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CPI, The Economy, And Energy (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. Let's get these uh
0:23
Speaker 1: some handle, get a handle on these markets, which they
0:26
Speaker 1: continue to rip. The SMP five up about one point
0:29
Speaker 1: five percent, NASDAC even stronger, up point one point nine
0:33
Speaker 1: per cents on the back of that better than expected
0:35
Speaker 1: inflation data. Let's check in with Vince Signarolla, global macro
0:39
Speaker 1: strategist with Bloomberg News. Vince, I mean, you know, we
0:43
Speaker 1: had really good jobs numbers last week. We got better
0:46
Speaker 1: than expected inflation here. The White House is rightfully so
0:50
Speaker 1: taking victory lapse here. What do you make of it
0:52
Speaker 1: and what do you make of the markets response? Well,
0:55
Speaker 1: I think the market response is somewhat appropriate. We're seeing
0:58
Speaker 1: a couple of things. We're always been seeing a bit
0:59
Speaker 1: of risk with seeing energy prices coming off as inflation
1:02
Speaker 1: balls over. Interesting thing is I'm talking to some traders
1:05
Speaker 1: this morning. They're a little confused about the treasury market
1:08
Speaker 1: move is selling in the in the back end. But
1:12
Speaker 1: what that represents is there's been such a big trade
1:15
Speaker 1: on inflation being sort of just here for the next
1:18
Speaker 1: six maybe twelve months, and so there's been a lot
1:20
Speaker 1: of selling in the front end um buying in the
1:22
Speaker 1: back end. The traders now reversing that trade, and so
1:25
Speaker 1: we're seeing some widening, uh narrowing of the inversion in
1:29
Speaker 1: the two tents. And that's what's driving that I would
1:32
Speaker 1: like to point out, and you know, I've been beating
1:34
Speaker 1: this room for a while now about how the FITS
1:36
Speaker 1: forecasts been terrible and that this is a transient situation
1:41
Speaker 1: and they're just just rushing into something and not giving
1:44
Speaker 1: the economy a chance to catch up from the pandemic
1:48
Speaker 1: confusion of a huge amount of money and keeping weights
1:53
Speaker 1: basically far too well for too long with a higher
1:55
Speaker 1: balance sheet. The ft is actually operating. If you look
1:58
Speaker 1: at this situation eight to this to the Fed being
2:02
Speaker 1: like a Fortune five hundred company. They're trying to match
2:06
Speaker 1: quarterly estimates to what the market is expecting and they
2:10
Speaker 1: keep missing the mark. And for the Fed, it's an
2:12
Speaker 1: even worst case basis, because they're being held accountable for
2:15
Speaker 1: monthly numbers, and so we keep hearing from them. Don't
2:18
Speaker 1: watch monthly numbers. Don't watch monthly numbers. We've got a
2:21
Speaker 1: high jobs report. What do they do? Oh, we have
2:23
Speaker 1: to say higher for longer because of higher jobs. They
2:26
Speaker 1: they're just not incredible. I I honestly just don't know
2:29
Speaker 1: why people keep trying to trade what the FED says
2:32
Speaker 1: and losing money by by that. For for example, when
2:36
Speaker 1: it's it's insane. I mean, there are academics who've never
2:39
Speaker 1: said the word done but bence. So you don't expect
2:43
Speaker 1: the FED to stick to a vulcal like um rate
2:47
Speaker 1: rise regime. You think at some point this Fed is
2:51
Speaker 1: going to turn around and start cutting rates. I don't
2:54
Speaker 1: know that they're going to cut rates per se, because
2:56
Speaker 1: we still have inflation a long long way away from
3:00
Speaker 1: where they want to see it, so there's no real
3:02
Speaker 1: reason to cut rates. But they really need to stop
3:05
Speaker 1: and give the monetary policy a chance to work its
3:07
Speaker 1: way through the system. Monetary policy. But we're only at
3:10
Speaker 1: two and a half percent, like that's still still nothing,
3:14
Speaker 1: of course, But why is everybody in such a hurry
3:16
Speaker 1: to get rates to five percent. Monetary policy doesn't react
3:19
Speaker 1: on a daily basis. I saw a tweet from someone
3:22
Speaker 1: today who said, oh, my cup of coffee went down
3:25
Speaker 1: for me. I mean prices to come I mean to
3:29
Speaker 1: expect prices to come down. Paul checks the gas prices
3:32
Speaker 1: every single day, plus he checks regular and we all
3:36
Speaker 1: know that he tanks premium. So yeah, like see that's
3:39
Speaker 1: I feel sorry for those out there on the premium scale.
3:41
Speaker 1: But but but but so so that we've heard a
3:43
Speaker 1: lot of FED speakers talk about the importance of front loading.
3:47
Speaker 1: I don't personally know what it is why they want to,
3:50
Speaker 1: but because they think that inflation is going to go
3:54
Speaker 1: to and stay there, they could not be more dead along.
3:58
Speaker 1: And I'll tell you exactly why and why this isn't
4:01
Speaker 1: the seventies. And if I hear at one boy thought,
4:02
Speaker 1: I'm gonna throw a textbook at so much. If you
4:05
Speaker 1: have wage games that are not above capital letters above
4:10
Speaker 1: the inflation rate, you cannot have sustaining inflation. The consumer
4:14
Speaker 1: will pull back. They have absolutely no choice. I can't
4:18
Speaker 1: spend what you don't have. Savings of creator disposable income
4:22
Speaker 1: is creator wages are to keep your place with inflation revolving.
4:26
Speaker 1: Credit is the highest that's been in two thousand eight,
4:28
Speaker 1: and that's credit card. That where does the Fed think
4:32
Speaker 1: this money is coming from. It's certainly ain't coming to
4:34
Speaker 1: my next pay hike from Bloomberg. Well, I mean, well,
4:38
Speaker 1: yesterday we watched the President sign a bill that's going
4:41
Speaker 1: to give fifty two billion dollars in subsidies to chip makers.
4:45
Speaker 1: Those are private companies, you know, owned by shareholders, not
4:49
Speaker 1: government companies. Um, so he's gonna give them the biggest
4:52
Speaker 1: subsidy boost we've ever seen the federal government hand out.
4:56
Speaker 1: That's one place the money can come from. Two things
4:58
Speaker 1: about that build Number One, they've got more chips than
5:01
Speaker 1: they know what to do with right now because they
5:03
Speaker 1: frontloaded lovely phrase. They're buying from Taiwan because they thought
5:08
Speaker 1: there was going to be this indefinite shortage. The US
5:11
Speaker 1: companies in the chip industry are are are They still
5:14
Speaker 1: get their chips from Taiwan and then they reperp them
5:17
Speaker 1: through their customers there, so their end units users are
5:20
Speaker 1: still paying hot crisis. The subsidies are going to be
5:23
Speaker 1: a future situation, which will of course help curb inflation
5:26
Speaker 1: because that will bring prices down. The other part of
5:29
Speaker 1: that bill, which I love, which was the e V makers.
5:33
Speaker 1: Auto analysts are basically saying, hardly any cars are going
5:37
Speaker 1: to meet the standards as the government has put in
5:39
Speaker 1: that bill to meet the credit. Well, I don't I
5:42
Speaker 1: don't know, Vince. I mean, they're extending a credit or
5:46
Speaker 1: giving a broader credit to automakers or two to consumers
5:50
Speaker 1: rather um to buy e vs that are already sold
5:54
Speaker 1: out with a two year waiting list. So they're just
5:57
Speaker 1: pumping so much money into this system. A lot of
6:00
Speaker 1: people would argue for no reason, and that's what causes inflation.
6:05
Speaker 1: There's a very there's a very good reason. We have
6:07
Speaker 1: mid term elections coming up to November. That's the only
6:09
Speaker 1: reason for this bill. And it's the only reason why
6:11
Speaker 1: all those credits don't show up until because if they
6:15
Speaker 1: showed up now and no one could buy those cars
6:17
Speaker 1: because they can't either find them or the credit doesn't
6:19
Speaker 1: apply to them, it wouldn't do it. Damn things. So
6:22
Speaker 1: the whole thing was the whole thing is ridiculous, by
6:24
Speaker 1: the way, by the way, you want to hear ridiculous,
6:27
Speaker 1: They're gonna so extend the credit. It's a seventy five
6:30
Speaker 1: hundred dollar federal credit for electric vehicles like the Ford Lightning.
6:36
Speaker 1: Paul and I are big fans of the Ford Lightning.
6:38
Speaker 1: It's an awesome car. It's a hundred thousand dollar truck,
6:41
Speaker 1: and Ford just raised the price of it by eight
6:43
Speaker 1: thousand five d There you go. I saw that yesterday
6:47
Speaker 1: exactly so. But you're gonna who's who's that? Who's that
6:52
Speaker 1: subsidy for? You know what? The most interesting thing that
6:55
Speaker 1: absolutely no one is talking about. It was a few
6:57
Speaker 1: days ago the New York said, did their consumer expectation surfeit?
7:01
Speaker 1: Do you know of which income group sees the inflation
7:04
Speaker 1: moderating the most? Those people who make less than fifty dollars,
7:08
Speaker 1: The people most impacted by inflation, who live paycheck to paycheck,
7:13
Speaker 1: expect prices to come down. And why because they're beginning
7:16
Speaker 1: to see it. They wouldn't expect it otherwise. So where
7:19
Speaker 1: is this inflation coming from? You get fed smester saying
7:22
Speaker 1: it's not affecting me. Well, thank you very much. Nice
7:24
Speaker 1: to be in the one person where you can afford
7:29
Speaker 1: she said. She said, I know prices are going up,
7:31
Speaker 1: and it doesn't bother me because I have enough money.
7:33
Speaker 1: I'll tell you. I'll tell you a truth. When I
7:35
Speaker 1: was trading at US Bank, we replaced the global effex
7:39
Speaker 1: manager with a lawyer who knew nothing about effects and rates.
7:43
Speaker 1: My cousin was training at City Bank to five. I
7:45
Speaker 1: told him what was going on. He said, best you
7:47
Speaker 1: start looking for a job because anyone who's never said
7:51
Speaker 1: the word done is not somebody you want to work
7:53
Speaker 1: for in a risk market. So we are trying to
7:56
Speaker 1: follow a fet We're the only person who's ever had
7:58
Speaker 1: a real job is Powell. And they keep telling us
8:01
Speaker 1: what's going to happen to the weights and efex and
8:03
Speaker 1: they've never thought a trade in their looks? Why does
8:05
Speaker 1: that make me feel good about these people? Why? Why
8:08
Speaker 1: are they credible to anybody? So just ten ten seconds?
8:12
Speaker 1: What context do you say done as a trader? Done
8:15
Speaker 1: as a trader as you actually do a trade. Somebody
8:17
Speaker 1: says that you make me a price, you do the
8:19
Speaker 1: deal and say done. You know about that? That's traders
8:23
Speaker 1: speak there, This is what we Why's why we have
8:25
Speaker 1: you on. Vince shot out of a Ken and Vince Cignarella.
8:29
Speaker 1: He does all the strategy stuff. He's traded rates, he's
8:32
Speaker 1: traded FX. God knows what else he's traded, probably, you know,
8:35
Speaker 1: standing in the pitch trading crude oil for all we know.
8:38
Speaker 1: But he's a bloomberg at News. He talks to traders
8:41
Speaker 1: all the time, and we'd love to get his call
8:44
Speaker 1: on these markets, particularly when you got a big, big
8:46
Speaker 1: move like we do today. It's bringing Lindsay Piegsa. She
8:53
Speaker 1: is the chief economist for stephle Lindsay, you know, I'm
8:57
Speaker 1: not an economist, thank goodness, um, but I do know
9:01
Speaker 1: a good labor market. Last week, I do see the
9:03
Speaker 1: print here on inflation. Today things look pretty good. How
9:08
Speaker 1: do you put it all together? Well, I think from
9:11
Speaker 1: the standpoint of the labor market. Last friday's job stumpers showed,
9:14
Speaker 1: as the Fed has described, the labor market still solid growth,
9:18
Speaker 1: keeping the FEDS eye on the inflation ball at this point,
9:22
Speaker 1: while we could argue that the recessionary boxes have been
9:25
Speaker 1: checked for the consumer, for manufacturing, for housing, the labor
9:30
Speaker 1: market has really been that silver lining. But from an
9:33
Speaker 1: inflationary standpoint, this morning's number was a little bit mixed.
9:37
Speaker 1: It did give the more dubbish a lean as we
9:41
Speaker 1: look at some of those numbers. Now the reprieve was
9:43
Speaker 1: very minimal, and for the average American households at lower
9:46
Speaker 1: gas prices, while welcomed, does not offset the painfully high
9:51
Speaker 1: costs on nearly every other component of their monthly expenditures.
9:54
Speaker 1: But still it was a step in the right direction.
9:57
Speaker 1: So looking at investors bets, we do see that being
10:00
Speaker 1: towards a smaller fifty basis point increase as opposed to
10:02
Speaker 1: seventy five next month. But why but if you're the Fed, um,
10:07
Speaker 1: wouldn't you want to just stay on course regardless of this?
10:10
Speaker 1: You know, one data point does not a trend make
10:13
Speaker 1: Oh absolutely, So this this is the problem. The market
10:17
Speaker 1: is anxious to call a peak in inflation. The market
10:20
Speaker 1: is anxious for the Fed to signal there almost done
10:22
Speaker 1: fighting inflation, they're going to start to decelerate. But the
10:26
Speaker 1: Fed has been very clear that they're keeping their eye
10:29
Speaker 1: on the ball. They're going to continue to raise rates
10:32
Speaker 1: until they're convinced by several consecutive reports that inflation is
10:36
Speaker 1: on a meaningful and sustainable downward trend back towards that
10:41
Speaker 1: two inflation targets. So right now the market is questioning
10:45
Speaker 1: the Fed's resolved to remain resilient the FED says it will.
10:49
Speaker 1: Whichever blinks first is going to determine the directional momentum
10:53
Speaker 1: of raps from By the way, lindsay, I also am
10:55
Speaker 1: anxious to have seen the peak in inflation, and I'm
11:00
Speaker 1: anxious to see the FED slow down its rate hikes.
11:04
Speaker 1: But um, does it really Is it really a bad
11:08
Speaker 1: thing for the economy if the Fed keeps raking rate
11:11
Speaker 1: hiking rates so long as inflation continues to come down
11:14
Speaker 1: and we have these you know, five thousand job editions, Well,
11:18
Speaker 1: I suppose it depends if you want to take your
11:20
Speaker 1: medicine now or if you want to kick that down
11:22
Speaker 1: the road. If the FED decides to take a more
11:24
Speaker 1: benign policy pathway and doesn't root out the inflation dragon,
11:29
Speaker 1: then we may run into the scenario of still elevated prices,
11:32
Speaker 1: but now we have much more a much more prolonged
11:36
Speaker 1: period of very minimal growth, or the conditions lining up
11:40
Speaker 1: for stagflation. If, however, the FED is willing to push
11:43
Speaker 1: us into maybe a temporarily deeper recessionary position but get
11:49
Speaker 1: inflation under control, then we can talk about a more
11:52
Speaker 1: robust recovery. On the flip side, lindsay, I'm trying to
11:55
Speaker 1: make the case to my boss is that they should
11:57
Speaker 1: send me out to Jackson Hole, Wyoming. Um, tell us
12:01
Speaker 1: what happens in Jackson Hall, Wyoming in the month of
12:03
Speaker 1: August every year, and should we pay attention? Well, Traditionally
12:08
Speaker 1: the FED has used the Jackson Hole meeting to give
12:12
Speaker 1: an increased assessment or an updated assessment of where policy
12:15
Speaker 1: makers are in terms of the longer term view for
12:18
Speaker 1: the policy pathway. But this time around it's unlikely to
12:22
Speaker 1: warrant much attention, as we've already heard from the Chairman
12:26
Speaker 1: that decisions on policy are not being made on a
12:29
Speaker 1: longer term, a longer term assessment of the economy, but
12:34
Speaker 1: they're being made meeting to meeting. So just like the
12:37
Speaker 1: market is overreacting arguably to one data point, so too
12:41
Speaker 1: is the FED basing next month's decision on the incoming data,
12:45
Speaker 1: the latest incoming data. Alright, So what are your expectations, lindsay,
12:50
Speaker 1: for the US economy? Um, do we see in inflation
12:55
Speaker 1: cooling back down closer to the two percent level? And
12:59
Speaker 1: do we have recession? Well, that's that's those are some
13:03
Speaker 1: big questions there. First off, I do think that growth
13:06
Speaker 1: remains very minimal, throughout the year, and I do think
13:10
Speaker 1: that looking backwards, the NBR will eventually acknowledge a recession
13:14
Speaker 1: started either in the first or the second quarter from
13:17
Speaker 1: an inflation from unemployment, absolutely, because I think the three
13:22
Speaker 1: and a half percent unemployment rate is not necessarily capturing
13:26
Speaker 1: the full, the full sense of what's happening in the
13:29
Speaker 1: labor market. Remember, the growth that we've seen in job
13:32
Speaker 1: creation is less about new jobs being created and more
13:37
Speaker 1: about old jobs being replaced. Remember as of July, that's
13:41
Speaker 1: when we recaptured the full twenty two million jobs lost
13:45
Speaker 1: during the Great Recessions. So over the past eighty months,
13:48
Speaker 1: essentially we've just clawed back to where we were. We're
13:51
Speaker 1: not talking about new job creation above and beyond the
13:54
Speaker 1: one's loss. So I do think when we look at
13:56
Speaker 1: the loss of real income, the decline and manufacturing, the
14:00
Speaker 1: laws of real spending, top line GDP, and negative territory,
14:04
Speaker 1: even though the employment numbers are giving us an artificial
14:07
Speaker 1: sense of solidity, I think that we are in processionary condition.
14:12
Speaker 1: I don't know my my third of my fourth children
14:14
Speaker 1: actually got a real, real job as they call it.
14:17
Speaker 1: So to me, that is a wicked strong labor market
14:20
Speaker 1: so nz PA, thanks so much for joining US. Chief
14:22
Speaker 1: econras managing director at Steve giving us her thoughts here.
14:27
Speaker 1: We love talking to Lindsay a nice perspective to the
14:30
Speaker 1: market here. We were just talking to Bloomberg's Bevince Signarolla
14:36
Speaker 1: just earlier this morning and he was making a comment
14:38
Speaker 1: talking about chips, and he sent along some news here.
14:41
Speaker 1: Demand for chips is collapsing, just as President Biden signs
14:45
Speaker 1: a bill to jump start more US chip making, which
14:48
Speaker 1: is very interesting because we've got some very mixed the
14:51
Speaker 1: bad numbers coming out of some of these chipmakers over
14:53
Speaker 1: the last a few days and kind of just kind
14:55
Speaker 1: of goes to this, you know, strategic importance of having
14:58
Speaker 1: chip manufacturing in the U. Keith Croc joins us. He's
15:02
Speaker 1: a fan of Croc Institute for Tech Diplomacy at Purdue
15:06
Speaker 1: University West Lafayette, Indiana. Some really good stuff there. They do.
15:10
Speaker 1: It produced some smart engineering geeks that perdue, no question
15:13
Speaker 1: about it. Hey, Cai talked to us about this chip
15:16
Speaker 1: business because at the beginning of the pandemic, when China
15:19
Speaker 1: shut down, we all the whole world shut down. We said,
15:22
Speaker 1: oh boy, we need chips for a lot of stuff,
15:25
Speaker 1: and we don't really make a lot of chips here.
15:27
Speaker 1: So the talk really ramped up of you know, kind
15:30
Speaker 1: of on shoring some chip manufacturing capability. And I think
15:34
Speaker 1: that's what the Chips Act UH does. How should we
15:37
Speaker 1: think about that? Well, I'll tell you what fellas I'm
15:41
Speaker 1: here in Washington, d C. I was invited yesterday by
15:45
Speaker 1: the White House UH for the for the signing. It
15:49
Speaker 1: was a great deal for America, for national security, for
15:53
Speaker 1: global economic security, and long term prosperity. You know, when
15:57
Speaker 1: you talk about UH these quarterly results for the chip makers,
16:01
Speaker 1: I would not be worried about that at all, because
16:04
Speaker 1: this chip business is growing so fast. You know, a
16:08
Speaker 1: slowdown from that means in on the average, it goes
16:11
Speaker 1: from growth down to growth. We're under the capacity now,
16:17
Speaker 1: you know. Let me tell you why, UH, this is
16:20
Speaker 1: such an important bipartisan you know, two utter an eighty
16:24
Speaker 1: billion dollar bill. First of all, it's about securing the
16:29
Speaker 1: semiconductor supply chain that is critical for national security. The
16:34
Speaker 1: second is this investment, which now is going to result
16:38
Speaker 1: in a three fifty billion dollars UH in the in
16:42
Speaker 1: in chip manufacturing in the United States and to help
16:48
Speaker 1: US maintain that lead as well as a two billion
16:50
Speaker 1: dollar investment UH with direct funds in R and D.
16:55
Speaker 1: And what that's gonna drive is jobs, jobs, jobs, and
16:58
Speaker 1: not just any kind of jobs, highly skilled jobs. And
17:03
Speaker 1: I think I think you fellas understand that. You know,
17:07
Speaker 1: our adversaries pay an a four dimensional game of diplomatic, economic, military,
17:14
Speaker 1: and cultural chess. That's john and they're playing well. And
17:17
Speaker 1: they they're doing it the same way we are. Right
17:19
Speaker 1: they had this centrally controlled economy. They're just passing out
17:23
Speaker 1: money to companies and deciding who are winners and losers.
17:27
Speaker 1: I don't understand this. I don't get why. And you
17:30
Speaker 1: got your mba Harvard, so you probably know better than
17:32
Speaker 1: I do. Know. He recently got a pH d and
17:35
Speaker 1: some engineering stuff. So why on the economic side, why
17:38
Speaker 1: don't we let the market, the free market decide, or
17:41
Speaker 1: if it's such a national security issue, why don't we
17:43
Speaker 1: take over this industry? Like why are we halfway here
17:46
Speaker 1: between like um state controlled socialism and free market capitalism?
17:51
Speaker 1: What are we doing Keith? These companies already make a
17:54
Speaker 1: lot of money, These shareholders have already gotten very rich.
17:56
Speaker 1: Why are we giving them, you know, billions tens and
17:59
Speaker 1: ten of billions of dollars in government subsidies. Right, I'll
18:05
Speaker 1: tell you exactly why. So my last role was under
18:09
Speaker 1: Secretary of State for Economic Growth, Energy and the Environment.
18:13
Speaker 1: Before that, I ran three public companies. I've been in
18:17
Speaker 1: Silicon Valley most of my of my career. And here's
18:21
Speaker 1: was happen. We invented the semi conductor business. Here's what happened. Countries,
18:27
Speaker 1: particularly Asian countries, realized how strategic it is, and they
18:31
Speaker 1: subsidized the semiconductors. So they literally pulled it off our shores.
18:36
Speaker 1: And the investment that goes into these manufacturing facilities is humongous.
18:42
Speaker 1: We did the largest onshore in history when I was
18:45
Speaker 1: under Secretary of State, twelve billion dollars for one of
18:50
Speaker 1: the most sophisticated chip plants ever. And by the way,
18:54
Speaker 1: that has fifteen hundred workers on the production plot and
18:59
Speaker 1: sit super said of them are either master's degrees or PhDs.
19:04
Speaker 1: And we lost that talent alright, So give us a
19:08
Speaker 1: sense of just how strategic you think ensuring some of
19:12
Speaker 1: this capability is. Because again it became acutely aware even
19:16
Speaker 1: to lay people like myself that uh, you know when
19:19
Speaker 1: China shuts down, Taiwan shuts down for whatever reason. That's
19:24
Speaker 1: a problem. Matt Miller can't get his well for other
19:27
Speaker 1: industries should we be doing exactly It's taking me so
19:30
Speaker 1: long to get this truck from Chevrolet. I'm very excited.
19:34
Speaker 1: It's apparently coming up this month and I cannot wait.
19:37
Speaker 1: It's the z R two UM, which I'm so pumped about.
19:39
Speaker 1: But you know, if we're doing this for chips, why
19:43
Speaker 1: aren't we doing it for planes or trains or automobiles. Well,
19:50
Speaker 1: this is first of all, semiconductors is the most important
19:55
Speaker 1: industry in the world because it lays the foundation not
20:00
Speaker 1: only for everything in the tech area, but as you
20:04
Speaker 1: guys say, in the in the automotive field, in the
20:07
Speaker 1: energy field, you know, in the aerospace UH field. So
20:12
Speaker 1: the important thing is to secure uh this supply line.
20:18
Speaker 1: You guys saw what happened during during the pandemic, so
20:22
Speaker 1: uh And and the other thing that is is absolutely
20:26
Speaker 1: killed key is this skill set um you know, UH
20:32
Speaker 1: we lost We've lost it uh here in the United States,
20:36
Speaker 1: and now this is gonna bring it back. One other
20:40
Speaker 1: great thing about this UH Chips and Science Act, it
20:45
Speaker 1: also is funding UH research in critical national security sectors
20:53
Speaker 1: like quantum computing, like six G, like biotech, and this
20:59
Speaker 1: is this is in the area where you know, the
21:02
Speaker 1: United States used to be number one in R and D.
21:04
Speaker 1: We were down a number nine. And one last thing
21:09
Speaker 1: is that when we presented we are when we architected
21:12
Speaker 1: this bill, we presented the Senator Schumer and Senator Young
21:16
Speaker 1: and what we showed them is with this level of investment,
21:20
Speaker 1: you're gonna get it three times uh three, full additional
21:25
Speaker 1: investment from the private sector. Keith, let me quickly ask you.
