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Speaker 3: Right now, I've been out a few days, but I
Speaker 3: really want to reset here on the American economy, and
Speaker 3: there's no one better to do that than Tiffany Wilding,
Speaker 3: economist at Pimco. Tiffy, I'm going to go beyond the
Speaker 3: labor reports. We'll circle back to that. What is your
Speaker 3: real GDP growth for twenty twenty four?
Speaker 4: Yeah, I mean, so we think that the good news
Speaker 4: from twenty twenty three, the resilient story, the you know,
Speaker 4: two and a half percent kind of above trend GDP growth,
Speaker 4: you know, that's probably squarely behind us. You know, the
Speaker 4: saying kind of goes you can't go to heaven twice,
Speaker 4: and we think some of the factors that led to that,
Speaker 4: you know, we're still some of these excess savings sloshing
Speaker 4: around from the pandemic and other supports, and you know,
Speaker 4: and those kinds of things in our and under our
Speaker 4: estimation are going away next year. And when you when
Speaker 4: those things go away, what you're left with is still
Speaker 4: tight monetary policy, you know. And obviously we have a
Speaker 4: Federal Reserve that is telling us they're going to remain
Speaker 4: on hold. So those policy drags are continuing to build.
Speaker 4: So overall, we think growth probably is closer to something,
Speaker 4: you know, the stagnant. You know, whether it's slightly positive
Speaker 4: or slightly negative, I think is anyone's guest. But we're
Speaker 4: kind of a stagnant situation next year.
Speaker 2: So are you basically saying that we're in heaven and
Speaker 2: that this is the Goldilocks and that you can't go
Speaker 2: there again it's over?
Speaker 4: Yeah, I mean, so we do think there's a lot
Speaker 4: of good news this year with the US economy. There's
Speaker 4: a lot of surprising resilience in the growth numbers, of course,
Speaker 4: you know, and and so we think, you know, the
Speaker 4: supply picture, as the Federal Reserve has also pointed out,
Speaker 4: has also helped that, you know. But again, if you
Speaker 4: looked at twenty twenty four, you have demand which is
Speaker 4: potentially coming down, you know, but some of the things
Speaker 4: that added to supply, like supply chain normalizations. You know,
Speaker 4: we have the labor force participation rate for the prime
Speaker 4: age folks that are now you know, it's back to
Speaker 4: pre pandemic levels. You know, we're just not convinced maybe
Speaker 4: that you're going to get as much on the supply
Speaker 4: side next year. Now. Of course, immigration has been a
Speaker 4: story here, and that's why we've also seen you know,
Speaker 4: the unemployment rate rise because some of those labor market
Speaker 4: inflows aren't getting absorbed by just a strong labor demand.
Speaker 4: But again, overall, all of those signals kind of point
Speaker 4: to us of something that's closer to more stagnant. More
Speaker 4: stagnant economy.
Speaker 2: Baked into this is this assumption that you're going to
Speaker 2: have higher yields for a longer period of time. You said,
Speaker 2: what we're going to be left with is just tighter
Speaker 2: financial conditions, and yet it's unclear.
Speaker 1: Whether that's going to be the case.
Speaker 2: There have been a lot of people calling for pretty
Speaker 2: substantial rate cuts by the Fed, by the ECP in
Speaker 2: response to inflation coming down significantly.
Speaker 1: Do you agree with the.
Speaker 2: Paradigm or oil prices stay lower than they have and
Speaker 2: keep inflecting lower because of production, because of supply, you
Speaker 2: start to see a re engagement of global trade, forget deglobalization,
Speaker 2: and you start to get more people come into the workforce.
Speaker 2: It's basically everyone that people use.
Speaker 1: It's the opposite of the this.
Speaker 2: Time is different narrative that we heard this year.
Speaker 4: Yeah, well, I mean, I'm not exactly sure in terms
Speaker 4: of labor market inflows. You know, higher participation rates for
Speaker 4: that prime age cohort, you know, I'm not sure that
Speaker 4: that's going to continue to increase. I do think there's
Speaker 4: some potential for immigration flows to stay high in twenty
Speaker 4: twenty four. That's been a story not only in the
Speaker 4: US but across the developed markets. Obviously geop elevated, you know,
Speaker 4: geopolitical risks and conflicts are are contributing to that as well.
Speaker 4: But overall, you know, I guess what we would say
Speaker 4: is is that, you know, the Federal Reserve has told
Speaker 4: us that they are still worried about the last mile
Speaker 4: problem on inflation. In order to really ensure that inflation's
Speaker 4: back to target, you know, I think we think, you do,
Speaker 4: you need to see some more labor market loosening.
Speaker 3: Marketing's coming back here in equity's, bonds, currencies, commodities, a
Speaker 3: little bit of adjustment off the claims, and we've come
Speaker 3: back in a little bit. I call it noodling. As
Speaker 3: we staggered to tomorrow morning at eight thirty, Tiffany, one
Speaker 3: of the great responsibilities you have is to stagger down
Speaker 3: the rows at PIMCO, tripping over the antique Monroe traders
Speaker 3: and looking at people's Bloomberg screens. And the two minute
Speaker 3: drill is what is a short space going to do,
Speaker 3: the Jerome Schneider space, And what's it going to do
Speaker 3: in terms of the wall of money that's out there
Speaker 3: that's off your remit? But your remit is what are
Speaker 3: the economic conditions that make cash finally move? Can you
Speaker 3: come up with a scenario where cash finally moves?
Speaker 5: Yeah?
Speaker 4: Absolutely, I mean I do think it's it's certainly this
Speaker 4: quote soft landing scenario, right, you know. And I think
Speaker 4: that the fact that the Federal Reserve as well as
Speaker 4: other central banks have signaled that they're at the top
Speaker 4: of their cycle, you know, along with this coinciding shock
Speaker 4: to term premiums, just made bond market valuations look really
Speaker 4: attractive and as a result, those higher yields just didn't
Speaker 4: stay around that long, and you are starting to see
Speaker 4: cash I think, come off the sidelines, go into the
Speaker 4: bond market now, you know, I think there's a question
Speaker 4: around the equity market, you know, riskier assets. I mean,
Speaker 4: certainly the soft landing will be helpful, but when we
Speaker 4: look at valuations, you know, for equities, for example, we
Speaker 4: are more cautious. Equity risk premiums are still within their
Speaker 4: historical range. They're not pricing in a lot of recession
Speaker 4: risk in our view, and we don't think were out
Speaker 4: of the water yet or out of the woods yet.
Speaker 4: There's still a lot of uncertainty here, and we just
Speaker 4: don't know that you're paid for it going out the
Speaker 4: risk spectrum.
Speaker 3: The quality of a lower GDP reset off of the
Speaker 3: shock of what happened in two thousand and three, two thousand. Listen, ma,
Speaker 3: I'm decades away. Lisa helped me here twenty twenty three.
Speaker 3: To me, what's so important, Tiffany, is the productivity discussion
Speaker 3: of the last ninety days. Give us the PIMCO brief
Speaker 3: on the efficiencies of the American economy.
Speaker 4: Yeah, well, you know, I think if you look more,
Speaker 4: you know, kind of a more broadly, there was a
Speaker 4: lot of noise around the productivity statistics during the pandemic
Speaker 4: because you had unproductive sectors that were effectively shut down
Speaker 4: then they reopened, and so there was kind of a mixshift,
Speaker 4: if you will, in terms of economic output that impacted
Speaker 4: the productivity data. But if you look more broadly, it
Speaker 4: looks like it's on trend at a low level, you know.
Speaker 4: And I would say that there is you know, probably
Speaker 4: good news in terms of the productivity outlook that's embedded
Speaker 4: in you know, AI and large language models and things
Speaker 4: like that. But if we look at research that you know,
Speaker 4: just kind of estimates how long it takes for those
Speaker 4: types of technologies to puller for it, obviously that time
Speaker 4: has come down, but it's not twenty twenty four. It's
Speaker 4: still likely a quote secular horiso three to five year
Speaker 4: time horizon that you're really seeing the productivity gains from
Speaker 4: something like that. And the last thing I would just
Speaker 4: highlight is that, you know, we saw PCs or the internet,
Speaker 4: you know that it took you know, quite some time
Speaker 4: for us to actually see productivity gains in the nineties
Speaker 4: to come from that. So you know, at least from
Speaker 4: a twenty twenty four perspective. You know, we're not as
Speaker 4: convinced that you really start to see that in the data.
Speaker 4: But I think there's you know, room for encouragement on
Speaker 4: a secular timeframe.
Speaker 2: Just quickly, Tiffany, you seem to be pushing back against
Speaker 2: market expectations for rate cuts next year. Do you think
Speaker 2: that we will get rate cuts by the Fed? Do
Speaker 2: you think that they'll be in the first half or
Speaker 2: do you think that they're going to be squarely in
Speaker 2: the second half and not that many?
Speaker 4: Yeah, well, I mean, look, I do think it depends.
Speaker 4: I mean the real side of the economy. You know,
Speaker 4: it does need to slow in our view, and it
Speaker 4: needs to slow, and you need to see a little
Speaker 4: bit more you know, loosening of the labor market, we think,
Speaker 4: in order for central banks to really feel confident that
Speaker 4: inflation is more sustainably at their target and you know,
Speaker 4: looking at you know, I think there's definitely some still
Speaker 4: resilience in the economy and we could see central banks
Speaker 4: lag worried about that outcome. You know, Powell has very
Speaker 4: clearly stated, you know, that he wants to be a
Speaker 4: vulgar you know, and Nana Burns, and so you know,
Speaker 4: we think they could be laggy in terms of when
Speaker 4: they start to cut, you know. But but nevertheless, you know,
Speaker 4: obviously the market's going to price a balance of risks here,
Speaker 4: and the inflation data certainly has been good over the
Speaker 4: last couple of months.
Speaker 3: Tiffany, thank you so much.
Speaker 6: Tiffany World.
Speaker 3: With pimcoll they manage Bill's notes and bonds out of
Speaker 3: Newport Beach, California.
Speaker 7: I think David Fann is doing what every other guest
Speaker 7: is comes on this program over the last ten years,
Speaker 7: does trying to work out the first question that Tom's
Speaker 7: going to ask, because no one's got any.
Speaker 6: I got two.
Speaker 7: It's a double bear. I hear it from guests all
Speaker 7: the time.
Speaker 6: I thought he was going to ask me what devis was.
Speaker 6: That's where I was leaning.
Speaker 7: Over David Baale and CIO and head of investments at
Speaker 7: City Global Wath with this in just a moment, let's
Speaker 7: turn to the price section equities on the S and
Speaker 7: P five hundred shaping up as follows, t K positive
Speaker 7: by point one yields up five basis points four fifteen
Speaker 7: fifty two on a US ten yet.
Speaker 3: Audible question to Baalen, you worked with John Henry years ago,
Speaker 3: the owner of the Boston Red Sox. How in God's
Speaker 3: name is John Henry let one Soto go to the
Speaker 3: New York Yankees and not the Boston Red Sox.
Speaker 8: And if you I won't answer that question, but tell
Speaker 8: me how it is that John Henry, as a trend
Speaker 8: followers won three World Series when the Yankees have only
Speaker 8: won one. And that's said very nicely finased, Thank you,
Speaker 8: very much, very good.
Speaker 3: Let's go to cash.
Speaker 6: I mentioned at the Bramo.
Speaker 3: It's in your review here the mystery here of all
Speaker 3: this cash and you talk about there's just too much
Speaker 3: cash out there. What do we do with our cash?
Speaker 3: Next year?
Speaker 8: You've laid out actually an incredible introduction to our what
Speaker 8: we're writing for this next year. We're just called slow
Speaker 8: then Grow, And the idea is that you are going
Speaker 8: to see a slowing economy at the beginning of the year.
Speaker 8: A lot of the concerns at LISTA just talked about,
Speaker 8: you know, actually could come to bear right, which is
Speaker 8: the economy slows down, but it does not crash. We
Speaker 8: do not have a recession, we do not have a
Speaker 8: v shape recovery. And because we don't have a clear
Speaker 8: signal to investors. They sit there in cash five point
Speaker 8: eight trillion dollars worth of cash at this point in
Speaker 8: overnight funds. It's extraordinary. And yet when you take a
Speaker 8: look at all the different parts of the economy, right,
Speaker 8: you take a look at the average stock in the
Speaker 8: US hasn't done that well. Ten stocks have done incredibly well.
Speaker 8: Bond market's already started to move, energy is down. You
Speaker 8: are seeing real signs that inflation is not an issue
Speaker 8: and that the FED will hit their target of two
Speaker 8: to two and a half percent by the end of
Speaker 8: the year.
Speaker 6: So if that's true, right, what.
Speaker 8: You then need is a boost of earnings, right in
Speaker 8: order to believe that all of this comes together. And
Speaker 8: this is where I think the story is being missed
Speaker 8: by the average investor, is that in the US you're
Speaker 8: going to see ambient like earnings up by probably five
Speaker 8: percent this year and then eight percent in twenty twenty five.
Speaker 8: And that sets us up for a thing where you know,
Speaker 8: an opportunity where a balanced portfolio. Right, you put your
Speaker 8: money in bonds, and you put your money in stocks,
Speaker 8: and you sit there and you're patient, and over the
Speaker 8: next eighteen months you can get yourself a fifteen or
Speaker 8: twenty percent total return. Now you're giving me the skeptical look, Lisa, Right,
Speaker 8: and here here's there's the here's the here's the here's.
Speaker 6: The interesting data point.
Speaker 8: In nineteen thirty one and in nineteen sixty nine, the
Speaker 8: last two times we had stock and bond markets down
Speaker 8: for an entire year, if you looked out just two
Speaker 8: years later, in each of those periods, you know the
Speaker 8: A balanced portfolio sixty forty was up more than twenty percent.
Speaker 8: And while that's not statistically significant, what's interesting is we've
Speaker 8: already had incredible negativity in the stock market and incredible
Speaker 8: negativity in the bond market this year.
Speaker 2: Okay, you point to Tom, but this to me is
Speaker 2: really a question of can you bet on the grow
Speaker 2: before we get the slow?
Speaker 6: Right?
Speaker 8: Well, the grow is already the grow is the is
Speaker 8: really the is the coming off of it?
Speaker 6: Was good?
Speaker 7: One sec. Did you just make that up? Because that's correct.
Speaker 2: But that's essentially what we're asking is can you bet
Speaker 2: on the expansion before we get any kind of slow?
Speaker 7: I love that. That's awesome.
Speaker 6: Okay, so we have to answer the question that please stake.
Speaker 8: So let's let's take a look along real estate, right, which, right,
Speaker 8: has already been in a recession. We've had manufacturing already
Speaker 8: been in a recession.
Speaker 6: We've had.
Speaker 8: Parts of the you know, parts of our economy like healthcare, right,
Speaker 8: negative earnings for the first time in fifteen years this
Speaker 8: last year, lots of these you know parts of our economy.
Speaker 8: Forty or fifty percent of our sectors are going to
Speaker 8: be having very positive earnings relative to twenty twenty three.
Speaker 8: And then the average stock which has gone virtually nowhere
Speaker 8: this year, you know, has the opportunity to rise. You know,
Speaker 8: one of the things we put into our portfolios is
Speaker 8: the most boring investment we've added, which is sn P
Speaker 8: equal weight. If ten stocks have done well, you want
Speaker 8: to own the other four hundred and ninety. So I
Speaker 8: just think that this is where people have sort of
Speaker 8: missed it is that we haven't seen the overall market
Speaker 8: rise yet. And that's what twenty four is going to
Speaker 8: be about in terms of earning.
Speaker 7: So the double digit percentage point game that you think
Speaker 7: we can get next year, that's the equal weight and
Speaker 7: not the market can't whites it index.
Speaker 8: That's right, Okay, that's right, And I think that's you know,
Speaker 8: that's the opportunity, is this rising earnings because you've had
Speaker 8: you know, large portions of the US economy are coming
Speaker 8: out of a recession. Now, their inventories are down, they've
Speaker 8: got to rebuild, they're not hiring.
Speaker 6: Wage cross are coming down. You know.
Speaker 8: It's it's not about a landing. That's the other things
Speaker 8: everyone's LP does. This is the hard landing something forget
Speaker 8: about it. We're now in the situation where we're now
Speaker 8: beginning a normalization of markets to back to you know,
Speaker 8: sort of where they were like four years ago, pre
Speaker 8: pandemic conditions, and we're going to be coming out of
Speaker 8: this in.
Speaker 6: A grow mode.
Speaker 7: A bank structured well for that moment.
Speaker 6: A bank structure or our client structure now.
Speaker 7: A bank structured as in the equities, the bank equities
Speaker 7: that have struggled so much this year off the back
Speaker 7: of high yeas.
Speaker 8: I mean, I definitely believe that the normalization of the
Speaker 8: yield curve is going to definitely change valuations for banks
Speaker 8: as a segment. I think that's more of a twelve
Speaker 8: to eighteen months trade than it is a long term,
Speaker 8: you know, long term opportunity. I do think that banks
Speaker 8: are very undervalued at these At this point, I guess.
Speaker 2: I'm trying to understand this perfect scenario and how much
Speaker 2: oil plays into it as well, given the fact that
Speaker 2: that has been one of the reasons we've seen this
Speaker 2: disinflation narrative get some legs. How much is that factor
Speaker 2: in that we're going to keep seeing suppressed valuations?
Speaker 8: Right, So, I don't think we expected oil to move
Speaker 8: down as quickly as it has, and I definitely think
Speaker 8: it's supply. Like you said earlier, earlier in the program,
Speaker 8: what we I think discounted as the fact that globalization
Speaker 8: is still a major disinflationary force. Import costs of goods
Speaker 8: coming into the US, both finished and unfinished goods are
Speaker 8: negative three point seven percent relative to last year. They
Speaker 8: are adding to the disinflation story. So between energy and
Speaker 8: import costs, you have this situation where you just don't
Speaker 8: have inflation on goods, and that of course translates into
Speaker 8: a better economic scenario. It seems like you're having trouble
Speaker 8: believing that this is actually that you could have a
Speaker 8: really good backdrop for markets.
Speaker 2: Now, what I find fascinating is just how much the
Speaker 2: narrative has gotten it wrong. Everyone's talking about deglobalization, how
Speaker 2: that would lead to inflation. Oil prices would be higher
Speaker 2: because their production just wasn't capable of meeting demand. As
Speaker 2: all of the transition happens, and all of a sudden,
Speaker 2: workers are going to cost more to do the jobs
Speaker 2: that need to get done. And what we're seeing is
Speaker 2: all of the exact opposite. Isn't that sort of remarkable?
Speaker 8: Is remarkable? Hiring for the last years has been surprising.
Speaker 8: We've hired more people with slower gd GDP growth in
Speaker 8: the US than in history, and now that's coming the
Speaker 8: other side. And you know, the Saudi's and Opek wanted
Speaker 8: to keep oil prices higher, right, but they were unable
Speaker 8: to do so. They were originally willing to cut back production.
Speaker 8: So there's a lot of things where people, you know,
Speaker 8: think they can control market. And just to add one
Speaker 8: more thing, expectations in China and Europe are so low
Speaker 8: that they can't help but contribute, I think, to the
Speaker 8: growth story. Sometimes in twenty twenty thirty four.
Speaker 7: This was great. You should get a podcast.
Speaker 6: You do that all the time here podcasts.
Speaker 7: Yeah, we can do another one.
Speaker 9: Why not?
Speaker 7: What should we cod it? Help and glue something like that.
Speaker 8: We just call it sloth and grow or what was
Speaker 8: the other oh forget okay, but it was good.
Speaker 7: It was like drive, It's awesome. That's his work time
Speaker 7: for that.
Speaker 1: That was the whole thing. I mean, that's the bet
Speaker 1: that we have going on.
Speaker 7: That's great, David, Thank you and thanks for sharing you
Speaker 7: around with us as well.
Speaker 6: My great pleasure.
Speaker 7: Depending then, a city glob of waff looking ahead to
Speaker 7: next year, is.
Speaker 1: The FED put back?
Speaker 2: There's no better way to answer that question than speaking
Speaker 2: with a former FED governor, Randy Krasner, professor of economics
Speaker 2: at the University of Chicago Booth School in Chicago, joining us. Now, Randy,
Speaker 2: do you believe in this idea that the FED will
Speaker 2: cut rates aggressively next year simply in response to disinflation,
Speaker 2: even if it is not accompanied by weakness.
Speaker 10: So, if they've reached their goal of bringing inflation down
Speaker 10: to their two percent target, they'll be happy to bring
Speaker 10: rates down. But I don't think they're going to get
Speaker 10: to their target anytime soon.
Speaker 3: I look, Governor Crasner, and I know you had a
Speaker 3: recent meeting where the Booth School graduate John Stadzinsky, in
Speaker 3: all of his work now at PIMCO as well, but
Speaker 3: what the John Stadinski world is about a global sense
Speaker 3: of we're all in this together. That's been the hallmark
Speaker 3: of his work for years. How linked now our central
Speaker 3: banks to develop a constructive disinflationary trend.
Speaker 10: I think that's right. I think you saw that once
Speaker 10: the FED took off raising rates fairly aggressively, that the
Speaker 10: major central banks in the world did the same, so
Speaker 10: that they kind of played from the same playbook because
Speaker 10: they were experiencing inflation in a similar way, which suggested
Speaker 10: that at least part of the inflation wasn't just due
Speaker 10: to what central banks were doing, but was also doing
Speaker 10: to some of these broader global supply chain factors. And
Speaker 10: we've seen inflation come down, we've seen them move down together.
Speaker 10: But the FED is is really the big player, and
Speaker 10: so it tends to be that other central banks will
Speaker 10: follow what the FED is doing. But of course there's
Speaker 10: some discussion across the central banks, but the Fed's got
Speaker 10: to do what it's got to do for the US economy.
Speaker 3: If we are the big player. And I guess this
Speaker 3: is off the job report tomorrow on the American exceptionalism
Speaker 3: of strong nominal GDP better than good fiscal stimulus. You know,
Speaker 3: we all know the story, But the answer is we're
Speaker 3: dealing with the technological excellence. Does the FED pull that
Speaker 3: into their debate?
Speaker 10: That's one of the debates about productivity, and because if
Speaker 10: you have high productivity growth, it's perfectly fine to have
Speaker 10: high wage growth and not have inflation. But if you
Speaker 10: have low productivity growth, you can't sustain high wage growth
Speaker 10: without there being inflation because the costs are going up
Speaker 10: relative to the outputs. And so that's one of the debates.
Speaker 10: Are we going to see productivity continue to be strong
Speaker 10: as we have over the lastree quarters?
Speaker 2: Is that the main reason? Ready, you don't think we're
Speaker 2: going to get to the Fed's target.
Speaker 10: Oh, it's I think their whole variety of reasons. I
Speaker 10: think you've got expectations that never went up very much
Speaker 10: for inflation, I think to the Fed's credit, so that
Speaker 10: never really lost credibility as the FED did in the
Speaker 10: late nineteen seven in these early nineteen eighties, but I
Speaker 10: think it did lose a little bit and people have
Speaker 10: kind of gotten used to asking for a little bit
Speaker 10: more in wages, and they also have to make up
Speaker 10: for having lost so much in real terms inflation adjusted
Speaker 10: terms over the last couple of years, so I think
Speaker 10: there's going to be a catch up in wages. I
Speaker 10: think nominal wage growth is going to be above the
Speaker 10: inflation rate as it has been over the last few months,
Speaker 10: and that means at some point it will be less
Speaker 10: exciting for firms to be hiring and holding workers. The
Speaker 10: employment rate will move up, and as you know I've
Speaker 10: mentioned before, I think we'll probably have a hard ish landing.
Speaker 10: Not a hard landing, but hard ish.
Speaker 2: So if you talk about the nodes of inflation that
Speaker 2: are stick here that are going to be concerning to
Speaker 2: the FED, that aren't going to allow them to cut
Speaker 2: as aggressively as some people are currently pricing in.
Speaker 1: Is it particularly the service sector.
Speaker 2: Is there an area of inflation that you're focused on
Speaker 2: to sort of signal what you're talking about.
Speaker 10: I think the FED is going to be laser focused
Speaker 10: exactly as you said, on services as well as on
Speaker 10: the key thing that will be driving services inflation, which
Speaker 10: will be wage growth, particularly wage growth relative to the
Speaker 10: inflation rate, which until recently, until really maybe four or
Speaker 10: five months ago, had been wage growth, nominal wage growth
Speaker 10: was below the inflation rate, and now nominal wage growth
Speaker 10: has been above the inflation rate. It's great for workers
Speaker 10: because they're getting increase in real wages, but that means
Speaker 10: that firms are going to be a little more reluctant
Speaker 10: to to higher.
Speaker 2: Randy, our lower prices. If oil inflationary or disinflationary.
Speaker 10: Well it certainly for headline inflation it's lower. It helps
Speaker 10: to lower the headline inflation rate. But as we know,
Speaker 10: the oil prices have gone down, gone up, down, down,
Speaker 10: and so the FED kind of looks through that, and
Speaker 10: that's one of the reasons why they look at the
Speaker 10: core numbers that strip out the more volable food and
Speaker 10: energy sectors.
Speaker 3: Randy, you're one of our giants in financial economics. Where
Speaker 3: we are right now? Is it out of the textbooks
Speaker 3: you learned from or post pandemic? Is this all original?
Speaker 10: Well, I wouldn't say it's all original, but it's at
Speaker 10: least a little bit unusual. The amount of supply chain
Speaker 10: disruption we had. Pandemics so far have only come from
Speaker 10: along once a century, and hopefully it will be another
Speaker 10: century before we have another one. And we've also seen
Speaker 10: an unusual resilience, not only the US economy but elsewhere
Speaker 10: to very significant interest rate increases, and so that's a
Speaker 10: little bit off of the traditional playbook. Is it a
Speaker 10: whole new playbook, I'm not so sure yet. Certainly it's
Speaker 10: pushed the existing playbook to the edges.
Speaker 3: Professor Krasner, thank you so much, Randall Krasner, the former
Speaker 3: governor of the Federal Reserve System. Paul sank joins right
Speaker 3: now foundered lead analyst at Sankie Research with one of
Speaker 3: the most red notes on the street. Paul, I want
Speaker 3: to go to the madness of nineteen eighty six. I'll
Speaker 3: pack absolutely blow it in nineteen eighty six with a
Speaker 3: price plunge. Can we get a redux on that again?
