FTA First Decision for Obrador, says Petersen

Let's do it. We've talked a lot of a lot of other things, including the second half reset here as well. President she has to have a second half reset with the president of the United States. That short term for the Chinese, the stereotype as they don't think short term, and yet they do, don't they very much? So, I mean that's why, in fact, the Chinese Central Bank just eased off on on the reserve requirements for for banks there um. And you know, their stock market has been

extremely weak in the last few months. It's it's down a little over and that that reflects a number of things that are importantly in a different place for China then for the rest of the world. So part of it is that Chinese stocks had gotten quite expensive UM, and so I think some of that correction we're actually bear market just is a sensible revaluation. But on top of that, there's a big structural issue in China, which is that the corporate sector has way too much debt

and UM. Systematically, the Chinese were trying to rebalance the corporate balanty by having a huge amount eequity issuece come through the system, and I think that to some excent, the markets choking on that. But all of my readings says the assumption is it's different rule book, and the government will clear at a Haykien basis of government will clear of that that private debt, that corporate debt. The government's there to bail out everybody in sight. Is that

feasible or possible? Well, it's feasible right now. And one reason why it's feasible is that you have pretty much a goldilock situation for a while where the economy is growing at something like six and a half percent reel

an inflation right now remains fairly tame. The problem is you can't count on those things remaining in place forever, and especially a trade war right now is incredibly poorly timed for the Chinese because it would really hurt them on the traditional part of their economy, which they're trying to transition smoothly to a higher value add more consumer based economy. But they can't do that smoothly if they're getting crushed by high tariffs. So Seth, let's take you back.

I'm going to give you your old job, the c IO of a b burn Stain. And you know that at the end of the week there's a standoff between China and the United States where they could implement tariffs on each other, and this thing could really escalate. What would you be telling, it seems right now about how

they allocate capital given this current bank drop. I think you want to be very careful not to make extreme moves in the absence of actual facts, because right now there's no way to handicap a UM well, a Mexican standoff as they sometimes tell it UM, but in this case, it's a it's a U S China one, which actually is part of a broader, you know, geopolitical issue that people have talked a lot about their being a Thucidites trap potentially between the US and China and UM you know,

as as we know, most times when there is a rising power in the world, the current dominant one overreacts to that and it ends up hurting both. Occasionally we've had times when that wasn't that mistake wasn't made, but it takes a lot of really thoughtful work on both

sides to prevent those traps from becoming permanent problems. I think what we we're seeing over the last fifteen years was a lot of engagement with China which was broadly constructive for both sides, and we benefited tremendously from that.

The concern is if you start to see escalation and if the Chinese are put in a position where they have to think geo politically about their US treasury holdings, for example, you could get a series of let's collect tit for tat moves that actually hurt both sides, but we're both have to play to their domestic political basis.

I think at this point, if I were advising each of those two teams, I'd say make sure you're at least talking with back channels so whatever stuff comes out in public isn't polluting the actual real negotiations face to face. And what I'd be talking about with my investment teams is make sure that you're well diversified so you don't have too much exposure to sectors which will be sentiment

driven if there is a miscalculation. It just seems that Tom this morning once again sentiment driven by maybe one key data point. If I tell you whether Chinese currency is, you can probably tell me where global risk is at the moment. Chinese currency week, a global risk has taken a hit, And it seems to be that kind of morning over the last week where you just pick up on where the Chinese currency is and you get a

decent gauge of where if the analysis. Well also that you can look at the gap between the Chinese currency has traded in China and it's traded in Hong Kong. I think that's that's probably actually the signal you want to look for. The traditional investment is cash avail you to you? Are you fully invested whether it's bonds or equities, or your seth master is comfortable in cash? Well, I would think of it a little bit differently than that.

