Bitcoin's Usage Has Collapsed, Schoenholtz Says

great to have you here. Happy holidays, my pleasure. Are they really happy holidays for business? Based on what you know out of the tax overhaul bill and what you see as in terms of changes in any financial regulations for businesses, Well, let's see leave the financial regulations aside for the moment, but and even the tax changes aside, business is doing pretty well. Profits are high as a share of GDP, so this is a pretty strong period of the economy. Growth is above the level that we

can sustain over the long run. So UH and unemployments down to the lowest level we've seen in more than a decade. We may hit the lowest we've seen since the nineteen sixties during eighteen So this is a strong period for the economy. What to what do you attest this? Uh, this strength in the economy. Is it government policy? Is it natural? Business cycle? Credit cycle? Look, this is the ninth year of expansion and so UH, this has been a disappointing expansion for most of its history. But we're

finally getting to a point where we're approached. We're very close to full utilization of labor resources. UH, and that's exactly when you would expect businesses to be looking for other ways to expand. Investment picks up. UH. And in addition, profitability has been high for some time. So if anything, investment has lagged profits. I guess, okay, but I guess one of what what in your mind based on your analysis, what accounts for this strength and corporate profits? What accounts

for the low level of unemployment? Is it a policy? Is it political? Is it natural? What is it that you believe accounts for all this? The single most important thing has been a very stimulative monetary policy over the last seven or eight years. That has taken a long time to have its impact. But UH, central bank policy in the US has been very accommodative. We've stimulated financial conditions, so stock prices are high, bond prices are high, meaning

bond yields are low. All of that eventually has had an impact on stimulating aggregate demand in the economy. All right, So I gotta jump in here, um kim, because we were talking a bunch on TV. But I'm just curious, why does it not feel terrific and why? And I guess most importantly is we've talked about the gap between the folks that are wealthy getting wealthier and those who are not. Does anything and better in terms of reducing that gap, Well, let's take the two parts separately. First,

wise have been so disappointing. Um, I think there are a variety of reasons. One is that long run growth appears to have slowed, and we were observing that during the recovery, So productivity growth has slowed a lot. That's really hurt us over time, and that's really a problem

for for our long run living standards. Uh. Second reason is that the in the after effects of the financial crisis were just enormous in reducing the ability of our financial sector to provide support for the economy and and and also of the ability of non financial firms to manage their expansion. So and households were severely damaged. And think of how much damage there was the household wealth for an extended period of time. So this is this

has been a disappointing recovery. It's amazing that we're in the ninth year and do see so few imbalances. It's partly it's taken so long to get here, but we're now here. And that's why given that we're at this stage, this is when you'd expect investment to pick up. So what worries you? Then, well, let me just respond to your other question of that income equality. Um, Frankly, I don't see that getting better without government action. And if anything,

government action has worked the other way. Um So, Uh, you know, we've been in this long transition period in which, um, there are benefits to people with higher incomes and higher skills and uh, and that's still there. There. There's a huge premium for getting a college education today. UM, so people with more skills get higher earnings, and that differentials not going away quickly. So I don't think that gets

corrected without government changes. Probably for me to introduce the actual answer, but I'm just going to pose something and Carol, you know, you bring this up, this idea that people do not feel as if the economy has entered this strong position, and Professor I would just wonder it hasn't. Is it possible that a lot of this has to do with security, and I mean physical security, because physical security has created let's say, time constraints on everything from

going to the airport to going on a train. In other words, the in the Sekey apparatus, the security apparatus in the country is vastly different than it was and let's say previous recoveries. And as a result, you're being required as an individual to have more patients, to set aside more time for things that you don't necessarily like

to do, such as standing in a line. Also, you see around you the effects of lack of spending on infrastructure, so that can make you feel terrible when you hit a pothole or when you're you know, being forced into one lane and driving, you know, circles to try to get to the airport departure gates. Is that part of what makes us feel this way? Him, I can't say with certainty that that's making such a that's why. That's why I offer. But but here's I would give you

a simpler hypothesis. Because we started from such a very high unemployment rate. In this expansion, we've had very low wage growth, and so people's incomes just haven't expanded until recently. And if you're asking me as an economist, what would I focus on first? That's what i'd focus Why is that not happening? Considering we talk about the improvements in corporate profits. Revenues are growing, um, you look at some of the CEO pay packages and they're doing just fine.

Why has it not trickled down? Is it just that companies have not had to pay to get workers until relatively recently, there's been an abundance of labor supply relative to demand, and I think we're in that period precisely when that's changed. We're in the sweet spot where the economy is operating with nearly full employment, and that changes the way firms behave. It means that they're willing to pay more for workers. It means they're willing to invest more.

This is when we benefit from the expansion. Usually in most expansions, that will happen a lot earlier. The Phillips curve. Sorry, the Phillips curve actually works. It's not clear that I would want to rely on that for policy, but I think it's probably the case that when the labor market gets tighter, that causes firms to bid for labor. It just takes time. Uh. And remember, you know, we're in a different labor market structure that we used to be

far less unionization, so there's uh less threat of strike. Um, but from time to time we will see strikes precisely because labor is less abundant than it was when you mentioned corporate profits. I just want to follow up on what Carol said about that translating into higher wages. If the corporate profits are do indeed exists, they must exist somewhere. They either exist in forms and dividends, share buy backs,

or just cash on a company's balance sheet. Uh. If that's the case, is it really just because workers will spend the money that the economy will benefit because the money is there, it just isn't being spent. Is that which are Well? You know, the fact if firms get profits doesn't mean it automatically gets spent. It does mean it does raise the question are they doing the investment? Is someone who has greater wealth willing to spend more.

People may want to accumulate wealth without spending more, especially when they live in a period of uncertainty. But what we're seeing now is the personal savings ratio is going down, right, and that's telling you people aren't spending more. That has begun to change. We went through a period early in this recovery where the savings ratio went up. I was telling you they were really nervous about the environment in

which they operated. So uh, I think we're finally getting to the point where in most recoveries we would have been at this stage five or six years ago. See Carol, it really just oil ball boils down to making more money. If you make more money, you're gonna feel a lot better. Works for me exactly. We're waiting, right, We are waiting. We'll have to start to see if we do see

more wage pressures. Certainly the stats, the statistics, the monthly labor reports haven't necessarily bore that out, but that will

be keeping a track of it. Joining us with our continuing conversation is Kim Shoon Haltze, n y U, Professor and director of the Center for Global Economy and Business and I guess I would be remiss in this century if I did not mention that bitcoin has increased about nine and a half percent in values, trading at about fifteen thousand, eighty three dollars a theoryum also a little

bit higher light coin other cryptocurrency gaining three percent. And Professor Schoenheltz, you were saying just during the break that you know that things are getting into a bubble if you get a lot of questions about bitcoin. Did you receive a lot of questions about bitcoin over the last week or so? Yeah, I think that one of the hallmarks, one of the hallmarks of a bubble is that it

becomes the topic of conversation. And uh, I think partly because of the enormous press attention that it's getting, and that's reflecting the price action in the markets. We're seeing a lot of people who have very limited knowledge about this asking questions. It's fine to be asking questions. The danger is that the price movements sell themselves, induce people to buy. And when you start to see that, that's

that's what you worry about a bubble. Was that you talked earlier on TV about Bloomberg surveillance, about fomo fear of missing out, or maybe it was another even someone else, But it's a pretty common fear that people think that they have to get involved in something. Is that when it's on the way up, and um, that's worrisome. We've seen that with many other assets. This is not unusual. Fortunately, it's not so big that it will affect the economy at large if the bubble bursts. But um, but it

is worrisome for the investors themselves. Was that an investment conference? Michael Lewis gave a big keynote. You know, best selling author um Liars, Poker, Flashboys, The Big Short and uh and knows a lot about the financial industry. And someone asked him, you know, why haven't you written about bitcoin. He talked about being in a gathering with other folks who were in the know about bitcoin, and he said, well, can I buy anything with bitcoin? They're like, yeah, you

