Surveillance: US Oil Reserves

in the political season now to the mid terms. Brian Deast joins us from the White House this morning. Brian, to me, the singular note which does wrap around your remit is a gentle lady from Hawaii has exited the Democratic Party, and Ms Gabbard was really something about the cowardly wokeness of the elitist Democratic Party. Your boss is

the most middle class representative boss of his generation. Joe Biden breathe scramton, what's gonna be the reset on Democratic Party economic policy for the middle class coming out of this election? Well, look, I think you're seeing in real time, as you said, Joe Biden ran for presidents based on an economic theory that we needed to build this economy, in this economic recovery, as he says, in very practical terms, from the bottom up and the middle out, not from

the top down. And you're seeing that in practice. If you look just for example of what's happening in American manufacturing across this country, nearly seven hundred thousand manufacturing jobs created, and you're seeing company after company make investments that they're making a bet, a long term bet to make capital investments in America. Today, just today, we're gonna announce almost three billion dollars in grants to battery battery manufacturers. I

was in Cleveland last week. You're seeing this explosion of interest in making the United States the place where we build and and and and innovate, and that's that's going to pay benefits for the long term. You were just in Cleveland to see Cleveland Yankees. Admit it, Brian, I want to go. I want to go to the topic of the moment was just a strategic political reserve. We all get the politics of it, and that you took

hydro carbon one on one at Middlebury years ago. Can you explain to me what the democratic politics is of refilling the strategic petroleum reserve down the road. You got it. I do have to clarify that I'm a Red Sox fan. It's important. It's important to me to get that very important. Um So, Look, the President's gonna announce two things today.

The first is additional fifteen million barrels four December out of the spr That makes good on the commitment that he made several months ago to release a hundred and eighty million barrels and provide that stability to the market. He's making good on that commitment with a fifteen million paril release today. But second, he's announcing on a plan and a policy to refill the Strategic Patrolling Reserve when the price of oil falls to about seventy dollars of barrel.

That makes sense for two reasons. One, protecting taxpayers, we sold oil out of the sprow at a higher price and around of barrel. Repurchasing at seventy dollars of barrel means we can actually strengthen the asset. We can get more oil back into that national reserve. And second, it provides some certainty to the industry because we we we will have the authority to both purchase when the price comes down to seventy and also enter into contracts to

purchase at around seventy dollars in the future. But one thing that's very difficult is that we're not talking about the present and what releasing more from the Strategic Petroleum Reserve will actually do to bring down prices not only of gasoline, but diesel, of the refined goods that we need. How much are you thinking about additional measures to try to shore up both the stores of diesel as well as lower prices. Are you talking about banning exports, for example,

to Europe. Well, first, let's look at where we are. We have since the beginning of the summer scene, gas prices come down about they're about down about a dollar and fifteen cents a gallon at the pump. We see natural gas prices come off from a high of almost nine dollars two under six dollars in trading today. So we've seen a real reduction and energy prices, and that's consistent with and and and and driven by the policies

that this administration and that the President have directed. At the same time, we continue to be very focused on making more progress seeing that price come down further, and the announcements today I think are going to help on that front, also addressing places where we have but but okay, that has come down, it hasn't come back that much. But diesel has not come down, and that affects the price of everything. And perhaps people don't see it and

breathe that the way they view gasoline prices. But this is affecting very much the heating costs as well as a shipping costs and has raised questions about banning exports at a time when Europe is flat on its back as well. What's your view, absolute, We're very concerned about inventory levels for refined product diesel in particular, particularly across the East coast of the United States, and we are

operating right now at unacceptably low inventory levels. Inventory levels for diesel that, for example, our fifty lower than their five year historical average. So this is a conversation that we have had with the industry consistently, and we've been very clear we need to see more progress in building those inventories. The federal government has some tools in that respect.

We have a Northeast Home Heating Oil Reserve, which is diesel UH and we have looked very carefully at being prepared to deploy as and when necessary in that context. But ultimately, what we need to see is the industry build those inventory levels so that we don't put ourselves in a situation. To your question about exports, the President has been very clear and what can need to be clear at this moment when we have uncertainty and uncertainty for American consumers, we have to keep all options on

the table. That's what we're doing real quickly. What's going to be the trigger point to understand whether it is time to look at exports. Well, look, I'm not going to explicitly make a decision before the president's or articulated decision before the President has made it. But the President is going to continue to do what he has done over the course of the last several months, which is assessed the market, understand where we are, and understand the

tools that we have in the impact that they'll have. Today, he's announcing a release from the spro but also importantly this repurchased plan, which is something that industry analysts and others have been calling for for some time. We think that this will make some difference. We're gonna keep at it, keep a close eye on these things with an understanding that we have these tools on the table, and we'll deploy them when it's in America's interests. Brand's Director of

the White House National Economic Council, Thank you. This is a joy because when you go to Boulder, Colorado, you know that the Zoomies are down to Colorado Springs and they're the real deal. Out of the United States Air Force Academy, an actual pilot running an airline, the chief executive officer with United, the pilot Scott Kirby, joins us this morning. Scott, I got eighteen questions from viewers that have everything to do with the United Lounge, This, that,

and the other thing. I want to talk about the ratio of business class to economy fairs. I follow one United fair and it's six dollars for every dollar of economy. I've never seen it. Where is business class in three years? So uh, thanks for thanks for the intro. By the way, that's a unique one and I like it. But business travel, business class is demand is really really strong. It's really really strong an economy, but it's even stronger at the

premium cabinet. United has more premium seats than than any other airline in the country, and one long haul business demand has has mostly come all the way back to Europe at least, I mean it's even stronger than it is Bestically, it's harder to calls with someone in Europe. But the other trend I think that's huge is there's more premium leisure demand, and really that is enabled by

hybrid work. Hybrid work makes everything in the potential holiday weekend, and there's there's people that go to Europe and they'll work for one or two weeks in Europe, and they work during the day, they go out late at night with the French ship the Spaniards. By the way, that's the only way I could possibly go hang out with Spaniards by state on East Coast time. And this I think it's a permanent step level increase in demand both

weekend travel but also for premium demands. To the volatility, the signal nature of your total return of stock is a new persistency of cash flow from business class enough to give you a more persistent cash flow on your

financial statement. Well, look, I think we'll still have alatility, will still be iffected by the economy or short term in the fuel prices, so it won't eliminate um cyclicality, but What it does is more important, which I think it raises the level, so the lowest period of revenu you will be higher than it was before, and the highest period will be even higher. Um. It doesn't take out the cyclicality, but it it does raise the bar across the board. It's just a new, permanently higher level

of demand. But to that point, Scott, we've spent the better part of the last three hours talking about whether or not we're seeing a softening in demand, which is what policymakers are trying to engineer to bring inflation down. Inflation which in some sectors of the economy means people are just spending less in certain areas. It does not

seem that it has hit air travel yet. Do you expect that the demand deterioration is going to come and will that ultimately mean you don't have the pricing power to keep fairs high? Well, I think the slowing economy and or a recession are going to be a headwind. Already are a headwind demand. But there's three trends in aviation. I think more they're currently more than fully off setting. I think we'll continue one. We're still in the COVID

recovery phase Japan just opened last week. No matter what you think, business travel isn't ultimately get to it is going to go almost certainly going higher from here. So we're still in COVID recovery unlike most industries. The second one is this hybrid work making every weekend to holiday trend. Like we third September was the third highest RAS a month in the history of United Airline. That is an off peak month. What happened during September, and we saw

it even earlier. We were seeing in October. By the way, it's gonna better than September, so it's gonna bove to Fourth place is people are now able to work remotely for one or two days, so they can instead of being tethered to their desk at the office, they can leave Wednesday or Thursday, go somewhere remotely for one or two days. We're taking extra trips. That's a trend that's not appreciated by the market yet it's unique to aviation.

It's offsetting those economic headwinds. It's a tailwind that's that's offsetting. And Scott, we call that doing a John Pharaoh. And why don't you continue Kayley with Mr Kara, Well, that's on on the demand side, Scott, but there also is the fact that you are still constrained on the supply side. Capacity is still more limited and the part of that

has to do with the labor equation. Can you just give us your best estimate as to whether or not you're ultimately going to be able to expand capacity or again, or is this a structural labor issue in the air economy which is going to stick around? So, first of you're an airline investor. Would have been the third and maybe perhaps the most important trend that um, well, there's a really strong demand environment. Supply is going to be

constrained for years to come by artificial factors. Now it's less of a constraint for United because we're at the high end. We're you know, we're at the top of the funnel, top of the pyramid for people wanting to be by it. But there's not enough pilots in the industry. That's not the only constraint. Bowing and Airbus are way behind and the supply changer way behind on their ability from airpoint air traffic control saturation. There's airports in Europe

and other places that are full. These are like four or five year probably if you start fixing today multi year problems to Scott when you're in New York next time landing at Newark and hopefully landing at JFK with that battle, I want to talk about the landing gates

and all that. But Mary Schlangenstein, who's our airport reporter, as if you don't ask Scott about Boeing seven thirties seven eight over to UH seven and they're gonna add twelve more seats and they're gonna take this wing and added on Scott, this is not confidence building with the redo of the seventh the Boeing Max, I mean, it's not confident building. Do you have confidence that you guys in the f a A can get together to get

that plane up in the air. Yeah, well, I think you're talking about the Max tent and Hi, Mary, um good to hear from you virtually. But here's what I think about the Max ten. First for United if somehow the Eric Mack ten seven don't get certified at the current standards, but our plan is we're gonna convert some of those Max tens into Max eights and nine and our large airplane we're gonna order more and that's gonna

be our larger plane, and Bowel compensates for that. So for United you know, it's not really a big deal um financially, but it's the right safety outcome. This is the most point you know, having it's just a different length of airplane. It's the same airplane in a different link, and you never want to make two different cockpits or procedures for the exact same airplane. That detracts from safety.

So I think because it's the right safety outcome, we will get to the right answer where the Max seven and ten will get certified like the Max eight and the Maximum. I think the more important point is a bigger one for the country. For the United States of American bowing is our largest exporter, high tech exports, manufacturing jobs, high paying jobs. And the question is about our airlines around the world gonna buy Max tens or are they gonna buy Airbus A three? And the real question is

is the right safety answer? Are these planes gonna get produced in Seattle? Are they gonna get built in Europe and a China? I want both Boeing and Airbus to do well for healthy competition, but at the right end, Scott we're out of time. We need to see you when you're in New York. In New York next time. Scott Kirby with United Airlines, after a very strong earnings report to say, at least we want to reset and get a sense of what this election is gonna look like.

We have three weeks. Mohammed Unas has been tracking this all from Gallup. He is the editor in chief there. Mohammed, what are you looking for in terms of turnout, in terms of excitement around an election where we really have seen the odds shift pretty dramatically whipsaw over the past few weeks. The number one issue voters have in mind when they vote, and we know this from generations, is

the economy. UM. We also see that in our data of Americans now mentioned the economy or some sort of reference to inflation as the number one problem, most important problem facing the country. UM. So that is going to be front and center more than anything. In terms of turnout. We've certainly seen higher than average turnout last week checked. We're actually in the field checking that now, but it was in as high as we saw with the fervor

we saw two years ago. UM. The social issues that should lead to be critical in some of these contests, but overwhelmingly, the economy is going to be central on people's minds as they go to vote. I've got Mohammed a hundred and fifty nine million, which is a ginormous number for the two thousand twenty election. I don't have the mid term statistic of two thousand eighteen. What do you people see on the turnout of America for this election?

It's still too early to tell. We don't and there's we don't know, and I don't think anybody really knows. For a series of reasons, we certainly ask Americans are you planning to vote? Are you more excited to vote this time than in previous elections? That metric is tracking higher than average, but certainly not as high as we saw two years ago. It's about ten points lower than that.

We're actually asking that again this month. But as we get closer to the elect action um there are a lot of factors that play into making this one really hard to guests turn out. First of all, people's voting habits have changed. Second of all, people's attitudes about voter laws have changed. People want to really open the doors to make it easier for people to vote. Most American support voter i D for example, to have people vote, but they also support a series of other measures that

make it easier for people to vote. So in addition, in addition to excitement to vote, there are also structural changes to the way we vote in America that are going to continue to roll out for these next several elections. Well, Mohammed, when we talk about excitement to vote, there were a number of social issues that the thought was would be a galvanizing force in these elections, one of them being

abortion rights. Is that taking shape doesn't have as much firepower as initially thought several months ago when Rovie Wade was overturned. We certainly have seen an uptick in people saying that it's important for them as a voter to vote for someone who shares their view on abortion. Now it's about fifty of Americans hold that view, and that

is a relative high compared to before. However, it's only really about a ten or eleven point jump from before the Roe v. Wade overturned decision was leaked out, So it hasn't exploded, but it certainly has risen in terms of being an important issue. One of the things we were talking about in the break, is everybody voting is thinking about inflation because we're all impacted by it. Not everybody voting is voting somewhere where abortion is really on

the ballot. Mom, and I want to go to the heritage of Gala back to the thirties, you guys basically invented the industry and you have a monitor and a body of knowledge about say that evening when LBJ stepped aside, what did presidents do the evening or the day after a mid term election? Well, most incumbents usually don't do great in a midterm allow action. It's always an uphill battle no matter who the president is. So President Biden

is not facing an easy route. However, these social issues and some of these other factors may play a role in really helping the Democrats, um, you know, not Ferris poorly. The other thing we're not talking about, which is more important than any of this, is the is the jurisdictions and how districts are managed throughout the United States and and what seats are really at stake between Republicans and Democrats.

And Democrats are really facing a huge challenge just in terms of the seats that are up for grabs, Momma, thank you so much for Mohammed and a definitive as editor in chief, and go up joining us now. Dennis Gartman surviving two thousand twenty two. Dennis, your opinion on the street, tell us where you are right now, and how ugly two thousand and two has been. Two thousand two has been demonstrably ugly. It's been very ugly. It's

been unbelievably ugly. It's going to get uglier, I'm afraid. Nonetheless, we've had a good bounce. Bounces are required in bear markets. I think it's been a bear market since actually since January fIF of this year, and I continue to think it's going to remain a bear market. The Fed has been has told us it's going to reduce the size of its balance sheet. I think that's the most important

prospect or aspect of the markets to to understand. They expanded their balance sheet from nine billion dollars to nine trillion dollars over the course of the last decade and a half, and now they said they're going to reduce the size of the balance sheet by billion dollars a month, probably taking it back to four or five trillion dollars. Over the course of the next several years, we've gone from having an expansionary, wonderful, bullish phenomenon to a I

think a contractionary, bearish phenomenon. And I think you have to remain bearish. Let's bring that over to corporations and do go grammed doubt and coddle you. And I remember the vogue. It was like spacks Paul, every single specialty chemical company was rolled up. It was like a roll up is the word that was invented Dennis Gartment. Are we gonna have a zombie roll up where the nonprofitables that have had a free lunch for a decade get

rolled up into something new and different. I think they get rolled down into into bankruptcy rather than something new and in different. I think bankruptcy is is there is their future. I'm afraid that nonprofitable industries, businesses have to be allowed to to to to to go into the atmosphere and disappear. We've kept them alive. You've used the

term zombie. I think that's a good term. It's been a term that's been banned about for a long period of time, and I think that the zombies will actually end up being dead, not not kept alive. Let us hope that capitalism and in its in its freest and best circumstances prevails Dennis, as it relates to this Federal Reserve, it feels like that, you know, kind of the backbone

to your bearish call is the Federal Reserve. Yes, do you have a sense of when they feel like they will have done their job and maybe they can back off and if if nothing else to see if these interest rate increases do in fact, I didn't do inflation. If I've learned anything in the nearly fifty years that they've been involved in the markets is that when once the Fed begins to change its policies, it moves rates farther and lasts longer than anybody ever wants to anticipate.

When they when they ease monetary policy, they take rate slower than anybody believes for a longer period of time. When they tighten, they take rates higher for a longer period of time than anybody wants to anticipate. I think it's going to be at least until late in maybe four before the long awaited pivot occurs. So it's just

historically that's what they've done. I believe that the FED is a historical precedent setting and precedent following circumstance, and I think it will be a long time before the pivot is available to anybody who wants to think that the pivot is likely. So what's the investor to do? I just think about my portfolio. Year to date, my stocks are down mid twenties, my bonds are down mid teams. I've got that barrel of oil in my apartment, so I'm in good shape there. But what else do I

do here? If i'm you know, I'm not gonna have any FED help until maybe a year from now. I think two year notes at four and a half percent are probably a good place to hide. I consider that to be cash, for lack of a better term. I think that's a great place to go for the next year or so. It's safe, you'll get paid, you'll learn four and a half percent, and it's not a bad return. So I think cash is the great is the best

place to be. That's what I've done into my own In my own account, I've gone to a rather substantive amount of two year notes, and I'm continuing to buy more. If we get to five pers now, which I doubt that we shall. I'll buy even more. Let's go back to early Gartman. Okay, I'm talking early Gartman. I'm looking at red wheat, Dennis, and I'm sorry, there's echoes here of food inflation. And yet I look at the majors

and I'm like, yeah, they're sort of elevated. But U N in Rome is saying, maybe we really don't have food inflation. This is where you started. Red wheat is flashing red. What do you see with the food inflation of the nation in the world. I think grain prices want to go a great good deal higher, especially hard red winter wheat and soft red winter wheat. Soft sad winter wheat has has been to thirteen dollars a bushel.

It's fallen back to about nine dollars a bushel. I think it goes to thirteen dollars a bushel again or higher, given the fact of trying to get the wheat crop planted as they call drilled. Thus far this year has been difficult. It's good, it's been dry weather and it's going to remain dry. So the crop itself looks like it's behind schedule. Planting is moving quickly because you can get you can plant quickly in to dry ground. But

we need rain. We need snow this winter. We need reasonably decent temperatures through the winter to get somewhere we cropped through, and I'm afraid we shan't. We're not going to get that. So the Middle West agriculture is normal weather, kind of drought stuff, not high prices based on what a gallon of gas or diesel fuel costs. That's a good and that's that's that's a good way to look at it. But I think that over the course of the the next six months a year, wheat prices go a

lot higher. I'm very bullish on wheat. I'm not that bullish on corn, and I'm not bullish at all on the soybean market. But I'm very bullish on weeding. We forget that wheat is the most important crop in the world. It's still the largest employer in the world is the production of wheat around the world. Dennis Gartment, thank you so much. The Gartment letter greatly greatly appreciate stuff there.

Don Witty Bohogana it joins us now. She's had of a multi asset strategy at Columbia thread Needle and on Witty, what will be the ballast going forward if we don't get some stability in rates in the near term. Thanks for having me, Lisa. Yeah, I think sixty forty has been a bus this year for sure, um, But I think a lot of the conversation around these days is has been about fed watching and you all nailed it when you talked about real yields, So really yields stability

is going to be the ballast. But I keep coming back to what does stabilize really yields? And for that we keep going back to inflation data, and we just haven't seen any signs of peak in that. There are hints that are forwardly looking metrics. If you look at sort of inflation expectations as measured in the bond market, those have come down quite sharply, but they're not at

levels where one can say we can declare victory. Now, what's so important here is the heritage of Columbia, threadneed of Columbia, thread needle in the England and England and your roll up of BEMO and the idea of that Ted Trust get your leaders is from Scotti Stevens. It's the Boston heritage of mutual funds. Lisa mentions the debacle of sixty Do you invest now assuming sixties forties stability forward or do you have to invest with a different

cut relation. I think I'll break that down Tom into two parts. So if I look at all my strategic forecast for the medium term, they are better than iver seen in ten years. Ten years ago, when we were looking at what fixed income might return for us, we were looking at zero yields on the safer bonds and two or three on the riskier part of the tenure. Now we're looking at tenure at four percent, and you don't even have to take a whole lot of risks

to go up to short duration. I g and get five six in a very safe, sort of risk free equity bond portfolio. And similarly, I don't think equities are cheap. Equities are probably fairly valued given the amount of uncertainty we have. But again, if you look at the medium term projections, they're looking here is everybody's been blown up in this unique pandemic induced bear market. Are we going on to something new or do wevisit the giant pioneer Phil Kay and a way to invest that we knew

decades ago? I think we won't know whether we're going to something new until after the fact. So these structural changes, it sounds like that carrying carry on place. So we do I think that's a very important question, Tom, We do grapple with is this a new structural regime for inflation? To your question, does inflation stay around three? And we don't know that. So you could have theories that deglobalization

and whatnot is going to keep inflation high forever. But for the moment, I haven't seen enough evidence that there's been any sort of break in the way things function. Yes, we're going through a painful period in the markets. I'm living it every day. But I think if we have a medium term perspective, then you stay with stay the course, stay the strategic allocation that you have in mind, and do not panic when that sixty is already down. Okay,

So you're looking out over the medium term. In the more near term, though, I'm wondering how you're viewing political risk, because we've seen what happened in the UK what is still ongoing in the UK. Frankly, the questions list for us has been getting as Prime Minister in Parliament this morning and we're just three weeks out from the mid

terms here in the US. I mean, is it time to be thinking more about domestic political risk rather than broader global monetary policy and geopolitics as we've been talking about for this entire year thus far. Absolutely clearly that's an excellent question. So no one's been talking about the political risk here in the US. UM. You saw how the l d I market, the bond market reacted in UK when the market did not like the fiscal plan

that came out of that administration. Here, I think all the day that I'm looking at all the opinion polls I'm looking at right now is saying that we're likely to have a divided government UM for the next two years. So I think the market can live with that. But if we see a sweep in one direction, and at that point, at this point it means sweeping the democratic direction, what sort of fiscal policies come through and how does the market react to that is a key risk at

this point. And Witty, thank you so much for being with us. And Witty ba Juguna, thank you so much of Columbia. Threadneed off. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am 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 Keen. This is Bloomer