Right now, I'd say that you want to be fully invested, but you should probably think of cash as part of your fixed income allocation, and you might want to be a bit shorter. You probably want to be a bit shorter in your fixed income exposures than you would normally be because right now, if there's one asset class which I think is very exposed globally, it is fixed income. We are going to see higher rates, which is really a normalization of rates, and that's not going to be

good for longer duration bonds. Seth Masters think so much greatly appreciated formally with Alliance Bernstein as well. It's sort of ancient history, you know, it's it's it's sort of old news and Saudi Arabian in the U S and

oil because the news flows happened so fast. I'm reading to sign with us with Energy aspects to give us some forward view here and reading my simple question, given the doom and gloom in the media in America all weekend, is Saudi Arabia beholden to President Trump in the United States?

I think Thomas, it's extremely complicated because I think we all know that Iran is at the middle of this whole issue, which is clearly the US administration is going very hard on Iran, cutting off their exportily that's what they plan to do. To add I think what Trump said was that Ivan he thinks is the problem in the region, and therefore he is saving Saudi Arabia from Iran, and therefore Saudi Arabia has to increase production. At least that's what the kind of official line was given his

interviews over the weekend. Um. Yes, I think there is an enormous amount of pressure in Saudi Arabia right now to increase production. However, the tricky bit over here is that they are doing what they can. Mean Sustainable productive capacity in the short term is about eleven million barrels today and they are pretty much there. Anything beyond that close to twelve will take a minimum of nine to twelve months, will need more capex, will need more rigs.

So it's a very very difficult situation, and I'm ready to the market just doesn't buy the story. I mean, Tom's calling it on old news, and it certainly feels like that Saturday morning. If I've said so many people in the moment, just in the moment when the President's waited, I'm asking that Saudi Arabia increased production, maybe up to two million barrows a day to make up the difference prices too high, he has agreed. I imagine people might

think Monday morning would be aggressively lower. W T I is positive a tenth of one percent, Brent down four tenths of one percent. Do you think the market just doesn't buy any of this now? I'm retoern as the buyers shifted from real concerns about not being enough there not being enough supply. I completely agree with you, and I mean, I think initially you may have thought it

that crisis might come off. I think the fact that the White House backtracked a little bit on that, saying that they talked about it, and even as how the official statement was that, you know, it is very much about keeping that spec capacity as and when it's needed.

And I also think the market generally knows that the capacity isn't there um And I think the bigger issue right now is I don't think we have ever ever been in a situation with such low spect capacity in this market at the time when there are enormous amounts of supplied disruptions. Right now, all the focus has been on Iran and Saudi Arabia. Just look at Libya. Libyan production right now is down eight hundred thousand barrels the day.

We don't have spare with Permian capacity constraints, and therefore the US can grow fast. You just don't have anyone else who can make yes. I mean, I mean read, I mean folks. I don't know if you're aware of this. We'red eighty dollars a barrel. I'm bran crew is going up, rounded up, seventy nine, round there, up, we're at eighty. What's the energy aspect call? Given all that you just

told us, um the interest. The funny thing is that call, even before any of this happened, or any of this got snowballed into such a lens, was eight dollars in Q four. Clearly that's coming two quarters earlier, given all the bits that are happening right now. Look, I wouldn't I wouldn't rule out hundred dollars by yes, thank you, That's where I wanted to go. You're gonna be the first person in Bloomberg surveying. Let's just say this. John Ferrell and his other properties has heard this. Are we

going back to a hundred dollars of barrel oil? I do think it's very very possible. Be who's anywhere close to a million and a half barrels per day from um from Iran and Libyan Nigeria, given all the problems we have there in Venezuela. Look, I do think in the short term the market is a little bit oversupplied because what's ended up happening is that Saudi Arabia has raised production too fast and Iran hasn't gone off yet, which is why I don't think Q three prices will

necessarily do a lot. I think we'll be in this range, but come Q four and towards the R end, I think that's when things can be very, very very tight. However, all of this could change if the US administration stands changes right. It just really depends on where we are going with Iran on this and rate it just quickly. Can the global economy tolerate one dollar crude? I think it's going to be tough. Yes, the economy is a lot better than it was in but demand growth will

start to throw down next year. I'm really sent a energy aspects with a big cold tomb kine, and I wonder how many people are gonna come out with the triple digital for crude over the next several months. Given a price section this morning, even as the President ramps up pressure on the Saundies, I will say this and it goes back to commodities work done in the Midwest, the heartland of the country. At a G Edwards a million years ago, oil is the toughest thing to predict.

There's a lot of really good math on this, John, and it's like it's like, because of the politics and because of it's crazy tightness and all that between supply and demand, it's just you just go down in flames eyeballing. I mean when people give me a forecast, folks, I always, with great respect and great humility, say yeah, maybe it's not that they're wrong or right, it's just a barter. I think. I think the individual delivered in the forecast

would would say the same thing. I think my my kind of pushback would just be can the global economy really ton right part of the equation? I just don't know if it can. I guess we can talk about it through the shot. John Farrow, and I'm keen with us now. A gentleman who played for the Mexican rugby national team years ago, Carlos Peterson. He's with your Asia

group and we're gonna talk about the Mexican elections. Carlos, do you take Ian Bremer today down to the Guadaloupe in in Bushwick and a Viva Mexico quissadillas green, white and red? Is That was this? That the morning plan for all of your Agia group. That was the morning plan. But we have a bigger brazil team, So we're going probably to have some fishal on the resolved afterwards. Maybe maybe we can celebrate with Margarita because I'm betting on Mexico.

So well, if the Brazilians throw you out the door at your age group, come on over to Bloomberg. Carlos, You've had a huge, huge value on the domestic calculus of this Mexican election. This is a huge loss for the elites. What do the elites do this morning in Mexico? I think I think they're playing out the plans that they will have to operate in under a new, completely new environment and with completely different views coming from the government.

Lopez Overadora has been someone that has been very very critical from the of the of the elites over the past twenty years, and now he's going to be in charge. So so that relationship is going to change dramatically and they will have to understand how to deal with him, and I think will be a pretty contentious relationships. Some businessmen will have will collaborate and will work well with with with Lopezo a lot, But others, I think you're going to try to to trump and and and and

stop him from implementing his policy. And that's obviously going to become something UH noisy and problematic, and in some instances, myself, carlors some an emerging market tourists. So I won't pretend to be an expert, but I will ask two basic questions that tourists typically ask. It's what is his position on fiscal responsibility? And the other is what is his position on central bank independence? He has taken very fairly

orthodox positions on that. On on the fiscal for what he claims is that he wants to keep the fiscal accounts at bay. He wants he doesn't want to increase UH depth too much. However, I'm a little bit skeptic there how much he can do that, because he has also promised a lot of different spending plans that he has so so conciliating both the spending site with the

with the with the with the fiscal front. I think he's going to be challenging and that's a potential source of disruptions and we can see in the future from the central bank perspective. He has also said that he respects the autonomy of the central bank, that he's fine with it. Again, he has been very critical of what the technocratic class in Mexico has been doing over the passengagers, and those are the ones that are ruling the at

the central bank right now. So the potential source of contention is between his administration and the en bang Kiko could also trigger at some point. So I think I think there are potential sources of of of contentiousness along the road under these two specific issues. Mexico has to do a as negotiations and all that, but what they really got to do is get their economy going again. What is the biggest constraint to getting per capita GDP?

Are just good economic growth that actually assists the left. What's the what's the first factor for Carlos Peterson. I think that something that Lopezo Alora has actually a good position on, which is investing in the south of the country. Mexico is if you look at that as a country overall has had a very sluggish growth over the past

thirty years. But if you look at its regions, the ones that have been really integrated to NAFTA have actually grown at very high rates and have been doing fairly well. The problem is the south of the country that is more disconnected, that doesn't have a strong economy, that has actually lacked behind. And Lopezovato has proposed to invest strongly in the south to to develop an infrastructure program there uh in order to to to trigger growth in that region.

And I actually think that's that's not a bad idea because of these uh like the discurbancies that exists between regions, and that could actually help the economy overall to grow. So Carlos Terra say he might have something in common with the President of the United States, how are those two lunely to get on. I think it's going to

be a difficult relationship, right. I think that Lopez Other is not going to come after Donald Trump and use him as a as a as a political punching back in Mexico a little bit like Donald Trump does with Mexican in many occasions. Because Lopez of Other tends to focus more on the domestic side, and every time that he's asked to talk about even President Trump or any other foreign leader, he refrains from it. He says that he's not going to get into politics from other places.

So I think he will. He will be concrained until Donald Trump comes out and tweet something or say something about Mexico that lopezot will clearly respond to. Tends to be tracked into politics on the international stage, whether he likes it or not. With naftur an immigration at the forefront of this administration in the United States, I mean, Carlos, how does he avoid it? Absolutely, he will not be

able to avoid. And I think that's one of the main issues that actually will constrain him from doing other things. Because the main uh, like the first like a policy decision that we will have to make or deal with is an after negotiations is going to be very important. Yeah, and we'll have to get like hands down without right away curls. Let's go back to you know, I guess Mexican chat of too twenty years ago to zero twenty years ago? Can oil save Mexico? Those days are over right,

Those days are over. The Mexican economy has diversified significantly. Oil used to be up until two thousand and fourteen a very important parts from for fiscal accounts because it would represented the of the government's revenue. Now it's down to and really yet investing in the sector is but is positive, etcetera. But he's not going to be the main leader lead the economy moving ahead. I mean manufacturing processes is in la in labor arbitrarge is still the

same thing today. Have a beneficial labor arbitrage is Steve Roach of Yale University would say versus Asia, I mean, is their wage differential when you pouncer the math at your Asia group or some other think tank is Mexico and the driver's seated that labor differential with Asia. I think I think it is. I think it is. Mexico has been benefiting from from low wages over the past

ten years. And that's one one of the most like factors that have been able to make the manufacturing Mexico very competitive and attract business from the whole world and in order to export it to the US mainly right uh And and that's actually one of the potential sources of risk from the NATA negotiations because what Donald Trump and his administration want to do is make Mexico less competitive, and that's why they have been pushing for higher wages

in Mexico in order to limit the number of companies moving from the U S to Mexico. That's a potential source of risk for the economy overall and Mexico's competitiveness. For sure. I believe it's five months before the president elect actually becomes the president. Is that right? I didn't know that. Is that true? Yes, it's a very very long periods, So it's five months that takes us through to the end of the year. Do you think not to gets done before the end of the year, No,

it won't. I think that there are two main factors that will will not allow enough to to move forward.

One is the midterms elections in the US. I think the focus on on the political perspective for the Trump administration are now are now on on domestic politics, and the NAHA negotiation is something too contentious and too complicated to deal with in Mexico and the US and Canada grew in Canada have not been able to come up like into middle ground and to and to uh, like make these more contentious issues that they have been negotiations

and negotiating about, like solve them. So I don't think that they will be able to do that in the next three months. CARLS. Peterson, thank you so much with the Erasier group this morning. Greatly appreciate it. Well, you know, one of the stories that we're gonna be watching this week has to do with Tesla and the production of the Model three. And here to help us kind of make sense of all this is Tasha Keeny, ARC analyst

on Tesla. Latasha always a pleasure. UM, give us your your reaction to this idea of what's so, what's the big deal about producing five thousand Model threes? What is I mean, come on, five thousand, that's not a lot of cars. Yeah. So, you know, I think UM investors want to know that Tesla I can sort of make the step from graduating from a startup to a full

scale auto company. UM. But you know, I actually think that a lot of UM perhaps UNDO focus has put on these production numbers because these are very short term targets. You know, at ARCCRE long term investors UM even if they were to miss the product action targets by say a week or two weeks. UM. We're really looking at the long term and we think that a lot of people are missing the point that this is not just

an electric vehicle company, it's an autonomous vehicle company. And UM we think that is the largest opportunity ahead of Tesla in the next two years, autonomous vehicles. So you think that driverless automobiles that are made by Tesla is what is going to win over the public. Yes, so, so right now people are so focused on production because the business model is this, this one off sales model,

right you exel Um one Tesla. But in the future, we think, UM, when they turn on autonomous capability through autopilot, this will become a recurring revenue model because they'll launch the Tesla network, their version of Uber. UM. They'll collect really nice margins off of the revenues the per mile rates that they're collecting off of the customers in this taxi network. UM, and that's that's you know, UM. That

will certainly help cash flow and calm those concerns. And we think that's roughly two trillion dollar opportunity with within this and this goes back to our investments in UH you know your your heritage with Catherine, would you know Alliance Bernstein is the X axis, the waiting for innovation to happen and the waiting for big vision stories like you're talking about with Tesla takes time. Does Mr Musk

have the advantage of time to wait for that? You know? Actually, Tesla, if if we're talking about time with autonomous, Tesla is years ahead of the competition. UM, I mean just on electric vehicles alone. Of course they have the Giga factory, which gives them more capacity than any other automaker. But um with the autonomous opportunity tells us the only automaker that has turned on this capability of collecting data off of the cars in the road. It uses that data

to train its neural nets. UM. And that's how that's how you improve a deep Okay, with the deep learning perspective, Is there sat black flies in a manufacturing tent out in the middle of nowhere in the West. How does you know you guys are high end fancy innovation technologists. Again with Katherine wooded Arkin investments, how do you rationalize your big, big picture innovation with the fact he's making

these things out of a tent? You know tessl is always there's there's a lot of doubt in the stock um and and for us as investors, I mean we think if you if you look at what Elon Musk has done, um, it's you shouldn't put it past them to to produce a car, right. I mean he's he's actually capable of rocket science. They've lended reusable rockets SpaceX. Come on, let's be clear here, the SpaceX and the Newman project. That's not related to making cars, is it.

It's I would say it's a great example of the the feats that Elon Musk is able to pull off. UM. So I think manufacturing is a very tough problem. I think he's taking that very seriously. UM. He's he's actually you know, he sets these really lofty targets, but he's actually pretty honest and in tweeting out you know that

you know when they're in production, hell, when they're having difficulties. Um. And you know, I think the fact that they're ramping up um automation and sort of just fine tuning that now pulling back a little bit um to make sure that they have the right amount of manual labor mix. UM. I think that you know, Tesla's advantage is really that it's built from the ground up as a as a software company. Um and that and I think in in doing that, I think they'll be able to sort of

produce this fine, fine tuned manufacturing machine. UM. That'll that I think will surprise most um And and again, I mean I think, uh, we really want to focus on the long term because if you look at these like monthly even quarterly figures for vehicles, I mean, we're we're much more concerned about what happens in the next few years versus what happened. From my point, I get that theory, Tasha,

but my point him as you've got to get there first. Well, Tasha, you're I'm assuming you're long Tesla basically are okay, all right, so you're you're you're long Tesla. Is there anything that would lead you to believe that other automobile companies like four GM and name the rest of them, whether it's Mercedes, a BMW, that they don't have the technology and the

expertise and the experience to go one better. So, I mean, so one, if we're talking about battery production capacity, I mean, no other automakers there yet, right, And when we're seeing these major investments in EVS happening now, um, but there's still not at Tesla scale. Um. And in terms of the software side of things, I mean a great example is no other automaker has enabled over their updates, these updates that affect the performance of the vehicle, not just

say the mapping system. And um, if you ask the CEO, so GM was asked in arnis call a couple quarters ago, when are you going to do this? And I mean they're looking at Tesla's had this for you know, a couple of years now. So Um. From the software perspective, I think that's that's the other automakers, the traditional players, major problem. It's that they have to undergo this major transformation and it's sort of like an old DNA issue where they have to transition to this new new future

where software really matters. And that's that's how you get a tone of miss driving. All right, Well, thanks very much for the for the perspective. Clearly um your bullish on what's going on at Tesla. Pasha Kini of our our investments. 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