1
00:00:05,120 --> 00:00:09,200
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

2
00:00:09,200 --> 00:00:13,200
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

3
00:00:13,280 --> 00:00:18,600
Speaker 1: insight from the best and economics, finance, investment, and international relations.

4
00:00:18,840 --> 00:00:23,799
Speaker 1: To find Bloomberg Surveillance on Apple, podcast, SoundCloud, Bloomberg dot Com,

5
00:00:23,920 --> 00:00:29,800
Speaker 1: and of course on the Bloomberg terminal. A good time

6
00:00:29,880 --> 00:00:33,600
Speaker 1: to speak with Michael Darda of m CAM Holdings. Michael,

7
00:00:33,680 --> 00:00:36,239
Speaker 1: I want to work at the nominal basis because that's

8
00:00:36,240 --> 00:00:39,240
Speaker 1: where our listeners and our viewers are at. Forget about

9
00:00:39,280 --> 00:00:43,480
Speaker 1: FED talk, forget about real inflation. How do we withstand

10
00:00:43,840 --> 00:00:49,640
Speaker 1: a nominal inflation rate of eight point six percent? Well, Tom,

11
00:00:49,680 --> 00:00:52,600
Speaker 1: I think this is exactly what you end up getting

12
00:00:52,920 --> 00:00:56,320
Speaker 1: when you run the anomenal economy hot at double digit

13
00:00:56,400 --> 00:00:59,080
Speaker 1: growth rates on average since the bottom of the business

14
00:00:59,080 --> 00:01:02,600
Speaker 1: cycle in two thousan and twenty. Any look at historical

15
00:01:02,720 --> 00:01:07,480
Speaker 1: experience will tell you that. And unfortunately for households, if

16
00:01:07,520 --> 00:01:11,560
Speaker 1: we look at the May data, the proxy phenomenal income

17
00:01:11,600 --> 00:01:15,440
Speaker 1: out of the Jobs Report, which is essentially just wage growth,

18
00:01:15,680 --> 00:01:20,440
Speaker 1: hours growth, and employment growth sung together annualized it at

19
00:01:20,520 --> 00:01:24,880
Speaker 1: about ten percent, all of that being eaten up by inflation.

20
00:01:24,959 --> 00:01:27,240
Speaker 1: With today's report, that's where I wanted to go, Mike,

21
00:01:27,280 --> 00:01:30,559
Speaker 1: And that's what I was watching was real average hourly wordings,

22
00:01:30,560 --> 00:01:32,760
Speaker 1: both on an hourly as well as a weekly basis.

23
00:01:33,080 --> 00:01:35,959
Speaker 1: On a weekly basis, it is now the most negative

24
00:01:36,000 --> 00:01:38,160
Speaker 1: that it's been in data going back to two thousand

25
00:01:38,240 --> 00:01:41,560
Speaker 1: and six, negative three point nine percent in terms of

26
00:01:41,600 --> 00:01:45,280
Speaker 1: how far behind wage inflation is falling behind the actual

27
00:01:45,319 --> 00:01:48,120
Speaker 1: stuff we buy every day. What does this do to

28
00:01:48,280 --> 00:01:52,720
Speaker 1: your growth outlook, Mike, Yeah, I think unfortunately, you know,

29
00:01:52,800 --> 00:01:56,680
Speaker 1: we're dealing with a little bit of a stagflationary environment here,

30
00:01:56,720 --> 00:01:59,600
Speaker 1: at least for the month of May. So obviously we've

31
00:01:59,640 --> 00:02:04,240
Speaker 1: had intensifying shocks and in food and energy prices. So

32
00:02:04,680 --> 00:02:07,520
Speaker 1: hopefully at some point that will reverse. But you know,

33
00:02:07,560 --> 00:02:11,280
Speaker 1: as Mike McKee went into, this is an inflationary process

34
00:02:11,520 --> 00:02:15,119
Speaker 1: that has been broadening and deepening out. So you've got

35
00:02:15,240 --> 00:02:18,840
Speaker 1: pressure on rental inflation. That's a significant portion of the CPI.

36
00:02:19,880 --> 00:02:24,320
Speaker 1: If we look at services inflation excluding energy, that six

37
00:02:25,040 --> 00:02:27,520
Speaker 1: of the c p I. It's running it more than

38
00:02:27,800 --> 00:02:31,480
Speaker 1: double the average of the last business cycle. So it

39
00:02:31,639 --> 00:02:33,680
Speaker 1: might be a bit of a fool's Errand here to

40
00:02:33,880 --> 00:02:36,760
Speaker 1: just assume that if crude oil prices back off all

41
00:02:36,800 --> 00:02:39,320
Speaker 1: of a sudden, the magic wand is waved in the

42
00:02:39,320 --> 00:02:42,280
Speaker 1: inflation problem simply goes away. Mike, we thought that we

43
00:02:42,280 --> 00:02:45,000
Speaker 1: had seen peak inflation. We had not. We now have

44
00:02:45,120 --> 00:02:48,400
Speaker 1: an even higher print, that is a new post high.

45
00:02:48,720 --> 00:02:51,320
Speaker 1: Is eight point six percent the high high water mark?

46
00:02:51,440 --> 00:02:55,120
Speaker 1: Or are we going to see even higher ahead? Well,

47
00:02:55,160 --> 00:02:58,280
Speaker 1: I think we're probably pretty close to peak inflation on

48
00:02:58,320 --> 00:03:01,120
Speaker 1: a year over year basis, But none of that may

49
00:03:01,240 --> 00:03:03,960
Speaker 1: matter for the path of FED tightening and the bond

50
00:03:04,000 --> 00:03:08,480
Speaker 1: market and equity market valuations, because if inflation eases from

51
00:03:08,520 --> 00:03:13,080
Speaker 1: here but still stays very high, then you know that

52
00:03:13,240 --> 00:03:15,640
Speaker 1: is not an environment where the FED just moves to

53
00:03:15,680 --> 00:03:19,359
Speaker 1: the sideline sidelines and we see some kind of huge

54
00:03:19,400 --> 00:03:23,840
Speaker 1: revaluation and expensive equities that dominate the pulpit cap of

55
00:03:23,880 --> 00:03:26,680
Speaker 1: the s and P five hundreds. So there are some

56
00:03:26,760 --> 00:03:30,360
Speaker 1: macro commentators making kind of bizarre arguments, at least from

57
00:03:30,400 --> 00:03:35,560
Speaker 1: my perspective um that aren't focused sufficiently on the nominal

58
00:03:35,600 --> 00:03:39,320
Speaker 1: GDP backdrop, which is still way too strong. Aggregate demand

59
00:03:39,360 --> 00:03:41,600
Speaker 1: is still way troops too strong, so the FED has

60
00:03:41,640 --> 00:03:45,840
Speaker 1: more work to do. And the fact that if inflation eases,

61
00:03:45,960 --> 00:03:51,040
Speaker 1: but is settling in at rates that are several times

62
00:03:51,120 --> 00:03:56,360
Speaker 1: the Fed's target acceptable inflation over time, and that's still

63
00:03:56,360 --> 00:03:58,120
Speaker 1: going to be a problem for the bond market and

64
00:03:58,120 --> 00:04:00,880
Speaker 1: the problem for the Federal Reserve all And you know,

65
00:04:01,200 --> 00:04:04,760
Speaker 1: Muhammad ali Arian, who was on yesterday with John Farrow, said, um,

66
00:04:04,840 --> 00:04:07,400
Speaker 1: if you think we're going to have a recession, sure,

67
00:04:07,440 --> 00:04:10,440
Speaker 1: inflation is going to come down. And I'm paraphrasing here,

68
00:04:10,720 --> 00:04:12,920
Speaker 1: but that's not what you want to see, right, That's

69
00:04:12,960 --> 00:04:17,839
Speaker 1: not how transitory inflation should be affected. So is that

70
00:04:17,920 --> 00:04:21,920
Speaker 1: the way we're gonna see it? Well, Matt, I think

71
00:04:22,000 --> 00:04:26,600
Speaker 1: unfortunately eventually that's where we probably end up. But the

72
00:04:26,880 --> 00:04:30,560
Speaker 1: critical discussion is timing there. So I don't think that

73
00:04:30,600 --> 00:04:32,599
Speaker 1: we're in a recession now, and I don't see a

74
00:04:32,680 --> 00:04:35,880
Speaker 1: recession this year. I think the reception will come after

75
00:04:36,560 --> 00:04:40,120
Speaker 1: the FED gets itself into a restrictive monetary posture, and

76
00:04:40,120 --> 00:04:43,239
Speaker 1: that's going to take some time. Consider this fact, forget

77
00:04:43,279 --> 00:04:47,039
Speaker 1: the backward looking numbers that we just got, as shocking

78
00:04:47,080 --> 00:04:50,560
Speaker 1: as they are, the FED funds rate relative to five

79
00:04:50,720 --> 00:04:55,359
Speaker 1: year expected inflation is still below two hundred basis points

80
00:04:55,720 --> 00:04:59,440
Speaker 1: minus two d basis point, and that is below the

81
00:04:59,480 --> 00:05:03,240
Speaker 1: trough of the last business cycle when you had very

82
00:05:03,320 --> 00:05:07,240
Speaker 1: slow growth and you know, in in very weak realized inflation,

83
00:05:07,880 --> 00:05:10,359
Speaker 1: and so this FED is still behind the curve, and

84
00:05:10,400 --> 00:05:13,520
Speaker 1: that is going to create a situation where these underlying

85
00:05:13,600 --> 00:05:16,880
Speaker 1: drive inflation like services and rents and wages are likely

86
00:05:16,920 --> 00:05:19,279
Speaker 1: to continue accelerat well, Michael Dart, that's right where I

87
00:05:19,279 --> 00:05:22,200
Speaker 1: wanted to go, because, frankly, folks, the most important inflation

88
00:05:22,320 --> 00:05:24,840
Speaker 1: data of the day after this shock is at ten

89
00:05:24,920 --> 00:05:28,240
Speaker 1: AM with a five year, five year forward Michigan statistic.

90
00:05:28,520 --> 00:05:31,719
Speaker 1: Michael Darter, what are the ramifications to the to the

91
00:05:31,720 --> 00:05:36,560
Speaker 1: the economic zeitgeist if we get the five year Michigan

92
00:05:36,720 --> 00:05:40,000
Speaker 1: look to break out above three percent, to break out

93
00:05:40,000 --> 00:05:44,359
Speaker 1: of the inflation level of two thousand six. Yeah, I

94
00:05:44,400 --> 00:05:47,240
Speaker 1: think the f O m C would take note of that. Um.

95
00:05:47,279 --> 00:05:50,960
Speaker 1: You know, those measures are are a bit stickier than

96
00:05:51,279 --> 00:05:55,280
Speaker 1: the bond market break even measures, but you know they

97
00:05:55,760 --> 00:05:59,719
Speaker 1: are elevated marginally relative to their averages of the last cycle.

98
00:05:59,760 --> 00:06:02,599
Speaker 1: And we start to see a any kind of what

99
00:06:02,720 --> 00:06:05,159
Speaker 1: looks like a breakout, I think that would create a

100
00:06:05,200 --> 00:06:07,560
Speaker 1: lot of consternation on the f O m C that

101
00:06:07,760 --> 00:06:12,360
Speaker 1: these high headline inflation numbers are bleeding into longer term

102
00:06:12,400 --> 00:06:15,680
Speaker 1: expectations and you know, I think the FED would be

103
00:06:15,720 --> 00:06:18,479
Speaker 1: alarmed by that. Michael Darta, thank you so much for

104
00:06:18,520 --> 00:06:21,400
Speaker 1: the insight. Michael Darta, m CAM Partners, and can't say

105
00:06:21,520 --> 00:06:24,400
Speaker 1: enough about his linkage of the equity markets into what

106
00:06:24,480 --> 00:06:32,560
Speaker 1: we see in economics. This was scheduled before the inflation

107
00:06:32,640 --> 00:06:35,520
Speaker 1: report and the importance of it. David Harrow, of course

108
00:06:35,600 --> 00:06:39,599
Speaker 1: always looking at price change across America, but far more.

109
00:06:39,680 --> 00:06:43,560
Speaker 1: We've tried to get David harrowin of Harris Associates to

110
00:06:43,680 --> 00:06:47,760
Speaker 1: speak of EU banking. It has been an absolute shock

111
00:06:48,240 --> 00:06:51,080
Speaker 1: and David, I've got to start with credit suites and

112
00:06:51,160 --> 00:06:54,720
Speaker 1: the view back I'm gonna say fifteen years or so

113
00:06:55,240 --> 00:06:59,640
Speaker 1: before the Great Financial Crisis of two thousand six, and

114
00:06:59,680 --> 00:07:03,200
Speaker 1: it is has been an abject value trapped and an

115
00:07:03,240 --> 00:07:06,839
Speaker 1: abject failure. You've been directly involved in this. You have

116
00:07:06,920 --> 00:07:10,600
Speaker 1: been patient, David Harrow. Have you run out of patients

117
00:07:10,600 --> 00:07:15,200
Speaker 1: with the gnomes of failure in Zurich? Well, not at

118
00:07:15,200 --> 00:07:19,640
Speaker 1: this stage yet, because there has been wholesale changes at

119
00:07:19,640 --> 00:07:22,680
Speaker 1: the bank, from the board to the management down, and

120
00:07:22,720 --> 00:07:25,600
Speaker 1: I think we need to see what the new people

121
00:07:25,680 --> 00:07:29,240
Speaker 1: who are involved with the bank, both from the Executive

122
00:07:29,240 --> 00:07:32,760
Speaker 1: Management Committee and the Board of Directors can do too

123
00:07:33,040 --> 00:07:36,800
Speaker 1: during this round. There is inherent value within the business,

124
00:07:37,440 --> 00:07:39,920
Speaker 1: and I think these people should be given a chance

125
00:07:40,040 --> 00:07:43,960
Speaker 1: to try to create this value and sustain this value.

126
00:07:44,680 --> 00:07:48,000
Speaker 1: The bank trades at about a third or book value,

127
00:07:48,640 --> 00:07:53,280
Speaker 1: so that the object now should be stabilization and then

128
00:07:53,360 --> 00:07:57,720
Speaker 1: growth after stabilization. And they can't do it. Someone else

129
00:07:57,760 --> 00:08:01,120
Speaker 1: asked to do they have a Swiss Are they not

130
00:08:01,320 --> 00:08:06,000
Speaker 1: making tough decisions because they know this government has their back,

131
00:08:06,360 --> 00:08:09,640
Speaker 1: that Zurich will be UBS and that Zurich will be

132
00:08:09,800 --> 00:08:13,560
Speaker 1: credit Suite. I would hope not. By the way, I'm

133
00:08:13,800 --> 00:08:16,960
Speaker 1: a believer in free market capitalism. Then there shouldn't be

134
00:08:17,000 --> 00:08:20,120
Speaker 1: any protection. If they can't do it and someone comes

135
00:08:20,160 --> 00:08:22,920
Speaker 1: in to make an acquisition to all our parts of

136
00:08:22,920 --> 00:08:26,000
Speaker 1: the business, I think that should be allowed to happen. Now.

137
00:08:26,040 --> 00:08:29,400
Speaker 1: There's taught that if someone does bid, they will give

138
00:08:29,560 --> 00:08:34,760
Speaker 1: UBS a chance to do some kind of a deal combination.

139
00:08:34,920 --> 00:08:37,199
Speaker 1: But I would certainly hope that is not the case.

140
00:08:37,520 --> 00:08:41,199
Speaker 1: Is Europe even ready for big cross border bank m

141
00:08:41,280 --> 00:08:44,559
Speaker 1: and A. I don't think you can here across a

142
00:08:44,679 --> 00:08:48,480
Speaker 1: border bank M and A in uh Europe and a

143
00:08:48,520 --> 00:08:52,000
Speaker 1: wide scale until some of the rules and laws are changed.

144
00:08:52,160 --> 00:08:54,920
Speaker 1: At some point this may happen, but you still have

145
00:08:55,160 --> 00:08:59,679
Speaker 1: fragmented banking markets, which it makes it non conducive to

146
00:09:00,000 --> 00:09:03,160
Speaker 1: cross border. I think there is a possibility for some

147
00:09:03,760 --> 00:09:07,320
Speaker 1: an isolated on an isolated levels and basis, but at

148
00:09:07,360 --> 00:09:12,960
Speaker 1: this stage you still need regulatory evening out that would

149
00:09:13,000 --> 00:09:16,319
Speaker 1: make it more conducive to cross border M and A.

150
00:09:16,920 --> 00:09:19,320
Speaker 1: On the other hand, a company like Credit Suits has

151
00:09:19,440 --> 00:09:23,880
Speaker 1: a huge private wealth management business which is now bigger

152
00:09:24,480 --> 00:09:28,360
Speaker 1: than their global markets investment banking business. And for any

153
00:09:28,520 --> 00:09:31,959
Speaker 1: big global bank that wants exposure in this lucrative area,

154
00:09:32,440 --> 00:09:35,680
Speaker 1: you would think Credit Sweets would be in an attractive asset.

155
00:09:36,200 --> 00:09:40,600
Speaker 1: I gotta ask you about um China because every morning

156
00:09:40,679 --> 00:09:43,400
Speaker 1: it seems like futures lately have are driven by the

157
00:09:43,559 --> 00:09:47,040
Speaker 1: idea that China may um get a little bit lighter

158
00:09:47,280 --> 00:09:51,120
Speaker 1: on tech companies. Yesterday there's a report that Aunt could

159
00:09:51,520 --> 00:09:53,640
Speaker 1: revive its I p L, although that's been kind of

160
00:09:53,679 --> 00:09:56,920
Speaker 1: pooh pooed. I see that you own a stake in Process,

161
00:09:57,160 --> 00:10:00,560
Speaker 1: which in turn owns a stake inten cent Right, what's

162
00:10:00,640 --> 00:10:05,040
Speaker 1: your view on China tech now? It does appear that

163
00:10:05,240 --> 00:10:09,400
Speaker 1: we've hit peaked regulatory initiatives in China. As you know,

164
00:10:09,640 --> 00:10:13,599
Speaker 1: over the last year or so, they've been increasing a

165
00:10:13,720 --> 00:10:17,960
Speaker 1: regulatory scrutiny and the Chinese tech sector, so the whole

166
00:10:18,040 --> 00:10:20,640
Speaker 1: sector has been kind of hit. We also owned some

167
00:10:20,720 --> 00:10:24,120
Speaker 1: Ali Baba as well, and both these sectors have been hit.

168
00:10:24,160 --> 00:10:28,800
Speaker 1: But we believe that even with this additional regulatory scrutiny. Now,

169
00:10:28,960 --> 00:10:31,800
Speaker 1: keep in mind, what's happening is these businesses around the

170
00:10:31,880 --> 00:10:35,520
Speaker 1: globe have grown much faster than the regulator's ability around

171
00:10:35,600 --> 00:10:38,679
Speaker 1: the globe to regulate them. In China's kind of taken

172
00:10:38,720 --> 00:10:42,040
Speaker 1: a first staff. But what we have seen what appears

173
00:10:42,120 --> 00:10:46,560
Speaker 1: to be statements from the government that we're getting getting

174
00:10:46,600 --> 00:10:49,120
Speaker 1: to the end of the regulatory initiatives. And then you

175
00:10:49,240 --> 00:10:52,000
Speaker 1: even saw in the case of ten Cents, lots of

176
00:10:52,080 --> 00:10:54,439
Speaker 1: games that were approved this week. This is one of

177
00:10:54,480 --> 00:10:59,640
Speaker 1: the things that they were concerned about, uh withholding game approvals, uh,

178
00:11:00,000 --> 00:11:02,480
Speaker 1: you know, for the various reasons. So we are starting

179
00:11:02,559 --> 00:11:07,400
Speaker 1: to see regulatory relief or at least movements by the

180
00:11:07,480 --> 00:11:11,000
Speaker 1: government that the worst is behind the sector. In Meanwhile,

181
00:11:11,480 --> 00:11:16,240
Speaker 1: these are really well run, world class tech companies that

182
00:11:16,400 --> 00:11:19,400
Speaker 1: trade a load double digit multiple. David Harrow, thank you

183
00:11:19,520 --> 00:11:21,240
Speaker 1: so much too brief a visit, but we've got so

184
00:11:21,360 --> 00:11:24,400
Speaker 1: much going on in inflation, David Harrold Harris associates there.

185
00:11:30,440 --> 00:11:33,240
Speaker 1: Jonathan galub is having a difficult Friday. He's a credit

186
00:11:33,320 --> 00:11:37,160
Speaker 1: squeeze and of course their chief US equity strategist, John,

187
00:11:37,200 --> 00:11:39,160
Speaker 1: I've got to get out in front of your research note.

188
00:11:39,360 --> 00:11:43,480
Speaker 1: Will you amend your targets this weekend for Monday trading? No,

189
00:11:43,720 --> 00:11:46,400
Speaker 1: we won't amend our our target and I think you

190
00:11:46,480 --> 00:11:50,880
Speaker 1: know our call all along is that the inflation is

191
00:11:50,960 --> 00:11:54,000
Speaker 1: going to be stickier at a much higher level, and

192
00:11:54,280 --> 00:11:58,760
Speaker 1: we've been recommending companies that benefit from higher inflation. So

193
00:11:59,400 --> 00:12:02,160
Speaker 1: the two ways of thinking about this. Today's report is

194
00:12:02,240 --> 00:12:04,880
Speaker 1: bad for the market in general, but there are certain

195
00:12:04,960 --> 00:12:07,640
Speaker 1: companies that hold up better or worse in a higher

196
00:12:07,720 --> 00:12:11,000
Speaker 1: inflation environment than others, and that's more focusing John Goda.

197
00:12:11,080 --> 00:12:13,280
Speaker 1: What's so important to me here is the behavior. And

198
00:12:13,320 --> 00:12:15,360
Speaker 1: I don't mean to hearken back to the fossil dim

199
00:12:15,480 --> 00:12:18,480
Speaker 1: that I am in the nineties seventies, but let's look

200
00:12:18,520 --> 00:12:20,400
Speaker 1: at the deck of cards. We've got the worst bond

201
00:12:20,480 --> 00:12:24,360
Speaker 1: market since time began. Price down, yield up. We've got

202
00:12:24,440 --> 00:12:27,720
Speaker 1: these inflation numbers today, the FED parlor game that we're

203
00:12:27,760 --> 00:12:29,360
Speaker 1: going to see out to the end of the year.

204
00:12:30,160 --> 00:12:33,880
Speaker 1: What do you in the credit SUITEZ Securities research team

205
00:12:34,480 --> 00:12:39,160
Speaker 1: field corporations will do. And my estimation they have to

206
00:12:39,600 --> 00:12:44,120
Speaker 1: rapidly act even into June and July and make the

207
00:12:44,240 --> 00:12:47,640
Speaker 1: plans that they thought they would make come October. Am

208
00:12:47,679 --> 00:12:50,880
Speaker 1: I right on that? You know, Tom, I don't think

209
00:12:50,960 --> 00:12:53,720
Speaker 1: you are right on that. I think that I think

210
00:12:53,800 --> 00:12:57,959
Speaker 1: the companies in a very high nominal GDP environment, which

211
00:12:58,040 --> 00:13:00,319
Speaker 1: is what we have, the underlying eco out of me

212
00:13:00,600 --> 00:13:06,240
Speaker 1: for all the recession concerns is fine. Revenues are rip

213
00:13:06,360 --> 00:13:10,760
Speaker 1: roaring strong, and so bigger companies in this environment have

214
00:13:10,960 --> 00:13:12,800
Speaker 1: tended to do a bit of a better job at

215
00:13:12,800 --> 00:13:17,440
Speaker 1: being able to make maintain costs. But profits are really high.

216
00:13:17,640 --> 00:13:20,520
Speaker 1: The thing which is getting smacked around, um are the

217
00:13:20,640 --> 00:13:24,400
Speaker 1: stock multiples, not the earnings. And that's important to think about.

218
00:13:25,120 --> 00:13:26,800
Speaker 1: So what kind of multiple do you think is right

219
00:13:26,880 --> 00:13:30,000
Speaker 1: for this market, especially if the FED has a terminal

220
00:13:30,120 --> 00:13:32,800
Speaker 1: rate of three and a half percent. Well, first of all,

221
00:13:33,000 --> 00:13:35,360
Speaker 1: I think that the FED is going to and I

222
00:13:35,480 --> 00:13:37,559
Speaker 1: think this is going to lead to dialogue that this

223
00:13:37,800 --> 00:13:40,120
Speaker 1: this conversation that we were having over the last couple

224
00:13:40,120 --> 00:13:42,559
Speaker 1: of weeks. Can the Fed pause in September. Well, we

225
00:13:42,640 --> 00:13:44,959
Speaker 1: know that the answer to that now is no, UM

226
00:13:45,240 --> 00:13:47,679
Speaker 1: and the said probably has to move beyond three and

227
00:13:47,720 --> 00:13:51,599
Speaker 1: a half percent UM. But we still have a you know,

228
00:13:51,679 --> 00:13:56,439
Speaker 1: we have a very powerful earnings environment, the revisions, the

229
00:13:56,640 --> 00:13:59,120
Speaker 1: you know, the kind of the analyst adjustment to the earnings.

230
00:13:59,480 --> 00:14:02,080
Speaker 1: With all discussion that we've been having about weak earnings,

231
00:14:02,400 --> 00:14:06,600
Speaker 1: they're going up almost every day. So um, we think

232
00:14:06,679 --> 00:14:09,560
Speaker 1: that the market so how much how much should investors

233
00:14:09,640 --> 00:14:13,679
Speaker 1: be paying for forward earnings? You know, if you if

234
00:14:13,720 --> 00:14:15,719
Speaker 1: you look at a corporate bond yield, which is what

235
00:14:15,960 --> 00:14:19,320
Speaker 1: your discount rate, it's not Fed funds, it's still you know,

236
00:14:19,400 --> 00:14:21,880
Speaker 1: still something like five percent, which is a low number.

237
00:14:22,320 --> 00:14:26,160
Speaker 1: So we think that stocks are attractively valued at these levels,

238
00:14:26,240 --> 00:14:29,200
Speaker 1: and we would be going in the level of concern

239
00:14:29,280 --> 00:14:32,720
Speaker 1: in the market is we think is much higher than

240
00:14:32,800 --> 00:14:36,320
Speaker 1: the than the underlying backdrop. C IBC report and this

241
00:14:36,440 --> 00:14:40,040
Speaker 1: is Catherine Judge reporting from c IBC Toronto, and folks,

242
00:14:40,080 --> 00:14:43,720
Speaker 1: I think this really sums it up. C IBC calls

243
00:14:43,800 --> 00:14:47,720
Speaker 1: US inflation report read hot, and they go Matt Miller

244
00:14:48,080 --> 00:14:51,320
Speaker 1: right to the heart of the matter which McKee alluded to,

245
00:14:52,120 --> 00:14:57,480
Speaker 1: which is shelter is the most gain since two thousand four.

246
00:14:57,680 --> 00:15:02,840
Speaker 1: We've been hot highlighting this today, folks from Senator Mansions Charleston,

247
00:15:02,920 --> 00:15:07,840
Speaker 1: West Virginia to Senator Miller's uh suburb north of New York.

248
00:15:07,920 --> 00:15:11,560
Speaker 1: I mean, Matt Miller, this is nothing that anybody already knows.

249
00:15:11,720 --> 00:15:13,720
Speaker 1: We are aware of this. I mean, if you look

250
00:15:13,840 --> 00:15:17,360
Speaker 1: at the what's it called the SMP core logic case Shiller,

251
00:15:17,440 --> 00:15:19,600
Speaker 1: we should really ask Bob to shorten that. If you

252
00:15:19,720 --> 00:15:23,760
Speaker 1: look at their twenties city index UM and max it out,

253
00:15:24,160 --> 00:15:27,320
Speaker 1: we're at a level that towers over what we saw

254
00:15:27,480 --> 00:15:30,000
Speaker 1: in two thousand four, two thousand five. So in terms

255
00:15:30,040 --> 00:15:33,240
Speaker 1: of the absolute level, it's just unbelievable. The amount of

256
00:15:33,280 --> 00:15:35,600
Speaker 1: appreciation to seeen in the house prices. John Gala with

257
00:15:35,680 --> 00:15:38,560
Speaker 1: credit sweets with us here. John, you talk about the

258
00:15:38,680 --> 00:15:42,720
Speaker 1: animal spirit of nominal g d P. But at eight

259
00:15:42,800 --> 00:15:47,080
Speaker 1: point six percent headline, is there a point where the

260
00:15:47,320 --> 00:15:54,720
Speaker 1: inflation price change part of nominal absolutely overwhelms actual economic growth?

261
00:15:56,240 --> 00:16:00,520
Speaker 1: You know? It's that's like the the ultar bit the

262
00:16:00,680 --> 00:16:03,280
Speaker 1: ultimate question, the the like Like I said, before the

263
00:16:03,360 --> 00:16:08,680
Speaker 1: earnings are fine, the stock multiple is in five multiple points.

264
00:16:08,800 --> 00:16:12,600
Speaker 1: Is a decline in stock multiples this year. Today's news,

265
00:16:12,800 --> 00:16:15,920
Speaker 1: taken by itself, should push the multiple down. The market,

266
00:16:16,040 --> 00:16:17,960
Speaker 1: you know, the futures are down something like one in

267
00:16:18,000 --> 00:16:22,160
Speaker 1: a quarter percent on this news. That is perfectly that's

268
00:16:22,200 --> 00:16:24,720
Speaker 1: exactly what you'd expect to happen. But the market has

269
00:16:24,800 --> 00:16:30,360
Speaker 1: already you know, adjusted, you know, enormously for this inflation environment.

270
00:16:30,440 --> 00:16:33,400
Speaker 1: So I think that the market probably is has taken

271
00:16:33,680 --> 00:16:36,400
Speaker 1: all the bad news into account already, which is one

272
00:16:36,440 --> 00:16:39,400
Speaker 1: of the reasons why I'm not as concerned, not because

273
00:16:39,440 --> 00:16:41,640
Speaker 1: this isn't a good report, but because the markets already

274
00:16:41,640 --> 00:16:45,040
Speaker 1: discounted a ton of bad news. And most importantly, you know,

275
00:16:45,160 --> 00:16:47,000
Speaker 1: a red hot and you're just talking about the c

276
00:16:47,120 --> 00:16:52,200
Speaker 1: ib report. A red hot economy does not equal recession,

277
00:16:52,320 --> 00:16:54,880
Speaker 1: and this is a red hot economy, not a recessionary economy.

278
00:16:55,000 --> 00:17:01,320
Speaker 1: John Gallup, thank you so much. Right now, Ellen Wall

279
00:17:01,480 --> 00:17:05,080
Speaker 1: joins us. I can't say enough about her book, Saudi Inc.

280
00:17:05,280 --> 00:17:08,760
Speaker 1: It is a window into the layers of the Ebon

281
00:17:08,880 --> 00:17:13,040
Speaker 1: Sad family, the heritage of the family, and most importantly,

282
00:17:13,240 --> 00:17:16,560
Speaker 1: the new family. She's senior fellow at the Atlantic Council.

283
00:17:17,480 --> 00:17:21,240
Speaker 1: I guess Mr Biden will visit Riot. It's not formally

284
00:17:21,280 --> 00:17:25,280
Speaker 1: announced yet, but there it is. Ellen is well when

285
00:17:25,400 --> 00:17:29,639
Speaker 1: he visits. Can there be a belief that Saudi Arabia

286
00:17:29,880 --> 00:17:34,440
Speaker 1: can adjust the price of a gallon of gas in America?

287
00:17:35,640 --> 00:17:37,960
Speaker 1: I think that if you if you have that belief still,

288
00:17:38,160 --> 00:17:41,320
Speaker 1: you need to re examine your your belief system, because

289
00:17:41,640 --> 00:17:46,000
Speaker 1: Saudi Arabia does not have the ability to change the

290
00:17:46,119 --> 00:17:49,359
Speaker 1: price of a gallon of gasoline like that unless they

291
00:17:49,440 --> 00:17:54,200
Speaker 1: do something so incredibly drastic um and at this point,

292
00:17:54,320 --> 00:17:57,520
Speaker 1: even with demand way it is and with other producers

293
00:17:57,880 --> 00:17:59,920
Speaker 1: and you know, kind of falling off a cliff, even

294
00:18:00,040 --> 00:18:03,560
Speaker 1: if Saudi Arabia put another two million barrels a dave

295
00:18:03,640 --> 00:18:05,880
Speaker 1: oil in the market, I don't think we would even

296
00:18:06,080 --> 00:18:08,879
Speaker 1: see that much of a drop in US gasolene prices.

297
00:18:09,119 --> 00:18:12,320
Speaker 1: The hope and prayer here, Ellen is a redux of

298
00:18:12,440 --> 00:18:17,800
Speaker 1: OPEC one, OPEC two six, And there was a moment

299
00:18:17,960 --> 00:18:25,199
Speaker 1: in night six were oil cratered. Can we relive that? Well? Um,

300
00:18:25,440 --> 00:18:28,520
Speaker 1: we could. I mean we almost relived that in um.

301
00:18:28,720 --> 00:18:32,880
Speaker 1: If you remember in in March of win just as

302
00:18:33,280 --> 00:18:37,360
Speaker 1: global oil demand was cratering, Russia and Saudi Arabia both

303
00:18:37,720 --> 00:18:40,480
Speaker 1: kind of opened their taps, so uh and and saw

304
00:18:40,760 --> 00:18:43,960
Speaker 1: in April and May of that year an incredible amount

305
00:18:43,960 --> 00:18:47,119
Speaker 1: of oil just slotting the market and crashing prices. I

306
00:18:47,200 --> 00:18:50,240
Speaker 1: don't think that we are likely to see a redux

307
00:18:50,280 --> 00:18:52,639
Speaker 1: of that in this case, unless there's some sort of

308
00:18:52,760 --> 00:18:56,800
Speaker 1: major shock to the global economy that that causes demand

309
00:18:56,920 --> 00:19:00,479
Speaker 1: to create. At this point, we're so tight in supply,

310
00:19:01,080 --> 00:19:05,080
Speaker 1: and um, there's enough Russian oil that has been off

311
00:19:05,160 --> 00:19:07,640
Speaker 1: the market. There's a question about whether it's really coming

312
00:19:07,680 --> 00:19:09,960
Speaker 1: back or not. I think that it's coming back a

313
00:19:10,040 --> 00:19:13,040
Speaker 1: little bit more than people think. But still demand has

314
00:19:13,160 --> 00:19:16,119
Speaker 1: just been so high, and with China reopening and demand

315
00:19:16,200 --> 00:19:20,000
Speaker 1: expected to go up there, it's really just it seems

316
00:19:20,040 --> 00:19:23,520
Speaker 1: like there really isn't enough oil in production now in

317
00:19:23,600 --> 00:19:28,800
Speaker 1: the world to get that to get these prices down significantly.

318
00:19:29,080 --> 00:19:31,080
Speaker 1: And then when you throw in uh, you know, the

319
00:19:31,160 --> 00:19:34,440
Speaker 1: situation in Ukraine and Russia, it's just that it's just

320
00:19:34,800 --> 00:19:37,800
Speaker 1: a recipe too for prices to keep rising. Ellen the

321
00:19:37,920 --> 00:19:40,159
Speaker 1: people who say this is a policy error and we

322
00:19:40,160 --> 00:19:43,280
Speaker 1: should have been investing more in fossil fuels, if there

323
00:19:43,320 --> 00:19:46,160
Speaker 1: were some sort of change in policy that would encourage

324
00:19:46,200 --> 00:19:49,679
Speaker 1: more investment. How long would it take before those barrels

325
00:19:49,720 --> 00:19:53,760
Speaker 1: would actually come online to ramp up production. So it

326
00:19:53,960 --> 00:19:57,040
Speaker 1: would definitely take um some time. You know, we're not

327
00:19:57,320 --> 00:20:00,879
Speaker 1: Saudi Arabia. We don't just have spare capath city that

328
00:20:00,960 --> 00:20:04,320
Speaker 1: can come online that quickly. But it's not as slow

329
00:20:04,480 --> 00:20:07,440
Speaker 1: as it would take in other areas, because there are

330
00:20:07,640 --> 00:20:11,639
Speaker 1: shale oil resources that can come online, you know, within month,

331
00:20:11,800 --> 00:20:15,720
Speaker 1: two months, three months, things like that. UM. Longer term, though,

332
00:20:15,760 --> 00:20:18,240
Speaker 1: we would need a lot of investment in big long

333
00:20:18,359 --> 00:20:21,480
Speaker 1: term projects, say in the Gulf of Mexico and other

334
00:20:21,560 --> 00:20:24,680
Speaker 1: areas that could pump a substantial amount of oil that

335
00:20:24,760 --> 00:20:27,639
Speaker 1: would bring down prices in the long use of her

336
00:20:28,200 --> 00:20:31,680
Speaker 1: you'd have that. Why would why would those executives want

337
00:20:31,720 --> 00:20:35,000
Speaker 1: to do that kind of investment? I mean they've been vilified,

338
00:20:35,720 --> 00:20:41,040
Speaker 1: um by not only this administration but by the US Congress. Um.

339
00:20:41,800 --> 00:20:44,240
Speaker 1: Why make that kind of long term investment when you

340
00:20:44,359 --> 00:20:46,800
Speaker 1: know that policies and regulations can change on a dime

341
00:20:46,880 --> 00:20:51,080
Speaker 1: against you, precisely. I mean, this is this is the question.

342
00:20:51,160 --> 00:20:53,920
Speaker 1: You know, if you're an oil and gas executive and

343
00:20:54,000 --> 00:20:57,320
Speaker 1: you're responsible for making decisions about the health of the company,

344
00:20:57,440 --> 00:21:00,639
Speaker 1: returning value to your shareholders of Coorse, you're not going

345
00:21:00,680 --> 00:21:02,880
Speaker 1: to want to make any of these long term investments

346
00:21:02,960 --> 00:21:06,480
Speaker 1: because you are concerned that any project that you invest

347
00:21:06,560 --> 00:21:10,120
Speaker 1: in could just either get shut down by government regulations

348
00:21:10,359 --> 00:21:12,800
Speaker 1: or for all you know, they're finally going to issue

349
00:21:12,800 --> 00:21:15,359
Speaker 1: the methane regulations and you're just gonna have to spend

350
00:21:15,440 --> 00:21:19,119
Speaker 1: a huge amount more money to comply. That uncertainty I

351
00:21:19,200 --> 00:21:23,600
Speaker 1: think is really keeping production from increasing. On the flip

352
00:21:23,640 --> 00:21:25,760
Speaker 1: side of Ellen, how much can some of the renewable

353
00:21:25,800 --> 00:21:29,280
Speaker 1: sources of energy start to offset fossil fuel usage in

354
00:21:29,359 --> 00:21:31,760
Speaker 1: a way that is more material in the near term

355
00:21:32,040 --> 00:21:35,879
Speaker 1: and frankly expedite that transition. But I don't want to

356
00:21:35,920 --> 00:21:38,920
Speaker 1: be a downer about wind and solar, because I think

357
00:21:39,040 --> 00:21:42,360
Speaker 1: they are great technologies and they're improving all the time.

358
00:21:42,680 --> 00:21:45,200
Speaker 1: But if you look at the amount of energy you

359
00:21:45,320 --> 00:21:47,680
Speaker 1: get from renewable energy and you compare it to the

360
00:21:47,680 --> 00:21:50,440
Speaker 1: amount of energy you get from breaking down a hydrocarbon,

361
00:21:50,640 --> 00:21:53,520
Speaker 1: you just can't compare it. It's it's not you need

362
00:21:53,720 --> 00:21:57,320
Speaker 1: so much more of these renewable sources in order to

363
00:21:57,760 --> 00:22:01,879
Speaker 1: compensate for hydrocarbons, And we're at a point where energy

364
00:22:02,080 --> 00:22:05,480
Speaker 1: use is still increasing, and so all of the renewables

365
00:22:05,520 --> 00:22:09,000
Speaker 1: that are coming online are helping to to create that

366
00:22:09,440 --> 00:22:14,320
Speaker 1: to offset that new demand. Forget replacing old old sources.

367
00:22:14,560 --> 00:22:17,640
Speaker 1: Oh well, very quickly. Here I have a moving average

368
00:22:17,720 --> 00:22:21,680
Speaker 1: of inflation adjusted brent, which tells me that when we

369
00:22:21,760 --> 00:22:26,080
Speaker 1: get up to a hundred forty a barrel, things change,

370
00:22:26,520 --> 00:22:30,440
Speaker 1: how our behavior change? If we see brent move on

371
00:22:32,000 --> 00:22:35,959
Speaker 1: up to one and you know what, you know, if

372
00:22:36,000 --> 00:22:38,439
Speaker 1: you'd asked me a month ago whether we get there,

373
00:22:38,440 --> 00:22:40,240
Speaker 1: I'd say, well, one forty is a long way off.

374
00:22:40,480 --> 00:22:43,440
Speaker 1: Now it doesn't seem so far so far away. I

375
00:22:43,560 --> 00:22:46,320
Speaker 1: think that if we hit one forty brent, we're definitely

376
00:22:46,440 --> 00:22:50,080
Speaker 1: going to see um a lot of people and also

377
00:22:50,160 --> 00:22:54,040
Speaker 1: businesses to making decisions to u not you know, not

378
00:22:54,240 --> 00:22:57,480
Speaker 1: expand and maybe cut back on production. We're already seeing

379
00:22:57,800 --> 00:23:01,400
Speaker 1: businesses say that depend on troleum products. We saw Lulu

380
00:23:01,560 --> 00:23:04,040
Speaker 1: Lemon earlier. This Week's say hey, we're raising the prices

381
00:23:04,080 --> 00:23:07,000
Speaker 1: of our products because they are made from petroleum, and

382
00:23:07,240 --> 00:23:10,240
Speaker 1: patroleum is just that much more expective. So it's not

383
00:23:10,400 --> 00:23:13,880
Speaker 1: just relying on energy, it's also every business that uses

384
00:23:13,960 --> 00:23:16,680
Speaker 1: oil products. Now you're seeing Ellen will thank you for

385
00:23:16,720 --> 00:23:18,879
Speaker 1: the brief on oil with the Atlantic Council. Can't say

386
00:23:19,000 --> 00:23:22,560
Speaker 1: enough about weekend reading with Saudi and as well. This

387
00:23:22,720 --> 00:23:26,480
Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us

388
00:23:26,560 --> 00:23:29,720
Speaker 1: live weekdays from seven to ten a m. Eastern on

389
00:23:29,800 --> 00:23:34,000
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

390
00:23:34,160 --> 00:23:39,000
Speaker 1: to nine am for insight from the best in economics, finance, investment,

391
00:23:39,160 --> 00:23:44,159
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

392
00:23:44,280 --> 00:23:48,119
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

393
00:23:48,200 --> 00:23:52,320
Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg