WEBVTT - Surveillance: 2% Inflation with Bryson 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.800 the Bloomberg Terminal and the Bloomberg Business app. As confused 0:00:30.800 --> 0:00:32.880 as we are, but never confused. It's Jay Bryce and 0:00:33.000 --> 0:00:37.080 chief economist at Wills Fargo. Ja, wonderful to have you 0:00:37.280 --> 0:00:40.680 with us. I think that states the confusion right now. 0:00:41.000 --> 0:00:44.800 Does Wells Fargo have clarity on what the American consumer 0:00:45.000 --> 0:00:45.440 is doing? 0:00:47.280 --> 0:00:50.960 Clarity that's a strong word, Tom, But I guess in general, 0:00:50.960 --> 0:00:53.320 when I stand back and I look at everything here, 0:00:53.520 --> 0:00:57.360 there has been some deceleration in consumer spending. Consumer spending 0:00:57.360 --> 0:01:01.120 in the first quarter in real terms, grew over four annualize. 0:01:01.160 --> 0:01:03.280 We're just not going to get that in the second quarter. 0:01:03.360 --> 0:01:06.800 We came into the second quarter with some deceleration. These 0:01:06.920 --> 0:01:08.959 numbers that you know Mike just talked about, I mean, 0:01:09.000 --> 0:01:11.440 you know, on on on balance, I think you know 0:01:11.480 --> 0:01:14.839 they're okay, But in general, it doesn't change the big 0:01:14.880 --> 0:01:18.080 story that there has been some deceleration in terms of 0:01:18.160 --> 0:01:19.520 consumer spending out there. 0:01:19.680 --> 0:01:22.640 Jay, how much has the overall discussion been completely distorted 0:01:22.680 --> 0:01:25.039 by the auto sector. How much the price is just 0:01:25.200 --> 0:01:28.119 shot upwards in the aftermath of the pandemic and now 0:01:28.160 --> 0:01:31.360 are coming down and resetting, especially as auto loan rates 0:01:31.520 --> 0:01:34.240 are getting so high. How much is that behind all 0:01:34.280 --> 0:01:35.040 of the confusion. 0:01:36.160 --> 0:01:38.440 Well, at list, I wouldn't say it's it's a huge 0:01:38.560 --> 0:01:40.400 part of it. I mean, so if you break down 0:01:40.520 --> 0:01:44.480 consumer spending, you know, roughly two thirds of consumer spending 0:01:44.640 --> 0:01:47.240 is going to be on services, and the other third 0:01:47.280 --> 0:01:50.920 is split roughly equally between non durable goods, so that 0:01:50.960 --> 0:01:53.720 would be like clothing and shoes, et cetera, and then 0:01:53.880 --> 0:01:57.120 durable goods. We component of that is autos, so it 0:01:57.240 --> 0:01:59.880 moves things around on the margin. But again, you know, 0:02:00.080 --> 0:02:03.080 the big driver of consumer spending growth in the economy 0:02:03.160 --> 0:02:05.640 is services, and I think that has been in some 0:02:05.680 --> 0:02:08.440 sense more distorting over the last three years. You know, 0:02:08.480 --> 0:02:10.840 in the sense of when the economy was shut down, 0:02:10.960 --> 0:02:13.600 the service sector was shut down, and then that came 0:02:13.760 --> 0:02:16.480 roaring back last year as the economy opened up. All 0:02:16.520 --> 0:02:19.080 this pent up demand for spending, and a lot of 0:02:19.120 --> 0:02:21.960 that now is pretty much behind us right now, so 0:02:22.560 --> 0:02:25.000 we hopefully are getting to the point where things, you know, 0:02:25.040 --> 0:02:28.040 the aftershocks of the pandemic in terms of the economy 0:02:28.080 --> 0:02:29.320 are now settling out. 0:02:29.480 --> 0:02:31.920 Okay, so the after shocks are settling out. What is 0:02:31.960 --> 0:02:35.160 the new economic trajectory when it comes to inflation. Is 0:02:35.200 --> 0:02:37.480 it back to what we saw previously or is it 0:02:37.560 --> 0:02:41.079 something different, especially if people are getting paid more and 0:02:41.240 --> 0:02:44.200 they're not pushing back as significantly as some would like. 0:02:44.520 --> 0:02:46.760 With respect to how much prices can keep going up. 0:02:47.880 --> 0:02:50.120 Well, you know, I may differ a little bit on that. 0:02:50.160 --> 0:02:52.080 I mean, I think you are seeing some signs of 0:02:52.120 --> 0:02:53.639 that right now. I mean, we are seeing it in 0:02:53.800 --> 0:02:57.880 terms of deceleration in terms of inflation out there. It's 0:02:57.919 --> 0:03:00.919 still slowly coming through in the service sector, but if 0:03:00.919 --> 0:03:03.160 you look at the rate of change over the last 0:03:03.160 --> 0:03:06.799 three months, you're seeing less service sector inflation as well. 0:03:07.000 --> 0:03:10.000 I mean, our view here is that we are heading 0:03:10.160 --> 0:03:13.240 back towards two percent. Now. It's not going to be 0:03:13.639 --> 0:03:15.720 right away. It's going to take a little bit of time, 0:03:15.960 --> 0:03:19.200 and part of that is predicated on some economic softness 0:03:19.680 --> 0:03:23.760 i e. A mild recession early next year. But you know, 0:03:24.000 --> 0:03:27.160 I think these nine ten percent sort of numbers that 0:03:27.200 --> 0:03:29.560 we saw are even five percent. I think that's the 0:03:29.600 --> 0:03:31.440 thing of the past, and I think we're heading back 0:03:31.480 --> 0:03:34.200 towards a two percent sort of error. 0:03:34.920 --> 0:03:38.360 Jay on the international basis here and after the clumsiness 0:03:38.480 --> 0:03:43.160 that we see here of American retail analysis, do you 0:03:43.280 --> 0:03:47.240 have a clue what the Chinese consumer's doing? I mean, 0:03:47.280 --> 0:03:51.360 we sit there, guys like you have to pontificate and say, yeah, this, this, this, 0:03:51.680 --> 0:03:54.880 but do we really know what the Chinese consumer's doing? 0:03:55.960 --> 0:03:58.520 So, you know, we started this with Lisa saying, you know, 0:03:58.560 --> 0:04:00.560 what's your view with all this noise in the United 0:04:00.600 --> 0:04:03.840 States now square that when you talk with China and 0:04:03.920 --> 0:04:08.000 just in terms of the data laps and gaps, and 0:04:08.040 --> 0:04:10.040 you've got to take it with their grand assault sort 0:04:10.080 --> 0:04:12.880 of stuff. But it does seem like, you know, things 0:04:12.920 --> 0:04:16.039 in China are also kind of slowing down as well. 0:04:16.080 --> 0:04:19.240 You got this really lousy GDP number the other day, 0:04:19.440 --> 0:04:23.240 and I think that's going to continue going forward. What 0:04:23.279 --> 0:04:26.160 we do know is the Chinese consumers or you know, 0:04:26.200 --> 0:04:29.240 they still have a very very high savings rate. You know, 0:04:29.279 --> 0:04:32.039 they're still very concerned about healthcare. You just don't have 0:04:32.080 --> 0:04:34.400 the healthcare system in China as you do in many 0:04:34.640 --> 0:04:37.680 Western sort of company countries, and so that keeps the 0:04:37.720 --> 0:04:39.960 savings rate in China elevated. 0:04:40.480 --> 0:04:43.000 Over there, Jada, go to micro here. This is your 0:04:43.000 --> 0:04:45.800 team under you working on this, including Sarah Hunt, the 0:04:45.839 --> 0:04:51.520 retail sales control group X, what X X, red SOX, tickets, 0:04:51.560 --> 0:04:55.839 Mike X, building materials X, autos X this X that. 0:04:56.600 --> 0:04:59.960 Do you get value out of a buoyant control group 0:05:00.120 --> 0:05:01.040 for sixty days? 0:05:01.160 --> 0:05:06.360 Jake? You know, there's obviously there's there's some information in there, Tom, 0:05:06.400 --> 0:05:08.680 but you know, again these are nominal sort of numbers, 0:05:08.680 --> 0:05:10.440 and at the end of the day, what we economists 0:05:10.480 --> 0:05:12.840 are more concerned about is real and so you have 0:05:12.920 --> 0:05:15.720 to deflate that by you know, some things that are 0:05:15.720 --> 0:05:18.400 in the CPI. And again, as I said earlier, when 0:05:18.400 --> 0:05:21.839 you look at overall retail spending, it's roughly a third 0:05:21.880 --> 0:05:25.279 of the US of spending. You know, the big component 0:05:25.360 --> 0:05:27.640 is the service one. So what we pay much more 0:05:27.680 --> 0:05:29.960 attention to is the numbers that we're going to get 0:05:29.960 --> 0:05:31.800 at the end of the month and the personal income 0:05:31.839 --> 0:05:34.839 and spending. That's when you get the service sector components 0:05:35.040 --> 0:05:36.960 and you get real numbers as well. 0:05:37.400 --> 0:05:40.520 So just putting this all together, are you increasingly in 0:05:40.560 --> 0:05:43.360 the soft landing camp with this being a soft landing 0:05:43.400 --> 0:05:44.800 type of retail sales number. 0:05:46.120 --> 0:05:49.360 So we've been in the you know, it depends on 0:05:49.400 --> 0:05:51.360 what your definition of a hard landing is. But we've 0:05:51.400 --> 0:05:53.920 been in a recession camp now for about a year, 0:05:53.960 --> 0:05:58.320 and you know, we've had to push that call increasingly 0:05:58.400 --> 0:06:00.800 back out. I would say, right now, if you hold 0:06:00.800 --> 0:06:02.880 a gun to my head you say what's the probability 0:06:02.880 --> 0:06:05.840 of a recession in the next twelve months, I would 0:06:05.880 --> 0:06:09.880 still say it's roughly it's still roughly sixty percent. I mean, 0:06:09.920 --> 0:06:12.640 what's going to happen as we go forward is the 0:06:12.960 --> 0:06:16.640 inflation is coming down, okay the Fed. No one thinks 0:06:16.640 --> 0:06:19.039 the Fed's going to be cutting anytime soon. So what's 0:06:19.080 --> 0:06:21.280 going to happen in the month's coming is you're going 0:06:21.360 --> 0:06:24.240 to get a passive tightening of monetary policy as the 0:06:24.320 --> 0:06:27.279 real rate drifts higher and higher. So in order to 0:06:27.360 --> 0:06:30.480 have a quote soft landing here, I think the FED 0:06:30.960 --> 0:06:34.440 needs to be still very adept in terms of monetary 0:06:34.480 --> 0:06:37.200 policy later this year as inflation comes down. 0:06:37.360 --> 0:06:39.119 Is that to Bryson thank you so much for joining 0:06:39.160 --> 0:06:43.440 us today. Jay Brison leading all the economics at Will's far. 0:06:43.440 --> 0:06:56.400 Going joining guess now, Amy wou Silverman, the head of 0:06:56.440 --> 0:07:00.760 Derivative Strategy of RBC Capital Markets, to have you with 0:07:00.839 --> 0:07:02.880 us on the program. We've had the bank earnings over 0:07:02.920 --> 0:07:05.400 the last week, the banks have lanked. What's happened with tech? 0:07:05.400 --> 0:07:08.799 Pretty much everything cast tech is absolutely dominated. You today, Amy, 0:07:08.800 --> 0:07:10.720 I'm sure you filled the same question that we ask 0:07:11.000 --> 0:07:14.360 repeatedly over the last several months. Can this rally broaden out? 0:07:14.360 --> 0:07:15.040 Do you think it can? 0:07:17.000 --> 0:07:19.640 I do, John, and I actually think you are seeing 0:07:19.680 --> 0:07:23.120 that already in the options market. You know, we kind 0:07:23.160 --> 0:07:26.080 of take that metric of call exuberance, you know, where 0:07:26.080 --> 0:07:29.320 are folks buying single stock call options? And of course 0:07:29.360 --> 0:07:31.600 that was in your in the videos and your apples 0:07:31.600 --> 0:07:34.360 and your Googles, not too surprisingly a couple of weeks ago. 0:07:34.680 --> 0:07:38.160 But we've really seen that expanded not only to SMP 0:07:38.440 --> 0:07:41.680 but also to IWM names and also two smaller in 0:07:41.760 --> 0:07:43.880 MidCap names. And that's kind of happening on a much 0:07:43.920 --> 0:07:45.400 broader basis than it was before. 0:07:45.480 --> 0:07:47.400 I mean, let's cut to the Wheehouse. That's what everybody 0:07:47.400 --> 0:07:49.280 on Global Wall Street wants to know from Abe and 0:07:49.280 --> 0:07:52.080 with Silverman, what are the cross moments saying right now 0:07:52.120 --> 0:07:56.240 the four dynamics of the option space. And critically, to 0:07:56.280 --> 0:07:59.280 get a little bit jargoning here, what does SKEW do 0:07:59.480 --> 0:07:59.960 right now? 0:08:02.040 --> 0:08:05.080 You know, Tom, it's it's doing a whole lot of nothing. 0:08:05.360 --> 0:08:08.400 And I always say memory is really short in the 0:08:08.440 --> 0:08:12.000 options market, and it's gotten even shorter. So the folks 0:08:12.000 --> 0:08:15.480 who have had on you know, long put trades, hedging trades, 0:08:15.840 --> 0:08:19.040 they've been burned. The best strategy year today when you 0:08:19.080 --> 0:08:22.360 back test every option strategy has been to be long 0:08:22.400 --> 0:08:23.560 the S and P five hundred. 0:08:23.760 --> 0:08:24.840 So no option. 0:08:24.640 --> 0:08:27.560 Strategy year today has actually just beaten being long the SMP. 0:08:28.120 --> 0:08:29.920 And you know you've seen that kind of taken to 0:08:30.000 --> 0:08:32.880 heart in the VIX levels and the volatility suppression that 0:08:32.920 --> 0:08:34.280 we've seen right now. 0:08:34.320 --> 0:08:36.440 You said that you do expect the rally to broaden out. 0:08:36.640 --> 0:08:39.080 What are you looking at specifically for the areas to 0:08:39.120 --> 0:08:42.480 benefit the most in this broadening at a time when 0:08:42.520 --> 0:08:45.839 some people still are expecting consumers to stop spending as much. 0:08:47.679 --> 0:08:50.880 Yeah, interesting question, Lisa, And I think you know it 0:08:51.000 --> 0:08:54.160 goes back to all these rotation trades that I think 0:08:54.240 --> 0:08:57.480 investors had wanted to put on even you know, six 0:08:57.520 --> 0:09:01.040 months ago, even after the October bottom, which is value 0:09:01.120 --> 0:09:05.560 versus growth, or you know, finally small MidCap versus large cats, cyclicals, 0:09:05.840 --> 0:09:08.520 those type of areas. You know, one thing I will 0:09:08.559 --> 0:09:11.960 say as a copyat is I've asked investors why it 0:09:11.960 --> 0:09:14.360 couldn't be the case that we could just simply have 0:09:14.440 --> 0:09:17.720 a parallel rally. You know, so megacap tech doesn't necessarily 0:09:17.760 --> 0:09:20.760 get hurt, but we just simply broaden the rally because 0:09:20.760 --> 0:09:23.560 one is sort of a secular drive of AI and 0:09:23.600 --> 0:09:26.839 the other is more of an economic recovery story. And 0:09:27.160 --> 0:09:29.000 to be clear to my earlier point, you know, we're 0:09:29.040 --> 0:09:32.719 not seeing less bullish positioning in tech. It's simply that 0:09:32.720 --> 0:09:34.959 that bullish positioning has widened out a bit. 0:09:35.559 --> 0:09:38.280 This is the reason why some people are saying, okay, 0:09:38.760 --> 0:09:41.040 let's just hold on a second before everyone gets over 0:09:41.080 --> 0:09:43.760 their skis and the soft landing type of narrative, because 0:09:43.760 --> 0:09:46.559 if you look at the data, more people are invested 0:09:46.800 --> 0:09:50.080 than have been in equities going back for quite a while. 0:09:50.120 --> 0:09:53.880 We see a much more overweight suddenly in market technicals. 0:09:54.120 --> 0:09:56.400 At what point does that become a concerning sign to you? 0:09:58.520 --> 0:10:01.960 Yep. I watched this too, because I do think you know, 0:10:02.080 --> 0:10:04.880 part of the story from the beginning of the year, Lisa, 0:10:05.320 --> 0:10:07.400 was that there had to be this catch up trade. 0:10:07.440 --> 0:10:07.600 Right. 0:10:07.840 --> 0:10:10.320 One of the reasons I think we thought that positioning 0:10:10.360 --> 0:10:12.880 would get even broader was there're just folks who at 0:10:12.920 --> 0:10:15.160 the index level had to catch up to the momentum 0:10:15.160 --> 0:10:18.480 you were seeing from seven names contributing so much to return. 0:10:18.880 --> 0:10:21.760 Now from a positioning perspective, we are in a much 0:10:21.800 --> 0:10:24.760 better shape. But the question is is there even more 0:10:24.800 --> 0:10:28.480 to go? I think there is if the rally becomes broader. 0:10:28.520 --> 0:10:30.280 And the second thing is, you know, you get these 0:10:30.320 --> 0:10:34.040 kind of technical rebalances, the technical rebalance for the NASTAC 0:10:34.120 --> 0:10:38.040 for instance, which I'll give folks who really couldn't participate 0:10:38.080 --> 0:10:41.080 in that narrow breadth to have some excuse to continue 0:10:41.120 --> 0:10:42.520 to do that widening breath. 0:10:42.840 --> 0:10:47.560 Does diversification pay here, Amy, or is it better to 0:10:47.679 --> 0:10:50.319 place larger focused bets. 0:10:52.520 --> 0:10:55.520 So, Tom, it's interesting because we always think about that 0:10:55.559 --> 0:10:59.240 from a correlation perspective, and correlation has been really really 0:10:59.320 --> 0:11:01.760 low on a real level and an applight level, because 0:11:01.760 --> 0:11:04.079 it's been you know, tech going this way and then 0:11:04.080 --> 0:11:05.400 everything else going the other. 0:11:05.480 --> 0:11:05.720 Way. 0:11:06.040 --> 0:11:08.280 The one thing I point to folks is, look, if 0:11:08.320 --> 0:11:11.560 we get more things widening out and that breadth going, 0:11:11.679 --> 0:11:14.400 you know, even larger, then maybe that picks up the 0:11:14.440 --> 0:11:18.959 correlation component of index volatility. So to your question, maybe 0:11:19.000 --> 0:11:21.280 the reason volatility goes up and we see a few 0:11:21.280 --> 0:11:24.640 points stick higher is actually because of that widening of breath, 0:11:24.640 --> 0:11:27.920 which actually makes your correlation component what kicks the ball 0:11:28.000 --> 0:11:29.160 into higher gear. 0:11:29.520 --> 0:11:34.000 Interesting, Ami, thank you, Amy Wosilverman that NBC Capital Markets, 0:11:38.400 --> 0:11:39.240 Ed Marse is. 0:11:39.200 --> 0:11:41.520 Different than the others, and we talk to them all 0:11:41.559 --> 0:11:45.120 and have an immense respect. For example, the oil microeconomics 0:11:45.160 --> 0:11:48.719 of Goldman Sachs, an allegiate global sense of Bank of America, 0:11:49.280 --> 0:11:53.079 maybe what we see from Emerita sen Over in London. 0:11:53.400 --> 0:11:56.040 And then there's Edward Morse. Yeah, he's global head of 0:11:56.080 --> 0:11:59.560 Commodities Research at Citigroup, but he does geopolitics in the 0:11:59.640 --> 0:12:03.200 larger view better than anyone. Doctor Morrise joins this this morning, 0:12:03.720 --> 0:12:05.679 Ed Morris, I'm going to rip up the script here 0:12:05.760 --> 0:12:08.800 and you allude to it in your research. Note, we 0:12:08.920 --> 0:12:13.679 are having a climate change twenty twenty three globally. 0:12:14.320 --> 0:12:15.000 To beat the. 0:12:15.000 --> 0:12:19.679 Band, someone as giant as Michael Mann is really, really 0:12:19.840 --> 0:12:24.280 intense about this is a new climate change. How do you, 0:12:24.520 --> 0:12:29.199 with all of your expertise, interpret the global warming we're observing. 0:12:31.360 --> 0:12:35.760 Well, it certainly has upended a lot of expectations. The 0:12:35.880 --> 0:12:39.960 world has decided to rely significantly more on solar and 0:12:40.040 --> 0:12:44.200 wind and on water. And part of the climate change 0:12:44.280 --> 0:12:47.719 process that we're seeing is disrupting that the sun is 0:12:47.760 --> 0:12:51.400 being impacted by wild buyers, the rain is not happening 0:12:51.400 --> 0:12:53.680 in the places that we needed, is happening in where 0:12:53.760 --> 0:12:56.960 places that we don't want it, and the wind stops 0:12:57.000 --> 0:13:00.240 blowing at the wrong time. So we are really in 0:13:00.280 --> 0:13:04.840 a power gen crisis that is global and is not 0:13:04.880 --> 0:13:06.240 going to stop anytime soon. 0:13:07.000 --> 0:13:10.240 What will that do to price of oil and off 0:13:10.280 --> 0:13:12.840 the price to supply and demand dynamics. 0:13:13.720 --> 0:13:16.840 Well, the price of oil is still essentially that based 0:13:16.880 --> 0:13:20.760 on a transportation fuel market, not on a power fuel market. 0:13:21.200 --> 0:13:24.000 Part of the climate change surprise in twenty twenty one, 0:13:24.520 --> 0:13:27.680 reinforced by both climate change and the rescue frame war 0:13:28.040 --> 0:13:30.480 in twenty twenty two, is that we had a surge 0:13:30.480 --> 0:13:35.400 in natural gas prices and it made diesel more expensive 0:13:35.880 --> 0:13:38.720 because there was fuel switching to beat the ban between 0:13:38.800 --> 0:13:41.720 natural gas and diesel. So that's the first time that 0:13:41.760 --> 0:13:45.079 we've seen a spillover effect from the powergen market into 0:13:45.120 --> 0:13:47.720 the transportation fuel market, and it's not going to be 0:13:47.720 --> 0:13:51.240 the last time that that's happened. But that separation that 0:13:51.280 --> 0:13:53.679 we used to think of is automatic is no longer 0:13:54.280 --> 0:13:57.320 is no longer automatic. And when we get into the 0:13:57.320 --> 0:14:00.520 next crunch on that gas, which might well be in 0:14:00.559 --> 0:14:05.320 twenty twenty four, we might see that happening again. Meanwhile, 0:14:06.080 --> 0:14:11.160 between the obstacles to invest in fossil fuels and the 0:14:11.240 --> 0:14:15.840 reduction and demand that we're seeing, that spells volatility ahead. 0:14:15.880 --> 0:14:20.400 It spells a market which will be moving between supply 0:14:20.600 --> 0:14:25.720 shortage and supply oversupply on the oil side from year 0:14:25.760 --> 0:14:28.480 to year. And the oversupply won't be big enough to 0:14:28.640 --> 0:14:31.560 bread us down to twenty dollars or let alone negative prices, 0:14:31.880 --> 0:14:33.920 and the undersupply won't be big enough to get us 0:14:33.920 --> 0:14:36.400 over one hundred, but it will mean volatility in the 0:14:36.400 --> 0:14:38.800 market is going to be there as we go through 0:14:39.640 --> 0:14:41.160 decades of an energy transition. 0:14:41.440 --> 0:14:43.600 So what's the range then? The band is from sixty 0:14:43.600 --> 0:14:44.760 to one hundred dollars A. 0:14:44.800 --> 0:14:49.080 Barrel I said, there's a soft put it around seventy 0:14:49.120 --> 0:14:53.760 at the moment that soft put exists, not only because 0:14:54.480 --> 0:14:58.200 we have OPEC, which really doesn't want oil below seventy 0:14:58.800 --> 0:15:01.520 and are proven to be to take action, but we 0:15:01.600 --> 0:15:04.400 have the US which is basically announced that it will 0:15:04.440 --> 0:15:07.720 be more aggressive about filling the strategic stockpile when we 0:15:07.760 --> 0:15:10.360 get to seventy. We have China that has, since the 0:15:10.400 --> 0:15:14.920 two thousand and eight to nine Great Financial Crisis, decided 0:15:15.000 --> 0:15:18.680 to build inventories when prices are low and to use 0:15:18.720 --> 0:15:21.280 those inventories when prices are high. So I think we 0:15:21.320 --> 0:15:24.200 have a soft put at the moment higher than sixty 0:15:24.360 --> 0:15:27.440 and maybe at the seventy level. On the upper side. 0:15:27.440 --> 0:15:30.480 You never really know what happens. There are wild cards. 0:15:30.760 --> 0:15:35.280 Hurricanes are certainly wild cards. What we need is two, three, 0:15:35.320 --> 0:15:38.120 four or five category hurricanes in the Gulf of Mexico 0:15:39.000 --> 0:15:42.920 and we get damage like Hurricane Harvey or Rita and 0:15:42.960 --> 0:15:46.840 Katrina a year where refineries are out for four or 0:15:46.840 --> 0:15:50.080 five or six months. The US is the heart of 0:15:50.120 --> 0:15:54.040 the global fossil fuel market. The US Gulf Coast is 0:15:54.080 --> 0:15:57.360 the largest contributor to combine to oil and gas in 0:15:57.400 --> 0:16:01.840 the world. We are in bet oil, cruit and petrolion 0:16:01.880 --> 0:16:04.960 products now seeing nine or ten million barrels a day 0:16:05.000 --> 0:16:07.680 of exports, most of that coming out of the Gulf Coast, 0:16:08.120 --> 0:16:11.760 and that's larger than the total production of either Russia 0:16:11.920 --> 0:16:15.880 or Saudi Arabia. And we're seeing fifteen bcf a day 0:16:15.960 --> 0:16:18.880 of natural gas coming out of the US Golf Coast. 0:16:19.400 --> 0:16:21.560 Flooding can knock all of that out for a while, 0:16:21.640 --> 0:16:24.680 So we have that wild card sitting there. But without 0:16:24.680 --> 0:16:28.320 the wild card, I'm comfortable thinking ninety is a real 0:16:28.360 --> 0:16:32.440 ceiling for whatever we see on the Titaness side of 0:16:32.480 --> 0:16:33.440 oil for the time being. 0:16:33.880 --> 0:16:36.600 Ed, where does a soft landing versus a hard landing 0:16:36.640 --> 0:16:39.000 fit in from the US? You said, we haven't really 0:16:39.040 --> 0:16:43.480 priced in something of a more honest recession in the US, 0:16:43.520 --> 0:16:46.440 which a lot of people are discounting altogether. What makes 0:16:46.480 --> 0:16:48.080 you think we shouldn't. 0:16:49.560 --> 0:16:53.000 Well, partly because of my colleagues Veronica and Andrew, who 0:16:53.040 --> 0:16:56.040 you were talking about earlier, And you know, I believe 0:16:56.320 --> 0:16:59.960 what they say about about where economic growth is going, 0:17:00.800 --> 0:17:04.080 and I tend to believe people like Larry Summers who 0:17:04.240 --> 0:17:08.280 are among those pushing for the hard landing scenario. But 0:17:08.960 --> 0:17:12.960 there's something secular going on as well. We had lower 0:17:13.040 --> 0:17:15.679 oil demand last year in the United States than we 0:17:15.760 --> 0:17:19.199 had a year before, and that's by every measure on 0:17:19.520 --> 0:17:23.080 almost any product other than this category we call other. 0:17:23.600 --> 0:17:27.640 But we had less gasoline demand, we had less diesel demand. 0:17:28.320 --> 0:17:32.359 We're seeing a pickup in gasoline demand this year because 0:17:32.400 --> 0:17:35.120 people are taking vacations more than they did last year, 0:17:35.320 --> 0:17:38.720 but we're not at twenty nine nineteen levels yet, if 0:17:38.720 --> 0:17:41.760 we ever will be there again. We're really seeing a 0:17:41.760 --> 0:17:45.720 phenomenal structural shift both in gasoline and diesel in the US. 0:17:45.800 --> 0:17:48.359 The diesel side of it is partly related to the 0:17:48.400 --> 0:17:52.359 efficiency of trucks. More importantly, there are two things structurally 0:17:52.400 --> 0:17:55.840 going on. If you look at those of us living 0:17:55.840 --> 0:17:58.040 in New York and looking at on the street and 0:17:58.080 --> 0:18:03.359 seeing delivery vans, they're mostly fueled by cleaner energy than diesel. 0:18:03.400 --> 0:18:07.400 They're mostly fueled by either hybrid vehicles or electric vehicles 0:18:07.720 --> 0:18:12.520 or natural gas vehicles. So that plus the actual drop 0:18:12.600 --> 0:18:18.439 in trade where we have a lower level of containership movements. 0:18:18.480 --> 0:18:22.199 Since last September, we have on shoring going on in 0:18:22.240 --> 0:18:25.360 the United States and in Europe to take away from 0:18:25.480 --> 0:18:28.320 China what has been a significant part of their exports. 0:18:28.359 --> 0:18:30.800 We're seeing a slow down in trade which means to 0:18:30.840 --> 0:18:34.000 slow down in trucks going back and forth to ports. 0:18:34.040 --> 0:18:36.680 Between the change and the fuel stock and the change 0:18:36.680 --> 0:18:40.960 in the trade environment, that's a really permanent factor in 0:18:41.400 --> 0:18:44.040 the market. On the gaso leane side, one of the 0:18:44.040 --> 0:18:47.199 biggest issues is of course the increase in fuel efficiency. 0:18:47.560 --> 0:18:50.560 And we didn't expect the increase in fuel efficiency that 0:18:50.640 --> 0:18:54.159 we've seen, but certainly during three years in which we 0:18:54.200 --> 0:18:58.240 have supply chain problems in the auto industry, auto manufacturers 0:18:58.240 --> 0:19:01.840 were selling either the most fuel efficient and therefore the 0:19:01.840 --> 0:19:05.600 most expensive ice ice vehicles they had, or selling more 0:19:05.600 --> 0:19:08.640 electric vehicles. And the fuel efficiency of the US has 0:19:08.640 --> 0:19:11.280 gone up a lot in the last three years. And 0:19:11.359 --> 0:19:13.359 on top of that, we're having a record amount of 0:19:13.400 --> 0:19:17.120 retirements and with that, fewer people with two or three 0:19:17.560 --> 0:19:20.040 going to more people with one or two cars, and 0:19:20.080 --> 0:19:23.920 they're driving even with the labor market statistics, so balancing 0:19:23.960 --> 0:19:28.080 that are other factors, and I think we're very close 0:19:28.160 --> 0:19:33.160 to the US joining China and Europe in yiji oil 0:19:33.240 --> 0:19:36.159 demand coming sooner than most people expect ed. 0:19:36.160 --> 0:19:39.359 We've got to leave it that fantastic assessment analysis on 0:19:39.400 --> 0:19:43.720 the commodity intensiveness of economic growth, that's most of SITSI. 0:19:53.640 --> 0:19:58.119 Gretoriy Peters's cool common collected coat CIO at pGEM fixed 0:19:58.160 --> 0:20:02.240 income Right now, Greg, if I defind a given aggregate 0:20:02.280 --> 0:20:05.320 index is in between here maybe on a technical basis, 0:20:05.520 --> 0:20:09.159 it's a Pennant formation. Which way is price going to break? 0:20:09.200 --> 0:20:12.119 Are we going to get higher price, lower yield or 0:20:12.160 --> 0:20:13.040 the other way around? 0:20:14.160 --> 0:20:16.040 I think it's the other way around. If you look 0:20:16.080 --> 0:20:18.240 at what's going on in the market, the market is 0:20:18.320 --> 0:20:24.359 very excited around policy rates peeking, But if you see 0:20:24.359 --> 0:20:28.160 what's embedded in the future price, there's talk about soft landing, 0:20:28.800 --> 0:20:31.320 inflation coming down, and then on top of it you 0:20:31.440 --> 0:20:35.760 have pretty substantial rate cut. So those two factors are 0:20:35.760 --> 0:20:39.119 somewhat confusing to me. Right, if the economy continues to 0:20:39.440 --> 0:20:42.600 actually chug along here we avoid a recession. I'm not 0:20:42.680 --> 0:20:46.480 necessarily sure why forward rate should be two hundred basic 0:20:46.560 --> 0:20:48.159 points lower than they are today. 0:20:49.119 --> 0:20:51.400 I look at where rates are and what is going 0:20:51.440 --> 0:20:55.760 to give way from where you sit, How will issuance 0:20:55.920 --> 0:20:59.840 change given price down, yield up, what will be the 0:20:59.840 --> 0:21:01.639 spirit of the market. 0:21:02.480 --> 0:21:05.080 Well, what we've found over the past, you know, a 0:21:05.119 --> 0:21:07.600 couple of years, is that there's not a lot of 0:21:07.880 --> 0:21:13.159 price sensitivity here, corporates will issue when they have to. 0:21:13.840 --> 0:21:17.400 There's a constant desire to issue, so I don't really 0:21:17.400 --> 0:21:21.960 worry about that factor too much, you know, honestly. So 0:21:22.520 --> 0:21:25.240 you know, to me, I think it's steady as you go. 0:21:25.359 --> 0:21:27.560 So I think it's a very good environment for fixed 0:21:27.560 --> 0:21:30.480 income for sure. But at the same time, some of 0:21:30.520 --> 0:21:32.399 the pricing confuses me. 0:21:32.880 --> 0:21:35.600 Okay, let's talk about that, Greg, particularly an investment grade. 0:21:35.600 --> 0:21:39.240 Why do you think that prices are just too high? 0:21:39.320 --> 0:21:39.960 Well, that's so much. 0:21:40.119 --> 0:21:43.280 Well it's just it's pricing in a soft lending, which 0:21:43.320 --> 0:21:46.240 I think should be the little outcome. But the risks 0:21:46.320 --> 0:21:48.800 are still, you know, pretty elevated. And so I look 0:21:48.840 --> 0:21:51.360 at you know, IG credit spreads, you know index level 0:21:51.440 --> 0:21:54.199 just called one hundred and twenty five basis points. That's 0:21:54.359 --> 0:21:57.520