1 00:00:02,360 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,000 Speaker 2: Terminal and the Bloomberg Business app. We begin this out 10 00:00:37,000 --> 00:00:39,680 Speaker 2: with the bond market, questioning FED check Kevin Watch's inflation 11 00:00:39,800 --> 00:00:43,000 Speaker 2: fighting credibility, sending thirty year bond yields to the highest 12 00:00:43,080 --> 00:00:46,560 Speaker 2: level since two thousand and seven. Barbara Ryan Hardevoor Investment 13 00:00:46,600 --> 00:00:49,080 Speaker 2: Management joins us now for more. Barbara, good morning, Good morning. 14 00:00:49,120 --> 00:00:51,120 Speaker 2: What was your reaction to that yesterday afternoon. 15 00:00:51,400 --> 00:00:53,920 Speaker 3: Look, he's falling into the same chap that's so many 16 00:00:53,960 --> 00:00:56,560 Speaker 3: FED chair people fall into when they take the role, 17 00:00:57,120 --> 00:01:00,800 Speaker 3: and it's a communication blunder. It's sending the wrong signals 18 00:01:00,880 --> 00:01:03,320 Speaker 3: to the market. And this is what we were worried 19 00:01:03,320 --> 00:01:06,039 Speaker 3: about with a nude fair chad person coming in is 20 00:01:06,080 --> 00:01:09,320 Speaker 3: that equity markets are going to get nervous. You saw 21 00:01:09,319 --> 00:01:11,119 Speaker 3: the same thing with Jerome pal there was an eighteen 22 00:01:11,120 --> 00:01:13,440 Speaker 3: percent correction within the S and P five hundred when 23 00:01:13,480 --> 00:01:16,080 Speaker 3: he said we're a long way from neutral, a very 24 00:01:16,440 --> 00:01:19,640 Speaker 3: offhanded remark. And I think you do have a credibility 25 00:01:19,640 --> 00:01:21,920 Speaker 3: issue at this point. So the Fed is going to 26 00:01:21,959 --> 00:01:24,800 Speaker 3: need to either get inflation under control or the bond 27 00:01:24,800 --> 00:01:27,000 Speaker 3: market's going to do it for it. And we do 28 00:01:27,120 --> 00:01:29,960 Speaker 3: see on some of our forward looking indicators that inflation 29 00:01:30,080 --> 00:01:33,080 Speaker 3: should be rolling over. Income growth is starting to slow, 30 00:01:33,160 --> 00:01:36,680 Speaker 3: consumer spending is starting to slow, but the fact is 31 00:01:36,680 --> 00:01:39,240 Speaker 3: is it may not be fast enough to stop. Probably 32 00:01:39,520 --> 00:01:42,640 Speaker 3: more equity market weakness as a result of bond yields climbing. 33 00:01:42,800 --> 00:01:44,560 Speaker 2: Lots of reaction coming from Wall Street. One of my 34 00:01:44,560 --> 00:01:46,959 Speaker 2: favorite tastes came from aditya bave IV Bank for America. 35 00:01:47,040 --> 00:01:49,640 Speaker 2: Duffed and confused, and he said the following, we think 36 00:01:49,640 --> 00:01:53,160 Speaker 2: the need to re establish credibility increases the probability of 37 00:01:53,160 --> 00:01:54,160 Speaker 2: a high con September. 38 00:01:54,400 --> 00:01:55,800 Speaker 4: Do you agree, Well, I. 39 00:01:55,720 --> 00:01:58,080 Speaker 3: Think the inflation data is going to come in a 40 00:01:58,120 --> 00:02:01,920 Speaker 3: lot softer, So all of our inflation indicators are rolling 41 00:02:01,960 --> 00:02:05,240 Speaker 3: over at this point, so the market may indeed do 42 00:02:05,320 --> 00:02:07,160 Speaker 3: some of the Fed's work for it, which is what 43 00:02:07,280 --> 00:02:10,200 Speaker 3: Warsh was confusing the markets about yesterday. I think this 44 00:02:10,280 --> 00:02:13,560 Speaker 3: lack of forward guidance is coming at a particularly bad time, 45 00:02:14,080 --> 00:02:15,880 Speaker 3: and I think that this kind of pulling back and 46 00:02:15,919 --> 00:02:18,440 Speaker 3: relying on some of these task forces, While it's a 47 00:02:18,480 --> 00:02:21,680 Speaker 3: great idea in theory, the execution of it seems a 48 00:02:21,720 --> 00:02:23,600 Speaker 3: little bit murky at this point, which I think is 49 00:02:23,720 --> 00:02:25,720 Speaker 3: also confusing the bond market. 50 00:02:25,480 --> 00:02:28,440 Speaker 1: Given some of the confusion and concerns around a lack 51 00:02:28,440 --> 00:02:30,400 Speaker 1: of credibility that the Fed's going to follow through and 52 00:02:30,480 --> 00:02:33,400 Speaker 1: anchoring inflation expectations. Do you think that that puts the 53 00:02:33,440 --> 00:02:36,240 Speaker 1: tech trade more at risk, considering that it's a higher 54 00:02:36,320 --> 00:02:38,440 Speaker 1: duration asset increasingly. 55 00:02:37,840 --> 00:02:39,400 Speaker 4: As a result of its capex plants. 56 00:02:39,480 --> 00:02:41,280 Speaker 3: Well, I think we've got two things going on. So 57 00:02:41,480 --> 00:02:44,000 Speaker 3: number one, the tech trade is really as a result 58 00:02:44,080 --> 00:02:47,640 Speaker 3: of the hyperscalers burning through their cash flow not slowing 59 00:02:47,639 --> 00:02:51,680 Speaker 3: down on their capex spending. Eventually, the memory shortage is 60 00:02:51,720 --> 00:02:54,880 Speaker 3: going to get resolved with more memory. So there's this 61 00:02:55,000 --> 00:02:57,560 Speaker 3: concern that you've got this big cash flow burn with 62 00:02:57,600 --> 00:03:00,600 Speaker 3: the tech stocks. You're not seeing the big productivity lifts 63 00:03:00,600 --> 00:03:02,960 Speaker 3: from AI just yet, although we all use it in 64 00:03:03,000 --> 00:03:04,600 Speaker 3: our day to day lives and are finding it to 65 00:03:04,639 --> 00:03:07,840 Speaker 3: be incredibly helpful. I think that you've got this concern 66 00:03:07,919 --> 00:03:10,920 Speaker 3: that they're burning through so much cash flow, and additionally, 67 00:03:11,320 --> 00:03:14,760 Speaker 3: this equity supply that's hitting the market is really big, 68 00:03:14,960 --> 00:03:17,720 Speaker 3: and the buybacks and the mergers are just beginning to 69 00:03:17,760 --> 00:03:20,560 Speaker 3: offset it. This is the first time since two thousand 70 00:03:21,000 --> 00:03:24,079 Speaker 3: in this year that you're going to see net equity 71 00:03:24,160 --> 00:03:28,840 Speaker 3: issuance and net equity demand kind of coming out of it, 72 00:03:28,960 --> 00:03:33,600 Speaker 3: So buybacks and also mergers really being even so, it's 73 00:03:33,639 --> 00:03:35,600 Speaker 3: a lot to hit the tech at the tech trade 74 00:03:35,600 --> 00:03:36,000 Speaker 3: at this point. 75 00:03:36,120 --> 00:03:37,840 Speaker 1: About a year ago, I was speaking with Howard Marks 76 00:03:37,880 --> 00:03:39,000 Speaker 1: and he said, if you were going to get into 77 00:03:39,040 --> 00:03:41,280 Speaker 1: the tech trade, even though he's typically a credit investor, 78 00:03:41,280 --> 00:03:43,120 Speaker 1: he'd rather be in the equity than the credit because 79 00:03:43,120 --> 00:03:44,360 Speaker 1: he's getting paid for the equity in. 80 00:03:44,400 --> 00:03:45,720 Speaker 4: Terms of the potential upside. 81 00:03:45,760 --> 00:03:48,240 Speaker 1: Sure, I wonder if that equation has flipped right now, 82 00:03:48,320 --> 00:03:50,600 Speaker 1: whether potentially you're getting paid to be in the bond 83 00:03:50,640 --> 00:03:52,800 Speaker 1: side of things and not necessarily on the equity side 84 00:03:52,800 --> 00:03:55,080 Speaker 1: as a result of the dynamic, as a result of 85 00:03:55,080 --> 00:03:56,840 Speaker 1: how high yields have gotten well, I. 86 00:03:56,760 --> 00:03:59,320 Speaker 3: Think there is some there is some truth to that. However, 87 00:03:59,360 --> 00:04:01,160 Speaker 3: you have to think of it this way. Credit spreads 88 00:04:01,160 --> 00:04:03,600 Speaker 3: have just started to weaken really over the past ten days. 89 00:04:03,640 --> 00:04:07,000 Speaker 3: You're about ten basis points wider on ig credit. But 90 00:04:07,080 --> 00:04:08,840 Speaker 3: I think you have to do a lot of homework 91 00:04:08,840 --> 00:04:12,960 Speaker 3: as a credit investor in these hyperscalers off balance sheet 92 00:04:13,080 --> 00:04:16,320 Speaker 3: data center backed bonds that are being issued. You really 93 00:04:16,360 --> 00:04:19,640 Speaker 3: need to find out whose balance sheet is being decked 94 00:04:19,640 --> 00:04:22,320 Speaker 3: against these interest payments. And that's going to be a 95 00:04:22,360 --> 00:04:24,799 Speaker 3: really tricky one even for the most astute of credit 96 00:04:24,839 --> 00:04:25,800 Speaker 3: investors to look into. 97 00:04:25,960 --> 00:04:27,760 Speaker 5: So you see something people want to stay away from 98 00:04:27,800 --> 00:04:28,760 Speaker 5: for the remainder of the year. 99 00:04:29,320 --> 00:04:31,119 Speaker 3: Well, you know, when we take a look at the 100 00:04:31,120 --> 00:04:33,080 Speaker 3: internals of the market, look the S and P five 101 00:04:33,160 --> 00:04:36,159 Speaker 3: hundred just slip below it's fifty day moving average. There's 102 00:04:36,560 --> 00:04:38,600 Speaker 3: quite a ways to go until it hits its two 103 00:04:38,680 --> 00:04:43,760 Speaker 3: hundred day. But the American Association of Individual Investors it's 104 00:04:43,760 --> 00:04:47,120 Speaker 3: thirty percent bulls, it's forty two percent bears. That could 105 00:04:47,160 --> 00:04:48,559 Speaker 3: mean that you have a little bit of a counter 106 00:04:48,600 --> 00:04:51,120 Speaker 3: trend rally. But there's also one thing that we're not 107 00:04:51,160 --> 00:04:54,120 Speaker 3: talking about. That's bugging the market, which is the midterm elections. 108 00:04:54,520 --> 00:04:58,240 Speaker 3: You know, markets do not like uncertainty. Generally, those summers 109 00:04:58,279 --> 00:05:01,280 Speaker 3: before the midterm elections can be very ugly. You don't 110 00:05:01,320 --> 00:05:03,360 Speaker 3: necessarily need to get all the way to election day, 111 00:05:03,400 --> 00:05:06,599 Speaker 3: but you probably need to get to maybe mid October 112 00:05:07,000 --> 00:05:09,880 Speaker 3: for oil prices to come down, for the inflation data 113 00:05:09,880 --> 00:05:12,120 Speaker 3: to roll over to really probably put in a more 114 00:05:12,160 --> 00:05:13,159 Speaker 3: sustainable bottom. 115 00:05:13,279 --> 00:05:15,840 Speaker 5: It's not also just the midterm election. It's also the 116 00:05:15,880 --> 00:05:18,320 Speaker 5: conflict in the Middle East. The market thought the president 117 00:05:18,360 --> 00:05:20,360 Speaker 5: was going to take a diplomatic group, and right now 118 00:05:20,360 --> 00:05:23,080 Speaker 5: we actually see more strikes and it's spreading. Egypt's getting hit, 119 00:05:23,120 --> 00:05:25,880 Speaker 5: you see attacks in the Black Sea and the Caspian. 120 00:05:26,360 --> 00:05:28,600 Speaker 5: The market's starting to pay more attention to this than 121 00:05:28,640 --> 00:05:30,159 Speaker 5: they were, say, two three weeks ago. 122 00:05:30,279 --> 00:05:32,599 Speaker 3: You'd have to because of the price of oil. Right 123 00:05:32,640 --> 00:05:35,280 Speaker 3: the price of oil is going to hit consumers pockets 124 00:05:35,320 --> 00:05:40,279 Speaker 3: through the transition mechanism of gasoline prices and other distolate products, fuel, 125 00:05:40,279 --> 00:05:43,160 Speaker 3: all those types of things. You're even starting to see 126 00:05:43,279 --> 00:05:48,000 Speaker 3: I think probably some fatigue on behalf of many of 127 00:05:48,040 --> 00:05:52,039 Speaker 3: the President's supporters right saying we've had a lot of this, 128 00:05:52,200 --> 00:05:54,120 Speaker 3: We've had enough of it at this point, and you 129 00:05:54,160 --> 00:05:56,719 Speaker 3: need to start to focus back on domestic policies as well, 130 00:05:56,720 --> 00:05:59,640 Speaker 3: because domestic policies will come knocking out the doors sooner 131 00:05:59,640 --> 00:06:00,159 Speaker 3: than you think. 132 00:06:00,240 --> 00:06:03,960 Speaker 2: Let's not do the midterms yet. Still July, when people 133 00:06:04,000 --> 00:06:05,400 Speaker 2: start talking about the terms, I'm not there. 134 00:06:05,520 --> 00:06:09,159 Speaker 1: I think, you know, I'll take the you're off, so 135 00:06:09,400 --> 00:06:10,360 Speaker 1: I'll start talking about it. 136 00:06:10,400 --> 00:06:11,400 Speaker 4: You know what October first? 137 00:06:11,480 --> 00:06:13,560 Speaker 3: Yes, actually Labor Day is that's. 138 00:06:13,440 --> 00:06:14,000 Speaker 4: Where it started. 139 00:06:14,120 --> 00:06:16,960 Speaker 5: Either day, I said, I give you till September seventh, 140 00:06:17,000 --> 00:06:17,840 Speaker 5: and to September. 141 00:06:18,080 --> 00:06:21,640 Speaker 3: All right, well Monday is August, so you're certainly getting there. 142 00:06:21,640 --> 00:06:24,200 Speaker 3: But look, you have the underlying strength of earnings while look, 143 00:06:24,240 --> 00:06:26,880 Speaker 3: the market's certainly to come for us. No, no, no, I'm 144 00:06:26,920 --> 00:06:28,000 Speaker 3: just trying to give you some facts that. 145 00:06:28,000 --> 00:06:28,599 Speaker 5: You need to think about. 146 00:06:28,640 --> 00:06:29,320 Speaker 2: Let's take a therapy. 147 00:06:29,360 --> 00:06:31,719 Speaker 4: Carry on, please, yes, that's. 148 00:06:31,600 --> 00:06:34,440 Speaker 3: Right off term from portfolio manager to therapist. So, look, 149 00:06:34,480 --> 00:06:36,640 Speaker 3: you do have the underlying strength of the equity market. 150 00:06:36,680 --> 00:06:39,400 Speaker 3: You've got the underlying strength of earnings. Sales growth is 151 00:06:39,520 --> 00:06:42,520 Speaker 3: really off the charts at this point, and the beats 152 00:06:42,560 --> 00:06:45,440 Speaker 3: are being rewarded, which is signs of a healthy market. 153 00:06:45,680 --> 00:06:47,680 Speaker 3: But look, we haven't had a ten percent correction in 154 00:06:47,760 --> 00:06:50,039 Speaker 3: quite some time. Even the market down draft that you 155 00:06:50,080 --> 00:06:53,080 Speaker 3: had in March or excuse me, late February into early March, 156 00:06:53,520 --> 00:06:55,800 Speaker 3: that one wasn't a ten percent correction. So it's not 157 00:06:55,920 --> 00:06:58,799 Speaker 3: surprising to see some some weakness, a lot of questions 158 00:06:58,839 --> 00:07:01,120 Speaker 3: about the hyperscalers of the point. Those things need to 159 00:07:01,120 --> 00:07:03,320 Speaker 3: get resolved, and the FED is not helping. 160 00:07:03,800 --> 00:07:07,280 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this 161 00:07:16,640 --> 00:07:19,080 Speaker 2: poor thank you Thanky research writing. We have been super 162 00:07:19,080 --> 00:07:21,720 Speaker 2: bullish on refining and think there is a major crisis here. 163 00:07:21,960 --> 00:07:24,200 Speaker 2: We argue people are looking at the wrong oil price. 164 00:07:24,320 --> 00:07:28,560 Speaker 2: Crude is not the issue. Gasoline distolate and jeb are 165 00:07:28,840 --> 00:07:31,640 Speaker 2: Paul joined us now for more porulgo mornic. How small? 166 00:07:31,680 --> 00:07:33,640 Speaker 2: How thin is the cushion? How bad are things? 167 00:07:34,120 --> 00:07:36,600 Speaker 6: Well, it's just that the refiners here, for example, refiners 168 00:07:36,600 --> 00:07:38,600 Speaker 6: are running it's ninety six percent utilization. 169 00:07:39,080 --> 00:07:41,240 Speaker 2: Usual it is that to run at ninety six percent, that's. 170 00:07:41,120 --> 00:07:43,120 Speaker 6: What we want them and it's not unusual. I mean, 171 00:07:43,120 --> 00:07:45,600 Speaker 6: for example, in Mexico that would be fifty percent, you know, 172 00:07:45,640 --> 00:07:48,200 Speaker 6: but it's an amazing performance and it does raise the 173 00:07:48,280 --> 00:07:51,040 Speaker 6: risk around refining because obviously when they're running that hard 174 00:07:51,160 --> 00:07:53,760 Speaker 6: hurricane season coming up El Nino. We went through a 175 00:07:53,760 --> 00:07:56,760 Speaker 6: couple of heat waves and that causes issues, so I'm 176 00:07:56,800 --> 00:07:59,560 Speaker 6: worried that there may be more problems. But the big 177 00:07:59,600 --> 00:08:02,360 Speaker 6: idea is that basically wholesale gasoline is one hundred and 178 00:08:02,400 --> 00:08:05,480 Speaker 6: forty dollars a barrel. Brent is at ninety and that 179 00:08:05,640 --> 00:08:08,800 Speaker 6: margin is absolutely massive in terms of profitability. As I say, 180 00:08:09,040 --> 00:08:12,960 Speaker 6: it's a margin, not a price. The seventy dollars refining margin, 181 00:08:13,680 --> 00:08:16,040 Speaker 6: and that's telling you that the tightness is in the 182 00:08:16,040 --> 00:08:19,400 Speaker 6: refining system. So there's plenty, more or less plenty of crude, 183 00:08:19,440 --> 00:08:21,640 Speaker 6: a lot of it driven by China's behavior and by 184 00:08:21,680 --> 00:08:24,800 Speaker 6: the SPR which is another big turning point by the way, 185 00:08:24,840 --> 00:08:26,960 Speaker 6: because when we run out of SPR, which should happen 186 00:08:27,000 --> 00:08:31,120 Speaker 6: around September, that'll massively change the dynamics of the WTI 187 00:08:31,240 --> 00:08:32,800 Speaker 6: market here in the US. And what it would be 188 00:08:32,840 --> 00:08:33,760 Speaker 6: very bullish. 189 00:08:33,400 --> 00:08:35,439 Speaker 5: When it comes to the products which is most vulnerable 190 00:08:35,520 --> 00:08:36,920 Speaker 5: right now, Well, jet. 191 00:08:36,840 --> 00:08:39,520 Speaker 6: Fuel sort of sits above distillate as the hardest to make, 192 00:08:39,559 --> 00:08:41,600 Speaker 6: and the industry has done an amazing job of raising 193 00:08:41,679 --> 00:08:44,080 Speaker 6: their yield and really addressing the jet fuel crisis. And 194 00:08:44,120 --> 00:08:46,360 Speaker 6: the reason they do that is the highest margin product. 195 00:08:46,440 --> 00:08:48,680 Speaker 6: So jet fuel has actually not been the problem that 196 00:08:48,720 --> 00:08:52,319 Speaker 6: we anticipated, basically because we didn't realize the refining industry 197 00:08:52,320 --> 00:08:55,040 Speaker 6: could generate so much more jet fuel than as they've 198 00:08:55,040 --> 00:08:57,520 Speaker 6: been able to. The tightness at the moment, which is 199 00:08:57,520 --> 00:08:59,760 Speaker 6: interesting is the area that's normally not that tight, which 200 00:08:59,800 --> 00:09:02,480 Speaker 6: is gasoline. And that's where we're watching the infantries go 201 00:09:02,600 --> 00:09:05,360 Speaker 6: way below the bottom of the range. And that's basically 202 00:09:05,440 --> 00:09:08,360 Speaker 6: because they're pushing so much into jet and diesel that 203 00:09:08,400 --> 00:09:11,600 Speaker 6: you're actually sucking down the biggest infantry, which is gasoline. 204 00:09:11,760 --> 00:09:13,800 Speaker 6: And then of course I said, you're drawing down the 205 00:09:13,880 --> 00:09:15,400 Speaker 6: spr very rapidly as well. 206 00:09:15,440 --> 00:09:17,640 Speaker 5: But on the SPR and I'm just Secretary Chris Wright says, 207 00:09:17,679 --> 00:09:21,679 Speaker 5: it's a quote long way from operational minimum. You think 208 00:09:21,720 --> 00:09:23,360 Speaker 5: there's an issue coming in September. 209 00:09:23,760 --> 00:09:26,160 Speaker 6: Well, that's depending on the rate that the weekly it's 210 00:09:26,160 --> 00:09:28,280 Speaker 6: being pulled down. But the refiners now find it a 211 00:09:28,280 --> 00:09:31,160 Speaker 6: great deal because they're basically taking physical barrels, they're not 212 00:09:31,200 --> 00:09:33,559 Speaker 6: paying for them, and they owe physical barrels in the future, 213 00:09:33,920 --> 00:09:36,520 Speaker 6: and as you pay back more barrels, but in the future, 214 00:09:36,559 --> 00:09:38,880 Speaker 6: which is a much lower something of a lower price. 215 00:09:39,440 --> 00:09:43,040 Speaker 6: So the refiners want the crude. There's a big debate 216 00:09:43,120 --> 00:09:45,280 Speaker 6: that hasn't really been addressed by the DOE of where 217 00:09:45,320 --> 00:09:48,520 Speaker 6: the bottom of the SPR lies. It's They put out 218 00:09:48,559 --> 00:09:50,720 Speaker 6: a note about cushing, which is a different thing. Cushing 219 00:09:50,800 --> 00:09:53,319 Speaker 6: is metal tanks above ground. The SPR is a salt 220 00:09:53,360 --> 00:09:56,920 Speaker 6: cavern that you hollow out by dissolving the salt. Every 221 00:09:56,920 --> 00:09:58,920 Speaker 6: time you take it down then push it back up, 222 00:09:58,960 --> 00:10:01,520 Speaker 6: you push water under the and you dissolve more of 223 00:10:01,559 --> 00:10:04,160 Speaker 6: the cavern. So there's actually a technical question is the 224 00:10:04,160 --> 00:10:06,439 Speaker 6: cavern getting bigger? How low can it go? Is all 225 00:10:06,520 --> 00:10:10,120 Speaker 6: basically not being addressed other than you know, Chris writes frankly, 226 00:10:10,200 --> 00:10:12,040 Speaker 6: it has a lot of very high reputation in the 227 00:10:12,040 --> 00:10:14,520 Speaker 6: oil industry, but as an energy sectory, he said some 228 00:10:14,640 --> 00:10:16,959 Speaker 6: things that haven't turned out to be entirely true, particularly 229 00:10:17,000 --> 00:10:19,679 Speaker 6: regarding the straits poor moves. So I'm not sure that 230 00:10:19,760 --> 00:10:23,080 Speaker 6: you know what he says about the SPR is really definitive. Frankly, 231 00:10:23,400 --> 00:10:25,440 Speaker 6: we just don't know when we're going to have to 232 00:10:25,440 --> 00:10:26,720 Speaker 6: stop downloading it. 233 00:10:26,760 --> 00:10:28,840 Speaker 1: Basically, so the SPR is like a bag of popcorn 234 00:10:28,880 --> 00:10:30,400 Speaker 1: world half of its air and you open it up 235 00:10:30,400 --> 00:10:32,200 Speaker 1: and you don't realize until you finally get in there. 236 00:10:32,880 --> 00:10:42,920 Speaker 4: Okay, yeah, really convoluted here. It all seriousness. 237 00:10:42,960 --> 00:10:44,720 Speaker 1: I am wondering how much creen is you put to 238 00:10:44,720 --> 00:10:46,360 Speaker 1: the barrels that are still going through the straight and 239 00:10:46,400 --> 00:10:49,880 Speaker 1: fromos and potentially through pipelines actually making it through, which 240 00:10:49,920 --> 00:10:50,959 Speaker 1: has been in a huge. 241 00:10:50,720 --> 00:10:54,040 Speaker 4: Offset to some of the drawdowns and people were expecting. 242 00:10:54,120 --> 00:10:56,480 Speaker 6: Yeah, I mean, my latest researchers haven't published it actually, 243 00:10:56,480 --> 00:10:58,520 Speaker 6: but it's on the UAE because the UA is actually 244 00:10:58,559 --> 00:11:01,720 Speaker 6: exporting more oil now than it was before the crisis started, 245 00:11:01,760 --> 00:11:03,920 Speaker 6: and that's been one of the most stunning dramas here. 246 00:11:04,160 --> 00:11:05,920 Speaker 6: And I'd add that, you know, the frontlines in this 247 00:11:06,000 --> 00:11:08,839 Speaker 6: conflict is shifting. If you just look overnight, what you've 248 00:11:08,880 --> 00:11:16,240 Speaker 6: seen here is US and Saudi basically fighting Iraq versus Saudi. 249 00:11:16,679 --> 00:11:18,640 Speaker 6: UAE seems to be at peace now. They've made some 250 00:11:18,760 --> 00:11:21,200 Speaker 6: kind of peace for the Iranians. There's no issues in 251 00:11:21,280 --> 00:11:23,880 Speaker 6: Abi Dabbi at the moment. And of course Israel Lebanon 252 00:11:23,960 --> 00:11:26,240 Speaker 6: is quiet. And then the other big front which is 253 00:11:26,320 --> 00:11:29,240 Speaker 6: going crazy is Russia Ukraine. That one is absolutely out 254 00:11:29,240 --> 00:11:32,600 Speaker 6: of control. So the conflicts has shifted quite dramatically as 255 00:11:32,600 --> 00:11:35,840 Speaker 6: any war would. And you know, I think the biggest 256 00:11:35,880 --> 00:11:38,400 Speaker 6: one is that actually oil is coming out through the Hormos. 257 00:11:38,400 --> 00:11:41,920 Speaker 6: So for example, UAE has been transhipping quite successfully. So 258 00:11:41,960 --> 00:11:44,560 Speaker 6: what they're doing is using small and more discrete tankers 259 00:11:45,200 --> 00:11:49,560 Speaker 6: zip around the Strait and then load bigger tankers, you know, 260 00:11:49,840 --> 00:11:53,679 Speaker 6: to export actually more oil than they were before the crisis. 261 00:11:53,760 --> 00:11:54,960 Speaker 1: Do you think that we need to be paying more 262 00:11:55,000 --> 00:11:57,320 Speaker 1: attention to what's happening with Russia and Ukraine and that 263 00:11:57,320 --> 00:11:59,240 Speaker 1: that's going to take more barrels off than a lot 264 00:11:59,240 --> 00:12:00,000 Speaker 1: of people are expecting. 265 00:12:00,640 --> 00:12:03,160 Speaker 6: Well, there's no question that one of the stunning aspects 266 00:12:03,160 --> 00:12:05,560 Speaker 6: of this whole World War three, because I always say, 267 00:12:05,559 --> 00:12:08,120 Speaker 6: if you're worried about World War three, you're in it, 268 00:12:08,120 --> 00:12:10,559 Speaker 6: has been the emergence of Ukraine as a superpower, has 269 00:12:10,559 --> 00:12:13,160 Speaker 6: a drone superpower that you wouldn't have thought. You know 270 00:12:13,280 --> 00:12:15,480 Speaker 6: now that Ukraine is very popular in the Middle East. 271 00:12:15,480 --> 00:12:17,320 Speaker 6: They're doing arm steels down in the Middle East. But 272 00:12:17,360 --> 00:12:20,079 Speaker 6: what I will say is they're trashing Russia, and you know, 273 00:12:20,120 --> 00:12:22,000 Speaker 6: I don't know how much longer Russia can handle this. 274 00:12:22,360 --> 00:12:25,720 Speaker 6: It's getting intolerable for the Russian people. I'm sure stay 275 00:12:25,760 --> 00:12:26,120 Speaker 6: with us. 276 00:12:26,440 --> 00:12:39,560 Speaker 2: More Bloomberg Savannan's coming up after this under savannahs this morning, 277 00:12:39,760 --> 00:12:42,719 Speaker 2: it was triggering the Bramo for questioning the north star. 278 00:12:43,960 --> 00:12:46,200 Speaker 7: It was a real family fight. That's the better way 279 00:12:46,240 --> 00:12:49,760 Speaker 7: to get policy right. That's our north star. If inflation 280 00:12:50,040 --> 00:12:54,320 Speaker 7: continues to be elevated through the forecast period, interest rates 281 00:12:54,360 --> 00:12:57,240 Speaker 7: could well be part of that solution. Market participants are 282 00:12:57,280 --> 00:12:59,679 Speaker 7: learning to play the ball, not the referee. 283 00:13:00,200 --> 00:13:02,440 Speaker 2: So here's the latest thirty year bondio. It's rising to 284 00:13:02,480 --> 00:13:05,280 Speaker 2: the highest levels since two thousand and seven. As investors 285 00:13:05,360 --> 00:13:08,959 Speaker 2: challenged the Fed's credibility fairing check Kevin Walsh one temper 286 00:13:09,000 --> 00:13:11,679 Speaker 2: inflation fast enough? The former sen Lewis FED President Jim 287 00:13:11,679 --> 00:13:14,719 Speaker 2: Bullatt joined us now for more. Jim for once. I imagine 288 00:13:14,600 --> 00:13:16,040 Speaker 2: you were happy you went on the inside and you 289 00:13:16,040 --> 00:13:18,160 Speaker 2: were sitting on the outside. What was your view of 290 00:13:18,200 --> 00:13:19,880 Speaker 2: how that news conference went down yesterday? 291 00:13:21,600 --> 00:13:24,080 Speaker 8: Well, unfortunately, I thought it was a little bit rocky. 292 00:13:24,480 --> 00:13:29,760 Speaker 8: It's probably not unanticipated given that chair horse is new 293 00:13:30,200 --> 00:13:30,760 Speaker 8: in the role. 294 00:13:31,000 --> 00:13:31,400 Speaker 9: This is a. 295 00:13:31,440 --> 00:13:35,439 Speaker 8: Second press conference. But I thought, you know, the seller 296 00:13:36,960 --> 00:13:41,880 Speaker 8: the higher yields in the thirty year or you know, 297 00:13:42,040 --> 00:13:44,199 Speaker 8: kind of nerve racking for a central banker. 298 00:13:45,280 --> 00:13:48,880 Speaker 9: You know, dollars appreciation on the announcement. 299 00:13:49,000 --> 00:13:54,000 Speaker 8: I think he needed to do more to create optionality 300 00:13:54,000 --> 00:13:56,199 Speaker 8: in September, and he didn't. 301 00:13:55,960 --> 00:13:57,000 Speaker 9: Do very much of that. 302 00:13:57,880 --> 00:14:02,559 Speaker 8: He emphasized the inflation target and you weren't backing off 303 00:14:02,600 --> 00:14:06,720 Speaker 8: the inflation target. Gave a little bit of a hint that, 304 00:14:07,600 --> 00:14:11,200 Speaker 8: you know, the measurement, you know, might be a factor there. 305 00:14:11,760 --> 00:14:13,640 Speaker 9: I don't think that was helpful. 306 00:14:14,400 --> 00:14:19,160 Speaker 8: And you know, you might as well explain what the 307 00:14:19,200 --> 00:14:22,640 Speaker 8: main arguments were around the table, because the members are 308 00:14:22,640 --> 00:14:26,320 Speaker 8: going to go out and tell you what they are thinking. 309 00:14:26,400 --> 00:14:29,800 Speaker 8: And basically what they're thinking is there are two more 310 00:14:29,800 --> 00:14:32,000 Speaker 8: inflation reports to come, and we want to see those 311 00:14:32,040 --> 00:14:33,400 Speaker 8: inflation reports. 312 00:14:33,000 --> 00:14:36,000 Speaker 9: Before you get going on any kind of hiking campaign. 313 00:14:36,080 --> 00:14:39,280 Speaker 8: So you might as well at least acknowledge, you know, 314 00:14:39,360 --> 00:14:41,720 Speaker 8: the contours of the argument. I understand he doesn't want 315 00:14:41,760 --> 00:14:45,760 Speaker 8: to give forward guidance, but it's a work in progress 316 00:14:45,840 --> 00:14:49,680 Speaker 8: and he's very accomplished I think in many ways. 317 00:14:50,040 --> 00:14:53,400 Speaker 9: But Marcus obviously didn't like this work. 318 00:14:53,280 --> 00:14:56,640 Speaker 2: In progress implies there is some intent here, There is 319 00:14:56,680 --> 00:15:00,080 Speaker 2: an objective. Jim, what do you think it is? What 320 00:15:00,120 --> 00:15:01,440 Speaker 2: is the intent? What's the objective? 321 00:15:02,800 --> 00:15:04,680 Speaker 9: Well, I think he says what he means. 322 00:15:05,280 --> 00:15:09,920 Speaker 8: You know, he I would characterize interest rate policy in 323 00:15:09,920 --> 00:15:13,640 Speaker 8: the US as being partly the Fed and partly the market, 324 00:15:13,800 --> 00:15:16,600 Speaker 8: and he feels like it's become ninety percent Fed and 325 00:15:16,640 --> 00:15:20,120 Speaker 8: ten percent market. He wants that back, to dial that 326 00:15:20,200 --> 00:15:22,880 Speaker 8: back to fifty percent or something like that, and so 327 00:15:22,920 --> 00:15:25,760 Speaker 8: that it's you can't get you can't drive either side 328 00:15:25,760 --> 00:15:28,680 Speaker 8: to zero. Both sides have a role to play. But 329 00:15:29,160 --> 00:15:33,640 Speaker 8: he feels like it's been too much fed, not enough market, 330 00:15:33,800 --> 00:15:37,240 Speaker 8: and you know, maybe zerring in the other direction now, 331 00:15:37,640 --> 00:15:40,239 Speaker 8: But I think we'll get to a good equilibrium eventually. 332 00:15:41,200 --> 00:15:43,480 Speaker 1: Do you think, Jim, that there's a difference between Ford 333 00:15:43,480 --> 00:15:44,880 Speaker 1: guidance and a reaction function? 334 00:15:46,560 --> 00:15:51,280 Speaker 9: Yeah? I do. I think, you know, and we're struggling. 335 00:15:51,360 --> 00:15:53,560 Speaker 8: I think to know what he means when he says, 336 00:15:53,600 --> 00:15:55,400 Speaker 8: you don't want to get forward guidance, if you look 337 00:15:55,400 --> 00:15:58,440 Speaker 8: at a tailor rule or something like a tailor rule 338 00:15:58,960 --> 00:16:01,040 Speaker 8: that tells you what the that would do in every 339 00:16:01,080 --> 00:16:05,080 Speaker 8: single state of the world, and so that's forward guidance 340 00:16:05,120 --> 00:16:08,520 Speaker 8: in some sense. But I think what he means is 341 00:16:08,640 --> 00:16:11,040 Speaker 8: like the chair would come out at a press conference 342 00:16:11,080 --> 00:16:13,120 Speaker 8: and say, hey, it's highly likely we're going to move 343 00:16:13,120 --> 00:16:15,520 Speaker 8: in September, or it's highly unlikely we're going to move 344 00:16:15,520 --> 00:16:18,760 Speaker 8: in September. That's sort of forward guidance, I think is 345 00:16:18,800 --> 00:16:19,480 Speaker 8: what he wants to. 346 00:16:19,400 --> 00:16:20,160 Speaker 9: Get away from them. 347 00:16:21,120 --> 00:16:23,440 Speaker 8: That might be warranted, especially when you want to have 348 00:16:23,520 --> 00:16:26,800 Speaker 8: optionality to see how developments perceive. 