1 00:00:02,360 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,400 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,840 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:36,920 Speaker 2: Terminal and the Bloomberg Business app. Let's get to the 10 00:00:37,000 --> 00:00:39,720 Speaker 2: view on Wall Street this morning, Nate's Earth of Manual Life, writing, 11 00:00:39,760 --> 00:00:43,320 Speaker 2: we could see economic growth diminish if policy uncertainty increases, 12 00:00:43,360 --> 00:00:46,120 Speaker 2: Corporate profit margins get prim due to higher energy inputcasts 13 00:00:46,120 --> 00:00:48,960 Speaker 2: and higher gas prices will act as a consumer tax. 14 00:00:49,040 --> 00:00:51,120 Speaker 2: Nate joins us now for more. Nate, good morning, Thank 15 00:00:51,120 --> 00:00:53,239 Speaker 2: you for having me. What is the price for all 16 00:00:53,280 --> 00:00:54,120 Speaker 2: this volatility? 17 00:00:54,800 --> 00:00:56,840 Speaker 3: I mean, I think the reality is we have a 18 00:00:57,000 --> 00:00:59,000 Speaker 3: bigger pogost going on, right. We have a lot of 19 00:00:59,080 --> 00:01:01,320 Speaker 3: up and down, we don't have a lot of forward traction, 20 00:01:01,480 --> 00:01:04,240 Speaker 3: and the uncertainty is very, very high. I think the prices, 21 00:01:04,280 --> 00:01:06,520 Speaker 3: that we live in a world where volatility continues to 22 00:01:06,560 --> 00:01:09,320 Speaker 3: be the theme, at least in the near future. To 23 00:01:09,360 --> 00:01:11,880 Speaker 3: your point earlier, the signal is there is and everyone 24 00:01:12,000 --> 00:01:14,679 Speaker 3: wants us to conclude quickly and the duration of it 25 00:01:14,720 --> 00:01:17,280 Speaker 3: to be limited. But the reality is the on the 26 00:01:17,280 --> 00:01:21,280 Speaker 3: ground activity and the idea that multiple players are involved 27 00:01:21,280 --> 00:01:23,800 Speaker 3: could lead this to le lasts a lot longer than 28 00:01:23,800 --> 00:01:24,440 Speaker 3: many people think. 29 00:01:24,440 --> 00:01:26,960 Speaker 2: If you've had the comparisons to twenty twenty two in 30 00:01:26,959 --> 00:01:28,720 Speaker 2: this moment, right, hey, what do you think the MIGHTIA 31 00:01:28,760 --> 00:01:29,479 Speaker 2: difference is off? 32 00:01:29,920 --> 00:01:33,080 Speaker 3: I think the comparison is that you have energy prices 33 00:01:33,120 --> 00:01:35,760 Speaker 3: going up. What we don't know yet is the duration 34 00:01:35,959 --> 00:01:38,679 Speaker 3: of that, or the infrastructure and how wide that is, 35 00:01:38,880 --> 00:01:41,880 Speaker 3: let alone the escalation. Right, there's three big things there 36 00:01:41,880 --> 00:01:44,360 Speaker 3: that we don't have the answer to. Twenty twenty two, 37 00:01:44,560 --> 00:01:46,679 Speaker 3: we saw this dynamic war oil went up for a 38 00:01:46,680 --> 00:01:48,840 Speaker 3: period of time. We saw interest rates go up for 39 00:01:48,880 --> 00:01:51,600 Speaker 3: a period of time, and then eventually things pass. I 40 00:01:51,760 --> 00:01:54,480 Speaker 3: think this time around, you're probably in a similar scenario 41 00:01:54,640 --> 00:01:57,360 Speaker 3: where you do see some damage in the equity markets 42 00:01:57,400 --> 00:01:59,920 Speaker 3: for a period of time, but ultimately we flow through 43 00:01:59,960 --> 00:02:02,000 Speaker 3: it and we have to focus again on the underlying 44 00:02:02,040 --> 00:02:04,080 Speaker 3: fundamentals which are going to be much more positive. 45 00:02:04,240 --> 00:02:06,640 Speaker 1: Well, people are treating this as though it's an inflationary 46 00:02:06,680 --> 00:02:09,760 Speaker 1: shock the way that twenty twenty two was, why don't 47 00:02:09,760 --> 00:02:11,000 Speaker 1: you see it exactly that way? 48 00:02:11,680 --> 00:02:14,760 Speaker 3: Well, this time I think, one, we've experienced it before, 49 00:02:14,800 --> 00:02:17,080 Speaker 3: and the markets, as they've seen one thing before, they 50 00:02:17,120 --> 00:02:19,760 Speaker 3: start to accept the fact that that's a possibility and 51 00:02:19,800 --> 00:02:22,120 Speaker 3: are less concerned about it. The other thing I think 52 00:02:22,120 --> 00:02:24,440 Speaker 3: when you think about it is when we look at 53 00:02:24,440 --> 00:02:28,720 Speaker 3: the dynamics here oil, while very important to economies globally, 54 00:02:29,200 --> 00:02:31,680 Speaker 3: there is solutions to this, and we do think there 55 00:02:31,680 --> 00:02:34,200 Speaker 3: will be a de escalation at some stage, just a 56 00:02:34,280 --> 00:02:37,480 Speaker 3: question of timing right. And the longer we stay at 57 00:02:37,560 --> 00:02:39,800 Speaker 3: high oal prices let's say one hundred or above, the 58 00:02:39,919 --> 00:02:42,840 Speaker 3: more impactful it is to growth rates and inflation. We 59 00:02:43,000 --> 00:02:46,080 Speaker 3: believe that from a developed markets perspective, if you stay 60 00:02:46,080 --> 00:02:48,240 Speaker 3: above one hundred dollars a barrel for let's say a 61 00:02:48,360 --> 00:02:52,240 Speaker 3: handful of months, you're arguably going to decrease growth rates 62 00:02:52,240 --> 00:02:54,200 Speaker 3: by about a half a percent a year, and you're 63 00:02:54,200 --> 00:02:57,000 Speaker 3: going to increase inflation rates about a one percent per year. 64 00:02:57,160 --> 00:03:01,359 Speaker 3: For most major economies, that's very detrimental to the markets, 65 00:03:01,360 --> 00:03:04,000 Speaker 3: both from an interest rate policy perspective, but also from 66 00:03:04,040 --> 00:03:05,000 Speaker 3: an equity perspective. 67 00:03:05,080 --> 00:03:08,359 Speaker 1: It's been treated like a stagflationary shock, which includes people 68 00:03:08,440 --> 00:03:11,600 Speaker 1: selling long term bonds. It seems like what you're talking 69 00:03:11,639 --> 00:03:13,519 Speaker 1: about is somewhat of a different prescription. 70 00:03:13,960 --> 00:03:17,280 Speaker 3: Why well, I think why it's a bit different is 71 00:03:17,320 --> 00:03:20,359 Speaker 3: I think this is short term. I don't think this 72 00:03:20,560 --> 00:03:23,480 Speaker 3: is a secular theme that we are going into a 73 00:03:23,520 --> 00:03:27,040 Speaker 3: stagflation period that's going to last multi years. I do 74 00:03:27,120 --> 00:03:29,880 Speaker 3: think ultimately you're going to have central bank policy members 75 00:03:29,919 --> 00:03:32,760 Speaker 3: look through this and say, hey, we care more about jobs, 76 00:03:32,800 --> 00:03:35,240 Speaker 3: we care more about growth, and we're willing to look 77 00:03:35,320 --> 00:03:39,680 Speaker 3: through a temporary shock attached to higher oil prices if necessary. 78 00:03:39,800 --> 00:03:41,880 Speaker 3: That's not their preference, but they were willing to if 79 00:03:41,920 --> 00:03:45,000 Speaker 3: it's necessary. And ultimately we get to a point where 80 00:03:45,000 --> 00:03:47,960 Speaker 3: we have energy prices get back to a level that 81 00:03:48,120 --> 00:03:51,280 Speaker 3: one more stable and not at this ninety plus or 82 00:03:51,280 --> 00:03:53,280 Speaker 3: one hundred plus level. And I think that's where the 83 00:03:53,320 --> 00:03:55,920 Speaker 3: market is hoping for, and I think that's what's most 84 00:03:56,000 --> 00:04:00,240 Speaker 3: policy as well as political members out there think will 85 00:04:00,240 --> 00:04:02,600 Speaker 3: still be in an environment where we will get to 86 00:04:02,680 --> 00:04:04,920 Speaker 3: a solution here where we don't have to see the 87 00:04:04,920 --> 00:04:05,840 Speaker 3: worst case scenario. 88 00:04:05,920 --> 00:04:07,360 Speaker 2: What do you think that means for the stock bond 89 00:04:07,400 --> 00:04:09,560 Speaker 2: cord lintion. I think that's the problem. 90 00:04:09,840 --> 00:04:12,360 Speaker 3: I think the stock bond correlation has been a problem, 91 00:04:12,480 --> 00:04:14,640 Speaker 3: will continue to be a problem, and this is why 92 00:04:14,680 --> 00:04:18,160 Speaker 3: we continue to look for ways to improve portfolio construction 93 00:04:18,640 --> 00:04:23,200 Speaker 3: beyond just relying on interest rates or lower interest rates 94 00:04:23,200 --> 00:04:23,960 Speaker 3: being your insurance. 95 00:04:23,960 --> 00:04:24,760 Speaker 2: But where do you go again? 96 00:04:25,480 --> 00:04:27,839 Speaker 3: While you go to areas like commodities as an example 97 00:04:27,920 --> 00:04:30,320 Speaker 3: that has been a good hedge in these types of environments, 98 00:04:30,320 --> 00:04:32,640 Speaker 3: you go to things like gold, which maybe not working 99 00:04:32,720 --> 00:04:35,240 Speaker 3: as well in the short term here, but has been 100 00:04:35,240 --> 00:04:37,520 Speaker 3: working very well over the last couple of years, and 101 00:04:37,560 --> 00:04:39,719 Speaker 3: you look at other types of alternatives. 102 00:04:39,440 --> 00:04:41,160 Speaker 2: Once you think going to open working well. 103 00:04:41,440 --> 00:04:43,400 Speaker 3: I think gold hasn't been working well partly because it 104 00:04:43,440 --> 00:04:45,760 Speaker 3: had been working well, right, It had worked very well 105 00:04:45,760 --> 00:04:47,680 Speaker 3: for the last two years. You had a lot of 106 00:04:47,720 --> 00:04:50,200 Speaker 3: players in there. Some of those players decided to exit, 107 00:04:50,200 --> 00:04:54,160 Speaker 3: either for liquidity reasons or for reasons that they made 108 00:04:54,160 --> 00:04:56,280 Speaker 3: a lot of money and they want to protect their profits, right. 109 00:04:56,560 --> 00:04:59,279 Speaker 3: And then you also have what appeared to be the 110 00:04:59,400 --> 00:05:03,000 Speaker 3: two plastic things that did work, which was the US dollar, 111 00:05:03,400 --> 00:05:07,320 Speaker 3: and you had the overall dynamics of the market, such 112 00:05:07,360 --> 00:05:10,400 Speaker 3: as oil, because that's centerpiece of the geopolitical concern work, 113 00:05:10,440 --> 00:05:11,040 Speaker 3: and so got us. 114 00:05:11,000 --> 00:05:13,080 Speaker 2: This trade moved into that. I got asked this question 115 00:05:13,080 --> 00:05:14,760 Speaker 2: twelve months ago, you would have thought I was insane. 116 00:05:14,760 --> 00:05:16,600 Speaker 2: It is five kan't good entry points? If I got 117 00:05:16,720 --> 00:05:17,200 Speaker 2: I think it is. 118 00:05:17,320 --> 00:05:17,480 Speaker 1: Yeah. 119 00:05:17,520 --> 00:05:19,800 Speaker 2: Twelve months ago that would have sounded nuts. But now 120 00:05:19,839 --> 00:05:20,720 Speaker 2: this is a good opportunity. 121 00:05:21,279 --> 00:05:24,279 Speaker 3: We still believe that secularly we will see higher gold 122 00:05:24,320 --> 00:05:27,200 Speaker 3: prices over the next several years going forward. 123 00:05:27,320 --> 00:05:30,159 Speaker 1: I'm just wondering if you ratcheting back your returns profile 124 00:05:30,240 --> 00:05:33,200 Speaker 1: more generally overall, whether you think that investors have to 125 00:05:33,240 --> 00:05:37,279 Speaker 1: expect that in a reindustrialized world with a higher rate 126 00:05:37,400 --> 00:05:41,360 Speaker 1: of potentially inflation, but also lower growth, this means that 127 00:05:41,440 --> 00:05:43,120 Speaker 1: you're just not going to get the same kind of returns. 128 00:05:43,200 --> 00:05:45,520 Speaker 2: You absolutely have to dial back your expectations. 129 00:05:45,640 --> 00:05:47,799 Speaker 3: The reality is we are now in a world where 130 00:05:48,040 --> 00:05:52,240 Speaker 3: equity evaluations are high. We have uncertainty round yield and 131 00:05:52,279 --> 00:05:54,240 Speaker 3: they may not go down a lot. And so I 132 00:05:54,279 --> 00:05:58,560 Speaker 3: think your expectations for total return from your portfolio, whether 133 00:05:58,600 --> 00:06:00,600 Speaker 3: it's from the fixed income side or the equity side, 134 00:06:00,880 --> 00:06:02,600 Speaker 3: have to be lower than what we've seen over the 135 00:06:02,680 --> 00:06:03,600 Speaker 3: last twenty years. 136 00:06:03,920 --> 00:06:05,680 Speaker 1: Is the US still the safe haven market? 137 00:06:05,839 --> 00:06:06,960 Speaker 2: I think for the time being it is. 138 00:06:07,279 --> 00:06:08,839 Speaker 3: But I do think once we get through some of 139 00:06:08,839 --> 00:06:12,000 Speaker 3: this more geopolitical dynamic right now, I think we are 140 00:06:12,040 --> 00:06:13,760 Speaker 3: going to go back to a trade where you do 141 00:06:13,880 --> 00:06:19,080 Speaker 3: see diversification outside the US dollar dynamics start to be 142 00:06:19,240 --> 00:06:23,080 Speaker 3: more on a backfoot, as in dollars starts to depreciate again. 143 00:06:23,320 --> 00:06:25,520 Speaker 3: So we think ultimately over the next several years you 144 00:06:25,600 --> 00:06:28,760 Speaker 3: are better served having a more diversified portfolio. But in 145 00:06:28,800 --> 00:06:32,760 Speaker 3: the short term US dollar is a safe haven trade 146 00:06:32,800 --> 00:06:34,280 Speaker 3: that does provide some level. 147 00:06:34,080 --> 00:06:38,040 Speaker 2: Of hedge stay with US multiple implexsavandans coming up off 148 00:06:38,120 --> 00:06:50,000 Speaker 2: to this, the signal from the president is important, so 149 00:06:50,279 --> 00:06:53,279 Speaker 2: is the reality on the ground. Just as we speaking, 150 00:06:53,320 --> 00:06:56,760 Speaker 2: these headlines crossing the UAA says it's currently responding to 151 00:06:56,800 --> 00:07:00,599 Speaker 2: a missile threat, KATSA saying they intercepted a miss targeting 152 00:07:00,680 --> 00:07:03,719 Speaker 2: the state of Catta. And we've seen headgund after headline 153 00:07:03,920 --> 00:07:05,800 Speaker 2: like that and more still to count. 154 00:07:05,880 --> 00:07:08,040 Speaker 1: Yeah, and the IRSTG coming out and saying this war 155 00:07:08,160 --> 00:07:11,000 Speaker 1: isn't over until we say it's over. Even though the 156 00:07:11,080 --> 00:07:13,440 Speaker 1: President is saying I can stop this at any point. 157 00:07:13,600 --> 00:07:15,480 Speaker 2: Joining us now to discuss is Mark Shaw, the former 158 00:07:15,520 --> 00:07:18,520 Speaker 2: chief of Staff to the form of Vice President Mike Pence. Mark, 159 00:07:18,520 --> 00:07:20,280 Speaker 2: good to see you, great to be here. That this 160 00:07:20,440 --> 00:07:23,080 Speaker 2: is not in the president's traditional playbook. This feels so 161 00:07:23,240 --> 00:07:27,000 Speaker 2: so different. Typically he has something targeted, it's limited, it 162 00:07:27,120 --> 00:07:29,360 Speaker 2: leads to a period of the escalation. This feels so 163 00:07:30,160 --> 00:07:32,920 Speaker 2: open ended. How would you characterize what's evolving in the 164 00:07:32,920 --> 00:07:33,360 Speaker 2: Middle East? 165 00:07:33,760 --> 00:07:36,560 Speaker 4: Well, I think there's some true to that that. Obviously, 166 00:07:36,680 --> 00:07:39,120 Speaker 4: you know Venezuela, he wasn't looking for regime change. He 167 00:07:39,240 --> 00:07:42,320 Speaker 4: left Mondu's number two in place. But at the same time, 168 00:07:42,360 --> 00:07:45,200 Speaker 4: I think the president always likes optionality, which I think 169 00:07:45,240 --> 00:07:48,800 Speaker 4: you've witnessed over the last ten days. Is that explanations 170 00:07:48,840 --> 00:07:50,560 Speaker 4: as to how long this is going to be continued 171 00:07:50,600 --> 00:07:52,800 Speaker 4: to vary a lot, and so I think you'll continue 172 00:07:52,800 --> 00:07:54,960 Speaker 4: to see him want to keep that optionality to whether 173 00:07:55,240 --> 00:07:57,240 Speaker 4: he continues to prosecute this warpoo back. 174 00:07:57,520 --> 00:07:59,280 Speaker 1: How different is this time in terms of the support 175 00:07:59,320 --> 00:08:02,120 Speaker 1: from other republiclkens in Congress for the effort. I mean 176 00:08:02,160 --> 00:08:05,040 Speaker 1: it was sort of pretty unified around Venezuela. Is it 177 00:08:05,120 --> 00:08:05,640 Speaker 1: the same here? 178 00:08:06,520 --> 00:08:08,920 Speaker 4: Well, I think that there's obviously been a growing thread 179 00:08:08,960 --> 00:08:12,080 Speaker 4: of isolation inside their Publican party. I think it's been 180 00:08:12,200 --> 00:08:14,960 Speaker 4: notable that Jade Vance has been pretty quiet and not 181 00:08:15,120 --> 00:08:18,720 Speaker 4: as visible as far as advocating for these policies, and 182 00:08:18,840 --> 00:08:20,280 Speaker 4: I don't think there was as much of an effort 183 00:08:20,320 --> 00:08:22,600 Speaker 4: ahead of time to explain to the American people the 184 00:08:22,680 --> 00:08:24,440 Speaker 4: priority and why we're doing this, which is why I 185 00:08:24,480 --> 00:08:26,760 Speaker 4: think you see the pulling down. Having said that, Lisa, 186 00:08:26,800 --> 00:08:29,480 Speaker 4: if the present's successful here and in many cases this 187 00:08:29,560 --> 00:08:32,559 Speaker 4: milit operation has been successful, but if he also be 188 00:08:32,600 --> 00:08:35,120 Speaker 4: able to transform the Middle East for generations to come, 189 00:08:35,320 --> 00:08:36,959 Speaker 4: I think we'll see a lot of Republicans be on 190 00:08:37,040 --> 00:08:40,079 Speaker 4: board with this. I think the greater political concern in 191 00:08:40,120 --> 00:08:42,920 Speaker 4: the short term is that affordability remains number one issue 192 00:08:42,960 --> 00:08:45,959 Speaker 4: for Americans. And you know, I think that even if 193 00:08:46,040 --> 00:08:48,520 Speaker 4: best case scenario prices you now are an eighty to 194 00:08:48,640 --> 00:08:52,000 Speaker 4: ninety dollars range of barrel, that's still a thirty three 195 00:08:52,080 --> 00:08:54,439 Speaker 4: percent premium for what they were. That's not going to 196 00:08:54,520 --> 00:08:57,240 Speaker 4: help with the affordability issue heading into the midterms of November. 197 00:08:57,360 --> 00:08:59,559 Speaker 1: So what do you think is the most feasible counteraction 198 00:08:59,760 --> 00:09:02,200 Speaker 1: to that by the president heading into the midterms. 199 00:09:02,480 --> 00:09:04,240 Speaker 4: I think the most feasible is to get to you 200 00:09:04,280 --> 00:09:07,400 Speaker 4: to explain why this is a necessary action. Why for 201 00:09:07,520 --> 00:09:09,559 Speaker 4: forty seven years I Ran has been at war with 202 00:09:09,679 --> 00:09:13,040 Speaker 4: the West. Why they've you know, going back to funding 203 00:09:13,720 --> 00:09:17,320 Speaker 4: the Hamas and the Hesbalah and the Houthis, why they've 204 00:09:17,400 --> 00:09:19,920 Speaker 4: killed Americans in Western Song. Why we did this. I 205 00:09:20,000 --> 00:09:21,760 Speaker 4: think that's what he can do best. As far as 206 00:09:21,840 --> 00:09:23,839 Speaker 4: your triggers, I think that one thing that would be 207 00:09:23,840 --> 00:09:25,760 Speaker 4: helpful is if you relieve the Jones Act. But I 208 00:09:25,760 --> 00:09:28,000 Speaker 4: think there's a lot of tension inside the administration because 209 00:09:28,280 --> 00:09:30,520 Speaker 4: you have the protectionist and the Peter Navars. For him, 210 00:09:30,559 --> 00:09:32,719 Speaker 4: that is that is sacricyanc They don't want to see that, 211 00:09:33,400 --> 00:09:36,160 Speaker 4: you know. I think it's disappointed see actually leave providing 212 00:09:36,240 --> 00:09:38,839 Speaker 4: relief for Russian oil. At this point, I think that 213 00:09:39,559 --> 00:09:41,760 Speaker 4: Russia has been partying with Iran for quite some time. 214 00:09:42,040 --> 00:09:44,120 Speaker 4: Iran has been funding, been providing them with drones, and 215 00:09:44,120 --> 00:09:46,559 Speaker 4: they're warn in Ukraine. And our recourse of this is 216 00:09:46,600 --> 00:09:49,480 Speaker 4: to actually reacts. The oil sanks on Russia. I think 217 00:09:49,520 --> 00:09:52,520 Speaker 4: shows the sensitivity they have politically to rise in oil price. 218 00:09:52,559 --> 00:09:54,640 Speaker 2: So there's something very backwards about the whole think we 219 00:09:54,800 --> 00:09:57,360 Speaker 2: now mus Can have from the Ukrainians to help US 220 00:09:57,400 --> 00:10:01,079 Speaker 2: intercept drones. At the same time, we're offering sanctions relief 221 00:10:01,160 --> 00:10:03,880 Speaker 2: to the Russians who they're fighting with at the moment. 222 00:10:04,000 --> 00:10:04,880 Speaker 2: Makes sense of vote off. 223 00:10:05,040 --> 00:10:07,640 Speaker 1: No, thank you, that's basically I mean, ultimately, you're sort 224 00:10:07,679 --> 00:10:09,640 Speaker 1: of putting your thumb on the scale on both sides. 225 00:10:09,640 --> 00:10:11,360 Speaker 1: Anyone who's saying this is going to create a sooner 226 00:10:11,400 --> 00:10:13,959 Speaker 1: resolution to the Ukraine Russian war, please explain to me 227 00:10:14,000 --> 00:10:14,600 Speaker 1: exactly how. 228 00:10:14,559 --> 00:10:16,200 Speaker 2: I could just make the question how perparent they were 229 00:10:16,320 --> 00:10:18,679 Speaker 2: for this? Why the Chinese were able to stump pile 230 00:10:18,840 --> 00:10:21,800 Speaker 2: energy over the last twelve months and America didn't refill 231 00:10:22,040 --> 00:10:22,640 Speaker 2: the ESPN. 232 00:10:23,280 --> 00:10:25,400 Speaker 4: Well, look, I mean, I think that there was a 233 00:10:25,440 --> 00:10:28,400 Speaker 4: lot of depletion of this of the strategical patrolum reserved 234 00:10:28,440 --> 00:10:31,120 Speaker 4: during the buy it and mass depletion, and I think 235 00:10:31,160 --> 00:10:33,559 Speaker 4: there were opportunities to continue to replenish it. I do 236 00:10:33,679 --> 00:10:36,199 Speaker 4: think that there's obviously more oil production out of the 237 00:10:36,320 --> 00:10:38,800 Speaker 4: United States today, and I think that the present deserves 238 00:10:38,840 --> 00:10:41,520 Speaker 4: credit for having lowered energy prices as significant as he did. 239 00:10:41,880 --> 00:10:44,319 Speaker 4: But as we've talked about on your show, I think 240 00:10:44,400 --> 00:10:47,720 Speaker 4: that the reduction energy prices in many cases was masking 241 00:10:47,920 --> 00:10:50,480 Speaker 4: the trade agenda and the extra costs. If all of 242 00:10:50,520 --> 00:10:54,040 Speaker 4: a sudden you've taken that relief off the table, I 243 00:10:54,120 --> 00:10:57,600 Speaker 4: think you're going to see the trade agenda inflation come 244 00:10:57,679 --> 00:10:59,280 Speaker 4: to the voters even more sensitively. 245 00:10:59,440 --> 00:11:01,760 Speaker 2: How much can do you think he has over the 246 00:11:01,840 --> 00:11:03,440 Speaker 2: fate of what's developing before our eyes. 247 00:11:03,760 --> 00:11:06,120 Speaker 4: I think he has more control than anybody else, But 248 00:11:06,840 --> 00:11:08,360 Speaker 4: as you said, I don't think he has a total 249 00:11:08,440 --> 00:11:10,760 Speaker 4: control over this. And you're saying I mean, I mean 250 00:11:10,800 --> 00:11:12,880 Speaker 4: cutters still say one hundred and fifty dollars before this 251 00:11:13,000 --> 00:11:15,040 Speaker 4: is all said and done. They have facilities, they are 252 00:11:15,040 --> 00:11:18,880 Speaker 4: still offline. Bahrain has facilities offline, and so it seems 253 00:11:18,920 --> 00:11:20,880 Speaker 4: to me there's a heck of a lot more volatility here, 254 00:11:20,920 --> 00:11:23,559 Speaker 4: and it's just because the presence signaled maybe this will 255 00:11:23,600 --> 00:11:27,000 Speaker 4: be a shorter term conflict, doesn't mean that that's guaranteed. 256 00:11:27,640 --> 00:11:40,760 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this, Abigo, 257 00:11:40,840 --> 00:11:43,480 Speaker 2: what a ups rights in this? This morning, energy prices 258 00:11:43,520 --> 00:11:46,679 Speaker 2: posed a near term headwind to real consumer spending. The 259 00:11:46,800 --> 00:11:48,760 Speaker 2: old price shock is a more two sided risk for 260 00:11:48,840 --> 00:11:52,960 Speaker 2: monetary policy rather than is perhaps appreciated. Abigaut joined us 261 00:11:52,960 --> 00:11:55,200 Speaker 2: now for more good to see you, and good morning, 262 00:11:55,320 --> 00:11:57,199 Speaker 2: Good morning. What did you mean by that last line? 263 00:11:58,160 --> 00:12:01,439 Speaker 5: So, I think if we think about the repricing we 264 00:12:01,600 --> 00:12:04,079 Speaker 5: saw off the back of the increasing oil prices in 265 00:12:04,160 --> 00:12:07,400 Speaker 5: bond markets and expectations around easing from the FED this year, 266 00:12:07,559 --> 00:12:09,920 Speaker 5: I think you saw obviously a clear focus on the 267 00:12:09,960 --> 00:12:13,719 Speaker 5: inflationary impact of the oil price increase, and I think 268 00:12:13,960 --> 00:12:17,559 Speaker 5: perhaps what's underappreciated is that this is coming alongside a 269 00:12:17,640 --> 00:12:20,640 Speaker 5: point where the labor market looks a little vulnerable at 270 00:12:20,679 --> 00:12:24,800 Speaker 5: this juncture still, and you're also it's also coming alongside 271 00:12:24,840 --> 00:12:27,360 Speaker 5: potential growth hits, right, Like, this is something that could 272 00:12:27,480 --> 00:12:30,720 Speaker 5: hit real spending, which is two thirds of the US economy. 273 00:12:30,840 --> 00:12:35,280 Speaker 5: So I think perhaps the point around risk to rates 274 00:12:35,360 --> 00:12:38,600 Speaker 5: being more two sided is this idea that it could 275 00:12:38,800 --> 00:12:40,920 Speaker 5: come at a juncture where the labor market's already looking 276 00:12:41,440 --> 00:12:45,600 Speaker 5: relatively vulnerable and the inflation shock, you know, it will 277 00:12:45,640 --> 00:12:48,000 Speaker 5: depend on the persistence of the increase in price. 278 00:12:48,040 --> 00:12:49,880 Speaker 2: So this is something we've been exploring all morning. We 279 00:12:49,960 --> 00:12:51,640 Speaker 2: talked to Kathy Jones about it. At some point it's 280 00:12:51,640 --> 00:12:54,320 Speaker 2: a tipping point, this starts to become bullish for bonds 281 00:12:54,559 --> 00:12:57,160 Speaker 2: because of the potential output hit that we could see 282 00:12:57,200 --> 00:12:59,120 Speaker 2: from higher energy prices. How close do you think we 283 00:12:59,160 --> 00:13:00,400 Speaker 2: are to that point? 284 00:13:01,200 --> 00:13:03,920 Speaker 5: I think this is one element of the consumer story, right. 285 00:13:04,000 --> 00:13:05,400 Speaker 5: I think one of the things you've got to think 286 00:13:05,440 --> 00:13:08,199 Speaker 5: about is the kind of other drivers that we had 287 00:13:08,440 --> 00:13:10,720 Speaker 5: for the kind of strength that we were expecting from 288 00:13:10,760 --> 00:13:13,080 Speaker 5: the consumer this year. Right, We're expecting that you see 289 00:13:13,240 --> 00:13:16,800 Speaker 5: a strong tax refund season. Tax refunds are up ten 290 00:13:16,840 --> 00:13:19,640 Speaker 5: percent in the latest IRS data on an average basis. 291 00:13:20,000 --> 00:13:22,199 Speaker 5: That's a little bit behind I think kind of some 292 00:13:22,400 --> 00:13:25,400 Speaker 5: expectations of the fiscal stimulus. But that's another thing that 293 00:13:25,440 --> 00:13:28,880 Speaker 5: should prove potentially supportive for household balance sheets. And if 294 00:13:28,920 --> 00:13:30,439 Speaker 5: we think about kind of how this feeds through to 295 00:13:30,480 --> 00:13:33,880 Speaker 5: household balance sheets as well, I think it's the kind 296 00:13:33,920 --> 00:13:36,959 Speaker 5: of everyone outside the top twenty percent of the kind 297 00:13:36,960 --> 00:13:40,000 Speaker 5: of income distribution potentially that's going to wear this kind 298 00:13:40,040 --> 00:13:42,760 Speaker 5: of more. So, I think you've got a way potential 299 00:13:42,880 --> 00:13:46,520 Speaker 5: kind of positive headwinds, positive tailwinds for the consumer versus 300 00:13:46,640 --> 00:13:49,760 Speaker 5: some of the kind of negative impacts potentially from higher 301 00:13:49,800 --> 00:13:52,400 Speaker 5: oil prices. So I think it will depend on how 302 00:13:52,520 --> 00:13:55,120 Speaker 5: those kind of play out in the next couple of 303 00:13:55,640 --> 00:13:57,800 Speaker 5: weeks and months. And I think the key thing here 304 00:13:57,920 --> 00:14:00,199 Speaker 5: with all of the kind of potential impact for the 305 00:14:00,280 --> 00:14:03,640 Speaker 5: economy from the oil price increase is really the extent 306 00:14:03,760 --> 00:14:06,480 Speaker 5: and the persistence of that increase in oil prices, and 307 00:14:06,600 --> 00:14:08,120 Speaker 5: that's I think that's what's going to be key in 308 00:14:08,240 --> 00:14:10,520 Speaker 5: terms of how this feeds into kind of growth and 309 00:14:10,640 --> 00:14:11,600 Speaker 5: also into inflation. 310 00:14:11,920 --> 00:14:13,679 Speaker 1: One of the tailwinds has also been the idea of 311 00:14:13,760 --> 00:14:17,200 Speaker 1: rate cuts. How much is there momentum in the consumer, 312 00:14:17,480 --> 00:14:20,560 Speaker 1: particularly at the lower end should the FED remain on hold? 313 00:14:21,480 --> 00:14:24,040 Speaker 5: Yeah, So, I mean in our expectations, we've got fifty 314 00:14:24,080 --> 00:14:26,600 Speaker 5: basse points of cuts from the FMC this year, and 315 00:14:26,680 --> 00:14:28,520 Speaker 5: in terms of the timing of that, we think it's 316 00:14:28,680 --> 00:14:32,400 Speaker 5: potentially kind of second half, so July October. I think 317 00:14:32,480 --> 00:14:35,400 Speaker 5: at the margin that easing and interest rates is something 318 00:14:35,440 --> 00:14:38,480 Speaker 5: that is supportive and helpful for the consumer, but that 319 00:14:38,600 --> 00:14:42,120 Speaker 5: would in theory bring you interest rates background to around neutral. 320 00:14:42,200 --> 00:14:45,560 Speaker 5: It doesn't necessarily outright stimulate the economy at this point. 321 00:14:45,680 --> 00:14:47,640 Speaker 5: I think for us, when we're thinking about the kind 322 00:14:47,640 --> 00:14:50,440 Speaker 5: of resilience and the potential strength of the consumer, I 323 00:14:50,520 --> 00:14:53,440 Speaker 5: think our fiscal story is actually potentially the more important 324 00:14:53,520 --> 00:14:56,160 Speaker 5: part of the kind of outlook this year for the consumer, 325 00:14:56,840 --> 00:14:59,880 Speaker 5: rather than necessarily the kind of tailwind from monitored policy. 326 00:15:00,400 --> 00:15:04,400 Speaker 1: We've been talking about how that fiscal tailwind could potentially 327 00:15:04,440 --> 00:15:07,400 Speaker 1: be absorbed by higher oil prices. How do you sort 328 00:15:07,400 --> 00:15:12,080 Speaker 1: of weigh where oil prices are versus that fiscal boost 329 00:15:12,240 --> 00:15:13,360 Speaker 1: that people were expecting. 330 00:15:14,120 --> 00:15:16,480 Speaker 5: Yeah, so I think it's I think it's probably one 331 00:15:16,520 --> 00:15:18,440 Speaker 5: of the key things to be thinking about at this juncture. 332 00:15:18,600 --> 00:15:20,480 Speaker 5: I think, as I said, I think the kind of 333 00:15:20,520 --> 00:15:23,480 Speaker 5: persistence and the increase in in kind of oil prices. 334 00:15:23,160 --> 00:15:25,520 Speaker 2: Will be important. We've obviously already. 335 00:15:25,240 --> 00:15:28,080 Speaker 5: Seen gasoline prices rising, and the consumer in the US 336 00:15:28,200 --> 00:15:31,760 Speaker 5: is incredibly sensitive to higher gasoline prices. So I do think, 337 00:15:31,880 --> 00:15:33,480 Speaker 5: you know, there is a potential that some of the 338 00:15:33,560 --> 00:15:37,040 Speaker 5: positive kind of tailwinds we were expecting from fiscal policy 339 00:15:37,080 --> 00:15:40,680 Speaker 5: could be offset, in particular for those lower income consumers 340 00:15:40,720 --> 00:15:43,400 Speaker 5: where you know, you are seeing the fact that savings 341 00:15:43,440 --> 00:15:46,560 Speaker 5: are running kind of below average. You know they've they've 342 00:15:46,640 --> 00:15:48,840 Speaker 5: kind of spent down any excess savings that had been 343 00:15:48,880 --> 00:15:51,240 Speaker 5: built up, and I think, you know, that's the area 344 00:15:51,320 --> 00:15:53,240 Speaker 5: where I would think that you would feel that kind 345 00:15:53,240 --> 00:15:55,560 Speaker 5: of gas price increase most acutely in the consumer. 346 00:15:55,640 --> 00:15:57,680 Speaker 2: My McKey was talking about where FED fund futures. We're 347 00:15:57,720 --> 00:15:59,880 Speaker 2: trending right now, what's your FED bet for you? 348 00:16:01,120 --> 00:16:04,520 Speaker 5: So we're expecting that the FED deliver fifty based prints 349 00:16:04,560 --> 00:16:07,400 Speaker 5: cuts this year rate I think the risk if we're 350 00:16:07,440 --> 00:16:11,640 Speaker 5: thinking about the distribution around that, I think, you know, potentially, 351 00:16:11,840 --> 00:16:13,520 Speaker 5: if you see kind of more of a growth it, 352 00:16:14,040 --> 00:16:17,120 Speaker 5: if you see this kind of labor market vulnerability persisting, 353 00:16:18,160 --> 00:16:20,640 Speaker 5: I think that you could potentially see the risk that 354 00:16:20,840 --> 00:16:24,320 Speaker 5: rate cuts come come sooner than we're expecting. And then 355 00:16:24,400 --> 00:16:26,960 Speaker 5: I think, you know, if we think about the kind 356 00:16:26,960 --> 00:16:29,480 Speaker 5: of risks on the opposite side, you know, the potential 357 00:16:29,720 --> 00:16:31,960 Speaker 5: risk for rates coming later and then holding longer. I 358 00:16:32,000 --> 00:16:33,520 Speaker 5: think that's really going to depend on what we see 359 00:16:33,520 --> 00:16:36,800 Speaker 5: in the inflation data. Obviously, we'll get the February CPI 360 00:16:36,880 --> 00:16:39,280 Speaker 5: this week. We're expecting that you see a slowing in 361 00:16:39,360 --> 00:16:41,120 Speaker 5: terms of the monthly prints there. But we do think 362 00:16:41,160 --> 00:16:43,200 Speaker 5: that will be the low point for the CPI this year. 363 00:16:43,640 --> 00:16:45,600 Speaker 5: So you know, we're expecting that that push is higher 364 00:16:45,640 --> 00:16:46,840 Speaker 5: and we see inflation peaking. 365 00:16:46,600 --> 00:16:48,600 Speaker 2: As independent of what happens in the Middle East, that 366 00:16:48,680 --> 00:16:49,600 Speaker 2: that's the low for this year. 367 00:16:50,200 --> 00:16:52,880 Speaker 5: Yeah, So that was our profile previous thing as well, 368 00:16:52,920 --> 00:16:54,960 Speaker 5: because I mean we're still seeing that tara of pass 369 00:16:55,000 --> 00:16:56,880 Speaker 5: through coming through. I mean you are seeing kind of 370 00:16:56,920 --> 00:17:00,120 Speaker 5: elevated core goods price increases, even if you are seeing 371 00:17:00,160 --> 00:17:03,000 Speaker 5: a little bit better inflation on the services side. 372 00:17:03,040 --> 00:17:04,680 Speaker 2: So the call for fifty basis points is that a 373 00:17:04,760 --> 00:17:06,720 Speaker 2: call based on the economy or the man who's going 374 00:17:06,760 --> 00:17:07,400 Speaker 2: to be the FED share. 375 00:17:07,960 --> 00:17:09,879 Speaker 5: So it's based on the idea that you know, if 376 00:17:09,920 --> 00:17:12,439 Speaker 5: we think about when we're thinking we see inflation peaking, 377 00:17:12,560 --> 00:17:14,640 Speaker 5: we do think that the run rates of inflation will 378 00:17:14,680 --> 00:17:16,880 Speaker 5: begin to peak in the second quarter. And I think 379 00:17:16,920 --> 00:17:19,040 Speaker 5: at that point as well, we're expecting the labor market 380 00:17:19,160 --> 00:17:22,080 Speaker 5: still looks vulnerable. We have the unemployment rate pushing higher 381 00:17:22,119 --> 00:17:25,160 Speaker 5: from here to four and a half ur six by 382 00:17:25,200 --> 00:17:28,240 Speaker 5: the summer. So I think with that dynamic, I think 383 00:17:28,320 --> 00:17:30,840 Speaker 5: that's a point not which in July you should see 384 00:17:30,920 --> 00:17:33,080 Speaker 5: kind of a nough inflation progress for them to think, okay, 385 00:17:33,080 --> 00:17:35,159 Speaker 5: we should remove a little bit of that access restricting it. 386 00:17:35,280 --> 00:17:39,119 Speaker 2: Got it. This is the Bloomberg Survendans podcast, bringing you 387 00:17:39,560 --> 00:17:42,679 Speaker 2: the best in markets, economics, enti at politics. You can 388 00:17:42,720 --> 00:17:45,480 Speaker 2: watch the show live on Bloomberg TV weekday mornings from 389 00:17:45,520 --> 00:17:48,720 Speaker 2: six am to nine am Eastern. Subscribe to the podcast 390 00:17:48,840 --> 00:17:52,320 Speaker 2: on Apple, Spotify or anywhere else you listen, and as always, 391 00:17:52,400 --> 00:17:54,920 Speaker 2: on the Bloomberg terminal and the Bloomberg Business app.