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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: China hitting back against Trump's tariffs.

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Speaker 3: But many are saying, and now that it's like measured

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Speaker 3: that they could have been a lot worse. It was

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Speaker 3: still friendly the way they put it out. Having covered

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Speaker 3: Asian and lived in Asia for so many years, What

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Speaker 3: did you make of it?

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Speaker 4: I think it was immediately in its response was clearly

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Speaker 4: thought out and they were ready to go with this. Alex,

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Speaker 4: I was just looking at the list. There's the antitrust

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Speaker 4: probe of Google, which is an especially effective given to

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Speaker 4: controls and limitations of Google. There there are tariffs on

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Speaker 4: a cultural equipment like tractors and other vehicles. There's tariffs

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Speaker 4: on energy imports a colon LNG for example, expert controls

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Speaker 4: on tungsen and other critical and minerals. And then some

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Speaker 4: of those companies like Calvin Klein own her PVH Core

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Speaker 4: are put on that entry list. So you know it's

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Speaker 4: a reasonable list in terms of a in terms of

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Speaker 4: his breath, I had a responding to the US, but

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Speaker 4: it's nowhere near the dollar for dollar kind of matching

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Speaker 4: figure that you might have expected to give them, the US

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Speaker 4: to put ten percent on all goods coming out of China.

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Speaker 4: It is somewhat restrained. It's being interpreted as a signal,

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Speaker 4: which is that, hey, look, we can retaliate, we can

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Speaker 4: retaliate further, but in the meantime we're probably here to talk.

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Speaker 4: And of course we do know that Cole is expected

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Speaker 4: at some point between both leaders, she and Trump. Overcoming dates.

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Speaker 4: Will have to see if that changes the story or not.

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Speaker 2: Yeah, that's kind of where I wanted to go.

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Speaker 5: And because we saw yesterday with Mexico the leaders of

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Speaker 5: Mexico and Canada, looks like a phone call can fix

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Speaker 5: a lot of things. And these Chinese taffs don't kick

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Speaker 5: into February tenth. So does that give some potential for again,

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Speaker 5: as you mentioned, a phone call between Trump and and

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Speaker 5: g maybe an opportunity to kind of some of the

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Speaker 5: stuff off the front burner.

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Speaker 4: On paper, you would say absolutely, Maybe both leaders are

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Speaker 4: looking for an off framp and maybe there will be negotiations.

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Speaker 4: You know, the new administration in their executive orders that

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Speaker 4: they put out said one of the first things they

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Speaker 4: want to do is sit down and have a look

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Speaker 4: at what happened the original trade deal between China. It's

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Speaker 4: so called Phase one trade deal between China the US

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Speaker 4: that would all lend itself towards the new administration having

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Speaker 4: an assessment to see where things are and then come back.

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Speaker 4: But nonetheless, things have moved pretty fast. I mean, and

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Speaker 4: I'm not sure anyone expected, you know, an almost full

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Speaker 4: scale trade war against Mexico and Canada that we came

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Speaker 4: close to yesterday. If anything, President Trump has been very

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Speaker 4: consistent in terms of its hocushness on China and on

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Speaker 4: the trade deficit with China, and of course in Parentsannel

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Speaker 4: and all of the other issues as well. So there

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Speaker 4: are plenty of ballets whore saying that of all of

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Speaker 4: the news over the past week, the tariffs on China

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Speaker 4: were probably not a surprise, maybe to tell me of

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Speaker 4: it more, but not a surprise. They were to be expected,

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Speaker 4: and it just it does signal intent on President Trump's side. Now,

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Speaker 4: of course, as you say, early days, we'll have to

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Speaker 4: see those talks go. But right here, right now, the

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Speaker 4: US with new tariffs on all goods coming out of China.

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Speaker 4: That's something that they hadn't done before.

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Speaker 2: What's the ask here?

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Speaker 3: So clearly with President Trump in Mexico and Canada, the

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Speaker 3: ask was clear, and how to do with fentanyl?

