This is the Bloomberg Surveillance Podcast.
I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best an economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App.
In twenty eleven, I joined a guy named Mohammed el Arian on the stage at the Fixed Income Analyst Society as he was wandered into the Hall of Fame of fixed income folks on Wall Street.
This is like a geninormous deal.
Names like Dan Fuss of Loomis Sales, Ed Altman, who is one of my first the z Score, and all that, a guy named Fabozi. It was inflicted upon us at gunpoint to read this. Roger Ferguson, he did okay, and every other name. It's a who's who here a fixed income There's a new name joining us with a new name is Bob Michael Cio, JP Moore. No, forget about the title Hall of Fame member.
Congratulations, thank you.
It was a conpecional night last night. And by the way, Barbara Novic from Blackrock was an honoree, and your own Steve Berkeley, the godfather of the entire fixed income index business, was also an iki last night. So it's a very special night.
And I just speak to how modest Bob is Tom that he came in this morning. And I knew where Bob was last night for this event, and Bob came in and said, it was a meal last night, and he starts talking about a calculator. Yeah, I'm sitting there thinking TK not just any meal, not just any meal.
And you pushed him and he didn't even say it.
There's so much and within the bond turmoil right now, you know, we'll just take a few seconds here. You and I were weaned on the same book Sydney Homer, who's in the Hall of Fame, and Marty and the the Yield Book. I mean, tell us about what that book did to you and me, how it straightened out our head about discounted cash flows.
So true story. I heard Marty might be there last night. Marty Leebowitz, who co authored that book. I have my original copy of the book. I kept it at home. I looked at it for weeks, and I decided not to bring it in and have a autographic because I was afraid he might open it and see I underlined the wrong things in it. But he was there. It was star after star. So for me, very very specially cool.
It's a key moment right now in the bond market, and I'm so glad that you're here because you've been one of the buyers and saying that it is an incredible value in the ten year pushing against the grain right now. How much conviction do you still have despite some of the moves we've seen.
I have increasing conviction, and I will admit for bond buyers, we've been swimming upstream here for the last couple of months. And I go back and I look post Silicon Valley Bank and we all looked at the market and thought, from March to June, we're going to have a pretty significant retlacement. Let's sit out of that. I think what's been this surprise is from June to this past week, rates have continued to go up and the narrative has
become it's more of a soft landing. You look at the fiscal impulse that are coming from all the acts, the Inflation Reduction Act, the Chips and Sciences Act, and a couple of the others, the Infrastructure Act, and they're all rippling through the system. But what we're seeing is the underlying data continues to get worse. We look at the consumer that continues to get stretched, and we think that buying duration in here, we're about to start swimming downstream again.
How do you understand the market moves? How do you understand where the bet so far has gone wrong? Given the fact that yields have gone up much further than anyone thought was passible in this cycle, after so many people called this a peak yields.
Well, I'm not so sure about that. And I've gone back and looked at the previous cycles, and actually we should have been more surprised if we didn't get this backup in yields. And it's happened every single time you go back, and about the same magnitude fifty sixty plus
basis points. We went back and we looked at the end of the FED hiking cycle in two thousand and six, yields fell dramatically, and then they went back above the five and a quarter percent high in June two thousand and seven, right before these enhanced cash funds started shuddering.
So it takes time.
And then, by the way, they went back in June two thousand and eight, they went up one hundred basis points from their low in March two thousand and eight. So until these long and variable lags hit, you're in this never never land of something that feels like a soft landing. You're not getting more rate hikes, you're not in recession, and the markets will oscillate back and forth, and you'll have this battle between the Fed's done it.
They've engineered a soft landing. They'll congratulate themselves on that they did it this time through their summary of economic projections, and people like me, you say, look at the underlying data. Everything's cracking and then bad things happen.
You can't throw around six seven eight without really giving us an idea of the kind of things you're concerned about. Do you see things going badly wrong or just the ultimate run of the mill recession that we're not used to.
Well, you touched on them earlier. It's not true that these rate hikes don't have consequences. We almost took out the UK pension fund system and the US banking system. When you look at the bank term funding program, it didn't backstop regional banks, it backstop the entire banking system. We're looking at a couple of things. We're looking at the consumer facing depleted savings, the excess savings from the COVID fiscal transfers. Those are gone, and now they're seeing
the higher cost of everything. They're facing higher energy prices which are going to dip into consumption elsewhere. We look at temporary help services jobs. They've turned down, they've never turned down before, except in advance of recession. And we looked at home price affordability, housing affordability. Kelsey Bearro and I we're talking about this morning. It's the worst on record. Now, the date only goes back to nineteen eighty six, so
I don't know before that. But the combination of very high home prices and the cost to finance them, we've never seen it. So when you hear about the current generation talking about how hard it is to buy a home and how an expensive, they're one hundred percent right. We've never seen this before.
Here's Bob Michael's in my calculator. This is my personal HP twelve C was cfa sticker here, and Bob you used to have this, or Bill Gross.
Had a monro trader at his desk and all that. All that's out the window.
Now here's what our audience knows and what you're dealing with.
A JP Morgan.
Every day, the Vanguard Total bond fund is down something like twenty one percent from the Great Moderation peak. It's down seven point five percent annualized. That's what our audience is feeling. How do they turn that around? Leave bonds?
I'm all for that. We're at an inflection point in the economy and the bond market that the last fifteen years were not normal, That we got to a structural low, that was it, and now we're going to revert to something that's more normal, where maybe that first long term Fed DOT at four and a quarter percent will be the neutral Fed funds rate. I just don't think you get there all at once. I think it takes time. It took twenty seven years for the Fed to get
from twenty percent to zero. Maybe this time we go from zero to five and a quarter, things slow down. They have to come back to two and a half to three. Next time they go to six percent, and then we figure out what that range is. We've gone too far already.
You're in an officer with a guy named James Diamond, and these are huge questions with a lot of zeros.
To the left of.
The decimal point. Is the Great Moderation over? Bring up the banner again, BMD. This is the Vanguard Index, and this is what our audience is feeling. They've been hammered twenty one percent from the peak, seven and a half percent analyzed off the Bloomberg What do you say to Jamie Diamond about this hope and prayer of getting back to the Great moderation.
We all hope that we moderate at a reasonable level of interest rates, and I would hope that not tomorrow, but say five to seven years from now, a five percent ten year treasury is normal, not one and a half to two percent where we were. It's just going to take time to get there.
And this is so importantly so five to seven years is not in the vocabulary of financial media and Global Wall Street to a great extent.
Although I did hear I should start paying attention to the possibility of seven percent.
Yes, I was just going to go that.
What did you think about that?
Did you go over to Jamien and says.
What are you thinking, volunteer?
Exactly?
I was going to go there, but you actually too easier.
It is a reminder to me that I sit here and I think about could the FED go to five and a half five and three quarters? They may just do one for decoration. Could they go to five and three quarter six percent? No, by the time you get to that meeting, and I'm glad to know that the guy sitting on the top of the house is thinking.
You idiots. Okay, goodness, what.
If all this liquidity hasn't been wrung out of the system, it reignites and we do get up to something like seven percent. It happened in the eighties. So he's running the whole show, and I'm grateful that he's thinking about those things. And I get to go back to my little world of is it five and three quarters or are we stuck here?
So basically the lead is here. You respectfully disagree with Jamie Dimond. You'll let him worry about seven percent interest rates, but it's not your range in any way, shape or form.
Well, I think he's pretty clear that's a stress test. I don't think that's his base case scenario.
As we game out how to understand long and variable lags. You did talk about that, and I think that that is one of the questions that we keep hearing about, with the likes of Jim Bullard, the former Saint Louis FED president, saying that we've already seen them, and that there might be shorter and they might have worked their
way through the system much more quickly. How do you push back against that, especially at a time where you do have highly financialized markets that do respond to a Federal Reserve forecast what it's going to look like and have already been adapting to this reality for a year more than a year.
I would have waited until two years past from the period of FED hikes to see whether those long and variable lags hit, because the FED zone studies show it's eighteen to twenty four months, and here we are about twelve to eighteen months into it, so we should just be starting to see that. I disagree. I don't think they fully hit. I think we've only seen the front edge. You talk to anyone in corporate America. The big companies
have already turned out their debt. They have to go back and refinance that you talk to anyone who's looking at a home, they can't get a mortgage at three percent. They're in that close to eight percent category. And those people who own homes, if they need to move, they're going to have to step up their mortgage. The cost of financing autos has gone up, and we've seen through the Chase credit card data that revolving credit usage has gone vertical, and that's at a much higher cost of before.
So that is telling you the crew consumers already stretched here. They're trying to maintain their level of spending and it's going to cost them more when they put it on credit.
We've been seeing this, and we've been hearing the acknowledgment of this for people who still are not buying treasuries right now because they're saying that prices are still going up. Yes, the housing market is broken, but house prices are surprising to the upside. At what point do you say that inflation can stay here, the benchmark rates can stay here, even with a downdraft that's being felt and recognized by the market.
Well, I think the end of this week will be interesting because on Thursday we get benchmark revisions to GDP. We expect those to be lower, so that will raise into question how strong the economy is. Then we get personal consumption expenditures on Friday. We think that while the year over year may come down below four percent, you could have another point too. Now you start to print a string of point twos, which is bringing inflation pretty close to the Fed's two percent target. As long as
those growth and inflationary pressures, the trajectory is down. At some point, the Fed's policies will look outdated.
Question from my Bloomberg subscriber, Bob, let's finish with that unless the FED steps back into the market, Vique, who's going to take down the duration supply next year? What's the answer to that?
At the moment, we get inquiry every day from retail platforms and from institutions wanting to know is this the time to go into bonds? And there's been a lot of flow at the start of the year, but I think it's only been at the tip of the iceberg. I think there are a lot of pension funds and insurance companies that are looking at one of the best opportunities to de risk in twenty years. They put some money to work, they've got a lot more to do.
There will be plenty of buyers out there out of out of interest.
What's holding them back?
If I told them they could have these yields a couple of years ago, they've been like ready, Like can I take that now? What's holding them back?
Now here it is for sixty.
I think everyone's concerned about catching a falling knife. And I think at the start of the year when they put money in, yields rallied very rapidly, and they pulled back to see if you would get a pullback. They pulled back a bit, and over the summer they put them in, and as yields have continued to go up, they've just paused.
In Lincoln Publishing moments ago, Bank of Montreal goes to the same illusion Christopherona had this earlier, the sarcastic idea of catching a falling knife. What is the signal out there? Is it fed rhetoric or is your own power policy? Where all of a sudden you go from the fear of catching the knife to something else.
I think you've got to see something which evidences a material slow down in the economy. I think everyone's comfortable with the disinflation narrative, but concerned that there's a lot of data in the labor market that looks strong. When we start to see the labor market come under pressure, that will turn the tide for sure above.
I nine you a long time. Always enjoy catching up with your congratulations.
Thank you very much.
Inducted into the Fixed Income Hall of Fame. But Michael at JP Market Asset Management.
And your equity markets on your new two oh one k with a vis at eighteen point twenty six. Now to your level, senior US equity strategist ubs Nadi, thank you so much for joining give me the siren call of whatever the new level of cash is going to be five point two five, five point fivey five. Someday it's going to be a level like six percent cash. Do I need to be in cash?
No?
I don't think that you need to be in cash. I think that there are opportunities in the market equities as well as the bond market. We think that there is some upsides to this market. I mean, this wellcome pulled back I think is very healthy, and I think that it's time to really start to leg into the equity markets and in the fixed income market. Even though yields have backed up a bit. We do think that
yields will trend lower in the coming months. We do think that the economy will start to slow and the FED is done hiking, and that should give some relief to bond yields, and so we will look into add to bond bonds.
As well, starting to leg into stocks witch stocks, Matty, are you looking at consumer discretionary and saying let's go.
No, We actually in terms of we're mutual consumer discretionary, we maintain a preference for industrial consumer stables and the energy sector. We know that energy has done quite well over the last few months since we upgraded it three months ago, but it has lacked the commodity and we continue to believe that oil prices are sustainable in this
ninety to one hundred dollars range. We're looking for ninety five into twenty twenty four, and so we do think that there's a little bit more to go in the long energy trade. I mean, we particularly like the EMP companies and the all service six companies within energy.
When you talk about yields eventually going down, there's a question of what's going to trigger that at a time where people are seeing strength that was unexpected in the economy, and they're saying that it will cause inflation to stay higher for longer, the FED to stay on hold for longer. What gives you confidence that both equities can keep doing well and we are going to get yields going lower typically some sort of symbol of weakness being expressed to the market.
Yeah, we are looking for more sub try and economic growth, but we are calling for a recession, and so we think that you are going to be in this sweet spot where the GDP growth is probably around one percent the FED is done hiking. We know about historically when the Fed is done hike and BONDI you'll start to fall. I mean, we think that inflation is going to continue
to remain on this downward trend. I mean, for a core PCE on Friday, we're looking for about fourteen basis points and when you annualize like the last three months, you're at two point three percent. And so we think that that inflation is going to cause effect to stop hiking and look to ease rates in twenty twenty four, and so that should be supportive to the equity markets as well as the bond market.
Nadie I'm going to editorialize and suggest that maybe the bond market on price is in a bond bear market, priced down and staying down and looking for new lows. In the equity space, I'm confused. Are we in a bull market off the October lows or are we reaffirming the bear market reality and stocks?
Yeah, I think I don't think that you're going to re enter our bear market in equities. I mean, reality is the earnest recession in our view, is behind us, and so we think the upcome and earnesty so of course will be important, but we also think that you should be certain to see an inflection point in earnings after three quarters of negative earness growth. I mean, when we look into twenty twenty four, we see high single digitus earnings growth really support still a growing economy.
It's still a consumer.
Yes, the consumer is pulling back, but the consumer is still there. So I mean, when we look into twenty four, we're looking for forty seven one hundred and on the S and P five hundred. So no, not an indication of our retest of the bear market.
What do you do with tech and other high flyers. I'm thinking luxury, which has been beleaguered. I guess, but what do you do with those leading sectors from before?
You were seeing a pullback in tech. We are mutual tech up, but we think that this pullback could provide some opportunities. We're really going to be important for tech. Again, it's the earnest season. This is really real. The rubbery's going to hit the road no longer, it's just the outer of the term. AI is going to move U stop. You really need to start to see revenues come through
on that or concrete plans around AI. And we do think that you are going to start to see some growth in some of those areas of tech that had been weak or signs of bottom and a stabilization, whether that be PC, smartphone or cloud computing. So for globally, we continue to like the areas of tech that are profitable Number one and two areas of tech where there are higher percentage of Hargn revenues and have some secular
exposure to cecular trends like AI and cybersecurity. We have these do think that there's a role for tech in the portfolio.
Nadia. We talk about these macro trends and then we get these micro stories like what the FTC did yesterday with Amazon, how much and how do you sort of view those headlines and translate them into overall theses. How much do you care about those type of developments.
It's important to keep an eye on these things because obviously, you know, any of these sort of cases could eventually to a breakup of company, which in some view even some of the breakup of these larger companies can unlock value. So it is something baire watching over the longer charm. But I think in the narrow tron what's going to matter more is really the earnest growth, what the fat doing,
and what the economy doing. Not so much on terms of a regulatory standpoint, because these regulations take a long time to play out and most of the time they end up being nothing.
It's Grant HOWKDA once again for Amazon, Natia, thank you, Nati Leveo. Have you Bes Club of Wealth Management?
Thrilled to have on set this morning. Ed Mills.
He's Washington policy analyst at Raymond James, has a lot of work with Carol Malonium on others out of Boston College where you learn politics quickly and Mils, have you seen this before? To me?
A president on a picket line.
It's original, But is this an original talk about shutdown?
It's not an original talkout on shutdown. At Raymond James, we have enough data to go back to nineteen ninety five and say, like what happens in each of these shutdowns, And what we found was actually somewhat counterintuitive that on average, the market is up about three point two percent during government shutdowns. So that tells me that the shutdown in and of itself should not be a driver for this market.
We have a lot of other kind of headwinds that we have to focus on, kind of the debt service burden for this country, longer term fiscal trends, But government shutdown. I don't have a huge concern about market implications for you.
And I know the photo when you're at Boston College of Tip O'Neil sitting with Howard Baker and somehow they got things done. That's not happening right now. How do you get to compromise and a fractured Washington.
Very different world.
I have been focused more on the Senate than on the House, and I think almost all of the headlines have been about the House of Representatives, when in reality the Senate, either sometime in the next day or two, maybe past October first, is going to pass a continuing resolution, and it's going to have well north of seventy five votes. Once that's done, the pressure is going to build on the House to at least have a vote on that.
If they have a vote on what passes the Senate, I think there's probably more than three hundred votes on that bill. Why that's important is that if you can get three hundred votes, you don't have to go through the rules committee. Kevin McCarthy does not have to have a fight on the floor where he has to have Democrats supporting even having a conversation of the bill.
It's put on the suspension calendar and get that done.
So just to put a bow on that, are you basically saying that there's a good chance that we're going to avoid a shutdown more than the market certainly pricing.
So could we have a shutdown for a day or two. It's certainly possible because we're looking at the timing of how the Senate is working on this. But if there is a shutdown, I don't think it's long lasting because the pressure's going to build so much on the House to have a vote on what the Senate passes. So look at what the Senate does and if it's seventy five eighty votes on that continuing resolution, I think that's
a really positive sign. And another positive sign could be if the House is not able to do their own cr that adds to the complication if they can do that later.
Today, moving away from the crystal ball of Washington politics, question around the actualities of the moment, we were talking about the dollar. The dollar being stronger, and this comes at a time after years where a lot of nations were looking to depreciate their currency.
Is the stronger value.
Is a stronger dollar actually a benefit right now to the Biden administration.
Lisa, I could argue yes.
And when I have been on trips to Europe and European investors, they think that the Federal Reserve and Treasury are in cahoots here, that all of the push for kind of rebuilding the industrial base of the United States through the Inflation Reduction Act, Chips and Science Act, Bipartisan Infrastructure Bill. If you have a strong dollar, it is cheaper to manufacture things here in the United States. And to the extent that that's supporting that fiscal policy in
the background. I do think that's an underappreciated aspect of what the Fed has been doing.
Do you think that that's a valid in any way, shape or form or just conspiracy theory from people who kind of have sower greapes about the fact that they feel like they're on the line.
Well, I think there's two things, Lisa. One, this is the first time and generations where we have challenged the industrial base of Europe right rebuilding it here in the United States. Two, the Treasury Secretary used to be the FED cheer and so I do think there might be a few kind of conversations and a little bit of work together between the two.
Tell me about the debt and the deficit. Mia McGuinness was on yesterday and it was just brilliant about the new of the debt and the deficit. You are a grizzled pro at this. Are you concerned about our debt and our deficit?
I have a growing concern.
I mean one of the things that we look at if you check the national debt and the debt service burden, the debt service burden is going to eclipse what we spend on discretionary spending all of defense in non defense discretionary spending pretty quickly here. So for years when I first came to Capitol Hill being concerned about the debt and the deficit, we're front and center last five ten
years that really went away. That's returning, and that's going to have a huge impact on our politics and you know, ultimately on kind of what we're able to spend. When I look at the twenty twenty four election, probably one of the biggest decisions that's going to be made based upon who wins is the tax cuts that expire in twenty twenty five. That's another four trillion dollars if you
want to extend those out. And so if you are kind of having a conversation about the debt and the deficit, what are you going to do with those tax cuts? What is the implication for the economy, especially on the individual side, because those are the parts that expire.
It's such a good point, but you know how this works. You get into power and order of a sudden, you don't care about the deficit like you used to do.
Yeah, I's going to change.
No, I've always said that the you know kind of members of Congress really care about.
The debt and the deficit when they're in the minority.
Yeah, And one of the big concerns is that the way in which you think you should solve it is different. So Republicans like to kind of grow kind of revenues through kind of tax cuts, and Democrats try to feel they want to grow revenue through tax increases.
Unless, of course, the market forces that discipline onto Congress and Washington and away Tom that it hasn't for a long time, that would be the change one just.
Quick, I'm so sorry for this. It should be a longer question.
Do either of these parties feel like they're in the minority.
They're both acting like they're in the majority.
I think that when you are in the White House, you know, that's kind of what sets it. So, yes, Republicans have a majority in the House, but in reality, with the Senate a Democratic majority Donald Joe Biden as president, they kind of can push on the president and make him have kind of tough conversations.
And thank you smart as always as most of Raymond James, I'm ready cent advantagy aspects, calling for one hundred dollars oil by Halloween. The last time she was on Bloomberg surveillance. In her latest note, she says this will do you not see prices lending up in the net term. Crude fundamentals have become strong enough that the macro story is no longer sufficient to drive price action.
Tom.
Instead, crude is starting to drive the macro view.
Joining us now in New York as usual in London. Emory Dessen, co founder, head of Research Energy Aspects, How does Saudi Arabia react to the band turmoil and critically strong dollar currency turmoil worldwide INOPEC plus and outside OPEK plus.
I think Tom, that's one of the biggest reasons why Prince Abvilaziz has insisted on keeping these cuts. He is extremely worried about what he's seeing in the macro market. Right Bond markets are reflecting this uncertainty. What does it mean for growth? And why preempt that by bringing barrels on, for instance, and you get a big slowdown in growth only for them to have to cut it back.
What was the mood like in Oklahoma City, That's where you just came from with this conference, David Tullman, interestingly, was there of goldmentz Act saying we support you, Which is a real change in the tone of some of the biggest financial institutions in the US. Was the tone optimistic that you could start investing again in a way that was more meaningful with the idea of higher oil prices.
No, I think it's a great question, and I think the mood was optimistic because oil prices are at ninety But I do think there was a sense of pessimism as well because the markets aren't really allowing CEOs and companies to invest, shareholder pressure and governments as well around the world. I think you're starting to see some European government's backtrack over the last couple of days with some
of their big targets. But in general, i'd say, you know, the support from the Western governments has or for oil and gas companies remains very limited, with the focus still mostly on ESG and renewables.
Well, there's a larger question here than how high prices could go. And the Continental CEO said the oil got to get one hundred and fifty dollars without government backing.
Do you agree?
I mean, honestly, when I saw that, I was like, of course, but that's just my natural internal skeptic skepticism, and what's your take.
I mean, look, those numbers, they're just a number, right, Like you can't kindly what's the difference between I don't know, one thirty one fifty two hundred. I wouldn't sit here and call for those numbers. But I think the point I would make is and we've you know, we've been calling for high prices for the end of the year consistently. End we were very out of consensus. But my kind of fear in this market is we have d stocked so much inventory right now. What's going on in the US.
Cushing is dry, and even when cushing has fallen to record low levels, it can't keep barrels because the rest of the US is so low that it's start continuing to pull barrels from Cushing. Dubai, I don't know if you saw this morning, Dubai spreads have gone to over three dollars backwardation. It's telling you this market is very, very tight, and we are not seeing signs of investment
from companies, not because the CEO doesn't want to. It's because we in the world society, governments, they're not allowing them to. We do continue to see a huge supply gap in the medium term, probably around twenty seven or twenty six to twenty nine. We don't have enough projects in the pipeline, and that's where OPEK in Saudi Arabia and you have to step up, and that's where the projects are coming through.
This is ultimately the point that you're making that perhaps some people are getting this back to front. You're saying that the macro isn't driving crude crew is going to drive the macro. Can you explain that just a little bit more.
You know, the first half of the year, we had every FED decision mattered more to crude oil than OPEC decision, right Whereas now you've seen even when in the bond market the turmoil we've seen, we've seen equities come off, but crud's really held up and that's purely driven by fundamentals. And the worry now is if crude markets are this tight, you start getting all prices going up, and then does that influence FED decision again through inflation?
In your experience, how inelastic is demand for certain crude products? How much demand destruction could we see off the back of these prices.
That Tom's going to love this because I, okay, I'm going to say this because I have started to see this not just in China but even other parts of
the world. It's very early days, so Tom, don't ask me to put a number to this elasticity figure out thing I'm going to mention, but I'm sensing that oil is becoming more inelastic with Like, if you look at this, the global economy this year is going to be less than three percent GDP growth, right, but oil demand growth is going to be more than two million barrels Now China we know still post COVID recovery, but there's something around. You know, Initially we all thought working from home will
lead to lower oil demand. It seems to be going the other way because now people are having to come into work. There's more driving from further away because people have still moved out during the pandemic. We just aren't seeing the same impact from higher prices on demand. Again early days, maybe people have access savings. Let's see what happens next year. But I'm keeping an eye out on that.
You want to put number.
I'm telling my group of economists to continue to do that.
The microeconomist Jeff Curry at glob and Sachs exiting may very clear to us that the tangible, real yields globally. The end of the free money that we've seen changes your world changes oil investment. Are you beginning to see indications that a ten year two point two two percent real yield changes how oil animals think?
Absolutely?
And I think we've been talking about this since April, really, Tom, and that is my worry. Nobody wants to hold inventory just for basic kind of you know, we always used to say we need X number of days of forward cover, fifteen twenty, whatever that number is. You need that buffer. What if a cargo gets delayed, What if there's a Libya happening today? Because of the rising rates, it's too expensive and that's what creates the risk of volatility and upside for prices going forward.
So let's reaffering a price. John started with that.
I mean, you made some real headlines and vision of one hundred dollars a earl at ninety five fifty seven Brent Corde were really buttressed right up against a ninety six level before get us out beyond that to the fear of one hundred and twenty a barrel.
How do we get there?
I think those kinds of number, yeah, I mean those kind of numbers you probably need an event, right, a supply shock. But in the day to day trading, if we break these technical levels, of course we can make a rund up to one hundred dollars. Like I said to you last time, calling one hundred and ninety five is not a big call, right, regime, No, the new regime, I do think, yes. And one of the things to
bear in mind, there's crude and cracks. Diesel cracks, yes, they're coming off, but gasoline and diesel cracks are on top of that. So that's where I do think in some ways you have to put a risk premium to prices because you don't have enough infantries. Once you break through this next level, we can then go into that paradigm where we just hang around one hundred dollars unless there is a clear sign that demand is slowing down. We haven't seen that yet.
Just to finish has sustainable? Do you think the Saudi current position.
Is, Oh, it's very sustainable. They're very very clear that we want to make sure inventories are not building, and I think there's clearly signs of that. And once and also the macro concerns, right, and that's where it becomes a bit of a chicken and egg because we've started to get worse data from the US that's going to concern them even more, and that almost makes them more cautious in adding barrels back.
The reason I asked because there is a monthly review. I'm just wondering whether I should ignore the monthly review between now.
And the end of the year.
I mean, we have seen Prince Abdilzies and even Alexander Novac come and extend the cuts to your end. Of course, they always keep an eye out on the market. We've got the November OPEC meeting as well in Vienna, so there are a few things to kind of consider before your end. But you know that deal is still I mean he's extended it for a reason. He is concerned about the global economy. I'm not going to change that overnight.
We'll say, if they let us attend that OPEQ plus mating in Vienna, you don't have to weigh in on that. Don't worry about that and redissent a anergy aspects. I'm ready to thank you.
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