can buy a cup of coffee. We'll take you to the corner. They went to the corner that he had some bitcoin. He couldn't do it, they couldn't actually make the process happen. He finally throughout some dollars and did it. But his point was, tell me when I can actually do something with it, then then I think there's a story. There's something much more productive here. That's a great way to respond. By the way, I like Michael Lewis's books, so I'm not surprised. Um. The question is what are

the fundamental values of a bitcoin. It can't be a dividend that will get paid because bitcoin doesn't have any earnings, So it has to be from the use, the widespread use of that as a means of exchange. In fact, over the last year, the use has collapsed. Percent of trading in bitcoin is gone over the last year because the Chinese authorities shut down the exchanges the dominator, So most of the trading in two thousands sixteen in bitcoin

was in on the Chinese exchanges. That's gone. Having having said all that, the very concept though of a should we call it maybe an ultracurrency or an ultra means of exchange. It is not part of the financial system as we know it. Do you think that there's any possibility that that the digital world will come up with

an answer for that? Look, there are central banks that are exploring now whether they want to create their own digital currencies, and you can see why there's an incentive because governments look at currency issue as a good way of financing themselves. It's low cost compared to issuing interest

paying debt um. But even in that area, there are worries about having digital currencies that are run by governments, because the question is will people eventually prefer that to having, say, a deposited a bank, And if they do, will will the banks be able to raise their liabilities with which to provide the credit in the economy. If at some point in the future we end up depending on the central banks as digital currency issuers to be providing credit,

we will have replaced the private intermediation mechanism. That's a worry that I have about any digital currency form. And the if it's state run, isn't that happening already to a certain extent, that that middle person, that middleman, whether it's in the banking industry or the financial service, this industry, really any industry is getting crushed because the margins are just getting so thin. Well, we have to look at

the statistics. I think when you were asking the question, I was thinking you're right to an excellent extent, because the balance sheets of most of the central banks have gotten a lot bigger, and during the crisis, some of them were purposely acting to replace intermediate private intermediation that was no longer providing the services that we needed. But in a normal expansion, I think it's really worrisome to have the central bank replace the private sector as the

supplier of credit. Eventually, that raises the question whether credit will get politicized whether sorry, no, no, no, forgive me what I mean to interrupt? All right, So we're all gonna have to try and figure out what ultimately bitcoin is all about, right, and the financial system system is trying to figure that out, Kim. In the meantime, you wrote something over the summer which I want to just quickly get to. We've got about forty five second. You

wrote about the U. S. Treasuries missed opportunity. There are things within our financial system as it exists that we should be paying a tech too. If you could just quickly you know the we're in a better place than

we were a decade ago. The finance the banking system is far better capitalized than it was a decade ago, but that's because it was pitifully capitalized a decade ago, and we're in a better position now, but there's a lot we could do both to make our financial system more efficient and safer at the same time, which tells you we're not running an efficient set of regulations. Unfortunately, I thought the Treasury's proposals fall short in a variety

of ways. If anything, they're not supporting greater capital requirements for banks, which I think would make our systems safer, and they have fallen short of being willing to impose efficiency rules that would help us advance. We have to be watching what's coming out of Washington, because certainly there could be some changes. Kim John Hilped of n Y. You joining us here on Bloomberg's aveillance. Carol Master, Pim Fox, This is Bloomberg. Now. I want to bring in our

next guest. Sharon O'Halleran is the George Blumenthal Professor of Political Economy and Professor of International and Public Affairs at Columbia University, the author of the book entitled Politics, Process and American Trade Policy, and she joins us here in our eleven Trio Studios. Professor how halleran, thank you very much for being with us. Maybe just begin by giving us your thoughts about the tax overhaul plan. And the effects that you believe it will have on the economy,

warranteed even on consumers. So first of all, we know that it reduces the corporate tax, and it brings it in line with many of our trading peers. And we saw other countries doing the same, such as France and even Germany who reduced their corporate tax even below ours. And we see in addition that many of the individual tax were cut substantially, and that was they were significant.

And we also see that this was rather a retrogressive tax in the sense that those folks at the higher end of the income distribution, we're gonna get disproportionately more than those at the lower ends. So for example, if you make ten thousand dollars, you're going to get about ten dollars of BANG, and if you're making over a million,

you're gonna get about seventy dollars of bang. And if you think that, in fact, the this is a stimulus to the economy, the impact of people at at those brackets, if they spend usually the lower incomes spend dollar per dollar, then that's going to have a less impact than somewhat the higher end, who will tend to either save or put that in a less save dollar for dollar impact.

So so okay, so that makes okay, get it that. Obviously, if you're making a lot more money um in terms of the possible benefits to taxes and tax cuts, you're going to see bigger, a bigger bang. Having said that, those folks at the lower end of the income scale, as you said, tend to spend more rather than save it or invest it. Will that have much of an economic impact? Will that make a difference in their lives too? So there will be very little difference at the lower

end of the impact. I mean they at the lower end of the scale. Clearly, they'll most everybody will see some cut. Again, it's not going to have a substantial impact at that at that area. The places where there will be significant impact is what you will see is one they have reduce teach of the scales down and they've closed some of the loopholes, which is good. They've

increased the individual um credits and that's important. So they've attempted to simplify those that the different types of schedules. I think it's been not aspective as they had hoped, but that I think is going to be the effect. In addition, these rates are not permanent. In fact, they fade off by and so in fact we're going to kick back to the old rates. You know, one of one thing I wanted to ask you though about the

process having to do this. I understand the idea of trying to align the corporate tax rate and make it more harmonious with the rest of the world so that we are not at a disadvantage. All right, So, having said that, is there on the personal side? Is there an economic benefit to the reduction of state and local tax deductions? Is there? Sorry, obviously there's an economic bench to state and local But but we didn't reduce state and local tax deductions. We reduced the federal income tax.

That is true. We are actually making it that you cannot re deduced or take out you can deduct, you cannot. So my point of the states where that that exists, where you're not going to be able to reduce cut, you know, deductor state and local taxes, won't those states just have to increase taxes in order to make up for that budget uh shortfall, Because I mean it's still

as if that things have to be paid for. Well, that's not clear that they're going to be able to because the high tax states already going to be at a significant disadvantage to the low tax states such as Florida, and it's going to be very difficult for New Jersey, New York, Connecticut to raise the state and local tex is.

So all of a sudden, there's going to be enormous amount of competition, and therefore the way in which they're not gonna be able to raise what's called the mill rates, right, So the way in which they're going to have to do that is going to be almost through surcharges of sales tax. Okay. The point I'm trying to make though, is that if the United States is lowering corporate tax rates to be more consistent with the rest of the world, we're doing just the opposite when it comes to state

and local taxes. We're making it as if they're all different foreign countries competing with each other and it's a race to the bottom. Right. So one corporate text is the effective corporate text if you look at what ge Spent was paid, was because they they have the best accountants in the world. Okay, that's really their comparative advantage. So that let's sit it straight, So we're just harmonizing

that and cutting cutting out the loopholes. Second, it's already it's we've always had competition between the states over tax and tax structure, and there's been advantages to being in these high tax areas, either because of locality you're in New York, you're in the north Northeast, there's good school districts, so forth, and so on. The way you move to that when you no longer can use your state local taxes is that you use sales tax, you use different

types of excise taxes, use toll roles. Those are the ways in which you get the money to pay for the schools, their highways, the other types of infrastructure that the local communities need. So, Sharon, and just going back to economic impact that your research says that it's unclear what the long term effects will be ultimately from this tax overhaul package, what it will be on the economy,

we just kind of don't know. Well, that's correct. I mean, in the end, in ten years out, about sixty of Americans will be paying more, right, because the individual tax rates are going to be going well, be will be phased out. And consequently, it's not clear whether in fact, this is going to be an overall stimulus to the

economy and lead to greater growth. Moreover, you don't know if at the higher ends that there's going to be greater investment, greater consumption, if it's going to have the trickle down effects that they're all thinking that it will, especially when you're in a scenario where you have very low employment, unemployment, you have basically low inflation, so you're not in the area of the era of the Reagan

economics where that did have a stimulating effect. So it's not clear that this is the environment where a tax cut is going to have a lot of traction. Would you have crafted at tax overhaul with great differences than than what we saw so I would do the corporate tax. I do think that's that is something that has to have had and be become efficient. I would have put in sentence in place to repatriate a lot of the funds I would have done. I think that's something that

makes a lot of sense. Uh, there are different there are inefficiencies within our tax structure. I think I would have tried to simplify first and foremost before I would have focused on the individual cuts because I think just simplifying and closing loopholes would have done a lot for us. Without getting into the nitty gritty. I definitely wouldn't have gone after the the the education. Sharon O'Halloran is with us.

She is the George Bluementhal Professor of Political Economy and Professor of International in Public Affairs at Columbia University in New York, New York. Author also of the book Politics Process, an American Trade Policy. I sounded like a New Yorker

for a moment. Hey, Sharon, you guys recently held a conference up at columb Yeah, you had folks like Jack lou former Treasury Secretary, Nobel Laurie, Joseph Stiglitz, Barney Frank uh many others, and you were taking a look at ten years after the financial crisis, um, and what do you guys find? So we found that, in fact, there's a lot of really retrospective looking at where we are

now by everyone across the political spectrum. And there's a sense that, uh, while the we've the different regulations that we put in place have actually addressed the issues that they meant to address, such as recapitalizing the banks and making them strong and safe, for the next financial crisis that we sort of the ones that we experienced, their

new sets of risks that are emerging. The well known ones such as we've seen, is pushing a lot of the riskier activities out into the shadow banking areas or the non regulating sectors. And those areas are not just hedge funds anymore. There they're they're sort of banks or bank like entities that are even happening online, and so they're completely unfamiliar than what we saw ten years ago and completely under the radar and can be missed absolutely.

So those other areas that are taking place that are becoming problematic are mutual funds. That is another area that people are concerned because that's a huge part of the market, and that's not there's so much lack of transparency in

that market. So that's another area. The other areas that we've seen that's creating bubbles of risk, if you will, are the push to move all of the different derivatives and swaps and all of those different types of financial instruments that many said that caused the financial crisis onto clearing houses or you think that's good because that stand dedizes the products process that those products, puts them on

a common contracts and so forth. However, what that does is it centralizes the risk, and so what's happening is that you have a single point of failure, and so that actually may the increasing systemic risk. So while we've seen increases in the safety and soundness of institutional banks, banks and capital and capital absorbing shock absorbing capital, we're seeing growing systemic risk at various points taking place. So that those are some of the areas that we that

we're coming up within the discussion. You know what, just to follow up on your comment about derivatives and centralized risk having to do with clearing houses, have have we done anything to change the compensation structure so that these kinds of deals that would potentially produce problems are not profitable. I mean, I would imagine that the reason people do deals or create certain products is they know they can make money at it. And if you can't make money

at it, you're not gonna do it. So is it an issue of the sales compensation programs that need changing. So when we think about Dodd Frank, and we go back and look at Dodd Frank and we ask whatever happened to the executive compensation provisions, and we see that it was really the top executives, that top paid executives that were actually going to be monitored and going to have to disclose and you're gonna have to pay attention

to their bonuses and so forth. But as was noted, it's usually not the general counsel that's making risky bets. It's the traders, and they are not regulated and the in the sense that they don't they're not disclosing their different types of salaries, so in many ways, their incentive structures haven't fundamentally changed. Now many would argue that, oh no, there's disclosure. No, oh no, there isn't that clawbacks. There are other types of mechanisms in place. We are they

are much more they are much more regulated. They have to have different types of compliance procedures, So they would people in the banking industry would cite all of those different types of checks, and those are all true. But if you ask the individual what types of incentives are in place, they have many of the same. So if you have many of the same incentives to do much of the same behavior, right, the question is is the compliance And that's part of all you know, everybody getting

a Series fourteen. I mean that's great, But I mean if the incentive is to sell whatever it is you have to sell, well, you know, why would you expect a different result eventually? So, the way that regulations of the Dodd Frank work was to put in more capital, right, to limit the types of risky activities that could it could take, right like in the vocal rule, move out

the proprietary trading. Right. But what's happened is most of that risky activity again has moved outside of the regulated areas. So you can ask, Okay, so the banks and the investment banks, the significantly important financial institutions, they may not be taking those tail end extreme bets, but doesn't mean that they're not happening within this system. So in the current environment, in the current White House, President Trump has

laid out seven core principles for regulating the US financial system. Right, it was an executive order. So based on that, we're not going to get more oversight, right, We're gonna get less oversight right. In and in in the discussions, it was clear that a lot of the substantive issues that were in Dodd Frank were more or less correct. They were trying to do the right things to to make the banks safe and sound and the system safe and town.

It was how they were doing it. Now that the question is in the implementation of those principles, have they got that right or the question was were these regulations in particular, like in particular Voker with those fit for the purpose at hand, or other other regulations that would be more appropriate. And so that was some of the discussion. And here that is what the Trump regulations are the

Trump executive ors are really thinking of. One is their way to make these regulations more efficient, less complex, because they are very complex. When you have regulations like the Vocal Rule that are what four pages long? At that point, good luck everybody, exactly. The only people who really know them are the bankers, the lawyers of the bankers actually, and they're the only ones who can tell you how

to manipulate them. So at that point it's very difficult to not only oversee them, but to understand whether you're in compliance or not. So that's that's Those are some of the issues at hand. In addition, there are other principles about eliminating that. Uh. They want to get rid of the consumer financial protection which is what we saw right, and it was put in place. Um, a baby of Elizabeth Warren, if you will to really kind of watch out for consumers, Um, Sharon, we're gonna have to continue

this conversation another time. There's certainly a lot of moving parts whenever we talk about the financial regulatory environment. Sharon O'Halleran, thank you so much, Professor Sharon O'Halleran. Uh. George Bloementhal, Professor of Political economy and Professor of International and Public Affairs at Columbia University in New York City. Well, as we've reported early your Saudi Arabia expects oil revenue to jump by by three. That would put oil at about

seventy five dollars a barrel. Here to help us understand this is Stephen Short. He is the editor of the Short Report. He joins us now on the phone. Stephen, thanks very much for being with us. So seventy a barrel by three? What kind of percentage do you give? That? A very low percentage of PIM. We have to keep in mind that the only reason why we have a long term economic forecasting is to make astrology look respectable. So that said, I do think the market is challenged

from a number of standpoints. Um most importantly, of course, is the rapid growth of shale production predominantly here in North America, but certainly that technology will expand to other markets around the globe. So, but we recently had an announcement by Saudi Aramco that they were making in some corners who thought it was a very peculiar move to expand beyond their borders and purchase assets, a lot of

assets based on shell here in North America. So we're starting to see the Aramco game plan come into focus right now. And that game plan is based on two phases. First and foremost, as I said, the acquisition of assets beyond its borders. But also we have the announcement that they were going to wean that is, Saudi Radio Government's going to wean their power generation off of crude oil. They burn a significant amount of crude oil in the summer in their power plants to keep those a C

s running in that hot Saudi uh summer. So they're going to make the transition over into natural gas, which again helps explain their acquisition. And they're growing important needs for l en J, so that is going to open up tens of millions of more barrels of crudel that will be able to at the export market, because when you think about it, every barrel crudal that's burned to keeping a c on and SETI is not a barrel you're earning export income on. So Aramco does seem to

be making the steps to boost their bottom line. But as I said, given two things, first and foremost the growth of access to supply. But we also have to keep in mind, guys, that the entire economics of crudal have changed over the last ten years. You have to keep two things in line. With regard to factors that that impact consumer behavior. We've always had the first variable, that is the price shock going back. We've had our our troughs and our peaks going back to the Arab

oil embargo in the early nineteen seventies. But we have never until recently had that second component, and that's the substitute. So the substitute being, of course the growth of hybrid technology evs and so forth, the genies out of the barrel right there. So I don't expect demand to have that commence impact that has had in previous rallies. Include all, given that consumer behavior has indeed changed. So that's seventy

five dollar oil. It's a long way off on that prediction. Uh. And I do think it is going to have its roadblocks in the years ahead. Well, especially when you've got China coming out and they're saying they're going to, you know, plan to ban sales of fossil fuel cars entirely. That huge market has got to make anybody and everybody in the energy market, you know, sit up and take notice. Oh, absolutely, Carol. And it's it's not just in China, of course, there

are headlines over in California. We've recently had a couple of months ago the announcement by Volvo that they are completely going over to two E d s and so forth. So, yes, whether it is commercially successful, whether it's being ordered by government FIAT, uh, certainly. And and this is why you are seeing the major did the dps, the shelves and so forth. Did they are rebranding themselves as a gas natural gas companies. They're they're getting away from that oil.

I was recently at a conference over this summer where a major car manufacturer is um beginning to brand itself as a transportation company. So then when we start the factor in the growth of the potential growth of driverless technology. Uh. It gets to the point where, look, I I have a car for myself, My wife has a car, we have. We have a clunker car for for our older kids. That's three cars in a generation. You know, conceivably we

not we might not have to own any car. If I can call up a lift or an uber and have a driverless car come and pick me up or take the kids to the school, why do I need to own a car. So these are certainly factors that are going to play in hand. And again it's going to keep a lid I believe on crudle prices in the foreseeable future economy. Maybe I'm asking the obvious, but

I'm gonna go ahead and do it anyway. With Saudi Aramco getting ready to do its IPO or hopefully do it's IPO this year, there's been some questions about the valuation to truly and one truly and what what might it be? Our headlines like this, this is again a story about where they expect oil revenue, you know increasing. Bye, it's a few years off here according to people in

the know. I mean, is this just about boosting the value of that I p O. I'm gonna put my skeptical hat on and say, yes, I do believe that is a lot of jaw owning to attempt to keep the price higher. Because obviously you're an oil producer, uh you go for evaluation, you're going for an IPO. You want that your your your product that you sell as high as possible. And that's why I do think that this was the announcement that they're going to take all that.

You know, that transition of moving oil from their power generation to the export market certainly will boost the bottom line. And Wall Street has taken notice. If if we look at the bets that trade oil traders are taking on with higher oil prices, they've gone you know, once again, they went all in last November after the first OPEC announcement to cut. They got burned terribly in the first quarter.

But they're they're at it again. While she's sitting on record lunch in the Brent Crudel market, sitting on a four year high length shipping UH in thenamics wt I contract. So they're the ones a lot having buying this market. We are speaking with. Stephen Shorty is the editor of the short report all about energy markets. Stephen, you mentioned natural gas earlier and how many oil companies are rebranding themselves as natural gas companies, such as BP and Shell.

What's the best way to profit from this uh rebranding effort from the desire to use more natural gas rather than oil. Well, absolutely, Tim, and first and foremost it would be in the petrochemical industries that at these are industries that are highly dependent on natural gas, and we do have an access uh to uh to a m you know, pun intended a boatload of of natural gas. So I always like to and I always go for the levi Strous's method him look at the guys who

are supplying the material, uh, the infrastructure. That is to say, we're now in a tremendous UH period where the industry is turning on a dime. Uh. Fifteen years ago, you had natural gas that supplied nearly the lower forty eight or the contiguous United States gas needs UH and hence, when you've got a Hurricane Harvey or Hurricane Hermor, for example, natural cast prices with double, triple, quadruple UH. This time around,

they haven't. And that's because now nearly a third comes from the Appalachian basin, So we're in the process now deglutting that market. So infrastructure place, pipeline plays plays that will will benefit from the growth of l engine export markets. So it's the place that are can take the gas from where it is in the producing area and get it to where it needs to be. Pipelines up to eastern Ontario, pipelines down to the southeast to get to the export market, Pipelines to get to the East coast

to the export market. Mexico has made a you know, you know, has made a tremendous investment, and Mexican demand for for natural gas coming out of the Southwest is robust right now, is only going to grow over the years ahead. So so look at where the growth in demand is going to be and plan accordingly. And this comes even as natural gas prices remain below three dollars per million BTU. Correcting me right now, where two sixty seven do you see the actual price of natural gas

moving higher? Or as you said, just sell the pics and the shovels. Yeah, well, I again, I think the pics and the shovels are are are of every safe bet and if you are investing in companies that do have a tremendous uh need for natural gas. Part of the speed stock being in petrochemical, being in power, uh,

being in steel heavy manufacturer, and so forth. Um, if you if you're investing in one of these companies, you you want to make sure that they are doing everything and their power to lock in natural gas prices at these levels, because, as I said, as these infrastructure plays grow, the demand will grow, and natural gas prices are are historically at very very low levels, record levels if you

take inflation into account. So if you have a company that has a tremendous consumption of natural gas, before you invest in that company, make sure go back to their annual ports, go back to their investor meetings, make sure they are locking in natural gas prices at these levels. Because in the short term, PIM, we're an extreme bear market and I'm not going to rule out natural gas prices through this winter falling lower. But in the years ahead, you can these companies can go out and find a

swap deal that will sell them uh the oil. Excuse me, guest natural gas at these levels five six, seven years out. If these companies are not locking in natural gas prices at these levels. I think they're doing their investors a tremendous disservice. All right, So in other words, I know

your investment. Speaking of knowing your investment, we kidded before bringing you in UM about talking about bitcoin, and I thought I was going to go there and loan, Behold, I'm reading on the Bloomberg terminal, checking out the top energy menu, and it says how China has used made the first ever purchase of Middle East oil using blockchain technology, so not necessarily using bitcoin, but talking about blockchain technology, do you, Stephen, you have been following the energy world

for a long time. Do you see either digital currency or blockchain the backbone, the digital ledger that supports digital currencies ultimately being used in the commodity universe and specifically in the energy universe. Uh. The answer is yes. But I want to put the caveat out there that I don't possess nearly the amount of great matter to understand these cryptocurrencies, uh, and and the bid that's going into them, and what I perceived to be a just historic bubble.

But that said, Carol, over the past ten years, there has been um an effort by Iran, by Russia. Uh, to wean the world off of the petro dollar, and and and Americans really have to consider, you know what a benefit uh, the US dollar being the world's invoicing currency has has been because yeah, those dollars go out to purchase the soil, but they always come back in the United States, uh, to invest back into the United States.

So I do think, um, whether it is the viable option. Uh, you know countries you know, for example Venezuela, which we do have sanctions on uh, and it is putting a strain on the Madua government. It has talked about moving towards the cryptocurrency and and weaning themselves off the dependence of having to own dollars or or for that hard currency. So yes, I do think that is the potential. Although again once again the caveat here is that is a market that it reminds me of and run Carol Fit

sixteen years ago. Everybody thought they were the smartest guys in the book, but everyone is afraid to admit that they didn't understand what the heck these guys were doing. And of course they were a bunch of crooks. So I'm not calling bitcoin crooks or anything, but there's a lot of people I think investing in it and then and and they're afraid to admit they really don't understand what's going on. I don't understand what's going on. I'm

staying away from it. But that's not to say, as you rightfully pointed out the move by China, We've seen the move by Venezuela. There's been moves over the years from Iran and then excuse me, Russia to wean themselves off of the dollar. And I do think cryptocurrencies will help uh speed that along. Stephen Short, anytime someone puts a picture of Bill Murray in their research report, a flag it and ask you what does omnium gathering? What

does that mean for investors? And a picture of Bill Murray and the Short Report right or r O G. I'm the gathering is our take, our commentary, our observations in our in the daily issues of the Short Report on things that have an immediate impact on the energy industry.

And to your point, if anyone the Bill Murray fan, specifically the movie Meatballs, when he's trying to rally the troops playing against that that superior camp across the lake, he's saying, look, they're better than us, but we can beat him because the fact that they're better than us, it just doesn't matter. And so when I look at it, and this was a proposed the natural gas market that we have industrial demands, UH is back and that's been the one UH driver in natural gas prices over the

last eight years. UH that that has kept the lid on natural gas prices UM. And so look, and we have to keep in mind at the end, it wasn't just the oil market that crashed. The industrial metals complex crashed the industrial metal and not your that is your your tell tale of an economy that was sputtering. Stephen, we gotta run. Thank you so much so for talking with us on this Tuesday, Stephen Shark of the Shork Report.

Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio