WEBVTT - Surveillance: Red-Hot Inflation (Podcast)

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<v Speaker 1>Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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<v Speaker 1>with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

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<v Speaker 1>insight from the best and economics, finance, investment, and international relations.

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<v Speaker 1>To find Bloomberg Surveillance on Apple, podcast, SoundCloud, Bloomberg dot Com,

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<v Speaker 1>and of course on the Bloomberg terminal. A good time

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<v Speaker 1>to speak with Michael Darda of m CAM Holdings. Michael,

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<v Speaker 1>I want to work at the nominal basis because that's

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<v Speaker 1>where our listeners and our viewers are at. Forget about

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<v Speaker 1>FED talk, forget about real inflation. How do we withstand

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<v Speaker 1>a nominal inflation rate of eight point six percent? Well, Tom,

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<v Speaker 1>I think this is exactly what you end up getting

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<v Speaker 1>when you run the anomenal economy hot at double digit

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<v Speaker 1>growth rates on average since the bottom of the business

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<v Speaker 1>cycle in two thousan and twenty. Any look at historical

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<v Speaker 1>experience will tell you that. And unfortunately for households, if

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<v Speaker 1>we look at the May data, the proxy phenomenal income

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<v Speaker 1>out of the Jobs Report, which is essentially just wage growth,

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<v Speaker 1>hours growth, and employment growth sung together annualized it at

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<v Speaker 1>about ten percent, all of that being eaten up by inflation.

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<v Speaker 1>With today's report, that's where I wanted to go, Mike,

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<v Speaker 1>And that's what I was watching was real average hourly wordings,

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<v Speaker 1>both on an hourly as well as a weekly basis.

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<v Speaker 1>On a weekly basis, it is now the most negative

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<v Speaker 1>that it's been in data going back to two thousand

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<v Speaker 1>and six, negative three point nine percent in terms of

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<v Speaker 1>how far behind wage inflation is falling behind the actual

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<v Speaker 1>stuff we buy every day. What does this do to

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<v Speaker 1>your growth outlook, Mike, Yeah, I think unfortunately, you know,

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<v Speaker 1>we're dealing with a little bit of a stagflationary environment here,

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<v Speaker 1>at least for the month of May. So obviously we've

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<v Speaker 1>had intensifying shocks and in food and energy prices. So

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<v Speaker 1>hopefully at some point that will reverse. But you know,

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<v Speaker 1>as Mike McKee went into, this is an inflationary process

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<v Speaker 1>that has been broadening and deepening out. So you've got

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<v Speaker 1>pressure on rental inflation. That's a significant portion of the CPI.

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<v Speaker 1>If we look at services inflation excluding energy, that six

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<v Speaker 1>of the c p I. It's running it more than

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<v Speaker 1>double the average of the last business cycle. So it

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<v Speaker 1>might be a bit of a fool's Errand here to

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<v Speaker 1>just assume that if crude oil prices back off all

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<v Speaker 1>of a sudden, the magic wand is waved in the

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<v Speaker 1>inflation problem simply goes away. Mike, we thought that we

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<v Speaker 1>had seen peak inflation. We had not. We now have

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<v Speaker 1>an even higher print, that is a new post high.

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<v Speaker 1>Is eight point six percent the high high water mark?

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<v Speaker 1>Or are we going to see even higher ahead? Well,

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<v Speaker 1>I think we're probably pretty close to peak inflation on

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<v Speaker 1>a year over year basis, But none of that may

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<v Speaker 1>matter for the path of FED tightening and the bond

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<v Speaker 1>market and equity market valuations, because if inflation eases from

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<v Speaker 1>here but still stays very high, then you know that

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<v Speaker 1>is not an environment where the FED just moves to

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<v Speaker 1>the sideline sidelines and we see some kind of huge

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<v Speaker 1>revaluation and expensive equities that dominate the pulpit cap of

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<v Speaker 1>the s and P five hundreds. So there are some

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<v Speaker 1>macro commentators making kind of bizarre arguments, at least from

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<v Speaker 1>my perspective um that aren't focused sufficiently on the nominal

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<v Speaker 1>GDP backdrop, which is still way too strong. Aggregate demand

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<v Speaker 1>is still way troops too strong, so the FED has

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<v Speaker 1>more work to do. And the fact that if inflation eases,

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<v Speaker 1>but is settling in at rates that are several times

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<v Speaker 1>the Fed's target acceptable inflation over time, and that's still

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<v Speaker 1>going to be a problem for the bond market and

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<v Speaker 1>the problem for the Federal Reserve all And you know,

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<v Speaker 1>Muhammad ali Arian, who was on yesterday with John Farrow, said, um,

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<v Speaker 1>if you think we're going to have a recession, sure,

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<v Speaker 1>inflation is going to come down. And I'm paraphrasing here,

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<v Speaker 1>but that's not what you want to see, right, That's

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<v Speaker 1>not how transitory inflation should be affected. So is that

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<v Speaker 1>the way we're gonna see it? Well, Matt, I think

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<v Speaker 1>unfortunately eventually that's where we probably end up. But the

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<v Speaker 1>critical discussion is timing there. So I don't think that

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<v Speaker 1>we're in a recession now, and I don't see a

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<v Speaker 1>recession this year. I think the reception will come after

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<v Speaker 1>the FED gets itself into a restrictive monetary posture, and

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<v Speaker 1>that's going to take some time. Consider this fact, forget

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<v Speaker 1>the backward looking numbers that we just got, as shocking

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<v Speaker 1>as they are, the FED funds rate relative to five

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<v Speaker 1>year expected inflation is still below two hundred basis points

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<v Speaker 1>minus two d basis point, and that is below the

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<v Speaker 1>trough of the last business cycle when you had very

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<v Speaker 1>slow growth and you know, in in very weak realized inflation,

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<v Speaker 1>and so this FED is still behind the curve, and

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<v Speaker 1>that is going to create a situation where these underlying

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<v Speaker 1>drive inflation like services and rents and wages are likely

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<v Speaker 1>to continue accelerat well, Michael Dart, that's right where I

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<v Speaker 1>wanted to go, because, frankly, folks, the most important inflation

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<v Speaker 1>data of the day after this shock is at ten

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<v Speaker 1>AM with a five year, five year forward Michigan statistic.

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<v Speaker 1>Michael Darter, what are the ramifications to the to the

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<v Speaker 1>the economic zeitgeist if we get the five year Michigan

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<v Speaker 1>look to break out above three percent, to break out

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<v Speaker 1>of the inflation level of two thousand six. Yeah, I

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<v Speaker 1>think the f O m C would take note of that. Um.

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<v Speaker 1>You know, those measures are are a bit stickier than

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<v Speaker 1>the bond market break even measures, but you know they

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<v Speaker 1>are elevated marginally relative to their averages of the last cycle.

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<v Speaker 1>And we start to see a any kind of what

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<v Speaker 1>looks like a breakout, I think that would create a

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<v Speaker 1>lot of consternation on the f O m C that

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<v Speaker 1>these high headline inflation numbers are bleeding into longer term

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<v Speaker 1>expectations and you know, I think the FED would be

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<v Speaker 1>alarmed by that. Michael Darta, thank you so much for

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<v Speaker 1>the insight. Michael Darta, m CAM Partners, and can't say

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<v Speaker 1>enough about his linkage of the equity markets into what

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<v Speaker 1>we see in economics. This was scheduled before the inflation

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<v Speaker 1>report and the importance of it. David Harrow, of course

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<v Speaker 1>always looking at price change across America, but far more.

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<v Speaker 1>We've tried to get David harrowin of Harris Associates to

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<v Speaker 1>speak of EU banking. It has been an absolute shock

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<v Speaker 1>and David, I've got to start with credit suites and

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<v Speaker 1>the view back I'm gonna say fifteen years or so

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<v Speaker 1>before the Great Financial Crisis of two thousand six, and

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<v Speaker 1>it is has been an abject value trapped and an

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<v Speaker 1>abject failure. You've been directly involved in this. You have

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<v Speaker 1>been patient, David Harrow. Have you run out of patients

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<v Speaker 1>with the gnomes of failure in Zurich? Well, not at

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<v Speaker 1>this stage yet, because there has been wholesale changes at

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<v Speaker 1>the bank, from the board to the management down, and

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<v Speaker 1>I think we need to see what the new people

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<v Speaker 1>who are involved with the bank, both from the Executive

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<v Speaker 1>Management Committee and the Board of Directors can do too

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<v Speaker 1>during this round. There is inherent value within the business,

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<v Speaker 1>and I think these people should be given a chance

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<v Speaker 1>to try to create this value and sustain this value.

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<v Speaker 1>The bank trades at about a third or book value,

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<v Speaker 1>so that the object now should be stabilization and then

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<v Speaker 1>growth after stabilization. And they can't do it. Someone else

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<v Speaker 1>asked to do they have a Swiss Are they not

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<v Speaker 1>making tough decisions because they know this government has their back,

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<v Speaker 1>that Zurich will be UBS and that Zurich will be

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<v Speaker 1>credit Suite. I would hope not. By the way, I'm

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<v Speaker 1>a believer in free market capitalism. Then there shouldn't be

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<v Speaker 1>any protection. If they can't do it and someone comes

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<v Speaker 1>in to make an acquisition to all our parts of

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<v Speaker 1>the business, I think that should be allowed to happen. Now.

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<v Speaker 1>There's taught that if someone does bid, they will give

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<v Speaker 1>UBS a chance to do some kind of a deal combination.

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<v Speaker 1>But I would certainly hope that is not the case.

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<v Speaker 1>Is Europe even ready for big cross border bank m

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<v Speaker 1>and A. I don't think you can here across a

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<v Speaker 1>border bank M and A in uh Europe and a

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<v Speaker 1>wide scale until some of the rules and laws are changed.

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<v Speaker 1>At some point this may happen, but you still have

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<v Speaker 1>fragmented banking markets, which it makes it non conducive to

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<v Speaker 1>cross border. I think there is a possibility for some

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<v Speaker 1>an isolated on an isolated levels and basis, but at

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<v Speaker 1>this stage you still need regulatory evening out that would

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<v Speaker 1>make it more conducive to cross border M and A.

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<v Speaker 1>On the other hand, a company like Credit Suits has

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<v Speaker 1>a huge private wealth management business which is now bigger

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<v Speaker 1>than their global markets investment banking business. And for any

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<v Speaker 1>big global bank that wants exposure in this lucrative area,

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<v Speaker 1>you would think Credit Sweets would be in an attractive asset.

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<v Speaker 1>I gotta ask you about um China because every morning

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<v Speaker 1>it seems like futures lately have are driven by the

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<v Speaker 1>idea that China may um get a little bit lighter

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<v Speaker 1>on tech companies. Yesterday there's a report that Aunt could

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<v Speaker 1>revive its I p L, although that's been kind of

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<v Speaker 1>pooh pooed. I see that you own a stake in Process,

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<v Speaker 1>which in turn owns a stake inten cent Right, what's

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<v Speaker 1>your view on China tech now? It does appear that

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<v Speaker 1>we've hit peaked regulatory initiatives in China. As you know,

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<v Speaker 1>over the last year or so, they've been increasing a

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<v Speaker 1>regulatory scrutiny and the Chinese tech sector, so the whole

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<v Speaker 1>sector has been kind of hit. We also owned some

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<v Speaker 1>Ali Baba as well, and both these sectors have been hit.

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<v Speaker 1>But we believe that even with this additional regulatory scrutiny. Now,

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<v Speaker 1>keep in mind, what's happening is these businesses around the

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<v Speaker 1>globe have grown much faster than the regulator's ability around

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<v Speaker 1>the globe to regulate them. In China's kind of taken

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<v Speaker 1>a first staff. But what we have seen what appears

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<v Speaker 1>to be statements from the government that we're getting getting

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<v Speaker 1>to the end of the regulatory initiatives. And then you

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<v Speaker 1>even saw in the case of ten Cents, lots of

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<v Speaker 1>games that were approved this week. This is one of

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<v Speaker 1>the things that they were concerned about, uh withholding game approvals, uh,

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<v Speaker 1>you know, for the various reasons. So we are starting

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<v Speaker 1>to see regulatory relief or at least movements by the

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<v Speaker 1>government that the worst is behind the sector. In Meanwhile,

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<v Speaker 1>these are really well run, world class tech companies that

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<v Speaker 1>trade a load double digit multiple. David Harrow, thank you

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<v Speaker 1>so much too brief a visit, but we've got so

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<v Speaker 1>much going on in inflation, David Harrold Harris associates there.

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<v Speaker 1>Jonathan galub is having a difficult Friday. He's a credit

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<v Speaker 1>squeeze and of course their chief US equity strategist, John,

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<v Speaker 1>I've got to get out in front of your research note.

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<v Speaker 1>Will you amend your targets this weekend for Monday trading? No,

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<v Speaker 1>we won't amend our our target and I think you

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<v Speaker 1>know our call all along is that the inflation is

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<v Speaker 1>going to be stickier at a much higher level, and

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<v Speaker 1>we've been recommending companies that benefit from higher inflation. So

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<v Speaker 1>the two ways of thinking about this. Today's report is

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<v Speaker 1>bad for the market in general, but there are certain

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<v Speaker 1>companies that hold up better or worse in a higher

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<v Speaker 1>inflation environment than others, and that's more focusing John Goda.

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<v Speaker 1>What's so important to me here is the behavior. And

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<v Speaker 1>I don't mean to hearken back to the fossil dim

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<v Speaker 1>that I am in the nineties seventies, but let's look

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<v Speaker 1>at the deck of cards. We've got the worst bond

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<v Speaker 1>market since time began. Price down, yield up. We've got

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<v Speaker 1>these inflation numbers today, the FED parlor game that we're

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<v Speaker 1>going to see out to the end of the year.

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<v Speaker 1>What do you in the credit SUITEZ Securities research team

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<v Speaker 1>field corporations will do. And my estimation they have to

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<v Speaker 1>rapidly act even into June and July and make the

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<v Speaker 1>plans that they thought they would make come October. Am

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<v Speaker 1>I right on that? You know, Tom, I don't think

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<v Speaker 1>you are right on that. I think that I think

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<v Speaker 1>the companies in a very high nominal GDP environment, which

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<v Speaker 1>is what we have, the underlying eco out of me

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<v Speaker 1>for all the recession concerns is fine. Revenues are rip

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<v Speaker 1>roaring strong, and so bigger companies in this environment have

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<v Speaker 1>tended to do a bit of a better job at

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<v Speaker 1>being able to make maintain costs. But profits are really high.

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<v Speaker 1>The thing which is getting smacked around, um are the

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<v Speaker 1>stock multiples, not the earnings. And that's important to think about.

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<v Speaker 1>So what kind of multiple do you think is right

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<v Speaker 1>for this market, especially if the FED has a terminal

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<v Speaker 1>rate of three and a half percent. Well, first of all,

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<v Speaker 1>I think that the FED is going to and I

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<v Speaker 1>think this is going to lead to dialogue that this

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<v Speaker 1>this conversation that we were having over the last couple

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<v Speaker 1>of weeks. Can the Fed pause in September. Well, we

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<v Speaker 1>know that the answer to that now is no, UM

0:13:45.240 --> 0:13:47.679
<v Speaker 1>and the said probably has to move beyond three and

0:13:47.720 --> 0:13:51.599
<v Speaker 1>a half percent UM. But we still have a you know,

0:13:51.679 --> 0:13:56.439
<v Speaker 1>we have a very powerful earnings environment, the revisions, the

0:13:56.640 --> 0:13:59.120
<v Speaker 1>you know, the kind of the analyst adjustment to the earnings.

0:13:59.480 --> 0:14:02.080
<v Speaker 1>With all discussion that we've been having about weak earnings,

0:14:02.400 --> 0:14:06.600
<v Speaker 1>they're going up almost every day. So um, we think

0:14:06.679 --> 0:14:09.560
<v Speaker 1>that the market so how much how much should investors

0:14:09.640 --> 0:14:13.679
<v Speaker 1>be paying for forward earnings? You know, if you if

0:14:13.720 --> 0:14:15.719
<v Speaker 1>you look at a corporate bond yield, which is what

0:14:15.960 --> 0:14:19.320
<v Speaker 1>your discount rate, it's not Fed funds, it's still you know,

0:14:19.400 --> 0:14:21.880
<v Speaker 1>still something like five percent, which is a low number.

0:14:22.320 --> 0:14:26.160
<v Speaker 1>So we think that stocks are attractively valued at these levels,

0:14:26.240 --> 0:14:29.200
<v Speaker 1>and we would be going in the level of concern

0:14:29.280 --> 0:14:32.720
<v Speaker 1>in the market is we think is much higher than

0:14:32.800 --> 0:14:36.320
<v Speaker 1>the than the underlying backdrop. C IBC report and this

0:14:36.440 --> 0:14:40.040
<v Speaker 1>is Catherine Judge reporting from c IBC Toronto, and folks,

0:14:40.080 --> 0:14:43.720
<v Speaker 1>I think this really sums it up. C IBC calls

0:14:43.800 --> 0:14:47.720
<v Speaker 1>US inflation report read hot, and they go Matt Miller

0:14:48.080 --> 0:14:51.320
<v Speaker 1>right to the heart of the matter which McKee alluded to,

0:14:52.120 --> 0:14:57.480
<v Speaker 1>which is shelter is the most gain since two thousand four.

0:14:57.680 --> 0:15:02.840
<v Speaker 1>We've been hot highlighting this today, folks from Senator Mansions Charleston,

0:15:02.920 --> 0:15:07.840
<v Speaker 1>West Virginia to Senator Miller's uh suburb north of New York.

0:15:07.920 --> 0:15:11.560
<v Speaker 1>I mean, Matt Miller, this is nothing that anybody already knows.

0:15:11.720 --> 0:15:13.720
<v Speaker 1>We are aware of this. I mean, if you look

0:15:13.840 --> 0:15:17.360
<v Speaker 1>at the what's it called the SMP core logic case Shiller,

0:15:17.440 --> 0:15:19.600
<v Speaker 1>we should really ask Bob to shorten that. If you

0:15:19.720 --> 0:15:23.760
<v Speaker 1>look at their twenties city index UM and max it out,

0:15:24.160 --> 0:15:27.320
<v Speaker 1>we're at a level that towers over what we saw

0:15:27.480 --> 0:15:30.000
<v Speaker 1>in two thousand four, two thousand five. So in terms

0:15:30.040 --> 0:15:33.240
<v Speaker 1>of the absolute level, it's just unbelievable. The amount of

0:15:33.280 --> 0:15:35.600
<v Speaker 1>appreciation to seeen in the house prices. John Gala with

0:15:35.680 --> 0:15:38.560
<v Speaker 1>credit sweets with us here. John, you talk about the

0:15:38.680 --> 0:15:42.720
<v Speaker 1>animal spirit of nominal g d P. But at eight

0:15:42.800 --> 0:15:47.080
<v Speaker 1>point six percent headline, is there a point where the

0:15:47.320 --> 0:15:54.720
<v Speaker 1>inflation price change part of nominal absolutely overwhelms actual economic growth?

0:15:56.240 --> 0:16:00.520
<v Speaker 1>You know? It's that's like the the ultar bit the

0:16:00.680 --> 0:16:03.280
<v Speaker 1>ultimate question, the the like Like I said, before the

0:16:03.360 --> 0:16:08.680
<v Speaker 1>earnings are fine, the stock multiple is in five multiple points.

0:16:08.800 --> 0:16:12.600
<v Speaker 1>Is a decline in stock multiples this year. Today's news,

0:16:12.800 --> 0:16:15.920
<v Speaker 1>taken by itself, should push the multiple down. The market,

0:16:16.040 --> 0:16:17.960
<v Speaker 1>you know, the futures are down something like one in

0:16:18.000 --> 0:16:22.160
<v Speaker 1>a quarter percent on this news. That is perfectly that's

0:16:22.200 --> 0:16:24.720
<v Speaker 1>exactly what you'd expect to happen. But the market has

0:16:24.800 --> 0:16:30.360
<v Speaker 1>already you know, adjusted, you know, enormously for this inflation environment.

0:16:30.440 --> 0:16:33.400
<v Speaker 1>So I think that the market probably is has taken

0:16:33.680 --> 0:16:36.400
<v Speaker 1>all the bad news into account already, which is one

0:16:36.440 --> 0:16:39.400
<v Speaker 1>of the reasons why I'm not as concerned, not because

0:16:39.440 --> 0:16:41.640
<v Speaker 1>this isn't a good report, but because the markets already

0:16:41.640 --> 0:16:45.040
<v Speaker 1>discounted a ton of bad news. And most importantly, you know,

0:16:45.160 --> 0:16:47.000
<v Speaker 1>a red hot and you're just talking about the c

0:16:47.120 --> 0:16:52.200
<v Speaker 1>ib report. A red hot economy does not equal recession,

0:16:52.320 --> 0:16:54.880
<v Speaker 1>and this is a red hot economy, not a recessionary economy.

0:16:55.000 --> 0:17:01.320
<v Speaker 1>John Gallup, thank you so much. Right now, Ellen Wall

0:17:01.480 --> 0:17:05.080
<v Speaker 1>joins us. I can't say enough about her book, Saudi Inc.

0:17:05.280 --> 0:17:08.760
<v Speaker 1>It is a window into the layers of the Ebon

0:17:08.880 --> 0:17:13.040
<v Speaker 1>Sad family, the heritage of the family, and most importantly,

0:17:13.240 --> 0:17:16.560
<v Speaker 1>the new family. She's senior fellow at the Atlantic Council.

0:17:17.480 --> 0:17:21.240
<v Speaker 1>I guess Mr Biden will visit Riot. It's not formally

0:17:21.280 --> 0:17:25.280
<v Speaker 1>announced yet, but there it is. Ellen is well when

0:17:25.400 --> 0:17:29.639
<v Speaker 1>he visits. Can there be a belief that Saudi Arabia

0:17:29.880 --> 0:17:34.440
<v Speaker 1>can adjust the price of a gallon of gas in America?

0:17:35.640 --> 0:17:37.960
<v Speaker 1>I think that if you if you have that belief still,

0:17:38.160 --> 0:17:41.320
<v Speaker 1>you need to re examine your your belief system, because

0:17:41.640 --> 0:17:46.000
<v Speaker 1>Saudi Arabia does not have the ability to change the

0:17:46.119 --> 0:17:49.359
<v Speaker 1>price of a gallon of gasoline like that unless they

0:17:49.440 --> 0:17:54.200
<v Speaker 1>do something so incredibly drastic um and at this point,

0:17:54.320 --> 0:17:57.520
<v Speaker 1>even with demand way it is and with other producers

0:17:57.880 --> 0:17:59.920
<v Speaker 1>and you know, kind of falling off a cliff, even

0:18:00.040 --> 0:18:03.560
<v Speaker 1>if Saudi Arabia put another two million barrels a dave

0:18:03.640 --> 0:18:05.880
<v Speaker 1>oil in the market, I don't think we would even

0:18:06.080 --> 0:18:08.879
<v Speaker 1>see that much of a drop in US gasolene prices.

0:18:09.119 --> 0:18:12.320
<v Speaker 1>The hope and prayer here, Ellen is a redux of

0:18:12.440 --> 0:18:17.800
<v Speaker 1>OPEC one, OPEC two six, And there was a moment

0:18:17.960 --> 0:18:25.199
<v Speaker 1>in night six were oil cratered. Can we relive that? Well? Um,

0:18:25.440 --> 0:18:28.520
<v Speaker 1>we could. I mean we almost relived that in um.

0:18:28.720 --> 0:18:32.880
<v Speaker 1>If you remember in in March of win just as

0:18:33.280 --> 0:18:37.360
<v Speaker 1>global oil demand was cratering, Russia and Saudi Arabia both

0:18:37.720 --> 0:18:40.480
<v Speaker 1>kind of opened their taps, so uh and and saw

0:18:40.760 --> 0:18:43.960
<v Speaker 1>in April and May of that year an incredible amount

0:18:43.960 --> 0:18:47.119
<v Speaker 1>of oil just slotting the market and crashing prices. I

0:18:47.200 --> 0:18:50.240
<v Speaker 1>don't think that we are likely to see a redux

0:18:50.280 --> 0:18:52.639
<v Speaker 1>of that in this case, unless there's some sort of

0:18:52.760 --> 0:18:56.800
<v Speaker 1>major shock to the global economy that that causes demand

0:18:56.920 --> 0:19:00.479
<v Speaker 1>to create. At this point, we're so tight in supply,

0:19:01.080 --> 0:19:05.080
<v Speaker 1>and um, there's enough Russian oil that has been off

0:19:05.160 --> 0:19:07.640
<v Speaker 1>the market. There's a question about whether it's really coming

0:19:07.680 --> 0:19:09.960
<v Speaker 1>back or not. I think that it's coming back a

0:19:10.040 --> 0:19:13.040
<v Speaker 1>little bit more than people think. But still demand has

0:19:13.160 --> 0:19:16.119
<v Speaker 1>just been so high, and with China reopening and demand

0:19:16.200 --> 0:19:20.000
<v Speaker 1>expected to go up there, it's really just it seems

0:19:20.040 --> 0:19:23.520
<v Speaker 1>like there really isn't enough oil in production now in

0:19:23.600 --> 0:19:28.800
<v Speaker 1>the world to get that to get these prices down significantly.

0:19:29.080 --> 0:19:31.080
<v Speaker 1>And then when you throw in uh, you know, the

0:19:31.160 --> 0:19:34.440
<v Speaker 1>situation in Ukraine and Russia, it's just that it's just

0:19:34.800 --> 0:19:37.800
<v Speaker 1>a recipe too for prices to keep rising. Ellen the

0:19:37.920 --> 0:19:40.159
<v Speaker 1>people who say this is a policy error and we

0:19:40.160 --> 0:19:43.280
<v Speaker 1>should have been investing more in fossil fuels, if there

0:19:43.320 --> 0:19:46.160
<v Speaker 1>were some sort of change in policy that would encourage

0:19:46.200 --> 0:19:49.679
<v Speaker 1>more investment. How long would it take before those barrels

0:19:49.720 --> 0:19:53.760
<v Speaker 1>would actually come online to ramp up production. So it

0:19:53.960 --> 0:19:57.040
<v Speaker 1>would definitely take um some time. You know, we're not

0:19:57.320 --> 0:20:00.879
<v Speaker 1>Saudi Arabia. We don't just have spare capath city that

0:20:00.960 --> 0:20:04.320
<v Speaker 1>can come online that quickly. But it's not as slow

0:20:04.480 --> 0:20:07.440
<v Speaker 1>as it would take in other areas, because there are

0:20:07.640 --> 0:20:11.639
<v Speaker 1>shale oil resources that can come online, you know, within month,

0:20:11.800 --> 0:20:15.720
<v Speaker 1>two months, three months, things like that. UM. Longer term, though,

0:20:15.760 --> 0:20:18.240
<v Speaker 1>we would need a lot of investment in big long

0:20:18.359 --> 0:20:21.480
<v Speaker 1>term projects, say in the Gulf of Mexico and other

0:20:21.560 --> 0:20:24.680
<v Speaker 1>areas that could pump a substantial amount of oil that

0:20:24.760 --> 0:20:27.639
<v Speaker 1>would bring down prices in the long use of her

0:20:28.200 --> 0:20:31.680
<v Speaker 1>you'd have that. Why would why would those executives want

0:20:31.720 --> 0:20:35.000
<v Speaker 1>to do that kind of investment? I mean they've been vilified,

0:20:35.720 --> 0:20:41.040
<v Speaker 1>um by not only this administration but by the US Congress. Um.

0:20:41.800 --> 0:20:44.240
<v Speaker 1>Why make that kind of long term investment when you

0:20:44.359 --> 0:20:46.800
<v Speaker 1>know that policies and regulations can change on a dime

0:20:46.880 --> 0:20:51.080
<v Speaker 1>against you, precisely. I mean, this is this is the question.

0:20:51.160 --> 0:20:53.920
<v Speaker 1>You know, if you're an oil and gas executive and

0:20:54.000 --> 0:20:57.320
<v Speaker 1>you're responsible for making decisions about the health of the company,

0:20:57.440 --> 0:21:00.639
<v Speaker 1>returning value to your shareholders of Coorse, you're not going

0:21:00.680 --> 0:21:02.880
<v Speaker 1>to want to make any of these long term investments

0:21:02.960 --> 0:21:06.480
<v Speaker 1>because you are concerned that any project that you invest

0:21:06.560 --> 0:21:10.120
<v Speaker 1>in could just either get shut down by government regulations

0:21:10.359 --> 0:21:12.800
<v Speaker 1>or for all you know, they're finally going to issue

0:21:12.800 --> 0:21:15.359
<v Speaker 1>the methane regulations and you're just gonna have to spend

0:21:15.440 --> 0:21:19.119
<v Speaker 1>a huge amount more money to comply. That uncertainty I

0:21:19.200 --> 0:21:23.600
<v Speaker 1>think is really keeping production from increasing. On the flip

0:21:23.640 --> 0:21:25.760
<v Speaker 1>side of Ellen, how much can some of the renewable

0:21:25.800 --> 0:21:29.280
<v Speaker 1>sources of energy start to offset fossil fuel usage in

0:21:29.359 --> 0:21:31.760
<v Speaker 1>a way that is more material in the near term

0:21:32.040 --> 0:21:35.879
<v Speaker 1>and frankly expedite that transition. But I don't want to

0:21:35.920 --> 0:21:38.920
<v Speaker 1>be a downer about wind and solar, because I think

0:21:39.040 --> 0:21:42.360
<v Speaker 1>they are great technologies and they're improving all the time.

0:21:42.680 --> 0:21:45.200
<v Speaker 1>But if you look at the amount of energy you

0:21:45.320 --> 0:21:47.680
<v Speaker 1>get from renewable energy and you compare it to the

0:21:47.680 --> 0:21:50.440
<v Speaker 1>amount of energy you get from breaking down a hydrocarbon,

0:21:50.640 --> 0:21:53.520
<v Speaker 1>you just can't compare it. It's it's not you need

0:21:53.720 --> 0:21:57.320
<v Speaker 1>so much more of these renewable sources in order to

0:21:57.760 --> 0:22:01.879
<v Speaker 1>compensate for hydrocarbons, And we're at a point where energy

0:22:02.080 --> 0:22:05.480
<v Speaker 1>use is still increasing, and so all of the renewables

0:22:05.520 --> 0:22:09.000
<v Speaker 1>that are coming online are helping to to create that

0:22:09.440 --> 0:22:14.320
<v Speaker 1>to offset that new demand. Forget replacing old old sources.

0:22:14.560 --> 0:22:17.640
<v Speaker 1>Oh well, very quickly. Here I have a moving average

0:22:17.720 --> 0:22:21.680
<v Speaker 1>of inflation adjusted brent, which tells me that when we

0:22:21.760 --> 0:22:26.080
<v Speaker 1>get up to a hundred forty a barrel, things change,

0:22:26.520 --> 0:22:30.440
<v Speaker 1>how our behavior change? If we see brent move on

0:22:32.000 --> 0:22:35.959
<v Speaker 1>up to one and you know what, you know, if

0:22:36.000 --> 0:22:38.439
<v Speaker 1>you'd asked me a month ago whether we get there,

0:22:38.440 --> 0:22:40.240
<v Speaker 1>I'd say, well, one forty is a long way off.

0:22:40.480 --> 0:22:43.440
<v Speaker 1>Now it doesn't seem so far so far away. I

0:22:43.560 --> 0:22:46.320
<v Speaker 1>think that if we hit one forty brent, we're definitely

0:22:46.440 --> 0:22:50.080
<v Speaker 1>going to see um a lot of people and also

0:22:50.160 --> 0:22:54.040
<v Speaker 1>businesses to making decisions to u not you know, not

0:22:54.240 --> 0:22:57.480
<v Speaker 1>expand and maybe cut back on production. We're already seeing

0:22:57.800 --> 0:23:01.400
<v Speaker 1>businesses say that depend on troleum products. We saw Lulu

0:23:01.560 --> 0:23:04.040
<v Speaker 1>Lemon earlier. This Week's say hey, we're raising the prices

0:23:04.080 --> 0:23:07.000
<v Speaker 1>of our products because they are made from petroleum, and

0:23:07.240 --> 0:23:10.240
<v Speaker 1>patroleum is just that much more expective. So it's not

0:23:10.400 --> 0:23:13.880
<v Speaker 1>just relying on energy, it's also every business that uses

0:23:13.960 --> 0:23:16.680
<v Speaker 1>oil products. Now you're seeing Ellen will thank you for

0:23:16.720 --> 0:23:18.879
<v Speaker 1>the brief on oil with the Atlantic Council. Can't say

0:23:19.000 --> 0:23:22.560
<v Speaker 1>enough about weekend reading with Saudi and as well. This

0:23:22.720 --> 0:23:26.480
<v Speaker 1>is the Bloomberg Surveillance Podcast. Thanks for listening. Join us

0:23:26.560 --> 0:23:29.720
<v Speaker 1>live weekdays from seven to ten a m. Eastern on

0:23:29.800 --> 0:23:34.000
<v Speaker 1>Bloomberg Radio and on Bloomberg Television each day from six

0:23:34.160 --> 0:23:39.000
<v Speaker 1>to nine am for insight from the best in economics, finance, investment,

0:23:39.160 --> 0:23:44.159
<v Speaker 1>and international relations. And subscribe to the Surveillance podcast on

0:23:44.280 --> 0:23:48.119
<v Speaker 1>Apple podcast, SoundCloud, Bloomberg dot com, and of course on

0:23:48.200 --> 0:23:52.320
<v Speaker 1>the terminal. I'm Tom Keene, and this is Bloomberg