349 00:16:27,240 --> 00:16:28,800 Speaker 1: The reason why I asked Jim is because he seemed 350 00:16:28,840 --> 00:16:30,680 Speaker 1: to say that we're conflating the two and that people 351 00:16:30,680 --> 00:16:33,680 Speaker 1: are asking for a reaction function when actually all they're 352 00:16:33,720 --> 00:16:36,320 Speaker 1: looking for is some sort of forward guidance. And I 353 00:16:36,400 --> 00:16:39,520 Speaker 1: just wonder what you make of the way he answered 354 00:16:39,600 --> 00:16:42,640 Speaker 1: questions or didn't answer questions. I mean, did you think 355 00:16:42,640 --> 00:16:45,200 Speaker 1: that this was deliberate or do you think that there 356 00:16:45,360 --> 00:16:49,320 Speaker 1: is a larger idea that the market is an understanding? 357 00:16:50,720 --> 00:16:52,480 Speaker 9: Yeah? Well is it deliberate? 358 00:16:52,880 --> 00:16:55,000 Speaker 8: Well, I'm sure he thought very carefully about how he 359 00:16:55,040 --> 00:16:57,560 Speaker 8: wanted to handle things, and I thought, I guess one 360 00:16:57,560 --> 00:16:59,520 Speaker 8: thing that stood out to me is that he didn't 361 00:16:59,520 --> 00:17:02,440 Speaker 8: want to bring up okay, there are two inflation reports 362 00:17:02,440 --> 00:17:05,280 Speaker 8: before the next meeting, because I think he was feeling 363 00:17:05,320 --> 00:17:08,080 Speaker 8: like that would create too much data dependence and too 364 00:17:08,160 --> 00:17:12,359 Speaker 8: much focus on that. But that's really the story here 365 00:17:12,680 --> 00:17:16,960 Speaker 8: is can the committee count on inflation and coming down? 366 00:17:17,080 --> 00:17:20,560 Speaker 8: Especially coming down core PC inflation coming down below three 367 00:17:20,600 --> 00:17:22,840 Speaker 8: percent and being at tracked to go to two percent, 368 00:17:23,720 --> 00:17:25,359 Speaker 8: or are they going to have to get on a 369 00:17:25,359 --> 00:17:28,959 Speaker 8: tightening campaign to make sure that that happens. So you know, 370 00:17:29,000 --> 00:17:31,640 Speaker 8: the data is going to be important over the next 371 00:17:31,720 --> 00:17:32,280 Speaker 8: couple of months. 372 00:17:32,440 --> 00:17:34,320 Speaker 2: Jim, do you think that performance makes it more likely 373 00:17:34,359 --> 00:17:35,480 Speaker 2: though hike in September? 374 00:17:37,119 --> 00:17:41,000 Speaker 8: Well, he steadfastly stayed away from that. I think I 375 00:17:41,040 --> 00:17:43,920 Speaker 8: would have preferred that he say we're ready to move, 376 00:17:45,280 --> 00:17:50,119 Speaker 8: you know, under certain circumstances, and we're definitely willing to move. Instead, 377 00:17:50,200 --> 00:17:54,679 Speaker 8: you only talked about the inflation target itself without saying 378 00:17:54,720 --> 00:17:57,720 Speaker 8: that we're ready to take action. Marcus didn't like that, 379 00:17:58,400 --> 00:18:03,320 Speaker 8: and they actually the two year yield went down, and 380 00:18:03,440 --> 00:18:07,280 Speaker 8: so now markets are less sure that the committee will 381 00:18:07,320 --> 00:18:11,800 Speaker 8: actually follow through and try to drive inflation back to 382 00:18:11,840 --> 00:18:12,399 Speaker 8: two percent. 383 00:18:12,480 --> 00:18:15,920 Speaker 9: So I think it is a bit of erosion of credibility. 384 00:18:16,280 --> 00:18:19,000 Speaker 8: I think it can all be managed, but unfortunately it 385 00:18:19,080 --> 00:18:21,000 Speaker 8: was a little bit, a little bit rocky. 386 00:18:21,880 --> 00:18:25,400 Speaker 2: This is the Bloomberg Surveillance podcast, bringing you the best 387 00:18:25,480 --> 00:18:29,040 Speaker 2: in markets, economics, angiopolitics. You can watch the show live 388 00:18:29,119 --> 00:18:32,879 Speaker 2: on Bloomberg TV weekday mornings from six am to nine am. Eastern, 389 00:18:33,200 --> 00:18:36,560 Speaker 2: Subscribe to the podcast on Apple, Spotify or anywhere else 390 00:18:36,560 --> 00:18:39,240 Speaker 2: you listen, and as always, on the Bloomberg terminal and 391 00:18:39,280 --> 00:18:40,520 Speaker 2: the Bloomberg Business app.