A Big Red Flag In Nat Gas Is Exposed As Inventory Dwindles

that we're expecting pretty soon. Joining us now to talk about that as well as what's going on with you around is Stephen Short, President of the Short Group. Steven, thank you so much for being with us. Let's start with natural gas. How much further do you expect prices here to rise? I'll tell you what the disguised the limit in natural gas. The natural gas market has been getting a major flag for better part of the last

year that something is not right in the complex. The bears and the perma bears in this market have continued to trump at the fact that we have record production. No doubt there. It is a fact we do have record production. But what's also a fact is we do not have enough gas in underground storage. So we are going into this winter with the lowest inventories since two thousand and five, about fift below the ten year average.

So what I've been asking readers of my daily report over the past year, if we have all this production, why don't we have greater supplies now? Their response is going to be, well, we had a very hot summer, so we had a live demand for gas th run our air conditioners fair enough, but we also had the third largest draw out in inventories last winter, and last winter was one of the third warmest winters or in the bottom third winters as far as heating demand is concerned,

over the last one hundred and twenty four years. So the bottom line year is demand is keeping pace with record production. Now that we get this cold front moving in all of a sudden, now we're gonna start drawing down inventories of low inventories to begin with sooner rather than later, and the market is finally waking up to

this event. Stephen Short, is it also possible that because the cost of natural gas has been low for so long that oh, I was just gonna say that has been low for so long and you have had a switch over from higher cost types of electricity generation that now that you're locked into natural gas, it makes sense for them to maintain this price advantage. Absolutely there there is a situation now where we continue to put all of our eggs into one basket. Uh, We're we're working

down our fleet of nuclear generation. Coal is regardless, regardless of the designs, where the intent of this administration, coal is only going one way. So you're only real choices a b to you. And look, I think wind is a wonderful thing. I think solar and specific market areas southern California, the Southwest so forth are great and help contribute UH through power generation. But at the end of the day, when we're talking about dispatchable energy, natural gas

and natural guests alone is your only real choice. And when we continue to grow our demand being here domestically, commercially, in industrial or as we're seeing now with the burgeoning l en G market and of course at large exports now via pipeline going into Mexico, we have a situation where, yes, natural gas prices have been so depressed for so long, right now the massive production is masking the fact that and no one wants really wants to seem to focus

on the rising demand for natural gas. Natural gas prices are cheap, very cheap compared to say oil, But I don't expect that the last any time into the foreseeable future. I just I thinking, of course, about the former t x U or Energy Future, about how they basically did this huge leverage BIO when natural gas prices were more than fifteen dollars uh, and now they're treading below four dollars. Do you see us going back to that fifteen dollar level?

Should things play out the way you expect heading into your No, no, absolutely not. If we have to remember the natural guess Priver Surgeon, this is when everyone, every expert back in the two early two thousands thought the United States was running out of natural gas. So all of that fifteen dollar plus natural gas occurred before the quote unquote shale gale. So we certainly have the problem. What's been keeping gas prices so low for so long is the fact that we're producing so much of it.

For instance, when Hurricane can Tune in two thousand five ripped apart the southern U the shallow water Gulf of Mexico. One fifth of the lower forty eight gas came from that one market area and it was decimated by a hurricane. Now less than four percent comes from that market area, and a third comes from the Appalachian basin. So we've had a glut in Pennsylvania, Ohio, West Virginia because we did not have enough pipeline capacity to move that gas

into specific demand market areas. That is working itself out right now. So we're looking at for the next couple of years still a very volatile market, but we will ease. But as we begin to open up access to that market, prices will naturally rise. But no, we are going nowhere near the fact of when we had ten eleven, twelve fift natural gas. That's not on the table at this point, but certainly sub three dollar gas, which is what we had for most of this summer. Those days are are

going to be few and far in between. As I said, into the fore foreseeable future, Stephen Short. If an investor says I like what he says, it makes sense. I want to go long natural gas. I want to capture some of this increase. Will these price increases dropped to the bottom line of companies such as Range Resources, is e QT Resources, e o G Resources. Will they benefit absolutely? Uh, they're clearly these are depending on the specific basin their end.

These are companies similar to oil. What what was the big concern three or four years ago when oil prices crashed to twenty five dollars a barrel. The producers can't compete. But what has happened over the past three, three or four years The producer has learned to compete. So, whereas it's still hard to make oil a profit at thirty dollars a barrel, companies are certainly making profits at five dollars a barrel as the efficient skis have improved. And

it's the same situation in natural gas. Natural gas has been even in the longer bear market that than oil up until this past year. So certainly the producers are more efficient and therefore we'll be able to squeeze out margins. Anything above three dollars thirty cents is certainly going to be a very nice return for these companies. Stephen, before we let you go, I do want to get your thoughts quickly on the price of crew it especially in

light of the Iranian sanctions that went back into effect. Today, prices of of of West Texas are increasing by about a percent, and I'm just wondering how much is that due to the sanctions. Do you think that it's all been priced in at this point? What's your take it was priced in. What happened with oil is it was an absolute bubble. We got through this summer one of the strong the strongest demand seasons ever for oil. We lost access to Canadian rol because of an outage either

an upgrader up in Calgary. We were exporting for the first time oil and large amounts, and yet we came through the summer relatively unscathed. But between the late summer and September, we saw a massive rally and crude all prices. That was purely speculation going ahead into the RAND sanctions, because oil was rallying when oil demand. Refiners are in their maintenance season. Oil demand is at its weakest. We've since had a six correction, so oil prices are right

back to where they wore before. That bubble was Infla, so we had that that that peak, and now we've had the EBB in oil prices are now searching out of bottom. We're probably right now looking Brent crude in the low seventies, uh w G in the low sixties, were probably searching out the bottom right here. In the weeks ahead, demand is going to start to pick up again, as he was, Refiners come out of maiden season, we go into the holiday season, so we're looking at probably

a support of the market right now. We've got to leave it there. Thanks very much, Stephen Short, president of the Short Group based in Villanova, Pennsylvania. Price of oil on the Nymex down seventeen per cent since the beginning of October. Oil the Middle East, Saudi Arabia, Iran's President Hassan Rohani said quote America wanted to cut to zero Iran's oil sales, but we will continue to sell our

oil to break sanctions. He went on to say that we are in a situation of war against the bullying enemy, and that's us more about the region and these topics. As Ambassador Adam Arelli, he is the former U. S Ambassador to Bahrain and the former deputy spokesman of the U. S. State Department. He joins us from Washington. Ambassador, really, thank you very much for being with us. What are your thoughts about the imposition the reimposition rather of U S

sanctions against Iran. I think it's a very big deal. Um, this sanctions regime that the Trump administration has put into effect. I think it's much much harder, much more comprehensive than previous Thanks sanks in regimes. And I think it's going to take a huge fight out of the Iranian economy. Ambassador, Really, I'm wondering whether you think that it's going to have positive effects, positive meaning the effects that the United States

intends with respect to imposing these hardships on Iran. Yes and no. Um, I think in the short term it will have the desired effect of squeezing the Iranian regime financially, denying it resources that it uses to fund terror and and and home and instability around the region. But over the long term, the broader goal is to change your running and behavior. More more broadly, I'm I'm a little

bit skeptical of that for a couple of reasons. Uh. Number one, because, as Rohani says, they they're not bad at getting around sanctions or at surviving under very stringent sanctions. And number two, Um, you know, look, they're going to try and wait out the Trump administration and there's there's in two years. Actually in one day you might have a democratic congress, which which makes it more difficult to

impose sanctions or to follow through on them. And look, at the end of the day, what is it going to take to get Iran to change the regime is the regime has committed to this course. I don't think you're going to have a change in policy or a change in behavior unless you have a change in the regime,

and the sanctions aren't going to produce that. At the same time that President Ruhani came out with his comments about the sanctions, Iranian state television was showing footage of defense drills taking place in the country's north, and Iran has also launched its largest war games. What does that tell you about the position of the Iranian government? I think, well a couple of things. Number One, the Iranian government obviously is defiant. They've got to put a brave face

on a bad situation. But to me, what's more telling is what's happening inside Iran. And basically, you've had uninterrupted protests by key sectors of the Iranian population since December of nineteen of two thousands and seventeen uh the fact of the matter is that Iran is in uh in crisis of the people are rejecting the legitimacy of the clerical regime which is ruled since the Irani A Revolution

in nineteen nine. So what you see coming out of Iran, I think is more intended for a foreign audience than a domestic audience, and domestically they've gotten real problems. Ambassador, given your role as an ambassador, I'm wondering from the United States perspective, what imposing these sanctions unilaterally does to international relations. You know that European Union countries, a variety

of them have come out against the reimposition of these sanctions. Well, I guess it depends on which which allies you're talking about. The Middle Our Middle Eastern allies that the Arabia, Bahrain where I was ambassador uh, the United Arab Emirates, Egypt and others are greeting these sanctions with high fives all the way around, because they're the ones that are most at threat from Iran. The Europeans, You're right, it's a little much more ambivalent about it. They don't They don't

like sanctions as a as a weapon. They see them as a last resort. They're concerned that this will drive Iran out of the nuclear agreement uh, and they will resume their nuclear program. But at the end of the day, the Europeans are going to have a choice to make between the US market of three trillion and the Iranian market of twenty billions. That's a pretty obvious choice to make. Ambassador.

One of the reasons we're focused on Iran is not just oil sanctions, but also the conflict and the ongoing tension between Iran and Saudi Arabia. Can you give us any thoughts about the position of Saudi Crown Prince Mohammed bin Salmon. Is he secure in his position? I think so. Um. You know, the king, King, who is the ultimate authority in Saudi Arabia, has has doubled down on his on the kron Prince, his son. Uh. I don't see a lot of internal opposition to the to the Kron Prince,

certainly not sufficient to dislodge him. And look again, at the end of the day, there are two geostrategic pillars of the Middle East, Iran and Saudi Arabia. We have cast our lot with Saudi Arabia. I think that's a smart move uh. And look, they're going to be critical to making these sanctions work by increasing production to make up for a shortfall in Iranian exports. Ambassador, do you expect regime change at some point in the near future

in Iran? You know, the administration has been very careful to say that regime change is not our policy. Uh. But everything they're doing, I think is designed to create the condition to where by the Iranian stake matters into their own hand and and change course. Can you just tell us briefly your perspective about Turkey and the role that it is playing in the Middle East. Currently, Turkey is playing a very disruptive and negative role in the

Middle East. They are, first of all, they're ruled by a president who is more of a more of a dictator and an authoritarian than almost anybody in the region Number one. Number two, He is motivated by political by religious ideology. He seeks to establish himself as the primary influence of Sunni Islam, and he is challenging Saudi Arabia in that role. Um. I don't think that Turkey is playing a positive role, and they're certainly not acting as

a good ally of the United States. Ambassador Adam Morelli, thank you so much for being with us. This eighty three billion dollars of US government bonds and notes are going to be sold, a record and it comes in a sort of perilous time considering the mid term elections. Joining us down to discuss John Others, senior editor for Bloomberg Markets and a recent acquire of Bloomberg's from the

Financial Times, long time Financial Times columnists. We're very very happy to have you, John, Thank you so much for being here. So let's just start with that this record amount of US debt sales, government debt sales at a time when the midterm elections are kind of injecting quite a bit of uncertainty here. Yes, it's it's very concerning. I mean my latest column, I drew the analogy with

the shark from Jaws. You know, if you're worried about the stock market, then you should be worried about bond yields. And that ultimately has been the story for the last twelve months or so, that every time people think that it's safe to go back in the water, you get a reminder from the bond market that that it's being asked to bite off an all a lot, that the Fed is actually into true QT and that the government

is needing to fund a very aggressive tax cut. So what's the worst case scenario for bond investors this week? My faint, faint hunch if you look at the past, there is there is this urban myth that that congressional gridlock is good for the stock market, which actually doesn't hold water, but it is good for the bond market. And there's a clear enough reason why that might be

the case. That administrations in the last two years before before a presidential election plainly have an incentive to prime the pump uh and and borrow more. And if you have gridlock, if you have a majority against the administration in the House, then plainly they're going to try to stop them doing that. That is good for bonds. I suspect. I think you're right. The degree of supply we're seeing at the moment is going to get very problematic. Indeed

for the bond market. We are now possibly in the really weird Allison ones are and situation where a democratic majority in the House possibly were probably one of the most left wing democratic majorities in generations, would be good for the bond market because they're not going to let another irresponsible tax cuts happen. They're probably going to play politics and not let the Trump administration spend all that it like, all that it would like to spend on.

So I feel slightly strange saying this because you wouldn't normally regards the rise of a fairly left wing democratic leadership group to the House as being good for the bond market. But I suspect at this point it might be if money becomes more expensive, doesn't that help inflate away the debt? I suppose it does, but you still need to issue plenty more of it in the in the in the first case, I mean, are you talk about isn't there but isn't there already appetite for treasuries?

I mean, you know, you got back into history and people have been talking about how high interest rates are going to kill everything. You go back to two there were fourteen percent, and the world didn't come to an end. The world didn't come to an end. The process of getting to fourteen percent from five or six percent or wherever we were in the early seventies wasn't particularly good for the stock market and wasn't particularly good for the economy. Uh,

I'm not. I'm not saying they're bad in their own right. Markets a balancing mechanisms. You've you've got to try to clear markets. You've got to reconcile, find some equilibrium. The journey to an equilibrium that will deal with whatever in balance you have at the moment may well be very painful.

I'm not suggesting I personally think that the interest rates will have to be higher than than they are at present, and that that ultimately will be in the long term interests of our children, grandchildren, whatever kind of political term you want to use. In the short term, it might hurt if you have and to want to make money

in the stock market. Well, one thing that I'm struggling to understand is how the trade war that seems to be ongoing between the US and China effects bonds, because on one hand, it raises the price of certain goods. On the other hand, it does seem to tamp down growth, which is actually a headwind for inflation, and thus would seem to suggest you would have a bid for bonds.

So when you sort of equal everything out, is sort of protectionism and a trade war good for bonds or bad for bonds, Well, you've got to throw in one other aspect as well, which is the the demand for treasuries from China. If China is making making much less in the way of a surplus, it's buying fewer treasuries um. So that you know, there are a number of different factors that that feed in there my ultimate suspicion. My suspicion is that we have a trade war if China

feels strong enough to have one. And if you have a trade war, then that ultimately is very probably good for bonds for bad reasons, that they become a haven and people are getting out of risk assets. The reason we might not have a trade warm. There is an analogy here, I think with Reagan and Gorbatov and and the Cold War in the eighties. There are two arguments about One is that Reagan won the Cold War by

being aggressive and building up arms. The other argument he is lucky because he happened to be there when the Soviet Union, which was already about to collapse under its own contradictions, did indeed collapse under its own contradictions. It is possible looking at how the Chinese government is now obviously anxious about credit, talking about Minsky moments um very obviously very concerned about this, but resulting to um more stimulus, it's possible that that that's that Trump could be lucky

like Reagan was. Thanks very much for being with us. We're lucky to have you, John Authors as the senior editor for Bloomberg Markets. You're listening to Bloomberg Markets with Pim Fox and Lisa Braunwitz on Bloomberg Radio. We're broadcasting from the Bloomberg Interactor Broker's studios, and the topic now is hotels and hotel development. Joining us as an expert is Gilda Perez Alvarado, the chief executive of America's Hotels and Hospitality group for J A. L. Some people may

know it as Jones Lang Lasal. Thank you very much for joining us. Tell us a little bit about J L L and it's participation in the hotel industry, because many people look at j A J L. L as brokers, but they don't know that you've got a big remit when it comes to the hospitality industry. That's right, So first of all, thank you for having me. In terms of what jail us, you are absolutely correct. We are investment advisors, so our investment sales where we represent sellers

on an exclusive basis as our bread and butter. But in addition to that, we also facilitate financing and we have a very big strategic advisory and asset management division. Okay, So right now, given sort of some of the softening that we're seeing in commercial real estate prices, given the fact that we did see that glut of hotels in New York City, where are you seeing the biggest opportunities for your clients YIELDA, So definitely New York. We are

now in the midst of a recovery story. This is a surprise because New York was number one territory that people said was overbuilt, overbuilt with hotels. It's listen, it's the most resilient market worldwide. We have Ciena tremendous amount of inventory come in over fift of new room supply. Uh you and I were speaking earlier. There's also the

shadow inventory that is being propelled by Airbnb. But having said that all of the new rooms have been absorbed, demand is at an time high and we're finally seeing recovery at the bottom line. Do you see that there's going to be a consolidation as this recovery takes hold because there are all these new concepts, the live work concept. Uh, this has been something for example, the student hotels offering

of both accommodations but also student housing and workspaces. Absolutely, you know, like with every other industry, bigger is better. So we are definitely expecting more consolidation on the traditional operator side. But you know, to the point that you just raised, there's a conversion right now towards flexible usage of real estate. And so yes, um, student accommodations. Look at what we works is doing. They have, we work, we live, we stay, uh shortly, we play. I mean

that's everything. We grow. You've seen sile and hare the childcare, which I thought was great. Can you imagine if there was childcare in every office? Anyway, moving right along, you know that I'm wondering about Airbnb. You mentioned it, but what about some of these profound disruptions the entire industry. How much have they already affected valuations? And what do you expect going forward? Um, listen, no one's been able

to measure the direct impact of Airbnb and too hospitality. Now, one of the big impacts that we've had in New York is typically before Airbnb, we had a hundred and eighties sold out nights. When that happens, now the amount of supply of Airbnb, the faucet just turns on, the top turns on, so you could have in any one night from twenty to forty rooms just come in the market.

Now there's more regulation from um you know, from the city, from the public side looking into Airbnb, and to be honest, it's been a great wake up call for the hospitality industry. You know, disruption is good. We need to you know, move on and people are now more focused on experiences, which is where Airbnb sells. Can we just go through some of the major markets, because you have a lot of international experience. You ran the j A L business

out of Madrid. Where where are the best markets? Right now? Our investors are focused on the markets with the most liquidity. So in the United States, that be your New York's, that'd be your San Francisco, l a people of Hawaii. Right now. In Europe it's all about the UK. It's London. It's really interesting despite Brexit, so you know, with the devaluation of the pound, you have tourism on the rise,

so hotels are actually doing quite well. Western Europe is extremely important there's investors that have a resort theory as well, so Mediterranean Spanish resorts to be more specific, and then Hong Kong and Singapore definitely top picks. I'm just wondering. We do talk a lot here about the sort of geopolitical backdrop here of rising tensions and concerns about borders, and I'm wondering how that has affected tourism, if at all,

and shifts the landscape for hotels and hospitality. To be honest, at least, we have not seen a major decrease or a major impact on on tourism. In fact, we're at all time record highs. I think from an investment perspective, it does play a very big role. So you know, old chips are on the US table right now. We have the strongest macroeconomic fundamentals out of any other mature market in the world, and so investors do want to keep on investing in the United States despite what is

happening from a geopolitical level. Is there a specific metric or number that if you want to understand the hotel business you need to pay attention to. I mean cap rates for commercial real estate. Is it room nights, is it occupancy levels. What's the one thing that you should begin to understand if you want to be an expert in this. So for us, it's a combination of factors, but first one rough par revenue per available room. It's

extremely important price per keys. We've seen a reset in some of the major markets New York in particular because of what we mentioned before from additional supply. UH cap rates are also important, but PIM to be honest, it varies across the sector, right, so we can have international investors be very happy buying luxury product at zero to negative yields and having you know, kind of the value buyer wanting to look at select service or economy at six seven or more. Thank you so much for being

with us. Really interesting. Thank you so much. Hilda Perez Alvarado. She's chief executive of the America's Hotels and Hospitality group for J L L. Jones Lang LaSalle, Inc. Talking about all things hospitals and hospitality. Thanks for listening to the Bloomberg p m L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim fox I'm on Twitter at Lisa Abramo. It's one before

the podcast. You can always catch us worldwide on Bloomberg Radio