Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Jim
Speaker 1: Glassman joins us of JP Morgan, who has given us
Speaker 1: wonderful perspective over the years over jobs, over wages, and
Speaker 1: over this quote a fully employed America. One of your charms,
Speaker 1: Jim and your were way out front on this was
Speaker 1: seeing help wanted signs outside businesses. Even I'm seeing them
Speaker 1: now here in one zero zero two two. They're out there,
Speaker 1: aren't they. They're all over the place. UM. I had
Speaker 1: to travel a lot and talk to businesses that are
Speaker 1: trying to manage things, and this is the number one
Speaker 1: issue we're trying to find bow trying to figure out
Speaker 1: how to retain them. There's some clever things going on
Speaker 1: people are figuring out, like crazing their wages. Well, that
Speaker 1: would be one thing, but there, for example, it's hard
Speaker 1: to convince somebody give them a four one plan. Young
Speaker 1: people don't care about retirement plans. But point there's forty two,
Speaker 1: so student loans, student loans. Some of them are clever.
Speaker 1: Ones are talking about paying help paying down student loans
Speaker 1: for kids, like the nonprofits to do. And you get
Speaker 1: that benefit as long as you stay at the company.
Speaker 1: John and I, we're live in a rarefied atmosphere. I
Speaker 1: don't know if you know that, but okay, to to
Speaker 1: all the people coast to coast, listen to this. Somebody's
Speaker 1: making thirty eight five or forty two seven or whatever,
Speaker 1: and they really need to get up three or four
Speaker 1: thousand dollars. Why aren't those conversations happening in a sub
Speaker 1: four percent America job economy. Yeah, it's it's interesting. I mean,
Speaker 1: we're all. Anyone who grew up in the seventies and
Speaker 1: eighties and saw how this worked is surprised by it.
Speaker 1: But I think some of them is the problem is
Speaker 1: businesses are opera it in the same competitive environment that
Speaker 1: workers are. And I think businesses are just being really
Speaker 1: cautious about this because they don't know whether they can
Speaker 1: up their price. John jump in. I got my own theory. John,
Speaker 1: jump in here, and see what I think. Jim is
Speaker 1: touched on an important story that labor costs are going
Speaker 1: up for the employer. It costs small to employ someone
Speaker 1: in America. Now, there's a lot of benefits they pay
Speaker 1: for healthcare. Healthcare is one of them, and workers don't
Speaker 1: see that. And I keep asking people, well, why aren't
Speaker 1: you showing that in your paycheck. I know what the
Speaker 1: price of gas is that all my local gas stations.
Speaker 1: I don't really know what my company pays for benefits
Speaker 1: unless I go to the website. So it's not in
Speaker 1: everyone's face, and they tend to think, well, if you've
Speaker 1: got to pay more for my benefits, they don't tend
Speaker 1: to think of that as a pay as they're part
Speaker 1: of their pay. But it is from a company's point
Speaker 1: of view. So it's that a structural change. Jim that
Speaker 1: you just don't think he's being captured by the economic
Speaker 1: diight set. No, it is captured. We watch it in
Speaker 1: the employment cost index measures, for example. They capture a
Speaker 1: lot of the cost of benefits. But I think for
Speaker 1: the average worker, they don't see it. And what they
Speaker 1: don't dan is why their employers maybe are being so cautious,
Speaker 1: but maybe because they're not aware of what's going on
Speaker 1: with health care costs and all the other benefits that
Speaker 1: the companies pay for. Jim, let's talk about the week
Speaker 1: ahead as well. Cp I retail sales and the chairman
Speaker 1: Federals of Chairman j pal speaking likes this week as well.
Speaker 1: What's the highlight for you out of those three things.
Speaker 1: Retail sales I think are pretty impressive. Consumer trends are good.
Speaker 1: I think the CPI, to me, what's what's valuable, what's
Speaker 1: useful about what's going on with the dollar right now?
Speaker 1: It's helping to damp in some of the worries about
Speaker 1: inflation in the US. Maybe it's spreading it to your
Speaker 1: it will shift it to Europe a little bit, and
Speaker 1: and to China. But I think you know, of all
Speaker 1: the things I worry about in my list of and
Speaker 1: it's not a long list, the FED is not on
Speaker 1: that list. Interesting why because all the FT's trying to
Speaker 1: do is take their foot off the gas. And I
Speaker 1: know people have gotten used to zero interest rates in
Speaker 1: the last decade, but the fact is the FET is
Speaker 1: really just trying to move things back to something more normal.
Speaker 1: We never know what normal is, but they're not going
Speaker 1: to go overboard, particularly with inflation. Well behaved, you'll you'll
Speaker 1: know when the FED gets around and thinking about stepping
Speaker 1: on the brakes. That's not our word, you know. I
Speaker 1: know you thirty years ago were absolutely glued to what
Speaker 1: bon Jovi was doing, and they had they had the
Speaker 1: number one hear thirty years ago bat medicine. Okay, fine,
Speaker 1: now you mentioned those of us from twenty and thirty
Speaker 1: years ago. We're looking at this job economy and going, yeah, really,
Speaker 1: I would suggest what's changed is the direct linkage of
Speaker 1: bonus for executives to labor compensation. If they give labor
Speaker 1: a wage, now they feel it comes directly out of
Speaker 1: their large bonus compensation. Were thirty years ago, they didn't
Speaker 1: have that structure. Yeah, that you know. I think the
Speaker 1: bigger story, though, is innovation has been very disruptive for
Speaker 1: their workface. So if you look at the what happened
Speaker 1: to the share of income the goes to workers and
Speaker 1: the share of it goes to profits and other things.
Speaker 1: It really compressed back in the two decades ago, which
Speaker 1: is why all of us economists are talking about the
Speaker 1: superstar effect, the Amazon's you know, as all of us
Speaker 1: go shopping on our phones. It's transformed retail sector. And
Speaker 1: I really think it's innovation that is driving a lot
Speaker 1: of the challenges that workers face. Um and I think,
Speaker 1: you know, I don't know how you get around the
Speaker 1: way to get around that as you've got to figure
Speaker 1: out how to get people there. There are a lot
Speaker 1: of new jobs that have opened up because of that,
Speaker 1: but you gotta get it. Takes a lifetime sometimes to
Speaker 1: prepare for that kind of stuff. Okay, Jim Blassman, thank
Speaker 1: you so much. A good conversation here on on the
Speaker 1: I get more mail John in this than anything else.
Speaker 1: Kevin Book joining us now striding it's wrong with you?
Speaker 1: Kevin Book joining us now, Clay, have you Energy Partners
Speaker 1: head of research? Important? Seriously, what's important in Australia as
Speaker 1: we look at as a US story the Stratis it
Speaker 1: ran you know you're oil. Yeah, it's you know, you
Speaker 1: make a joke about it, but it's a huge deal
Speaker 1: away from West Texas Intermedia massively. Kevin Book joining us
Speaker 1: now clear for you? Energy Partner's head of research, Kevin,
Speaker 1: How have we gone from a situation where the Saudis
Speaker 1: is saying, pump baby, pump two. Maybe we cut through
Speaker 1: next year and we need it. Well, they're looking at
Speaker 1: a seasonal blow basically first quarter is always weak for demand.
Speaker 1: On top of that, you have currency adjusted prices hitting
Speaker 1: some of the non dollar importers harder, weaker GDP, and
Speaker 1: with that everybody pumping faster than ever expected, Russia rising
Speaker 1: to the challenge the US UH boils coming out of
Speaker 1: the premium basically on the backs of burrows, even though
Speaker 1: pipelines aren't there to carry it. UH. And that's bringing
Speaker 1: a lot of supply to the world. So they're looking
Speaker 1: at a lush world. They're seeing some some price weakness. UH.
Speaker 1: The question whether they really cut or whether they talked
Speaker 1: about cutting is a different question. We kissed below seventy Brent,
Speaker 1: the princes above seventy. Now, you know, words go far
Speaker 1: in this world. I mean, Kevin, what's so important hereon?
Speaker 1: And John brings it up with a discussion of Australian
Speaker 1: in folks out of the Asia or aust Asian coverage
Speaker 1: is very important in the New York Evening. But Kevin,
Speaker 1: what is so important here is we forget about nations
Speaker 1: like Australia that are completely dependent unimported oil. How are
Speaker 1: they doing in this latest mix? Well, you know, it
Speaker 1: depends on who's imported from where. If you were buying
Speaker 1: your oil from Iran, you definitely have a different sort
Speaker 1: of thinking to do. For India, you're talking about ten
Speaker 1: or fifteen percent of imports. For China, you're in the
Speaker 1: single digits. Really only Turkey massively exposed. For everyone else
Speaker 1: buying oil on the open market, quality is the question,
Speaker 1: and it's the question of whether you're going to get
Speaker 1: the mediums that are going to be extremely tight as
Speaker 1: the Iran oil sanctions ramp, or whether there's a there's
Speaker 1: refineries that can make good use of light with distillate
Speaker 1: demand being the thing that's leading the pail right now, Uh,
Speaker 1: you're probably going to see less of a bid for
Speaker 1: the light and see some of the margins compressed with
Speaker 1: the distillate driving up the medium barrels. And John has
Speaker 1: comes from a very smart article out of Sydney with
Speaker 1: the conversation is a title of the blog. Fifty two
Speaker 1: percent of imported petrol comes from Singapore, eighteen percent from
Speaker 1: South Korea, twelve from Japan. Well, you know, like introit's
Speaker 1: serious issue. Well, let's talk about some of the refining
Speaker 1: demand in China. Kevin, It's really difficult to get a
Speaker 1: few on what is happening with China at the moment,
Speaker 1: because many people will tell you a story of a
Speaker 1: slow down, deceleration and potentially weakening demand for commodities maybe
Speaker 1: in the future. In the here and now, we're looking
Speaker 1: at record crude demand arm WEA for some of the
Speaker 1: private refiners. Yeah, this is first of all, it's the
Speaker 1: opacity problem that I don't think we can circumvent here
Speaker 1: from the States. Maybe with drones and lasers you can
Speaker 1: do a better job of sighting China. But from from
Speaker 1: our perspective, certainly very strong crude demand looking like strong
Speaker 1: throughputs and not yet weakness. Uh, they are building reserves.
Speaker 1: There's always a chance that some of those barrels went
Speaker 1: into the ground and not into refineries. But right now
Speaker 1: what we're seeing looks like a lot of refinery throughputs. So,
Speaker 1: Kevin is three big stories that I think of really
Speaker 1: pressured crude over the last month. One is the issue
Speaker 1: with Saudi Arabia pumping a ton of crude, a lot
Speaker 1: of crude. The other issue is Iran and the waivers
Speaker 1: that have actually been introduced to allow some of the
Speaker 1: importers of Iranian crew to carry on importing Iranian crude,
Speaker 1: and then the demand picture as well, which is becoming
Speaker 1: increasingly much more of the concern on the margin as well.
Speaker 1: Kevin off those three issues, what is the most important
Speaker 1: issue right now for the your market? I think you
Speaker 1: probably should focus on number three. Demand. At the start
Speaker 1: of this year, we talked about the US driver flattening
Speaker 1: out and declining on consumption, not because of price response,
Speaker 1: but because of efficiency built into the fleet undercutting demand.
Speaker 1: That's happening around the world. You have a more price
Speaker 1: driven demand response the non O E c D buyers
Speaker 1: they buy with GDP as it rises to As GDP slackens,
Speaker 1: demand slackens, the O E c D buyers much more
Speaker 1: price sensitive. But we're seeing increased price sensitivity in the
Speaker 1: Chinese consumption of crude and petroleum now as well, which
Speaker 1: means that with a high currency adjusted import price, you're
Speaker 1: going to see a relenting in Chinese demand eventually. Within
Speaker 1: the eventually is what big oil does? I mean we
Speaker 1: had I guess we had hopes for a whisper of
Speaker 1: a hundred dollars a barrel. Bring it back from your
Speaker 1: international relations study to what American big oil does. Are
Speaker 1: they just assuming barrel oil? Can they actually set higher
Speaker 1: different companies have different capital discipline. The engineers. Think of
Speaker 1: the U S Oil companies as engineers. They build it
Speaker 1: to run for a long time. Think of the international
Speaker 1: super majors as traders, resource starved, prospecting into the world,
Speaker 1: will trade anything, just make a margin? And think of
Speaker 1: the U S, E and P s basically uh if
Speaker 1: you will, as sort of the high risk, high profile,
Speaker 1: high price, break even kind of companies. When you look
Speaker 1: at this sort of the low end of the range
Speaker 1: on the price range, you tend to see more durability
Speaker 1: in the U S Super majors because they have break
Speaker 1: even prices the blow end of the deck. That's been
Speaker 1: a story and for the big these companies of a
Speaker 1: just did so much in the last company years. We
Speaker 1: caught up with Bob Dudley this morning and the brake
Speaker 1: even I forget what he said specifically, but was in
Speaker 1: and around sixty dollars. Sixty dollars Kevin. We've seen big changes,
Speaker 1: haven't we. Oh yeah, I mean look the way that
Speaker 1: you can look at the labor force, last tidy these
Speaker 1: companies have they laid off, lots of folks still haven't
Speaker 1: hired back. Some are doing reductions in force. Still they're
Speaker 1: parrying all the way down every which way they can.
Speaker 1: They're gearing up for a much a much tougher environment
Speaker 1: than the one they're in right now. I should just
Speaker 1: correct myself. Not the brake even, it's what they budget for,
Speaker 1: and Kevin just to be specific about that. Not the
Speaker 1: brake even, but just what they're budgeting up. It's changed
Speaker 1: a healthy internal ready to return fives into that. What
Speaker 1: is the international oil relations that our cabinet officers should
Speaker 1: focus on. It's a run and run and run is
Speaker 1: that the way to go? Or they too focused on
Speaker 1: a run? Well, Iran is into an oil issue. I
Speaker 1: runs nuclear proliferation and nucional terror issue. Um. But if
Speaker 1: you want oil to come to market, you have to
Speaker 1: think about not just Saudi Arabia but Russia. And I
Speaker 1: think one of the stories that's under appreciated in the
Speaker 1: last six months is that the Trump administration did go
Speaker 1: to Russia and asked for more oil there as well. UH,
Speaker 1: three pillars to the market US Saudi Russia can't have
Speaker 1: an around policy that compresses buyers of ariding and crude
Speaker 1: without it. I mean, does Mr Putin want to deliver
Speaker 1: more oil he certainly doesn't seem to want to stop.
Speaker 1: Market share is good on you know, if they're buying
Speaker 1: services and in upstream costs in rubles and they're selling
Speaker 1: in dollars, then the world of u S sanctions compressing
Speaker 1: the ruble has been profitable for a lot of companies,
Speaker 1: plus healthy taxation on the outbound. I think we're at
Speaker 1: a pub Soviet record on we Haven for production. We
Speaker 1: are then they show no signs of of wanting to
Speaker 1: slack in anytime soon. Kevin, thank you, really smart, really
Speaker 1: smart this morning, on this veteran's day. It is important
Speaker 1: to speak to officials across this nation, and there's no
Speaker 1: one within the Republican Party, particularly with the passing of
Speaker 1: John McCain to speak to. And the gentleman from Louisiana,
Speaker 1: Steve Scalise, is of course a Republican. He has focused
Speaker 1: on a return to Congress, a lame duck Congress before
Speaker 1: a new minority moment for his Republicans. He's in the running,
Speaker 1: of course Wednesday for leadership position. And we are honor
Speaker 1: that the congressman visits us today. Back in the game,
Speaker 1: one gunman, countless heroes in the fight for my life
Speaker 1: and It's not the usual quick read. It is a
Speaker 1: carefully written effort about what he went through after an
Speaker 1: horrific shooting in Washington and farm more and always with
Speaker 1: Steve Scalize the view forward as well, What is your
Speaker 1: view forward, Congressman? Thank My view forward is is first
Speaker 1: of all, to keep getting better. I I'm down to
Speaker 1: one crutch now. I had to learn how to walk again,
Speaker 1: and of course I talked about that in the book,
Speaker 1: the whole process of going from almost dying to to now.
Speaker 1: I had a scooter I needed to use to get
Speaker 1: around on, and I had two crutches. Now I'm down
Speaker 1: to one crutch. And my next goal is to to
Speaker 1: be able to walk again without without crutches. I'm not
Speaker 1: sure if I'll be able to run again, but at least,
Speaker 1: you know, I talked about this too, that it really
Speaker 1: focuses you in the things that are important in life,
Speaker 1: you know. And I love my family. I get to
Speaker 1: do do a lot more. I've been hunting a lot
Speaker 1: more with my son, and you know, just spend a
Speaker 1: lot a lot of times on the weekends in New
Speaker 1: Orleans with my family. And I love my job, and
Speaker 1: I was so honored to be able to get back
Speaker 1: to work in September last year too, you know, to
Speaker 1: be in the middle of working with this president and
Speaker 1: getting things done and you know, getting the country back
Speaker 1: on track. It's it's a passion of mine and I
Speaker 1: get to do that as well. The medical debate became
Speaker 1: important in this election, and not not that it came
Speaker 1: out of nowhere, but certainly it became dominant across the
Speaker 1: eland of this country. How many doctors and nurses at
Speaker 1: one given moment did you have around you? Did you
Speaker 1: get over like twenty doctors and nurses at one time?
Speaker 1: It was ad You talked about a team effort. I
Speaker 1: you know, I had everybody from you know, all the
Speaker 1: trauma surgeons that were at the Star Hospital, from Dr
Speaker 1: Saven his old whole team there to uh my words,
Speaker 1: Apedic Dr Gold, and I got to know them all
Speaker 1: by name and um and then the wonderful nurses that's
Speaker 1: the care of me too. Were there any Democrats there were,
Speaker 1: and you know some of them, some of them would
Speaker 1: share their political affiliation. They would ask if you know,
Speaker 1: they would ask, you know, you would just talk along
Speaker 1: the way. I mean, You've get you know, a lot
Speaker 1: of conversations with people and um, you know, and just
Speaker 1: one of the people. To me, it's not about what
Speaker 1: their affiliation is, it's you know, they did they were
Speaker 1: incredible professionals, and uh it took great care of me.
Speaker 1: And look my physical therapist and occupational therapists. Uh, they
Speaker 1: did wonders and still put me on the steve. Like
Speaker 1: a lot of Americans, I've been fortunate. I've avoided the
Speaker 1: medical issue. You haven't. And how did it change your
Speaker 1: perception of the healthcare debate in this country? You went
Speaker 1: through the reality of our medical industry. How did it
Speaker 1: change your view forward? You know, I've always been to
Speaker 1: the belief that we have the best medical delivery system
Speaker 1: in the world, and it had some problems before Obamacare,
Speaker 1: mostly related around cost and access. But for people whether
Speaker 1: if you were on Medicare, you like Medicare, if you
Speaker 1: had private insurance through your company, most people really liked
Speaker 1: that coverage. It was you know, people that had to
Speaker 1: go by on their own. There was no real marketplace,
Speaker 1: and Medicaid was the most broken form of healthcare. So
Speaker 1: Obamacare doubled down by literally dumping millions more people on Medicaid.
Speaker 1: It took money away from Medicare, and then in the
Speaker 1: private marketplace, you literally had no options, and so healthcare
Speaker 1: got even more expensive. What I like to see us
Speaker 1: get back to its a system of real free market competition.
Speaker 1: There is no price transparency. Uh there. You know, there's
Speaker 1: great medical professionals, but doctors shouldn't have to go check
Speaker 1: with unelected bureaucrats in Washington to figure out how to
Speaker 1: take care of their patients. We've got to get Washington
Speaker 1: bureaucrats out of the way more. The paperwork that's involved
Speaker 1: in healthcare is unbelievable. People are scared to death of
Speaker 1: going to jail, so they spending time fill up paperwork
Speaker 1: that they're not using taking care patients. You you come
Speaker 1: from Louisiana, from the South, with their immense support, not
Speaker 1: only in the military, but starting with the Marines as well.
Speaker 1: I think I saw a media distillation of the president's
Speaker 1: efforts in Paris this weekend. Can you distill for us
Speaker 1: what the southern military of this nation thinks when a
Speaker 1: president because of rain, because of exhaustion, whatever the excuses,
Speaker 1: doesn't show up it below. I mean, that was an
Speaker 1: extraordinary moment, but I want to know what Louisiana thought
Speaker 1: of that. Well. First of all, the President has been
Speaker 1: incredibly supportive our military. I see it on a regular basis.
Speaker 1: Um from Look, the National World War Two Museum is
Speaker 1: in New Orleans. We love our military. Yesterday was Veterans Day.
Speaker 1: We were today we celebrated. But yes, we also have
Speaker 1: the hundredth anniversary of Armistic WORL World War One, and
Speaker 1: the President was very he went to the memorial. He's
Speaker 1: to uh so many military ceremonies, and you know what
Speaker 1: would happen in Paris. I know there there are some
Speaker 1: of the European leaders that still don't want to acknowledge
Speaker 1: that he's president United States and he is making our
Speaker 1: NATO allies finally contribute to what they you know, to
Speaker 1: what they were promising to do. And that's a good thing.
Speaker 1: But look, the President attended the American Commemoration ceremony. Uh
Speaker 1: in Look, he's been wonderful to our military. And by
Speaker 1: the way, just signed a bill to get the largest
Speaker 1: pay raise to our men and women in uniform that
Speaker 1: they had years and and to give them the tools
Speaker 1: they need. I mean, last year we lost more men
Speaker 1: and women in uniform to training depths than the combat
Speaker 1: depth before thin It's it's unreal. How many people. I mean,
Speaker 1: you saw planes falling out of the sky because they
Speaker 1: didn't have the training parts they needed because the military
Speaker 1: was underfunded. And the President made it a point to
Speaker 1: address that, and we in Congress passed to build to
Speaker 1: fix that. Just a few months ago, the President funded
Speaker 1: in the law. How are you going to respond to
Speaker 1: this new Congress? You need to get through a lame
Speaker 1: duck term and then you will enjoy being a minority
Speaker 1: in the House. How does that change your data? Well?
Speaker 1: What doce that enjoy being in the minority. But you know,
Speaker 1: we still have some work to do in these last
Speaker 1: few months in the majority. And what are you gonna do?
Speaker 1: What are you gonna do in this lame duck session.
Speaker 1: The first thing we've got to do is address funding
Speaker 1: of the wall. My strongest support securing our border and
Speaker 1: building the wall and using other technology to to make
Speaker 1: America safe and to give the president to the president
Speaker 1: get that through the Senate. Well, you know that the
Speaker 1: House is gonna do its job and let the Senate
Speaker 1: do its job. And you know the the Senate's got
Speaker 1: a lot of issues they're gonna have to deal with.
Speaker 1: But we've got to deal with ours. By the way,
Speaker 1: we also have a farm bill that hasn't been resolved.
Speaker 1: We have a negotiation going on on a conference committee
Speaker 1: on a farm bill. The biggest issue that's that's still
Speaker 1: out there and it hasn't been resolved as work requirements.
Speaker 1: And frankly, I think in a time when you see
Speaker 1: such a great economy, I mean, they're more job openings
Speaker 1: than people looking for work, and yet we're paying people
Speaker 1: not to work who are fully able bodied. So in
Speaker 1: the farm bill, one of the things we say is, look,
Speaker 1: if you're able to work, then you have to go
Speaker 1: look for a job, and if there's one out there
Speaker 1: for you, you you have to take it. Otherwise you're not
Speaker 1: eligible to keep getting uh food stamps and other kind
Speaker 1: of welfare benefits. And by the way, if you can't
Speaker 1: find a job, will train you for a job. But
Speaker 1: you can't just sit at home. I mean, in America,
Speaker 1: you have the right not to want to work, but
Speaker 1: the taxpayers in this country shouldn't subsidize you for that.
Speaker 1: If there's a job waiting for you, and right now
Speaker 1: there are more job openings than are people looking for work,
Speaker 1: let's fix this. Let's get people back into the workforce
Speaker 1: and help restore the dignity of work in the American
Speaker 1: dream to people. Steve Scillies, thank you so much. The
Speaker 1: book is back in the game. One gunman, countless heroes
Speaker 1: in the fight for my life. Congressman Steve Scalise joining
Speaker 1: us today, of course always from Louisiana, and of course
Speaker 1: some real comments there on his medical condition as well.
Speaker 1: Right now with this prim uh as we look at
Speaker 1: fixed income with t d UH securities pre A good
Speaker 1: morning morning, Thanks for having me on. We are closed
Speaker 1: today and you are working away, and I'm sure you're
Speaker 1: working on a theme or a movement into next year.
Speaker 1: We're at that point where people like Priam Isra put together,
Speaker 1: UH the year forward view. What do you do after
Speaker 1: the curve flattening of this year, what's the theme that
Speaker 1: you'll be focusing on into January to June. Sure, so
Speaker 1: you're right, I am working on our twenty outlook. UM.
Speaker 1: I think the theme is less about curve and more
Speaker 1: about duration, because what we've seen this year is the
Speaker 1: the the US sort of outperformed, so there's been significant divergence.
Speaker 1: US interest rates have risen the FED hike more than
Speaker 1: what was priced in Now going into the markets pricing
Speaker 1: in two hikes. The FED is communicating three, but in
Speaker 1: an environment where global growth is slowing and we don't
Speaker 1: see any congressional actions, so no further fiscal stimulus. You
Speaker 1: have a fiscal cliff coming up late nineteen into early twenty.
Speaker 1: My fear is that we've sort of seen the peak
Speaker 1: and yields. I mean, you know, we could certainly go
Speaker 1: up a little bit more, so three thirties what we're
Speaker 1: looking at, but you know, if you get to three
Speaker 1: thirty three forty, I think that's a good time to
Speaker 1: go long duration. So the question is really how do
Speaker 1: you start scaling into long duration trades here? Which is
Speaker 1: a little out of consensus. I think most people are
Speaker 1: looking at US economy that's doing well, but I still
Speaker 1: look at you know, how long can this growth momentum last?
Speaker 1: If the tax stimulus effect starts to feed and we
Speaker 1: start to see some impact from higher interest rates impacting housing,
Speaker 1: impacting other interest sensitive sectors, and then I look abroad
Speaker 1: for any help there. And I think global growth is decelerating.
Speaker 1: I think that's the one clear trend. So I don't
Speaker 1: think we're going to continue to diverge, certainly as implications
Speaker 1: for effects. But I think for rates, there's going to
Speaker 1: be a time to go long duration, uh, you know,
Speaker 1: pretty soon. I think if that's the case, for investors
Speaker 1: that are more more inclined to accept risk, do you
Speaker 1: believe that there will be a risk on field to
Speaker 1: the market because with interest rates peaking, people are going
Speaker 1: to recognize they're not going to get more by putting
Speaker 1: their money into bonds, and they're going to have to
Speaker 1: find riskier assets in order to generate the returns they
Speaker 1: need to keep their clients. That's a fair point. I
Speaker 1: think when it's clear that interest rates are bottoming that
Speaker 1: the economy is okay. I'm a little nervous around risk
Speaker 1: just here because I think we've eased in a lot
Speaker 1: of good news in the equity market or or in
Speaker 1: general risk asses. So by the time the market reprices
Speaker 1: and we realize that actually growth is decelerating, but we're
Speaker 1: not falling off a cliff, I think that will be
Speaker 1: a time to go long risk in the near term.
Speaker 1: With the FED sort of on autopilot here almost, I
Speaker 1: think risk asttes have a bit of a headwind our
Speaker 1: bonds as data dependent is the FED. Yeah, I think
Speaker 1: bonds are maybe a little bit more forward looking than
Speaker 1: the FED. And you know, the FED is in a
Speaker 1: bit of a tough spot because they have to look
Speaker 1: at US data, and you know, the the US economy
Speaker 1: seems to be doing pretty well. I think what the
Speaker 1: bond market is telling you by not pricing and more
Speaker 1: hikes there are zero hikes price into is telling you
Speaker 1: that the bond market doesn't believe that the economy can
Speaker 1: continue to accelerate here. So I think, you know, you're
Speaker 1: you're getting a little bit more of a forward looking view.
Speaker 1: But I think Paul's comments will be pretty significant this week.
Speaker 1: Um On on Wednesday, pretty miserable of this, really quite
Speaker 1: advan by her perspective. Out the time function one year,
Speaker 1: two years, five years. Rarely pre that we talked about
Speaker 1: three months paper or three day paper. This year out
Speaker 1: of two thousand and eight we began to speak of
Speaker 1: library again. Let's talk about first principles. What is libor
Speaker 1: and why did it reassert itself this year? Sure? So
Speaker 1: library um is supposed to measure the cost of unsecured borrowing,
Speaker 1: and you know it's it's it's a measure of I guess,
Speaker 1: I guess funding costs for the financial system. The reason
Speaker 1: it became a big deal this year was the spread
Speaker 1: between Library and FED funds or OIS widened significantly in
Speaker 1: the first quarter. It started to widen again. Now seasonally,
Speaker 1: I would say that going into urine, going into quarter
Speaker 1: and it does tend to widen. But the big move
Speaker 1: in the first quarter this year was I think in
Speaker 1: part due to a significant amount of bill supply as
Speaker 1: well as repatriation um so the fact that a lot
Speaker 1: of companies were moving cash back to the US. They
Speaker 1: were not investing in bank paper, so the cost of
Speaker 1: bank funding went up. But separately, I think what's happening
Speaker 1: is that the FED and global bank regulators are telling
Speaker 1: us to move away from libror. So that's a theme
Speaker 1: we'll be talking about for the next many years. I'm
Speaker 1: not sure the two twenty one is the ultimate endpoint
Speaker 1: of LIBRARY, but they're trying to transition us away from it.
Speaker 1: Commercial paper used to be a thermometer. I think it's gone.
Speaker 1: What do you use to measure trust in the short
Speaker 1: term paper market? You're right, I think CP issuance has
Speaker 1: has gone down, But you know, we would look at CDs.
Speaker 1: I think bank CDs is one measure. Um You look
Speaker 1: at trading volumes to some extent in the euro the market,
Speaker 1: I think you can look at the front end. The
Speaker 1: thing is that's been significant increase in bank reserves in
Speaker 1: the US, so banks don't really need to borrow a
Speaker 1: whole lot. So I also look at the spread between
Speaker 1: effective and UM and I U R. That's a measure of,
Speaker 1: you know, our our reserves becoming scarce here, and then
Speaker 1: that can become an issue. I think for bank funding.
Speaker 1: I don't think we're there yet. Another six or nine
Speaker 1: months from here, I think that could become an issue.
Speaker 1: Do you believe that there's a dollar shortage, that there's
Speaker 1: a lack of liquidity compared to let's say two years ago.
Speaker 1: I think in two year end they always is. So
Speaker 1: there's some of that going on. But but the big
Speaker 1: difference from two years ago is two years ago, the
Speaker 1: FED was actually infusing reserves in the system. Now the
Speaker 1: set is actually letting it run off. So I think
Speaker 1: there is the starting signs, the early signs that there
Speaker 1: is a dollar shortages showing up in the FED funds market.
Speaker 1: The FED seems to be somewhat in denial here. I
Speaker 1: think they want to continue to let the portfolio run off.
Speaker 1: They don't think this is systemic enough. So I think
Speaker 1: this team will will persist, will actually accelerate as reserves
Speaker 1: become more and more scarce in the banking system. Are
Speaker 1: banks prepared for this? Um? I think it's very hard
Speaker 1: to be prepared. Historic there were no access reserves in
Speaker 1: the system, but historically the FED never paid any interest
Speaker 1: on reserves. Also, historically we never had li could recoverage ratio.
Speaker 1: So I think banks are having to look at their
Speaker 1: h q l A or the high quality liquid acid
Speaker 1: portfolio now and say that, well, the reserve component is
Speaker 1: going to come off. So then how are they supposed
Speaker 1: to replace these reserves? Is it through buying treasuries? Is
Speaker 1: it through you know, mortgages? So I think they go,
Speaker 1: what do you think they do? I think they will
Speaker 1: have to buy some treasuries um and they'll do more
Speaker 1: borrowing from the homeland bank system, which is why I
Speaker 1: think the effective FED funds rate will continue to move higher. Ultimately,
Speaker 1: the Fed will have to acknowledge that they can't let
Speaker 1: the portfolio run off for much longer. When I look
Speaker 1: at the bond market, it just used to be simple.
Speaker 1: You clipped a coupon and there was a real rate return.
Speaker 1: Whatever the coupon was, you knew you were making money.
Speaker 1: We're miles from that, particularly in Europe. I mean, just
Speaker 1: the is of negative rates and all that. Do you
Speaker 1: just assume a permanence to the oddities of your world
Speaker 1: or can we get back to where somebody clipped a
Speaker 1: coupon and actually knew they made a nominal or inflation
Speaker 1: adjusted return. Yeah, I think. You know, if you do
Speaker 1: get a pickup in productivity or structural growth, I think
Speaker 1: then this idea of getting positive real returns will come back.
Speaker 1: The problem is when you look at long term structural
Speaker 1: drivers of growth, demographics are not looking great, so that
Speaker 1: so that's not going to help us. I'm hoping personally
Speaker 1: that there is a pickup in productivity. We just haven't
Speaker 1: seen that data. So then you look at if you've
Speaker 1: been a low real rate environment, where are we getting
Speaker 1: more real rates? I think the US is actually giving
Speaker 1: you one of the highest real rates out there in
Speaker 1: the developer. I mean, I'm looking at the five year
Speaker 1: real rate pim Fox and back in the sixties it
Speaker 1: was you know, the two percent, and there was a
Speaker 1: big balloon in es. Yeah, the nineties given all the
Speaker 1: distortions it was. You know, you clipped your coupon in
Speaker 1: the nineties and you made a read don't even know
Speaker 1: what scissors are anymore time? Well I know that, Come on,
Speaker 1: you CLiPPA a preer. Save us or save me right now.
Speaker 1: If there is going to be a dollar shortage on
Speaker 1: some level, or there's going to be a lack or
Speaker 1: a slackening of liquidity, what is the best thing for
Speaker 1: an investor to do. Sit on the sidelines and wait
Speaker 1: and see what happens, or do you want to be
Speaker 1: in there and be a seller? Um, you know for
Speaker 1: a risk I'm somewhat biased negatively, so I would say
Speaker 1: be a seller in sixth income. I think you don't
Speaker 1: have to go you don't have to take on a
Speaker 1: whole lot of risk to get some positive real returns.
Speaker 1: So if you have three months basally built, you know,
Speaker 1: don't talk about real rates, you're actually getting some real rate.
Speaker 1: I would tasty in the front end you can get
Speaker 1: back into risk at much better levels. Well, okay, I'm
Speaker 1: an opinion down on that. Where's the much better level
Speaker 1: in the tenure yield? I mean, is a twenty basis
Speaker 1: points higher or is it you know X number of
Speaker 1: federate increases high. Yeah. I think when the FED is
Speaker 1: at neutrons on another two hikes, I think we will
Speaker 1: get us to neutral to seventy five or make the
Speaker 1: sent on the funds rate. I think you're supposed to
Speaker 1: extend out in duration because that's the point where the
Speaker 1: recession looks a lot more inevitable. So you know, you're
Speaker 1: probably another twenty based points away from the tenure, but
Speaker 1: you know right now you're getting a decent pickup in
Speaker 1: the very front end itself. Real rates in the front end.
Speaker 1: This has been hugely informative. Premier, thank you so much.
Speaker 1: It's amazing PIM on the bond market. Pre Amisser TV Securities.
Speaker 1: This is a joy more than a one year visit
Speaker 1: with Tyler Burle who runs Monocle and IF Monaco Radio,
Speaker 1: and I've appeared on that of course, particularly with visits
Speaker 1: to Davos, but also the hugely successful Monocle magazine, which
Speaker 1: PIM is one of the magazines that sustains and gets thicker.
Speaker 1: The physical thing is something people. It's been a published
Speaker 1: success has inked to it and a lot of intellig
Speaker 1: whether and celebration from Paris of his UH nine danual,
Speaker 1: I believe it's Nindaniel Yes nin Danial soft power survey.
Speaker 1: Tyler talk with why it's so important? What does soft
Speaker 1: power serving? What does that mean? Soft power? Classical definition? Tom,
Speaker 1: And good morning Pim. Pim has been forever since we
Speaker 1: we've chatted, Tom, Pim never invites me around when I'm
Speaker 1: in New York anymore. But anyway, that's that's the side issue. Um.
Speaker 1: If you look at it in sort of very classic terms,
Speaker 1: it's it's, yeah, it's getting your way as a nation
Speaker 1: without having to use uh force, without having to to
Speaker 1: write a check. Uh. It's how do you have global
Speaker 1: influence as a nation through the private sector because you've
Speaker 1: got strong national brands, a combination of public and private sector,
Speaker 1: because you have a strong cultural offering, because you've got
Speaker 1: great sports teams, all of these other elements outside of
Speaker 1: the core political sphere. The kid that give you have
Speaker 1: on the world stage. And what's so important, folks, and
Speaker 1: why people are glued to this within media and with
Speaker 1: advertising and also within just global consumption and imagery is
Speaker 1: the Tyler brulet. Green arrows up, red arrows down. Tyler,
Speaker 1: let's begin with the simple idea and the tension of
Speaker 1: the weekend France green arrow up, US red arrowed down. Discuss. Yeah,
Speaker 1: well you will recall um as recently, as as two
Speaker 1: years ago. Uh, United States is in the number one position. Uh.
Speaker 1: You had a series of great stories, even though of
Speaker 1: course we were we were on the even of an
Speaker 1: election result. Nevertheless, if you look at the power of Hollywood,
Speaker 1: if you look at the power of the US charts
Speaker 1: at that time, if you looked at US brands abroad.
Speaker 1: I think at that time, Tom and Tim we were
Speaker 1: looking at, you know, the expansion of what you know,
Speaker 1: Hyatt was doing, Marriott bringing their brands around the world.
Speaker 1: All of the things are very important. Um. You know,
Speaker 1: now we're in a very different place. Um. You know,
Speaker 1: there's some good things happening on the US West Coast.
Speaker 1: There's certainly some interesting music things happening. But one thing,
Speaker 1: you know, we were chatting but Tom this morning is
Speaker 1: I look at retail and I'm I'm gentlemen, I'm standing
Speaker 1: in the middle of Plas von Dome right now, and
Speaker 1: you know, I'm surrounded by the likes of Chanel and
Speaker 1: van Cliff and show May and Hublo and all of
Speaker 1: these you know, international brands, and it's interesting. You know,
Speaker 1: the US doesn't get a look in. And if we
Speaker 1: look at global growth right now, if we look at
Speaker 1: you know, what is the interesting part of international retail.
Speaker 1: You know, we focus on China, we focus on Asia.
Speaker 1: It's the big play there is it's a premium play.
Speaker 1: We're not looking at at at a mid market or
Speaker 1: map play. It's the top end of the market. And
Speaker 1: who owns all of these brands, whether they're Italian based
Speaker 1: or Swiss based, Trance these are these are French brands
Speaker 1: through and through. It's the Kerring Group of course at
Speaker 1: lvmh Okay, Reachmall and Swiss, but most of its sort
Speaker 1: of kidding in Paris. So this also really helped rock
Speaker 1: at them up the charts to put a much heavier
Speaker 1: waiting this year as well on the world of of
Speaker 1: of luxury and and and a premium offer Tyler Brulet.
Speaker 1: It's always good to hear your voice. One of the
Speaker 1: things I note about Monocle is it features on a
Speaker 1: regular basis young entrepreneurial startup businesses from around the world
Speaker 1: with a focus on craftsmanship and artisan quality. What are
Speaker 1: the cities that you recommend people who are looking to
Speaker 1: either start businesses or expand their businesses at that level,
Speaker 1: that craftsman, artists and level, what cities are the most receptive.
Speaker 1: So I think there's there's two sides to that. Of course,
Speaker 1: paim where is their cash um and where do you
Speaker 1: find a willing and accepting audience? Of course, take your
Speaker 1: ideas into prototype stage or two hang out your single
Speaker 1: and of course is you know where do you have
Speaker 1: a talent pool um and an interesting and interesting a
Speaker 1: place to get going. Look at all eyes have been
Speaker 1: on the west coast of Europe. The turnaround story of
Speaker 1: Portugal has been about manufacturing um, and so many people
Speaker 1: are going to to Lisbon at the moment um. So
Speaker 1: I think Lisbon as a manufacturing base, but also the
Speaker 1: capital base. Now, I mean this is a city they're
Speaker 1: already building a second least Francais because so many French
Speaker 1: people are are moving there um as well. Of course
Speaker 1: it's an interesting tax regime in Portugal at the moment,
Speaker 1: so I would say there. I would say also I
Speaker 1: look up the coast to Porto. Um, you know, Madrid
Speaker 1: is really interesting. If I wanted to do and launch
Speaker 1: a restaurant concept right now, if I said I wanted
Speaker 1: to take something maybe springboard into the Latin American work,
Speaker 1: but you know, give it a European foundation, I would
Speaker 1: look at it. Adam Madrid, I was making a European
Speaker 1: context anyway. We can talk about Asia and North America
Speaker 1: as well. If you're just joining us Chyler Ballet with
Speaker 1: a Smnica. Full disclosure, I have a subscription it to
Speaker 1: Tyler's rag and I hate to admit him. I actually
Speaker 1: put up Tom Keene to Balloons for this. It wasn't
Speaker 1: you know, Tyler didn't like toss it to me free
Speaker 1: or something. You lift it, you can lift it. It's
Speaker 1: like a phone book as well. We're with Tyler Roley
Speaker 1: Securities Analysis, Tyler General Electric. I don't know if you're
Speaker 1: familiar with them. They're small industrial lot of connected in
Speaker 1: New York. Tyler Ge has gone ten nine eight and
Speaker 1: is now trading with essentially no bid at seven dollars
Speaker 1: eighty two cents. It's perfect to talk to Tyler Brolay
Speaker 1: about the cultural realities of mergers. Jeff Himmelt got off
Speaker 1: the plane It's c d G and he went in
Speaker 1: there and did a French industrial acquisition. Tyler it is
Speaker 1: about cultures that don't work together, isn't it. It is?
Speaker 1: And I think I think we think we forget the
Speaker 1: importance of longevity. I was I wasn't actually one of
Speaker 1: the heads of Chanel recently, man who has been out,
Speaker 1: you know what a family owned business, which is a lot.
Speaker 1: I mean, we don't quite know what chel revenue is,
Speaker 1: but I think it's in the region probably ten billion
Speaker 1: us UM. And and there's you know, there's something to
Speaker 1: be said for you know, picking it out and being
Speaker 1: there for the long haul. And this gentleman said Mr
Speaker 1: Pavlovsky said, you know, you have to be You've got
Speaker 1: to have people who's chick around a long time to
Speaker 1: run a brand. And you can't just bring in a consultant.
Speaker 1: You can't just parachute in potentially a new CFO or
Speaker 1: bulls on a new business on the side of and
Speaker 1: think it's all going to be. We don't work deliriously
Speaker 1: and we're gonna get um, you know, either a nice
Speaker 1: show price or we're gonna get you know, an amazing
Speaker 1: spike and revenues. And I think we you know, I
Speaker 1: you know, in this sort of world of youth and
Speaker 1: hype and millennials and all of these things. Sometimes, actually
Speaker 1: it's all right to be on the job for fifteen years, Tyler.
Speaker 1: One of the things that happens when you're on the
Speaker 1: job for fifteen years is you get that request to
Speaker 1: rebrand or redesign the public face of a company. And
Speaker 1: you've done that many times over. Why don't more companies
Speaker 1: do it when they're healthy and can adjust to the change,
Speaker 1: rather than reacting to problems like a sinking share price
Speaker 1: or perhaps an activist investor, well, I think him, that's
Speaker 1: you know, the issue there is, like you've got everyone
Speaker 1: around the boardroom table in their stretchy comfy pants, right, Um,
Speaker 1: they've got an alassicated waste and everyone is around the
Speaker 1: boardroom table. Yeah, we're feeling sort of comfy and good
Speaker 1: about things. So you know, so why why should we
Speaker 1: change it? And yeah, guess what you're the rebranding all
Speaker 1: in is going to cost us, you know, five or
Speaker 1: seven million, which you know, as we know, um, is
Speaker 1: not that much money coming out of the gate to
Speaker 1: get going. And and that's that's so often the problem, um,
Speaker 1: And I always think, you know, smart companies start to
Speaker 1: interrogate their brand early on, and they look at is
Speaker 1: it time for not just a fresh coat of paint um,
Speaker 1: but you know, do we need to look at our
Speaker 1: whether whether we're in retail or we're an airline and
Speaker 1: we look at these lodges of our airthrop Tyler, congratulations
Speaker 1: on your soft power survey. It's it's it's extremely important
Speaker 1: to all of business worldwide. All I asked relate, would
Speaker 1: you get the European companies to make bigger sizes? So
Speaker 1: maybe that? Yeah, Tyler, really, thank you so much. He
Speaker 1: is in Paris, and of course Monacle is his magazine.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio