Surveillance: Post-Pandemic Growth With Yergin

instantly my book of the year. The New Map is by Daniel Jurgen, I h S Vice Chairman, and we're thrilled we could get an oil update from Dr Jorgen right now on the Triumph. Really wonderful, wonderful book to read on oil and the new Map of our geo politics. Dr Jurgen, thank you so much for joining you talk late in your work about the disrupted future. It's seventy dollars a barrel, up from forty five dollars a barrel when your book was released. What does the disrupted future

of oil look like? Thank you, Tom, and glad to be with you. And I have to say thank you for making the new map of the surveillance Bloomberg Surveillance Book of the Year, and it did. The book does talk about disruption of what we're seeing now. I think

we're moving. We're in the post pandemic economy right now, and uh, after all of the obitras and everything we're written for commodities, for oil, you're seeing a rebound and it's telling you that we're in a very in a strong world economy, we're probably in our number is going to be looking at a six percent global economic growth this year. That will bleed into demand. How do you

frame the price of oil? Are we here or you go to eighty dollars of barrel as we've heard from technicians, or can Daniel Jurgen speak of a hundred dollars of barrel? I think a hundred dollars a barrel would have to be some really big disruption. I think we've been thinking that we were in a sixty seven many five dollar range. It could touch eighty, but we're still using around seventies the price for the year, which is where we happen to be right now, and it's as the economies open

up around the world. Motorists on the road referring to drive and places, and the OPEC countries and the OPEC plus countries putting oil back in the market, and even the prospect of a RAN coming back into the market fairly soon if there is finally a new nuclear agreement still hasn't riled the market. Well, there's this idea of discipline that a lot of the oil producers having regained discipline and are not going to overproduce for fear of

cannibalizing from their future profits. At what point does the shale complex come back on see higher prices is something they just can't miss and and perhaps enhance their production. That's a question obviously not in the SHIL producers, but that that OPEC Plus are looking at pretty carefully. We're going to see at this point the shil producer returning capital to investors. That's what their focus is on right now. And uh, the increase in recount that we see is

among private operators, not the major companies. So I think we will see obviously this second half of the year, we'll see US oil production starting to go up again, but I think at a modest rate, and I think there is a new social contract between the shale producers and their investors, and that does mean that maintaining a certain discipline and not going for growth at any cost. Hold on, It's like, can you elaborate what this social

contract is? Does it have to do with climate change or does it have to do with the idea that they're dead, that their equity has been whips ode by the different price action in oil and that investors don't want to see that again. It is your second option. It's about money and that many shale producers were spending beyond their cash flow. Now they've turned around. Some have dividends or sort of variable dividends there, paying down debt.

That's been their focus. That they have to show two investors that they will be prudent managers, and that comes with consolidation. We used to follow uh at S market six T SHL companies as consolidation proceeds. As some companies disappeared with down really getting closer to DAN. It would be rude if we did not ask. And let us go back from Mobile to XN to s O. You and I remember s O and the roll ups there

of different hydrocarbon gasoline companies across this nation. S SO and climate change, what does it mean that the climate change activists have assaulted the board of directors of X and what does it symbolize? Well, I think I think if you read the documents, it was not only climate change. It was an argument about how the company has been spending money, about investment, and I think that's been kind of lost Tom to some degree in the focus about

the climate. I think all companies are getting on board about kind of net zero carbon by which has become almost the rule book, and that's what US and other countries are going to seek to put into place in a much stronger way when they have their next UN meeting in Glasgow in November. But I think that what we've seen about the board of directors at Excellent and Mobile is also it's a question about strategy, about where you invest, and obviously climate change has been part of it,

but that's not the only thing. Daniel. When do we get peak oil? Ah? Sometimes I think we'll someday we'll have peak conversation about peak oil. I think uh in the new map, you know, I take the view that it's probably around twenty we're going to see strong demand. Right now, that's what we're seeing demand increasing seven million barrels a day from the first quarter to the third quarter.

So I think, and I spent a lot of time think about this in terms of the new map, and but I think around is when demand really starts to peak. I mean, this year we're selling about three of the new cars in the US are electric cars. Fuel efficiency has a big impact. But recovery in the world, if we have a strong recovery, that's going to propel demand. So I was still used around as the expectation. Thank you, sir,

Always appreciate your perspective. Chess mal Kid, Vice chairman. Right now there is no one like Douglas Cass joining us some sea breeze and Doug, I love, love, love your note yesterday afternoon, which is where is the uproar that we've all become hourly traders? I mean, how do we extricate ourselves from this? A wise one. First, let me

say that I love following Jack Ablom. In the morning, he texted me that he's watching and all I would say is that Jack Ablin has one of the best long games in the investment business, but his short game and golf is a totally different. It's a disaster. It's like embarrassing in and I know the reason that you play golf. He's that bad, but seriously done on the market. I quoted Wrestling Icon on Rowdy Roddy Piper. I have come here to chew bubblegum and kick ass, and I'm

out of bubblegum. I'm reasonably convinced that the markets upside reward is dwarfed by the downside risk. It doesn't mean that the market is going to fade immediately, but all the signs are there. UM valuations, investor expectations are really inflated. Speculation is run a buck as you just described with the discussion of AMC. But are they compartmentalized, Mr Cass or do you lump it altogether? Ablin said that, you know, it's a little ambivalent right now where we where we are,

But do you lump it all together? Or is yeah, I lumped it all together. I see it as endemic um to what's going on in the market. Um the artificiality, the absence of natural price discovery created by obviously zero interest rate policy. It's become Paul and Tom so conspicuous that it can't be ignored by any investor that requires a margin of safety when they invest. All right, Doug, I appreciate a rowdy roddy piper reference as much as the next person. But I also note in your most

recent note that you are not yet net short. What would get you to become net short? Yeah? I'm respectful of the market's momentum, which we all know is fueled, as I said, in large measure because of liquidity from physical monetary policy. I think it's important that we recognize that tops of processes. I think we're making an important top bottoms. By contrast, or more typically, events and the

bull markets are typically born out of bad news. If you consider March two thousand nine, the generational low inequities which I described, or March um at both junches I got really bullish. It doesn't pay to be dogmatic, neither a per a bowl or permanent bear v I um and um uh. You know. In fact, if you remember our conversations on surveillance throughout, I called for rip your face rally and mother of all short squeezes, which we've had.

But bear markets are born out of good news. If you consider early two thousand, fall of two thousand and seven, and maybe even June. It happens when demand for stocks

is sated. It happens when you have a promotional CEO of a company like AMC, where there's tremendous misallocate allocation of capital UM and there's play money on steroids UM, and you have someone by contrast, Madrick but Modrick Capital who becomes the smartest man in the room and and plays Reddit and Wall Street bets and David fortnit um to a fairly well and makes thirty million as UM, an hourly trader, not a day trader. To reference your

question about the you know whether we're all day traders now? Um. So when stocks are cheap, I buy them when they're expensively short. I'm starting up a hedge fund this week, Seabreez Capital Partners LP, to take advantage of what I think are uh in certain cases ludicrously valued prices classic short shore short. Most long short guys are long biased. I run a long short book with a short bias.

What I do during my days is analyzed companies. I'm not looking at the forums and Reddit Wall Street bets. Hopefully I'm producing an intelligent judgment of value. You'll apply leverage I don't apply. I never use leverage. I tried to create excess returns alpha by superior stock selection. The bottom line is that I feel a lot of people today are ignoring the fact that the SMP has doubled

since the March Lows. I think looking at the rear view mirror is not the fountain for delivering superior returns to meet. Buying here is like drinking contaminated water. So I'm not yet shut Paul. I've one step out the door, and I hope that my hedge fund launch is timely from the standpoint of setting up shorts. But as I look at the major and I'd be happy to go

through most of them very quickly. As I look at most asset classes, most market sectors, and individual stocks, I'm pretty er sign is Doug is the catalyst for a market contraction in your mind, the FED stepping in here and tapering. If not start talking about raising rates, I'm different than everyone else. I listened to Laura earlier on Bloomberg TV, UM, I listened to your other guests were all smart. Um, I just think it happens. Let's look

for example, of the disgorging and SPACs. There were three hundred SPACs. They raised a hundred and twenty billion dollars late two thousand twenty in early How fast was that graze over? It was over as fast as frasier as a Frasier hitting a walk off home run last night at the bottom of the eleven, or as or as John Sterling said, Tom, oh did we need that? Yeah? Okay, well just because broad so I see a broad of discorge from in the head, not only not only for

a Tampa Bay, but for the market. Doug cass, I gotta switch gears here on the raging debate that we're having and everybody else's on the new baseball. I'm a huge fan, frankly of the new game. And I go back to a pitcher who was in the Baseball Hall of Fame by the time he was thirty six years old and pitched from a higher mount. Would Sandy Kofax complain about lower in the mound right now to make

things work? Um, Sandy's giddy about his investment portfolio, and I don't think he would be concerned about the difference in the mound. Yeah, I mean I don't. I don't, I don't feel so. I mean you and I remember these guys were fearsome, They were up way, Hi, Bob Gibson, one, Marichelle and the rest of him, and they brought it in all the games. You know. That's why Sandy's games

were two to one. Um. You know. The Yankees, by the way, getting back to baseball, uncharacteristically have s forward two or less runs and nine of the least thirteen games. The last time that happened was seventy one. Aaron Boone, the manager wasn't and I think Brian was four years old. I got time for one last question. It's a really really important question because you're living at Doug Cast. The

rest of us are up here in the snow. You're living at large in Florida, our Tampa Bay, the San Diego Padres, l A Dodgers, and the San Francisco Giants doing so well because the players want to play in that perfect weather. No, no, it's it's you're a Red Sox fan. For God's sake. You know it's early in the season. Talk to me in August. Got that right, We'll leave it there, Go away, Doug Cast. Good luck with your new long short escapade here. That will be interesting.

No leverage. That's really important for those of you that aren't sophisticates on this. That's a really important uh statement by Mr Cass. Yeah, I think he's just as strict long short. It sounds like a bottom's up, Doug Cass. I'm a stock selector, and that that's going to generate my alpha. I I can't remember the paper, but really Matthew really sophisticated twenty five years ago said if you go over two point three eight times leverage, bad things happened.

That was where the math laid out in cast goes the other way with no leverage. Doesn't of baseball talk right now on inflation, which he does link into Washington Gregory Gregory Valier joins us with a g F Investments this morning note is a mustardyad and all of Washington

it really can't say enough about it. I want to go back to whip inflation now, Greg Valier, and I don't know if we're gonna have a redo of that here with about him inflay Shan, But I was just inflation is treated differently by the GOP or by the Democrats. Discussed that well. First of all, I'm old enough time to remember the seventies when inflation did tremendous damage to Jimmy Carter's presidency, and I do think it's a real

vulnerability for Joe Biden. You know, we all talk about the impact that the fed or the markets, but there's a big political impact. You see an extreme shortage of meat, you see gasoline prices higher, you see a really acute shortage of labor, and you see housing prices on fire. And I think a lot of consumers will look at this stuff intend to blame the incumbent president seventy one. Baron brand explain, you're the politics of a gallon of gas. Well,

it's visceral. People see it, uh So clearly when they fill their tank, they see the price of meat. There's a story in the Washington Post this morning about a house in the DC suburbs that went for one million dollars above the asking price. So everywhere you look, you you see signs of it. And the Republicans, who have been desperate for issues that will give them traction may

have an issue. Greg, what are the politics of higher wages? Well, that that is well, I think that when you see stories Lisa, like the Bank of America paying twenty five an hour, when you see stories about bidding wars by companies that people are saying, I've got to pay all these higher prices. I need higher wages, and I think that's the big issue for the FED. It's not corn

or copper, it's wages. All right, Well, this really raises a question because inflation has been highly political, and the way that we normally talk about it is that Republicans have been raising the issue of inflation to push back on some of Biden's plans. But you're saying that the here and now of inflation that we're seeing commodity prices is already eroding confidence in some of the spending. Is that what you're saying or what you're hearing from the polls. Yes,

I'm hearing Lisa that the Republicans who need issues. I mean, they can talk about urban cry I'm an immigration, but they need more issues. And I think if they can say the reason why we've got high prices everywhere you look is because of the Biden spending Binge, I'm not sure I believe that. By the way, I don't think Joe Biden is to blame for computer chips being in short supply, but the Republicans may try to link the two issues to Biden's detriment. Greg Ville. West Virginia is

such an original and interesting state. Here we have two senators with uncommon power. Explain the power of the senator's was Virginia even as one meets with Biden today. Well, first of all, time, you start with the fact that it's among the most conservative states in the country. So Joe Manson, a modern Democrat, can't stray very far. Shelley more Caputo, who will be at the White House negotiating

with the President, can't stray very much either. So I think ironically their state needs a lot of money for infrastructure, but I think they'd be reluctant to sign on to a plan that the Democrats support. That said, they're getting closer. Late last week the Republicans came close to one trillion. Biden's come down from two point to five trillion to one point seven. They're getting closer. I wouldn't be shocked to see a deal start to come into focusing. You and, yeah,

you think they will defeat gridlock with this legislation. Yeah, it's not going to satisfy the progressive left. They're going to be very upset. And but what Biden has to do or say, look, I'll take this now, we'll come back for more. Maybe the next bill will use budget reconciliation and shove it through Congress. But I think Biden needs a win. I think it gives him momentum. I think a deal is doable, all right, He needs a win.

Is he losing popularity among his own Democratic Party or is he actually gaining some cloud as he actually moves toward accomplishing something two points quickly number one his His overall numbers are pretty good, even with ras Mussin poll takers that are conservative. Biden's well into the fifties. Trump never got there. But among his own progressives there's a growing suspicion that he may opt out of a very aggressive deal and go for something a little more modest

that worries the left. Greg I just want to wrap up, kind of taking a left turn here. We've been talking about the hacks coming out of Russia that have affected both meat processing and previously the colonial pipeline, and we've seen some pretty big kinks that have thrown into a supply chain. It's already strained as a result of these

hacks and these uh, these malware events. I'm wondering what the US response you expect to be, whether it's against China, against Russia, or whether it's against just creating a better barrier on a national level. Well, i'd say lee. So, first of all, the meeting between Putin and Biden on June six is going to be pretty chilly. I don't expect any big breakthrough. I think Biden will threaten to retaliate. I think relations between the US and Russia could get

worse before they get better. Greg gotta leave it there, I t F. Laura Raym joins US now with FF's investment. She is definitive on foreign exchanges and taking it over as chief US economist at FS Investor's. Laura, I love, love, love your research note where you say here's one of the fears. I want you to talk right now about the fear everybody has a quote unquote policy mistake. What can your own Powell get wrong? So unfortunately, I think that there's a lot that can go wrong at this stage.

And you know, I feel like everybody always labels me as the pessimist, But what's the point in another person telling us the economy strong? Right? We got to look at what could possibly go wrong here and what has caused the end of every expansion that we've had. It's been either rates going up too fast or inter inter business cycle, we've had miscommunication that is sparked significant latility. So I think that's an area where the FED is

trying to be much more regimented. But let's face it, they haven't really started the tough discussion, which is, how are they going to remove this policy accommodation and what it's going to mean at a time when the economy is already facing other constraints. If they have to move, Laura, do they move with a green Spaniard measured approach quarter point quarter point quarter point or do they got to go back to burns and make some real jumps or at least one jump condition to get back to something

that's in the textbooks. You know, they're I think they're going to be extremely cautious. This is of course what they've said. And yet markets are forward looking, so you know, we've seen markets before get ahead of themselves as far as um. You know, concerns about speak, concerns about reaction to the inflation. The mini cycle of inflation that we're going to start seeing really evolved after we get this technical glitch out of the way of you know, year

on year higher inflation. So what we really need to think about is um the fact that the FED has boxed themselves in with getting markets so addicted to this strong liquidity, and two is going to be a year of deceleration. Economy is gonna be strong, but it's gonna be growing slower. Earnings may well be solid that they're going to be growing slower. How's the FED gonna start

removing quantitative easing in a place that's already uncomfortable for markets? Well, before we get into the reaction function, there's also a question law of where we are right now in the cycle, both the economic and the labor cycle. And people are talking about mid cycle, some people are saying late cycle, even Jim Bullard saying that perhaps the labor market is tighter than it seems. Where do you fall in this debate.

I'm firmly in the mid cycle camp, and I would I would argue that what we're seeing in the labor market shows constraints that are deeply under are appreciated. Um when he says that they're tight, I recognize that, you know, we're dealing with this labor supply mismatch. People still can't. They're tight because people are having to pay more for workers. But the labor market is the most inefficient market that

we have, maybe except for real estate. And the fact that we've had significant labor migration, the fact that we've had some industries requiring much less labor whereas others are requiring significantly more, the pivot that our economy has made towards goods production of manufacturing. A lot of these things are you can't just press a button and wake all these workers back up again, especially the you know, labor

force participation having fallen. I think it's gonna be harder to resolve a lot of this than other people think. So what's your view that basically the Fed is doing the right thing and staying on hold, and that they ought to, and that inflation is not going to surprise

to the upside the way that some people think. I think they're going to have a lot of trouble with the fact that I think the labor market gets much You're much harder to improve from here, and inflation is going to be uncomfortably high, and no matter what they say, it's going to continue to be a hot button issue for markets. It's going to continue to cause these sort of bouts of volatility, and the fet is going to really have trouble talking out of both sides of their

mouth on this one. Lauren want to dovetail your economic work in ff IS investments with the lore of Laura ram in the foreign exchange market? How do you interpret dollar dynamics now around the next six months of the American economy? So so much strength has been priced in for growth. I actually think that this could be a place for the dollar weekends. Further from here, what are we going to do? You know, we see the fact that um our economy is going to modestly decelerate from

such a strong level. So with so much good news already priced in, I think we're seeing real rates continue to slide. I think there's a strong argument to be made that the tenure actually falls a little bit from here. All of that against the backdrop of still positive news, possible upside surprises possible and the rest of the world. It's been amazing that ages had so much struggle to really reopen and get themselves fully back online. I think

there's a lot of room for that to go better. Finally, we really need that um and further, you want to continue to appreciate as well. So I think all of those things speak to a dollar negative out of here. But again this goes back to classic demand pull cost push debate about inflation. I don't want to go all nineteen sixties on you, but if we have a pacific rim resurgence, that has to have help aggregate demand worldwide, and that's where the gloom fades away, right, Yes, of course,

to some degree. But I think what we've seen in the US is that we can't sustain these strong growth rates for long. I mean, all this time, our trade of is it's incredibly wide. We've been sucking in goods from the rest of the world this whole time. I think what growth they've had has really been already significantly helped by the U. S consumer, which once again is kind of the the engine driving not just US growth,

but global growth as well. So I think what we really I think the story of the NEST six months is a story of business investment. Of course, you know, I've heard your infrastructure conversation with the last guests, so interesting. I think how that plays out is going to be important. But I think as far as consumer goods go, We're gonna now pivot to a lot of business investment stories and for that, um, you know, I think it's more closing the gap of demands, of unfulfilled demands, than it

is a fresh leg up. We're speaking with Laura ray M of FS Investments on this moment of a lack of conviction when it comes to the outlook, an idiosyncratic moment, unprecedented in economic history. And John was just talking about the word out of Caterpillar, the idea that they are seeing some easing in the supply of goods that they use to manufacture their objects. Meanwhile, you've got Elon Musk on the other side of things, tweeting this morning. Our

biggest challenges supply chain, especially micro controller chips. Never seen anything like it. He indicated that this was obviously temporary. Do you agree or do you think that supply chain kinks will become a feature of the post pandemic economy. I think they'll resolve eventually. But the real I think question is if it will change behavior going forward. Will we start bringing some of this manufacturing back to the US. We've been running soaked in on inventories for decades we've

been eroting those inventories. Will companies start stockpiling more? Obviously you know that would give us some near term boost in d KEY, but um, you know that would just sort of frontload that consumption, that business investment. So you know that's me is the real issue. Do we sort of change? Does it change long run behavior of how companies had their supply chains to be less vulnerable to

this kind of disruption? I know I sure would. All Rank gotta run FS Investments Chief the US economist on the latest situation and the mismatch between DEMANDUS supply. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten a m. Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment,

and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene and this is Bloomberg