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Speaker 2: China hitting back against Trump's tariffs.
Speaker 3: But many are saying, and now that it's like measured
Speaker 3: that they could have been a lot worse. It was
Speaker 3: still friendly the way they put it out. Having covered
Speaker 3: Asian and lived in Asia for so many years, What
Speaker 3: did you make of it?
Speaker 4: I think it was immediately in its response was clearly
Speaker 4: thought out and they were ready to go with this. Alex,
Speaker 4: I was just looking at the list. There's the antitrust
Speaker 4: probe of Google, which is an especially effective given to
Speaker 4: controls and limitations of Google. There there are tariffs on
Speaker 4: a cultural equipment like tractors and other vehicles. There's tariffs
Speaker 4: on energy imports a colon LNG for example, expert controls
Speaker 4: on tungsen and other critical and minerals. And then some
Speaker 4: of those companies like Calvin Klein own her PVH Core
Speaker 4: are put on that entry list. So you know it's
Speaker 4: a reasonable list in terms of a in terms of
Speaker 4: his breath, I had a responding to the US, but
Speaker 4: it's nowhere near the dollar for dollar kind of matching
Speaker 4: figure that you might have expected to give them, the US
Speaker 4: to put ten percent on all goods coming out of China.
Speaker 4: It is somewhat restrained. It's being interpreted as a signal,
Speaker 4: which is that, hey, look, we can retaliate, we can
Speaker 4: retaliate further, but in the meantime we're probably here to talk.
Speaker 4: And of course we do know that Cole is expected
Speaker 4: at some point between both leaders, she and Trump. Overcoming dates.
Speaker 4: Will have to see if that changes the story or not.
Speaker 2: Yeah, that's kind of where I wanted to go.
Speaker 5: And because we saw yesterday with Mexico the leaders of
Speaker 5: Mexico and Canada, looks like a phone call can fix
Speaker 5: a lot of things. And these Chinese taffs don't kick
Speaker 5: into February tenth. So does that give some potential for again,
Speaker 5: as you mentioned, a phone call between Trump and and
Speaker 5: g maybe an opportunity to kind of some of the
Speaker 5: stuff off the front burner.
Speaker 4: On paper, you would say absolutely, Maybe both leaders are
Speaker 4: looking for an off framp and maybe there will be negotiations.
Speaker 4: You know, the new administration in their executive orders that
Speaker 4: they put out said one of the first things they
Speaker 4: want to do is sit down and have a look
Speaker 4: at what happened the original trade deal between China. It's
Speaker 4: so called Phase one trade deal between China the US
Speaker 4: that would all lend itself towards the new administration having
Speaker 4: an assessment to see where things are and then come back.
Speaker 4: But nonetheless, things have moved pretty fast. I mean, and
Speaker 4: I'm not sure anyone expected, you know, an almost full
Speaker 4: scale trade war against Mexico and Canada that we came
Speaker 4: close to yesterday. If anything, President Trump has been very
Speaker 4: consistent in terms of its hocushness on China and on
Speaker 4: the trade deficit with China, and of course in Parentsannel
Speaker 4: and all of the other issues as well. So there
Speaker 4: are plenty of ballets whore saying that of all of
Speaker 4: the news over the past week, the tariffs on China
Speaker 4: were probably not a surprise, maybe to tell me of
Speaker 4: it more, but not a surprise. They were to be expected,
Speaker 4: and it just it does signal intent on President Trump's side. Now,
Speaker 4: of course, as you say, early days, we'll have to
Speaker 4: see those talks go. But right here, right now, the
Speaker 4: US with new tariffs on all goods coming out of China.
Speaker 4: That's something that they hadn't done before.
Speaker 2: What's the ask here?
Speaker 3: So clearly with President Trump in Mexico and Canada, the
Speaker 3: ask was clear, and how to do with fentanyl?
Speaker 2: What's the ask for China.
Speaker 4: I mean, it's a whole different order of spectrum when
Speaker 4: it comes to the conversation, right you're covering national security,
Speaker 4: You're covering IP protection, You're covering the merchandise goods death said,
Speaker 4: the idea that the US doesn't think China buys enough
Speaker 4: stuff off of it. You've got the fentinal issue. I mean,
Speaker 4: it's covering a whole range of issues here, and China's
Speaker 4: role in the global stage too, perhaps in terms of
Speaker 4: its support for Russia, for example, but nonetheless at least
Speaker 4: one thread on that is the merchandise goods deaths. That
Speaker 4: part of the President Trump was highlighted at consistently. China
Speaker 4: in the past have signaled they are willing to buy
Speaker 4: more US produce, and of course that was had and
Speaker 4: officially made the point without naming the US. He said,
Speaker 4: you know, they're also willing to step up in the
Speaker 4: global marketing buy things. So there's there are ways where
Speaker 4: we'll say the merchandise good deaths that could be reached,
Speaker 4: could reach some kind of a midpoint on but the
Speaker 4: national security, the technology, the export controls, the IP protection, frientannel,
Speaker 4: the human rights issues, all of that's more complicated and
Speaker 4: maybe a different channel to the trade side of things.