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Speaker 2: What's the ask for China.

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Speaker 4: I mean, it's a whole different order of spectrum when

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Speaker 4: it comes to the conversation, right you're covering national security,

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Speaker 4: You're covering IP protection, You're covering the merchandise goods death said,

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Speaker 4: the idea that the US doesn't think China buys enough

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Speaker 4: stuff off of it. You've got the fentinal issue. I mean,

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Speaker 4: it's covering a whole range of issues here, and China's

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Speaker 4: role in the global stage too, perhaps in terms of

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Speaker 4: its support for Russia, for example, but nonetheless at least

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Speaker 4: one thread on that is the merchandise goods deaths. That

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Speaker 4: part of the President Trump was highlighted at consistently. China

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Speaker 4: in the past have signaled they are willing to buy

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Speaker 4: more US produce, and of course that was had and

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Speaker 4: officially made the point without naming the US. He said,

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Speaker 4: you know, they're also willing to step up in the

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Speaker 4: global marketing buy things. So there's there are ways where

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Speaker 4: we'll say the merchandise good deaths that could be reached,

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Speaker 4: could reach some kind of a midpoint on but the

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Speaker 4: national security, the technology, the export controls, the IP protection, frientannel,

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Speaker 4: the human rights issues, all of that's more complicated and

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Speaker 4: maybe a different channel to the trade side of things.

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Speaker 5: And the one could argue that the US economy is

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Speaker 5: in a stronger position than that of China. Therefore the

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Speaker 5: US may have some leverage here. Is that a feeling

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Speaker 5: that you're hearing her sid a policy backdrop that you're

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Speaker 5: seeing in Washington at all, or hearing about.

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Speaker 4: I think it's certainly considered to be the backdrop a

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Speaker 4: US economy broadly doing okay. Obviously there are areas of weakness,

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Speaker 4: but consumers sell spending. That means the US remains the

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Speaker 4: engine of global growth. We know the China story still

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Speaker 4: hampered by the real estate slowdown, but they're still pushing

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Speaker 4: hard on innovation, as we saw with deep Seek last week.

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Speaker 4: So yes, there's a view that the US is the upperhand.

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Speaker 4: But also practically, because if you're talking about getting into

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Speaker 4: an argument over merchandise goods, and I'll put Taris and newers,

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Speaker 4: new put Taris and mind will. China can't match that

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Speaker 4: dollar for dollars because they don't buy the same amount

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Speaker 4: of stuff of the US that the US boys out

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Speaker 4: of China. So they're already at an imbalance in terms

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Speaker 4: of starting point. But they can retaliate and kind of

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Speaker 4: those measures we just talked about there. They can make

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Speaker 4: life awkward for US companies operating in China and make

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Speaker 4: life awkward for US personnel operating in China in terms

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Speaker 4: of visas and the like. And they can also divers

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Speaker 4: fine punish the US in other ways the verse find

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Speaker 4: find new markets, which you have been doing when it

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Speaker 4: comes to soybeans, for example, other agricultural produce. But to

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Speaker 4: be clear, the US economy is strong at the moment,

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Speaker 4: of course if the upperhand if it comes to tariff tennis,

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Speaker 4: but there are ways where China can respond.

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Speaker 3: Yeah, I didn't think that like PVH was going to

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Speaker 3: be on my Bingo list for like companies that China

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Speaker 3: was going to go after.

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Speaker 2: All right, and thanks a lot.

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Speaker 3: In the current Bloomberg a senior economy reporter joining us

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Speaker 3: from DC.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast catch us live

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Speaker 1: weekdays at ten am on Applecarcklay and Android Otto with

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Speaker 1: the Bloomberg Business App. Listen on demand wherever you get

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Speaker 1: your podcasts, or watch us live on YouTube.

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Speaker 5: Alex Steele and Paul Swen, you were live here in

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Speaker 5: our Bloomberg Inactive Broker studio. We're streaming live on YouTube

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Speaker 5: as well. Head over to YouTube dot com Sturch Bloomberg

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Speaker 5: Podcast Live and that's where you'll find it. Boy, we're

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Speaker 5: race back in the middle of earnings, but it seems

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Speaker 5: to be overshadowed by just news flowing. Last week it

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Speaker 5: was Deep Seek and it's impact on AI and calling

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Speaker 5: that whole tech thing into question. This week it's tariffs

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Speaker 5: to kind of lose focus on some of the fundamentals.

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Speaker 5: We want to get back to that a little bit here.

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Speaker 5: R J Gallow, Senior portfolio Manager, Fixing Come and Federated

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Speaker 5: Hermes joins us. So r J. Again, we've had a

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Speaker 5: lot of earnings in the past couple of weeks, but

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Speaker 5: a lot of noise as well. How do you and

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Speaker 5: your teams kind of try to navigate through some of

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Speaker 5: that noise and focus on some of the fundamentals.

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Speaker 6: Well, And there's a lot of noise the Trump administration.

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Speaker 6: You know, they must drink a lot of coffee. Very active,

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Speaker 6: very active, and I think that's on purpose, both for

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Speaker 6: political purposes and for substantive purposes.

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Speaker 3: Uh.

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Speaker 6: You know, many executive orders, a lot of changes, the

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Speaker 6: sort of aggressive behavior of Doge.

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Speaker 4: You know, the the.

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Speaker 6: Novel use of tariffs invoked under an emergency statute that

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Speaker 6: previously have been had not been used to justify tariffs.

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Speaker 3: Uh.

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Speaker 6: You know, we expected this to be an eventful time.

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Speaker 6: You know, the big four policies you have trade, immigration, Uh,

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Speaker 6: you know, deregulation, and fiscal policy or tax they're all

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Speaker 6: up in the air with the change and control in Washington.

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Speaker 6: From a bond investor's standpoint, Uh, the overall tone coming

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Speaker 6: out of the Trump administration seems a little bit more inflationary,

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Speaker 6: a little bit more deficit ridden, and you would think

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Speaker 6: yields would be heading higher. I think that got priced

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Speaker 6: in October into November and as we started the year.

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Speaker 6: So at this point you just have to wait to

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Speaker 6: see how those big four policy areas unfold, and it's

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Speaker 6: hard to take a big bet on just rates, so

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Speaker 6: we're trying to be patient. One thing that's nice yields

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Speaker 6: north of four percent are a height of the inflation rate,

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Speaker 6: and that's good for some padding to your total return

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Speaker 6: as each day goes by.

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Speaker 3: So that's a great point in terms of it's too

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Speaker 3: soon to tell, because are we going to look at

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Speaker 3: treasuries as a safe haven or a risk asset now

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Speaker 3: under President Trump?

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Speaker 6: It's another good question. I think that US fixed income

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Speaker 6: faces a number of challenges. There's more of it. There's

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Speaker 6: more treasuries outstanding than ever before, both in the dollar

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Speaker 6: value of outstanding securities and in a relative sense debt

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Speaker 6: to GDP. You know, that's the result of the long

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Speaker 6: path of fiscal imbalances that we've had under both Republican

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Speaker 6: and Democratic leadership that I think is manifesting itself in

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Speaker 6: just higher volatility.

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Speaker 7: You know.

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Speaker 6: You say you have sort of the same universe of

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Speaker 6: securities dealers making markets out there, but the market that

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Speaker 6: they're that they're playing in, the size of the market

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Speaker 6: has only gotten bigger. So so that's a challenge, and

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Speaker 6: that could eat into a little bit of the allure

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Speaker 6: of treasuries as a safe haven bet. A safe haven

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Speaker 6: bet shouldn't be extra volatile, it should be less volatile, right,

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Speaker 6: that said, I think the credit quality the United States

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Speaker 6: is unimpeachable. I think that the depth of the market,

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Speaker 6: massive liquidity, the strength of the US economy in a

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Speaker 6: US exceptionalism sense, uh, the underlying legal underpinnings, and the

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Speaker 6: fact that we're the one of the world's actually the

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Speaker 6: world's dominant power economically and militarily. Yeah, that all supports

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Speaker 6: treasuries still having a pretty hallowed places as a as

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Speaker 6: a where safe capital can reside.

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Speaker 5: So we were talking earlier today about the debt of

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Speaker 5: the cruise lines alex and Red Headline crossing the Bloomberg Criminal.

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Speaker 5: That Royal Caribbean has been raised to investment greates by

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Speaker 5: S and P. So good news there, Hey.

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Speaker 2: Ar Jie.

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Speaker 5: I mean, I look across the fixed income space. I'm

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Speaker 5: wondering if do I just clip coupons here? Is that

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Speaker 5: my game? Because that's not a bad place to be,

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Speaker 5: whether it's in treasuries or even if I'm taking some

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Speaker 5: credit risk. It really seems like I can get a

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Speaker 5: meaningful carry here and that might be good enough.

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Speaker 7: Yeah.

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Speaker 6: Well, the year the yield on the ag, the Bloomberg

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Speaker 6: AG is for eighty seven. That's higher than sof SO

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Speaker 6: it's you're getting more yield, more carried from a diversified

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Speaker 6: taxable investment grade bond portfolio than you are from money markets.

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Speaker 6: And you know that wasn't true a year ago. So

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Speaker 6: that's that's a welcome turn of events. It could motivate

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Speaker 6: some investors who are in cash to move out the

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Speaker 6: curb as a little bit rather than watch rates continue

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Speaker 6: to decline on cash if the Fed gets going on

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Speaker 6: the easing side again. Number one. Number two, I think

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Speaker 6: that you know, at this point, as we wait to

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Speaker 6: see how those big policy areas unfold, the economies doing

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Speaker 6: pretty well. Inflation not two percent, but not apparently reaccelerating,

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Speaker 6: and it feels like the bond market could be in

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Speaker 6: for some choppy range trade all along. You're clipping a

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Speaker 6: higher level of income that exceeds money markets and inflation.

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Speaker 6: So Carrie is in fact an attractive aspect right now

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Speaker 6: of bond returns for investors.

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Speaker 2: All right, ur Ja appreciate it, Thanks very much.

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Speaker 7: RJ.

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Speaker 3: Gallo, Senior portfolio manager, Fixed Income and federate HERMEI is

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Speaker 3: really appreciate that.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business App. Listen on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 3: For broadcasting to live from Interactive Broker Studio right here

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Speaker 3: in Midtown Manhattan. We are also broadcasting too live on YouTube,

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Speaker 3: so definitely check us out on that. We've been talking

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Speaker 3: a lot about different sectors and the effect of a

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Speaker 3: Trump administration, whether tariffs or no tariffs. In one sector

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Speaker 3: that's really in the crosshairs energy, So joining us for

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Speaker 3: more on that is Ernie Miller, CEO at Verday Clean Fuels.

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Speaker 2: He's joining us in the studio in New York. ARENI

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Speaker 2: great to see you.

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Speaker 7: Thanks all, it's great to be here.

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Speaker 3: So we'll get to all the distinctions and tariffs and

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Speaker 3: policies in a second, but just clean slate here.

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Speaker 2: What does your company do? What is Veritay Clean Fuels.

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Speaker 7: Veritay Clean Fuels is a gasoline business, and so we

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Speaker 7: we operate in the Permian basin and under a joint

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Speaker 7: venture with Diamondback Energy out there where we take their

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Speaker 7: natural gas, which in West Texas as zero you know,

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Speaker 7: or even negative value, and turn that into a high

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Speaker 7: value refined product just commodity grade gasoline.

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Speaker 3: And the idea it's word zero is because there's only

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Speaker 3: pipeline to take oil out, for example, But when you

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Speaker 3: produce oil, you produce natural gas and just kind of

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Speaker 3: like hangs out and does nothing.

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Speaker 2: That's right.

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Speaker 7: So when you produce oil, there's there are a lot

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Speaker 7: of other products coming to the surface, natural gas being

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Speaker 7: the largest of those, and there's limited takeaway capacity, so

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Speaker 7: that leaves an excess of gas in the basin that

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Speaker 7: can't get the market.

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Speaker 5: So, without getting too much into the chemistry it.

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Speaker 2: How do you do it?

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Speaker 7: Well, the chemistry was actually developed by Mobile in the

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Speaker 7: nineteen seventies, and so our process starts with synthesis gas,

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Speaker 7: which is a mix of carbon monoxide and hydrogen. We

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Speaker 7: take that to methanol and then methanol downstream to gasoline.

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Speaker 7: And so our product is just commodity grade refined gasoline

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Speaker 7: made from natural gas.

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Speaker 2: And you're cool with takeaway capacity? Do they hit that

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Speaker 2: in land man?

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Speaker 1: Yet?

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Speaker 5: That was episode three?

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Speaker 2: Great episode?

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Speaker 7: Right?

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Speaker 2: All right?

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Speaker 5: So I mean, so are you doing that now? Are

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Speaker 5: you create are you refining it into the gas?

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Speaker 7: Now? We are our first commercial scale project is in

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Speaker 7: is well into engineering with Diamondback and that first plant

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Speaker 7: will be built in Midland County, Texas, just south of

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Speaker 7: south of Midland, and it'll be commercial in twenty twenty seven.

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Speaker 4: Cool.

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Speaker 2: Being a refiners not easy.

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Speaker 3: We saw that with Excent and schev run in their earnings.

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Speaker 3: Now clearly they have a different input, right, They're inputting oil,

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Speaker 3: which obviously their margins got.

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Speaker 2: Squeezed of oil goes higher. But it's a tough biz.

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Speaker 3: And then you put on you know, policy under Trump administration,

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Speaker 3: and then questions about tariffs, what's your biggest concern?

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Speaker 7: Well, you're right, refining is a very tough business. And

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Speaker 7: and you know, when you think about the terraffs that

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Speaker 7: are being proposed right now, you know, a ten percent

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Speaker 7: tariff on on crude oil coming out of Canada will

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Speaker 7: be a major hit to refiners, primarily in the in

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Speaker 7: the Midwest. You know, we we import four million barrels

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Speaker 7: of oil a day from Canada. It's about sixty percent

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Speaker 7: of US imports, and a tariff on those volumes will

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Speaker 7: will hit those Midwest refiners who, by the way, their

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Speaker 7: their equipment is set up to process that heavy sour

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Speaker 7: Canadian crude. So it's you know, while they could go

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Speaker 7: and buy and buy US produced shale crude, which is

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Speaker 7: generally lighter and sweeter, but their refineries will not operate

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Speaker 7: nearly as efficiently, so fees dog costs will go down,

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Speaker 7: but they'll operate much less efficient and probably negative. So

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Speaker 7: it's and.

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Speaker 5: There's nothing I mean, do they pess that along.

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Speaker 7: To me and ultimately ultimately is going to land in

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Speaker 7: the consumer's lapse.

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Speaker 3: Yes, interesting when you take a look at clean fuel,

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Speaker 3: like this is clean er, but it's not like E

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Speaker 3: gasoline or anything like that.

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Speaker 7: That's right, this is cleaner. Verde can produce fully renewable

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Speaker 7: and even carbon negative gasoline. But the fact is that

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Speaker 7: when you do that, the revenues are heavily dependent on

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Speaker 7: carbon credits. There's no there's no term market for carbon credits.

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Speaker 7: It's very much a spot kind of short term market.

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Speaker 7: So that does not lend itself well to project financy.

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Speaker 7: When we use natural gas as of feedstock, when when

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Speaker 7: you can make the connection between a flare going away

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Speaker 7: and we and us taking that natural gas would would

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Speaker 7: have otherwise been flared to produce gasoline, that gasoline is

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Speaker 7: about thirty percent less carbon intensive than gasoline that comes

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Speaker 7: from crude oil. So there is a there is a

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Speaker 7: pretty mean meaningful you know, environmental win there. But you

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Speaker 7: know that's the focus is commercial. This is taking zero

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Speaker 7: value natural gas or negative value natural gas and turn

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Speaker 7: it into something that has a lot of value.

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Speaker 5: You guys are based in Houston, Yes, okay, so the

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Speaker 5: center of this country's energy industry in Houston. What's the

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Speaker 5: feeling there about the transition or the evolution the transition

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Speaker 5: to greener energy in general? Is the momentum slowing because

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Speaker 5: of who's in.

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Speaker 2: The White House?

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Speaker 5: Is it Is there some inevitability that it's just going

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Speaker 5: to go at its own pace?

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Speaker 7: How do you well, you know, it's I kind of

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Speaker 7: think that you know, most of the capacity to make

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Speaker 7: this transition lives within the major empcome the major oil

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Speaker 7: integrated oil companies you know already. So so those are

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Speaker 7: the those are the players that are going to make

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Speaker 7: the largest contribution to an energy transition. And so, you know,

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Speaker 7: I think I think that we're we're going to see

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Speaker 7: a lot less in the way of mandates and and

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Speaker 7: a lot less of regulators picking winners and loss losers,

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Speaker 7: and and it'll be much much more market driven, I

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Speaker 7: think as it as it should be. But the ultimately

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Speaker 7: the people that can contribute most of that are the

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Speaker 7: are the legacy integrated energy companies.

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Speaker 3: How did the conversation and development with a Diamondback come about.

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Speaker 7: Well, we were in the process of of going public

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Speaker 7: of listing on on Nasdaq and Diamondback UH. Diamondback came

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Speaker 7: to us with UH and said, you know, we've we

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Speaker 7: have been canvassing the market and and have really kind

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Speaker 7: of zeroed in on your process as one that can

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Speaker 7: really help us with this, with this natural gas problem

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Speaker 7: that we have in the Permian basin. And post Diamondbacks

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Speaker 7: and UH merger with Endeavor, they they went from a

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Speaker 7: you know, a large, a large old company with a

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Speaker 7: with a with a gas problem to a very large

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Speaker 7: old company with an even bigger gas Yeah. Yeah, and

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Speaker 7: so now so now they've got meaningful volumes of natural

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Speaker 7: gas that you know, that are not getting the value

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Speaker 7: that that that it.

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Speaker 3: Should ask one more questions and looking at Okay, if

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Speaker 3: we wind up getting easier permitting though from the Trump administration,

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Speaker 3: and we get the ability to get natural gas out

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Speaker 3: of the Permian an efficient way to then export it,

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Speaker 3: does that mess up your model? You know?

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Speaker 7: It really doesn't. There's there is such an overhang of

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Speaker 7: natural gas and and and Texas is already the most

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Speaker 7: friendly environment, you know, in the in the States for

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Speaker 7: building pipeline capacity. You know, in the last couple of

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Speaker 7: years there have been there have been at least two

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Speaker 7: forty eight inch you know, enormous pipeline taking gas out

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Speaker 7: of the basin. You know, the Permian has the benefit

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Speaker 7: of the Gulf Coast and the Lergy and the LG

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Speaker 7: terminals there in Corpus Christi. So there there are places

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Speaker 7: to go with that natural gas. But but the volumes

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Speaker 7: are just enormous, and so there we are. We are

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Speaker 7: very comfortable that we have a very long runway in

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Speaker 7: the in the Permian with Diamondback and others where there

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Speaker 7: there's there's always going to be gas that can't get

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Speaker 7: out of that basin.

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Speaker 5: Interesting, fascinating story, learning a lot here sitting next to

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Speaker 5: alex Ernie Miller. Thank you so much for joining a

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Speaker 5: starting militi and CEO Verde Fuels.

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