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This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always I'm Bloomberg Radio,
the Bloomberg Terminal, and the Bloomberg Business app. Let's get right to it. Let me give you the history of Paul's going to bring him in. Matt was Zaddi with Deutsche Bank and the team over there absolutely nailed a graceful recession called years ago that came out and they said, you know, there's going to be a recession off the pandemic. But the first day they said it, Paul, they said, we don't know when, and they had a huge humility at the time, trying not to cherry pick the gloom
of recession. And so there we are. Is it really hasn't happened stimulus and you know, an update here as we go into all this labor data, why don't you bring in mister Lozetti exactly?
The economic data has been solid, inflation coming down. It's a you know what question is it a soft landing? Matt Lazetti joins us. He's a chief US economist for Deutsche Bank. The last time I saw him, Tom was in the Veil airport and I said, Hey, how was your skiing? He didn't ski, he was at there for business.
Oh yeah, who does that?
I mean immediately I took my I vote away from them. You know so, Matt, thanks so much for joining us. Here is Thom was saying, here this economy, I guess what do you guys make of a Deutsche Bank? I think most people, the marketplace broadly defined, is pleasantly surprised about the US economy, particularly relative to other parts of the world.
You have to be pleasantly surprised. I think if you look back to twenty twenty three, it was the best possible outcome for the economy, the best possible outcome from the Fed's perspective. You had above three percent real GDP growth, You had the unemployment rate down to three point seven percent, and over the back half of last year, you had core PC inflation, which is what the FED focus is on,
below two percent. That was a remarkable outcome I think for a FED that raised rates by over five hundred basis points that was undertaking a very aggressive QT outcome.
Question is you know.
Where do we go from here? We still now continue to see this very resilient economy continuing, the labor market looking resilient. Will get an update with data this week. Key question will be, especially from the Fed's perspective, how much of the disinflation trend that we got last year continues or is the strong inflation prints that we got over January and February is that a new trend that work that we're seeing that How to Fed strap about that, because.
That's probably one of the forefront issues for the market, is boy, that are we seeing a resurgence in inflation?
What do you guys think? Yeah, so you have to acknowledge I think January was a very strong inflation print, and when we got data last week, core PC was actually revised a little bit higher. February was better, but not good enough. From the Fed's perspective, I think when you look at the components that drove it, shelter inflation both in January and February was higher than anticipated. You know,
we do continue to expect that will come down. We have these private sector estimates of rents that have come down a lot, So I think that's still going to happen, but it's more uncertain than it was three months ago. And you know, when you look at these other core services items, there was actually a lot of disinflation in them in the February date. I thought that was a good data point from the Fed's perspective in terms of supercore The morning after.
The invasion of Ukraine by mister Putin, David Folkertslando of Deutsche Bank was adamant that we would see government stimulus, we would see fiscal policy across Europe and across the world. Clearly we've seen that in the United States. Is this great underestimation of our boom economy? Is it just because of the three stimuli we had?
No, I think it is absolutely part of it. If you look at the budget deficit last year relatively the unemployment rate, we were running a very loose fiscal policy relative to the stance of the economy not the only thing. I think we've seen greater focus on the supply side of the economy, especially from the FED, and there's great work from Brookings the CBO recently just looking at net immigration flows, how much that added to labor the labor
market over the past year. And was this really positive supply side story for the economy. I think it allowed us to have strong growth, but disinflation as part of that. And then you just have to say that the Fed's monetary policy tightening was probably just had less traction than anticipated. You know, markets didn't crumble as much as I would have thought under a five percent FED funds rate, people were able to lock in low interest rates, and mortgage debt ratios are still quite low.
Where was your real nominal GDP run rate right now, you know, going out three four quarters?
So I think if you look at what I think potential growth is for the economy, at least in the near term, I think it's probably closer to and a quarter or so. I think it's meaningfully above what the FED has real GDP potential. Now, I think that there's there's obviously lots of it turned here on that the labor supply story has been really important there. But I think there's a really constructive productivity growth story for the US economy if you look over the next several years.
Now.
Part of that could.
Certainly be AI. We as a house are very constructive on AI, but I think there's a lot of uncertainty in quantifying that. The reason to be positive is that you typically see tight labor markets followed by very strong productivity growth. And the idea is that firms are forced to do capital deepening. Do cap X find productivity enhands in those projects?
We call that the Boston red SOX.
Right, So, Matt, given that backdrop, Matt, what's our federal reserve going to do? I mean, I don't know. We started the year thinking six rate cuts, and now we're pricing less than I don't know, three, maybe a little bit less than three. How do you guys think about that?
Yeah, so we have them cutting first in June. I think what we've heard almost uniformly from Fed officials is that they're not in a rush today, and they're not in a rush today, both because the economy is hanging in better than anticipated and so there's no urgency to cut, but also because inflation has surprised the upside, so there's greater uncertainty about the inflation trend. I think if you get softter inflation prints over the next few months, the
FED probably does cut in June. But I think the bigger question will be what does this overall cutting profile look like. And I think there's a very strong case to be made that perhaps the FED only does two or three insurance cuts. We think of it as a little bit more of a mid cycle adjustment, and that any cuts beyond that become a lot more uncertain.
This is a great half far I got. Matt Lazzetti was the Deutsche Bank, and then Edward Morse will join US Emeritis City Group with his new effort in looking at geo politics and oil. I want to link the two together. Deutsche Bank fifteen twenty years ago on the high ground on oil analysis, it was Adam Saminsky and Paul Sank Nobody world what everybody read it? Everybody read the Deutsche Bank Excel spreadsheets on supply and demand. What
does ninety dollars brent crude mean to you? How does that change the American calculus of oil?
To be honest, I don't think it changes it all that much. You know, I think as we think about from a growth perspective, at least from a downside risk perspective, it's usually oil price shocks that drives that, and so you need to break out of what a recent range has been. Ninety dollars is still within the recent range over the past several years. The economy is very different than it was ten years ago. Okay, so it's not just about how it impacts the US consumer and disposed income.
But you do have shale, you have net exports.
Well, but you model out like JP Morgan, do you model out that if you get an emerging market boom, you get oil well over one hundred even out to one.
Sure, you know, I think it's it's certainly possible that you get there. What drives that is really important for the economy. So if it is a supply side driven story, then that acts as a shock that's more negative for growth. If it is organically driven by stronger demand, you know certainly that that can weigh on US consumers, but overall it's a less negative story for you.
I get twenty seconds. It is a true Villanova's looking at you to sell it as a basketball.
No I don't think so.
Okay, that was Odie, Thank you so much. Out of Villanova and you see there with Deutsch and yes, Edward Morse coming up in a moment, Tom King and Paul Swiney worldwide right now. With Edward Morris definitive at citing group for years. They threw him up. Jane called him up. He went down to his office and said, I see you. Well,
that's not quite what happened. He's iconic in oil and of course with a geopolitical study to it, has worked with a consul and foreign relations and you know, I'm like, okay, he can't retire. Where's he going to land? Yeah? And what's so cool about hard training is this is Amorada Hesse from a million years ago. And then oak Tree Management took out Amarada's interest. So there's a heritage here of global oil along with the intellectual acuity of oak Tree.
And they've picked up ed Morse because he was looking for a job whereund and the doctor Morris joins us this morning where Morres, congratulations on this new effort. I'm glad to see you slow down to a sixty hour week. And where's the marginal geopolitical interest right now, Which region, which country, which part of Brent crude is the most interest to.
Edward Morse, I think it really is the Middle East. And it's the Middle East for obvious reasons, not just because of what's happening in Israel, but the after math of all of that, and struggles internally and externally involving Iran and Iraq, and of course we've got Saudi Arabia, which is along with Russia, leading the charge with opek plus. So if you look at the politics of managing markets and the risks to the management of markets, the Middle
East is the main focus. But you know, honestly, if you're trading in the Western Hemisphere and you're trading around Houston and you look at a new Mexican refinery that's likely to o that, you know, the sweet sour relationship with the US Gulf Coast is also changing. So it depends on where you are globally. It's really been the least you know.
I was talking to Jane and I said, why'd you let him go? I mean, he had the call of the pandemic. Everybody else Paul is looking for one hundred and twenty dollars barrel oil and Morse is up on the soapbox screen and no, you're wrong. We're going down to sixty or seventy whatever it was at massive call as well. Do you see pushing against that a nascent global demand that gets us to this Brent crew ninety or higher.
Well, I don't think it's the demand side, Tom, I think it's really the supply side. I think it's a combination of factors. On the supply side. That combination of factors is a restraint that major producers are having and putting crude oil into the market, and the distortions in the market that need to be worked out, and they will be worked out that come from the blockages of
the Seuss Canal and leading. You know, Sumed pipeline is the only way to really get sustainable flows into the Med and out of the Med from the Middle East and to the Middle East. So we're going to have, as we did with Russia Ukraine, working out of freight rates and working out of that distortion weighing on prices eventually, And what we don't really know is what the response is going to be on the demand side with respect to buying oil from the Middle East and elsewhere. Particularly
in China. We've got a country that has shifted its gears as a major importer, shifting its skiers in terms of deciding for geopolitical reasons, it's going to be building a massive inventory. We reckoned roughly another five hundred million barrels of storage capacity can be filled all of storage, and China is strategic and the yet to high prices, China is not only not going to be importing more
than they consume, they're going to be exporting. That's the pattern that we've learned to anticipate that we should learn to anticipate it as oil breaches ninety dollars, which looks like an almost certainty in the next couple of months.
And one of the things that is relatively new in the global oil space is the fact that the US has gone from being a net importer to a net exporter. Why don't our friends done, and I don't know, Texas and Oklahoma just start fracking some more oil.
Well, I think that's exactly what's going to happen. You have several new incentives to fract more. One of them is where the price is, where the COVID curves are, and where you can make money if you're a publicly creded company by shifting to rapid response petroleum production. And then there's on top of that the technological advances that are being made. There are lots of talks on your shows and others about the revolutionary impacts of artificial intelligence.
Artificial intelligence is also working its way into the oil patch, and that artificial intelligence is bringing up productivity levels in terms of how do you manage tracking crews, how you manage track production or track utilization. And I think we're
going to see a response to that. We had basically a worldwide webinar from SMP earlier in a few days ago in which they said, you know, their their deck deck increase in US production of eight hundred thousand barrels a day may have to be revised upward because of the high prices that we're now seeing.
So how about OPEK plus. What is the role of OPEC plus now in the global marketplace?
Well, OPECK plus is a response to the failure of OPEK. OPEK and I have written about this a nauseam always wrong that we're seeing the end of OPEC. But the survival of OPEC dependent upon bringing in Russia and Central Asian countries and other non OPEC members. They you know, they've got a very big hold on the market. H and then and their aim is to maximize revenues uh, and not to maximize them too much where they get a drop in oil demand. So uh, that's it. That's
its role. And they're going to stall as long as they can to see where prices are going before you know, lifting the thing. We will see whether they lift it in June.
And I got two two minutes left. Do you drive an electric car? Do you drive an electric car or a hybrid?
I drive a Tesla?
You drive a Tesla? See I knew that well Ed Morris on electric cars? Is the bloom off the rose? Or do you think there's an immediate sustainability this say President Biden would want an immediate sustainability. I see it in the United Kingdom, I see it in Europe. Does Edmore's think they're here to stay? Or is it one off? And we go back to ye to uh the internal combustion engine.
I doubt think we're going to see it rush back the internal combustion engines. We may see a rush into the hybrid vehicles. We're certainly seeing public policy in the city that we live in or work in is one where we're seeing delivery vans based on fossil fuels and buses based purely on fossil fuels being eliminated, and hybrid vehicles are certainly one way to go and on electric. It depends on you which country you're in. China certainly is seeing an end to gasoline demand because of their
ev policy. The US isn't because we're not short distance drivers. We're long distance drivers, and drivers are awaiting technological change to see a long and lasting battery in terms of miles driven. But I can tell you it is the most fun car I've ever driven, even better than the MGS I used to drive.
There you go and yours. I can just see him in the MGTD. Oh that was the one on the wooden slats in the bottom. My father wouldn't let me buy it. Ed Morris's father less short high one. Ed Morris, wonderful to speak to. Congratulations on this important position at Hartree, mister Morris, on our marginal barrel of oil. With the shock of the Erdowuan losses in Turkey in municipal elections, there is exactly oh one, two, maybe three experts I'd
want to talk to. But the most successible one for you is my book of the year, The Loom of Time for twenty twenty three. It transfix me. It is Robert D. Klatt Kaplin doing what he's doing. He moves from Morocco over to the various stands to the east. It is a spectacular book. In chapter three we find Robert T. Clatt Kaplan slowly walking around this architecturally complex and monumental structure known as Constantinople. Robert Caplin, thank you so much for joining us today. Is Airedwan done?
No?
First of all, it's a pleasure to be with you, Tom No. One is not done. He's not up for re election for a number of years now. And look at it this way. He's been in power twenty years. Yeah, you don't stay in power for twenty years in a partial or a full democracy without ultimately going downhill. So
he's still got some ammunition up his sleeve. And the big question for Turkey though, is look imagine if Donald Trump had been in power in the United States for twenty four years like Airdwan has, what would be the state of institutions, the Justice Department, etc. Airediwan has destroyed
Turkish institutions. So the question for Turkey is even if there is a new prime minister, a new president in a few years like Imma Moglu who won the mayorship of istam Bul the other day and a big victory, even if he becomes prime minister, will there be institutions to work with or will Turkey have a kind of wiemar chaotic situation.
Out of his childhood and is you know, the interesting childhood of Aridiwana. In the twenty two years that he's been the leader, his foreign policy has been to look south and take his Islamic view across levant, across all of your the loom of time, the arc of the Middle East. Is he diminished in his influence in the Middle East now because of these election losses?
Yet yes, he is. You lose this big in a nationwide election, which is what this really was. He not only lost in Istanbul, he lost across the country. This lowers his credibility throughout the region, which was never you know, which was problematic to begin with because the major mistake he made a long time ago was to back the radicals in the Middle East, not the conservative Sunni Arab regimes. So it wasn't as if he was pro Arab and
anti Israel. He was pro radical Arab and as a result, he misread the region.
All right, speaking of another region of the world, let's go to Asia. President. President. She spoke by phone about a number of key issues here, Robert, where how do you view that part of the world right now? And the US role and how the US should act over the coming months and quarters and maybe a year.
I think between now and the election and next November, the Biden administration is going to try to orchestrate a rap pro schmat with China because that will look good in elections, you know, you know, lower the talk of conflict, you know, stabilize the relationship, that will look good with voters. And also the relationship has gotten so toxic, so so dangerous, that something has to be done.
You know.
The markets, financial markets have priced in war in Ukraine, they've priced in Gaza, all of that nicely. But if there were ever a real shooting war between the two the world's two largest economies, in a high end military conflict, it would be devastating for financial markets, absolutely devastating. And that's if the war only lasted a few days. It
could go on longer. So it's imperative of the Biden administration now I think the Chinese authorities as well, not to solve their problems, but to build a parameter around them, to build rules of the road so that the so that the downward turn in relations is at least stabilized.
Robert again, there's so many ways we could go here, we have limited time. Let's switch gears yet again, go to the Middle East. It appears that Israel is just not backing down on any sneer exactly, Tommy exactly. And it seems like the Biden inistration and others are growing a little weary of Israel's position here.
Where are we there?
We are? We are in essentially a war with Iran that started on October seventh. The October seventh atrocities were so be steel, they were so intimate that I believe it changed the Israeli calculus on how to deal with Iran. And we saw an example of this the other day where they where they killed a number of Iranian generals.
This is going to go on because October seventh, even if the Iranians were not directly implicated, they were fundamentally implicated because they had been supporting Hamas for so many years. So we're in a proxy war with Iran. For the moment, it's in Gaza. I think this summer it will move northward to southern to northern Israel, southern Lebanon, because you know, Israel as about eighty thousand citizens who cannot return to
their homes in northern Israel. That's a de facto loss of sovereignty which no democratic government could ever accept permanently with us.
Robert T. Kaplin has booked The Loom of Time, my book of the year last year. Robert kaplan to continue this discussion. I think that Paul, I don't want to speak for you. I'll speak for myself on a Mike an off mic. I'm getting one theme. If we could just get rid of mister Netnaho, what does Israel look like the morning after mister Netna who exits.
I think the morning after mister n'atagne who exits, you will see the same policy more or less supplied in Gaza. Uh you know, a determination to fit to kill off those or to defeat those last six or eight battalions of Hamas and southern Gaza in the Rafach area, the desire to keep pressing militarily to kill off the Hamas leadership, the desire to again restore sovereignty through in northern Israel,
through if necessary, a war with Hezballah. I think that I think a lot of us have been, you know, are living in a dream world that the policy is going to suddenly shift forty five or ninety degrees in a direction because of the end of Netanyahu. I think the fundamental you know, war policy will continue, though it will take on a much more diplomatic guise.
Robert, I guess that one of the many risks in that part of the world is a more direct confrontation between the US and Iran. What's the risk of that and how does the US position itself there?
Of course there's a strong risk. Keep in mind that neither the US nor the Iranians want a major war but between each other, and I think the and I don't even think the Iranians won a major war directly with Israel. You know, there will be a lot of tit for tat going on. Remember, the Iranian government is
enormously unpopular in its own country. One thing you have not seen so far since October seventh is massive pro Palestinian demonstrations in Iran itself because they couldn't happen because the population is not where the regime is, and a major war with the United States would only make the regime even that much more unpopular and would risk toppling the regime altogether.
Robert Kavlin, thank you for joining us on short notice. Today's book Definitive can't say enough about the chapter on Turkey, on Constantinople and mister erin Awa. Now you daily look at the front pages around the world. So pap in College Station, Texas and this goes back a few years. The Aggies are playing the Center College praying colonels in the Dixie Classic in nineteen twenty two, and to make a long story short, a twelfth man came out in the field. Really and save that, I swear, And they
like to have a statue that. Just one night Jess met and was so drunk she passed out near the statue. It's a twelfth man statue. Joining us now the official twelfth Man surveillance. Jeffs met in Fighting Texas, agging to help out with the newspapers. Jess, thanks so much for being here. Lisa, what do you have today.
Note, Okay, remember we were here about the California law about fast food workers, right, increase their minimum page.
Forty dollars twellar an hour.
That's what they're making. This for fast food places with more than sixty locations. But now because of this business insider, they crunch the numbers. They're saying California's could pay a heck of a lot more for their Starbucks. Okay, So they did the numbers. They said starting April, first menu items they increased fifty cents to as much as a dollar each by comparing their receipts. Okay, and Starbucks did confirm they raise the prices, but they didn't say by
how much. So they did the math. If you go for your normal Starbucks and the price increase order is let's say eighty cents, Multiply that by two hundred and sixty drinks, okay, and now you can expect to pay more than two hundred dollars more a year for that little daily indulgence of that Starbucks drink.
So is it just.
Twenty bucks an hour at fast foods? Or does this change the world For Mel's Diner on Sunset Boulevard.
This is fast food workers again, flood workers, but they have to have more than sixty locations.
That's a Starbucks person.
I feel like I'm off and on. It depends what's your drink when you go to Starbucks. I like a ChIL Yes, but I feel like.
You're a fan as I One of my offspring, the middle child. The middle child got a special brass card from Starbucks. He spent so much money. Yeah, I don't know what it got it twenty bucks an hour? Yeah yeah, I mean, I'm seriously Jolana a McDonald's. That's like twenty people at the time.
And what are they that they're gonna pass along to consumers?
So what does it do to the number two value meal? I mean, all of a sudden, you're twenty bucks for a burger. That's where we go next.
Its crazy, Okay, NC State it's DJ Burns. You know, we were talking about him. We love him, We love him. Right, he's actually getting some NFL interest, So what do you switch basketball? He's six foot nine, he weighs two hundred and seventy five pounds. Okay, so he's starting to catch the eye of these basketball fans. NFL executives are looking the question is could he make the switch from sports at that pro level, you know, succeed on the offensive tackle.
He actually talked about it yesterday in an interview. He said he would not rule out exploring a career in basketball and football, but he said he's trying to make NBA the plan.
He's I think, I think he has a future in the NBA. But nobody really knew him before this big run here. But if you look at him, he can score down low, he can pass really well. They run the offense through this guy, believe it or not. So I give him a shot.
Okay, sitting here as a shock compare right, Yeah, I mean, is he likes shot?
But if I'm this guy, why would I want to get my brains beat in on the football field as opposed to just playing hoops. So we'll see how it goes.
I don't know. Yeah, he's still in the final four. Yea, yeah saying I'm in the final four.
No, we're still we're still worried about next year's next Wow.
Okay, our neck ties making a comeback. This was in the Wall Street Journal. So you see presidents like they increasingly don't wear them, neither new CEOs. You see them when they sit down for some interviews. There was a big fundraiser last week President Joe Biden, Bill Clinton brought Upama. They did not wear neck tiestorialized.
Please, Sweeney looks out as central casting. I mean the girls. It's like when George in the building circle this change Sweeney. It works. If I came in looking like Sweeney, just what do you think? I look like a mora?
I have to point out though whole Sweeney is like the fashion police here at Bloomberg Friday will call people out.
Neckties are are sandals allowed in the workplace? That is a hard no face.
And pajama pants.
This is why sandals or sandals with socks. Michael Dart is wearing socks. What do you think that?
Let's go with neither, Let's go let's go.
Okay, one the bow tie, where does that come in?
I mean the boies. A classic handful of people can carry that and obviously to pull it off.
Goodness, don't know.
I got one more zinger for you. Okay, couples, I gotta be honest straight out. I'm still reading the article as we get to it right now, But couples, they are trading those restless nights. They're going for dual primary bedrooms because they need each need their own abode for their personal space sor because I have to admit, yes, my husband does snore and sometimes he gets booted to my son's room because my son's not there right now.
This snore room.
I'm not gonna outfit a second bedroom and have them split.
That's not good.
Yeah, but some people do that. They're making their own his and hers bedrooms.
Versailles. When we went to Paris to Versailles, it was a lovely body and they gave it. They really it was really lovely. The lines were like are you kidding me? And they have snore room verside.
Yeah.
Lord of the Sixteenth just couldn't do it. And Marie said, building, it's like it's like a wing away through the hall of mirrors as well, Chess, let's talk about softball at Texas. A and A am crushing Prairie View with the no hitter yesterday. It's like gospel down there, isn't it?
It definitely is. And I mean everybody always wants to think of football. Obviously, we were coming up kind of a challenging season this last year. Obviously we don't have anybody.
Here's the money, here's the money question. This is a newspaper question with Jess Metton. How come one of the best oceanography schools in the world is in the middle of nowhere in Texas.
I mean it's under the radar, but people should pay more attention.
Why not out there? Would you have any equity wisdom today? You're usually everything.
I actually just did. I did the technicals on Apple stocks, so it's getting closed to the intra day low around one sixty five from October's just getting yes exactly. So that's the key support level right there. So a lot of technicians feel like maybe the worst of the pain could potentially be passed after Apple came off of it.
In Tesla right now.
Oh, actually, Esha Day has a story that just came out watching on that particular stock. So if you should go to her bio page for Esha Day, so that breaks it down and looking at it.
That's how you find print make or break level and latest wipeout market cogency one fiftieth support to.
Once you by for Apple and then thank you to your people for scheduling you in here.
I mean, you know, I want to buy and you told me to come in.
Jess Manton, thank you so much. Careful with Bloomberg Market. It's like, really brilliant work. This is off the radar. It's for the Terminal, the Bloomberg Professional Service. It's a whole team of uh A maniacs like just Matt and twenty four to seven writing a focus on the week mark, on the weekness. That's Paul seven. Yes, there, you got nailed it for me. That's like, okay, you think I should take the bow tie off.
Lisa, No, you have to keep it. That's your trademark.
Okay, okay. This is a Bloomberg Surveillance podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.