Latest / Bloomberg Intelligence / Yields Aren't Likely to Rise Until the Fed Resolves Its Balance Sheet, CIBC's Tucci Says

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Yields Aren't Likely to Rise Until the Fed Resolves Its Balance Sheet, CIBC's Tucci Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim
• 0:08
  Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
• 0:11
  Speaker 1: we bring you the most important, noteworthy, and useful interviews
• 0:15
  Speaker 1: for you and your money, whether you're at the grocery
• 0:17
  Speaker 1: store or the trading floor. Find the Bloomberg p m
• 0:20
  Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com.
• 0:31
  Speaker 1: I want to bring in Tom Tucci. He is the
• 0:33
  Speaker 1: head of US Treasury Trading for a CIBC World Markets.
• 0:38
  Speaker 1: They give us some perspective on what is happening in
• 0:40
  Speaker 1: the bond market and its relationship to the value of
• 0:43
  Speaker 1: the US dollar. Tom, always a pleasure, Thanks for being
• 0:45
  Speaker 1: with us. Thank you. Um So, maybe you could just
• 0:48
  Speaker 1: provide a little backdrop for this current market and the
• 0:51
  Speaker 1: performance of the US dollar, because we're seeing a big
• 0:54
  Speaker 1: sell off in bonds today. I mean, looking at the
• 0:56
  Speaker 1: thirty year were down more than a full point right well.
• 0:59
  Speaker 1: Last week we were dominated by what would be risk
• 1:02
  Speaker 1: off and concerns surrounding several unknowns ranging from the hurricane
• 1:07
  Speaker 1: to government shutdowns to geopolitical risk coming out in North Korea.
• 1:12
  Speaker 1: I think some of that has calmed down from now,
• 1:14
  Speaker 1: From now um, but all of it hasn't been resolved.
• 1:18
  Speaker 1: We still don't know the full impact of what's going
• 1:20
  Speaker 1: to happen from the hurricane. We know historically it's provided
• 1:23
  Speaker 1: a bit of a dip in growth, but then it
• 1:25
  Speaker 1: bounce back uh in later quarters. Um. I think the
• 1:28
  Speaker 1: thing that really will be driving the market going forward
• 1:30
  Speaker 1: is really what's coming out of Washington, whether or not
• 1:33
  Speaker 1: we get any kind of tax reform and whether or
• 1:35
  Speaker 1: not they can really show up the death ceiling limit.
• 1:38
  Speaker 1: We're under a temporary order right now that's gonna last
• 1:41
  Speaker 1: us probably between January and February next year, and we
• 1:45
  Speaker 1: need to clean up some of these things. Tom, you're
• 1:47
  Speaker 1: the head of US trading at c ib C. You
• 1:49
  Speaker 1: are overseeing the actual day to day volumes. I'd love
• 1:53
  Speaker 1: to get your take on the feeling in the activity.
• 1:56
  Speaker 1: Is this just sort of humdrum, slow moveing kinds of
• 2:00
  Speaker 1: days where people just are sort of basically doing basic
• 2:06
  Speaker 1: maintenance on their funds. Or are you getting investors from
• 2:10
  Speaker 1: overseas that really have conviction on treasuries one way or another. No,
• 2:14
  Speaker 1: I think from the flow standpoint, overseas investors, particularly out
• 2:19
  Speaker 1: of Asia, are better sellers. They've been long for quite
• 2:22
  Speaker 1: a period of time, and they've been better sellers up
• 2:24
  Speaker 1: around these levels. I think overall, what's happened is if
• 2:27
  Speaker 1: you look at the dynamic of what happened to the
• 2:29
  Speaker 1: market since November, UM, you've reported on it several times,
• 2:33
  Speaker 1: the market price and something coming out of the election,
• 2:35
  Speaker 1: with certain expectations coming out of this administration, and they
• 2:39
  Speaker 1: haven't been able to deliver on any of them for
• 2:41
  Speaker 1: various reasons. And if you look at a chart, basically
• 2:44
  Speaker 1: what we did last week is we rechased all of
• 2:46
  Speaker 1: that sell off, particularly in the long end of the market,
• 2:49
  Speaker 1: and that's despite the Fed tightening a couple of times.
• 2:51
  Speaker 1: So UM. To me, what's happened is people have been
• 2:54
  Speaker 1: positioned for higher rates for quite a long period of time.
• 2:57
  Speaker 1: Things have been moving against them from the inflation scenary front.
• 3:00
  Speaker 1: In other words, inflation has been coming in below trend
• 3:03
  Speaker 1: for six seven months now, the Feds identifying the fact
• 3:07
  Speaker 1: that those are some structural change that they hadn't seen before,
• 3:11
  Speaker 1: and you start to see a little bit of an
• 3:12
  Speaker 1: adjustment as far as expectations in the long run for yields.
• 3:16
  Speaker 1: In other words, they're not going to back up as
• 3:18
  Speaker 1: significant as people had predicted earlier in the year. Right, Tom,
• 3:21
  Speaker 1: what do you think the next big move is UH
• 3:23
  Speaker 1: with yields going higher or lower? Well, to be honest
• 3:26
  Speaker 1: with you, I still think the reality is that until
• 3:29
  Speaker 1: there's a structural change, and what I mean by that
• 3:32
  Speaker 1: is whether the central banks out of Europe, out of
• 3:36
  Speaker 1: the US can really make a dent in reducing their
• 3:39
  Speaker 1: balance sheets, I think it's gonna be very difficult for
• 3:42
  Speaker 1: yields to rise appreciably. UM, there's still a structural demand
• 3:46
  Speaker 1: from the demographics globally of UH, an aging population, and
• 3:50
  Speaker 1: just an underlying demand for yield overall. You see these
• 3:53
  Speaker 1: record numbers of corporate supply coming into the market, were
• 3:57
  Speaker 1: into a new month now and the calendars been pretty heavy,
• 4:00
  Speaker 1: and it's been met with very significant demand. So that
• 4:04
  Speaker 1: yield demand is still there. Until we see something structurally
• 4:07
  Speaker 1: change in the economy, which I think could come out
• 4:10
  Speaker 1: of tax reform and some other things that come out
• 4:12
  Speaker 1: of the government UM and central bank policy shift, is
• 4:16
  Speaker 1: going to be very difficult for bond yields to rise significantly.
• 4:19
  Speaker 1: How's Tom Tucci voting when it comes to raising interest rates?
• 4:23
  Speaker 1: I don't think there's any need to raise interest rates.
• 4:26
  Speaker 1: I think the FED is focused completely on reducing their
• 4:29
  Speaker 1: balance sheet. They want to start to get They've already
• 4:31
  Speaker 1: prepared the market for that. Um I think that will
• 4:34
  Speaker 1: be the thing that will come this month. I don't
• 4:36
  Speaker 1: think they'll they'll tighten again this year. I think the
• 4:39
  Speaker 1: economic data will be fuzzy enough because of the hurricane
• 4:41
  Speaker 1: related activity. It'll it'll sour the economic numbers that are
• 4:47
  Speaker 1: coming out going forward, and I don't think there's any
• 4:50
  Speaker 1: need for them to be raising short term interest rates
• 4:52
  Speaker 1: in here. I think they're better off focused on reducing
• 4:54
  Speaker 1: the balance sheet. Having said that, what happens to the
• 4:57
  Speaker 1: US dollar? It was weakening against all major trading partners,
• 5:02
  Speaker 1: the yen at one eight, eight seven, the euro one nine,
• 5:05
  Speaker 1: and so on. Wondering if you give us your outlet
• 5:07
  Speaker 1: for the dollar, and what does that mean for investor money. Well,
• 5:09
  Speaker 1: I think in general, the only thing that will change
• 5:12
  Speaker 1: for the dollar is if you start to see some
• 5:15
  Speaker 1: other situations happen where the dollar doesn't become the dominant
• 5:18
  Speaker 1: reserve currency. And what I mean by that is you
• 5:20
  Speaker 1: start to see China and Russia, you know, looking at
• 5:23
  Speaker 1: pricing oil in different currencies, not in the dollar. These
• 5:27
  Speaker 1: are long term things that would have to happen. I
• 5:29
  Speaker 1: think overall, the dollars pretty oversold. I think we've had
• 5:32
  Speaker 1: a pretty good run in some of these other currencies,
• 5:34
  Speaker 1: and you'll start to see UM some movement back to
• 5:37
  Speaker 1: a more neutral stance with the dollar firming up some.
• 5:40
  Speaker 1: You know, one thing that I've been thinking a lot
• 5:41
  Speaker 1: about is if you do get a dollar that starts
• 5:44
  Speaker 1: to strengthen again, how much does that disrupt current market positioning?
• 5:48
  Speaker 1: And I was just looking today at the incredible record
• 5:50
  Speaker 1: breaking flows into local currency emerging markets debt, which has
• 5:54
  Speaker 1: basically been a cloaked currency bet on on the weaker dollar.
• 5:59
  Speaker 1: I mean, do you think that could be a disruptive
• 6:01
  Speaker 1: kind of event. Well, I think you know what what
• 6:03
  Speaker 1: you're identifying as people continually looking for almost like an
• 6:06
  Speaker 1: alternative currency, writing you've seen these cryptocurrencies benefits substantially UM.
• 6:11
  Speaker 1: I still don't understand the fundamentals of that, but nonetheless
• 6:15
  Speaker 1: they've it's an alternative currency. I think with what's happened
• 6:18
  Speaker 1: with central banks and the manipulation that's taken place within
• 6:22
  Speaker 1: UM governments, overall, people are looking for what they would
• 6:25
  Speaker 1: consider a safer store of their wealth and I don't
• 6:28
  Speaker 1: I don't know the answer to that. As far as
• 6:30
  Speaker 1: the cryptocurrency is concerned, I don't have enough experience with that.
• 6:33
  Speaker 1: But it's been since the crisis. You've seen that, You've
• 6:36
  Speaker 1: seen money trying to find what it would consider a
• 6:41
  Speaker 1: more secure currency. You saw what happened with the Swiss
• 6:44
  Speaker 1: frank over time during the during the crisis, particularly in
• 6:47
  Speaker 1: the European crisis, and that's what people are more concerned about,
• 6:50
  Speaker 1: the more interested in the stability of the value of
• 6:53
  Speaker 1: their currency. You mentioned, you know, this idea of looking
• 6:57
  Speaker 1: for an alternative to the to the US all are
• 7:00
  Speaker 1: why are they looking for an alternative? I think it's
• 7:03
  Speaker 1: you know what you've what you're faced with. As far
• 7:05
  Speaker 1: as the outlook for the government, the outlook for budget deficits, um,
• 7:10
  Speaker 1: those things that have driven flows and demand from foreign
• 7:14
  Speaker 1: investors into the market. So if you have a little
• 7:16
  Speaker 1: bit of a concern about what's going to happen going
• 7:20
  Speaker 1: forward as far as deficits are concerned, UM, we still
• 7:23
  Speaker 1: haven't delivered on any of the infrastructure promises here. We
• 7:27
  Speaker 1: have a death ceiling issue still. Um. Those kinds of
• 7:31
  Speaker 1: things kind of detour people from having the confidence in
• 7:34
  Speaker 1: investing in the underlying currency. So that that's where I'm saying,
• 7:37
  Speaker 1: there's so many moving parts when it comes to central
• 7:40
  Speaker 1: bank policy and government issues, particularly here in the U
• 7:43
  Speaker 1: s UM, people continue to look for an alternative. Tom Tuci,
• 7:47
  Speaker 1: thank you so much for joining us. Tom Tucci as
• 7:49
  Speaker 1: head of US Treasury. Trading as c i BC World
• 7:52
  Speaker 1: Markets in New York City. Tava Pharmaceutical Industries appears to
• 8:08
  Speaker 1: have ended it's longer search for a chief executive officer
• 8:13
  Speaker 1: today it named h Lundbeck's Car Schultz as its new
• 8:17
  Speaker 1: chief executive officer. And here to tell us what this
• 8:20
  Speaker 1: means for the path forward of this generics maker, I
• 8:23
  Speaker 1: want to bring in Liz krutel Holm Kruto Hallo. She's
• 8:28
  Speaker 1: specialty pharma and biotech analyst for Bloomberg Intelligence in London.
• 8:33
  Speaker 1: And Yakov ben Mella, he's a reporter in Bloomberg in
• 8:38
  Speaker 1: the Tel Aviv office. Liz, I want to start with you.
• 8:41
  Speaker 1: Was this an expected choice? And uh, does this choice
• 8:45
  Speaker 1: of car Schultz give you any sense of the path
• 8:47
  Speaker 1: forward for the company? So this morning's news was definitely
• 8:52
  Speaker 1: not expected. Lundbeck has been having a really great year.
• 8:55
  Speaker 1: Schultz has been able to lead a turnaround there, so
• 8:59
  Speaker 1: he was in a secure a place, so not an
• 9:02
  Speaker 1: expected move for him in terms of his role at Teva.
• 9:06
  Speaker 1: I think it certainly is good from a Teva perspective,
• 9:09
  Speaker 1: as evidenced by the shares today, but you can see
• 9:12
  Speaker 1: that this period of uncertainty is at least behind the
• 9:15
  Speaker 1: company and he is bringing in specialty expertise which will
• 9:18
  Speaker 1: help the branded unit, but the generic unit is not
• 9:22
  Speaker 1: really an area that he has a lot of expertise in,
• 9:24
  Speaker 1: so that is a bit of a surprise. You know, Kobe,
• 9:28
  Speaker 1: I want to bring you in here because I want
• 9:29
  Speaker 1: to if you can explain to people how urgent the
• 9:33
  Speaker 1: situation is at Tava Pharmaceuticals and is there going to
• 9:37
  Speaker 1: be an even greater effort to split the company from
• 9:39
  Speaker 1: its generic versus it's a branded drug business. So yeah,
• 9:45
  Speaker 1: I mean it's certainly been urgent, and that was really
• 9:49
  Speaker 1: as you can see, but in the stock that they
• 9:51
  Speaker 1: will was depressing the stock price. Urgent in the sense
• 9:54
  Speaker 1: that Teva has a huge, huge problem. I think that
• 9:57
  Speaker 1: is about almost twice the side of the the Vali the company,
• 10:00
  Speaker 1: and that's really uh tied the hands of what they
• 10:02
  Speaker 1: can induce to tag. So uh, they needed to get
• 10:05
  Speaker 1: someone on board to to really steer the company, to
• 10:08
  Speaker 1: really set forth a coherent strategy, you know, type of spin. Uh.
• 10:13
  Speaker 1: This is now the fourth to you in five years,
• 10:15
  Speaker 1: and it feels like almost the strategy has been changing
• 10:19
  Speaker 1: lesson right so uh so yeah, so investors are really
• 10:22
  Speaker 1: rewarding type for for getting shorts. From what I'm said,
• 10:26
  Speaker 1: By the way, it's a pronounced car like like a
• 10:28
  Speaker 1: Boston accident when you stay car. Thank you. I appreciate that.
• 10:36
  Speaker 1: I had to ask as well. The chairman. Yeah, he
• 10:38
  Speaker 1: told me how to say today. Um. But but yeah,
• 10:42
  Speaker 1: it's it's it's uh, it's it's well received, and there's
• 10:45
  Speaker 1: a lot of skepticism about the kind of job that
• 10:48
  Speaker 1: you can do. But that's certainly a positive step forward
• 10:51
  Speaker 1: for Enny. You know, Liz, I'd love to get your sense.
• 10:54
  Speaker 1: What is the most logical step forward. Is it to
• 10:57
  Speaker 1: continue to ramp up sales of ass it's in order
• 11:00
  Speaker 1: to pay down some of that debt, which I believe
• 11:03
  Speaker 1: is close to thirty billion dollars, or is it to
• 11:06
  Speaker 1: uh sort of bolster the current generic offerings and make
• 11:09
  Speaker 1: sure that pricing is in line in order to bring
• 11:13
  Speaker 1: back revenue sufficient to grow into the capital structure, so
• 11:18
  Speaker 1: it will be more of the former at this point.
• 11:20
  Speaker 1: So the bigger concerned certainly near term, will be debt
• 11:23
  Speaker 1: paid down. Just based on Teva's covenants, they're required to
• 11:27
  Speaker 1: be at four point to five times net debt to
• 11:30
  Speaker 1: ebataon by end of year and they're currently at four
• 11:32
  Speaker 1: point five six and based on their free cashlew that
• 11:35
  Speaker 1: we've seen so far this year and what we expect
• 11:37
  Speaker 1: in the second half, the only way that they can
• 11:39
  Speaker 1: meet that be through asset sales. So they have mentioned
• 11:43
  Speaker 1: that women's health is on the chopping block as well
• 11:45
  Speaker 1: as their European pain and oncology franchises. Those would pretty
• 11:49
  Speaker 1: much just get them there to reach their covenants by
• 11:52
  Speaker 1: year end, and again they have to close by your end,
• 11:55
  Speaker 1: so that's going to be quite difficult. Uh. And then
• 11:57
  Speaker 1: looking forward to have the risk to their leading product,
• 12:01
  Speaker 1: which is capac Zone for multiple sclerosis, so we expect
• 12:04
  Speaker 1: a generic second half next year, so really they've got
• 12:08
  Speaker 1: that threat coming in which threatens their cash flow even further.
• 12:11
  Speaker 1: So as it sails, are at the top of the
• 12:13
  Speaker 1: list in terms of priorities. On the generic side, there's
• 12:16
  Speaker 1: not much they can do. It's more of the sector
• 12:19
  Speaker 1: wide pressure that we're seeing in the US on price erosion,
• 12:22
  Speaker 1: and that's not expected to let up until about Is
• 12:26
  Speaker 1: there a competitor that you believe Liz will benefit the
• 12:30
  Speaker 1: most from this transition period of Tava, So that that's
• 12:36
  Speaker 1: a good question. I think, you know, most of the
• 12:38
  Speaker 1: generic players are really all on the same boat. You know,
• 12:41
  Speaker 1: a good pier would be someone like Milon, and they've
• 12:44
  Speaker 1: downgraded their guidance for the year, not expecting any new
• 12:47
  Speaker 1: approvals until about as well. On the specialty side, there's
• 12:53
  Speaker 1: really not anyone that would benefit from having a transition
• 12:57
  Speaker 1: at TAVA. There is, you know, of Race in the
• 13:00
  Speaker 1: Migraine market, where Teva is expected to come to market
• 13:04
  Speaker 1: second behind Amina nove Artist. That's expected to be a
• 13:08
  Speaker 1: pretty big market. It could be a seven billion dollar
• 13:10
  Speaker 1: opportunity in the US. So that's potentially a place where
• 13:14
  Speaker 1: if they're not focused on that launch properly appear like Eli,
• 13:18
  Speaker 1: Lily or a small biotech like Elder could take advantage
• 13:21
  Speaker 1: of that. I want to thank you both very much
• 13:23
  Speaker 1: for joining us uh Kobe e Ben Malick is our
• 13:26
  Speaker 1: Bloomberg reporter, and tel Aviv and Liz crud to Hollow,
• 13:29
  Speaker 1: our specialty pharmaceuticals and biotech analysts for Bloomberg Intelligence, joining
• 13:34
  Speaker 1: us from London. There was a report that caught my
• 13:49
  Speaker 1: eye over the weekend. China said that it was going
• 13:52
  Speaker 1: to end sales a fossil fuel powered vehicles in the
• 13:57
  Speaker 1: upcoming years. China is just joining their nations such as
• 14:00
  Speaker 1: the UK and France seeking a phase out vehicles using
• 14:04
  Speaker 1: gasoline and diesel. My question is how much does this
• 14:08
  Speaker 1: shift the landscape profoundly for automakers worldwide. Here to answer
• 14:13
  Speaker 1: that question, hopefully, is Jamie Butter's US autos reporter for
• 14:16
  Speaker 1: Bloomberg News, coming to us from our Detroit bureau. So, Jamie,
• 14:20
  Speaker 1: does this how how big of a deal is this
• 14:22
  Speaker 1: for US car manufacturers? At this point, it's it's not
• 14:27
  Speaker 1: much of a deal at all, right, I mean, it's
• 14:29
  Speaker 1: so far down the road that it's hard to really
• 14:34
  Speaker 1: see how serious the Chinese are with this, you know,
• 14:37
  Speaker 1: as so, I mean, look, I think their goals that
• 14:40
  Speaker 1: there's that they're trying to achieve make perfect sense. They
• 14:43
  Speaker 1: want cleaner air for their cities, they want to reduce
• 14:46
  Speaker 1: their dependence on foreign oil, They want to be technology
• 14:50
  Speaker 1: leaders in ways that are going to be meaningful in
• 14:52
  Speaker 1: the twenty one and centuries. Uh. But you know they've
• 14:59
  Speaker 1: also I been covering China and their auto industry for
• 15:02
  Speaker 1: more than a decade and they, you know, have this
• 15:04
  Speaker 1: policy to reduce the number of automakers that they have
• 15:08
  Speaker 1: and instead they have more brands, more Chinese brands now
• 15:11
  Speaker 1: than they did fifteen years ago. So, you know, we'll see,
• 15:15
  Speaker 1: there's not a date on it. We'll see what they
• 15:17
  Speaker 1: actually put a date. Well, but Jamie, but you know,
• 15:20
  Speaker 1: aside from China's declaration here, which you know you can
• 15:24
  Speaker 1: sort of say, it's sort of unclear. A lot of
• 15:26
  Speaker 1: details have to be worked out. Just the fact that
• 15:28
  Speaker 1: so many countries around the world are focusing on trying
• 15:32
  Speaker 1: to reduce the number of fossil fuel vehicles and giving
• 15:36
  Speaker 1: subsidies to electric vehicle production to me signal some kind
• 15:40
  Speaker 1: of sea change that's going on in the industry. Do
• 15:43
  Speaker 1: you do you think that that is overseating the issue. Well,
• 15:46
  Speaker 1: there's definitely some politics for it. A lot of it
• 15:49
  Speaker 1: comes down to the definitions, right, So we had a
• 15:52
  Speaker 1: lot of it. We got really excited. It is the
• 15:54
  Speaker 1: kind of exciting you know, Volvo and their electrication commitment.
• 15:59
  Speaker 1: But you know, it sounds like electrification means they're going
• 16:03
  Speaker 1: to be making electric vehicles, and they will make some,
• 16:06
  Speaker 1: but most of the Volvos are probably still going to
• 16:09
  Speaker 1: be hybrids technically, even mild hybrids, so more like a
• 16:14
  Speaker 1: Toyota are more like the Honda Insight than a prius
• 16:18
  Speaker 1: Um so I really, you know, kind of what we
• 16:20
  Speaker 1: would consider now like pretty primitive or mild hybrid systems,
• 16:23
  Speaker 1: so a lot of that what we saw of London
• 16:25
  Speaker 1: and Paris. They're more city based, you know, than like
• 16:28
  Speaker 1: the entire country or big you know, the whole of
• 16:30
  Speaker 1: the EU, and so something like a plug in hybrid
• 16:35
  Speaker 1: with the right technology. Some of them are kind of automatic.
• 16:37
  Speaker 1: They run on electric until they run out of battery
• 16:39
  Speaker 1: and then the gas engine turns on to make the
• 16:41
  Speaker 1: electric power run. You can have them some of like
• 16:45
  Speaker 1: Volvo's models or you know, they're more European minded. You
• 16:48
  Speaker 1: can switch them on and off, so you might drive
• 16:50
  Speaker 1: in from the suburb to your job in the city
• 16:53
  Speaker 1: and then when you cross the border you flip it
• 16:56
  Speaker 1: to all electric mode and you drive in electric while
• 16:59
  Speaker 1: you're in the city where the pollution is the worst.
• 17:01
  Speaker 1: And the congestion is the worst. And then when you're
• 17:03
  Speaker 1: coming back, you say, Okay, do I have enough electric
• 17:05
  Speaker 1: power to get me all the way home? Or do
• 17:08
  Speaker 1: I just use the electric until I get out of
• 17:09
  Speaker 1: the city and then you know, use the hybrid system.
• 17:12
  Speaker 1: And so if you to say no, uh no, no,
• 17:17
  Speaker 1: no burning of gas, no burning of diesel, you're just
• 17:20
  Speaker 1: moving it to well, where is the electricity gonna come from?
• 17:23
  Speaker 1: And in China, I mean, like the US electricity keeps
• 17:26
  Speaker 1: getting cleaner and cleaner. We're using gas, natural gas that's
• 17:30
  Speaker 1: pretty efficient of you know, China coal. Um, they don't
• 17:36
  Speaker 1: have the cleanest coal technology and even the cleanest coal
• 17:39
  Speaker 1: technology spits out a lot of carbon. So that's why
• 17:43
  Speaker 1: I guess I'm not sure if they really mean this,
• 17:46
  Speaker 1: and they're saying, you know, later than it's not as
• 17:50
  Speaker 1: meaningful as what we're seeing in London and Paris and
• 17:52
  Speaker 1: even from Volvo, and even the Volvo stuff I think
• 17:55
  Speaker 1: gets largely overblown. Jamie. What effect does the scandal over
• 18:00
  Speaker 1: diesel engines and pollution emissions have on the debate, particularly
• 18:06
  Speaker 1: in Europe about introducing electric vehicles. Oh yeah, I mean
• 18:11
  Speaker 1: you you hear right on it. That's why. I mean,
• 18:13
  Speaker 1: there's two things driving it. Right, You've got the political
• 18:16
  Speaker 1: negatives about diesel um you know, and it's not clear
• 18:21
  Speaker 1: yet you know how widespread the cheating was at the minimum, right,
• 18:24
  Speaker 1: we know the Volkswagen, the world's largest automaker, has admitted
• 18:28
  Speaker 1: they've sold eleven million vehicles with you know, cheating software
• 18:33
  Speaker 1: that polluted many times more than the law allows. So
• 18:37
  Speaker 1: it's a big fight. They still have to meet these
• 18:39
  Speaker 1: environment they still have to meet these environmental regulations. And
• 18:43
  Speaker 1: I'll give you about twenty seconds. Well, so what's next
• 18:45
  Speaker 1: for them? So that's why electric And the other thing
• 18:47
  Speaker 1: is Tesla, right, that doesn't even make money, but because
• 18:49
  Speaker 1: they make electric cars, their stock is values hugely high.
• 18:52
  Speaker 1: So there's a there is some pull and some push,
• 18:55
  Speaker 1: but it's very external. The economics are still a real
• 18:57
  Speaker 1: challenge to make electric cars and make money on in
• 19:00
  Speaker 1: the kind of scale that we need for a China
• 19:02
  Speaker 1: let alone, you know, the US in the whole world. Indeed,
• 19:05
  Speaker 1: well well done, thanks very much, Jamie Butters joining us
• 19:08
  Speaker 1: as our US autos reporter talking about China and its
• 19:13
  Speaker 1: desire to get rid of fossil fuel automobile perhaps, Yeah, right, well, uh,
• 19:18
  Speaker 1: you know how many electric vehicles General Motors is sold
• 19:22
  Speaker 1: in China seven thirty eight. So there's a long way
• 19:25
  Speaker 1: to go. Right now, we're looking at a market that
• 19:40
  Speaker 1: is trying to figure out the path forward. Yes, Irma
• 19:43
  Speaker 1: wasn't as bad as many people expected, but Houston is
• 19:45
  Speaker 1: still trying to dig out after the hurricane that hit them.
• 19:50
  Speaker 1: To give us more perspective and what we can expect
• 19:52
  Speaker 1: for oil prices going forward, Regina Mayor joins us now.
• 19:55
  Speaker 1: She's a global sector leader for Energy and Natural Resources
• 19:59
  Speaker 1: for kpm G based in Houston and Regina. We talked
• 20:02
  Speaker 1: so much about Florida over the past week, but Houston
• 20:06
  Speaker 1: still is digging out, and I would love to get
• 20:08
  Speaker 1: your sense of just you know, where we are in
• 20:11
  Speaker 1: the disruption of gas, in the disruption of crude refining,
• 20:17
  Speaker 1: and uh and where we go forward with the price
• 20:19
  Speaker 1: of oil. Excellent, Well, thank you for having me. Good morning.
• 20:23
  Speaker 1: I think overall Houston's energy business is proving to be
• 20:26
  Speaker 1: incredibly resilient. The production facilities by and large are back online.
• 20:32
  Speaker 1: Many in Corpus and in Texas City, as well as
• 20:35
  Speaker 1: in the ship channel in Houston are at full capacity.
• 20:38
  Speaker 1: Some of the ones that were not at full capacity
• 20:41
  Speaker 1: during the storm. It was in large part due to
• 20:43
  Speaker 1: pipeline limitations and takeaway capabilities and less situt damage that
• 20:47
  Speaker 1: was sustained at the facility. The longer term challenges will
• 20:50
  Speaker 1: be in the Beaumont Port Arth area. My understanding is
• 20:53
  Speaker 1: one or two of the refineries in those locations suffered
• 20:55
  Speaker 1: more damage. They are already seeing gasoline futures edge lower
• 21:00
  Speaker 1: or this morning because the impact of IRMA wasn't as
• 21:03
  Speaker 1: bad as what traders initially thought it would be. Regina,
• 21:07
  Speaker 1: the change in the US energy industry to one that
• 21:12
  Speaker 1: is focused on exports with liquefied natural gas and reversal
• 21:17
  Speaker 1: of pipeline systems, how has that changed, if at all,
• 21:21
  Speaker 1: the reaction and the effects after effects of Hurricane Harvey
• 21:25
  Speaker 1: on the unit on the industry. I don't see that
• 21:29
  Speaker 1: export strategy having had a big impact yet as a
• 21:32
  Speaker 1: result of Hurricane Harvey. Play this forward maybe five years
• 21:36
  Speaker 1: when we have more of the energy export facilities online
• 21:39
  Speaker 1: and we have a much larger refined products export strategy.
• 21:43
  Speaker 1: As Mexico opens up and other other parts of the world,
• 21:47
  Speaker 1: and a Category four or five storm hits the Texas
• 21:50
  Speaker 1: Louisiana Gulf Coast again, then I could see potentially there
• 21:54
  Speaker 1: being global disruption and commodity prices because the US footprint
• 21:58
  Speaker 1: is so strong and growing. But for Harvey, we're not
• 22:01
  Speaker 1: seeing any of those impacts yet. The export overall percentage
• 22:04
  Speaker 1: is relatively negligible, and frankly, production wasn't offline long enough
• 22:09
  Speaker 1: for it to have a material impact on supply. So, Regina,
• 22:12
  Speaker 1: if there wasn't a material impact on supply, let's switch
• 22:15
  Speaker 1: to the demand side. Because there was a big debate
• 22:18
  Speaker 1: about whether the destruction and demand with people holding up
• 22:22
  Speaker 1: in neighbors and friends homes elsewhere outside of Houston, whether
• 22:26
  Speaker 1: that would offset any refining decrease. And it seems like
• 22:31
  Speaker 1: perhaps that is the bigger story here, the destruction in demand.
• 22:35
  Speaker 1: Do you think that that could contribute to lower prices?
• 22:39
  Speaker 1: I do, And like I said, I think from just
• 22:41
  Speaker 1: the market opening today and looking at gasoline, teachers were
• 22:44
  Speaker 1: already seeing that the millions of Ustonians sheltered in place.
• 22:49
  Speaker 1: I personally was holed up in my home for six
• 22:51
  Speaker 1: strain paste with my children, and we did see a
• 22:54
  Speaker 1: significant drop in demand that helps offset some of the
• 22:57
  Speaker 1: supply disruption. So while gasoline prices have gone up. I
• 23:01
  Speaker 1: think it's peak. It was maybe thirty five forty cents
• 23:04
  Speaker 1: um up overall, you know, in terms of historic trends,
• 23:07
  Speaker 1: maybe from a month or a year ago. I think
• 23:09
  Speaker 1: we're back down to about twenty five cents up on average,
• 23:12
  Speaker 1: and we'll see that quickly iron itself out, I believe,
• 23:16
  Speaker 1: and get back to prices that we saw pre storm
• 23:20
  Speaker 1: around that mount Sorry no, no, Regina. Just to go
• 23:23
  Speaker 1: offscript a little bit, because we talked so much about
• 23:25
  Speaker 1: Hurricane m or at least the aftermath of it. It's
• 23:28
  Speaker 1: currently now it's been downgraded to a tropical storm. But
• 23:31
  Speaker 1: where is Houston in the process of rebuilding right now?
• 23:36
  Speaker 1: It's it's interesting to see what's happening in Houston. I
• 23:38
  Speaker 1: mean relatively speaking about Houstonians were not personally affected by
• 23:44
  Speaker 1: the storm, but there is that small percentage who were
• 23:47
  Speaker 1: devastated by it. So it's the communities coming together. So
• 23:52
  Speaker 1: many people lost everything, and in the west side of
• 23:55
  Speaker 1: town you have homes that have been sitting under six
• 23:57
  Speaker 1: to ten feet of water for ten the fourteen days
• 24:01
  Speaker 1: that it creates. The absolute destruction, not just in the
• 24:05
  Speaker 1: parts of the home that we're submerged, but with the
• 24:07
  Speaker 1: belongings that might have been on a second or third story.
• 24:10
  Speaker 1: So the focus has been on getting individuals settled right,
• 24:14
  Speaker 1: temporary housing, carrying out the damaged parts of their homes,
• 24:19
  Speaker 1: lots of Houstonians coming together. Um, a lot of folks
• 24:23
  Speaker 1: will have to replace everything. But you know, I think
• 24:25
  Speaker 1: the city is going to have quite a few challenges
• 24:28
  Speaker 1: relative to how they take this forward because this type
• 24:32
  Speaker 1: of flooding can happen again with the unbridled development that
• 24:35
  Speaker 1: the city of Houston is relatively known for. Can we
• 24:38
  Speaker 1: continue to have that kind of response? Uh? And major
• 24:42
  Speaker 1: roadways were underwater until, you know, just at the end
• 24:46
  Speaker 1: of last week. So the city overall is kind of
• 24:49
  Speaker 1: getting back to normal for the most part, but there
• 24:52
  Speaker 1: are people that have been so substantially affected. And I
• 24:54
  Speaker 1: do believe the City of Houston really has to have a, um,
• 24:58
  Speaker 1: a heart to heart with itself about how it continues
• 25:00
  Speaker 1: to develop and manage its growth to prevent this kind
• 25:02
  Speaker 1: of catastrophe from happening in the future. Are there any
• 25:06
  Speaker 1: sort of follow ups to let's say, the health effects
• 25:09
  Speaker 1: of the flooding and the mixture of chemicals and energy
• 25:13
  Speaker 1: pollutants that may in some way get into the water
• 25:17
  Speaker 1: system in any way to contain all those kinds of things.
• 25:22
  Speaker 1: From what I understand and what I've seen in the city,
• 25:25
  Speaker 1: there's not a strong concern about long term contaminants. The
• 25:30
  Speaker 1: water itself it is. It wasn't clean water. I mean,
• 25:34
  Speaker 1: it's sewage. It's it's runoff from all sorts of roadways
• 25:39
  Speaker 1: or industrial locations and levies being opened or indeed reservoirs
• 25:45
  Speaker 1: being open precisely, and that so that I'm trying to
• 25:50
  Speaker 1: get rid of all of that water, uh that it's
• 25:53
  Speaker 1: going to have to be. Homes are going to just
• 25:54
  Speaker 1: have to be destroyed and restarted if they even do
• 25:58
  Speaker 1: rebuild in some of those areas, because frankly, some of
• 26:01
  Speaker 1: those homes should never be rebuilt and it should become
• 26:03
  Speaker 1: a floodplain against the Bayou so that you don't see
• 26:06
  Speaker 1: this kind of destruction in the future. Regina, Do you
• 26:09
  Speaker 1: think that there the aftermath of this will also have
• 26:12
  Speaker 1: an effect on Houston's position in the energy market, that
• 26:16
  Speaker 1: there might be a focus on de emphasizing Houston in
• 26:20
  Speaker 1: favor of the of the more Midwestern shale drilling areas.
• 26:27
  Speaker 1: I really don't foresee that type of choice being made.
• 26:30
  Speaker 1: I think Houston is a diverse economy already and has
• 26:33
  Speaker 1: changed substantially from the oil booms and busts in the
• 26:36
  Speaker 1: eighties that we saw, Uh, you know. And you've got
• 26:39
  Speaker 1: the space center, You've got the healthcare um, you've got
• 26:42
  Speaker 1: all kinds of financial services capabilities. It's not just an
• 26:45
  Speaker 1: energy center. And it's incredibly international. I think its second
• 26:49
  Speaker 1: highest concentration of consulates outside of New York. For example,
• 26:55
  Speaker 1: very strong performing aren't very strong community based activities. And
• 27:00
  Speaker 1: so given all the other pieces, it's centrally located. It's
• 27:03
  Speaker 1: got a great airport. I don't see people choosing to
• 27:06
  Speaker 1: pull inland and go to a Midland or a Permian
• 27:10
  Speaker 1: type of location. And I think the city's energy companies
• 27:13
  Speaker 1: are demonstrating a huge commitment to their employees with their rebuilding.
• 27:18
  Speaker 1: Many of the large companies are paying for temporary housing there,
• 27:21
  Speaker 1: put contract their teams together to do remediation of individual homes.
• 27:26
  Speaker 1: They're subsidizing their employees ability to get back on their feet,
• 27:30
  Speaker 1: and I think that's going to create loyalty and a
• 27:32
  Speaker 1: long term stickiness with the City of Houston. Thank you
• 27:35
  Speaker 1: very much for being with us, Regina Mayor is the
• 27:38
  Speaker 1: Global Sector leader for Energy and Natural Resources for KPMG,
• 27:42
  Speaker 1: joining us from Houston and giving an update on the
• 27:46
  Speaker 1: aftermath of Hurricane Harvey that hit the area. You're listening
• 27:50
  Speaker 1: to Bloomberg MARKETSI pim Fox with Lisa Abramwitz. Thanks for
• 27:55
  Speaker 1: listening to the Bloomberg pm L podcast. You can subscribe
• 27:58
  Speaker 1: and listen to interviews that Apple Podcasts, SoundCloud or whatever
• 28:02
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• 28:06
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo wits
• 28:09
  Speaker 1: one before the podcast. You can always catch us worldwide
• 28:12
  Speaker 1: on Bloomberg Radio.