Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Leie. 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. So
Speaker 1: let's begin with our top story. China state media signals
Speaker 1: a lack of interest in resuming talks with the United States.
Speaker 1: Without new moves that show the US is sincere, it
Speaker 1: is meaningless for its officials to come to China and
Speaker 1: have trade talks. This according to a commentary carried by
Speaker 1: state runs Shinhwa News Agency and The People's Daily otherwise
Speaker 1: known as the Communist Party mouthpiece. In the FX market,
Speaker 1: it means dollar strength and it means to Chinese currency
Speaker 1: heading towards the seven mark. Really pleased to say. To
Speaker 1: weigh in on the efex market, Shahab Jala knows joining
Speaker 1: us now credit sweets head of FX and macro Trading Strategy.
Speaker 1: Good morning to Shahab. It's the question we always ask,
Speaker 1: is China tolerating you and weakness or is it engineering it.
Speaker 1: I think it's at the moment accepting your weakness rather
Speaker 1: than necessarily engineering it. UM, you're seeing a widening gap
Speaker 1: between the offshore remembi um and the on shore level,
Speaker 1: the fixing on shore, which generally points to the market
Speaker 1: trying to push the currency weaker as opposed to the authorities. UM.
Speaker 1: So we're getting too important levels now. The offshore remmby
Speaker 1: at six against the dollar is a level the market
Speaker 1: expects to be protected. UM. If that's not the case
Speaker 1: and we rapidly go to seven, there could be a
Speaker 1: backlash to that in emerging markets generally. Actually, I would say, so,
Speaker 1: let's start with the Chinese currency and the tolerance of officials.
Speaker 1: Do you think the line of the sand for officials
Speaker 1: is six on the offshore rates up. That's what the
Speaker 1: markets has felt. The market has felt that that level
Speaker 1: is important because what they wouldn't want to see is
Speaker 1: actual tests of seven, because that's too risky in a sense, UM,
Speaker 1: because once you go through that level, there's always the
Speaker 1: possibility of a major spike. So this six level has
Speaker 1: been for the market key level and has been an
Speaker 1: expectation that, given that talks are still continuing, UM, the
Speaker 1: Chinese would not want to see a big push for
Speaker 1: the dollar above the seven level and go against their currency. Uh,
Speaker 1: simply in order to not antagonize the US. So if
Speaker 1: we now see that happen, perhaps the market will interpret
Speaker 1: that as a green light for authorities. UM. So this
Speaker 1: is this is a potentially big problem because this wasn't
Speaker 1: the case, for example, back in Q four when problem
Speaker 1: when when we had a similar test of these levels
Speaker 1: thrilled you with us this morning, I can't say, now, folks,
Speaker 1: how wrong I was. I thought, you know, Friday, I
Speaker 1: I had the surveillance nap and looking snews of a Friday.
Speaker 1: And let me tell you, folks, to start with John
Speaker 1: News on a Friday works right now, we can talk
Speaker 1: to him for an hour. Muhammad Hillarian rights for Bloomer Opinion,
Speaker 1: Ambrose Evans Pritchard rights for the Telegraph, and the summary
Speaker 1: of these two brilliant essays. And I remember John Llarion
Speaker 1: talking to uh Ambrose at the thing in Lake Como. Um,
Speaker 1: what they're talking about is a dollar shortage, and that
Speaker 1: China is constrained because they and everybody else out there
Speaker 1: has a dollar shortage. Explained to our global Wall Street audience,
Speaker 1: what guys like you think or say or mean when
Speaker 1: you talk about a global dollar shortage, well, to be honest,
Speaker 1: it can mean many different things. But I think at
Speaker 1: the most critical level for the market, what it means
Speaker 1: is that there is a need to refinance dollar loans,
Speaker 1: for example, by the quote its sector in countries like China,
Speaker 1: and a sense that they may find that difficult to
Speaker 1: do under certain circumstances. And when that's the case, that
Speaker 1: tends to put upward pressure on the dollar itself as well. Um.
Speaker 1: So that's one form of dollar shortage. But frankly, when
Speaker 1: you look at the country like China, the market also
Speaker 1: is concerned, tends to be worried about the possibility of
Speaker 1: capital flights. Um. You could argue that given the lack
Speaker 1: of global financial diversification in China, there is a permanent
Speaker 1: dollar shortage there um. And clearly when the currency starts
Speaker 1: to fall, the odds rise that investors and others locally
Speaker 1: tried to find new ways to exactly and put further
Speaker 1: pressure on the currency. So so I think, you know,
Speaker 1: this idea of a dollar shortage is definitely in the
Speaker 1: market's consciousness and it takes many different forms. But talk
Speaker 1: about the fame of capital flight dominated the story back
Speaker 1: in extain how close are we to that? Do you
Speaker 1: still consider a situation that we are nowhere near six?
Speaker 1: I think what's happened since then is that the Chinese
Speaker 1: authorities have ramped up the number of measures they they
Speaker 1: can use to try to keep the pressure on locally
Speaker 1: to stop money leaving China. But that's a different story though.
Speaker 1: Um if uh you get to a point where there's
Speaker 1: such a dramatic loss of confidence in China where locals
Speaker 1: fun new ways and take bigger and I think that's
Speaker 1: something that could come through that. What's so important here
Speaker 1: away from the drama of our two or three standard
Speaker 1: deviation move is the grind of we can't sell our
Speaker 1: US security is fine, We've got to, you know, get
Speaker 1: their yielding and there's no place else to go besides
Speaker 1: US securities. We all know that, but shop what's the
Speaker 1: outcome for their adjacent nations e m. The Pacific rim
Speaker 1: If we yet a grind in rand Mimbi weaker, well,
Speaker 1: I think it's still puts pressure on the currencies regionally,
Speaker 1: if that's what you receive, because what that would probably
Speaker 1: mean is that the Chinese government believes that it needs
Speaker 1: a week to remember longer term because of the higher
Speaker 1: odds of weaker economic growth, and that is trying its
Speaker 1: best to control that um. But once the market perceives
Speaker 1: that that's the way the Chinese government is looking at things,
Speaker 1: it will quickly look at the other Asian emerging markets
Speaker 1: and Asia Pacific currencies and see them as a fair game.
Speaker 1: So I think either way, whether it's a slow grind
Speaker 1: lower or more dramatic collapse in the currency, there's going
Speaker 1: to be a little pressure on on the age of Pacific.
Speaker 1: I mean, good morning, Michael Purvis, John Ferrell a d X.
Speaker 1: Why the Asian basket occurrencies extrapan is down almost three
Speaker 1: since mark. It's been really tough. And what was interesting
Speaker 1: about the session yesterday's we had a running in usquities.
Speaker 1: We did not get any pick up in emerging market
Speaker 1: equities whatsoever. Just didn't participate. This morning, China looks weak
Speaker 1: shahab from a market perspective. The equity market down two
Speaker 1: and a half percent, the Chinese currency is weaker. Is
Speaker 1: we digest the commentary coming out of China? The government
Speaker 1: keeps saying the following it will work to counteract the
Speaker 1: effects of more US tariffs and keep the economy in
Speaker 1: a reasonable range. This is according to the National Development
Speaker 1: and Reform Commission studying the impact of US tariffs, and
Speaker 1: will roll out responsive measures when necessary. Shahab The hope
Speaker 1: is always that we get stimulus. Kitchukes of sock Gen,
Speaker 1: writing this morning, evidence of a global economic slowdown continues
Speaker 1: to build. Bond markets have been beneficiaries. Equities are torn
Speaker 1: between the negative impact of slower growth and the feel
Speaker 1: good of accommodative central banks. What kind of accommodation do
Speaker 1: we get from Chinese authorities? I think the expectation from
Speaker 1: China is more monastoriesing, for example in the form of
Speaker 1: UM again reducing a reserve requirements on the banking system
Speaker 1: for example, something we've seen recently, but potentially even raid
Speaker 1: cuts as well. But there's also great hopes on the
Speaker 1: fiscal side UM and we've seen, for example, measures to
Speaker 1: cut the tax burden on consumers. The problem is that
Speaker 1: there is a sense that China has already used these
Speaker 1: levers in the past it's a great effect, and that
Speaker 1: there's a big credit overhanging China already which might make
Speaker 1: constrained the government so and that this could be exactly
Speaker 1: what the US believes as well. In thinking that it
Speaker 1: can push China to make big concession. And so the
Speaker 1: fact is we don't really know UM. No one can
Speaker 1: really tell the extent to which China's paint thresholds can
Speaker 1: sustain over the next few months. The U S appears
Speaker 1: willing to to test that UM. But the problem for
Speaker 1: the global economy and stock markets is that if both
Speaker 1: sides dig in UM, then the problems can get much worse.
Speaker 1: Right now, there is a sense of a kind of
Speaker 1: a G twenty put you could argue in the sense
Speaker 1: there's going to be a meeting Trump, you know, in June,
Speaker 1: which which some hope will lead to a resolution a
Speaker 1: few months UM. If that was to fail to come through,
Speaker 1: I think then that's when things get much worse. Shocks.
Speaker 1: Thank you so much. Terrific briefing as well. We got
Speaker 1: eight minutes in this black which is way too short.
Speaker 1: Cruel and unusual punishment with Miranda car she's with high
Speaker 1: tongue international. This truly could be a one hour briefing
Speaker 1: this morning. Let's try to get it going. Miranda. I'm
Speaker 1: gonna give you an open question before John goes to
Speaker 1: the dynamics over a mimby, and that You've got to
Speaker 1: get to the weekend, get to the Sunday talk shows
Speaker 1: and see where the trade talks are Monday morning. What
Speaker 1: will you focus on, Well, it depends what the US
Speaker 1: note does in um, whether it tries to ratch it
Speaker 1: up the tensions in terms of right right, let me interrupt,
Speaker 1: this is really important. The Secretary Commerce disagrees with you,
Speaker 1: Wilbert Ross said yesterday, I'm Bloomberg. He feels that Chinese
Speaker 1: have to respond. You're going against the secretary and saying
Speaker 1: it's what the US does well. From China's point of view,
Speaker 1: they regard the Huawei um accusations and as the action
Speaker 1: taken against Huawei this week as further ratcheting up of
Speaker 1: tensions after the after the the tariffs increased, and there
Speaker 1: was an interesting comment from Wang Yang, who's um Um
Speaker 1: Politburo member um SO. He was giving a briefing and
Speaker 1: saying that the maximum hit that the China sees from
Speaker 1: the trade tariffs is only one percent. So if you're
Speaker 1: talking about one percent hit on six to six point
Speaker 1: five percent target UM, this means that basically they're gearing
Speaker 1: up to, you know, to take quite a quite a
Speaker 1: tough stance because they're saying it's not going to affect
Speaker 1: us that badly. We we can copeus this UM so
Speaker 1: expecting China to then um take measures to offset the
Speaker 1: tensions when it's seeing that actually we can cope. Is
Speaker 1: you know that maybe the US is expecting too much, Miranda.
Speaker 1: Let's talk about what the Chinese can do to offset
Speaker 1: some of the tensions. Domestically. A lot of people have
Speaker 1: taken to trying to translate Chinese media and the message
Speaker 1: in Chinese media it's a little bit more explicit today
Speaker 1: whereby a piece of commentary was carried by state run
Speaker 1: media including Shinwa News agency and the People's Daily too,
Speaker 1: and essentially it said without new moves that show the
Speaker 1: US is sincere, it is meaningless for officials to come
Speaker 1: to China. Miranda, translate that for us. How important is
Speaker 1: that statement, that piece of cometary carried by state run media, Well,
Speaker 1: it is. It is interesting that they do feel that
Speaker 1: they can take a take a much tough restance UM.
Speaker 1: You know, because the economy and q world wasn't quite
Speaker 1: as bad as expected, um and because the tariffs don't
Speaker 1: seem to be how thing quite the catastrophic economic impact
Speaker 1: that everyone thought this time this time last year, then
Speaker 1: then it's saying no, we can stand up. And it's
Speaker 1: particularly because if you think some of the measures that
Speaker 1: were put forward, China sees as undermining the very essence
Speaker 1: of its UM state run system UM and and also
Speaker 1: sort of been the entire Chinese system, which is it's
Speaker 1: now sort of promoting both in China and throughout the world.
Speaker 1: And so if it sees a threat to that UM
Speaker 1: but without too bad the economic consequence. I mean, they
Speaker 1: may be a little bit too confident about how um
Speaker 1: how little an impact it's going to have, and obviously
Speaker 1: that's part of the negotiating stands UM but but but
Speaker 1: but yeah, they feel they feel, whether rightly or wrongly,
Speaker 1: they can take they can afford take a tougher stand.
Speaker 1: There was a piece carried by the Nikaation Review in
Speaker 1: the last twenty four hours that I thought was absolutely
Speaker 1: fascinating to read, and I encourage all of our listeners
Speaker 1: to try and find it. You can get it under
Speaker 1: the headline how J J Ping's colleagues rejected an unequal
Speaker 1: trade deal? How much power does the president currently have
Speaker 1: in China right now? We typically usually and I think
Speaker 1: it's a mistake to frame this as a president of
Speaker 1: the United States that faces re election in twenty and
Speaker 1: a president in China that faces no election whatsoever and
Speaker 1: no political pressure. But at home it seems that he
Speaker 1: is under increasingly, relatively speaking, more pressure. Miranda, how do
Speaker 1: you frame that for customers clients at the moment? Well, yes,
Speaker 1: because there's not um universal agreement that that everyone should
Speaker 1: be taking a soft stance um and and the U
Speaker 1: S trade war is the right way to go. But
Speaker 1: the the I mean there is there is much more
Speaker 1: of a idea that China should be standing up to UM,
Speaker 1: standing up to the US, but the idea of of
Speaker 1: of threatening the relationship and also the sort of long
Speaker 1: term cooperation that that generates a lot more obviously the
Speaker 1: debate um and so you're going to have to match off,
Speaker 1: and particularly when the risk is that some of the
Speaker 1: economic um performance has actually is going to come to
Speaker 1: an end because some of the trade was actually front loaded.
Speaker 1: So you've already seen some benefits. Now we're getting to
Speaker 1: a stage where sort of you know, the the economy
Speaker 1: is slowing, the trade impact is actually coming home to
Speaker 1: roost at the very time that the trade tensions are
Speaker 1: just like ratcheting up another stage. And this is a
Speaker 1: time where actually you could see you know, sort of
Speaker 1: the economic consequences being much more negative um and then
Speaker 1: see much more disagreement coming through. Well, let's get real,
Speaker 1: and anybody that spending China knows real means park prices.
Speaker 1: I showed. I showed pork inflation in China a couple
Speaker 1: of days ago. Miranda Karm looking at US hog prices,
Speaker 1: lean hogs. They've been negative one standard deviation price for
Speaker 1: a good three years, and all of a sudden, even
Speaker 1: US park prices are up on trend about one standard deviation.
Speaker 1: What synthesized for us the tension of the base food
Speaker 1: of China? For the Communist Party in Beijing, what does
Speaker 1: it mean if they see elevated pork prices and pork
Speaker 1: inflation in China, Well, that that is I mean, food
Speaker 1: inflation is a is a key issue. But I mean
Speaker 1: a lot of the pork price inflation was caused by
Speaker 1: the by the by the swine, thee yes, and and
Speaker 1: and and so it's uh, it's a consequence of that.
Speaker 1: It's not part of the part of the trade war.
Speaker 1: Although offerusly if you can't then import us pork, then
Speaker 1: the private the domestic prices rise. Um. But but it's
Speaker 1: more I think the question is not so much on
Speaker 1: the on the food prices so much. That's not so
Speaker 1: much of a tipping point, but the um if you
Speaker 1: get there was also expectations. If you did see the
Speaker 1: trade war, economic growth was cut by one percent, and
Speaker 1: then you see unemployment rise to maybe sort of from
Speaker 1: five five to six percent, and it's it's the employment issue,
Speaker 1: which is arguably a bigger, a bigger cause of consult
Speaker 1: but that tends that tends to shift policy. Um. And
Speaker 1: we've we you know, it's always even though everyone focuses
Speaker 1: on the GDP target, focus is always really on it. Okay,
Speaker 1: I got to get this question. We're indo, this is
Speaker 1: what your best at That labor policy? Is it different
Speaker 1: than ten years ago or thirty years ago the cultural revolution?
Speaker 1: Is the Beijing labor policy? Is it a new policy?
Speaker 1: The employment has always been I mean that that's I mean,
Speaker 1: no one's providing a pcent employment anymore. And it's not
Speaker 1: the sort of the if you like the iron rice
Speaker 1: bull that that you would expect. But but but but
Speaker 1: everyone knows that you still have to keep them and
Speaker 1: you have fewer graduates coming in now, you know the
Speaker 1: demographics are slowing down. Um, but you do still need
Speaker 1: to keep a good, healthy employment right um. And and
Speaker 1: that's that's always um. You know there isn't the state support,
Speaker 1: but people need that employment to keep up. And it's
Speaker 1: still it's still very valuable. Miranda Carr, thank you so much.
Speaker 1: With High Tongue International in London, briefing there in China.
Speaker 1: This is the interview of the day. If you have
Speaker 1: any kind of a pulse for American politics, why do
Speaker 1: I say that, because this is not going to be
Speaker 1: a homogenied, sanitized candidate interview. We're gonna actually talk to
Speaker 1: somebody who speaks English. Kate Benningfield works for the former
Speaker 1: Vice President Biden of Delaware, but far more importantly has
Speaker 1: experience with Christopher Dodd, John Edwards, and Jean Shaheen, among
Speaker 1: the others along the way. Kate thrilled to have you
Speaker 1: with us as you do the operational bit for Joe Biden.
Speaker 1: I want to take you act of the Democratic campaign
Speaker 1: of two thousand four in your youth, where John Edwards
Speaker 1: got up and changed the American dialogue. Speaking of two
Speaker 1: America's what are the Two Americas of your candidate, Joe Biden. Hi, Well,
Speaker 1: thanks for having me. I appreciate it. UM. So you know,
Speaker 1: Joe Biden is running for president for three reasons. He's
Speaker 1: been out for the last three weeks making the case
Speaker 1: to voters in all the early states and in Pennsylvania
Speaker 1: about um, uh, the need to reclaim the soul of
Speaker 1: this nation. Uh. You know, he truly believes that I see,
Speaker 1: we are we are at a place of moral reckoning
Speaker 1: for this country, um, and that this is a moment
Speaker 1: for us to get past this, you know, broken government
Speaker 1: that isn't working for people. UM. And to your point
Speaker 1: about two America's, I mean, he's going to be talking
Speaker 1: about this in Philly tomorrow. He's got a big his
Speaker 1: first kind of kickoff rally, um, which is the informal book. John.
Speaker 1: She's promoting, you know, the moment for the vice president.
Speaker 1: She's about to do that. That's why she's on the
Speaker 1: cut to the chase. Okay, it's it's two thousand twenty,
Speaker 1: it's October. You haven't slept since June and Joe bideness
Speaker 1: to talk to to America's secretary. Clinton had a bigger
Speaker 1: popular vote but didn't resonate with two America's, which to
Speaker 1: America's is your candidate going to try to resonate with Well, you're,
Speaker 1: first of all, you're putting the frame from the Edwards
Speaker 1: campaign on our on our current campaigns. But but look,
Speaker 1: he uh, you know, he is somebody who comes from
Speaker 1: from middle class roots himself. Uh. You know, working people
Speaker 1: know that. Working people know that he is somebody who
Speaker 1: understands them, who understands their concerns, who knows what it's
Speaker 1: like to you know, lay in bed at night and
Speaker 1: look at the ceiling and wonder how you're gonna be
Speaker 1: able to afford healthcare or what's going to happen if
Speaker 1: you have a health crisis in your family, how are
Speaker 1: you going to take care of it, How you're gonna
Speaker 1: afford to send your kid to college. Uh. People know
Speaker 1: that he's somebody who has lived that experience himself, and
Speaker 1: so um, you know, Okay, So that's one of the
Speaker 1: Americas I get that is his other America Disaffected Republicans. Look,
Speaker 1: he's he's he believes that we have to come to consensus.
Speaker 1: You know something he said in New Hampshire, Uh yesterday,
Speaker 1: I believe two days ago, the days I'll run together. Um.
Speaker 1: Uh that's what happens when you don't sleep right. Uh.
Speaker 1: That you know, without consensus in our government, power accrues
Speaker 1: to the executive and to the president and and and
Speaker 1: he can abuse it. And so you know, he believes
Speaker 1: that we're never going to be able to get anything
Speaker 1: done for people if we can't come to some kind
Speaker 1: of consensus. Um. And you know he's had experience. Look,
Speaker 1: nobody has has had more success, you know, staring Republicans
Speaker 1: down and exacting concessions from them, uh than Vice President Biden.
Speaker 1: You go back to like the fiscal cliff deal in
Speaker 1: the White House. Um. You know, he was able to
Speaker 1: extract concessions from McConnell. So you know, nobody has uh.
Speaker 1: You know, I'd put his his his chops up against
Speaker 1: anybody's on that. Um. But he also understands, and I
Speaker 1: think that the American people understand that right now government
Speaker 1: is not working um, and we need to change. And
Speaker 1: the kind of change he represents is getting back to
Speaker 1: um a place where uh, you know, government is functional
Speaker 1: and things get done on behalf of the American people.
Speaker 1: That's always the pitch kite to be fair every time
Speaker 1: there's an election, not just in the United States but
Speaker 1: anywhere else. We need to change. But I returned to
Speaker 1: the status quo. It's not really a change. It's not
Speaker 1: a return to the status quo. I mean the status
Speaker 1: quo right now is is broken, right. I mean the
Speaker 1: status quo we have right now is a government where um,
Speaker 1: you know, people's concerns are not uh taken seriously, where
Speaker 1: the you know, wealth is accruing to the top of
Speaker 1: our economy, where you know, people aren't feeling the benefits
Speaker 1: of economic policies. Where we have a president who um
Speaker 1: is trying to divide us along lines of race and gender, uh,
Speaker 1: sexual orientation. That's the status quo right now, and that
Speaker 1: is not that is general. Joe Biden represents the polar
Speaker 1: opposite of that, um and that's that to what he
Speaker 1: that's the you know, kind of leadership that he would
Speaker 1: bring to the White House. Okay, let's wrap things up
Speaker 1: with how much daylight there is between Joe Biden and
Speaker 1: the President United States on China right now? How much
Speaker 1: daylight is that? Well, look, what Joe Biden has said,
Speaker 1: in a point he's made for for many years, is
Speaker 1: that he uh he thinks there's always a mistake to
Speaker 1: bet against American workers. UM. And he believes that this
Speaker 1: president has made some real mistakes by uh not bringing
Speaker 1: our allies along to these discussions with China, not bringing
Speaker 1: the full weight of our negotiating allies to the table, UM,
Speaker 1: and not having labor at the table. I mean that's
Speaker 1: you know, as as president UM. You know, he believes
Speaker 1: is important to too and that in order to force
Speaker 1: China's hand, that we have to be able to bring
Speaker 1: the full negotiating weight of our allies along with us.
Speaker 1: And that's something that he would do UM as president. Okay,
Speaker 1: this is a free pass. I mean, we got through
Speaker 1: this without talking about those those pesky socialist Democrats are
Speaker 1: democratic socialists. Run out of time. There's other candidates that
Speaker 1: we've We've got a lot to do. We'd love to
Speaker 1: have you again, Kate Benningfield, working with Joe Biden is
Speaker 1: UH on the campaign of Churs centered out of Philadelphia.
Speaker 1: The Announcementate, I believe it was yesterday, Kate, and I'll
Speaker 1: make a serious pitch. We would love to speak to
Speaker 1: the Vice president as the campaign goes forward. Clearly an
Speaker 1: important voice across the American political landscape. Kate bending Field
Speaker 1: with thanks Joe Biden, Financial Mark Financial Markets is just
Speaker 1: rallied Sharply and Tom and we said we look at
Speaker 1: each other and we say, you know, what do we
Speaker 1: do from here? Fortunately, our next guest can be very
Speaker 1: helpful in answering that question. Bob michael Is Global c
Speaker 1: I O of JP Morgan Asset Management, Head of the
Speaker 1: JP Morgan's Global Fixing Income. Bob, thanks so much for
Speaker 1: joining us. You know, I guess the you know, the
Speaker 1: real question is what do investors do from here? How
Speaker 1: are you approaching the markets? What a great time to
Speaker 1: be a bond. You've got central banks on hold, you've
Speaker 1: got the global economy slow, and you don't see a
Speaker 1: lot of inflation. The Fed raised rates for three years.
Speaker 1: We would have liked to have seen rates higher. But
Speaker 1: you're supposed to buy in here. You're looking at a
Speaker 1: ten year treasury that's just below two point four. You
Speaker 1: could pick up maybe a percent or so by buying
Speaker 1: investment grade credit. You don't fight this. You go and
Speaker 1: buy bonds before they continue to drop lower and yield.
Speaker 1: So I mean, am I going where am I going?
Speaker 1: On the credit spectrum? Am I going a little bit
Speaker 1: further out on the credit quality spectrum. Well, I think
Speaker 1: this is where you have to get a bit choose here.
Speaker 1: I think for for credit um go certainly a little
Speaker 1: bit longer duration. I'd say the intermediate part of the
Speaker 1: curve five to ten year um You can go into
Speaker 1: the high yield space. Right now. In high yield, your
Speaker 1: actually getting a yield that's about six and a half
Speaker 1: percent with a credit spread that's just over four percent,
Speaker 1: So it's compensating you for default rates that are still
Speaker 1: under one percent. So you're okay, still holding some high
Speaker 1: yield in here. But Michael, it's Friday. I'm waiting for
Speaker 1: interest rates to move higher. It's been a long wait.
Speaker 1: It's about a decade. There's a third edition of Inside
Speaker 1: the Yield Book. Sydney Homer, Martin Leebowitz. I'm very proud
Speaker 1: that I had something to do with the reissuance of
Speaker 1: that a lifetime ago. Bob Michael. If I read Inside
Speaker 1: the Yield Book today, would it help me in this
Speaker 1: bond market? No, it would confuse you. You would miss
Speaker 1: everything that's that's old. This is why we love Hivan,
Speaker 1: Bob Michael, and folks correct, go this this is outdated thinking.
Speaker 1: The central banks have an entire new arsenal of tools
Speaker 1: that they're deploying their sucking life out of the bond market.
Speaker 1: You can sit there and look at historic metrics and say,
Speaker 1: I know the FED should be at four and the
Speaker 1: dominure should be at five. Tom. You will get there
Speaker 1: in and you can see that they always frazzled. Michael
Speaker 1: is even fired up. He sounds almost like Jamie Diamond
Speaker 1: right now. He's so fired up, Bob Michael. If that's
Speaker 1: the case, the bond pro seriously are going to say
Speaker 1: the vector from where we are now back to normal,
Speaker 1: it's going to be some form of jump condition. Do
Speaker 1: we have to set ourselves up for sharp price decline
Speaker 1: in fixed income assets somewhere down the road. Absolutely not.
Speaker 1: The problem is everyone is already set up for that.
Speaker 1: If you look at the flow in fixed income over
Speaker 1: the last three years, it's gone into money market funds
Speaker 1: and short duration funds. Everyone expected they would buy bonds.
Speaker 1: At the end of this year or the start of
Speaker 1: next year. When we look at the amount of money
Speaker 1: and money market funds, it's up to three point two
Speaker 1: trillion dollars. That's the highest it's been since the financial crisis.
Speaker 1: So I mean only only money coming into the bond
Speaker 1: market right now is coming in from overseas. Domestic investors
Speaker 1: are still waiting, not going to get Okay, we've been
Speaker 1: making jokes, folks. This is serious and this is the
Speaker 1: theme of the day off Muhammad al Arian and Ambrose
Speaker 1: Evans Pritchard that there's a dollar shortage out there abroad.
Speaker 1: There's a certain sweat and desperation which you see every
Speaker 1: day worldwide. At JP Morgan explain to our audience the
Speaker 1: desperation of foreign big money institutions that they must own
Speaker 1: full faith and credit America. We complain about short money
Speaker 1: at around two and a half percent and having to
Speaker 1: buy the ten or at two point four percent. If
Speaker 1: you're in Switzerland, it's minus three quarters of a percent.
Speaker 1: If you're in Japan or Europe, you still have negative rates.
Speaker 1: That money is looking to find yields somewhere, and that
Speaker 1: money has been coming into the US market and has
Speaker 1: been hedged back to the base currency of whatever the
Speaker 1: country is. That money is now starting to come in unhedged,
Speaker 1: so so money coming out of Asia and out of
Speaker 1: Europe is now coming into the bond market and bond
Speaker 1: bonds and not hedging the dollar out because they want
Speaker 1: the safe haven status of the US dollar. But we
Speaker 1: gotta leave it there. But Michael, thank you so much.
Speaker 1: That's a real clinic from JP Morgan. This is a
Speaker 1: joy because when the oil industry turns upside down, every
Speaker 1: buddy dials one. Don't they dial Daniel Jurgen, you know,
Speaker 1: all the usual victims. And Amy Myers Jeffee, who has
Speaker 1: a shingle out at the Council on Foreign Relations. What
Speaker 1: you need to know is she's interesting when oil blows up,
Speaker 1: and Amy Myers Jeffee is really interesting when it's quiet
Speaker 1: in oil, which has been the strangeness of the last
Speaker 1: two weeks. She is the founder of the Baker Effort
Speaker 1: at Rice University on energy. She owns Rice University Energy
Speaker 1: Oil Economics and has worked with many other institutions. Now
Speaker 1: writing at the CFR, Amy, wonderful to have you with
Speaker 1: us today. Everybody would say with the news flow brand
Speaker 1: in West Texas should be gyrating around. They're not. Why,
Speaker 1: you know, I think the traders are wrong. I mean
Speaker 1: there's this tug of war between the negative China news
Speaker 1: and all these sort of quote unquote sabotage acts, and
Speaker 1: I tell people we're using the word sabotage to make
Speaker 1: it so and small um. But it's not small um.
Speaker 1: It's a it's a sign of escalating conflict. And the
Speaker 1: targets have been very strategic. What's the elasticity of that
Speaker 1: nexus of supply and demand right now? How tight is
Speaker 1: the market? And you know, not to get Matthew on
Speaker 1: a Friday, we don't do that. Particular weathers is gorgeous,
Speaker 1: but but what's the responsiveness we will see given an
Speaker 1: event in supply and demand? You know, the US has
Speaker 1: this upside potential, but it's not instantaneous. So you know,
Speaker 1: if we got to a seventy dollar w t I price,
Speaker 1: you know, you have analysts like Cornerstone, Macro and City
Speaker 1: saying that you know, you could have you know, up
Speaker 1: to twice as much oil coming out of the United
Speaker 1: States production over the next two years. But you know
Speaker 1: that's over the next two years. We have to get
Speaker 1: through the summer and OPEC capacity is really constrained. It's falling.
Speaker 1: The reports out of Venezuela is that production is down
Speaker 1: to five hundred thousand barrows a day. You know, before
Speaker 1: a month or two ago, we were saying a million. Right,
Speaker 1: you've got constraints now with Saudi Arabia because their pipeline
Speaker 1: is down. You have the contaminated oil from Russia that's
Speaker 1: clogging pipelines and inventory in Eastern Europe, so that's a constraint. Um.
Speaker 1: So you know, you have these pockets and then and
Speaker 1: then we have to worry about escalating conflict in the
Speaker 1: Middle East. UM. Energy Intelligence Group is reporting that Saudi
Speaker 1: Arabia is beefing up security and it's offshore oil fields
Speaker 1: that border Iran's waters. So there's a lot of risk
Speaker 1: in the market, and I think the market is just
Speaker 1: to relax. What do you think the market? What do
Speaker 1: you think the market is missing here? Is that the
Speaker 1: supply issues that you just outlined, or does that have
Speaker 1: a or does the market maybe have a more doubbish
Speaker 1: view or bearish view of demand? Well, I think they
Speaker 1: have a very devish view of demand. Um. No one
Speaker 1: is talking about a recession starting right away this summer
Speaker 1: in the United States. Gasoline demand is on track to
Speaker 1: be higher this year. Um. You know, I've heard different
Speaker 1: analysts talking about China. One has to figure that the
Speaker 1: Chinese will at least put a temporary stimulus into the market.
Speaker 1: I guess some people are judging because they haven't intervened
Speaker 1: to stop the slide in the Chinese stock market. Um.
Speaker 1: But you know, well, demand might be a slow responder
Speaker 1: in China to the stock market decline. So I do
Speaker 1: think that the market is anticipating the lower demand and
Speaker 1: meat as being immediate and the supply outages as being
Speaker 1: temporary and um. And maybe that's not right. Maybe the
Speaker 1: supply outages might become worse or more lasting, um. And
Speaker 1: maybe the demand fall off will definitely come, but maybe
Speaker 1: the timeline for it is farther away. So Amy, let's
Speaker 1: pick a scenario where you know, over the next several
Speaker 1: weeks or a month or so, sometime over the summer,
Speaker 1: the situations with Iran does go sideways. Where do you
Speaker 1: think w T I could go in that scenario? Well,
Speaker 1: let's what do you mean by sideways? Well, I just
Speaker 1: meant that we could have a problem with Iran and
Speaker 1: there would be a supply disruption. Okay, My feeling is,
Speaker 1: you know, I mean, at a minimum, you know, we
Speaker 1: could have another five to ten dollars in the price
Speaker 1: just from a from the conflict worsening UM and and
Speaker 1: having there be a problem with perceptions about how much
Speaker 1: oil is available. To remember, right now, there's oil and
Speaker 1: inventory out in the Middle East and other places, and
Speaker 1: they're using that inventory, you know, to supply people. The
Speaker 1: Europeans are drawing down inventory to replace the lost Russian barrels.
Speaker 1: You know, it's a big financial dispute over the contaminated oil.
Speaker 1: But you know, once that inventory is used, it's gone.
Speaker 1: Where's the Strategic Petroleum Reserve? Is it? Like underneath CFR
Speaker 1: up on Park Avenue? Where where is it? Actually? Where
Speaker 1: is the thing? It's located in Louisiana and Texas. And indeed, um,
Speaker 1: I think that the administration is looking carefully at whether
Speaker 1: it needs to release the strategic prawing. Remember the Congress
Speaker 1: wanted to sell it anyway. I mean, but Amy, to
Speaker 1: be honest, you're too young to remember this, but I
Speaker 1: remember the hysteria over the Strategic Petroleum Reserve? Is that?
Speaker 1: Is that? What's next? Here? I think the the strategic
Speaker 1: pro poem reserve is on the table. Let's remember we're
Speaker 1: also going into the US hurricane season. Let's hope there's
Speaker 1: no hurricanes that disrupt US production this year. Um, But
Speaker 1: you know it's just stuns me. Um. That the oil
Speaker 1: trading community, they're either so dependent on their algorithms on
Speaker 1: the economy, it's just hard to believe that that makes sense.
Speaker 1: She's been waiting too too much time in the Did
Speaker 1: you see how she just went after our audience so amy,
Speaker 1: You know, one of the things I've heard about is
Speaker 1: I talked to energy people really over the last several years.
Speaker 1: It's just this extraordinary amount of oil in the US
Speaker 1: now with the shale oil. Just give us a sense
Speaker 1: of why it's not we can't just simply turn on
Speaker 1: the pickets and get that oil into the marketplace. You
Speaker 1: know we can, but there's a time lag. Companies have
Speaker 1: their drilling schedules, and we know what those are. Those
Speaker 1: are going to produce a another eight hundred or a
Speaker 1: million barrels a day over this year. For companies to
Speaker 1: suddenly have the money and run out and put on
Speaker 1: more rigs, you know that's not going to happen in
Speaker 1: one day. I gotta get the stand there, I gotta
Speaker 1: get the rigs there. We have to have a board
Speaker 1: meeting and decide to increase our spending. When I've got
Speaker 1: you know, my investors telling me I need to have
Speaker 1: capital discipline right, so you know it can happen, and
Speaker 1: it could be a big boost, and and that could
Speaker 1: happen in three months, six months, eight months, UM, but
Speaker 1: it's not something that's going to happen in the month
Speaker 1: of June July one refinery runs go up to supply gasoline.
Speaker 1: Amy Mayer's jeffe one final question. I don't need to
Speaker 1: buy hold sell. I understand it's not your game. What
Speaker 1: do you think of Ana Darko, Chevron, Occidental Total, that
Speaker 1: whole dance that we saw two weeks ago. Well, you know,
Speaker 1: I like Vicky Haloub. I think she made the boldest
Speaker 1: move since the eighties when t Boon Pickens was bald
Speaker 1: and honestly, uh, if she were a man, everybody would saying, oh,
Speaker 1: she's a risk taker. How bold Because if we have
Speaker 1: a conflict in the Middle East or justice sabotage makes
Speaker 1: the market worse, She's gonna look like a genius, having
Speaker 1: consolidated more property and being able to get those economies
Speaker 1: of scale together for the Permian. Now, I don't like
Speaker 1: Total's purchase of UM of Mozambique. I think that between
Speaker 1: you know, these long term risk to the Chinese economy
Speaker 1: and UM and the overall, we have so much natural
Speaker 1: gas in the United States and other places. You know,
Speaker 1: I'm not so optimistic about you know, African natural gas
Speaker 1: leaving his LG is total. But you know, power to
Speaker 1: them if they think they can make a business out
Speaker 1: of that. UM and uh, you know, people. The thing
Speaker 1: that I've heard that I think is a serious challenge
Speaker 1: for Oxy is that companies always have difficulty emerging two
Speaker 1: companies when there's cultural differences. UM and the you know,
Speaker 1: sort of management style of the Anadarko and the management
Speaker 1: style of Occidental are very different. So that's going to
Speaker 1: be a challenge. Amy, thank you so much for joining us.
Speaker 1: She's a classic Amy Myers Jeffee with the constant foreign
Speaker 1: relations of Rubenstein senior fellow there, and I really want
Speaker 1: to point out her founding abilities for James Baker at
Speaker 1: Race University where they really jump started Texas scholarship on energy.
Speaker 1: She is just wonderful. Paul, what she just said there.
Speaker 1: I mean, I don't have an opinion on this, but boy,
Speaker 1: that zeitgeist is really out there on Oxy Forward. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple podcasts. SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio