Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg johnic
Speaker 1: is now pleased to say it's Charles Cantas, Celia, portfolio
Speaker 1: manager at New Burger Berman. Charles, Great to have you
Speaker 1: with us on the program. I know you've been thinking
Speaker 1: about the following and I've been thinking about it too. Privilege,
Speaker 1: the privileged companies that have the access to the liquidity
Speaker 1: to get through this particular crisis. Walk me through your
Speaker 1: thinking at the moment. Look, I think we're in unprecedented times.
Speaker 1: It's all about duration and when we restart the economy
Speaker 1: and the businesses that survived that lull in activity UM
Speaker 1: are going to end and benefit thereafter. So for us, privileged,
Speaker 1: our companies that you thrill to own UM when the
Speaker 1: markets going down, because you know that the strength of
Speaker 1: the business model, the brand, the distribution system, the technology,
Speaker 1: the customer engagement makes them a much stronger company over
Speaker 1: time and they'll end up with higher revenues and higher
Speaker 1: profits to do three years from now as you enter
Speaker 1: the negative of low activity. So you're excited to earn
Speaker 1: them on the way down, and you always want them
Speaker 1: in your portfolio when when when normalcy returns to the environment.
Speaker 1: These are businesses that have the duration, the balance shee
Speaker 1: flexibility UM to get us through this time UM. And
Speaker 1: and that's what's going to matter. We think it's going
Speaker 1: to be a really really difficult time for weak companies
Speaker 1: and for weak countries. And we think, UM, those that
Speaker 1: are privileged, those that have flexibility UM will end up stronger,
Speaker 1: bigger and better. I guess that defines JP morget in
Speaker 1: four other banks out there. I'll let you decide which
Speaker 1: ones they are. But are you predicting them bank consolidation
Speaker 1: because the smaller, the weaker can't survive. You know, bank
Speaker 1: consolidation hasn't really happened for for a for a very
Speaker 1: long time. The large banks themselves can't actually aggregate UM
Speaker 1: any longer. I just feel that it's an environment. You know,
Speaker 1: it's really hard UM to run a business with leverage
Speaker 1: if your revenues go to zero. And so this question
Speaker 1: or duration is fundamental to the help of our economy
Speaker 1: and fund it mental to to to to the nature
Speaker 1: of the recovery we see when when when at some
Speaker 1: point this nation is blessed with with with better help UM,
Speaker 1: and it's it's going to take a herculean effort UM
Speaker 1: to get this economy restarted. And so the risk of
Speaker 1: a policy mistake right now is large. But I would
Speaker 1: never bet against the innovation entrepreneurial spirit of this fine country.
Speaker 1: So ultimately, very polish on America, Charles, I want to
Speaker 1: go to that point, Thomas, referencing JP Morgan Jamie Diamond
Speaker 1: coming out in the shareholder letter saying that he's expecting
Speaker 1: a bad recession ahead with financial stress similar to the
Speaker 1: two thousand and eight crisis. Do you agree? Look, I
Speaker 1: think we're there right now. Economic activity UM has plummeted
Speaker 1: to two levels unimaginable UM a month ago at speeds
Speaker 1: that are unprecedented. Output across this economy for the vast
Speaker 1: majority of sectors, UM is down, you know, dramatically, first
Speaker 1: six and ultimately UM that stressfuls all the way back
Speaker 1: to the financial system. And the question is UM the
Speaker 1: time it takes for it to fall back, and so
Speaker 1: the longer UM the amount of time one ultimately waits.
Speaker 1: UM is not a linear function, it's an expert antial function.
Speaker 1: Meaning for every ten days we wait to restart the economy, UM,
Speaker 1: it will take fifty days or so to get us
Speaker 1: to to get us where we need to be. So
Speaker 1: the banks ultimately bear all the liabilities of those that
Speaker 1: don't get paid, whether you're not paying your commercial rant,
Speaker 1: whether you're not paying your supplies or your inventory providers UM.
Speaker 1: And it becomes amount of time. And so they're more
Speaker 1: than well capitalized. They've got more than enough UM federal
Speaker 1: federal stimulus UM and monetary support for now. But it
Speaker 1: becomes a question of of of of when UM, and
Speaker 1: the longer the when is, the harder it will be
Speaker 1: for our financial system. Well, chance, let's think about that
Speaker 1: a little bit further. Someone said to me recently, the
Speaker 1: unlike two thousand and eight, banks are being seen as
Speaker 1: part of the solution now, not part of the problem.
Speaker 1: Are you saying that's a mistake. No, I don't think so.
Speaker 1: The banks are lending right now. There was no real
Speaker 1: lending taking place post two thousand and eight. I don't
Speaker 1: think this is comparable to two thousand and eight. I
Speaker 1: think the volatility is I think, I think the range
Speaker 1: of outcomes possibly. But in two thousand and eight, when
Speaker 1: I was in the markets, we sat there and wondered
Speaker 1: whether the world, the economic system as we knew it
Speaker 1: was going to come to an end. Yeah, this is
Speaker 1: a question of of of innovation, entrepreneurial spirits, um and time.
Speaker 1: And so it's very very different, very very different. So, Charles,
Speaker 1: if there is financial stress equivalent to the two thousand
Speaker 1: and eight crisis, where do you expect to see it
Speaker 1: the most? Where it hasn't necessarily been reflected yet in pricing. Look,
Speaker 1: you always see financial stress UM in credit markets. That's
Speaker 1: where it shows up. That's our leading indicator, and and
Speaker 1: and and there was tremendous stress in the credit markets
Speaker 1: um regardless of acid class um over the last two
Speaker 1: two and a half weeks. But but what's the FED
Speaker 1: now done in terms of their purchases of investment grade credit?
Speaker 1: UM is unprecedented and massively helpful to stabilize in credit
Speaker 1: markets and ultimately stabilizing how yield market. So you would
Speaker 1: expect it to see it in credit spreads. Credit spreads
Speaker 1: blew out over a thousand basis points and have now
Speaker 1: slowly started to close that gap, but very slowly. Charles,
Speaker 1: you're involved in the Whole Foods Amazon transaction. Can you
Speaker 1: get the three of us deliveries from Whole Foods? Yes,
Speaker 1: but you're to thank you Tom. You're gonna need a
Speaker 1: little duration. H I was always great to catch up.
Speaker 1: You appreciate your time this morning, Charles Cancer, their senior
Speaker 1: portfolio manager at New Burger Berman. Let's bring a Joyce
Speaker 1: change share we Jake Morgan, Chair of Global Research Joyce.
Speaker 1: If we got our hands around just how much damage
Speaker 1: we're about to see the dividends worldwide, particularly in the
Speaker 1: United States. Well, I think you're going to continue to
Speaker 1: see revisions on dividends and on earnings, and I think
Speaker 1: the buy backs UM you are going to be off
Speaker 1: you know, considerably. So I don't think that this is
Speaker 1: over yet. I mean, we have the second quarter contracting
Speaker 1: in the US by and we're looking at initial claims
Speaker 1: for you know, to come out over seven million. So
Speaker 1: I think some of these revisions are going to continue.
Speaker 1: We've already done three you know, macro revisions over the
Speaker 1: last month. UM and even though you're seeing some tipid
Speaker 1: recovery UM in UM China, right now. We still think
Speaker 1: that you have worst numbers to come for the second
Speaker 1: quarter of the year. One thing that's been a question
Speaker 1: just going to the question of share buy backs, given
Speaker 1: the fact that share buy backs have been one of
Speaker 1: the only sources of net demand for US equities, Given
Speaker 1: the fact that they're off the table, how much of
Speaker 1: a technical is that that's going to push valuations lower?
Speaker 1: Has that already been priced in? Well, A lot of
Speaker 1: the technical mis sell off we think um you did occur.
Speaker 1: This is kind of why you had the bounce back
Speaker 1: off of the month and rebalancing at the end of
Speaker 1: the month. So our estimate is if you could take
Speaker 1: a look at aggregate at retail flows that could go
Speaker 1: into the bond and equity markets, you still have one
Speaker 1: and a half trillion that could go in over a
Speaker 1: period of time, but some of those sources of support
Speaker 1: like the buybacks will not be there. And you've got
Speaker 1: the earnings revisions downwards and you have the retail money
Speaker 1: is probably not going to come in as rapidly as
Speaker 1: some of these flows that we saw that stabilize the
Speaker 1: market at month. Then around the rebalancing, Joyce I read
Speaker 1: carefully this weekend not only your research, but the compendium
Speaker 1: that you write on international economics. What's the level of
Speaker 1: belief we have now, what's the level of conviction? And
Speaker 1: all the really hard thinking that's going on, like the
Speaker 1: situation and emerging markets is really dire. They have neither
Speaker 1: the health care systems or the resources or really some
Speaker 1: of the fall back that they've had is usually going
Speaker 1: to the developed markets countries for assistance. So it's really
Speaker 1: all on the International arry Fund. Now. The said came
Speaker 1: back with the swap lines, but that's where I think
Speaker 1: you see a lot of downside risk in many countries
Speaker 1: that have really under reported the figures. And even in China,
Speaker 1: you know, they changed the methodology here, um. And I
Speaker 1: think the real test in China is whether they reopen
Speaker 1: the schools at the end of May, UM and the
Speaker 1: beginning of June on whether they can contain a second wave.
Speaker 1: So this is all very fragile right now. With all
Speaker 1: of the support from the government. The government the said
Speaker 1: that you haven't seen, Um, You've seen some tipid stability
Speaker 1: in the financial markets from the very lows that we hit,
Speaker 1: but I think on the economic data you continue to
Speaker 1: see the revisions come downwards. Um. In particular, the labor
Speaker 1: markets have really been in free fall here Joyce less transition,
Speaker 1: just a little bit to a delicate conversation. You've touched
Speaker 1: on it. The under reporting. There have been accusations, in
Speaker 1: fact reports according to an Intel report to the to
Speaker 1: the White House, that China is still under reporting the
Speaker 1: amount of cases and the amount of deaths as well.
Speaker 1: And I wonder if we can fault that in what
Speaker 1: is happening with emerging markets at the moment. There are
Speaker 1: gonna be a lot of countries that can't deal with this,
Speaker 1: can't afford to deal with this, And I just wonder
Speaker 1: the tension that emerges on the other end of this
Speaker 1: between the countries that are drowning in debt and can't
Speaker 1: afford to pay it back and the accusations being thrown
Speaker 1: out at China that they covered it up and didn't
Speaker 1: deal with it well enough. Well, I mean, you have
Speaker 1: seen China change the methodology and they now are including
Speaker 1: the asymptomatic cases. That's raising questions on whether they are
Speaker 1: at the end of containing this curve. Why did they
Speaker 1: change the methodology right now? But you take a look
Speaker 1: at some other countries like India, which is going under
Speaker 1: containment right now, and there are estimates that there's only
Speaker 1: nineteen tests for every one million residents. So you have
Speaker 1: that many of these emerging markets countries are very densely populated,
Speaker 1: the containment measures are harder to enforce, and the health
Speaker 1: care systems are weaker. So we've seen the first statements
Speaker 1: from the I M S calling out for debt relief
Speaker 1: for the frontier emerging markets, um the poorest emerging markets countries.
Speaker 1: But I think this is the debate you're going to
Speaker 1: see from the fall out of this, whether it's the
Speaker 1: emerging markets or some of the debate that you're seeing
Speaker 1: in Europe, It's going to be about burden sharing and
Speaker 1: risk sharing and how this has really sort of changed
Speaker 1: the metric um you know, for the way we need
Speaker 1: to talk about, you know, the level of death that
Speaker 1: will be sustainable. Well, Joyce, let me follow up on
Speaker 1: that just a little bit and make it a little
Speaker 1: bit more pointed. Do you expect these emerging market countries,
Speaker 1: just as far as burden sharing is concerned, to put
Speaker 1: China on the spot to shoulder a lot of that burden.
Speaker 1: I think that you know, China is trying very hard
Speaker 1: to as the source of the contagion, and also as
Speaker 1: the country that has sort of a deeper understanding of
Speaker 1: this because they were the first in they are trying
Speaker 1: to provide some support. So if you look at fifty
Speaker 1: four countries in Africa, they've provided hundred testing kits apiece. UM.
Speaker 1: You know, we hear that they're also fast tracking them
Speaker 1: leaders to Mexico where there has been a real shortage.
Speaker 1: So I think China is trying to see which ways
Speaker 1: it can actually UM try to get out its medical
Speaker 1: expertise you as a first step in UM trying to
Speaker 1: assist other countries and book they've even been sending medical
Speaker 1: supplies to the United States. But I do think that
Speaker 1: you will have UM a discussion on which official debt
Speaker 1: China developed markets as well can be forgiven for these
Speaker 1: emerging markets countries that are the poorest emerging markets. Joyce
Speaker 1: appreciates on This Morning Joyce Change that JP Morgan Chant
Speaker 1: of Global Research better news on this pandemic. There's no
Speaker 1: question about that, but still very grim. The sirens here
Speaker 1: off of Central Park in New York City are really
Speaker 1: something to hear. It is persistent and just a drone
Speaker 1: that's out there is uh. The first responders do. What
Speaker 1: they do is many others try to go on with
Speaker 1: their lives. Some of the people looking at this are
Speaker 1: in public health. There's any number of great institutions around
Speaker 1: this nation, and one of them is that Johns Hopkins University,
Speaker 1: of course, with their engineering long ago and far away.
Speaker 1: Mr Oberg was an engineering student at Johns Hopkins and
Speaker 1: he's endowed their School of Public Health. Here is their
Speaker 1: weiss Stein. Mr Joshua Scharstein Dr Scharstein on the state
Speaker 1: the peak of this pandemic. I think that there's a
Speaker 1: little bit of a misunderstanding about this concept of the peak.
Speaker 1: And you know, I think people, um, I think you know,
Speaker 1: for where we are now, there will be a peak.
Speaker 1: But the only reason it's peaking is because we have
Speaker 1: shut everything now. So I think some people think when
Speaker 1: you're on the other side of the peak, it just
Speaker 1: goes down and we can open everything back up again.
Speaker 1: But if the reason it's peaking is because we've shut
Speaker 1: everything down, as soon as we'd open things up, it's
Speaker 1: going to go up. And so we have to use
Speaker 1: the time um that we have that we're buying to
Speaker 1: strengthen our healthcare system to get more protective equipment to
Speaker 1: healthcare workers, and to build a stronger public health response.
Speaker 1: So we have another set of tools besides just shutting
Speaker 1: everything down. Star to Charstein, we're flattening the curve. It's
Speaker 1: been successful in certain geographies. There's no question about that.
Speaker 1: I think of let's say the Baltimore Orioles. They're gonna
Speaker 1: have a big game here against the Boston Red Sox.
Speaker 1: They're gonna pack cal ripkin Field, no question about that.
Speaker 1: Is it going to be safe to go to a
Speaker 1: baseball game with all those people crammed in? Well, certainly
Speaker 1: it's not safe at the moment um. And uh, you know,
Speaker 1: Oil Park at Sandy Yards is a wonderful ballpark. But
Speaker 1: I think people realize that helps comes first, and you know,
Speaker 1: right now that's not possible. I think what's going to
Speaker 1: happen is we're gonna have to And I like the
Speaker 1: tonality that other people have made. Maybe we've flipped off
Speaker 1: the light on our kind of world very quickly, but
Speaker 1: when we turn it back on, it's going to be
Speaker 1: more like a dimmer switch, you know. I mean, absent
Speaker 1: a miraculous treatment or vaccine, we're gonna have to move
Speaker 1: very slowly. We're gonna have to make sure that we're
Speaker 1: not you know, having the cases searched so I that
Speaker 1: they put our healthcare system in jeopardy again. So I
Speaker 1: guarantee you it won't be baseball games or football matches
Speaker 1: that are going first. It's going to be um it
Speaker 1: send more more people going to work, you know, UM
Speaker 1: in particular industries, probably not bars in restaurants. So it's
Speaker 1: going to be you know, a slow increase and we
Speaker 1: may have to dial it back. If you look at
Speaker 1: what Singapore has been doing. Singapore has you know, kept
Speaker 1: the number of things open, They have encouraged social distancing.
Speaker 1: They do not have large gatherings like you know, sporting events, UM.
Speaker 1: And they've been using a very robots public health response
Speaker 1: to keep it in check, you know, isolation, contact tracing, quarantine.
Speaker 1: But they recently had an increase in cases, so they've
Speaker 1: dialed up in their social distancing. So I think it's
Speaker 1: going to be most likely a period where we're going
Speaker 1: it's like a dimmer switch until we can really get
Speaker 1: to light all the way on. Dr Charston and let
Speaker 1: us turn to JOHNS. Hopkins and public health. I look
Speaker 1: at it like infrastructure where the nation as a tradition
Speaker 1: of being grievously underfunded. There's no question we've been that way.
Speaker 1: When we look at this emergent moment is pandemic. What
Speaker 1: is the first order condition to better public health in America? Well,
Speaker 1: I'm first we need people. You know, public health and
Speaker 1: the United States is law within fifty thou workers. Over
Speaker 1: the last decade or so, um, it's it's very been
Speaker 1: very underfunded and neglected. It's very important that you know,
Speaker 1: particularly now urgently, there people to do some of the
Speaker 1: poor public health task. We're going to need partnerships because
Speaker 1: even with more people, we still won't have the reach. Um.
Speaker 1: So we're going to really have to have the private
Speaker 1: sector mobilized behind public health in different areas, provide resources
Speaker 1: like hotel space and dorms for people to stay when
Speaker 1: they're sick. Um And I think, you know, you know,
Speaker 1: for the future, we're gonna need to rethink our priorities.
Speaker 1: You know, we had so little attention paid to preventtion
Speaker 1: of different kinds, including preventing the harm that a pandemic
Speaker 1: and caught Joshua Sharfstein, he is at Johns Hopkins in
Speaker 1: the Bloomberg School of Public Health, that was just wonderful.
Speaker 1: He's Vice Deein and Paul. You know, everyone we talked
Speaker 1: to in the metal community. Medical community is so holistic.
Speaker 1: They all have specialties, and of course Dr Scheffstein working
Speaker 1: with FDA and working with the State of Maryland and
Speaker 1: public health. But it's amazing how they can span across
Speaker 1: this pandemic and and really inform about what's going on
Speaker 1: and what the trend is. Ted Alden joining us with
Speaker 1: the Council on Foreign Relations TED Foreign Affairs Magazine provided
Speaker 1: great leadership this weekend, clearly with my read of the
Speaker 1: week at a wonderful essay on China and on the
Speaker 1: path forward for the government, very controversial essay about the
Speaker 1: strength of the Communist Party, the future for Mr g
Speaker 1: as well. How fragile do you perceive trade is with
Speaker 1: with Mr? G? Well, I mean, I think I think
Speaker 1: trade is tremendously fragile. I mean already before the current crisis,
Speaker 1: obviously you have the trade war that you've been following
Speaker 1: very closely, So trade relations between the US and China
Speaker 1: we're pretty fragile going into this. Now. You've just got
Speaker 1: a lot of incentives for countries to pursue more nationalist
Speaker 1: policies of various sorts in terms of you know, export controls,
Speaker 1: hoarding medical supplies, bringing back home critical supply chains. So
Speaker 1: I mean, the you know, the current crisis and accelerating
Speaker 1: what we saw before, which was a migration of supply
Speaker 1: chains out of China to other places in Asia, even
Speaker 1: back to the United States to some extent. So trade
Speaker 1: is pretty fragile, but the Chinese have a big incentive
Speaker 1: to keep it, keep it flowing. So I think, you know,
Speaker 1: coming out of this crisis, they've been behaving pretty responsibly.
Speaker 1: So that's that's the positive in all of this. So
Speaker 1: ted since the end of World War two, globalism has
Speaker 1: generally been the theme of trade. How big of a
Speaker 1: blow as globalism taken just in the last several years
Speaker 1: and then punctuated by this virus, well, I mean, I
Speaker 1: think it's taken an enormous blow. You know, it's hard
Speaker 1: for us to remember where we were two or three
Speaker 1: years ago. With this you know, really sort of world
Speaker 1: system set up under the w t O and a
Speaker 1: variety of other regional trade agreements, companies very confident that
Speaker 1: they could locate portions of their production and wherever in
Speaker 1: the world. It made most economic sense to do so
Speaker 1: good services moving very freely. We're in a much more
Speaker 1: fragmented world already. The question really is how companies are
Speaker 1: going to adjust and how much of a hit that
Speaker 1: is on the cost side. And and you know, the
Speaker 1: good news again is that companies are extraordinarily adaptable. We
Speaker 1: won't have these very lean, long supply chains that we
Speaker 1: had a kind of the height of the of the
Speaker 1: of the globalism era. But but we may have more
Speaker 1: redundant systems that work almost as well. So it's a
Speaker 1: very different rule, but it may function quite well anyway.
Speaker 1: What what to multinationals? What a company seed? Frankly, what
Speaker 1: a mid size and small businesses need on trade? Right now?
Speaker 1: From the Trump administration, I think they need more predictability.
Speaker 1: I mean, they've gone through one shock after another in
Speaker 1: terms of the tariffs, in terms of various security related restrictions,
Speaker 1: now obviously the shock coming from the pandemic. I just
Speaker 1: think they need some predictability about you know, here's where
Speaker 1: the administration is going to keep the rules stable, here's
Speaker 1: where they're going to change. I mean, you look at
Speaker 1: the whole tariff process. It's become this free for all
Speaker 1: with certain companies like Apple getting exemptions, other companies not exemptions.
Speaker 1: That's really hard for smaller companies. They can't play that game.
Speaker 1: They know if the rules are gonna be I gotta
Speaker 1: rip up the script here, and it's just real simple,
Speaker 1: Ted Alden, have you been surprised that the President hasn't
Speaker 1: looked like a hero and just come out and said,
Speaker 1: effective pandemic, We're taking the tariffs off and we'll put
Speaker 1: them back on when the pandemic is over. I think
Speaker 1: that would have been a good call. I mean, you know,
Speaker 1: I've been urging that, a lot of other people have
Speaker 1: been urging that. But you know, the tariffs are so
Speaker 1: much a part of his political identity. Right again, it's
Speaker 1: hard to think in the middle of this crisis, but
Speaker 1: you go back even a few months, and he was
Speaker 1: talking every day about what a great thing that tariffs
Speaker 1: have been for the U. S. Economy, how much money
Speaker 1: is flowing into the United States as a result of
Speaker 1: the tariffs. So politically, that's a big U turn for
Speaker 1: the president, even though he's pretty good at making you
Speaker 1: turns Um. I think it would have been a good gesture.
Speaker 1: But you know, as you know, they flirted with with
Speaker 1: some reduction of tariffs on some products, and then backed
Speaker 1: away from that because they said it's too complicated. Manufacturers
Speaker 1: are getting a double whammy from the you know, the
Speaker 1: collapse and demand, the challenge in maintaining their supply chains
Speaker 1: and paying the harriss on top of that, they're still there.
Speaker 1: So ted could it be made that President Trump was
Speaker 1: ahead of the curve with the you know, America first
Speaker 1: and with unilateral trade agreements. You know, you you could
Speaker 1: make that argument. This will be an interesting one for
Speaker 1: the history books, right, you know, to what extent has
Speaker 1: American policy caused some of this retrenchment caused some of
Speaker 1: this pulling back caused some of the shortening of supply chains,
Speaker 1: or to what extent was it really inevitable? I mean
Speaker 1: you could argue, um, yeah, you look at a book
Speaker 1: like Barry Lynn's End of the Line almost fifteen years
Speaker 1: ago saying companies are very vulnerable by the extent of
Speaker 1: these supply chains, by the heavy reliance. Kind of you
Speaker 1: can make it argument and stuff, what's going to happen anyway?
Speaker 1: And then that's been the President Trump really was a
Speaker 1: bit out of the curve. It'll be interesting. Yeah, he's
Speaker 1: obviously observated it with his policies, but I'm not sure
Speaker 1: caused that he may have seen it come and actually
Speaker 1: really impression and a shout out to Kenneth Rogoff of
Speaker 1: Harvard University is a way out front on the fragility
Speaker 1: of those lines as well. It sounds like Napoleon on
Speaker 1: his way to Moscow. Ted Alden, thank you so much.
Speaker 1: I can't say enough, folks about Mr Alden's failure to adjust.
Speaker 1: It is a dense book, but hugely readable on trade.
Speaker 1: It's just a really extraordinary effort from the Council on
Speaker 1: Foreign Relationship. Martin Ratz Morgan Stanley joins as their globile
Speaker 1: oil strategist. Martin, what is Mr Putin's play here? I
Speaker 1: was confused by his headline where I think basically he
Speaker 1: doesn't want to talk to anyone. Am I wrong on
Speaker 1: that welcome? I think we are all a little into
Speaker 1: dark on what executive is going on here. I have
Speaker 1: to say we are now discussing production cuffs that could
Speaker 1: be as much as ten to fifty million barrels a day.
Speaker 1: That has taken us well outside of the range of
Speaker 1: anything that has happened in the bost So we're truly
Speaker 1: an uncharged care story. UM. Given the demands instruction that
Speaker 1: has taken place, it will be inevitable that there will
Speaker 1: be some supply culture curtailment. But whether that will be
Speaker 1: through um, just market prices doing its work and falling
Speaker 1: two levels which are so low that it that it
Speaker 1: forces some shut ins, or whether that will happen almo
Speaker 1: somewhat negotiated basis with all the main producers in one room,
Speaker 1: UM remains remains to be seen. UM. It is definitely
Speaker 1: the case though that if you listen to the rhetoric
Speaker 1: of the US administration, the Russian administration to a certain extent,
Speaker 1: all this also the Southeast, you're starting to see that
Speaker 1: the that this level of oil price is creating real,
Speaker 1: real challenges to domestic oil industries, the government budgets and
Speaker 1: so from the prospective Yeah, it comments like the ones
Speaker 1: that we've seen also from Mr. Putting perhaps are enterprising
Speaker 1: distress in the oil industry is is very, very real.
Speaker 1: At the stage, I'm struggling to understand the optimism that
Speaker 1: we saw in markets and oil markets on Friday from
Speaker 1: the prospect of Russia and Saudi Arabia getting together to
Speaker 1: possibly agree on a ten percent output cut, especially when
Speaker 1: the I e. A says a much bigger cut needs
Speaker 1: to happen in order to stabilize markets. Can you give
Speaker 1: us some light around that? Yeah? Sure, Um, you're not
Speaker 1: alone struggling with this. I think many of us also
Speaker 1: kind of stretching their heads. So from reprospective, Um, you're yea,
Speaker 1: as I said, you're You're not alone there. There's a
Speaker 1: really interesting divergence at the moment between the painful oil
Speaker 1: market the futures market, which is with most people trade
Speaker 1: for the physical markets the market or you know, oil
Speaker 1: companies selling cargoes to each other, and the paper oil
Speaker 1: market is now on brent um in the in the
Speaker 1: low thirties, about thirty four dollars about, but the physical
Speaker 1: oil market is still trading at an unusually deep discounts
Speaker 1: to this. So on Friday, for example, physically delivered brands
Speaker 1: as a daily price assessment, which was sussessed that just
Speaker 1: twenty three dollars a barrel. So you're seeing a near
Speaker 1: near pendle or gap between where the paper market is
Speaker 1: for the physical market is. And I think this placed
Speaker 1: to your confusion that we're all kind of struggling with,
Speaker 1: you know, us on the barrel counting side of the market,
Speaker 1: just adding barrels to supply and demands. We're looking at
Speaker 1: the market meaning, well, piece, there's still an awful of
Speaker 1: oil inventories are going to fill. I is there reason
Speaker 1: to be so oplimistic? And there are little signals in
Speaker 1: the physical markets that we shouldn't be But what you're
Speaker 1: seeing in the paper market is then positioning go very
Speaker 1: very one sided. We all drew the same conclusions that
Speaker 1: there will be huge oversupply in the physical and the
Speaker 1: paper market. People goes very very short. And when you
Speaker 1: have these these these tweets and other things where you
Speaker 1: send like jeez, maybe things are moving, then the paper
Speaker 1: market can move very very quickly. Nobody wants to be
Speaker 1: called short. And then you get these wild moves. But
Speaker 1: they've moved to such an extended now the they've overdone
Speaker 1: it a little bit. Well, let's keep it focused on
Speaker 1: the physical market, Martin, because I think this is important
Speaker 1: and I come up this from just the perspective of
Speaker 1: just the alignment. So forgive me. But if we're very
Speaker 1: close to breaching storage capacity, it doesn't really matter what
Speaker 1: they do on the supply side, because it's not gonna
Speaker 1: be enough to offset the amount of demand that has collapsed.
Speaker 1: And if we are that close to breaching storage capacity,
Speaker 1: then is inevitable that we actually do breach it Martin,
Speaker 1: And I'm thinking about crude at least on the physical side,
Speaker 1: and aggressively lower from here. Look, this is well possible
Speaker 1: at a global level. We're probably not yet at the
Speaker 1: level of what in the industry is often called tank tops,
Speaker 1: at the point where we reach maximum storage spacity. But regionally,
Speaker 1: I've already seeing anecdotal evidence suggest investigations Soldan a big,
Speaker 1: big storage facility in South Africa allegedly close to being fooled,
Speaker 1: the Gyra big storage facility in the UEI allegedly close
Speaker 1: to being foolish, and high some facility single word facility
Speaker 1: to operators saying we're getting very full levels. You're seeing
Speaker 1: floating storage on tankers rising quite strongly. Um, that's typically
Speaker 1: um that's expensive storage. Or if floating storage goes up,
Speaker 1: that's indicating that on shore storage is is getting close
Speaker 1: to being full. And yeah, the amount of total storage
Speaker 1: capacity in the world is not entirely known. It's a
Speaker 1: little bit of a moving target. UM, but it's broadly
Speaker 1: thought to be in the order of a billion barrels
Speaker 1: um that can be stored from here on. We could
Speaker 1: well reach that by the end of April or sometime
Speaker 1: during eight that type of time frame. And what happens
Speaker 1: to all prices then, yeah, is um is untested, but
Speaker 1: theoretically you will oil prices should fall to levels where
Speaker 1: it backs out supply already producing fields too short of
Speaker 1: visit Martin Ross, thank you so much. He's with Morgan
Speaker 1: Stanley their global oil strategy. Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple
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