WEBVTT - Surveillance: Once Again, Doubt About the Fed 0:00:00.320 --> 0:00:04.160 Who you put your trust in matters. Investors have put 0:00:04.200 --> 0:00:07.640 their trust in independent registered investment advisors to the tune 0:00:07.640 --> 0:00:12.240 of four trillion dollars. Why learn more and find your 0:00:12.240 --> 0:00:27.240 independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 0:00:27.280 --> 0:00:31.320 I'm Tom Keane. Always with Michael McKee. Daily we bring 0:00:31.360 --> 0:00:35.280 you insight from the best in economics, finance, investment, and 0:00:35.360 --> 0:00:41.519 international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, 0:00:41.560 --> 0:00:48.440 and of course, on the Bloomberg. Deutsche Bank chief executive 0:00:48.479 --> 0:00:51.680 officer John Cryan was talking Frankfurt today. He said Germany's 0:00:51.720 --> 0:00:54.720 largest bank is looking to shrinking size. He was asked 0:00:54.720 --> 0:00:58.160 about me to report that it considered merging with rival 0:00:58.200 --> 0:01:01.720 Commerce Bank. Now we're joined by Atlantic Equities Chris Wheeler. Chris, 0:01:01.760 --> 0:01:04.520 what a day to have you on the program. So 0:01:04.560 --> 0:01:07.520 we have so much banking news, from bonus to possible consolidation. 0:01:08.200 --> 0:01:11.080 This is the question that Tom Kings has been asking 0:01:11.120 --> 0:01:13.120 for two years, and I always pushed back. I said, no, 0:01:13.160 --> 0:01:15.000 they're not going to consolidate because no one wants a 0:01:15.000 --> 0:01:19.800 bigger bank. Certainly the regulators don't want It's am I wrong? No, 0:01:20.600 --> 0:01:24.040 I think partly I think, y, yeah, well that's the 0:01:24.040 --> 0:01:26.200 bottom line here is that clearly, you know, I don't 0:01:26.200 --> 0:01:28.120 think Deutschland comments Bank are going to merge. I think 0:01:28.160 --> 0:01:29.680 that's too big a deal, and I don't think the 0:01:29.720 --> 0:01:31.840 regulators will be comfortable for the whole host of the leason. 0:01:31.880 --> 0:01:34.440 It's not least competition issues allowed their dealing with the 0:01:34.440 --> 0:01:37.600 middle stamp, the German middle size companies. But I think 0:01:37.600 --> 0:01:39.840 the important thing here is, you know, this could be 0:01:39.840 --> 0:01:42.520 no smoke without fire, because deutsch still want to dispose 0:01:42.560 --> 0:01:44.959 of post Bank, the big retail banking business they have. 0:01:45.360 --> 0:01:46.959 They want to get lirid of it because they want 0:01:46.959 --> 0:01:50.000 to get rid of the levelage issues and the capital issues. 0:01:50.280 --> 0:01:52.000 And maybe, just maybe they're trying to think of a 0:01:52.040 --> 0:01:54.320 deal with comments Bank, who are more skewed towards the 0:01:54.440 --> 0:01:56.880 town of small business activity, where they get it off 0:01:56.880 --> 0:01:59.360 the balance sheet, maybe get fifty one off, do some 0:01:59.440 --> 0:02:02.680 kind of joint venture to support comment Outs, effectively in 0:02:02.920 --> 0:02:06.040 glowing a much bigger let out bank rather than obviously 0:02:06.360 --> 0:02:08.639 you know, I said a complete merger of the twenty. 0:02:08.680 --> 0:02:10.680 But this would be a very similar the big banks, 0:02:11.000 --> 0:02:14.440 the so called healthier banks such as the Italian ones, 0:02:14.600 --> 0:02:17.480 the bigger ones trying to help the smaller ones. Well, yes, 0:02:17.520 --> 0:02:19.560 I think so, but it's also tryed to execute the 0:02:19.560 --> 0:02:22.120 strategy that Deutsche has the really clear strategy. Actually Jane 0:02:22.160 --> 0:02:23.960 laid it out in eight Pril last year. John has 0:02:24.000 --> 0:02:27.519 followed it through UM in terms of improving considerably in 0:02:27.560 --> 0:02:29.919 their levelage lay show and as I said, they're capitally show, 0:02:30.080 --> 0:02:32.600 both of which will be helped considerably if Post Bank 0:02:32.639 --> 0:02:34.200 was off the balance sheet is part of their strategy, 0:02:34.360 --> 0:02:36.360 but it's a very low way. It's got very low 0:02:36.440 --> 0:02:38.600 the turns post Bank, so just selling it to somebody 0:02:38.720 --> 0:02:40.239 is not really an option. I p oing it. I 0:02:40.240 --> 0:02:42.239 think it's a tough call so that that they have 0:02:42.280 --> 0:02:45.160 really limited options. Chris, I want to look at the 0:02:45.200 --> 0:02:47.400 currents Bank and Deutscher Bank chart. I think a lot 0:02:47.440 --> 0:02:50.239 of our viewers don't realize the train wreck these two 0:02:50.280 --> 0:02:52.320 banks are, and for that mayut of the train wrecked 0:02:52.320 --> 0:02:55.200 German banking is. I don't for a minute believe this 0:02:55.320 --> 0:02:58.320 is ill time. It's the end of August am I correct, 0:02:58.440 --> 0:03:00.600 And you know this with your work at Leys over 0:03:00.600 --> 0:03:03.880 the years working within the bank. This is where you 0:03:04.000 --> 0:03:08.400 do your year ahead planning, is what this discussion really 0:03:08.440 --> 0:03:12.680 about is a total pipe dream of profitability that is 0:03:12.720 --> 0:03:15.880 just not going to be there. Well, I think that's 0:03:15.919 --> 0:03:19.000 a that's an important factor because we've seen, for example, 0:03:19.040 --> 0:03:20.960 certainly at Deutsche Bank, you know, laying out a strategy 0:03:20.960 --> 0:03:23.519 in Apol last year being levised when the CEO left 0:03:23.520 --> 0:03:25.800 and we had a new CEO coming in. But of 0:03:25.840 --> 0:03:28.880 course circumstances, as John keeps, the minding is has changed 0:03:28.880 --> 0:03:32.240 considerably since. So it isn't matter saying, my goodness, next 0:03:32.320 --> 0:03:34.320 year doesn't look a lot better than than the year 0:03:34.360 --> 0:03:36.920 within at the moment, what do we do it's less 0:03:36.960 --> 0:03:40.040 that and stop the share price going further down? Perfectly stated, 0:03:40.280 --> 0:03:43.720 what will be the shrinkage of Deutsche Bank, and for 0:03:43.800 --> 0:03:46.040 that matter, what will be the shrinkage of the Anglo 0:03:46.080 --> 0:03:49.360 Saxon banks if they have to deal with a great distortion, 0:03:49.720 --> 0:03:51.920 They have to deal with the negative interest rates in 0:03:51.960 --> 0:03:54.600 each nation, and they have to deal with major central 0:03:54.600 --> 0:03:58.119 bankers like Stanley Fishers saying they like negative rates. Jam 0:03:58.240 --> 0:04:02.040 Crying doesn't like negative rates, does he? Look? I don't 0:04:02.040 --> 0:04:04.880 think any banker likes negative lates. It causes great confusion. 0:04:05.040 --> 0:04:07.640 I've been talking to a number of US banks leasently 0:04:07.680 --> 0:04:10.480 smaller banks who are worried about negative interless leads. And 0:04:10.520 --> 0:04:12.400 we come back to the fact that in most cases 0:04:12.400 --> 0:04:14.640 people view the fact that in a negative into the 0:04:14.680 --> 0:04:18.520 slate scenario, the courtlet's end up financing the letail customers. 0:04:19.480 --> 0:04:22.159 And this is this is something which is not attractive 0:04:22.160 --> 0:04:25.280 because you don't really want one infinite one customer sub 0:04:25.320 --> 0:04:28.360 subsidizing another. But yeah, I mean this, this, this makes 0:04:28.440 --> 0:04:31.360 life incredibly difficult. And you know, the most important thing 0:04:31.400 --> 0:04:33.320 is the only thing you can control, Tom and we've 0:04:33.320 --> 0:04:36.159 talked about this endlessly is costs. And so you're back 0:04:36.240 --> 0:04:38.200 on the old band wagon of how much more costs 0:04:38.200 --> 0:04:40.839 we can take out the system. What Mr Wheelers said there, folks, 0:04:40.920 --> 0:04:44.839 is absolutely critical about the idea that corporate, big deposit 0:04:44.960 --> 0:04:51.479 people subsidize the little accounts because of the unequal application 0:04:51.720 --> 0:04:55.720 of negative rates. Here is stan Fisher yesterday in Washington. 0:04:57.279 --> 0:05:01.000 We've learned at the central banks which are implementing them, 0:05:01.120 --> 0:05:04.320 there are four or five of them basically think they're 0:05:04.400 --> 0:05:09.279 quite successful and or staying with that approach, possibly with 0:05:09.320 --> 0:05:12.560 the exception of Japan, although they're thinking it's through and 0:05:12.600 --> 0:05:16.680 they have said they'll come back to try and make 0:05:16.960 --> 0:05:21.279 negative rates work work better. Okay, so there's the vice 0:05:21.360 --> 0:05:24.200 chairman from forty thousand free, Chris wheel Er. You're looking 0:05:24.240 --> 0:05:27.160 at these banks at three thousand, two hundred feet and 0:05:27.200 --> 0:05:31.039 there's that dreaded cross wind at the Frankfurt airport. What 0:05:31.120 --> 0:05:37.039 does John Cryan do living in stand Fisher's world. Look, 0:05:37.279 --> 0:05:39.720 I think John's job, he's got such an enormous job, 0:05:40.120 --> 0:05:43.640 is to just keep having small winds, small victuals. It's 0:05:43.640 --> 0:05:45.200 a bit like you know, you can say Churchill at 0:05:45.200 --> 0:05:47.000 the Second World War. After that, Alam, you know, you 0:05:47.040 --> 0:05:49.239 just keep wanting to have more and more small victuals 0:05:49.279 --> 0:05:50.960 to feel like you're back in the you know, you're 0:05:51.120 --> 0:05:53.680 you're back actually in the light election. And I think 0:05:53.680 --> 0:05:55.480 that's what John is going to have to do, because 0:05:55.640 --> 0:05:58.240 the big picture still tells him he's got the most 0:05:58.400 --> 0:06:02.280 enormous job in terms of changing the platform, the cost spice. 0:06:02.680 --> 0:06:07.280 But still my tining a strong revenue flow investment bank. Francine, 0:06:07.320 --> 0:06:09.160 You and I are going to remember this day six 0:06:09.200 --> 0:06:12.920 months from now. This is just extraordinary how crying has said, Look, 0:06:13.040 --> 0:06:16.599 this is the reality. Yeah, you're absolutely right. And actually 0:06:16.680 --> 0:06:20.080 I wonder whether it has any influence, right, whether Central 0:06:20.080 --> 0:06:22.159 Banks actually listened to guys like that and say, well, 0:06:22.200 --> 0:06:24.680 maybe I need to change my thinking or tweak it 0:06:24.839 --> 0:06:39.640 a touch Edward Morris with US with City Group, of course, 0:06:39.680 --> 0:06:45.000 synthesizing macro and microeconomics downstream and upstream. Let's start right there, 0:06:45.120 --> 0:06:48.000 right now. It's the end of the summer driving season. 0:06:48.440 --> 0:06:50.760 Is that it's true now? Is it was when you 0:06:50.800 --> 0:06:55.680 began studying hydrocarbons decades ago? Well, actually the summer. Nobody 0:06:55.800 --> 0:06:58.600 would have expected when I started studying this that August 0:06:58.600 --> 0:07:01.839 would be the peak month oil demand. And that's because 0:07:01.880 --> 0:07:04.160 we we had the summer season in the northern hemisphere 0:07:04.200 --> 0:07:07.240 for driving. But now we have the summer electricity season 0:07:07.760 --> 0:07:12.400 in the middle because conditioning didn't exist, conditioning and populations 0:07:12.440 --> 0:07:15.040 have gotten bigger. So August is really the peak month 0:07:15.440 --> 0:07:19.360 more so than ever. Do you know what we have? 0:07:19.520 --> 0:07:21.720 I mean, I I know, we don't know what China 0:07:21.800 --> 0:07:25.280 has an oil does Edward was actually of an understanding 0:07:25.320 --> 0:07:30.040 of what is in the hydrocarbons of the United States. Well, 0:07:30.080 --> 0:07:33.080 I think that that that that question is an unfolding one. 0:07:33.120 --> 0:07:36.400 We know the US has a robust a coal base. 0:07:37.080 --> 0:07:39.960 Coal is becoming a stranded asset, so you know, we 0:07:40.000 --> 0:07:41.720 don't care as much about that as we used to 0:07:41.760 --> 0:07:44.160 when we know that the oil and gas reserves of 0:07:44.160 --> 0:07:47.760 the US are really much huger than people would have thought. 0:07:47.880 --> 0:07:50.880 I mean, who would have thought that if Pennsylvania were 0:07:50.920 --> 0:07:53.280 considered to be an independent country, it would be the 0:07:53.320 --> 0:07:55.960 third largest natural gas producing country in the world. I 0:07:56.000 --> 0:07:58.040 did not know that. That's why we love him and Fancy, 0:07:58.200 --> 0:08:02.200 that's why we love having worse here from Philadelphia to 0:08:02.240 --> 0:08:06.120 Pittsburgh a natural guest, Are you kidding me? Absolutely not. 0:08:06.200 --> 0:08:08.960 They were producing nothing ten years ago, and they're gonna 0:08:09.000 --> 0:08:11.880 they can even double that collection. I'm assuming Fancy niots 0:08:11.880 --> 0:08:15.960 lost in translation. It's absolutely remarkable that Pennsylvania is the 0:08:16.000 --> 0:08:20.200 third biggest net gas producer in the world. Jump in here, Fancy, yeah, Tom. 0:08:20.200 --> 0:08:22.600 And actually it goes back to the point though, that 0:08:22.680 --> 0:08:25.640 we know, or I guess, the global markets know very 0:08:25.680 --> 0:08:28.880 little about how much the US can produce because of 0:08:28.920 --> 0:08:31.720 these newsplayers, which is shale gas, and how much they 0:08:31.720 --> 0:08:35.679 can actually export longer term. What's that figure? Well, actually 0:08:35.760 --> 0:08:37.720 we don't know, and the number keeps growing, and I 0:08:37.800 --> 0:08:40.079 know there's uh, there are a lot of naysayers who 0:08:40.120 --> 0:08:42.880 think this is still a pyramid scheme. But um, the 0:08:43.000 --> 0:08:46.560 US is the largest natural gas producing country in the world, 0:08:46.920 --> 0:08:49.920 and it's growing. And the major constraint is a subject 0:08:50.320 --> 0:08:52.760 that Tom is going to be talking about with somebody 0:08:52.760 --> 0:08:57.320 maybe tomorrow, namely the infrastructure. It's the pipeline capacity, the 0:08:57.320 --> 0:09:00.679 big constraint for not getting more gas out of Pennsylvania 0:09:01.040 --> 0:09:04.480 bringing it to export terminals in the south and the southeast. 0:09:04.679 --> 0:09:07.320 There's pipeline, there's pipeline. Stephen Shark, where us to our 0:09:07.440 --> 0:09:10.800 really looking forward to talking to Mr Shark about that infrastructure. 0:09:10.840 --> 0:09:15.040 Fancying please? And when you look at the oil markets, 0:09:15.120 --> 0:09:17.840 right there's so much talk about OPEC doing something and 0:09:17.840 --> 0:09:19.320 I know it brings it away a little bit from 0:09:19.400 --> 0:09:22.559 from the US, But are you surprised at oil heading 0:09:22.600 --> 0:09:26.000 for the biggest monthly game since April just on talks 0:09:26.120 --> 0:09:29.960 and OPEC has disappointed month after month for the lost 0:09:29.960 --> 0:09:33.520 two years. I actually don't understand the hype about OPEC. 0:09:33.600 --> 0:09:36.400 I've written all over the place that don't think about 0:09:36.400 --> 0:09:38.840 OPEC as being a real entity any longer. OPEC is dead. 0:09:39.040 --> 0:09:41.960 It's not likely to be revived anytime soon. There's no 0:09:42.080 --> 0:09:46.000 cohesion on objectives. They're all over the place, and Saudi 0:09:46.000 --> 0:09:49.400 Arabia has decided it doesn't want to play the game 0:09:49.440 --> 0:09:52.120 it used to play. That game was we are the 0:09:52.120 --> 0:09:54.880 lowest cost producers in the world. Let's keep our oil 0:09:54.920 --> 0:09:57.000 in the ground because it's going to be worth more 0:09:57.000 --> 0:09:58.760 in the future. And more we keep in the ground, 0:09:59.040 --> 0:10:03.560 the bigger the delta, the distance between their production costs 0:10:03.559 --> 0:10:05.680 and the market price in the world. And then the 0:10:05.720 --> 0:10:08.840 big shift coming out of US shale in particular, is 0:10:08.920 --> 0:10:11.400 oil in the ground is worth a lot less than 0:10:11.400 --> 0:10:14.320 oil being produced. That's a big structural Let's go back 0:10:14.360 --> 0:10:18.040 to a basic structural question. Their production costs are a 0:10:18.040 --> 0:10:20.920 lot less than ours, right, yes they are. But we 0:10:21.000 --> 0:10:26.439 had we had Scott Sheffield from Pioneer saying all over 0:10:26.480 --> 0:10:29.319 the place over the last few weeks that production costs 0:10:29.320 --> 0:10:32.640 in the Permian Basin are equivalent to those in Saudi Arabia, 0:10:32.880 --> 0:10:36.120 and the Permian Basin now producing two million barrels a 0:10:36.200 --> 0:10:38.600 day could be producing five million a day and doing 0:10:38.600 --> 0:10:42.240 it for decades. So that Uh, that's a very different 0:10:42.360 --> 0:10:46.040 kind of environment than what OPEC was used to. OPEC 0:10:46.400 --> 0:10:49.240 used to think about having shut in capacity that could 0:10:49.240 --> 0:10:52.199 come back into the market. Uh. In a range of 0:10:52.240 --> 0:10:54.800 about a million dollars a day or even two million 0:10:54.840 --> 0:10:56.760 barrels a day if markets needed it and they could 0:10:56.920 --> 0:11:00.880 take it off. Now we have the US, which compares 0:11:00.960 --> 0:11:03.439 with a rack that may add two hundred thousand a 0:11:03.520 --> 0:11:05.679 day or ran that now that they're back up in 0:11:05.760 --> 0:11:08.400 the arculd add two thousand a day. The US, by 0:11:08.440 --> 0:11:11.880 completing drilled but uncompleted wells and increasing drilling could be 0:11:11.920 --> 0:11:14.640 back at increasing output a million dollars a day in 0:11:14.640 --> 0:11:18.560 the year. And is there something about opaque that we, 0:11:19.040 --> 0:11:22.160 you know, misunderstand or underestimate that they won't move. They 0:11:22.200 --> 0:11:26.240 won't freeze if Russia doesn't do the same. Well, they 0:11:26.280 --> 0:11:28.360 won't freeze unless all the other members of OPEC do 0:11:28.480 --> 0:11:31.680 the same. And there's no indication, uh that Libya will 0:11:31.679 --> 0:11:34.280 agree to a production freeze when they have a new 0:11:34.320 --> 0:11:36.720 governing structure and they're going to come back. There's no 0:11:36.800 --> 0:11:40.480 indication that Nigeria will really agree not to go back 0:11:40.480 --> 0:11:41.920 to where they were at the beginning of the year. 0:11:42.000 --> 0:11:45.360 What what should the policy be of the next president? 0:11:45.520 --> 0:11:47.760 Should they have no energy policy, just get out of 0:11:47.760 --> 0:11:51.840 the way and let American industry do it. You know, 0:11:52.320 --> 0:11:56.960 there there's a lot more to energy policy than just 0:11:57.120 --> 0:11:58.760 you know where we're going to export or import. Are 0:11:58.760 --> 0:12:02.000 we gonna encourage deduction at home or abroad? We have 0:12:02.120 --> 0:12:06.040 some serious challenges UH, globally and the energy sector. Those 0:12:06.120 --> 0:12:09.280 challenges relate to climate change as much as they do 0:12:09.480 --> 0:12:15.160 to getting energy properly costed. I think it's clearly in 0:12:15.160 --> 0:12:19.600 the US interest to have transparent global markets that work, 0:12:20.000 --> 0:12:23.679 free investment flow, free trade flow. I clearly think it's 0:12:23.679 --> 0:12:26.520 in the U s interest, as do the majority of Americans, 0:12:26.600 --> 0:12:31.080 to to worry about carbon levels globally and to think 0:12:31.080 --> 0:12:34.640 about what policies can be done to restrict them. But ed, 0:12:34.679 --> 0:12:38.440 you could argue that actually foreign policy, US foreign policy 0:12:38.800 --> 0:12:42.559 is a proxy for oil policy right worldwide. What does 0:12:42.559 --> 0:12:47.719 a Donald Trump presidency mean for these relationships with oil producers? Well, 0:12:47.760 --> 0:12:50.599 we don't really know. We know that uh. And this 0:12:50.960 --> 0:12:53.559 we have one big statement on energy policy from Donald 0:12:53.559 --> 0:12:56.480 Trump was a speech given in North Dakota several months ago. 0:12:56.520 --> 0:12:59.080 We have nothing new from that, but that was a 0:12:59.240 --> 0:13:03.920 very much UH American production oriented policy. It was let's 0:13:04.440 --> 0:13:09.559 get the Keystone Excel pipeline built, let's reduce constraints on production. 0:13:09.880 --> 0:13:12.600 He modified that to some degree in recent commentary where 0:13:12.600 --> 0:13:16.439 he said states and local government should have a say 0:13:16.720 --> 0:13:19.880 in shall exploitation. But we don't really know what his 0:13:19.920 --> 0:13:22.880 global policy is. I mean, within all this, in your 0:13:22.920 --> 0:13:27.000 core idea of oil prices rising up is we never 0:13:27.080 --> 0:13:29.800 get back to a hundred dollars of barrel? What did 0:13:29.840 --> 0:13:32.280 you think looking out of the Ritz Carlton windows in 0:13:32.360 --> 0:13:34.600 Dubai or the jere Moriah there, you know, you look 0:13:34.640 --> 0:13:37.680 down on the horse farms of of of the leadership 0:13:37.760 --> 0:13:41.040 of of Dubai. What did you think in a hundred 0:13:41.040 --> 0:13:44.560 dollars of barrel? Did you just know it would end? Uh? Well, 0:13:44.600 --> 0:13:46.760 I certainly thought it was not stable and I thought 0:13:46.760 --> 0:13:48.560 it was going to go down. What I thought when 0:13:48.559 --> 0:13:51.440 I looked down from those towers was here is a 0:13:51.480 --> 0:13:56.080 country that or an entity, uh, governing entity that was 0:13:56.280 --> 0:14:00.480 entirely dependent upon oil. Dubai futures. Dubai future is because 0:14:00.559 --> 0:14:04.960 Dubai was became a mark of crude, because Dubai production 0:14:05.080 --> 0:14:10.200 was meaningful. Now it scarcely exists, and the economy was diversified, uh, 0:14:10.240 --> 0:14:12.600 and it went beyond oil. There was the first time 0:14:12.640 --> 0:14:14.600 in the history of the oil business. If this happened 0:14:14.640 --> 0:14:16.440 with within the knowledge and I don't want to get 0:14:16.440 --> 0:14:18.440 into a very sensitive city group issues. Do you just 0:14:18.480 --> 0:14:22.480 assume Abu Dhabi owns most of Dubai? Are there is 0:14:22.480 --> 0:14:26.000 that a visible transaction or those sidecard deals when they 0:14:26.000 --> 0:14:29.120 have to bail out, When rich Abu Dhabi has to 0:14:29.120 --> 0:14:32.880 bail out poor Dubai, do we know who owns what? 0:14:33.640 --> 0:14:36.040 We actually don't know who who owns what. We don't 0:14:36.040 --> 0:14:41.960 know who subsidizes what. But clearly once the Dubai expansion 0:14:42.080 --> 0:14:44.880 got to where it was in two thousand and eight nine, 0:14:45.200 --> 0:14:47.560 they did have to get bailed out. There's been a 0:14:47.600 --> 0:14:51.000 revival in the Dubai economy. Part of that revival is 0:14:51.000 --> 0:14:54.400 from tourism that's independent of anything that happens Abu Dhabi. 0:14:54.520 --> 0:14:57.520 Part of that revival is luminum manufacturer. Part of that 0:14:57.600 --> 0:15:02.120 revival is really a housing pocket that's catered to the 0:15:02.120 --> 0:15:05.640 Middle East itself, to Arabs and other Arab countries that 0:15:05.760 --> 0:15:08.640 want to have another place that's a safe haven, a 0:15:08.680 --> 0:15:10.840 safe haven in their own region. Well, I think we've 0:15:10.840 --> 0:15:13.400 done a lot of the the usual discussion, and I 0:15:13.400 --> 0:15:15.640 want to rip up the script, and you're so competent. 0:15:16.080 --> 0:15:18.040 I know when I rip up the script, you're gonna 0:15:18.120 --> 0:15:22.880 kill it. The North Sea give us an update. Is 0:15:22.960 --> 0:15:27.200 it a depleted field that's fading out into the decades 0:15:27.680 --> 0:15:31.440 or can there be vibrancy in north Sea oil? Now? 0:15:31.480 --> 0:15:34.480 The likelihood is five years from now there'll be virtually 0:15:34.480 --> 0:15:36.600 no production out of the North Sea. It'll be dead. 0:15:37.000 --> 0:15:41.280 It'll be dead. Um. Yes, high prices gave it a 0:15:41.320 --> 0:15:44.160 little bit of a kick, but it's it's high cost 0:15:44.240 --> 0:15:48.360 and now the operators are struggling between the costs of 0:15:48.440 --> 0:15:52.200 keeping production going and the costs of demolishing UH, the 0:15:52.240 --> 0:15:55.920 infrastructure of the oil fields, costs of of getting out 0:15:55.920 --> 0:15:58.840 of the business. And when you look at the North Sea, 0:15:58.880 --> 0:16:02.560 how what's the break even cost? It seems like it's 0:16:02.600 --> 0:16:05.920 a lot more expensive than for U S shail gas producers. 0:16:05.960 --> 0:16:07.880 But then again, as you were saying, we don't know 0:16:08.000 --> 0:16:11.400 much about what's happening in the US UH, then now 0:16:11.440 --> 0:16:14.520 the cost is significantly higher. Um. There are no big 0:16:14.600 --> 0:16:17.840 fields to give leverage to a big investment. You can 0:16:17.880 --> 0:16:21.160 look at the new play that Statoil is doing. It's 0:16:21.160 --> 0:16:23.880 in the Arctic, not in UH, not in the North Sea. 0:16:24.040 --> 0:16:27.040 They get a new discovery, they're gonna be producing six 0:16:27.440 --> 0:16:30.320 and sixty barrels a day out of that that's worth 0:16:30.320 --> 0:16:34.720 an investment. An investment that's going to produce fifty barrels 0:16:34.760 --> 0:16:37.840 a day and a low price environment has a cost 0:16:37.840 --> 0:16:40.800 structure that's in the sixty dollar range. It's just not 0:16:40.960 --> 0:16:43.120 really going to be worth it. When you look at 0:16:43.160 --> 0:16:47.000 the cash flow of Norway, I'm speaking as an amateur. 0:16:47.000 --> 0:16:50.880 Their Sovereign Wealth Fund has been hugely successful. It's it's 0:16:51.000 --> 0:16:54.680 arguably the best run one in the world. Do you 0:16:54.760 --> 0:17:00.000 just assume wealth depletion for Norway in the coming decades, um, 0:17:00.040 --> 0:17:04.200 not really. Norway has a really significant amount of natural gas. 0:17:04.760 --> 0:17:06.840 They have more oil in their future. They're going to 0:17:06.920 --> 0:17:10.680 be uh maybe off their peak in oil, but they'll 0:17:10.680 --> 0:17:12.720 be at their peak and natural gas. So the revenue 0:17:12.760 --> 0:17:16.320 stream coming out of hydrocarbons for a country whose population 0:17:16.440 --> 0:17:19.840 is smaller than the city that we're sitting in. Um, 0:17:19.880 --> 0:17:21.800 you know this, this this is a cash cow that 0:17:21.880 --> 0:17:25.880 keeps giving giving the cash. They they pulled back on 0:17:25.920 --> 0:17:30.119 their Sovereign wealth um fund a little bit because they 0:17:30.160 --> 0:17:32.760 needed the cash in the last year and a half. 0:17:32.880 --> 0:17:36.120 But uh, that's what the Sovereign Wealth Fund is all about. 0:17:36.240 --> 0:17:41.040 It's uh, it's to provide that uh, that rainy day 0:17:41.040 --> 0:17:44.240 fund for the country and are are you worried about 0:17:44.520 --> 0:17:47.080 We talked about correlation between the markets, about the oil 0:17:47.119 --> 0:17:49.080 and the rest of the markets, but there's also real 0:17:49.119 --> 0:17:53.200 correlation like I've never seen it before between growth or 0:17:53.320 --> 0:17:56.920 lack of growth, and then a lot of countries trying 0:17:56.960 --> 0:17:59.560 to balance that your books, which is difficult if oil 0:18:00.040 --> 0:18:02.760 days at fifty UM. Yeah, there are a couple of 0:18:02.760 --> 0:18:09.760 difficulties confronting commodity producing countries. One is just the one 0:18:09.760 --> 0:18:14.159 crop economies who when they're in the hypercarbon business and 0:18:14.200 --> 0:18:18.040 have not taken steps like Dubai took to diversify the economy, 0:18:18.119 --> 0:18:21.960 are UM in trouble. Some of them, uh, like the 0:18:22.000 --> 0:18:25.359 Middle East countries are in a position where they can 0:18:25.400 --> 0:18:30.439 actually do that transformation. You have to worry about Nigeria, Venezuela, 0:18:30.640 --> 0:18:35.240 other kind of large uh, large countries without the cash flow, 0:18:35.320 --> 0:18:38.960 without the rainy day funds UH and the challenge in 0:18:39.000 --> 0:18:42.280 front of them. One final question, Every single conversation Francis 0:18:42.320 --> 0:18:46.840 Laqua and I have about fiscal spending goes back to infrastructure. 0:18:47.320 --> 0:18:52.119 What's the state of infrastructure in your oil industry? Is 0:18:52.440 --> 0:18:55.360 the pipelines we think of are they all rotting? I mean, 0:18:55.440 --> 0:18:58.359 is that a generalization. You can go what's the state 0:18:58.400 --> 0:19:01.680 of the pipes. It really depends on where you're looking. 0:19:01.760 --> 0:19:04.399 We have in the US both the best infrastructure and 0:19:04.440 --> 0:19:07.360 the worst infrastructure. We have pipes going through a big 0:19:07.400 --> 0:19:11.440 reservoir in uh In, Nebraska that were laid sixty years 0:19:11.440 --> 0:19:16.439 ago when the technology for pipes seamless, non leakable pipes 0:19:16.520 --> 0:19:19.159 was not available in the market. The pipes that are 0:19:19.200 --> 0:19:22.040 being laid now are are not likely to spring leaks 0:19:22.040 --> 0:19:25.000 anytime soon. Ed Moore's thank you so much. This is 0:19:25.040 --> 0:19:30.000 just always hugely valuable. Dr Morris is with City Group 0:19:30.160 --> 0:19:33.000 on oil and come. We didn't even get to other confrensing. 0:19:33.080 --> 0:19:34.720 We did not get to gold, we did not get 0:19:34.720 --> 0:19:39.040 to platinum, palladium, Edwards is a whole other life that 0:19:39.080 --> 0:19:44.200 we don't know. Who you put your trust in matters. 0:19:44.840 --> 0:19:48.679 Investors have put their trust in independent registered investment advisors 0:19:48.720 --> 0:19:53.080 to the tune of four trillion dollars. Why they see 0:19:53.119 --> 0:19:56.840 their role is to serve, not sell. That's why Charles 0:19:56.880 --> 0:19:59.560 Schwab is committed to the success of over seven thousand 0:19:59.640 --> 0:20:03.720 into pend and in financial advisors who passionately dedicate themselves 0:20:04.000 --> 0:20:07.879 to helping people achieve their financial goals, learn more and 0:20:08.040 --> 0:20:16.360 find your independent advisor dot com. He is truly one 0:20:16.359 --> 0:20:20.080 of the most interesting economist practicing today. Two says out 0:20:20.080 --> 0:20:23.639 of the Booth school barely does justice to the path 0:20:23.840 --> 0:20:28.040 of economics of one Austin Gulsby out of Milton Academy 0:20:28.520 --> 0:20:32.680 near Boston, and on through the pedigreed of a PhD 0:20:32.680 --> 0:20:37.280 in economics at the Massachusetts Institute of Technology. Austin Gulsby 0:20:37.400 --> 0:20:40.240 has been original. He is a former chairman of the 0:20:40.240 --> 0:20:43.879 President's Council of Economic Advisors and support of Secretary Clinton 0:20:44.240 --> 0:20:47.320 joins us down. Austin, did you study under Stanley Fisher 0:20:47.359 --> 0:20:51.960 at m I t job great? Thanks for my professor. 0:20:52.000 --> 0:20:54.280 He's a good he's a good friend of mine. You 0:20:54.400 --> 0:20:59.480 don't agree with him on more robust economy? Where is 0:20:59.560 --> 0:21:04.720 professor or Fisher wrong on a certain robustness that would 0:21:04.760 --> 0:21:11.200 allow rates to increase? I think it's not just Professor Fisher, 0:21:11.440 --> 0:21:14.560 it's a new it's a it's a whole group of 0:21:14.600 --> 0:21:20.119 people who look and they fear the rise of imminent inflation, 0:21:20.520 --> 0:21:23.800 and I just I don't think that's correct. And I 0:21:23.840 --> 0:21:27.840 think that, um, it's a it's a little unfair to 0:21:27.880 --> 0:21:31.320 say most of those people have been saying that same 0:21:31.359 --> 0:21:34.159 thing for the last six years, that we're about to 0:21:34.240 --> 0:21:37.000 have inflation in the economy is about to overheat, and 0:21:37.040 --> 0:21:41.720 it has proven not true thus far. Um. But I 0:21:41.760 --> 0:21:44.919 think we're in this environment where we're growing two to 0:21:44.960 --> 0:21:48.680 two and a half percent and we still that that's 0:21:49.280 --> 0:21:52.120 just not that strong. And if you look at what's 0:21:52.160 --> 0:21:54.440 happening in the rest of the world, it just makes 0:21:54.480 --> 0:21:58.560 me nervous that that we're taking for granted what we 0:21:58.720 --> 0:22:02.640 have in the below this at ten percent unemployment. Austin 0:22:02.640 --> 0:22:06.159 Gules being then Alan Krueger uh and now Jason Furman 0:22:06.280 --> 0:22:08.760 at the White House, what were you saying to the 0:22:08.800 --> 0:22:13.879 president at nine points six unemployment? I would I was 0:22:13.960 --> 0:22:18.399 saying something like, uh, you know, or that was that 0:22:18.480 --> 0:22:22.159 was a horrible, horrible time, as you remember, and we 0:22:22.240 --> 0:22:31.639 talked then about it. UM. The My overwhelming fear going 0:22:31.720 --> 0:22:33.800 through that it ended two thousand and eight polling in 0:22:33.840 --> 0:22:36.960 the beginning of two thousand and nine was we can't 0:22:37.040 --> 0:22:41.000 let this turn into a depression. Um. It has to. 0:22:41.359 --> 0:22:44.960 It has to remain just very bad. And I set 0:22:44.960 --> 0:22:47.199 this up, folks, because I get upset because Austin Gooley 0:22:47.240 --> 0:22:50.000