1 00:00:00,080 --> 00:00:02,840 Speaker 1: We bring you news and analysis every day on the 2 00:00:02,840 --> 00:00:06,840 Speaker 1: Bloomberg Surveillance Podcast, but now you can get the latest 3 00:00:06,880 --> 00:00:11,600 Speaker 1: news on demand whenever you want. Subscribe to Bloomberg News 4 00:00:11,640 --> 00:00:14,400 Speaker 1: Now to get the latest headlines at the click of 5 00:00:14,440 --> 00:00:18,880 Speaker 1: a button. Get informed on your schedule. You can listen 6 00:00:18,960 --> 00:00:22,720 Speaker 1: and subscribe to Bloomberg Newsnow on the Bloomberg Business App, 7 00:00:22,760 --> 00:00:27,720 Speaker 1: Bloomberg dot com plus Apple, Spotify, and anywhere else you 8 00:00:27,800 --> 00:00:36,120 Speaker 1: get your podcasts. Search Bloomberg News Now and subscribe today. 9 00:00:38,360 --> 00:00:41,519 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Lisa A. 10 00:00:41,600 --> 00:00:44,919 Speaker 3: Bramwoids, along with Tom Keane and Jonathan Ferrow. Join us 11 00:00:44,960 --> 00:00:48,560 Speaker 3: each day for insight from the best in economics, geopolitics, 12 00:00:48,600 --> 00:00:49,680 Speaker 3: finance and investment. 13 00:00:50,040 --> 00:00:52,480 Speaker 2: Subscribe to Bloomberg Surveillance on demand on. 14 00:00:52,440 --> 00:00:56,000 Speaker 3: Apple, Spotify and anywhere you get your podcasts, and always 15 00:00:56,040 --> 00:00:59,000 Speaker 3: on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg 16 00:00:59,040 --> 00:00:59,720 Speaker 3: Business App. 17 00:01:00,160 --> 00:01:03,680 Speaker 4: National security experts debating whether the US has sufficient throughput 18 00:01:03,720 --> 00:01:07,320 Speaker 4: capacity to bank Ukraine, Israel, and possibly Taiwan in a 19 00:01:07,360 --> 00:01:11,680 Speaker 4: simultaneous and extended conflict scenario. The unanimous and emphatic answer 20 00:01:11,720 --> 00:01:14,800 Speaker 4: from experts is no, which underscores the likelihood of a 21 00:01:14,880 --> 00:01:18,920 Speaker 4: period of fiscal dominance in which deficits are mostly disregarded 22 00:01:19,120 --> 00:01:22,480 Speaker 4: and interest rates must adjust to a higher equilibrium. 23 00:01:22,600 --> 00:01:23,200 Speaker 5: The leaf Sinc. 24 00:01:23,360 --> 00:01:26,000 Speaker 4: The chief global economist and Peach and fixed Income joins 25 00:01:26,040 --> 00:01:28,720 Speaker 4: us right now wander for to catch up with you, sir, 26 00:01:28,760 --> 00:01:31,040 Speaker 4: What a difficult time. Going to lean a little bit 27 00:01:31,080 --> 00:01:33,200 Speaker 4: on your experience in the administration along the way In 28 00:01:33,240 --> 00:01:36,039 Speaker 4: this conversation as well, Paul Tudor Jones caught up with 29 00:01:36,080 --> 00:01:39,160 Speaker 4: a regional business news network called CNBC in the last 30 00:01:39,200 --> 00:01:40,840 Speaker 4: twenty four hours. You might have heard of Paul. I'm 31 00:01:40,880 --> 00:01:43,480 Speaker 4: not sure about the network deal. This is what he 32 00:01:43,560 --> 00:01:45,800 Speaker 4: had to say. He said, he's never seen this kind 33 00:01:45,840 --> 00:01:49,160 Speaker 4: of geopolitical tension in the last something like fifty years, 34 00:01:49,600 --> 00:01:52,600 Speaker 4: with the deficit position, the budget position of the United 35 00:01:52,640 --> 00:01:56,040 Speaker 4: States this week, deleep, How important is that. 36 00:01:58,040 --> 00:02:01,520 Speaker 6: He's right? The backdrop is returned to the most intense 37 00:02:01,560 --> 00:02:04,200 Speaker 6: period of great power competition in at least three decades. 38 00:02:05,160 --> 00:02:08,360 Speaker 6: That's going to mean more demand on physcal spending to 39 00:02:08,480 --> 00:02:12,280 Speaker 6: shore up our sources of competitive advantage. And you know, 40 00:02:12,320 --> 00:02:15,160 Speaker 6: it's also it's also the reality that we're seeing a 41 00:02:15,280 --> 00:02:18,800 Speaker 6: surge of yields driven by term premium because bond investors 42 00:02:19,320 --> 00:02:21,480 Speaker 6: they don't know whether we're going to grow fast enough, 43 00:02:21,520 --> 00:02:24,320 Speaker 6: whether tax revenues will be high enough to service a 44 00:02:24,400 --> 00:02:26,680 Speaker 6: rise in cost of capital. They don't know whether other 45 00:02:26,680 --> 00:02:28,480 Speaker 6: buyers are going to show up at auction, and they 46 00:02:28,480 --> 00:02:31,760 Speaker 6: don't know whether Washington, DC can exert enough fiscal restraint 47 00:02:31,840 --> 00:02:34,960 Speaker 6: if growth falters. And that's why you're seeing this repricing. 48 00:02:35,000 --> 00:02:36,320 Speaker 6: It's a very challenging. 49 00:02:35,960 --> 00:02:39,280 Speaker 3: Time, Delli. If you wrote this column that we found 50 00:02:39,320 --> 00:02:42,160 Speaker 3: fascinating and we've cited quite a bit about the lack 51 00:02:42,200 --> 00:02:45,880 Speaker 3: of price in sensitive buyers really questioning the ability for 52 00:02:45,919 --> 00:02:47,600 Speaker 3: the US to borrow at some of the rates that 53 00:02:47,600 --> 00:02:49,840 Speaker 3: they were accustomed to in the past. Can you just 54 00:02:50,040 --> 00:02:53,480 Speaker 3: bring that forward to today's moment, with increasing calls for 55 00:02:53,520 --> 00:02:56,200 Speaker 3: military aid. How much does that actually make you double 56 00:02:56,280 --> 00:03:00,320 Speaker 3: down on this idea of borrowing regardless of where we are, 57 00:03:00,639 --> 00:03:03,560 Speaker 3: in order to finance national security and other concerns. 58 00:03:04,560 --> 00:03:07,040 Speaker 6: Well, Lisa, here's how I synthesize what's going on. There 59 00:03:07,040 --> 00:03:11,280 Speaker 6: are three fundamental dynamics. What's the fed's near term reaction function, 60 00:03:11,639 --> 00:03:14,640 Speaker 6: what's long run neutral, and what's the term premium? And 61 00:03:14,720 --> 00:03:16,919 Speaker 6: then you have to overlay the impact of the attack 62 00:03:16,960 --> 00:03:19,839 Speaker 6: on Israel on the Fed's reaction function. I think Lori 63 00:03:19,960 --> 00:03:22,440 Speaker 6: Logan said it best, and we have a higher term premium. 64 00:03:22,680 --> 00:03:25,760 Speaker 6: A higher term premium, all things equal, implies a softer 65 00:03:25,840 --> 00:03:30,440 Speaker 6: economic outlook and greater likelihood that the policy rate has peaked. Okay, 66 00:03:30,560 --> 00:03:33,720 Speaker 6: on long run neutral rates, I think what we're seeing 67 00:03:34,000 --> 00:03:37,320 Speaker 6: with payrolls and lots of other evidence is it something 68 00:03:37,400 --> 00:03:40,280 Speaker 6: really positive is happening on the supply side of the economy. 69 00:03:40,760 --> 00:03:43,680 Speaker 6: That's how you can get above trend growth alongside disinflation. 70 00:03:43,840 --> 00:03:46,440 Speaker 6: So long run neutral rates are going higher, then you 71 00:03:46,520 --> 00:03:49,120 Speaker 6: have term premium. We just spoke about that. The balance 72 00:03:49,160 --> 00:03:51,840 Speaker 6: of risks are still moving higher. If the house is 73 00:03:51,880 --> 00:03:55,640 Speaker 6: in disarray, that means no durable physical consolidation is on 74 00:03:55,680 --> 00:03:58,320 Speaker 6: the horizon, and therefore you have a durable risk of 75 00:03:58,360 --> 00:04:01,080 Speaker 6: a supply demand in balance that is no longer showing 76 00:04:01,120 --> 00:04:04,720 Speaker 6: up at every Treasury auction. Neither are large overseas buyers 77 00:04:04,720 --> 00:04:07,800 Speaker 6: to the same degree, either because they're savings balances have 78 00:04:07,880 --> 00:04:11,360 Speaker 6: fallen or because they want to diversify their holdings and 79 00:04:11,480 --> 00:04:14,840 Speaker 6: now overlay the impulse of the attack on Israel. It's 80 00:04:14,880 --> 00:04:18,799 Speaker 6: another injection of uncertainty. It's another potential supply side shock 81 00:04:18,800 --> 00:04:21,040 Speaker 6: on energy prices. And the net of it for me 82 00:04:21,120 --> 00:04:23,200 Speaker 6: is you do get a higher drift in long term 83 00:04:23,240 --> 00:04:25,200 Speaker 6: yields with an anchored front end. 84 00:04:26,120 --> 00:04:28,560 Speaker 3: So, based on what you're saying, Tahalif, do you think 85 00:04:28,760 --> 00:04:31,039 Speaker 3: that the move that we've seen, barring the past couple 86 00:04:31,040 --> 00:04:34,440 Speaker 3: of days in longer term yields makes sense or that 87 00:04:34,480 --> 00:04:36,760 Speaker 3: it's not high enough, or that it's gone a little 88 00:04:36,760 --> 00:04:37,479 Speaker 3: bit over the board. 89 00:04:38,560 --> 00:04:40,760 Speaker 6: Well, I mean in the I mean Emory said it 90 00:04:40,839 --> 00:04:44,719 Speaker 6: right right now. We're in the thickest fog of a 91 00:04:44,800 --> 00:04:48,160 Speaker 6: hideous and tragic war, and so we're seeing a flight 92 00:04:48,200 --> 00:04:50,000 Speaker 6: to quality on the back end of the curve. But 93 00:04:50,040 --> 00:04:53,599 Speaker 6: I think over time, as market participants think through the 94 00:04:53,640 --> 00:04:57,400 Speaker 6: second and third order effects, the forces that I mentioned 95 00:04:57,440 --> 00:04:59,760 Speaker 6: going to cause a drift higher and the front end. 96 00:04:59,760 --> 00:05:01,960 Speaker 6: I think think that's where I have the most conviction 97 00:05:02,080 --> 00:05:03,760 Speaker 6: at this point. I think the FED has said now 98 00:05:03,800 --> 00:05:07,080 Speaker 6: with a chorus of officials, we're going to let markets 99 00:05:07,080 --> 00:05:09,960 Speaker 6: do the work for us, and if the data continue 100 00:05:10,279 --> 00:05:13,400 Speaker 6: to moderate both on growth and inflation, we can watch 101 00:05:13,400 --> 00:05:13,720 Speaker 6: and wait. 102 00:05:14,200 --> 00:05:15,760 Speaker 4: Dealey, But I just want to finish on the potential 103 00:05:15,800 --> 00:05:18,960 Speaker 4: policy response, and this I think involves your experience in 104 00:05:19,000 --> 00:05:22,400 Speaker 4: the administration. What kind of sanctions response should we be 105 00:05:22,440 --> 00:05:25,000 Speaker 4: looking out for as a team. For the investors listening 106 00:05:25,000 --> 00:05:26,680 Speaker 4: to this program right now, what would you expect to 107 00:05:26,680 --> 00:05:29,040 Speaker 4: see from the administration the White House in a coming 108 00:05:29,080 --> 00:05:29,760 Speaker 4: weeks and months. 109 00:05:31,200 --> 00:05:34,680 Speaker 6: Well, I mean, the leading edge of any response from 110 00:05:34,720 --> 00:05:37,560 Speaker 6: the administration, if it proves necessary, will be in the 111 00:05:37,600 --> 00:05:41,279 Speaker 6: military route. That's why you see two aircraft carriers moving 112 00:05:41,320 --> 00:05:43,520 Speaker 6: to the Eastern med That's why you see all of 113 00:05:43,520 --> 00:05:47,120 Speaker 6: these efforts to shore up Israel's Iron Dome. There will 114 00:05:47,160 --> 00:05:50,240 Speaker 6: be a sanctions component because money is fungible to the 115 00:05:50,279 --> 00:05:53,400 Speaker 6: extent that Iran is seen as directly directly involved in 116 00:05:53,440 --> 00:05:55,960 Speaker 6: the planning and execution of the attack. I think you'd 117 00:05:56,000 --> 00:05:59,600 Speaker 6: see the screws of screws of sanctions Titan. There'll be 118 00:05:59,600 --> 00:06:02,480 Speaker 6: a global effort, but that's that's second order to the 119 00:06:02,520 --> 00:06:03,400 Speaker 6: military response. 120 00:06:03,800 --> 00:06:06,680 Speaker 4: Delim's just been said about the sanctions response and the 121 00:06:06,720 --> 00:06:09,400 Speaker 4: fact that perhaps this administration turned a blind eye to 122 00:06:09,480 --> 00:06:12,960 Speaker 4: Iranian crude production and perhaps Chinese's buying off that crude. 123 00:06:13,320 --> 00:06:14,400 Speaker 4: What's your view on that. 124 00:06:16,000 --> 00:06:18,640 Speaker 6: I disagree with the prebis. I mean, I know there's 125 00:06:18,680 --> 00:06:20,839 Speaker 6: a lot of a lot of hype about the six 126 00:06:20,920 --> 00:06:25,960 Speaker 6: billion dollars. The administration spoken pretty clearly not a dollar 127 00:06:26,000 --> 00:06:28,640 Speaker 6: has been has been sent to Tehran. I would be 128 00:06:28,680 --> 00:06:31,520 Speaker 6: shocked if a dollar ever moves to Tehran in the 129 00:06:31,520 --> 00:06:35,920 Speaker 6: aftermath of this attack. And so you know that there 130 00:06:36,000 --> 00:06:38,920 Speaker 6: is going to be I think less and less Iranian 131 00:06:39,000 --> 00:06:41,760 Speaker 6: crudeill on the market. The question for the administration is 132 00:06:41,760 --> 00:06:45,040 Speaker 6: can they get an offset from Saudi from other sources, 133 00:06:45,040 --> 00:06:47,960 Speaker 6: from domestic producers. That's going to be the challenge. 134 00:06:48,200 --> 00:06:51,039 Speaker 3: So dully, you just said that you think that refreezing 135 00:06:51,080 --> 00:06:54,080 Speaker 3: that six billion dollars is pretty much a certainty at 136 00:06:54,080 --> 00:06:58,120 Speaker 3: this point. Is there a potential ramification? Does this have 137 00:06:58,279 --> 00:07:02,960 Speaker 3: any kind of play in to some of the accusations 138 00:07:03,120 --> 00:07:05,680 Speaker 3: of using a dollar as a weapon or any of 139 00:07:05,720 --> 00:07:08,560 Speaker 3: these talks that have really flared up a couple of 140 00:07:08,640 --> 00:07:09,080 Speaker 3: years ago. 141 00:07:10,360 --> 00:07:12,200 Speaker 6: I don't. I don't think so, Lisa. I mean, if 142 00:07:12,200 --> 00:07:15,920 Speaker 6: we're talking about the barbaric invasion of Ukraine or this 143 00:07:16,000 --> 00:07:19,280 Speaker 6: hideous attack on Israel, Uh, there have to be there 144 00:07:19,320 --> 00:07:21,960 Speaker 6: have to be consequences. And when you stop short of 145 00:07:22,040 --> 00:07:25,640 Speaker 6: deploying your military, economic tools are the are the second 146 00:07:25,720 --> 00:07:28,360 Speaker 6: best resort. So that's that's what we're seeing I don't 147 00:07:28,400 --> 00:07:31,400 Speaker 6: think it's a threat to dollarization. We're going to move 148 00:07:31,400 --> 00:07:34,080 Speaker 6: with our allies, and we're doing so to uphold the 149 00:07:34,120 --> 00:07:37,119 Speaker 6: principles that underpin peace and security across the world. That's 150 00:07:37,880 --> 00:07:40,560 Speaker 6: that's good for the world, that's good for for financial markets, 151 00:07:40,560 --> 00:07:42,840 Speaker 6: that's good for the economy. That's what these sanctions do. 152 00:07:43,080 --> 00:07:45,080 Speaker 4: Deleeve, don't be a stranger. It's trite to catch up 153 00:07:45,120 --> 00:07:47,239 Speaker 4: with you, SA. Hopefully we can do that again soon, Deleep. 154 00:07:47,240 --> 00:07:53,680 Speaker 4: Think of page and fixed income. If you want to 155 00:07:53,680 --> 00:07:56,520 Speaker 4: guess now, is Judy Norman the Center on US Politics 156 00:07:56,520 --> 00:07:59,120 Speaker 4: Code Director Judy wonderful to hear from you, and let 157 00:07:59,120 --> 00:08:00,920 Speaker 4: me do you offer you the challenge to answer that question? 158 00:08:01,400 --> 00:08:03,640 Speaker 4: Is that a distinction without a difference? 159 00:08:04,920 --> 00:08:07,760 Speaker 7: You know, I do think it's important to differentiate on this, 160 00:08:07,880 --> 00:08:10,600 Speaker 7: and it's interesting to me that Israel in particular is 161 00:08:10,680 --> 00:08:15,239 Speaker 7: being very cautious to pin blame directly on Iran. Again, 162 00:08:15,440 --> 00:08:18,680 Speaker 7: Israel and the US have long known that Iran has 163 00:08:18,880 --> 00:08:21,800 Speaker 7: funded Hamas, has provided much of their weaponry, et cetera. 164 00:08:22,080 --> 00:08:24,640 Speaker 8: But this operation does look to be different. 165 00:08:24,800 --> 00:08:29,240 Speaker 7: And again importantly, I think a direct pin on Iran 166 00:08:29,600 --> 00:08:33,320 Speaker 7: would escalate the region very quickly. This wouldn't just be 167 00:08:33,880 --> 00:08:37,040 Speaker 7: Israel and Iran as to states, it would also include 168 00:08:37,080 --> 00:08:40,360 Speaker 7: all of Iran's proxy groups has Blah proxy groups in 169 00:08:40,360 --> 00:08:41,840 Speaker 7: Iraq and elsewhere, and. 170 00:08:41,760 --> 00:08:44,000 Speaker 8: So it could just blow up very quickly. 171 00:08:44,080 --> 00:08:47,000 Speaker 7: And I think both the US and Israel are aware 172 00:08:47,040 --> 00:08:49,240 Speaker 7: of that, and one of their goals in these coming 173 00:08:49,320 --> 00:08:52,440 Speaker 7: days is going to be containment along with you know, 174 00:08:52,559 --> 00:08:55,880 Speaker 7: retribution and deterrent. So that's on everyone's mind right now. 175 00:08:55,920 --> 00:08:59,520 Speaker 7: It doesn't mean that Iran is not going to play 176 00:08:59,520 --> 00:09:03,079 Speaker 7: into this, but I think for the short immediate future, 177 00:09:03,640 --> 00:09:05,880 Speaker 7: coour heads are trying to figure out where exactly a 178 00:09:05,880 --> 00:09:07,280 Speaker 7: place to blame and act accordingly. 179 00:09:07,480 --> 00:09:09,920 Speaker 4: Did Judy walk us through the tension in that statement? 180 00:09:09,920 --> 00:09:13,000 Speaker 4: The words that you just used almost a contradiction between 181 00:09:13,200 --> 00:09:16,719 Speaker 4: retribution and containment. Are those two things compatible? 182 00:09:17,679 --> 00:09:19,520 Speaker 7: Well, I think this is going to be a real 183 00:09:19,600 --> 00:09:22,800 Speaker 7: challenge over the next few days, the next few weeks. 184 00:09:22,960 --> 00:09:26,679 Speaker 7: On the one hand, of course, Israel wants retribution for 185 00:09:26,920 --> 00:09:31,200 Speaker 7: these attacks. They want to deter a broader conflict, as 186 00:09:31,240 --> 00:09:33,800 Speaker 7: does the US. But at the same time you're trying 187 00:09:33,840 --> 00:09:36,800 Speaker 7: to contain again the conflict as we just spoke about, 188 00:09:36,840 --> 00:09:39,400 Speaker 7: from spelling out whether it's in the West Bank and 189 00:09:39,480 --> 00:09:40,800 Speaker 7: has Bolah or throughout the. 190 00:09:40,760 --> 00:09:42,960 Speaker 8: Region or just over the long term. 191 00:09:43,040 --> 00:09:45,120 Speaker 7: And you know, John, Israel is going to be if 192 00:09:45,160 --> 00:09:47,400 Speaker 7: they do launch a ground offensive, it's going to be 193 00:09:47,880 --> 00:09:51,760 Speaker 7: very difficult. Gaza is a very highly populated urban area. 194 00:09:51,920 --> 00:09:56,680 Speaker 7: You would face mass casualties for Israeli military personnel, for 195 00:09:56,880 --> 00:09:59,719 Speaker 7: Palestinian civilians, which we're already seeing, and of course that 196 00:09:59,720 --> 00:10:03,120 Speaker 7: does of hostages that are being held in Gaza, So 197 00:10:03,400 --> 00:10:05,840 Speaker 7: this would be very tricky. It's also very tricky to 198 00:10:05,920 --> 00:10:08,720 Speaker 7: just OUs to mass as a group, and it's very 199 00:10:08,920 --> 00:10:09,880 Speaker 7: tricky to know what would be. 200 00:10:09,840 --> 00:10:11,079 Speaker 8: Next for Gaza. 201 00:10:11,200 --> 00:10:13,439 Speaker 7: So I think the road ahead is going to be 202 00:10:13,640 --> 00:10:17,920 Speaker 7: challenging for Israel. We've seen these, you know, I would 203 00:10:17,920 --> 00:10:20,719 Speaker 7: say Israel Palestein has become almost emblematic of the term 204 00:10:20,760 --> 00:10:24,079 Speaker 7: cycles of violence, with different kinds of acts of retribution 205 00:10:24,160 --> 00:10:27,840 Speaker 7: that then lead to more acts and unfortunatably and casualties 206 00:10:27,840 --> 00:10:30,480 Speaker 7: on both sides. So that's the reality of the situation, 207 00:10:30,600 --> 00:10:32,000 Speaker 7: and it's a very tough needle to thread. 208 00:10:32,480 --> 00:10:34,880 Speaker 3: Julie, Given all of that, what do you make of 209 00:10:34,920 --> 00:10:38,240 Speaker 3: the discussion of John Kirby of the US talking yesterday 210 00:10:38,559 --> 00:10:42,160 Speaker 3: about Cutter actively trying to negotiate some sort of hostage release, 211 00:10:42,559 --> 00:10:46,000 Speaker 3: something that could maybe de escalate the way that you're 212 00:10:46,040 --> 00:10:46,600 Speaker 3: talking about. 213 00:10:47,480 --> 00:10:50,320 Speaker 7: Yeah, it'll be really interesting to see Cutter's role in this. 214 00:10:50,440 --> 00:10:53,280 Speaker 7: We have heard these reports of some kind of negotiations 215 00:10:53,280 --> 00:10:56,559 Speaker 7: around hostages, at least around women and children and elderly, 216 00:10:56,679 --> 00:10:59,440 Speaker 7: some kind of a negotiation that might happen there. You know, 217 00:10:59,480 --> 00:11:02,960 Speaker 7: Cutter has has been an important intermediary, I would say, 218 00:11:03,240 --> 00:11:05,800 Speaker 7: between the US and Israel and groups that they can't 219 00:11:05,920 --> 00:11:08,160 Speaker 7: or won't negotiate directly with. And I think we're going 220 00:11:08,240 --> 00:11:10,880 Speaker 7: to see that playing an important role here. Again, this 221 00:11:11,000 --> 00:11:14,319 Speaker 7: question of the hostages is very much in the forefront 222 00:11:14,360 --> 00:11:17,560 Speaker 7: for Israel and how they coordinate any kind of operation. 223 00:11:17,679 --> 00:11:19,800 Speaker 7: It's also very much, obviously in the minds of the 224 00:11:19,880 --> 00:11:22,960 Speaker 7: US and other countries that have their citizens being held there. 225 00:11:23,040 --> 00:11:25,280 Speaker 3: Right now, What are the red lines, Julie, do we 226 00:11:25,320 --> 00:11:29,120 Speaker 3: have a sense of as Israel plans the incursion, the 227 00:11:29,160 --> 00:11:32,680 Speaker 3: potential ground operation in Gaza, is there a sense of 228 00:11:32,760 --> 00:11:35,679 Speaker 3: pressure being placed on Israel to show restraint in certain 229 00:11:35,679 --> 00:11:38,920 Speaker 3: areas from the US, from other allies as well as 230 00:11:38,920 --> 00:11:41,920 Speaker 3: from Middle Eastern partners like Saudi Arabia that had previously 231 00:11:41,920 --> 00:11:43,040 Speaker 3: been discussing with Israel. 232 00:11:43,920 --> 00:11:44,840 Speaker 8: Sure, absolutely. 233 00:11:44,880 --> 00:11:48,120 Speaker 7: You know, I think we heard from Biden yesterday a 234 00:11:48,280 --> 00:11:52,360 Speaker 7: very committed US response to Israel. You know, we're with 235 00:11:52,480 --> 00:11:55,839 Speaker 7: Israel and really not setting any red lines at this point. 236 00:11:55,880 --> 00:11:57,680 Speaker 8: We're hearing different messaging. 237 00:11:57,280 --> 00:12:00,560 Speaker 7: From the EU, from European partners in AWA, and of 238 00:12:00,600 --> 00:12:03,000 Speaker 7: course from within the region, you know, calling on Israel 239 00:12:03,040 --> 00:12:06,040 Speaker 7: to stay within the bounds of international law, within the 240 00:12:06,080 --> 00:12:08,000 Speaker 7: bounds of kind of rules of war and these kinds 241 00:12:08,000 --> 00:12:11,000 Speaker 7: of things in terms of proportionality and targeting of civilians. 242 00:12:11,040 --> 00:12:14,439 Speaker 7: So I think this will be an ongoing conversation. I 243 00:12:14,440 --> 00:12:16,800 Speaker 7: think it's it's a very difficult one. I think many 244 00:12:16,880 --> 00:12:19,440 Speaker 7: feel a lot of aversion to talking about both sides, 245 00:12:19,480 --> 00:12:23,679 Speaker 7: whereas others feel it very necessary degree for the civilian 246 00:12:23,679 --> 00:12:25,840 Speaker 7: loss of life on both sides of this border. 247 00:12:26,040 --> 00:12:29,719 Speaker 4: Judy, when you hear numbers like more than one thousand civilians, 248 00:12:30,280 --> 00:12:32,280 Speaker 4: and then we have conversations where we talk about a 249 00:12:32,320 --> 00:12:36,080 Speaker 4: proportional response. What on earth is a proportional response to 250 00:12:36,120 --> 00:12:37,480 Speaker 4: what took place over the weekend. 251 00:12:38,600 --> 00:12:40,679 Speaker 8: Yeah, I think many in Israel be asking that. 252 00:12:40,760 --> 00:12:44,880 Speaker 7: And again I think this has been again a situation that, unfortunately, 253 00:12:45,080 --> 00:12:48,200 Speaker 7: time and time again has played out in the Middle East, 254 00:12:48,200 --> 00:12:51,560 Speaker 7: and is this in this Israel Palestine conflict. You know, 255 00:12:51,920 --> 00:12:55,760 Speaker 7: over the decades we have seen different kinds of atrocities 256 00:12:55,800 --> 00:12:59,400 Speaker 7: that again are then met with a response that you 257 00:12:59,520 --> 00:13:03,600 Speaker 7: also read aults and civilian casualties that then just escalate 258 00:13:03,920 --> 00:13:06,880 Speaker 7: for many this kind of long term security challenge of 259 00:13:06,920 --> 00:13:10,000 Speaker 7: then getting more people involved in resistance and whatnot. So 260 00:13:10,240 --> 00:13:13,160 Speaker 7: it's a very challenging path, I would say morally as 261 00:13:13,160 --> 00:13:16,200 Speaker 7: well strategically for Israel as they try and balance what 262 00:13:16,320 --> 00:13:20,839 Speaker 7: might be short term necessities and responses with what might 263 00:13:20,840 --> 00:13:23,360 Speaker 7: be real long term strategic thinking of what does this 264 00:13:23,440 --> 00:13:25,000 Speaker 7: mean for the long run and what kind of future 265 00:13:25,000 --> 00:13:28,440 Speaker 7: are we setting up if we respond in a way 266 00:13:28,440 --> 00:13:30,840 Speaker 7: that just fuels this conflict even further. 267 00:13:31,200 --> 00:13:33,640 Speaker 5: Judy, thank you, Thank you for your insight. Jully Norman. Then, 268 00:13:33,640 --> 00:13:36,319 Speaker 5: if you see our center on US politics. 269 00:13:46,120 --> 00:13:48,880 Speaker 3: Someone who's been tracking the sort of push pull between 270 00:13:49,040 --> 00:13:52,720 Speaker 3: inflation and potential weakness around the edges is Torston Slock, 271 00:13:52,800 --> 00:13:55,880 Speaker 3: chief economist Apollo Global Management, who puts out charts that 272 00:13:55,920 --> 00:13:58,360 Speaker 3: we cite pretty much every single day. And Torston, I 273 00:13:58,400 --> 00:13:59,840 Speaker 3: just want to thank you and your team because we 274 00:13:59,880 --> 00:14:03,360 Speaker 3: always use them as talking points and hot topics. 275 00:14:03,360 --> 00:14:04,760 Speaker 2: So we appreciate that, but I. 276 00:14:04,720 --> 00:14:08,680 Speaker 3: Want to start with your impression of a reacceleration that 277 00:14:08,720 --> 00:14:11,280 Speaker 3: we're starting to see on the margins in goods prices. 278 00:14:11,440 --> 00:14:13,560 Speaker 9: I think what's most important reader here is it shows 279 00:14:13,600 --> 00:14:15,560 Speaker 9: how difficult it is to get the horse back in 280 00:14:15,600 --> 00:14:18,200 Speaker 9: the bond when it comes to inflation. You think about first, 281 00:14:18,200 --> 00:14:20,360 Speaker 9: goods inflation went up when we were sitting at home 282 00:14:20,480 --> 00:14:23,240 Speaker 9: ordering stuff online during the pandemic. Then goods inflation came 283 00:14:23,320 --> 00:14:25,760 Speaker 9: down when the supply Chaine came back on steam. And now, 284 00:14:25,800 --> 00:14:27,800 Speaker 9: as Mike was just pointing out, it looks like goods 285 00:14:27,800 --> 00:14:30,920 Speaker 9: inflation is beginning to re accelerate because manufacturing is beginning 286 00:14:30,960 --> 00:14:33,600 Speaker 9: to show more signs of life. And you have, broadly speaking, therefore, 287 00:14:33,640 --> 00:14:36,720 Speaker 9: as separate cycle in goods inflation relative to the cycle 288 00:14:36,760 --> 00:14:39,600 Speaker 9: in services inflation, where initially when we were sitting at home, 289 00:14:39,600 --> 00:14:43,240 Speaker 9: there was no service inflation. Now we're all going to restaurants, hotels, 290 00:14:43,640 --> 00:14:47,120 Speaker 9: basically flying consumer services, and that's why service inflation has 291 00:14:47,120 --> 00:14:49,520 Speaker 9: been very high. What we that cycle difference has been 292 00:14:49,520 --> 00:14:51,560 Speaker 9: a very important feature, and it shows in the data 293 00:14:51,600 --> 00:14:52,160 Speaker 9: also today. 294 00:14:52,240 --> 00:14:55,440 Speaker 3: What we did see though, during the immediate aftermath of 295 00:14:55,480 --> 00:14:59,040 Speaker 3: the pandemic was that people weren't as sensitive to price 296 00:14:59,080 --> 00:15:02,120 Speaker 3: increases because they accepted that inflation was happening and they 297 00:15:02,160 --> 00:15:04,440 Speaker 3: had huge bundles of savings that were left over from 298 00:15:04,480 --> 00:15:08,280 Speaker 3: the pandemic. Is now different? Are you seeing consumers push back, 299 00:15:08,600 --> 00:15:09,680 Speaker 3: spend less. 300 00:15:09,680 --> 00:15:11,960 Speaker 2: Not actually spent when they see prices going. 301 00:15:11,800 --> 00:15:12,360 Speaker 8: Up that much? 302 00:15:12,440 --> 00:15:14,520 Speaker 9: Well, if you look at what was the distribution of 303 00:15:14,600 --> 00:15:18,200 Speaker 9: consumption on goods and services before the pandemic, we have 304 00:15:18,320 --> 00:15:21,240 Speaker 9: not normalized back, so that level in terms of the 305 00:15:21,280 --> 00:15:23,520 Speaker 9: shares spent on services reads as to the shares spends 306 00:15:23,520 --> 00:15:26,360 Speaker 9: on goods. We still spend quote unquote too much on goods, 307 00:15:26,440 --> 00:15:28,720 Speaker 9: So that means that services still has some more upside. 308 00:15:28,840 --> 00:15:30,920 Speaker 9: So you're right, people have been willing to spend more 309 00:15:30,960 --> 00:15:33,840 Speaker 9: money to go to Taylor, Swift, tickets, US Open and 310 00:15:33,920 --> 00:15:36,520 Speaker 9: Queen's all these things that have been so expensive because 311 00:15:36,560 --> 00:15:38,400 Speaker 9: there has still been savings around. But as we all 312 00:15:38,440 --> 00:15:40,640 Speaker 9: know and as we talk about all the time, we 313 00:15:40,760 --> 00:15:43,240 Speaker 9: of course have this issue that savings are running out, 314 00:15:43,360 --> 00:15:46,040 Speaker 9: combined with student loan payments coming back, all that does 315 00:15:46,120 --> 00:15:48,480 Speaker 9: point to still more weakness on the consumer in the 316 00:15:48,520 --> 00:15:49,120 Speaker 9: coming quarters. 317 00:15:49,160 --> 00:15:51,600 Speaker 3: When you put charts out, especially on that savings rate. 318 00:15:51,800 --> 00:15:54,960 Speaker 3: How much pushback do you get from people because everyone 319 00:15:55,040 --> 00:15:57,840 Speaker 3: is so discerning of the type of data and the 320 00:15:57,840 --> 00:16:00,960 Speaker 3: way that it's being framed. That a story with data 321 00:16:01,160 --> 00:16:04,120 Speaker 3: can be dissected in five different ways by five different people. 322 00:16:04,240 --> 00:16:05,920 Speaker 9: That's right, and I think that's also why it's not 323 00:16:06,000 --> 00:16:09,280 Speaker 9: only about savings running out. It's also about the very 324 00:16:09,320 --> 00:16:11,840 Speaker 9: big picture that the FED is trying still to cool 325 00:16:11,880 --> 00:16:14,280 Speaker 9: the economy down. We hear that also from Merry Daily 326 00:16:14,360 --> 00:16:16,280 Speaker 9: here in the segment you just played, where we are 327 00:16:16,320 --> 00:16:19,480 Speaker 9: seeing already in the data, consumers are seeing higher telanguage 328 00:16:19,600 --> 00:16:22,640 Speaker 9: rates on credit cards and order loans. Corporates are seeing 329 00:16:22,720 --> 00:16:24,800 Speaker 9: default rates go up on high yield and on loans. 330 00:16:24,800 --> 00:16:27,360 Speaker 9: We're also seeing interest covers ratios starting to dip, both 331 00:16:27,360 --> 00:16:29,240 Speaker 9: by investment grade and high yield, and also on the 332 00:16:29,240 --> 00:16:32,000 Speaker 9: banking side, we're also seeing a slowing in loan growth 333 00:16:32,000 --> 00:16:33,880 Speaker 9: in the weekly data from the FED, both for large 334 00:16:33,920 --> 00:16:36,760 Speaker 9: banks and for small banks. So taking consumers, corporates, and 335 00:16:36,840 --> 00:16:39,640 Speaker 9: banks combined, the FED is succeeding. This is exactly what 336 00:16:39,680 --> 00:16:41,760 Speaker 9: the textbook would have predicted, that we are seeing a 337 00:16:41,800 --> 00:16:45,200 Speaker 9: slow down on consumption on corporates and on banks, and 338 00:16:45,240 --> 00:16:47,960 Speaker 9: that's why this also will result in more slowing over 339 00:16:47,960 --> 00:16:48,600 Speaker 9: the coming quarters. 340 00:16:48,720 --> 00:16:51,720 Speaker 3: More slowing and recession. More slowing is not the same, right, 341 00:16:51,760 --> 00:16:54,160 Speaker 3: And there's a question of how much slowing is necessary 342 00:16:54,200 --> 00:16:56,240 Speaker 3: to truly put the horse back in the bar. And 343 00:16:56,280 --> 00:16:58,440 Speaker 3: as you say, to use your analogy, and this has 344 00:16:58,480 --> 00:17:01,000 Speaker 3: been one of the conundrums that's been into the market. 345 00:17:01,280 --> 00:17:03,160 Speaker 2: Do you have a sense of whether. 346 00:17:02,960 --> 00:17:06,440 Speaker 3: It requires a greater slowing to get that horseback in 347 00:17:06,480 --> 00:17:09,240 Speaker 3: the barn? Then people are currently using as a base case. 348 00:17:09,240 --> 00:17:10,840 Speaker 3: And when I say people, I mean FED officials. 349 00:17:10,880 --> 00:17:13,200 Speaker 9: I do think that we need more slowing because coll 350 00:17:13,359 --> 00:17:16,399 Speaker 9: PC today is three point nine and the target for 351 00:17:16,440 --> 00:17:18,480 Speaker 9: the FIT is that it should be two. So we 352 00:17:18,560 --> 00:17:21,080 Speaker 9: are still running around after the horse out there and 353 00:17:21,080 --> 00:17:23,440 Speaker 9: trying to get it back into the two percent range, 354 00:17:23,440 --> 00:17:25,600 Speaker 9: and we're just not there yet. That's what literally every 355 00:17:25,800 --> 00:17:28,040 Speaker 9: from C member is telling us. So with that backdrop, 356 00:17:28,359 --> 00:17:31,000 Speaker 9: given what's happening to the delinquagy rates for consumers, given 357 00:17:31,000 --> 00:17:32,880 Speaker 9: what's I mean, the fault rates for Hiyil are going 358 00:17:32,920 --> 00:17:35,000 Speaker 9: up at the fastest rate in the last six months 359 00:17:35,080 --> 00:17:37,119 Speaker 9: in years. So the result of that is that we 360 00:17:37,200 --> 00:17:40,119 Speaker 9: are seeing the effects of the FED tightening. Every single day. 361 00:17:40,320 --> 00:17:42,960 Speaker 9: There are companies that cannot get financing. There are consumers 362 00:17:43,000 --> 00:17:44,919 Speaker 9: who cannot buy a new car, and at the moment 363 00:17:45,000 --> 00:17:46,760 Speaker 9: who have a hard time buying a new home. So 364 00:17:46,800 --> 00:17:49,200 Speaker 9: in that sense, tight up policy with the Fed funds 365 00:17:49,280 --> 00:17:51,639 Speaker 9: rate at five and a half is way way above 366 00:17:51,960 --> 00:17:53,680 Speaker 9: the two and a half percent where they're fed and 367 00:17:53,760 --> 00:17:55,600 Speaker 9: the dot plot things we should be in the long run. 368 00:17:55,760 --> 00:17:58,359 Speaker 9: So policy is working exactly as the textbook have predicted. 369 00:17:58,440 --> 00:18:00,600 Speaker 9: Is just the savings making it take a little bit 370 00:18:00,640 --> 00:18:03,360 Speaker 9: longer time. But we are moving towards, in my view, 371 00:18:03,440 --> 00:18:05,359 Speaker 9: a faster slow down what the market is considered to 372 00:18:05,400 --> 00:18:06,720 Speaker 9: six expecting we're going to. 373 00:18:06,720 --> 00:18:08,560 Speaker 3: Put the horse back in the pasture and leave that 374 00:18:08,880 --> 00:18:11,159 Speaker 3: alone for the remainder of our time. But I do 375 00:18:11,240 --> 00:18:15,080 Speaker 3: want to know why we are seeing upside surprises to 376 00:18:15,119 --> 00:18:18,640 Speaker 3: the economic data in such a significant way if there 377 00:18:18,720 --> 00:18:20,439 Speaker 3: is this material slowing, I mean, this has been one 378 00:18:20,440 --> 00:18:23,400 Speaker 3: of the conundrums for so many people who are expecting 379 00:18:23,480 --> 00:18:26,920 Speaker 3: and seeing anecdotally all of the slowing and yet each 380 00:18:27,000 --> 00:18:29,800 Speaker 3: economic print coming in stronger, stronger, stronger. 381 00:18:30,040 --> 00:18:32,000 Speaker 9: There are some exceptions to that. I know, the label 382 00:18:32,040 --> 00:18:34,639 Speaker 9: market obviously surprise to the upside on the headline, but 383 00:18:34,680 --> 00:18:37,119 Speaker 9: if you look under the hood. You see that in 384 00:18:37,160 --> 00:18:40,639 Speaker 9: particular in terms of job openings peaked literally in March 385 00:18:40,680 --> 00:18:43,119 Speaker 9: of twenty twenty two when the Fed started raising rates. 386 00:18:43,200 --> 00:18:45,520 Speaker 9: That's been coming down. You're also seeing the work week 387 00:18:45,560 --> 00:18:48,800 Speaker 9: coming down. You're also seeing wages for jobs switches coming down. 388 00:18:48,960 --> 00:18:53,080 Speaker 9: You've also seen an increase in percentage of permanent job losses. 389 00:18:53,240 --> 00:18:55,399 Speaker 9: So a number of the label market indicators under the 390 00:18:55,440 --> 00:18:57,520 Speaker 9: hood are showing more signs of weakness, and we are 391 00:18:57,520 --> 00:19:00,119 Speaker 9: definitely moving towards that. We will also maybe get that 392 00:19:00,160 --> 00:19:03,040 Speaker 9: increase in the unemployment rate that Jay Powell has talked about. 393 00:19:03,160 --> 00:19:05,040 Speaker 3: Given the unrust in the Middle East, there's a lot 394 00:19:05,040 --> 00:19:07,520 Speaker 3: of focus on oil prices and what would happen if 395 00:19:07,560 --> 00:19:10,919 Speaker 3: oil prices do have a sustained rise. How do you 396 00:19:11,000 --> 00:19:14,280 Speaker 3: factor that in to your concept of harder landing than 397 00:19:14,320 --> 00:19:15,840 Speaker 3: people are certainly except. 398 00:19:15,640 --> 00:19:18,280 Speaker 9: I know that is certainly a very important point. I mean, 399 00:19:18,280 --> 00:19:20,360 Speaker 9: oil prices now they first went up and now they've 400 00:19:20,359 --> 00:19:22,200 Speaker 9: gone down a bit. But it's certainly the case that 401 00:19:22,400 --> 00:19:24,840 Speaker 9: the moving oil prices is very critical also in particular 402 00:19:24,840 --> 00:19:27,440 Speaker 9: of course for headline inflation. So from that perspective, the 403 00:19:27,480 --> 00:19:29,960 Speaker 9: second round effects are likely going to be more limited, 404 00:19:29,960 --> 00:19:32,119 Speaker 9: at least historically, they have become more and more limited 405 00:19:32,119 --> 00:19:35,679 Speaker 9: over time because the economy is less sensitive to oil prices, 406 00:19:35,720 --> 00:19:38,359 Speaker 9: is less energy intensive. But the short answer to your 407 00:19:38,440 --> 00:19:40,800 Speaker 9: question is for headline inflation and therefore also for the fit, 408 00:19:41,080 --> 00:19:43,280 Speaker 9: it does become important what oil prices are. 409 00:19:43,200 --> 00:19:45,399 Speaker 2: Doing when we shake out. Where are you? 410 00:19:45,440 --> 00:19:47,960 Speaker 3: Where is your thinking in terms of the long term 411 00:19:48,040 --> 00:19:51,320 Speaker 3: neutral rate and how much shifted upward given some of 412 00:19:51,359 --> 00:19:52,520 Speaker 3: the paradigm shifts. 413 00:19:52,640 --> 00:19:54,439 Speaker 9: I think that there are some very important arguments for 414 00:19:54,520 --> 00:19:56,400 Speaker 9: why the long run rate is going to be higher. 415 00:19:56,520 --> 00:20:00,000 Speaker 9: We first of all have more deglobalization, more segmentation globally. 416 00:20:00,320 --> 00:20:03,320 Speaker 9: That's putting more upward pressure because of unsharing or reshowing 417 00:20:03,320 --> 00:20:06,359 Speaker 9: and friends showing increasing cost of production. We also generally 418 00:20:06,359 --> 00:20:09,040 Speaker 9: speaking have that energy transition is going to be costly. 419 00:20:09,320 --> 00:20:11,639 Speaker 9: That also is going to put upward pressure on the 420 00:20:11,680 --> 00:20:15,160 Speaker 9: production of energy, and therefore if people pay more for energy, 421 00:20:15,200 --> 00:20:17,800 Speaker 9: including the adjustment costs, then that will also be putting 422 00:20:17,840 --> 00:20:21,000 Speaker 9: upward pressure on inflation. And finally, we likely also have globally 423 00:20:21,200 --> 00:20:24,160 Speaker 9: less immigration, and if that's the case, that also means 424 00:20:24,280 --> 00:20:26,240 Speaker 9: that we'd like you to going to see higher cost 425 00:20:26,240 --> 00:20:28,080 Speaker 9: of production, not only in the US, but also in 426 00:20:28,080 --> 00:20:30,680 Speaker 9: Europe and a broad So the conclusion is both the 427 00:20:30,760 --> 00:20:34,480 Speaker 9: globalization and also energy transition and also what might be 428 00:20:34,520 --> 00:20:37,160 Speaker 9: happening with immigration, all argues for that the long run 429 00:20:37,440 --> 00:20:39,840 Speaker 9: rate neutral rate is likely going to be high. The 430 00:20:39,920 --> 00:20:41,680 Speaker 9: FED says that in the long run will be two 431 00:20:41,720 --> 00:20:44,280 Speaker 9: and a half, but we could be up closer to three, 432 00:20:44,320 --> 00:20:46,640 Speaker 9: maybe even three and a half. And that's very important 433 00:20:46,640 --> 00:20:49,080 Speaker 9: for anyone planning with a long horizon, because that's telling 434 00:20:49,080 --> 00:20:51,479 Speaker 9: you that on page one in the finance textbook, if 435 00:20:51,480 --> 00:20:53,840 Speaker 9: the risk free rate is going up, we all in 436 00:20:53,880 --> 00:20:55,480 Speaker 9: financial markets need to pay attention. 437 00:20:56,000 --> 00:20:58,440 Speaker 3: Tourist and slack of Apollo. Always wonderful to get your thoughts. 438 00:20:58,440 --> 00:21:00,159 Speaker 3: Thank you so much for being here with us. 439 00:21:04,560 --> 00:21:05,560 Speaker 5: It's a bit a supermanent. 440 00:21:06,080 --> 00:21:09,800 Speaker 4: Second quotative strategy has a job at BANKCAW. 441 00:21:10,400 --> 00:21:11,000 Speaker 5: Good to see it. 442 00:21:11,280 --> 00:21:13,240 Speaker 4: Nice to see to see a constructive and I read 443 00:21:13,240 --> 00:21:15,680 Speaker 4: your note from the other week that this can work. 444 00:21:15,920 --> 00:21:19,000 Speaker 4: We can see equity returns in a higher rate environment. 445 00:21:19,080 --> 00:21:21,480 Speaker 4: So the lower rates her to sort help us us 446 00:21:21,520 --> 00:21:22,479 Speaker 4: out which one is it. 447 00:21:22,880 --> 00:21:25,480 Speaker 10: So I think that lower rates are I mean, I 448 00:21:25,480 --> 00:21:27,359 Speaker 10: think there's too much focus on the short end of 449 00:21:27,400 --> 00:21:28,920 Speaker 10: the curve. I think the long end of the curve 450 00:21:28,960 --> 00:21:32,439 Speaker 10: probably matters more for stocks. And then when I think about, 451 00:21:32,560 --> 00:21:34,560 Speaker 10: you know, why the long end is moving higher, one 452 00:21:34,640 --> 00:21:37,200 Speaker 10: of the reasons is supplied demand. You know, there's less 453 00:21:37,200 --> 00:21:41,159 Speaker 10: demand from the FED and China, boja, et cetera. But 454 00:21:41,240 --> 00:21:43,880 Speaker 10: there's also this growth story that you could argue for, 455 00:21:43,920 --> 00:21:46,680 Speaker 10: which is the idea that companies are now focused on, 456 00:21:47,480 --> 00:21:49,320 Speaker 10: you know, what they should be focused on. So so 457 00:21:49,359 --> 00:21:51,919 Speaker 10: we're in an environment where I think a lot of 458 00:21:51,960 --> 00:21:57,960 Speaker 10: the levers for margin improvement from kind of lower quality 459 00:21:58,000 --> 00:22:01,520 Speaker 10: sources like globalization or cheap finance and saying are behind us. 460 00:22:01,840 --> 00:22:04,800 Speaker 10: But ahead of us is this very exciting new theme 461 00:22:04,800 --> 00:22:07,399 Speaker 10: which we haven't you know, talked about for a long time, 462 00:22:07,760 --> 00:22:12,440 Speaker 10: which is efficiency, productivity, replacing labor with you know, more 463 00:22:12,440 --> 00:22:16,040 Speaker 10: efficient procedures, be it AI or automation, et cetera. So 464 00:22:16,119 --> 00:22:18,520 Speaker 10: I think that those are the drivers that could move 465 00:22:18,560 --> 00:22:21,679 Speaker 10: the market higher from here. Now what's interesting is that 466 00:22:21,760 --> 00:22:26,000 Speaker 10: so far this whole AI theme has only been rewarding tech, 467 00:22:26,600 --> 00:22:29,160 Speaker 10: and I think that the story is so much broader 468 00:22:29,200 --> 00:22:31,520 Speaker 10: than that. So, you know, based on our quant work, 469 00:22:31,520 --> 00:22:33,920 Speaker 10: we've found that if the S and P five hundred 470 00:22:34,040 --> 00:22:37,040 Speaker 10: has the opportunity to become even labor lighter than it 471 00:22:37,119 --> 00:22:42,119 Speaker 10: is today. That translates into stable margins and a bump 472 00:22:42,200 --> 00:22:45,480 Speaker 10: up in the multiple because investors are willing to pay 473 00:22:45,560 --> 00:22:49,760 Speaker 10: more for efficiency gains than just low quality you know, 474 00:22:49,920 --> 00:22:51,640 Speaker 10: fed money plus. 475 00:22:51,280 --> 00:22:52,440 Speaker 8: A little bit of globalization. 476 00:22:52,520 --> 00:22:55,280 Speaker 3: Are you saying that the AI boom has maybe been 477 00:22:55,520 --> 00:22:59,159 Speaker 3: priced in accurately for tech companies but inaccurately priced for 478 00:22:59,200 --> 00:23:01,760 Speaker 3: the rest of the comple that will benefit in just 479 00:23:01,760 --> 00:23:02,680 Speaker 3: a significant a way. 480 00:23:02,760 --> 00:23:04,800 Speaker 10: That is a much more eloquent way of saying what 481 00:23:04,960 --> 00:23:08,560 Speaker 10: I just said with many less words. But I do 482 00:23:08,600 --> 00:23:10,960 Speaker 10: think that that's the idea is you know, we're so 483 00:23:11,080 --> 00:23:13,320 Speaker 10: far we're in this environment where it's like old economy 484 00:23:13,400 --> 00:23:16,359 Speaker 10: is terrible, don't buy anything that's not tech. We're going 485 00:23:16,400 --> 00:23:18,720 Speaker 10: to get money from this AI theme. I think the 486 00:23:18,800 --> 00:23:21,520 Speaker 10: idea here is that old economy companies that are labor 487 00:23:21,520 --> 00:23:25,199 Speaker 10: intensive have more tools to get labor light. And what 488 00:23:25,280 --> 00:23:28,520 Speaker 10: we found, you know, in our quantitative work, is that 489 00:23:29,040 --> 00:23:34,720 Speaker 10: companies that become labor light always outperform companies that don't. 490 00:23:34,920 --> 00:23:37,359 Speaker 10: And it's kind of an obvious point, but it plays 491 00:23:37,359 --> 00:23:38,040 Speaker 10: out in the data. 492 00:23:38,200 --> 00:23:40,359 Speaker 3: Part of being able to get there and to survive 493 00:23:40,440 --> 00:23:43,360 Speaker 3: long enough to get there to be able to make investments, 494 00:23:43,560 --> 00:23:46,399 Speaker 3: which requires money that potentially you have to borrow. So 495 00:23:46,800 --> 00:23:50,639 Speaker 3: it raises a fundamental question about at what point the 496 00:23:50,720 --> 00:23:54,360 Speaker 3: rate structure makes this prohibitive for some of these old 497 00:23:54,400 --> 00:23:57,240 Speaker 3: economy companies to come up to the new world. What's 498 00:23:57,280 --> 00:24:00,720 Speaker 3: the tipping point for yields where it starts matter really 499 00:24:00,800 --> 00:24:01,639 Speaker 3: significantly to you? 500 00:24:02,000 --> 00:24:03,920 Speaker 10: For Yeah, for the S and P five hundred, I 501 00:24:03,960 --> 00:24:06,040 Speaker 10: think we can see higher yields, and I guess the 502 00:24:06,080 --> 00:24:09,600 Speaker 10: good news is a lot of these problematic companies with 503 00:24:09,680 --> 00:24:12,639 Speaker 10: floating rate risk and that are unable to handle current 504 00:24:12,720 --> 00:24:15,920 Speaker 10: rates or higher rates have dropped out of the S 505 00:24:16,000 --> 00:24:17,960 Speaker 10: and P five hundred. So there's been this sort of 506 00:24:18,080 --> 00:24:22,000 Speaker 10: natural attrition out of the SMP into the Russell two thousand. 507 00:24:22,240 --> 00:24:24,239 Speaker 10: What I think is really interesting is that twice as 508 00:24:24,280 --> 00:24:27,720 Speaker 10: many companies have fallen from the SMP to the Russell 509 00:24:28,080 --> 00:24:31,360 Speaker 10: than have risen from the Russell to the SMP compared 510 00:24:31,359 --> 00:24:34,159 Speaker 10: to an average year. So that is telling us that 511 00:24:34,240 --> 00:24:36,960 Speaker 10: it's basically a story of the losers dropping out of 512 00:24:36,960 --> 00:24:40,040 Speaker 10: the index into other indices. I don't love the Russell 513 00:24:40,080 --> 00:24:43,399 Speaker 10: two thousand right now. I think it's riddled with small 514 00:24:43,440 --> 00:24:47,320 Speaker 10: cap zombie companies like healthcare tech companies that can't handle 515 00:24:47,359 --> 00:24:49,560 Speaker 10: this rates environment. But I think the S and P 516 00:24:49,680 --> 00:24:53,920 Speaker 10: five hundred has seen a lot of those problem stories 517 00:24:54,040 --> 00:24:57,320 Speaker 10: drop out, and it looks pretty healthy, right right. I 518 00:24:57,359 --> 00:24:59,480 Speaker 10: love the equal weighted S and P five hundred. 519 00:24:59,520 --> 00:25:00,600 Speaker 5: That's my well. 520 00:25:00,680 --> 00:25:02,920 Speaker 10: I just think that the you know, as you pointed out, 521 00:25:03,320 --> 00:25:05,280 Speaker 10: probably a lot of this good news has been priced 522 00:25:05,280 --> 00:25:08,480 Speaker 10: into the mega cap tech cohort, maybe even overpriced into 523 00:25:08,480 --> 00:25:12,560 Speaker 10: the megacap tech cohort. Everybody owns these companies, so there's 524 00:25:12,600 --> 00:25:14,480 Speaker 10: not a lot of buying pressure if you think about 525 00:25:14,480 --> 00:25:18,199 Speaker 10: who's next to load up on the Magnificent seven. But 526 00:25:18,320 --> 00:25:20,600 Speaker 10: there is a broader array of companies that actually look 527 00:25:20,640 --> 00:25:23,960 Speaker 10: pretty healthy. And if we don't go into this you 528 00:25:23,960 --> 00:25:27,800 Speaker 10: know hotly forecast recession that we're all preparing for, embracing 529 00:25:27,800 --> 00:25:31,280 Speaker 10: ourselves for. I think that the market could rip from here. 530 00:25:31,320 --> 00:25:32,640 Speaker 10: The equal weighted SMP could. 531 00:25:32,480 --> 00:25:34,680 Speaker 5: Rip, could rip. What kind of upside is rip? 532 00:25:34,880 --> 00:25:39,119 Speaker 10: So yeah, it's all relative, right, So you know, I 533 00:25:39,160 --> 00:25:41,600 Speaker 10: think that what we're forecasting through your end is forty 534 00:25:41,600 --> 00:25:44,639 Speaker 10: six hundred for the SMP. I think the equal weighted 535 00:25:44,720 --> 00:25:47,400 Speaker 10: SMP could do double those gains. So from here it's 536 00:25:47,400 --> 00:25:50,560 Speaker 10: not that demonstrable. But I think over the next ten years, 537 00:25:51,119 --> 00:25:53,399 Speaker 10: buying the equal weighted S and P five hundred today 538 00:25:53,640 --> 00:25:56,440 Speaker 10: on a valuation basis suggests that you could get more 539 00:25:56,480 --> 00:26:00,320 Speaker 10: than ten percent price returns per year from the equal 540 00:26:00,320 --> 00:26:03,080 Speaker 10: weighted S and P. This is not an environment where 541 00:26:03,440 --> 00:26:07,000 Speaker 10: a lot of other asset classes promised ten percent returns 542 00:26:07,000 --> 00:26:08,400 Speaker 10: plus additional dividend yields. 543 00:26:08,480 --> 00:26:10,240 Speaker 4: What I'm doing technically, though, I was stripping out the 544 00:26:10,320 --> 00:26:14,240 Speaker 4: muscle of big tech. Yeah, and relatively speaking, giving say 545 00:26:14,320 --> 00:26:15,560 Speaker 4: financial is a bigger presence. 546 00:26:16,200 --> 00:26:17,560 Speaker 5: Do I want to do that right now? 547 00:26:17,640 --> 00:26:20,520 Speaker 10: So financials is a tricky one. I like financials. I 548 00:26:20,640 --> 00:26:23,480 Speaker 10: like large cap financials because A the banks have already 549 00:26:23,480 --> 00:26:26,000 Speaker 10: been regulated. B A lot of the bad news is 550 00:26:26,040 --> 00:26:26,760 Speaker 10: behind us. 551 00:26:27,119 --> 00:26:28,520 Speaker 2: See, there's got. 552 00:26:28,240 --> 00:26:31,000 Speaker 10: To be a shape of the yield curve that helps 553 00:26:31,040 --> 00:26:33,840 Speaker 10: the banks. And what's interesting is that every phase of 554 00:26:33,880 --> 00:26:38,399 Speaker 10: the yield curve has been cast as bad four banks. 555 00:26:38,440 --> 00:26:41,719 Speaker 10: I think we're actually moving into an environment where, you know, 556 00:26:42,560 --> 00:26:44,520 Speaker 10: if the FED is closer to being done on the 557 00:26:44,560 --> 00:26:47,679 Speaker 10: short end and the long end is potentially higher for longer, 558 00:26:47,960 --> 00:26:51,040 Speaker 10: that's historically been a good environment for lending. I think 559 00:26:51,080 --> 00:26:53,920 Speaker 10: the banks also have the opportunity and old financial companies 560 00:26:53,960 --> 00:26:57,600 Speaker 10: have the opportunity to get less labor intensive, which is 561 00:26:57,640 --> 00:27:01,160 Speaker 10: bad for me, but it's good for margins of financial companies. 562 00:27:01,200 --> 00:27:04,760 Speaker 10: So lots of levers that I think are underappreciated, as 563 00:27:04,800 --> 00:27:07,720 Speaker 10: well as the fact that if financials, if regulated banks 564 00:27:07,760 --> 00:27:11,640 Speaker 10: are regulated utilities, now, why don't they have the multiple 565 00:27:11,680 --> 00:27:13,520 Speaker 10: of a regulated utilities company. 566 00:27:13,720 --> 00:27:14,480 Speaker 2: Is your view. 567 00:27:14,359 --> 00:27:17,159 Speaker 3: Predicated on the idea that we're really not going to 568 00:27:17,160 --> 00:27:17,720 Speaker 3: get much. 569 00:27:17,560 --> 00:27:18,240 Speaker 2: Of a recession. 570 00:27:18,400 --> 00:27:20,960 Speaker 3: Is this basically predicated on the Fed's view of the world. 571 00:27:21,119 --> 00:27:23,679 Speaker 10: It's well, this is predicated on the idea that the 572 00:27:23,760 --> 00:27:26,480 Speaker 10: reason it's taking longer for the FED to control this 573 00:27:26,600 --> 00:27:29,560 Speaker 10: economy is that a lot of that leverage risk has 574 00:27:29,600 --> 00:27:33,919 Speaker 10: been taken out of consumers and corporates and moved to 575 00:27:34,760 --> 00:27:38,879 Speaker 10: public the public sector, the government balance sheet, and the 576 00:27:38,920 --> 00:27:42,560 Speaker 10: fed's own asset base. And while that all sounds in 577 00:27:42,640 --> 00:27:45,479 Speaker 10: nerm racking and terrifying that we're sitting on, you know, 578 00:27:45,600 --> 00:27:49,720 Speaker 10: levels of debt to GDP that are similar to emerging economies, 579 00:27:50,080 --> 00:27:53,520 Speaker 10: what we found is that high levels of government leverage 580 00:27:53,560 --> 00:27:57,080 Speaker 10: are not anathema for stocks. So this is interesting because 581 00:27:57,119 --> 00:27:59,720 Speaker 10: I've always been like kind of worried, like in the 582 00:27:59,760 --> 00:28:03,520 Speaker 10: back about this looming debt to GDP for the US 583 00:28:03,520 --> 00:28:04,240 Speaker 10: and what's it going to. 584 00:28:04,240 --> 00:28:04,679 Speaker 8: Do to us? 585 00:28:04,800 --> 00:28:08,560 Speaker 10: It seems really awful, leverages evil. The truth is the 586 00:28:08,600 --> 00:28:12,800 Speaker 10: market actually outperforms or does better during periods of a 587 00:28:12,880 --> 00:28:16,720 Speaker 10: higher leverage ratio in the public sector than lower. So 588 00:28:16,880 --> 00:28:19,679 Speaker 10: leverage in the public sector isn't necessarily what we need 589 00:28:19,720 --> 00:28:21,800 Speaker 10: to worry about. Maybe it makes our bonds that much 590 00:28:21,800 --> 00:28:25,560 Speaker 10: more less attractive, which you know, I think US treasuries 591 00:28:25,640 --> 00:28:26,960 Speaker 10: might be the riskiest assecline. 592 00:28:26,960 --> 00:28:28,280 Speaker 5: We can have this conversation for a long time. 593 00:28:28,280 --> 00:28:30,840 Speaker 4: I wonder if yes, that's associated with coming down of 594 00:28:30,840 --> 00:28:32,720 Speaker 4: bottoms in the economy, and that's. 595 00:28:32,520 --> 00:28:35,560 Speaker 10: When the exactly and we grow our way out exactly. 596 00:28:36,240 --> 00:28:38,760 Speaker 5: You see as always so bit of superminding. The of 597 00:28:38,800 --> 00:28:39,200 Speaker 5: Bank of. 598 00:28:39,160 --> 00:28:51,960 Speaker 3: America joining US now, I'm so pleased to say, to 599 00:28:51,960 --> 00:28:53,800 Speaker 3: give us a lot more light than I certainly can 600 00:28:53,840 --> 00:28:57,040 Speaker 3: Shatt Bloomberg's Alex Steel and Julian Lee joining us. Alex, 601 00:28:57,080 --> 00:28:58,840 Speaker 3: I want to start with you, why is this deal 602 00:28:58,920 --> 00:28:59,560 Speaker 3: so important? 603 00:29:00,080 --> 00:29:00,160 Speaker 8: So? 604 00:29:00,200 --> 00:29:02,280 Speaker 11: First of all, fifty nine point five billion dollars is 605 00:29:02,360 --> 00:29:05,440 Speaker 11: nothing to sneeze. Ad in eighteen percent premium for a Pioneer. 606 00:29:06,000 --> 00:29:09,160 Speaker 11: This is an enormous deal, and the broader context is 607 00:29:09,160 --> 00:29:11,920 Speaker 11: that this could potentially unlock shale what people are calling 608 00:29:11,960 --> 00:29:13,920 Speaker 11: shale three point zero, which would be a huge wave 609 00:29:13,920 --> 00:29:17,160 Speaker 11: of m and a big deals, big spending in the 610 00:29:17,200 --> 00:29:20,720 Speaker 11: permium and really long laterals, which is the basically the 611 00:29:21,040 --> 00:29:22,800 Speaker 11: technique that you use to get a lot of oil 612 00:29:22,800 --> 00:29:24,880 Speaker 11: out of shale, and that would be a very different 613 00:29:24,920 --> 00:29:27,400 Speaker 11: place than we were in just a few years ago, 614 00:29:27,520 --> 00:29:31,240 Speaker 11: where it was very much reducing capital spend. Interestingly enough, 615 00:29:31,280 --> 00:29:35,240 Speaker 11: many analysts say that buying Pioneer is being capex sensitive 616 00:29:35,560 --> 00:29:38,920 Speaker 11: because it actually longer term will cost less than having 617 00:29:38,920 --> 00:29:41,240 Speaker 11: to increase capex to keep production. 618 00:29:40,960 --> 00:29:42,800 Speaker 8: Even level, much less growing. 619 00:29:42,880 --> 00:29:46,200 Speaker 3: Funnily enough, there's a question about whether part of the 620 00:29:46,200 --> 00:29:50,240 Speaker 3: reason why now this deal is happening is because regulators 621 00:29:50,360 --> 00:29:52,840 Speaker 3: will be more okay with it, that actually this is 622 00:29:52,880 --> 00:29:56,360 Speaker 3: going to be more amenable to both investors and to 623 00:29:57,080 --> 00:30:00,440 Speaker 3: regulators because of this emphasis on energy and appending this 624 00:30:00,520 --> 00:30:04,640 Speaker 3: idea of just generally focusing a bit more on the 625 00:30:04,640 --> 00:30:06,760 Speaker 3: need for fossil fuels rather than the move away. 626 00:30:07,000 --> 00:30:09,400 Speaker 11: Yeah, you know, I see it twofold. I think one 627 00:30:09,480 --> 00:30:10,880 Speaker 11: it is going to have some many trust issues. I 628 00:30:10,920 --> 00:30:12,640 Speaker 11: think this gives a lot of fodder to the Greens 629 00:30:12,680 --> 00:30:14,720 Speaker 11: in DC to say you're spending sixty billion dollars on 630 00:30:14,760 --> 00:30:17,760 Speaker 11: fossil fuels, you're spending seventeen billion dollars in the next 631 00:30:17,800 --> 00:30:21,360 Speaker 11: few years on carbon solutions and low carbon solutions. So 632 00:30:21,360 --> 00:30:24,640 Speaker 11: there's that part. But in terms of kind of why now, 633 00:30:24,760 --> 00:30:27,200 Speaker 11: I wonder, and I'll ask the CEOs this in the 634 00:30:27,240 --> 00:30:30,120 Speaker 11: next hour, is this actually a Scott Sheffield thing? So 635 00:30:30,240 --> 00:30:33,960 Speaker 11: pinor Natural Resources is like the holy grail of the permium. 636 00:30:34,040 --> 00:30:36,760 Speaker 11: Scott retired once, then he came back because they didn't 637 00:30:36,800 --> 00:30:37,960 Speaker 11: like the CEO at the time. 638 00:30:37,840 --> 00:30:39,320 Speaker 8: And he's retiring at the end of the year. 639 00:30:39,640 --> 00:30:42,600 Speaker 11: There's also been some productivity questions for Pioneer over the 640 00:30:42,680 --> 00:30:45,160 Speaker 11: last two quarters. It just basically means you've gotten all 641 00:30:45,160 --> 00:30:46,320 Speaker 11: the good stuff. 642 00:30:45,960 --> 00:30:46,680 Speaker 8: Out of the rock. 643 00:30:46,760 --> 00:30:49,080 Speaker 11: There's more there, but the really juicy stuff has been 644 00:30:49,160 --> 00:30:52,040 Speaker 11: drilled and can you really get more out? Many say 645 00:30:52,040 --> 00:30:55,800 Speaker 11: that that problem has been solved, but still a productivity question. 646 00:30:55,840 --> 00:30:58,240 Speaker 11: There was underperformance over the last few months a Pioneer 647 00:30:58,320 --> 00:31:00,960 Speaker 11: versus its peers, and I wonder if I wonder, and 648 00:31:01,000 --> 00:31:02,640 Speaker 11: I'll ask it if that played more of a role. 649 00:31:02,840 --> 00:31:06,280 Speaker 3: I'm wondering, Julian, from your standpoint, where the US plays 650 00:31:06,360 --> 00:31:09,480 Speaker 3: in the global oil sphere and how much deals like 651 00:31:09,520 --> 00:31:12,560 Speaker 3: this and just generally looking for more efficiency and frankly 652 00:31:12,680 --> 00:31:16,200 Speaker 3: record production this year plays on the global stage at 653 00:31:16,200 --> 00:31:18,800 Speaker 3: a time or Saudi Arabia is trying to control supply 654 00:31:19,320 --> 00:31:20,040 Speaker 3: that much more. 655 00:31:21,520 --> 00:31:24,360 Speaker 12: Yeah, I mean, you know, the US is certainly playing 656 00:31:24,400 --> 00:31:28,200 Speaker 12: an important role, and growth in output in the Permian 657 00:31:28,400 --> 00:31:32,320 Speaker 12: and other shale basins is going to be important. I 658 00:31:32,360 --> 00:31:35,240 Speaker 12: don't think this deal sort of changes the outlook for 659 00:31:35,280 --> 00:31:39,000 Speaker 12: oil prices in the short term, but potentially over the 660 00:31:39,040 --> 00:31:43,800 Speaker 12: longer term it may do it. Certainly. I think brings 661 00:31:43,840 --> 00:31:48,960 Speaker 12: together contiguous acreage, you know, acreage next to each other 662 00:31:49,360 --> 00:31:53,640 Speaker 12: under a single owner that allows for longer horizontal wells 663 00:31:53,680 --> 00:31:59,240 Speaker 12: to be drilled, greater economies of scale in terms of 664 00:32:00,320 --> 00:32:05,880 Speaker 12: that investment in you drilling. That could boost the prospects 665 00:32:05,920 --> 00:32:11,000 Speaker 12: for Permian production and US production in total, but that's 666 00:32:11,040 --> 00:32:15,000 Speaker 12: probably two or three years away at least in the 667 00:32:15,040 --> 00:32:17,920 Speaker 12: short term. I think it doesn't change anything. But what 668 00:32:17,960 --> 00:32:22,080 Speaker 12: it does do is mean that the shale basins of 669 00:32:22,120 --> 00:32:26,120 Speaker 12: the US are going to be important contributors not just 670 00:32:26,200 --> 00:32:30,400 Speaker 12: to production but to potential production growth in the four 671 00:32:30,400 --> 00:32:31,400 Speaker 12: to five years ahead. 672 00:32:31,880 --> 00:32:34,320 Speaker 3: Julian, from your vantage point, how much are deals like 673 00:32:34,360 --> 00:32:38,920 Speaker 3: this made possible based on oil prices being higher and 674 00:32:38,960 --> 00:32:40,600 Speaker 3: if you have the feeling that they are going to 675 00:32:40,640 --> 00:32:46,640 Speaker 3: remain so in the longer term. 676 00:32:44,680 --> 00:32:48,480 Speaker 12: Well, I think, you know, there are many things I 677 00:32:48,520 --> 00:32:52,360 Speaker 12: think that have factored into this deal and why now, 678 00:32:52,440 --> 00:32:55,800 Speaker 12: And I think, as Alex said that, you know, the 679 00:32:56,040 --> 00:33:01,800 Speaker 12: Scott Sheffield question is certainly potentially one of those. As 680 00:33:01,840 --> 00:33:05,280 Speaker 12: to oil prices, I mean, at the moment, they are 681 00:33:05,480 --> 00:33:10,400 Speaker 12: very much being dictated I think by Saudi Arabia's oil policy. 682 00:33:11,000 --> 00:33:15,120 Speaker 12: They want oil prices somewhere closer to one hundred dollars 683 00:33:15,120 --> 00:33:19,720 Speaker 12: a barrel than seventy, for example, and they are prepared 684 00:33:19,760 --> 00:33:24,280 Speaker 12: to make the production sacrifices at the moment to ensure 685 00:33:24,360 --> 00:33:27,520 Speaker 12: that happens. The big question is going to be over 686 00:33:27,560 --> 00:33:30,880 Speaker 12: the longer term whether they can continue to do that 687 00:33:31,120 --> 00:33:35,040 Speaker 12: if demand growth starts to ease off as people are 688 00:33:35,080 --> 00:33:39,160 Speaker 12: expecting next year, and we get additional supplies coming on 689 00:33:39,320 --> 00:33:45,400 Speaker 12: from places like the US, Guyana, Brazil, and so that's 690 00:33:45,440 --> 00:33:47,920 Speaker 12: going to be a challenge for Saudi Arabia, perhaps over 691 00:33:47,960 --> 00:33:51,360 Speaker 12: the next twelve to twenty four months. The immediate question 692 00:33:52,280 --> 00:33:59,320 Speaker 12: is how this terrible attack by Hamas on Israel is 693 00:33:59,400 --> 00:34:02,800 Speaker 12: going to play out. We saw a jump in prices, 694 00:34:02,920 --> 00:34:06,200 Speaker 12: followed over the last couple of days by something of 695 00:34:06,240 --> 00:34:09,640 Speaker 12: a retreat. Very much is going to depend on whether 696 00:34:10,400 --> 00:34:16,040 Speaker 12: this conflict spreads and starts to suck in oil producers 697 00:34:16,120 --> 00:34:19,320 Speaker 12: in the Middle East, Iran being the big question. 698 00:34:19,440 --> 00:34:23,000 Speaker 3: Mark Alex, your idea just in terms of the pricing 699 00:34:23,040 --> 00:34:24,080 Speaker 3: and how that factors in. 700 00:34:24,239 --> 00:34:27,520 Speaker 11: Yeah, so one analysts said that Pioneer has sixty three 701 00:34:27,600 --> 00:34:30,680 Speaker 11: hundred net locations of high quality inventory. That's like top 702 00:34:30,719 --> 00:34:33,399 Speaker 11: tier acreage where you get a ten percent return at 703 00:34:33,520 --> 00:34:37,480 Speaker 11: WTI price is fifty or lower. So like the last 704 00:34:37,480 --> 00:34:40,520 Speaker 11: barrel produce may increase, like you might need eighty dollars 705 00:34:41,040 --> 00:34:43,600 Speaker 11: a barrel for that kind of floor, but you're buying 706 00:34:43,640 --> 00:34:45,520 Speaker 11: stuff that you can make money and have a nice 707 00:34:45,560 --> 00:34:46,960 Speaker 11: return sub fifty. 708 00:34:47,120 --> 00:34:50,080 Speaker 3: Which is the reason why I thank people are doing this, Alex. 709 00:34:50,120 --> 00:34:52,799 Speaker 3: What are you hearing in terms of other deals coming 710 00:34:52,840 --> 00:34:55,520 Speaker 3: down the pike to either compete with this or just 711 00:34:55,560 --> 00:34:57,399 Speaker 3: that have been in the work since suddenly people are 712 00:34:57,440 --> 00:34:59,319 Speaker 3: finding the reason to get it done. 713 00:34:59,320 --> 00:35:01,680 Speaker 11: So it's going to have to happen because if you're 714 00:35:01,760 --> 00:35:04,160 Speaker 11: a mid tier player, you will not be able to 715 00:35:04,200 --> 00:35:07,200 Speaker 11: compete with this. So the Oxes of the world, you 716 00:35:07,239 --> 00:35:09,239 Speaker 11: have Chevron like, they're going to be just fine even 717 00:35:09,280 --> 00:35:12,239 Speaker 11: though they're dwarfed a bit by this deal. But the 718 00:35:12,280 --> 00:35:13,960 Speaker 11: smaller guy, I don't know how you're going to do it. 719 00:35:14,000 --> 00:35:15,880 Speaker 11: And there's a lot of small, mom and pop private 720 00:35:15,880 --> 00:35:17,680 Speaker 11: companies as well that have are been kind of pulling 721 00:35:17,719 --> 00:35:19,880 Speaker 11: back on some of their drilling, and the theory is 722 00:35:19,920 --> 00:35:21,960 Speaker 11: they're doing that so then they can clean themselves up 723 00:35:22,000 --> 00:35:23,799 Speaker 11: a little bit to them be bought. So we'll see 724 00:35:23,800 --> 00:35:25,280 Speaker 11: how quickly it takes for that to happen. 725 00:35:25,520 --> 00:35:27,960 Speaker 3: And just real quick here, Julian, and not to pivot 726 00:35:28,160 --> 00:35:29,720 Speaker 3: too much, but I would like to get a final 727 00:35:29,760 --> 00:35:32,200 Speaker 3: word from you on what you're hearing out of Iran 728 00:35:32,280 --> 00:35:35,560 Speaker 3: and how much further crackdown of sanctions would really influence 729 00:35:35,600 --> 00:35:36,040 Speaker 3: the price. 730 00:35:37,840 --> 00:35:41,400 Speaker 12: Well, I mean we're hearing relatively little out of Iran. 731 00:35:41,440 --> 00:35:44,960 Speaker 12: I mean there's been you know, political support voice for 732 00:35:45,000 --> 00:35:50,640 Speaker 12: Hamas as they're very often generally is from Tehran. We're 733 00:35:50,640 --> 00:35:57,359 Speaker 12: not hearing anything yet about action against Iran or any 734 00:35:57,400 --> 00:36:01,520 Speaker 12: action to try to restrict their own oil exports. We've 735 00:36:01,600 --> 00:36:07,000 Speaker 12: seen a fairly substantial increase in estimates of production and 736 00:36:07,040 --> 00:36:12,040 Speaker 12: exports over recent months. That's been an important factor in 737 00:36:12,120 --> 00:36:16,439 Speaker 12: holding oil prices lower than they would otherwise have been. 738 00:36:16,880 --> 00:36:20,360 Speaker 12: And there is a challenge here that if you start 739 00:36:20,440 --> 00:36:24,360 Speaker 12: going after Iran's oil exports, that is going to have 740 00:36:24,440 --> 00:36:28,320 Speaker 12: an impact on the oil price, and nobody wants higher 741 00:36:28,360 --> 00:36:30,560 Speaker 12: oil prices in the consuming countries. 742 00:36:30,960 --> 00:36:34,040 Speaker 3: Julian Lee, Bloomberg's Alex Steel, Thank you so much for 743 00:36:34,160 --> 00:36:38,680 Speaker 3: being with us. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, 744 00:36:38,719 --> 00:36:41,839 Speaker 3: and anywhere else you get your podcasts. Listen live every 745 00:36:41,880 --> 00:36:44,800 Speaker 3: weekday starting at seven am Eastern on Bloomberg dot Com, 746 00:36:44,840 --> 00:36:47,080 Speaker 3: the iHeartRadio app tune In, and. 747 00:36:47,120 --> 00:36:48,360 Speaker 2: The Bloomberg Business app. 748 00:36:48,640 --> 00:36:51,920 Speaker 3: You can watch us live on Bloomberg Television and always 749 00:36:52,000 --> 00:36:55,399 Speaker 3: on the Bloomberg Terminal. Thanks for listening. I'm Lisa Abramowitz 750 00:36:55,480 --> 00:36:57,040 Speaker 3: and this is Bloomberg. 751 00:37:00,880 --> 00:37:01,400 Speaker 12: Rest. 752 00:37:01,680 --> 00:37:02,840 Speaker 6: How people