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Speaker 2: A couple pieces of news. One, you have the senior
Speaker 2: VP resigns, So that's Drew, but Baglino, that's one part
Speaker 2: of the story. The other part of the story is
Speaker 2: at the carmaker slashing headcount by about ten percent. So
Speaker 2: put those two things together and what does that tell
Speaker 2: us about where Tesla is right now? So joining us
Speaker 2: is Steve Man, Bloomberg Intelligence Global Autos and Industrial Research analyst.
Speaker 2: This is a great example of why Bloomberg Intelligence Radio
Speaker 2: can bring you the best analyst from all of our
Speaker 2: guys all around the world, and Steve is definitely one
Speaker 2: of them. What has been your take over the last
Speaker 2: few hours on management shakeups as well as headcount at Tesla?
Speaker 3: Wow, it's actually worse than I thought I thought. You know,
Speaker 3: the first quarter sales drop was you know, hopefully close
Speaker 3: to the end, but you know, there's seems to be
Speaker 3: the light at the end of the tunnel is not
Speaker 3: really here yet, and it looks like, you know, it's running.
Speaker 3: Their plants are running just pretty much well below capacity
Speaker 3: at the moment, and there's still a lot of cost
Speaker 3: headwinds facing them. They're trying to balance a lot of
Speaker 3: things in terms of deliveries production. They're raising prices. I
Speaker 3: don't know how long that's gonna last. So execution is risk.
Speaker 3: Execution is key for the company in the next you know,
Speaker 3: six to nine months.
Speaker 4: So Steve, where are we now or where is the
Speaker 4: market when you talk to investors in terms of getting
Speaker 4: a sense of where EV demand is in the US
Speaker 4: and then maybe globally.
Speaker 3: Well, EV demand is is waning. I think the interest
Speaker 3: rate is not helping, you know, it's uh they're looking
Speaker 3: to you know, as you know, the FED is probably
Speaker 3: not going to cut rates anytime soon in the next
Speaker 3: couple of months, next quarter or so, so that's going
Speaker 3: to condude away on big purchases like automobiles. We're seeing
Speaker 3: that across the board in the US as well as
Speaker 3: in China. Trying is a little bit worse for Tesla
Speaker 3: because there's so much new competition there. But you know,
Speaker 3: sales is slowing for GM, sales is slowing for Ford
Speaker 3: for just had to cut production of their lightning recently
Speaker 3: announced about a couple of weeks ago.
Speaker 5: So I think this year will be tough for the industry.
Speaker 3: Now, you know, we probably won't see any improvement until
Speaker 3: as far as I'm concerned in twenty twenty six.
Speaker 2: Oh wow, Okay, well that pushes it a way out.
Speaker 2: Here was interesting headline too, Paul. To your point is
Speaker 2: that Reuters is reporting that BP is cutting over one
Speaker 2: hundred jobs and it's electric vehicle charging unit. And we
Speaker 2: all talk about how we really need chargers to deal
Speaker 2: with the range anxiety, and now you have a big
Speaker 2: player here studding some jobs in this EV charging unit. Steve,
Speaker 2: why twenty twenty six? Why is it going to take
Speaker 2: that long?
Speaker 5: Yeah? I think.
Speaker 3: I think what the market, the EV market is facing
Speaker 3: today is that we had early adopters, especially on the
Speaker 3: high end, they're you know, they're pretty much tapped out.
Speaker 3: You know, they they can buy only so many The
Speaker 3: market is relatively small, smaller than the mass market. I'm
Speaker 3: looking at twenty twenty six because if you look at
Speaker 3: the Inflation Reduction Act, it's bringing in on shoring a
Speaker 3: lot of the EV battery production in the US, hopefully
Speaker 3: it will cut costs. And at the same time, in
Speaker 3: twenty twenty six, where we're looking at more affordable evs
Speaker 3: coming into the market, that's going to expand the addressable
Speaker 3: market for EV's and that's why we're we're thinking, you know,
Speaker 3: twenty twenty six will probably be a better time for
Speaker 3: the EV market than it is today.
Speaker 4: So how about profitability in that scenario, Steve, It's tough
Speaker 4: to make an argument that, you know, these evs can
Speaker 4: be profitably manufactured at a higher price point.
Speaker 6: How are they going to adjust their cost structure to get.
Speaker 4: Be profitable with maybe have a lower price point, I
Speaker 4: don't know, thirty thousand dollars or something like that.
Speaker 5: That's a good question.
Speaker 3: I think if you look at the EV startups in
Speaker 3: the US, you know that the only one that's really
Speaker 3: still profitable is Tesla. You saw Fisker being delisted. There's
Speaker 3: risk of them filing bankruptcy. Both Lucid and Rivian will need,
Speaker 3: you know, billions of dollars just to get them through
Speaker 3: the next couple of years. We're not sure if they're
Speaker 3: gonna get that money. Given the slowdown and the EV market.
Speaker 3: But on a bright side, I think Tesla is still
Speaker 3: generating cash. You know, they're making some of the cuts today,
Speaker 3: I think really to maintain cash generation so they can
Speaker 3: continue it in vests for the long term, you know.
Speaker 3: For them, I think what's really important for them is
Speaker 3: the AI, the FSD, the full self driving systems that
Speaker 3: they're trying to build out. That that's going to be
Speaker 3: the future of the automotive industry. It's really those software
Speaker 3: based subscriptions that's going to drive revenue, not so much
Speaker 3: of the automaking. So if they're trying to get there,
Speaker 3: trying to maintain cash, maintain some level of profitability, profitability
Speaker 3: to make those investments to get them there.
Speaker 2: Interesting, I was thinking about self driving as I was
Speaker 2: coming up the Taconic, oring down the Taconic yesterday, and
Speaker 2: I was like, would I want to be in a
Speaker 2: self driving car right now? In the Taconic. I don't
Speaker 2: need the answer to that. I was driving and I
Speaker 2: was like, I don't know, man, I think I want
Speaker 2: to trust myself behind the wheel. Anyway, before we let
Speaker 2: you go, Steve, let's go to the SVP departing, So
Speaker 2: Drew Baglino. He leaving the company. As I mentioned senior
Speaker 2: vice president, who is he? Do we care? Like how
Speaker 2: big a deal he was in Tesla? What did he
Speaker 2: do walk us through it?
Speaker 5: Yeah, we do care.
Speaker 3: He's he's you know, I think he's the face to
Speaker 3: he's also the face of Tesla. Seems to be looks
Speaker 3: like to be the right hand person for Elon Musk.
Speaker 3: So it's a big loss for the company, no doubt
Speaker 3: about it. But you know, he's a he's a powertrain
Speaker 3: engineer for the most part, energy engineer, so he's you know,
Speaker 3: he's really involved in the battery if you saw him
Speaker 3: on battery day. I think, you know, if you look
Speaker 3: at Tesla and what Elon Musk have been saying about
Speaker 3: Tesla's future, which is on AI, which is on full
Speaker 3: self driving.
Speaker 5: Is it a big loss?
Speaker 3: I mean, you can you can argue that, hey, you know,
Speaker 3: Tesla's moving on to the next phase. It's not about
Speaker 3: building the motor, is not about building the batteries. They've
Speaker 3: gone through that process over the past fifteen eighteen years.
Speaker 3: You know, I think, you know, looking forward, they probably
Speaker 3: need somebody more people around. You know, AI, you know,
Speaker 3: developed them algorithms for the future of the car.
Speaker 4: All right, Steve Man, thanks so much for joining us.
Speaker 4: As always, Steve Mann, he covers the global auto industry
Speaker 4: for Bloomberg Intelligence base down there in Princeton, New Jersey.
Speaker 4: It's got to be tough, I think, to be like
Speaker 4: a Kathy would be so invested in this company, you know,
Speaker 4: not only financially, but kind of reputationally, and to have
Speaker 4: that to deal with a CEO like Elon Musk is
Speaker 4: so mercurial.
Speaker 6: I guess it is maybe the right term.
Speaker 4: And one of the you know, the results of that
Speaker 4: is you know, executive turnover, and that's got to be
Speaker 4: really challenging for investors.
Speaker 2: Yeah, but you know what's interesting with her view is
Speaker 2: that it's so long term that I wonder if these
Speaker 2: things become just blips to her, you know.
Speaker 7: Yep.
Speaker 4: On the other side of it, Yeah, she's very you know,
Speaker 4: obviously had great success with this disruption kind of theory.
Speaker 4: But boy, got to ride with Elon Musk and his foibles.
Speaker 2: It's true. Yeah, No, that'd be really hard. Would you
Speaker 2: do self driving? By the way, I really yeah, okay, good,
Speaker 2: so we're on the same page, But well.
Speaker 6: Can drive me around? I mean, you know, I trust him?
Speaker 2: Well, that's his second job makes sense.
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Speaker 4: Let's pivot to the geopolitical front, because another busy weekend
Speaker 4: in the Middle East with the Iranian attack on Israel. Response,
Speaker 4: Doctor Aeriel Cohen joins us. He's a senior fellow at
Speaker 4: the Atlantic Council. Doctor Cohen, thanks so much for joining
Speaker 4: us here. How would you characterize the I guess the
Speaker 4: Iranian back attack on Israel over the weekend?
Speaker 6: How would you characterize it?
Speaker 8: First of all, it's an avert act of war. Israel
Speaker 8: was attacked with three hundred missiles, ballistic missiles, cruise missiles,
Speaker 8: and owns. The systems worked very well. Both in sentcam
Speaker 8: US Central Command that Israel was joined several years ago.
Speaker 8: That was the right decision to integrate Israel was its
Speaker 8: Arab neighbors, and the US, UK, France, Saudi Jordan and
Speaker 8: apparently UAE all participated in shooting down the Iranian missiles.
Speaker 7: But this is just a first try.
Speaker 8: By the Iranians, and a successful try, the largest drone
Speaker 8: and missile attack of the twenty first century. Both the
Speaker 8: Americans and Israelis and the Iranians, the Russians and the
Speaker 8: Chinese are going to learn do lessons learn from this,
Speaker 8: and probably moved to program to plan bigger and worse.
Speaker 7: Strikes against each other.
Speaker 8: We saw many, many, many drone attacks in Ukraine, and
Speaker 8: one of the lessons learned is the massive drone type
Speaker 8: of swarms of drones as we saw can be counted.
Speaker 7: So that's a good news.
Speaker 8: The bad news is the Iranian regime is dead set
Speaker 8: on destroying Israel. The chant every Friday in Tehran is
Speaker 8: death to America, death to Israel, and they will continue
Speaker 8: on their merry way.
Speaker 2: So, doctor Cohen, the question yesterday was is this the
Speaker 2: start of a direct war between Iran and Israel and
Speaker 2: its allies or was Iran's attack calibrated and telegraphed retaliation.
Speaker 2: It sounds like you're in the former camp of that.
Speaker 8: The direct war all Iran against the US and Israel
Speaker 8: is going on since the days of the founder of
Speaker 8: the Islamic Republic.
Speaker 7: The Ayatolla Komani. You remember the.
