WEBVTT - Surveillance: OECD Outlook with Boone (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.799 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.120 and of course on the Bloomberg terminal. This could be 0:00:30.320 --> 0:00:33.000 a one hour conversation. It is so good and she 0:00:33.159 --> 0:00:36.240 is so qualified. She's chief economist at O. E. C. D. 0:00:36.360 --> 0:00:40.440 Lawrence Boon joins us now on a trip around the world. 0:00:40.479 --> 0:00:42.760 And Lawrence, I'm gonna be selfish and go to the 0:00:42.760 --> 0:00:45.880 growth through session you call for in the United States 0:00:45.880 --> 0:00:48.120 where you've got an ugly statistic and then the next 0:00:48.200 --> 0:00:52.200 year it gets uglier for the United States. Well take 0:00:52.240 --> 0:00:54.960 that out to a global economy and the benchmark you 0:00:55.040 --> 0:00:58.800 and I studied in school of three percent global growth, 0:00:58.920 --> 0:01:03.640 as being allows, is our global economy heading or in 0:01:04.000 --> 0:01:11.120 a growth recession? Why the kitem and thanks for inviting me, um. 0:01:11.160 --> 0:01:15.520 The global economy is is bating a very hefty price 0:01:16.240 --> 0:01:20.680 for the war that RuSHA is leading into Ukraine. And yes, 0:01:20.760 --> 0:01:24.920 this is pushing down growth quite a lot to three percent, 0:01:25.040 --> 0:01:28.240 as you say, which is UM just about one of 0:01:27.800 --> 0:01:31.120 the low rates we have seen, and it's pushing inflation 0:01:31.200 --> 0:01:35.080 even higher. We're getting close to nine percent or a 0:01:35.120 --> 0:01:38.440 little more than six if we're excluding Turkey in the 0:01:38.440 --> 0:01:41.520 O E c D economies. Do you ascribe to the 0:01:41.640 --> 0:01:45.600 idea that the only way to break Laurence Summers stagflation, 0:01:46.080 --> 0:01:48.480 the only way to break this, given the war and 0:01:48.560 --> 0:01:52.240 given the rest is tight monetary policy. Is that the 0:01:52.280 --> 0:01:57.240 only way you get this done? So I think we 0:01:57.320 --> 0:02:01.400 have a little more messages than this in THEIRS, and 0:02:02.040 --> 0:02:05.400 as far as monetary policies concerned, we have you know, 0:02:05.480 --> 0:02:09.120 still healthy growth, employment and high inflation. So what we're 0:02:09.160 --> 0:02:15.640 saying is remove some monetary policy accommodation UM monetary policy 0:02:15.639 --> 0:02:19.800 as you they well, no, cannot address supply shock, but 0:02:19.840 --> 0:02:22.600 they can signal that they will target this, you know, 0:02:22.639 --> 0:02:26.560 by telegraphing what they're doing, and in those countries where 0:02:26.560 --> 0:02:30.360 there is obvious success demand and yes, military policy should 0:02:30.440 --> 0:02:33.720 be tighter. Or also what's the main swing factor that 0:02:33.840 --> 0:02:37.160 led the downgrade and that could potentially more downgrades ahead. 0:02:40.360 --> 0:02:45.120 So the main storing factor is really Richard aggression into Ukraine. UM. 0:02:45.160 --> 0:02:48.880 As you know, we were already having UM inflation going 0:02:49.000 --> 0:02:52.799 up because of the pandemic. And the issue is China 0:02:52.880 --> 0:02:56.240 SUPPLIESHAIN and they will COVID policy. Um. So that was 0:02:56.280 --> 0:03:01.760 already affecting us. Now the options and the kit to 0:03:01.960 --> 0:03:06.240 the production of cereals of energy coming out of the 0:03:06.280 --> 0:03:12.200 war is obviously raising inflation, and this higher inflation is 0:03:12.280 --> 0:03:17.200 undermining consumer confidence and therefore consumption. One of the things 0:03:17.200 --> 0:03:19.880 we say, if you allow me just thirty second sentence 0:03:19.919 --> 0:03:22.680 on this, is it has the burden of inflation. The 0:03:22.760 --> 0:03:26.400 costs of the of the war should be fairly shared 0:03:26.639 --> 0:03:30.640 between employers and employees wages and profits, so as to 0:03:30.720 --> 0:03:34.160 avoid a wage face file. So this is one of 0:03:34.200 --> 0:03:37.000 the reasons why perhaps you accuse the United Kingdom of 0:03:37.040 --> 0:03:38.800 having taxes that were too high and saying that they 0:03:38.800 --> 0:03:41.400 had to cut them in order to give people more 0:03:41.480 --> 0:03:44.600 buying power. How much does there have to be in 0:03:44.640 --> 0:03:48.280 some ways fiscal expansion despite the idea that people are 0:03:48.360 --> 0:03:51.680 pointing to some of the physical expenditures as being the 0:03:51.760 --> 0:03:58.400 cause of inflation. When I say all reasons why and 0:03:58.520 --> 0:04:01.840 the UK has lower with them whether to seven economies 0:04:02.160 --> 0:04:05.640 next year, one is the higher inflation, the other is 0:04:05.760 --> 0:04:10.480 tighter and faster, faster monitary policy tightening and also finds 0:04:10.520 --> 0:04:13.920 the physical consolidation. So what we're recommending to the UK 0:04:15.120 --> 0:04:18.720 is actually to consider the pace at which physical consolidation 0:04:18.800 --> 0:04:21.520 is taking place, if if it goes was too slow 0:04:21.920 --> 0:04:26.640 as fast as what we're describing Laurence O E C 0:04:26.960 --> 0:04:29.040 as part of the alphabet soup of the O E 0:04:29.200 --> 0:04:33.800 C D are the people that actually prosecuted the martial plan. 0:04:34.640 --> 0:04:38.320 How do you respond when we hear so many people 0:04:38.360 --> 0:04:41.200 in a flippant way say what we need is a 0:04:41.200 --> 0:04:45.039 new martial plan on Ukraine and the rest as well? 0:04:45.360 --> 0:04:48.120 How does O E C D and you actually feel 0:04:48.200 --> 0:04:55.599 we will affect a modern martial plan. So I think 0:04:55.600 --> 0:05:00.320 the two things. One is what's happening in Ukraine, where 0:05:00.839 --> 0:05:04.800 as we can see everything is being destroyed, all the 0:05:04.880 --> 0:05:09.400 infrastructure and so the a large part of the infrastructure 0:05:09.640 --> 0:05:14.040 and the capacity of the productive capacity of the economy, 0:05:14.120 --> 0:05:17.760 and this will need to be rebuilt. The Marshall plan 0:05:18.120 --> 0:05:20.120 goes and in hand, as you very well, not a 0:05:20.279 --> 0:05:24.719 tomb um money on the one side, but also reform 0:05:24.839 --> 0:05:27.960 structural policy reform on the other hand, to ensure that 0:05:28.040 --> 0:05:30.720 the moment the money is very well channel So that's 0:05:30.839 --> 0:05:32.919 one thing The other thing I think people have in 0:05:33.000 --> 0:05:35.960 mind more immediately at the moment, and that we have 0:05:36.080 --> 0:05:39.719 in mind as at least is globally to avoid a 0:05:39.760 --> 0:05:44.000 food crisis. And for this, um, we're just saying a 0:05:44.040 --> 0:05:48.120 couple of things. One is ensure the transport and logistics 0:05:48.160 --> 0:05:51.040 of the cereals around the world so that it reaches 0:05:51.200 --> 0:05:54.600 Middle Eastern Africa where it's most needed, where it could 0:05:54.640 --> 0:06:00.320 cost not only starvation but also social and political unrest. Um. 0:06:00.400 --> 0:06:03.719 And for this we might need more foreign add which 0:06:03.880 --> 0:06:06.960 in a sense is also part of what we call 0:06:07.040 --> 0:06:10.640 Martian plans. Lawrence, You've got a whole host of policy descriptions, 0:06:10.680 --> 0:06:12.240 and I just wanted to finish on the UK because 0:06:12.240 --> 0:06:14.560 you do offer some advice to the British government. Out 0:06:14.560 --> 0:06:16.720 of the developed economies at the moment, that's the one 0:06:16.760 --> 0:06:19.080 that seems to be really fighting with low growth and 0:06:19.200 --> 0:06:21.920 much higher prices in a much more pronounced way than 0:06:21.960 --> 0:06:24.320 say the United States or Europe for that matter. Can 0:06:24.360 --> 0:06:26.000 you run us through your thoughts on what you think 0:06:26.000 --> 0:06:32.840 this government should do right now? UM? I can try, um, 0:06:33.080 --> 0:06:37.680 what the what's very um? What makes the UK different 0:06:37.720 --> 0:06:41.920 from other G seven economies? As I was saying, higher inflation, UM, 0:06:42.160 --> 0:06:48.160 faster tightening of monetary policy but also faster fiscal consolidation. 0:06:48.480 --> 0:06:51.920 And then the description to manufacturing supply chain as we 0:06:51.960 --> 0:06:55.279 know between China and some of the breaks in discussion. 0:06:55.360 --> 0:06:59.280 So there are two things I think which stand out. 0:06:59.480 --> 0:07:04.000 One to carefully wagh was happening with fiscone policy and 0:07:04.120 --> 0:07:07.159 make sure that not only the most vulnerable but the 0:07:07.200 --> 0:07:10.920 working class just to both the most vulnerable is actually 0:07:10.960 --> 0:07:14.280 being sheltered from the cost of war and the wising 0:07:14.320 --> 0:07:17.960 global oil prices defecting everyone as we know. UM. And 0:07:18.000 --> 0:07:21.200 the second thing that we're saying is obviously trade has 0:07:21.240 --> 0:07:25.800 to resume faster in the UK. Noe spoon thank you, 0:07:26.160 --> 0:07:27.600 thank you very much from the O E c D 0:07:27.760 --> 0:07:30.680 looking for three percent clubl GDP over the World Bank 0:07:30.720 --> 0:07:37.480 looking at two point nine. We're gonna talk economics right 0:07:37.520 --> 0:07:40.040 now and save the show. But first with David blanche 0:07:40.040 --> 0:07:44.240 Flower of Dartmouth College, I must ask pages out saying 0:07:44.280 --> 0:07:48.560 that Gareth Gareth has to play regular games to get 0:07:48.600 --> 0:07:51.040 to the World Cup for Wales. I mean it sounds 0:07:51.040 --> 0:07:53.200 to me like it's dustin for Cardiff. What do you 0:07:53.240 --> 0:07:57.200 think sounds like it? We survived this year, but Whales 0:07:57.240 --> 0:07:59.520 into the World Cup seems so quite a big deal, 0:08:00.040 --> 0:08:03.280 are you. Are you willing to donate some money here 0:08:03.320 --> 0:08:05.640 for Cardiff to play the big ticket for Mr Bill 0:08:06.040 --> 0:08:09.680 versus going to the top He sounds pretty expensive to me. 0:08:11.080 --> 0:08:13.640 You and I will send up twenty bucks. John, pick 0:08:13.640 --> 0:08:15.400 it up here. You know you want me to get 0:08:15.480 --> 0:08:20.600 us out of this. You know, I think what you've 0:08:20.600 --> 0:08:24.680 been tremendous over the last ten fifteen years particularly is 0:08:24.680 --> 0:08:27.680 to provide this different perspective to the consensus view. You 0:08:27.720 --> 0:08:29.840 did that in the previous cycle with the labor market. 0:08:29.840 --> 0:08:31.920 Everyone used to talk about a tight labor market, and 0:08:31.920 --> 0:08:33.400 by the time we got to the end of that cycle, 0:08:33.559 --> 0:08:35.520 a lot of people look back and said, maybe not, 0:08:35.920 --> 0:08:37.480 you're trying to do that again. I want to start 0:08:37.480 --> 0:08:39.559 with the data point, and that was the amount of credit, 0:08:39.600 --> 0:08:42.200 the amount of borrowing the consumers are making at the moment. 0:08:42.559 --> 0:08:43.760 What do you make of that and what does it 0:08:43.840 --> 0:08:48.360 speak to Well, obviously that's the starting point is mortgages 0:08:48.400 --> 0:08:51.199 are now obviously pretty high, and we're seeing slowing in 0:08:51.280 --> 0:08:55.120 applications and presumably we're seeing slowing in the in that 0:08:55.200 --> 0:08:57.640 housing market. I mean, the other part of it is 0:08:57.920 --> 0:09:02.000 presumably what we're seeing a people being stretched, um, and 0:09:02.280 --> 0:09:04.760 and you might expect as they're being stretched that they 0:09:04.800 --> 0:09:08.800 resort to credit cards and you know, trying to pay 0:09:08.840 --> 0:09:11.520 the bills as they go. So so I'm not exactly 0:09:11.559 --> 0:09:13.040 sure what to make of it. I mean, I think 0:09:13.080 --> 0:09:15.120 the answer is that you know, down the road, we're 0:09:15.120 --> 0:09:17.240 probably going to see some defaults. But I think I 0:09:17.280 --> 0:09:20.240 think your point is good in the sense that much 0:09:20.240 --> 0:09:23.559 of the discussion that I hear is really quite unbalanced. 0:09:23.600 --> 0:09:26.040 I mean, we're hearing all the conversation about the Fed's 0:09:26.040 --> 0:09:28.880 gonna the last commentator the fens going to to two 0:09:29.000 --> 0:09:33.160 rate rises. It's on, Well, that's fine. Um. It really depends, however, 0:09:33.200 --> 0:09:35.200 on the data. And I think you know, something that 0:09:35.240 --> 0:09:37.000 really sets us going is the O E c D 0:09:37.040 --> 0:09:40.600 forecast this morning, which again to me, looks really too optimistic. 0:09:40.720 --> 0:09:44.000 But they cut global they cut the global growth forecast 0:09:44.280 --> 0:09:46.840 from four and a half to three, and it certainly 0:09:46.920 --> 0:09:49.560 looks to be too optimistic. So I think the evidence 0:09:49.600 --> 0:09:51.559 going here is that you know, we're gonna wait till 0:09:51.559 --> 0:09:53.880 we're going to look at the data. But I think 0:09:53.920 --> 0:09:56.160 everyone seems to be saying the same thing, and there's 0:09:56.200 --> 0:10:00.400 a clearly credible argument to make that output is going 0:10:00.440 --> 0:10:02.920 to slow much quicker than you think. It's time to 0:10:02.960 --> 0:10:06.120 sit and watch and wait. And essentially that's the position 0:10:06.160 --> 0:10:08.360 that the ECB and the Bank of Japan have taken. 0:10:08.679 --> 0:10:11.840 So I don't think we've seen a very balanced discussion. 0:10:11.880 --> 0:10:15.640 I'm not saying I'm right, but I think, yeah, let's 0:10:15.640 --> 0:10:18.160 just clarify this for a second. What is the correct 0:10:18.240 --> 0:10:20.880 policy prescription in your view? Is it to not raise 0:10:21.000 --> 0:10:24.240 rates at all any more? In the FED? By the FED? No, 0:10:24.520 --> 0:10:27.199 I think the answer is that we really have no idea. 0:10:27.360 --> 0:10:30.320 We have no historical precedent or what to do. There's 0:10:30.360 --> 0:10:32.480 no data points. Perhaps the only data points we have 0:10:32.520 --> 0:10:35.840 a two thousand and eight and nine, and so we 0:10:36.000 --> 0:10:38.240 really have to be dependent on a set of scenario. 0:10:38.360 --> 0:10:42.240 Scenario one is inflation keeps rising, scenario to his COVID 0:10:42.400 --> 0:10:46.680 moves onwards. Scenario three is output collapses, people start to 0:10:46.720 --> 0:10:51.000 default on things. Depending upon those sets of scenarios, we 0:10:51.360 --> 0:10:53.480 will we would have to respond. The FED has to 0:10:53.480 --> 0:10:56.480 say we're dependent on the data. And my view is 0:10:56.480 --> 0:11:00.440 that it's perfectly feasible to argue right now that rate 0:11:00.480 --> 0:11:02.920 cuts are on the table. I mean, one possibilities. They 0:11:02.920 --> 0:11:05.400 are on the table, we're sitting, we're waiting, we'll watch. 0:11:05.760 --> 0:11:08.640 But suddenly some bad data comes and all the commentators 0:11:08.640 --> 0:11:10.480 saying they're going to raise ex times as on and 0:11:10.480 --> 0:11:12.600 we know what's coming and the only issue is whether 0:11:12.640 --> 0:11:15.079 it gets to four percent or three percent. Well, that 0:11:15.160 --> 0:11:17.200 depends on the data. And the first thing to say 0:11:17.240 --> 0:11:20.400 today the only CD realizes that they've got their output 0:11:20.440 --> 0:11:23.400 call wrong. And I was looking at France forecasting positive 0:11:23.440 --> 0:11:26.400 growth for France, the weakest for the UK. They all 0:11:26.440 --> 0:11:30.040 look overly optimistic. France has just had its first quarter 0:11:30.040 --> 0:11:32.960 at DP reduced from zero to negative point to So 0:11:33.120 --> 0:11:34.719 you're really going to argue that it's all going to 0:11:34.800 --> 0:11:37.280 be just finding quarter two, quarter three and quarter four. 0:11:37.520 --> 0:11:40.600 I think the answer is we really don't know, Lisa, 0:11:40.679 --> 0:11:43.600 we really don't know. And to actually argue we know 0:11:43.720 --> 0:11:45.959 what's coming, it's just a wing and a prayer. We 0:11:46.080 --> 0:11:48.680 don't account. There are counter arguments on the side that 0:11:48.840 --> 0:11:51.719 the labor market is much looser than you think. I 0:11:51.840 --> 0:11:53.920 have strong views about that. I think it is thin. 0:11:54.040 --> 0:11:56.880 People completely got the labor market wrong. As I've said 0:11:56.920 --> 0:11:59.600 for a decade, I happily talked to talk more about it, 0:11:59.559 --> 0:12:01.800 and I'll be a gonna work a lot more recently. 0:12:02.120 --> 0:12:04.200 But Danny, do you think that the reason why the 0:12:04.240 --> 0:12:06.960 third is taking the approach that they have is because 0:12:07.120 --> 0:12:09.920 it is politically infeasible for them not to come out 0:12:10.240 --> 0:12:13.440 with a much harder line despite the fact that, as 0:12:13.480 --> 0:12:16.240 you say, there could be a more material slowdown. But 0:12:16.400 --> 0:12:18.840 right now, that is not the main economic problem facing 0:12:18.840 --> 0:12:21.360 the US. Well in a sense that, I mean, you 0:12:21.440 --> 0:12:23.880 may be right, but the reason that you have an 0:12:23.880 --> 0:12:27.640 independent FED is to try and cut through that political push. 0:12:28.400 --> 0:12:30.679 I would have liked to see a more balanced discussion 0:12:30.720 --> 0:12:32.480 on the one hand. On the other hand, I mean, yes, 0:12:32.520 --> 0:12:35.720 you argue that politically, but that's the reason you have 0:12:35.800 --> 0:12:38.440 an independent central bank to say, hang on, folks, we're 0:12:38.440 --> 0:12:40.719 going to cut through the political rhetoric. We're going to 0:12:40.880 --> 0:12:44.240 cut through what politicians want us to do, and we're 0:12:44.240 --> 0:12:46.200 going to try and look at the data and understand 0:12:46.200 --> 0:12:48.319 what's going on. And I don't really see that. I mean, 0:12:48.320 --> 0:12:50.440 I think if you go to the UK, the UK 0:12:50.679 --> 0:12:54.559 that the votes on the NPC for the rate rises 0:12:54.640 --> 0:12:57.040 last month and three people wanting more, a meeting coming 0:12:57.040 --> 0:12:59.959 next week, and basically there is a counter argument to 0:13:00.040 --> 0:13:02.040 say that you shouldn't raise it. Also, I'm not saying 0:13:02.040 --> 0:13:04.439 that you shouldn't, but I'm just saying that the argument 0:13:04.520 --> 0:13:07.560 is much more balanced output. Potentially it's going to fall. 0:13:07.600 --> 0:13:10.679 And the big thing we know is that at points 0:13:10.679 --> 0:13:14.120 where would turn downs calm, the revisions get you. So 0:13:14.160 --> 0:13:17.760 the consumer confidence data around the world is predictive of recession, 0:13:17.960 --> 0:13:20.439 predicular recession in the United States, in the UK, in 0:13:20.520 --> 0:13:23.120 Japan and in Europe. Now you can ignore it, but 0:13:23.240 --> 0:13:25.600 this is the best data we have. And it just 0:13:25.640 --> 0:13:29.120 strikes me that all these folks maybe polically being pushed there, 0:13:29.160 --> 0:13:31.640 but they're being pushed into making an error. And what 0:13:31.720 --> 0:13:34.080 you need to see is a balanced discussion saying on 0:13:34.120 --> 0:13:36.480 the one hand, the consumer confidence data are saying this. 0:13:36.960 --> 0:13:39.520 In Europe, we've certainly seen a collapse in the last 0:13:39.559 --> 0:13:43.400 two months, collapse in people's views about their financial situation, 0:13:43.600 --> 0:13:47.400 collapsing consumer conference which presume and we know with Christine 0:13:47.440 --> 0:13:50.200 Lagarland the ECB is taking very seriously. So if they're 0:13:50.200 --> 0:13:52.560 taking it very seriously, why is there not a serious 0:13:52.559 --> 0:13:55.960 discussion at the FED? The worry is the FED is 0:13:56.080 --> 0:13:59.240 beaten by events and it starts to see some horrible 0:13:59.320 --> 0:14:02.280 data that it's really not prepared people for horrible data 0:14:02.320 --> 0:14:04.920 on the real economy, on the labor mark, on output, 0:14:04.920 --> 0:14:09.280 on retail sales, on default. Yeah. So I think it's 0:14:09.320 --> 0:14:12.240 just we need to balance this discussion. And I certainly 0:14:12.240 --> 0:14:14.240 think that you know that if you look at the 0:14:14.280 --> 0:14:16.040 f O m C and you look at the NBC, 0:14:16.280 --> 0:14:20.840 discussion is unbalanced and that's potentially dangerous. Danny. One thing 0:14:20.880 --> 0:14:23.840 we can agree on group think is deadly it's going 0:14:23.960 --> 0:14:25.800 to catch up, Buddy, gonna hear from you, Danny, Blanche 0:14:25.800 --> 0:14:34.320 feud there of Dartmouth and a Stagia Amarro. So the 0:14:34.400 --> 0:14:36.680 chief Investments trying to just eye capital joins us now 0:14:36.680 --> 0:14:38.800 and I stay, let's start here. You're looking for a 0:14:38.880 --> 0:14:42.040 soft dish landing. Let's talk about the issue. Any evidence 0:14:42.080 --> 0:14:43.960 of that developing at the moment as you look at 0:14:43.960 --> 0:14:46.680 the incoming data. Yeah, John, get to see you. I 0:14:46.720 --> 0:14:48.880 think there's a few things that I look at the 0:14:49.080 --> 0:14:51.320 give me a hope that we meet actually have a 0:14:51.360 --> 0:14:53.960 wider path to a soft landing here. The first one 0:14:54.000 --> 0:14:55.920 is you look at the growth numbers. I mean, even 0:14:55.960 --> 0:14:58.560 with the O E c D down grading growth today, 0:14:59.040 --> 0:15:01.160 it's still a part of number. And if you look 0:15:01.160 --> 0:15:03.880 at the US, we're expecting two point six percent this here, 0:15:04.120 --> 0:15:06.840 two percent next year. This has not fallen off the cliff. 0:15:07.040 --> 0:15:09.920 It is still hanging in there. So yes, we're squarely 0:15:09.960 --> 0:15:12.600 in a slow down part of this, but this doesn't 0:15:12.680 --> 0:15:14.800 yet have to be in amin a recession. You know. 0:15:14.840 --> 0:15:16.800 The second thing that I look at and frankly, I've 0:15:16.920 --> 0:15:18.760 not been able to say that, yes we have seen 0:15:18.800 --> 0:15:21.400 peak inflation, and yes this is it. But now I 0:15:21.480 --> 0:15:23.840 feel like there is more and more evidence building that 0:15:24.040 --> 0:15:26.520 maybe we are starting to see peek inflation. I mean, 0:15:26.560 --> 0:15:29.240 look at use car prices, they are starting to decline. 0:15:29.480 --> 0:15:33.320 Look at the businesses intentions to continue raises prices. They 0:15:33.400 --> 0:15:35.520 just can't do it anymore. So more and more of 0:15:35.560 --> 0:15:37.680 them are saying we're gonna pause. If you look at 0:15:37.680 --> 0:15:41.240 businesses intentions to raise wages, they're pausing as well. So 0:15:41.480 --> 0:15:44.120 they're starting to be sort of a preponderance of evidence 0:15:44.320 --> 0:15:47.200 that maybe inflation is in fact easing. And this is 0:15:47.240 --> 0:15:50.800 commodity is notwithstanding, but the other inflationary pressures seem to 0:15:50.880 --> 0:15:53.680 be easy. And then the third thing John that really 0:15:53.720 --> 0:15:56.400 gives me some confidence that maybe we can engineer soft 0:15:56.520 --> 0:15:59.680 landing is the FED is starting to sound a little 0:15:59.680 --> 0:16:02.080 bit more are balanced. Yes, of course they need to 0:16:02.120 --> 0:16:05.240 fight inflation, but maybe it doesn't have to only be 0:16:05.280 --> 0:16:08.600 by raising rates well into tightening territory, you know, maybe 0:16:08.600 --> 0:16:12.200 they can pause and let the hype prices naturally bring 0:16:12.240 --> 0:16:15.280 down demands. So I think if they back away just 0:16:15.440 --> 0:16:17.760 in time, we might end up with the ninety four 0:16:17.760 --> 0:16:20.840 scenario versus the seventies and the stage everyone wants to 0:16:21.200 --> 0:16:23.840 game out where we're heading right now? What does that 0:16:23.960 --> 0:16:26.680 mean for what you're actually buying? Because you have to 0:16:26.680 --> 0:16:29.080 come up with a thesis before we have all of 0:16:29.120 --> 0:16:31.040 the dots of what the Fed willer won't do and 0:16:31.080 --> 0:16:33.000 how the data is going to come in. How risk 0:16:33.000 --> 0:16:35.200 going are you right now? Yes, So it's all about 0:16:35.240 --> 0:16:37.720 the balance of risks. And and I would say, just 0:16:37.800 --> 0:16:39.840 a month or so ago, it seems like we have 0:16:39.920 --> 0:16:41.960 priced in a lot. We were already at that point 0:16:42.040 --> 0:16:45.479 the equity markets were pricing in a fifty seven probability 0:16:45.720 --> 0:16:48.800 probability of recession, and now we've re traced some of that. 0:16:49.120 --> 0:16:51.360 Where I am today is I think we're trapped in 0:16:51.400 --> 0:16:54.720 a rage. I always thought the thirty night hundred for 0:16:54.760 --> 0:16:57.760 this economic environment could sort of be the level of support. 0:16:57.960 --> 0:17:00.240 We seem to have bounced off that level. But at 0:17:00.240 --> 0:17:02.280 the same time, how much are you gonna pay for 0:17:02.400 --> 0:17:05.359 two thirty five dollars worth of learnings? Sixteen and a 0:17:05.359 --> 0:17:07.800 half times is fair? Maybe seventeen and a half times 0:17:07.920 --> 0:17:11.359 is fair, which is roughly where we are today SMP. 0:17:11.640 --> 0:17:14.040 But how much more do you push that? So? I 0:17:14.080 --> 0:17:16.760 think you know, Tom, we are trapped in arrange for now, 0:17:16.800 --> 0:17:20.119 but still there's some investment opportunities to look at. You 0:17:20.160 --> 0:17:23.320 know that I've liked technology, but one of the calls 0:17:23.359 --> 0:17:26.080 I have now is actually on financials. You have an 0:17:26.160 --> 0:17:29.399 un financials. But part of this is the overarching theme, 0:17:29.600 --> 0:17:33.000 and that goes back to expect the unexpected, and I'm 0:17:33.040 --> 0:17:36.439 talking about overcome by events July. There's a mix of 0:17:36.520 --> 0:17:39.480 dynamics on the screen which are clearly out of sorts. 0:17:39.960 --> 0:17:42.920 What's the thing you're looking at for July that could 0:17:42.960 --> 0:17:47.160 be the unexpected? Well, I think the big thing, well, 0:17:47.320 --> 0:17:49.359 I don't know if it's unexpected, Tom, but maybe you 0:17:49.359 --> 0:17:52.680 could still surprise us. Um is the commodity shock, right, 0:17:53.480 --> 0:17:55.960 even though I'm saying the supply chain bottomlegs are raising 0:17:55.960 --> 0:18:00.320 another inflationary pressure. Easy the commodity shortages are kind of away. 0:18:00.359 --> 0:18:02.680 I'm going to stop the show. You, more than anyone 0:18:02.760 --> 0:18:06.119 we know, have a visceral understanding of the coast of 0:18:06.160 --> 0:18:08.879 the Black Sea. You own the high ground on this. 0:18:09.320 --> 0:18:12.119 How do you respond to the idea that Odessa with 0:18:12.240 --> 0:18:16.840 one S or two s is could be shut down. Look, 0:18:17.000 --> 0:18:20.760 this has a big implication for the commodity market. And 0:18:20.840 --> 0:18:23.400 you know, as I mentioned, the world is short of everything. 0:18:23.680 --> 0:18:25.440 The world is short of wheat, the short the world 0:18:25.480 --> 0:18:27.480 is short of drains, the world is short of oil 0:18:27.520 --> 0:18:31.120 and natural gas. To the extent that you close off 0:18:31.119 --> 0:18:34.240 that corridor, to the extent that the tension is continuing 0:18:34.240 --> 0:18:36.800 to escalating, you can get product out of that region. 0:18:37.080 --> 0:18:39.800 That is that is really really tough. I mean, I 0:18:39.840 --> 0:18:43.320 think that's what people perhaps don't fully price it and 0:18:43.359 --> 0:18:46.280 don't appreciate. Commodity prices are up a lot this year, 0:18:46.800 --> 0:18:49.439 and you know, I think a lot of investors say, well, 0:18:49.480 --> 0:18:51.560 how much more do you chase that? But what people 0:18:51.680 --> 0:18:55.159 probably underappreciate is that we have a structural deficit of 0:18:55.280 --> 0:18:58.159 many of these commodities. So this is not just a 0:18:58.200 --> 0:19:00.680 tactical trade for this year, but this is longer lasting. 0:19:01.080 --> 0:19:04.119 Such a good point, honesty, Thank you said that of 0:19:04.240 --> 0:19:11.000 my capital. This is the privilege that we have not 0:19:11.080 --> 0:19:13.960 only working with Haveve Blass, so Will Kennedy and all 0:19:14.000 --> 0:19:18.440 of Bloomberg Hydrocarbons and commodity coverage, but also digging deep 0:19:18.480 --> 0:19:21.639 into the analysis of global thinkers. The giant of all 0:19:21.720 --> 0:19:25.480 this is Edward Morris with Daniel Jurgen separate, looking at 0:19:25.480 --> 0:19:29.440 the global macro moment of this commodity boom. He is 0:19:29.480 --> 0:19:32.840 global head of Commodities at City Group, and as John says, 0:19:32.920 --> 0:19:36.840 has a bit of an outlier call right now at Morris, 0:19:36.880 --> 0:19:40.840 how do we migrate back to your oil fundamentals under 0:19:40.960 --> 0:19:44.320 ninety dollars a barrel? What are the trigger points or 0:19:44.440 --> 0:19:50.080 catalysts that break the ascent of oil? So the catalysts 0:19:50.080 --> 0:19:53.199 really are very simple. They're called supply and demand. And 0:19:53.280 --> 0:19:55.560 we've got to get through the next few weeks to 0:19:55.600 --> 0:19:57.720 see whether there actually is going to be a driving 0:19:57.720 --> 0:20:02.480 season this summer. But under lying the the differences of 0:20:02.520 --> 0:20:05.520 you is really what we think is raising prices now, 0:20:05.600 --> 0:20:08.840 and we think of raising prices now are the dislocations 0:20:08.840 --> 0:20:12.720 that have occurred as a result of countries and companies 0:20:12.760 --> 0:20:16.919 refusing to take on Russian oil. There's no easy substitute 0:20:16.960 --> 0:20:20.520 for urals. We're not in a one oil pricing system 0:20:20.640 --> 0:20:23.159 or the two oil pricing system. And we have to 0:20:23.200 --> 0:20:25.920 remember that while w T I maybe at a hundred 0:20:25.960 --> 0:20:28.200 and twenty a brent, maybe at the hundred twenties something, 0:20:28.840 --> 0:20:31.920 urals is trading at thirty lower than that. So it's 0:20:32.000 --> 0:20:35.359 it's not one clear market, and it's the disruption of 0:20:35.400 --> 0:20:38.119 that lower price that we have to think about and 0:20:38.280 --> 0:20:41.080 ask why we have these higher prices. And I'm gonna 0:20:41.240 --> 0:20:44.679 just say that we're planning a trip Lisa, John and 0:20:44.720 --> 0:20:46.760 I to Abu Dhabi, and of course we're gonna have 0:20:46.800 --> 0:20:49.640 an oil summit there, and we're gonna have on stage 0:20:49.680 --> 0:20:52.800 Francisco Blanche, Christian May, look of JP Morgan, Blanche of 0:20:52.840 --> 0:20:56.919 Bank of America, You and other worthies. And the singular 0:20:57.040 --> 0:21:02.760 distinction seems to be the guests at hydrocarbon investment will 0:21:03.080 --> 0:21:07.560 or will not come on if we get higher oil prices. 0:21:07.920 --> 0:21:14.760 Are you more optimistic than others that investment will materialize? Well, 0:21:14.800 --> 0:21:17.640 I think we first started. I don't think there's that problem. 0:21:17.680 --> 0:21:20.640 I think we have more than enough investment in hydrocarbons. 0:21:20.800 --> 0:21:23.479 I think we have a problem in the hydrocarbon world 0:21:23.840 --> 0:21:26.440 in that the United States, the short cycle Big Guy, 0:21:26.920 --> 0:21:29.359 has lost a lot of oil production. The US was 0:21:29.440 --> 0:21:32.600 producing we have to remember, thirteen million barrels a day 0:21:32.760 --> 0:21:35.800 in March of they went down to ten point two 0:21:35.840 --> 0:21:38.879 million a day. Is now at eleven point nine million 0:21:38.920 --> 0:21:41.960 a day. It's well below where it was and where 0:21:42.000 --> 0:21:44.359 it would have been had we not had that drop 0:21:44.400 --> 0:21:46.399 in drolling, we would have been at fourteen and a 0:21:46.400 --> 0:21:48.719 half million barrels a day and they would not be 0:21:48.760 --> 0:21:53.040 this problem. We have more than enough spending into oil 0:21:53.119 --> 0:21:56.160