WEBVTT - Surveillance: 'Springy' Oil with Blanch 0:00:04.880 --> 0:00:09.200 Welcome to the Bloomberg surveillance podcast. I'm tom keen along 0:00:09.200 --> 0:00:13.210 with Jonathan Ferrell and lisa Abramowitz daily, we bring you 0:00:13.210 --> 0:00:17.950 insight from the best and economics, finance, investment and international 0:00:17.950 --> 0:00:23.950 relations find Bloomberg surveillance on apple podcast, SoundCloud Bloomberg dot com. 0:00:23.950 --> 0:00:26.389 And of course on the Bloomberg terminal, 0:00:28.480 --> 0:00:30.720 we come to you today with a lot of humility, 0:00:30.720 --> 0:00:34.200 john Farrell lease Abramowitz and I know that oil is 0:00:34.200 --> 0:00:37.540 the toughest commodity to call. There's all sorts of academic 0:00:37.540 --> 0:00:40.630 research that shows that yesterday we had an Edward morse 0:00:40.630 --> 0:00:45.019 of Citi group with a huge political economic standpoint on 0:00:45.020 --> 0:00:48.970 hydrocarbons and today as acute Francisco blanch joins us, head 0:00:48.970 --> 0:00:53.640 of global commodities and derivatives research at Bank of America Francisco, 0:00:53.640 --> 0:00:54.000 you were the, 0:00:54.010 --> 0:00:58.340 The first one out that I knew model $100 a barrel. 0:00:58.340 --> 0:01:01.460 You made global headlines with it, you were right up 0:01:01.460 --> 0:01:04.140 we went and then down we can came on, I'm 0:01:04.140 --> 0:01:07.040 going to say a dearth of demand Christopher Owen was 0:01:07.040 --> 0:01:11.360 just on the technical analyst and says the spot market 0:01:11.360 --> 0:01:15.700 for oil is behaving differently than the futures market for 0:01:15.700 --> 0:01:19.339 oil explain in Greek what that means. 0:01:20.680 --> 0:01:25.160 Well, uh, you want me to use uh Vegas and uh, 0:01:25.160 --> 0:01:27.910 and uh, deltas in, in, in the process to maybe 0:01:27.910 --> 0:01:30.430 not let me just say it in plain english. Uh, 0:01:30.440 --> 0:01:37.640 we have um, essentially very low speculative interest, essentially all the, 0:01:37.640 --> 0:01:41.569 all the macro players have been selling oil on the 0:01:41.569 --> 0:01:45.179 back of uh, on the back of recession fears some 0:01:45.180 --> 0:01:47.640 of the comments that you were just making before we 0:01:47.640 --> 0:01:49.020 went on the oil segment. 0:01:49.220 --> 0:01:52.900 Also, we've seen a dearth of liquidity liquidity is falling 0:01:52.900 --> 0:01:57.480 very quickly in the forward markets. And, and then I think, 0:01:57.480 --> 0:02:00.720 I think beyond that, the physical market has been actually 0:02:00.720 --> 0:02:04.990 relatively uh, more supported, although that's changing a bit too 0:02:05.000 --> 0:02:09.120 because it turns out that the Russian supply disruption we 0:02:09.120 --> 0:02:12.459 were expecting on the back of the EU sanctions hasn't 0:02:12.460 --> 0:02:16.389 really come through as expected. And, and, and maybe we 0:02:16.389 --> 0:02:17.480 won't be losing as much raw 0:02:18.370 --> 0:02:22.280 after all long ago and far away, lisa Abramowitz put 0:02:22.280 --> 0:02:25.600 two kids through school speculating on oil when it went 0:02:25.600 --> 0:02:28.910 down under zero. There was that huge shock of 18 0:02:28.910 --> 0:02:31.200 months ago, two years ago we kid her that she 0:02:31.200 --> 0:02:33.760 had two barrels of oil in her living room on delivery. 0:02:33.770 --> 0:02:36.600 Are we going to get the same spring here, did 0:02:36.600 --> 0:02:40.820 we have a possibility of seeing 70 west texas intermediate 0:02:40.830 --> 0:02:44.870 become 95 or 100 west texas intermediate and a cup 0:02:44.870 --> 0:02:45.500 of coffee? 0:02:46.389 --> 0:02:49.609 I'm afraid so. I think we have a very springy, 0:02:49.610 --> 0:02:53.330 I think you use the Great War, their spring oil market. Um, 0:02:53.340 --> 0:02:58.560 because inventories remain quite low, uh, spare capacity is tight. 0:02:58.570 --> 0:03:00.600 And if if you look at at the three key 0:03:00.600 --> 0:03:05.119 drivers of oil prices heading into 2023 there are clearly, uh, 0:03:05.130 --> 0:03:09.160 in my view, whatever happens to opec plus Russia, uh, 0:03:09.169 --> 0:03:14.000 whatever happens to china reopening and the third one being 0:03:14.000 --> 0:03:15.339 the Fed pivot. Um, 0:03:15.600 --> 0:03:17.740 And, and the way I think about each one of 0:03:17.740 --> 0:03:20.919 those is, uh, if you look at our 2023 numbers 0:03:20.930 --> 0:03:23.399 all the demand growth that we forecast for next year 0:03:23.400 --> 0:03:26.480 is coming from emerging markets with China being 50% of 0:03:26.480 --> 0:03:30.470 that and India being about 20%. So we need emerging 0:03:30.470 --> 0:03:34.510 markets to come back strong and it's still early. It's 0:03:34.510 --> 0:03:38.150 still unclear how China is gonna make a comeback. Um 0:03:38.650 --> 0:03:40.580 And and it may be a different comeback than the 0:03:40.580 --> 0:03:41.890 one that we saw in the U. S. And in 0:03:41.890 --> 0:03:45.290 europe particularly if if the reopening is one of fits 0:03:45.290 --> 0:03:49.060 and starts. Um partly because I think the chinese population 0:03:49.070 --> 0:03:51.770 has not really been much exposed to Covid. We talked 0:03:51.770 --> 0:03:54.490 about the post covid world in in in europe and 0:03:54.490 --> 0:03:55.660 the U. S. But really 0:03:55.700 --> 0:03:59.960 china hasn't had Covid broadly disseminated yet. To the extent 0:03:59.960 --> 0:04:02.470 that we've seen it in in most other countries in 0:04:02.470 --> 0:04:05.250 the world. And that's number one. Number two is really Russia. 0:04:05.260 --> 0:04:07.740 Opec how does that play out, how much oil do 0:04:07.740 --> 0:04:11.030 we lose from Russia? And how much oil does Opec 0:04:11.030 --> 0:04:12.740 plus actually take out of the market. 0:04:12.960 --> 0:04:15.310 And then the third one really being the opec the 0:04:15.320 --> 0:04:20.340 Fed tightening policy and which at the moment we have O. E. C. D. 0:04:20.339 --> 0:04:23.979 Economies essentially growing zero next year. But of course if 0:04:23.980 --> 0:04:28.610 the Fed uh if us Fed fund rates go to 6% 7% 0:04:28.610 --> 0:04:30.900 that could become negative pretty quickly here. And that's another 0:04:30.900 --> 0:04:32.270 big uncertainty and probably 0:04:32.550 --> 0:04:35.170 oil prices have been falling in recent days. So how 0:04:35.170 --> 0:04:35.380 much 0:04:35.380 --> 0:04:36.570 do you think that they could rise? I know that 0:04:36.570 --> 0:04:40.159 you have a target of perhaps $100 for W. T. I. 0:04:40.160 --> 0:04:43.060 And $94 for Brent. How do we get there given 0:04:43.060 --> 0:04:45.469 all of what you talk about given that we already 0:04:45.470 --> 0:04:48.099 are seeing some fits and starts with respect to a 0:04:48.100 --> 0:04:50.460 china reopening and it hasn't really caused the price to 0:04:50.460 --> 0:04:51.409 go up that much. 0:04:52.529 --> 0:04:55.630 Um Well so so um again I think I think 0:04:55.630 --> 0:04:59.440 the micro pictures is pretty gloomy here. Um And and 0:04:59.440 --> 0:05:02.250 that's part of the recent prices have come down but 0:05:02.260 --> 0:05:03.950 but I think it's a bit of a different environment 0:05:03.950 --> 0:05:08.150 to to prior Pullbacks in oil prices first. We think 0:05:08.150 --> 0:05:11.000 there's there's a put uh that will be triggered. I 0:05:11.000 --> 0:05:11.479 mean Opec 0:05:11.490 --> 0:05:14.610 just had their meeting on sunday decided to roll over 0:05:14.610 --> 0:05:19.839 the cuts. Um But remember the cuts, announced cuts were 0:05:19.839 --> 0:05:22.650 two million barrels a day. Nobody expected Opec to implement 0:05:22.650 --> 0:05:25.210 the two million barrels a cut. They could actually go 0:05:25.210 --> 0:05:27.250 and do that. They will actually implement a deeper cut. 0:05:27.260 --> 0:05:29.830 Um And also we're going to see W. T. I. 0:05:29.839 --> 0:05:30.450 Uh 0:05:30.710 --> 0:05:34.240 price is entering the range at which the U. S. 0:05:34.240 --> 0:05:38.589 Government will start filling or refilling rather in the strategic 0:05:38.600 --> 0:05:41.340 Petroleum Reserve. Remember the number that was put out by 0:05:41.339 --> 0:05:45.640 the White House was $72 a barrel on W. T. I. 0:05:45.640 --> 0:05:47.720 So we're getting close to the point where we might 0:05:47.720 --> 0:05:51.130 see those triggers providing support to prices here. So it's 0:05:51.130 --> 0:05:53.360 a bit of a different to the environment, to the 0:05:53.370 --> 0:05:56.900 to the 2020 world where where prices just created. 0:05:58.265 --> 0:05:58.664 Can 0:05:58.665 --> 0:06:00.355 you elaborate on that? Because this has been one of 0:06:00.355 --> 0:06:02.635 the big question marks if the U. S. Has said 0:06:02.635 --> 0:06:05.755 $72 a barrel was the time they start buying and 0:06:05.755 --> 0:06:08.045 one of the big drivers of the decline in oil 0:06:08.045 --> 0:06:12.595 prices has been the release of the Strategic Petroleum Reserve. 0:06:12.605 --> 0:06:14.915 How much is that going to cause prices to rise? 0:06:14.925 --> 0:06:17.385 Are we almost there yet? Where this administration ought to 0:06:17.385 --> 0:06:19.715 start buying based on what they've said and that will 0:06:19.714 --> 0:06:22.414 actually drive prices much higher perhaps in the short 0:06:22.415 --> 0:06:23.140 term? 0:06:24.540 --> 0:06:29.520 Well um again I'm just going by what the White 0:06:29.520 --> 0:06:34.089 House communique was a couple months ago. They are um 0:06:34.100 --> 0:06:36.210 they're saying they're gonna be buying oil as as soon 0:06:36.210 --> 0:06:38.690 as we get below the 72 hour threshold and the 0:06:38.690 --> 0:06:42.250 balance could change pretty dramatically here. We could see an 0:06:42.250 --> 0:06:46.020 extra half a million barrels a day of demand from 0:06:46.029 --> 0:06:50.239 uh from the U. S. Strategic Petroleum Reserve. Remember that 0:06:50.240 --> 0:06:53.470 you need to probably put in 100 and 5200 million 0:06:53.470 --> 0:06:53.670 back 0:06:53.690 --> 0:06:58.179 back in store. That's again that that takes a whole 0:06:58.180 --> 0:07:02.140 year of buying half a million barrels a day. Right? 0:07:02.140 --> 0:07:05.660 I mean a simple math there. Right. So um so 0:07:05.660 --> 0:07:08.910 you could see a pretty meaningful swinging imbalances in that regard. 0:07:08.920 --> 0:07:13.700 You can also see heading into 2023 china, reopening picking 0:07:13.700 --> 0:07:18.010 up momentum. Um even even if the 1st 234 months 0:07:18.010 --> 0:07:19.780 could be a little patchy 0:07:19.970 --> 0:07:23.000 And and then of course I think the sanctions on 0:07:23.010 --> 0:07:26.100 on Russian petroleum products which kick in on February five 0:07:26.110 --> 0:07:30.050 are certainly a much bigger deal than the sanctions on 0:07:30.060 --> 0:07:35.810 Russian crude, which have turned out to be a lot 0:07:35.810 --> 0:07:37.130 to do about nothing really. 0:07:37.430 --> 0:07:40.290 What do you make, you mentioned the Jinping meeting in 0:07:40.300 --> 0:07:43.820 Saudi Arabia? Well, how does that affect the dynamic of 0:07:43.830 --> 0:07:46.510 the oil picture? Just given the sense that there seems 0:07:46.510 --> 0:07:50.190 to be an ongoing and public display of increased closeness 0:07:50.190 --> 0:07:50.780 there? 0:07:51.740 --> 0:07:55.850 Well, I I think that's only a natural development of 0:07:55.860 --> 0:08:00.030 uh the bilateral trade relationship between Saudi Arabia and china, 0:08:00.030 --> 0:08:03.940 which has changed dramatically since the advent of us shale. 0:08:03.950 --> 0:08:06.930 Remember the U. S. Is now a net exporter of energy. 0:08:06.940 --> 0:08:09.310 We've argued the U. S. Is going to be energy 0:08:09.310 --> 0:08:11.860 independent for the last 10 years. But now we're arguing 0:08:11.860 --> 0:08:13.920 the U. S. Is going to be energy dominant. So 0:08:13.920 --> 0:08:16.300 in some ways the U. S. Is a competitor to 0:08:16.300 --> 0:08:19.850 Saudi Arabia and the energy space. Um, and I think 0:08:19.860 --> 0:08:21.400 I think in that rig 0:08:22.060 --> 0:08:27.010 The trade with between Rigid and Beijing has really picked 0:08:27.010 --> 0:08:30.390 up pretty dramatically. So so that that I think it's 0:08:30.390 --> 0:08:34.370 just a natural change of commercial relationships Maria from Brussels 0:08:34.370 --> 0:08:38.500 emails in and Francisco make the kick from 12 yards out. 0:08:38.500 --> 0:08:42.069 He's in Madrid. He probably had a tough day yesterday. 0:08:42.520 --> 0:08:44.970 That was just brutal yesterday. Some of the worst penalty 0:08:44.970 --> 0:08:49.030 Francisco's in Madrid and I'm sure the city must be 0:08:49.030 --> 0:08:51.089 blooming Francisco. Do you want to weigh in on that? 0:08:52.290 --> 0:08:54.990 Yeah, it's not, it wasn't happy, I wasn't happy day yesterday, 0:08:54.990 --> 0:08:58.670 I have to say. Um, you know, the team just 0:08:58.670 --> 0:09:01.250 kept passing the ball without really the spanish team without 0:09:01.250 --> 0:09:04.990 really scoring. So it was all disappointing. Um, and yeah, 0:09:05.000 --> 0:09:07.679 it moves a little gloomy here. You can see the background. 0:09:07.690 --> 0:09:09.210 The sun hasn't come out yet 0:09:10.120 --> 0:09:13.440 a couple more days. Does Moynahan know you're in Madrid. 0:09:13.450 --> 0:09:16.650 I mean he's talking about expense control, Francisco. How did 0:09:16.650 --> 0:09:20.760 this happen? You causing trouble? I'm causing trouble. This is great. 0:09:20.760 --> 0:09:24.370 It's like pharaoh and Qatar just run Francis, you 0:09:24.370 --> 0:09:25.580 don't have to try. 0:09:25.910 --> 0:09:29.200 I think, look, I mean we have an office. Here 0:09:29.200 --> 0:09:33.070 we have. There we go. We have an office. It 0:09:33.070 --> 0:09:35.179 was an empty office when I got here. The one 0:09:35.179 --> 0:09:38.339 I got So I don't think it's, I'm actually beefing 0:09:38.340 --> 0:09:42.250 up expenses here. Right, right there was going, thank you Francisco. Wonderful, 0:09:42.260 --> 0:09:45.130 thank you very much Francisco blanch their bank for America. 0:09:55.820 --> 0:09:58.550 It is a jumbo, some would say almost in kuwait 0:09:58.550 --> 0:10:00.929 here what we're talking about here. All the backs and forth. 0:10:00.929 --> 0:10:04.840 Someone that needs to distill, this is with Northwestern mutual 0:10:04.850 --> 0:10:07.550 wealth management Brent shooter joins us now. The chief investment 0:10:07.559 --> 0:10:12.010 officer Brent, did you take your outlook for 2023 from 0:10:12.010 --> 0:10:15.150 55 pages down to 12 I mean are you, are 0:10:15.150 --> 0:10:17.640 you going short and sweet here or your right in 0:10:17.640 --> 0:10:20.180 war in peace here on what we're gonna see next year? 0:10:20.690 --> 0:10:22.189 Right? I think we're more in the short and sweet 0:10:22.190 --> 0:10:24.530 type and trying to be understandable and makes sense And 0:10:24.540 --> 0:10:26.610 and to me, I think you know, we're switching from 0:10:26.610 --> 0:10:29.280 right now inflation fears to recession fears. I hear the 0:10:29.280 --> 0:10:30.850 word recession quite a bit and this is what we 0:10:30.850 --> 0:10:33.579 thought would happen. So if you think about it, inflation 0:10:33.580 --> 0:10:36.830 fears drove us lower till october 12th, That was the 0:10:36.830 --> 0:10:39.200 day before core CPI I topped 0:10:39.700 --> 0:10:41.390 and so I think what you're seeing now is the 0:10:41.390 --> 0:10:43.370 commentary that the Fed has done too much. You're seeing 0:10:43.370 --> 0:10:45.050 it in the bond market. The bond market is telling 0:10:45.050 --> 0:10:46.950 you that inflation is a thing of the past and 0:10:46.950 --> 0:10:48.990 that the Fed has done too much and that's what 0:10:48.990 --> 0:10:51.589 I think likely drives trading for the next few months 0:10:51.600 --> 0:10:54.710 where you see the recession fears come out once we 0:10:54.710 --> 0:10:57.600 see that inflation does not survive a recession and that 0:10:57.600 --> 0:11:00.790 the Fed will pause when they actually see jobs being lost, 0:11:00.800 --> 0:11:03.350 that you can move higher in in a more sustained pace. 0:11:03.815 --> 0:11:07.084 We agree that inflation coming down is what's called a 0:11:07.085 --> 0:11:10.225 highly stochastic. It's pointy folks, it goes up up doom 0:11:10.225 --> 0:11:12.605 and gloom and then it comes down rapidly as it 0:11:12.605 --> 0:11:17.345 did twice after 1947 and other times as well. How 0:11:17.345 --> 0:11:22.835 does the allocation or outlook of your investment recommendations change 0:11:22.845 --> 0:11:26.295 if inflation only comes down to 4% and not to 0:11:26.295 --> 0:11:27.929 the proverbial 2%. 0:11:29.030 --> 0:11:30.330 Yeah. I mean I think that's what most people are 0:11:30.330 --> 0:11:32.750 saying right now, largely because the new york fed U. I. G. 0:11:32.760 --> 0:11:35.410 Underlying inflation gauge shows 4% inflation as being kind of 0:11:35.410 --> 0:11:37.600 a more persistent part of it. And so you know, 0:11:37.600 --> 0:11:39.410 I I just don't think that we stay at 4%. 0:11:39.410 --> 0:11:40.930 I think it does pull back. I don't think we're 0:11:40.929 --> 0:11:42.610 going below two. I don't think we're going back to 0:11:42.610 --> 0:11:45.069 the last decade that we had, where we persistently worried 0:11:45.070 --> 0:11:48.110 about deflation. Um That to me was not, you know, 0:11:48.110 --> 0:11:49.820 inflation wasn't a relic of the past, that was how 0:11:49.820 --> 0:11:52.090 we were positioned then, but we are certainly positioned more 0:11:52.090 --> 0:11:56.030 for it coming down in the next few quarters. For example, 0:11:56.030 --> 0:11:57.650 we we actually upped our allocate 0:11:57.824 --> 0:12:00.474 or increase our duration towards fixed income in the middle 0:12:00.474 --> 0:12:04.243 of october because the barclays aggregate was yielding 5% versus 0:12:04.254 --> 0:12:07.244 1 75 at the start of the year bonds now 0:12:07.244 --> 0:12:10.324 provide real value. They provide a hedge against downturns and 0:12:10.324 --> 0:12:13.074 equities caused by recession and that's where we've kind of 0:12:13.074 --> 0:12:15.224 focused on the bond side, on the equity side? We're 0:12:15.224 --> 0:12:17.874 still in things that are cheaper. That has been what 0:12:17.874 --> 0:12:19.844 has worked this year. That has been what I think 0:12:19.844 --> 0:12:21.964 will continue to work next year. And so we own 0:12:21.964 --> 0:12:24.244 the S. And P. 600 it trades at 13 times 0:12:24.244 --> 0:12:26.284 next year's earnings that have already been marked down 0:12:26.298 --> 0:12:30.018 by 14 15% mark them down 10 more percent or 0:12:30.018 --> 0:12:33.318 10 more. We still are at 15 times and so on. 0:12:33.318 --> 0:12:35.808 Things like that. And I dare say international developed is 0:12:35.808 --> 0:12:37.788 becoming more attractive because I think the dollar will fall 0:12:37.788 --> 0:12:41.138 next year. So do I hear 60 40 going into 0:12:41.138 --> 0:12:45.448 2023 60 40 was never dead. It's not that it 0:12:45.448 --> 0:12:48.008 needed commodities that we had those. Uh and now I 0:12:48.008 --> 0:12:50.227 think it's actually going to be a much better place 0:12:50.227 --> 0:12:52.568 going forward. I mean equities have done the heavy lifting 0:12:52.578 --> 0:12:54.918 lifting for the last 10 years. Now bonds offer 0:12:54.932 --> 0:12:57.381 some value. And so certainly they will be a way 0:12:57.381 --> 0:12:59.592 that holds up to 60 40 as we push forward 0:12:59.822 --> 0:13:02.521 into 2023. So that's a big change, isn't it, coming 0:13:02.522 --> 0:13:05.631 into 22 Remember that 60 40 is dead, It's over 0:13:05.631 --> 0:13:07.992 and 60 40 let's be clear this year, brutal. 0:13:07.992 --> 0:13:11.682 It was devastated, brutal. And how much do people buy 0:13:11.792 --> 0:13:15.102 that 6040 is back, especially after the brutality that we 0:13:15.102 --> 0:13:15.582 just saw. 0:13:15.592 --> 0:13:19.261 Well that's the question, how perceptive or other people about 0:13:19.261 --> 0:13:21.982 the thing that you see, how receptive are they towards 0:13:21.982 --> 0:13:23.552 what you're saying? I 0:13:23.566 --> 0:13:24.876 I always like to hope to be a little bit 0:13:24.876 --> 0:13:27.205 contrarian in nature because I found that usually the right 0:13:27.206 --> 0:13:29.186 place to be. And so you know, I do think 0:13:29.186 --> 0:13:31.986 people are worried just because the 60 40 hasn't worked 0:13:31.996 --> 0:13:33.956 and that narrative has been that it's dead. I think 0:13:33.956 --> 0:13:36.216 most people think of the 60 40 unfortunately just large 0:13:36.216 --> 0:13:39.046 cap growth and investment grade bonds. I think you need 0:13:39.046 --> 0:13:40.916 to have things like commodities and there's something that we've 0:13:40.926 --> 0:13:43.955 owned because we didn't think inflation was dead, um something 0:13:43.956 --> 0:13:46.675 like small cap, something like international stocks, which is no 0:13:46.676 --> 0:13:49.026 one wants to own those just because they haven't done well. 0:13:49.035 --> 0:13:52.185 But if I look back at economic cycles post 1980 0:13:52.740 --> 0:13:56.100 every single economic cycle had different leadership. 0:13:57.260 --> 0:13:59.770 The S and P and F. Alternated. I'm not suggesting 0:13:59.770 --> 0:14:01.180 that it has to be. But I think as you 0:14:01.179 --> 0:14:03.540 push forward, you're in a different type of environment where 0:14:03.540 --> 0:14:06.000 inflation will be above 2% where there will be different 0:14:06.000 --> 0:14:08.670 worries where there'll be shortages on different sides of the economy. 0:14:08.679 --> 0:14:10.160 And I think that's going to drive us forward. And 0:14:10.160 --> 0:14:13.920 I think 60 42 look historically going back to 1926 0:14:13.929 --> 0:14:16.959 we've only had four years where the bond market was 0:14:16.960 --> 0:14:18.280 negative when the stock market was 0:14:18.280 --> 0:14:19.600 negative, we're 0:14:19.600 --> 0:14:20.090 all addicted 0:14:20.110 --> 0:14:21.990 by high inflation, which I don't think we're gonna have 0:14:21.990 --> 0:14:22.480 next year, 0:14:22.490 --> 0:14:25.260 Right? You mentioned commodities and let's end there because we've 0:14:25.260 --> 0:14:28.350 been talking about the divergence between energy stocks and other 0:14:28.350 --> 0:14:31.110 commodity equities that are doing very well and then you're 0:14:31.110 --> 0:14:33.670 looking at a crude price. That's the lowest, going back 0:14:33.670 --> 0:14:37.180 to December of 2021. What gives there, can you have 0:14:37.180 --> 0:14:40.980 conviction to continue buying energy equities in the face of 0:14:40.980 --> 0:14:42.880 prices that are dropping in the crude space, 0:14:43.390 --> 0:14:45.490 There will still be companies that make money within the 0:14:45.490 --> 0:14:47.060 crewed space. I think you just need to focus on 0:14:47.060 --> 0:14:50.610 picking the right ones. Certainly the easier money has been 0:14:50.610 --> 0:14:52.690 made in energy. Um that's been the sector that has 0:14:52.690 --> 0:14:54.750 done well over the past few years because no one 0:14:54.760 --> 0:14:56.940 wanted to own it now. You have more people wanting 0:14:56.940 --> 0:14:57.460 to own it. 0:14:57.600 --> 0:15:00.790 And so I don't think that it's all negative, but 0:15:00.790 --> 0:15:03.040 I certainly think the easy money has been made as 0:15:03.040 --> 0:15:05.430 you look forward and certainly the price of oil is 0:15:05.430 --> 0:15:07.300 still something that is going to be highly variable based 0:15:07.300 --> 0:15:09.650 upon what is happening the economy. I think right now 0:15:09.650 --> 0:15:12.170 it reflects the reality that we are moving more towards 0:15:12.170 --> 0:15:14.900 a recession. Um Certainly I think the good news is 0:15:14.900 --> 0:15:17.530 we've had rolling recessions over the past year, just like 0:15:17.530 --> 0:15:19.180 we had a rolling recovery and I think that helps 0:15:19.180 --> 0:15:21.330 take the starch out of any recession as we push forward, 0:15:21.340 --> 0:15:23.770 as does the state of the U. S. Consumer, which 0:15:23.770 --> 0:15:24.660 is still in good shape 0:15:25.090 --> 0:15:27.670 money after the fact, isn't it? Tom they never tell 0:15:27.670 --> 0:15:29.410 me ahead of time. It's going to be easy money 0:15:29.700 --> 0:15:32.350 looking ahead a year ahead. I think the best you 0:15:32.350 --> 0:15:35.200 can do, john it's a really important insight and the 0:15:35.200 --> 0:15:39.370 best you can do is try to gauge consensus and 0:15:39.370 --> 0:15:42.500 it's not going against consensus when consensus is sort of 0:15:42.500 --> 0:15:46.190 kind of like it's when there's a massive consensus bet 0:15:46.200 --> 0:15:49.290 and the question is, are we there now of Northwestern 0:15:49.290 --> 0:15:52.140 mutual wealth management at the end? It's great to catch up. 0:15:56.850 --> 0:16:00.200 Lorena or itchy joins us now us economist at T. 0:16:00.200 --> 0:16:02.520 Rowe Price. We're gonna thank you. Thank you so much 0:16:02.520 --> 0:16:06.180 for being with us. My head is spinning over what 0:16:06.180 --> 0:16:09.430 the actual view of the american economy is not the 0:16:09.430 --> 0:16:13.260 guesstimate out six months. Where are we right now? What's 0:16:13.260 --> 0:16:18.160 your working figure for some form of inflation adjusted GDP 0:16:18.170 --> 0:16:19.200 Q four? 0:16:20.740 --> 0:16:24.460 That's a great question. Everybody's confused because we're getting such 0:16:24.460 --> 0:16:28.460 mixed messages from the data. Is the labor market accelerating 0:16:28.470 --> 0:16:31.020 even though the Fed has been hiking at such a 0:16:31.020 --> 0:16:34.600 fast pace. What's going on with growth and consumer spending? 0:16:34.610 --> 0:16:37.480 I would say in Q. Four of this year, the U. S. 0:16:37.480 --> 0:16:41.090 Economy is shaping up to expand at a healthy pace 0:16:41.090 --> 0:16:43.600 probably 2 to 3% after being a 0:16:43.610 --> 0:16:47.500 adjusted from inflation. And once again, what's pulling through the U. S. 0:16:47.500 --> 0:16:51.710 Economy is the consumer consumer spending data, both on services 0:16:51.720 --> 0:16:54.650 and goods for the beginning of Q four were pretty 0:16:54.650 --> 0:16:58.530 solid for services as well as good. So yeah, we're 0:16:58.530 --> 0:17:00.480 in a good spot right now but I think more 0:17:00.480 --> 0:17:03.940 deceleration is to come next year. Unfortunately 0:17:03.950 --> 0:17:05.820 the outlooks of the sell side are 0:17:06.600 --> 0:17:09.940 this year. I've truly never seen the chaos a cacophony 0:17:10.050 --> 0:17:13.680 is out there. What are you advising portfolio managers at 0:17:13.680 --> 0:17:17.060 T Rowe price you guys invented on the buy side 0:17:17.060 --> 0:17:20.080 of fractious debate. This is folks, I'm gonna say 40 0:17:20.300 --> 0:17:23.340 if not 50 years ago. Are they listening to you? 0:17:23.340 --> 0:17:26.190 And if they are, what's the line for them of 0:17:26.190 --> 0:17:29.340 how to be invested given this chaos? 0:17:30.280 --> 0:17:35.090 So how do we navigate these crosscurrents that we're facing 0:17:35.090 --> 0:17:38.879 in 2023? I would say that the main thing is 0:17:38.890 --> 0:17:43.350 we expect interest rates to continue increasing. That means there's 0:17:43.350 --> 0:17:47.050 gonna be yield in those fixed and fixed-income portfolios that 0:17:47.050 --> 0:17:50.830 we manage. However, as we look at the question of 0:17:50.830 --> 0:17:53.060 whether do we add risk or do we not at 0:17:53.060 --> 0:17:57.220 risk next year? The outlook for employment growth and consumption 0:17:57.220 --> 0:17:58.230 growth slowing into 0:17:58.240 --> 0:18:02.560 2023 means that we're tentatively more conservative when we're positioning 0:18:02.560 --> 0:18:05.350 ourselves with respect to risk. We were talking with Jim 0:18:05.350 --> 0:18:07.680 Bianco of Bianco research a bit ago and he was 0:18:07.680 --> 0:18:12.020 saying there still is this feeling of transitory baked into 0:18:12.020 --> 0:18:14.929 people's expectations. It's just been pushed out that basically there 0:18:14.930 --> 0:18:17.810 will be an immaculate disinflationary force that will come into 0:18:17.810 --> 0:18:20.620 play at the end of next year and allow the 0:18:20.619 --> 0:18:23.980 downturn to not be as severe as some people feared. 0:18:24.050 --> 0:18:26.200 Do you adhere to that kind of idea. 0:18:27.680 --> 0:18:30.340 Well, I think lots of questions for the second half 0:18:30.340 --> 0:18:32.899 of next year. First of all I do think the 0:18:32.900 --> 0:18:36.360 Fed will get some help from the transitory question when 0:18:36.359 --> 0:18:40.159 it comes to inflation and we're gonna start seeing that 0:18:40.170 --> 0:18:43.230 concretely in core goods inflation in the first half of 0:18:43.230 --> 0:18:45.260 next year. So I think that will be a factor 0:18:45.270 --> 0:18:49.139 helping the outlook for next year. However, when it comes 0:18:49.140 --> 0:18:51.670 to the question of a recession, I do notice as 0:18:51.670 --> 0:18:54.790 well that lots of commentators are saying just because we 0:18:54.790 --> 0:18:55.010 don't 0:18:55.030 --> 0:18:58.360 the imbalances right now that this is if we do 0:18:58.359 --> 0:19:00.940 have a recession is going to be a shallow one, 0:19:00.950 --> 0:19:04.850 I don't think I necessarily agree with that. I think 0:19:04.859 --> 0:19:09.300 once recessionary processes take place and and start to get 0:19:09.300 --> 0:19:13.300 into motion things breaking the economy that we don't necessarily 0:19:13.300 --> 0:19:16.980 anticipate this is what happens in every recession. The other 0:19:16.980 --> 0:19:19.760 factor that I think ways against the U. S. Economy 0:19:19.760 --> 0:19:22.379 next year is that monetary policy has 0:19:22.390 --> 0:19:25.649 been tightening at a very very fast pace compared to 0:19:25.650 --> 0:19:28.740 the last 2030 years. And the other one is that 0:19:28.740 --> 0:19:32.659 is facing a very adverse global environment of growth in 0:19:32.660 --> 0:19:38.400 china slowing growth in europe slowing contraction expected actually in 0:19:38.400 --> 0:19:40.790 europe for the first half of this year. So the 0:19:40.790 --> 0:19:44.500 external environment is not that favorable. And then domestically we 0:19:44.500 --> 0:19:47.490 have very tight monetary policy as well given the headwinds, 0:19:47.490 --> 0:19:48.609 why do you think the Fed is still going to 0:19:48.609 --> 0:19:49.740 get to 5%. 0:19:51.380 --> 0:19:54.540 Well I think the headwinds are more based for the 0:19:54.540 --> 0:19:56.850 second half of the year. And I think the Fed 0:19:56.850 --> 0:20:00.659 is so focused on realized inflation and the trend of 0:20:00.670 --> 0:20:05.040 three month moving annualized average of core inflation that I 0:20:05.040 --> 0:20:09.130 think it will need to continue hiking and delivering on 0:20:09.130 --> 0:20:12.040 those hikes that have been already priced in the market, 0:20:12.260 --> 0:20:16.010 bolena. Sebastian page emails in. I'm kidding. But for Sebastian 0:20:16.010 --> 0:20:21.170