Speaker 5: And the one could argue that the US economy is
Speaker 5: in a stronger position than that of China. Therefore the
Speaker 5: US may have some leverage here. Is that a feeling
Speaker 5: that you're hearing her sid a policy backdrop that you're
Speaker 5: seeing in Washington at all, or hearing about.
Speaker 4: I think it's certainly considered to be the backdrop a
Speaker 4: US economy broadly doing okay. Obviously there are areas of weakness,
Speaker 4: but consumers sell spending. That means the US remains the
Speaker 4: engine of global growth. We know the China story still
Speaker 4: hampered by the real estate slowdown, but they're still pushing
Speaker 4: hard on innovation, as we saw with deep Seek last week.
Speaker 4: So yes, there's a view that the US is the upperhand.
Speaker 4: But also practically, because if you're talking about getting into
Speaker 4: an argument over merchandise goods, and I'll put Taris and newers,
Speaker 4: new put Taris and mind will. China can't match that
Speaker 4: dollar for dollars because they don't buy the same amount
Speaker 4: of stuff of the US that the US boys out
Speaker 4: of China. So they're already at an imbalance in terms
Speaker 4: of starting point. But they can retaliate and kind of
Speaker 4: those measures we just talked about there. They can make
Speaker 4: life awkward for US companies operating in China and make
Speaker 4: life awkward for US personnel operating in China in terms
Speaker 4: of visas and the like. And they can also divers
Speaker 4: fine punish the US in other ways the verse find
Speaker 4: find new markets, which you have been doing when it
Speaker 4: comes to soybeans, for example, other agricultural produce. But to
Speaker 4: be clear, the US economy is strong at the moment,
Speaker 4: of course if the upperhand if it comes to tariff tennis,
Speaker 4: but there are ways where China can respond.
Speaker 3: Yeah, I didn't think that like PVH was going to
Speaker 3: be on my Bingo list for like companies that China
Speaker 3: was going to go after.
Speaker 2: All right, and thanks a lot.
Speaker 3: In the current Bloomberg a senior economy reporter joining us
Speaker 3: from DC.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast catch us live
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Speaker 5: Alex Steele and Paul Swen, you were live here in
Speaker 5: our Bloomberg Inactive Broker studio. We're streaming live on YouTube
Speaker 5: as well. Head over to YouTube dot com Sturch Bloomberg
Speaker 5: Podcast Live and that's where you'll find it. Boy, we're
Speaker 5: race back in the middle of earnings, but it seems
Speaker 5: to be overshadowed by just news flowing. Last week it
Speaker 5: was Deep Seek and it's impact on AI and calling
Speaker 5: that whole tech thing into question. This week it's tariffs
Speaker 5: to kind of lose focus on some of the fundamentals.
Speaker 5: We want to get back to that a little bit here.
Speaker 5: R J Gallow, Senior portfolio Manager, Fixing Come and Federated
Speaker 5: Hermes joins us. So r J. Again, we've had a
Speaker 5: lot of earnings in the past couple of weeks, but
Speaker 5: a lot of noise as well. How do you and
Speaker 5: your teams kind of try to navigate through some of
Speaker 5: that noise and focus on some of the fundamentals.
Speaker 6: Well, And there's a lot of noise the Trump administration.
Speaker 6: You know, they must drink a lot of coffee. Very active,
Speaker 6: very active, and I think that's on purpose, both for
Speaker 6: political purposes and for substantive purposes.
Speaker 3: Uh.
Speaker 6: You know, many executive orders, a lot of changes, the
Speaker 6: sort of aggressive behavior of Doge.
Speaker 4: You know, the the.
Speaker 6: Novel use of tariffs invoked under an emergency statute that
Speaker 6: previously have been had not been used to justify tariffs.
Speaker 3: Uh.
Speaker 6: You know, we expected this to be an eventful time.
