Libya's Returning Supply, Saudi Output, Pushing Oil Price Down

Again Capital. John always a pleasure. Why do you think the price of oil is going lower? Well, there was a real sudden development in Libya yesterday morning. It was announced that the two warring factions that had basically in the process of stopping or halting Libya's oil exports resolve their differences. There's some actual rumors out there that it was spurred a bond by President Trump of all things. Uh. And this oil is rapidly coming back to the market.

We're getting more and more good news almost by the hour here, Pim. And it makes a big difference. You're talking about getting about seven thousand barrels a day back online fairly rapidly. And you add that to the recent increases in production by Saudi Arabia, Russia and some others, and all of a sudden that that the dire situation that we were looking at UH is not looking so

bad all of a sudden. So we're getting some relief here, all right, So John, can you pair that the idea that Libya production is increasing and we're getting that into the market given that, I mean, is that really what's driving things way more than trade work concerns and an expression of fear that the global economy is going to slow down. Well, I would argue it's a big part of it. But certainly the trade war fears are affecting

commodities UH more than anything else. Obviously soybeans and getting the headlines on this, but you're seeing copper get hit, you're seeing gold get hit. Um, you're seeing dollar strength, which is driving down these prices as well. And certainly we know that although it's not on the official list, just jet that the Chinese had intimated that crude oil purchases from the US and natural gas l G purchases

we're going to be part of their paraph retaliation. So we're front and oil's front and center in that as well, so that that is definitely part of it. And the fears that global demand will take a hit from the reduced economic activity. Right, so these things are all sort of coming together as the perfect storm, but really a

confluence ys of of elements here. But but to sort of counter that, the i e A came out with a report today saying that even if the biggest producers in Opequ basically produce as much oil as they can that space, what would be required to offset potential loss production in other places? So that seems sort of bullish for prices given US applied demand dynamic. Can you square

those things? Yeah? I think they had an unfortunate printing deadline this month because, uh, their numbers out this morning about what the deficit supply demand deficit was looking like that as a deficit of crude oil production didn't figure in this rapid return of Libyan crude oil. Um. I think their numbers on Saudi Arabia were a little low as well, so they were talking about around at one point four million barrel per day deficit later this year.

That's probably going to be no more than two hundred to three hundred now. Um, if things hold up, especially in Libby, and we see more of these these gains from Saudi Arabia, who has it was probably on track to put up about a million barrels more oil on the market. Uh if you measure it from April when they were at nine point eight seven. Uh, they're pushing up towards ten point six ten point seven already and may go to eleven over the course the next couple

of months. So it's it's a lot closer. That's when we were surging here recently and we got the Brent towards eighty bucks again and w t I back up towards it's because the math was looking terrible, but the Staudies really did step up, the Russians really did step up, and this Libya thing was really a bolt out of the blue. I can't I can't stay it enough. So where do you think prices are headed in the near term for both of you t I and Brent? Well, I still think it's a tough slog here for for

from a consumer's perspective. Uh, the challenges you know, remain in big time in Venezuela. It was more lost production month on month. Again, that's continuing to decline. The Trump administration appears to be hell bent on strangling around economically and foreclosing their oil sales. I don't believe for a minute that a single country will get a waiver from from you know, escaping the sanctions that prevent their purchasing

Bringian oil. So, um, this is probably a buying opportunity, and uh, you know, prices more likely towards eighty bucks for Brent, uh will be revisited upon us. I think, uh, you know later in the years. We're not we're not

out of the woods yet. Well, although things are looking better, well better for the upside, you mean no, I mean better better for consumers, I mean him, I mean you could have easily have made the argument for barrel oil if the status quo had been maintained here, if we hadn't seen these um rapid changes from from Sadie, from Libya and others. Uh that that that that fever really has broken now from given what we're seeing production wise,

Well that's where I was gonna go with this. When you mentioned you know, Libya and then you've got Russia. You have Saudi Arabia. But let's just put in for the sake of argument that Iran, for whatever reason, manages to export more oil, Nigeria continues with its exports, and maybe even Venezuela gets its act together. These countries they can't eat the oil. Uh what that if they all came back online? What do you think the price of

oil would be? Give you about twenty seconds. I think we'd be trading back down towards fifty barrel if we had all that production online. Plus we'll get the return of Canada by the end of September. So um, they said. I think there's a few couple more months of rough letting PIM, but things can be looking a lot better by the end of the year from a consumers perspective. So lower. John killed Off, thank you so much for

being with us. Always great to get your perspective. John killed Off is founding a partner of Again Capital in New York, talking about the oil markets. Here with us is somebody who has thought a lot about where to produce goods and how to manufacture things efficiently and well. Joseph of Bood, chief creative director at Men's Warehouse, training us here in our eleven three oh Studios. He's also the creator of Joseph A Buddha Manufacturing Corporation, which is

the largest men's tailored clothing factory in the United States. Joseph, it is so good to have you here, and it's interesting because you do most of your business, or do most of your creations here in the US, most manufacturing. I'm just wondering, given that, do you think that you're going to be somewhat insulated from all of the trade talk or will it somehow come back to you. I

really don't know what the ultimate result will be. We've been manufacturing in Massachusetts for thirty one years when I launched the first collection. That's where Joseph Budde Manufacturing is, and we've seen a steady growth, uh when we've had price increases or price reductions, because we've always tried to price our product fair, so the price value proposition of

what we make there. As I had mentioned earlier, we um we our manufacturing in that factory where we have eight hundred people, is with our custom product and that's where young guys are now starting to come out and buy suits and making an investment. So we haven't seen any of these uh, these issues at the moment really

impact us. Speak if you can about the changes in the factory and you've added workers there and what you're looking to do, because you know, when you think about custom suits, you don't necessarily think that they can be made in the United States. But that's not the case. It's interesting we we grew organically since nineteen seven. The first year, we produced about two thousand suits. In the last few years, it's been over three hundred thousand in

that thirty year period. And we have increased our workforce. In the last three and a half years, we doubled our workforce. UH and New Bedford has a great uh a great character for people with a great work ethic. We're so proud, I mean, of all the things I've ever done, I'm so proud of that factory and the people who work there. It's a really feel good moment

and we do create a great product. So actually speak a little bit more about that because we hear a lot about quote labor shortages, company is having trouble hiring people in the US. Are you experiencing the same? Well, it's interesting. We have a sign out. So one of the one of the signs that I love the most in our company is there's a sign outside that factory that says now hiring, And I really love that we have. UM.

We really tap into the community. We have a training process when people do come in if they aren't skilled in sewing. So we see that we've supported the community, they supported us, and we want to continue to do that. We have had that growth and we really do see it through you know what we're manufacturing through our custom business. Use the word community. And I want you to speak if you can about the annual suit drive that put

together because you don't just make suits, collect them. Yeah, well, I think July is our suit Drive month where we basically collect gently worn clothing. We have them come into our seven and fifty men's where house stores and then we refurbished them in get them back to folks who might want to re enter the workforce, who might not be able to afford products. And this is our eleventh year.

We've raised uh, we've we've collected one point six million garments and we give them to a hundred and fifty nonprofits. So good things come from good things. And I will just say you are dressed phenomenally today. It was you walked in and I thought, Wow, a lot of pressure. But to say it's a lot of pressure, I I guess I dressed for TV and I didn't dress for radio. No,

it's fabulous. I do want to get back to the idea of you know how difficult it is to hire right now in the tight labor market, and I'm just wondering, are you finding that you're having to offer higher and higher salaries and that the increases are accelerating more rapidly. Well, we obviously always want to be fair to our employees. We and we have we have a union shop. We

have a great relationship with the union. UM. I've always believed that in that area that it's been a great uh uh community of people wanting to work in a great factory. So we've over the years, we've had the highs and lows of increasing the workforce, but we always really want to dedicate dedicate ourselves to the kind of people that we have because they are, in essence, the lifeblood of the business. Now, maybe the other part of

the lifeblood of the business is the customer. And just to continue the theme of the suit drive, uh, if you donate a suit, you get a fifty off coupon, yes, And I think that that's also an incentive for people to think about cleaning out their closets. How many of us are hoarders. You know, you have a suit that maybe five or six years old or seven years old, probably still in good shape, but are you really going to wear it? And do you want to go out

and get a new one. So it's an incentive, but I really think the whole, the very essence is to be able to donate those suits and get them on the backs of people who could really use them. Are you a hoarder of suits? Well, I I keep a lot of things because they're my archives. So I've got things I probably wouldn't wear from my first collections you would probably love, but I them because you're either a special moment or it's not a closet, it's an archive,

it's a museum. Close mum. But I really think, well, for me, it's important to keep those pieces because either the historic for the brand, or they would be great design ideas to reinterpret later on. Thank you very much, a little bit of an archive. Thank you very much for dressing up and thanks for coming much appreciate Josepha bood Is the chief creative director of Men's Warehouse. Yes, him, I'm expecting you to come in and fine form tomorrow.

I'll do my best. I can't keep up with Josepha Bood. All right. You can follow Joseph Bood on Twitter at Josepha Bood and just to mention the Suit drive check it out on social media. Just use the hashtag hashtag give a suit. As we continue to talk about straining relationships between the US and China, I think it's important to take a look at, you know, what that relationship actually has been over the past two decades and with

us to help us do that. As Brad setser, he is Stephen A. Tannenbaum Senior Fellow for International Economics of the Council of Foreign Relations, also formally the Deputy Assistant Secretary for International Economic Analysis in the U. S. Treasury Department from two thousand and eleven. Brad, always wonderful having

you on. I wanted just to start with a recent paper that you wrote taking a look at China's trade practices with the US and taking taking a look at where grapes are are legitimate that the US has with China. Can you just sort of broadly outline some of those. So you know, I think there are three broad subsets of policies where the US can sort of legitimately complain that Chinese actions have undermined the intent, if not the letter,

that lay behind China's w T accession. The first is the one that gets all the attention, which is forced technology transfer. China, in theory cannot require as a matter of government policy that a US company transfer technology to

a Chinese partner as a condition for market entry. However, in a state dominated economy China, the the the the viable partners UH to form a joint venture tend to be state companies, and the state companies can say, as a matter of commercial UH decision making our own commercial interest, we will require tech transfer as part of any j V, and so the net effect has been a de facto requirement for tech transfer, even though there is no disjure requirement.

The second is that China just makes use of domestic subsidies on a scale that no one else does, and it has a market distorting effect that goes beyond UH

that of any other economy. Domestic subsidies are not prohibited by the w T O. You can only bring a w t O case to offset the adverse impact a subsidy has on your your exports, and that processes UH is slow, UM, and it just wasn't designed for an economy where pretty much any company that has access to the state banking system de facto it has a subsidy because you're the intent was to prove a specific subsidy kind of a budget line item, and that's not quite

how China subsidies work. The third is a bunch of by China policies that UH. You know, since you're selling in large measure to large Chinese state companies or companies UH with heavy state or party influence, there can be informal requirements that if you want to sell to China, you've got to produce inside China. And those don't have to be explicit procurement rules. They can just be, hey, you want to sell to the Chinese railway company to

state enterprise, you better produce inside China. The cumulative effect has been I think a set of real impediments two companies that want to produce outside China and sell into China, as well as a set of require a fairly onerous requirements if you want to invest in China to produce in China, Brad, do you believe that this is part of the reason why this seems to be such political frustration with any kind of relationship that's based on quote

free trade with China. I mean, I noted your description state dominated economy, and then I also think about all of the companies that have participation from let's say, the People's Liberation Army in China. Has the trading system just been set up that doesn't work when you confront that

kind of state intervention on such a wholesale level. I mean, I don't think it works particularly well, uh, in an economy where the party controls the state and the party cann exercise indirect influence over such a large range of state enterprises. It undoubtedly is part of the reason why

there's bipartisan frustration at China. But you know, on the flip side of all this is that after the global crisis, China reduced its export dependence through a rather massive domestic stimulus, and so a lot of the uh, you know, the macro economic distortions that China created before the global crisis have to degree faded. So it's it's always a little bit of a mixed bag. So, Brad, this has been an issue for decades. Why hasn't it been dealt with

by previous administrations? Well, at every single point in time, I think people shied away from confrontation. China is a big important player, not just in the global ecou onemy, but in the the global security situation. So there's always pressure to make sure that China is cooperating in other areas, the North Korea set of issues, that kind of thing. And then for a long time, you know, there are constituencies in the US that didn't necessarily want to get

too tough on China. There are companies that didn't want to get too tough on China's currency intervention because they were producing in China for export and a weak currency helped them. There are companies that are much more afraid of Chinese retaliation because they've developed successful businesses in China through joint ventures. Then they are interested in the potential

gains from a more confrontational policy. So at each incremental moment, the decision was made to back away from full on confrontation. Do you think that the U s economy now is strong enough that it is a good time to take on some of these issues, as President Trump and his

UH his cabinet have suggested. Look, I think there's always a debate about whether it is better to UH take on a more confrontational approach when your economy is weak and when you could really benefits, say from increased exports, when your economy is operating below potential. In theory, the gains from exporting are much larger than they are when

your our economies operating at potential. The flip side is that we are better uh that you know, and you can analyze the short run drag from the trade war as a reversal of a portion of the fiscal stimulus, and since there was probably excessive stimulus in the economy to begin with, in that sense, it's a way of removing the excess stimulus and therefore won't have tremendously negative effects. Brat,

give you about twenty seconds here. Um, you've served as Deputy assist and Secretary for International Economic Alliance in the U. S. Treasury just came out for us. What do you believe is really going to happen? Well, you know, I was a mid ranking official in another administration, UH, and in an administration where trade policy wasn't set in the Oval office,

uh directly by the president. UH. So my general's argument now is that take what the President says on trade, both literally and seriously, and the best guide to future action is what he has said, and what he has said is that he will continue to escalate. I think the interesting question now is how China chooses to respond. Were if we go through with the two billion in tariffs, we've exceeded US exports to China, and so China in order to match would have to look at non tariff responses.

Thanks very much for being with us. Brad Setser is from the Council on Foreign Relations and formerly Deputy Assistant Secretary for International Economic Analysis in the U. S. Treasury. Our next guest is a well known name in the real estate industry at Scott Lawler, founder and chief executive officer at Waypoint Residential. Normally he's in Connecticut, but he trecked in here to our eleven three oh studio. Scott.

Thank you so much for being with us. You have decades of experience in the market, and I want to start with a note that that caught my attention, um that Morgan Stanley wrote where they were talking about the Bank of Ozarks and their weak earning and how some of their concern that some of their earnings will raise concerns across the banking industry because of their suggestion that commercial real estate standards were weakening and that the area

is getting much riskier. What's your take on that. So, in other words, you're saying that there was concerned because the Bank of Ozarks was a very active construction lender, that they might have some difficulty if the cycle turns well, and that this signals broader weakness in the commercial real estate market, at least as far as fundamentals versus some of the valuations that are being put on them. Okay, yeah, I think it might be a bit of a stretch.

I mean, um, one thing that's very very different about this cycle versus the last cycle, of course, is leverage levels. Okay, and so uh, you know, the Bank of Ozarks, my understanding, would typically play as a first mortgage lender in the construction world, making development loans at reasonable loan to value ratios, you know, fifty sixty maybe sixty. And to suggest that we have an imminent cycle that's going to impact the performance of that loans of those loans. Excuse me, Um,

that's tough to see. I mean, we'd have to have something that I think, um exceeded what we experienced ten years ago for a bunch of six d l TV construction loans to jam up Bank of ozarks earnings. If that was the implication of the report, I want to ask you about senior housing and what you're seeing there in terms of the kind of build out that's happening. Well, you know, we've gotten into that space about a year and a half ago. We've done a handful of deals.

We're very excited about it. There are things to love and things to hate. Like anything, the things to love

are pretty obvious. Obviously, the demographic sort of tied away that's coming represents tremendous demand for the space now, of course everyone knows that, and the upshot is everyone's in the business and the challenge we're facing as a tremendous amount of capital in the apartment sector has tried to sort of branch out, if you were, the last couple of years from conventional into senior student and so on and further geographically, and so the playing field is very crowded.

Senior is a very uh, how to say, you have to be very careful in the senior business. It's not just real estate. In fact, that's only part of the conversation at best. They're all sorts of operating issues. You have to be smart about knowing what you know and what you don't know, and solving for what you don't know, uh to uh to take on one of these one

of these assets. So we think we've done that and I like the space, but it's something you have to tread cautiously, and you have to be careful when the capital comes in because if you're going to play in a space that is a little bit more operating risk, you ought to be compensated. And what we're seeing or a lot of senior housing deals with the returns of the same as conventional deals, and that's the result of capital flow, and that's when you can really, you know,

get burns. So you have to be very, very careful. I love the space. I like it long term, big picture, but it's a time to proceed questionously. Scott, I'm wondering, inter just since we talked so much here about tariffs and cross country capital flows, I'm just wondering, do you see a reduction in investments in US real estate from say Chinese wealthy individuals. Well, you know it's interesting, um, where we played geographically, we went cross paths with that

quite as much. You know, historically, foreign capital, whether from China, Persian Gulf, Latin America would have you would prefer what I would describe as major coastal metro areas. So you cross paths with that capital, either partnering with it or competing against it quite a bit more in New York, DC, Miami, l A, San Francisco, VERSUS say around you know, Tennessee and the Carolinas and whatnot where we invest. Um, So I don't think we've observed any difference in our playing field.

My understanding, um, from friends who do some of that other investing is that they have observed, you know, maybe a fall off, for instance, in Chinese capital coming in and so on. Um, But again would impact our business directly that much. Mid size cities in the United States. Tell us about the health of mid sized cities for the real estate business, Well, you know, we're obviously a

big fan of those markets. I think, Um, you know, those markets represent a little bit more interesting pricing, if you will. Then some of the bigger markets because of capital flow. I will say that that dynamic has changed. I thought I was really smart going some of the secondary tertiary markets five years ago, like a Louisville, Kentucky exactly, or even smaller you know. Um, we have a lot more friends who have kind of worked their way to

those markets. As I was talking about before, the capital is drifted out not only by product but by geography. So we don't feel quite as you know, nearly as much sort of ahead of the pack, if you will, as we did several years ago. Nevertheless, I think on a relative basis, it's still fair to say that from our perspective, the risk adjusted opportunity in secondary and tertiary markets is superior to the risk adjusted opportunity and major

coastal markets. Now that's a controversial statement many of my institutional friends. You know, I'll get some text saying, how can you sit there and say that? Really, I hear that from a lot of people. Okay, well that's what I'm saying. More people are coming our way. But historically, right, you know, cap rates, you know what to say it. You know, um, as as we came into this psych you know, cap rates in New York and San Francisco.

Uh fell quite a bit faster than cap rates in you know, Chattanooga and Greenville and whatnot, And there's some logical course to some spread. But my view is I thought, on a relative basis at the origin made more sense in the smaller markets. So um, you know, we're big believers in in midsize metros. We think they've changed culture. We think that changed commercially within your kids getting out of college and move into a Louisville, Kentucky is a

different conversation than twenty five years ago. And so as a result, we're happy to own apartments that we have to be the same thing. I have to underwrite, you know, our our locations on our sub markets very carefully and make sure you're comfortable with diverse and deep demand drivers and all that relative to the size of the market. But tell us it makes terrific sense, and that's very important. I'm saying that for our property type. If I was in the office business, I might be a little more

cautious in some of those markets. And you know, as I used to be Scott Lawler, thank you so much for being with as Scott Lawler as founder and chief executive officer of Waypoint Residential normally in Connecticut. Be joining us here today in our eleven three oh studios. Right now, let's head over to a D and Win Studios in Washington, d C. Nancy Lines is there with world national headlines. Nancy, thanks for listening to the Bloomberg P and 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