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Terminal and the Bloomberg Business app. Nearly twenty energy executives meeting with President Donald Trump today to discuss rebuilding Venezuela's oil infrastructure. The lineup includes representatives from Chevron, Exon, and Conoco Phillips, among others. Also attending the meeting will be the US Interist Secretary tug Bergham, who joined us now. Mister Secretary. Welcome to the program sour and a happy new year. Just frame for us. The expectations for today's conversation.
Expectation todays have a great conversation about the opportunity to continue President Trump's agenda, which is the agenda course has been always about the safety and security, national security of our country. That begins with you can't have national security without border security. You can't have national security without energy security.
So that's going to be on the table, and of course the prosperity of America that's based on energy as well, because if without a plentiful, abundant, reliable, secure energy, you're going to have the inflation like we saw in the
previous administration. President Trump is turning that around. So this is really at the core, it's a discussion about peace in the world and prosperity at home, and what an opportunity, economic opportunity to restore normal relations with Venezuela and for companies, including many of these that had operations in Venezuela for decades ago when Venezuela was a big economic partner in the United States before it's collapse, get a chance to
return to that. So looking forward to it, it's exciting and lots of interest in coming to the meeting today. They're not enough seats in the room in terms of executives that wanted to join in the meeting today with President Trump.
Secretary Bergham, I know that you and Secretary Writer have that outreach with the oil and industry right now. But what I'm hearing is that they are certainly lining up for meeting with the president, but not necessarily lining up to go back into Venezuela. What are they telling you.
Well, I think the very strong interest.
How can you not be interested in the world's largest oil reserves in the same hemisphere. So I think there's questions, of course, questions about security, questions about what the long term profile is going to be. But the interest level is through the roof across from the small wild catador to upstream, midstream, downstream, the majors. There's so much interest to this, and not just an energy people are reaching out because the mining industry collapsed in Venezuela. Their entire
electrical generation industry has collapsed. The opportunity with sanctions being selectively listed for the US companies to sell into that market as it rebuilds is very interesting. And of course we've got a number of energy companies that have spent their careers going into some of the world's dangerous places to develop oil resources, and those folks, some of those will be in the room today as well.
But it's going to take tens of billions of dollars them to allocate capital to go back into Venezuela. Does the math make sense when WTI is trading blow sixty dollars a arrow.
Well, the market is going to decide.
But I know that one thing that happened this week, people keep saying, oh, below sixty, there's going to.
Be no interest.
Through the Department of Interior, we're holding our as required legal lease sales, the one that we held in New Mexico earlier this week. On January sixth, three hundred and twenty seven million dollars of royalty payments enter record, the highest since these leases have begun under the new format over almost forty years. Thirty nine years ago in nineteen eighty seven was when the new rules came in place. It was two hundred nineteen thousand dollars per acre on
one of the leases in Permian. So I would say the interest US and in Venezuela very strong in this industry because they see they look ahead and they see the demand for energy going up and of course driven by economic growth. Twenty twenty six could be a banner year, but also the energy required for US to win the AI arms race. So there's a strong, strong interest in this investing in this western hemisphere.
Does the administration have a goal of getting oil to fifty dollars a barrel?
Well, I think what President Trump wants is he wants to break the back of inflation. And he knows that there's a component of energy in the food you eat, the clothes you wear, the car you drive. If you can get energy prices down, that's the best way to lick inflation. And affordability is something that matters. President Trump has stopped the runaway in flame the prior administration.
He wants to keep it going.
When we talk about how do we get prices down, part of it is we've cut so much red tape in the last year.
We've lowered the break even point.
That plus the technological innovation from this industry. The oil and gas industry is not what it was fifty years ago. This is a super high tech industry. You take a look at my home state in North Dakota and you look at the capability and the productivity increases of the people developing there. It's just been amazing the gains that they continue to make. And again, the shale revolution tied with deregulation, cutting some of the red tape that was
put in place. We know that their break even point is getting lower and lower, and that's why it makes it the great industry. And that's why we've got the greatest industry in the country in the world because in the US we've got competition. We don't have a nationalized oil industry that has become a monopoly and lethargic. We've
got great companies that get out and compete. We're going to be with some of those great companies today and excited to hear their ideas about how to go in and break free the incredible opportunity that is for both the US and Venezuela in developing this resource.
Mister Secretary, a.
Lot to unpact there, including about the shale patch. I do want to stay on this question of US backing of some of these US companies going into Venezuela and building out the infrastructure there. President Trump has talked about potentially a one hundred billion dollar investment potentially over the next eighteen months. Where would the funds come from in the United States for some of these energy companies to help back those investments.
Well, the discussions right now have been that the capital is going to come from the capital markets and come from the energy companies. I don't see that these companies are going to need a support from the US other than things around security. I mean, if we can provide a secure, stable environment. The resource here is so significant and so large that it's going to be attractive for people to go in and develop that, and particularly as the US maintains the embargo.
This is key.
You reported on it just now, President Trump serious, I mean sanctions under President Trump actually mean a sanction. The failed sanctions under the Biden administration just turned Venezuela and other places into the discount gas stations for China and other countries. And President Trump is We're going to make sure that this is secure and we're controlling the flow, both of energy going in and energy coming out. Venezuela's heavy crude requires diluting. It requires a light crude like
we've got in the United States. To go down there, one barrel's got to go into Venezuela for every five barrel that comes out. Russia controlled that market. That market's coming back to the US. And the synergy between our refinery sector in the United States, which was built around Venezuelan oil. Getting back to that's great news for refiners, great news for gas prices for Americans, great news for the opportunity to sell modern equipment, to modernize this industry.
So lots of news for beyond even.
The oil majors, Lots of great news economically as we open up this trading and normalized trading relationship with Venezuela.
Yeah, certainly Valero as a refiner has seen the benefits of this. Mister Secretary, you talk about security guarantees, and if the safety is there, the oil majors will go in with frankly, capital markets behind them. What kind of security guarantees are they asking for.
Well, we'll find out some of that more today. But I think what they really want to understand is, you know, how serious is the US in maintaining the embargo, How serious is the US in maintaining stability in Venezuela. And I think the actions that they're seeing this week speak loudly to that, the actions of President Trump enforcing the embargo and already the cooperation. I mean earlier this morning, President Trump just in the last half hour tweeted out
that the Venezuelan interim government is releasing political prisoners. They're taking actions to demonstrate that they want to have a successful economic relationship with the United States of America. The interim governments committed that they're going to be buying equipment material from the US companies. I mean, these are all the signals that we're looking for that to keep us moving towards normalized relationships.
Mister secretary, as you know, to establish stability in this region, it might require massive expense from the US government, which might require a lot of money from taxpayers. If these oil may just go in with the support of the US government, mister secretary, will the president want a slice of that revenue for the US government?
Well, I think President Trump is always looking for good deals for the American people, but he also is a business person. He understands that we have to have the right economic conditions for companies to go in and deploy their own capital and solve these problems. So I think in the end, what we're going to see is we've got to We're so fortunate to have a president who has got the willingness and the courage and the understanding
of how to use force, just like past presidents. I mean, we wouldn't have the Panama Canal without bold action by Theodore Roosevelt one hundred and twenty five years ago, and now under President Trump again taking a corollary of the Monroe doctrine, which is saying, Hey, if we've got criminal enterprises running countries and destroying countries in our hemisphere, that's bad for the neighborhood.
Let's go in and clean it up and do that.
But when it comes to rebuilding, I think again, what we've seen is that if we can create the right market conditions, we're not going to need taxpayer dollars to go do this. And who's going to benefit the taxpayers because you're going to see lower prices at the pump here in America.
The reason I bring up this question says, because, as you know, there was some conversation about chips being sold into China and the government getting a share of the revenue associated with those chips, and I wonder if the same kind of thing applies here, because I think the executive's going to g into this meeting later trying to figure out what kind of meeting then coming into is it an opportunity to explore Venezuela themselves or alongside the
US government, and what kind of agreement could be established further down the road.
Well, I think initially it's going to be alongside the US government, because that has been stated publicly this week. The US intends to control the disposition of the oil coming out of Venezuela, and as I said earlier, it's going to control whatever material and supplies and in this case, the millions of barrels of deliument that need to go in to distract this heavy VENs and crude that is going to be controlled by the US during this period
in cooperation with the interim government in Venezuela. So I think that they can hear more about that firsthand today, but it's going to match what they've heard publicly this week. And I know from talking to a number of these executives this week. Chris Wright has talked to a number of these executives week. There is a lot of interest in getting back into the world's largest proven reserves right
here in our hemisphere. And again that's a great benefit to the entire Western hemisphere, but absolutely it's a benefit to the American citizens.
Stay with us. More Bloomberg surveillance coming up after this Stephen major of tradition, writing economic data relative to expectations has softened, there is fundamental support to keep luring the Fed funds rate to a level below weather forwards are currently implying. Steven joins us now for more. Stephen, welcome to the program. So it's always good to see you when congratulations on the new seat. Let's talk about the
data this morning. How relevant is the jobs report at eight thirty with your opinion in mind?
Well, I think your setup said it all. John.
There's other stuff going on, isn't there. So there's the fiscal news perhaps coming through later, and everything else that's happening globally. So it's just one it's just one data point, and I think you've covered it pretty well regarding this one. What really matters is the evidence about what all this does for wages, because I think there's been a clear trend these last few months where the path of wage growth is consistent with something nearer to the two percent
inflation target. So what you want today is something that doesn't disrupt that. Really. Of course, it's complicated because you've got the labor pool being affected by migration factors, and you've got some softening of demand for labor that's been evident in previous months. Overall, it's all very well looking at the unemployment rate and the payrolls number, but it's the bigger picture how this fits into the bigger picture that matters.
Well, Steve.
The bigger picture, I think for many is that we've seen a notable increase in slack, captured by several data points. Your point of wages, you can point to the unemployment rate rising more recently as well. There is a take on Wall Street at the moment, Steve, and I wonder if you push back. If things stabilized, particularly with things like the unemployment rate, it closes the door on interest rate cuts see things differently for the year ahead.
I don't know about that, John, because so first of all, given all the things that have been happening, and you listed the surprises the shocks that we've been experiencing these last few weeks, Given all of that, would you have believed that the ten year treasury would have been in a range of six basis points. I'm told by my colleagues downstairs six basis points this year, six six whole basis points. In fact, it's been in a tight range for quite some time now, even before the start of
this year. So you know, I think that the bomb markets holding in pretty well. The If you've got at a strong data release today, something that indicated the economy was much stronger than we expected, I think the cynics out there might question whether the data was correct in the same way that you could say if it was exceedingly I think it's the broader trend that matters. You've got to smooth these numbers out over a period of time.
I think the trend in the path is quite clear towards lower rates, and therefore there's an asymmetric bias in place. If you get a shock that says that the rates aren't going down, I don't think it's going to bother the market that much. But we're skewed towards opening the floor for rates and seeing how far they can go down. I don't see that many people talking about rate hikes anymore. It's only a few months ago that that was being mentioned on shows like this.
Well, it seems like Stephen, this is no longer a data dependent market, as you just laid out, at least on a data point dependent market, just because people have so many questions around the data. This is potentially a market though that could be roiled by events, and you mentioned some of them, including the IEPA ruling that could
come as soon as today. What kind of effect would it have on the bond market if the tariffs passed under the AEPA rule the United States were to be repealed, pushed back in any kind of way.
Okay, that kind of scenario is going to blow us out of that six basis point range. And the question is whether we would close still outside of the range, or whether we'd still be outside of the range next week. Ultimately, we're looking at whether there is a path I'm using that word path again towards a fiscal number that is manageable. I mean, is it possible that the deficit is within
a reasonable level. Now, of course, there could be some disruption to the to the president's plans, and it's clear there's a risk here. But you know, ultimately the bomb market's going to clear. The auctions are going to get done. That there's a question about at what price and at what cost? Because the bomb market is going to get done, I can assure you of that. The question is whether it's going to come at the expense of some other asset class.
Yeah, but that's really the issue, right, See.
When you keep talking about the six bass point gap, and you're right. I mean, even when you look at the move the forward imply volatility index in tenure treasury yields, it's incredibly low. You aren't necessarily seeing much expectation for disruption. How do you know that this is resiliency and our complacency?
Yeah, look, that's a fair fair point too. Maybe we're all just so beaten up and already exhausted with the shock. I'll I'll give you an anecdote on this. You're putting together my most recent piece. Like many analysts, you tend to go through it at the weekend. So I'm sitting there on a Sunday looking at the text and thinking, oh no. With the newsflow last weekend over Venezuela, I was thinking everything I've written here is irrelevant. But I came in on Monday morning and I was still able.
To publish it.
How is that possible?
It just.
How could I have been so wrong with my judgment on the Sunday compared to the Monday. And I think that most of us are experiencing the same thing. Anyone who's involved in this market at the moment. So it could be that we're complacent, but it could also be with the fact that we're resigning ourselves to the reality that rates aren't going up and they're probably going to
go down. So, as I said, I think the data is consistent with dates going down towards where the forwards imply, and maybe less, and with some of the changes coming at the FED, I would suggest that the balance is tipping to rates going even lower.
A lot has already happened too.
A lot has already happened.
From Sunday, Stephen the President this week has really taken a focus on the housing market. Even if continues to cut interest rates, Is that going to help the US housing market?
Will that help mortgage rates?
Look so, so, what proportion is that money of the total stock of mortgages?
It's not that high, is it.
I haven't run all of the all the numbers yet, but we're talking about a few hundred billion in a multi trillion market, So I don't know whether how much of a game changer is Ultimately getting the ten year rate down towards three rather than four would be one of the best things that could be done. For the housing market right now. So I guess the intervention that's just happened is going to help, but I haven't run the numbers yet. I don't know whether it's going to have a major impact.
I actually mean, if the FED cuts interest rates, is that really going to meaningfully help the mortgage market?
Ah, thank you, thank you. I thought you were talking referring to the intervention for Freddie and Fanny. Now, if the short rate goes down another one hundred basis points, the whole term structure is going to come down. The ten year on current form isn't falling as much, but it doesn't mean to say it won't still go down.
So depends what the delta is between the rate cuts and the ten year I would I would suggest if policy rates go towards two percent or even less than you could imagine that tens are going to have a three handle and probably low threes.
Fun of question, Steve, what's more likely year end the the tenure yield? Is it three percent? Or west Ham is playing Premier League football?
That's a possible one to answer. Look, John, the based on the fact that west Ham was seven points adrift, is pretty obvious. Where the probabilities lie there, but you think things can change. It looks like a close call between the two and I'm I'm not going to give you an answer if you don't mind.
Stay with us. More Bloomberg surveillance coming up after this premiss of JP Morgan looking for a cleaner read writing the Bloomberg consensus of seventy thousand clid and unemployment should be the goldilocks market pricing of low hiring, low firing can continue. Pray it joins us now for more prayer, Good monic morning.
Can the right cuts continue?
Yes?
I mean if we get the Bloomber consensus, does the FED cut in January? Probably not unless we get some big, much lower inflation. But look at the market pricing. Markets not pricing for the FED to likely cut in in Jam. The market has the two cuts priced and for the rest of the year. I think that pricing can remain because when we're looking at the totality of data, we're still not seeing hiring.
Nothing in the fiscal stimulation in.
The one big Beautiful Bill is essentially saying that that companies are going to start to increase hiring. Look at this last week, look at all the headlines that we're getting policy and certainty is still high.
So if hiring stays.
Low and inflation comes down, in our view, you know, you look at inflation across the board, whether it's shelter inflation, whether it's wage.
Inflation, it's all heading lower.
As inflation comes down, I think the Fed is going to say, okay, can start to cut you know a little bit more. I think it's the bar to cut rates is higher. But we do think that the Fed later this year is going to cut one or two more times. So I think that market pricing of that terminal rate stays. That's essentially what that tenure is essentially banking.
On what is going to wake up this bond market, this very snowzy, range bound, sleepy treasury market.
I think it's great. I mean, interst rate ball has been extremely low. I think the President is focused on the tenure. He's told us that before. I think what can wake the volatility up would be essentially if we get additional fiscal stimulus, not one big beautiful bill, if you get tariff dividends.
Now I'm not even.
Sure post AIPA that the tariff revenues will be as high. We do think that AFP is struck down that the President's going to, you know, essentially come up with APA like Tariff's under a different name. But you know, if there's additional fiscal stimulus, yes, then rates can rise. All those deficit hawks can come up. I think that's an opportunity. If you do get interest rates moving higher, any beast
in the curve we would look to fade. I think the tenure in our base case three seventy five to four and a quarter.
I think that's the range we should expect for this year.
If hiring continues to be low and firing starts to pick up, I think that's the tail risk here. I think the asymmetry in the bond market is rates are going to go lower. I think that's what nobody's talking about. Remember last year, all the narratives around the deficit cell America, that's all way behind us. I think now we have to think about the tenure being in a narrow range housing affordabilities of focus, and the risk is that if actually we start to see the layoffs, then rates can go lower.
So you think the best part of the Yeald curve right now is the tenure.
We do like the five to ten year part of the rate curve. I think the front end starts to get really tricky. You have to have a clear view on inflation in the next month, on the unemployment rate. But when you're looking at the five year tenure, I think that's the part number one that impacts the housing market. That's the one that the President's focused on. That's the one that prices in the feed to slowly get closer to that three percent.
And terminal rates.
So I think that's the one that we have more conviction in that is likely to stay in a low range. And you know, I think that's what you own, particularly if you own risk assets, if you own stocks, if you own credit. Your biggest risk here is that the economy actually struggles because there's so much complacency about those goldilocks continuing.
That makes sense to me, the hedge against some kind of falling off a cliff of the economy or significant deterioration. What makes less sense to me is that the Fed has room to cut rates because inflation is lower, and that that will naturally bring the entire yield curve lower because of the wealth effect, because this is going to boost acid prices that much more, which will only encourage
people to spend that much more. You're going to see inflation in some of these higher end items, which is really what's been driving some of this.
I mean, how do you square that?
So I think the key shaped economy, the case shape market continues.
So to your point, spending.
And you know, if people are getting a refund check, they're going to spend it. Acid price inflation can stay high. But what we're looking at what the Fed care is about their dual mandate is PCE and full employment. That PCE number can on inflation can continue to head lower because that's a function of shelter inflation on how you know housing, you know beyond housing housing x X housing service inflation. Look at those numbers, they're slowly heading lower.
The tariff effect is going to go away from inflation by the middle of this year.
So I think, you know, if you think about the rate cuts.
From the Fed, it was inflation in twenty twenty four, it was the unemployment rate in twenty twenty five. This year, you've got two parts through which the Fed can cut. There is that inflation pard as inflation heads lower, not asset price inflation, but PCE, which the Fed cares about as we get close to two, maybe it's two point five. The Fed will feel more confident in the hawks that
have been very vocal that inflation is above target. They're going to then step back and say, okay, we can maybe neutral is closer to three and not three and a half. I think that's the debate we're going to have all year.
What's neutral?
Create Your reaction to the President last night saying he's giving special attention to the housing market and telling his representatives to two hundred billion dollars of mortgage backed securities and home loans.
I think it's great.
Now we don't we don't need you know, just one thing for housing. Housing is an extremely complicated issue.
If they need to.
Fix housing, they need to fix the demand side, the supply side. I was a little nervous if all we were going to.
Get was on the supply front.
Now I think the President with this latest bit and this does not need Congress. Now, the two hundred billion is interesting. That's the amount that the agencies can buy relative to the cap. That gap can also move high. I think once they do the two hundred the cap can be moved by the FHFA.
And I'm word you brought that up because the cap is fourhund and fifty billion. They've already been accumulating billions, so this puts us pretty much right at that cap. But I spoke to a source last night and said, well, the Treasury in Fahfa tried to lift the cap and they said no. So if this just ends at the four hundred and fifty billion, doesn't really.
Do much for the housing market.
Well, I think if it's four hund fifty it's two hundred billion of net demand. And if you think about the mortgage market, the marginal buyer for mortgages is really as a managers. It used to be the GSS pre two thousand and eight. Some of us were around back then. I used to cover the agencies. Then it was the FED, then it was US banks, and now if you look at it, the banks are saying after SVB.
Well we're not going to touch this.
I think that's why the announcement announcement is interesting. You bring a new marginal buyer in. Other investors that might have stayed away will say, Okay, the government's behind this. The agencies have the ability to buy. I think we can step in, but I will say, you know, you ask about whether that's important.
Mortgage spreads can compress.
But ultimately, if we look at the mortgage rate, it's the ten year that's the much bigger component.
We have to keep the ten yere within that range.
If the President's focused on housing affordability, to keep the ten year four percent three fifty to four, keep it there and then get those mortgage spreads.
We're talking ten basis points, so you know, I get excited. I'm a bond person.
Every basis point is very important, but I mean to get one hundred You're not getting one hundred basis points in mortgage rates because of this, but it does help keep vold and then get some mortgage spread tightening through.
This might just be the appetizer, not the main course. Is the Federal Reserve going to come along for the line, along for the ride along new leadership?
Well, so no, I don't think the Fed's going to do Q. I mean there's talk around the FED doing Q. No, the FED is going to working.
Against this effort at the moment, aren't they.
Well, they are letting the portfolio run off. But I think what the FED did in December, which was to say that let's make sure the plumbing works. I think that's important. They didn't let the repo market freeze up. So yes, they're letting mortgages run off. The GCS will easily offset that. I think on the FED, what we really want is a credible, independent FED. And I think we don't know who the next FED chair is going
to be. But if you look at what the Fed's done over the last few months, they have reasserted that they're independent. This is a committee. The chair is important, but it's one vote. I think the FED is doing I don't know if it was if that was an intended reason for them to be as vocal, but they're telling us that they can about their dual mandate. Irrespective of the chair. I think they're doing their part. They're keeping that term premium lower inflation risk premium. Look at
what's priced into the break even market, it's low. The market's not concerned about freed independence rightly.
So this is the Bloomberg Survendans podcast, bringing you the best in markets, economics, an gio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg terminal and the Bloomberg Business app.