Wall Street, Energy, And EVs (Podcast)

in Shinali bassik Uh. She is our Wall Street reporter to talk to us about the reaction to j Palell and what to expect the rest of the week and of course after the long weekend. First off, though, I want to remind everyone listening that Bloomberg Markets is brought to you by Commonwealth, supporting more than two thousand independent financial advisors with the solutions they need to grow a thriving business. Commonwealth go where you grow. Visit Commonwealth dot

com to learn more. That was so good, Thank you, well, thanks Actually forgot that I had to do that until after I introduced Shnale, So that's a little bit awkward. That's okay, shally Um. What's going on? We basically the market. I noticed Katie Greifeld in her newsletter wrote the markets puked on Friday. I don't know if I love that terminology, but I guess that's a popular thing to say. Well,

it's funny to think about the market puking. You do have volatility rising a little bit once again, it's at twenty six now if you look at the VIX and obviously all summer, even with volatility muted, you've had von volatility, the move in deck still moving around a bit. So what was the reaction you read one of my major

notes that I got. When you look at how the by side is perceiving what happened at Jackson Hole, there's a lot of questions about not just what's going to happen in the next two months, but what happens in the next six to twelve months. The frustration here is, yes, they're happy that forward guidance went away, but at the same time they don't trust the FED to be consistent over the next six to twelve months, and well, because

it has over the last six to twelve exactly. Actually, there was a great story out on the terminal that we me and my sources have been kind of sharing around by Katerina Suriva, and it's about the history of Jackson Hole over the last two years under Powell and how much of his manifesto has really held up over the last two years. So credibility is really the question here um and the willingness to combat inflation. What else are you watching? What else am I watching? We'll see

we're talking. We started this talking about the Vicks at six. Why does that matter from a Wall Street perspective, from a banking perspective, the post Labor Day rush, should things stay muted, there was a sense that underwriting could come back, that maybe we can see an I p O or two again, a bigger one. There are some big names out there that we've been talking about instat cart for example. I know Emily Chain was talking to Venture Capitalist last

week on her program about something like that. Can deal making comeback in true reform? It hasn't been that bad, but underwriting is really what the expectation has been. If you see the vix keep rising. And then also remember quantitative tightening is taking off in large reform in September and to talk October. Should markets tighten up again, then all the hopes of doing all the things that make the banker's real money start to go away again. Underwriting.

What does trading look like into the second half of the year. You know, we talk about this. Paul, if he was here, would already be asking about it. Is what does it mean for bonus season? Paul cares about is what bankers get paid, because Paul was a banker and then all he cared about was what he got paid. Yeah. Well yeah, And and to be honest, you know, this is where the rubber hits the road. When you come

back from Labor Day, there's a lot of travel. I know, I'm already going to be in Miami and Paris through the end of the year. We have our own conferences. Why are you going to Paris? Um to interview, to see you of Morgan Stanley and kick care and so you take like a week off before or after so you can just enjoy this. Okay, care to say this? I was literally over the weekend going to actually ASHIONALI

if we should take a girl's trip to Paris. But now we can't do that because apparently James Warman is more important than me. Um, let's talk to Almir's that maybe you'll give us some time on both ends of the trip so that you and I can come back here super happy as we deliver reports. But you know the reality is two weeks right after Labor Day or the full week after that, you have a lot of

things in New York as well. You have super Return to New York, so all the big private equity executives from across the US and internationally are going to be in New York. You also have Salt, which is that Anthony Scaramuchie Skybridge conference. So I know, you know September is heated, it's booked, but again the markets are choppy. Well with conferences and with interviews, but not with I p o S or with launches. R'm talk. It's a lot of talking to investors, it's a lot of preparing

for more stable times ahead. But again to your point, today's conversations lead to tomorrow's deals, right, But this year, I mean, what's deal activity look like, what's ipe O activity look like? What's it seems? Kind of it's it's

really bad out there. I don't even know what else to say, because remember last year, the year before that, people were excited about not just I P O S, people were also excited about direct listings, they were excited about spacks and now kind of the venue to go back just licking their wounds from all of those things that they unfortunately got involved in last year. Regrettably. Right, the hangover is real, and it'll probably be real into

next year. Maybe one or two will squeeze through, but again, a lot of the things that really fueled the banking system this year does not seem to be continuing into next year. And again, VIX at today, we're in the last week of August. What does that look like into next year? The Future's curve is telling you that it's going to get choppier into the end of the year. It's pretty crazy. Although I have to say the VIX

has been a pretty poor indicator of action. I mean, there were times last month when it felt incredibly heated and the VIX was doing a whole lot of nothing. Now, I know Friday was a big down day and that's when the VIX climbed up to basically twenty six, but it's it's not moving around that much today, and I I just don't know about the VIX as an indicator. We haven't jumped above thirty six, so I don't think the VIX needs to get all that high to stifle activity.

Twenty five is the one year average. Now that that one, we haven't jumped above twenty six. You mean thirty six is where we were in March of right, Okay, so we haven't jumped above thirty six, and today we're at twenty six. But you can get to and things already still feel pretty choppy out there, all right, Join Allie Bassik, Wall Street Reporter, Thanks so much for joining us. Let's get over to Pete Anderson right now, joining us from Anderson Capital Management. Pete, I want to get first year

take on um Powell's eight minute speech on Friday. It really the whole Jackson, whole event, Um that seemed to drag markets down pretty substantially last week. Well, good morning, and yes it did in eight minutes of really devastating testimony, in my opinion, very very frank uh uh narrative in terms of the way he had been speaking. So I

think that's a pretty strong message. But you know, the other thing we have to keep in context is that's one speech of many, and he is trying to figure out where the heck we are in this market cycle, just like the rest of us. You know, they have data. We all have the same data. And it is very challenging right now to formulate, you know, a pretty rational picture about where we are and how we should handle where we are and where we're going. So he's trying,

like the rest of us. Hats off to him, But there are many many possibilities in this scenario. Isn't there certainly longer term? Um, it's a big question mark about what the FED does. Of course, in the next few months, it seems they are determined to continue raising at a

if not seventy five then fifty basis point clip. What do you expect, Well, I expect that in lation is probably going to take care of itself, uh not completely, but you know, we have already seen really pretty remarkable changes in gas prices, housing inventories, and even lumber applywood prices, all those types of things, and we didn't require FED intervention for that. That was just supply and demand taking

over classic dynamics like that. So what I worry about is that the FED might be acting too aggressively, and as you know, there's a delay and the impacts of his decisions, so we might be heading to a period where he might overtighten. As we see naturally, inflation just kind of receding. So that's what I worry about. But I do think that he probably will do fifty five uh coming this next month, and I do worry a little bit about that because I think by then we

will see even more signs of inflation, you know, our deflation. Sorry, where we're not really focusing on the natural dynamics that's applied. Demand has And remember where there is no playbook for this recovery because it is truly unique. So as we struggle to look back at history and say these are the rules of thumb, I don't really think we have

many rules of thumb given this unique circumstance that we're in. Well, Peter, you say there's no playbook, But let's go back to just a couple of years ago, where you had a series of rate hikes, you had quantitative tightening, you had an equity market that even by then at that point

was also considered extremely hot and extremely overvalued. Isn't that the playbook to go by, the idea that the stock market can actually handle this QT and can handle these rate hikes because it has before well very good points. And you know, I struggle with that myself, to be honest with you. But I do think when we look at the root cause, where we find ourselves presently very

very different from anything in the past. I mean even two thousand eight for instance, which I think is the most comparable in terms of the state of confusion that we're in right now. So I look at what caused us to get here, and I find that the cause is unique. And because the cause is unique, I also

think the solution might be unique. And you know, we are desperately hanging on to every single data point that comes out, and many of these data points are approximations, So I think you have to blend all that together. I know what you're saying in terms of, oh, say, yield curve dynamics and rules of thumb about you know, if the yield curve is inverted. But even that, this time I think might be different in terms of, uh, you know, what the FED can do. You said you're

concerned about overtightening. What what does that look like? Overtightening? What happens to an economy of this economy? Because it is pretty unique. M Yeah, I think, um, if they acknowledge edge that lets let's assume they do overtighten. Okay, and that's the biggessumption. But let's just play that scenario out then. I do think, um, if they acknowledge that

they have overtightened, that could be a market rally. However, if they are denying or ignoring that and the market starts to signal that to them, that could be more dangerous because then we don't know what the next steps the FED will take well, and the and the effect on business, the effect on investment, the effect on consumers. How how bad does it get for the economy. I think it could be very serious in that, Um, you know, higher rates could just stifle a natural recovery. And that's

the problem. You know, if you play out just as I mentioned, say lumber prices or housing inventory, you know, just imagine how that could get crushed if we actually put the brake on too strong. So, you know, nobody had envies the Fed's position, but I am hopeful that

they are intuitive enough. And I hate to use the word intuition when we're talking about these kinds of things, but I do think it does come to the forefront where you have to try to blend all the scenario and signals that you're getting and try to incorporate the fact that we got here from coronavirus and it has impacted the nation in the world. Those are the things you have to factor in that are very different this time coronavirus. And then you know, like trillions upon trillions

upon trillions of fiscal spending. Pete, we never have enough time with you. I'm so glad we could spend we could get you on the show though, So thanks so much for joining us. Peter Anderson is the founder of Anderson Capital Management. Let's bring in a true expert here, I mean a Baker chief OPEC correspondent and Dubai deputy beau chief of Energy Intelligence. Uh, let me put that question to you. Thank you for joining us as always

back or excuse me, I am standing corrected. Let me ask you why do we see that spread in oil at the moment? Hi, good morning and thanks for having me. Um. Yeah, there is a huge spread between the two, as you noted, and uh, perhaps I mean we're we're going to see a further spread. And I mean this wasn't the case a few weeks ago. You saw that Brent fell to

ninety dollars. Now it's back to a hundred and three. Um, and this mainly happened really because after comments UH from the Saudi Energy Minister hinting that Okay Plus had previously cut production, and that comment was enough for the market to realize that cutting production might be on the table again. So we saw Brent rise based on on that news. UM, whether or not we're gonna see the Open Plus group go ahead with that hint of a cut remains to

be seen. The group is supposed to meet on the fifth of September and they say all options are open, but I think I mean, just looking at Brent prices here, UM. The main reason I believe the Saudi Energy Minister hinted that at these cuts UM wasn't really to to raise prices. It was more about gaining UH control over the market. He was worried that overbarish or over bullish uses moving

this market. Speculation is moving this market. Use um daily news that we're seeing that perhaps the US is going to reach a deal with Iran and Iran would supply more barrels into the market. I mean, there's the influx of news and that's influencing the market. So I would say the market in general oil is not reacting on fundamentals, it's more of a kind of psychological disturbance or to borrow a phrase the Saudi Energy minister used, he says, it's a it's in a stage of like instab pity

uh and she's afraidia. Um. So that's that's the situation. Uh. What's the real likelihood from from your vantage point of Iranian barrels coming on to um, you know, the Western market from here from America, it looks incredibly unlikely that that something's really going to happen that would lead to, you know, those sanctions coming off. Sure, UM, I would

agree with that. I mean, I know that from from the Iranian press or Iranian media, even from Iranian officials, they seem to be a lot more optimistic and they want to keep reminding the market that in order to uh to to to to move prices down, Iran needs to come back. Iran needs to fill that gap there isn't enough spirit capacity and they're able to do that. But just um, thinking about it in terms of signing a deal with the US, I I completely agree with

what you're saying here that it's really complicated. Negotiation is ongoing, and I don't see the steal getting signed anytime soon. But that doesn't stop the market from reacting. Every time we see a proposal or talk of the proposals, we're seeing prices move on that. So that's that's a fair point in terms of spare capacity, I mean, talking about cutting production makes sense to be that the market would react to that. Talking about raising production, I mean, how

much can they really raise production? Um, Well, let's look at the group as open plus. I would say that there are only two members out of that twenty three member group that have spare capacity left or have capacity that they could bring to the market and Saudi you Ai and Saudi. So between the two, I would say they're sitting at UM two point five two point three million barrels. Uh. So that's that's the amount that could

be off to the market. But bear in mind that both countries they don't want to max out their capacity because we're at a time here where sitting on spare capacity is incredibly valuable. It's become more valuable than than actual production and provides these countries a lot of leverage and political leverage, and I think that part of why the Biden administration. Biden visited the Jedda recently was because Saudi Arabia still sits on that capacity, so they're not

gonna max out to twelve anytime soon. And you know, UM not have that in their hands. So I mean, thus the supply side, speak to us a little b about the demand side. I mean, how do you go about calculating this kind of stuff? I really studying the demand picture When you do have the likes of China and India buying discounted crude from Russia, still, how does that affect the demand pressures on the commodity market? Um, well, we we saw. I mean OPEC predicts in three that

there is gonna be an increment in demand. It's it's not going to be at the same level of two, but there's gonna be increased demand. The there's a risk of the recession still hitting and again that's uh that's impacting uh markets. But uh, I mean that small demand increase that really needs to be fulfilled by the remaining spare capacity, which isn't much. UM. OPIC members remain optimistic about the demand side, but also very cautious. UM as you noted that, yeah, Russia is diverting a lot of

its crew that is normally sold into Europe. Now it's being sold at discounts to India and China, who we understand our our storing a lot of it and straight back to those Europeans at or straight back exactly doing that cycle, which which is happening. Uh so they're they're

taking advantage of the situation. But at the same time, I mean we've we've gotten a lot of calls from from from people in India in China asking us if the Gulf is going to be reducing their their allocations there and looking to sell their oil at at higher

prices to to europe um, which isn't the case. I mean, the Gulf states haven't cut their allocations well, and I mean a lot of a lot of European countries are also still buying Russian crude, right, I mean these uh Italy, Yeah, we we we can't pretend that everyone is UM following along and it doesn't even kick in. I don't think until February the real UM sanctions there. I mean a great having on. I hope we can get you back soon because your insight and your intelligence very key to

helping us to understand these markets. I mean, a baker is chief OPEC correspondent at Energy Intelligence. We're watching uh brent crude At one oh three forty two. I got a great message from Dan Curtis earlier, who is he's one of one of our producers in London. I believe he's your ball um every something. That very cool, he said. The Tesla model s uh sixty, so that's the cheaper one. It has a sixty two kilowatt hour battery with a two mile range, meaning it's about zero point three kilowatt

hours per mile um. So he has worked out through that at a thousand euros per megawatt hour, which is one europe Er kilowatt hour, that works out to like thirty euro cents per mile and as I said, red parody, so that's it about the same as thirty cents cents um. Fuel economy in Europe, the average is six leaders per hundred kilometers that's how they measure it, instead of miles per gallon or about zero uh point one leaders per

mile um. Premium gas in Germany is one seventy nine and euros, which as we know is one dollar and seventy nine cents per leader um or seventeen cents per mile. So in order to have parody between a Tesla and an internal combush an engine car, one that burns gasoline. Um, with gas at these prices, electricity needs to drop to five and eighty six euros or dollars a kill one hour. Right now we're approaching a thousand, So right now it's more economical to drive a gas car in Europe, which

I thought was that's is interesting. Actually, now that you've like, let's bring in Kevin Tynan from Bloomberg Intelligence. He's a senior automotive analyst and Kevin, you know, there are a couple of news events that prompted me to say, let's get Kevin on. First was the news out of California that they want to um ban uh the selling of internal combustion engines by so no more gas engines by then. Okay, it's a long way off, but is that possible? Uh,

well saying it as possible. And and by the way, I'm with you on the James Taylor thing. Um but Kevin, that was a big trail. Yeah. Well I'm a big Carlie Simon fans, so anyway, but um but you know, I I laugh because I don't think any of these people are going to be making decisions in if we're

put on that path now anyway. Um, And I still feel like, and you know this matter, right, we talked about this all the time, like there's so many unintended consequences of this technological singularity of going to e V right that that I feel like we're just looking at one very very short part of the process, I mean, from mining of materials to disposal of batteries that says this is better, this is the way we should go.

And I'm just not sure. And I think we're starting to hear a little bit more about like, hey, maybe we need some diversity in how we're powering these things and what choices we have as consumers. Yeah, yeah, I mean I I just I just feel like we're so focused on this one on the tail pipe or lack thereof, and saying this is bad, and I'm just not I'm just not convincing. I'm not anti e V, I'm not

pro internal combustion. I'm just saying I think we're being very very nearsighted on this hundred percent, because who can forecast out I mean, it's hard enough to forecast out the other story. I don't even know what's for lunch today exactly. Uh, well, if Paul Sweeney were here, he would tell us he always knows what. Yeah, sometimes I think there's actually a function on the terminal that tells you what's for lunch. At least here a Bloomberg cho

chomp go. That's right. Another story over the weekend that is um closer on the horizon France, because I guess I promise by Macron during his campaign, France is now going to or at least it thinks it can allow any consumer to lease or rent an electric vehicle for one hundred euros a month, a hundred dollars a month, because we're at parody. Um, that to me seems nuts. I mean, what if too many people are takers? Yeah?

And and this, you know, is one of those things that you know, you have to think about the entire transaction, right, And I've said this for years that really who controls this is the manufacturer. So what basically is being said here is like, yeah, you you can create demand at a hundred dollars a month, can we do the supply? And how are those manufacturers made whole by the government? Right? So the vehicle costs a certain amount and you can

give it to somebody. You can sell things improfitably all day long if you want to. But does the government step in and say, like, hey, that least should be you know, four times that five times? I'm guessing there. I'm guessing they're going to make the manufacturer whole. But even if even if they said to the manufacturer will give you a million dollars a month, they still can't produce that many vehicles that fast time. That's exactly right.

And where are you going to charge them? I mean I don't already can't find a charger, and you know, when I'm driving an e V just me around New York. Admittedly Paris could have more, but I don't think it's that manymore. All right, We don't have time, unfortunately, but Kevin, thanks so much for joining us. Pretty good here in the studio with me, Matt Miller and as you know, Cretty,

I lived in Germany for many, many years. Um studied there for a little while and tubing in and worked there for Bloomberg couple of stints, and I love the country. So with all due respect, I'm gonna tell you something ridiculous about Germany under the current system. And this is regulated by law, energy producers in Germany that have lower costs or could charge lower costs to consumers, like wind energy. There tons of windmills around Germany, or solar power providers.

Their prices are set by whoever has the highest price in the market, so they could offer lower prices to consumers with wind and solar. But since gas fired power plants demand higher prices, wind and solar prices are set at those levels. Is that not ridiculous? It so, just to be clear, it means that you can't actually afford the renewable energy. No, it means that they can't charge lower prices. The regulator makes them charge the same price

as whoever has the highest price. Right now, I think Robert Habeck and some others in Germany want to reform that. Like obviously, let's bring in Maria today, a Bloomberg opinion reporter, and she is deep in it when it comes to energy pricing, energy shortages, and European law and regulation. Wait, first of all, where are you, Maria? I'm uh and you know what, I'm gonna giving a little secret, but

just don't tell anyone. I'm on my way to meet our friend and colleague and Marie, and this time it's fun, not work. We're going to get to Vita. I mean, it didn't invite us to me, just sounds like work, but I get it. UM for young people, it's a great place to party around the clock. In terms of UM European energy prices UM, what is going on over there? I mean, you've already got a huge crisis due to supply shortage UM thanks to Vladimir Putin's war in Ukraine.

But the regulatory framework seems ludicrous, not just in Germany but across the continent. What is ursula funder lyon UM? The EU President planning, on commission president planning on doing about it. Well, listen, Matt, I think to me the

relevant thing today that Brussels finally woke up today. Remember for weeks and now already you know I wrote about this at length back on TV by the way next week, and essentially they kind of seemed to be in this illusion that yes, winter is going to be very tough, but somehow we'll manage. But there was no policy action behind it. I think last week, of course, where every record and you know this very well, was smashed on the gas market, the futures market, they really kind of

something hid and and and it really quicked. The market is broken and the issue here is that it goes down to consumers and we're in for a very tough winter. Today Brussels finally woke up and to me, that's a positive spin on this. Today we heard from the head of the Commission of Underlying which she said this is not just about demand destruction, and nonetheless that is the key issue. By the way, they really say this behind

the scenes. It has to be about demand destruction. It's the only way you can deal with a supply shock of this magnitude. But the other thing is the electricity market. The energy market in Europe's very complex, but it's this isn't a similar market. It really changes by country. You know, it's very well you're in Germany, I mean Brussels. We probably have a very different energy market the two of us. But one thing, and you alluded to this, is that

gas is really setting the price for everything else. Gas is going through the roof. It trickles down to everything else renewable. The attitude that it priced all of this, and I think for European officials is now very clear that they have to aid stage and intervention and to change the way the market operated. So I think we're heading into a new space in which gas is not going to call the shops at least the price for it.

And I was having a conversation with a contact of mind, and I asked him, you know, what does it mean? And he decided a terminator. I mean, we have to go all in into this market, but also change the fact that gas should not be the benchmark. So what about how do you actually decouple some of these markets. Is there any sort of methodology that's actually been put forward on how you actually do this or is this still just in the early idea stage. Look, I I

think it's very early days. This is gonna warrant a big debate, the fact that this isn't a single market and the rules are not apply to all of the same way. But I think if I look at the countries like Spain and Portugal, and of course I always keep a very close eye on my home country, I have a national bias there. But to me and I bring up scene because in this case, the Spanish, I kind of thought is coming a year ago, and they looked at their own market and they went, we don't

really use that much gas. We have a lot of renewables are electric that is jumping for ways that we do not think are warranted or actually reflect our energy mixed and consumption. So we want to break away from the gas. They pulled out of a single bunchmark. They were able to get exemptions from the country which they separate the gas from the actual cost of making the electricity, so they were able to low ball their bill. So there was an uncoupling there from the electricity price to

the gas price. And if you look at bills, of course have jumped in Spain and Portugal, but there are nowhere near the prices that we're seeing in jur me and and the French or Belgian Tino. The pay maybe six time of years for Spanish castle was more a hundred fifty so plus there was an effector that really brought it down. Could this be replicated for the entire European market. I'm not sure, but it does also clues so there are ways to get flexibility and also break

away from gas, which is now the big issues. And Maria today, oh thanks for joining us. I can't wait till you re emerge on Bloomberg Television in September. Everyone, have a fantastic Monday. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller. Put on false Sweeney

I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio