Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Ferroll and Lisa Brownowitz Jaily. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg Terminal. We need to
Speaker 1: look at that six dollar gallon of gas in Mammoth Mountain, California,
Speaker 1: and yacht's cheaper other places, but it is front and
Speaker 1: center for President Biden joining us a gentleman hugely qualified
Speaker 1: on this strange word energy security. Amos Hockstein is Senior
Speaker 1: Adviser of Energy Security at the Department of State and
Speaker 1: joins us today. The thing here, Amos, every time around
Speaker 1: is whip inflation now. And every president has a different path,
Speaker 1: like Jerry Ford to whip inflation now. And you're reading
Speaker 1: a history is the same as mine. This is a
Speaker 1: tough task. What is the first order of business for
Speaker 1: Joe Biden? Well, I think, first of all, good morning
Speaker 1: and thank you for having me on the show. As
Speaker 1: you said before, energy is energy security is a critical issue,
Speaker 1: and I think the President took strong steps yesterday UH
Speaker 1: to address the fallout in the energy markets as a
Speaker 1: result a direct result of the Ukraine War and the invasion,
Speaker 1: the unjust invasion and brutal war that that Putin is
Speaker 1: waging in Ukraine, and that has consequences, as the President
Speaker 1: said yesterday here at home, with rising costs of energy,
Speaker 1: rising costs of oil, which of course translates, as you said,
Speaker 1: into rising costs of gasoline for Americans. So President Biden
Speaker 1: took a strong step yesterday announcing the largest UH SPR
Speaker 1: released these strategic petroleum reserves a million barrels a day
Speaker 1: for the next six months. H and that we've already
Speaker 1: seen prices come down as a result of that announcement.
Speaker 1: That's going to have a major impact in the oil markets,
Speaker 1: and the energy markets are at large. Okay, but Amos,
Speaker 1: what's important here, and this is pizza's security. John. This
Speaker 1: filters down into every product, including a slice of pizza
Speaker 1: at Famiglia in New York. It is up, up, up.
Speaker 1: You're very delicate about the slice of pizza in New
Speaker 1: York Times. I think it's as important as a girl
Speaker 1: on the gas. I agree, it's important. There's another measure, Amos,
Speaker 1: that you've announced yesterday, you called on Congress to do
Speaker 1: something to make companies pay fees on wows from their
Speaker 1: leases that they haven't used in years, and on acres
Speaker 1: of public lands that they are hoarding without producing. As
Speaker 1: from the statement from the White House release yesterday, the
Speaker 1: Administration keeps talking about these nine thousand leases, Amos. I
Speaker 1: don't think if you wrote this, you would have written that,
Speaker 1: because if I asked you the following question, I want
Speaker 1: a direct answer to a direct question of those nine
Speaker 1: thousand leases, how many of those sit on productive land?
Speaker 1: So I will answer you a direct answer, but let
Speaker 1: me just say on a slice of pizza price, I agree,
Speaker 1: the prices are going up everywhere. Part of that is.
Speaker 1: Part of that is as a result of these skyrockety
Speaker 1: energy prices where we're not a farm to table economy,
Speaker 1: we're a farm to truck to table. So everything that
Speaker 1: we consume has to go on as a result, has
Speaker 1: resulted in a gallon of gasoline or a gallon diesel
Speaker 1: trucks coming criss crossing the country for for delivering whether
Speaker 1: it's ingredients for pizza or if it's for other commodities.
Speaker 1: So there's a direct result, and that's why it's not
Speaker 1: just uh, the gallon gasoline is not a political issue.
Speaker 1: This is a real economic issue that we need to
Speaker 1: we need to address and that is a result of
Speaker 1: a foreign war that we have to be cognizant of.
Speaker 1: As far as the leases look, we these are these
Speaker 1: are in public lands. And your point is right. If
Speaker 1: some of these leases are on uh, nonproductive acreage, then
Speaker 1: the companies that are holding these leases for several years
Speaker 1: sometimes UH and are not doing any seismic, not doing
Speaker 1: the kind of work that needs to be done on
Speaker 1: those on that acreage because there they think it's non productive.
Speaker 1: Then you have two choices. Either you can return the
Speaker 1: lease or give it up, or you can simply pay
Speaker 1: the higher fees because you want to hold onto that
Speaker 1: lease for a little longer um so that you can
Speaker 1: develop it later. Uh. And I think that so that
Speaker 1: is I would have written that any less, you know
Speaker 1: why they might want to sit on it and develop
Speaker 1: it later. It could be on third rate land that
Speaker 1: requires a higher crude price. You know how this works.
Speaker 1: The way this is being framed by the administration is
Speaker 1: that these land leases are being hoarded that were sitting
Speaker 1: on productive land and it's not being produced because these
Speaker 1: companies agreedy. I mean, I'll read the line out from
Speaker 1: the President his words, companies have an obligation that goes
Speaker 1: beyond just the shareholders, to their customers, their communities in
Speaker 1: their country. No American company should take advantage of a
Speaker 1: pandemic or putin to enrich themselves at the expense of
Speaker 1: American families. What evidence is that that they're holding those releases? Why,
Speaker 1: I'll finished, then you can go, and I'll give you
Speaker 1: all the time you need. What evidence is that that
Speaker 1: they're holding those leases because they're being greedy to profit
Speaker 1: from what's happening in Ukraine. So so let's disagregate there.
Speaker 1: There are a number of issues here, and the President
Speaker 1: actually recognized the companies, the oil companies that are responding
Speaker 1: to this price environment, that are responding to this world
Speaker 1: supply shortage that we're in and have announced extraordinary increases
Speaker 1: in capex uh and in reinvestment in the United States
Speaker 1: in bringing on additional production. And he's recognized him and
Speaker 1: said that was a that is progress and he and
Speaker 1: he praised them for doing that. But there are other companies,
Speaker 1: and you know that, Jonathan, that are saying, look, I
Speaker 1: have the ability to increase production with prices at prices
Speaker 1: were at a hundred and twenty and a hundred and
Speaker 1: thirty just just a week ago, and said I'm not
Speaker 1: gonna do it. And he called out some of those
Speaker 1: who have said, even at two it or three barrel,
Speaker 1: I'm not going to increase production because a variety of reasons,
Speaker 1: and some of them are saying, my, my, the funds
Speaker 1: that back me or that owned my that my my
Speaker 1: shareholders or my uh my holders of my debt are saying,
Speaker 1: don't do that. Give us increased dividends during this time.
Speaker 1: There is no well that is not profitable at a
Speaker 1: d and twenty a hundred and thirty. And if you're
Speaker 1: making a decision at prolonged period of time of above
Speaker 1: eighty five dollars, which we've now been in for for
Speaker 1: a few months, that you can't make more investment to
Speaker 1: bring on production than I think the President is right
Speaker 1: to call them out, especially when other companies are saying, no,
Speaker 1: this is the kind of exactly the kind of environment
Speaker 1: that we're that we are going to increase production. And look,
Speaker 1: we did two things. One the President announced that we're
Speaker 1: going to release a million barrels a day in order
Speaker 1: to increase the certainty of liquidity in the in the
Speaker 1: energy markets and to make sure there's enough oil on
Speaker 1: the market to support the U S economy as all
Speaker 1: as the global coming number two. He has said that
Speaker 1: we're going to replenish the reserve at a time when
Speaker 1: we finished dispersing and releasing the oil and when prices
Speaker 1: come down, So we're gonna sell the oil now at
Speaker 1: high prices buy it back later. That gives incentive to
Speaker 1: the oil companies to say, look, I know that even
Speaker 1: though the US is going to release these reserves, I'm
Speaker 1: going to have a buyer in the US government later on.
Speaker 1: So it continues that incentive to increase production. And I
Speaker 1: think that this is what we needed. We needed to
Speaker 1: put something into the system where we can bridge The
Speaker 1: oil companies have said, you look at Exxon and Chevron,
Speaker 1: Conoco Oxy have said they're going to increase production. We're
Speaker 1: going to increase nine thousand to a million barrels a
Speaker 1: day this year, and that means but it's only gonna
Speaker 1: come on in the middle of the third quarter to
Speaker 1: the end of the year, So we have a gap
Speaker 1: between now and that period of time. So what the
Speaker 1: President did yesterday. This historic move is to say, I'm
Speaker 1: gonna the US government is going to fill that gap
Speaker 1: between now and there and put that same million barrels
Speaker 1: a day of production that we were hoping to get
Speaker 1: at the end that we're going to get at the
Speaker 1: end of the year, and put that out now so
Speaker 1: that we're not replacing the private sector, We're incentivizing it
Speaker 1: and letting the American consumer benefit from lower prices between
Speaker 1: now and there. They likes the Goldmen, Sex disagree. Jeff
Speaker 1: Curry says this the U S policy, use of an
Speaker 1: SPR release, a potential deal with Iran, extreme price volatility,
Speaker 1: and the growing risk of a recession next year are
Speaker 1: all exacerbating the uncertainty face by producers, reducing their incentive
Speaker 1: to invest more. And What's the reason I bring this
Speaker 1: stuff up is that I want to avoid this really
Speaker 1: kind of simplistic conversation that something untoward is happening in
Speaker 1: the oil patch when you know that what happens in
Speaker 1: the oil industry is incredibly complex. Now you've said something
Speaker 1: else over the last few years as well, over the
Speaker 1: last twelve months. I'll bring up another thing. This was November.
Speaker 1: President Biden urged the FTC Commission share to investigate oil
Speaker 1: and gas companies retail prices, blaming industry leaders. As gas
Speaker 1: prices continue to saw, it's become this talking point the
Speaker 1: oil majors are hoarding these leases, even though you admit,
Speaker 1: we don't know what's on that acreage. We don't know
Speaker 1: what's on that acorage. Then there's this other talking point
Speaker 1: that somehow these companies are price couching and in the
Speaker 1: President's words, taking advantage of a pandemic or putin to
Speaker 1: enrich themselves at the expense of American families. I'm just
Speaker 1: asking what evidences they're off that you wanted to start
Speaker 1: this probe. What have you found, What evidence is that
Speaker 1: what companies are price couching right now? And if you
Speaker 1: can identify them and the name them, what are you
Speaker 1: doing about it? Well, first, I think, as we said yesterday,
Speaker 1: I don't believe person all to Mr Curry's comments. Uh.
Speaker 1: I've i in my colleagues and the US government. We've
Speaker 1: been in close contact with the energy industry, and most
Speaker 1: companies have actually said that they believe what we did
Speaker 1: yesterday was exactly the right thing to do, uh, and
Speaker 1: that they feel that it hasn't in sentive because it
Speaker 1: is for six months before their production comes online, and
Speaker 1: because we're going to spend the next couple of years
Speaker 1: replenishing the reserve, that means that they are incentivized to
Speaker 1: continue to spend the capex that they've announced to increase production.
Speaker 1: So with respect to Golden Saxon, I take a lot
Speaker 1: of issue with some of the other things that he
Speaker 1: said in that I have no tag you too. But
Speaker 1: another question you'd be asked as well, Amoss, is who
Speaker 1: would make who would make a decision like this to
Speaker 1: boost capex on front month? Brent Futures, who would do that?
Speaker 1: W c I Futures front month? Who would do that?
Speaker 1: You know what the rest of the curve looks like.
Speaker 1: Why would they make a decision based on where the
Speaker 1: front month is? Well, don't I'll tell you they are
Speaker 1: making that decision. Uh. They have announced that they're going
Speaker 1: to several of the majors who are the largest holders
Speaker 1: and rulers in in the Permian UH and in other
Speaker 1: shale basins, have said that they are increasing cap x.
Speaker 1: I think they're going to increase production. Total US production
Speaker 1: is going to grow by about ten percent by that
Speaker 1: ninod to a million barrels. It's just that these things
Speaker 1: don't happen overnight. You know that the decision to spend
Speaker 1: money billions of dollars to bring up production doesn't mean
Speaker 1: production comes on the next day. But I want to
Speaker 1: address the point that you said, because I think the
Speaker 1: President was very clear there are two We're not taking
Speaker 1: a broad swipe of the whole industry, he said. I
Speaker 1: wanted that he wanted to acknowledge the fact that part
Speaker 1: of the industry has done exactly what it needs to
Speaker 1: do and to see HI old prices incentivizing them to
Speaker 1: bring about more production other companies, and we can't ignore
Speaker 1: this done some companies have said, and the quote that
Speaker 1: he used in his speech that even at two hundred
Speaker 1: dollars of barrel, I will not increase production because of
Speaker 1: uh so called fiscal discipline, that is not I'm not
Speaker 1: making that up there to be fair to you, just
Speaker 1: let me jump in to be fair to you. That
Speaker 1: was a comment on this network. I heard it, I
Speaker 1: talked about it, I repeated it. It's something I've said before.
Speaker 1: Another thing I've highlighted as well was a Wall Street
Speaker 1: Journal report that came out in the last few weeks,
Speaker 1: the administration is trying to make a call to the
Speaker 1: Saudiast and read trying to arrange a call with the
Speaker 1: Crown Prince Mohammad have been Salman and they won't take
Speaker 1: the call. Now, I spoke to a member of OPEC,
Speaker 1: and you can respond to that in a moment. I
Speaker 1: spoke to a member of OPEC this week, and I
Speaker 1: thought it was utterly embarrassing for them that they had
Speaker 1: a meeting earlier this month that lasted thirteen minutes, and
Speaker 1: one just yesterday there was one minute shorter. Now, I
Speaker 1: wonder if it's more embarrassing for us that they're laughing
Speaker 1: in our faces and doing this. Now you speak to
Speaker 1: the Saudiast, talk to me about it. A. Is that false?
Speaker 1: Did the administration trying to arrange a call with Crown
Speaker 1: Prince Mohammad been some man and the President of the
Speaker 1: United States? And B why are their meetings last thing
Speaker 1: thirteen minutes if we're in a massive energy crisis. So one,
Speaker 1: there was a call that was going to be arranged
Speaker 1: between the President and King's onmone and that called did
Speaker 1: take place. Nobody that those reports I'm seeing constantly reports
Speaker 1: of Saudi snubbing the US or I think there's an
Speaker 1: interest in in certain quarters UH to to bring about
Speaker 1: this kind of narrative that is completely false. I was inside.
Speaker 1: I've been to Saudi Arabia on a number of occasions
Speaker 1: over the last several weeks, on a couple of months,
Speaker 1: on a couple of occasions, I was told what the
Speaker 1: Saudis told me on the front pages of the news
Speaker 1: of a US newspaper about three hours before the meeting started, UH,
Speaker 1: and I showed this out. He's the headline, so that
Speaker 1: we can jointly comment about the the hyperbole of the
Speaker 1: press on this. So I would really relax. I don't
Speaker 1: think there's any relationship between the United States and Saudi
Speaker 1: is strategic. We have a lot of issues that we
Speaker 1: need to work on together. UH. There are complexities in
Speaker 1: that relationship that we are working on. We have a
Speaker 1: lot of issues that UH that are of common interest
Speaker 1: fighting terrorism UH that Saudi has had to suffer through
Speaker 1: over the last several weeks, specifically from the houthies. We
Speaker 1: are a lot of strategic interests elsewhere in the region
Speaker 1: and as well on energy, and I'll tell you that
Speaker 1: we're having very good discussions there the press and reality
Speaker 1: on this one are are really far apart. On OPEC. Look,
Speaker 1: I was asked before the OPEC meeting if we had
Speaker 1: a message to OPEC, and my answer was, I have
Speaker 1: no message for ROPE. But these are folks that know
Speaker 1: the industry, they know the market, they know the supply
Speaker 1: and demand. I must have a h difference of opinion. Uh,
Speaker 1: we believe that, not just believe, but I can see
Speaker 1: the physical evidence that the market is short about two
Speaker 1: million barrels a day if not more from Russian supplies
Speaker 1: into the global market. That is that is clear to me.
Speaker 1: We can see that. Obviously, some perhaps an OPEC, don't
Speaker 1: see the shortage of supply, but I can understand that
Speaker 1: it's a complex issue for them with the OPEC versus
Speaker 1: OPEC plus I think that that's uh, they're gonna have
Speaker 1: to take some time and perhaps if you're not going
Speaker 1: to discuss the issues very seriously, UM, perhaps eleven or
Speaker 1: twelve minutes is all you need. But at the end
Speaker 1: of the day, they've they've done what they needed to do,
Speaker 1: and UH they've increased production by announced that they're going
Speaker 1: to continue the increases of production. We don't think that's right.
Speaker 1: The President is not asking other people to do the
Speaker 1: work that we should do. He took action yesterday by
Speaker 1: himself on behalf of the US government for the American
Speaker 1: public of releasing a million barrels a day. I believe,
Speaker 1: by the way, Jonathan, that we're going to have additional
Speaker 1: capacity coming online from our allies. Uh, and we the
Speaker 1: President coordinated this release, as he has all other measures
Speaker 1: against President putin with our allies when he was in
Speaker 1: meetings at the G seven and the NATO summit last week.
Speaker 1: He's discussed it with leaders even earlier this week. We've
Speaker 1: I've had conversation with my counterparts and uh, there's a
Speaker 1: meeting that is going on right now of the i
Speaker 1: e A, the International Energy Agency to look at additional
Speaker 1: releases from the international markets. So we won't just have
Speaker 1: coming on the market United States would rather have well
Speaker 1: coming online to the market in Asia and as well
Speaker 1: as Europe over the next several months. Unless you're a professional,
Speaker 1: you've given us tons of time and that's valuable to me.
Speaker 1: You know that. Thank you very much. I appreciate it.
Speaker 1: Amos hostein there of the US administration on the situation
Speaker 1: right now here are the Secretary of Labor, Our John Pharaoh,
Speaker 1: you want to us now on Bloomberg TV and on
Speaker 1: Bloomberg Radio, US Labor Secretary Moddy Welsh Secretary Welsh, what
Speaker 1: a jobs report? Just fantastic. Most people have come on
Speaker 1: the program this morning with Tom and myself and Lisa
Speaker 1: on Bloomberg Surveymance and on the open of all said,
Speaker 1: it looks great. What are you most infused by looking
Speaker 1: at this? Well, I think one of the things that
Speaker 1: that that I like is we we saw at increase
Speaker 1: in labor participation rate. So one thing we spoke about
Speaker 1: this morning. You know, a good you know, unemployment number low,
Speaker 1: a good strong report, good last three months report, actually
Speaker 1: a good US eleven months report, over four hundred fifty jobs.
Speaker 1: And we think about moving forward into two you know,
Speaker 1: one point six million people still need to return back
Speaker 1: to the workforce. How do we get them those folks
Speaker 1: back to work? How do we make sure that that
Speaker 1: labor participation number goes up? Certainly there's still jobs open
Speaker 1: the United States. That's one of the things I'm not
Speaker 1: taking away from the report. I'm very excited about the report,
Speaker 1: but but I think we're thinking about here, how do
Speaker 1: we move forward. The second thing is we're also looking at,
Speaker 1: you know, what what can be done by Congress. We
Speaker 1: have the Bipodisan Innovation Act other known as the CHIPS Bill,
Speaker 1: that allows us opportunity for supply chain issues moving forward.
Speaker 1: We have some COVID relief money still being talked about
Speaker 1: it at up a Capitol Hill. They need to pass
Speaker 1: that because we need to. We're watching I'm seeing what's
Speaker 1: going on in China and parts of Europe with another
Speaker 1: variant going up. We want to make sure that we're
Speaker 1: prepared for that here in the United States. Uh And
Speaker 1: then obviously inflation we're working to the President is is
Speaker 1: very lazy focus on bringing the cost down. Lots of
Speaker 1: challenges there. You were just talking about global challenges there
Speaker 1: that we have in other markets. You know, we have
Speaker 1: to you know, continue to work very closely on that.
Speaker 1: You know, the Fed Reserve they're gonna they're gonna take
Speaker 1: their action. I can't really comment on that, but we
Speaker 1: have to we have to make sure that in the
Speaker 1: short term we do I mean we can and reduce
Speaker 1: those prices, but also long term that it doesn't happen again.
Speaker 1: A lot of what we're seeing in inflation is due
Speaker 1: to the pandemic obviously what we're seeing with with Putin
Speaker 1: and what he's doing with Ukraine. But but we also
Speaker 1: have to think long term, how do we prepare the
Speaker 1: country that we don't go through us again it. Secondly, Welsh,
Speaker 1: I've only got a few more minutes with you because
Speaker 1: I know you've got to do a range of interviews.
Speaker 1: You're a busy man this morning, so I went through
Speaker 1: a couple of other issues. There is a labor contract
Speaker 1: covering about twenty two thousand West Coast dock workers at
Speaker 1: sites including l A and Long Beach Ports that expires
Speaker 1: until life. F onest I know you're aware of that.
Speaker 1: I want you to help me understand what's the difference
Speaker 1: between those unions, those individuals behind those groups to represent them,
Speaker 1: using their leverage to secure better terms and exploiting the
Speaker 1: country's dependence on those ports. What's the difference. I don't
Speaker 1: think they'll do that. I mean I was out in
Speaker 1: Seattle and Tacoma in Portland last week specifically to talk
Speaker 1: to the come penny in companies about about the negotiation,
Speaker 1: a little bit about how they feel about it in
Speaker 1: the unions and express the both sides the importance of
Speaker 1: what we've gone through as a nation over the last
Speaker 1: eighteen months with supply chain and challenges and still having
Speaker 1: ships out in the ocean. They all understand the importance
Speaker 1: of that, and I think that I don't. I don't
Speaker 1: see either side exploiting the situation we're living in for
Speaker 1: better wages. The contract will begin negotiation at some point
Speaker 1: in the next month or so. I believe that's when
Speaker 1: it'll start. They have to do some notification piece. But
Speaker 1: I'm going to monitor the situation very closely. Obviously, UM
Speaker 1: I want to make sure that that we we don't
Speaker 1: stop our ports. I mean that the last thing we
Speaker 1: need in this country right now or in this world,
Speaker 1: quite honestly, is shutting down other supply chain and creating
Speaker 1: other supply chain issues. Are you going to step in
Speaker 1: if I need to? I will, I saw, I said
Speaker 1: the both sides. I mean, I don't think I have
Speaker 1: to step in at this point. If I did, I'd
Speaker 1: be having a very different conversation with you. But I think,
Speaker 1: you know, I feel good where the conversation is with
Speaker 1: the with the sides right now. I think that they
Speaker 1: all understand the magnitude of this particular moment. This is
Speaker 1: on like any other moment they've ever had when it
Speaker 1: comes to negotiations. Uh, still in coming out of a pandemic,
Speaker 1: and you know, moving forward all these issues around this.
Speaker 1: So I think they acknowledge very seriously the situation this
Speaker 1: country is in, and quite honestly, I supply chain is in.
Speaker 1: You've been to those ports. You travel a lot. I
Speaker 1: believe it's sixty cities in thirty states during the first year.
Speaker 1: You know where I'm going with this. You've also been
Speaker 1: really criticized because you've spent a hundred and sixty two
Speaker 1: days in Boston out of your first two eight four
Speaker 1: days in office. Second be well, So you know this
Speaker 1: comes up often when you and I talk, keeps coming up,
Speaker 1: People keep talking to me about it. Yeah, I think
Speaker 1: I think it's a ridiculous argument and ridiculous point that's
Speaker 1: being made. In the very beginning of me being Secretary
Speaker 1: of Labor, we at just a department Labor where I'm
Speaker 1: standing in front of right now. Nobody was in the office.
Speaker 1: We were shut down because of COVID nineteen and I
Speaker 1: was doing my job. I travel around the country. Some
Speaker 1: of those numbers, some of those numbers that are reported,
Speaker 1: I go home every weekend to Boston. I'm going to
Speaker 1: continue to go home to Boston every weekend because I
Speaker 1: have a mother that's there, and I have a family
Speaker 1: that's there, and I've made it very there from the
Speaker 1: very beginning. So I think when when when that article
Speaker 1: was written and that report to put those facts in,
Speaker 1: she's incorporating the weekends into that. And if she took
Speaker 1: those out and actually did an accurate account of what happened,
Speaker 1: that would tell a very different start. Secondy, Walsh, I've
Speaker 1: got a mother in London. I've got to be in
Speaker 1: New York. That's what happens. Sometimes people are basically asking
Speaker 1: why you haven't chosen to live in Washington, d C.
Speaker 1: I do live in Washington, I live in Now You've
Speaker 1: got a permanent residence there in d C? Now, just
Speaker 1: yes or not? I'm living out of a hotel. Okay. Secondly, Wealsh,
Speaker 1: We're gonna make you that thank you for being with
Speaker 1: a set our friend on John's Day, Jeffrey Rosenberg joins
Speaker 1: his portfolio manager Systemic Multi Strategy funded black Rock Jeff Frozenberg.
Speaker 1: We went curb and version off of this now negative
Speaker 1: one basis points let's go back to Karnie Mellon and
Speaker 1: talk to me about the nuances and disaggregation of curve inversion.
Speaker 1: There's zero, there's a little bit in verse. Did maybe
Speaker 1: there's more inversion. What is that nuance within this boom economy. Well, Tom,
Speaker 1: this this report is just reaffirming what the markets were
Speaker 1: expecting and the trend that you were talking about in
Speaker 1: terms of the bond market, of of yield curve inversion.
Speaker 1: You know, no surprises in this report. As Jonathan just mentioned,
Speaker 1: the headline report, the headline number MS is really minor.
Speaker 1: It's the strength in the labor markets that's that's being
Speaker 1: seen here again and that's the challenge for the FED.
Speaker 1: For the markets as we're seeing a little bit this morning,
Speaker 1: a little bit more curve flattening. It is really much
Speaker 1: more about UH. As Mike McKee was kind of highlighting,
Speaker 1: you know, this is good news, but it's a little
Speaker 1: bit too much of good news, and this is an
Speaker 1: economy and the labor markets that's overheating. The FED has
Speaker 1: to accelerate. Lots of expectations talked about at the top
Speaker 1: of the show, some historic bond market and really financial
Speaker 1: market UH losses in the first quarter. This is the
Speaker 1: markets readjusting to a much faster pace of FED normalization,
Speaker 1: and today's report only will reaffirm that view. And that's
Speaker 1: what we're seeing with that little bit of flattening continuing
Speaker 1: in the market that you're talking about, Jeff. For you,
Speaker 1: is this good or bad news when it comes to
Speaker 1: investing to investing, you know, I think it's just a
Speaker 1: reaffirmation of our expectations, not good news or bad news,
Speaker 1: but just this is what we expected and what we
Speaker 1: expect is this is a very difficult environment for investing
Speaker 1: because of the challenges of the dual aspects were about
Speaker 1: to go into we're talking about from the May f
Speaker 1: O m C, you know, the shrinking of the balance sheet,
Speaker 1: and you know markets are pricing in a move towards
Speaker 1: a fifty basis point hiking cycle. This is a very
Speaker 1: very dramatic turn about. That's why you had such a
Speaker 1: negative price performance across fixed income in the first quarter,
Speaker 1: because we're waking up to the idea is a FED
Speaker 1: that wants to get out in front of the curve,
Speaker 1: and that means a very accelerated pace of heightening. That's
Speaker 1: a challenging environment for investing. As we just saw in
Speaker 1: the in the first quarter. When we get to the
Speaker 1: back side of it and to some higher rates of
Speaker 1: real interest rates eventually and higher levels of yield, this
Speaker 1: will be an attractive environment. But the transition it's very
Speaker 1: difficult environment for investors, as we saw in the first quarter.
Speaker 1: Do you think that it's basically a lock that we'll
Speaker 1: get to we'll have one percentage point increase in the
Speaker 1: FED funds rate by June. You know, I wouldn't say
Speaker 1: it's it's a lock. It's definitely uh, well, it's about
Speaker 1: ninety percent priced in terms of the market. You know,
Speaker 1: you can't say it's a lot because obviously some things
Speaker 1: can happen in the geopolitical side that we're all focused on.
Speaker 1: If that were to take a more dramatic turn that
Speaker 1: you saw in terms of risk off environment, confidence shock,
Speaker 1: you know, the shocks can be important, and financial conditions tightening,
Speaker 1: which to date has been accelerated but is still on
Speaker 1: the longer view, very accommodative markets. If you had financial
Speaker 1: markets kind of get really are ahead of where the
Speaker 1: FED wanted to go, you could certainly slow that pace.
Speaker 1: So I wouldn't say it's a lock. But given what
Speaker 1: we know today and the fundamentals of the economy we
Speaker 1: see out of this labor market report. I think the
Speaker 1: odds are very high that we're gonna have two fifties
Speaker 1: back to back in in the May and June reports.
Speaker 1: Jeff Frozenberg I went lord rhythmic on you. I've got
Speaker 1: to do that when you're on And the answer is
Speaker 1: the bloomberg Us Total Return aggregate index is not a
Speaker 1: bear market. But negative eight percent is negative eight percent?
Speaker 1: Are we in a bear market? Or is that what
Speaker 1: oasis in the bond market? Q two? You know, the
Speaker 1: good news on the fixed income markets there, Mark, the
Speaker 1: good news is that we very quickly reprice the expectations
Speaker 1: and and and term premium and inflation expectations. So the
Speaker 1: repricing is the painful part. That's the negative eight percent.
Speaker 1: But fixed income, you recall, the key to returns is
Speaker 1: the level of income. And so why you had such
Speaker 1: negative returns was you were starting at very very low
Speaker 1: levels of starting income. So as we fast forward and
Speaker 1: you're at higher levels of income, it really gives you
Speaker 1: a lot more cushion to subsequent increases and interest rates
Speaker 1: in that pace of negative returns is much harder to repeat.
Speaker 1: So then what do you do on a strategic standpoint,
Speaker 1: I mean, if you're if you're systematic, did you shift
Speaker 1: from full faith to a creditor move? What? What do
Speaker 1: you go to loans? I mean, what do you do
Speaker 1: here within a strategy of down six seven? Yeah, you
Speaker 1: know a couple of things here. First, in terms of
Speaker 1: kind of the directional part of our strategies. You know,
Speaker 1: the front end of shorter maturities have certainly looked much
Speaker 1: more attractive coming out of this environment. The repricing, that
Speaker 1: curve flattening that you talked about, Well, that's really about
Speaker 1: restoring the cushion to fixed income investing. And where do
Speaker 1: you see that strongest across the fixed income landscape. It's
Speaker 1: really in those shorter maturity So that's an aspect of
Speaker 1: our investing that we think is an opportunity going forward
Speaker 1: where there's more cushion from further increases in interest rates.
Speaker 1: And then in our investing, you know, our tool kid
Speaker 1: is both the kind of directional view that I just described,
Speaker 1: but also looking at things that take out direction and
Speaker 1: look in the cross section of investing and there what
Speaker 1: you're seeing is is a lot more opportunities to invest
Speaker 1: in dispersion. Both we invest in both the equity side
Speaker 1: and the fixed income side, and they're you're really seeing
Speaker 1: more alpha opportunities. So it's shifting your mix, your weight
Speaker 1: in your portfolio of where you're getting your returns from
Speaker 1: a little bit less out of directionality. Because directionalities you
Speaker 1: highlighted the beginning of the shows. Is impossible to forecast
Speaker 1: where we're going, but the dispersion in the cross section
Speaker 1: is actually increased. It increases the opportunity to alpha investing.
Speaker 1: Jeff blank Rop, Jeff great to get you to react
Speaker 1: to what looks like a really stung pay roast report.
Speaker 1: We digress at this moment, and we do so with
Speaker 1: my book of the Summer or a couple of Summers
Speaker 1: ago two thousand thirty four, a novel of the next world.
Speaker 1: When Elliott Ackerman wrote this with James Travitas, they have
Speaker 1: no idea the overlay of their book of the South
Speaker 1: China Sea and how it would turn to Ukraine. The
Speaker 1: former marine joins us this morning, Elliott Ackerman, you have
Speaker 1: legit military duty. You're work in Afghanistan. H your your
Speaker 1: work was c i A. At the end of the
Speaker 1: tour you're The Atlantic article of you speaking to a
Speaker 1: modern marine was stunning about the reality on the ground
Speaker 1: in Kiev and in Ukraine. What was the distinction of
Speaker 1: your conversation with the marine in your Atlantic essay. Well, yeah,
Speaker 1: you know, as you might know, that there's been a
Speaker 1: you know, large number of foreign fighters, Americans, Brits, uh,
Speaker 1: individuals from Balkan states who have come to Ukraine to
Speaker 1: fight UH. And so I had a conversation with a
Speaker 1: former marine who served in some of the similar infantry
Speaker 1: units I had served in, and he had been fighting
Speaker 1: in the trenches around Kiev for the first UH about
Speaker 1: month of the war. And you know, the most sailient
Speaker 1: point he was making to me was that the anti
Speaker 1: tank weapons that we've deployed to Ukraine, we're making a
Speaker 1: huge difference in that fight and allowing two or three
Speaker 1: well armed Ukrainians to stop entire Russian armored columns. Um. So,
Speaker 1: you know, that was one of the most sailing points
Speaker 1: he made, as well as really just the intensity of
Speaker 1: the fighting that he had witnessed, which he said exceeded
Speaker 1: anything that he had participated in in Afghanistan. Take us
Speaker 1: beyond the media reports of brave journalists in Ukraine, those
Speaker 1: covering it day by day. How did the Russians adapt
Speaker 1: to a difficult march. Well, it's yet to be seeing
Speaker 1: whether or not they're going to be able to adapt. Um.
Speaker 1: You know, in the Russian way of warfare is different
Speaker 1: than the American or Western way of warfare. And one
Speaker 1: of the most critical ways that that difference manifests is,
Speaker 1: you know, the Russians have a very difficult time adapt
Speaker 1: because they have extremely centralized decision making structures. So you know,
Speaker 1: all the decisions are made by a group of colonels
Speaker 1: or generals, uh and those decisions are disseminated down as
Speaker 1: subordinates who aren't supposed to ask questions or show individual initiative.
Speaker 1: In Western militaries, we fight with something we called mission tactics,
Speaker 1: which means even the lowest, you know, twenty one year
Speaker 1: old corporal understands the mission in the intent behind the mission,
Speaker 1: because the expectation is always that the plan is not
Speaker 1: gonna work, that the enemy has to say, and that
Speaker 1: that everyone's going to have to adapt. So our Western
Speaker 1: militaries are very adaptable, and the Ukrainians since two thousand
Speaker 1: fourteen have undergone a series of reforms to make them
Speaker 1: more like a Western military. So we're really seeing the
Speaker 1: con test between a Western military stylid fighting and a
Speaker 1: classic Sylviet or Russian style of fighting in Ukraine, and
Speaker 1: the result has been a lack of Russian adaptability. There's
Speaker 1: been a lot of times where the West has perhaps
Speaker 1: miscast other nations that follow a different set of rules
Speaker 1: in a way that tries to reflect their own. Are
Speaker 1: we overstating or understating the hit to morale that so
Speaker 1: many people talk about among Russian troops. I think that
Speaker 1: we are underestimating it, and I think we've continually underestimated
Speaker 1: not only the hit to the morale for the Russians,
Speaker 1: but we've been habitually overestimating Russian capability and underestimating Ukrainian capability,
Speaker 1: as though we for some reason seemed unwilling to conceive
Speaker 1: the idea that the Ukrainians could win this war. In fact,
Speaker 1: are winning this war right now. You know, it's important
Speaker 1: to note there's historical precedent for this. During the Second
Speaker 1: World War, Russia, which defeated Germany in the Second World War,
Speaker 1: invaded Finland, you know, a small all nation but very nationalistic,
Speaker 1: and the Finns defeated the Soviets um, so there's precedent
Speaker 1: for this. The Ukrainians are winning, I think I think,
Speaker 1: having spent time there, that we should back a winner
Speaker 1: usually that's a pretty good strategy and continue to support
Speaker 1: the Ukrainians in this taking to Russia, Elliott Ackerman, we've
Speaker 1: taken great pride in our interviews with the military in
Speaker 1: this war. You may be aware there's another division of
Speaker 1: the U. S military called the Army, and we met
Speaker 1: with their General Kimmitt, of course with a substantial infantry
Speaker 1: experience in Germany and in the Persian Gulf, and General
Speaker 1: Kimmitt was heated that the Russians were unprepared for the
Speaker 1: urban battles to come in the war. Is that what
Speaker 1: we've observed this month? And what do those new urban
Speaker 1: battles look like for the Russians? Now? What we're seeing
Speaker 1: the Russians, I mean make you know, some gains in
Speaker 1: a few select Ukrainian cities, but they've had to completely
Speaker 1: destroy those cities to to win in places like Marie Opal.
Speaker 1: But the much larger story is in places like Kiev,
Speaker 1: you know, cities that are real centers of gravity politically,
Speaker 1: and the Russians haven't even got into Kiev. They've been
Speaker 1: stopped in the suburbs. Kiev is a city before the
Speaker 1: war of four million people. You know, the Russians just
Speaker 1: simply do not have the what we call the troops
Speaker 1: to task, meaning that the you know, the troops they
Speaker 1: would need to accomplish the mission, uh to take a
Speaker 1: city like Kiev, let alone to take the entire country.
Speaker 1: I mean, Ukraine is the a nation of over forty
Speaker 1: million people. The Russians have an invasion force of two
Speaker 1: hundred thousand, and it's a nation that has been completely
Speaker 1: mobilized unlike anything I've ever seen in my lifetime, and
Speaker 1: this is the fourth war I've been around. How much
Speaker 1: people are mobilized, from you know, twenty year olds up
Speaker 1: to two kids who are helping do work like nick
Speaker 1: camouflage nets, to two grandmothers. Uh. It's gonna be very,
Speaker 1: very difficult for the Russians to achieve anything more than
Speaker 1: potentially some limited territorial game means. And even at that,
Speaker 1: I don't know if the Ukrainians would allow President Zelinski
Speaker 1: to give any territory because, and rightly so, they perceive
Speaker 1: themselves to be winning. So their view is, why should
Speaker 1: we be seating anything. We're winning this war, and that
Speaker 1: complicates the talks all over again. Elliott a clinic and
Speaker 1: education always learned something. Ellie Ackaman, the the author and
Speaker 1: former US Marie. This is the Bloomberg Surveillance Podcast. Thanks
Speaker 1: for listening. Join us live weekdays from seven to ten
Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each
Speaker 1: day from six to nine am for insight from the
Speaker 1: best in economics, finance, investment, and international relations. And subscribe
Speaker 1: to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com,
Speaker 1: and of course on the terminal. I'm Tom Keene and
Speaker 1: this is Bloomberg