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Tesla Layoffs, Iran Attack · Bloomberg Intelligence

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Speaker 2: A couple pieces of news. One, you have the senior
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Speaker 2: VP resigns, So that's Drew, but Baglino, that's one part
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Speaker 2: of the story. The other part of the story is
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Speaker 2: at the carmaker slashing headcount by about ten percent. So
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Speaker 2: put those two things together and what does that tell
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Speaker 2: us about where Tesla is right now? So joining us
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Speaker 2: is Steve Man, Bloomberg Intelligence Global Autos and Industrial Research analyst.
0:45
Speaker 2: This is a great example of why Bloomberg Intelligence Radio
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Speaker 2: can bring you the best analyst from all of our
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Speaker 2: guys all around the world, and Steve is definitely one
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Speaker 2: of them. What has been your take over the last
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Speaker 2: few hours on management shakeups as well as headcount at Tesla?
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Speaker 3: Wow, it's actually worse than I thought I thought. You know,
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Speaker 3: the first quarter sales drop was you know, hopefully close
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Speaker 3: to the end, but you know, there's seems to be
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Speaker 3: the light at the end of the tunnel is not
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Speaker 3: really here yet, and it looks like, you know, it's running.
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Speaker 3: Their plants are running just pretty much well below capacity
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Speaker 3: at the moment, and there's still a lot of cost
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Speaker 3: headwinds facing them. They're trying to balance a lot of
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Speaker 3: things in terms of deliveries production. They're raising prices. I
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Speaker 3: don't know how long that's gonna last. So execution is risk.
1:37
Speaker 3: Execution is key for the company in the next you know,
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Speaker 3: six to nine months.
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Speaker 4: So Steve, where are we now or where is the
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Speaker 4: market when you talk to investors in terms of getting
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Speaker 4: a sense of where EV demand is in the US
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Speaker 4: and then maybe globally.
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Speaker 3: Well, EV demand is is waning. I think the interest
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Speaker 3: rate is not helping, you know, it's uh they're looking
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Speaker 3: to you know, as you know, the FED is probably
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Speaker 3: not going to cut rates anytime soon in the next
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Speaker 3: couple of months, next quarter or so, so that's going
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Speaker 3: to condude away on big purchases like automobiles. We're seeing
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Speaker 3: that across the board in the US as well as
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Speaker 3: in China. Trying is a little bit worse for Tesla
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Speaker 3: because there's so much new competition there. But you know,
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Speaker 3: sales is slowing for GM, sales is slowing for Ford
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Speaker 3: for just had to cut production of their lightning recently
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Speaker 3: announced about a couple of weeks ago.
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Speaker 5: So I think this year will be tough for the industry.
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Speaker 3: Now, you know, we probably won't see any improvement until
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Speaker 3: as far as I'm concerned in twenty twenty six.
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Speaker 2: Oh wow, Okay, well that pushes it a way out.
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Speaker 2: Here was interesting headline too, Paul. To your point is
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Speaker 2: that Reuters is reporting that BP is cutting over one
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Speaker 2: hundred jobs and it's electric vehicle charging unit. And we
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Speaker 2: all talk about how we really need chargers to deal
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Speaker 2: with the range anxiety, and now you have a big
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Speaker 2: player here studding some jobs in this EV charging unit. Steve,
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Speaker 2: why twenty twenty six? Why is it going to take
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Speaker 2: that long?
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Speaker 5: Yeah? I think.
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Speaker 3: I think what the market, the EV market is facing
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Speaker 3: today is that we had early adopters, especially on the
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Speaker 3: high end, they're you know, they're pretty much tapped out.
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Speaker 3: You know, they they can buy only so many The
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Speaker 3: market is relatively small, smaller than the mass market. I'm
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Speaker 3: looking at twenty twenty six because if you look at
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Speaker 3: the Inflation Reduction Act, it's bringing in on shoring a
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Speaker 3: lot of the EV battery production in the US, hopefully
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Speaker 3: it will cut costs. And at the same time, in
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Speaker 3: twenty twenty six, where we're looking at more affordable evs
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Speaker 3: coming into the market, that's going to expand the addressable
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Speaker 3: market for EV's and that's why we're we're thinking, you know,
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Speaker 3: twenty twenty six will probably be a better time for
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Speaker 3: the EV market than it is today.
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Speaker 4: So how about profitability in that scenario, Steve, It's tough
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Speaker 4: to make an argument that, you know, these evs can
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Speaker 4: be profitably manufactured at a higher price point.
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Speaker 6: How are they going to adjust their cost structure to get.
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Speaker 4: Be profitable with maybe have a lower price point, I
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Speaker 4: don't know, thirty thousand dollars or something like that.
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Speaker 5: That's a good question.
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Speaker 3: I think if you look at the EV startups in
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Speaker 3: the US, you know that the only one that's really
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Speaker 3: still profitable is Tesla. You saw Fisker being delisted. There's
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Speaker 3: risk of them filing bankruptcy. Both Lucid and Rivian will need,
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Speaker 3: you know, billions of dollars just to get them through
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Speaker 3: the next couple of years. We're not sure if they're
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Speaker 3: gonna get that money. Given the slowdown and the EV market.
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Speaker 3: But on a bright side, I think Tesla is still
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Speaker 3: generating cash. You know, they're making some of the cuts today,
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Speaker 3: I think really to maintain cash generation so they can
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Speaker 3: continue it in vests for the long term, you know.
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Speaker 3: For them, I think what's really important for them is
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Speaker 3: the AI, the FSD, the full self driving systems that
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Speaker 3: they're trying to build out. That that's going to be
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Speaker 3: the future of the automotive industry. It's really those software
5:17
Speaker 3: based subscriptions that's going to drive revenue, not so much
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Speaker 3: of the automaking. So if they're trying to get there,
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Speaker 3: trying to maintain cash, maintain some level of profitability, profitability
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Speaker 3: to make those investments to get them there.
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Speaker 2: Interesting, I was thinking about self driving as I was
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Speaker 2: coming up the Taconic, oring down the Taconic yesterday, and
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Speaker 2: I was like, would I want to be in a
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Speaker 2: self driving car right now? In the Taconic. I don't
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Speaker 2: need the answer to that. I was driving and I
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Speaker 2: was like, I don't know, man, I think I want
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Speaker 2: to trust myself behind the wheel. Anyway, before we let
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Speaker 2: you go, Steve, let's go to the SVP departing, So
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Speaker 2: Drew Baglino. He leaving the company. As I mentioned senior
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Speaker 2: vice president, who is he? Do we care? Like how
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Speaker 2: big a deal he was in Tesla? What did he
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Speaker 2: do walk us through it?
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Speaker 5: Yeah, we do care.
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Speaker 3: He's he's you know, I think he's the face to
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Speaker 3: he's also the face of Tesla. Seems to be looks
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Speaker 3: like to be the right hand person for Elon Musk.
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Speaker 3: So it's a big loss for the company, no doubt
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Speaker 3: about it. But you know, he's a he's a powertrain
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Speaker 3: engineer for the most part, energy engineer, so he's you know,
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Speaker 3: he's really involved in the battery if you saw him
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Speaker 3: on battery day. I think, you know, if you look
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Speaker 3: at Tesla and what Elon Musk have been saying about
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Speaker 3: Tesla's future, which is on AI, which is on full
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Speaker 3: self driving.
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Speaker 5: Is it a big loss?
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Speaker 3: I mean, you can you can argue that, hey, you know,
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Speaker 3: Tesla's moving on to the next phase. It's not about
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Speaker 3: building the motor, is not about building the batteries. They've
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Speaker 3: gone through that process over the past fifteen eighteen years.
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Speaker 3: You know, I think, you know, looking forward, they probably
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Speaker 3: need somebody more people around. You know, AI, you know,
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Speaker 3: developed them algorithms for the future of the car.
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Speaker 4: All right, Steve Man, thanks so much for joining us.
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Speaker 4: As always, Steve Mann, he covers the global auto industry
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Speaker 4: for Bloomberg Intelligence base down there in Princeton, New Jersey.
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Speaker 4: It's got to be tough, I think, to be like
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Speaker 4: a Kathy would be so invested in this company, you know,
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Speaker 4: not only financially, but kind of reputationally, and to have
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Speaker 4: that to deal with a CEO like Elon Musk is
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Speaker 4: so mercurial.
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Speaker 6: I guess it is maybe the right term.
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Speaker 4: And one of the you know, the results of that
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Speaker 4: is you know, executive turnover, and that's got to be
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Speaker 4: really challenging for investors.
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Speaker 2: Yeah, but you know what's interesting with her view is
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Speaker 2: that it's so long term that I wonder if these
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Speaker 2: things become just blips to her, you know.
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Speaker 7: Yep.
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Speaker 4: On the other side of it, Yeah, she's very you know,
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Speaker 4: obviously had great success with this disruption kind of theory.
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Speaker 4: But boy, got to ride with Elon Musk and his foibles.
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Speaker 2: It's true. Yeah, No, that'd be really hard. Would you
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Speaker 2: do self driving? By the way, I really yeah, okay, good,
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Speaker 2: so we're on the same page, But well.
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Speaker 6: Can drive me around? I mean, you know, I trust him?
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Speaker 2: Well, that's his second job makes sense.
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Speaker 4: Let's pivot to the geopolitical front, because another busy weekend
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Speaker 4: in the Middle East with the Iranian attack on Israel. Response,
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Speaker 4: Doctor Aeriel Cohen joins us. He's a senior fellow at
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Speaker 4: the Atlantic Council. Doctor Cohen, thanks so much for joining
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Speaker 4: us here. How would you characterize the I guess the
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Speaker 4: Iranian back attack on Israel over the weekend?
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Speaker 6: How would you characterize it?
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Speaker 8: First of all, it's an avert act of war. Israel
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Speaker 8: was attacked with three hundred missiles, ballistic missiles, cruise missiles,
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Speaker 8: and owns. The systems worked very well. Both in sentcam
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Speaker 8: US Central Command that Israel was joined several years ago.
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Speaker 8: That was the right decision to integrate Israel was its
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Speaker 8: Arab neighbors, and the US, UK, France, Saudi Jordan and
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Speaker 8: apparently UAE all participated in shooting down the Iranian missiles.
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Speaker 7: But this is just a first try.
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Speaker 8: By the Iranians, and a successful try, the largest drone
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Speaker 8: and missile attack of the twenty first century. Both the
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Speaker 8: Americans and Israelis and the Iranians, the Russians and the
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Speaker 8: Chinese are going to learn do lessons learn from this,
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Speaker 8: and probably moved to program to plan bigger and worse.
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Speaker 7: Strikes against each other.
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Speaker 8: We saw many, many, many drone attacks in Ukraine, and
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Speaker 8: one of the lessons learned is the massive drone type
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Speaker 8: of swarms of drones as we saw can be counted.
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Speaker 7: So that's a good news.
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Speaker 8: The bad news is the Iranian regime is dead set
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Speaker 8: on destroying Israel. The chant every Friday in Tehran is
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Speaker 8: death to America, death to Israel, and they will continue
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Speaker 8: on their merry way.
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Speaker 2: So, doctor Cohen, the question yesterday was is this the
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Speaker 2: start of a direct war between Iran and Israel and
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Speaker 2: its allies or was Iran's attack calibrated and telegraphed retaliation.
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Speaker 2: It sounds like you're in the former camp of that.
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Speaker 8: The direct war all Iran against the US and Israel
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Speaker 8: is going on since the days of the founder of
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Speaker 8: the Islamic Republic.
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Speaker 7: The Ayatolla Komani. You remember the.
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Speaker 8: American ci A station chief was kidnapped and tortured and
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Speaker 8: then murdered in Lebanon in nineteen eighty three, Colonel Buckley,
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Speaker 8: And one way or another I was covering a studying
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Speaker 8: these events now for forty years. So it's an ongoing war.
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Speaker 8: But this was an escalatory operation, and this is the
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Speaker 8: Middle East. Israelis sooner or later will have to retaliate,
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Speaker 8: even as President Biden is telling them to step down
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Speaker 8: and take a win. When you have three hundred missiles
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Speaker 8: lobbed against your country, this is not going to stop there.
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Speaker 4: So, doctor Cole, what do you think Israel's response will
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Speaker 4: be and or should be.
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Speaker 8: I think that as Israel has ongoing business of Gaza
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Speaker 8: in the northern border against Gizabala in Lebanon, they will.
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Speaker 7: Not be able to.
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Speaker 8: Launch a large scale attack against around They shouldn't not
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Speaker 8: right now.
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Speaker 7: But they have other tools.
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Speaker 8: They have cyber They were very successful with cyber attacks
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Speaker 8: against the Iranian nuclear program, and they have other means
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Speaker 8: to disrupt the Iranian military establishment and the Iranian economy.
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Speaker 2: Will this side step in many ways containment of Russia.
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Speaker 2: So I follow the oil markets. And there is an
12:31
Speaker 2: narrative out there that if you wind up moving deeper
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Speaker 2: into sanctioned territory or even enforcing the sanctions that are
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Speaker 2: there on Iran, that opens up an avenue for Russia
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Speaker 2: to sell more oil and make more money. How does
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Speaker 2: the US weigh these two events?
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Speaker 8: Well, let me connect this to something that Biden administration
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Speaker 8: just recently did, the foot of freeze on our LNG
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Speaker 8: development going forward. And I think when we have malign
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Speaker 8: actors like Russia, like Iran who are oil exporters, we
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Speaker 8: the United States, Canada and others need to produce more,
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Speaker 8: not less oil and natural gas for the market.
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Speaker 4: All right, doctor Cohen, So I guess one of the
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Speaker 4: questions here is we think about next steps is the
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Speaker 4: positions of mister net Nyahu within Israel itself.
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Speaker 6: How is his gripple on power?
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Speaker 4: How is his ability to continue to move forward with
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Speaker 4: this conflict?
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Speaker 8: Well, I was in Israel during the attack. The morale
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Speaker 8: is high, but people are sick and tired of NATANIAO.
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Speaker 8: If the elections took place today, he would lose and
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Speaker 8: his credibility is shot, both because of the criminal investigation
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Speaker 8: that predate.
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Speaker 7: The Hamas attack, of October seventh.
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Speaker 8: And because of the huge, unprecedented failure of the Israeli
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Speaker 8: intelligence and the military on Netanyao's watch. So he may
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Speaker 8: be trying to distract the attention to move on towards
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Speaker 8: the Iranian confrontation. I do not want to speculate, but
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Speaker 8: I think sooner or later Israel will do the right thing.
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Speaker 7: There'll be a judiciary commission of inquiry like there.
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Speaker 8: Was after the Young People War of nineteen seventy three,
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Speaker 8: when Israel also got a huge to teach a surprise
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Speaker 8: fifty years ago to the day of the attack of
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Speaker 8: October seventh, And after that commission of inquiry there will
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Speaker 8: be consequences can etaniao after including criminal proceedings. I don't
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Speaker 8: want to speculate right now, but he is politically living
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Speaker 8: corpse walking.
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Speaker 2: Doctor thanks a lot. We really appreciate Doctor Ala Cohen,
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Speaker 2: senior Fellow at the Atlantic Council, has had extensive experience
15:02
Speaker 2: twenty years. He served at a senior research fellow in
15:05
Speaker 2: Russia and Eurasian Studies and International Energy Policy at the
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Speaker 2: Heritage Foundation. Wonderful to get his perspective. I think what's
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Speaker 2: interesting Paul for the markets is how do you hedge
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Speaker 2: the unthinkable, like going into Friday. It's like, okay, you
15:17
Speaker 2: don't want to take risk into the weekend. You want
15:19
Speaker 2: to take some safety. But now, now, how do you
15:22
Speaker 2: do that? Do you sell puts? Like you know, I
15:25
Speaker 2: don't know.
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Speaker 4: Well, some folks are some folks are selling oil here
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Speaker 4: Brent Crue down now about one point seven percent still,
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Speaker 4: you know, up around eighty nine dollars per barrel. But
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Speaker 4: maybe a little bit of a breathe of sigh relief a.
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Speaker 6: Little bit there.
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Speaker 2: Oh, absolutely, And also there's a seminary about there, like
15:40
Speaker 2: why would Iron want to hurt themselves even more on
15:42
Speaker 2: the oil front. Anyway, we'll discuss.
15:46
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16:01
Speaker 4: Let's get the Ben Emmetts Senior portfolio manager and had
16:03
Speaker 4: to fixed income, new age wealth, the joints here in
16:05
Speaker 4: our Bloomberg Interactive Brooker Studio Ben A million ways to
16:08
Speaker 4: go here. Let's start with some of the economic data
16:11
Speaker 4: we got today. Some retail sales came in really strong. Here.
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Speaker 6: The consumer seems to be in pretty good shape. I
16:18
Speaker 6: guess it.
16:19
Speaker 5: Still is BOM.
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Speaker 9: I think that the employment reporters start to have an
16:22
Speaker 9: effect here, you know, because this was actually the numbers
16:26
Speaker 9: that were weak in generary ferry as we talked about earlier,
16:29
Speaker 9: and as I looked through these reports that you're seeing,
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Speaker 9: you know, basically items that are going to be feeding
16:34
Speaker 9: directly into GDP that were up as well.
16:37
Speaker 5: As those non star sales.
16:38
Speaker 9: So I think what the market is doing today is
16:41
Speaker 9: to say, you know, GDP's once again accelerating. This brings
16:45
Speaker 9: us actually back to the summer of last year we
16:47
Speaker 9: had a similar phase of having higher bond yields started
16:50
Speaker 9: indicating that having a stronger economy, and this report then
16:54
Speaker 9: confirms it. So I think it's a yeah, this just shows.
16:57
Speaker 5: Once again like we just cannot be knocked off course
17:00
Speaker 5: no matter what guest is. The prices are doing, these
17:02
Speaker 5: sales are.
17:02
Speaker 4: Up to I mean I'm looking at the tenure, I
17:04
Speaker 4: mean rates are higher. Alex and I've been talking about
17:06
Speaker 4: this all day. Rach are up another twelve basis points
17:08
Speaker 4: on the tenure. The four point sixty five percent here,
17:11
Speaker 4: the two year run a five percent watch here. So
17:14
Speaker 4: the bond market is telling you, I don't know, rach
17:17
Speaker 4: are higher for longer.
17:18
Speaker 5: I guess higher for longer.
17:19
Speaker 9: And if you, if you, if this continues, then the
17:23
Speaker 9: tenure is going to drift towards where the fat fund's
17:25
Speaker 9: rate is, maybe not exactly but not too far off.
17:28
Speaker 9: That would, I think be a really interesting moment for
17:30
Speaker 9: Marcus because that means that if you're getting a ten
17:33
Speaker 9: fet funds rate about equal, it puts all should puts
17:35
Speaker 9: a lot of pressure on the economy. So but I
17:38
Speaker 9: think for now, and this is our view, that we're
17:41
Speaker 9: going to probably move into this four seventy five to
17:43
Speaker 9: five percent zone. You know, if this type of data
17:46
Speaker 9: shows that the GDP is going to be upgraded and
17:48
Speaker 9: the PC is going to be higher, we're going to
17:51
Speaker 9: have to expect that it's also going to be continued
17:53
Speaker 9: to reflect better growth.
17:54
Speaker 5: On top of the supply.
17:56
Speaker 9: We're going to continue a half it was very substantial
17:58
Speaker 9: terasury supply.
17:59
Speaker 2: So Ben that definitely means like a biotech thing because
18:02
Speaker 2: like they have the growth, they have the cash flow,
18:05
Speaker 2: they're not going to be subject to any of the
18:07
Speaker 2: refinancing et cetera. But I'm wondering if this scenario just
18:10
Speaker 2: dens the rotation that we've seen. Right, this I'm sure
18:13
Speaker 2: is bad for small caps. What does it do the
18:14
Speaker 2: cickle goals space.
18:17
Speaker 9: Yeah, you could think of that that anything interest rates
18:19
Speaker 9: sensitive as in the small cap space typically underperforms. With
18:24
Speaker 9: the view though that that we think the rotation, you know,
18:27
Speaker 9: the financial energy rotations really happens that that's not so
18:31
Speaker 9: much deriilty one it shows today with golden sacks like
18:34
Speaker 9: it's just you know, good trading environments. The energy market's
18:38
Speaker 9: obviously in play with because of the geopolitics. So I
18:40
Speaker 9: think that part of rotation is we think is working.
18:44
Speaker 9: But you're right about tech like that you gotta let
18:46
Speaker 9: your winners ride as Cameras said too, like we really
18:50
Speaker 9: have to not trade them but basically invest in them
18:53
Speaker 9: and stay with them because that is that is where
18:56
Speaker 9: it's happening in the economy. I think this is part
18:59
Speaker 9: of an impact to once again from all the infrastructure
19:03
Speaker 9: spending that starts to show up in the economists, making
19:05
Speaker 9: it each time stronger. Right, So why getting so much
19:09
Speaker 9: strength of unemployment rate? Unemployment and it feits to spending
19:14
Speaker 9: so I think concluding tech remains in play here even
19:19
Speaker 9: though the tay yield may go to five percent.
19:22
Speaker 4: So I mean, oh, your head of fix thing comes,
19:25
Speaker 4: let me ask you, I can sit into your treasury
19:27
Speaker 4: at four point ninety five percent.
19:28
Speaker 6: Should I do that?
19:29
Speaker 4: Or should I go out on the credit curve a
19:31
Speaker 4: little bit and maybe look at some corporate bonds, whether
19:34
Speaker 4: it's an investment grade or high yield.
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Speaker 6: How are you guys positioning?
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Speaker 9: So I put a little note out on Friday for
19:40
Speaker 9: New Edge that was I was sort of coming to
19:42
Speaker 9: the point of looking at the very short of the
19:44
Speaker 9: ye curve where anything that's floating rate, investment grade, or treasury.
19:48
Speaker 9: So even someone to extent howgh yield, it's just performing
19:51
Speaker 9: like so incredibly stable because you're getting all this interest.
19:54
Speaker 5: Right, So the spread of floating rate.
19:57
Speaker 9: Bonds over the treasury are anywhere but to two hundred
20:00
Speaker 9: three hundred basis points depending which area.
20:02
Speaker 5: In, that's pretty attractive.
20:05
Speaker 9: You keep collecting that interest and if you think about
20:07
Speaker 9: what's going on with the ten year yields. So on
20:10
Speaker 9: Friday we rally a lot. On geopolitics, we come in
20:12
Speaker 9: today we have a completely opposite picture. That's a lot
20:15
Speaker 9: of volatility. So I think from our point of view,
20:18
Speaker 9: you want to be a little bit more positioned down
20:20
Speaker 9: on the shorter end of yel curved because the yuka
20:22
Speaker 9: is not going to normalize much as fats on holds.
20:24
Speaker 9: You collect all that interest and give you very stable
20:26
Speaker 9: performance and sort of wait it down until we get
20:29
Speaker 9: higher yields in the low end that at some point
20:32
Speaker 9: is going to start slowing down the economy. We do
20:35
Speaker 9: think though, that the by zone for the ten year
20:37
Speaker 9: will probably be in that for the four seventy five
20:39
Speaker 9: five percent range, that we would think that a lot
20:41
Speaker 9: of people will start looking at it and buying.
20:45
Speaker 5: We probably do.
20:46
Speaker 2: Do you think we get to five percent on the tenure?
20:48
Speaker 9: I think it's fairly likely, and that's not just because
20:52
Speaker 9: of just today's number. But one thing with bonds Kurrny
20:55
Speaker 9: is that if you look at term premium as we
20:58
Speaker 9: call it a little like wonky term. But if you
21:00
Speaker 9: take what's expect from the fatter the next couple of
21:02
Speaker 9: years and where inflation is, you take that out of
21:05
Speaker 9: the ten year, there's almost no yield there.
21:07
Speaker 5: There's very little compensation.
21:09
Speaker 9: And if I then judge the way this geopolitical event
21:12
Speaker 9: is played out against an economy that doesn't get off thrown.
21:15
Speaker 9: Of course, it stays above trend. The volatility of bonds
21:19
Speaker 9: long end bounds will stay higher and should likely drive
21:21
Speaker 9: it a little bit up towards that five percent. Lastly,
21:25
Speaker 9: this refunding announcement that we're going to get believes that
21:29
Speaker 9: on April twenty ninth. There's something really interesting, Alex about
21:32
Speaker 9: the t bag the advisory community that put presentation out
21:35
Speaker 9: a few weeks ago, they actually made it forecast the
21:38
Speaker 9: tee will supprit you decline, but the long end supplies
21:40
Speaker 9: to stay the same. If the Treasury follows through on
21:44
Speaker 9: that advice, that should be refracted into the U curve.
21:47
Speaker 5: And that isn't right now, not enough. I think there's
21:49
Speaker 5: a low term premium.
21:50
Speaker 9: So I think for all these reasons throwing the fat
21:54
Speaker 9: to that the fat's gonna got's going to be more
21:56
Speaker 9: more priced out. You're gonna get to five percent, you
21:59
Speaker 9: believe the technical analysis from prefinancial CRISI up with the
22:02
Speaker 9: now you look at retracements, you could go even as
22:05
Speaker 9: high as five point three, which is where the fet
22:06
Speaker 9: funds rates. That will be pretty extreme, I think, and
22:09
Speaker 9: it will be a real buying opportunity. We think the
22:12
Speaker 9: zone comes into four seventy five five percent.
22:14
Speaker 4: So the Fed, what's your call for twenty twenty four?
22:17
Speaker 4: Will they cut in twenty twenty four?
22:19
Speaker 9: So I was listening to Williams today who were with
22:22
Speaker 9: Mike McKee, a good interview. He still stays very confident
22:25
Speaker 9: that they can do it. But and he's important to
22:28
Speaker 9: listen to because he's actually the person that put out
22:30
Speaker 9: the framework and how they want to do it. Meaning
22:34
Speaker 9: if inflation continues to get on track down to two percent,
22:37
Speaker 9: even though it's slower now, that fat that fat Fund's
22:41
Speaker 9: rate that's restrictive can be at some point cut down
22:43
Speaker 9: to take the restriction out. He thinks that's that they're
22:46
Speaker 9: still on course with that. I do think that the
22:49
Speaker 9: markets are probably more rational about earlier this year and
22:52
Speaker 9: saying yeah, it was not seven cuts, that's probably one
22:55
Speaker 9: of the two cuts. The windows obviously narrowed a lot, right,
22:59
Speaker 9: because as much Bowle said in the interview, I think
23:01
Speaker 9: it was also Mike Cue anyone else. The election didn't
23:04
Speaker 9: matter for them to make this great decision started in
23:07
Speaker 9: seeing you.
23:09
Speaker 5: Probably they are going to keep that in mind.
23:11
Speaker 2: The windows I'm giving Ben a look of like, yeah,
23:14
Speaker 2: all right, Ben Emmons, Yep, you go, yeah.
23:16
Speaker 6: Ben, Thanks so much for joining us.
23:17
Speaker 4: Ben Emmonds, Senior portfolio Manager, head of fixed Income at
23:20
Speaker 4: New Edge. Well joining us live here in our Bloomberg
23:22
Speaker 4: Interactive Brokers Studio.
23:25
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
23:29
Speaker 1: weekdays at ten am Eastern on Apple car Play and
23:32
Speaker 1: Android Auto with the Bloomberg Business. You can also listen
23:35
Speaker 1: live on Amazon Alexa from our flagship New York station
23:39
Speaker 1: Just say Alexa playing Bloomberg eleven thirty.
23:43
Speaker 2: This is Bloomberg Intelligence Radio. Happy Monday, Happy Tax Day.
23:46
Speaker 2: I'm Alex the alongside Paul Sweeney. We're live from Interactive
23:49
Speaker 2: Broker Studio right here in Midtown Manhattan. Looking at the
23:53
Speaker 2: crud market. Here, you're looking at Brent down by about
23:55
Speaker 2: almost two percent, same for WTI, so you're now at
23:58
Speaker 2: eighty eight for Brent, about eighty four for WTI. So
24:02
Speaker 2: kind of what's next. Ellen Walld is president of Transversal Consulting,
24:06
Speaker 2: and she's a great person to talk to on the
24:07
Speaker 2: price and fundamentals as well as the geopolitical risk. Just
24:10
Speaker 2: a handful of guys who do that really, really well Ellen,
24:12
Speaker 2: It's great to get your perspective. I've gotten so many
24:15
Speaker 2: notes for Strategist this morning on sort of what they're
24:18
Speaker 2: what's baked in now to the oil price? What's your
24:20
Speaker 2: call what geopolitical premium is in? How much should be in?
24:25
Speaker 10: I think there's definitely some geopolitical premium that is baked
24:29
Speaker 10: into oil prices, but I think it's been that way
24:32
Speaker 10: for some time now. I think that because this attack
24:36
Speaker 10: happened over the weekend, the price action was really really muted,
24:40
Speaker 10: even more than it would have been, you know, it
24:44
Speaker 10: was otherwise considering that there was no oil supply that
24:47
Speaker 10: was involved or threatened in any way, and so we
24:50
Speaker 10: didn't even see any you know, potential ups and downs
24:54
Speaker 10: or brief spikes just because there was no trading going on.
24:57
Speaker 10: I think the question really is, now that prices are
25:01
Speaker 10: kind of backing down, what's the next step. Where are
25:04
Speaker 10: things going? And if there are any indications that Israel
25:09
Speaker 10: is going to launch further attacks against Iran or there
25:12
Speaker 10: could be more retaliatory attacks from Iran, I think that
25:16
Speaker 10: could definitely cause oil prices to go up, maybe another
25:19
Speaker 10: dollar or so, but we'd have to get some really
25:23
Speaker 10: strong indications that something incredibly major or explosive would happen
25:28
Speaker 10: in order, I think for oil prices to really spike
25:31
Speaker 10: higher and stay higher for longer.
25:35
Speaker 6: Ellen talk to us about the demand side of the equation.
25:37
Speaker 4: Before October seventh, that seemed to be the driver here
25:40
Speaker 4: of global oil prices, you know, the ups and downs
25:43
Speaker 4: of global demand.
25:45
Speaker 6: What are you seeing in terms of demand these days.
25:48
Speaker 10: Yeah, what we're looking at is, you know, we did
25:51
Speaker 10: see some pretty strong demand in the United States. Gasoline
25:53
Speaker 10: demand is not quite as strong this week is maybe
25:56
Speaker 10: it was in previous weeks. But when we go, you know,
26:00
Speaker 10: looking forwards the summer, I think we're expecting to see
26:03
Speaker 10: pretty strong gasoline demand over the summer in the US.
26:06
Speaker 10: And also what's going on with Asia, especially with China,
26:10
Speaker 10: because they're big drivers of demand as well. And I
26:14
Speaker 10: think we're seeing some reluctance in Asian buyers to buy
26:20
Speaker 10: oil or to order cargoes more cargoes from the Middle
26:23
Speaker 10: East because there's a concern about whether it we'll get there.
26:26
Speaker 10: And that's actually fueling demand for American oil, which could
26:31
Speaker 10: actually either push up the price of WTI or keep
26:35
Speaker 10: it a bit more elevated as opposed to coming back
26:38
Speaker 10: down as the geopolitical premium goes down. So I think
26:44
Speaker 10: that it's kind of a complicated picture and does depend
26:47
Speaker 10: obviously on the economic situation globally. If we see some
26:51
Speaker 10: kind of more recession, we could see demand falter. But
26:55
Speaker 10: right now it looks pretty strong heading into the summer.
26:58
Speaker 2: Which brings us back to the supply picture. Ellen. So
27:01
Speaker 2: when you were talking about stronger action from Iran, the
27:05
Speaker 2: elephant in the room is closing the straight or Her
27:07
Speaker 2: moves where a lot of oil passes through, and that
27:09
Speaker 2: would be a huge line in the sand for oil
27:11
Speaker 2: and would cause unbelievable spikes in the oil price. What
27:14
Speaker 2: is Iran's capacity to actually do that because they've gotten
27:18
Speaker 2: kind of a good gig under President Biden in terms
27:21
Speaker 2: of you know, their exports are up, right, their oil
27:24
Speaker 2: exports are up. Do they really want to mess with that?
27:28
Speaker 10: Exactly? And I think the only case in which Iran
27:31
Speaker 10: takes any kind of action to shut the streets of
27:33
Speaker 10: hor Moos to shipping. And so remember what we're talking
27:37
Speaker 10: about is this is a small passage and Iran, you know,
27:42
Speaker 10: could do this in number of ways. It could either
27:43
Speaker 10: block it with ships or it could fire missiles off
27:46
Speaker 10: of nearby land. That could make it impossible for ships
27:50
Speaker 10: to traverse this area. But for them to really take
27:53
Speaker 10: that action means that Iran has nothing to lose, because
27:57
Speaker 10: if Iran cuts off other ships abilities to go through that,
28:01
Speaker 10: then you're going to see the US Navy cutting off
28:04
Speaker 10: Iranian ship's ability to come through the streets of Horror
28:06
Speaker 10: moves as well. So Iran really has to have nothing
28:09
Speaker 10: to lose, and right now it's got a lot to lose.
28:12
Speaker 10: It's got a very thriving contraband oil industry going on.
28:17
Speaker 10: It's making a lot of money, and as oil prices
28:19
Speaker 10: go higher, even though Iran has to sell its oil
28:23
Speaker 10: added discount, it's going to make more money, so it
28:26
Speaker 10: doesn't want to mess with that. In fact, it probably
28:28
Speaker 10: wants to sell more oil to you know, to its
28:31
Speaker 10: buyers as opposed to less. So if Biden starts to
28:35
Speaker 10: mess with that by enforcing sanctions harder, then that could
28:41
Speaker 10: kind of stir things up and make things more tense.
28:44
Speaker 10: But right now, you know, unless Iran's oil industry is
28:47
Speaker 10: shut down, it's to say, if it's oil industry was destroyed,
28:51
Speaker 10: then it might have the motive to do that because
28:53
Speaker 10: it's got nothing to lose, but it's.
28:55
Speaker 2: Definitely not yet. I mean just from perspective, Like in March,
28:58
Speaker 2: I runing oil output hit a five year high, about
29:01
Speaker 2: three point two five million barrels of oil a day.
29:03
Speaker 2: And the conversation we were having earlier with doctor Ariel
29:06
Speaker 2: Cohen was if sanctions are lined up heavier on Iran
29:10
Speaker 2: so they can't export that much, that opens the door
29:12
Speaker 2: for Russia to start selling a little bit more as well.
29:15
Speaker 2: So talk to me about how you balance, as someone
29:19
Speaker 2: in the Biden administration, how do you balance those two
29:22
Speaker 2: where how do you do that?
29:26
Speaker 4: Well?
29:26
Speaker 10: I think the Biden administration also has to come to
29:28
Speaker 10: terms with the fact that it's price cap policy on
29:33
Speaker 10: Russia is basically a failure. It's not really stopping Russia
29:37
Speaker 10: from making oil on it from making money on its
29:39
Speaker 10: oil industry. So yes, if Iran has less to offer,
29:42
Speaker 10: then Russia can fill in those gaps. But I think
29:45
Speaker 10: there's also the issue of Russia's participation in the OPEP
29:49
Speaker 10: plus output cuts, and if come June oil prices are
29:53
Speaker 10: still in the nineties, then there's gonna be a lot
29:56
Speaker 10: of practic on OPEK to raise its output and Russia's
29:59
Speaker 10: part of that, and Russia would love to sell more
30:01
Speaker 10: oil obviously, so this whole whole thing is a very
30:06
Speaker 10: complicated dance. Meanwhile, the Biden administration wants it's going to
30:09
Speaker 10: want more oil on the market because it doesn't want
30:12
Speaker 10: high gasoline prices going into an election year. So they
30:16
Speaker 10: both want Russian oil on the market. They just don't
30:18
Speaker 10: want Russia to make a lot of money off of
30:20
Speaker 10: that oil. But it seems like they can't really have
30:24
Speaker 10: both of those things.
30:25
Speaker 7: Well.
30:25
Speaker 4: Torsten Slock over to Pola Management put out a chart
30:28
Speaker 4: today that for me, who's not a oil expert, was
30:31
Speaker 4: really illuminating what you're saying.
30:33
Speaker 6: The US is the biggest.
30:34
Speaker 4: Oil producer in the world, with about twelve point nine
30:36
Speaker 4: million barrels per day. Why don't our friends in Texas
30:40
Speaker 4: and Oklahoma just start pumping out more oil?
30:42
Speaker 7: Here?
30:44
Speaker 10: Great question, and the answer is that this is not
30:47
Speaker 10: the same oil industry as it was in twenty fifteen,
30:50
Speaker 10: twenty sixteen, twenty seventeen, where it was all pump pump, pump, drill, drill, drill,
30:55
Speaker 10: put out as much as you can, don't think about,
30:58
Speaker 10: you know what, you're selling it for the return arns.
31:00
Speaker 10: It's just growth, growth, growth. That's not the oil industry. Now,
31:04
Speaker 10: there've been a lot of consolidations. Oil companies are running
31:07
Speaker 10: very lean games. They really cut out a lot of
31:10
Speaker 10: of you know, fat during the pandemic, and they're at
31:15
Speaker 10: a point where they don't have to produce producers, they
31:19
Speaker 10: don't have to grow in order to satisfy you know,
31:22
Speaker 10: their uh, you know, their their shareholders. They're they're sitting
31:26
Speaker 10: very well. Sometimes, you know, they may drill more wells,
31:30
Speaker 10: but it's become much more expensive inflation. We all think
31:33
Speaker 10: about oil prices causing inflation, but what we don't often
31:37
Speaker 10: think about is how inflation acts on oil production. And
31:40
Speaker 10: so everything costs more to drill now, and so they
31:44
Speaker 10: may see a benefit in not expanding drilling so much.
31:48
Speaker 10: They are increasing production by getting more out of every well,
31:53
Speaker 10: but there isn't necessarily a benefit to drill, drill, drill
31:56
Speaker 10: when uh, you know, they've got a good thing going
31:59
Speaker 10: right now, and it's becoming more difficult to drill more
32:03
Speaker 10: in terms of the prices, the supplies and all of that.
32:07
Speaker 10: So uh, and there's there's less incentive for them to
32:10
Speaker 10: do that at the moment.
32:11
Speaker 2: You're all oil learn on you, Paul, Right, okay, all
32:14
Speaker 2: oil nerd for you. The US produces a different type
32:17
Speaker 2: of oil than the oil you're going to get in
32:19
Speaker 2: the Middle East.
32:20
Speaker 6: Sweet cruit.
32:21
Speaker 2: Yes, yes, John Tucker, we were just talking about you yet.
32:28
Speaker 5: Just real quick boil b O.
32:30
Speaker 2: I l great function all.
32:32
Speaker 5: The different types of oil. It's like sixty different types
32:35
Speaker 5: of oil, and.
32:36
Speaker 2: All of them have different qualities and you can use
32:38
Speaker 2: them to refine into different kind of products. Uh So,
32:41
Speaker 2: even if the US was producing like forty million barrels
32:44
Speaker 2: of oil day, which obviously is like not possible, it
32:46
Speaker 2: wouldn't make up for the loss that you'd see in
32:49
Speaker 2: some of the Middle Eastern countries because they have the
32:51
Speaker 2: heavier stuff, which is really good for other products. So
32:54
Speaker 2: that is your Alex Laine of the morning. You are
32:56
Speaker 2: so welcome, Ellen, Thank you very much. Ellen Walld a
32:59
Speaker 2: president of Transversal Consulting joining us there. There was also
33:02
Speaker 2: an interesting article, I think it was in a journal
33:05
Speaker 2: that US oil executives finally have a direct line to
33:08
Speaker 2: the White House that like now their calls won't be
33:10
Speaker 2: rejected and they actually can go and talk to the
33:13
Speaker 2: Biden administration.
33:14
Speaker 6: So I that's why it's interesting.
33:16
Speaker 2: Oh yeah, Like a few years ago, when first time
33:19
Speaker 2: gasoline prices went to five dollars. I asked a CEO
33:22
Speaker 2: of a major oil company in the US, has the
33:24
Speaker 2: Biden administration called you. He's like, not even tried. Wow, yeah,
33:28
Speaker 2: but now that may be changing a little bit.
33:30
Speaker 6: So yeah, I would think. So we get star oil
33:33
Speaker 6: and gas industry as long as well as we need
33:35
Speaker 6: the green stuff.
33:38
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
33:42
Speaker 1: weekdays at ten am Eastern on Apple car Play and
33:45
Speaker 1: Android Auto with the Bloomberg Business app. You can also
33:48
Speaker 1: listen live on Amazon Alexa from our flagship New York station.
33:52
Speaker 1: Just say Alexa, play Bloomberg eleven thirty.
33:56
Speaker 7: Here.
33:57
Speaker 4: When we get back to geopolitics, front and send yet again,
34:00
Speaker 4: Aaron David Miller joins his senior fellow at the Carnegie
34:03
Speaker 4: Endowment for International Peace, joining us in Washington, DC via
34:07
Speaker 4: that thing called Zoom. Aaron, talk to us about kind
34:11
Speaker 4: of how you view the Iranian response the Israeli defense.
34:16
Speaker 6: Over the weekend. Here where do we go from here?
34:20
Speaker 11: No, I think it's a story. Thanks for having me.
34:22
Speaker 11: What I would describe as the good, the bad, and
34:25
Speaker 11: the ugly. I mean, the good is easy at Israel's
34:28
Speaker 11: technical mastery of air defense backstop by the United States,
34:33
Speaker 11: it's military aircraft and air defenses by the Europeans, the
34:37
Speaker 11: French and the Brids. And not surprisingly, but I think
34:42
Speaker 11: in an unprecedented fashioned by kiirg states who participated in
34:45
Speaker 11: this Middle East air defense alignment of radars and intelligence,
34:52
Speaker 11: which is in precedent. There's never been a Middleast war
34:55
Speaker 11: where the at least the Israelis received that kind of support,
34:59
Speaker 11: including oak and so word from the Jordanians who downed
35:01
Speaker 11: a number of drums. That's the good news. The bad
35:05
Speaker 11: and potentially ugly news is number one in a real war,
35:10
Speaker 11: and I think the Iranians actually telegraph this and calculating
35:15
Speaker 11: and calibrated it so that they wouldn't prompt a massive
35:22
Speaker 11: Israeli response. In a real war, the Iranians would probably
35:25
Speaker 11: launched thousands of missiles and drone drones. That's number one.
35:31
Speaker 11: Number two, you have new rules established now. I mean
35:34
Speaker 11: it was thirty three years, been thirty three years since
35:38
Speaker 11: any Arab state attacked Israel directly. That was Saddam Hussein
35:42
Speaker 11: in ninety one, who launched forty three scud missiles. Then
35:45
Speaker 11: Prime Minister Shamir was persuaded by the Bush first Bush
35:49
Speaker 11: administration not to respond. But you now have new rules
35:53
Speaker 11: between Iran and Israel, established an a rivalry and for
36:01
Speaker 11: which there's no solution. So we're now forced to deal
36:05
Speaker 11: with the cruel realities that we're best going to be
36:08
Speaker 11: managing this and trying to contain it. The Israelis have
36:11
Speaker 11: made it unmistakably clear. I think that they intend to respond.
36:16
Speaker 11: The timing and the scale of that response, I think
36:18
Speaker 11: is still very much up in the air. Maybe they'll
36:21
Speaker 11: look for a calibrated response that reinforces what has clearly
36:28
Speaker 11: been obvious, which is Israel's technical mastery and superiority over Iran.
36:33
Speaker 11: But there's no guarantee, of course, once you go up
36:36
Speaker 11: the escalatory ladder that Iron won't respond. Then then you
36:40
Speaker 11: raise the issue Balla. You know, that's kilometers away, that's
36:45
Speaker 11: not hours away. There's Balla lunch, missus will It's not
36:48
Speaker 11: gonna take hours to get Israel and they got a
36:51
Speaker 11: lot of them.
36:51
Speaker 2: Aaron, this is a pretty grim picture that you're painting
36:54
Speaker 2: at this point. What are the chances that that's how
36:57
Speaker 2: it's going to play out or is there real ability
37:01
Speaker 2: for President to President Biden to diffuse this.
37:05
Speaker 11: You know, diffusing would mean meeting Iran's and Israel's core requirements.
37:13
Speaker 11: I'm not predicting regional war, which would lead to dramatic
37:18
Speaker 11: spike in oil prices and probably plunging financial markets, and
37:21
Speaker 11: a degree of instability in the Middle East has never
37:24
Speaker 11: experienced before. It's a matter of managing and containing, that's
37:29
Speaker 11: the question, because there's no solution to deal with the
37:32
Speaker 11: fact reality that Iran is a nuclear weapons threshold state.
37:36
Speaker 11: There's no real solution to deal with Iran's proxies. That's
37:40
Speaker 11: always been management issue, whether these are shelling international shipping
37:46
Speaker 11: or seeing shippers to go around the Cave of Good Hope,
37:49
Speaker 11: which is additional thirty five hundred miles, which raises rates
37:53
Speaker 11: and interferes with the global supply chain. There are no determinative,
37:57
Speaker 11: comprehensive answers to any of this, and if we need
38:03
Speaker 11: to complicate it even more, you have an Israeli Amas war.
38:07
Speaker 11: Although the Israelis seem to have scaled down their ground
38:09
Speaker 11: campaign in Gaza, that carries so many uncertainties, including the
38:15
Speaker 11: fate of one hundred and thirty four hostages, thirty of
38:18
Speaker 11: whom Israelis believed were either killed in captivity or died
38:22
Speaker 11: on October seventh. Their body's taken to Gaza to trade
38:25
Speaker 11: for Palestinian prisoners. So, you know, I wish I could
38:28
Speaker 11: make it happy. But again, I'm not predicting we're going
38:33
Speaker 11: to a major regional war. But I guess my takeaway
38:37
Speaker 11: here is it's going to require a degree of restraint
38:41
Speaker 11: from Iran and Israel, and to a certain degree, some
38:46
Speaker 11: diplomacy from the Biden administration, particularly with Ralis Aaron.
38:51
Speaker 4: Do we have any clearer picture today than we did
38:54
Speaker 4: on October eighth? What really the end goals are for
38:58
Speaker 4: Israel here? What would be a victory.
39:02
Speaker 11: A victory, I guess would be three things. Number One,
39:06
Speaker 11: Hamas would be not as a political force, but as
39:09
Speaker 11: a military force, would be undermined and destroyed, so it
39:16
Speaker 11: would not be in a position to pull off another
39:19
Speaker 11: October seven. Israel would kill the senior leadership responsible for
39:24
Speaker 11: the October seven attacks, and the redemption of the hostages.
39:29
Speaker 11: If those three things were accomplished, that would be I
39:33
Speaker 11: think you could put that in the victory category. Although
39:36
Speaker 11: the price of victory, the price of victory is something
39:42
Speaker 11: that needs to be factored into this, particularly when it
39:46
Speaker 11: involves the exponential rise of Palestinian deaths and the humanitarian catastrophe,
39:51
Speaker 11: catastrophic starvation. Samantha Power, the AID Administrator, even used the
39:57
Speaker 11: words several days ago.
40:00
Speaker 7: Famine.
40:02
Speaker 11: So I'm not sure the Israelis can accomplish those three
40:05
Speaker 11: things right now, six months.
40:07
Speaker 7: Into the war.
40:08
Speaker 11: There's no indication, right they have not killed the senior leadership.
40:13
Speaker 11: You've got a truly tragic situation with respect to hostages,
40:17
Speaker 11: particularly the women hostages. And you have a situation where Hamas,
40:23
Speaker 11: probably out of their thirty thousand fighters, have at least
40:27
Speaker 11: ten thousand fighters that remain. So I think we're talking
40:33
Speaker 11: here again about a lot of uncertainties, and I just
40:39
Speaker 11: don't see a sort of determinative ending where Gaza becomes
40:43
Speaker 11: secure and stable, the Israelis in the Saudis normalized, in
40:47
Speaker 11: the Middle East remains as converted into a happy conflict place,
40:53
Speaker 11: or everybody's getting along with one another, all.
40:56
Speaker 2: Right, erin thanks Lott, we really appreciate it. Aaron David Miller,
40:59
Speaker 2: Senior Fellow at Carnie Endowment for International Peace, is standing
41:02
Speaker 2: by and then or thank you for joining us. I
41:05
Speaker 2: have to wonder then, you know, as an investor, how
41:08
Speaker 2: do you It just means we're going to be very
41:10
Speaker 2: sensitive to any kind of headline that's going to cross,
41:12
Speaker 2: which is maybe what we're seeing in the market sort
41:14
Speaker 2: of right now, and it's going to make the overall
41:17
Speaker 2: data that we see. I wonder how much more relevant
41:20
Speaker 2: that's going to be when these headlines can be very effective.
41:23
Speaker 4: Yeah, it seems like, you know, just to date, the
41:26
Speaker 4: market is kind of powered through all of this Middle
41:30
Speaker 4: East tension, much as it has the European geoconflict in Ukraine,
41:36
Speaker 4: seems to just generally bypass it and focusing on, you know,
41:40
Speaker 4: maybe a little bit more local issues, I eat, central
41:42
Speaker 4: bank policy, corporate earnings, so maybe a day to day
41:46
Speaker 4: basis that might be totally from this. But if you
41:48
Speaker 4: look at this market really since October, which is you know,
41:51
Speaker 4: kind of the low of this market, you know, s
41:54
Speaker 4: and p up about twenty five percent during that time here,
41:56
Speaker 4: So despite all the geopolitical tensions around the world, much
42:00
Speaker 4: much hotter than I think anybody would like to see,
42:03
Speaker 4: this market is moving higher.
42:05
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