21:29
Speaker 1: We only got thirty seconds here, but what do you
21:31
Speaker 1: think about the e V credits? Is that subsidy also
21:35
Speaker 1: important for American jobs and carmakers? Well, I can, I can,
21:40
Speaker 1: I can tell you what I think being you know,
21:42
Speaker 1: former CEO Docum signed and the REBA is that these
21:46
Speaker 1: guys are on the ninety days shot clock, right, and
21:50
Speaker 1: so to be this enables you to look long term,
21:54
Speaker 1: and that's key. And by the way, for the for
21:57
Speaker 1: the e V credits is long is that technology is
22:01
Speaker 1: developed in the US. Because Shina owns solar panels, so
22:05
Speaker 1: we've got to do something about that, all right, Keith,
22:08
Speaker 1: great stuff really appreciate getting your perspective. Keith Croc, founder
22:12
Speaker 1: of the Croc Institute for Tech Diplomacy at Perdue UH.
22:16
Speaker 1: He was also the former US Under Secretary of State
22:20
Speaker 1: for Economic Growth, Energy, and the Environment. Million jobs, million degrees.
22:24
Speaker 1: The guy used to be a VP at General Motors
22:26
Speaker 1: as well. I know, I've got to get him back on.
22:28
Speaker 1: He's done everything you gotta get. We'll get him back on.
22:30
Speaker 1: We'll get him next time he's in a sign, We'll
22:31
Speaker 1: get him here in the studio again. Some good economic
22:37
Speaker 1: data for the past few days. Let's check in with
22:39
Speaker 1: Jeff Cleveland. He does this for a living. He's a
22:41
Speaker 1: director in chief economist for Peyton and Regal. Hey, Jeff,
22:44
Speaker 1: you put today's CPI data together with you know, a
22:48
Speaker 1: really strong jobs report last week. I don't know what
22:52
Speaker 1: do you take away from that? Well, you know, it's
22:55
Speaker 1: interesting the month to month reading on core cp I,
23:00
Speaker 1: which slowed to point three. It could be just a
23:04
Speaker 1: fake out. We had a similar slow down back in
23:06
Speaker 1: the I guess was the March data that we got
23:09
Speaker 1: in April, so and then we saw core cp I
23:13
Speaker 1: re accelerate. So for my money, I think it's too
23:16
Speaker 1: soon to claim victory mission accomplished on on core inflation
23:21
Speaker 1: could be still moving higher and point three months of
23:24
Speaker 1: months isn't. Then I don't think that's enough to change
23:27
Speaker 1: the FEDS view here and then as it regards to
23:31
Speaker 1: you think the FEDS still gonna go seventy five at
23:33
Speaker 1: the next meeting. Yeah, we're gonna get another CPI report,
23:36
Speaker 1: We're gonna get another jobs report. So as of now,
23:40
Speaker 1: we're sticking with the seventy The reason being, I think
23:43
Speaker 1: you have to put on your central banker hat and
23:45
Speaker 1: you have to think, Okay, how do they think that
23:49
Speaker 1: policy effects inflation? And the way they look at it
23:52
Speaker 1: is that they need to get interest rates up enough
23:55
Speaker 1: to push up the unemployment rate. That's their goal. Once
23:58
Speaker 1: the unemployment rate starts a rise, then wage pressure comes off,
24:02
Speaker 1: and then inflation core inflation slows. We haven't had that
24:05
Speaker 1: happen yet. We had a really strong jobs report, the
24:07
Speaker 1: unemployment rate moved to cycle low. So if you're a
24:10
Speaker 1: central banker, you I think you're still keeping your your
24:14
Speaker 1: foot on the break in terms of monetary policy, not
24:18
Speaker 1: slowing down it and definitely not on a a welcome
24:21
Speaker 1: But it could just be one month of soft CPI data.
24:24
Speaker 1: Isn't it enough if they just keep wage increases below
24:30
Speaker 1: the level of inflation? Or do they really have to
24:32
Speaker 1: do we really have to see jobs losses? Well, I
24:36
Speaker 1: think they're gonna be really unhappy with five and a
24:38
Speaker 1: half percent UH average hourly earnings, frauductivity at zero or
24:44
Speaker 1: even falling. UM that situation and the implication for unit
24:49
Speaker 1: labor costs we saw yesterday, I think that's a really
24:51
Speaker 1: really bad mix. Is going to be very unhappy with that.
24:54
Speaker 1: So I do I do think they want they don't
24:56
Speaker 1: want to admit it in public, but they want to
24:58
Speaker 1: see the unemployment rate right that. They want to see
25:01
Speaker 1: wage growth slow back down somewhere. Maybe. I think closer
25:04
Speaker 1: to two to three percent is a good ballpark. Damn.
25:07
Speaker 1: I want a raise that that's equal to or greater
25:12
Speaker 1: than headline cp I. Yeah, you didn't get that. You know, well,
25:18
Speaker 1: I still have the request in and I feel like
25:20
Speaker 1: American workers are gonna want that too. I'm always sending
25:24
Speaker 1: that requested. It keeps getting rejected. So I I hear you.
25:28
Speaker 1: I think that's the that's the that's the correct thinking.
25:30
Speaker 1: I just, um, I don't know how realistic that is
25:33
Speaker 1: for me or for you? All right, Jeff, again, I
25:35
Speaker 1: asked our guests here, should we expect anything from jackson Hole? Uh?
25:39
Speaker 1: This month? Should I make my book my trip out there? Well?
25:43
Speaker 1: Sometimes jackson Hole is sort of s O Terek Rite
25:45
Speaker 1: some fringe kind of topics, maybe not really mainline monetary
25:50
Speaker 1: policy topics. But I feel like this year, maybe this
25:53
Speaker 1: year is different. Maybe this year is is surrounding the
25:56
Speaker 1: question that we're going to talk about here, which is
25:59
Speaker 1: how much does the unemployment rate need to rise to
26:01
Speaker 1: get to get inflation back down? Sort of I don't
26:04
Speaker 1: know bread and butter monetary policy questions, so it might
26:07
Speaker 1: actually be more more central to markets then maybe it
26:11
Speaker 1: has been in the last couple of years. So this
26:14
Speaker 1: FED seems less esoteric. I mean they seem to care
26:17
Speaker 1: about headline inflation, not just core PC right, um, at
26:21
Speaker 1: least it seems important to to to Powell, well, headline
26:26
Speaker 1: is tied to gas prices, and gas prices are tied
26:29
Speaker 1: to consumer inflation expectations, So that's I think they're right
26:33
Speaker 1: to care about that. They care about inflation of expectations.
26:35
Speaker 1: The question for me is still Okay, where is inflation?
26:39
Speaker 1: Where is the underlying trend of inflation, and I still
26:42
Speaker 1: think looking at headline month to month does not help
26:45
Speaker 1: you with that. You gotta look um later this morning,
26:48
Speaker 1: look at media and CPI from the Sleeveland Fed. Look
26:51
Speaker 1: at the trim mean, look at the underlying sticky measures,
26:54
Speaker 1: and you're still seeing pretty strong. I look at gasoline
26:58
Speaker 1: and that is it. I'm an equity He's gotta keep
27:00
Speaker 1: it nice and simple and coming down. So that's good stuff.
27:03
Speaker 1: Jeff Cleveland, Director and chief Economists at paid In in
27:07
Speaker 1: the Regal joining us right now in our Bloomberg Interactive
27:11
Speaker 1: Broker studios. Rob Barnett, he's the senior anals. He leads
27:14
Speaker 1: our energy coverage in Europe. He's based in London, but
27:18
Speaker 1: we got him here in New York. He's with Bloomberg Intelligence. Uh. Rob,
27:22
Speaker 1: a story that I think it just fascinates me because
27:24
Speaker 1: I think it's gonna get really, really bad. So I'd
27:26
Speaker 1: love to get your perspective. We talk a lot about
27:29
Speaker 1: global energy and we know that in Europe, primarily due
27:32
Speaker 1: to the war in Ukraine, Europeans and folks in the UK,
27:36
Speaker 1: you guys are preparing for a really tough winter. Give
27:39
Speaker 1: just framed that out for us. Yeah, so for anyone
27:42
Speaker 1: who's not following the gas market, gas in Europe is
27:46
Speaker 1: over sixty dollars per mmbtu right now, and where does
27:50
Speaker 1: it typically trade? Fractions of that? I mean, and the
27:54
Speaker 1: US is at around eight dollars per mm btu, so
27:57
Speaker 1: we're eight x where the US is at the moment today.
28:00
Speaker 1: A this is going to be a very challenging winter. Now,
28:04
Speaker 1: tariffs are actually regulated by the government, so consumers haven't
28:09
Speaker 1: really had to mark to market what they're paying yet,
28:12
Speaker 1: so it's going to be tough as the government's phase
28:17
Speaker 1: in those higher prices. And yeah, I'm stocking up on sweaters,
28:21
Speaker 1: just getting ready for colder showers, sweaters, everything that we
28:24
Speaker 1: can do to Uh, you're in England, right, I mean
28:27
Speaker 1: you're You're in London, so it's not gonna get that
28:29
Speaker 1: bad for you. In Berlin, which is basically in Poland,
28:32
Speaker 1: it's going to be really really cold this winter. And
28:35
Speaker 1: the Germans, I'm gonna ask you why decided to put
28:40
Speaker 1: all of their eggs in Vladimir Putin's basket? Why did
28:43
Speaker 1: angel A miracle Um make her nations so reliant on
28:49
Speaker 1: this Russian dictator? Well, I think as as many of
28:53
Speaker 1: you may know, Germany has had a long history with
28:56
Speaker 1: nuclear power, and they've actually phased most of their nuclear
28:59
Speaker 1: power plan out at this point. Despite Angela Merkel's history.
29:04
Speaker 1: She she was a nuclear engineer by training, right, So
29:07
Speaker 1: it's interesting choice he made. But the decisions all got
29:10
Speaker 1: made post Fukushima. Everyone got scared about nuclear a little
29:15
Speaker 1: over a decade ago, and that really drove a lot
29:19
Speaker 1: of the decision making around the reliance on gas because
29:23
Speaker 1: Europe's got a very strong green angle, particularly in Germany,
29:27
Speaker 1: so they wanted to get off coal. They were concerned
29:31
Speaker 1: about nuclear, and they hitched themselves to gas, and it's
29:34
Speaker 1: turning around. It's going to bite them hard, even though
29:37
Speaker 1: you know, the problem in Fukushima was an earthquake, yes,
29:41
Speaker 1: what do you call that? Giant waves tsunami right, which
29:45
Speaker 1: is so unlikely from the Bowden's a right, if that's
29:48
Speaker 1: not going to happen in Germany. And yet they ran
29:53
Speaker 1: straight to Moscow for all of their energy needs. I
29:56
Speaker 1: used to talk to Dan Burriette a lot when he
29:57
Speaker 1: was Energy Secretary, and he would come to Berlin every
30:00
Speaker 1: time he was there trying to pedal um l en
30:02
Speaker 1: G terminals because he wanted to sell more US gas
30:05
Speaker 1: and they turned him away, and and they are trying
30:08
Speaker 1: to make amends for that. Now. Germany and other parts
30:11
Speaker 1: of Europe are sprinting to get l en G import
30:16
Speaker 1: terminals built, but those things take a while. So this
30:19
Speaker 1: is a multi year process with no easy solutions in
30:22
Speaker 1: the next twelve to twenty four months, right, and in
30:24
Speaker 1: which time period we could see the Rhine River completely
30:27
Speaker 1: dry up. We were told that um the level on
30:30
Speaker 1: the Rhine could drop to sixteen inches by Friday, making
30:34
Speaker 1: it virtually impassable for the big coal and diesel barges
30:37
Speaker 1: that need to normally deliver energy through those roots. What's
30:40
Speaker 1: gonna happen, Yes, so there's stockpiles for a little bit
30:43
Speaker 1: of short duration disruption, but if we see this continue,
30:48
Speaker 1: it's just one more factor that's really putting pressure on
30:52
Speaker 1: that gas price that we talked about at the beginning here,
30:55
Speaker 1: and there really aren't easy alternatives in the near term.
30:59
Speaker 1: So you know, how bad does it get? I mean
31:02
Speaker 1: the reasonable there there's terminology they're they're talking about. The
31:06
Speaker 1: reasonable worst case scenario includes mandated power outages and things
31:13
Speaker 1: like that in many of the economies, So we'll see
31:17
Speaker 1: cities go dark already seeing that? Are you already seeing that?
31:21
Speaker 1: In Germany? Oh? Yeah, I mean Berlin was pretty much
31:23
Speaker 1: dark at night to begin with because they don't have
31:25
Speaker 1: enough money to pay for power before the surge in prices.
31:28
Speaker 1: Now they've got the big boom in prices. Plus all
31:30
Speaker 1: the rivers are drying up, those that are cooling nuclear
31:33
Speaker 1: plants are are too hot to do, so, I mean
31:35
Speaker 1: they've just got hit by it like a triple whammy, right,
31:38
Speaker 1: And we've just taken all of this for granted. I
31:40
Speaker 1: think in the West, we've just always been able to
31:43
Speaker 1: flip the switch and assume that the power is going
31:46
Speaker 1: to work. I think a lot of folks in society
31:49
Speaker 1: clearly took their eye off the ball. And it's gonna
31:52
Speaker 1: take a lot of time to figure this out. And
31:54
Speaker 1: renewables are great. I'm I'm very pro renewable energy. It's
31:57
Speaker 1: gonna but this stuff is a multidecade kind of solutions,
32:01
Speaker 1: and they're obviously intermittent. You've got to figure out hydrogen
32:04
Speaker 1: and battery storage and all of these things that we
32:06
Speaker 1: know are on the horizon, but none of them are
32:08
Speaker 1: kind of really here for prime time today. So the
32:12
Speaker 1: reality is today you've got to have some gas supply solutions,
32:16
Speaker 1: you've got to have coal in the mix. And you know,
32:18
Speaker 1: for better or worse, Germany should be doing everything it
32:22
Speaker 1: can to keep the nukes that they still have remaining running.
32:25
Speaker 1: They still have the potential to uh, they have some
32:28
Speaker 1: plants I think three that are running and they have
32:31
Speaker 1: the possibility of stretching it out. They're supposed to face
32:33
Speaker 1: them out by the end of the year, and the question, well,
32:35
Speaker 1: I don't think they can. By the way, Rob, have
32:37
Speaker 1: you seen there's a Norwegian drama called Occupied, which is
32:43
Speaker 1: really fantastic. It's about like, the premise is that Norway
32:48
Speaker 1: decides to stop exporting gas and oil, and so the
32:51
Speaker 1: EU allows Russia to occupy Norway, which sounds crazy, but
32:56
Speaker 1: or it did at the time. Now it sounds so
32:58
Speaker 1: realistic that you politics of energy in Europe are just
33:02
Speaker 1: absolutely fascinating, and you're right to point out Norway is
33:06
Speaker 1: so important to the gas equation. One of our analysts
33:11
Speaker 1: who covers Equinore, he had a focus idea in them
33:13
Speaker 1: earlier this year because they were really poised to benefit
33:17
Speaker 1: because of being the number two gas supplier into Europe.
33:21
Speaker 1: And you've got all these high prices, so some people
33:23
Speaker 1: are actually printing money because of where we are today,
33:25
Speaker 1: Larry putin up into all right, Rob, thanks so much
33:28
Speaker 1: for joining. Rob Barnett senior analysts covering energy out of
33:31
Speaker 1: our London office. He joins us live here on our
33:33
Speaker 1: Bloomberg Interactive Broker studio. He's a Bloomberg Intelligence. Thanks for
33:38
Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
33:42
Speaker 1: listen to interviews of Apple podcasts or whatever podcast platform
33:46
Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller.
33:51
Speaker 1: Pet On Ball Sweeney I'm on Twitter at pt Sweeney.
33:54
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33:56
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