Speaker 3: And particularly with the new American production of oil.
Speaker 5: It's not eighty six now. And by the way, it's
Speaker 5: a pump jack and leap to think about the joke.
Speaker 5: That's kind of more realistic. As you use your swimming
Speaker 5: pool to store oil that.
Speaker 6: You need a can tango.
Speaker 5: You need can tango for that swimming pool trait. And
Speaker 5: we're in vanquidation. So eighty six is not the right one,
Speaker 5: to be honest, Tom. It's that was when opek increased
Speaker 5: into the Asian financial crisis, and it's quite the opposite here.
Speaker 5: What we've got here is a twenty fourteen, probably not
Speaker 5: a twenty twenty, but in both cases that's where Saudi
Speaker 5: flushed the market essentially because they got frustrated with cutting
Speaker 5: back and cutting back production to maintain prices, such as
Speaker 5: twenty fourteen being the really excellent example. What was happening
Speaker 5: is they were losing market share, particularly to Iran, which
Speaker 5: was coming back through sanctions, and you had, of course
Speaker 5: the growth in US production that was squeezing Saudi from
Speaker 5: the other side. And then in fourteen they essentially couldn't
Speaker 5: get the rest of OPEC to agree with them. They
Speaker 5: dumped the market. They flushed the market. We went in
Speaker 5: a straight line from one hundred and ten in summer
Speaker 5: to fifty twenty fifteen January, so in six months we went,
Speaker 5: we've cut in half and then we bottomed again. If
Speaker 5: you remember in twenty sixteen, I don't think COVID you
Speaker 5: know the twenty twenty market share wall, which was more extreme.
Speaker 5: Sadi went to an all time high level of production
Speaker 5: in twenty twenty, which was in April twenty twenty, which
Speaker 5: was truly praised in a lot of ways because of
Speaker 5: course it made for negative oil prices in the US.
Speaker 5: But here you've clearly got a situation where Saudi has
Speaker 5: cut production and is facing a very strong demand environment.
Speaker 5: So it must be extremely and in fact an all
Speaker 5: time record demand environment. It must be very frustrating for
Speaker 5: them to be losing market share to Iran and as
Speaker 5: John mentioned, to an absolutely booming US industry. And I
Speaker 5: think everyone's turn negative oil, not least because the US
Speaker 5: has accelerated this year into the second half in terms
Speaker 5: of production and you know, taking more market share from Saudi.
Speaker 5: So our concern is that Saudi said they'll push through
Speaker 5: Q one with cuts, but by the time you get
Speaker 5: to Q two and if demand isn't strong enough seasonally,
Speaker 5: you could see Saudi dump the market and try and
Speaker 5: make everyone honest again. So you know, that's I think
Speaker 5: that's the analogy. Paula.
Speaker 7: Just want to be really clear about where we are
Speaker 7: right now. There's a lot of people trade in equity
Speaker 7: as a columnists making recession calls. You think this is
Speaker 7: about supply and not demand right now currently, I.
Speaker 5: Don't know how you can get higher demand than all
Speaker 5: time record demand.
Speaker 2: Now.
Speaker 5: Having said that, because we're one hundred and two point
Speaker 5: five million barrels a day. We're at over one thousand
Speaker 5: and two hundred barrels a second of demand, so demand
Speaker 5: site's pretty much good. And China's been pretty good in
Speaker 5: the second half too, which was always the balancing item
Speaker 5: in terms of bullishness and oil. And keep in mind,
Speaker 5: of course, John, that it's seasonally a weak time for
Speaker 5: oil here, so we're dumping into the traditional post labor
Speaker 5: day weakness. And we'd actually think, whilst we're worried about
Speaker 5: the Saudi market share war, we can see a bounce
Speaker 5: here in oil. Distillate demand here remains very strong. It's
Speaker 5: cold this morning in Brooklyn, but more importantly it's cold
Speaker 5: in Europe. And you know, I think we're a bit
Speaker 5: over sold in oil here. Doesn't change the fact that
Speaker 5: we think there's a structural problem in the market, which
Speaker 5: exactly as you say, is too much supply and too
Speaker 5: much better capacity. Particularly well, but.
Speaker 1: Paul, I want to just develop.
Speaker 2: You think that were over sold here, and you think
Speaker 2: that there is a good chance that Saudi Arabia flushes
Speaker 2: the market, increases, production goes away from some of those cuts,
Speaker 2: as you said, make everyone honest again. In that case,
Speaker 2: how low could prices go, well.
Speaker 5: It's an interesting question because what you're trying to do
Speaker 5: at that point is shut down US supply growth, and
Speaker 5: that becomes the knotty debate, that's the analysis, that's the
Speaker 5: Permian question, because of course what Saudi's trying to flush
Speaker 5: at this point is going to be excellon Chevron Conicco.
Speaker 5: You know, it's not your old school emp's with a
Speaker 5: lot of that kind of collapse at the first side
Speaker 5: of trouble. And of course all these companies have basically
Speaker 5: planned at sixty dollars maybe less in terms of what
Speaker 5: they're doing, and have growth targets that they want to meet.
Speaker 5: So I think it's going to be a more inelastic
Speaker 5: supply side for the Saudis to attack. Additionally, in twenty
Speaker 5: five we're adding eight FPSOs that's a floating production and
Speaker 5: storage vessel, which are very big in places like Guyana, Senegal,
Speaker 5: and those are very priced and sensitive as too. That
Speaker 5: is to say, once you've built your huge production vessel,
Speaker 5: you don't shut it down. Because I was at fifty
Speaker 5: So it's a pretty it's a fascinating market. By the way, Tom,
Speaker 5: going back to eighty six, the whole peak oil question
Speaker 5: is like what were you talking about the supply side.
Speaker 5: The supply side has got excess at one hundred and
Speaker 5: two point five million doles of their demand. It's like
Speaker 5: what I think, a lot of bit of technology and AI.
Speaker 3: Actually, seriously, I'm very proud to say I didn't believe
Speaker 3: in peak oil for one minute. That's maybe one thing
Speaker 3: I got somewhat right. Paul, we see mister Putin on
Speaker 3: a junket to Saudi Arabia or Muhammad ben Salman. What's
Speaker 3: a dynamic there? Does the Saudis tell the Russians what
Speaker 3: to do? In the Paul Sanke world.
Speaker 5: I think they ask them for help, for sure. The
Speaker 5: problem is the Russians lie, right, I mean, whatever they
Speaker 5: say is like whatever they say, I don't know how
Speaker 5: much they really do. It's possible that they realize that
Speaker 5: there's enough of a problem and that they want that
Speaker 5: relationship with Saudi to be good, that they do get
Speaker 5: on board. And I think it is very significant obviously
Speaker 5: the Putin's meeting MBS, because there must be some quid
Speaker 5: pro quo here. We suspect and we really don't know that.
Speaker 5: The Saudis have also asked the US to tighten sanctions
Speaker 5: on particularly Iran, but also Russia obviously, because those have
Speaker 5: been two other major problems for the Saudis. The US
Speaker 5: has essentially been allowing a lot of additional oil onto
Speaker 5: the market into an election year. We think that maybe
Speaker 5: the Saudis have said, if you tighten sanctions, will make
Speaker 5: sure the ol price doesn't get too high for elections.
Speaker 5: But of course then the camp next years to the
Speaker 5: Saudis really preferred Donald Trump. So you know, I'm not
Speaker 5: sure about that that speculation, but certainly there's been evidence
Speaker 5: the US has been tightening somewhat the Iranian and Russian sanctions,
Speaker 5: which would help Saudi apoor.
Speaker 7: Didn't they try that going into the midterms last.
Speaker 5: Year, tried to tighten sanctions or try to.
Speaker 7: Try to get the Saudis to boost output to get
Speaker 7: THRUD prices lower.
Speaker 5: Yeah, I think Saudi US relations have improved over the
Speaker 5: last year, for sure, and I think through the Hamas,
Speaker 5: you know, a nightmare, we've seen obviously a lot of
Speaker 5: work from Blincoln to try and get everyone back on
Speaker 5: the page. And of course it's said in the press
Speaker 5: that the NBS actually kept blinking waiting for quite a
Speaker 5: long time at a time when he was insanely busy,
Speaker 5: which I'm sure he didn't appreciate. So I think they're
Speaker 5: still sending messages that the original language of this administration,
Speaker 5: which you'll remember well before the election, when Biden was
Speaker 5: very negative about oil and very negative about the Saudis.
Speaker 5: They don't forget that stuff easily. But at the same time,
Speaker 5: they're very pragmatic people. I think they realize that the
Speaker 5: US is hugely important to them. We've had subsequently had
Speaker 5: security agreements between Saudi and the US. So it's really complex,
Speaker 5: and I think a lot of people are saying a
Speaker 5: lot of things to a lot of you. There's a
Speaker 5: lot of multipolar world going on here. I don't know
Speaker 5: how much they really truly love the Russians as well.
Speaker 5: I mean, the history of that relationship is nothing like
Speaker 5: the quality of the history of the US Saudi relationship.
Speaker 7: Well said Paul, appreciate the explanations this morning. Thank you, sir.
Speaker 7: You're one of the best pol of Sanki research.
Speaker 3: Joining us right now. Terry Haynes and Pangae are really
Speaker 3: timely discussion here. Staggering to January, Terry Haynes, the zeitgeist
Speaker 3: out there is OMG a red nation a Republican presidency,
Speaker 3: a Republican Senate, and a Republican House. Maybe maybe not.
Speaker 3: Where are we heading? Here? Are we heading to a
Speaker 3: Republican sweep?
Speaker 9: I think where we're heading is very much like what
Speaker 9: you see today, Tom Frankly, Whether or not the president
Speaker 9: is Democratic or Republican, I'd still give Biden Biden Trump race.
Speaker 9: I'd still give Biden a little bit of edge. So
Speaker 9: let's start there. I think what you've got is a
Speaker 9: Senate that is more likely to be marginally Republican majority
Speaker 9: and a House that's more likely to be marginally Democratic majority.
Speaker 9: So it's another version of the same thing. People will
Speaker 9: spend the next year winding themselves up about this, but
Speaker 9: the reality in Washington is, unless you have a sweep
Speaker 9: of all three parties plus a sixty vote majority in
Speaker 9: the Senate, which nobody's had for decades, not much changes.
Speaker 3: Do you see a Trump Haley ticket. I was asked
Speaker 3: at least three times this week about that. Is she
Speaker 3: running for vice resident?
Speaker 10: No?
Speaker 9: I think she's running for president, And you know, I
Speaker 9: think she's doing reasonably well. As I say, and as
Speaker 9: you well kindly headlined, six out of ten Republican voters
Speaker 9: don't want her. You know, even in the Trump numbers
Speaker 9: in early primary states, one third of those people at
Speaker 9: least are what pollsters call soft, in other words, willing
Speaker 9: to entertain other options. Iowa has a history of surprising.
Speaker 9: She's very much running for president and thinks that if
Speaker 9: a couple of breaks go her way, she might well
Speaker 9: get the nomination. And if that's the case, poll show
Speaker 9: today she do much better than Biden would do. So
Speaker 9: there's a path there for her, and you know she
Speaker 9: sees it and she's trying to seize it.
Speaker 2: Could you develop a little bit more what that path
Speaker 2: is considering the fact that Trump is still pulling in
Speaker 2: about sixty percent of Republican voters and she currently is
Speaker 2: it at fifteen percent.
Speaker 9: Well, the path is this. Firstly, throw out the national number.
Speaker 9: At no point in the presidential race is a national
Speaker 9: beauty contest number ever relevant. It's all about getting a nomination.
Speaker 9: It's all about primary states. You get down to the
Speaker 9: primary states, Iowa, New Hampshire. Now Trump's at about forty
Speaker 9: five to forty to forty five depending on the polls.
Speaker 9: So what you have is you've got fifty five to
Speaker 9: sixty percent that already don't want Trump. A third of those,
Speaker 9: as I say, or at least willing to entertain an alternative.
Speaker 9: So it doesn't take much to see the quick consolidation
Speaker 9: and the race that's already happened, combined with some Trump underperformance. Say,
Speaker 9: you know a lot of those people decide, you know, gee,
Speaker 9: cry what I heard from Christie's right, you know Trump's
Speaker 9: not really going to be able to govern or anything else,
Speaker 9: and make a break all of a sudden. What you've
Speaker 9: got in the in the first race or two is
Speaker 9: you've got a real race where Trump looks like he's
Speaker 9: underperforming and the not Trump field is coalescing' that's the race,
Speaker 9: Hayley sees. My only point is there's a much bigger
Speaker 9: chance of that than most people are willing to entertained,
Speaker 9: because I think, frankly they're blinded by the national number.
Speaker 2: In the meantime, terry, there's this question around the ability
Speaker 2: to govern before that, especially heading into the new year,
Speaker 2: given the fact that Kevin McCarthy is going to be
Speaker 2: stepping down the former House speaker who is going to
Speaker 2: leave at the end of this year, how much more likely,
Speaker 2: given the thin majorities, how much more luck likely does
Speaker 2: that make some sort of government shutdown.
Speaker 9: Well, you know, I think marginally, I think there's a
Speaker 9: likelihood that what you see either in January or February
Speaker 9: from House Republicans is some sort of a shutdown. You know,
Speaker 9: a lot of this vast majority of this course is performative.
Speaker 9: They're wrangling over thirty percent one percent cuts in thirty
Speaker 9: percent of the budget, so it's not as if they're
Speaker 9: taking an act to anything. But you know, what they'd
Speaker 9: like is some backtracking and spending. You've heard that from
Speaker 9: the presidential candidates last night, where you know, Hayley frankly
Speaker 9: proposed something Gill return to pre COVID levels. Then even
Speaker 9: House Republicans are doing so, you know they want to
Speaker 9: not in that direction, but you know there's not a
Speaker 9: lot of meeting that opens on the spending thing.
Speaker 3: Terry. The middle of July next year, the Yankees are
Speaker 3: going to be playing seven hundred baseball with Aaron Judge
Speaker 3: in one Soto. I mean, it's a no brainer right there.
Speaker 3: There's going to be a confab in Milwaukee to the
Speaker 3: convention in Milwaukee and frankly the Democratic equivalent. Are these
Speaker 3: going to be normal conventions?
Speaker 9: If Biden is the nominee. It's going to be a
Speaker 9: fairly normal convention. If Trump is the nominee. In the
Speaker 9: Republican Party, I'd predict kind of mass affections and even
Speaker 9: a temporary split in the party as a lot of
Speaker 9: people walk out and refuse to support. Not unlike in
Speaker 9: a very broad sense, not unlike what happened to Democrats
Speaker 9: in nineteen seventy two, where you know, a lot of
Speaker 9: the traditional Democratic coalition, including Labor, refused to support mcgovernor instead,
Speaker 9: you know, supported Nixon. I think you see a lot
Speaker 9: of that stuff. The other great unknown between now and
Speaker 9: Joel I is what happens with third party races, whether
Speaker 9: it be with Bob Kennedy, whether it would possibly be
Speaker 9: with Joe Manchin somebody else. I say, I think there's
Speaker 9: a huge restiveness in the electorate, and you could see
Speaker 9: a third party candidacy gaining buyer really quickly.
Speaker 3: When do we see the machinery to have a third
Speaker 3: party candidate? Is that a January event, an April event,
Speaker 3: or dare I say into the convention season?
Speaker 9: I think more like a March to April event. Frankly,
Speaker 9: that is kind of what the labels people have promised
Speaker 9: but more importantly, what No Labels has promised is the
Speaker 9: idea that, look, once things begin to take shape and
Speaker 9: we know whether there's a Trump versus Biden likelihood or not,
Speaker 9: you know, then we'll make a decision. So you're looking
Speaker 9: at Super Tuesday in early March, and after that I
Speaker 9: think you probably get a decision.
Speaker 7: Terry Hines of PANCHEA Policy, Terry, thank you.
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