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
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
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Speaker 1: the Bloomberg Terminal and the Bloomberg Business App. Chure Viceman
Speaker 1: is a global interest rate strategists and currency strategist at
Speaker 1: Macquarie with decades of experience in this Are you close
Speaker 1: to amending your view? Are you close to making a
Speaker 1: mcquarree shift here, or is it pretty much like Okay,
Speaker 1: this is what we've been dealt full speed ahead. I
Speaker 1: think it's fair to say we're gonna delay our view,
Speaker 1: not a mend our view. Our view has been that
Speaker 1: there will be a recession in the US this year.
Speaker 1: It's clearly not going to start in the first quarter,
Speaker 1: based on all the evidence we've gathered so far on sales,
Speaker 1: on on employment trends. But at the on the other hand,
Speaker 1: surveys are still pointing to a recession coming in the US.
Speaker 1: Look at the p m I s. They're they're below
Speaker 1: fifty for both services and manufacturing. When you look at
Speaker 1: the survey of consumer expectations coming out of New York
Speaker 1: FED last week, it is still pointing to downbeat expectations.
Speaker 1: So are the Michigan surveys, the Conference Board surveys. The consumer,
Speaker 1: while he might be spending, is not in a happy mood.
Speaker 1: Tom and I think that we're going to see we're
Speaker 1: going to consumers not in a happy mood. Given the
Speaker 1: data I just saw. These are these are fluctuations, These
Speaker 1: are not trends. Uh. Look, there was a lot of
Speaker 1: spending in October in the US by the consumer who
Speaker 1: was afraid of inflation taking away his ability to to
Speaker 1: properly gather the gifts he needed to for Christmas. They
Speaker 1: were afraid of hotel rooms being fully booked, they were
Speaker 1: afraid of airlines being fully booked. They did a lot
Speaker 1: of spending in October ahead of what they would normally do.
Speaker 1: That caused the big jump in consumption. But was that
Speaker 1: a reflection of a positive mood. Not necessarily. Inflation has
Speaker 1: a way of making people fear the future and they
Speaker 1: spend now. As opposed to you that from Barkin yesterday.
Speaker 1: That's exactly what arrangements. And then and then look once
Speaker 1: all that spending got through in October November, we had
Speaker 1: a pretty dull December in terms of spending, especially when
Speaker 1: you when you you know, when you adjust by bye bye,
Speaker 1: where inflation was so genuine seeing a bit of a
Speaker 1: bounce back from that. Admittedly, I always remind my desk people,
Speaker 1: though you've gotta take these numbers and and and deflate them,
Speaker 1: make them in real terms. It doesn't look that great prospective.
Speaker 1: You said something interesting there. It's about the inflationary bank
Speaker 1: trap that you buy now because you were at the
Speaker 1: prices go up later. It isn't that something that carries
Speaker 1: on spiral ink. Isn't that something that becomes entrenched that behavior.
Speaker 1: That's not something typically just fight away. But maybe it can.
Speaker 1: But it cannot continue forever because obviously budgets are limited.
Speaker 1: But it also inflation has a way of eventually breaking
Speaker 1: the back of that spending. Eventually, you see your real
Speaker 1: wages of road, you see your real income a road
Speaker 1: because of inflation, and you're forced to settle into a
Speaker 1: lower level of spending because of it in real terms.
Speaker 1: So yeah, it could happen for a short amount of time, Jonathan.
Speaker 1: It could happen for a few months. It can't happen indefinitely.
Speaker 1: So what's the head fake here? The witness in December
Speaker 1: or the strength in January. We've had three head fix right,
Speaker 1: We've had We've had employment in January much stronger than
Speaker 1: most most people surmised. We then had inflation come down
Speaker 1: less than people's surmise. Now we have a boost to
Speaker 1: retail spending in January that's greater than people's surmid It's
Speaker 1: been three They've been three head fakes. Sorry, just reality.
Speaker 1: Why isn't that just an accurate characterization of where we are?
Speaker 1: It is stronger than we think it is. It is
Speaker 1: an accurate It is an accurate reflection of where we are.
Speaker 1: What I'm talking about is the future, not now. Right,
Speaker 1: We're not saying, as I said, that that the recession
Speaker 1: is starting now, and in fact, it's like I said,
Speaker 1: there's nothing consistent in the data to suggest that the
Speaker 1: procession is upon us. But in the next few months,
Speaker 1: you're going to start to see the US economy weekend,
Speaker 1: and it's going to be in the context of a
Speaker 1: global economy that may actually continue to strengthen our view,
Speaker 1: for example, on the dollars, predicated on that we don't
Speaker 1: think that the weakness in the dollars over in part
Speaker 1: because we see a more deeper recession coming in the
Speaker 1: US and North America generally than we do in the
Speaker 1: rest of the world. And what we've seen here from
Speaker 1: inflation to retail we have claims tomorrow, John were as
Speaker 1: data dependent as ever seen. We make jokes about it.
Speaker 1: We've got a countdown clock. You like our countdown clock.
Speaker 1: We're all into our contown. Would you put up the
Speaker 1: arsenal man City countdown clock please? Like the atomic clock.
Speaker 1: It's remember I remember when you were at bear Stearns
Speaker 1: and we waited ten days from mel past to approve
Speaker 1: an edit on what Emmy shy I was doing. I
Speaker 1: mean it was slow motion. What does all this hyper
Speaker 1: ventilating about day to do to us, and critically to
Speaker 1: the fat It makes us crazy. It makes me crazy
Speaker 1: from time to time. Admittedly, it's a difficult to to
Speaker 1: to be be certain in the trends that you're looking
Speaker 1: at when you see these fluctuations. But look, I'm gonna
Speaker 1: I'm gonna tell you that, you know, there's a lot
Speaker 1: of things that the market is getting wrong right now.
Speaker 1: I think they're underestimating the amount of credit tightness there
Speaker 1: is in the US. If you look at the Loan
Speaker 1: Officer Survey, if you look at the n f I
Speaker 1: B Survey of Small business lending, it is collapsing. It's
Speaker 1: at recessionary levels, at least with regard to things that
Speaker 1: are pertinent to the FED. The credit markets. Things look
Speaker 1: recessionary or about to go into a recession in the
Speaker 1: U S. It's Terry, this was great and we appreciate
Speaker 1: your perspective as oise. Terry Weisman of mcquarie, on an
Speaker 1: upside Surprise on ret House, says there's something going on
Speaker 1: in luxury. Dana Telsey owns the high ground here. She
Speaker 1: is chief executive officer of Telsey Advisory Group, with a
Speaker 1: family fabric that speaks of Fifth Avenue at Street. Dana,
Speaker 1: I'm not going to mince words. The windows are screaming
Speaker 1: at me post pandemic here except for one house. I
Speaker 1: want you to explain to our international audience at Curing
Speaker 1: Group and good morning to Carring have been very kind
Speaker 1: to me over the years. Gucci is a train wreck.
Speaker 1: What's this new guy gonna do? At Gucci Sabato di Sarno.
Speaker 1: How does he pick up the pieces on their underperformance.
Speaker 1: One of the elements of luxury that always makes brands
Speaker 1: reinvent themselves. They have archives. You can go back and
Speaker 1: reinvent what was successful in the past with the twist
Speaker 1: of what's modern in today, that appeals to younger consumers,
Speaker 1: that appeals to an international consumer. He has, frankly the
Speaker 1: luxury no pun intended of being able to capture everyone's interest.
Speaker 1: I think you can redo the logo. I think you
Speaker 1: can redo the clothing and the leather goods. I think
Speaker 1: you can put out some new items that become iconic.
Speaker 1: Look what Daniel Lead did at Bottega and created a
Speaker 1: bag and he's not berberis now at Berbery that he's
Speaker 1: gonna make Burbery interesting. And I always believe there's a
Speaker 1: fifteen year life cycle to a bunch of these designers.
Speaker 1: What's so important here at Leasta to the aspiration of
Speaker 1: this you Darbysh of the San Diego Padres just signed
Speaker 1: a six year extension. He's Japanese and there he is
Speaker 1: in the Berbery plaid top to bottom. I mean, that's
Speaker 1: the that's the world. Dana is living in are the
Speaker 1: retail sales We've just got a real sort of really
Speaker 1: speaking to this question on the luxury purchaser, on the
Speaker 1: wealthy individual, or is this broad based? Broad based? I
Speaker 1: think it was interesting about the January sales number. Obviously
Speaker 1: it was very strong. You looked at apparel, you looked
Speaker 1: at furniture, they showed strength also in addition to a
Speaker 1: big uptick in restaurants. Keep in mind, I don't take
Speaker 1: January as seriously as I take March, April and May.
Speaker 1: January is about clearing out promotional and clearance goods. You're
Speaker 1: hearing about retailers having inventory levels that are up twenty
Speaker 1: and thirty percent in the third quarter and now they're
Speaker 1: down in the fourth quarter. The fact that you went
Speaker 1: from up twenty and thirty and now you're negative. You
Speaker 1: moved product, some of it at Markdown's. So just to
Speaker 1: build on that, how much is also fueled and pardon
Speaker 1: the pun, on this idea that gasoline prices are lower
Speaker 1: so people had more discretionary spending. You have that, plus
Speaker 1: take a look at the savings rate. People have been
Speaker 1: using their savings to to live on. Given the strength
Speaker 1: and essential prices, we saw food inflation yesterday, and it's high.
Speaker 1: Those costs of eggs don't keep, don't come down. So
Speaker 1: how sustainable is this given the fact that some people
Speaker 1: are expecting that the savings will go down by the
Speaker 1: middle or the third quarter of this year. I think
Speaker 1: these rates are extraordinarily high. I think that we will
Speaker 1: get more moderation as we go to March. Going forward,
Speaker 1: I think the comparison with Amicron also definitely boosted sales
Speaker 1: in the month of January. The other thing we saw
Speaker 1: is the flip to physical stores. I think that frankly
Speaker 1: can hold a little bit the flip to physical stores
Speaker 1: and perhaps sort of unfortunate for the Federal Reserve, a
Speaker 1: flip back to physical goods on a sort of the
Speaker 1: car and the other space. How much do you start
Speaker 1: to expect a re acceleration of some of the inflation
Speaker 1: in those areas as people have been sitting on their
Speaker 1: hands for a bit waiting for things to stabilize and
Speaker 1: are now getting back in I expect that to re accelerate.
Speaker 1: I think we'll see some acceleration there and some of
Speaker 1: the basic goods. I think some of the discretionary items,
Speaker 1: though the price increases are over if anything, I've heard
Speaker 1: of some retailers, some categories looking to maybe reduce prices
Speaker 1: by five per cent or so from the increases they
Speaker 1: took last year. Span is over to the Joe Feldman world.
Speaker 1: Span it over, and it's in retail sales. Is Amazon?
Speaker 1: I mean we're going from a digital space to talking
Speaker 1: about the windows and luxury New York City. Who's going
Speaker 1: to win the war? I think overall it's going to
Speaker 1: be the innovative retailers that win the war. What you're
Speaker 1: saying out there right now, I mean home always remains
Speaker 1: relevant and important, whether it's remodels, whether it's new and
Speaker 1: existing home sales that need to pick up in order
Speaker 1: to drive gains there. But one of the surprising things
Speaker 1: is you saw pick up an electronics too, And I
Speaker 1: think new items and new innovation drives electronic sales. I'm
Speaker 1: afraid to ask which which electronics sales are. Lisa and
Speaker 1: I get to see at our house, Um, you're gonna
Speaker 1: see newness and television's I think it's going to be
Speaker 1: one of the new items. I think there's gonna be
Speaker 1: some new items also with laptops, I think the smaller,
Speaker 1: more micro items become ever more popular. So when do
Speaker 1: we start to see a subserve diminishing in this momentum
Speaker 1: and people are talking about this with the surprising strength
Speaker 1: in the economy from your vantage point, when do we
Speaker 1: see it in what they're willing to buy? I think
Speaker 1: overall we've seen it in discretionary. Discretionary sales have moderated
Speaker 1: given given inflationary pressures. I think overall discretionary continues to
Speaker 1: move on steadily. It'll be the back half where you
Speaker 1: see some improvement. I think the lower to middle income consumer,
Speaker 1: where you've seen the trade down is what I'm concerned
Speaker 1: about as we go through this first half of the year.
Speaker 1: Can you build on that how much he's starting to
Speaker 1: see some fractures, some fissures in people who don't have
Speaker 1: that same discretionary spetting. We're talking about windows on Fifth Avenue.
Speaker 1: But the reality is food, rent cars, all of this
Speaker 1: is incredibly expensive and really biting into the average American.
Speaker 1: So what we've heard so far is you're seeing even
Speaker 1: customers with hund a thousand dollar household incomes. Companies like
Speaker 1: Walmart are seeing more consumers who have that level of
Speaker 1: household income. You're seeing some of the lower tier companies,
Speaker 1: some of the dollar store and even off pricers, where
Speaker 1: their average household income they were getting was under forty dollars,
Speaker 1: and now consumers with sixty dollar household income are going there.
Speaker 1: The trade down is real, and that's what impacts I
Speaker 1: think the March go forward time period when inflationary pressures moderate.
Speaker 1: In the big picture, have we cleared inventory ninety days ago?
Speaker 1: We're all wringing our hands about stuff. I've always learned
Speaker 1: price clears inventory, and I once again that's what happened. Yeah,
Speaker 1: that's what happened. On the same side, price cleared inventory.
Speaker 1: You're gonna see inventory come down for some it was
Speaker 1: up twenty and thirty percent at the end of the
Speaker 1: third quarter. It'll be negative in the fourth quarter. But
Speaker 1: one of the other elements of that, wholesale accounts like
Speaker 1: department stores, are moderating orders for the first half of
Speaker 1: the year. So cut to the chase here. Macy's, they
Speaker 1: don't of the wooden escalator anymore. They're they're there. They've
Speaker 1: had a wonderful strategy of going to the middle or
Speaker 1: maybe the lower middle is well, what's Macy's doing to
Speaker 1: get through the summer, to get the back to school.
Speaker 1: You know what they're doing. They're using data science to
Speaker 1: modernize their department store in order to figure out what
Speaker 1: categories are working and had a price appropriate more makeup,
Speaker 1: an look at toys. They've brought in toys r Us,
Speaker 1: They've brought in Pandora Jewelry, they have an Apple in
Speaker 1: store shop. They've expanded the categories in order to capture
Speaker 1: more wallet chair well, remaining competitive on price share. That
Speaker 1: that's that's good. So you put the wallet of the
Speaker 1: wallet chair in your new bag. That's what you do.
Speaker 1: The wallet chair is going to the stores and not
Speaker 1: staying in the wallet, and that is what we're seeing
Speaker 1: right now. And what is interesting is the market trying
Speaker 1: to understand this because on one hand, bad books that
Speaker 1: means if it's going to raise rates. On the other hand,
Speaker 1: good because that means that companies are going to keep
Speaker 1: getting the revenue from that time. And then what's the
Speaker 1: flow through to the margins. I think we have more
Speaker 1: class already on margins and sales increases ten seconds. We've
Speaker 1: got to go to a research on Dana Telsa's single
Speaker 1: best buy right now, single best buy right now. I
Speaker 1: like Ralph Floren I like Deckers very good. Dana Telsey
Speaker 1: with us today with enthusiasm on an enthusiastic retail report.
Speaker 1: Over the years for so many it has been an
Speaker 1: interesting conversation to speak to and listen to James Bianco,
Speaker 1: Jim Bianco's president and macro strategist at Bianco Research. It's
Speaker 1: a wonderful holistic note because he's listening to Wall Street. Jim.
Speaker 1: I like what you do in your note this morning.
Speaker 1: You reach out to the recent work from Deutsche Bank
Speaker 1: to Apollo of Torsten Slock, and you're looking at the
Speaker 1: no landing scenario that he and others are talking about.
Speaker 1: Tell us on the possibility of a no landing no,
Speaker 1: I think that the no landing scenario, you know, using
Speaker 1: the plane metaphor that it just continues at thirty thousand feet,
Speaker 1: is going every day, and what is driving that is
Speaker 1: the labor market. As we all know, or as I
Speaker 1: like to say, the problem with the labor market is
Speaker 1: there is no problem with the labor market. And if
Speaker 1: there isn't a problem with the labor market, the FETE
Speaker 1: is not going to see a reason to pivot. And
Speaker 1: something new is starting to come up in the marketplace
Speaker 1: in just the last few days. Uh, the probability that
Speaker 1: the FED raises rates in June to go to five
Speaker 1: and a half is now gone above. And that's the
Speaker 1: first time I believe this cycle that the market has
Speaker 1: actually gotten ahead of the Fed. The whole cycle has
Speaker 1: always been the fete is said they're going to do
Speaker 1: something in the market things. Now they're gonna pivot, they're
Speaker 1: gonna step down, they're gonna pause, They're not gonna go
Speaker 1: as far as they think. Now the markets starting to
Speaker 1: think the Fed's gonna go further. Then they are communicating
Speaker 1: right now, So something has changed, and I think what
Speaker 1: that is is the inflation report yesterday. Services are not
Speaker 1: in disinflation. They look very sticky right now, and we
Speaker 1: have a positive base effect, meaning that we're dropping off
Speaker 1: big numbers from last year point seven in February, one
Speaker 1: in March on the inflation report. And once we get
Speaker 1: past June, that all turns and it becomes the tail
Speaker 1: wind for inflation to push higher, so we might not
Speaker 1: get to two percent, and then the second half of
Speaker 1: the year we start moving higher. And I think that's
Speaker 1: what the markets starting to sniff out. So we've raped price.
Speaker 1: It's high treasuries LAWA, we've priced in a hot terminal, right,
Speaker 1: as while why record sub resident in the size of that?
Speaker 1: What you make of them? Well, I think there's a
Speaker 1: couple of things going on with equities. The first thing
Speaker 1: is the rally and the equity market state stocks. It's
Speaker 1: the Fang stocks plus Microsoft, Navideo and Tesla. It's one
Speaker 1: all over again. We've even got Bedbeth and Beyond moving,
Speaker 1: and we've got you know, the meme stocks starting to go.
Speaker 1: So we've seen this movie before. And so when you
Speaker 1: strip that out and you look at the rest of
Speaker 1: the market, it's up. I mean it's not down or anything.
Speaker 1: It's up, but it's not up nearly as much as
Speaker 1: everybody thinks. But I think the problem the equity market
Speaker 1: is going to face. Hey, no landing. That means earnings
Speaker 1: are gonna come back. That's bullish. The forward pe ratio,
Speaker 1: the pe ratio of what earnings are expected to be
Speaker 1: in the next year's eighteen and a half. You're not
Speaker 1: paying a cheap multiple for this market. You're gonna pay
Speaker 1: full for this market if you if you're gonna bet
Speaker 1: on some kind of economic rebound. What are variable lags
Speaker 1: that in this scenario, given that we're not seeing it,
Speaker 1: and that if by anything, we're seeing easier financial conditions. Yeah,
Speaker 1: I think that that's going to be the biggest concern
Speaker 1: that we're gonna have when we go forward. Here is
Speaker 1: the uncomfortable question of maybe the Fed is not at
Speaker 1: sufficiently restrictive. Maybe what we're at at four and a
Speaker 1: half on our way to five on the funds rate
Speaker 1: is neutral, and that's all we've done in the last
Speaker 1: year is gone to neutral. That's why we're having a
Speaker 1: no landing. That's why the inflation rate is being so sticky,
Speaker 1: and that were we all assume. And I think that's
Speaker 1: what was the assumption behind all the recession calls at
Speaker 1: the beginning of the year was we've raised rates a lot.
Speaker 1: That's got to hurt, But maybe it doesn't. Maybe all
Speaker 1: we've done is gone to neutral. And that's what the
Speaker 1: markets starting to sniff out. Why we're starting to see
Speaker 1: a price in five and a half is that we
Speaker 1: were not it sufficiently restrictive and we've got further to go. Jim,
Speaker 1: what don't you make of that phrase? Long and vable lacks?
Speaker 1: How Renvan is that to this moment it's relevant to
Speaker 1: the extent, you know, and you know, going on, what's
Speaker 1: a lot of other people are saying about that this
Speaker 1: is an unusual market and they're having a hard time
Speaker 1: understanding it. I come back to it's a post COVID economy. Now,
Speaker 1: I know that's a fancy word, but what that means
Speaker 1: is all the rules that we understood about the economy
Speaker 1: pre COVID they've changed. And the biggest one we all
Speaker 1: know about his work from home. Barely half of the
Speaker 1: offices in the United States are now occupied five days
Speaker 1: a week. You know, everybody's on some kind of range
Speaker 1: of remote work. That is a huge change in the economy.
Speaker 1: And there's been other huge changes in the post pandemic economy.
Speaker 1: So when people say I'm confused, I don't understand the
Speaker 1: economy isn't behaving. We have to look along and variable lags,
Speaker 1: we have to be data dependent. It's I think what
Speaker 1: it is is that they're saying, when is it going
Speaker 1: to start looking like the rules have changed and we
Speaker 1: need to start to figure out what those rules are.
Speaker 1: I don't know what they are. I just know they're
Speaker 1: not rule. I want to dovetail Reinhardt Rogoff, Jim uh Into,
Speaker 1: what we're gonna see here in eleven minutes twenty four seconds,
Speaker 1: and that is this time is different within consumer America.
Speaker 1: We're off of pandemic. Are we acting almost in a
Speaker 1: drunken state because this time is different after the shock
Speaker 1: of a pandemic? Or is this just typical boom from stimulus.
Speaker 1: I think it's more typical boom from stimulus. Bank of
Speaker 1: America has put out a lot of statistics about balances
Speaker 1: and everybody's checking account and they're still very elevated. So
Speaker 1: a lot of the stimulus money that we saw handed
Speaker 1: out in one especially at the lower income levels, haven't
Speaker 1: been spent, and so these people still have spending power.
Speaker 1: And I think we're starting to see that. We don't
Speaker 1: see a booming economy, but what we do see is
Speaker 1: numbers that are continuing to move forward. In detail, sales
Speaker 1: numbers are expected to rebound. Remember December they were negative
Speaker 1: and they're supposed to be up a decent amount, maybe
Speaker 1: two percent when we get them, meaning that spending will
Speaker 1: be continuing. And if we're talking about a recession and
Speaker 1: a pivot and we're talking about three point four percent
Speaker 1: unemployment and we start seeing spending, I gotta think at
Speaker 1: the Federal Reserve, they look around and go, I don't
Speaker 1: see any reason that they even think about pivot, let
Speaker 1: alone think about stopping raising rates. And five and a
Speaker 1: half looks like a target that we're gonnahead. We're gonna
Speaker 1: percent and let's just pretend there that's three months lie
Speaker 1: or from another time in place gets back to five
Speaker 1: and a half percent, and that gets us back to
Speaker 1: a Bob Seeger economy. I was mentioning the giant of
Speaker 1: the Midwest there, great Jim, But are we prepared for
Speaker 1: the way we adapt and adjust if we get back
Speaker 1: to Rogoff six or a five and a half percent
Speaker 1: three month lifeboard. No. I think that that's gonna be
Speaker 1: a difficult adjustment for us, because if we get back
Speaker 1: to a six percent funds right, we will probably have
Speaker 1: a six percent treasury bill rate. Look, we just hit
Speaker 1: five percent yesterday on the six month bill. That is
Speaker 1: the first Treasury security to yield five in fifteen years.
Speaker 1: If we start to see six on those numbers, all
Speaker 1: of a sudden, people are gonna look around and go,
Speaker 1: what's the long term return in the stock market? It's
Speaker 1: nine or ten. I could get six without taking any
Speaker 1: whatsoever by parking it in a treasury bill or a
Speaker 1: short term treasury security, that is going to prove to
Speaker 1: be a lot of competition for the idea that the
Speaker 1: stock market can continue to roar ahead, which is the
Speaker 1: reason why a lot of people say that the bond
Speaker 1: market's inversion that you're seeing in the two tents spread
Speaker 1: is somewhat indicative of what's to come with respect to
Speaker 1: recession and box do you think that this time is different,
Speaker 1: that it is not a predictive measure of a downturn
Speaker 1: in say twelve months. I'm not so sure. I'd go
Speaker 1: that far to say that it's not predictive. I'll put
Speaker 1: some numbers on it. I tend to look like Cam
Speaker 1: Harvey of Duke, who's the guy that developed the yield
Speaker 1: curve indicator that when it persistently inverts. That happened around
Speaker 1: Thanksgiving when it was ten days in a row that
Speaker 1: it inverted, and it usually leads by about ten months.
Speaker 1: That would put you in the fourth quarter for a
Speaker 1: recession on average, but it can be as long as
Speaker 1: eighteen months. That could put you out in the first
Speaker 1: or second quarter of next year. So we could still
Speaker 1: be a year away from the recession, and the yield
Speaker 1: curve will have worked as an indicator. But I don't
Speaker 1: think wall streets that patient. I think that the whole
Speaker 1: idea that the Fed's gotta pivot that there's a recession
Speaker 1: and downturn coming. I don't think they think, well, it'll
Speaker 1: be here in a year. I think they think it
Speaker 1: will be here in ninety days or twenty days. So yes,
Speaker 1: the yield curve still might work, except we just have
Speaker 1: to dial our expectations that it still might be scenario
Speaker 1: where we see the downturn or recession and not in
Speaker 1: the middle of this year. If we do prolong when
Speaker 1: a recession comes, will it be a more problematic recession
Speaker 1: because of how far the Federal have to raise rates
Speaker 1: in response to sort of an easing that we're seeing
Speaker 1: in financial conditions and the strengthen the economy. You know,
Speaker 1: it can be a more problematic recession if it is
Speaker 1: you know, going back to Bob Seeger again, if it
Speaker 1: is a recession or an inflation driven recession that we
Speaker 1: see the inflation rates staying very elevated, I don't know
Speaker 1: if the Fed will have to raise rates as much,
Speaker 1: but they're not gonna They're not gonna see recession and
Speaker 1: say okay, here we go back to zero and quantitative easing.
Speaker 1: They'll probably say maybe we got to cut rates back
Speaker 1: to three or two two and a half and then
Speaker 1: see how things go. And I think a lot of
Speaker 1: people are expecting that in a downturn it's going to
Speaker 1: be a road right back to zero on interest rates.
Speaker 1: And we mean when we might not see that this time. Jim,
Speaker 1: financial conditions, how the track that? What you look at?
Speaker 1: What's you think Offen's looking at? You know, that's a
Speaker 1: good question because there's all different financial conditions indicators. They
Speaker 1: all measure things differently. The FED has various measures as well.
Speaker 1: I if I was to look at it, I look
Speaker 1: at the more traditional Goldman Sachs type of indicators, and
Speaker 1: that says that they've eased a lot and then an
Speaker 1: adotally with zero DT options, with meme stocks like bed
Speaker 1: Beth and beyond doubling in a day, with the fang
Speaker 1: stock starting to move, it seems like it's a very
Speaker 1: easy environment right now, and it is not a tight environment.
Speaker 1: And that should be concerning over at the FED. And
Speaker 1: that's why it was very confused when Sherman Paul was
Speaker 1: talking about tightening financial conditions at his press conference a
Speaker 1: couple of weeks ago, because that's not the case by
Speaker 1: a lot of measures. Right now. What's amazing about this is,
Speaker 1: and I'm Bloomberg Radio. You're not observing this, but over
Speaker 1: the right shoulder of Jim Bianco is this Monroe trader
Speaker 1: from another time. You know, I'm sorry, you know, we're
Speaker 1: harkening back to interest rates when Bianco was using the
Speaker 1: Monroe trader to figure out convectity in duration. Back then,
Speaker 1: I'm not sure he was talking about zero d t A.
Speaker 1: It was I've got sixty seconds left to squeeze that end,
Speaker 1: so that zero days to expire the options at the
Speaker 1: index level, really short term stuff. Now, Jim, can you
Speaker 1: tell me how much do you think that has shaken
Speaker 1: this market? About? Yeah, what has happened is is that
Speaker 1: they now list options every day and they expire every day.
Speaker 1: In about half the volume is in options that will
Speaker 1: expire today. I think what it's done is it's created
Speaker 1: intra day volatility. So you see these big swings from
Speaker 1: yesterday was a great example of the right up one percent,
Speaker 1: down one percent, close around unchanged day to day volatility.
Speaker 1: Maybe it doesn't really impact that, but we have to
Speaker 1: be ready for this idea that hey, look the markets
Speaker 1: up one percent. What does it mean? Wait, wait an hour,
Speaker 1: it's now down on the day. Wait an hour, it's
Speaker 1: back up on the day. That's where I think that
Speaker 1: the zero DT options are really starting to play into
Speaker 1: the market and confusing a lot of people. We need
Speaker 1: a new PRIMI what does it mean? And then we
Speaker 1: just play Jim Bianco standard sex standard conversation. Jim, Thank you, buddy.
Speaker 1: Do you appreciate that Jim Bianca Bianca Research joining us
Speaker 1: now as someone who absolutely nailed the dynamics of hydro
Speaker 1: carbon's downstream upstream? Uh here, Stephen Short joins us the
Speaker 1: principle with a short group right now. Steven, thank you
Speaker 1: so much for being with us. I want to have
Speaker 1: a more general conversation, John, am I right that there's
Speaker 1: a massive bet on a hundred dollar barrel oil. I
Speaker 1: would say it's a massive I think there are some
Speaker 1: people out there looking for triple ditch it. I think
Speaker 1: Jeff Carry Goldman is one of them, and I'm pretty
Speaker 1: sure Francisco Blanche be have. I talked abut the possibility
Speaker 1: that happened in this ship, Steve. But it's not what
Speaker 1: you do. You don't you know game or try to
Speaker 1: guess a barrel. You're looking at the microstoff which valves
Speaker 1: are being turned in America. How do you react to
Speaker 1: the certitude of a hundred dollar a barrel oil? Right now,
Speaker 1: I'm not there Tom quite yet. Through the first six
Speaker 1: months of this year, we do do a lot of alga,
Speaker 1: a lot of quantitative modeling here with regard to price
Speaker 1: forecasting right now for the third quarter coming into this
Speaker 1: excuse me, for the first quarter come into this year,
Speaker 1: we had the meeting of our outputs on the high
Speaker 1: end at a barrel. When we go and look to
Speaker 1: the start of the summer, that mean jumps to let's
Speaker 1: look at my notes here at nineties six dollars a barrel,
Speaker 1: and there is a potential of one hundred dollar a
Speaker 1: barrel at some point this summer. So so clearly there
Speaker 1: is that statistically that that probability and it makes sense
Speaker 1: to demand is expected to be strong. We still, as
Speaker 1: it always we we could drain in appair, we are
Speaker 1: going to drain uh the spr because apparently slush fund
Speaker 1: so you can take that down to zero still doesn't
Speaker 1: increase the amount of refinery capacity here that states and
Speaker 1: there in lies the problem Steven is is the Kansas
Speaker 1: City Chiefs are playing Uh. The other team is they?
Speaker 1: We're playing your your beloved Eagles. Every other ad was
Speaker 1: an electric car? Read our electric vehicle usage? Is that
Speaker 1: in the short hydrocarbon world? Now do you see that
Speaker 1: within the data? Absolutely, we're being in the city and
Speaker 1: and we're most likely seeing it in guest line demand. Tom,
Speaker 1: Guest line demand, UH is problematic if you're just assuming
Speaker 1: no one's driving e vs because demand is anemic. You
Speaker 1: have to consider this winter and we don't have a winter.
Speaker 1: I mean up to the main border, there's no snow
Speaker 1: on the road. I ad out to white Omen from
Speaker 1: the east coast to wyomingst no snow. So we have
Speaker 1: eye healed driving conditions and yet gas line to and
Speaker 1: it's still about four percent below a year ago and
Speaker 1: according to our modeling about two percent below. There are
Speaker 1: are are probabilistic range that means two percent below normal. UH.
Speaker 1: And we've had a significant you know, it's went to
Speaker 1: great guess lene prices so they are cheaper than summer prices,
Speaker 1: and yet demands not kicking in. So if you're on
Speaker 1: one hand, you're saying it's just the fossil fuels, then
Speaker 1: we've got a problem. This economy has a problem because
Speaker 1: guest Lean demand is a tremendous economic leading indicator. But
Speaker 1: we do have to factor out the fact that more
Speaker 1: people are driving hybrids. Tom I was I was bragging
Speaker 1: over the Super Bowl because I was crying about the Eagles.
Speaker 1: But to console myself, I kept on having to remind
Speaker 1: myself I drive an electric hybrid SUV. I put seventeen
Speaker 1: gallons of gas lene in this thing about every four months,
Speaker 1: and I drive fourteen hundred miles before I have to
Speaker 1: refill those seventeen gallons. I'm getting seventy eight seventy nine
Speaker 1: miles to the gallon. That is the future. Unfortunately, we're
Speaker 1: in the e V world where zero sum game e
Speaker 1: vs are great, but there's certainly no panacea and the
Speaker 1: certain you're not great for the environment. See that, and
Speaker 1: we can build on that point. I'm trying to understand then,
Speaker 1: how you can parse out the dynamics to come in
Speaker 1: with some expectation of where prices are going to go.
Speaker 1: The International Energy Agency put out this report this morning
Speaker 1: saying world oil supply looks set to exceed demand through
Speaker 1: the first half of three, but the balance could quickly
Speaker 1: shift to deficit as demand recovers and some Russian output
Speaker 1: is shut in. Basically, we have no clue anything could happen.
Speaker 1: Have you ever had a corollary to this? Yeah? No, absolutely,
Speaker 1: it's what we're going here, except maybe. Now. This is
Speaker 1: why you do the probabilistic model and quantitative modeling, because
Speaker 1: you're looking at, excuse me, a series of of price
Speaker 1: variants over daily returns, weekly returns, monthly returns, and you're
Speaker 1: coming out and you're running simulation models of of these
Speaker 1: potential exogenous factors, these Black Swan events. Two years ago.
Speaker 1: No one knew about Ukraine UH coming to the four
Speaker 1: and being a major factor two years ago. I certainly
Speaker 1: no one was expecting to see a hostile white house
Speaker 1: towards the US hydrocarping industry. So we do not know.
Speaker 1: So there is that random component that you have to
Speaker 1: kind of model in UH into these probabilistic models, and
Speaker 1: then you come out with a range. So there's no
Speaker 1: such thing as an accurate forecast with regard to we're
Speaker 1: gonna hit this price, We're gonna we're gonna hit that price. No,
Speaker 1: but you can come out and come out with with
Speaker 1: a probability of ranges of events. And hence why we're
Speaker 1: coming out with the kind of the median output of
Speaker 1: all the modeling we're running is where we're getting this
Speaker 1: potential uh oil by the end of the summer, as
Speaker 1: potentially low as dollars a barrel and as potentially high
Speaker 1: as nine hundred one dollars one heck of the range. Stephen,
Speaker 1: I want to squeeze one further question, and you set
Speaker 1: a line there. I think it was a vase. Are
Speaker 1: certainly not that environmentally friendly. Let's explain that to us. Yeah,
Speaker 1: I mean, just look what's happening in California right now.
Speaker 1: We're at the first life cycle ending of those solar panels.
Speaker 1: California does not, never had a plan to dispose of
Speaker 1: those solar panels. So now all the heavy metal it
Speaker 1: was soul pentil was sitting in um dumps. With the
Speaker 1: potential of all the heavy metals in, they're leaking out
Speaker 1: into the environment. And now when you factor in the
Speaker 1: fact that evs are such a small percentage of the
Speaker 1: global market, when we talk about the amount of earth
Speaker 1: and we're talking about something about the size of the
Speaker 1: state of Arizona and Nevada just here the United States
Speaker 1: to state our demand the amount of earth you're going
Speaker 1: to have to rip up to get to these heavy metals.
Speaker 1: So that's we're ripping up China, We're gonna rip up
Speaker 1: the Congo, which we already are. We're gonna rip up
Speaker 1: Argentina to get to the to the cobalt there. When
Speaker 1: we have to rip up that earth, it will make
Speaker 1: one and one hundred thirty years of coal mining and
Speaker 1: oil drilling look like a pin prick of the amount
Speaker 1: of environmental degradation we're gonna have to do to get
Speaker 1: those virtual signaling heavy metals into that e V battery
Speaker 1: state from Why don't we having that conversation, mall I,
Speaker 1: I don't know. I mean, it's well, you know, because
Speaker 1: it's such a fractured political nation. If I'm saying something,
Speaker 1: the people watching this think I'm nuts and think I'm
Speaker 1: some kind of I'm pushing some sort of agenda. I'm
Speaker 1: just looking for a meeting of the minds and I
Speaker 1: want to. I want to I want to really promote
Speaker 1: my my hybrid. It's it's the best of both worlds.
Speaker 1: It's a little bit of fossil fueld, which we need
Speaker 1: because demands not going away there, and it's a little
Speaker 1: bit of electricity. It's a little bit of both, and
Speaker 1: it's a great compromise. We love you, We love you,
Speaker 1: you know. We love the different opinions, and we we
Speaker 1: love how you've taken the Eagles defeat. It's just taking
Speaker 1: a cho the egos on the heels of the Phillies,
Speaker 1: tom So, this has been a tough year for for Philadelphia.
Speaker 1: For Philadelphia, it's been a brutal sports year. Didn't emins
Speaker 1: as well? Isn't like, oh yeah, Short's never gonna come
Speaker 1: back if you keep it up, John ste I'm not
Speaker 1: sure he casts about that. I'm watch ms Steven tank Key.
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