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 --> 00:00:13,039 Speaker 1: with Jonathan Ferrell and Lisa A. Brawmowitz. Daily we bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,239 --> 00:00:23,320 Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 5 00:00:23,360 --> 00:00:29,560 Speaker 1: dot com, and of course on the Bloomberg terminal. Let's 6 00:00:29,560 --> 00:00:32,080 Speaker 1: get right to it right now. Michael Wilson, without question, 7 00:00:32,200 --> 00:00:35,440 Speaker 1: the top strategists we have observed for last year, Chief 8 00:00:35,600 --> 00:00:38,760 Speaker 1: US equity Strategy, Morgan Stanley. Mike, I want to go 9 00:00:38,800 --> 00:00:41,920 Speaker 1: to technique here. Do you change your technique your day 10 00:00:41,920 --> 00:00:45,199 Speaker 1: to day grind at Morgan Stanley and the classic ideas? 11 00:00:45,240 --> 00:00:48,519 Speaker 1: Are you bottom up? Top down? All this? There's the 12 00:00:48,640 --> 00:00:51,640 Speaker 1: factor analysis out of m I t years ago. What 13 00:00:52,040 --> 00:00:57,440 Speaker 1: is the process of Wilson strategy for this year? We 14 00:00:57,560 --> 00:00:59,480 Speaker 1: good morningtime and happy new year to all of you. 15 00:01:00,000 --> 00:01:03,680 Speaker 1: I mean the process never changes. Okay, we do all 16 00:01:03,720 --> 00:01:07,080 Speaker 1: of those things you mentioned, top down, bottoms of factor analysis. However, 17 00:01:07,080 --> 00:01:09,319 Speaker 1: what I would say is and at certain times we 18 00:01:09,440 --> 00:01:13,039 Speaker 1: emphasize you one over the other. And I would say that, 19 00:01:13,120 --> 00:01:15,800 Speaker 1: you know, going into two thousands twenty three is probably 20 00:01:15,840 --> 00:01:17,679 Speaker 1: gonna be a little bit more bobs up, a little bit, 21 00:01:17,720 --> 00:01:23,119 Speaker 1: more dispersion amongst stocks, even even perhaps within sectors. There's 22 00:01:23,120 --> 00:01:24,760 Speaker 1: doing a lot of work on that this week actually 23 00:01:25,040 --> 00:01:27,800 Speaker 1: for next week's note with respect to okay, well, how 24 00:01:27,840 --> 00:01:30,160 Speaker 1: are we going to make money on a relative value basis? 25 00:01:30,160 --> 00:01:32,080 Speaker 1: And that started to emerge again a little bit at 26 00:01:32,080 --> 00:01:33,959 Speaker 1: the end of last year because at the end of 27 00:01:33,959 --> 00:01:37,320 Speaker 1: these bear market is what happens is the big cahunas, right, 28 00:01:37,400 --> 00:01:40,480 Speaker 1: the big market cap leaders are the ones that eventually 29 00:01:40,560 --> 00:01:43,360 Speaker 1: have to fall, and that's exactly what we're seeing this 30 00:01:43,440 --> 00:01:45,200 Speaker 1: year at the end of last year. So we think 31 00:01:45,200 --> 00:01:46,880 Speaker 1: there is going to be opportunity to stock level and 32 00:01:46,880 --> 00:01:50,360 Speaker 1: we've been talking about that center. Where's the greatest variability 33 00:01:50,440 --> 00:01:53,800 Speaker 1: to partial differential on the income statement? Is revenue the 34 00:01:53,800 --> 00:01:56,280 Speaker 1: greater mystery? Or do you go down to ibata or 35 00:01:56,280 --> 00:01:59,640 Speaker 1: down to net income? Now that's a great question, Tom. 36 00:01:59,720 --> 00:02:02,639 Speaker 1: It's it's all about profitability. And we've been talking about 37 00:02:02,680 --> 00:02:07,200 Speaker 1: this one factor really since January February. Operational efficiency. That's 38 00:02:07,240 --> 00:02:09,240 Speaker 1: what the market is paying for, and it continues to 39 00:02:09,280 --> 00:02:12,440 Speaker 1: pay up for companies that can basically deliver to the 40 00:02:12,480 --> 00:02:14,960 Speaker 1: bottom line. All right, So revenue growth, we know is 41 00:02:14,960 --> 00:02:17,320 Speaker 1: going to be softer than last year. We don't know 42 00:02:17,360 --> 00:02:19,280 Speaker 1: if it's gonna be negative, because that ties into the 43 00:02:19,360 --> 00:02:21,800 Speaker 1: question around recession, which you all are just debating. I 44 00:02:21,800 --> 00:02:23,560 Speaker 1: think being a bond investor is harder than being a 45 00:02:23,560 --> 00:02:26,040 Speaker 1: stock investor right now because being a bond investor, you 46 00:02:26,080 --> 00:02:27,920 Speaker 1: don't know if you're gonna get a labor cycle. Okay, 47 00:02:28,000 --> 00:02:29,760 Speaker 1: but in the acquity market, we don't. We don't really 48 00:02:29,760 --> 00:02:31,840 Speaker 1: care because if you don't get a labor cycle, then 49 00:02:31,840 --> 00:02:33,799 Speaker 1: the margins are gonna be even worse. So I think 50 00:02:33,800 --> 00:02:36,320 Speaker 1: either way, we're gonna get a nasty earnings recession. And 51 00:02:36,360 --> 00:02:39,080 Speaker 1: so the companies that can deliver on the cost efficiency 52 00:02:39,360 --> 00:02:41,000 Speaker 1: are the ones that are going to continue to perform 53 00:02:41,160 --> 00:02:44,520 Speaker 1: until you fully price you know, whatever this downturn on 54 00:02:44,560 --> 00:02:46,560 Speaker 1: earnings are going to be. So, Michael, were starting to 55 00:02:46,600 --> 00:02:49,359 Speaker 1: see that cuts those cuts of much in big tech 56 00:02:49,400 --> 00:02:51,080 Speaker 1: and does that make you a little bit more constructive 57 00:02:51,080 --> 00:02:54,960 Speaker 1: on the sector into twenty three, Well not yet. I 58 00:02:54,960 --> 00:02:57,480 Speaker 1: mean we're starting to see it. I think the you know, 59 00:02:57,520 --> 00:02:59,480 Speaker 1: the look, this is one of the areas I would 60 00:02:59,480 --> 00:03:02,920 Speaker 1: say consume consumer goods in particular and tech were the 61 00:03:02,960 --> 00:03:06,960 Speaker 1: two areas of most egregious over earning and margins as 62 00:03:06,960 --> 00:03:08,760 Speaker 1: well as top line, and that just has to get 63 00:03:08,760 --> 00:03:11,600 Speaker 1: wrung out. The thing the concerns about tech companies, John, 64 00:03:11,760 --> 00:03:14,440 Speaker 1: is that they're not good cost cutters. Traditionally right there, 65 00:03:14,560 --> 00:03:17,760 Speaker 1: their growth companies, they tend to want to invest into 66 00:03:17,800 --> 00:03:21,519 Speaker 1: these downturns. They want to invest, you know, aggressively through 67 00:03:21,560 --> 00:03:23,280 Speaker 1: all periods of time. And they're just not good at 68 00:03:23,280 --> 00:03:25,160 Speaker 1: cost cutting, and so they're gonna be late on that. 69 00:03:25,200 --> 00:03:27,079 Speaker 1: They're probably not going to do enough, and so it 70 00:03:27,120 --> 00:03:29,520 Speaker 1: will take longer than you think, and so the margin 71 00:03:29,600 --> 00:03:32,400 Speaker 1: degradation could be more severe in those areas. Now, there 72 00:03:32,440 --> 00:03:34,560 Speaker 1: are parts of tech that have already gone through that. 73 00:03:34,639 --> 00:03:36,240 Speaker 1: The other thing I would say is be careful about 74 00:03:36,240 --> 00:03:38,440 Speaker 1: how you define tech, where if you look at the 75 00:03:38,480 --> 00:03:40,600 Speaker 1: top six or seven stocks in the SMP, we all 76 00:03:40,640 --> 00:03:42,720 Speaker 1: know what they are. Only two of them are real 77 00:03:42,840 --> 00:03:47,480 Speaker 1: tech companies. The other ones are communication services and consumer retail. Mike, 78 00:03:47,480 --> 00:03:50,280 Speaker 1: how has the potential reopening of China changed your view? 79 00:03:50,280 --> 00:03:53,080 Speaker 1: Because you've been talking about the potential for an earnings 80 00:03:53,120 --> 00:03:56,400 Speaker 1: downturn for a while now, and a lot has changed 81 00:03:56,480 --> 00:03:59,160 Speaker 1: the past couple of weeks with respect to China, with 82 00:03:59,200 --> 00:04:03,360 Speaker 1: respect to a warmer an expected winter, you know, I 83 00:04:03,400 --> 00:04:06,160 Speaker 1: mean like it. It factors into our analysis for sure. 84 00:04:06,240 --> 00:04:08,800 Speaker 1: From an economic standpoint. I think from an earning standpoint, 85 00:04:08,800 --> 00:04:11,440 Speaker 1: it's less important at leasta because you know, we look 86 00:04:11,480 --> 00:04:14,600 Speaker 1: at it carefully. China only accounts for about four percent 87 00:04:14,880 --> 00:04:18,480 Speaker 1: of SMP revenue, so it's just not that significant. Now 88 00:04:18,480 --> 00:04:21,680 Speaker 1: for some companies it's very significant. The other thing I 89 00:04:21,720 --> 00:04:24,240 Speaker 1: would caution on is that, you know, China really hasn't 90 00:04:24,279 --> 00:04:27,839 Speaker 1: been closed to a production standpoint, right, I mean, we 91 00:04:27,920 --> 00:04:30,600 Speaker 1: haven't wanted for many things. We mean, we've they've been 92 00:04:30,600 --> 00:04:33,360 Speaker 1: produced to be doing these rolling lockdowns, and the factories 93 00:04:33,360 --> 00:04:35,719 Speaker 1: have been pretty wide opened quite frankly. So this is 94 00:04:35,720 --> 00:04:39,400 Speaker 1: more about consumption at the at the at the domestic level. 95 00:04:39,680 --> 00:04:41,599 Speaker 1: So thing it's a real positive for the Chinese stock 96 00:04:41,640 --> 00:04:43,760 Speaker 1: market and certain pockets of that. That's where we upgraded 97 00:04:43,839 --> 00:04:46,280 Speaker 1: China a few months ago. But I'm not sure it's 98 00:04:46,279 --> 00:04:48,279 Speaker 1: a big deal for the US stock market. But what 99 00:04:48,320 --> 00:04:50,599 Speaker 1: about with consumer spending? We've seen that hang in there, 100 00:04:50,760 --> 00:04:53,320 Speaker 1: that's come out better than expected at least over the 101 00:04:53,320 --> 00:04:56,760 Speaker 1: past a number of weeks in select industries. Does that 102 00:04:57,040 --> 00:04:58,880 Speaker 1: make you change your view at all? Or is that 103 00:04:58,960 --> 00:05:01,920 Speaker 1: basically U. What's to be expected in the last gasps 104 00:05:02,120 --> 00:05:05,159 Speaker 1: for the downturn that we see in the first quarter. Yeah, 105 00:05:05,160 --> 00:05:07,640 Speaker 1: I mean, unfortunately, I think we're just seeing the last 106 00:05:07,680 --> 00:05:09,320 Speaker 1: gaps as you mentioned. I mean, part of that has 107 00:05:09,400 --> 00:05:12,560 Speaker 1: holiday spen, okay, so you know, it's the American way. 108 00:05:12,640 --> 00:05:14,920 Speaker 1: We don't want to be scrooge. People are gonna spend 109 00:05:14,920 --> 00:05:16,920 Speaker 1: money on the holidays, and I think they're gonna probably 110 00:05:16,960 --> 00:05:20,600 Speaker 1: hunker down. We've heard something's large consumer retailers talk about 111 00:05:20,640 --> 00:05:24,080 Speaker 1: that dynamic where they expect demand to fall off sharply 112 00:05:24,400 --> 00:05:26,280 Speaker 1: once the holiday season is over. So that's what we're 113 00:05:26,320 --> 00:05:29,800 Speaker 1: gonna be watching carefully. We're pretty confident about interest rate 114 00:05:29,880 --> 00:05:32,880 Speaker 1: sensitive areas like housing and autos. Those are pretty obvious, 115 00:05:33,320 --> 00:05:35,760 Speaker 1: you know, victims of the higher rates. But I think 116 00:05:35,800 --> 00:05:39,080 Speaker 1: even broader speaking, we're expecting a pretty sharp down turning 117 00:05:39,120 --> 00:05:42,320 Speaker 1: consumption over the first six months of this year, at 118 00:05:42,360 --> 00:05:44,440 Speaker 1: least as a stand as a stands in turns a 119 00:05:44,560 --> 00:05:47,840 Speaker 1: profitable spending Okay, Discounting will return as one of our 120 00:05:47,880 --> 00:05:49,800 Speaker 1: teams for this year, which is why we think inflation 121 00:05:49,880 --> 00:05:51,920 Speaker 1: will come down pretty sharply. So Mike, with that in mind, 122 00:05:52,000 --> 00:05:54,800 Speaker 1: during the team still believe it's about down side at 123 00:05:54,800 --> 00:05:58,440 Speaker 1: the index level. Here we do we think, we think 124 00:05:58,480 --> 00:06:02,440 Speaker 1: three thousand is is a very achievable number given our 125 00:06:02,880 --> 00:06:06,039 Speaker 1: confidence on our orange forecast and so and that you know, 126 00:06:06,160 --> 00:06:09,440 Speaker 1: I would ironically, I would say, in the absence of, 127 00:06:09,560 --> 00:06:14,280 Speaker 1: you know, a recession, meaning companies decide to not off aggressively, 128 00:06:14,560 --> 00:06:19,200 Speaker 1: that target looks more achievable. That may sound counterintuitive, but 129 00:06:19,440 --> 00:06:21,680 Speaker 1: that's the way we're not modeling it today. So our 130 00:06:21,720 --> 00:06:24,200 Speaker 1: bear case is actually kind of we avoid a recession, 131 00:06:24,200 --> 00:06:26,760 Speaker 1: but not the slowdown that would be the three thousand 132 00:06:26,760 --> 00:06:29,640 Speaker 1: scenario and a d dollars and earniers. My my quote 133 00:06:29,640 --> 00:06:31,640 Speaker 1: from last year was from the Great not seem to 134 00:06:31,760 --> 00:06:34,520 Speaker 1: Leb who said the gravity is back, the idea that 135 00:06:34,600 --> 00:06:37,599 Speaker 1: money costs something the risk free rates there. To me, 136 00:06:37,760 --> 00:06:40,720 Speaker 1: my theme for the year is the great zombie roll up. 137 00:06:41,200 --> 00:06:45,200 Speaker 1: Not the companies Morgan Stanley follows, but all the garbage 138 00:06:45,240 --> 00:06:49,200 Speaker 1: companies out there that had a fifteen sixteen year free ride. 139 00:06:49,839 --> 00:06:54,800 Speaker 1: What happens to them in two thousand twenty three. Well, 140 00:06:54,839 --> 00:06:56,960 Speaker 1: I think it's already begun. I mean, we've seen what's 141 00:06:57,000 --> 00:06:59,280 Speaker 1: going on right When the cost of Capitola goes up, 142 00:06:59,360 --> 00:07:01,960 Speaker 1: these business is flat out don't work. Um. And so 143 00:07:01,960 --> 00:07:05,719 Speaker 1: we've had fifteen years of easy monetary policy globally. UM 144 00:07:05,800 --> 00:07:08,320 Speaker 1: that that is now being normalized in a more rapid 145 00:07:08,360 --> 00:07:11,640 Speaker 1: way than anybody expected, including us quite frankly, even though 146 00:07:11,640 --> 00:07:14,280 Speaker 1: we had that forew a year ago. And that's just 147 00:07:14,360 --> 00:07:17,320 Speaker 1: gonna run ramshot over these business models. And by the way, time, 148 00:07:17,360 --> 00:07:19,440 Speaker 1: I'm not sure it's a bad thing if we can 149 00:07:19,480 --> 00:07:21,840 Speaker 1: do it in a way that isn't too destructive, okay 150 00:07:21,840 --> 00:07:24,240 Speaker 1: to the broader economy. And we need we need a 151 00:07:24,280 --> 00:07:28,040 Speaker 1: normalization of the cost of capital because it's not healthy 152 00:07:28,160 --> 00:07:31,160 Speaker 1: for the broader economy. It's not healthy for five companies 153 00:07:31,400 --> 00:07:34,920 Speaker 1: to account for the market cap, which is what happened 154 00:07:35,200 --> 00:07:37,880 Speaker 1: in the last ten years. We need a more democratic 155 00:07:37,920 --> 00:07:41,160 Speaker 1: economy where you know, medium small sized businesses have a 156 00:07:41,200 --> 00:07:44,120 Speaker 1: fighting chance and it costs to capital arizing. Ironically, it's 157 00:07:44,160 --> 00:07:47,240 Speaker 1: part of that. It's a nazing discipline. Makes the count 158 00:07:47,280 --> 00:07:49,760 Speaker 1: back Mike wonderful as Old White Buddy happen New Year's 159 00:07:49,800 --> 00:07:51,760 Speaker 1: even it's saying looking forward to plenty of contrees straight 160 00:07:52,400 --> 00:08:06,080 Speaker 1: three wis there? Stanley Jordan Ryansester a huge value of 161 00:08:06,080 --> 00:08:08,920 Speaker 1: Bloomberg surveillance last year and he started stronging this year 162 00:08:08,960 --> 00:08:11,360 Speaker 1: with us as well. Jordan, I'm gonna cut to the chase. 163 00:08:11,440 --> 00:08:12,840 Speaker 1: The first thing I looked at it was a d 164 00:08:13,040 --> 00:08:15,280 Speaker 1: x y the Pacific rim. But I want to bring 165 00:08:15,360 --> 00:08:18,880 Speaker 1: it over to your inside on Euro as well. Is 166 00:08:19,120 --> 00:08:24,760 Speaker 1: the week dollar trend intact led by strong euro. Well yesterday, 167 00:08:24,840 --> 00:08:27,200 Speaker 1: Tom and happy New Year everybody. It was a pretty 168 00:08:27,240 --> 00:08:29,840 Speaker 1: tough day for that year long. We saw a big 169 00:08:29,920 --> 00:08:33,440 Speaker 1: move over one percent, much bigger than a normal January move. 170 00:08:33,960 --> 00:08:36,920 Speaker 1: For your own facts, it's been similar to the entire 171 00:08:37,200 --> 00:08:40,240 Speaker 1: monthly move of of euro in January and previous years. 172 00:08:40,559 --> 00:08:43,600 Speaker 1: It just tells you that volateerity was alive last year 173 00:08:43,640 --> 00:08:45,880 Speaker 1: and it's still live in the first few train days 174 00:08:45,880 --> 00:08:48,800 Speaker 1: of this year. Low liquidity, people dusting off their holiday 175 00:08:48,840 --> 00:08:52,000 Speaker 1: emails and also putting fresh capital to work. And as 176 00:08:52,040 --> 00:08:54,960 Speaker 1: you mentioned, there was that negative seasonality, so a sixty 177 00:08:55,040 --> 00:08:58,440 Speaker 1: four percent hit ratio. Since night, euro dollar has headed 178 00:08:58,520 --> 00:09:02,319 Speaker 1: lower on average around point three. So we're currently betting 179 00:09:02,400 --> 00:09:05,920 Speaker 1: on the thirty six historical chance that Euro goes higher 180 00:09:06,000 --> 00:09:08,800 Speaker 1: for a number of reasons. The first one was proven today, 181 00:09:09,240 --> 00:09:11,640 Speaker 1: which is I think the European growth data it's going 182 00:09:11,720 --> 00:09:13,840 Speaker 1: to point towards recession, but it's not gonna be as 183 00:09:13,880 --> 00:09:15,679 Speaker 1: bad as what people think. We had. The p M 184 00:09:15,720 --> 00:09:18,319 Speaker 1: eyes revised up this morning for the Euro Area, and 185 00:09:18,360 --> 00:09:21,319 Speaker 1: I think the reopening in China will really help boost 186 00:09:21,360 --> 00:09:24,400 Speaker 1: the Euro Area economy as well as as as we're 187 00:09:24,440 --> 00:09:28,640 Speaker 1: also seeing gas prices, natural gas electricity prices much lower 188 00:09:28,760 --> 00:09:31,440 Speaker 1: with the warmer weather. The ski season has been awful, 189 00:09:31,720 --> 00:09:34,920 Speaker 1: but that's been fantastic for industry looking at much lower 190 00:09:35,000 --> 00:09:38,160 Speaker 1: levels of input costs and therefore boosting production. So we're 191 00:09:38,160 --> 00:09:40,959 Speaker 1: having a growth story. And then yesterday it was the 192 00:09:41,040 --> 00:09:45,240 Speaker 1: weird one. We had the North rest wine um German numbers. 193 00:09:45,320 --> 00:09:48,000 Speaker 1: That's that signaled that German CPI would coming week. We've 194 00:09:48,040 --> 00:09:50,480 Speaker 1: now had the French numbers suggesting the same. So we 195 00:09:50,559 --> 00:09:52,800 Speaker 1: get euro inflation later this week. It's going to be 196 00:09:52,840 --> 00:09:55,720 Speaker 1: weak than what was previously thought. That kind of means 197 00:09:55,760 --> 00:09:59,679 Speaker 1: the ECB super hawkish in December that did boost euros slightly. 198 00:10:00,000 --> 00:10:02,160 Speaker 1: Perhaps they won't need to be as hawkish as what was. 199 00:10:02,200 --> 00:10:05,000 Speaker 1: What the market thinks this year is the message from 200 00:10:05,000 --> 00:10:07,880 Speaker 1: the inflation data just one data point and the growth 201 00:10:07,960 --> 00:10:10,640 Speaker 1: numbers might offset that. But there's there's two factors going 202 00:10:10,679 --> 00:10:14,160 Speaker 1: on here. Growth up inflation down that revises at your 203 00:10:14,240 --> 00:10:17,480 Speaker 1: real GDP estimate for your area in some respects, and 204 00:10:17,520 --> 00:10:21,160 Speaker 1: therefore I think euro can stay supported in January. How 205 00:10:21,280 --> 00:10:22,880 Speaker 1: much does your one tent target at the end of 206 00:10:22,960 --> 00:10:26,839 Speaker 1: January hint on the weather? Well, the weather is already 207 00:10:26,880 --> 00:10:30,520 Speaker 1: baked in so October, November, and we had that cold 208 00:10:30,559 --> 00:10:33,000 Speaker 1: snap in December, but now we're back into a warm snap. 209 00:10:33,280 --> 00:10:36,960 Speaker 1: So we've already got the story of Germany having having blackouts. 210 00:10:37,000 --> 00:10:39,440 Speaker 1: That's kind of gone to the side, so it's unlikely 211 00:10:39,520 --> 00:10:42,079 Speaker 1: that will run out of gas next winter could be 212 00:10:42,320 --> 00:10:44,839 Speaker 1: a bigger problem. But what we have seen is that 213 00:10:45,000 --> 00:10:47,679 Speaker 1: Germany has just switched to coal burning um and so 214 00:10:47,880 --> 00:10:50,319 Speaker 1: that has really allowed for the gas story to weaken 215 00:10:50,400 --> 00:10:53,400 Speaker 1: as a problem for euro So yes, if some amazing 216 00:10:53,440 --> 00:10:57,080 Speaker 1: blizzard came came along, that could be a factor for industry, 217 00:10:57,360 --> 00:10:58,839 Speaker 1: but I just don't I don't see it in the 218 00:10:58,880 --> 00:11:01,960 Speaker 1: forecast right now. You're where's the ECB fit into this call. 219 00:11:03,240 --> 00:11:05,679 Speaker 1: It's been a tough one to use an ECB view 220 00:11:05,920 --> 00:11:08,960 Speaker 1: and put that directly onto euro It's been quite frivolous. Actually, 221 00:11:09,280 --> 00:11:11,760 Speaker 1: if you kept doing that last year, because we're trading 222 00:11:11,800 --> 00:11:15,240 Speaker 1: a stagflation story when it comes to framework for Foreign 223 00:11:15,280 --> 00:11:19,480 Speaker 1: Exchange so e c B, yes, they'll be hawkish. That 224 00:11:19,520 --> 00:11:22,800 Speaker 1: will boost European yields. We're already seeing portfolio inflows into 225 00:11:22,840 --> 00:11:25,000 Speaker 1: European government bonds for the first time a long time, 226 00:11:25,200 --> 00:11:27,400 Speaker 1: so that's going to boost euro I think on the 227 00:11:27,440 --> 00:11:30,600 Speaker 1: ECB side, by raising rates, that's going to not growth though, 228 00:11:30,840 --> 00:11:34,200 Speaker 1: So those two forces offset each other properly. I guess John, 229 00:11:34,240 --> 00:11:36,280 Speaker 1: we could bring it all back to the FED. If 230 00:11:36,320 --> 00:11:38,760 Speaker 1: the Fed pauses as we think they will, and if 231 00:11:38,760 --> 00:11:40,439 Speaker 1: they look to cut rates later this year, which we 232 00:11:40,480 --> 00:11:42,760 Speaker 1: think they will as well, that'll keep your dollar supported 233 00:11:42,920 --> 00:11:45,800 Speaker 1: no matter what the ECB do. You can't see the 234 00:11:45,800 --> 00:11:48,120 Speaker 1: side of radio. Is he wearing an Estivilla tie? Just? 235 00:11:48,600 --> 00:11:50,240 Speaker 1: I actually think he might be. I think it might be. 236 00:11:50,360 --> 00:11:53,200 Speaker 1: I think it's an Estiville unlikely guys, Yeah, that's right. Wow, 237 00:11:53,320 --> 00:11:57,400 Speaker 1: he actually is with the team emblement as well. It's 238 00:11:57,440 --> 00:12:00,599 Speaker 1: just why am I wearing a tie? John? Can you 239 00:12:00,679 --> 00:12:04,719 Speaker 1: remind us all? Will you tell me? I watched the 240 00:12:04,880 --> 00:12:08,680 Speaker 1: highlights of the Todds aston Villa game. Is aston Ville 241 00:12:08,840 --> 00:12:12,199 Speaker 1: that good? Or is Tottenham that bad? Jordan's helped me 242 00:12:13,120 --> 00:12:15,240 Speaker 1: make sure that too. It's been one of the worst 243 00:12:15,400 --> 00:12:19,520 Speaker 1: runs for Tottenham in the league since you conceded more 244 00:12:19,559 --> 00:12:21,439 Speaker 1: than two goals in each game for seven games in 245 00:12:21,480 --> 00:12:24,120 Speaker 1: a row. That hasn't been done since for Villa. We've 246 00:12:24,120 --> 00:12:26,079 Speaker 1: got a new manager and things look to be on 247 00:12:26,120 --> 00:12:27,880 Speaker 1: the app. We've had a good start. We should do 248 00:12:27,920 --> 00:12:30,480 Speaker 1: a podcast with Jordan's we should we should just never 249 00:12:30,559 --> 00:12:33,960 Speaker 1: mind phone exchange. Yeah, I like it, Jordaan Rochester, thank 250 00:12:34,000 --> 00:12:42,400 Speaker 1: you for tomorrow. You're briefing today on oil and call 251 00:12:42,480 --> 00:12:45,440 Speaker 1: emreada soon, joins US Director Research Energy aspects. Of course, 252 00:12:45,440 --> 00:12:48,880 Speaker 1: they're looking at all of the different hydrocarbons, including the 253 00:12:48,960 --> 00:12:51,920 Speaker 1: grizzly call. I'm gonna look at and reader right now 254 00:12:52,120 --> 00:12:55,640 Speaker 1: in our call links into oil. Is there a substitution 255 00:12:55,760 --> 00:12:59,800 Speaker 1: effect if Germany uses call, if China uses call to 256 00:13:00,080 --> 00:13:06,360 Speaker 1: that just brent crude price? No, no, tom thankfully, not that, 257 00:13:06,480 --> 00:13:11,360 Speaker 1: but yet another variable. Of course, it impacts gas hugely. 258 00:13:11,760 --> 00:13:14,800 Speaker 1: And yeah, look when we've had gas prices surge, we 259 00:13:14,960 --> 00:13:17,400 Speaker 1: have seen in Europe, for instance, cooled usage go up 260 00:13:17,480 --> 00:13:20,160 Speaker 1: a lot, and at the margin we've obviously seen oil 261 00:13:20,280 --> 00:13:22,520 Speaker 1: usage coal up a lot as well. But no, there 262 00:13:22,640 --> 00:13:25,679 Speaker 1: isn't any direct links simply because you know, oil is 263 00:13:25,760 --> 00:13:29,840 Speaker 1: barely used in part generation there does c mrideson microeconomics 264 00:13:30,000 --> 00:13:33,679 Speaker 1: in place for oil to surge. People talking about brand 265 00:13:33,840 --> 00:13:38,920 Speaker 1: eighty Dare I say higher as well? Is that set 266 00:13:39,000 --> 00:13:40,960 Speaker 1: up in place here at the beginning of the year. 267 00:13:43,559 --> 00:13:45,920 Speaker 1: I'd say the beginning of the year. No, But I 268 00:13:46,120 --> 00:13:48,199 Speaker 1: really do think the second half of the year, in 269 00:13:48,320 --> 00:13:51,520 Speaker 1: particularly of China opens up in the way we are. 270 00:13:51,720 --> 00:13:53,959 Speaker 1: You know, now we're kind of hearing headlines from them 271 00:13:54,600 --> 00:13:58,319 Speaker 1: around the reopening scale. We've tended to forget what we 272 00:13:58,679 --> 00:14:01,000 Speaker 1: saw in the West, right, It took us two years 273 00:14:01,120 --> 00:14:03,760 Speaker 1: to get over the pent up demand in terms of 274 00:14:03,880 --> 00:14:07,560 Speaker 1: airline travel, in terms of car travels or the mileage 275 00:14:07,600 --> 00:14:10,640 Speaker 1: driven that we've seen. And I keep saying this, particularly 276 00:14:10,760 --> 00:14:14,920 Speaker 1: for jet it's a multiplayer effect. When China reopens, other 277 00:14:15,040 --> 00:14:16,760 Speaker 1: parts of the world will also you know, people from 278 00:14:16,800 --> 00:14:18,199 Speaker 1: other parts of the world will also want to go 279 00:14:18,280 --> 00:14:21,640 Speaker 1: to China. And China is so connected to the rest 280 00:14:21,720 --> 00:14:26,600 Speaker 1: of Asia, Beat Korea, Thailand, Vietnam, Philippines, all these countries 281 00:14:26,680 --> 00:14:31,960 Speaker 1: they have huge trade relationships with China. Percent tourism or 282 00:14:32,080 --> 00:14:35,400 Speaker 1: just spectrochemical exports linked to China. So we are going 283 00:14:35,440 --> 00:14:38,520 Speaker 1: to see some big demand numbers. The problem now, Tom, 284 00:14:38,960 --> 00:14:41,320 Speaker 1: is that we've seen these big freezeoffs in the US, 285 00:14:41,680 --> 00:14:44,280 Speaker 1: and that's meant that the crude balance has actually weakened. 286 00:14:44,320 --> 00:14:48,400 Speaker 1: We've seen so many refineries having to forcefully shut down 287 00:14:48,520 --> 00:14:51,400 Speaker 1: because of the cold. That's lost US crude demands. So 288 00:14:51,560 --> 00:14:54,280 Speaker 1: that's why we are on a softer footing and it's 289 00:14:54,400 --> 00:14:56,680 Speaker 1: and you know, then it kind of turns into seasonal 290 00:14:56,760 --> 00:14:59,800 Speaker 1: turnaround season, so there's a few more weeks of softness. 291 00:14:59,840 --> 00:15:02,280 Speaker 1: I will think, I'm gonna forgive the pun, but what's 292 00:15:02,280 --> 00:15:03,880 Speaker 1: the canary in the coal mine when it comes to 293 00:15:03,920 --> 00:15:06,200 Speaker 1: the reopening of China given the fact that there a 294 00:15:06,320 --> 00:15:10,240 Speaker 1: whole host of different energy sources are playing the tabletime. 295 00:15:10,320 --> 00:15:12,600 Speaker 1: I know it's kind of a terrible pun, but you 296 00:15:12,640 --> 00:15:15,240 Speaker 1: know what source of energy? Well, we see the first 297 00:15:15,480 --> 00:15:19,600 Speaker 1: pickup in demand that will represent the next phase of 298 00:15:19,680 --> 00:15:24,600 Speaker 1: China's reopening and the effect and energy markets. That's a 299 00:15:24,680 --> 00:15:27,520 Speaker 1: great question because, like in you guys were saying this 300 00:15:27,680 --> 00:15:30,600 Speaker 1: just now as well, when China does reopen, they will 301 00:15:30,760 --> 00:15:33,680 Speaker 1: need all energy products, right, It's not just going to 302 00:15:33,760 --> 00:15:36,800 Speaker 1: be oil. You know, oil stocks aren't particularly high, so 303 00:15:36,920 --> 00:15:40,560 Speaker 1: we should see them come out and buy crude oil probably, 304 00:15:40,600 --> 00:15:43,720 Speaker 1: if not this cycle, definitely from next cycle onwards, they 305 00:15:43,760 --> 00:15:45,480 Speaker 1: are going to need coal and gas as well. So 306 00:15:45,640 --> 00:15:48,280 Speaker 1: I would genuinely say all three of those. I think 307 00:15:48,320 --> 00:15:51,200 Speaker 1: metals you've already seen them by. If anything, I think 308 00:15:51,400 --> 00:15:55,920 Speaker 1: energy or energy imports should outperform the other commodities because 309 00:15:56,320 --> 00:16:00,680 Speaker 1: right now with the reopening, the focus shifts back to consumers, 310 00:16:00,960 --> 00:16:03,920 Speaker 1: which is kind of again goes directly into energy consumption 311 00:16:04,320 --> 00:16:07,440 Speaker 1: as opposed to metals, which was more infrastructure driven. That 312 00:16:07,720 --> 00:16:10,000 Speaker 1: happened last year. Some people push back and they say, 313 00:16:10,040 --> 00:16:12,440 Speaker 1: we'll trying to spent the past couple of years stackpiling, 314 00:16:12,520 --> 00:16:15,120 Speaker 1: crewe starckpiling energy sources, and they're not going to need 315 00:16:15,480 --> 00:16:19,840 Speaker 1: an access in supplies even if they do reopen in full, 316 00:16:19,880 --> 00:16:22,120 Speaker 1: at least not for a very long time. Do you 317 00:16:22,200 --> 00:16:24,520 Speaker 1: have any sense and radar of how significant those stack 318 00:16:24,560 --> 00:16:29,320 Speaker 1: piles of energy sources are in China? Absolutely, Look, wee 319 00:16:29,360 --> 00:16:32,200 Speaker 1: track stock bars in China to our best ability on 320 00:16:32,320 --> 00:16:35,120 Speaker 1: a daily basis, and I think this is a big misnomeral. 321 00:16:35,480 --> 00:16:38,720 Speaker 1: Let's talk about oil. For instance, China's oil stocks have 322 00:16:38,840 --> 00:16:43,440 Speaker 1: been rising, for sure, but over the course of last year, 323 00:16:43,920 --> 00:16:47,200 Speaker 1: they've been drawing down stocks on a consistent basis. China 324 00:16:47,320 --> 00:16:49,720 Speaker 1: was importing barely nine million barrels per day instead of 325 00:16:49,800 --> 00:16:52,640 Speaker 1: eleven million barrels per day, So that stockpiling took place 326 00:16:52,680 --> 00:16:57,760 Speaker 1: in one, not last year. We've de stocked enough in 327 00:16:57,920 --> 00:17:00,640 Speaker 1: China for them to be at a heart the level 328 00:17:00,760 --> 00:17:03,600 Speaker 1: that they require for their days of cover, where now 329 00:17:03,800 --> 00:17:06,720 Speaker 1: as they reopen they do need to buy again. I've 330 00:17:06,760 --> 00:17:10,480 Speaker 1: got Emery Emoryson, I've got lergy moving here moving there. 331 00:17:10,640 --> 00:17:13,000 Speaker 1: Have you a blast of bloomberg out with analysis of 332 00:17:13,200 --> 00:17:17,000 Speaker 1: lergy in Japan today as well? Just a simple question, 333 00:17:17,080 --> 00:17:21,720 Speaker 1: with all your expertise, is the United States energy independent? 334 00:17:25,400 --> 00:17:29,280 Speaker 1: It's definitely more independent than it used to be. Look, 335 00:17:29,359 --> 00:17:32,800 Speaker 1: the U still imports some oil um and simply that's 336 00:17:32,840 --> 00:17:36,240 Speaker 1: to do with the location the ability of certain refiners 337 00:17:36,240 --> 00:17:39,600 Speaker 1: to run certain crudes. But yes, I mean it's exporting 338 00:17:39,680 --> 00:17:43,600 Speaker 1: natural gas now. It does export well over three million 339 00:17:43,640 --> 00:17:47,359 Speaker 1: barrels a day of crude right now. There's still global linkages. Right. 340 00:17:47,400 --> 00:17:49,639 Speaker 1: So that's where I don't like to use the word independence, 341 00:17:49,680 --> 00:17:53,119 Speaker 1: because Brent crude is still the biggest driver off the 342 00:17:53,200 --> 00:17:55,720 Speaker 1: gasoline that you are buying at the pump, right So 343 00:17:55,920 --> 00:17:59,920 Speaker 1: it's not an island and Therefore, yes, it's independent in 344 00:18:00,040 --> 00:18:02,200 Speaker 1: the sense that it's exporting a lot more products. It's 345 00:18:02,200 --> 00:18:05,200 Speaker 1: still a net importer of certain products. But at this 346 00:18:05,400 --> 00:18:08,120 Speaker 1: end of the day, the global linkages haven't broken down 347 00:18:08,480 --> 00:18:10,680 Speaker 1: just because of the way the refining system is set 348 00:18:10,800 --> 00:18:13,480 Speaker 1: up just quickly and reads A best guess for why 349 00:18:13,520 --> 00:18:15,679 Speaker 1: you think crew it's going to end up City at 350 00:18:15,760 --> 00:18:18,960 Speaker 1: Q four twenty three has crewed at seventy six. I've 351 00:18:19,000 --> 00:18:22,600 Speaker 1: got Goldman at once ten. I've got other banks with 352 00:18:22,680 --> 00:18:27,520 Speaker 1: triple digits as well. Where are you at? I'd be 353 00:18:27,600 --> 00:18:30,320 Speaker 1: triple digits as well, And I think again people are 354 00:18:30,440 --> 00:18:34,800 Speaker 1: underestimating China's reopening and the multiplier effect on demand. Again 355 00:18:34,880 --> 00:18:36,879 Speaker 1: basic one on one economics that it's going to have 356 00:18:37,200 --> 00:18:40,720 Speaker 1: on the world economy. Yes, bad news for inflation, but 357 00:18:40,960 --> 00:18:43,520 Speaker 1: it is definitely something to watch out for. I'm really 358 00:18:43,640 --> 00:18:47,119 Speaker 1: saying thank you ad energy aspects with another triple digit 359 00:18:47,200 --> 00:19:01,800 Speaker 1: crude code term for year end. We get further perspective 360 00:19:01,880 --> 00:19:06,440 Speaker 1: from Greg Villier, chief US policy strategist at A G F. Gregg. 361 00:19:06,480 --> 00:19:10,280 Speaker 1: I randomly looked at the twenty names of these Congress 362 00:19:10,400 --> 00:19:14,639 Speaker 1: people against Mr McCarthy, I guess against a lot of 363 00:19:14,720 --> 00:19:19,280 Speaker 1: what we would call political normality. One of the congress people, 364 00:19:19,400 --> 00:19:23,280 Speaker 1: the gentleman from I believe the ninth District Georgia, called 365 00:19:23,359 --> 00:19:29,840 Speaker 1: the capital attack of January quote no insurrection quote a 366 00:19:30,040 --> 00:19:38,440 Speaker 1: normal tourist visit is. Butch Cassidy said, who are these guys? Yeah, 367 00:19:38,800 --> 00:19:40,639 Speaker 1: you're right time. You know, I've been doing this for 368 00:19:40,720 --> 00:19:44,399 Speaker 1: a long time, and I have never seen anything as 369 00:19:44,480 --> 00:19:49,000 Speaker 1: crazy as this story, with a handful of extreme members 370 00:19:49,080 --> 00:19:52,600 Speaker 1: of the House to denying the Republicans control of the House. 371 00:19:52,680 --> 00:19:55,040 Speaker 1: And this could go on for a long long time. 372 00:19:55,560 --> 00:19:58,280 Speaker 1: Mr Trump says it should not go along for a 373 00:19:58,359 --> 00:20:02,160 Speaker 1: long time. John read his truth like the social media thing. 374 00:20:02,640 --> 00:20:07,320 Speaker 1: Close the deal, take the victory, said the President. Could 375 00:20:07,359 --> 00:20:11,720 Speaker 1: that be enough to sway them today? It might. There's 376 00:20:11,760 --> 00:20:14,480 Speaker 1: talk to a lot of Republicans are going to Sean 377 00:20:14,600 --> 00:20:19,200 Speaker 1: Hannity and going to uh, you know, other conservative commentators 378 00:20:19,680 --> 00:20:23,600 Speaker 1: to see if they can dissuade these rebels. I'm not 379 00:20:23,720 --> 00:20:27,399 Speaker 1: sure it's gonna work. I think this drags on for weeks. 380 00:20:28,320 --> 00:20:30,000 Speaker 1: What about the voters, I mean, is there a sense 381 00:20:30,080 --> 00:20:32,600 Speaker 1: that this is what people want? That's sort of just 382 00:20:33,240 --> 00:20:36,120 Speaker 1: you know, break things up or destroy the status quo, 383 00:20:36,359 --> 00:20:39,600 Speaker 1: starts something new is that basically the voters will behind 384 00:20:39,680 --> 00:20:42,840 Speaker 1: some of these representatives. Not really, I mean it's a 385 00:20:42,880 --> 00:20:46,320 Speaker 1: self inflicted wound by the Republicans. I don't think the 386 00:20:46,400 --> 00:20:49,359 Speaker 1: voters would be pleased to see this kind of dysfunction, 387 00:20:49,680 --> 00:20:52,080 Speaker 1: you know, for the markets right now, at least, I 388 00:20:52,160 --> 00:20:54,840 Speaker 1: don't sense that this is the biggest story. There are 389 00:20:55,200 --> 00:20:58,040 Speaker 1: biggest stories, as you know, and the Fed things like that. 390 00:20:58,400 --> 00:21:00,439 Speaker 1: But if this drags well into the spring, people are 391 00:21:00,440 --> 00:21:02,920 Speaker 1: going to start worrying about the death ceiling, about a 392 00:21:03,400 --> 00:21:08,440 Speaker 1: credit crunch, about some sort of default of the US budget. 393 00:21:08,680 --> 00:21:10,680 Speaker 1: If this drags on, I think it will start to 394 00:21:10,760 --> 00:21:14,000 Speaker 1: become an irritant for the markets. So Greg, let's stay there. 395 00:21:14,080 --> 00:21:16,560 Speaker 1: Because I've been talking about this this morning and my 396 00:21:16,680 --> 00:21:18,800 Speaker 1: co hosts have thought that I was being a bit histrionic. 397 00:21:19,160 --> 00:21:21,000 Speaker 1: How serious could it get? What are the sort of 398 00:21:21,080 --> 00:21:24,440 Speaker 1: parallels here between what we're seeing with the Republican Congress. 399 00:21:24,480 --> 00:21:27,000 Speaker 1: They're laughing at me and two thousand and eleven we 400 00:21:27,080 --> 00:21:29,200 Speaker 1: did see a debt default. We are not debt default, 401 00:21:29,240 --> 00:21:30,960 Speaker 1: but we did see the downgrade and the debt ceiling 402 00:21:31,000 --> 00:21:35,080 Speaker 1: debate really go to the last minute. Well, most of 403 00:21:35,200 --> 00:21:40,600 Speaker 1: these dis censers who don't like McCarthy want this to happen. 404 00:21:40,760 --> 00:21:44,920 Speaker 1: They would like to see a debt crisis. So that's 405 00:21:45,040 --> 00:21:47,879 Speaker 1: that's something you've got to be concerned about. You know. 406 00:21:48,040 --> 00:21:51,520 Speaker 1: Another important point is that let's say Kevin McCarthy does 407 00:21:51,560 --> 00:21:54,680 Speaker 1: whip four or five or six House members in the 408 00:21:54,720 --> 00:21:57,600 Speaker 1: next two years, could scuttle everything that they have him 409 00:21:57,680 --> 00:21:59,879 Speaker 1: on such a short leash that on a lot of 410 00:21:59,920 --> 00:22:03,080 Speaker 1: these issues they can still prevail. We hold on a second, Greg, 411 00:22:03,560 --> 00:22:08,600 Speaker 1: why do they want to see a debt ceiling scuttle? Oh? 412 00:22:08,720 --> 00:22:11,639 Speaker 1: Because it will curb spending. I mean they feel that 413 00:22:12,119 --> 00:22:14,280 Speaker 1: is the only way you can get discipline on spending. 414 00:22:14,600 --> 00:22:17,840 Speaker 1: They're furious at Mitch McConnell, who's going with Joe Biden 415 00:22:17,880 --> 00:22:22,719 Speaker 1: today to a new bridge construction spending a lot of money. Uh, 416 00:22:23,040 --> 00:22:27,440 Speaker 1: there's huge divisions over spending money, and some Republicans a minority. 417 00:22:27,520 --> 00:22:32,440 Speaker 1: I granted, I wouldn't mind seeing a debt defall credit crisis, 418 00:22:32,560 --> 00:22:36,080 Speaker 1: which I think is crazy. Greg. The historical moment, it 419 00:22:36,200 --> 00:22:38,680 Speaker 1: goes back to a H two. Oh, it goes back 420 00:22:38,760 --> 00:22:41,440 Speaker 1: to the Democrat lustermatics and on and on. I don't 421 00:22:41,440 --> 00:22:44,080 Speaker 1: want to do a history lesson here, but the reality 422 00:22:44,280 --> 00:22:49,320 Speaker 1: is there's ramifications to this behavior. Does it make centrist 423 00:22:49,400 --> 00:22:55,080 Speaker 1: Democrats stronger? Absolutely? And it weakens the Republicans. I mean, 424 00:22:55,119 --> 00:22:58,840 Speaker 1: there are some pretty decent whatever your politics were. Paul 425 00:22:58,960 --> 00:23:03,280 Speaker 1: Ryan was a quality house speaker. John Baynard was a 426 00:23:03,400 --> 00:23:07,600 Speaker 1: quality house speaker. They their careers were scuttled by a minority, 427 00:23:07,680 --> 00:23:11,840 Speaker 1: a tiny minority of radicals who didn't want to compromise 428 00:23:11,960 --> 00:23:15,480 Speaker 1: in the least that of HF investments on the nights 429 00:23:15,520 --> 00:23:17,560 Speaker 1: to stand in Washington day sake, Greg, Thank you, Seth. 430 00:23:18,440 --> 00:23:22,200 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 431 00:23:22,320 --> 00:23:25,639 Speaker 1: us live weekdays from seven to ten am Eastern on 432 00:23:25,760 --> 00:23:29,960 Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six 433 00:23:30,119 --> 00:23:34,920 Speaker 1: to nine am for insight from the best in economics, finance, investment, 434 00:23:35,119 --> 00:23:40,080 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 435 00:23:40,200 --> 00:23:44,040 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 436 00:23:44,160 --> 00:23:48,280 Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg