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Markets Tanking On Leadership Deficit In Washington: Schenker · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Well, that's a coronavirus, and the
• 0:21
  Speaker 1: spread of the coronavirus continues to extend. To Paul over
• 0:24
  Speaker 1: the economic outlook globally, investors are really looking towards central
• 0:28
  Speaker 1: governments for some type of fiscal stimness. It can't just
• 0:31
  Speaker 1: be lower rates. And in fact, today the UK announced
• 0:34
  Speaker 1: the thirty nine billion dollar stimulus package. That's hours after
• 0:38
  Speaker 1: the Bank of England cut interest rates. So the UK
• 0:40
  Speaker 1: doing their part. The question now for markets is what
• 0:42
  Speaker 1: will be the US response. To get a sense of that,
• 0:45
  Speaker 1: we welcome our good friend Marty Shanker. He's a chief
• 0:47
  Speaker 1: content officer for Bloomberg News. He joins us here in
• 0:50
  Speaker 1: our Bloomberg Interact or Broker studio. So, Marty, it seems
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  Speaker 1: like today, maybe even yesterday, the market's been sitting there saying, Okay,
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  Speaker 1: United State, its government, where is our fiscal response here?
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  Speaker 1: We've seen the FED through the emergency rate cut. We're
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  Speaker 1: probably gonna get more rate cuts coming up, But what's
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  Speaker 1: the fiscal response? What do you think is going on
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  Speaker 1: down in Washington. Well, Paula, I have to say, it's
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  Speaker 1: not necessarily as a stimulus deficit. It's more of a
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  Speaker 1: leadership deficit. Uh. We were talking before we went on
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  Speaker 1: the air about the TARP experience that in two thousand
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  Speaker 1: and eight, when basically the markets were telling the government
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  Speaker 1: to get its act together, and in fact it did
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  Speaker 1: um and by all accounts, that helped rescue the financial
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  Speaker 1: system from ruin. Uh. You are not getting a sense
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  Speaker 1: of that kind of leadership out of Washington. And it's
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  Speaker 1: both the White House and Congress. It's not just a
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  Speaker 1: Donald Trump issue. So we saw over in Europe. We
• 1:51
  Speaker 1: saw in England there was a coordinated effort between the
• 1:55
  Speaker 1: central Bank there that cut cut rates by fifty basis
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  Speaker 1: points in emergency ray cup. But that also opened up
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  Speaker 1: a way to to give bridge loans to businesses suffering
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  Speaker 1: in the wake of the coronavirus induced slow down. What
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  Speaker 1: are people hoping for from President Trump and from Congress. Well,
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  Speaker 1: I think that they want a uh you know, there's
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  Speaker 1: this notion of micro targeted responses, but it's more a
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  Speaker 1: series of micro targeted responses for small businesses that have
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  Speaker 1: to close down to be able to get credit. It's
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  Speaker 1: also uh, the ability to make sure that people get
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  Speaker 1: paid if they're forced to be at home for caregiving
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  Speaker 1: or because their self quarantining themselves. So I mean it's
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  Speaker 1: what what they really need is a bipartisan agreement on
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  Speaker 1: which kind of measures the government should take and for
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  Speaker 1: people to put aside their partisan difference differences and come
• 2:54
  Speaker 1: up with a rational plan. The problem is that Washington
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  Speaker 1: has become so dysfunctional. There were reports that Donald Trump
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  Speaker 1: will refuse to sit down with Nancy Pelosi because of
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  Speaker 1: the impeachment vitriol, that that created such bad feelings between
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  Speaker 1: the two of them, which is ridiculous in a situation
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  Speaker 1: like that. But I think you're seeing that in the markets.
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  Speaker 1: So we have heard, I guess of a payroll tax cut,
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  Speaker 1: and have you heard anything out of Washington that gives
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  Speaker 1: you confidence that we may have a tarp like product
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  Speaker 1: or you know, kind of piece of legislation that would
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  Speaker 1: really be on accompassing and really address the issues that
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  Speaker 1: you just outline. Well, I don't get a sense, and
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  Speaker 1: I mean, we're all sitting in New York at the
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  Speaker 1: same feeling that there is not that sense of urgency
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  Speaker 1: because of the uncertainty over the effects of the virus.
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  Speaker 1: We've never seen anything like this before, but there is
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  Speaker 1: definitely no indication right now. Congress is UH scheduled to
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  Speaker 1: adjourn um this Friday, and the optics of the Congress
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  Speaker 1: leaving town um without having done anything UH to promote
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  Speaker 1: some sense of stability is just breathtaking to me. Meanwhile,
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  Speaker 1: this is an election year and we are getting the
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  Speaker 1: campaign ramping up on both the part of former Vice
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  Speaker 1: President Joe Biden as well as Bernie Sanders, and Biden
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  Speaker 1: is becoming the very clear front runner. Is getting very
• 4:27
  Speaker 1: difficult to see how we are going to see a
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  Speaker 1: Bernie Sanders Democratic candidates. I would say it's virtually impossible. Okay,
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  Speaker 1: it's virtually impossible. So what's the playbook going forward? How
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  Speaker 1: likely is it? Have we heard anything about Bernie Sanders
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  Speaker 1: perhaps conceding and having his supporters go behind Biden. I
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  Speaker 1: don't have any reporting of my own. I just have
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  Speaker 1: you know. My guess is that Bernie Sanders is definitely
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  Speaker 1: going to stay in this race through next Tuesday. He
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  Speaker 1: will absolutely be vigorous in the debate Sunday night. I
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  Speaker 1: think it's an important that you do that. Yeah, a
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  Speaker 1: number of the surrogates of Bernie Sanders are making the
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  Speaker 1: point that Joe Biden has not been vetted. Um in
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  Speaker 1: that kind of situation. When you have one on one
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  Speaker 1: Bernie Sanders against Joe Biden without a studio audience, which
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  Speaker 1: is what's going to happen this Sunday, you will get
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  Speaker 1: a very granular examination of policy differences, and I think
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  Speaker 1: Joe Biden's ability to explain those differences is going to
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  Speaker 1: be a major issue. People are not that focused on
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  Speaker 1: the election per se, and some of the issues that
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  Speaker 1: they have been harping on him in gun control a
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  Speaker 1: very big issue, and yet hard to sort of make
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  Speaker 1: that an issue, and people are holding up and quarantining themselves.
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  Speaker 1: How important is it for the Democrats to come up
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  Speaker 1: with some sort of cohesive either strategy with respect of
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  Speaker 1: the coronavirus or message or or something on that front. Well,
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  Speaker 1: I would say it's actually one step above that. It's
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  Speaker 1: a question as we discussed leadership, and I think that
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  Speaker 1: the Democrats their strategy is they need to obviously defeat
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  Speaker 1: Donald Trump, but they need to do it by contrasting
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  Speaker 1: their approach as leaders of a government entity. And I
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  Speaker 1: think Joe Biden, his ability to stand above the fray
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  Speaker 1: and show real presidential quote unquote leadership is what's going
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  Speaker 1: to carry the day for him. The election is still
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  Speaker 1: seven eight months away, and a lot could happen in
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  Speaker 1: those seven or eight months. So, uh, this this, it
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  Speaker 1: seems to me it will be a Biden Trump race
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  Speaker 1: and it's going to be the ability of people to
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  Speaker 1: perceive leadership that's going to determine who is our next president.
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  Speaker 1: So how much of a risk is this the President Trump?
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  Speaker 1: This coronavirus because one could argue to date we haven't
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  Speaker 1: necessarily seen the leadership from the White House that perhaps
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  Speaker 1: is needed. Well, this is the you know a number
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  Speaker 1: of people, I'm not invented this. This could be the
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  Speaker 1: Katrina moment for Donald Trump. If he is not able
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  Speaker 1: to get control of this situation, it could do him
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  Speaker 1: as presidency. All those people who want to change may
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  Speaker 1: actually opt for the change being back ending the chaos.
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  Speaker 1: And that is what I think this race is going
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  Speaker 1: to boil down to. Marty. You've you're a chief content officer,
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  Speaker 1: You're the person at the top. How many times have
• 7:22
  Speaker 1: you washed your hands today? Uh? Well, I've been using
• 7:25
  Speaker 1: the purel. I've been I've I think I've washed my
• 7:30
  Speaker 1: hands every hour. And I was just talking to the
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  Speaker 1: attendant in the men's room here and he says, they
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  Speaker 1: are going through the soap faster than you can ever remember.
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  Speaker 1: Everybody's hands, Well, I mean, I think that's a very
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  Speaker 1: good thing. They're they're they're kind of raw. Everyone's hands
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  Speaker 1: are kind of a little cracked because people are just scrubbing.
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  Speaker 1: Is that they're about to go into surgery. Marty party Shanker,
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  Speaker 1: thank you so much for being with us. Marty Marty Shakers,
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  Speaker 1: chief content officer for Bloomberg. Well, it seems to be
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  Speaker 1: a race as to how quickly Wall Street strategists can
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  Speaker 1: downgrade their expectations for earnings. The latest Goldman Sachs chief
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  Speaker 1: strategist for US Equities, David Coston said the eleven year
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  Speaker 1: old bullmarket u S Stacks is about to become history,
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  Speaker 1: and he now predicts that earnings will drop at least
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  Speaker 1: twelve percent in each of the next two quarters due
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  Speaker 1: to plunging oil prices, as well as the spread of
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  Speaker 1: the coronavirus and people staying at home and not traveling.
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  Speaker 1: The question is how do you invest right? I mean,
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  Speaker 1: this does expect sort of a decline in equities going forward.
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  Speaker 1: How long do people expect it to go on for?
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  Speaker 1: Is this a time to be buying or just to
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  Speaker 1: get out of the market. And Bill Smead has tons
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  Speaker 1: of experience with all of this, is the CEO and
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  Speaker 1: chief investment officer at SMED Capital Management, which has more
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  Speaker 1: than two billion dollars of assets that are management. Joining
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  Speaker 1: us from Seattle, Bill, I'd love to get your thoughts
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  Speaker 1: around that. How do you sort of reframe your investing
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  Speaker 1: assumptions based on the events over the past month or so. Well,
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  Speaker 1: thanks for having us, and this is a great time
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  Speaker 1: to think about those kinds of long term things that
• 9:13
  Speaker 1: are the most important. So what what we feel this
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  Speaker 1: is from an investment standpoint is the exacerbation of a
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  Speaker 1: trend that's been in place for a good five to
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  Speaker 1: ten years, which is that the anemic economy UH scenario
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  Speaker 1: where people don't want to own uh, companies that are
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  Speaker 1: tied closely to the main street on the ground economy
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  Speaker 1: and instead want to own the successful technology companies that
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  Speaker 1: that have uh don't seem to have any be impacted
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  Speaker 1: by where people are. Right, if you're stuck at home,
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  Speaker 1: you might still be sitting on your Facebook, UH, maybe
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  Speaker 1: more than even even normal. So so we from a
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  Speaker 1: from a historical standpoint, this looks to us like Paul
• 10:08
  Speaker 1: Volker tightening credit in when bonds were already so oversold
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  Speaker 1: and so miserable. The bond market had been terrible for
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  Speaker 1: thirty years, and incomes Paul Volcan and he titans credit
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  Speaker 1: and bonds get slaughtered. Stocks were already cheap, they got
• 10:23
  Speaker 1: slaughtered again. Uh. And and Y two K. The Y
• 10:29
  Speaker 1: two K thing caused people to buy a whole bunch
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  Speaker 1: of technology stuff in and get really excited about technology
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  Speaker 1: right before the end. And in this particular case, you know,
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  Speaker 1: growth investments have been doing dramatically better. Value holds most
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  Speaker 1: of the stocks that are economically sensitive. Therefore, what's getting
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  Speaker 1: punished the most at the end of a major trend
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  Speaker 1: is the thing that was already cheap. So Bill, is
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  Speaker 1: there a valuation point here for the market that you
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  Speaker 1: think investors should be kind of keeping their eye on
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  Speaker 1: to try to get a sense of where the bottom
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  Speaker 1: might be. Well, that's a great question if historical situations
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  Speaker 1: like this have any merit in analyzing. And remember you're
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  Speaker 1: talking about an exogenous event that no one could see coming.
• 11:14
  Speaker 1: And then uh, Saudi Arabia took out the Amazon playbook
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  Speaker 1: and decided to UH use their their UH position to
• 11:23
  Speaker 1: undercut everyone else's price and put them out of business. Uh.
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  Speaker 1: Those two things happened. In other words, of Saudi Arabians
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  Speaker 1: would have never been able to do this if the
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  Speaker 1: coronavirus had not greatly affected demand around the world for
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  Speaker 1: oil and gas right now. So so so these two
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  Speaker 1: just completely wild, historically unusual things are hitting simultaneously. So
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  Speaker 1: what you should expect is that that investments you make
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  Speaker 1: now in in the areas that people are the most
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  Speaker 1: afraid of right now are likely to produce the highest
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  Speaker 1: returns over the course of the next ten years. And
• 12:07
  Speaker 1: the investments that they run back to immediately and have
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  Speaker 1: sold way less that that they they've they've got the
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  Speaker 1: most confidence in are highly unlikely to be the best
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  Speaker 1: investments of the next ten years. Are you basically saying
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  Speaker 1: by stock cell bonds. Well, first of all, uh, you know,
• 12:27
  Speaker 1: mathematically a tenure treasury has zero chance of investment success
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  Speaker 1: in the next ten years unless you consider point seven
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  Speaker 1: percent return UH and investment success if if someone's retirement
• 12:39
  Speaker 1: goals get matched with point seven percent return, or a
• 12:43
  Speaker 1: pension planner and endowment works at point seven that so
• 12:47
  Speaker 1: that's d o A. Right, this is the antithesis of
• 12:53
  Speaker 1: the treasuries were percent to start the year and went
• 12:56
  Speaker 1: to fifteen percent. Bond investors got slaughtered. But those third
• 13:00
  Speaker 1: percent bonds for thirty years were one of the best
• 13:02
  Speaker 1: investments you could possibly make, even though you had to
• 13:05
  Speaker 1: get abused for a while, uh, in the first year
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  Speaker 1: that you owned them. All Right, that's the nature. That's
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  Speaker 1: the nature of this, uh, the courage to own things
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  Speaker 1: that will do well over ten years but make you
• 13:17
  Speaker 1: feel like a fool in the short run. And talking
• 13:20
  Speaker 1: about just the pain. Uh. The market has rolled over,
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  Speaker 1: taken a leg lower even still with the SMP now
• 13:27
  Speaker 1: down more than four percent and the down Paul down
• 13:30
  Speaker 1: four and a half percent as we sit here, Yeah,
• 13:33
  Speaker 1: looking at the vix here out six points to fifty three.
• 13:36
  Speaker 1: You talk about fear in the marketplace of Bill, that's
• 13:38
  Speaker 1: kind of a good example here. So just real quick, Bill,
• 13:41
  Speaker 1: what are some of the things. What's your bottom line
• 13:43
  Speaker 1: advice to your clients and your investors right here? Well,
• 13:46
  Speaker 1: first of all, for people that are going to be
• 13:49
  Speaker 1: investors for the next thirty years, especially people that have been,
• 13:54
  Speaker 1: uh you know, have been sitting on the sidelines, to
• 13:57
  Speaker 1: begin some kind of dollar cost averaging here looks like, uh,
• 14:01
  Speaker 1: it would be a fantastic idea because the virus itself
• 14:07
  Speaker 1: is no matter what the ultimate totals are, and we
• 14:11
  Speaker 1: all we all feel terrible because we you know, we
• 14:13
  Speaker 1: we hate that anyone would would die from this, but
• 14:16
  Speaker 1: we will kind of have a really strong feel within
• 14:19
  Speaker 1: thirties sixty days what the total of this is going
• 14:22
  Speaker 1: to be. And at the point that starts to decline,
• 14:25
  Speaker 1: that's when investors will get their legs back underneath them.
• 14:28
  Speaker 1: So so yeah, so that our our view. So we're
• 14:32
  Speaker 1: gonna have to leave it at that, Thank you so much.
• 14:33
  Speaker 1: Phil Smead Smead Capital Management. One of the narratives that
• 14:47
  Speaker 1: I've been hearing about and people are looking for some
• 14:49
  Speaker 1: sense of capitulation in the market is just wait for
• 14:52
  Speaker 1: the retail investors when they start dumping stock, that's when
• 14:55
  Speaker 1: you know it's over. Our next guest maybe says, maybe
• 14:57
  Speaker 1: not so sure. Eric Falchun a senior et analysts for
• 15:00
  Speaker 1: Bloomberg Intelligence. He joined us here in a Bloomberg interactor
• 15:03
  Speaker 1: Brooker Studio. So, Eric, what's the et F world telling
• 15:06
  Speaker 1: me about how the individual retail investor has been looking
• 15:09
  Speaker 1: at this market altility? Look? I mean it was just
• 15:12
  Speaker 1: like was a great snapshot because et s were big
• 15:15
  Speaker 1: at that point and they took in money every month.
• 15:18
  Speaker 1: And these are e t f s like Vanguard, SWAB
• 15:21
  Speaker 1: and the Ice shares Core series. What we do is
• 15:24
  Speaker 1: in our flow data, we separate out spy I w
• 15:27
  Speaker 1: M because those are used like pseudo futures. They get
• 15:30
  Speaker 1: the traders committed out of those things like a hotel.
• 15:33
  Speaker 1: So those flows can contaminate or overshadow the rest of
• 15:36
  Speaker 1: the e t F so we separate them out. So
• 15:38
  Speaker 1: we look at those e t f s used by
• 15:40
  Speaker 1: advisors and allocators. They continued to take in money. Um
• 15:44
  Speaker 1: could that's the chart I'm looking at for. If that
• 15:47
  Speaker 1: goes negative, I think it's time to worry. But over
• 15:50
  Speaker 1: the years, whenever that as long as that's positive, I've
• 15:52
  Speaker 1: tended to just take a deep breath. Although this sell
• 15:55
  Speaker 1: off does feel just a little more severe than remember
• 15:59
  Speaker 1: Q four was pretty rough. Um. So I'm looking at
• 16:01
  Speaker 1: those numbers and I'm seeing that for the most part,
• 16:04
  Speaker 1: um investors are continuing. And there's really two main reasons
• 16:07
  Speaker 1: for this. One is this the Internet has spread information.
• 16:11
  Speaker 1: People are sharing information with each other. They've read a
• 16:13
  Speaker 1: lot of education on how timing the market's almost impossible
• 16:16
  Speaker 1: to win, So there's education on not biting, not taking
• 16:20
  Speaker 1: the bait of a of a red on the screen.
• 16:23
  Speaker 1: The second thing is advisors have moved from a broker
• 16:25
  Speaker 1: model where a mutual fund pays them, to a fiduciary
• 16:29
  Speaker 1: model where they get a percentage of the client assets.
• 16:32
  Speaker 1: Once you move to the fiduciary model, you're with your
• 16:34
  Speaker 1: investor shoulder to shoulder. And now one of their biggest
• 16:37
  Speaker 1: value propositions is called behavioral coaching. So what they're saying
• 16:41
  Speaker 1: is one of the reasons you need me is because
• 16:43
  Speaker 1: I'm going to talk you off the ledge. So with
• 16:46
  Speaker 1: these advisors acting like as a major buffer, and in
• 16:49
  Speaker 1: the past the broker might want to turn the account
• 16:51
  Speaker 1: because they get kicked back from the mutual funds. So
• 16:54
  Speaker 1: I think the retail investor is a much stronger, more
• 16:56
  Speaker 1: disciplined retail investor than in Bygone is Eric. I'm glad
• 17:01
  Speaker 1: you're here. I really am. I've always too good. I mean,
• 17:06
  Speaker 1: when you know, I can always expect this kind of
• 17:09
  Speaker 1: take from you, which I think is totally important and
• 17:12
  Speaker 1: sort of like a gut check or reality check. You know,
• 17:14
  Speaker 1: here's the narrative, and this is why everything is just fine,
• 17:18
  Speaker 1: and ETFs are functioning well and people aren't freaking out
• 17:21
  Speaker 1: and they're not running for the exits that said, are
• 17:25
  Speaker 1: we I'll present the other side. That's my nickname. Like
• 17:31
  Speaker 1: for him, it's everything is fine guy. I will say though,
• 17:34
  Speaker 1: that there is a question, first of all, of whether
• 17:36
  Speaker 1: the real shifts and allocations are going to be the
• 17:38
  Speaker 1: real issue here. Basically, are we going to see people
• 17:41
  Speaker 1: move there for one case, or change your allocations or
• 17:43
  Speaker 1: sort of become more risk off and risk averse, And
• 17:46
  Speaker 1: that that's really the type of tweaking and changing that's
• 17:51
  Speaker 1: really going to have an effect on markets. It's not
• 17:53
  Speaker 1: going to be this. Possibly. What I would look for
• 17:56
  Speaker 1: is this look for active mutual funds. Those are owned
• 17:58
  Speaker 1: by older investors rumors, and they largely were probably put
• 18:02
  Speaker 1: in there by a broker, so they might have less
• 18:03
  Speaker 1: loyalty shorter time horizon. I'm watching those flows. You could
• 18:07
  Speaker 1: see some selling pressure if we saw if we see
• 18:10
  Speaker 1: major flows in two thousand eighteen, Uh, same thing. Um,
• 18:15
  Speaker 1: we saw five billion come out of active mutual funds.
• 18:17
  Speaker 1: That's a lot. We don't have data showing quite the
• 18:20
  Speaker 1: same in this recent self, but it could get bad.
• 18:22
  Speaker 1: That would be one and a lot of those people
• 18:25
  Speaker 1: have the four one case you're talking about. In terms
• 18:27
  Speaker 1: of the younger I think they're rebalancing into equities because
• 18:31
  Speaker 1: remember how you like this chart that shows equity net
• 18:35
  Speaker 1: fund flows have been negative over the past couple of years,
• 18:38
  Speaker 1: and you're like, what's going on? What's going on there?
• 18:40
  Speaker 1: Isn't bearish. It's that people are taking off the equities
• 18:44
  Speaker 1: a little because they're rebalancing back, and a fixed then
• 18:47
  Speaker 1: comes to trying to keep a percentage allocation to equities. Now,
• 18:50
  Speaker 1: if equities sell off, that percentage goes down. You may
• 18:53
  Speaker 1: even see them rebalanced into equities. But yes, there's gonna
• 18:56
  Speaker 1: be some panicking. Of course, not everybody's like this. I
• 19:00
  Speaker 1: just think the core of the retail investor is much
• 19:02
  Speaker 1: stronger than than people give them credit for, really valuable.
• 19:06
  Speaker 1: And I could go for another ten minutes. We didn't
• 19:08
  Speaker 1: even get to h BYG. We didn't even get to
• 19:09
  Speaker 1: the high bond e t f s, which have seen
• 19:12
  Speaker 1: really big outflows and really big discount to navs. Actually,
• 19:16
  Speaker 1: and and and THEUNI one, the MUNI one h y
• 19:19
  Speaker 1: D had a seven percent discount. Our MUNI analyst Eric
• 19:22
  Speaker 1: Kazawski says, that's a leading indicator. Look for the bonds
• 19:25
  Speaker 1: to catch up. So if you see a discount, that's
• 19:27
  Speaker 1: probably bad. Seconds. Eric, we could talk for ten minutes.
• 19:32
  Speaker 1: I wish we could, Eric valtun As we will senior
• 19:34
  Speaker 1: et F analyst Bloomberg get intelligence joining us here in
• 19:37
  Speaker 1: our interactive broker studios. It's sort of like a game
• 19:51
  Speaker 1: of Whackable Where do you look first? Do you look
• 19:53
  Speaker 1: at the coronavirus, the progression of the disease where it's spread,
• 19:56
  Speaker 1: at the fiscal response to it, or do you look
• 19:59
  Speaker 1: at the price of oil which is down yet again
• 20:01
  Speaker 1: today now thirty three dollars and thirty seven cents of
• 20:03
  Speaker 1: barrel traded on the n imax as the price war
• 20:06
  Speaker 1: wages and and engrages on I should say between Saudi
• 20:11
  Speaker 1: Arabia and Russia. Let's focus on that right now. And
• 20:14
  Speaker 1: we're lucky to have Dr Ariel coh and senior fellow
• 20:17
  Speaker 1: at the Atlantic Council Founding Principle of International Market Analysis.
• 20:21
  Speaker 1: Uh And also he of course is a frequent contributor
• 20:24
  Speaker 1: to this show, joining us from Washington, d C. Can
• 20:27
  Speaker 1: you give us a sense, Ariel, of just how long
• 20:30
  Speaker 1: this price war can go on before we see a
• 20:34
  Speaker 1: complete rearranging of the oil producing nations in terms of
• 20:38
  Speaker 1: both their economies as well as their power relative to
• 20:40
  Speaker 1: each other. Well, let's start with the last part of
• 20:45
  Speaker 1: what you said. I think the rearrangement is underway. The
• 20:50
  Speaker 1: week part. The weak players such as Venezuela, Iran, Libya,
• 20:56
  Speaker 1: which is in the middle of a civil war, are
• 20:59
  Speaker 1: all too hurt, whereas UM the United States shale patch,
• 21:06
  Speaker 1: which has high production costs, really needs to re examine
• 21:11
  Speaker 1: uh it's capex. Its capex is high because shale wells
• 21:17
  Speaker 1: last only eighteen months to twenty four months as opposed
• 21:21
  Speaker 1: to conventional wealth. So our production in the shale patch
• 21:24
  Speaker 1: is somewhere between thirty and sixty dollars, whereas in Saudi
• 21:29
  Speaker 1: Arabia it's around ten dollars or less or and in
• 21:32
  Speaker 1: Rush it varies greatly depends on a structure and a location,
• 21:38
  Speaker 1: from ten of fifteen dollars for established fields too as
• 21:43
  Speaker 1: high as sixty and more dollars a barrel cost UH
• 21:50
  Speaker 1: in Arctic offshore continental shelf. But so the ones with
• 21:56
  Speaker 1: the longest um um breathing space for this war, the
• 22:02
  Speaker 1: Saudis on the Adham. The Saudis have also higher balancing
• 22:07
  Speaker 1: point for their budget. They need something like seventy dollars
• 22:11
  Speaker 1: a barrel price UH to balance their budget. So it's
• 22:15
  Speaker 1: a very very complicated competition, and I think at least
• 22:19
  Speaker 1: a quarter the Saudis are trying to force the Russians
• 22:23
  Speaker 1: to the negotiating table as well as to force some
• 22:27
  Speaker 1: of our shale production to shut down because they're losing
• 22:32
  Speaker 1: money when the oil price is so low UH. In
• 22:36
  Speaker 1: the worst case scenario, if the coronavirus causes a global
• 22:40
  Speaker 1: recession UM, it can go two or three quarters. So
• 22:45
  Speaker 1: hopefully god willing, by the end of the year at
• 22:48
  Speaker 1: worst case scenario or Q one one, we will see
• 22:53
  Speaker 1: an improvement. So Dr Colin when this news broke that
• 22:56
  Speaker 1: Saudi was essentially starting this price were ramping up product,
• 23:00
  Speaker 1: and I was really shocked because I just when I
• 23:02
  Speaker 1: kind of did the math and thought about the near
• 23:05
  Speaker 1: term costs for the potential longer term gains, i e.
• 23:09
  Speaker 1: Weakening some of the weaker players the most, notably maybe
• 23:12
  Speaker 1: the U S shail business, the math just didn't seem
• 23:14
  Speaker 1: to work. Were you how surprised, if if at all,
• 23:17
  Speaker 1: were you about what's going on with Saudi Arabia now Russia? Yes,
• 23:22
  Speaker 1: but I would um say differently. I would say the
• 23:27
  Speaker 1: Russians were the ones who started this war. The Saudis
• 23:32
  Speaker 1: UH proposed a cut UM one point five million barrels
• 23:38
  Speaker 1: and the Russians didn't agree to that UM and UH Rosa,
• 23:42
  Speaker 1: the Russian state oil company H the Beheamoth was upset
• 23:49
  Speaker 1: because the US is sanctioning UH them for UH selling
• 23:55
  Speaker 1: Venezuela oil. UH. There's also friction between Rosneft, the Russian
• 24:00
  Speaker 1: national world champion in Saudi Arabia, competition for markets in
• 24:04
  Speaker 1: India and Eastern Europe. So the blood between Moscow and
• 24:10
  Speaker 1: the Riad was bad. UH. And the ones who fired
• 24:14
  Speaker 1: the first shot are the Russians. Keeping in mind that
• 24:19
  Speaker 1: they are really upset that the United States managed to
• 24:23
  Speaker 1: surpass both Russia and Saudi Arabia as being a number
• 24:27
  Speaker 1: one producer of oil at thirteen million barrels a day. Harriel,
• 24:33
  Speaker 1: you testify in front of Congress. You've consulted UH with
• 24:37
  Speaker 1: the Senate, the House Judiciary committees. I'm trying to understand
• 24:41
  Speaker 1: what the U S response is to all of this.
• 24:44
  Speaker 1: If anything, given the fact that Russia's aggression and frankly
• 24:48
  Speaker 1: anger was really directed at the U S shail patch, UH,
• 24:53
  Speaker 1: we can continue limit Russian ability to develop uh it's
• 25:01
  Speaker 1: offshore oil resources, which are quite considerable. I'll remind our
• 25:06
  Speaker 1: listeners that Russ, the same RUSSNEV that destroyed the OPEC
• 25:11
  Speaker 1: plus agreement between Russia and Saudi UM was the one
• 25:16
  Speaker 1: that several years ago UH did uh An agreement was
• 25:20
  Speaker 1: exon getting excens technology to develop its offshore resources. So
• 25:26
  Speaker 1: that's important for them. Russian oil basins are mature. They
• 25:31
  Speaker 1: don't have a lot of new UH and cheap reserves
• 25:36
  Speaker 1: to develop whatever is greenfield in like eastern Siberia, uh
• 25:40
  Speaker 1: It's um in the middle of nowhere was no infrastructure.
• 25:45
  Speaker 1: UH they need new pipelines and in the long term
• 25:48
  Speaker 1: they have another problem because of the global warming. The tundra,
• 25:52
  Speaker 1: the paramaufrost is melting, and a lot of Russian pipelines,
• 25:57
  Speaker 1: both oil and gas would start to sink, So that
• 26:01
  Speaker 1: would require a huge capex. So even the Russians the
• 26:05
  Speaker 1: oil prices, and one one more thing, they said they
• 26:07
  Speaker 1: have six years, six years UH to sustain oil prices
• 26:13
  Speaker 1: at twenty five dollars a barrel. Yes, they have reserves,
• 26:17
  Speaker 1: they have hundreds and twenty five billion UH in the
• 26:20
  Speaker 1: National Oil Fund UH and whatnot. But I do not
• 26:25
  Speaker 1: believe for a moment that this UH low oil prices,
• 26:29
  Speaker 1: let's say five to thirty will sustain itself for more
• 26:34
  Speaker 1: than one year. DOCTA. Ariel Cohen, thank you so much
• 26:36
  Speaker 1: for joining us. We always appreciate your perspective on global markets.
• 26:40
  Speaker 1: Dr Ariel Cohen. He's a senior Fellow at the Atlantic Council,
• 26:43
  Speaker 1: also founding Principle of International Market Analysis based in Washington,
• 26:47
  Speaker 1: d C. Thanks for listening to the Bloomberg P and
• 26:50
  Speaker 1: L podcast. You can subscribe and listen to interviews at
• 26:52
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• 26:56
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• 26:59
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 27:02
  Speaker 1: You can always catch us worldwide on Bloomberg Radio