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Speaker 2: Katy Gopinath was an academic at Harvard. She was known
Speaker 2: within the racket we all knew that, but found immense
Speaker 2: acclaim As the former deputy Managing Director of the International
Speaker 2: Monetary Fund, she brought an academic gravitas to it that
Speaker 2: was just absolutely wonderful. As they do, they wanted her
Speaker 2: to stay at IMF, she had to return to Harvard.
Speaker 2: Professor Gopinath joins us in this time of international turmoil.
Speaker 2: Geta thank you so much for joining this morning. What
Speaker 2: was it like your first day back at Harvard? You
Speaker 2: go from gorgy Eva in four hundred PhDs telling you
Speaker 2: what to do with the IMF. What was it like
Speaker 2: in front of the kids at Harvard the first day?
Speaker 3: Hi, Tom, Always I always miss speaking to you, so
Speaker 3: it's great to kick off with you know this kind
Speaker 3: of a question that I don't usually get from anybody else.
Speaker 2: What was it like I mean, did you Stanley Fisher
Speaker 2: says that that Samuelson used to throw chuck. What did
Speaker 2: you do with the dumb students after the fancy people
Speaker 2: at the IMF.
Speaker 4: It's actually been going great.
Speaker 3: I am enjoying very much being back at Harvard. And
Speaker 3: it also helps to be able to be able to
Speaker 3: speak a little more freely than one does when you're
Speaker 3: when you're at the IMF. So I'm enjoying this moment
Speaker 3: a lot. And also I love working with the students
Speaker 3: and getting back into research and something I did miss well, that's.
Speaker 2: Where I wanted to go. The research of say Rudy
Speaker 2: Dorn back ages and ages or can roll gooff and others?
Speaker 2: Is there is a cycle to financial upset, a cycle
Speaker 2: to financial contagion with the private credit percolation, and again
Speaker 2: a war is tangible. Are we at another inflection point
Speaker 2: where we see crisis in finance?
Speaker 3: The troubles in a with private credit were actually there
Speaker 3: even without the right current war in Iran, we were
Speaker 3: seeing signs of distress in terms of loan defaults. I mean,
Speaker 3: this has always been an incredibly opaque sector and when
Speaker 3: we worried about where we could see another crisis coming
Speaker 3: around the corner. It was about this huge growth and
Speaker 3: non bank financial institutions that now own over fifty percent
Speaker 3: of the world's assets, and especially in a private credit
Speaker 3: private equity hedge funds which are highly leveraged, and valuations
Speaker 3: that are stretched. So it is a combination that really
Speaker 3: can get you know, things can get pretty tenuous if
Speaker 3: we have major shocks of the kind we're looking at
Speaker 3: right now. And as I said, we've just had the
Speaker 3: biggest oil shock in history. And you know, thankfully our
Speaker 3: economies are not as dependent on oil as it was
Speaker 3: in the nineteen seventies and therefore we could weather more
Speaker 3: of it now than we did back then.
Speaker 4: But this is a huge, major event to the global economy.
Speaker 5: I want to bounce off what you were just saying
Speaker 5: about the war and its effect on the global economy,
Speaker 5: because even a long war, would that have a limited
Speaker 5: consequence for global GDP or will there be longer term
Speaker 5: damage done?
Speaker 3: A lot depends upon how long oil prices stay high. Right,
Speaker 3: it had come down to around eighty five yesterday and
Speaker 3: then shot back up to one hundred and now hovering.
Speaker 4: Around ninety six.
Speaker 3: So you know, coming into twenty twenty six, the assumption
Speaker 3: was that twenty twenty six would be a year when
Speaker 3: oil prices would average sixty five dollars a barrel. I
Speaker 3: think in the best case scenario, we're looking at it
Speaker 3: averaging now seventy five dollars a barrel, which just from
Speaker 3: the oil channel shaves off about zero point one two
Speaker 3: point two percentage point of global growth. But this continues,
Speaker 3: and I don't think this requires you're not talking necessarily
Speaker 3: that everything gets sorted out in a week.
Speaker 4: But if this.
Speaker 3: Continues well past a few weeks, and we're looking at
Speaker 3: now average for the year hitting eighty five, now that's
Speaker 3: beginning to shay off like point three percentage point of
Speaker 3: global growth point four percentage point.
Speaker 4: And global inflation starts.
Speaker 3: Going up by fifty basis points sixty basis points.
Speaker 4: So this needs a solution relatively soon.
Speaker 3: Otherwise we're all looking at countries around the world dealing
Speaker 3: with many countries dealing with statulationary shocks.
Speaker 5: What about emerging economies, They would be vulnerable here to
Speaker 5: persistent high energy prices.
Speaker 3: Right, Emerging markets have, especially the ones of course that
Speaker 3: are importers, I mean other countries who are exporters benefit
Speaker 3: from the higher oil prices. But the ones that are importers,
Speaker 3: and these include you know, India, many of the East
Speaker 3: Asian economies.
Speaker 4: Of course, China also is a big importer of energy,
Speaker 4: though they have.
Speaker 3: Big strategic reserves so they're kind of a little more insulated.
Speaker 3: But yes, so they they tend to be importers. They
Speaker 3: also are much more energy dependent. Their economic output is
Speaker 3: much more energy dependent than the rich nations of the
Speaker 3: world are. And we've also seen the dollar appreciate. So
Speaker 3: it's a combination of oil prices going up and the
Speaker 3: dollar appreciating, and that's leading to really scarcity. I mean,
Speaker 3: we've see rationing in many emerging countries around the world.
Speaker 3: It's not just you can simply pass through very high
Speaker 3: point prices.
Speaker 2: An exceptional day for Bloomberg Surveillance. Edward Morse was with
Speaker 2: us earlier Charles Canter of Newburg or Burman as well
Speaker 2: in our getic openhaz where there's the when we're International
Speaker 2: Monetary Fund Deputy Managing Director, Holding Court at Harvard Economics
Speaker 2: after her sojourn of public service, Gita, I look at
Speaker 2: where we are and my answer is currency is the
Speaker 2: litmus paper of the system. Are there traditional dynamics of
Speaker 2: foreign exchange in play now or is there a new
Speaker 2: regime we have to get used to.
Speaker 3: I think this episode has told us that the traditional
Speaker 3: regime sustains. There have been a lot of questions about
Speaker 3: the dollar's dominance and whether we've seen some sort of
Speaker 3: financial decision making shifts sufficiently in the world that things
Speaker 3: are going.
Speaker 4: To behave differently.
Speaker 3: But what we saw right at the onset of the war,
Speaker 3: when there was a huge spike and uncertainty, was it
Speaker 3: the dollar strength and relates to pretty much all other
Speaker 3: currencies in the world. Capital flows to emerging markets. You
Speaker 3: didn't see a whole scale reversal, but you saw less
Speaker 3: of flows going into emerging markets their currency is depreciated.
Speaker 3: The US stock market held a better than other countries
Speaker 3: also because I mean frankly, US being a bigger net
Speaker 3: energy export and makes it lesser for a slight creation
Speaker 3: shop with the US than for many other countries in
Speaker 3: the world.
Speaker 2: Doctor Gopenet. I think of my great mentor at LC
Speaker 2: Megduan Desai, who we lost recently, the work of Ragharajin
Speaker 2: at Chicago and your work as well, and India is
Speaker 2: a balance and fullcome point between all these global tensions.
Speaker 2: Is there a new India now or is it a
Speaker 2: traditional relationship with India, with China, with Russia and with America.
Speaker 3: I think the word is complicated. It's really complicated at
Speaker 3: this point in time.
Speaker 4: What good news is.
Speaker 3: That India's economy is growing strongly from internal demand and
Speaker 3: from internal sources or that's pushing growth, the build out
Speaker 3: and infrastructure, the digital payment system. There is good growth
Speaker 3: momentum coming from within India. What they had to do,
Speaker 3: which I think is actually positive over the last year,
Speaker 3: is to go out and make more trade deals with
Speaker 3: other countries. They just did that with the European Union,
Speaker 3: but they also they did that previously with the UK.
Speaker 4: I think that's a good thing.
Speaker 3: I think it helps for India to bring its start
Speaker 3: off right down and they're going to have to keep
Speaker 3: this up.
Speaker 4: It's a complicated world.
Speaker 3: It's people are unsure about who their friends are and
Speaker 3: for how long.
Speaker 2: Right now, a second headline coming out of Iran. This
Speaker 2: is from some form of Iran TV. This is published
Speaker 2: on the Bloomberg It's not speculation quote. Iran says it
Speaker 2: began new wave of missile launches on Israel butcher stuff
Speaker 2: against the headline of about twenty years ago, Brentcurd ninety
Speaker 2: eight dollars thirty two cents, Alexis Christopherus with Gidy gopinat
Speaker 2: of Harvard.
Speaker 5: So, you know, what about the beneficiaries or the winners?
Speaker 5: And I guess I hate to use the word winners
Speaker 5: in war because I don't think there any winners in war.
Speaker 5: But when you're talking about large net energy exporters outside
Speaker 5: the Gulf, are they going to be benefiting? And I'm
Speaker 5: thinking Norway, you know, Russia, of course, Canada.
Speaker 3: Yes, certainly, these absolutely, these countries benefit from oil being
Speaker 3: at one hundred dollars a barrel. That's a huge windfall
Speaker 3: that you know, it's very helpful. And I would say
Speaker 3: for Russia right now, this is great because they could
Speaker 3: really use the money that they're getting from their oil sales.
Speaker 3: When oil was at sixty five dollars a barrel, it
Speaker 3: was getting really hard for their economy and you could
Speaker 3: see the strains.
Speaker 4: One hundred dollars a barrel helps them.
Speaker 2: Now.
Speaker 4: That said, if this now morphs into.
Speaker 3: A more broader financial crisis because of growth dropping everywhere,
Speaker 3: inflation going up, we're already it's kind of clear we're
Speaker 3: moving into a much more tighter monetary policies stance everywhere
Speaker 3: in the world relative to what it would have been
Speaker 3: in the absence of this massive oil price shock. You
Speaker 3: know that combination is never good for it, for the
Speaker 3: world as a whole, for pretty much all countries.
Speaker 2: Can I do an audible?
Speaker 5: Please do?
Speaker 2: I'm going to do a terrible time keen audible with
Speaker 2: geta Gopineth. So we're on stage in Marrakesh and there's
Speaker 2: like planes flying over. It's a tent. There's like eight hundred,
Speaker 2: one thousand people in there, and you know, Gita is there.
Speaker 2: I think I can't remember the details. I think substituting
Speaker 2: for the managing director because she had to go see
Speaker 2: the King of Morocco or whatever. In Christine la Guard's
Speaker 2: there and a bunch of other worthies and I never
Speaker 2: got this question into Geita. Gopinez, Oh, we'll do it now.
Speaker 2: So we're going to do it right now. Get to Gopinath.
Speaker 2: You came out of Princeton Holding Court at Harvard, Ken
Speaker 2: Rogoff and BERNANKI did part of your PhD. I want
Speaker 2: you to explain the impact of the Nobel Laureate Claudia
Speaker 2: Golden on economics. You and I never got to talk
Speaker 2: about this. We're going to do it this morning. Tell
Speaker 2: me what Professor Golden did in labor economics in our bay,
Speaker 2: behavior in our society that was so important.
Speaker 3: Claudia, who won the Nobel Prize for her work recently
Speaker 3: and was long overdue, basically told brought us, I'm sorry,
Speaker 3: brought us gender economics, which is to basically point out
Speaker 3: that there are salient differences between how women and men
Speaker 3: participate in the labor force, what they get paid, why
Speaker 3: they get paid differently, the importance of family and child rearing,
Speaker 3: which has an impact on women, and it's hugely important
Speaker 3: because for multiple reasons, besides the fact that we all
Speaker 3: want to live in a society where you get rewarded
Speaker 3: for your skills and talents at a fair level. We're
Speaker 3: in a situation where worldwide fertility rates have come down,
Speaker 3: and you cannot fix that problem without recognizing that it
Speaker 3: is tied to how women engage with the labor force
Speaker 3: and what it takes.
Speaker 4: And if if by having a child, you are.
Speaker 3: Restricted and that impedes you because you get very little
Speaker 3: support from your partner to be able to engage in
Speaker 3: the in work, you know, the incentives to do that
Speaker 3: get dampened, So you know it's her contributions have been
Speaker 3: tremendous and Tom, I think we have to keep in
Speaker 3: mind that for a long time, it was not cool
Speaker 3: to be working on you know, gender issues. When I
Speaker 3: say a long time is when when Claudia was much
Speaker 3: younger at that time, as an economist, you wanted to
Speaker 3: be working on you know, monetary policy, macro policy, those
Speaker 3: were the topics to focus on. So for Claudia to
Speaker 3: go against the wind and say no, I'm actually going
Speaker 3: to work about gender and women in the workplace, that
Speaker 3: was huge, you know, stepping out of line.
Speaker 4: And courderse to her for that.
Speaker 2: One quick questioning and as we got to go or
Speaker 2: they ran in the news. But I have to ask,
Speaker 2: are you letting your students use AI? Is AI a
Speaker 2: constructive tool in the classroom?
Speaker 4: Yes?
Speaker 3: Right now I'm teaching a class to PhD students and
Speaker 3: I think that they should absolutely use AI in a
Speaker 3: particular way. But at the same time, I want to
Speaker 3: make sure that they're also developing their own cognitive skills.
Speaker 3: I think the risk is that we're going to outsource
Speaker 3: everything to a smarter friend and in the end dot
Speaker 3: learn anything.
Speaker 4: So we have to strike the balance right one.
Speaker 2: Hundred percent agree. Thank you so much for that, Professor
Speaker 2: Gopeneth at Harvard University, or Public Service for India and
Speaker 2: America noted at the International Monetary Fund. Stay with us
Speaker 2: more from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 2: All of the people we speak to on hydrocarbons, including
Speaker 2: Stuart Wallace's building out Bloomberg's hydrocarbon commodity expertise at Bloomberg
Speaker 2: News over the decades. All of this has to do
Speaker 2: with informed, different and nuanced opinion. Francisco Blanche with us
Speaker 2: the other day from Bank of America. Jeff Curry, I
Speaker 2: saw wander into Bloomberg, iconic at Goldman Sachs and all.
Speaker 2: Standing on top of these good people is Edward Moore,
Speaker 2: Senior Advisor at Hartree at the Council on Foreign Relations.
Speaker 2: In his public service to the nation, what is the
Speaker 2: biggest thing doctor Morris, Americans now including the President, get
Speaker 2: wrong about the shores of Iran and their military capability
Speaker 2: to disrupt oil. What's the thing we most get wrong.
Speaker 6: So a couple of things that work together, this decentralized
Speaker 6: decision making, given our billity need to impact internal communications
Speaker 6: within the government. And then there are a couple of
Speaker 6: one hundred small sites along the Iranian coast where people
Speaker 6: have the capacity to interrupt shipping in the golf, whether
Speaker 6: it's through putting mines in or sending off small drones.
Speaker 6: And that really makes the job very difficult.
Speaker 2: When you help build out Yemen's ability to do hybridcarbons,
Speaker 2: you've driven many of those roads. I read yesterday as
Speaker 2: an amateur of three independence class mind sweeper military boats
Speaker 2: and bearn for the US Army and all of it's
Speaker 2: US Navy, I should say, And it all sounds like
Speaker 2: it's going to take days and weeks to get a
Speaker 2: path through the gulf of our moods. Are you looking
Speaker 2: at days and weeks or dare I say months to
Speaker 2: open up the gulf?
Speaker 6: Well, that's the uncertainty, and we don't know whether it's
Speaker 6: days or week, So whether it's months and we don't
Speaker 6: know whether that months will turn into a kind of
Speaker 6: permanent damage because there's a regime in place and it
Speaker 6: look like it's going to roll over overnight. So it
Speaker 6: is a big uncertainty. I say the probabilities are higher
Speaker 6: that it's sooner rather than later. But by sooner, I
Speaker 6: don't mean the end of this month, I mean sometime
Speaker 6: within the next within the next month.
Speaker 5: We know that the IEA is now tapping these reserves,
Speaker 5: right the member countries agreeing yesterday unanimously to do this.
Speaker 5: The US is going to kick in one hundred and
Speaker 5: seventy two million barrels. But you know what, it didn't
Speaker 5: too much for the oil markets and for the price
Speaker 5: of oil. Why is that? Why didn't it appease them?
Speaker 6: Well, look at what's happening there. They're putting maybe four
Speaker 6: million barrels a day into the market for a limited
Speaker 6: number of days, and the world is already seen two
Speaker 6: things happening. One is that the upwards of sixteen eighteen
Speaker 6: million barrels a day that was coming through the straight
Speaker 6: up horm moves is now down to ten, so we're
Speaker 6: not replacing. And the longer the time waits, the less
Speaker 6: important that little drop in the bucket.
Speaker 5: And it's important to mention it's not that we don't
Speaker 5: have the oil. We're still flush with oil. We just
Speaker 5: have nowhere to store the oil. Is that really the problem.
Speaker 6: No, the problem is that we have the oil. We
Speaker 6: have an open market. We allow our oil to be
Speaker 6: exported to whichever country or a party other than those
Speaker 6: sanctions that want it. This is true of gasoline and
Speaker 6: ethane and all of the product line, and it's true
Speaker 6: of crude oil. So if you are in the need
Speaker 6: of crude oil, you're going to go to the US
Speaker 6: to ask for it and bidding up the price. So
Speaker 6: although with the largest exporter of crudent product in the world,
Speaker 6: were the largest producer of that and natural gas, we
Speaker 6: are beholden to the global market.
Speaker 2: Edward Morse with this, folks, Senior advisor, Heartreet Partners. We
Speaker 2: willcome all of you on YouTube and all of our
Speaker 2: other ways to listen to us around the world. Subscribe
Speaker 2: to Bloomberg Podcast. A good conversation here with doctor Morse. Okay,
Speaker 2: my knowledge of this is I rewatched Lawrence of Arabia
Speaker 2: three times, read most of Dan Jurgen's surprise. I think
Speaker 2: most of it Okay, I read Albert Hardi on the
Speaker 2: Arab people, and that what are they thinking in Riod
Speaker 2: right now? The royal family of the Saudis, the royal
Speaker 2: family had cutter, the Zayads, the mock tombs in Dubai.
Speaker 2: What are these royal families thinking?
Speaker 6: I must intrude in this a little bit to note
Speaker 6: that Dan Jurgen and I have been very good friends
Speaker 6: since we were in graduate school, and I had the
Speaker 6: pleasure of reading the original manuscript to give him. People
Speaker 6: that was double the size of the printed version. So
Speaker 6: it took a little bit of ti.
Speaker 2: I mean, we used to John Tucker remembers this ed Mortz.
Speaker 2: We used to walk around with the prize paperback. It
Speaker 2: was like a girl bag. It was just like to
Speaker 2: be cool. You didn't read it. What was it like
Speaker 2: when you first read an absolutely definitive book.
Speaker 6: Well, the history that he did was just truly extraordinary.
Speaker 6: So it became the one place to go if you
Speaker 6: want to understand where Oyl Markers came from and where
Speaker 6: they're going.
Speaker 2: Okay, but folks, in all my travels over there, you
Speaker 2: know you do background reading in that. Thank you to
Speaker 2: the University of Durham and England for definitive work. The
Speaker 2: first Mercedes dealership in Abu Dhabi. There were no roads.
Speaker 2: They're driving the Mercedes around on the sands. The tribal
Speaker 2: structure that Alfred Harani wrote about definitively in one volume
Speaker 2: Ed Morris and how these royal families are responding to Persia.
Speaker 6: Well, they're responding in the longer term in the short run.
Speaker 6: So you know, people had been saying that nobody in
Speaker 6: the Gulf wanted the US to do this. That's absolutely untrue.
Speaker 6: There are significant reports that indicate that members of the
Speaker 6: royal families of a lot of those countries were encouraging
Speaker 6: the US to do what it did. So that's one element.
Speaker 6: They were sitting, you know, quietly and not in front
Speaker 6: of a microphone, but actually encouraging the US to do
Speaker 6: what they were doing. They are different in terms of
Speaker 6: their str ructure. So we've got two big countries, Saudi
Speaker 6: Arabia and the UAE, that either have diversified their economies
Speaker 6: a lot or are in the process of diversifying. And
Speaker 6: the intriguing thing on the Saudi side is that just
Speaker 6: in the month of January they gave signals that they
Speaker 6: were going back and looking at the original twenty thirty plan,
Speaker 6: and they're finding ways to accelerate the diversification of the economy.
Speaker 6: They're doing it by going into critical minerals, mining other
Speaker 6: things at home, going into AI for the world, and
Speaker 6: attracting investment from the private sector in a way they
Speaker 6: never have. So they are happy and unhappy about what's
Speaker 6: happened over the last month, but they're happy to see
Speaker 6: the decapitation of the regime, the reduction in the authority
Speaker 6: and the power of the central government, and they're hopeful
Speaker 6: about change over time, Doctor Moore.
Speaker 5: So I want to go back to something you said
Speaker 5: earlier in the conversation that there could be permanent damage
Speaker 5: to the Strait of Hormuz. We see this unprecedented attack
Speaker 5: on that understruction or the infrastructure of the street. What
Speaker 5: would that look like?
Speaker 2: What would what.
Speaker 5: Would permanent damage to the street look like?
Speaker 6: Well, by permanent, I meant something going forward, where we
Speaker 6: already know that the Iranians have restricted lanes of the
Speaker 6: Gulf were transit. They're allowing a number of sanctioned vessels
Speaker 6: to go through. They've increased their own exports, but given
Speaker 6: the number of weapons they have on the coast, given
Speaker 6: the nature of those weapons to intrude and interrupt transit
Speaker 6: through the Strait, this is a long term threat. It's
Speaker 6: not something that's going to be over even if there's
Speaker 6: a treece.
Speaker 2: Good Morning, ninety to nine. F Aupp in Boston jays
Speaker 2: up there. He's clipping coupons. It's just a municipal bond guy.
Speaker 2: But he sends in a really smart question. Can you
Speaker 2: ask doctor Morris what we're going to do with carg Island.
Speaker 2: This is not it's not like Love Island, but this
Speaker 2: is a little island right off the coast of Iran,
Speaker 2: directly east of Kuwait. Have you been there, Dr Morrison?
Speaker 2: You've been to car guy? Yes, this is great. I
Speaker 2: mean there's not like a four Seasons or a Marriott
Speaker 2: at the end of it, is there? No?
Speaker 6: No, My Iran travels really remarkable. I'll never write a memoir.
Speaker 6: But I was the first American delegation back to Iran
Speaker 6: after the revolution. And when I was there, I had
Speaker 6: a classmate from graduate school who was ahead of intelligence
Speaker 6: in the British Embassy. I had an escorted ride from
Speaker 6: the US embassy where I was staying to the British Embassy.
Speaker 6: I was actually co chair of the US Iranian Bilateral
Speaker 6: Energy Working Group. And when I was with the British
Speaker 6: ambassador and my friend, a car was attacked on the street.
Speaker 6: We had to run out escape and the car was
Speaker 6: rolled over.
Speaker 2: Did you return the fire?
Speaker 6: I just got as anonymous as I could in the crowd.
Speaker 5: I should write a memo.
Speaker 2: Of course. A simplistic idea here is, if we really
Speaker 2: are at war, why aren't we taking out their immense
Speaker 2: undersea pipelines and refinery capacity out of this little island
Speaker 2: east of Kuwait.
Speaker 6: Well, you'll note that the Israelis have attacked some of
Speaker 6: the infrastructure, so that's been a threat that more of
Speaker 6: the infrastructure could be attacked, and we don't know what
Speaker 6: the President's going to do between now, would.
Speaker 2: You recommend to the president that you take out their
Speaker 2: major refinery hub.
Speaker 6: Well, I think there's a lesson to be learned given
Speaker 6: that the Iranians have taken out other hubs and other
Speaker 6: refineries and are now attacking oil field. So you shouldn't
Speaker 6: do that unless you expect the same in return. The
Speaker 6: President hasn't done it, of course, because he's not interested
Speaker 6: in a significantly higher oil price environment. Whether his interest
Speaker 6: is for the midterm elections this year or something more
Speaker 6: durable is another question, but he'd really like to see
Speaker 6: gasoline prices significantly lower. He now can't brag the gasoline
Speaker 6: prices are lower than they were Biden because it's out
Speaker 6: higher than the last year of the Biden administrations.
Speaker 5: They're higher than both of his administrations Trump's administry, and
Speaker 5: they're going.
Speaker 6: To be higher yet because there's a lag effect between
Speaker 6: the fruit price and where the price.
Speaker 2: On Brent crude. Can you get it out to one twenty?
Speaker 6: I think it's easy to get it out to one twenty.
Speaker 6: We're in a world of unbelievable volatility in this market.
Speaker 2: We have seen witness.
Speaker 6: To that in terms of going down and going up.
Speaker 6: Merban is pricing at one one hundred and Jubaio pricing
Speaker 6: at one hundred and seventeen, one hundred and eighteen, and
Speaker 6: that's going to go higher because the longer those crews
Speaker 6: can't get into global market, the higher the price is
Speaker 6: going to be. And I think you can reasonably think
Speaker 6: that on a supply demand basis, unless there's an economic
Speaker 6: repercussion in which demand collapses, we are more likely than
Speaker 6: not to see prices above one hundred.
Speaker 5: Doctor Morris, help us understand how the US was able
Speaker 5: to escort ships through the Red Sea with the Hoothies.
Speaker 5: But they even though Trump has said we're going to
Speaker 5: do it here, We're going to do it here with
Speaker 5: the straight they haven't yet Why.
Speaker 6: The Houthis didn't have the ability to mine the Red Sea.
Speaker 6: The hoo thieves were more limited, and the hou thieves
Speaker 6: were more interested. Remember they're proxy, and they're a proxy
Speaker 6: that has an independent status within within Yemen itself. So
Speaker 6: what have we heard from the Houthis lately? You know,
Speaker 6: they've been unbelievably quiet. The best way to trap them
Speaker 6: is Al Jazeira does a daily report on what the
Speaker 6: Houthis are up to. But so far they've done nothing
Speaker 6: to interrupt the safety line that the Saudis have. The
Speaker 6: Saturdays have the Adblu pipeline that is a seven million
Speaker 6: varladay pipeline now and that includes crude and product that
Speaker 6: could be interrupted, But the Houthis haven't moved on.
Speaker 2: Edward Morris with us, and we continue with doctor Morris.
Speaker 2: Here's spirited conversation with a gentleman who owns the high
Speaker 2: ground on our geopolitics of Hydrocarbons has worked for decades.
Speaker 2: It's City Group at the Council on Foreign Relations and
Speaker 2: now at her Tree Partners. Alexis christopherus with doctor Morris.
Speaker 5: You know, can you just explain for us and connect
Speaker 5: these dots, because I always thought, well, it's going to
Speaker 5: take a little while. There is this trickle down effect.
Speaker 5: If crude oil goes higher, you don't feel it at
Speaker 5: the gas pump instantaneously. Here I feel like prices really
Speaker 5: have gone up overnight. What is that about?
Speaker 6: That's about what the market could see immediately. We are
Speaker 6: in a world in which inventories have been replenished to
Speaker 6: some degree, but they're lower than the five year average,
Speaker 6: in a world where people in the market by when
Speaker 6: they think they might be a crisis. So people are
Speaker 6: filling their cars up more often than they.
Speaker 5: Have supporting going on.
Speaker 6: A little bit of hoarding. But basically it's the two things.
Speaker 6: One it's the price of crude is going up, so
Speaker 6: the cost of all of those products are going up.
Speaker 6: And the other is for technical reasons, they're going to
Speaker 6: go up higher at a faster rate and a higher
Speaker 6: rate percentage wise than the crude. And that has to
Speaker 6: do with the inability to get the right cruit in
Speaker 6: the right place to produce the right product. So we're
Speaker 6: going to see more product inflation today it's only about
Speaker 6: half of the increase so far. And where the food
Speaker 6: has been.
Speaker 2: Tell us about for example Indonesia and subsidies to their
Speaker 2: people on energy, or Egypt in their subsidies to their
Speaker 2: people on energy. All of that is disrupted. How do
Speaker 2: those I mean we have getogeb get to Gobineth with
Speaker 2: us of Harvard here coming up. Is it going to
Speaker 2: be one big cash ask of the IMF because these
Speaker 2: countries can't continue their subsidies.
Speaker 6: It's going to be a bunch of different asks of
Speaker 6: the IMF. And these countries, some of them have more
Speaker 6: protection than you think. So you look at China to
Speaker 6: begin with, China has lost thirty eight percent in practice,
Speaker 6: thirty eight percent of his supply almost forty percent comes
Speaker 6: from the Middle East, and they are really vulnerable to that. Yes,
Speaker 6: they've got the largest stockpile in the world. And what
Speaker 6: have they done. They have banned the export of critical
Speaker 6: products in order to make sure that they have it
Speaker 6: at home. Japan is going to be doing the same thing, Korea,
Speaker 6: the same thing so we're going to be seeing a
Speaker 6: more critical loss of product because of what's happening in China, India, Indonesia.
Speaker 6: Egypt's a different question to a significant degree.
Speaker 2: Iss.
Speaker 6: Egypt's got production of oil, it's got production of net gas,
Speaker 6: It's got LNG coming from the United States, it's got
Speaker 6: gas coming from Israel. So it's yeah, they have price
Speaker 6: controls and their economy is a mess. But I'd say
Speaker 6: the emerging markets of the world are in deep trouble.
Speaker 2: I got twenty seconds. John emails in from New Jersey
Speaker 2: and says ed Morris is seventy nine in holding.
Speaker 4: How do you.
Speaker 2: Greet the morning every morning? You're in fabulous condition, in shape.
Speaker 2: Is it a secret glass of orange juice? What's the
Speaker 2: Edmore's secret to greet the morning?
Speaker 6: And I'm just so excited to see you when i
Speaker 6: wake up that I look good?
Speaker 2: Answer? That does for us, folks, Edward Morris of Heart
Speaker 2: Tree Partners. We protect the copyright of all of our guests,
Speaker 2: get his work, his essays, his thoughts through Heart Tree Partners,
Speaker 2: and of course accounts on foreign relations. As Oh, doctor Morris,
Speaker 2: thank you so much for coming in stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 2: Joining us now, Stephen Major definitive out of Hong Kong
Speaker 2: bravery during the past DMIC Global macro Advisor at Tradition.
Speaker 2: Stephen Major, the leakages from full faith in credit where
Speaker 2: you spend most of your time. If you're in the
Speaker 2: full faith in credit government paper, how do you perceive
Speaker 2: the prism of private credit?
Speaker 7: Yeah, and thanks for reminding me about Hong Kong, because
Speaker 7: it is quite spooky how we have the parallels. Now,
Speaker 7: I remember talking to you from quarantine. I think, yes,
Speaker 7: Hong Kong, and now I'm in Dubai and it's got
Speaker 7: that similar kind of surreal feel. It isn't the quarantine.
Speaker 7: It's a different kind of political backdrop we have. How
Speaker 7: can I put it? But it's similarly uncertain. Everyone's waiting
Speaker 7: on the news, everyone's looking at.
Speaker 2: The price now.
Speaker 7: Now the question about private credit. Look, I'm not an
Speaker 7: expert in that area. I'm not going to pretend to be,
Speaker 7: but at some stage what we are seeing has to
Speaker 7: start spilling into public credit, and credit spreads are very tight.
Speaker 7: So I think that for investors who are exposed to
Speaker 7: credit in general, it's about going up in quality, and
Speaker 7: it may be going for more defensive kind of sectors,
Speaker 7: maybe non cyclical or healthcare, whatever it is. So I
Speaker 7: think it's definitely very interesting. I mean, I mean, if
Speaker 7: this war wasn't going on, I guess we would be
Speaker 7: focusing on the private credit stories that are coming through.
Speaker 2: Clearly that is.
Speaker 7: A focus for the FED right now. If the Fed's
Speaker 7: not looking at this, I'd be very surprised. And we're
Speaker 7: also we're talking about Ai. Don't forget because a few
Speaker 7: weeks ago that was the main theme.
Speaker 2: But anyway, you.
Speaker 5: Know, see, I just want to switch gears just for
Speaker 5: a moment and just ask you what things are like
Speaker 5: there in Dubai because we see this unprecedented attack now
Speaker 5: from Iran on some major sites in Dubai. Just what's
Speaker 5: the feeling like there on the ground.
Speaker 7: Yeah, Well, the context will vary from one person to another,
Speaker 7: and you know it's dangerous to overgeneralize.
Speaker 2: I think for family is with children.
Speaker 7: Then the priority is to get them to safety. So
Speaker 7: I think it's a very different context depending on who
Speaker 7: you are and what your situation and setup is. It
Speaker 7: definitely is a bit eerie. I think that some people
Speaker 7: will be more scared than others. For me personally, it
Speaker 7: looks to me like you've got almost a sudden stop
Speaker 7: going on because there's not that much activity, right, So
Speaker 7: you can imagine tourism and real estate construction, all these
Speaker 7: big sectors that they're all going to be feeling it
Speaker 7: a bit. And I guess whenever you have a shock,
Speaker 7: you get precautionary saving, you get people withdrawing from spending,
Speaker 7: you know, uncertainty, and you can graft. Uncertainty, by the way,
Speaker 7: is correlated with the risk of yields going lower in markets, right, So.
Speaker 2: I think that this.
Speaker 7: Is very special. It's very different to anything I've experience.
Speaker 7: But the parallels with COVID and the surrealness I think
Speaker 7: irrelevant here.
Speaker 5: So let's stick with Iran for a moment here, Stephen,
Speaker 5: and you're saying that stagflation is really the risk now,
Speaker 5: and I'm wondering, are we there right now? This this
Speaker 5: environment of stagnant growth, high unemployment, high inflation and what's
Speaker 5: a FED to do with the FED meeting next week?
Speaker 7: Yeah, well, Alexis, first of all, thank you for reading
Speaker 7: the research.
Speaker 2: That's very like you assume that I don't Steam manager
Speaker 2: assumes that I do not read the recalling you out.
Speaker 2: What are you laughing about over there? John Tucker, mister major,
Speaker 2: please answer the question from Alexis Christoffers who read your research.
Speaker 7: I really don't like using the word stagflation. And I
Speaker 7: think the previous guest was right because we reach for
Speaker 7: the nineteen seventies parallels, and it can be very lazy,
Speaker 7: because again, the economy is very different. The US is
Speaker 7: an oil producer, the demographics are very different. You've got
Speaker 7: a much older population, more wealth in a quality which
Speaker 7: is not something you had in the seventies like this,
Speaker 7: and you've also got more debt, which I think is
Speaker 7: a very important backdrop.
Speaker 2: So I think it's a bit lazy.
Speaker 7: I use the word stacklation in the note because I'm
Speaker 7: simply saying that the probability looks more like a coin
Speaker 7: toss fifty to fifty today two or three pictures, two
Speaker 7: or three weeks ago, it was ten percent or less. Right,
Speaker 7: The kind of tail risk scenario and that right now
Speaker 7: it might be a base case.
Speaker 2: Steve, I got to get this in for Global Wall Street.
Speaker 2: If I look at the ten year real yield like
Speaker 2: a one eighty two, one eighty three, wherever you are,
Speaker 2: you have a tip point where the ten year yield
Speaker 2: breaks out of its color and shows an extended higher
Speaker 2: real yield. Is there a level one ninety two where
Speaker 2: you're focused on.
Speaker 7: Well, yeah, that's another very interesting question, because I was
Speaker 7: looking at real yields and break evens in this note
Speaker 7: that I've just written.
Speaker 2: And of course the.
Speaker 7: Big difference I written now at COVID is that you
Speaker 7: have some real yield.
Speaker 2: So we had.
Speaker 7: Negative three hundred in the UK, negative one hundred in
Speaker 7: the US on those ten years bonds negative because we
Speaker 7: had a zero bound rates. So with inflation you force
Speaker 7: a negative real yield. Now today that real yield covers
Speaker 7: the longer run equilibrium rate, whatever that is. So imagine
Speaker 7: that the FEDS equilibrium is one to two percent for
Speaker 7: the real rate. Right then you are getting that for
Speaker 7: ten years. So it seems to me that the tips
Speaker 7: the inflation link bonds might be a very good investment
Speaker 7: in the.
Speaker 2: US at the moment.
Speaker 7: If you haven't got any, you should buy some. There
Speaker 7: could be a good diversification versus cash. I'm not saying
Speaker 7: go all in. It's just that your tips are something
Speaker 7: that you'd want to add to a portfolio.
Speaker 2: Right here, that's just fantasy. You just got a window
Speaker 2: there into the real world. As Stephen Major's Global Macroadvisor
Speaker 2: tradition out of Dubai this morning. Thank you, Stephen Major.
Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 1: or watch us live on YouTube.
Speaker 2: Charles Canter, senior portfolio manager at Newberger Berman, and I'm
Speaker 2: going to bring this over to Charles. I don't want
Speaker 2: to talk to you about the produce section and all foods.
Speaker 2: I don't want to talk to you about what you're
Speaker 2: doing in equities, Charles Canter. Folks lived what we read.
Speaker 2: In the early nineties, a book came out called The
Speaker 2: Quest for Value, and you had to read it with
Speaker 2: a pencil. This is Bennett Stewart, and it was called
Speaker 2: stern Stewart, and you were how did you get a
Speaker 2: job at stern Stewart when they were like the biggest,
Speaker 2: the biggest, the fanciest.
Speaker 8: The truth hill the matter is at the time they
Speaker 8: had two African clients, which was two more than they
Speaker 8: had in the rest of the world, and that felt
Speaker 8: like they needed someone with an accent that could talk
Speaker 8: to the local possesses. And then you know, the principles
Speaker 8: around that is fundamentally right. And thankfully the business you know,
Speaker 8: exploded in the US and the rest of the world.
Speaker 2: So then your thoughts on the dynamics of steren Stewart,
Speaker 2: Way did average cost of capital return and invested capital in?
Speaker 2: What the fancy mag seven guys are doing with forty
Speaker 2: billion dollar bond offerings. You're the guy to answer the question.
Speaker 8: You're very kind. Look, those frameworks are fundamental to have
Speaker 8: approached my time investing life. I don't know if it's
Speaker 8: exactly a religion for me, but it certainly helps us
Speaker 8: frame the conversation and the discussions. Look, I think I
Speaker 8: think it's fascinating. I set you today and I think
Speaker 8: most of the Mag seven is down on the year
Speaker 8: the coll I think concern. Amongst many of them, you highlight,
Speaker 8: which is all this capital they spending. Amazon, for example,
Speaker 8: you know, announced two hundred billion dollars of capital spending
Speaker 8: and the stock went down ten percent. I could think
Speaker 8: of no better company on planet Earth. There would be
Speaker 8: better positions to think through capital allocation and investing as
Speaker 8: they build out global infrastructure than Amazon. But the market
Speaker 8: doesn't like it.
Speaker 2: For now, rip up the script, do it. Let's go
Speaker 2: to Whole Foods. We're in section three year. You know
Speaker 2: Amazon better than anybody I know. You were involved in
Speaker 2: the Whole Foods transaction. How has that thing worked out
Speaker 2: for Amazon?
Speaker 8: I mean, the irony of that question is we live
Speaker 8: in a world where everyone's debating how they're going to
Speaker 8: get AIA build out of the market. Okay, this story
Speaker 8: about Amazon and books and intermedia was to crush mainStreet,
Speaker 8: to crush the bricks and mortar, right, and here we
Speaker 8: are fifteen years after that thought, Amazon bought physical stores
Speaker 8: from Whole Foods. And oh, by the way, today in
Speaker 8: North America, twenty percent of all commerce is done online,
Speaker 8: which is to suggest eighty percent is still done you know,
Speaker 8: in the physical landscape. And and it's just a reminds
Speaker 8: us to say, let's be careful about how weak we
Speaker 8: think the barriers are to many of the income A businesses.
Speaker 2: You misunderstood my question. My question is why when I
Speaker 2: ordered from Whole food So they always out of one percent.
Speaker 8: Milky irony around that transaction, if you want to go
Speaker 8: back and litigated, is Whole Foods had no technology. It
Speaker 8: was ante it hadn't integrated a roll up strategy into
Speaker 8: you know, the organic market. Amazon saw that as an
Speaker 8: opportunity and it was known as whole paycheck. The minute
Speaker 8: Amazon bought Whole Foods, no one worried about the price
Speaker 8: of salmon. Here's the irony. The basket at Whole Foods
Speaker 8: today is among the highest priced baskets in North America.
Speaker 8: It's still significantly more expensive than a basket.
Speaker 5: And if you're an Amazon Prime member.
Speaker 8: Even if you're and so it was brilliant from that
Speaker 8: perspective as well.
Speaker 2: See how it's going on there them up it's good stuff,
Speaker 2: and I kept out I didn't mention avocados Axis CHRISTOPHERUSA
Speaker 2: looks Charles Canter of Newburg Vernment.
Speaker 5: I don't want to make it all about Amazon, but
Speaker 5: I do want to ask this because I started my
Speaker 5: own neighborhood. So they invested big and physical stores through
Speaker 5: Whole Food. Is what happened to Amazon Fresh and Amazon
Speaker 5: ghost stores here because they're closing them.
Speaker 8: Not all of the capital is going to work out.
Speaker 8: And so I mean the definition of convenience has changed
Speaker 8: a lot. Today conveniences cannot order my one percent milk
Speaker 8: from my living room. In the old days, could I
Speaker 8: get my one percent milk, you know, within five minutes
Speaker 8: of my you know, of my apartment. Look, I think
Speaker 8: the thing that doesn't get discussed enough, in my opinion,
Speaker 8: is how remarkable these very large companies are. They have
Speaker 8: invested enormous amounts of dollars into both R and D
Speaker 8: and into capital. In twenty twenty six, these seven companies
Speaker 8: are going to outspend the entire healthcare sector on R
Speaker 8: and D by three times. And so that would suggest
Speaker 8: to you that they're building, you know, lots and lots
Speaker 8: of optionality into their businesses and the idea that these
Speaker 8: these businesses are going to win, especially in an environment
Speaker 8: that is as uncertain as it is today, because they
Speaker 8: have so much flexibility to invest to both for the
Speaker 8: future and to deliver from customers.
Speaker 2: Charles Canter with US is we have economic data coming
Speaker 2: out here. Futures deteriorate negative forty eight down futures negative
Speaker 2: for thirty five. The VIS gives some tension twenty four
Speaker 2: level out to twenty five point eighty three up one
Speaker 2: point six to zero points. Claims is showing the glorified
Speaker 2: job market two hundred and thirteen one thousand, pretty much
Speaker 2: stasis there as well as a four whe moving average
Speaker 2: where I see the tension lesson housing and the data
Speaker 2: on imports and exports. This is ancient for January shows
Speaker 2: all sorts of tariff effect. Charles Canter on the tariff
Speaker 2: flow through into revenue and earning dynamics and free cash
Speaker 2: flow dynamics.
Speaker 8: Look, I think, I think, I think many companies absorbed
Speaker 8: a lot of the tariff themselves and passed on you know,
Speaker 8: very little to the customer. And and I think it
Speaker 8: speaks to the quality you know of the management teams
Speaker 8: and the scale and flexibility of their businesses that they
Speaker 8: can do that, no doubt. You know, input costs on
Speaker 8: tariff so high than there would you know otherwise be
Speaker 8: but when you're in a market as competitive as the
Speaker 8: US market, you don't get the full you know, flow
Speaker 8: through effects, and the same is going to be true
Speaker 8: on the energy side, which is is what the market's
Speaker 8: kind of moniacally focused on today.
Speaker 5: What about our upcoming earning season. Do you think we're
Speaker 5: going to hear the word tariff in a lot of
Speaker 5: those earnings calls?
Speaker 2: No.
Speaker 8: I appreciate you bringing up the earning story, because I
Speaker 8: don't think it gets discussed enough.
Speaker 2: Earnings.
Speaker 8: We've just finished the first quarter. That's the only data
Speaker 8: we have for now. Revenues up nine percent, earnings up
Speaker 8: fourteen percent, seventy five percent of all the companies either
Speaker 8: beat or maintained, and it will spread mostly in you know,
Speaker 8: the technology sector, then of course the industrials. This has
Speaker 8: been a kind of an earning renaissance over the last
Speaker 8: five years and it's and it's the strength of those
Speaker 8: earnings and those cash flows that I think, you know,
Speaker 8: should give investors comfort as we as we go through
Speaker 8: the choppiness of war at the margin.
Speaker 2: Can you inquire shares in these hyper scale or big
Speaker 2: tech companies this.
Speaker 8: Morning, Yes, as long as your view is longer than
Speaker 8: a week, a month and a quarter. And I think
Speaker 8: you know, as you think about the war for example,
Speaker 8: I think the war and and and investing have a
Speaker 8: lot of similarities. On the short term, life feels very uncomfortable,
Speaker 8: very uncertain and unpredictable. And you've seen that today and
Speaker 8: over the long term, the best businesses, the best capitalized businesses,
Speaker 8: the best businesses that can allocate capital like the strongest armies,
Speaker 8: will ultimately win out.
Speaker 2: Charles Canter, thank you so much, really really appreciate it.
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