Speaker 1: the much higher prices in in in yield, much much
Speaker 1: lower prices and bonds. You have something that occurred last
Speaker 1: week which I think not enough people are paying attention
Speaker 1: to you had an outside reversal week and an outside
Speaker 1: reversal day in the long bond future, very rare circumstance.
Speaker 1: We've only seen it one time before here, and we've
Speaker 1: only the two or three times in the course of
Speaker 1: the last five or six years. When you have an
Speaker 1: outside of reversal, I pay attention to it. It's one
Speaker 1: of the it's one of the technicals that I paid great,
Speaker 1: great deal of heed too. And an outside reversal week
Speaker 1: is a very rare event. Probably means lower bond prices,
Speaker 1: probably means higher yields over the course of the next
Speaker 1: several weeks, the next several months. Be careful, and I
Speaker 1: think that that's the decline that we've had in the
Speaker 1: long bond for long bond yields over the course of
Speaker 1: the last month and a half was predicated upon a
Speaker 1: decline in in inflation, decline in crude oil prices, decline
Speaker 1: in grain prices, decline in livestock prices, and decline in
Speaker 1: copper prices, and all those seon turning around and turning
Speaker 1: back to the upside. So be careful up there, keep
Speaker 1: an eye on gold. If both starts to get to
Speaker 1: the game changes completely well. Dennis. We know the story
Speaker 1: in the first half of the year was when yields
Speaker 1: go up, it's bad for the equity market. That is
Speaker 1: why we saw grows stocks under performing to such a degree.
Speaker 1: They have staged a pretty remarkable comeback over the last month.
Speaker 1: Is essentially what you're saying. If yields are going higher
Speaker 1: from here, that's not gonna last much longer. I don't
Speaker 1: think it lasts much longer. As the chairman of the
Speaker 1: University of Akrons, and then I got us to move
Speaker 1: a good fourteen or fifteen percent of the portfolio out.
Speaker 1: We got very lucky we did in December thirty one.
Speaker 1: And as I've always said to everybody in a bear market,
Speaker 1: he or she who loses the least will be the winner.
Speaker 1: We've lost less than most other endowments. We have a
Speaker 1: meeting next week and I'm probably gonna say we need
Speaker 1: to reduce our exposure just a tad more. You're gonna
Speaker 1: reduce equities. You're gonna reduce equities exposure even with this
Speaker 1: ginormous rally we've seen from June sixteenth, Tentnis at the
Speaker 1: margin probably another one or two or three percent. Nothing dramatic,
Speaker 1: nothing extraordinary. But I think the rally has been a
Speaker 1: rally bear market. The volume has not been as a
Speaker 1: lustrative or as the dramatic as it should be on
Speaker 1: a on a move to the upside, and over the
Speaker 1: course of the past six months or seven months, volume
Speaker 1: seems to come in on the downside rather than on
Speaker 1: the up side. Another technical circumstance to pay attention to.
Speaker 1: So I'm gonna my position will be that I'd like
Speaker 1: to reduce our exposure juice to tad whether I get
Speaker 1: the rest of the committee to agree another story, What
Speaker 1: do you do with it? What do you do the
Speaker 1: rest of it? By options in the Cincinnati Reds, or
Speaker 1: do you do you go into cash? What do you do?
Speaker 1: It was a good game last night and watching the
Speaker 1: Cincinnati Reds. But I think cash is probably not a
Speaker 1: bad place to be. In fact, I think cash is
Speaker 1: a very good place to be. Cash being two year
Speaker 1: at bonds and under two year treasuries and under Dennison
Speaker 1: to continue to invert it's it's been inverted for now
Speaker 1: for a month and a half. It's probably gonna. I
Speaker 1: think the two versus tends get to gets to eighty
Speaker 1: basis points without too much difficulty Dennis, we've heard that
Speaker 1: this week. Thank you so much, Dennis Gartment with us
Speaker 1: with the University of Eckmen and Domind Fund, and of
Speaker 1: course the acclaimed Gartment letters. Paul Sanky, founder and lead
Speaker 1: analysts at Sanky Research, with decades and decades of experience
Speaker 1: of the microeconomic analysis of all this, Paul, how close
Speaker 1: is America to the many deviation leaps that we're seeing
Speaker 1: in European? How ydric carbons are we delinked or linked
Speaker 1: to those war events? Well, good news is, you know, Tomas,
Speaker 1: that we produce a vast amount of oil and gas here.
Speaker 1: So ten years ago we were net importers of eight
Speaker 1: million barrels a day of oil, believe it or not.
Speaker 1: Now we're net neutral. So the US oil and gas
Speaker 1: industry has done a phenomenal job, not only of oil,
Speaker 1: but we're also now the world's largest natural gas exports
Speaker 1: are And as you know, the problem in Europe is
Speaker 1: that they really don't produce a whole lot of domestic
Speaker 1: energy full stop, certainly since they shut their nuclear and coals,
Speaker 1: so they've added to their own problems. So the big
Speaker 1: pool here is going to be a concern, which is
Speaker 1: exports to the Europe. And whether or not that drives
Speaker 1: double gas prices very high, as natural gas prices very high,
Speaker 1: is quite possible. You can parse a barrel of oil
Speaker 1: like no one, let's wind her over to methane and
Speaker 1: natural gas. When Paul, thank you sees n G one
Speaker 1: go from two to eight, what is that signal for you?
Speaker 1: Probably that we're going to send The price in Europe,
Speaker 1: as you know, is more like fifty for mm btu
Speaker 1: I mean extraordinary prices. So the draw there if it
Speaker 1: costs you about five eight dollars to cross the Atlantic,
Speaker 1: there's obviously implicitly a massive pull on our exports and
Speaker 1: that's I think going to be sufficiently large to pressure
Speaker 1: natural gas prices into winter. It now becomes a question
Speaker 1: of weather. We've got hurricane season, which hasn't really happened
Speaker 1: yet at all. And then of course the really concerning question,
Speaker 1: and it's a major concern, is how cold it gets
Speaker 1: this winter. And if we get a globally cold winter,
Speaker 1: we're going to have death. I'm afraid. Well, that's on
Speaker 1: the natural gas side, and that's a pretty dire projection
Speaker 1: on this Friday. On the oil side, the I A
Speaker 1: saying that an increasing number of gas relying electricity providers
Speaker 1: are turning to gas to oil prices to oil in
Speaker 1: order to stave off some of the shortages. How underfunded
Speaker 1: is this market? How cheap is this market relative to
Speaker 1: where it will be at the end of this year?
Speaker 1: The U S prices, I mean, it's way below as
Speaker 1: I said, I mean, you know, as I said, we're
Speaker 1: over fifty dollars per and b to you more or
Speaker 1: less in Europe and quite possibly going higher based on
Speaker 1: what Tom and I were just discussing European electricity prices.
Speaker 1: They've they're just you know, they've gone as he said,
Speaker 1: exponential essentially. But I mean in terms of oil prices,
Speaker 1: that's where I was going with this, with this idea
Speaker 1: that we've seen this disinflationary input. Yeah, okay, So the
Speaker 1: oil situation is a bit different because essentially Russia makes
Speaker 1: more money from oil and continues to supply oil to
Speaker 1: the market. So the oil crisis is not a crisis
Speaker 1: to the extent that the gas crisis is. So there's
Speaker 1: going to be a major pressure upwards on natural gas prices.
Speaker 1: At the moment, there is marginal use of oil, which
Speaker 1: the idea is highlighted as you said, not least propane,
Speaker 1: for example, is a direct substitute for natural gas. But
Speaker 1: also generally the use of oil and coal is going
Speaker 1: to be driven by by the problems in Europe, no question.
Speaker 1: It's just that the Russians really haven't reduced their supply
Speaker 1: a boil anything like what they've done to the natural
Speaker 1: gas side, Paul. Here in the United States, later today,
Speaker 1: the House is expected to pass the Inflation Reduction Act
Speaker 1: and eventually the President assumably will sign it. The measures
Speaker 1: within that, some of them including the tax on methane emissions.
Speaker 1: How do you expect that could impact the supply landscape
Speaker 1: here in the US. It's significant. It's split the industry.
Speaker 1: So the big, the big oils, the excellence of Chevrons,
Speaker 1: Iconic Phillips already have very strong methane limits and continue
Speaker 1: to pursue zero flaring as a target, for example. And
Speaker 1: then you have this enormous tale of companies. I think
Speaker 1: there's six thousand US oil and gas companies, of which
Speaker 1: I can only name fifty. So if at best, so
Speaker 1: this enormous tale is under direct threat and it could
Speaker 1: be assuming that it passes and then it's implemented strongly,
Speaker 1: it will be a major pressure to the downside on
Speaker 1: marginal US gas production, no question. So is there a
Speaker 1: threat the Inflation Reduction Act at least when it comes
Speaker 1: to energy prices, actually becomes more inflationary. Yes, all right,
Speaker 1: Paula or Paul, I think we probably should leave it there, Tom,
Speaker 1: what do you say? I think? Paul? Thank you, Thank
Speaker 1: you on short notice for joining us here today with
Speaker 1: what has been underreported in the American present. This is
Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live
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Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg