WEBVTT - Surveillance: Debt is Creating Vulnerabilities, Adrian Says 0:00:00.880 --> 0:00:12.960 Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.800 Bloomberg dot Com, and of course, on the Bloomberg. The 0:00:27.880 --> 0:00:30.960 United States has blacklisted eight Chinese tech ferns for suppressing 0:00:31.000 --> 0:00:34.839 religious minorities in China. Meanwhile, China has effectively blacklisted the 0:00:34.920 --> 0:00:38.320 US basketball team for supporting the Hong Kong protests. I 0:00:38.320 --> 0:00:40.720 want to bring in Bill later talk about this Milk 0:00:40.760 --> 0:00:44.960 in Institute Chief Economists. Bill. The examples of the last 0:00:44.960 --> 0:00:48.680 twenty four hours are massive, and they just underlined the 0:00:48.720 --> 0:00:51.360 fact that this tension is going nowhere, regardless of how 0:00:51.400 --> 0:00:53.880 the trade talks go this week, and regardless of who 0:00:53.920 --> 0:00:56.600 is in the White House. John, You're absolutely right the 0:00:57.440 --> 0:01:01.200 notion that there's a trade the spute has now spilled 0:01:01.240 --> 0:01:04.240 over into a capital markets dispute. If we start interfering 0:01:04.240 --> 0:01:06.920 with global capital flows, that's really going to have massive 0:01:06.920 --> 0:01:09.440 implications for whether or not the global economy can pick 0:01:09.520 --> 0:01:12.040 up again, because the global market has become so integrated. 0:01:12.240 --> 0:01:14.240 The minute the US starts to play around with the 0:01:14.280 --> 0:01:17.440 notion that we might start to shave off the amount 0:01:17.480 --> 0:01:20.720 of support we give to the Chinese stocks, even even 0:01:20.720 --> 0:01:23.640 though yes it's a real problem. We've always said the 0:01:23.840 --> 0:01:26.800 Chinese companies don't adhere to the same accounting standards that 0:01:26.800 --> 0:01:29.920 we've had in the for other US companies. But why 0:01:29.959 --> 0:01:33.000 bring it up now, and why bring up the blacklisting now? 0:01:33.120 --> 0:01:35.200 I think it's part of this kabuki dance where we 0:01:35.280 --> 0:01:37.920 throw everything we can on the table and see what 0:01:38.000 --> 0:01:39.680 the Chinese do to it. And of course the Chinese 0:01:39.640 --> 0:01:42.240 is gonna back off, and I think that dispute that 0:01:42.319 --> 0:01:44.839 kabuki is going to require the principles to get together 0:01:44.880 --> 0:01:46.679 and we set the door on the board again. And 0:01:46.720 --> 0:01:49.320 that's gonna happen in November at the APEC meeting. I 0:01:49.760 --> 0:01:53.880 look Bill at uh all that's going on and the 0:01:53.960 --> 0:01:56.840 fact as it reacts within the market, what are the 0:01:56.920 --> 0:02:00.680 consequences of the market signaling breaking down the new loads. 0:02:00.720 --> 0:02:03.720 We're not there yet, but if we break down through 0:02:03.760 --> 0:02:07.360 that stress of late August, what does that signal? I 0:02:07.400 --> 0:02:10.000 think that the markets have become so confused with a 0:02:10.080 --> 0:02:13.400 degree of uncertainty, and now we're throwing even more uncertainty 0:02:13.440 --> 0:02:17.400 onto the plate in terms of messing with global capital flows. Um, 0:02:17.680 --> 0:02:19.520 it may get to the point where investors are going 0:02:19.600 --> 0:02:21.400 to give up and we are going to have a 0:02:21.440 --> 0:02:25.760 real severe market crash, which will have real let's go 0:02:25.800 --> 0:02:28.760 to your expertise. Let's explain that in the partial differentials 0:02:28.760 --> 0:02:31.800 of imports and exports, Let's use the United States as 0:02:31.840 --> 0:02:34.840 the basis. Are we going to see diminished imports? I 0:02:34.840 --> 0:02:38.440 guess so, But what about our exports redounding on all 0:02:38.480 --> 0:02:42.880 this market and geopolitical turmoil. Our exports depend upon world growth, 0:02:42.960 --> 0:02:47.720 and in particular it depends upon the supply uh change 0:02:47.800 --> 0:02:51.160 that have formed for Mexico and Canada. So the first 0:02:51.200 --> 0:02:53.560 priority that we have to do for policy is to 0:02:53.600 --> 0:02:55.240 get U S. M C A pass so that we 0:02:55.280 --> 0:02:58.000 can at least set the production side of the economy. 0:02:58.280 --> 0:03:01.960 Then the issue's demand. We know European economies are going 0:03:02.000 --> 0:03:04.680 into recession. We know China has slowed, and that's going 0:03:04.720 --> 0:03:06.760 to hold back our exports. But look at the US 0:03:06.800 --> 0:03:09.680 domestic economy, it's only you know exports, was imports together 0:03:10.000 --> 0:03:13.600 are only about of the U. S. Economy, so it's 0:03:13.600 --> 0:03:16.160 still a small share. But the key, the real killer 0:03:16.280 --> 0:03:18.200 is going to be when capital flows start to get 0:03:18.240 --> 0:03:20.359 messed with, and if capital flows start to shut down, 0:03:20.600 --> 0:03:22.720 that will hurt you. To be clear, here, we haven't 0:03:22.800 --> 0:03:27.720 seen that, but these news flows. John Farrell mentions the NBA. Okay, 0:03:27.800 --> 0:03:32.000 I think that's tangential. Fine, but it's additive, isn't it. 0:03:32.600 --> 0:03:37.240 Towards where these two warring partners, China and the United 0:03:37.240 --> 0:03:41.840 States Catherine Man's dysfunction begin to talk about capital flows 0:03:41.880 --> 0:03:44.160 as well. Actually it's not just acctive. I think it's multiplicative. 0:03:44.200 --> 0:03:47.320 In fact, we're talking about logarithmic and exponential type effects 0:03:47.360 --> 0:03:50.440 where we have huge don linearities. Trade is something that 0:03:50.560 --> 0:03:52.360 we can deal with because it's a small share of 0:03:52.480 --> 0:03:55.600 US GDP. Capital flows are not a small share of 0:03:55.720 --> 0:03:58.680 US GDP. In fact, capital flows, the flows coming into 0:03:58.680 --> 0:04:01.160 the United States has what's hold at the US economy 0:04:01.200 --> 0:04:03.320 for all these years. We started messing with that and 0:04:03.440 --> 0:04:07.320 we will interfere with US growth link in Europe on this. Then, 0:04:07.560 --> 0:04:10.320 I was trained that our trade with Europe is far 0:04:10.440 --> 0:04:15.120 more substantial than the dynamics with emerging markets are developed markets? 0:04:15.280 --> 0:04:19.120 How do you fold in the European export import dynamics 0:04:19.680 --> 0:04:23.200 with this trade war with China? In Europe, the domestic 0:04:23.240 --> 0:04:25.599 economy in Europe is very is very big. In fact, 0:04:25.720 --> 0:04:27.280 the EU together is about the same size of the 0:04:27.360 --> 0:04:31.560 United States. But the European trade has now become so 0:04:31.720 --> 0:04:36.040 dependent upon China demand that much of our our our 0:04:36.240 --> 0:04:40.359 our supply chain connections with Europe are all ultimately leading 0:04:40.440 --> 0:04:43.880 to the demand that's in China. And that's where the new, 0:04:44.240 --> 0:04:46.720 the new shape of trade has has affected the US. 0:04:47.000 --> 0:04:50.240 You're just joining us this morning. Futures at negative twenty one, down, 0:04:50.320 --> 0:04:54.920 futures at negative one three, and the yield market moves substantially. 0:04:55.080 --> 0:04:58.120 We see the thirty year bond in three basis points 0:04:58.200 --> 0:05:00.760 two point zero two percent in the and you're at 0:05:00.800 --> 0:05:05.280 one again. Really quote something, John, But I'd like to 0:05:05.320 --> 0:05:07.560 wrap things up by having a conversation about an argument 0:05:07.600 --> 0:05:09.880 that people make on this program, which is that somehow 0:05:10.000 --> 0:05:12.800 China can wait out the president and hope that he 0:05:12.839 --> 0:05:15.239 doesn't get a second term. The idea being that somehow 0:05:15.279 --> 0:05:17.320 there's this fluffy democrat wanning in the White House for 0:05:17.400 --> 0:05:19.480 the Chinese to deal with in a year's time. I 0:05:19.600 --> 0:05:22.240 just don't buy it. Last night I got hold of 0:05:22.400 --> 0:05:25.480 the The Trade Stance of Senator Warren. She published it 0:05:25.800 --> 0:05:28.599 back in July, and you go through that Trade Stance 0:05:28.680 --> 0:05:31.280 bill and you look at the details, and it's all 0:05:31.320 --> 0:05:34.320 about adhering to a certain set of standards, a certain 0:05:34.400 --> 0:05:37.200 set of standards that Senator Warren wants everyone who has 0:05:37.240 --> 0:05:39.320 a trade deal with the United States to meet. And 0:05:39.440 --> 0:05:42.120 it's so onerous. Even the United States itself does not 0:05:42.240 --> 0:05:45.120 meet those standards and build The metrics might change with 0:05:45.200 --> 0:05:47.520 a Democratic president, but the outcome will be just the same. 0:05:47.600 --> 0:05:50.960 Wotes it. We will continue to have tension between China 0:05:51.040 --> 0:05:53.360 and the United States for as far as the eye 0:05:53.400 --> 0:05:56.520 can see. Boy John. If Joe Biden gets thrown out 0:05:56.560 --> 0:05:59.600 and it becomes a concert between Warren and Trump, watch 0:05:59.680 --> 0:06:02.200 the needs run for a deal because they know they're 0:06:02.240 --> 0:06:03.800 going to get a much better deal out of Trump 0:06:03.960 --> 0:06:07.960 than they will have the Democratic extremist Warren position where 0:06:08.520 --> 0:06:11.479 you were. You know, health standards, medical standards, all sorts 0:06:11.560 --> 0:06:14.840 of standards will be put into the important the United 0:06:14.839 --> 0:06:17.640 States and China will have enormous barriers to trade. He 0:06:18.040 --> 0:06:21.719 erected because of a Warren presidency. Bill. Great to catch 0:06:21.839 --> 0:06:24.560 up with you as always, Bill Lee Milkin Institute Chief 0:06:24.560 --> 0:06:41.159 Economists joining us from Washington. D C. Tobias Adrian joined 0:06:41.240 --> 0:06:44.520 US now i MS Monetary and Capital Markets Department director, 0:06:44.640 --> 0:06:47.880 formerly of the New York Federal Reserve. He also taught 0:06:47.880 --> 0:06:50.520 at Princeton University and and Why You to Buy Us 0:06:50.520 --> 0:06:52.480 Great to have you with us on the program. I 0:06:52.600 --> 0:06:54.320 want to reflect on a piece of research that you 0:06:54.400 --> 0:06:56.920 and the I m F put out last spring. Back 0:06:56.960 --> 0:07:00.400 in April. In the United States, the ratio of corporate 0:07:00.440 --> 0:07:03.040 debt to GDP is at record high levels. In several 0:07:03.120 --> 0:07:06.640 European countries, banks are overloaded with government bombs. In China, 0:07:07.440 --> 0:07:11.240 bank profitability is declining and capital levels remain low at 0:07:11.280 --> 0:07:13.920 small and medium size lenders. To Bias, do we have 0:07:13.960 --> 0:07:18.360 a problem? Good morning, I'm very happy to be here. Well, 0:07:19.240 --> 0:07:21.080 what we have seen over the past couple of months 0:07:21.240 --> 0:07:23.880 that interest rates have come down, not just in the 0:07:24.000 --> 0:07:28.880 US but globally. Today the stock of negative yielding debt 0:07:29.000 --> 0:07:33.640 globally is close to fifteen trillion dollars. And of course 0:07:34.040 --> 0:07:37.120 investors are reaching for yield, they want to reach nominal 0:07:37.200 --> 0:07:41.200 return targets, and that means that that is rising around 0:07:41.240 --> 0:07:45.960 the world, and that does create certain vulnerabilities. But to Bias, 0:07:46.080 --> 0:07:48.400 this comes at a time when GDP growth has what 0:07:48.560 --> 0:07:51.760 a three handle for global GDP. What are you looking 0:07:51.800 --> 0:07:53.720 for next year, because many people are looking for a 0:07:53.760 --> 0:07:56.040 two handle, and I just wonder as the global growth 0:07:56.120 --> 0:08:00.480 picture de salarates, whether these vulnerable vulnerability as will look 0:08:00.480 --> 0:08:04.040 a how a lot worse. Well. Over recent months, we 0:08:04.120 --> 0:08:08.880 have certainly seen an increase in downside risks, and center 0:08:08.920 --> 0:08:11.520 banks around the world have reacted to this increase of 0:08:11.560 --> 0:08:17.080 downside risks by aggressively moving monetary policy. There has been 0:08:17.120 --> 0:08:20.120 an easing of monetary policy in many countries around the world, 0:08:20.160 --> 0:08:23.480 including in the US where the Federal Reserve has eased. 0:08:23.840 --> 0:08:28.640 But we estimate that in countries with a GDP of 0:08:29.120 --> 0:08:33.880 sevent of global GDP, monetary policy has been east and 0:08:34.040 --> 0:08:36.839 that has taken away some of the downside risks to growth. 0:08:39.800 --> 0:08:43.040 What about the fiscal space there's out there. We spoke 0:08:43.120 --> 0:08:48.000 to it our gaspar earlier this morning. Fold our salvation 0:08:48.280 --> 0:08:52.240 of fiscal space into how we will look at interest rates. 0:08:54.559 --> 0:08:58.400 Of course, with lower interest rates and interest rates that 0:08:58.520 --> 0:09:02.600 are expected to be lower for a long time, in principle, 0:09:02.840 --> 0:09:07.000 that does create some fiscal space. However, we do worry 0:09:07.040 --> 0:09:11.559 about many economies where that is already high. Well, you 0:09:11.640 --> 0:09:13.720 were about the debt is already high. Is the US 0:09:13.840 --> 0:09:18.200 one of those economies in the US UM there are 0:09:18.240 --> 0:09:21.680 certainly some fiscal challenges, and we have urged the US 0:09:21.760 --> 0:09:27.400 many times in the past UM to address phisical challenges 0:09:27.480 --> 0:09:30.640 of the future. Tobios, thank you so much twice. Adrian 0:09:30.720 --> 0:09:48.920 with the International Monetary Fund this morning. Yeah, Azore is 0:09:49.040 --> 0:09:51.679 with us, and you need to know only one thing 0:09:51.800 --> 0:09:55.840 besides his services to the International Monetary Fund is director 0:09:55.960 --> 0:09:59.679 of the Middle Eastern Central Asian Department. Is he has 0:09:59.720 --> 0:10:03.880 had a extraordinary public service to his Lebanon, his finance 0:10:04.040 --> 0:10:06.720 minister over a three year span. And we are honored 0:10:07.280 --> 0:10:11.319 uh that Mr Zurka join us now, dr Azor, I 0:10:11.440 --> 0:10:14.240 have to rip up the script. With the new turmoil 0:10:14.480 --> 0:10:20.200 politically of Turkey, of Syria and frankly of the adjacent 0:10:20.480 --> 0:10:24.040 nations of the Middle Eastern community, how will the Middle 0:10:24.120 --> 0:10:29.800 Eastern community respond to the politics in the new economic 0:10:29.960 --> 0:10:35.800 tensions of this announcement by President Trump. Political tension has 0:10:35.880 --> 0:10:38.439 a toll on economy as well as also on the 0:10:38.559 --> 0:10:42.920 social situation. As you know, the large cohort of refugees 0:10:42.960 --> 0:10:46.839 are coming from Syria, impacting economies of Lebanon, Jordan and 0:10:47.080 --> 0:10:53.559 also casting a negative impact on trade and flow of 0:10:53.679 --> 0:10:58.640 services and people between those countries. Therefore, the increasing intention 0:10:59.040 --> 0:11:01.040 is affecting continuy is of the region who in the 0:11:01.160 --> 0:11:04.439 last few years were not able to grow case in 0:11:04.559 --> 0:11:07.559 Lebanon or in children higher than two percent, let alone 0:11:08.360 --> 0:11:12.960 the humanitarian impact that this issue has on on both 0:11:13.960 --> 0:11:17.040 host community as well as also the refugees. Your your 0:11:17.120 --> 0:11:20.719 researchers centered on the gleaming buildings of I'm gonna call 0:11:20.800 --> 0:11:23.680 it oil Middle East. But after the spring, there's an 0:11:23.720 --> 0:11:28.439 attempt to find a resurgence or new or nascent capitalism 0:11:29.080 --> 0:11:32.640 within the Middle East. Give us an update on the 0:11:32.760 --> 0:11:35.959 ability to find capitalism in the Middle East? Is it? 0:11:36.760 --> 0:11:39.880 Are there? There's signs of life there. Look, we are 0:11:39.960 --> 0:11:42.000 trying to help many of the countries of the region 0:11:42.040 --> 0:11:44.719 in order to build an economic model where growth is 0:11:44.800 --> 0:11:48.920 led by the private sector, where those economies can provide 0:11:48.960 --> 0:11:51.920 the jobs for the young population. It's a region where 0:11:52.480 --> 0:11:55.480 on average six of the population is below thirty and 0:11:55.640 --> 0:11:58.480 jobs need to be created. Therefore, inclusive growth it's very 0:11:58.559 --> 0:12:02.240 important as priority for the region and only the private 0:12:02.280 --> 0:12:05.400 sector can help provide growth and this can be done 0:12:05.480 --> 0:12:10.360 through improving financial inclusion, helping startups and samese and also 0:12:11.000 --> 0:12:14.120 make the state more efficient but also more accountable. And 0:12:14.200 --> 0:12:17.960 this is why we are geting our effort effort internally 0:12:18.120 --> 0:12:22.760 towards improving governance and helping countries fight corruption. How critical 0:12:23.040 --> 0:12:26.480 is Turkey within the mix in whether the projection of 0:12:26.600 --> 0:12:28.839 the I am of How does Turkey fit with all 0:12:28.880 --> 0:12:32.160 the challenges there? How do they fit into this attempt 0:12:32.240 --> 0:12:36.960 for a better Middle East? Look? Turkey, Saudi, Egypt, Iran 0:12:37.240 --> 0:12:41.360 are the largest economies that are affecting the Middle East, 0:12:41.840 --> 0:12:46.400 both politically and economically. Of course those are big markets. 0:12:46.440 --> 0:12:49.160 For example, Egypt is a market of hundred million population. 0:12:49.640 --> 0:12:52.240 Saudi is the largest economy in the region, one of 0:12:52.280 --> 0:12:55.360 the G twenty countries. And Turkey has a lot of trade, 0:12:56.240 --> 0:12:59.240 um and investment in the region. And therefore, wherever can 0:12:59.320 --> 0:13:02.720 be done in all to improve UH and or reduced 0:13:02.800 --> 0:13:06.800 the better years for good self people will have to 0:13:06.920 --> 0:13:09.920 mend disposed to impact on the region. Very good mrs 0:13:10.120 --> 0:13:12.000 or thank you so much doctors or as you how 0:13:12.040 --> 0:13:15.040 do or with the International Monetary Fund and update there 0:13:15.080 --> 0:13:31.319 in the Middle East, Sarah House with us doing strong 0:13:31.440 --> 0:13:35.800 economics at wells Fargo and distill the American economy, Sarah, 0:13:35.880 --> 0:13:38.680 We've just got to go to the basic call, which 0:13:38.800 --> 0:13:41.319 is it is it a two run rate or a 0:13:41.440 --> 0:13:44.960 one handle on it? Does wells Fargo think, well, actually 0:13:45.080 --> 0:13:49.839 dip to a run rate economy below two, Yes, we do. 0:13:50.080 --> 0:13:52.720 So we're looking at growth over the next couple quarters 0:13:52.800 --> 0:13:55.440 to probably come in somewhere around one and a half percent, 0:13:55.720 --> 0:13:59.480 so that would be decidedly below the fat deustaments of 0:14:00.000 --> 0:14:03.640 puntial growth. And really this boils down to the weakness 0:14:03.720 --> 0:14:06.160 that we're seeing in terms of business investment as we 0:14:06.280 --> 0:14:09.760 see the trade war drag on and uncertainty continue to linger, 0:14:10.240 --> 0:14:13.760 and to some extent, some moderation in the consumer space too. 0:14:14.480 --> 0:14:16.800 I mean, I understand the fourth or fifth mandate of 0:14:16.840 --> 0:14:20.000 the Federal Reserve system is to avoid trade wars. But 0:14:20.400 --> 0:14:24.240 Chairman polists speak about all of this today, what will 0:14:24.320 --> 0:14:29.280 you listen for? So I would listen for what he's 0:14:29.320 --> 0:14:32.600 looking at in terms of of what that redline is. 0:14:32.720 --> 0:14:35.040 So we've seen to some extent, I think Pal's had 0:14:35.440 --> 0:14:39.880 an easy bias over the past few months. But given 0:14:39.920 --> 0:14:42.560 that they've already cut twice, does he think that that 0:14:42.680 --> 0:14:46.480 should be sufficient for now? Um? Given that policy does 0:14:46.560 --> 0:14:48.520 work with a lag wait to see if things play 0:14:48.560 --> 0:14:50.960 out later, or just given the data flow that we've 0:14:51.000 --> 0:14:54.320 seen recently where it looks like the economy is continuing 0:14:54.360 --> 0:14:58.800 to weaken, does he think more accommodation is necessary. Let's 0:14:58.840 --> 0:15:01.000 talk about the diets and we've just at Sarah PPI 0:15:01.560 --> 0:15:04.400 has just posted the biggest monthly drop in more than 0:15:04.520 --> 0:15:07.200 four years, and I'm trying to understand where the downward 0:15:07.240 --> 0:15:12.000 pressure is coming from. Have we got a demand side problem? Sarah, Well, 0:15:12.040 --> 0:15:15.320 I think we have seen demand demand growth slow and 0:15:15.400 --> 0:15:16.880 so I think that's part of it. I mean, if 0:15:16.920 --> 0:15:18.800 you look at some of the details, part of the 0:15:18.880 --> 0:15:22.440 weakness was in that trade services components. So that's measured 0:15:22.480 --> 0:15:25.520 by margins. So I'm not surprising to see that margins 0:15:25.560 --> 0:15:28.920 are getting squeezed right now given some of the pressure 0:15:29.080 --> 0:15:32.040 from from tariffs right now, so businesses are are having 0:15:32.600 --> 0:15:35.600 um to to reduce those margins. UM. We did see 0:15:35.640 --> 0:15:38.840 some strength in in the core services components, so it 0:15:39.000 --> 0:15:42.200 wasn't all UM completely weak. But I think bottom line 0:15:42.360 --> 0:15:45.280 is there's just still not a lot of inflationary pressure. UM. 0:15:45.360 --> 0:15:49.000 No sign that domestic producers are really taking much advantage 0:15:49.120 --> 0:15:52.520 or are are lined up to where they can they 0:15:52.560 --> 0:15:54.960 can increase prices. And I would go one step further, Sah, 0:15:55.440 --> 0:15:57.800 no sign that the trade dispute between the Chinese and 0:15:57.800 --> 0:16:00.320 the United States has actually ended up with a broad 0:16:00.360 --> 0:16:02.840 a lift to price pressure in America in the way 0:16:02.880 --> 0:16:04.400 that some people thought it might. What do you think 0:16:04.440 --> 0:16:07.600 of that? Right? So, I mean we've seen if if 0:16:07.640 --> 0:16:09.600 you look at the n f I D survey this morning, 0:16:09.640 --> 0:16:12.920 I mean, plan stories, prices aren't going anywhere. If anything, 0:16:13.000 --> 0:16:16.600 we've seen them them come down over over the past 0:16:16.720 --> 0:16:18.800 year or so. And I think that speaks to the 0:16:18.880 --> 0:16:21.880 fact that the demand picture is weakening, and so you 0:16:21.960 --> 0:16:25.480 still have a lot of hesitancy among businesses to pass 0:16:25.600 --> 0:16:30.440 on those those prices. Well within the parsing of that 0:16:30.800 --> 0:16:34.600 is the idea that we will import bring in a 0:16:34.720 --> 0:16:38.240 disinflationary tendency from global slowdown. I mean, frankly, this is 0:16:38.280 --> 0:16:41.000 a question I'll ask uh the new managing director of 0:16:41.000 --> 0:16:42.320 the I m F here in an hour and a 0:16:42.400 --> 0:16:45.640 half or forty five minutes, whatever it is. But but Sarah, 0:16:45.800 --> 0:16:48.200 is that what this is about is we're importing the 0:16:48.320 --> 0:16:52.760 world's troubles. I think overall, when you when you look 0:16:52.800 --> 0:16:55.760 at where the weakness and the US economy is coming from. 0:16:55.920 --> 0:16:59.800 So we've seen manufacturing its certainly been even the weak spot. 0:17:00.160 --> 0:17:03.800 So to the extent that, um that that where you're 0:17:03.840 --> 0:17:09.040 seeing the slowdown is more tied to that base. Um. 0:17:09.359 --> 0:17:11.640 But you know, I think you do have some offsets. 0:17:11.680 --> 0:17:14.960 So all the demand pictures just slowing. Of course, we're 0:17:15.000 --> 0:17:17.000 also having to deal with with the flip side of 0:17:17.400 --> 0:17:20.720 this trade war, which is the increased pressure from tarot. 0:17:20.880 --> 0:17:24.040 So um, it's not a clear cut picture. Sarah, Thank 0:17:24.080 --> 0:17:26.760 you so much. Sarah House wells Fargo. Hereafter is John 0:17:26.840 --> 0:17:28.680 you what what was that statistic? John? You had? I 0:17:28.800 --> 0:17:47.600 missed that the biggest monthly drop in four years. Trade risk, geo, 0:17:47.600 --> 0:17:49.920 political risk, I get the latest. We welcome our next guest, 0:17:49.960 --> 0:17:53.359 Tom Petrie. Been covering the oil industry forever, I mean 0:17:53.480 --> 0:17:56.239 in a nice way. Petrie Partners Chairman joined us our 0:17:56.240 --> 0:17:59.200 Bloomberg Interactor Broker studio. So Tom, let's just start with 0:17:59.320 --> 0:18:03.880 the geopolitical backdrop for the energy complex. Just the news 0:18:03.920 --> 0:18:05.680 we've had over the last couple of days with Turkey 0:18:05.760 --> 0:18:09.600 and Syria. How do you frame your call on energy 0:18:09.680 --> 0:18:13.280 as it relates to the just ever dynamic geopolitical backdrop? 0:18:13.960 --> 0:18:17.800 It really is UH as as complex as I've ever seen. 0:18:17.920 --> 0:18:22.439 We've got a situation involving Syria, the US withdrawal beginning 0:18:22.480 --> 0:18:26.680 to look just like the abandonment of Saigon, and as 0:18:26.720 --> 0:18:31.240 a historical president UH and denied by the by the President. 0:18:31.320 --> 0:18:35.560 But the fact the matter is, UH, it's in the perception, 0:18:35.960 --> 0:18:38.359 if it's in the minds of those who are dealing 0:18:38.440 --> 0:18:41.879 with the consequences of it, UH, they're the ones that 0:18:42.000 --> 0:18:45.200 probably have the best take on it. But we've also 0:18:45.280 --> 0:18:49.600 got other situations Libya. UH. What's going on in Libya 0:18:49.720 --> 0:18:54.080 right now? The US is backing UH, the the the 0:18:55.080 --> 0:18:59.720 government in Tripoli, General hata Uh leading the rebels in 0:18:59.760 --> 0:19:04.760 the east, is being funded is being funded by basically 0:19:04.960 --> 0:19:10.080 by UH, the Saudis and in Egypt and others. And 0:19:10.200 --> 0:19:14.520 so we've got this really complex situation where at times 0:19:14.800 --> 0:19:16.439 we're on one side of the table. On an other 0:19:16.520 --> 0:19:19.959 times we were talking about our allies, and that combination 0:19:20.600 --> 0:19:23.879 UH just leaves us with a with a hopeless situation. 0:19:24.359 --> 0:19:27.879 The good thing is I think that that because of 0:19:28.000 --> 0:19:31.680 a success of the Shale Revolution, when we get when 0:19:31.720 --> 0:19:34.840 we test below fifty on w T I, pretty powerful 0:19:34.920 --> 0:19:38.520 self correcting forces kick in. When we get above sixty five, 0:19:39.320 --> 0:19:41.880 just the opposite sixty five on its way to seventy, 0:19:42.160 --> 0:19:46.640 and we begin to curtail demand. And and so those 0:19:46.680 --> 0:19:50.520 are the fundamentals that against the backdrop of a Middle 0:19:50.600 --> 0:19:55.320 East challenge to deal with these uh is really uh, 0:19:56.359 --> 0:19:58.880 not unprecedented, but it's as high as I saw thirty 0:19:58.960 --> 0:20:01.440 and forty years ago, right exactly. So when we talk 0:20:01.480 --> 0:20:06.359 about crude and just commodities in general, obviously supply demand, UM, 0:20:06.520 --> 0:20:09.000 it seems to me, not not being an energy expert 0:20:09.080 --> 0:20:11.880 like you, that the supply story has been a little 0:20:11.880 --> 0:20:13.800 bit in the background. It's been more about demand and 0:20:13.840 --> 0:20:16.880 people are concerned, I guess about global trade, trade uncertainties, 0:20:16.920 --> 0:20:19.440 trade tensions, and what does that mean for global growth. 0:20:19.880 --> 0:20:22.359 Has that been kind of the driver of maybe a 0:20:22.359 --> 0:20:25.600 little bit lower oil prices. It has, uh, you know, 0:20:25.760 --> 0:20:29.800 I do think that the demand picture, it's the fear 0:20:29.960 --> 0:20:34.440 of future demand. Basically because of the availability of new 0:20:34.560 --> 0:20:39.680 supplies in North America from the shale revolution, the need 0:20:39.800 --> 0:20:42.920 has been there for for global demand growth to be 0:20:43.080 --> 0:20:46.359 on the order of one point three or more million 0:20:46.440 --> 0:20:50.240 barrels per day per year in growth UM. With the 0:20:50.800 --> 0:20:53.520 with what's going on right now, the fear is is 0:20:53.560 --> 0:20:56.400 that going to be a one point one? Is gonna 0:20:56.400 --> 0:20:58.359 be a million barrels a day? Or is it gonna 0:20:58.359 --> 0:21:01.040 be nine? If it is, is that it's gonna be 0:21:01.080 --> 0:21:04.639 a pretty severe test for OPEC to be the balancing 0:21:04.760 --> 0:21:08.720 factor because they need UH, they need revenues to run 0:21:08.760 --> 0:21:13.280 their government in addition to maintaining their ability to supply oil. 0:21:13.480 --> 0:21:16.080 So give us a sense of how OPEC is right now. 0:21:16.119 --> 0:21:18.760 How unified are they? I guess it's plus Russia. Just 0:21:18.760 --> 0:21:20.840 give us a state of OPEC right now. Well, you 0:21:21.080 --> 0:21:24.320 you put your finger right on it. There's Saudi Arabia 0:21:24.640 --> 0:21:28.720 and their strongest ally is not a member of OPACKERS Russia. 0:21:29.160 --> 0:21:31.920 The alignment of interests there began in two thousand and 0:21:32.000 --> 0:21:38.480 fourteen when UH, the then Deputy Crown Prince Mohammed bin Salman, 0:21:39.359 --> 0:21:42.680 was making um from the from April of that year 0:21:42.800 --> 0:21:47.520 to October almost monthly trips to Moscow. They formulated the idea, 0:21:47.640 --> 0:21:50.440 let's bend the supply curve in North America from the 0:21:50.480 --> 0:21:53.760 shale revolution, and for about eight to nine months they 0:21:53.800 --> 0:21:58.200 were successful. They competed on for volumes, they competed on price, 0:21:58.840 --> 0:22:02.399 and we saw that the hundred dollar w t I 0:22:03.359 --> 0:22:06.639 was driven through seventy, which was their objective, but it 0:22:06.680 --> 0:22:09.119 went through it like a hot knife through butter and 0:22:09.320 --> 0:22:12.840 didn't bottom until it got down below thirty to six 0:22:12.920 --> 0:22:16.480 dollars and forty cents, by which time they realized, gee, 0:22:16.560 --> 0:22:20.119 we didn't quite mean to make that happen, and and uh, 0:22:20.520 --> 0:22:23.520 now we've spent several years building it back up. But 0:22:23.800 --> 0:22:27.920 what what we clearly have now is a situation where, uh, 0:22:29.040 --> 0:22:32.399 if you know, tests below fifty don't really work for 0:22:32.440 --> 0:22:36.960 the shale revolution very well, and tests above to seventy 0:22:37.680 --> 0:22:40.960 don't work for global demand growth, and so I think 0:22:41.000 --> 0:22:44.399 we're in a zone there that's gonna work. Uh, given that, 0:22:44.960 --> 0:22:49.000 but it's still requires some real adjustments by the individual 0:22:49.080 --> 0:22:52.159 producers to make sure they're allocating capital to their very 0:22:52.240 --> 0:22:54.320 best returns. So let's go to that. We'll move from 0:22:54.359 --> 0:22:55.879 the just looking at the commodity to some of the 0:22:55.920 --> 0:22:58.880 companies again suggesting maybe a fifty to sixty five range 0:22:58.960 --> 0:23:02.000 is a pretty decent range for for crude. How are 0:23:02.080 --> 0:23:06.240 the big oil companies Are they set up to maximize 0:23:06.280 --> 0:23:09.600 profits in that kind of range? Do you think the uh, well, 0:23:09.680 --> 0:23:13.040 first of all the major oil companies in North America, 0:23:13.080 --> 0:23:16.040 their presence in North America, they've been behind the curve 0:23:16.119 --> 0:23:20.320 on the shale revolution because of the pressures that are 0:23:20.359 --> 0:23:23.560 developing here. They're getting a second kick at the can, 0:23:23.680 --> 0:23:26.520 a second chance to at least consider how they can 0:23:26.880 --> 0:23:29.600 move into UH this and have be a bigger part 0:23:29.640 --> 0:23:34.040 of their portfolio. That the major companies are generally in 0:23:34.080 --> 0:23:37.119 pretty good financial shape. They're not over levered, they have 0:23:37.320 --> 0:23:40.399 full integration, so they can turn the light sweet oil 0:23:40.840 --> 0:23:43.800 that is typical of the major place here in North 0:23:43.840 --> 0:23:52.360 America and especially in the US into valuable product UH gasoline, diesel, 0:23:52.480 --> 0:23:55.000 and so on. So they're in they're in good shape 0:23:55.440 --> 0:23:59.280 UM and they and generally they're competitive in the marketplace 0:23:59.320 --> 0:24:03.159 because they pay a dividend, so they're outperforming for UH. 0:24:03.640 --> 0:24:05.920 The independence below that were who have been on the 0:24:05.960 --> 0:24:10.240 cutting edge of the shale revolution. Some are are pushing 0:24:10.320 --> 0:24:13.520 the limits on leverage and they've got to challenge ahead 0:24:13.560 --> 0:24:16.159