Speaker 6: You know, the big four policies you have trade, immigration, Uh,
Speaker 6: you know, deregulation, and fiscal policy or tax they're all
Speaker 6: up in the air with the change and control in Washington.
Speaker 6: From a bond investor's standpoint, Uh, the overall tone coming
Speaker 6: out of the Trump administration seems a little bit more inflationary,
Speaker 6: a little bit more deficit ridden, and you would think
Speaker 6: yields would be heading higher. I think that got priced
Speaker 6: in October into November and as we started the year.
Speaker 6: So at this point you just have to wait to
Speaker 6: see how those big four policy areas unfold, and it's
Speaker 6: hard to take a big bet on just rates, so
Speaker 6: we're trying to be patient. One thing that's nice yields
Speaker 6: north of four percent are a height of the inflation rate,
Speaker 6: and that's good for some padding to your total return
Speaker 6: as each day goes by.
Speaker 3: So that's a great point in terms of it's too
Speaker 3: soon to tell, because are we going to look at
Speaker 3: treasuries as a safe haven or a risk asset now
Speaker 3: under President Trump?
Speaker 6: It's another good question. I think that US fixed income
Speaker 6: faces a number of challenges. There's more of it. There's
Speaker 6: more treasuries outstanding than ever before, both in the dollar
Speaker 6: value of outstanding securities and in a relative sense debt
Speaker 6: to GDP. You know, that's the result of the long
Speaker 6: path of fiscal imbalances that we've had under both Republican
Speaker 6: and Democratic leadership that I think is manifesting itself in
Speaker 6: just higher volatility.
Speaker 7: You know.
Speaker 6: You say you have sort of the same universe of
Speaker 6: securities dealers making markets out there, but the market that
Speaker 6: they're that they're playing in, the size of the market
Speaker 6: has only gotten bigger. So so that's a challenge, and
Speaker 6: that could eat into a little bit of the allure
Speaker 6: of treasuries as a safe haven bet. A safe haven
Speaker 6: bet shouldn't be extra volatile, it should be less volatile, right,
Speaker 6: that said, I think the credit quality the United States
Speaker 6: is unimpeachable. I think that the depth of the market,
Speaker 6: massive liquidity, the strength of the US economy in a
Speaker 6: US exceptionalism sense, uh, the underlying legal underpinnings, and the
Speaker 6: fact that we're the one of the world's actually the
Speaker 6: world's dominant power economically and militarily. Yeah, that all supports
Speaker 6: treasuries still having a pretty hallowed places as a as
Speaker 6: a where safe capital can reside.
Speaker 5: So we were talking earlier today about the debt of
Speaker 5: the cruise lines alex and Red Headline crossing the Bloomberg Criminal.
Speaker 5: That Royal Caribbean has been raised to investment greates by
Speaker 5: S and P. So good news there, Hey.
Speaker 2: Ar Jie.
Speaker 5: I mean, I look across the fixed income space. I'm
Speaker 5: wondering if do I just clip coupons here? Is that
Speaker 5: my game? Because that's not a bad place to be,
Speaker 5: whether it's in treasuries or even if I'm taking some
Speaker 5: credit risk. It really seems like I can get a
Speaker 5: meaningful carry here and that might be good enough.
Speaker 7: Yeah.
Speaker 6: Well, the year the yield on the ag, the Bloomberg
Speaker 6: AG is for eighty seven. That's higher than sof SO
Speaker 6: it's you're getting more yield, more carried from a diversified
Speaker 6: taxable investment grade bond portfolio than you are from money markets.
Speaker 6: And you know that wasn't true a year ago. So
Speaker 6: that's that's a welcome turn of events. It could motivate
Speaker 6: some investors who are in cash to move out the
Speaker 6: curb as a little bit rather than watch rates continue
Speaker 6: to decline on cash if the Fed gets going on
Speaker 6: the easing side again. Number one. Number two, I think
Speaker 6: that you know, at this point, as we wait to
Speaker 6: see how those big policy areas unfold, the economies doing
Speaker 6: pretty well. Inflation not two percent, but not apparently reaccelerating,
Speaker 6: and it feels like the bond market could be in
Speaker 6: for some choppy range trade all along. You're clipping a
Speaker 6: higher level of income that exceeds money markets and inflation.
Speaker 6: So Carrie is in fact an attractive aspect right now
Speaker 6: of bond returns for investors.
Speaker 2: All right, ur Ja appreciate it, Thanks very much.
Speaker 7: RJ.
Speaker 3: Gallo, Senior portfolio manager, Fixed Income and federate HERMEI is
Speaker 3: really appreciate that.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business App. Listen on demand wherever you
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Speaker 3: For broadcasting to live from Interactive Broker Studio right here
Speaker 3: in Midtown Manhattan. We are also broadcasting too live on YouTube,
Speaker 3: so definitely check us out on that. We've been talking
Speaker 3: a lot about different sectors and the effect of a
Speaker 3: Trump administration, whether tariffs or no tariffs. In one sector
Speaker 3: that's really in the crosshairs energy, So joining us for
Speaker 3: more on that is Ernie Miller, CEO at Verday Clean Fuels.
Speaker 2: He's joining us in the studio in New York. ARENI
Speaker 2: great to see you.
Speaker 7: Thanks all, it's great to be here.
Speaker 3: So we'll get to all the distinctions and tariffs and
Speaker 3: policies in a second, but just clean slate here.
Speaker 2: What does your company do? What is Veritay Clean Fuels.
Speaker 7: Veritay Clean Fuels is a gasoline business, and so we
Speaker 7: we operate in the Permian basin and under a joint
Speaker 7: venture with Diamondback Energy out there where we take their
Speaker 7: natural gas, which in West Texas as zero you know,
Speaker 7: or even negative value, and turn that into a high
Speaker 7: value refined product just commodity grade gasoline.
Speaker 3: And the idea it's word zero is because there's only
Speaker 3: pipeline to take oil out, for example, But when you
Speaker 3: produce oil, you produce natural gas and just kind of
Speaker 3: like hangs out and does nothing.
Speaker 2: That's right.
Speaker 7: So when you produce oil, there's there are a lot
Speaker 7: of other products coming to the surface, natural gas being
Speaker 7: the largest of those, and there's limited takeaway capacity, so
Speaker 7: that leaves an excess of gas in the basin that
Speaker 7: can't get the market.
Speaker 5: So, without getting too much into the chemistry it.
Speaker 2: How do you do it?
Speaker 7: Well, the chemistry was actually developed by Mobile in the
Speaker 7: nineteen seventies, and so our process starts with synthesis gas,
Speaker 7: which is a mix of carbon monoxide and hydrogen. We
Speaker 7: take that to methanol and then methanol downstream to gasoline.
Speaker 7: And so our product is just commodity grade refined gasoline
Speaker 7: made from natural gas.
Speaker 2: And you're cool with takeaway capacity? Do they hit that
Speaker 2: in land man?
Speaker 1: Yet?
Speaker 5: That was episode three?
Speaker 2: Great episode?
Speaker 7: Right?
Speaker 2: All right?
Speaker 5: So I mean, so are you doing that now? Are
Speaker 5: you create are you refining it into the gas?
Speaker 7: Now? We are our first commercial scale project is in
Speaker 7: is well into engineering with Diamondback and that first plant
Speaker 7: will be built in Midland County, Texas, just south of
Speaker 7: south of Midland, and it'll be commercial in twenty twenty seven.
Speaker 4: Cool.
Speaker 2: Being a refiners not easy.
Speaker 3: We saw that with Excent and schev run in their earnings.
Speaker 3: Now clearly they have a different input, right, They're inputting oil,
Speaker 3: which obviously their margins got.
Speaker 2: Squeezed of oil goes higher. But it's a tough biz.
Speaker 3: And then you put on you know, policy under Trump administration,
Speaker 3: and then questions about tariffs, what's your biggest concern?
Speaker 7: Well, you're right, refining is a very tough business. And
Speaker 7: and you know, when you think about the terraffs that
Speaker 7: are being proposed right now, you know, a ten percent
Speaker 7: tariff on on crude oil coming out of Canada will
Speaker 7: be a major hit to refiners, primarily in the in
Speaker 7: the Midwest. You know, we we import four million barrels
Speaker 7: of oil a day from Canada. It's about sixty percent
Speaker 7: of US imports, and a tariff on those volumes will
Speaker 7: will hit those Midwest refiners who, by the way, their
Speaker 7: their equipment is set up to process that heavy sour
Speaker 7: Canadian crude. So it's you know, while they could go
Speaker 7: and buy and buy US produced shale crude, which is
Speaker 7: generally lighter and sweeter, but their refineries will not operate
Speaker 7: nearly as efficiently, so fees dog costs will go down,
Speaker 7: but they'll operate much less efficient and probably negative. So
Speaker 7: it's and.
Speaker 5: There's nothing I mean, do they pess that along.
Speaker 7: To me and ultimately ultimately is going to land in
Speaker 7: the consumer's lapse.
Speaker 3: Yes, interesting when you take a look at clean fuel,
Speaker 3: like this is clean er, but it's not like E
Speaker 3: gasoline or anything like that.
Speaker 7: That's right, this is cleaner. Verde can produce fully renewable
Speaker 7: and even carbon negative gasoline. But the fact is that
Speaker 7: when you do that, the revenues are heavily dependent on
Speaker 7: carbon credits. There's no there's no term market for carbon credits.
Speaker 7: It's very much a spot kind of short term market.
Speaker 7: So that does not lend itself well to project financy.
Speaker 7: When we use natural gas as of feedstock, when when
Speaker 7: you can make the connection between a flare going away
Speaker 7: and we and us taking that natural gas would would
Speaker 7: have otherwise been flared to produce gasoline, that gasoline is
Speaker 7: about thirty percent less carbon intensive than gasoline that comes
Speaker 7: from crude oil. So there is a there is a
Speaker 7: pretty mean meaningful you know, environmental win there. But you
Speaker 7: know that's the focus is commercial. This is taking zero
Speaker 7: value natural gas or negative value natural gas and turn
Speaker 7: it into something that has a lot of value.
Speaker 5: You guys are based in Houston, Yes, okay, so the
Speaker 5: center of this country's energy industry in Houston. What's the
Speaker 5: feeling there about the transition or the evolution the transition
Speaker 5: to greener energy in general? Is the momentum slowing because
Speaker 5: of who's in.
Speaker 2: The White House?
Speaker 5: Is it Is there some inevitability that it's just going
Speaker 5: to go at its own pace?
Speaker 7: How do you well, you know, it's I kind of
Speaker 7: think that you know, most of the capacity to make
Speaker 7: this transition lives within the major empcome the major oil
Speaker 7: integrated oil companies you know already. So so those are
Speaker 7: the those are the players that are going to make
Speaker 7: the largest contribution to an energy transition. And so, you know,
Speaker 7: I think I think that we're we're going to see
Speaker 7: a lot less in the way of mandates and and
Speaker 7: a lot less of regulators picking winners and loss losers,
Speaker 7: and and it'll be much much more market driven, I
Speaker 7: think as it as it should be. But the ultimately
Speaker 7: the people that can contribute most of that are the
Speaker 7: are the legacy integrated energy companies.
Speaker 3: How did the conversation and development with a Diamondback come about.
Speaker 7: Well, we were in the process of of going public
Speaker 7: of listing on on Nasdaq and Diamondback UH. Diamondback came
Speaker 7: to us with UH and said, you know, we've we
Speaker 7: have been canvassing the market and and have really kind
Speaker 7: of zeroed in on your process as one that can
Speaker 7: really help us with this, with this natural gas problem
Speaker 7: that we have in the Permian basin. And post Diamondbacks
Speaker 7: and UH merger with Endeavor, they they went from a
Speaker 7: you know, a large, a large old company with a
Speaker 7: with a with a gas problem to a very large
Speaker 7: old company with an even bigger gas Yeah. Yeah, and
Speaker 7: so now so now they've got meaningful volumes of natural
Speaker 7: gas that you know, that are not getting the value
Speaker 7: that that that it.
Speaker 3: Should ask one more questions and looking at Okay, if
Speaker 3: we wind up getting easier permitting though from the Trump administration,
Speaker 3: and we get the ability to get natural gas out
Speaker 3: of the Permian an efficient way to then export it,
Speaker 3: does that mess up your model? You know?
Speaker 7: It really doesn't. There's there is such an overhang of
Speaker 7: natural gas and and and Texas is already the most
Speaker 7: friendly environment, you know, in the in the States for
Speaker 7: building pipeline capacity. You know, in the last couple of
Speaker 7: years there have been there have been at least two
Speaker 7: forty eight inch you know, enormous pipeline taking gas out
Speaker 7: of the basin. You know, the Permian has the benefit
Speaker 7: of the Gulf Coast and the Lergy and the LG
Speaker 7: terminals there in Corpus Christi. So there there are places
Speaker 7: to go with that natural gas. But but the volumes
Speaker 7: are just enormous, and so there we are. We are
Speaker 7: very comfortable that we have a very long runway in
Speaker 7: the in the Permian with Diamondback and others where there
Speaker 7: there's there's always going to be gas that can't get
Speaker 7: out of that basin.
Speaker 5: Interesting, fascinating story, learning a lot here sitting next to
Speaker 5: alex Ernie Miller. Thank you so much for joining a
Speaker 5: starting militi and CEO Verde Fuels.
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