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Speaker 2: Well, I'm going to go back to when you were
Speaker 2: twenty five years old. You wrote it was a joke,
Speaker 2: but it wasn't. It was a serious idea about time
Speaker 2: and space and interstellar planets and all that. The final
Speaker 2: sentence of Krugman at age twenty five.
Speaker 3: Those of us working in this.
Speaker 2: Field, I'm going to paraphrase of international economics and trade
Speaker 2: are still a small band, but we know that the
Speaker 2: force is with us, doctor Krugman.
Speaker 3: Where is the force for morning?
Speaker 4: Professor Boyofstein with a paper about interstellar trade?
Speaker 3: So what the hell? Where is the force this morning
Speaker 3: for this nation?
Speaker 4: Oh boy, this is really really bad. I mean you
Speaker 4: want to say, this is we're talking about, if you know,
Speaker 4: assuming the Rose Garden, anything like what Trump announced in
Speaker 4: the Rose Garden is actually going to be where we land.
Speaker 4: We're talking about tariffs that are significantly higher than smooth
Speaker 4: holy and of course starting from very low. So this
Speaker 4: huge jump and tiff rates with a US economy that's
Speaker 4: three times as open to international trade as it was
Speaker 4: in nineteen thirty. So this makes smooth holy look like
Speaker 4: a rounding error. And it's so that's really bad. And
Speaker 4: it's also it's highly uncertain. Never had a situation where
Speaker 4: really you have no idea but within you know, like
Speaker 4: twenty points where the tariff average tarifrate's going to be
Speaker 4: a few months from now. So this creates an impossible
Speaker 4: environment for business. It's it's hard to imagine a worse
Speaker 4: trade policy than what we're getting.
Speaker 2: In the cacophany Paul Krugman, we have nations acting. Last
Speaker 2: night at nine point fifteen, I picked up my phone
Speaker 2: and there was China acting. China just says no. Trump
Speaker 2: lives on negotiation, folks. Bloomberg's Tim O'Brien owns a high
Speaker 2: ground on this. He lives on negotiation. John Bolton, writing
Speaker 2: in The Telegraph, says he lives on negotiation. If the
Speaker 2: Chinese don't negotiate, what happens to Paul Krugman's trade economy?
Speaker 4: Oh, I mean at the starting point here again, is
Speaker 4: that negotiate about what?
Speaker 3: Now?
Speaker 4: China you could conceivably have some China is not a
Speaker 4: free trade economy, and you know, they might be able
Speaker 4: to make some concessions, but they ain't gonna their their
Speaker 4: back is up and they have a national pride and
Speaker 4: their economy, by some measures, is as big as ours
Speaker 4: or bigger. So you don't want to They're they're not
Speaker 4: removing and the other players, I mean, think about the Europeans.
Speaker 4: Europe had an average tariff of about one point seven
Speaker 4: percent on US good has still about one point seven
Speaker 4: percent on US goods. What can they give? What concessions
Speaker 4: can they make? It's not as if Trump is you know,
Speaker 4: is asking them to do something. It's asking them to
Speaker 4: remedy some real sin. He's sort of made up a
Speaker 4: story about how they must be doing something wrong, but
Speaker 4: they aren't actually, and so they they even if he
Speaker 4: wants concessions, they can't give them.
Speaker 5: Professor, I think one of if we just step back
Speaker 5: a little bit, one of the I think the basis
Speaker 5: of the Trump administration tariff policy is that they're trying
Speaker 5: to reorder the world economic order. Is there something fundamentally
Speaker 5: broken about the world economic order that disadvantages the US?
Speaker 4: Actually, no, all is said and done. It's yeah, the
Speaker 4: US runs an overall trade deficit, but that's mostly because
Speaker 4: you know, the balance of payments always balances if you
Speaker 4: attract inflow, so foreign capital. Then the math says that
Speaker 4: you have to have a trade deficit. That's the I
Speaker 4: know mathmax has a progressive bias, but still that's what
Speaker 4: the math says. And the US is an attractive place
Speaker 4: to an invest or was until you know now, so
Speaker 4: the idea that there's something fundamentally wrong just doesn't make sense.
Speaker 3: And it's worse.
Speaker 4: I mean that Trump Trump and his people think not
Speaker 4: only that the US shouldn't run a trade deficit, but
Speaker 4: that we shouldn't run a trade deficit with any country.
Speaker 4: That everything should be bilateral balance trade, which is just crazy.
Speaker 4: I mean, you know, if you think about people, if
Speaker 4: you work, if you work for somebody else, well, you
Speaker 4: run a surplus with that person because they pay you
Speaker 4: and you probably don't spend much of your income on
Speaker 4: their products. On the other hand, you run a bilateral
Speaker 4: deficit with your supermarket because you buy from them and
Speaker 4: they don't buy stuff from you. And so you know,
Speaker 4: the same applies to country. So it's just crazy and
Speaker 4: I don't know. I think all of this stuff about
Speaker 4: remaking the international order is window dressing. It's the fundamental
Speaker 4: thing is Trump wants TIFFs, and then everything else is
Speaker 4: people Trump to explain why, you know, recconning explanations of
Speaker 4: why he wants tariffs.
Speaker 2: And Jason Furman in the Ft this morning, really writing
Speaker 2: up this complete focus on getting tariffs in to go
Speaker 2: back to the fifties, the thirties or maybe nineteen oh five.
Speaker 2: We welcome Paul Krugman, of course at Iconic at Princeton University.
Speaker 2: You know him from the New York Times. He just
Speaker 2: went out the door. He has a substack. It's a value.
Speaker 2: I got two substacks for you. I got to mention Paul,
Speaker 2: Adam Twos is killing it out on substack. But Adam
Speaker 2: Twos subscribe. Paul Krugman subscribe on.
Speaker 3: Substack as well. We welcome all of you.
Speaker 2: Across the nation on YouTube worldwide with the Laureate Paul Krugman.
Speaker 5: Paul lotalization from an economic perspective, is that dying as
Speaker 5: we see it?
Speaker 4: Oh, I mean, well, I you know, the truth is
Speaker 4: we don't know, which is part of the problem with
Speaker 4: this enormous uncertainty. But yeah, I mean, we have built
Speaker 4: up this very integrated world economy with all of these
Speaker 4: you know, supply chains and so on, which cannot survive
Speaker 4: a twenty three percent to you average US terafreate. So
Speaker 4: this is going to really smart us up.
Speaker 2: I think, Paul, that people are understanding the jump condition
Speaker 2: and tariffs. I'm going to go back to Trump one.
Speaker 2: You did a wonkish Paul. You should read the wonkish
Speaker 2: Krubman in the Times. You'll age Paul did you did
Speaker 2: like a wonkish trade. You got a chart and the
Speaker 2: yx's is price of imports. On the X axis is
Speaker 2: the volume of imports. Now with Trump too, that chart
Speaker 2: is just simply just shattered. There's no other way to
Speaker 2: put it. You have a welfare loss if we explode
Speaker 2: the price of imports, if we have the volume of
Speaker 2: imports decrease a lot slower real GDP, slower nominal, slower investment.
Speaker 2: How big can that welfare loss be? And who listening
Speaker 2: right now loses?
Speaker 4: Okay? The yeah, I mean, the thing we're always to
Speaker 4: realize is that, roughly speaking, we think that the damage
Speaker 4: done by tariffs is not proportional to the tariff is
Speaker 4: proportional to.
Speaker 3: The square of the tariff.
Speaker 4: So you know, a twenty percent tariff is something like
Speaker 4: four times as bad as a ten percent tariff. Now
Speaker 4: putting numbers to it, I mean, I long run, it's
Speaker 4: finding the long run impact of these terraffs is probably look,
Speaker 4: it's it's going to be worse than Brexit. So in
Speaker 4: Brexit we tend to think it was three or four
Speaker 4: percent of British GDP. Maybe, uh, this could easily be
Speaker 4: more than that, though there's.
Speaker 3: A limit to it.
Speaker 4: Deep Uh, it's hard to get It's not you know,
Speaker 4: in itself, it's it's a serious hit to the economy.
Speaker 4: But the funny thing is in the short run it
Speaker 4: can be worse. And the reason it can be worse
Speaker 4: is the is the extreme uncertainty that we're creating. And
Speaker 4: so you know, once we you know, even with these
Speaker 4: high terraffs will settle down. Eventually business will find ways
Speaker 4: to cope. Costs will be higher, GDP will be lower.
Speaker 4: But that's you know, we'll make that transition. But right now,
Speaker 4: if you I mean, I can only imagine that a
Speaker 4: lot of manufacturing, you know, managers are if they aren't drinking,
Speaker 4: they're more powerful them because they should be the the
Speaker 4: Anything any move you make may turn out to be
Speaker 4: distriss because God knows what the tariffs will be, what
Speaker 4: time the investment matures.
Speaker 2: Well, you just what you just heard there from Paul
Speaker 2: Krugman Folks is absolutely critically. I want to translate it
Speaker 2: a little bit. He mentions some math, the square of
Speaker 2: the tariff. This goes back to littlely Newtonian physics. Think one, two, three,
Speaker 2: four five, No, maybe exponential two four eight, sixteen thirty two.
Speaker 2: That's an exaggeration, but you get the idea. Paul, let's
Speaker 2: bring it right over to America. Are we going to
Speaker 2: have a square the unemployment rate? Are we going to
Speaker 2: see different labor metrics, including the four point x unemployment
Speaker 2: rate explode higher.
Speaker 4: Okay, I think we will, but that's not not in
Speaker 4: the long rum. That's the thing tariffs. What is the
Speaker 4: impact of tariffs on the unemployment rate under normal conditions?
Speaker 4: N aswrisk not much. It makes what labor less efficient,
Speaker 4: doesn't cause a doesn't cause a slump. It just means
Speaker 4: that people do different things, they do worse things, but
Speaker 4: they stay.
Speaker 6: Employed, so that it's not really unemployment rate. It's it's
Speaker 6: productivity that will suffer. It's it's real incomes that will
Speaker 6: suffer in the long run. But we may very well
Speaker 6: now I think better than even odds that we are
Speaker 6: going to have a recession this year, which is not
Speaker 6: the standard effective terriffs normally. If you ask me to
Speaker 6: do tarrats cause recessions, I would say no.
Speaker 4: The whole story about smooth Holly caused the Great Depression,
Speaker 4: that's basically a wrong story. It's smooth Holly was a
Speaker 4: bad thing, but not for that reason. But the uncertainty
Speaker 4: which makes means that if you invest you should you
Speaker 4: invest more in your Mexican component's plant well, not if
Speaker 4: we're going to have twenty five percent tariffs on Mexico.
Speaker 4: Should you invest in US production instead? Not if those
Speaker 4: tariffs might not stay in place and you really wish
Speaker 4: that you had invested in Mexico. So there's gonna be
Speaker 4: a lot of just playing cash, sitting on the sidelines
Speaker 4: while business is wait for similarity, which it doesn't seem
Speaker 4: to be coming anytime soon.
Speaker 5: Professor was just as recently as the beginning of the
Speaker 5: year that Tom and I were having discussions with our
Speaker 5: guests here in Bloomberg surveillance about US economic exceptionalism. Boy,
Speaker 5: that seems quaint now is that still the case here?
Speaker 5: How do you think about that visa the US and
Speaker 5: the rest of the world.
Speaker 4: Well, we were, I mean, if you wanted to kill
Speaker 4: a US exceptionalism, this is kind of what you would do,
Speaker 4: right the I mean, and that there's there's much more.
Speaker 3: It's not just the terrorists.
Speaker 4: But yeah, the US from about two thousand on, the
Speaker 4: US had much faster productivity growth than other advanced countries.
Speaker 4: We just outperformed. And we also have somewhat better demography
Speaker 4: than other advanced countries. So we just had a much
Speaker 4: better growth picture than anyone else in the advanced world.
Speaker 4: And all of a sudden, uh, you know the uh,
Speaker 4: we're disrupting our trade, although we're disrupting other people as well.
Speaker 3: That's a bad thing. Should work.
Speaker 4: Bear in mind that in the background, this isn't the
Speaker 4: only radical departure in policy that the Trump administration is pursuing.
Speaker 4: Look at what is happening to scientific research. Enormous cuts
Speaker 4: in mass layoffs. I mean they're the CDC is laying
Speaker 4: off medical scientists so fast that they're actually that samples
Speaker 4: are being left in resers with nobody to look after them.
Speaker 4: And since ultimately US technological progress relies a lot on
Speaker 4: the spillovers from government research, we're actually crippling, you know,
Speaker 4: make America not great again. I mean, this is really amazing,
Speaker 4: Paul Krugman with.
Speaker 2: As he continues with this salaureate. Of course, I can't
Speaker 2: say enough. This is this moment you're in in America,
Speaker 2: the questions you have in the living from the kitchen table.
Speaker 2: This is what Krugman was we done years ago at
Speaker 2: Yale and on to Princeton as well. Look to his
Speaker 2: sub stack out. I can't say enough about it. I
Speaker 2: really subscribe to that as a huge value. Add Paul Krugman,
Speaker 2: I've got to go over and I guess this goes
Speaker 2: Mondel and on the Jacob Frankel and Ken Rogoff and
Speaker 2: the rest to the currency you studied under the guy
Speaker 2: who invented modern foreign exchange, rudigerd Dornbish dorn Bush. We
Speaker 2: lost him tragically years ago of cancer. What would Rudy
Speaker 2: Dornbush say right now where Paul Krugman say about the
Speaker 2: idea of the China's solution is to depreciate the renmn B.
Speaker 4: Well, yeah, I mean, Rudy would have some choice phrases
Speaker 4: that would be more colorful than anything I can come
Speaker 4: up with. But yeah, I mean, this is a look
Speaker 4: if one of the things we've done is we've just
Speaker 4: place China as being the prime.
Speaker 3: Bad actor in the world economy.
Speaker 4: China has been a bad actor. They have run and
Speaker 4: kept an undervalued currency.
Speaker 3: They have failed.
Speaker 4: You know, China has a problem, which is they don't
Speaker 4: consume enough, they have excess saving, They're running out of
Speaker 4: investment opportunities at home. They've tried to close that gap
Speaker 4: to square that circle by running big trade surpluses, which
Speaker 4: they can do because the Apple controlled and undervalue currency,
Speaker 4: which you know, but the blowback from that has been
Speaker 4: growing even you know, if Trump weren't there, if we
Speaker 4: had a sane person as president of the United States,
Speaker 4: that sane person would be taking a very hard line
Speaker 4: on China because the Chinese are in fact not good,
Speaker 4: They're not team players in the world economy, and the
Speaker 4: Chinese are still trying to do that, which is insane
Speaker 4: because it's the United States. Clearly, you know, it's not
Speaker 4: going to be a market and the Europeans, the rest
Speaker 4: of the world is not going to take their stuff either,
Speaker 4: so they are not helping Paul.
Speaker 2: One final question, and it's a fun question because the
Speaker 2: Republicans love to go after you. There's a primal scream,
Speaker 2: including a senator from Massachusetts, Elizabeth Warren and others Republicans
Speaker 2: do something. You're at a breakfast coffee with Thune of
Speaker 2: the Dakotas this morning in the Senate. What do you
Speaker 2: tell John Thune to do?
Speaker 3: Yeah?
Speaker 4: I mean, look, all of this is happening because US
Speaker 4: Congress seeded control over trade policy to the president. They
Speaker 4: did it a long time ago, they did more than
Speaker 4: fifty years ago. And because presidents were assumed to be
Speaker 4: more interested in the international position of the United States
Speaker 4: than individual congress people would be. Congress is gonna take
Speaker 4: that back, would take and there's actually a lot of
Speaker 4: bipartisan support for that. There is. I think people in
Speaker 4: Congress they're not idiots, not all of them are idiots. Anyway,
Speaker 4: they do realize that this is being that this is crazy,
Speaker 4: and all they need to do really is restore. You
Speaker 4: make trade policy, like the rest of policy, something that
Speaker 4: you have the Congress has to vote on. There are
Speaker 4: reasons why we didn't do that, but so I, you know,
Speaker 4: a trum might be a change in legislation, but he h,
Speaker 4: but he's uh. That would put him on the spot
Speaker 4: and if necessary, you know.
Speaker 3: Overrule him.
Speaker 4: Just make this a well, you know, take take take
Speaker 4: away an authority to do this crazy stuff.
Speaker 3: Okay, Paul, we got to leave it at that.
Speaker 2: Thank you for starting in morning with us, Paul swee
Speaker 2: and and the whole team. Thank Paul Kruman for his effort.
Speaker 2: Look to his sub stack, which is really lighten up.
Speaker 2: I can't say enough about it. It's really quite it's
Speaker 2: it's more heated than it was with The New York Times.
Speaker 2: For the years of you that love and disagree with
Speaker 2: Professor Krue.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 3: John stolffus for.
Speaker 2: This Now he's a o co with Oppenheimer and where
Speaker 2: surely he could be with us. He's been a bull
Speaker 2: that's nailed this over the last four or five, six,
Speaker 2: eight years.
Speaker 3: John, I believe you lowered your s.
Speaker 2: And p call which was way out there somewhere, as
Speaker 2: Linda Ronstad said, but if it was out there, John Stolfus,
Speaker 2: are you still a bull as you cut back your view?
Speaker 7: Yes, great to be on the show with you, Tom,
Speaker 7: I have got to say we remained bullish. We just
Speaker 7: had to trim the target because the depth of the
Speaker 7: selling was such that, you know, we would have have
Speaker 7: had to have about a thirty percent upside from the
Speaker 7: bottom and instead of fifty nine to fifty down from
Speaker 7: seventy one hundred is a year end target for the
Speaker 7: S and P five hundred, and having reduced our earnings
Speaker 7: projection from two seventy five to two sixty five, we
Speaker 7: feel comfortable here right sizing expectations based on the damage
Speaker 7: that has been done related to sentiment in certain pockets
Speaker 7: that you know, it's we don't think it's just about
Speaker 7: fear and greed. We think it's it's fear and greed
Speaker 7: is always in the markets. But on top of that,
Speaker 7: there's need to invest for serious purposes like retirement, kids,
Speaker 7: education in retirement, all kinds of things like that, as
Speaker 7: well as you have based on innovation in technology, we
Speaker 7: believe where the water shed period on the timeline of
Speaker 7: financial history here and manufacturing history with what AI is
Speaker 7: eventually going to do, so we feel comfortable. Like John McLaughlin,
Speaker 7: I think it was his second album. Our goal is
Speaker 7: beyond where we are right now, but we're quite aware
Speaker 7: of what's happening.
Speaker 3: He's so sophisticated. I can't keep up now.
Speaker 2: John McLoughlin had a scallop neck, like between the frets
Speaker 2: of the neck. He had the woods scalloped out and
Speaker 2: different things.
Speaker 5: You go, hey, John, it's just I'd love to just
Speaker 5: to get your perspective. You've been in the markets for decades.
Speaker 5: What did you make of the of the selling over
Speaker 5: the last several days here?
Speaker 8: What did I make of the selling?
Speaker 7: Yeah, it looked like the negative pitch Book. Generally speaking,
Speaker 7: when something happens that creates a catalyst for bears, skeptics
Speaker 7: and nervous investors to sell without FOMO in what is
Speaker 7: likely a secular bull market, you get that kind of thing.
Speaker 7: You bring out the negative pitch book, it gets negativity
Speaker 7: to infinity is projected, the market gripped with fear. In
Speaker 7: the trading community, a lot of people are looking, I
Speaker 7: would think, based on the selling, probably looking for their
Speaker 7: next vanity plate on their next trophy automobile related to
Speaker 7: selling in this kind of a period, But for investors,
Speaker 7: just as your prior guest said, there's the opportunity to
Speaker 7: look for We've been saying it for a long time.
Speaker 8: Babies that get tossed out with the bathwater. We don't
Speaker 8: think it's a by the dip moment. We think right
Speaker 8: now it's shopping list, you know.
Speaker 7: We like what's been beaten up, the worst of the
Speaker 7: qualities actors, INFOTAC, communications services, consumer discretionary. Yeah, let's keep shopping,
Speaker 7: and then financials and industrials, which we think are pivoted
Speaker 7: well for where we're headed once we get through this
Speaker 7: very uncomfortable period with the tariffs. We're just simply priced
Speaker 7: too high for the market to digest without some pretty
Speaker 7: serious indigestions. It wasn't it. We don't think it was
Speaker 7: a tantrum. We think it was a genuine protest, that
Speaker 7: this was a bit munch. You know, it's tariff's one
Speaker 7: oh one in the administration's previous one were one thing,
Speaker 7: Tariff's one oh two during the Biden administration one thing.
Speaker 3: But this was a tariffs four.
Speaker 7: To oh one or maybe graduate studies based on the
Speaker 7: fact that it's really been over a one hundred years
Speaker 7: that we've lived this kind of proposition in tariffs.
Speaker 3: There are anybody.
Speaker 7: I don't think anybody is around who's alive, alive or
Speaker 7: knows that they're alive, who remembers.
Speaker 3: This is megs this kind of a period.
Speaker 2: Is tech an opportunity here? I mean they were trading
Speaker 2: our thirty eight thirty nine. I got Apple with a
Speaker 2: P twenty five is twenty six ish? Is tech an opportunity?
Speaker 7: John Stulfus, we have to think so, you know, we're
Speaker 7: all on the upgrade cycle without naming the company.
Speaker 8: I was in a big store where they sell technology yesterday.
Speaker 3: John.
Speaker 2: I know you don't do individual stacks, but you know
Speaker 2: a lot of people are in these things.
Speaker 3: Not to be tried about it.
Speaker 2: There's some real losses taken out there. As we said
Speaker 2: to Kim Dawson, are we still in a bull market?
Speaker 3: I believe so, and I believe it.
Speaker 8: It's related to that watershed period on the timeline of
Speaker 8: of of manufacturing history and technologies history.
Speaker 2: UH.
Speaker 8: That revolutionizes things going forward, and that will bring its
Speaker 8: own questions and agony at different points when we take
Speaker 8: a look and see. We see the disruptions uh within industries,
Speaker 8: whether it's in hiring or businesses that don't make don't
Speaker 8: adapt well to the new world.
Speaker 3: Uh.
Speaker 8: That's a whole other story up ahead.
Speaker 7: But overall, the market's going to be looking for what
Speaker 7: what what builds UH earnings?
Speaker 3: Both?
Speaker 7: What where does? Where does revenue growth come from? That's
Speaker 7: what that's what the market really cares about, and that's
Speaker 7: what appeared to be very much in Dainger near term
Speaker 7: on April second, when the tariffs were brought out, brought
Speaker 7: into the showroom so to speak.
Speaker 5: Hey John, what have you done with your SMP five
Speaker 5: hundred estimates?
Speaker 7: Yeah, with the S and P we went from two
Speaker 7: seventy five earnings projection to two sixty five, so you know,
Speaker 7: it's definitely a haircut on that. And then we went
Speaker 7: from seventy one hundred as a price target year end
Speaker 7: to fifty nine to fifty still looking for about so
Speaker 7: we're looking for about seventeen percent upside from where.
Speaker 8: We were on Friday, which is sort of parallel if
Speaker 8: you think about it, to where we put our target
Speaker 8: on December ninth for this year. Last year, we put
Speaker 8: it in for this year and We were.
Speaker 7: Looking for about seventeen percent upside from that level, which
Speaker 7: was pre the peak of February. What was in February nineteenth,
Speaker 7: So you know, we were looking at seventy one thinking
Speaker 7: that was rather a conservative based out a year where
Speaker 7: we'd seen a pair of years and around twenty three
Speaker 7: percent respectively for twenty three and twenty four.
Speaker 2: From where we are right now, that John Sulphus call
Speaker 2: is up thirteen point eight percent. John Stulfus, a Oppenheiron Company.
Speaker 2: Thank you, thank you, thank you.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 3: She's never upset anyone.
Speaker 2: In economics, Ellen Wall of the Atlantic Council joins us
Speaker 2: right now, Ellen, what is Saudi Arabia or frankly, Exona, Texas?
Speaker 2: What do they do with fifty nine dollars oil?
Speaker 9: What do they do with fifty nine dollars? They sell
Speaker 9: as much as they possibly can, because more they can
Speaker 9: sell the more money they can make. Yeah, it'd be
Speaker 9: great if it was higher, But at this point, I
Speaker 9: think they're stuck with just trying to sell as much
Speaker 9: as they can, and some countries like China will probably
Speaker 9: see it, isn't it as a time to stock up?
Speaker 3: Is there a break even price for ellen Wald? Paul's
Speaker 3: ars Paul fifty fifty five?
Speaker 2: I think Paul's working with fifty five dollars a barrel's
Speaker 2: break even.
Speaker 3: Where's ellen Wald's break even?
Speaker 9: You know, it really depends. I mean their producers in
Speaker 9: the US who's break even as much lower? Remember Saudi
Speaker 9: Arabia's break even is about six dollars, So on six
Speaker 9: break Saudi Arabian a Ramco is going to come out better.
Speaker 9: Yeah it's about six.
Speaker 4: Wow.
Speaker 5: See I watched Landman Ellen, so I feel like I'm
Speaker 5: an expert on all oil and gas. But where's the
Speaker 5: US here? I mean, the US is now the largest
Speaker 5: oil producer with thirteen million barrels per day? What do
Speaker 5: you hear from the US producers here?
Speaker 8: Yeah?
Speaker 9: What we're hearing from the US producers is a lot
Speaker 9: of uncertainty. All of this trade stuff is really throwing
Speaker 9: them for a loop. They are very very concern especially
Speaker 9: smaller producers. Remember, there are a lot of small producers
Speaker 9: still in the United States and that accounts for a
Speaker 9: lot of the oil produce. Yes, we have a lot
Speaker 9: of large producers, but we're still really a country of
Speaker 9: a lot of small oil producers, and you know, these
Speaker 9: kind of fluctuations can really impact them. And the tariffs
Speaker 9: are causing huge headaches when it comes to the steel
Speaker 9: and the kinds of products they need to drill oil.
Speaker 9: And while we're not seeing that impact production right now,
Speaker 9: that that is going to come soon. We're going to
Speaker 9: see companies making decisions to not complete well simply because
Speaker 9: it's too expensive. The goods they need, the tubular goods
Speaker 9: are just too expensive to make sense, and they will
Speaker 9: leave that well, you know, kind of unfinished, waiting for
Speaker 9: the price to come down for when it makes sense.
Speaker 9: So I wouldn't be surprised if this continues, if we
Speaker 9: do see production starting to trend lower, and I think
Speaker 9: that will also be reflected in some of the new
Speaker 9: EIA forecasts that we're going to see coming up.
Speaker 5: So, Ellen, it's sixty dollars a barrow here. I mean,
Speaker 5: it seems to me that you know that reflects concerns
Speaker 5: about global demand going forward given some of these tariff
Speaker 5: induced uncertainties in the marketplace. Does OPEK cut output the
Speaker 5: US producers cut output?
Speaker 9: The US producers are going to cut output if it
Speaker 9: makes sense for them economically and financially. Opek, on the
Speaker 9: other hand, can make that decision, uh, you know, for
Speaker 9: I mean, I would say they mostly make it for
Speaker 9: economic reasons, but they can decide as a group, you know,
Speaker 9: either to halt their plan production increases. They've already gone
Speaker 9: through with the one that started in April, which was
Speaker 9: a very very minor increase. It's a very small amount
Speaker 9: of additional oil on the market. But the idea is
Speaker 9: that they're they're rolling, you know, they're board with this.
Speaker 9: They can decide to pause that, and they they very
Speaker 9: well do that, you know, next quarter, decide we're not
Speaker 9: going to increase anymore until we see how this plays out.
Speaker 2: Ellen Wald with a senior fellow Atlantic Council. She continues,
Speaker 2: whether it's her book Saudi Ink is definitive, Ellen, I
Speaker 2: need an update on this because Paul and I did
Speaker 2: they turned this down for the trip to Vienna for Opek.
Speaker 2: Is it Opek or is it Opek plus that's working
Speaker 2: into twenty twenty six.
Speaker 9: I see a continued Opek plus. You know, we've seen
Speaker 9: a lot a lot of troubles in this group, a
Speaker 9: lot of a lot of troubles in paradise. You know,
Speaker 9: there's a time where Russia and Saudi Arabio most split,
Speaker 9: where Iran problems with Iran threatening to to you know,
Speaker 9: force the whole group apart. But I think we're going
Speaker 9: to see it continued. I do think right now the
Speaker 9: country to look at is actually Kazakhstan and willingness continue
Speaker 9: to go along with any kinds of cuts or stays
Speaker 9: in production increases. They really want to increase their production,
Speaker 9: and so I think they're really maybe the troublemaker to keep.
Speaker 4: An eye on Ellen.
Speaker 5: How about Russia. I mean, if we are moving towards
Speaker 5: some maybe level of peace in Ukraine, does Russia supply
Speaker 5: of oil and natural gas? Does that find its way
Speaker 5: back into the mainstream.
Speaker 9: So the interesting thing is that there's still plenty of
Speaker 9: of you know, Russian oil and Russian gas on the
Speaker 9: market right now. The question is if there is some
Speaker 9: kind of resolution and the price cap policy and and sanctions, uh,
Speaker 9: and then that Russian oil which is being sold at
Speaker 9: a discount because it is uh, you know, contraband or
Speaker 9: sanctioned or under this this price cap policy. The Russians
Speaker 9: are going to say, we're not going to sell it
Speaker 9: for your your you know, discount at you know, from
Speaker 9: the normal prices. We're we're put it back on the
Speaker 9: market at regular prices. And so I think that we'll
Speaker 9: actually push prices up because they're not going to take
Speaker 9: you know, they're not going to accept these lower prices
Speaker 9: for their oil. They're going to say we're in the
Speaker 9: clear or now.
Speaker 10: So you know, pay up.
Speaker 5: So Ellen, give us a sense here, I mean, what's
Speaker 5: the industry, how's the industry thinking about demand?
Speaker 3: Here?
Speaker 5: I'm guessing the oil industry, the energy industry in general
Speaker 5: is like everybody else, we're just kind of floundering. You're
Speaker 5: looking for some direction. Is a feeling that demand is
Speaker 5: going to be soft going forward globally.
Speaker 4: I do think.
Speaker 9: That they feel like in the long run, in the
Speaker 9: bigger picture, the demand picture looks good, but in the
Speaker 9: short term there are some serious concerns given this kind
Speaker 9: of shock to the whole global economic system, and that
Speaker 9: it could push us into some kind of economic state
Speaker 9: where demand is lower. You know, there's some interesting news
Speaker 9: about whether the US is going to impose serious fees
Speaker 9: at port of call for ships made in China. I
Speaker 9: mean that that could have impacted the oil industry in
Speaker 9: a pretty serious way. And so I think it's really
Speaker 9: just this wait and see, don't make any decisions. You know,
Speaker 9: we could be in there some real pain in the
Speaker 9: short term.
Speaker 3: Oh, thank you so much. We need a new book.
Speaker 2: She's with the Atlantic Council, Saudi Yank is a jewel
Speaker 2: Henriad and the Royal family of Saudi Arabia.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple, Coarplay, and Android
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Speaker 2: I'm gonna cut to the chase. If Tom Hanks had
Speaker 2: to make a war movie, he'd make it out of
Speaker 2: John Thune's father. Thune in South Dakota, grew up in
Speaker 2: a family his father was the distinguished Flying Cross like
Speaker 2: the real deal in the Pacific. John Thune came you know,
Speaker 2: the typical political life, star athlete where in God's Name,
Speaker 2: Libby Cantrell, are the GOP and the good Senator of South.
Speaker 11: Dakota relates to trade?
Speaker 3: Yes, where are they?
Speaker 11: Well, I think it? I mean well, first of all,
Speaker 11: I think privately they are. There is a lot of pushback.
Speaker 6: The White House.
Speaker 11: However, Tom, I think it just underscores the fact that
Speaker 11: Congress does not have a lot of levers here because they,
Speaker 11: I mean they they intentionally bequeath delegated tariff authority to
Speaker 11: the President various through various trade Acts nineteen sixty two,
Speaker 11: the Trade Act of nineteen seventy four, AYEPA of nineteen
Speaker 11: seventy seven.
Speaker 3: So you're saying they can't go back to what they.
Speaker 11: Had, Well, they can, but they would need a super majority.
Speaker 11: They would need two thirds of each chamber in order
Speaker 11: to override what would inevitably be a veto. So I
Speaker 11: think there is a practical element here, practically one more question.
Speaker 2: Sweeney's looking at me, like, Tom, can I get a
Speaker 2: word in here? Let me cut to the chase. Did
Speaker 2: Trump lose the GOP House in the Rose Garden?
Speaker 11: Look, I know I don't think so. I mean, I
Speaker 11: think this speaks to the fact that this party is
Speaker 11: the party of Trump, and many folks in the House
Speaker 11: have the President to thank for even being there in
Speaker 11: the first place. And so this is why I think
Speaker 11: there's been a real reluctance to push back in public. Again,
Speaker 11: there is some private pushback, but again I think this
Speaker 11: is a worldview that President Trump has had for forty years.
Speaker 11: This is what we keep telling our clients, and he
Speaker 11: ran on this. He believes he has a mandate to
Speaker 11: fulfill this. He believes that there's a lot of unfinished
Speaker 11: business from the first administration. And I think that the
Speaker 11: market obviously wants to maybe see through this or hope
Speaker 11: that there is something this will result in a different outcome.
Speaker 11: But our view is teriff rates are going to be
Speaker 11: going up and that will have a headwind on you know,
Speaker 11: growth and likely have implications for inflation. To the degree
Speaker 11: is going to depend on the stickiness of all this, obviously,
Speaker 11: but I think there it is naive to think that
Speaker 11: we are not going to see probably significantly higher terarrorf levels.
Speaker 5: And President Trump has been very clear that he've used
Speaker 5: the US trade deficit as the effective scorecard between the
Speaker 5: US and the rest of the world, and the scorecard
Speaker 5: shows a deficit of one trillion dollars. Is that the
Speaker 5: right way to look at it? Is that a fair Yeah?
Speaker 11: I mean this is what we what I tell our
Speaker 11: traders as well. It is really not our kind of
Speaker 11: role to editorialize or to judge whether this is good
Speaker 11: economic policy or a bad economic policy. What we think
Speaker 11: is in terms of providing off of for our clients
Speaker 11: is what is likely to happen at what should happen.
Speaker 11: So we may quibble about whether the trade deficit is
Speaker 11: the right scorecard, is the right metric, but the president
Speaker 11: is very focused on and it's not even the trade
Speaker 11: deficit writ large, it is the goods trade deficit. So
Speaker 11: it is very specific, and he has this very specific
Speaker 11: metric for success. And again people may disagree with that.
Speaker 11: That's fine, but like that is not going to change.
Speaker 11: I think what is likely going to be the outcome,
Speaker 11: which is he is going to be focused on that
Speaker 11: as a metric of sort of future success.
Speaker 5: And one could argue that to balance potentially those headwinds
Speaker 5: that would result from higher tariffs. Uh, he and his
Speaker 5: administration need a that tax policy to go through like quickly.
Speaker 5: Is that something? How do you guys handicap this?
Speaker 4: Yeah?
Speaker 11: So I do think that is going to be a
Speaker 11: big pivot and a big sort of shift in focus,
Speaker 11: if you will. It already has been obviously, the House
Speaker 11: and the Senate are kind of working through the machinations
Speaker 11: of the very kind of tedious legislative process. I will
Speaker 11: not underestimate Trump's bullypull. But here though, in terms of
Speaker 11: getting this through, I think what you're looking at is,
Speaker 11: you know, there are these different budget resolutions that sort
Speaker 11: of set up for the broader tax bill. They're quite different.
Speaker 11: But I think at the end of the day, Trump
Speaker 11: will get what he wants in terms of the tax bill.
Speaker 11: That is where the GOP is.
Speaker 2: Why mcguinnis was with us yesterday or the day before.
Speaker 2: I'm sorry, it's blurfolks. And the basic idea is Libby
Speaker 2: Cantrell says they're just going to overlay more debt on
Speaker 2: the deficit.
Speaker 3: The deficit. Can't remember what it is?
Speaker 11: Yeah, yes, oply the deficit on the definite than the debt.
Speaker 10: Yes.
Speaker 11: I mean, look, but I think I mean a couple
Speaker 11: of things is that tariffs are do generate revenue, and
Speaker 11: so if they are the sort of maximalist approach on tariffs,
Speaker 11: there could be actually pretty significant revenue coming into the treasury. Coffers. Now,
Speaker 11: I don't think that's going to go down to pay
Speaker 11: down debt, go to pay down debt. I think that
Speaker 11: is literally going to go to pay for more task cuts.
Speaker 11: But that can in terms of growth, like balance out
Speaker 11: some of these sort of cross currents you know that
Speaker 11: we've been we've been talking about with our with our clients.
Speaker 5: So the folks that speak for him are talking about
Speaker 5: the number of countries that are lining up to negotiate
Speaker 5: deals with the US. Is that something that you guys
Speaker 5: think will be successful? I mean, are we going to
Speaker 5: get a lowering of some of the expectations for tariffs
Speaker 5: or should we just kind of layer in a base
Speaker 5: level and go from there.
Speaker 11: Well, so I think you know, my view is that
Speaker 11: sort of the destination here at a minimum, is that
Speaker 11: we see a universal ten percent tariff, that we see
Speaker 11: sectoral tariffs on chips and pharma and autos and what
Speaker 11: have you, and then we see these elevated tariffs sunshine.
Speaker 2: So when you say that to your managers quickly here,
Speaker 2: when you say that to your managers, how do they respond?
Speaker 11: They say, equity, Yeah, headwind to growth and maybe a
Speaker 11: little bit of upper pressure on inflation. But we think
Speaker 11: this is more of a growth story than it is.
Speaker 3: I got to make some news here.
Speaker 11: I am actually not trying to make news.
Speaker 2: So is Popco talking about an inflation vector? Can they
Speaker 2: actually turn it around down the road to a lower
Speaker 2: growth disinflation area.
Speaker 11: Well, and I think the question, well, I think this
Speaker 11: is and again not to not to not commit here,
Speaker 11: but I do think this is going to want that
Speaker 11: this could be an an increase in the price level.
Speaker 11: One time increase I think obviously depends on what happens
Speaker 11: to inflation expectations, inflation expectations. Inflation obviously has been high,
Speaker 11: so this could feed into increase inflation expectations.
Speaker 9: But we really do think.
Speaker 11: The story here is on the growth side and then
Speaker 11: than the inflation side.
Speaker 2: I must I mean, I mean, you know, I'm seeing
Speaker 2: a few people model negative nominal g dep like back
Speaker 2: to England nineteen thirties.
Speaker 11: Yeah, I don't think we're that far. Again, you do
Speaker 11: have these cross currents in terms of policy. If you're
Speaker 11: just looking at tariffs alone, it looks very bad. But
Speaker 11: if you're actually you know, layering in some of the
Speaker 11: tax cuts, tax policy certainty and all of that and
Speaker 11: maybe a little bit more of a coming.
Speaker 3: Whim Cantrell, thanks so much. I don't agree with that,
Speaker 3: and you said, thanks, thank you so much. With pim Co,
Speaker 3: we'll see what the Republicans do in the house.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 5: James Steele, chief Commodities Analysts at HSBC Securities USA Joints,
Speaker 5: is here in our Bloomberg Interactive Brokers studio. James, you know,
Speaker 5: I see gold here up another fifty seven dollars today,
Speaker 5: three thirty one dollars an ounce here. Is it too
Speaker 5: far too fast for gold here? Or is this a
Speaker 5: rational gold market?
Speaker 10: Do you think?
Speaker 4: Well?
Speaker 10: I think you've got to look at what happened in
Speaker 10: the last few days, and we had a big decline
Speaker 10: in gold in league with stock market declines, and I
Speaker 10: think it's easy to ascribe that to gold not being
Speaker 10: a safe haven or lacking safe haven as an asset.
Speaker 10: But actually the opposite is the case, because what happened,
Speaker 10: and this happens with periodic stock declines, is that you
Speaker 10: get gold liquidation by those who are already long, and
Speaker 10: gold therefore fulfills its role as a quality asset. Now,
Speaker 10: when the smoke clears a bit, typically after a stock
Speaker 10: market decline, it depends on how long the decline goes
Speaker 10: on for, but usually after a few days, the smoke
Speaker 10: begins to clear and gold stabilizes and you get a
Speaker 10: safe haven demand coming back.
Speaker 2: So you know, formire morals like us, you know, closest
Speaker 2: I come to gold as you know gold and olive oil.
Speaker 2: The answer is Beijing's on the phone to wear and
Speaker 2: says sell forty seven bars of gold. Is that what
Speaker 2: happened the last couple of days.
Speaker 10: No, it wasn't so much from I think Asia, as
Speaker 10: it was those that had well. Some of it certainly was,
Speaker 10: but it wasn't centrally planned. These are asset managers, portfolio
Speaker 10: managers and others etf folders.
Speaker 3: So it's not central banks.
Speaker 10: No, no, no, no, not at all. This was not
Speaker 10: orchestrated on a central government level. This was people who
Speaker 10: for a couple of years now have been accumulating gold
Speaker 10: or longer as a portfolio diversifier and in need when
Speaker 10: you need to cash your insurance policy in you liquidate
Speaker 10: a little bit. But that but that seems to be
Speaker 10: coming to an end today.
Speaker 5: How do you get a sense of value of gold?
Speaker 5: Relative value?
Speaker 6: How do you think about?
Speaker 5: You wake up saying, point, gold feels expensive here today.
Speaker 5: I'm like me as a stock analyst. I see my
Speaker 5: pe ratio and I can look at that versus the market,
Speaker 5: versus history.
Speaker 3: How of gold.
Speaker 10: Yes, it's not unfortunately, well I suppose fortunately because it
Speaker 10: keeps me in a job. Right that It's not as
Speaker 10: straightforward as with equities. It's also not as straightforward as
Speaker 10: other commodities, where you know, for copper, or for or
Speaker 10: for metals or for grains, you can look at cost
Speaker 10: of production. You can look at day's inventory. My friend
Speaker 10: Javier Blass will tell you about days in consumption for
Speaker 10: for for for for for oil. None of these things
Speaker 10: apply to gold, and that's because gold is part currency
Speaker 10: and part commodity. Certainly, fund supply demand balances are important.
Speaker 10: But if you were to look at, for example, the
Speaker 10: cost of production, that would not give you necessarily a
Speaker 10: clue as to as to where gold is going. You
Speaker 10: have to be sensitive not only to the underlying fundamentals
Speaker 10: on a supply demand basis, but also on the geopolitical
Speaker 10: end and the financial market moves. That's what this is
Speaker 10: what makes gold so interesting and frankly unique.
Speaker 2: James Steele with us, so they just be see he's
Speaker 2: been so helpful to Bloomberg Surveillance with perspective on GOLDI
Speaker 2: welcome all of you on your commute this morning across
Speaker 2: the nation. Good morning Mexico, Good morning Canada, Good evening
Speaker 2: on the Pacific rim of course out on YouTube, building
Speaker 2: every day on Bloomberg Podcast. Really thank you for the
Speaker 2: kind comments out on YouTube, particularly the heated comments about
Speaker 2: some of our guests like Stephen Merrit and Paul Krugwinzo.
Speaker 3: Never any negative comments.
Speaker 2: About James Steele and never seen them, Okay, on the
Speaker 2: Bloomberg I went log Nixon. I took gold back to
Speaker 2: thirty five dollars, an ounce, big leg up.
Speaker 3: In the eighties.
Speaker 2: I remembered I could only shave like once a week,
Speaker 2: and then there was a malaise from the eighties to
Speaker 2: two thousand and then basically other moonshot this pullback in gold.
Speaker 2: Is it a blip on the map, or is that
Speaker 2: fear out there that this is the beginning of the
Speaker 2: taming of gold.
Speaker 10: I wouldn't quite so far as to say it's a blip.
Speaker 10: We have a range this year, our forecast range is
Speaker 10: two eight hundred dollars to three three hundred and fifty dollars,
Speaker 10: and we think that's a reasonable level. That's a reasonable
Speaker 10: range to look at, because if one was to go
Speaker 10: closer to the twenty eight hundred dollars level, I suspect
Speaker 10: that we would get official sector buying, that central bank buying,
Speaker 10: and possibly sovereign wealth fund buying as well, coming back
Speaker 10: in in a bigger way.
Speaker 3: But does Norwegian the Norse Sovereign Wealth Fund? Do they
Speaker 3: own a lot of gold.
Speaker 10: I'm not privy to their gold holdings. But what we
Speaker 10: have noted ever since two.
Speaker 3: Lives here he knows, he knows.
Speaker 10: But what we are we we are aware that since
Speaker 10: twenty twenty two, the fourth quarter, we've seen an extraordinary
Speaker 10: jump in an official sector demand for gold. And that
Speaker 10: year alone, if you look at it and compared to
Speaker 10: mine production, one out of every three ounces of gold
Speaker 10: that came out of a mine went into a Central
Speaker 10: Bank vault.
Speaker 3: Radio.
Speaker 2: You're not getting justice here. YouTube can tell James Steele
Speaker 2: looks like he's out of.
Speaker 3: A Bond movie exactly. I mean he does. He's the
Speaker 3: guy that knows where the gold is. Gold that gold
Speaker 3: finger like the you know, it's like Daniel Craigan all that.
Speaker 5: I'll get another cre So all right, So gold of
Speaker 5: fifteen percent year to date sewer up five percent? Is
Speaker 5: that surprising you as this chief reld of the gold.
Speaker 10: It does not surprise me. And the reason for this
Speaker 10: is that six percent of gold demand is industrial and
Speaker 10: fifty eight percent of silver demand is industrial.
Speaker 3: Okay. So although it is.
Speaker 10: A precious metal, it is inextricably linked to the industrial
Speaker 10: cycle and tariffs, and they decline in forecast, decline in
Speaker 10: trade weakness which we've seen before the tiers were put on.
Speaker 10: An industrial production is reducing some industrial demand for silver.
Speaker 10: With the big exception of photo of all take. So
Speaker 10: it doesn't surprise solar power okay, okay, okay, And so
Speaker 10: it doesn't look from Tiffany, Yes, it doesn't surprise me
Speaker 10: that silver is down. The gold silver ratio has widened out,
Speaker 10: which I think will lead to some buying for silver.
Speaker 10: But fundamentally it's it's it's fundamentally weaker competitor gold.
Speaker 2: We're up to forty two listeners this morning, missus keene listen.
Speaker 2: Oh there you go with James Steele of HSBC. She
Speaker 2: knows she has her Bloomberg terminal at home. Yes, folks,
Speaker 2: she knows how to log on and find out where
Speaker 2: I am. Okay, So gold has down six point from
Speaker 2: the peak. Does the price of gold and jewelry stores
Speaker 2: go down?
Speaker 10: She as all depending upon where in the world you are.
Speaker 3: In Dubai it goes down.
Speaker 10: Yes, in nine In non no ECD countries you will
Speaker 10: tend to find much greater price elisticity because the margin
Speaker 10: is much lower. And so therefore people in souks and
Speaker 10: bazaars and jeweler shops cannot afford cannot afford to to
Speaker 10: not to adjust their prices. You have a higher markup
Speaker 10: in the West, which effectively allows you to absorb this
Speaker 10: more one way or the other.
Speaker 2: I love busting his chips. It takes so much fun.
Speaker 2: I know it's not your remit, but I'm going to
Speaker 2: go there. What does a trade work mean for broken
Speaker 2: hill properties? What does it mean for falcon Bridge, live
Speaker 2: in the Yukon life.
Speaker 3: What does it mean for the romance of miners or.
Speaker 2: Oil dolls, people doing manly things with manly wrenches?
Speaker 3: What does it mean?
Speaker 10: And it's and it is a hard business too, and
Speaker 10: they operate in quite unbelievable circumstances. That's one of the
Speaker 10: things about increasing production in gold is being done in
Speaker 10: increasingly inhospitable places. Because we've already looked. The low hanging
Speaker 10: fruit has already been picked. But so far tariffs have
Speaker 10: not impacted bullion.
Speaker 3: Will there be a terrified gold I.
Speaker 10: Mean, I suspect not, but I'm not privy to what
Speaker 10: could happen. So far so far, sir, And we know
Speaker 10: that because of the way the exchange for physicals have
Speaker 10: been trading.
Speaker 2: On behalf of all of Bloomberg. We're sorry that you
Speaker 2: had to wait for Havi Bluss to get there.
Speaker 10: He is I've known him for years. He's a scholar
Speaker 10: when it comes to petroleum shaves.
Speaker 3: You thank you so much. Will just be seen.
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