Speaker 8: American ci A station chief was kidnapped and tortured and
Speaker 8: then murdered in Lebanon in nineteen eighty three, Colonel Buckley,
Speaker 8: And one way or another I was covering a studying
Speaker 8: these events now for forty years. So it's an ongoing war.
Speaker 8: But this was an escalatory operation, and this is the
Speaker 8: Middle East. Israelis sooner or later will have to retaliate,
Speaker 8: even as President Biden is telling them to step down
Speaker 8: and take a win. When you have three hundred missiles
Speaker 8: lobbed against your country, this is not going to stop there.
Speaker 4: So, doctor Cole, what do you think Israel's response will
Speaker 4: be and or should be.
Speaker 8: I think that as Israel has ongoing business of Gaza
Speaker 8: in the northern border against Gizabala in Lebanon, they will.
Speaker 7: Not be able to.
Speaker 8: Launch a large scale attack against around They shouldn't not
Speaker 8: right now.
Speaker 7: But they have other tools.
Speaker 8: They have cyber They were very successful with cyber attacks
Speaker 8: against the Iranian nuclear program, and they have other means
Speaker 8: to disrupt the Iranian military establishment and the Iranian economy.
Speaker 2: Will this side step in many ways containment of Russia.
Speaker 2: So I follow the oil markets. And there is an
Speaker 2: narrative out there that if you wind up moving deeper
Speaker 2: into sanctioned territory or even enforcing the sanctions that are
Speaker 2: there on Iran, that opens up an avenue for Russia
Speaker 2: to sell more oil and make more money. How does
Speaker 2: the US weigh these two events?
Speaker 8: Well, let me connect this to something that Biden administration
Speaker 8: just recently did, the foot of freeze on our LNG
Speaker 8: development going forward. And I think when we have malign
Speaker 8: actors like Russia, like Iran who are oil exporters, we
Speaker 8: the United States, Canada and others need to produce more,
Speaker 8: not less oil and natural gas for the market.
Speaker 4: All right, doctor Cohen, So I guess one of the
Speaker 4: questions here is we think about next steps is the
Speaker 4: positions of mister net Nyahu within Israel itself.
Speaker 6: How is his gripple on power?
Speaker 4: How is his ability to continue to move forward with
Speaker 4: this conflict?
Speaker 8: Well, I was in Israel during the attack. The morale
Speaker 8: is high, but people are sick and tired of NATANIAO.
Speaker 8: If the elections took place today, he would lose and
Speaker 8: his credibility is shot, both because of the criminal investigation
Speaker 8: that predate.
Speaker 7: The Hamas attack, of October seventh.
Speaker 8: And because of the huge, unprecedented failure of the Israeli
Speaker 8: intelligence and the military on Netanyao's watch. So he may
Speaker 8: be trying to distract the attention to move on towards
Speaker 8: the Iranian confrontation. I do not want to speculate, but
Speaker 8: I think sooner or later Israel will do the right thing.
Speaker 7: There'll be a judiciary commission of inquiry like there.
Speaker 8: Was after the Young People War of nineteen seventy three,
Speaker 8: when Israel also got a huge to teach a surprise
Speaker 8: fifty years ago to the day of the attack of
Speaker 8: October seventh, And after that commission of inquiry there will
Speaker 8: be consequences can etaniao after including criminal proceedings. I don't
Speaker 8: want to speculate right now, but he is politically living
Speaker 8: corpse walking.
Speaker 2: Doctor thanks a lot. We really appreciate Doctor Ala Cohen,
Speaker 2: senior Fellow at the Atlantic Council, has had extensive experience
Speaker 2: twenty years. He served at a senior research fellow in
Speaker 2: Russia and Eurasian Studies and International Energy Policy at the
Speaker 2: Heritage Foundation. Wonderful to get his perspective. I think what's
Speaker 2: interesting Paul for the markets is how do you hedge
Speaker 2: the unthinkable, like going into Friday. It's like, okay, you
Speaker 2: don't want to take risk into the weekend. You want
Speaker 2: to take some safety. But now, now, how do you
Speaker 2: do that? Do you sell puts? Like you know, I
Speaker 2: don't know.
Speaker 4: Well, some folks are some folks are selling oil here
Speaker 4: Brent Crue down now about one point seven percent still,
Speaker 4: you know, up around eighty nine dollars per barrel. But
Speaker 4: maybe a little bit of a breathe of sigh relief a.
Speaker 6: Little bit there.
Speaker 2: Oh, absolutely, And also there's a seminary about there, like
Speaker 2: why would Iron want to hurt themselves even more on
Speaker 2: the oil front. Anyway, we'll discuss.
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Speaker 4: Let's get the Ben Emmetts Senior portfolio manager and had
Speaker 4: to fixed income, new age wealth, the joints here in
Speaker 4: our Bloomberg Interactive Brooker Studio Ben A million ways to
Speaker 4: go here. Let's start with some of the economic data
Speaker 4: we got today. Some retail sales came in really strong. Here.
Speaker 6: The consumer seems to be in pretty good shape. I
Speaker 6: guess it.
Speaker 5: Still is BOM.
Speaker 9: I think that the employment reporters start to have an
Speaker 9: effect here, you know, because this was actually the numbers
Speaker 9: that were weak in generary ferry as we talked about earlier,
Speaker 9: and as I looked through these reports that you're seeing,
Speaker 9: you know, basically items that are going to be feeding
Speaker 9: directly into GDP that were up as well.
Speaker 5: As those non star sales.
Speaker 9: So I think what the market is doing today is
Speaker 9: to say, you know, GDP's once again accelerating. This brings
Speaker 9: us actually back to the summer of last year we
Speaker 9: had a similar phase of having higher bond yields started
Speaker 9: indicating that having a stronger economy, and this report then
Speaker 9: confirms it. So I think it's a yeah, this just shows.
Speaker 5: Once again like we just cannot be knocked off course
Speaker 5: no matter what guest is. The prices are doing, these
Speaker 5: sales are.
Speaker 4: Up to I mean I'm looking at the tenure, I
Speaker 4: mean rates are higher. Alex and I've been talking about
Speaker 4: this all day. Rach are up another twelve basis points
Speaker 4: on the tenure. The four point sixty five percent here,
Speaker 4: the two year run a five percent watch here. So
Speaker 4: the bond market is telling you, I don't know, rach
Speaker 4: are higher for longer.
Speaker 5: I guess higher for longer.
Speaker 9: And if you, if you, if this continues, then the
Speaker 9: tenure is going to drift towards where the fat fund's
Speaker 9: rate is, maybe not exactly but not too far off.
Speaker 9: That would, I think be a really interesting moment for
Speaker 9: Marcus because that means that if you're getting a ten
Speaker 9: fet funds rate about equal, it puts all should puts
Speaker 9: a lot of pressure on the economy. So but I
Speaker 9: think for now, and this is our view, that we're
Speaker 9: going to probably move into this four seventy five to
Speaker 9: five percent zone. You know, if this type of data
Speaker 9: shows that the GDP is going to be upgraded and
Speaker 9: the PC is going to be higher, we're going to
Speaker 9: have to expect that it's also going to be continued
Speaker 9: to reflect better growth.
Speaker 5: On top of the supply.
Speaker 9: We're going to continue a half it was very substantial
Speaker 9: terasury supply.
Speaker 2: So Ben that definitely means like a biotech thing because
Speaker 2: like they have the growth, they have the cash flow,
Speaker 2: they're not going to be subject to any of the
Speaker 2: refinancing et cetera. But I'm wondering if this scenario just
Speaker 2: dens the rotation that we've seen. Right, this I'm sure
Speaker 2: is bad for small caps. What does it do the
Speaker 2: cickle goals space.
Speaker 9: Yeah, you could think of that that anything interest rates
Speaker 9: sensitive as in the small cap space typically underperforms. With
Speaker 9: the view though that that we think the rotation, you know,
Speaker 9: the financial energy rotations really happens that that's not so
Speaker 9: much deriilty one it shows today with golden sacks like
Speaker 9: it's just you know, good trading environments. The energy market's
Speaker 9: obviously in play with because of the geopolitics. So I
Speaker 9: think that part of rotation is we think is working.
Speaker 9: But you're right about tech like that you gotta let
Speaker 9: your winners ride as Cameras said too, like we really
Speaker 9: have to not trade them but basically invest in them
Speaker 9: and stay with them because that is that is where
Speaker 9: it's happening in the economy. I think this is part
Speaker 9: of an impact to once again from all the infrastructure
Speaker 9: spending that starts to show up in the economists, making
Speaker 9: it each time stronger. Right, So why getting so much
Speaker 9: strength of unemployment rate? Unemployment and it feits to spending
Speaker 9: so I think concluding tech remains in play here even
Speaker 9: though the tay yield may go to five percent.
Speaker 4: So I mean, oh, your head of fix thing comes,
Speaker 4: let me ask you, I can sit into your treasury
Speaker 4: at four point ninety five percent.
Speaker 6: Should I do that?
Speaker 4: Or should I go out on the credit curve a
Speaker 4: little bit and maybe look at some corporate bonds, whether
Speaker 4: it's an investment grade or high yield.
Speaker 6: How are you guys positioning?
Speaker 9: So I put a little note out on Friday for
Speaker 9: New Edge that was I was sort of coming to
Speaker 9: the point of looking at the very short of the
Speaker 9: ye curve where anything that's floating rate, investment grade, or treasury.
Speaker 9: So even someone to extent howgh yield, it's just performing
Speaker 9: like so incredibly stable because you're getting all this interest.
Speaker 5: Right, So the spread of floating rate.
Speaker 9: Bonds over the treasury are anywhere but to two hundred
Speaker 9: three hundred basis points depending which area.
Speaker 5: In, that's pretty attractive.
Speaker 9: You keep collecting that interest and if you think about
Speaker 9: what's going on with the ten year yields. So on
Speaker 9: Friday we rally a lot. On geopolitics, we come in
Speaker 9: today we have a completely opposite picture. That's a lot
Speaker 9: of volatility. So I think from our point of view,
Speaker 9: you want to be a little bit more positioned down
Speaker 9: on the shorter end of yel curved because the yuka
Speaker 9: is not going to normalize much as fats on holds.
Speaker 9: You collect all that interest and give you very stable
Speaker 9: performance and sort of wait it down until we get
Speaker 9: higher yields in the low end that at some point
Speaker 9: is going to start slowing down the economy. We do
Speaker 9: think though, that the by zone for the ten year
Speaker 9: will probably be in that for the four seventy five
Speaker 9: five percent range, that we would think that a lot
Speaker 9: of people will start looking at it and buying.
Speaker 5: We probably do.
Speaker 2: Do you think we get to five percent on the tenure?
Speaker 9: I think it's fairly likely, and that's not just because
Speaker 9: of just today's number. But one thing with bonds Kurrny
Speaker 9: is that if you look at term premium as we
Speaker 9: call it a little like wonky term. But if you
Speaker 9: take what's expect from the fatter the next couple of
Speaker 9: years and where inflation is, you take that out of
Speaker 9: the ten year, there's almost no yield there.
Speaker 5: There's very little compensation.
Speaker 9: And if I then judge the way this geopolitical event
Speaker 9: is played out against an economy that doesn't get off thrown.
Speaker 9: Of course, it stays above trend. The volatility of bonds
Speaker 9: long end bounds will stay higher and should likely drive
Speaker 9: it a little bit up towards that five percent. Lastly,
Speaker 9: this refunding announcement that we're going to get believes that
Speaker 9: on April twenty ninth. There's something really interesting, Alex about
Speaker 9: the t bag the advisory community that put presentation out
Speaker 9: a few weeks ago, they actually made it forecast the
Speaker 9: tee will supprit you decline, but the long end supplies
Speaker 9: to stay the same. If the Treasury follows through on
Speaker 9: that advice, that should be refracted into the U curve.
Speaker 5: And that isn't right now, not enough. I think there's
Speaker 5: a low term premium.
Speaker 9: So I think for all these reasons throwing the fat
Speaker 9: to that the fat's gonna got's going to be more
Speaker 9: more priced out. You're gonna get to five percent, you
Speaker 9: believe the technical analysis from prefinancial CRISI up with the
Speaker 9: now you look at retracements, you could go even as
Speaker 9: high as five point three, which is where the fet
Speaker 9: funds rates. That will be pretty extreme, I think, and
Speaker 9: it will be a real buying opportunity. We think the
Speaker 9: zone comes into four seventy five five percent.
Speaker 4: So the Fed, what's your call for twenty twenty four?
Speaker 4: Will they cut in twenty twenty four?
Speaker 9: So I was listening to Williams today who were with
Speaker 9: Mike McKee, a good interview. He still stays very confident
Speaker 9: that they can do it. But and he's important to
Speaker 9: listen to because he's actually the person that put out
Speaker 9: the framework and how they want to do it. Meaning
Speaker 9: if inflation continues to get on track down to two percent,
Speaker 9: even though it's slower now, that fat that fat Fund's
Speaker 9: rate that's restrictive can be at some point cut down
Speaker 9: to take the restriction out. He thinks that's that they're
Speaker 9: still on course with that. I do think that the
Speaker 9: markets are probably more rational about earlier this year and
Speaker 9: saying yeah, it was not seven cuts, that's probably one
Speaker 9: of the two cuts. The windows obviously narrowed a lot, right,
Speaker 9: because as much Bowle said in the interview, I think
Speaker 9: it was also Mike Cue anyone else. The election didn't
Speaker 9: matter for them to make this great decision started in
Speaker 9: seeing you.
Speaker 5: Probably they are going to keep that in mind.
Speaker 2: The windows I'm giving Ben a look of like, yeah,
Speaker 2: all right, Ben Emmons, Yep, you go, yeah.
Speaker 6: Ben, Thanks so much for joining us.
Speaker 4: Ben Emmonds, Senior portfolio Manager, head of fixed Income at
Speaker 4: New Edge. Well joining us live here in our Bloomberg
Speaker 4: Interactive Brokers Studio.
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Speaker 2: This is Bloomberg Intelligence Radio. Happy Monday, Happy Tax Day.
Speaker 2: I'm Alex the alongside Paul Sweeney. We're live from Interactive
Speaker 2: Broker Studio right here in Midtown Manhattan. Looking at the
Speaker 2: crud market. Here, you're looking at Brent down by about
Speaker 2: almost two percent, same for WTI, so you're now at
Speaker 2: eighty eight for Brent, about eighty four for WTI. So
Speaker 2: kind of what's next. Ellen Walld is president of Transversal Consulting,
Speaker 2: and she's a great person to talk to on the
Speaker 2: price and fundamentals as well as the geopolitical risk. Just
Speaker 2: a handful of guys who do that really, really well Ellen,
Speaker 2: It's great to get your perspective. I've gotten so many
Speaker 2: notes for Strategist this morning on sort of what they're
Speaker 2: what's baked in now to the oil price? What's your
Speaker 2: call what geopolitical premium is in? How much should be in?
Speaker 10: I think there's definitely some geopolitical premium that is baked
Speaker 10: into oil prices, but I think it's been that way
Speaker 10: for some time now. I think that because this attack
Speaker 10: happened over the weekend, the price action was really really muted,
Speaker 10: even more than it would have been, you know, it
Speaker 10: was otherwise considering that there was no oil supply that
Speaker 10: was involved or threatened in any way, and so we
Speaker 10: didn't even see any you know, potential ups and downs
Speaker 10: or brief spikes just because there was no trading going on.
Speaker 10: I think the question really is, now that prices are
Speaker 10: kind of backing down, what's the next step. Where are
Speaker 10: things going? And if there are any indications that Israel
Speaker 10: is going to launch further attacks against Iran or there
Speaker 10: could be more retaliatory attacks from Iran, I think that
Speaker 10: could definitely cause oil prices to go up, maybe another
Speaker 10: dollar or so, but we'd have to get some really
Speaker 10: strong indications that something incredibly major or explosive would happen
Speaker 10: in order, I think for oil prices to really spike
Speaker 10: higher and stay higher for longer.
Speaker 6: Ellen talk to us about the demand side of the equation.
Speaker 4: Before October seventh, that seemed to be the driver here
Speaker 4: of global oil prices, you know, the ups and downs
Speaker 4: of global demand.
Speaker 6: What are you seeing in terms of demand these days.
Speaker 10: Yeah, what we're looking at is, you know, we did
Speaker 10: see some pretty strong demand in the United States. Gasoline
Speaker 10: demand is not quite as strong this week is maybe
Speaker 10: it was in previous weeks. But when we go, you know,
Speaker 10: looking forwards the summer, I think we're expecting to see
Speaker 10: pretty strong gasoline demand over the summer in the US.
Speaker 10: And also what's going on with Asia, especially with China,
Speaker 10: because they're big drivers of demand as well. And I
Speaker 10: think we're seeing some reluctance in Asian buyers to buy
Speaker 10: oil or to order cargoes more cargoes from the Middle
Speaker 10: East because there's a concern about whether it we'll get there.
Speaker 10: And that's actually fueling demand for American oil, which could
Speaker 10: actually either push up the price of WTI or keep
Speaker 10: it a bit more elevated as opposed to coming back
Speaker 10: down as the geopolitical premium goes down. So I think
Speaker 10: that it's kind of a complicated picture and does depend
Speaker 10: obviously on the economic situation globally. If we see some
Speaker 10: kind of more recession, we could see demand falter. But
Speaker 10: right now it looks pretty strong heading into the summer.
Speaker 2: Which brings us back to the supply picture. Ellen. So
Speaker 2: when you were talking about stronger action from Iran, the
Speaker 2: elephant in the room is closing the straight or Her
Speaker 2: moves where a lot of oil passes through, and that
Speaker 2: would be a huge line in the sand for oil
Speaker 2: and would cause unbelievable spikes in the oil price. What
Speaker 2: is Iran's capacity to actually do that because they've gotten
Speaker 2: kind of a good gig under President Biden in terms
Speaker 2: of you know, their exports are up, right, their oil
Speaker 2: exports are up. Do they really want to mess with that?
Speaker 10: Exactly? And I think the only case in which Iran
Speaker 10: takes any kind of action to shut the streets of
Speaker 10: hor Moos to shipping. And so remember what we're talking
Speaker 10: about is this is a small passage and Iran, you know,
Speaker 10: could do this in number of ways. It could either
Speaker 10: block it with ships or it could fire missiles off
Speaker 10: of nearby land. That could make it impossible for ships
Speaker 10: to traverse this area. But for them to really take
Speaker 10: that action means that Iran has nothing to lose, because
Speaker 10: if Iran cuts off other ships abilities to go through that,
Speaker 10: then you're going to see the US Navy cutting off
Speaker 10: Iranian ship's ability to come through the streets of Horror
Speaker 10: moves as well. So Iran really has to have nothing
Speaker 10: to lose, and right now it's got a lot to lose.
Speaker 10: It's got a very thriving contraband oil industry going on.
Speaker 10: It's making a lot of money, and as oil prices
Speaker 10: go higher, even though Iran has to sell its oil
Speaker 10: added discount, it's going to make more money, so it
Speaker 10: doesn't want to mess with that. In fact, it probably
Speaker 10: wants to sell more oil to you know, to its
Speaker 10: buyers as opposed to less. So if Biden starts to
Speaker 10: mess with that by enforcing sanctions harder, then that could
Speaker 10: kind of stir things up and make things more tense.
Speaker 10: But right now, you know, unless Iran's oil industry is
Speaker 10: shut down, it's to say, if it's oil industry was destroyed,
Speaker 10: then it might have the motive to do that because
Speaker 10: it's got nothing to lose, but it's.
Speaker 2: Definitely not yet. I mean just from perspective, Like in March,
Speaker 2: I runing oil output hit a five year high, about
Speaker 2: three point two five million barrels of oil a day.
Speaker 2: And the conversation we were having earlier with doctor Ariel
Speaker 2: Cohen was if sanctions are lined up heavier on Iran
Speaker 2: so they can't export that much, that opens the door
Speaker 2: for Russia to start selling a little bit more as well.
Speaker 2: So talk to me about how you balance, as someone
Speaker 2: in the Biden administration, how do you balance those two
Speaker 2: where how do you do that?
Speaker 4: Well?
Speaker 10: I think the Biden administration also has to come to
Speaker 10: terms with the fact that it's price cap policy on
Speaker 10: Russia is basically a failure. It's not really stopping Russia
Speaker 10: from making oil on it from making money on its
Speaker 10: oil industry. So yes, if Iran has less to offer,
Speaker 10: then Russia can fill in those gaps. But I think
Speaker 10: there's also the issue of Russia's participation in the OPEP
Speaker 10: plus output cuts, and if come June oil prices are
Speaker 10: still in the nineties, then there's gonna be a lot
Speaker 10: of practic on OPEK to raise its output and Russia's
Speaker 10: part of that, and Russia would love to sell more
Speaker 10: oil obviously, so this whole whole thing is a very
Speaker 10: complicated dance. Meanwhile, the Biden administration wants it's going to
Speaker 10: want more oil on the market because it doesn't want
Speaker 10: high gasoline prices going into an election year. So they
Speaker 10: both want Russian oil on the market. They just don't
Speaker 10: want Russia to make a lot of money off of
Speaker 10: that oil. But it seems like they can't really have
Speaker 10: both of those things.
Speaker 7: Well.
Speaker 4: Torsten Slock over to Pola Management put out a chart
Speaker 4: today that for me, who's not a oil expert, was
Speaker 4: really illuminating what you're saying.
Speaker 6: The US is the biggest.
Speaker 4: Oil producer in the world, with about twelve point nine
Speaker 4: million barrels per day. Why don't our friends in Texas
Speaker 4: and Oklahoma just start pumping out more oil?
Speaker 7: Here?
Speaker 10: Great question, and the answer is that this is not
Speaker 10: the same oil industry as it was in twenty fifteen,
Speaker 10: twenty sixteen, twenty seventeen, where it was all pump pump, pump, drill, drill, drill,
Speaker 10: put out as much as you can, don't think about,
Speaker 10: you know what, you're selling it for the return arns.
Speaker 10: It's just growth, growth, growth. That's not the oil industry. Now,
Speaker 10: there've been a lot of consolidations. Oil companies are running
Speaker 10: very lean games. They really cut out a lot of
Speaker 10: of you know, fat during the pandemic, and they're at
Speaker 10: a point where they don't have to produce producers, they
Speaker 10: don't have to grow in order to satisfy you know,
Speaker 10: their uh, you know, their their shareholders. They're they're sitting
Speaker 10: very well. Sometimes, you know, they may drill more wells,
Speaker 10: but it's become much more expensive inflation. We all think
Speaker 10: about oil prices causing inflation, but what we don't often
Speaker 10: think about is how inflation acts on oil production. And
Speaker 10: so everything costs more to drill now, and so they
Speaker 10: may see a benefit in not expanding drilling so much.
Speaker 10: They are increasing production by getting more out of every well,
Speaker 10: but there isn't necessarily a benefit to drill, drill, drill
Speaker 10: when uh, you know, they've got a good thing going
Speaker 10: right now, and it's becoming more difficult to drill more
Speaker 10: in terms of the prices, the supplies and all of that.
Speaker 10: So uh, and there's there's less incentive for them to
Speaker 10: do that at the moment.
Speaker 2: You're all oil learn on you, Paul, Right, okay, all
Speaker 2: oil nerd for you. The US produces a different type
Speaker 2: of oil than the oil you're going to get in
Speaker 2: the Middle East.
Speaker 6: Sweet cruit.
Speaker 2: Yes, yes, John Tucker, we were just talking about you yet.
Speaker 5: Just real quick boil b O.
Speaker 2: I l great function all.
Speaker 5: The different types of oil. It's like sixty different types
Speaker 5: of oil, and.
Speaker 2: All of them have different qualities and you can use
Speaker 2: them to refine into different kind of products. Uh So,
Speaker 2: even if the US was producing like forty million barrels
Speaker 2: of oil day, which obviously is like not possible, it
Speaker 2: wouldn't make up for the loss that you'd see in
Speaker 2: some of the Middle Eastern countries because they have the
Speaker 2: heavier stuff, which is really good for other products. So
Speaker 2: that is your Alex Laine of the morning. You are
Speaker 2: so welcome, Ellen, Thank you very much. Ellen Walld a
Speaker 2: president of Transversal Consulting joining us there. There was also
Speaker 2: an interesting article, I think it was in a journal
Speaker 2: that US oil executives finally have a direct line to
Speaker 2: the White House that like now their calls won't be
Speaker 2: rejected and they actually can go and talk to the
Speaker 2: Biden administration.
Speaker 6: So I that's why it's interesting.
Speaker 2: Oh yeah, Like a few years ago, when first time
Speaker 2: gasoline prices went to five dollars. I asked a CEO
Speaker 2: of a major oil company in the US, has the
Speaker 2: Biden administration called you. He's like, not even tried. Wow, yeah,
Speaker 2: but now that may be changing a little bit.
Speaker 6: So yeah, I would think. So we get star oil
Speaker 6: and gas industry as long as well as we need
Speaker 6: the green stuff.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 7: Here.
Speaker 4: When we get back to geopolitics, front and send yet again,
Speaker 4: Aaron David Miller joins his senior fellow at the Carnegie
Speaker 4: Endowment for International Peace, joining us in Washington, DC via
Speaker 4: that thing called Zoom. Aaron, talk to us about kind
Speaker 4: of how you view the Iranian response the Israeli defense.
Speaker 6: Over the weekend. Here where do we go from here?
Speaker 11: No, I think it's a story. Thanks for having me.
Speaker 11: What I would describe as the good, the bad, and
Speaker 11: the ugly. I mean, the good is easy at Israel's
Speaker 11: technical mastery of air defense backstop by the United States,
Speaker 11: it's military aircraft and air defenses by the Europeans, the
Speaker 11: French and the Brids. And not surprisingly, but I think
Speaker 11: in an unprecedented fashioned by kiirg states who participated in
Speaker 11: this Middle East air defense alignment of radars and intelligence,
Speaker 11: which is in precedent. There's never been a Middleast war
Speaker 11: where the at least the Israelis received that kind of support,
Speaker 11: including oak and so word from the Jordanians who downed
Speaker 11: a number of drums. That's the good news. The bad
Speaker 11: and potentially ugly news is number one in a real war,
Speaker 11: and I think the Iranians actually telegraph this and calculating
Speaker 11: and calibrated it so that they wouldn't prompt a massive
Speaker 11: Israeli response. In a real war, the Iranians would probably
Speaker 11: launched thousands of missiles and drone drones. That's number one.
Speaker 11: Number two, you have new rules established now. I mean
Speaker 11: it was thirty three years, been thirty three years since
Speaker 11: any Arab state attacked Israel directly. That was Saddam Hussein
Speaker 11: in ninety one, who launched forty three scud missiles. Then
Speaker 11: Prime Minister Shamir was persuaded by the Bush first Bush
Speaker 11: administration not to respond. But you now have new rules
Speaker 11: between Iran and Israel, established an a rivalry and for
Speaker 11: which there's no solution. So we're now forced to deal
Speaker 11: with the cruel realities that we're best going to be
Speaker 11: managing this and trying to contain it. The Israelis have
Speaker 11: made it unmistakably clear. I think that they intend to respond.
Speaker 11: The timing and the scale of that response, I think
Speaker 11: is still very much up in the air. Maybe they'll
Speaker 11: look for a calibrated response that reinforces what has clearly
Speaker 11: been obvious, which is Israel's technical mastery and superiority over Iran.
Speaker 11: But there's no guarantee, of course, once you go up
Speaker 11: the escalatory ladder that Iron won't respond. Then then you
Speaker 11: raise the issue Balla. You know, that's kilometers away, that's
Speaker 11: not hours away. There's Balla lunch, missus will It's not
Speaker 11: gonna take hours to get Israel and they got a
Speaker 11: lot of them.
Speaker 2: Aaron, this is a pretty grim picture that you're painting
Speaker 2: at this point. What are the chances that that's how
Speaker 2: it's going to play out or is there real ability
Speaker 2: for President to President Biden to diffuse this.
Speaker 11: You know, diffusing would mean meeting Iran's and Israel's core requirements.
Speaker 11: I'm not predicting regional war, which would lead to dramatic
Speaker 11: spike in oil prices and probably plunging financial markets, and
Speaker 11: a degree of instability in the Middle East has never
Speaker 11: experienced before. It's a matter of managing and containing, that's
Speaker 11: the question, because there's no solution to deal with the
Speaker 11: fact reality that Iran is a nuclear weapons threshold state.
Speaker 11: There's no real solution to deal with Iran's proxies. That's
Speaker 11: always been management issue, whether these are shelling international shipping
Speaker 11: or seeing shippers to go around the Cave of Good Hope,
Speaker 11: which is additional thirty five hundred miles, which raises rates
Speaker 11: and interferes with the global supply chain. There are no determinative,
Speaker 11: comprehensive answers to any of this, and if we need
Speaker 11: to complicate it even more, you have an Israeli Amas war.
Speaker 11: Although the Israelis seem to have scaled down their ground
Speaker 11: campaign in Gaza, that carries so many uncertainties, including the
Speaker 11: fate of one hundred and thirty four hostages, thirty of
Speaker 11: whom Israelis believed were either killed in captivity or died
Speaker 11: on October seventh. Their body's taken to Gaza to trade
Speaker 11: for Palestinian prisoners. So, you know, I wish I could
Speaker 11: make it happy. But again, I'm not predicting we're going
Speaker 11: to a major regional war. But I guess my takeaway
Speaker 11: here is it's going to require a degree of restraint
Speaker 11: from Iran and Israel, and to a certain degree, some
Speaker 11: diplomacy from the Biden administration, particularly with Ralis Aaron.
Speaker 4: Do we have any clearer picture today than we did
Speaker 4: on October eighth? What really the end goals are for
Speaker 4: Israel here? What would be a victory.
Speaker 11: A victory, I guess would be three things. Number One,
Speaker 11: Hamas would be not as a political force, but as
Speaker 11: a military force, would be undermined and destroyed, so it
Speaker 11: would not be in a position to pull off another
Speaker 11: October seven. Israel would kill the senior leadership responsible for
Speaker 11: the October seven attacks, and the redemption of the hostages.
Speaker 11: If those three things were accomplished, that would be I
Speaker 11: think you could put that in the victory category. Although
Speaker 11: the price of victory, the price of victory is something
Speaker 11: that needs to be factored into this, particularly when it
Speaker 11: involves the exponential rise of Palestinian deaths and the humanitarian catastrophe,
Speaker 11: catastrophic starvation. Samantha Power, the AID Administrator, even used the
Speaker 11: words several days ago.
Speaker 7: Famine.
Speaker 11: So I'm not sure the Israelis can accomplish those three
Speaker 11: things right now, six months.
Speaker 7: Into the war.
Speaker 11: There's no indication, right they have not killed the senior leadership.
Speaker 11: You've got a truly tragic situation with respect to hostages,
Speaker 11: particularly the women hostages. And you have a situation where Hamas,
Speaker 11: probably out of their thirty thousand fighters, have at least
Speaker 11: ten thousand fighters that remain. So I think we're talking
Speaker 11: here again about a lot of uncertainties, and I just
Speaker 11: don't see a sort of determinative ending where Gaza becomes
Speaker 11: secure and stable, the Israelis in the Saudis normalized, in
Speaker 11: the Middle East remains as converted into a happy conflict place,
Speaker 11: or everybody's getting along with one another, all.
Speaker 2: Right, erin thanks Lott, we really appreciate it. Aaron David Miller,
Speaker 2: Senior Fellow at Carnie Endowment for International Peace, is standing
Speaker 2: by and then or thank you for joining us. I
Speaker 2: have to wonder then, you know, as an investor, how
Speaker 2: do you It just means we're going to be very
Speaker 2: sensitive to any kind of headline that's going to cross,
Speaker 2: which is maybe what we're seeing in the market sort
Speaker 2: of right now, and it's going to make the overall
Speaker 2: data that we see. I wonder how much more relevant
Speaker 2: that's going to be when these headlines can be very effective.
Speaker 4: Yeah, it seems like, you know, just to date, the
Speaker 4: market is kind of powered through all of this Middle
Speaker 4: East tension, much as it has the European geoconflict in Ukraine,
Speaker 4: seems to just generally bypass it and focusing on, you know,
Speaker 4: maybe a little bit more local issues, I eat, central
Speaker 4: bank policy, corporate earnings, so maybe a day to day
Speaker 4: basis that might be totally from this. But if you
Speaker 4: look at this market really since October, which is you know,
Speaker 4: kind of the low of this market, you know, s
Speaker 4: and p up about twenty five percent during that time here,
Speaker 4: So despite all the geopolitical tensions around the world, much
Speaker 4: much hotter than I think anybody would like to see,
Speaker 4: this market is moving higher.
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