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China hitting back against Trump's tariffs.
But many are saying, and now that it's like measured that they could have been a lot worse. It was still friendly the way they put it out. Having covered Asian and lived in Asia for so many years, What did you make of it?
I think it was immediately in its response was clearly thought out and they were ready to go with this. Alex, I was just looking at the list. There's the antitrust probe of Google, which is an especially effective given to controls and limitations of Google. There there are tariffs on a cultural equipment like tractors and other vehicles. There's tariffs on energy imports a colon LNG for example, expert controls
on tungsen and other critical and minerals. And then some of those companies like Calvin Klein own her PVH Core are put on that entry list. So you know it's a reasonable list in terms of a in terms of his breath, I had a responding to the US, but it's nowhere near the dollar for dollar kind of matching figure that you might have expected to give them, the US to put ten percent on all goods coming out of China.
It is somewhat restrained. It's being interpreted as a signal, which is that, hey, look, we can retaliate, we can retaliate further, but in the meantime we're probably here to talk. And of course we do know that Cole is expected at some point between both leaders, she and Trump. Overcoming dates. Will have to see if that changes the story or not.
Yeah, that's kind of where I wanted to go.
And because we saw yesterday with Mexico the leaders of Mexico and Canada, looks like a phone call can fix a lot of things. And these Chinese taffs don't kick into February tenth. So does that give some potential for again, as you mentioned, a phone call between Trump and and g maybe an opportunity to kind of some of the stuff off the front burner.
On paper, you would say absolutely, Maybe both leaders are looking for an off framp and maybe there will be negotiations. You know, the new administration in their executive orders that they put out said one of the first things they want to do is sit down and have a look
at what happened the original trade deal between China. It's so called Phase one trade deal between China the US that would all lend itself towards the new administration having an assessment to see where things are and then come back. But nonetheless, things have moved pretty fast. I mean, and I'm not sure anyone expected, you know, an almost full scale trade war against Mexico and Canada that we came
close to yesterday. If anything, President Trump has been very consistent in terms of its hocushness on China and on the trade deficit with China, and of course in Parentsannel and all of the other issues as well. So there are plenty of ballets whore saying that of all of the news over the past week, the tariffs on China were probably not a surprise, maybe to tell me of it more, but not a surprise. They were to be expected,
and it just it does signal intent on President Trump's side. Now, of course, as you say, early days, we'll have to see those talks go. But right here, right now, the US with new tariffs on all goods coming out of China. That's something that they hadn't done before.
What's the ask here?
So clearly with President Trump in Mexico and Canada, the ask was clear, and how to do with fentanyl?
What's the ask for China.
I mean, it's a whole different order of spectrum when it comes to the conversation, right you're covering national security, You're covering IP protection, You're covering the merchandise goods death said, the idea that the US doesn't think China buys enough stuff off of it. You've got the fentinal issue. I mean, it's covering a whole range of issues here, and China's role in the global stage too, perhaps in terms of its support for Russia, for example, but nonetheless at least
one thread on that is the merchandise goods deaths. That part of the President Trump was highlighted at consistently. China in the past have signaled they are willing to buy more US produce, and of course that was had and officially made the point without naming the US. He said, you know, they're also willing to step up in the
global marketing buy things. So there's there are ways where we'll say the merchandise good deaths that could be reached, could reach some kind of a midpoint on but the national security, the technology, the export controls, the IP protection, frientannel, the human rights issues, all of that's more complicated and maybe a different channel to the trade side of things.
And the one could argue that the US economy is in a stronger position than that of China. Therefore the US may have some leverage here. Is that a feeling that you're hearing her sid a policy backdrop that you're seeing in Washington at all, or hearing about.
I think it's certainly considered to be the backdrop a US economy broadly doing okay. Obviously there are areas of weakness, but consumers sell spending. That means the US remains the engine of global growth. We know the China story still hampered by the real estate slowdown, but they're still pushing hard on innovation, as we saw with deep Seek last week. So yes, there's a view that the US is the upperhand.
But also practically, because if you're talking about getting into an argument over merchandise goods, and I'll put Taris and newers, new put Taris and mind will. China can't match that dollar for dollars because they don't buy the same amount of stuff of the US that the US boys out of China. So they're already at an imbalance in terms of starting point. But they can retaliate and kind of
those measures we just talked about there. They can make life awkward for US companies operating in China and make life awkward for US personnel operating in China in terms of visas and the like. And they can also divers fine punish the US in other ways the verse find find new markets, which you have been doing when it
comes to soybeans, for example, other agricultural produce. But to be clear, the US economy is strong at the moment, of course if the upperhand if it comes to tariff tennis, but there are ways where China can respond.
Yeah, I didn't think that like PVH was going to be on my Bingo list for like companies that China was going to go after.
All right, and thanks a lot.
In the current Bloomberg a senior economy reporter joining us from DC.
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Alex Steele and Paul Swen, you were live here in our Bloomberg Inactive Broker studio. We're streaming live on YouTube as well. Head over to YouTube dot com Sturch Bloomberg Podcast Live and that's where you'll find it. Boy, we're race back in the middle of earnings, but it seems to be overshadowed by just news flowing. Last week it was Deep Seek and it's impact on AI and calling that whole tech thing into question. This week it's tariffs to kind of lose focus on some of the fundamentals.
We want to get back to that a little bit here. R J Gallow, Senior portfolio Manager, Fixing Come and Federated Hermes joins us. So r J. Again, we've had a lot of earnings in the past couple of weeks, but a lot of noise as well. How do you and your teams kind of try to navigate through some of that noise and focus on some of the fundamentals.
Well, And there's a lot of noise the Trump administration. You know, they must drink a lot of coffee. Very active, very active, and I think that's on purpose, both for political purposes and for substantive purposes.
Uh.
You know, many executive orders, a lot of changes, the sort of aggressive behavior of Doge.
You know, the the.
Novel use of tariffs invoked under an emergency statute that previously have been had not been used to justify tariffs.
Uh.
You know, we expected this to be an eventful time. You know, the big four policies you have trade, immigration, Uh, you know, deregulation, and fiscal policy or tax they're all up in the air with the change and control in Washington. From a bond investor's standpoint, Uh, the overall tone coming out of the Trump administration seems a little bit more inflationary, a little bit more deficit ridden, and you would think
yields would be heading higher. I think that got priced in October into November and as we started the year. So at this point you just have to wait to see how those big four policy areas unfold, and it's hard to take a big bet on just rates, so we're trying to be patient. One thing that's nice yields north of four percent are a height of the inflation rate, and that's good for some padding to your total return as each day goes by.
So that's a great point in terms of it's too soon to tell, because are we going to look at treasuries as a safe haven or a risk asset now under President Trump?
It's another good question. I think that US fixed income faces a number of challenges. There's more of it. There's more treasuries outstanding than ever before, both in the dollar value of outstanding securities and in a relative sense debt to GDP. You know, that's the result of the long path of fiscal imbalances that we've had under both Republican and Democratic leadership that I think is manifesting itself in just higher volatility.
You know.
You say you have sort of the same universe of securities dealers making markets out there, but the market that they're that they're playing in, the size of the market has only gotten bigger. So so that's a challenge, and that could eat into a little bit of the allure of treasuries as a safe haven bet. A safe haven bet shouldn't be extra volatile, it should be less volatile, right, that said, I think the credit quality the United States
is unimpeachable. I think that the depth of the market, massive liquidity, the strength of the US economy in a US exceptionalism sense, uh, the underlying legal underpinnings, and the fact that we're the one of the world's actually the world's dominant power economically and militarily. Yeah, that all supports treasuries still having a pretty hallowed places as a as a where safe capital can reside.
So we were talking earlier today about the debt of the cruise lines alex and Red Headline crossing the Bloomberg Criminal. That Royal Caribbean has been raised to investment greates by S and P. So good news there, Hey.
Ar Jie.
I mean, I look across the fixed income space. I'm wondering if do I just clip coupons here? Is that my game? Because that's not a bad place to be, whether it's in treasuries or even if I'm taking some credit risk. It really seems like I can get a meaningful carry here and that might be good enough.
Yeah.
Well, the year the yield on the ag, the Bloomberg AG is for eighty seven. That's higher than sof SO it's you're getting more yield, more carried from a diversified taxable investment grade bond portfolio than you are from money markets. And you know that wasn't true a year ago. So that's that's a welcome turn of events. It could motivate some investors who are in cash to move out the curb as a little bit rather than watch rates continue to decline on cash if the Fed gets going on
the easing side again. Number one. Number two, I think that you know, at this point, as we wait to see how those big policy areas unfold, the economies doing pretty well. Inflation not two percent, but not apparently reaccelerating, and it feels like the bond market could be in for some choppy range trade all along. You're clipping a higher level of income that exceeds money markets and inflation. So Carrie is in fact an attractive aspect right now of bond returns for investors.
All right, ur Ja appreciate it, Thanks very much.
RJ.
Gallo, Senior portfolio manager, Fixed Income and federate HERMEI is really appreciate that.
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For broadcasting to live from Interactive Broker Studio right here in Midtown Manhattan. We are also broadcasting too live on YouTube, so definitely check us out on that. We've been talking a lot about different sectors and the effect of a Trump administration, whether tariffs or no tariffs. In one sector that's really in the crosshairs energy, So joining us for more on that is Ernie Miller, CEO at Verday Clean Fuels.
He's joining us in the studio in New York. ARENI great to see you.
Thanks all, it's great to be here.
So we'll get to all the distinctions and tariffs and policies in a second, but just clean slate here.
What does your company do? What is Veritay Clean Fuels.
Veritay Clean Fuels is a gasoline business, and so we we operate in the Permian basin and under a joint venture with Diamondback Energy out there where we take their natural gas, which in West Texas as zero you know, or even negative value, and turn that into a high value refined product just commodity grade gasoline.
And the idea it's word zero is because there's only pipeline to take oil out, for example, But when you produce oil, you produce natural gas and just kind of like hangs out and does nothing.
That's right.
So when you produce oil, there's there are a lot of other products coming to the surface, natural gas being the largest of those, and there's limited takeaway capacity, so that leaves an excess of gas in the basin that can't get the market.
So, without getting too much into the chemistry it.
How do you do it?
Well, the chemistry was actually developed by Mobile in the nineteen seventies, and so our process starts with synthesis gas, which is a mix of carbon monoxide and hydrogen. We take that to methanol and then methanol downstream to gasoline. And so our product is just commodity grade refined gasoline made from natural gas.
And you're cool with takeaway capacity? Do they hit that in land man?
Yet?
That was episode three?
Great episode?
Right?
All right?
So I mean, so are you doing that now? Are you create are you refining it into the gas?
Now? We are our first commercial scale project is in is well into engineering with Diamondback and that first plant will be built in Midland County, Texas, just south of south of Midland, and it'll be commercial in twenty twenty seven.
Cool.
Being a refiners not easy.
We saw that with Excent and schev run in their earnings. Now clearly they have a different input, right, They're inputting oil, which obviously their margins got.
Squeezed of oil goes higher. But it's a tough biz.
And then you put on you know, policy under Trump administration, and then questions about tariffs, what's your biggest concern?
Well, you're right, refining is a very tough business. And and you know, when you think about the terraffs that are being proposed right now, you know, a ten percent tariff on on crude oil coming out of Canada will be a major hit to refiners, primarily in the in the Midwest. You know, we we import four million barrels
of oil a day from Canada. It's about sixty percent of US imports, and a tariff on those volumes will will hit those Midwest refiners who, by the way, their their equipment is set up to process that heavy sour Canadian crude. So it's you know, while they could go and buy and buy US produced shale crude, which is generally lighter and sweeter, but their refineries will not operate nearly as efficiently, so fees dog costs will go down,
but they'll operate much less efficient and probably negative. So it's and.
There's nothing I mean, do they pess that along.
To me and ultimately ultimately is going to land in the consumer's lapse.
Yes, interesting when you take a look at clean fuel, like this is clean er, but it's not like E gasoline or anything like that.
That's right, this is cleaner. Verde can produce fully renewable and even carbon negative gasoline. But the fact is that when you do that, the revenues are heavily dependent on carbon credits. There's no there's no term market for carbon credits. It's very much a spot kind of short term market. So that does not lend itself well to project financy.
When we use natural gas as of feedstock, when when you can make the connection between a flare going away and we and us taking that natural gas would would have otherwise been flared to produce gasoline, that gasoline is about thirty percent less carbon intensive than gasoline that comes from crude oil. So there is a there is a pretty mean meaningful you know, environmental win there. But you
know that's the focus is commercial. This is taking zero value natural gas or negative value natural gas and turn it into something that has a lot of value.
You guys are based in Houston, Yes, okay, so the center of this country's energy industry in Houston. What's the feeling there about the transition or the evolution the transition to greener energy in general? Is the momentum slowing because of who's in.
The White House?
Is it Is there some inevitability that it's just going to go at its own pace?
How do you well, you know, it's I kind of think that you know, most of the capacity to make this transition lives within the major empcome the major oil integrated oil companies you know already. So so those are the those are the players that are going to make
the largest contribution to an energy transition. And so, you know, I think I think that we're we're going to see a lot less in the way of mandates and and a lot less of regulators picking winners and loss losers, and and it'll be much much more market driven, I think as it as it should be. But the ultimately the people that can contribute most of that are the are the legacy integrated energy companies.
How did the conversation and development with a Diamondback come about.
Well, we were in the process of of going public of listing on on Nasdaq and Diamondback UH. Diamondback came to us with UH and said, you know, we've we have been canvassing the market and and have really kind of zeroed in on your process as one that can really help us with this, with this natural gas problem
that we have in the Permian basin. And post Diamondbacks and UH merger with Endeavor, they they went from a you know, a large, a large old company with a with a with a gas problem to a very large old company with an even bigger gas Yeah. Yeah, and so now so now they've got meaningful volumes of natural gas that you know, that are not getting the value that that that it.
Should ask one more questions and looking at Okay, if we wind up getting easier permitting though from the Trump administration, and we get the ability to get natural gas out of the Permian an efficient way to then export it, does that mess up your model? You know?
It really doesn't. There's there is such an overhang of natural gas and and and Texas is already the most friendly environment, you know, in the in the States for building pipeline capacity. You know, in the last couple of years there have been there have been at least two forty eight inch you know, enormous pipeline taking gas out of the basin. You know, the Permian has the benefit of the Gulf Coast and the Lergy and the LG terminals there in Corpus Christi. So there there are places
to go with that natural gas. But but the volumes are just enormous, and so there we are. We are very comfortable that we have a very long runway in the in the Permian with Diamondback and others where there there's there's always going to be gas that can't get out of that basin.
Interesting, fascinating story, learning a lot here sitting next to alex Ernie Miller. Thank you so much for joining a starting militi and CEO Verde Fuels.
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