WEBVTT - Surveillance: Earnings Recession with Wilson 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferrell and Lisa A. Brawmowitz. Daily we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.560 dot com, and of course on the Bloomberg terminal. Let's 0:00:29.560 --> 0:00:32.080 get right to it right now. Michael Wilson, without question, 0:00:32.200 --> 0:00:35.440 the top strategists we have observed for last year, Chief 0:00:35.600 --> 0:00:38.760 US equity Strategy, Morgan Stanley. Mike, I want to go 0:00:38.800 --> 0:00:41.920 to technique here. Do you change your technique your day 0:00:41.920 --> 0:00:45.199 to day grind at Morgan Stanley and the classic ideas? 0:00:45.240 --> 0:00:48.519 Are you bottom up? Top down? All this? There's the 0:00:48.640 --> 0:00:51.640 factor analysis out of m I t years ago. What 0:00:52.040 --> 0:00:57.440 is the process of Wilson strategy for this year? We 0:00:57.560 --> 0:00:59.480 good morningtime and happy new year to all of you. 0:01:00.000 --> 0:01:03.680 I mean the process never changes. Okay, we do all 0:01:03.720 --> 0:01:07.080 of those things you mentioned, top down, bottoms of factor analysis. However, 0:01:07.080 --> 0:01:09.319 what I would say is and at certain times we 0:01:09.440 --> 0:01:13.039 emphasize you one over the other. And I would say that, 0:01:13.120 --> 0:01:15.800 you know, going into two thousands twenty three is probably 0:01:15.840 --> 0:01:17.679 gonna be a little bit more bobs up, a little bit, 0:01:17.720 --> 0:01:23.119 more dispersion amongst stocks, even even perhaps within sectors. There's 0:01:23.120 --> 0:01:24.760 doing a lot of work on that this week actually 0:01:25.040 --> 0:01:27.800 for next week's note with respect to okay, well, how 0:01:27.840 --> 0:01:30.160 are we going to make money on a relative value basis? 0:01:30.160 --> 0:01:32.080 And that started to emerge again a little bit at 0:01:32.080 --> 0:01:33.959 the end of last year because at the end of 0:01:33.959 --> 0:01:37.320 these bear market is what happens is the big cahunas, right, 0:01:37.400 --> 0:01:40.480 the big market cap leaders are the ones that eventually 0:01:40.560 --> 0:01:43.360 have to fall, and that's exactly what we're seeing this 0:01:43.440 --> 0:01:45.200 year at the end of last year. So we think 0:01:45.200 --> 0:01:46.880 there is going to be opportunity to stock level and 0:01:46.880 --> 0:01:50.360 we've been talking about that center. Where's the greatest variability 0:01:50.440 --> 0:01:53.800 to partial differential on the income statement? Is revenue the 0:01:53.800 --> 0:01:56.280 greater mystery? Or do you go down to ibata or 0:01:56.280 --> 0:01:59.640 down to net income? Now that's a great question, Tom. 0:01:59.720 --> 0:02:02.639 It's it's all about profitability. And we've been talking about 0:02:02.680 --> 0:02:07.200 this one factor really since January February. Operational efficiency. That's 0:02:07.240 --> 0:02:09.240 what the market is paying for, and it continues to 0:02:09.280 --> 0:02:12.440 pay up for companies that can basically deliver to the 0:02:12.480 --> 0:02:14.960 bottom line. All right, So revenue growth, we know is 0:02:14.960 --> 0:02:17.320 going to be softer than last year. We don't know 0:02:17.360 --> 0:02:19.280 if it's gonna be negative, because that ties into the 0:02:19.360 --> 0:02:21.800 question around recession, which you all are just debating. I 0:02:21.800 --> 0:02:23.560 think being a bond investor is harder than being a 0:02:23.560 --> 0:02:26.040 stock investor right now because being a bond investor, you 0:02:26.080 --> 0:02:27.920 don't know if you're gonna get a labor cycle. Okay, 0:02:28.000 --> 0:02:29.760 but in the acquity market, we don't. We don't really 0:02:29.760 --> 0:02:31.840 care because if you don't get a labor cycle, then 0:02:31.840 --> 0:02:33.799 the margins are gonna be even worse. So I think 0:02:33.800 --> 0:02:36.320 either way, we're gonna get a nasty earnings recession. And 0:02:36.360 --> 0:02:39.080 so the companies that can deliver on the cost efficiency 0:02:39.360 --> 0:02:41.000 are the ones that are going to continue to perform 0:02:41.160 --> 0:02:44.520 until you fully price you know, whatever this downturn on 0:02:44.560 --> 0:02:46.560 earnings are going to be. So, Michael, were starting to 0:02:46.600 --> 0:02:49.359 see that cuts those cuts of much in big tech 0:02:49.400 --> 0:02:51.080 and does that make you a little bit more constructive 0:02:51.080 --> 0:02:54.960 on the sector into twenty three, Well not yet. I 0:02:54.960 --> 0:02:57.480 mean we're starting to see it. I think the you know, 0:02:57.520 --> 0:02:59.480 the look, this is one of the areas I would 0:02:59.480 --> 0:03:02.920 say consume consumer goods in particular and tech were the 0:03:02.960 --> 0:03:06.960 two areas of most egregious over earning and margins as 0:03:06.960 --> 0:03:08.760 well as top line, and that just has to get 0:03:08.760 --> 0:03:11.600 wrung out. The thing the concerns about tech companies, John, 0:03:11.760 --> 0:03:14.440 is that they're not good cost cutters. Traditionally right there, 0:03:14.560 --> 0:03:17.760 their growth companies, they tend to want to invest into 0:03:17.800 --> 0:03:21.519 these downturns. They want to invest, you know, aggressively through 0:03:21.560 --> 0:03:23.280 all periods of time. And they're just not good at 0:03:23.280 --> 0:03:25.160 cost cutting, and so they're gonna be late on that. 0:03:25.200 --> 0:03:27.079 They're probably not going to do enough, and so it 0:03:27.120 --> 0:03:29.520 will take longer than you think, and so the margin 0:03:29.600 --> 0:03:32.400 degradation could be more severe in those areas. Now, there 0:03:32.440 --> 0:03:34.560 are parts of tech that have already gone through that. 0:03:34.639 --> 0:03:36.240 The other thing I would say is be careful about 0:03:36.240 --> 0:03:38.440 how you define tech, where if you look at the 0:03:38.480 --> 0:03:40.600 top six or seven stocks in the SMP, we all 0:03:40.640 --> 0:03:42.720 know what they are. Only two of them are real 0:03:42.840 --> 0:03:47.480 tech companies. The other ones are communication services and consumer retail. Mike, 0:03:47.480 --> 0:03:50.280 how has the potential reopening of China changed your view? 0:03:50.280 --> 0:03:53.080 Because you've been talking about the potential for an earnings 0:03:53.120 --> 0:03:56.400 downturn for a while now, and a lot has changed 0:03:56.480 --> 0:03:59.160 the past couple of weeks with respect to China, with 0:03:59.200 --> 0:04:03.360 respect to a warmer an expected winter, you know, I 0:04:03.400 --> 0:04:06.160 mean like it. It factors into our analysis for sure. 0:04:06.240 --> 0:04:08.800 From an economic standpoint. I think from an earning standpoint, 0:04:08.800 --> 0:04:11.440 it's less important at leasta because you know, we look 0:04:11.480 --> 0:04:14.600 at it carefully. China only accounts for about four percent 0:04:14.880 --> 0:04:18.480 of SMP revenue, so it's just not that significant. Now 0:04:18.480 --> 0:04:21.680 for some companies it's very significant. The other thing I 0:04:21.720 --> 0:04:24.240 would caution on is that, you know, China really hasn't 0:04:24.279 --> 0:04:27.839 been closed to a production standpoint, right, I mean, we 0:04:27.920 --> 0:04:30.600 haven't wanted for many things. We mean, we've they've been 0:04:30.600 --> 0:04:33.360 produced to be doing these rolling lockdowns, and the factories 0:04:33.360 --> 0:04:35.719 have been pretty wide opened quite frankly. So this is 0:04:35.720 --> 0:04:39.400 more about consumption at the at the at the domestic level. 0:04:39.680 --> 0:04:41.599 So thing it's a real positive for the Chinese stock 0:04:41.640 --> 0:04:43.760 market and certain pockets of that. That's where we upgraded 0:04:43.839 --> 0:04:46.280 China a few months ago. But I'm not sure it's 0:04:46.279 --> 0:04:48.279 a big deal for the US stock market. But what 0:04:48.320 --> 0:04:50.599 about with consumer spending? We've seen that hang in there, 0:04:50.760 --> 0:04:53.320 that's come out better than expected at least over the 0:04:53.320 --> 0:04:56.760 past a number of weeks in select industries. Does that 0:04:57.040 --> 0:04:58.880 make you change your view at all? Or is that 0:04:58.960 --> 0:05:01.920 basically U. What's to be expected in the last gasps 0:05:02.120 --> 0:05:05.159 for the downturn that we see in the first quarter. Yeah, 0:05:05.160 --> 0:05:07.640 I mean, unfortunately, I think we're just seeing the last 0:05:07.680 --> 0:05:09.320 gaps as you mentioned. I mean, part of that has 0:05:09.400 --> 0:05:12.560 holiday spen, okay, so you know, it's the American way. 0:05:12.640 --> 0:05:14.920 We don't want to be scrooge. People are gonna spend 0:05:14.920 --> 0:05:16.920 money on the holidays, and I think they're gonna probably 0:05:16.960 --> 0:05:20.600 hunker down. We've heard something's large consumer retailers talk about 0:05:20.640 --> 0:05:24.080 that dynamic where they expect demand to fall off sharply 0:05:24.400 --> 0:05:26.280 once the holiday season is over. So that's what we're 0:05:26.320 --> 0:05:29.800 gonna be watching carefully. We're pretty confident about interest rate 0:05:29.880 --> 0:05:32.880 sensitive areas like housing and autos. Those are pretty obvious, 0:05:33.320 --> 0:05:35.760 you know, victims of the higher rates. But I think 0:05:35.800 --> 0:05:39.080 even broader speaking, we're expecting a pretty sharp down turning 0:05:39.120 --> 0:05:42.320 consumption over the first six months of this year, at 0:05:42.360 --> 0:05:44.440 least as a stand as a stands in turns a 0:05:44.560 --> 0:05:47.840 profitable spending Okay, Discounting will return as one of our 0:05:47.880 --> 0:05:49.800 teams for this year, which is why we think inflation 0:05:49.880 --> 0:05:51.920 will come down pretty sharply. So Mike, with that in mind, 0:05:52.000 --> 0:05:54.800 during the team still believe it's about down side at 0:05:54.800 --> 0:05:58.440 the index level. Here we do we think, we think 0:05:58.480 --> 0:06:02.440 three thousand is is a very achievable number given our 0:06:02.880 --> 0:06:06.039 confidence on our orange forecast and so and that you know, 0:06:06.160 --> 0:06:09.440 I would ironically, I would say, in the absence of, 0:06:09.560 --> 0:06:14.280 you know, a recession, meaning companies decide to not off aggressively, 0:06:14.560 --> 0:06:19.200 that target looks more achievable. That may sound counterintuitive, but 0:06:19.440 --> 0:06:21.680 that's the way we're not modeling it today. So our 0:06:21.720 --> 0:06:24.200 bear case is actually kind of we avoid a recession, 0:06:24.200 --> 0:06:26.760 but not the slowdown that would be the three thousand 0:06:26.760 --> 0:06:29.640 scenario and a d dollars and earniers. My my quote 0:06:29.640 --> 0:06:31.640 from last year was from the Great not seem to 0:06:31.760 --> 0:06:34.520 Leb who said the gravity is back, the idea that 0:06:34.600 --> 0:06:37.599 money costs something the risk free rates there. To me, 0:06:37.760 --> 0:06:40.720 my theme for the year is the great zombie roll up. 0:06:41.200 --> 0:06:45.200 Not the companies Morgan Stanley follows, but all the garbage 0:06:45.240 --> 0:06:49.200 companies out there that had a fifteen sixteen year free ride. 0:06:49.839 --> 0:06:54.800 What happens to them in two thousand twenty three. Well, 0:06:54.839 --> 0:06:56.960 I think it's already begun. I mean, we've seen what's 0:06:57.000 --> 0:06:59.280 going on right When the cost of Capitola goes up, 0:06:59.360 --> 0:07:01.960 these business is flat out don't work. Um. And so 0:07:01.960 --> 0:07:05.719 we've had fifteen years of easy monetary policy globally. UM 0:07:05.800 --> 0:07:08.320 that that is now being normalized in a more rapid 0:07:08.360 --> 0:07:11.640 way than anybody expected, including us quite frankly, even though 0:07:11.640 --> 0:07:14.280 we had that forew a year ago. And that's just 0:07:14.360 --> 0:07:17.320 gonna run ramshot over these business models. And by the way, time, 0:07:17.360 --> 0:07:19.440 I'm not sure it's a bad thing if we can 0:07:19.480 --> 0:07:21.840 do it in a way that isn't too destructive, okay 0:07:21.840 --> 0:07:24.240 to the broader economy. And we need we need a 0:07:24.280 --> 0:07:28.040 normalization of the cost of capital because it's not healthy 0:07:28.160 --> 0:07:31.160 for the broader economy. It's not healthy for five companies 0:07:31.400 --> 0:07:34.920 to account for the market cap, which is what happened 0:07:35.200 --> 0:07:37.880 in the last ten years. We need a more democratic 0:07:37.920 --> 0:07:41.160 economy where you know, medium small sized businesses have a 0:07:41.200 --> 0:07:44.120 fighting chance and it costs to capital arizing. Ironically, it's 0:07:44.160 --> 0:07:47.240 part of that. It's a nazing discipline. Makes the count 0:07:47.280 --> 0:07:49.760 back Mike wonderful as Old White Buddy happen New Year's 0:07:49.800 --> 0:07:51.760 even it's saying looking forward to plenty of contrees straight 0:07:52.400 --> 0:08:06.080 three wis there? Stanley Jordan Ryansester a huge value of 0:08:06.080 --> 0:08:08.920 Bloomberg surveillance last year and he started stronging this year 0:08:08.960 --> 0:08:11.360 with us as well. Jordan, I'm gonna cut to the chase. 0:08:11.440 --> 0:08:12.840 The first thing I looked at it was a d 0:08:13.040 --> 0:08:15.280 x y the Pacific rim. But I want to bring 0:08:15.360 --> 0:08:18.880 it over to your inside on Euro as well. Is 0:08:19.120 --> 0:08:24.760 the week dollar trend intact led by strong euro. Well yesterday, 0:08:24.840 --> 0:08:27.200 Tom and happy New Year everybody. It was a pretty 0:08:27.240 --> 0:08:29.840 tough day for that year long. We saw a big 0:08:29.920 --> 0:08:33.440 move over one percent, much bigger than a normal January move. 0:08:33.960 --> 0:08:36.920 For your own facts, it's been similar to the entire 0:08:37.200 --> 0:08:40.240 monthly move of of euro in January and previous years. 0:08:40.559 --> 0:08:43.600 It just tells you that volateerity was alive last year 0:08:43.640 --> 0:08:45.880 and it's still live in the first few train days 0:08:45.880 --> 0:08:48.800 of this year. Low liquidity, people dusting off their holiday 0:08:48.840 --> 0:08:52.000 emails and also putting fresh capital to work. And as 0:08:52.040 --> 0:08:54.960 you mentioned, there was that negative seasonality, so a sixty 0:08:55.040 --> 0:08:58.440 four percent hit ratio. Since night, euro dollar has headed 0:08:58.520 --> 0:09:02.319 lower on average around point three. So we're currently betting 0:09:02.400 --> 0:09:05.920 on the thirty six historical chance that Euro goes higher 0:09:06.000 --> 0:09:08.800 for a number of reasons. The first one was proven today, 0:09:09.240 --> 0:09:11.640 which is I think the European growth data it's going 0:09:11.720 --> 0:09:13.840 to point towards recession, but it's not gonna be as 0:09:13.880 --> 0:09:15.679 bad as what people think. We had. The p M 0:09:15.720 --> 0:09:18.319 eyes revised up this morning for the Euro Area, and 0:09:18.360 --> 0:09:21.319 I think the reopening in China will really help boost 0:09:21.360 --> 0:09:24.400 the Euro Area economy as well as as as we're 0:09:24.440 --> 0:09:28.640 also seeing gas prices, natural gas electricity prices much lower 0:09:28.760 --> 0:09:31.440 with the warmer weather. The ski season has been awful, 0:09:31.720 --> 0:09:34.920 but that's been fantastic for industry looking at much lower 0:09:35.000 --> 0:09:38.160 levels of input costs and therefore boosting production. So we're 0:09:38.160 --> 0:09:40.959 having a growth story. And then yesterday it was the 0:09:41.040 --> 0:09:45.240 weird one. We had the North rest wine um German numbers. 0:09:45.320 --> 0:09:48.000 That's that signaled that German CPI would coming week. We've 0:09:48.040 --> 0:09:50.480 now had the French numbers suggesting the same. So we 0:09:50.559 --> 0:09:52.800 get euro inflation later this week. It's going to be 0:09:52.840 --> 0:09:55.720 weak than what was previously thought. That kind of means 0:09:55.760 --> 0:09:59.679 the ECB super hawkish in December that did boost euros slightly. 0:10:00.000 --> 0:10:02.160 Perhaps they won't need to be as hawkish as what was. 0:10:02.200 --> 0:10:05.000 What the market thinks this year is the message from 0:10:05.000 --> 0:10:07.880 the inflation data just one data point and the growth 0:10:07.960 --> 0:10:10.640 numbers might offset that. But there's there's two factors going 0:10:10.679 --> 0:10:14.160 on here. Growth up inflation down that revises at your 0:10:14.240 --> 0:10:17.480 real GDP estimate for your area in some respects, and 0:10:17.520 --> 0:10:21.160 therefore I think euro can stay supported in January. How 0:10:21.280 --> 0:10:22.880 much does your one tent target at the end of 0:10:22.960 --> 0:10:26.839 January hint on the weather? Well, the weather is already 0:10:26.880 --> 0:10:30.520 baked in so October, November, and we had that cold 0:10:30.559 --> 0:10:33.000 snap in December, but now we're back into a warm snap. 0:10:33.280 --> 0:10:36.960 So we've already got the story of Germany having having blackouts. 0:10:37.000 --> 0:10:39.440 That's kind of gone to the side, so it's unlikely 0:10:39.520 --> 0:10:42.079 that will run out of gas next winter could be 0:10:42.320 --> 0:10:44.839 a bigger problem. But what we have seen is that 0:10:45.000 --> 0:10:47.679 Germany has just switched to coal burning um and so 0:10:47.880 --> 0:10:50.319 that has really allowed for the gas story to weaken 0:10:50.400 --> 0:10:53.400 as a problem for euro So yes, if some amazing 0:10:53.440 --> 0:10:57.080 blizzard came came along, that could be a factor for industry, 0:10:57.360 --> 0:10:58.839 but I just don't I don't see it in the 0:10:58.880 --> 0:11:01.960 forecast right now. You're where's the ECB fit into this call. 0:11:03.240 --> 0:11:05.679 It's been a tough one to use an ECB view 0:11:05.920 --> 0:11:08.960 and put that directly onto euro It's been quite frivolous. Actually, 0:11:09.280 --> 0:11:11.760 if you kept doing that last year, because we're trading 0:11:11.800 --> 0:11:15.240 a stagflation story when it comes to framework for Foreign 0:11:15.280 --> 0:11:19.480 Exchange so e c B, yes, they'll be hawkish. That 0:11:19.520 --> 0:11:22.800 will boost European yields. We're already seeing portfolio inflows into 0:11:22.840 --> 0:11:25.000 European government bonds for the first time a long time, 0:11:25.200 --> 0:11:27.400 so that's going to boost euro I think on the 0:11:27.440 --> 0:11:30.600 ECB side, by raising rates, that's going to not growth though, 0:11:30.840 --> 0:11:34.200 So those two forces offset each other properly. I guess John, 0:11:34.240 --> 0:11:36.280 we could bring it all back to the FED. If 0:11:36.320 --> 0:11:38.760 the Fed pauses as we think they will, and if 0:11:38.760 --> 0:11:40.439 they look to cut rates later this year, which we 0:11:40.480 --> 0:11:42.760 think they will as well, that'll keep your dollar supported 0:11:42.920 --> 0:11:45.800 no matter what the ECB do. You can't see the 0:11:45.800 --> 0:11:48.120 side of radio. Is he wearing an Estivilla tie? Just? 0:11:48.600 --> 0:11:50.240 I actually think he might be. I think it might be. 0:11:50.360 --> 0:11:53.200 I think it's an Estiville unlikely guys, Yeah, that's right. Wow, 0:11:53.320 --> 0:11:57.400 he actually is with the team emblement as well. It's 0:11:57.440 --> 0:12:00.599 just why am I wearing a tie? John? Can you 0:12:00.679 --> 0:12:04.719 remind us all? Will you tell me? I watched the 0:12:04.880 --> 0:12:08.680 highlights of the Todds aston Villa game. Is aston Ville 0:12:08.840 --> 0:12:12.199 that good? Or is Tottenham that bad? Jordan's helped me 0:12:13.120 --> 0:12:15.240 make sure that too. It's been one of the worst 0:12:15.400 --> 0:12:19.520 runs for Tottenham in the league since you conceded more 0:12:19.559 --> 0:12:21.439 than two goals in each game for seven games in 0:12:21.480 --> 0:12:24.120 a row. That hasn't been done since for Villa. We've 0:12:24.120 --> 0:12:26.079 got a new manager and things look to be on 0:12:26.120 --> 0:12:27.880 the app. We've had a good start. We should do 0:12:27.920 --> 0:12:30.480 a podcast with Jordan's we should we should just never 0:12:30.559 --> 0:12:33.960 mind phone exchange. Yeah, I like it, Jordaan Rochester, thank 0:12:34.000 --> 0:12:42.400 you for tomorrow. You're briefing today on oil and call 0:12:42.480 --> 0:12:45.440 emreada soon, joins US Director Research Energy aspects. Of course, 0:12:45.440 --> 0:12:48.880 they're looking at all of the different hydrocarbons, including the 0:12:48.960 --> 0:12:51.920 grizzly call. I'm gonna look at and reader right now 0:12:52.120 --> 0:12:55.640 in our call links into oil. Is there a substitution 0:12:55.760 --> 0:12:59.800 effect if Germany uses call, if China uses call to 0:13:00.080 --> 0:13:06.360 that just brent crude price? No, no, tom thankfully, not that, 0:13:06.480 --> 0:13:11.360 but yet another variable. Of course, it impacts gas hugely. 0:13:11.760 --> 0:13:14.800 And yeah, look when we've had gas prices surge, we 0:13:14.960 --> 0:13:17.400 have seen in Europe, for instance, cooled usage go up 0:13:17.480 --> 0:13:20.160 a lot, and at the margin we've obviously seen oil 0:13:20.280 --> 0:13:22.520 usage coal up a lot as well. But no, there 0:13:22.640 --> 0:13:25.679 isn't any direct links simply because you know, oil is 0:13:25.760 --> 0:13:29.840 barely used in part generation there does c mrideson microeconomics 0:13:30.000 --> 0:13:33.679 in place for oil to surge. People talking about brand 0:13:33.840 --> 0:13:38.920 eighty Dare I say higher as well? Is that set 0:13:39.000 --> 0:13:40.960 up in place here at the beginning of the year. 0:13:43.559 --> 0:13:45.920 I'd say the beginning of the year. No, But I 0:13:46.120 --> 0:13:48.199 really do think the second half of the year, in 0:13:48.320 --> 0:13:51.520 particularly of China opens up in the way we are. 0:13:51.720 --> 0:13:53.959 You know, now we're kind of hearing headlines from them 0:13:54.600 --> 0:13:58.319 around the reopening scale. We've tended to forget what we 0:13:58.679 --> 0:14:01.000 saw in the West, right, It took us two years 0:14:01.120 --> 0:14:03.760 to get over the pent up demand in terms of 0:14:03.880 --> 0:14:07.560 airline travel, in terms of car travels or the mileage 0:14:07.600 --> 0:14:10.640 driven that we've seen. And I keep saying this, particularly 0:14:10.760 --> 0:14:14.920 for jet it's a multiplayer effect. When China reopens, other 0:14:15.040 --> 0:14:16.760 parts of the world will also you know, people from 0:14:16.800 --> 0:14:18.199 other parts of the world will also want to go 0:14:18.280 --> 0:14:21.640 to China. And China is so connected to the rest 0:14:21.720 --> 0:14:26.600 of Asia, Beat Korea, Thailand, Vietnam, Philippines, all these countries 0:14:26.680 --> 0:14:31.960 they have huge trade relationships with China. Percent tourism or 0:14:32.080 --> 0:14:35.400 just spectrochemical exports linked to China. So we are going 0:14:35.440 --> 0:14:38.520 to see some big demand numbers. The problem now, Tom, 0:14:38.960 --> 0:14:41.320 is that we've seen these big freezeoffs in the US, 0:14:41.680 --> 0:14:44.280 and that's meant that the crude balance has actually weakened. 0:14:44.320 --> 0:14:48.400 We've seen so many refineries having to forcefully shut down 0:14:48.520 --> 0:14:51.400 because of the cold. That's lost US crude demands. So 0:14:51.560 --> 0:14:54.280 that's why we are on a softer footing and it's 0:14:54.400 --> 0:14:56.680 and you know, then it kind of turns into seasonal 0:14:56.760 --> 0:14:59.800 turnaround season, so there's a few more weeks of softness. 0:14:59.840 --> 0:15:02.280 I will think, I'm gonna forgive the pun, but what's 0:15:02.280 --> 0:15:03.880 the canary in the coal mine when it comes to 0:15:03.920 --> 0:15:06.200 the reopening of China given the fact that there a 0:15:06.320 --> 0:15:10.240 whole host of different energy sources are playing the tabletime. 0:15:10.320 --> 0:15:12.600 I know it's kind of a terrible pun, but you 0:15:12.640 --> 0:15:15.240 know what source of energy? Well, we see the first 0:15:15.480 --> 0:15:19.600 pickup in demand that will represent the next phase of 0:15:19.680 --> 0:15:24.600 China's reopening and the effect and energy markets. That's a 0:15:24.680 --> 0:15:27.520 great question because, like in you guys were saying this 0:15:27.680 --> 0:15:30.600 just now as well, when China does reopen, they will 0:15:30.760 --> 0:15:33.680 need all energy products, right, It's not just going to 0:15:33.760 --> 0:15:36.800 be oil. You know, oil stocks aren't particularly high, so 0:15:36.920 --> 0:15:40.560 we should see them come out and buy crude oil probably, 0:15:40.600 --> 0:15:43.720 if not this cycle, definitely from next cycle onwards, they 0:15:43.760 --> 0:15:45.480 are going to need coal and gas as well. So 0:15:45.640 --> 0:15:48.280 I would genuinely say all three of those. I think 0:15:48.320 --> 0:15:51.200 metals you've already seen them by. If anything, I think 0:15:51.400 --> 0:15:55.920 energy or energy imports should outperform the other commodities because 0:15:56.320 --> 0:16:00.680 right now with the reopening, the focus shifts back to consumers, 0:16:00.960 --> 0:16:03.920 which is kind of again goes directly into energy consumption 0:16:04.320 --> 0:16:07.440 as opposed to metals, which was more infrastructure driven. That 0:16:07.720 --> 0:16:10.000 happened last year. Some people push back and they say, 0:16:10.040 --> 0:16:12.440 we'll trying to spent the past couple of years stackpiling, 0:16:12.520 --> 0:16:15.120 crewe starckpiling energy sources, and they're not going to need 0:16:15.480 --> 0:16:19.840 an access in supplies even if they do reopen in full, 0:16:19.880 --> 0:16:22.120 at least not for a very long time. Do you 0:16:22.200 --> 0:16:24.520 have any sense and radar of how significant those stack 0:16:24.560 --> 0:16:29.320 piles of energy sources are in China? Absolutely, Look, wee 0:16:29.360 --> 0:16:32.200 track stock bars in China to our best ability on 0:16:32.320 --> 0:16:35.120 a daily basis, and I think this is a big misnomeral. 0:16:35.480 --> 0:16:38.720 Let's talk about oil. For instance, China's oil stocks have 0:16:38.840 --> 0:16:43.440 been rising, for sure, but over the course of last year, 0:16:43.920 --> 0:16:47.200 they've been drawing down stocks on a consistent basis. China 0:16:47.320 --> 0:16:49.720 was importing barely nine million barrels per day instead of 0:16:49.800 --> 0:16:52.640 eleven million barrels per day, So that stockpiling took place 0:16:52.680 --> 0:16:57.760 in one, not last year. We've de stocked enough in 0:16:57.920 --> 0:17:00.640 China for them to be at a heart the level 0:17:00.760 --> 0:17:03.600 that they require for their days of cover, where now 0:17:03.800 --> 0:17:06.720 as they reopen they do need to buy again. I've 0:17:06.760 --> 0:17:10.480 got Emery Emoryson, I've got lergy moving here moving there. 0:17:10.640 --> 0:17:13.000 Have you a blast of bloomberg out with analysis of 0:17:13.200 --> 0:17:17.000 lergy in Japan today as well? Just a simple question, 0:17:17.080 --> 0:17:21.720 with all your expertise, is the United States energy independent? 0:17:25.400 --> 0:17:29.280 It's definitely more independent than it used to be. Look, 0:17:29.359 --> 0:17:32.800 the U still imports some oil um and simply that's 0:17:32.840 --> 0:17:36.240 to do with the location the ability of certain refiners 0:17:36.240 --> 0:17:39.600 to run certain crudes. But yes, I mean it's exporting 0:17:39.680 --> 0:17:43.600 natural gas now. It does export well over three million 0:17:43.640 --> 0:17:47.359 barrels a day of crude right now. There's still global linkages. Right. 0:17:47.400 --> 0:17:49.639 So that's where I don't like to use the word independence, 0:17:49.680 --> 0:17:53.119 because Brent crude is still the biggest driver off the 0:17:53.200 --> 0:17:55.720 gasoline that you are buying at the pump, right So 0:17:55.920 --> 0:17:59.920 it's not an island and Therefore, yes, it's independent in 0:18:00.040 --> 0:18:02.200 the sense that it's exporting a lot more products. It's 0:18:02.200 --> 0:18:05.200 still a net importer of certain products. But at this 0:18:05.400 --> 0:18:08.120 end of the day, the global linkages haven't broken down 0:18:08.480 --> 0:18:10.680 just because of the way the refining system is set 0:18:10.800 --> 0:18:13.480 up just quickly and reads A best guess for why 0:18:13.520 --> 0:18:15.679 you think crew it's going to end up City at 0:18:15.760 --> 0:18:18.960 Q four twenty three has crewed at seventy six. I've 0:18:19.000 --> 0:18:22.600 got Goldman at once ten. I've got other banks with 0:18:22.680 --> 0:18:27.520 triple digits as well. Where are you at? I'd be 0:18:27.600 --> 0:18:30.320 triple digits as well, And I think again people are 0:18:30.440 --> 0:18:34.800 underestimating China's reopening and the multiplier effect on demand. Again 0:18:34.880 --> 0:18:36.879 basic one on one economics that it's going to have 0:18:37.200 --> 0:18:40.720 on the world economy. Yes, bad news for inflation, but 0:18:40.960 --> 0:18:43.520 it is definitely something to watch out for. I'm really 0:18:43.640 --> 0:18:47.119 saying thank you ad energy aspects with another triple digit 0:18:47.200 --> 0:19:01.800 crude code term for year end. We get further perspective 0:19:01.880 --> 0:19:06.440 from Greg Villier, chief US policy strategist at A G F. Gregg. 0:19:06.480 --> 0:19:10.280 I randomly looked at the twenty names of these Congress 0:19:10.400 --> 0:19:14.639 people against Mr McCarthy, I guess against a lot of 0:19:14.720 --> 0:19:19.280 what we would call political normality. One of the congress people, 0:19:19.400 --> 0:19:23.280 the gentleman from I believe the ninth District Georgia, called 0:19:23.359 --> 0:19:29.840 the capital attack of January quote no insurrection quote a 0:19:30.040 --> 0:19:38.440 normal tourist visit is. Butch Cassidy said, who are these guys? Yeah, 0:19:38.800 --> 0:19:40.639 you're right time. You know, I've been doing this for 0:19:40.720 --> 0:19:44.399 a long time, and I have never seen anything as 0:19:44.480 --> 0:19:49.000 crazy as this story, with a handful of extreme members 0:19:49.080 --> 0:19:52.600 of the House to denying the Republicans control of the House. 0:19:52.680 --> 0:19:55.040 And this could go on for a long long time. 0:19:55.560 --> 0:19:58.280 Mr Trump says it should not go along for a 0:19:58.359 --> 0:20:02.160 long time. John read his truth like the social media thing. 0:20:02.640 --> 0:20:07.320 Close the deal, take the victory, said the President. Could 0:20:07.359 --> 0:20:11.720 that be enough to sway them today? It might. There's 0:20:11.760 --> 0:20:14.480 talk to a lot of Republicans are going to Sean 0:20:14.600 --> 0:20:19.200 Hannity and going to uh, you know, other conservative commentators 0:20:19.680 --> 0:20:23.600 to see if they can dissuade these rebels. I'm not 0:20:23.720 --> 0:20:27.399 sure it's gonna work. I think this drags on for weeks. 0:20:28.320 --> 0:20:30.000 What about the voters, I mean, is there a sense 0:20:30.080 --> 0:20:32.600 that this is what people want? That's sort of just 0:20:33.240 --> 0:20:36.120 you know, break things up or destroy the status quo, 0:20:36.359 --> 0:20:39.600 starts something new is that basically the voters will behind 0:20:39.680 --> 0:20:42.840 some of these representatives. Not really, I mean it's a 0:20:42.880 --> 0:20:46.320 self inflicted wound by the Republicans. I don't think the 0:20:46.400 --> 0:20:49.359 voters would be pleased to see this kind of dysfunction, 0:20:49.680 --> 0:20:52.080 you know, for the markets right now, at least, I 0:20:52.160 --> 0:20:54.840 don't sense that this is the biggest story. There are 0:20:55.200 --> 0:20:58.040 biggest stories, as you know, and the Fed things like that. 0:20:58.400 --> 0:21:00.439 But if this drags well into the spring, people are 0:21:00.440 --> 0:21:02.920 going to start worrying about the death ceiling, about a 0:21:03.400 --> 0:21:08.440 credit crunch, about some sort of default of the US budget. 0:21:08.680 --> 0:21:10.680 If this drags on, I think it will start to 0:21:10.760 --> 0:21:14.000 become an irritant for the markets. So Greg, let's stay there. 0:21:14.080 --> 0:21:16.560 Because I've been talking about this this morning and my 0:21:16.680 --> 0:21:18.800 co hosts have thought that I was being a bit histrionic. 0:21:19.160 --> 0:21:21.000 How serious could it get? What are the sort of 0:21:21.080 --> 0:21:24.440 parallels here between what we're seeing with the Republican Congress. 0:21:24.480 --> 0:21:27.000 They're laughing at me and two thousand and eleven we 0:21:27.080 --> 0:21:29.200 did see a debt default. We are not debt default, 0:21:29.240 --> 0:21:30.960