WEBVTT - Surveillance: Covid Zero with Weinstein 0:00:05.080 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferrell and Lisa Brawmowitz Jay Ley, we bring 0:00:13.119 --> 0:00:17.119 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.280 dot Com, and of course on the Bloomberg Terminal. John A. 0:00:29.320 --> 0:00:31.200 Guess nats Brian Weinstein that had a fixed income at 0:00:31.200 --> 0:00:33.280 Morgan Standing Investment Management. Brian, I want to start with 0:00:33.280 --> 0:00:35.640 the events, the unrest in China of it the weekend 0:00:35.720 --> 0:00:37.360 and walk me through how even the team of thinking 0:00:37.360 --> 0:00:40.560 about it this Monday morning, we think it's just part 0:00:40.560 --> 0:00:43.680 of the broader story of of more economic turmoil, uncertain 0:00:43.720 --> 0:00:45.559 teams slowdown, and at least so we hear you that 0:00:45.840 --> 0:00:49.440 it's certainly possible that the zero COVID ends early and 0:00:49.479 --> 0:00:51.320 that would would be a game changer, which just as 0:00:51.360 --> 0:00:55.880 possible that the clampdown comes, uncertainty stays, supply line problems, 0:00:55.960 --> 0:00:58.560 you know, rebuild uh and it just causes more economic 0:00:58.600 --> 0:01:00.880 slowdown out there. So it's a tough one to figure 0:01:00.880 --> 0:01:03.440 out on admitted by minute basis, But for now, the 0:01:03.560 --> 0:01:05.440 zero COVID seems to be here, and it seems to 0:01:05.440 --> 0:01:07.200 be part of you look at yields, right, deals are 0:01:07.240 --> 0:01:10.320 falling um, economic growth is slowing around the world. But Brian, 0:01:10.400 --> 0:01:12.800 on the flip side, either way, whether they keep COVID 0:01:12.880 --> 0:01:15.600 zero and it causes supply chain kinks to last for longer, 0:01:15.720 --> 0:01:17.800 or they release it and it causes demand to go up. 0:01:18.040 --> 0:01:22.119 Either way, it's inflationary now. It does seem so. Again 0:01:22.160 --> 0:01:24.400 if you look at if you if you look at 0:01:24.400 --> 0:01:26.520 where we price inflation to go to, back to the twos, 0:01:26.720 --> 0:01:29.520 it's very optimistic. Right, There's many reasons to believe inflation 0:01:29.520 --> 0:01:31.920 will stay stickier, makes the Fed's job harder, makes the 0:01:31.959 --> 0:01:35.360 curve stay unbelievably flat and maybe get flatter. Um. Yes, 0:01:35.520 --> 0:01:37.040 we we would agree with that. It's hard to see 0:01:37.080 --> 0:01:40.240 inflation pressures easing off completely, though I do think the 0:01:40.240 --> 0:01:42.160 direction will travel. The next three or six months will 0:01:42.160 --> 0:01:44.040 be will be lower. But to that point, Brian, the 0:01:44.120 --> 0:01:46.680 moving ten year yields has been notable. Long term yields 0:01:46.680 --> 0:01:48.800 have been bid dramatically over the past couple of weeks. 0:01:48.800 --> 0:01:50.960 This has been the one consensus trade and perhaps people 0:01:50.960 --> 0:01:53.160 getting ahead of the first half of next year and 0:01:53.160 --> 0:01:55.200 doing it all now has it gotten over its skis 0:01:55.240 --> 0:01:58.760 considering how long inflation could remain higher, how determined central 0:01:58.760 --> 0:02:01.200 banks around the world are to be restrictive for a 0:02:01.200 --> 0:02:05.560 sustained period of time. Maybe I've been impressed with how 0:02:05.600 --> 0:02:07.360 far we've come. And we went from a period when 0:02:07.400 --> 0:02:09.280 tenure notes were four fifty where it felt like nobody 0:02:09.320 --> 0:02:11.760 would ever want duration again, and here we are at 0:02:11.760 --> 0:02:14.320 three seventy and we feel we feel okay. I think 0:02:14.320 --> 0:02:16.200 this is the stage where we got a little bit 0:02:16.200 --> 0:02:18.720 of weak economic data. You could have another leg to 0:02:18.760 --> 0:02:22.639 this rally called tenure notes. Get the curve really inverted? 0:02:22.639 --> 0:02:26.119 Mind's a hundred, maybe a little bit more um long term? 0:02:26.120 --> 0:02:28.040 Do I think we're having a big fixed income rally? 0:02:28.240 --> 0:02:30.040 Knowing the income is great, you don't want to chase 0:02:30.120 --> 0:02:31.960 too much. But I do think you could have another 0:02:32.040 --> 0:02:34.080 leg here, given that data could get weaker. If you 0:02:34.080 --> 0:02:35.880 think we could get another leg lower in yew, does 0:02:35.919 --> 0:02:38.120 that made you think maybe the risk is ever done 0:02:38.120 --> 0:02:40.680 it here? Brian? I think so. I think that's the 0:02:40.680 --> 0:02:42.720 trade here. I think we all year we had duration 0:02:42.800 --> 0:02:46.079 leading risk assid's lower um. This rally, duration did better, 0:02:46.120 --> 0:02:48.720 but risk asses did well too. If we rally again 0:02:48.760 --> 0:02:51.040 I think it's because risk comes off. We accept the 0:02:51.080 --> 0:02:52.760 fact that next year is not going to be easy, 0:02:52.800 --> 0:02:55.280 that that earnings could be worse than we think, that 0:02:55.360 --> 0:02:58.040 uncertainty is high, and that duration actually is still cheap 0:02:58.080 --> 0:03:00.520 relative to risk given what happened this year. I'm looking 0:03:00.600 --> 0:03:02.359 right now at hil bond spreads just to build on 0:03:02.440 --> 0:03:04.480 what job I was talking about. They're the lowest going 0:03:04.520 --> 0:03:06.679 back to August, and we talk about the rally that 0:03:06.720 --> 0:03:10.240 we've seen is people pour into risk, even though the 0:03:10.280 --> 0:03:12.880 lower leg in yields that you talk about, Brian really 0:03:12.880 --> 0:03:15.760 has to do with weakness. Could we see a material 0:03:15.800 --> 0:03:18.240 pickup in default or is it just a positioning Is 0:03:18.240 --> 0:03:21.320 it just a technical widening and spreads that you're looking for. 0:03:22.200 --> 0:03:23.920 I think the defaults are coming. I don't know that 0:03:23.919 --> 0:03:25.360 we're going to see that into the next two or 0:03:25.400 --> 0:03:27.240 three months. It takes a little bit longer, right. We 0:03:27.240 --> 0:03:29.520 haven't seen the impact of higher mortgage rates. We haven't 0:03:29.520 --> 0:03:31.360 seen people have to refinance you know, a lot of 0:03:31.400 --> 0:03:33.679 debt yet. So I think defaults are coming, but I 0:03:33.720 --> 0:03:35.760 think it's a bit more technical. I just think how 0:03:35.800 --> 0:03:39.360 you'll lose, how you'll look great with a nine return 0:03:39.960 --> 0:03:41.600 handle on it when you lower buying, you know, a 0:03:41.600 --> 0:03:44.520 good hundred basis points, two hundred paces points. The higher 0:03:44.560 --> 0:03:46.920 quality assets just looked better. So I think the default 0:03:46.960 --> 0:03:48.920 stories out there, I think the oarning stories out there, 0:03:49.040 --> 0:03:50.400 but I think it's a bit more technical. In the 0:03:50.400 --> 0:03:52.839 next couple of months, the weaker growth risk is done 0:03:52.840 --> 0:03:55.040 too well. People have chased it um and we have 0:03:55.120 --> 0:03:57.560 to reset. You said defaults are coming, Brian, but this 0:03:57.640 --> 0:03:59.800 is one big question mark. How much are we going 0:04:00.160 --> 0:04:02.680 to sort of a pretty high default cycle or is 0:04:02.720 --> 0:04:04.720 it really the consensus that you buy into as well, 0:04:04.760 --> 0:04:06.840 that it's gonna be a relatively low kind of level 0:04:06.880 --> 0:04:10.040 of default for a longer period of time. I think 0:04:10.040 --> 0:04:11.760 there lends people always jumped to is oh eight. I 0:04:11.760 --> 0:04:13.640 don't think that's the story here. I do think balance 0:04:13.680 --> 0:04:15.840 sheets are okay. I do think there are you know, 0:04:15.840 --> 0:04:17.880 there are certainly buckets of consumers that are doing well 0:04:17.960 --> 0:04:20.240 or baskets of consumers that are doing well um And 0:04:20.279 --> 0:04:22.560 so I think we're gonna go back up and probably 0:04:22.600 --> 0:04:24.640 scare the market a bit, go higher than than than 0:04:24.720 --> 0:04:26.840 maybe average. But I don't think this is It may 0:04:26.839 --> 0:04:29.280 be a longer drawn out default cycle, but I don't 0:04:29.320 --> 0:04:32.000 think we have massive default spikes and armageddon. That that's 0:04:32.040 --> 0:04:33.960 not what woods in play here. I've gotta put you 0:04:33.960 --> 0:04:36.400 on the spot for twenty three. Is your working assumption 0:04:36.480 --> 0:04:42.280 COVID zero in Shinaree Bryant. Such a good question. Um, 0:04:42.320 --> 0:04:44.479 my working assumption had been before the weekend. Yes, and 0:04:44.520 --> 0:04:47.640 I haven't maybe got enough information to to redo it. Uh. 0:04:47.680 --> 0:04:49.760 They definitely want to stick with it. I'm a little 0:04:49.800 --> 0:04:52.240 less certain now, but I'd still stick with yes. From 0:04:52.240 --> 0:04:54.360 White Stain of Morgan standy, thank you sir. As a 0:04:54.440 --> 0:05:01.000 white you're the only just some with the indoor shoes, 0:05:01.200 --> 0:05:02.880 which you mean you don't have shoes just for the gym, 0:05:02.960 --> 0:05:07.200 just indoor shoes just for the gym. I run outside. Yeah, 0:05:07.240 --> 0:05:09.000 but if you were, let's say they were just for 0:05:09.040 --> 0:05:11.320 the gym, you'd wear them outside too. I take my 0:05:11.320 --> 0:05:12.560 shoes off when I come in. I'm one of those 0:05:12.560 --> 0:05:15.240 people anyway you make other people take their shoes off. No, 0:05:15.279 --> 0:05:17.039 I don't make other people take good That's good to 0:05:17.080 --> 0:05:19.640 know those people you don't like a lot to say 0:05:19.680 --> 0:05:21.360 about the Otherwise we might have an issue. Got a 0:05:21.400 --> 0:05:23.200 good friend who turned up to a party over the 0:05:23.279 --> 0:05:26.080 last couple of weeks. Walding got to the door and 0:05:26.080 --> 0:05:27.880 he got the shoes off memo from the people at 0:05:27.880 --> 0:05:30.160 the party, and you know what he did, No, turned 0:05:30.200 --> 0:05:32.159 back around and left the party. But I would do 0:05:32.200 --> 0:05:34.640 the same thing. You take your shoes off when your part. Sure, 0:05:34.640 --> 0:05:37.000 but I don't force other people too. And I wouldn't 0:05:37.040 --> 0:05:40.279 either gotten with those people. But but but if you 0:05:40.320 --> 0:05:42.920 actually cared about it, and you had a close friend, 0:05:43.160 --> 0:05:45.760 they're not coming in the bedroom, are they again in 0:05:45.760 --> 0:05:47.120 the living room? I don't know. I think it's a 0:05:47.160 --> 0:05:49.200 sign of respect. I usually take my shoes off. I 0:05:49.200 --> 0:05:52.320 would for them, I would offer exactly. I just wouldn't insist. 0:05:52.320 --> 0:05:54.960 I think it's strange. I think it's strange to insist. 0:05:55.400 --> 0:05:57.760 I also think it's strange if somebody doesn't take their 0:05:57.760 --> 0:05:59.520 shoes off, if it's clear that you know how much 0:06:00.000 --> 0:06:01.600 that we're gonna get on this, I think it's very 0:06:01.640 --> 0:06:03.840 odd to make guests type the shoes off. I think 0:06:03.839 --> 0:06:05.919 it's I agree, but I think it's odd for a 0:06:05.920 --> 0:06:07.920 guest to not see all the shoes at the front 0:06:07.920 --> 0:06:10.479 door and automatically. This is why we go to Clara Ranked, 0:06:10.480 --> 0:06:13.000 the chief US economist that effects investments that she joins 0:06:13.080 --> 0:06:15.360 US now Laura great to catch up with you. It's 0:06:15.360 --> 0:06:17.520 a bizarre moment in this equity market because we seem 0:06:17.520 --> 0:06:19.479 to be pricing in a recovery to recession we haven't 0:06:19.520 --> 0:06:21.840 had yet, Laura, Can you run me through the potential 0:06:21.880 --> 0:06:26.920 for this downturn in America? Yeah? You know, markets are 0:06:27.080 --> 0:06:29.600 so forward looking. I think they've really gotten over their 0:06:29.640 --> 0:06:34.360 skis in terms of seeing this reduction in the pace 0:06:34.400 --> 0:06:37.839 of Federate hikes and automatically assuming that there's light at 0:06:37.880 --> 0:06:41.280 the end of the tunnel and easing is really on 0:06:41.360 --> 0:06:43.960 the near term horizon. To me, I look at what's 0:06:44.000 --> 0:06:47.760 happening in the bond market and the very clear expectation 0:06:47.920 --> 0:06:51.279 or the probability of recession that the bond markets pricing in, 0:06:51.720 --> 0:06:55.200 and the fact that forward earnings estimates on the equity 0:06:55.279 --> 0:06:58.440 side are higher for next year. When we have a recession, 0:06:58.800 --> 0:07:01.800 we usually get a d op in earnings of ten 0:07:02.960 --> 0:07:05.520 that's what we've had historically, So we're really seeing this 0:07:05.600 --> 0:07:09.400 divergence and recession expectations in the financial markets. Laura. You 0:07:09.400 --> 0:07:13.160 also think that it is potentially not right that inflation 0:07:13.240 --> 0:07:15.680 is going to fall so significantly next year. That is 0:07:15.720 --> 0:07:19.520 completely not consensus. Can you explain, Yeah, so you know, 0:07:19.680 --> 0:07:23.680 I do think that inflation has seen its peak in 0:07:23.840 --> 0:07:27.720 June of this year, so I do expect inflation to fall, 0:07:27.920 --> 0:07:32.360 but I am an outlier in that. UM I don't 0:07:32.400 --> 0:07:35.120 think we're going to see inflation neatly fitting back into 0:07:35.160 --> 0:07:38.679 this two percent box anytime soon. I think we're going 0:07:38.720 --> 0:07:43.160 to need to differentiate between inflation coming down. You know, 0:07:43.200 --> 0:07:46.480 we see oil off so significantly this morning. Some of 0:07:46.520 --> 0:07:50.200 these base effects are going to drag headline inflation lower. 0:07:50.720 --> 0:07:54.360 But there's a real difference between that and a world 0:07:54.440 --> 0:07:58.880 where inflation is reliably and persistently low. That is the 0:07:58.960 --> 0:08:02.440 backdrop again to which we've had the FED, you know, 0:08:02.640 --> 0:08:06.239 keep interest rates at the zero lower bound, cut interest 0:08:06.360 --> 0:08:10.600 rates aggressively over five basis points if the economy slows. 0:08:10.960 --> 0:08:12.960 I think we're in a world now where we can't 0:08:13.000 --> 0:08:17.040 just assume that we're going to mean revert back to 0:08:17.120 --> 0:08:19.440 the world you know what we've had for twenty years 0:08:19.480 --> 0:08:23.520 before the pandemic. Look at what's happening in China right now. 0:08:24.040 --> 0:08:27.880 We need to really resist the urge that our quantitative 0:08:27.920 --> 0:08:31.360 models are telling us to mean revert. That to me 0:08:31.440 --> 0:08:34.880 is the biggest concern going into People would disagree Laura. 0:08:34.920 --> 0:08:37.040 They would say, well, we still have an older population, 0:08:37.120 --> 0:08:38.640 we still have a lot of doubt, we still have 0:08:38.760 --> 0:08:41.000 all of the ingredients of low inflation, and that in 0:08:41.080 --> 0:08:43.400 five years time, this fedual Reserve will be trying to 0:08:43.400 --> 0:08:46.160 get inflation up, not to get it down and keep 0:08:46.200 --> 0:08:48.520 it at two percent. Why do you push back against that? 0:08:49.440 --> 0:08:51.680 You know, I think that what we're seeing right now, 0:08:52.280 --> 0:08:55.520 look at the tenuere treasury we have. If I if 0:08:55.559 --> 0:08:58.080 I had told you that we would have inflation of 0:08:58.160 --> 0:09:01.480 seven percent, a tenure treasury was still only three and 0:09:01.679 --> 0:09:05.440 three quarters. That is a world where demographic pressure is 0:09:05.559 --> 0:09:08.719 keeping the tenure treasury lower. We have quantitative titan, we 0:09:08.760 --> 0:09:12.360 have the FED selling treasuries or at least not buying them, 0:09:12.760 --> 0:09:15.599 and we still and we have really really high inflation, 0:09:15.960 --> 0:09:20.320 and the tenure is still well below where inflation is. 0:09:20.360 --> 0:09:22.640 So I think it is a world where we're seeing 0:09:22.679 --> 0:09:28.160 demographic pressure UM applied to the long end. I just 0:09:28.280 --> 0:09:31.880 think that it's um. It's still a world where you know, 0:09:31.880 --> 0:09:35.000 we're seeing look at food prices. I think the expectation 0:09:35.080 --> 0:09:38.760 that supply chain disruptions are going to magically evaporate is 0:09:38.840 --> 0:09:43.160 being disproven this morning. This is still um we're seeing 0:09:43.200 --> 0:09:46.480 the echo chamber of COVID disruption, and I think really 0:09:46.520 --> 0:09:48.720 the genies out of the bottle when it comes to inflation, 0:09:49.160 --> 0:09:55.760 durable goods price deflation is a necessary portion of seeing 0:09:56.040 --> 0:09:58.600 um US inflation at two percent, and we're just not 0:09:58.640 --> 0:10:01.280 going to go back to that world. In Andrew Hollen 0:10:01.360 --> 0:10:03.439 host The City, published just months ago, he said the 0:10:03.520 --> 0:10:06.280 jobs numbers may serve to emphasize his hawk is focus 0:10:06.320 --> 0:10:09.120 on a tight labor market. He's talking about Chairman pou La. 0:10:09.280 --> 0:10:12.600 Do you think that's important too. I think this is critical. 0:10:12.960 --> 0:10:17.360 You know, wage growth of four percent is inherently inconsistent 0:10:17.559 --> 0:10:20.920 with inflation of two We have had a lot of 0:10:21.000 --> 0:10:24.000 different recessions where we see very little change in output 0:10:24.360 --> 0:10:28.640 but a massive decline in employment. This time around, you 0:10:28.679 --> 0:10:32.319 could get the other story. You could get company is 0:10:32.360 --> 0:10:36.720 really actually holding onto labor. That's part of the demographic story, 0:10:37.160 --> 0:10:40.320 and I think it's a reason why wage inflation is 0:10:40.320 --> 0:10:43.640 going to be much stickier. On the decline. We've seen 0:10:43.760 --> 0:10:47.600 companies now have to continue to compete for workers, and 0:10:47.640 --> 0:10:51.079 I think that also is going to be a story 0:10:51.080 --> 0:10:57.120 for the wage numbers may become more important than CPI numbers. 0:10:57.240 --> 0:10:59.840 Especially in the beginning of next year. Interesting up black 0:11:00.080 --> 0:11:02.120 rocket down like a feather. I think it was Patrick 0:11:02.120 --> 0:11:04.400 Harker if the Philadelphia Fed a number of weeks ago. Laura, 0:11:04.480 --> 0:11:17.320 thank you, Laura reun of FS Investments, And I'm well 0:11:17.440 --> 0:11:19.720 joined us now sending a fellow at the Atlantic Council 0:11:19.920 --> 0:11:22.400 and I'd love to start there. Just the latest move 0:11:22.440 --> 0:11:25.640 from this administration for chef on around the story in Venezuela, 0:11:26.080 --> 0:11:27.920 what are your thoughts on that we still too light 0:11:28.000 --> 0:11:31.560 on detail for you to draw too many conclusions. You know, 0:11:31.720 --> 0:11:34.160 I do think that we're we're shorter on detail here 0:11:34.200 --> 0:11:37.000 in terms of the Chevron story. So, for example, is 0:11:37.080 --> 0:11:40.880 this oil oil that's already on the market just on 0:11:41.160 --> 0:11:45.320 the black market, or is production actually going to increase 0:11:45.360 --> 0:11:47.440 in Venezuela, in which he is that could be meaningful 0:11:47.480 --> 0:11:50.200 for the market, but probably is going to take quite 0:11:50.240 --> 0:11:54.240 a long time to actually get get going because their 0:11:54.400 --> 0:11:57.640 oil facilities have been an incredible disrepair. I mean, this 0:11:57.720 --> 0:12:02.320 has been a very very long um problem for them. Um. 0:12:02.360 --> 0:12:05.360 The interesting thing though, is is say that, um, you 0:12:05.400 --> 0:12:07.600 know where they're looking for for oil producers that are 0:12:07.679 --> 0:12:10.080 less bad. You know, there are a lot of less 0:12:10.080 --> 0:12:13.640 bad oil producers in the United States, UH, that have 0:12:13.800 --> 0:12:17.840 the ability to produce more, just they aren't producing more 0:12:17.880 --> 0:12:21.240 because they don't think that the atmosphere is conducive towards it, 0:12:21.320 --> 0:12:24.720 and also that they're facing a lot of headwinds from 0:12:24.760 --> 0:12:28.200 inflation and having trouble getting parts and getting labor and 0:12:28.200 --> 0:12:31.000 getting equipment, and costs are very high. But there are 0:12:31.000 --> 0:12:34.880 definitely things that Biden administration could do to encourage those 0:12:35.040 --> 0:12:38.640 less bad oil producers in our own country. Oh and 0:12:38.640 --> 0:12:42.360 then why are oil prices so low? Is this something 0:12:42.400 --> 0:12:44.880 that completely is a demand side story that we're seeing 0:12:44.920 --> 0:12:47.120 play out or is it just the imagination of a 0:12:47.160 --> 0:12:50.360 demand side story that is yet to play out. So 0:12:50.400 --> 0:12:52.400 I do think that it's it is somewhat of an 0:12:52.440 --> 0:12:55.760 imagination of a demand side story, because you do have 0:12:56.880 --> 0:13:00.400 a situation where I think futures trading is impacting the 0:13:00.440 --> 0:13:05.040 prices now, and the the future of oil is very, 0:13:05.120 --> 0:13:07.840 very hazy right now. What's interesting, though, is that the 0:13:07.880 --> 0:13:11.240 fact that prices are kind of low now could actually 0:13:11.240 --> 0:13:16.440 spur more European utilities to switch from natural gas to oil, 0:13:16.679 --> 0:13:19.480 and that could then later kind of send a bump 0:13:19.520 --> 0:13:22.200 into oil prices. So I think that just because we're 0:13:22.240 --> 0:13:24.680 seeing kind of a lull or a period of lower 0:13:24.720 --> 0:13:28.960 prices now, we shouldn't expect that that's necessarily going to continue. 0:13:29.160 --> 0:13:31.760 There's always a tendency to think that what's happening now 0:13:31.880 --> 0:13:33.720 is what's going to happen for the rest of the winter. 0:13:34.120 --> 0:13:36.480 And I think that with what we've seen certainly in 0:13:36.520 --> 0:13:40.480 the past, with the incredible volatility here, is that we 0:13:40.520 --> 0:13:43.640 cannot underestimate the effect uh and we could see a 0:13:43.800 --> 0:13:47.760 very very quick rebound if if we're not careful and 0:13:47.880 --> 0:13:50.480 paying attention. On the big news over the weekend was 0:13:50.559 --> 0:13:54.680 the social interest in China, the possibility of perhaps a 0:13:54.800 --> 0:13:57.959 quicker exit to zero COVID on the heels of protests 0:13:58.040 --> 0:14:00.880 around the nation. Do you view with the unrest that 0:14:00.920 --> 0:14:05.439 we're seeing over in China as being potentially a logical 0:14:05.520 --> 0:14:07.920 reason for oil prices to be lower or would you 0:14:07.960 --> 0:14:11.480 expect that to actually send oil prices higher because of 0:14:11.520 --> 0:14:14.960 what it might mean for zero COVID Exactly. So, I 0:14:15.000 --> 0:14:19.240 do think that um earlier in the week that China's 0:14:19.320 --> 0:14:23.680 COVID policies continued, lockdowns things like that definitely helped send 0:14:23.680 --> 0:14:26.240 oil prices lower. So if we we're talking about say 0:14:26.280 --> 0:14:29.240 the beginning of last week, And the question is what 0:14:29.280 --> 0:14:32.960 do these protests actually mean. I'm not a China expert, 0:14:33.040 --> 0:14:36.760 but if you do look at China's history, the regime 0:14:36.800 --> 0:14:40.680 there has not been particularly responsive to protests. They also 0:14:40.720 --> 0:14:43.080 don't seem to really have a problem with lots of 0:14:43.120 --> 0:14:46.720 people dying in pursuit of their policies. So just the 0:14:46.760 --> 0:14:49.000 fact that there are protests in China, I think it 0:14:49.000 --> 0:14:51.200 means we should pay attention to it, but I wouldn't 0:14:51.240 --> 0:14:55.520 necessarily put my money on it having a widespread impact 0:14:55.680 --> 0:14:59.000 or a big change or shift in the Chinese regime's 0:14:59.040 --> 0:15:02.560 policy U particularly quickly. You are an opaque expert, so 0:15:02.680 --> 0:15:04.320 let's build on some of that knowledge if we can. 0:15:04.960 --> 0:15:08.400 I'm interested in the working assumptions for next year's open 0:15:08.520 --> 0:15:12.160 looking at three where COVID zero is still implemented by 0:15:12.160 --> 0:15:14.560 the Chinese government, is that the working underlying assumption of 0:15:14.600 --> 0:15:18.440 that organization. That's a really good question, and I think 0:15:18.480 --> 0:15:21.640 that they. I do think that if anyone is going 0:15:21.680 --> 0:15:24.360 to know first, it's probably going to be Saudi Arabia 0:15:24.480 --> 0:15:27.440 because they've got a very close relationship with China, with 0:15:27.480 --> 0:15:30.760 the Chinese government, They've got lots of oil investments there 0:15:30.760 --> 0:15:33.960 A Ramco has tons of refineries, They've got long term 0:15:34.000 --> 0:15:36.240 contracts for crude. And if anyone is going to have 0:15:36.280 --> 0:15:39.320 a sense of when China is going to need more 0:15:39.360 --> 0:15:42.480 crude oil, I do think it would be Saudi Arabia. 0:15:42.640 --> 0:15:45.360 So if Saudi Arabia is sending signals that they don't 0:15:45.440 --> 0:15:48.480 think oil demand is going to increase very much over 0:15:48.560 --> 0:15:50.920 the course of the winter, then that could be an 0:15:50.920 --> 0:15:54.520 indication of China's COVID policy. And well, thank you of 0:15:54.600 --> 0:15:57.240 the Atlantic Council and the latest in the crude market 0:15:57.240 --> 0:16:04.440 from Venezuela to China. Done joins us now seeing the 0:16:04.480 --> 0:16:07.360 equity analyst that Webbush Securities don't want to stop with 0:16:07.400 --> 0:16:09.600 the Apple story and understand it from your perspective, do 0:16:09.640 --> 0:16:12.800 you see that as profit, revenue lost or just deferred 0:16:12.800 --> 0:16:16.480 pushed out to the next quarter. Look, I mean it's 0:16:16.480 --> 0:16:19.520 been a gut punch in the most important quarter, the 0:16:19.520 --> 0:16:23.840 most important period for cooking cupputino going into howidays. I 0:16:23.840 --> 0:16:27.120 believe it is deferred and they ultimately demand right now 0:16:27.200 --> 0:16:30.400 is that stripping supply by about three to one? But 0:16:30.440 --> 0:16:33.200 I think really, look there the clock struck midnight. Finally, 0:16:33.280 --> 0:16:36.640 Apple is seeing, you know what, what's really the hurt 0:16:37.040 --> 0:16:40.120 in terms of production in China? We think it could 0:16:40.120 --> 0:16:43.080 be sixty eight million units. So what does this mean 0:16:43.120 --> 0:16:45.840 in terms of Apple's share price, in terms of the 0:16:45.840 --> 0:16:47.840 earnings that they're going to see, even if it's deferred, 0:16:48.040 --> 0:16:51.320 What does that mean for the upcoming quarter? I think 0:16:51.480 --> 0:16:53.760 in the New York term, Streets factoring in that that 0:16:53.840 --> 0:16:57.440 you're quickly going to see misses on iPhone production as 0:16:57.440 --> 0:16:59.520 well as what we're gonna see on deliveries. I think 0:16:59.560 --> 0:17:02.080 we should issue is that even going to Black Friday 0:17:02.080 --> 0:17:07.440 and we're seeing a five potentially shortages and Apple stores, 0:17:07.800 --> 0:17:11.080 if that continues to increase, depending what happens on production, 0:17:11.480 --> 0:17:14.000 then this could be some darker days ahead in terms 0:17:14.080 --> 0:17:16.439 of the coming weeks going into how it is, I 0:17:16.440 --> 0:17:18.679 think right now Streets starting a factor that in. But 0:17:18.760 --> 0:17:21.600 let's just be clear, it's it's the Grinch that stole Christmas, 0:17:21.960 --> 0:17:24.280 you know, really for Apple, and it's been a frustrating 0:17:24.359 --> 0:17:27.560 time for Cook and Cupertina. This isn't a surprise though, Dan, 0:17:27.760 --> 0:17:30.520 I mean, this is ultimately Apple's China problem, that their 0:17:30.560 --> 0:17:32.679 dependents on China, both from a demand side as well 0:17:32.760 --> 0:17:36.160 as the supply side really ties their hands to policy 0:17:36.200 --> 0:17:39.760 that's highly unpredictable. How much is there a push internally 0:17:39.800 --> 0:17:42.600 to move away from production in China to increase perhaps 0:17:42.840 --> 0:17:47.119 demand and production elsewhere. Yeah, and and in terms of 0:17:47.119 --> 0:17:48.920 what we've seen you with the last year and a half, 0:17:48.960 --> 0:17:51.440 Apple has been able to navigate basically better than any 0:17:51.440 --> 0:17:54.840 other company within China. The problem is is that now 0:17:55.040 --> 0:17:58.800 at the most important time, between the protests you're of COVID, 0:17:58.840 --> 0:18:01.199 what we're seeing a fox kind it's really been a 0:18:01.200 --> 0:18:03.880 train wreck. I think for Apple now they could talk 0:18:03.960 --> 0:18:07.960 about diversifying, but realistically probably best keys they can move 0:18:08.000 --> 0:18:12.159 five sambers and production out of China about two So 0:18:12.200 --> 0:18:14.400 I think they're really handred tied here. And that's sort 0:18:14.440 --> 0:18:18.200 of the frustrating situation because they are ultimately the mercy 0:18:18.240 --> 0:18:20.880 of the zero COVID policy in China. Well down, let's 0:18:20.880 --> 0:18:22.600 build on that a little bit more on asked the 0:18:22.680 --> 0:18:25.440 question whether it's profit or revenue lost or just delay 0:18:25.560 --> 0:18:29.080 defer to another quarter, think overwhelming. The response from bulls 0:18:29.160 --> 0:18:31.320 like you is that it's deferred, just delayed until the 0:18:31.359 --> 0:18:34.800 next quarter. But dan underlying that assumption is that these 0:18:34.800 --> 0:18:38.359 difficulties in production go away over the next three months. 0:18:38.359 --> 0:18:39.920 Down I've spent most of this morning asked in a 0:18:40.000 --> 0:18:41.960 question whether the working assumption is we get rid of 0:18:41.960 --> 0:18:44.520 COVID zero, whether we're stuck with it, And I can't 0:18:44.560 --> 0:18:47.040 get a definitive answer on that from anyone, And unsurprisingly 0:18:47.080 --> 0:18:49.600 that's the case. So Dan, where does your confidence come 0:18:49.680 --> 0:18:52.840 from that the issues that this companies are experiencing this 0:18:52.920 --> 0:18:55.880 quarter are temporary and nature and won't just spill over 0:18:56.240 --> 0:18:59.679 into most of the next year. Look, it's a great question. 0:18:59.720 --> 0:19:02.640 I mean, like our view is that you know, ultimately, 0:19:02.720 --> 0:19:05.760 especially from a fox con perspective, they will be able 0:19:05.760 --> 0:19:08.520 to ramp production going into the next month or two, 0:19:09.080 --> 0:19:10.840 you know, and then ultimately this will start to be 0:19:10.960 --> 0:19:13.520 more temporary. But to your point, it's an overhead and 0:19:13.520 --> 0:19:16.520 and it's really something they came to rouse for Apple 0:19:16.680 --> 0:19:20.720 at the worst time possible. And really, ultimately, right now, 0:19:20.840 --> 0:19:25.400 the street's going to assume it's temporary, transitionary. But ultimately, 0:19:25.400 --> 0:19:28.320 if this continues in two thousand twenty three, it would 0:19:28.400 --> 0:19:31.320 really sort of start to change the near term thesis. 0:19:31.359 --> 0:19:32.960 But that's the question you and I have explored a 0:19:33.000 --> 0:19:35.359 few times down. How would I know if I'm wrunk. 0:19:35.960 --> 0:19:37.399 You seem to have put a date on it there. 0:19:37.400 --> 0:19:39.760 If it spills into three, is that fair? Is that 0:19:39.840 --> 0:19:42.239 your line? If this continues for another month or so, 0:19:42.400 --> 0:19:44.159 I'm gonna have to change my mind about where I 0:19:44.200 --> 0:19:47.840 see the stasis going. Yeah. If this continues for board 0:19:47.880 --> 0:19:50.440 is six weeks, but then it starts to impact two 0:19:50.440 --> 0:19:53.879 thousand twenty three, then even I from fifteen in terms 0:19:53.880 --> 0:19:57.000 of production, I think that's where it's sort of cascades further. 0:19:57.440 --> 0:20:00.439 Right now, it's contained, you see that, even reflecting stock, 0:20:00.840 --> 0:20:02.800 But no doubt, I mean this is starting to turn 0:20:02.880 --> 0:20:05.960 into a nightmare in Elm Street for Apple in terms 0:20:05.960 --> 0:20:08.360 of what we're seeing coming down in China. It's contained, 0:20:08.359 --> 0:20:11.240 and yet we have heard about Apple potentially giving discounts 0:20:11.240 --> 0:20:14.280 to certain businesses on the margins, doing things that they 0:20:14.320 --> 0:20:16.560