WEBVTT - P&L: Fed Should Do at Least Four Hikes in 2017 0:00:04.760 --> 0:00:07.720 Welcome to the Bloomberg P and L Podcast. I'm Pim 0:00:07.800 --> 0:00:11.080 Fox along with my co host Lisa Abramowitz. Each day 0:00:11.119 --> 0:00:14.360 we bring you the most important, noteworthy, and useful interviews 0:00:14.400 --> 0:00:16.560 for you and your money, whether at the grocery store 0:00:16.800 --> 0:00:19.960 or the trading floor. Find the Bloomberg P L Podcast 0:00:20.000 --> 0:00:28.360 on iTunes, SoundCloud and at Bloomberg dot com. We want 0:00:28.360 --> 0:00:31.960 to prepare for the upcoming Federal Reserve meeting that takes 0:00:31.960 --> 0:00:35.120 place this Wednesday. I want to bring Bob Michael, chief 0:00:35.120 --> 0:00:38.400 investment officer at JP Morgan Asset Management, who's here in 0:00:38.400 --> 0:00:41.720 the studio with us in Bloomberg eleventh. Three. Oh, Bob, 0:00:41.840 --> 0:00:44.480 is this FED meeting a non event at this point? 0:00:44.520 --> 0:00:48.280 Even if they raise interest rates by a whole quarter 0:00:48.320 --> 0:00:51.440 of a percentage point? I think they should make it. 0:00:51.920 --> 0:00:54.600 They shouldn't make it a non event. They should make 0:00:54.640 --> 0:00:57.960 it an event. They should use this as an opportunity 0:00:58.320 --> 0:01:00.320 to guide us for what they want want to do 0:01:00.440 --> 0:01:04.080 in two thousand and seventeen. Currently the market thinks they 0:01:04.120 --> 0:01:06.920 should do one or two tightenings. I think they should 0:01:06.959 --> 0:01:09.520 do at least four. I think they should go in March, 0:01:09.959 --> 0:01:13.320 and even if they do four, next year plus one 0:01:13.319 --> 0:01:16.520 in December. That's one in a quarter total. That only 0:01:16.560 --> 0:01:18.520 gets you to have Fed Funds target rate of one 0:01:18.560 --> 0:01:21.080 and a half to one in three quarters percent. Why 0:01:21.080 --> 0:01:23.320 do you think that they should hike four times next year? 0:01:24.040 --> 0:01:27.520 Because I think policy at a quarter to a half 0:01:27.560 --> 0:01:30.880 a percent, or even if they go in December and 0:01:30.959 --> 0:01:32.800 four times next year at one and a half to 0:01:32.880 --> 0:01:36.399 one in three quarters percent, looks out of sinc With 0:01:36.680 --> 0:01:41.480 the evolving economic reality. We talk as though they're already 0:01:41.680 --> 0:01:44.560 at a zero real Fed funds rate that they're at 0:01:44.560 --> 0:01:46.880 two to two and a quarter percent, they're at a 0:01:46.959 --> 0:01:49.840 quarter to a half a percent. They're at emergency levels, 0:01:50.120 --> 0:01:54.280 and the emergency isn't there anymore. Okay, you talk about 0:01:54.320 --> 0:01:57.600 the emergency not being there, But if you are a 0:01:57.640 --> 0:02:00.920 bondholder and you look at your portfolio, I would imagine 0:02:00.960 --> 0:02:03.040 that there's a little red light that might be flashing 0:02:03.040 --> 0:02:05.400 because of all the losses that depending upon when you 0:02:05.520 --> 0:02:07.840 purchased obviously your bonds. But I'm just looking at the 0:02:07.840 --> 0:02:11.040 thirty year for now three point one eight percent, the 0:02:11.120 --> 0:02:15.440 tenure at almost two and a half percent. Uh, When 0:02:15.480 --> 0:02:19.640 does a trade turn into an investment in the bond market? Now? 0:02:19.639 --> 0:02:22.080 I mean who's holding all that paper that's now under water. 0:02:22.800 --> 0:02:25.160 Well him, you're right it it's shaping up to be 0:02:25.240 --> 0:02:28.240 allowsy four years ahead to be a bond investor. That 0:02:28.360 --> 0:02:31.280 much is for sure. I think when you look at 0:02:31.320 --> 0:02:35.320 the FED funds rate relative to ten your treasuries, there 0:02:35.400 --> 0:02:37.880 is a pretty good spread. Now we've had a pretty 0:02:37.960 --> 0:02:41.400 dramatic backup, there are going to be investors who think 0:02:41.800 --> 0:02:44.680 that's far enough for the time being. I'm interested to 0:02:44.680 --> 0:02:47.600 see if the foreign investors come in and help take 0:02:47.639 --> 0:02:51.360 down the auctions. Certainly pension funds have an opportunity to 0:02:51.480 --> 0:02:53.799 de risk. You don't go on a straight line up. 0:02:53.840 --> 0:02:57.760 But I think as the normalization process evolves over the 0:02:57.800 --> 0:03:00.280 next couple of years, there will be by is a 0:03:00.400 --> 0:03:03.960 very backup or second guess. The steepness of the curve 0:03:04.160 --> 0:03:07.320 is telling me that the Fed is behind the curve, 0:03:07.760 --> 0:03:11.320 that the market recognizes they need to get to something 0:03:11.360 --> 0:03:15.200 that looks more neutral, and the longer they drag their feet, 0:03:15.560 --> 0:03:18.200 the steeper the curve will get and the higher long 0:03:18.320 --> 0:03:22.000 term meals will become. So here's what I'm confused about. 0:03:22.200 --> 0:03:24.040 A lot of people have come on this program and 0:03:24.080 --> 0:03:27.519 talked about how the effects of President Elect Trump's plans 0:03:27.639 --> 0:03:31.320 won't really be seen until the beginning of two and eighteen. 0:03:31.639 --> 0:03:35.120 What's going to sustain this feeling of optimism and growth 0:03:35.360 --> 0:03:38.880 over the next year, which will inevitably be uh somewhat 0:03:38.920 --> 0:03:42.000 contentious even among Republicans in the U. S. Congress. I mean, 0:03:42.080 --> 0:03:45.160 is it just the US and President electrumpers or something 0:03:45.200 --> 0:03:48.800 else giving you confidence? I think saying that, pardon me, 0:03:48.920 --> 0:03:53.280 that his plans won't be seeing the impact until two 0:03:53.320 --> 0:03:56.840 thousand and eighteen is a load of rubbish. It feels 0:03:56.880 --> 0:04:02.720 to me as though the Trump administration elect is already 0:04:02.840 --> 0:04:06.480 running the government. There in the news every day, they're 0:04:06.520 --> 0:04:10.320 talking about appointments. When you look about when you think 0:04:10.360 --> 0:04:14.120 about Tillerson's candidacy, it seems as though we're in the 0:04:14.160 --> 0:04:19.200 consultation period and they're taking feedback. I think his first 0:04:19.360 --> 0:04:23.520 hundred days are going to be breathtaking. I don't think 0:04:23.520 --> 0:04:25.840 there will be a lack. I expect you will see 0:04:25.920 --> 0:04:29.240 tax cuts by the end of the first quarter that 0:04:29.320 --> 0:04:32.160 will have an immediate impact. This is not a two 0:04:32.200 --> 0:04:36.200 thousand and eighteen thing. This is March two thousand and seventeen, 0:04:36.640 --> 0:04:39.240 and then you're going to start seeing the fiscal span 0:04:39.680 --> 0:04:43.480 and maybe the deregulation rolls out into two thousand and eighteen, 0:04:43.680 --> 0:04:46.279 but they are not dragging their feet. Bob. I just 0:04:46.320 --> 0:04:49.599 want to have you expand on on this because not 0:04:49.680 --> 0:04:52.840 many people have been so forthright in describing what they 0:04:52.880 --> 0:04:57.320 believe will happen in two thousand seventeen with the new administration. 0:04:57.720 --> 0:05:00.760 And you mentioned news and the control of the news cycle. 0:05:00.839 --> 0:05:03.800 Do you believe that that is really what is spurring 0:05:03.800 --> 0:05:06.920 people's attention because you've never had a president, for example, 0:05:06.920 --> 0:05:10.960 a president elect that is able to command the attention 0:05:11.080 --> 0:05:15.279 of the news media or the populace directly the way 0:05:15.600 --> 0:05:19.680 President elect Donald Trump has well, well, certainly he's understood 0:05:19.760 --> 0:05:23.279 the value of social media. I think one of the 0:05:23.360 --> 0:05:27.120 things that that we're talking about here is a bit 0:05:27.160 --> 0:05:30.280 of the disconnect of where the market's position, what we 0:05:30.360 --> 0:05:33.760 expect to happen, and the like. In my view, what's 0:05:33.800 --> 0:05:37.799 happened is there's been a five percent probability that's become 0:05:38.000 --> 0:05:53.000 a central case scenario. Another huge mover right now to 0:05:53.160 --> 0:05:58.560 movers CBS and Viacom CBS down more, Viacom down more 0:05:58.600 --> 0:06:01.800 than six percent. US is on news that Sherry Redstone 0:06:01.839 --> 0:06:05.360 withdrew her proposed merger of CBS Corp. And Viacom that 0:06:05.600 --> 0:06:09.120 ends the potential to create a new colossus in the 0:06:09.160 --> 0:06:12.400 television industry. With us to find out more is Alex Sherman, 0:06:12.520 --> 0:06:16.800 Bloomberg News reporter covering all things entertainment and mergers and 0:06:16.800 --> 0:06:21.200 acquisitions related. Alex, can you explain what happened here? Maybe 0:06:21.920 --> 0:06:24.520 a week or so ago that things were looking increasingly 0:06:24.720 --> 0:06:28.680 unlikely that a deal would come together? And the why 0:06:29.000 --> 0:06:33.640 depends on which side you ask um. From Viacom standpoint, 0:06:34.560 --> 0:06:38.760 Viacom met with CBS just before Thanksgiving and has been 0:06:38.760 --> 0:06:42.880 waiting for weeks now to hear back from CBS. Viacom 0:06:42.960 --> 0:06:48.200 believes that their presentation to CBS was so strong for 0:06:48.240 --> 0:06:52.920 their standalone plan that CBS started to realize, we're going 0:06:52.960 --> 0:06:55.279 to have to pay a pretty big premium if if 0:06:55.279 --> 0:06:58.479 we want Viacom to go along with this. Uh, And 0:06:58.560 --> 0:07:01.200 maybe that made a deal more only because CBS didn't 0:07:01.200 --> 0:07:05.760 see Viacom's prospects as strong as Viacom did. From my 0:07:05.920 --> 0:07:12.240 CBS sources, the main issue was less Moonvez wanted de 0:07:12.400 --> 0:07:17.080 facto control over a combined CBS and Viacom company, which 0:07:17.080 --> 0:07:21.400 would mean he would have to convince Sherry Redstone, uh, 0:07:21.480 --> 0:07:23.560 some of the Redstone's daughter. Some of the Redstone owns 0:07:23.640 --> 0:07:27.240 National Amusements, which controls both companies. Less, Moonvez would have 0:07:27.280 --> 0:07:30.800 to convince Sherry to give him her voting shares or 0:07:30.840 --> 0:07:33.080 at least give him control in some sort of arrangement. 0:07:33.440 --> 0:07:35.880 Sherry Redstone was unwilling to do this, and this has 0:07:35.920 --> 0:07:39.640 been an ongoing conversation and perhaps that was really the 0:07:39.680 --> 0:07:42.720 sticking point about why this deal failed. Because the two 0:07:42.720 --> 0:07:45.280 sides realized we were going to reach an impast less 0:07:45.280 --> 0:07:47.560 Moonves didn't want to do the deal, and that's why 0:07:47.600 --> 0:07:49.440 this thing fell apart. You know, can I just say 0:07:49.640 --> 0:07:51.920 really quickly, it seems like the market is viewing this 0:07:52.040 --> 0:07:55.160 as a negative for both companies, is it. Well, it's 0:07:55.160 --> 0:07:57.480 certainly a negative for Viacom in the short term because 0:07:57.480 --> 0:07:59.760 I think a lot of people do not investors do 0:07:59.840 --> 0:08:02.520 not really have a lot of faith in Viacom's go 0:08:02.640 --> 0:08:05.800 alone plan. Viacom is a mess right now, so it's 0:08:05.840 --> 0:08:08.200 gonna need to be a complete turnaround story. Now. They 0:08:08.200 --> 0:08:12.560 do have a new CEO bought back who's replacing right, 0:08:12.600 --> 0:08:14.760 I mean, he's been there in nineteen years, absolutely, so 0:08:14.760 --> 0:08:16.200 he's been with the cup, so that may or may 0:08:16.240 --> 0:08:20.640 not give you faith exactly. Um, but at least he 0:08:20.800 --> 0:08:23.800 is aware of the fact that Viacom needs to do 0:08:23.880 --> 0:08:27.320 some drastic retooling. They have a whole bunch of networks 0:08:27.360 --> 0:08:31.200 that they own that are very much underperforming. Netflix has 0:08:31.280 --> 0:08:33.480 really cut into the affiliate fees they get paid from 0:08:33.480 --> 0:08:37.080 other PATV providers for their crown jewels of MTV, Nickelodeon, 0:08:37.640 --> 0:08:41.679 Comedy Central, etcetera. UM. So that's why I think Viacom 0:08:41.760 --> 0:08:45.520 shares are falling. CBS needs scale. So the question now 0:08:45.559 --> 0:08:48.520 for CBS will be is there someone else that CBS 0:08:48.559 --> 0:08:51.960 can potentially merge with? Is Sherry Redstone even willing to 0:08:52.040 --> 0:08:56.080 consider a merger with another company, because again, she's gonna 0:08:56.160 --> 0:09:01.560 want control theoretically of CBS. So that's why CBS is falling. Alex, 0:09:01.600 --> 0:09:04.119 I wonder if you could explain that if Sherry Redstone, 0:09:04.160 --> 0:09:08.199 through National Amusements, has a controlling stake in both Viacom 0:09:08.320 --> 0:09:13.560 and CBS, can't she just say to the board of CBS, 0:09:13.600 --> 0:09:15.400 this is what we're gonna do, this is what I 0:09:15.480 --> 0:09:17.440 want to do, and if you don't like it, we'll 0:09:17.440 --> 0:09:19.640 get someone else who will. She can, but I think 0:09:19.679 --> 0:09:22.080 she risks losing less moon Vez. If she does, he's 0:09:22.120 --> 0:09:24.600 that key to the whole program. And I think less 0:09:24.600 --> 0:09:27.440 Moon Vez is seen in the broader media industry as 0:09:27.600 --> 0:09:31.480 the gold standard of CEOs. He has when Viacom and 0:09:31.480 --> 0:09:34.160 CBS split back in two thousand six, because they were 0:09:34.200 --> 0:09:37.679 the same company. When they split, Viacom was seen as 0:09:37.679 --> 0:09:39.920 the crown jewel and CBS was seen as sort of 0:09:39.960 --> 0:09:44.200 the dregs because CBS had this underperforming broadcast network which 0:09:44.240 --> 0:09:46.920 didn't collect any of these affiliate fees at the time 0:09:46.960 --> 0:09:49.880 in two thousand six, uh, and they also had showtime. 0:09:50.480 --> 0:09:54.240 CBS has upended this whole uh the way the whole 0:09:54.280 --> 0:09:57.400 economic model works by basically saying, and by the way, 0:09:57.520 --> 0:10:00.679 all the broadcast channels did this, ABC, NBC, Fox, CBS. 0:10:00.760 --> 0:10:03.520 They said, we should be paid like the cable channels are. 0:10:03.600 --> 0:10:06.240 We're part of your cable bundle, and we have NFL 0:10:06.240 --> 0:10:08.880 football and all these hit primetime shows. Unless Movements has 0:10:08.920 --> 0:10:11.880 done a great job of keeping CBS number one season 0:10:11.920 --> 0:10:15.400 after season after season in entertainment. So the combination of 0:10:15.440 --> 0:10:18.240 sports getting these affiliate fees starting to get paid like 0:10:18.320 --> 0:10:21.480 a high priced cable channel two or three dollars per 0:10:21.480 --> 0:10:24.760 month pay TV distributor, which is right up there with 0:10:24.800 --> 0:10:27.520 some of the best cable channels. He has turned around CBS. 0:10:27.559 --> 0:10:30.880 At the same time, Viacom has really suffered under Felipe Almonds. 0:10:30.880 --> 0:10:32.679 So the whole thing got tilted in ten years. Yeah, 0:10:32.679 --> 0:10:34.480 I gotta say, I'm kind of confused because Time Warner 0:10:34.480 --> 0:10:36.120 and Disney shares are down, and I would think that 0:10:36.160 --> 0:10:37.920 they would be up real quick. Does this make you 0:10:37.920 --> 0:10:40.079 know what else is down? Which is really on my attention? 0:10:40.160 --> 0:10:42.800 Twenty one century Fox. They made this deal last year 0:10:42.840 --> 0:10:46.040 to buy this last week, I should say, exactly, the 0:10:46.080 --> 0:10:49.600 bios shares of the UK has satellite programmer Sky that 0:10:49.679 --> 0:10:52.240 they didn't already own, and Foxes down five and a 0:10:52.520 --> 0:10:55.400 percent today in the wake of that agreement. So go figure. 0:10:55.559 --> 0:11:11.400 Dave Wilson, Alex Sherman, Bloomberg News. I want to imagine 0:11:11.400 --> 0:11:14.240 a world in which President elected Donald Trump does not 0:11:14.360 --> 0:11:19.560 adhere to the One China UH provision that has really 0:11:19.840 --> 0:11:23.560 guided relations between the US and China and frankly China 0:11:23.559 --> 0:11:26.120 and the rest of the world for the past few decades. 0:11:26.160 --> 0:11:29.720 I want to bring in Patrick Chauvinik, chief strategist at 0:11:29.720 --> 0:11:32.560 Silver Crest Asset Management, to sort of break down what 0:11:32.679 --> 0:11:35.360 the significance of this is. So Patrick, thank you so 0:11:35.440 --> 0:11:38.439 much for joining us. Uh. First, let's start with what's 0:11:38.480 --> 0:11:43.280 at stake with respect to honoring this One China policy. So, 0:11:43.360 --> 0:11:47.560 the One China Policy was established between Mao and Nixon 0:11:47.600 --> 0:11:50.280 when he went to China in the early nineteen seventies, 0:11:50.559 --> 0:11:53.800 and it really laid the foundation for the opening between 0:11:53.880 --> 0:11:56.080 China and the United States and it's been the foundation 0:11:56.760 --> 0:11:59.319 for the relationship ever since. And it basically says that 0:11:59.600 --> 0:12:01.960 he and i It States throughout the Cold War backed 0:12:02.400 --> 0:12:05.560 the Republic of China on Taiwan, which had fled to 0:12:05.559 --> 0:12:10.000 Taiwan after the Communist takeover, and UH, the US wanted 0:12:10.040 --> 0:12:12.960 to continue to do that, but China didn't want the 0:12:13.040 --> 0:12:17.560 US to recognize. UH basically recognized that as the government 0:12:17.600 --> 0:12:20.319 of China. So so they kind of agreed to disagree, 0:12:20.400 --> 0:12:23.760 and they said, uh, there's one China. The United States 0:12:23.800 --> 0:12:28.080 won't recognize an independent Taiwan. But but the differences between 0:12:28.320 --> 0:12:33.720 Taiwan and China had to be resolved peacefully. Now, the 0:12:33.720 --> 0:12:38.040 deal between China and the United States doesn't take into 0:12:38.120 --> 0:12:42.640 account a trade war between the two nations, and that 0:12:42.840 --> 0:12:46.880 is also something that the President elect Donald Trump has 0:12:47.360 --> 0:12:49.680 at least sparked debate about, wonder if you could bring 0:12:49.679 --> 0:12:50.920 that into there, is it going to be a quid 0:12:50.960 --> 0:12:54.640 pro quo on Taiwan and trade. Well, that is exactly 0:12:54.960 --> 0:12:59.640 what the President elect raised explicitly in his interview over 0:12:59.640 --> 0:13:02.640 the week end. He said, we won't necessarily adhere to 0:13:02.679 --> 0:13:06.520 the One China policy unless China makes a deal with US. 0:13:07.280 --> 0:13:10.319 Uh and UH. That raises all kinds of questions because 0:13:11.559 --> 0:13:14.760 for the past week after the Taiwan call um, all 0:13:14.800 --> 0:13:17.439 of his cirrocuits, including the Vice president elect, have been 0:13:17.440 --> 0:13:21.800 saying that the call did not change the US commitment 0:13:21.880 --> 0:13:24.959 to the One China policy. And now Trump has raised 0:13:24.960 --> 0:13:27.600 the prospect that it does and and and it really 0:13:27.760 --> 0:13:29.960 is kind of a at least China will see it 0:13:30.000 --> 0:13:32.920 as a dagger to the heart because because this is 0:13:32.960 --> 0:13:35.840 something that even just in the past twenty four hours, 0:13:35.880 --> 0:13:37.840 the Chinese state media has come out and said this 0:13:37.920 --> 0:13:42.520 is absolutely non negotiable, and it's the foundation and relationship 0:13:42.600 --> 0:13:45.080 and we have nothing to talk about with the United States. 0:13:45.480 --> 0:13:47.200 UH if they're going to go down this path. So 0:13:47.240 --> 0:13:50.480 how can China potentially retaliate for the US rejecting the 0:13:50.480 --> 0:13:53.480 one China pass. Oh, it's you know, it's it's so 0:13:54.600 --> 0:13:59.040 u disheartening to start thinking about the deterioration and relationship 0:13:59.120 --> 0:14:02.600 that could take play. Um. If you know, if if 0:14:02.640 --> 0:14:07.760 this intensifies, Um, there's any number of ways that the 0:14:07.840 --> 0:14:10.840 relationship could break down. And and you know, maybe Trump's 0:14:10.840 --> 0:14:13.240 defenders will say, well, this is this is hardball, this 0:14:13.360 --> 0:14:18.000 is brinksmanship, but it's it's certainly, um, the most intense 0:14:18.080 --> 0:14:21.240 kind of brinksmanship that you can imagine with China. Can 0:14:21.280 --> 0:14:24.400 you speculate perhaps or give us some thoughts on Terry 0:14:24.440 --> 0:14:27.200 Brandt's that he is the governor of Iowa and he 0:14:27.240 --> 0:14:31.520 has been nominated to be the ambassador to China, and 0:14:31.560 --> 0:14:36.360 he's got a relationship with the president Chi jing Ping, right, 0:14:36.440 --> 0:14:38.840 he has a relationship going back to when Chi Japing 0:14:38.880 --> 0:14:43.480 actually studied in Iowa and also visited Iowa subsequently. Um, 0:14:43.520 --> 0:14:46.440 you know, the Chinese talk about friends of China, and 0:14:46.440 --> 0:14:49.480 it's good that there's a relationship there. I don't think 0:14:49.480 --> 0:14:52.560 it will change the substance of any of the issues 0:14:52.600 --> 0:14:56.000 between the United States and China. And ultimately, there's there's 0:14:56.000 --> 0:14:58.520 one president and he's going to set the tone for 0:14:58.640 --> 0:15:01.280 what that relationship there is going to be uh and 0:15:01.320 --> 0:15:04.160 it looks like it's gonna be a rocky one. So Patrick, 0:15:04.280 --> 0:15:10.640 as an investor, how do you trade on this? It's Uh. 0:15:10.680 --> 0:15:13.640 I think the market recently has been sort of blithely 0:15:14.360 --> 0:15:19.240 ignoring the prospect of trade disruptions, so that they've been 0:15:19.280 --> 0:15:22.320 looking at the upside of, you know, fiscal stimulus from 0:15:22.320 --> 0:15:25.440 a Trump administration. Uh. And I think they've been sort 0:15:25.440 --> 0:15:28.000 of rushing aside and saying Trump can't possibly mean what 0:15:28.080 --> 0:15:30.640 he says when it comes to trade, because that would 0:15:30.640 --> 0:15:34.040 be too disruptive. And I have all along taken him 0:15:34.160 --> 0:15:37.480 very seriously when he talks about trade. Uh And and 0:15:38.080 --> 0:15:41.040 because ever since the nineteen eighties, Trump has had a 0:15:41.120 --> 0:15:44.480 very consistent line and saying the trade is not good 0:15:44.520 --> 0:15:47.160 for the United States, that the US loses from trade, 0:15:47.640 --> 0:15:51.120 and so I wouldn't I'm not at all surprised that 0:15:51.160 --> 0:15:53.520 he's taking a very hard line on it. What's interesting 0:15:53.560 --> 0:15:56.560 about this, though, is that it has this added component 0:15:56.600 --> 0:15:59.200 of geopolitical risk that's being added on top of it 0:15:59.400 --> 0:16:01.800 in an attempt the game leverage on China. So, Patrick, 0:16:02.240 --> 0:16:05.080 if you're right, or let's say somebody wants to execute 0:16:05.080 --> 0:16:08.120 a trade based on the view uh that that President 0:16:08.120 --> 0:16:10.680 Electrump is very serious and there could be some sort 0:16:10.760 --> 0:16:15.640 of escalating trade scuffle between the US and China. How 0:16:15.680 --> 0:16:17.680 could somebody play that, Well, I think you've got to 0:16:17.680 --> 0:16:22.400 look at countries companies that are exposed to China UM, 0:16:22.560 --> 0:16:25.680 which have a lot of their uh, a lot of 0:16:25.680 --> 0:16:27.680 the revenues or a lot of their profits from China. 0:16:28.440 --> 0:16:32.160 Major US exporters because this like this trade policy. Well, 0:16:32.400 --> 0:16:36.360 you know, he already tweeted about Boeing. Uh, There's Caterpillar, 0:16:36.440 --> 0:16:39.120 There's a whole host of other company companies in the 0:16:39.200 --> 0:16:42.920 United States that that have UH. China is a major 0:16:42.960 --> 0:16:45.200 part of their market, and so any kind of breakdown 0:16:45.240 --> 0:16:47.800 in relationship or tension over that relationship is going to 0:16:47.920 --> 0:16:52.200 cast a shadow over over their outlook. The Boston Consulting 0:16:52.280 --> 0:16:55.440 Group predicts that China is that the consumer market in 0:16:55.560 --> 0:16:57.920 China is going to reach at least six and a 0:16:57.960 --> 0:17:01.680 half trillion dollars by any that's got to be at 0:17:01.760 --> 0:17:05.800 least potentially positive for American companies, right like retailers, Macy's, 0:17:05.800 --> 0:17:08.199 Costco Target, don't they want to bet on that Chinese 0:17:08.200 --> 0:17:12.520 middle class. It's potentially huge UM, but a couple of 0:17:12.560 --> 0:17:16.760 things need to happen. The Chinese need to UH dis safe. 0:17:16.840 --> 0:17:19.359 They need to encourage the Chinese consumer, and I would 0:17:19.400 --> 0:17:22.200 argue by keeping the reman be strong UH is one 0:17:22.240 --> 0:17:24.520 thing that they can do to to accomplish that. The 0:17:24.560 --> 0:17:26.359 second thing is that they need to open their markets. 0:17:26.359 --> 0:17:29.199 They need to be persuaded that opening the markets is 0:17:29.200 --> 0:17:31.680 not bad for them, it's actually good for them. UH. 0:17:31.720 --> 0:17:34.320 So some rebalancing needs to take place in the relationship 0:17:34.359 --> 0:17:37.240 between China and the United States. The question is what 0:17:37.359 --> 0:17:40.040 are the tools that the US can use to constructively 0:17:40.119 --> 0:17:42.199 bring China to the table on that Patrick, What are 0:17:42.200 --> 0:17:45.400 you looking for specifically that could be uh the one 0:17:46.040 --> 0:17:49.080 straw too far that means that the relations cannot be 0:17:49.080 --> 0:17:51.880 repaired between US and China. I think the danger here 0:17:52.080 --> 0:17:54.280 is conflicting or mixed signals. You know, it's one thing 0:17:54.320 --> 0:17:57.119 to change policy. It's another thing, which is what's happened 0:17:57.119 --> 0:18:00.719 over the past week, to say we're not Asian policy, 0:18:00.800 --> 0:18:03.280 then say we are changing the policy, especially on something 0:18:03.280 --> 0:18:06.119 that's very crucial to China. So you don't want to 0:18:06.160 --> 0:18:10.879 get into such situation where other countries China, lots of 0:18:10.880 --> 0:18:14.480 other kinds of Japan Taiwan are questioning what the U, 0:18:14.800 --> 0:18:17.720 what the real US policy is, and where the real 0:18:17.840 --> 0:18:20.720 red lines are, because that could lead to a serious miscalculation. 0:18:21.119 --> 0:18:23.440 Thank you very much for spending time with us. Patrick 0:18:23.640 --> 0:18:29.120 Chavanicki is a managing director chief strategist Silver Crest Asset Management. 0:18:41.480 --> 0:18:45.679 Oil prices on a tear up, uh more than double 0:18:45.760 --> 0:18:48.919 where they were in February. Can of this last? I 0:18:48.920 --> 0:18:52.280 want to bring in John Killeduff, founding partner of Again Capital, 0:18:52.280 --> 0:18:55.160 who has gotten oil right time and time again. John, 0:18:55.200 --> 0:18:58.080 thank you so much for being with us. Thank you. 0:18:58.200 --> 0:19:01.680 Good morning, good morning, so almost good afternoon, not quite yet. 0:19:02.119 --> 0:19:05.200 We're getting there, John. What's your take on this latest 0:19:05.359 --> 0:19:08.600 leg up in oil prices in Saudi Arabia's planned to 0:19:08.680 --> 0:19:10.880 cut more than they originally agreed to. Do you think 0:19:10.880 --> 0:19:14.880 that this is actually going to happen and this will last? Yeah? 0:19:14.880 --> 0:19:17.800 That m that bit of a throwdown over the weekend 0:19:17.840 --> 0:19:20.200 after the aftermath of the meeting by the Stati oil 0:19:20.280 --> 0:19:24.639 minister I think punctuated uh, the sort of change in 0:19:25.080 --> 0:19:29.720 viewpoint and actions by the kingdom. Um, they have really 0:19:29.920 --> 0:19:33.520 uh you know, buckled down here and and and given 0:19:33.640 --> 0:19:36.480 up quite a bit to make this deal. Happen. I'm 0:19:36.520 --> 0:19:40.560 basically nothing was required of Iran, for example, to come 0:19:40.600 --> 0:19:44.080 along here, and even Russian production was fully accommodated in 0:19:44.359 --> 0:19:47.439 the hopes of getting some kind of stabilization that the 0:19:47.440 --> 0:19:51.720 Staddi's desperately want and needs. So um, and I think 0:19:51.760 --> 0:19:55.760 the market has reacted appropriately to this sea change. The 0:19:55.880 --> 0:19:57.800 question is there's a lot of moving parts in this 0:19:57.880 --> 0:20:00.879 market now more than ever before. That's gonna you know, 0:20:01.080 --> 0:20:04.120 make the upcoming months here, I think quite bolical, Well, 0:20:04.119 --> 0:20:06.840 give us, give us a little window onto this if 0:20:06.840 --> 0:20:09.359 you can sch on. I mean, I think from oil 0:20:09.440 --> 0:20:12.520 independence in the United States, a potential tweet from the 0:20:12.560 --> 0:20:18.920 President elect and fifty three dollars for a barrel of oil. Yeah. 0:20:18.920 --> 0:20:21.960 And and while it's a terrific you know, rally off 0:20:21.960 --> 0:20:23.919 the recent lows we've got as low as forty two 0:20:24.040 --> 0:20:26.840 twenty back in November. Um, you know, ten bucks is 0:20:26.880 --> 0:20:29.520 ten bucks for sure, but you know it's it's not 0:20:29.760 --> 0:20:31.840 it's not really all that terrific in a reward if 0:20:31.880 --> 0:20:34.520 you if you think about it from a longer term perspective, 0:20:34.520 --> 0:20:36.760 when we were you know, at a hundred a couple 0:20:36.800 --> 0:20:39.919 of years ago. Um. But the problem, the Saudis are 0:20:39.920 --> 0:20:42.320 going to have now is that we're already seeing it 0:20:42.359 --> 0:20:46.359 as the resurgence in US shell production which kicked off 0:20:46.400 --> 0:20:49.000 this whole, uh, this whole things. We've been in a 0:20:49.119 --> 0:20:53.639 low oil prices when the Saudis oversupplied the market in 0:20:53.760 --> 0:20:56.080 order to break the back, or or they thought they 0:20:56.119 --> 0:20:58.200 could be able to break the back of the shell producers, 0:20:58.200 --> 0:21:00.439 but they ended up the piers breaking their back as 0:21:00.480 --> 0:21:03.600 much as anybody else's, So that's gonna be a problem 0:21:03.640 --> 0:21:07.080 for them. And also to compliance is a problem. And 0:21:07.160 --> 0:21:10.919 even just last month's Daddy output rose to another new record. 0:21:11.359 --> 0:21:13.639 The levels that all these guys are producing, that all 0:21:13.680 --> 0:21:18.800 these countries are producing at is extraordinary, and there's going 0:21:18.880 --> 0:21:20.840 to be a lot of cutting that has to occur 0:21:21.440 --> 0:21:23.800 for the production goals to be reached. And to me, 0:21:23.880 --> 0:21:28.320 it's it's almost seems unattainable, and certainly given their history 0:21:28.320 --> 0:21:30.639 of trying to do this, it doesn't work out. So 0:21:30.800 --> 0:21:34.960 right now oil is about fifty three barrel. In February 0:21:34.960 --> 0:21:37.800 it was about twenty six dollars a barrel. Where will 0:21:37.800 --> 0:21:40.879 we be in six months, Well, there's there's likely to 0:21:40.920 --> 0:21:46.040 be some more upside here, but I think that as 0:21:47.000 --> 0:21:50.399 the details come out, and if what the market is 0:21:50.400 --> 0:21:54.480 going to punish come January and February is the lack 0:21:54.520 --> 0:21:58.520 of production cuts if they don't materialize. So I think 0:21:58.600 --> 0:22:01.359 that at the very least or um in the short 0:22:01.480 --> 0:22:03.800 term it's some cold weather, we could probably push upwards 0:22:03.840 --> 0:22:05.320 at fifty five, but I don't think we get much 0:22:05.359 --> 0:22:08.600 more than that, and I think the downside risk remains 0:22:09.040 --> 0:22:13.200 the greater risks to this market because of things beyond 0:22:13.200 --> 0:22:17.760 oil supplies. You know, we come into a demand season 0:22:17.800 --> 0:22:20.600 that lessons come the spring, and we also have a 0:22:20.640 --> 0:22:23.119 strong dollar that's going to be contended with here and 0:22:23.200 --> 0:22:25.919 has to be still priced into this market. There's been 0:22:25.960 --> 0:22:27.760 a breakdown in that correlation, and I expect that to 0:22:27.800 --> 0:22:29.920 come back into the market. So let's say the dollar 0:22:30.040 --> 0:22:34.120 does strengthen and production cuts aren't as significant as people 0:22:34.119 --> 0:22:37.240 are expecting, how low could the price go. It's pretty 0:22:37.240 --> 0:22:39.119 easy to see it get back down towards the recent 0:22:39.160 --> 0:22:41.199 lows near forty dollars a barrel. I think at this 0:22:41.240 --> 0:22:44.760 point that that's the easy shot. The question then becomes, 0:22:44.880 --> 0:22:47.880 you know, will the production cuts take hold at all 0:22:48.400 --> 0:22:50.760 or does the deal completely fall apart? And then the 0:22:50.800 --> 0:22:55.560 market goes into another deep dive price wise. Um, that's 0:22:55.600 --> 0:22:59.560 a bit of an Allier view, and but it's one 0:22:59.600 --> 0:23:03.800