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Speaker 1: This is Bloomberg Surveillance. A lot of policy makers are

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Speaker 1: maybe looking to the I m F for a bit

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Speaker 1: of a green light to move forward on fiscal policy.

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Speaker 1: One of the thing I think it's interesting in the

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Speaker 1: commodity space is this return and dispersion across the commodity market.

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Speaker 1: There are a lot of people perhaps on the sidelines

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Speaker 1: that could come back in and compete for jobs, and

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Speaker 1: compete for wages and keep inflation down. Bloomberg Surveillance your

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Speaker 1: link to the world of economics, finance, and investment on

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Speaker 1: Bloomberg Radio. Good morning everyone, Michael McKee and Tom Keane.

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Speaker 1: We have breaking headlines right now involving the future of

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Speaker 1: many of our banks. Mike, this has been a topic

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Speaker 1: that has percolating as well. It's been out there. These

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Speaker 1: are not new headlines, but for Global Wall Street they

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Speaker 1: say a lot, the Fellow Reserve and the f d

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Speaker 1: i C say five of our big banks lack a

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Speaker 1: credible living will. None of that is in Steve Jacketty's

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Speaker 1: classic Money and Credit text Mark. This was part of

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Speaker 1: the Don Frank Bill that all of these banks were

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Speaker 1: supposed to come up with so called living wills. In

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Speaker 1: other words, uh if the bank is going to fail.

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Speaker 1: Here is how it is put together so regulators could

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Speaker 1: wind it down. One of the problems with Lehman Brothers

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Speaker 1: is regulators didn't understand the various components of the bank.

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Speaker 1: They didn't realize where the money was, and that made

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Speaker 1: things a whole lot worse. So they were supposed to

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Speaker 1: come up with these living wills. Now the FED and

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Speaker 1: the fd I C are saying that Bank of New York,

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Speaker 1: State Street, JP Morgan, Bank of America, and Wells Fargo

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Speaker 1: do not have credible living wills. The regulators are split,

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Speaker 1: they say on whether Goldman, Sachs and Morgan Stanley have

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Speaker 1: acceptable living will is The only one that seems to

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Speaker 1: have gotten a passing grade is City Group, although they

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Speaker 1: must address some shortcomings in the land. So uh, this

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Speaker 1: is it would be more work for the banks, and

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Speaker 1: it probably means would talk to Brad hints later. It

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Speaker 1: probably means I gotta set aside more money to deal

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Speaker 1: with this. From a quote in the Wall Street Journal,

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Speaker 1: JP Morgan It's most recent living will says it's quote

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Speaker 1: fortress balance sheet would absorb losses without needing to raise cash.

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Speaker 1: That's about as living will as I need to hear.

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Speaker 1: Jp Morgan obviously out in the forefront of headlines today

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Speaker 1: because they are out with their earnings. According to the regulators,

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Speaker 1: JPMorgan lacks models for maintaining sufficient liquidity and inadequate has

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Speaker 1: inadequate divestiture options, as well as lacking a plan for

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Speaker 1: shrinking its trading activities. So there it is. We like

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Speaker 1: to bring an important global Wall Street news as we

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Speaker 1: can when it comes out across the Bloomberg terminal. Bloomberg

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Speaker 1: Surveillance this morning brought to by Cone Resneck Accounting, Tax Advisory,

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Speaker 1: Living Wills trust Cone Resneck for the rategy the insight

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Speaker 1: your business needs to move forward. Find out what Cone

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Speaker 1: resuc thinks and sign up for insight at Cone Resnik

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Speaker 1: dot com. C h N are easy, n I c K.

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Speaker 1: We're not trying to skip York. Who gives us wisdom?

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Speaker 1: On oil? Do there need to be living wills for

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Speaker 1: the big oil companies? I mean, I mean, does ex

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Speaker 1: I need to have a credible will? If they blow

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Speaker 1: up what you know? You could almost imagine with the

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Speaker 1: pressure for them to sort of audit themselves on climate change.

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Speaker 1: Then in some sense that's where some of the activist

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Speaker 1: investors are pushing them is that if if the age

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Speaker 1: of oil is over, then how are you going to

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Speaker 1: wind down the business? And or what are you going

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Speaker 1: to do next? Would you what's interesting here in this

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Speaker 1: I'm serious question. I'm not trying to do a comedy act.

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Speaker 1: The basic idea of a stress test factor one factor

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Speaker 1: which says, let's pretend oil moves from a hundred to

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Speaker 1: twenty nine or a hundred forty, that would be a

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Speaker 1: credible major shock, right, It would be a major shock,

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Speaker 1: and it would be it would be a credible test.

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Speaker 1: I mean, what you'll often see, uh in some of

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Speaker 1: the earnings reports is that people will in some of

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Speaker 1: the s EC filings, many companies will tell you what

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Speaker 1: a you know what a one five ten dollar swing

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Speaker 1: in the oil price does two earnings order order profitability,

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Speaker 1: But it doesn't give you what happens if you get

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Speaker 1: a much bigger swing for a longer period of time

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Speaker 1: Mike X time rounded up to thirty worst case off

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Speaker 1: the drop in oil. Today, oil is lower. Everybody's looking

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Speaker 1: for this big meeting is supposed to happen uh this

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Speaker 1: weekend among the producers and some sort of agreement to

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Speaker 1: freeze production. Wink wink. Uh. You know, I don't think

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Speaker 1: anybody expects there to be an actual freeze. They just

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Speaker 1: want to read the words. Well, I think you know,

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Speaker 1: the phrase that everybody is using is the soft freeze.

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Speaker 1: And I think you have to start from the standpoint

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Speaker 1: of how many of these countries. First of all, who's

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Speaker 1: going to show up to the meeting? Uh? You know,

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Speaker 1: Ron says that they they're thinking pretty hard about not

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Speaker 1: being there. But are the ones that do show up

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Speaker 1: who actually could increase production if they wanted to? And

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Speaker 1: that's why it's a it's a soft free I think

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Speaker 1: that's the notion of the soft freezes that we're all

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Speaker 1: going to agree to freeze our production at where we

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Speaker 1: are now because we really can't move ourselves up if

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Speaker 1: we wanted to. The only exception of probably the people

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Speaker 1: are going to attend will be would be the Saudies.

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Speaker 1: Well there is um. We have seen this interesting move

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Speaker 1: in prices higher since Saudi Arabia and Russia announced that

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Speaker 1: there would be a wink wink freeze a month or

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Speaker 1: show ago. What happens if this doesn't happen, we see

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Speaker 1: prices down a little bit today. I'm concerned that it

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Speaker 1: may not happen. But do we see a major drop

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Speaker 1: back into the twenties if if this meeting falls apart.

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Speaker 1: I'm not sure if it's a major drop, but I

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Speaker 1: think there's a you know, there's downward pressure because the

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Speaker 1: market seems to be building in this expectation, uh, that

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Speaker 1: we're going to come out with some sort of positive statement.

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Speaker 1: It's the same phenomena that we've seen in the last

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Speaker 1: three OPEC meetings, where the market sort of builds this

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Speaker 1: momentum that OPEC is going to come out and say

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Speaker 1: something about a production cut. And when they sort of

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Speaker 1: say that they're going to keep everything the way it is,

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Speaker 1: the markets you know, left, you know, is disappointed by

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Speaker 1: that puts downward pressure on prices. I think if we

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Speaker 1: don't get some sort of positive statement, then there's gonna

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Speaker 1: be downward pressure. Does it drive us back down into

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Speaker 1: the low thirties? I think yeah. I think the market

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Speaker 1: kind of realizes the reality of whatever is going to

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Speaker 1: come out isn't that big of a swing if it

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Speaker 1: doesn't happen. Everybody's got a view on terminal value. Jeff

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Speaker 1: Curry at Goldman takes a cautious few fifty dollars with

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Speaker 1: a tendency downward. You guys are in another world. You're

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Speaker 1: in Texas, You're in the trenches. You've got a much

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Speaker 1: more domestic view than maybe what Jeff Curry is doing.

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Speaker 1: With that said, what's your terminal value and is a

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Speaker 1: tendency lower? Yeah, well, you think the terminal value is

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Speaker 1: probably closer to eight. We have a huge gap. Like

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Speaker 1: it's a huge gap. We think what a lot of

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Speaker 1: people are missing is the decline side of the equation. It.

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Speaker 1: You know, if all you had to do was meet

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Speaker 1: oil demand growth, then maybe fifty five dollars a barrel

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Speaker 1: gets you there. But if you have to meet oil

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Speaker 1: demand growth plus replacing the decline in non OPEC production

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Speaker 1: that is going to happen organically, then you have to

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Speaker 1: push into higher cost production. We we within a free market,

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Speaker 1: non sovereign state mix. The United States will be the

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Speaker 1: responsible actor and won't bring back demand based on a bag,

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Speaker 1: won't bring back supply based on price, and that will

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Speaker 1: move the terminal value higher. Well, no, I think what

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Speaker 1: will happen is we'll get to the We'll get to

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Speaker 1: the limits of what the US can do on the

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Speaker 1: production growth side. Uh. You know, if you believe in

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Speaker 1: a fifty five dollar world for a long period of time,

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Speaker 1: you believe that US production is going to go from

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Speaker 1: you know, about eight million barrel to day growing you know,

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Speaker 1: in excess of a million barrels a day every year

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Speaker 1: for say the next five to ten years. And we

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Speaker 1: just don't think there's that much activity that can happen

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Speaker 1: in the US. Like that's I love this program. We

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Speaker 1: get such intelligent, informed different views that and they pay

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Speaker 1: you to be on it. There's that too, good morning,

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Speaker 1: though if we take we do get different views. Um,

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Speaker 1: what's going to lead demand to drop? Is the is

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Speaker 1: kind of the big question because we've been expecting that

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Speaker 1: for some time, and uh, the consumer just seems to

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Speaker 1: be hanging in there. And even though the rest of

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Speaker 1: the world has slowed, in the US is not going gangbusters.

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Speaker 1: We're still seeing demand rise. We're still buying in the

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Speaker 1: US is still buying a lot of gasoline, and gasoline

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Speaker 1: demand growth is still fairly strong. We thought that the

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Speaker 1: growth that we saw in US gasoline demand last year,

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Speaker 1: which sort of mute itself a bit, because once consumers

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Speaker 1: adopted to the lower gasoline prices that you know, they

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Speaker 1: would just they're driving habits would moderate, the drive towards

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Speaker 1: buying more stvs would moderate, and growth with moderate And

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Speaker 1: we haven't seen that yet. We had going Bloomberg surveillance,

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Speaker 1: as we always do, to our John Tucker in New

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Speaker 1: York with a new Jersey driving update, what's the price again?

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Speaker 1: What's the price for gilling? Sorry to say that it's

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Speaker 1: up the seventies? The on's risen from like one yeah,

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Speaker 1: has it changed? You're driving habits hommer age to is

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Speaker 1: it being used less? Um now? Driving from ninety miles

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Speaker 1: on the turnpike down to thank you John? Report? Does

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Speaker 1: that make you laugh when John Tucker says, sorry to

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Speaker 1: report it's all the way up to one seventy? You

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Speaker 1: know what? What you know, what a dramatic change from

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Speaker 1: where we are. You know if you just like back

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Speaker 1: eighteen months ago, the chat was what's the US kind

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Speaker 1: of consumer gonna do when gasoline hits four dollars a

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Speaker 1: gallon again? And now here we are at you know

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Speaker 1: a third of that? Uh and you know, and it

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Speaker 1: it is it'll be one of these phenomenas that we

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Speaker 1: think that I think we're going to see, is we're

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Speaker 1: gonna see people act as if gasoline prices that they

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Speaker 1: see today as the price are going to see, and

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Speaker 1: they've made purchase decisions that in the future they may say,

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Speaker 1: we can't really go with John Tucker's hummer for one

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Speaker 1: Skip York with us, I want to come back and

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Speaker 1: talk about that simple phrase. At the moment, it's sort

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Speaker 1: of like V shaped X number of years ago, lower

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Speaker 1: for longer. We'll do that with Skip York, with Mackenzie,

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Speaker 1: with US, I don't want This is great, folks. And

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Speaker 1: when we go from Don Stairs I'm in China to

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Speaker 1: Skip York on oil, I don't even we have Brad

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Speaker 1: Hints coming up on banking. I mean, Mike, it's like

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Speaker 1: we don't even have a job. Do they know we

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Speaker 1: do this for free? Don't tell them it's it's like

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Speaker 1: pitching for the Red Sox. Wait their seasons over. Let's

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Speaker 1: check in with Mike A. Barn now and get the

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Speaker 1: latest world in national headlines, Michael, Mike's begging very much

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Speaker 1: might be tougher to get a Verizon cable guy. Today,

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Speaker 1: thirty nine thousand Verizon landline and cable workers on the

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Speaker 1: East Coast have gone on strike. The worker's latest contract

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Speaker 1: expired in August Verizon says it is disappointed, but says

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Speaker 1: it's trained thousands of non union workers to fill in

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Speaker 1: for the strikers. People in Columbia. South Carolina will pack

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Speaker 1: a Senate subcommittee hearing today on a bill that would

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Speaker 1: a force transgender people to use public bathrooms based on

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Speaker 1: their biological gender. If you eat a lot of fast food,

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Speaker 1: you probably have more industrial chemicals in your body. That's

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Speaker 1: according to an analysis from federal nutrition surveys. One of

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Speaker 1: the chemicals is stiglate that's used to make plastics more

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Speaker 1: flexible and durable. The study was publishing the journal Environmental

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Speaker 1: Health Perspectives, Global News twenty four hours a day, powered

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Speaker 1: by our journalists by Michael Barr Miketown. Michael, thanks so much.

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Speaker 1: Lots going on coming up. We'll look at lower for longer.

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Speaker 1: It's a new V shaped at least in the commodity space.

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Speaker 1: Green on the screen, green on the banking screen as well,

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Speaker 1: bright in slaters. If York now an oil Bloomberg surveillance.

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Speaker 1: The news update brought to you by S S and

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Speaker 1: C and more experienced superior technology, independence and expertise. That's

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Speaker 1: business news twenty four hours a day at Bloomberg dot Com,

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Speaker 1: the Radio plus Mobile Act and on your radio. This

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Speaker 1: is a Bloomberg Business Flash and I'm Karen Moscow, US

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Speaker 1: dot Indix futures are rising this morning. Let's go to

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Speaker 1: the First Word Breaking news desk for today's morning call.

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Speaker 1: And here's Bill Maloney. Good morning, Bill, Good morning Karen.

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Speaker 1: That's right. U S Dock futures are point to a

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Speaker 1: higher open following yesterday's gains. Doubt Future is currently hired

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Speaker 1: by eighty six points. SPS gained eleven In NAZAC futures

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Speaker 1: rise by thirty one US ten YEL at one point

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Speaker 1: seven nine per cent over night. In Asia, the NIK

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Speaker 1: roads two point eight percent. China had better than expected

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Speaker 1: export data, while up of markets are also rising, led

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Speaker 1: by four percent gains in Italy. Italian banks were some

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Speaker 1: of the biggest gainers over in Europe on the US

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Speaker 1: Economic Frinday at thirty, retail sales and p p I

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Speaker 1: at ten o'clock, business inventories at ten thirty, energy inventories,

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Speaker 1: and a two pm FED releases beige book. In others,

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Speaker 1: p by Energy file for chapter eleven, and the FED

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Speaker 1: and the fdi C said five big banks lack credible

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Speaker 1: living wills After Dobella's night Rail CSXC, s Q two

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Speaker 1: hurt by a strong dollar and regarding earnings. This morning,

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Speaker 1: JP Morgan beat shares are higher by two point eight

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Speaker 1: percent pre market. Finally some of your walshe upgrades and downgrades,

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Speaker 1: Seagate and Win Resorts cut to Hover's by over at

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Speaker 1: Deutsche Bank. Clovis Oncology cut to neutral at JP Morgan,

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Speaker 1: Sprint cut the underway to Pacific Crest and found the

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Speaker 1: Computer Sciences and Marathon Oil cut to a market reform

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Speaker 1: over at Wells Fargo. Live from the first Breaking news desk,

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Speaker 1: Combo Maloney Careen, thanks bail to hear live breaking news

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Speaker 1: over her Bloomberg type school go when your terminal, that's

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Speaker 1: squ a w K go and that's a bloom Bird

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Speaker 1: business flash, Tom and Mike karen A, thanks so much.

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Speaker 1: Big movements and currency as well. Want to make that clear.

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Speaker 1: Yen weaker, euro weaker one fourteen and change all the

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Speaker 1: way down to one twelve eighteen hour rom weaker for

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Speaker 1: the euro dollar fractionally stronger. Don't want to make too

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Speaker 1: much about it, but a big shift there. Bloomberg Surveillance

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Speaker 1: brought you by Investco Marcus may be volatile, but invest

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Speaker 1: where an investco dot com slash interactive, Skip York with

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Speaker 1: us and with the Woods Mackenzie and the big idea

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Speaker 1: here is collegial differences of opinion on where oil is heading.

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Speaker 1: We all know that oil is the toughest thing to predict,

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Speaker 1: but a terminal value seventy eight gets your attention, Skip York.

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Speaker 1: What does lower for longer mean to you? Well, we

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Speaker 1: think that the lower for longer means that we're going

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Speaker 1: to be sort of the range trading in the forty

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Speaker 1: in the forties and into the fifties. Uh, if think

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Speaker 1: all the way back to you know, we've been sort

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Speaker 1: of in that fifth sub fifty dollar range for you know,

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Speaker 1: approaching fifteen months. We think of we're going to go

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Speaker 1: through sixteens. It's gonna be two years where oil prices

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Speaker 1: are gonna be half of where they were before the correction.

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Speaker 1: And that's that's a long period of time for this

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Speaker 1: market to the market typically corrects faster than that. Well,

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Speaker 1: the uh, the development of fracking in the amount of

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Speaker 1: oil that was produced push these prices down that low.

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Speaker 1: They're gonna have this meeting of oil producers to talk

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Speaker 1: about some sort of freeze. Iran will be there, maybe

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Speaker 1: Rush will be there, Saudi Arabia will be there, but

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Speaker 1: Chesapeake Energy won't, Devon Energy won't, sand Ridge isn't going

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Speaker 1: to be there. So what what guarantee can there be

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Speaker 1: that if prices don't, if prices rise a little bit again,

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Speaker 1: everybody comes back into it. Yeah. I think when you

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Speaker 1: when you look from a US perspective, the if you

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Speaker 1: get in oil prices into the fifty fifty dollar range,

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Speaker 1: you know, we've got fifteen billion barrels of resource, it's economic. Uh.

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Speaker 1: And if you kind of think of a reasonable drilling

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Speaker 1: program that's you know, increasing production three and a half

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Speaker 1: to four million barrels a day over a three to

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Speaker 1: four year period. The you know that flat spot is

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Speaker 1: one of the uncertainties and one of the risks is

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Speaker 1: what if these guys reactivate like they did in when

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Speaker 1: oil prices hit fifty dollars a barrel. Now, when we

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Speaker 1: talk to the producers, um, they sort of say two things.

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Speaker 1: They say three things. One, I learned my lesson in

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Speaker 1: the last boom uh, but from an upstream perspective, the

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Speaker 1: first time they learn the next time they learn a

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Speaker 1: lesson will be the first time. The second thing they

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Speaker 1: say is they're concerned about, well the banks or can

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Speaker 1: I finance it? And then the third one is can

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Speaker 1: I actually get the supply chain in place. They're very

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Speaker 1: worried about rig crews. The equipment is is being cold stacked,

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Speaker 1: but they sort of say, that's that's a manufacturing process.

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Speaker 1: We can fix that. They're really worried that they can

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Speaker 1: get those high quality rig crews back and get them

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Speaker 1: into the field, and so there might be issues. They

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Speaker 1: may have the desire to drill it fifty but not

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Speaker 1: be able to execute and that's one of their That's

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Speaker 1: what they've been concerned is, Well, I gotta ask, is

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Speaker 1: they're still equity capital out there that would enable them

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Speaker 1: to finance given what's happened. Yeah, I think they were.

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Speaker 1: They were. There was a lot of really clever financial

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Speaker 1: engineering that went on in the upstream side of the industry.

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Speaker 1: It's it's not clear what what bullets are left in

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Speaker 1: the gun for them to for them to pull the

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Speaker 1: story that you hear is that there's a lot of

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Speaker 1: private equity capital, you know, hundreds of billions of dollars

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Speaker 1: sitting on the sidelines waiting to get in UM. But

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Speaker 1: what once again, when you talk to the producers, they say,

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Speaker 1: you know, I don't have a lot of private equity

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Speaker 1: guys knocking on my doors. So that money might be

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Speaker 1: out there, but nobody's coming to you know, nobody's doing

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Speaker 1: the preset about whether or not they're interested in coming

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Speaker 1: in one of the things. And this goes back to

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Speaker 1: with McKenzie expertise. Is what's shocked us all. Everybody got

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Speaker 1: this wrong. I'll say, with great respect for the engineering industry,

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Speaker 1: is a technological progress of oil surprises all? Is it

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Speaker 1: still there? Is there going to be technological progress in

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Speaker 1: five years? That makes the the Skip York eighty dollar

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Speaker 1: terminal value and the Jeff Curry fifty five dollar terminal

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Speaker 1: value a point of well, it doesn't really matter because

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Speaker 1: the technologies, whatever it's gonna be, is gonna overwhelm everybody. Yeah,

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Speaker 1: I think you think back to the you know, to

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Speaker 1: the hydraulic fracturing, the and the horizontal drilling. Just you know,

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Speaker 1: what's happened in the last five years, and we still

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Speaker 1: really don't understand the science of just how far that

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Speaker 1: technology can go. When you when you talk to the

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Speaker 1: upstream guys, I think of anything, they think the right

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Speaker 1: of technological improvement might be accelerating from where it's been.

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Speaker 1: It's always been an impressive science, uh, and engineering feats

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Speaker 1: of what they do. They now think that it, you know,

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Speaker 1: we might be sort of on so of an accelerating path.

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Speaker 1: In particular, I think the two places they're looking for

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Speaker 1: is if you look at the tight oil drill wells

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Speaker 1: that deplete so fast, what if there's a way that

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Speaker 1: we can enhance that oil recovery and make those tails fatter. Uh.

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Speaker 1: And I think the onshore guys think that's the next

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Speaker 1: big thing. The offshore guys are all trying to figure out,

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Speaker 1: you know, what's the next big thing that they can

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Speaker 1: do thirty seconds, not even the twenty seconds. Are you

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Speaker 1: concerned about petro busses ability to be an ongoing concern

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Speaker 1: in Brazil? You know that. I think that company has

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Speaker 1: really weather a storm. When you just sort of think

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Speaker 1: of the political turmoil and the social turmoil in in Brazil,

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Speaker 1: it's been amazing that how well they've done. But I

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Speaker 1: think the longer this goes on the environment they're in,

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Speaker 1: the longer that it goes on, the harder and harder

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Speaker 1: it's going to be for them to be to execute

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Speaker 1: the terrific briefing Skipy workers with Woods Mackenzie on oil.

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Speaker 1: As we're from downstairs, I'm in China earlier futures up,

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Speaker 1: eleven down, futures of seven economic day done. You think

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Speaker 1: it's important next, Michael McKee with that coming up there,

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Speaker 1: with all due respect, highlight brought to you by land Rover.

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