Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
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Speaker 2: Let's kick off this OUs conversation with Emily Rowland, co
Speaker 2: Chief investment strategist at John Hancock Investment Management. Emily, great
Speaker 2: to catch up with you. In the last down on
Speaker 2: Bloomberg TV, we spoke to Ben Ladra v Toro, who
Speaker 2: referred to tech names as teddy best stocks. You huk them,
Speaker 2: they happen you sleep at night. They delivered decent gains,
Speaker 2: at least for him because he was long tech through
Speaker 2: most of last year. Emily, do you still like those
Speaker 2: so called teddy best stocks.
Speaker 3: Yeah, we were long tech last year as well, really
Speaker 3: as a function of our preference for quality. So we
Speaker 3: were looking for companies with great balance sheets, tons of cash,
Speaker 3: low interest burdens.
Speaker 4: And we still like tech stops.
Speaker 3: But we've got to recognize the fact that the S
Speaker 3: and P five hundred growth index is now trading at
Speaker 3: a forty four percent premium to its twenty year average.
Speaker 3: So tech stops were up about fifty eight percent last
Speaker 3: year on about five percent earnings growth. Now, don't get
Speaker 3: me wrong, five percent earnings growth was of the best
Speaker 3: globally in the US tech sector. But I think it
Speaker 3: makes sense for tech to potentially take a bit of
Speaker 3: a breather here.
Speaker 4: We're not downgrading it.
Speaker 3: But I don't know how much you can expect this
Speaker 3: year after such an extraordinary twenty twenty three.
Speaker 1: What are you doing on sixty forty I mean, to me,
Speaker 1: this is a really important question. I've seen huge failure
Speaker 1: of some of the marketing concepts like target benefit programs
Speaker 1: and all the rest of it to get to an
Speaker 1: asset allocation. What do you do sixty forty forward?
Speaker 3: I mean, what an incredible year in twenty twenty three
Speaker 3: for a sixty forty portfolio after horrible twenty twenty two
Speaker 3: is up about eighteen percent last year. You know, when
Speaker 3: we look at it and everybody was calling for it
Speaker 3: to be dead, right, the death of the sixty to
Speaker 3: forty portfolio clearly very much alive and well, when we
Speaker 3: look at it, we're modestly adding to our.
Speaker 4: Positions in fixed income. And to us, it's a math game.
Speaker 3: You know, you look on the stock side of the house,
Speaker 3: it's you know, you're sitting at nineteen and a half
Speaker 3: times forward earnings. You've got twelve percent earnings growth penciled
Speaker 3: in by analysts on the street. It's just a tough
Speaker 3: starting point. We're not saying equities will do horrible this year.
Speaker 3: It's just the bar is really high. And when you
Speaker 3: look at fixed income, you know, four or five percent
Speaker 3: on high quality bonds.
Speaker 4: Of course, there was a better entry point back in.
Speaker 3: October, but we still look at the income on high
Speaker 3: quality bonds is a great way to sit here, get
Speaker 3: paid to wait, as we might experience some more volatility
Speaker 3: as the lagged impact of said tightening does cause crafts
Speaker 3: to form.
Speaker 4: In the economic picture and in the labor market.
Speaker 1: Is there such a thing as growth y value? I mean,
Speaker 1: I know you're going to tell me there's a partition
Speaker 1: between value and growth. But if I'm upset with thirty
Speaker 1: multiples or twenty two multiples, where's that grossy value? Or
Speaker 1: at least I can hide Yeah.
Speaker 4: Absolutely.
Speaker 3: So when we look on the value side, you've got
Speaker 3: to be really discerning because there's a lot of sick
Speaker 3: locality inherently in value indices. So we're looking at areas
Speaker 3: that have a high quality element to them. So healthcare,
Speaker 3: for example, one of our favorite sectors. I know a
Speaker 3: lot of people have been coming on here talking about healthcare.
Speaker 3: It's trading at a ten percent discount to the broad market.
Speaker 3: We think it's going to benefit as consumer behavior shifts.
Speaker 3: Maybe we're not going to buy all the stuff we want.
Speaker 3: I know we were talking about ath leisure earlier. By
Speaker 3: the way, I have an eleven year old daughter. I'm
Speaker 3: here to tell you ath leisure is alive and well.
Speaker 3: But people are still going to do the things they
Speaker 3: need to do. They're going to go to the doctor,
Speaker 3: they're going to get medical care. Utilities another area that
Speaker 3: got really really hurt down, you know last year, everybody
Speaker 3: left it for dead. It's trading at a twenty percent discount.
Speaker 3: So we could see a rotation into those sort of
Speaker 3: dogs of the Dow as potentially tech takes a breather
Speaker 3: into twenty twenty four.
Speaker 5: Emily, one thing I've really been struggling with in twenty
Speaker 5: twenty four is what is the biggest risk. Is it
Speaker 5: a reacceleration of inflation or is it recession.
Speaker 3: Oh that's the question of the year, I think, and
Speaker 3: you know, I think, as you're looking at looser financial conditions,
Speaker 3: this is going to be one for the history books.
Speaker 3: Right was the FED to dubvish over the last two meetings,
Speaker 3: suggesting that cuts are coming. In the summary of economic projections,
Speaker 3: markets are pricing in five six rate cuts this year,
Speaker 3: and of course that's caused the loosening and financial conditions
Speaker 3: which has been really spurring this pivot party that we've
Speaker 3: been talking about on the show this year. Right now,
Speaker 3: the pivot party's feeling a little bit like maybe a hangover.
Speaker 3: Maybe we're like trying out dry January here or something.
Speaker 4: Is the markets are now back to.
Speaker 3: This good news on the economic front, which is causing
Speaker 3: yields to back up being sort of bad news on
Speaker 3: the equity front. So our as recession goes, I think
Speaker 3: everybody's sort of tired of talking about And frankly, Matt
Speaker 3: and I don't really get paid on our views on
Speaker 3: whether recession plays out or not. We get paid on
Speaker 3: how we think about positioning into this environment, So maybe
Speaker 3: if it could, you know, we're prepared if an economic
Speaker 3: contraction takes place again lead leaning into high quality bonds,
Speaker 3: looking at income, and then rotating into these more defensive
Speaker 3: parts of the market that should benefit on a relative
Speaker 3: basis if something breaks. If something breaks and we do
Speaker 3: see that contraction play out, I.
Speaker 5: Guess that the way this folds into positioning is leaning
Speaker 5: into high quality income producing fixed income. Does this really
Speaker 5: get up ended if the economy is hotter than expected
Speaker 5: and if the pivot party, as you pointed out, has
Speaker 5: just run way too far.
Speaker 3: Yeah, I mean there is a potential here, you know,
Speaker 3: certainly for rates to chop around. We're watching energy prices closely,
Speaker 3: which could play into the inflation picture here. Of course,
Speaker 3: the data on Thursday on CPI is going to be
Speaker 3: you know, critically important here, so there is a risk
Speaker 3: here that we see a reacceleration. It's just hard to
Speaker 3: imagine an environment where inflation goes back to the nine
Speaker 3: percent that we saw in the summer of twenty twenty two. Obviously,
Speaker 3: there was some very unique sort of pandemic era dynamics
Speaker 3: there around supply chains, around fiscal stimulus, so we think
Speaker 3: that ultimately we go back to a low growth, low inflation,
Speaker 3: low rate environment which really permeated the markets and the
Speaker 3: economy for much of the last decade. Nothing changed except
Speaker 3: we pumped five trillion dollars of stimulus into the US economy.
Speaker 3: There's forces out there that are very much disinflationary, and
Speaker 3: we think over the longer term, that's where we go,
Speaker 3: and we're headed in that direction certainly as we start
Speaker 3: the year.
Speaker 2: I mean, I mentioned ben Light and he talked about
Speaker 2: the opportunities in Europe. Is the buys still America US
Speaker 2: stocks it is?
Speaker 3: I mean, you guys have been talking a lot this
Speaker 3: morning about how horrible, for lack of a better word,
Speaker 3: the data is coming out of Europe and certainly in Germany,
Speaker 3: and it's interesting to see, you know, stocks.
Speaker 4: Really not reacting to that. In Europe.
Speaker 3: You know, there's been buoyancy, there's been participation. The weaker
Speaker 3: dollar has helped non US equities. But when we look
Speaker 3: to the US, we're holding up the best around the world. Economically,
Speaker 3: our labor market is undoubtedly the strongest across the world,
Speaker 3: and earning estimates here are more robust than they are
Speaker 3: in other areas. And then Finally, we just have more
Speaker 3: high quality stocks here in the US. So we do
Speaker 3: still have a preference for US equities over international, especially
Speaker 3: over emerging market equities, where we think China is going
Speaker 3: to be challenged into this year.
Speaker 2: Interesting, Emily, thank you. Am we Rout in the of
Speaker 2: John Hancock Investment Management.
Speaker 1: Brook Sutherland knows this cold. She's a Bloomberg opinion columnist,
Speaker 1: and she knows that Clyde Cessna in nineteen sixteen invented
Speaker 1: our aviation world in Wichita, Kansas. So we're going to
Speaker 1: go to Wichita right now and talk about how we
Speaker 1: actually build the things we take for granted. How shattered
Speaker 1: is Ava Kansas this morning? Brook, how not afraid? But
Speaker 1: just how is there confidence broken?
Speaker 6: I think you have to be rather concerned in Whichita?
Speaker 6: I mean that is the home of Spirit Aerosystems, which
Speaker 6: is the supplier that makes the fuselage on the Boeing Max.
Speaker 6: Now this is not it's not clear yet if this
Speaker 6: was a Spirit issue, but they have had a history
Speaker 6: of quality control glitches just in this past year, really,
Speaker 6: and there's a lot of scrutiny over the relationship between
Speaker 6: Boeing and Spirit Aerosystems. This used to be a part
Speaker 6: of Boeing until back in two thousand and five, executives
Speaker 6: decided they could boost their profit margins by focusing on
Speaker 6: design and outsourcing some of the actual manufacturing work. But
Speaker 6: this was really just a set of factories. This was
Speaker 6: never really meant to be an independent business, and I
Speaker 6: think this relationship is going to get a lot of scrutiny.
Speaker 6: There's been speculation of could Boeing buy Spirit Aerosystems. I
Speaker 6: think that would be very complicated, considering Spirit has since
Speaker 6: diversified into contracts Airbus and the military. But I do
Speaker 6: think both Boeing and Airbus down the road are going
Speaker 6: to work at vertically integrating more of that aerospace structure's
Speaker 6: work because it's just not a tenable relationship.
Speaker 1: Is this enough for Airbus to get a legit foothold
Speaker 1: into American aviation?
Speaker 6: I mean, I think they have one. What's interesting is
Speaker 6: that Airbus has remained much more vertically integrated than Boeing
Speaker 6: ever has. They'd outsourced some stuff here and there, but
Speaker 6: they have not done it to the extent that Boeing did,
Speaker 6: And in hindsight, being twenty twenty, that was clearly the
Speaker 6: right decision.
Speaker 5: I'm wondering the decision by the airline companies of which
Speaker 5: planes to buy. Why it is that United and Alaska
Speaker 5: Air had a disproportionate number of these particular jets. Is
Speaker 5: it just the roots that they decided to fly on,
Speaker 5: Was it just simply availability?
Speaker 4: Was it the cost?
Speaker 6: I mean, I think it's a little bit of both.
Speaker 6: The reality is we have a duopoly. It's Boeing and
Speaker 6: it's Airbus, and Airbus is sold out of its Marquee
Speaker 6: narrow body jets into the twenty thirties. I think, you know,
Speaker 6: depending on the roots you want to fly. Fuel efficiency
Speaker 6: engines are also a concern. So the max Jet only
Speaker 6: takes the engine from CFM International, which is the joint
Speaker 6: venture from Saffron and ge Airbus. You can choose between
Speaker 6: that CFM engine or a variant of it, or the
Speaker 6: GTF from RTX, which of course is having problems of
Speaker 6: its own. They've had to do a very costly recall
Speaker 6: of that engine technology because of again a manufacturing glitch
Speaker 6: that time involved powdered metal. So if you're an airline,
Speaker 6: I don't really know what's your best option is because
Speaker 6: you're now having problems with both of these aircraft, but
Speaker 6: you don't have a lot of alternatives. The one thing
Speaker 6: we should say is that so far, all of the
Speaker 6: investigations the grounding is really focused on the Max nine,
Speaker 6: so that actually makes up a relatively small percentage of
Speaker 6: the overall operating Max fleet and the order backlog. So
Speaker 6: the Max eight is really the workhorse of that Boeing
Speaker 6: family of jets, and that so far has not come
Speaker 6: under scrutiny, although it's a fair question as to whether
Speaker 6: it may at some point.
Speaker 5: George Fergus of Loloberg Intelligence was on yesterday and he
Speaker 5: was talking about how there are some serious staffing issues
Speaker 5: since the pandemic and that could play a role in
Speaker 5: some of these supply chain issues or at least some
Speaker 5: of the assembly line issues and the lack of assiduousness
Speaker 5: to tightening the bolts. Do you buy into this? This
Speaker 5: is something that you've been hearing from other executives of
Speaker 5: industrial companies that they just do not have the quality
Speaker 5: or number of staffers to really make sure that things
Speaker 5: are done properly.
Speaker 6: Absolutely. I mean, I think if you look back to
Speaker 6: the pandemic, we bailed out the airlines, but we did
Speaker 6: not bail out the aerospace manufacturing supply chain, which was
Speaker 6: a very created a lopsided dynamic where these companies just
Speaker 6: laid off in mass and then they could not hire
Speaker 6: people back when they wanted to. Now, I would also
Speaker 6: put some of the blame though, on these aerospace manufacturing companies,
Speaker 6: because we have long had supply chain issues in this
Speaker 6: corner of the world. Even before the pandemic, companies were
Speaker 6: struggling to ramp up production to meet Boeing and Airbus goals,
Speaker 6: and so you would think that maybe these companies might
Speaker 6: have had some price of mine to hold on to
Speaker 6: the workers. And I've written about the railroads who are
Speaker 6: making some structural decisions about not laying off workers when
Speaker 6: times get tough, and whether we should see sort of
Speaker 6: a similar mindset shift in the aerospace world. I think
Speaker 6: that would be very necessary.
Speaker 1: I mean, Brook, you're expert at this. In the last hour,
Speaker 1: I talked about Boeing and I looked at a fancy
Speaker 1: Bloomberg chart, and I'm saying something happened starting on and
Speaker 1: around twenty sixteen as simple as I can. Did they
Speaker 1: lose the culture? Did they lose the engineering discipline when
Speaker 1: they exited Seattle?
Speaker 6: I think at this point, you have to look at
Speaker 6: deep rooted cultural issues. I mean, it has been one
Speaker 6: problem after another at Boeing, and I know Dave Calhoun
Speaker 6: has been very resistant to conversations that this is the
Speaker 6: cultural problem. He's resisted more sweeping overhauls of the engineering ranks,
Speaker 6: or management ranks or the culture there. But I think
Speaker 6: what's needed is a true reset. And I go back
Speaker 6: to GE because there are a lot of crossovers between
Speaker 6: GE and Boeing management. Over the years, that company went
Speaker 6: through a proper cultural reset and it is now on
Speaker 6: a much healthier path. It's breaking up, but it's making
Speaker 6: money again, it's generating cash flow again, and it is
Speaker 6: overall a much healthier company. And I think that when
Speaker 6: you have these type of crises, and especially when it's
Speaker 6: sort of something as basic, potentially as screwing in the
Speaker 6: bolts on a door, you have to look at how
Speaker 6: did we get here and what sort of cultural norms
Speaker 6: are in place that would allow this type of thing
Speaker 6: to happen, allow planes to be delivered in this condition.
Speaker 2: Broken Resistant of regulates us to that conversation.
Speaker 6: I don't think they should be resistant because I think
Speaker 6: their reputation is also on the line here. Now, remember
Speaker 6: that the FAA is supposed to be inspecting and checking
Speaker 6: every single max plane before it is handed over to customers.
Speaker 6: That was a protocol that was put in place in
Speaker 6: the wake of those two fatal crashes. When it came
Speaker 6: out that that flight control software was much more prone
Speaker 6: to being triggered by malfunctioning sensors than regulators realize and
Speaker 6: also a lot more powerful. Their reputation of the FAA
Speaker 6: really took a hit in that accident, and this was
Speaker 6: meant to be part of their response to that. So
Speaker 6: the FAA also missed something here, and so I think
Speaker 6: it should be in their interests to try to beef
Speaker 6: up scrutiny of Boeing and also the overall aerospace safety infrastructure.
Speaker 6: I mean, this is not the only issue that we've had.
Speaker 6: We've also had close calls on the runways, and I
Speaker 6: think we've gotten very comfortable as a country because we've
Speaker 6: been lucky enough not to have very many fatal accidents
Speaker 6: in recent years. But you cannot get complacent about aerospace safety.
Speaker 2: We just quickly, where is your focus right now? Is
Speaker 2: it on Boeing spirit error systems? The individuals that make
Speaker 2: the fuselage for the seven thirty seven? Is it on
Speaker 2: the carrier Alaskaare is it on the FAA? Where's your focus?
Speaker 6: Well, I would say all of the above, because I
Speaker 6: follow all those companies, But I think Boeing is the
Speaker 6: most important story here. How do they react to this,
Speaker 6: What types of changes do they make, whether that involves
Speaker 6: their supply chain, whether it involves management. If you remember,
Speaker 6: back in sort of mid twenty twenty two, there was
Speaker 6: an unusual number of Boeing customers calling for management changes.
Speaker 6: Now that has since sort of quieted down, but I
Speaker 6: do wonder if in the wake of this accident that
Speaker 6: might start to pick back up again. Now, Boeing did
Speaker 6: name the chief operating officer last month, Stephanie Pope, who's
Speaker 6: ahead of their services arm, sort of making her the
Speaker 6: heir apparent to Dave Calhoun. I would keep an eye
Speaker 6: on whether any type of management changes happened sooner rather
Speaker 6: than later. But I would also say that this is
Speaker 6: a company that could really use some fresh eyes and
Speaker 6: maybe promoting from within my race and more eyebrows.
Speaker 2: Interesting I broke this was great brook sepal and that
Speaker 2: of Bloomberg opinion.
Speaker 1: What we know for certain is Ian Bremer and all
Speaker 1: of you raise your group, have to rewrite their top
Speaker 1: risks for twenty twenty four on January ninth. That's how
Speaker 1: fast things are happening. He is here today with the
Speaker 1: top risk. What a grim set of risks in an
Speaker 1: election year. How uncertain is it to get to March
Speaker 1: or to get to say the middle of May.
Speaker 7: Well, first of all, happy new year, Tom, and to
Speaker 7: all of you here at Bloomberg Surveillance. It's so nice
Speaker 7: to join you as we kick off twenty twenty four
Speaker 7: on January ninth.
Speaker 8: No, I don't think we have to rewrite these risks, but.
Speaker 7: I think we have to recognize just how incapable we,
Speaker 7: the United States and our present set of global leaders
Speaker 7: are in trying to contain the geopolitical risks and conflicts.
Speaker 8: That we face today. You just saw the entry we had.
Speaker 7: Blinken standing there in the Middle East saying they need
Speaker 7: to understand We need them to understand.
Speaker 8: The hu Thies need to understand the need to stop this.
Speaker 7: He could have easily said, the Hamas needs to understand
Speaker 7: they have to let these hostages go. The Israeli war
Speaker 7: Copit cabinet needs to understand that they can't continue to
Speaker 7: expand the fighting in the region. The United States has
Speaker 7: zero ability to actually make those messages land with the
Speaker 7: actors on the ground who are escalating this.
Speaker 1: Triangulate this right now with Freed Zakaria's essay and Foreign
Speaker 1: Affairs Magazine in his Post American World. In the Bremer
Speaker 1: Post American World, you say the US is battling itself.
Speaker 1: That sounds a lot like Zakaria twenty years ago. Triangulate
Speaker 1: right now the lack of confidence you have in our
Speaker 1: US geopolitical strategy.
Speaker 7: It was about twelve years ago when I first came
Speaker 7: up with this idea of a G zero world where
Speaker 7: the United States was not going to be willing and
Speaker 7: able to be the global policeman, the architect of global trade,
Speaker 7: and the promoter of global values, but that no other
Speaker 7: country or group of countries would be able to step
Speaker 7: into its place, and that as that geopolitical recession played out,
Speaker 7: there would be more conflict, There would be more vacuums
Speaker 7: that would be filled by rogue actors who take advantage
Speaker 7: of the comparative chaos, of the lack of leadership. Twelve
Speaker 7: years of that gets you much bigger.
Speaker 8: And unmitting fighting.
Speaker 7: We see that with Russia Ukraine started in twenty fourteen,
Speaker 7: nobody really pushed back, and now we are here in
Speaker 7: twenty twenty four and that war is turning trajectory in
Speaker 7: a way that none of us are comfortable with.
Speaker 8: In the West.
Speaker 7: You see that in the Middle East, and that is
Speaker 7: set to expand significantly. And we see in the United
Speaker 7: States itself that we are increasingly a tribal, non functional
Speaker 7: democracy and crisis.
Speaker 8: Very simple point.
Speaker 7: When you have the former Secretary of Defense under Trump
Speaker 7: saying this man is a threat to democracy. He was
Speaker 7: in charge of American national security under Trump. When you
Speaker 7: have the person who is running having tried to subvert
Speaker 7: a free and fair transfer of power, doing everything in
Speaker 7: his power.
Speaker 8: To do so.
Speaker 7: In a functional democracy, that would be the number one
Speaker 7: issue of the election.
Speaker 8: Nothing else would be close.
Speaker 7: So is it that we're somehow getting our facts wrong,
Speaker 7: or is it that the United States is not a
Speaker 7: consolidated functional democracy because there ain't no other advanced industrial democracies.
Speaker 7: No one else in the G seven is having the
Speaker 7: problems in legitimacy of its political institutions at the United
Speaker 7: States is experiencing in twenty twenty four.
Speaker 8: What do you think those What do I think which you.
Speaker 2: Think it is? Do you think it is a functioning democracy?
Speaker 7: No, No, I think it's a hybrid system. I think
Speaker 7: the US democratic institutions have significantly eroded over the course
Speaker 7: of the past several decades. We have normalized that because
Speaker 7: all of the things that are unprecedented as they happen,
Speaker 7: and we still live here in the United States, we're
Speaker 7: basically saying, well, okay, I guess that's the way it
Speaker 7: works now. So impeachment doesn't work, and we can impeach
Speaker 7: someone twice and they can still run again.
Speaker 8: I guess that's the way it works.
Speaker 7: You can have ninety one indictments and I guess that's
Speaker 7: the way it works. You can post and say things
Speaker 7: that you never would have heard. I guess that's the
Speaker 7: way it works now. In a set again, he's the
Speaker 7: context of the world's most powerful, very functional economy and
Speaker 7: the world's most functional, very powerful global defense capacity. You'd say, well,
Speaker 7: maybe it's okay that the United States isn't a functional democracy,
Speaker 7: but it will be different, and so yeah, I think
Speaker 7: we can't normalize the dysfunction of the US political system,
Speaker 7: the illegitimacy of its institutions and the fact that democracy
Speaker 7: in twenty twenty four in the United States is in crisis.
Speaker 8: That is the reality, and our allies know that.
Speaker 7: They're deeply worried about it, all of them around the world,
Speaker 7: and our adversaries see this as potentially a huge opportunity
Speaker 7: for themselves.
Speaker 2: So when do you see us twelve months from now,
Speaker 2: what do things look like?
Speaker 7: Well, first of all, let's talk about March April May.
Speaker 8: Tom said, you need to completely rewrite this.
Speaker 7: Then when Trump gets the nomination, which is very very likely,
Speaker 7: he will overnight become far more powerful on the US
Speaker 7: and the global state. All of the Republicans will be
Speaker 7: loyal to him in a way that right now they
Speaker 7: still have hedging capacity and the media that is following
Speaker 7: and supporting Trump, and the ability to raise money to
Speaker 7: drive that campaign.
Speaker 8: And that means his policy pronouncements like.
Speaker 7: There would never be a war against Israel if I
Speaker 7: was president, because I showed the Iranians I announced that
Speaker 7: assassination of Cosumsulamani. Well, that's going to be the policy
Speaker 7: for Trump, and therefore the Republicans Zelenski corrupt.
Speaker 8: I'd end this warrant to day.
Speaker 7: I'd show him what's what I'm not going to give
Speaker 7: him billions and billions of dollars on the back of
Speaker 7: the American taxpace that becomes the policy. So the Overton
Speaker 7: window right of what is an acceptable policy framed debate
Speaker 7: in the United States is going to change very dramatically
Speaker 7: when Trump becomes the nominee. Again, assuming that it's not given,
Speaker 7: but assuming that in twelve months time, the stakes are
Speaker 7: a lot higher for both leaders than they ever have
Speaker 7: been before. Right, So if Trump wins, Biden and many
Speaker 7: many people around him believe that they will face legal jeopardy,
Speaker 7: that Trump will politicize the FBI, the dj the irs
Speaker 7: and go after them and a McCarthyite, you know, prioritization
Speaker 7: of policy, where Trump of course faces potential prison time.
Speaker 7: So the stakes are much much higher than we saw
Speaker 7: in twenty twenty.
Speaker 5: Just quickly, I is Biden the antidote to this at
Speaker 5: a time where we're there are real questions around the
Speaker 5: Defense secretary and his absence, his undisclosed hospitalization in the
Speaker 5: sense that President Biden is not very popular and isn't
Speaker 5: really addressing that.
Speaker 7: I was a little surprised that we had no idea
Speaker 7: where the Secretary Defense was for several days in the
Speaker 7: middle of the war. That usually happens in China, that
Speaker 7: doesn't happen in the United States. Yeah, And I discussed
Speaker 7: that with an official yesterday and he kind of had
Speaker 7: a chuckle over it.
Speaker 2: It's exactly what I said yesterday.
Speaker 8: Yeah, is it really I missed that I talked to
Speaker 8: you said, man, no, no, this is a Chinese official.
Speaker 8: But it was pretty funny. We all had a good
Speaker 8: chuckle over it. Not not what you want to see.
Speaker 7: Look, I think that Biden has the intention of being
Speaker 7: the antidote. He wants to follow rule of law. But
Speaker 7: I mean, we're in the fourth year of the Biden
Speaker 7: administration and the country. The reality is the country is
Speaker 7: more politically divided. Our institutions are weaker today than they
Speaker 7: were when Biden became president. So he does not have
Speaker 7: the ability to resolve the divisions in the United States. Look,
Speaker 7: you look at Russia and Ukraine today and you'd say
Speaker 7: that Zelenski would like to end the war, but he
Speaker 7: doesn't have the ability to do that, right, And that's
Speaker 7: the problem. We have these major conflicts geopolitically between Russia
Speaker 7: and Ukraine, between Israel and Hamas, and between the United
Speaker 7: States and itself. And in none of these cases is
Speaker 7: diplomacy and option. And in none of these cases do
Speaker 7: the principles have the ability and the willingness to stop
Speaker 7: the fighting. That that's what twenty twenty four is. That
Speaker 7: is when I look ahead in twelve months time, that's
Speaker 7: where we are. That's what jizra means.
Speaker 2: Always an interesting rate. Thanks for Johannissa. It's going to
Speaker 2: catch on in prema if you write A great.
Speaker 1: Part of what you get here is the view from
Speaker 1: a different geography, Nadiere. Martin Wiggens, director, it's veeeling capital.
Speaker 1: We're thrilled that you Jones today from Oslo, Norway. What
Speaker 1: is the oil distinction of your Norway? It's not that
Speaker 1: much production, but Norway gets so much credibility within oil analysis.
Speaker 1: How does that work?
Speaker 9: Thank you? Well, we are, of course a steady producer, right,
Speaker 9: we are a country that delivers oil. Of course we
Speaker 9: are not at peak production and we're declining quite steadily
Speaker 9: when we look forward after twenty twenty five twenty six,
Speaker 9: and on top of that energy transition as well. We're
Speaker 9: the forefront in terms of test us buy and things
Speaker 9: like that. But we are very reliable in producing and
Speaker 9: delivering oil and natural gas, as we saw when this
Speaker 9: war started in Ukraine.
Speaker 1: A two part question, is there a one price for
Speaker 1: oil now and is that Brent crude? And how does
Speaker 1: the massive American production change your calculus on what Brent does.
Speaker 9: The US market is a huge influencer and it influences
Speaker 9: not only the oil price, it influences shipping prices and
Speaker 9: how movements go all around the world. When we look
Speaker 9: at Brent, of course there is the North Sea which
Speaker 9: is setting the benchmark, and we look at those physical grades,
Speaker 9: but they're very small relative to the overall picture. When
Speaker 9: we see what is the swing crude right now because
Speaker 9: of the OPEC cuts and because Saudi of Arabia, yes
Speaker 9: they lowered the official selling prices, but they're towing the
Speaker 9: line and maintaining low production. That swing producer right now
Speaker 9: is the United States. And that is why it's a huge.
Speaker 2: Influence, amazing change. Yeah, it raises the question just how
Speaker 2: influential the cartel still is, just how much power do
Speaker 2: they have?
Speaker 9: But this was I think the big fear that played
Speaker 9: out yesterday because by lowering those prices, Saudi Arabia has
Speaker 9: been saying throughout December. Demand is good, but by dropping
Speaker 9: it so steeply in two dollars, they're saying, oh, actually
Speaker 9: demand is not that strong. At the same time, when
Speaker 9: we saw US production jump one point one million barrels
Speaker 9: per day year on year last year. Oh, are they
Speaker 9: starting to go for market share? That is the concern.
Speaker 9: But it's normal for them to cut prices in January,
Speaker 9: so the market is waiting to see, Okay, are they
Speaker 9: going to be cutting in February March, and then they
Speaker 9: start to get worried. So although we had a big
Speaker 9: sell off yesterday, we've bounced back and we think that
Speaker 9: positioning is still late on this move.
Speaker 2: I'm trying to remember the year when was the market
Speaker 2: share gained year? Was that twenty fourteen, twenty fifteen when
Speaker 2: they made a massive push for that Yes, that all.
Speaker 9: Absolutely, when we finally got that shale invasion on the
Speaker 9: global market, which we've been waiting for, to be honest,
Speaker 9: for more than a year, and the demand just kept
Speaker 9: growing in Asia until it broke the back.
Speaker 2: Do you think you would see a repeat of that?
Speaker 2: Is that what you're suggesting we're looking out for.
Speaker 9: We do not see that right now at all. Being
Speaker 9: the case because the US growth in those years, we
Speaker 9: were looking at one point five two million barrels per
Speaker 9: day year on your growth, one point one is punchy
Speaker 9: when the market was expecting five hundred thousand barrels per day,
Speaker 9: but it's not enormous.
Speaker 5: But there is actually an analogy, which is when oil
Speaker 5: prices fall to a certain level, the shale patch doesn't
Speaker 5: make sense and production stops or slows and you see
Speaker 5: rigs taking it offline. Are we close to that kind
Speaker 5: of point? If the US is the swing producer, are
Speaker 5: we close to them adjusting supplies in response to a
Speaker 5: lack of demand.
Speaker 9: We would need to see WTI trading in the low
Speaker 9: sixties before I think there is a change in behavior.
Speaker 9: But because we have such a low duck count right
Speaker 9: the drilled uncompleted wells, the response will be slower. So
Speaker 9: this is where we expect seasonally a slow down in
Speaker 9: that production because they're not so personic prices. They're steady prices,
Speaker 9: but we're not going to see that kind of growth
Speaker 9: we saw last year. The big change though, is we
Speaker 9: should start to see rig counts actually increase some which
Speaker 9: we didn't see last year. And that's what the market
Speaker 9: really got wrong.
Speaker 5: Bear with me because this is sort of complicated, But
Speaker 5: I remember when people argued that part of the reason
Speaker 5: oil prices were going down was because rates were so high.
Speaker 5: There was an actual cost to parking your capital and
Speaker 5: a physical good that wasn't generating the same kind of
Speaker 5: income that t bells were. If the FED cuts rates,
Speaker 5: could that effectively send more investors into oil and cause
Speaker 5: oil prices to rise.
Speaker 9: It could, yes, And because especially the expectation, well that
Speaker 9: demand will be higher, right, So then we when we
Speaker 9: look at our forecast right now for the US, we're
Speaker 9: only seeing maybe fifty hundred thousand barrels per day year
Speaker 9: in year growth in demand. It can be much higher.
Speaker 9: When we look at China, the expectation is four hundred
Speaker 9: thousand barls per day. Ye're in your growth versus one
Speaker 9: point six last year. It's very tepid. Changes can absolutely
Speaker 9: drive that. The big driver this year though is non
Speaker 9: OECB Asia ex India, ex China. That's five hundred and
Speaker 9: six hundred thousand barrels per day year on your growth
Speaker 9: that didn't come last year that we thought would come
Speaker 9: last year.
Speaker 5: We haven't even mentioned the conflict to the Middle East. Yeah,
Speaker 5: and I'm really struggling to even understand what to look
Speaker 5: for to understand when this will influence oil prices, because
Speaker 5: everyone was expecting it to and then it didn't. What
Speaker 5: are you watching for to understand that, yes, this is
Speaker 5: going to actually have a disruptive influence.
Speaker 9: Firstly, we're watching crude flows and product flows right so
Speaker 9: we have seen less Russian creed going through the Red Sea,
Speaker 9: but that's alongside what they were supposed to cut, so
Speaker 9: there's no big change there. We're also looking to see
Speaker 9: product exports out of the Middle East into Europe. Those
Speaker 9: should really slow down. Those should really pump up Middle
Speaker 9: distillate prices, which then should support oil. That's the part
Speaker 9: that we haven't seen yet.
Speaker 1: I want to take a summary question back to your
Speaker 1: work at Morgan Stanley at Philbro years ago. All that
Speaker 1: you've done commodities, Where in God's name is US oil
Speaker 1: policy or US oil production in five years or ten years?
Speaker 1: Do you have any sense of the dynamic we have
Speaker 1: out to twenty thirty.
Speaker 9: I believe that there has been a strong understanding that
Speaker 9: we need to maintain energy security, the reason we maintained
Speaker 9: lower oil prices last year, and the year before was
Speaker 9: because we had a strong spr and because we have
Speaker 9: massive productions. So I think the investment will continue to
Speaker 9: be in natural gas and in oil. China is taking
Speaker 9: this out of our playbook, being the number one investor
Speaker 9: in renewables, big oil producer, importing gas, and so I
Speaker 9: think we will absolutely continue to do this. However, when
Speaker 9: we look at these golden patches, maybe there's only two
Speaker 9: million barrels per day additional growth to come, it's still
Speaker 9: a massive number fifteen millions.
Speaker 2: It's in just on US production and reserves. So we
Speaker 2: drained the strategic midterm reserve, yes, a couple of winters ago.
Speaker 2: What's left and when are we refilling it? And are
Speaker 2: we going to do that going into an election this year?
Speaker 9: Well, I think this depends a lot on that relationship
Speaker 9: with Saudi Arabia. Right when we had this near piece
Speaker 9: coming before the Hamas attack, we had Saudi Arabia announcing
Speaker 9: more oil coming back, and then we had immediately after
Speaker 9: the attack, Biden saying we're going to buy oil at
Speaker 9: seventy nine ARLs and Beryl they bought a very small
Speaker 9: token amount, but we're in a happy range. I think
Speaker 9: for the electorate of course the electric would like it lower,
Speaker 9: but we're not in a dangerous range. So I think
Speaker 9: slow buying will continue. But I also think we will
Speaker 9: see policy that is supportive of continued investment in oil
Speaker 9: and gas, and that will really support things forward.
Speaker 2: Nadia, thank you. It's going to say it here in
Speaker 2: New York City. Nadia Massen wign that as fell in capital.
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