Latest / Bloomberg Intelligence / Delinquencies Hint At Pockets of Frayed Consumer Health: Cutts

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Delinquencies Hint At Pockets of Frayed Consumer Health: Cutts · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The
• 0:32
  Speaker 1: delinquency rate for subprime auto loans has risen to a
• 0:36
  Speaker 1: rate that is worse than during the financial crisis. Here
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  Speaker 1: to help us understand consumer credit is Amy Cruz Cuts,
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  Speaker 1: chief economist for Equifax, joining us from Washington, d C. Amy,
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  Speaker 1: thank you very much for being with us. Tell us
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  Speaker 1: your perspective on the health of consumer credit right now. Well,
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  Speaker 1: it's uh, some of it is awesome and doing quite well.
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  Speaker 1: I think many consumer or got the religion of debt
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  Speaker 1: management after the Great Recession, and so from the majority
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  Speaker 1: of them, I have no concerns at all, Um. And
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  Speaker 1: then on the flip side, as you just mentioned, you know,
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  Speaker 1: autolone performance has not gone as well as we might
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  Speaker 1: have thought this. You know, we still have a great economy.
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  Speaker 1: Jobs are being at it every month and normally would
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  Speaker 1: expect delinquency used to be falling. So that's that is
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  Speaker 1: a little bit of a troublesome spot. So I want
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  Speaker 1: to pick up on that the fact that, uh, you know,
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  Speaker 1: certainly mortgage debt is much lower than it used to be,
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  Speaker 1: but we are seeing at least certainly on a relative
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  Speaker 1: basis as well as an absolute one. But in other
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  Speaker 1: areas the amount of debt really is noteworthy, and the
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  Speaker 1: increases and delinquencies and defaults is also a little alarm
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  Speaker 1: and giving given where we are in the credit cycle,
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  Speaker 1: what are you expecting the consequence of that to be?
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  Speaker 1: What's the implication here? Well, we dug deep into this
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  Speaker 1: to try to figure out was it because they opened
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  Speaker 1: the floodgates, as it might be, uh and let in
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  Speaker 1: a bunch of you know, credit worthy borrowers, And what
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  Speaker 1: we found was that the majority of lenders, particularly the
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  Speaker 1: big guys so banks, credit unions, and the captive out
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  Speaker 1: of finance, actually have gotten very tight with credits. So
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  Speaker 1: in recent quarters they've gotten more reserved and their performances
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  Speaker 1: showing it. What we're seeing though, on the flip side,
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  Speaker 1: is that independent finance companies, so not associated with a
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  Speaker 1: car manufacturer expanded their credit risk offerings and did so
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  Speaker 1: in a way that that has greatly increased the indexes
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  Speaker 1: that you just mentioned of delinquency. So it really has
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  Speaker 1: to do with where the borrowers are getting the money
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  Speaker 1: and perhaps the quality of the borrowers that are that
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  Speaker 1: are being allowed in under those loans. So it's again
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  Speaker 1: it's not as as easy as one spot versus another.
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  Speaker 1: But what bothers me about that is that these are
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  Speaker 1: likely borrowers who are at the at the very fringe
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  Speaker 1: of the economy and so um whereas you know, a
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  Speaker 1: prime credit borrower, if they make a mistake, isn't going
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  Speaker 1: to be such a big deal. Uh, somebody really at
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  Speaker 1: the edge, it could really throw their lives into financial catastrophe.
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  Speaker 1: So that the part I worry about, go ahead, I
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  Speaker 1: beg your pardon. How much strange do you think the
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  Speaker 1: rise in short term rates will put on some of
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  Speaker 1: these borrowers, particularly the credit card sector, because they end
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  Speaker 1: up rolling things over. Yeah, So like auto loans are
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  Speaker 1: fixed rate, most of the mortgages today are fixed rates.
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  Speaker 1: So other the new entrance into the into the borrowing market,
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  Speaker 1: there will be very little impact on the credit card side.
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  Speaker 1: Um A large number of people are the gas and
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  Speaker 1: grocery transactors, and so that they would have very little impact.
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  Speaker 1: Where it will probably have the largest impact is again
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  Speaker 1: in the subprime sector or the near prime sector, where
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  Speaker 1: borrowers are more likely to be using the credit cards
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  Speaker 1: as credit as opposed to a transaction means, and so
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  Speaker 1: they're already paying very high rates on those loans. The
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  Speaker 1: only saving grace there is that their credit limits are
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  Speaker 1: usually very low, so they may be um, you know,
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  Speaker 1: five hundred or thousand dollars in debt with with a
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  Speaker 1: high interest rate as opposed to ten thousand dollars in
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  Speaker 1: debt with a high rate. So um, it will have
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  Speaker 1: an impact, and it will slow some of the purchases
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  Speaker 1: that they might make. They may also move more to
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  Speaker 1: things like um layaway plans to the extent that the
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  Speaker 1: retailers are still offering those. So there are some other options.
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  Speaker 1: On the car buying side, they can buy a smaller car.
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  Speaker 1: On the home buying side, it's much harder, because there's
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  Speaker 1: so much competition for the existing inventory that it may
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  Speaker 1: actually just just delay or altogether wipe out homeownership opportunities.
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  Speaker 1: Do consumers actually have the money to purchase these homes
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  Speaker 1: or at least put the down payments forward, because it
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  Speaker 1: seems as though consumer spending is rising at a slower pace. Yeah,
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  Speaker 1: it depends so much on on where they are in
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  Speaker 1: their um sort of earnings life cycle, and I think
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  Speaker 1: it's one of the reasons why we're seeing the statistics
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  Speaker 1: on young families. Um, you know, the millennial generation delaying
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  Speaker 1: homeownership longer than than the prior generations did, and it's
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  Speaker 1: been getting longer each generation. But I think one of
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  Speaker 1: the reasons for that is them taking the time to
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  Speaker 1: to get the money. And another part of that is
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  Speaker 1: that in many cases they don't want buy a starter home.
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  Speaker 1: They want to buy sort of there there, what we
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  Speaker 1: normally would have thought it was a step up home.
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  Speaker 1: And part of that is pressed by the inventory. Again,
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  Speaker 1: we're not building smaller homes, so it's harder to get
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  Speaker 1: those those little ones. You know. The reason why I
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  Speaker 1: think that this is such an important area is because
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  Speaker 1: consumer confidence and consumer consumer spending has really driven the
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  Speaker 1: economic recovery. And as we see delinquencies and defalse increase,
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  Speaker 1: albeit still historically low, you just have to wonder is
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  Speaker 1: that consumer running out of steam? I mean, is there
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  Speaker 1: sort of a bigger important message here that you're seeing. Well,
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  Speaker 1: I'll tell you one of the more intriguing pieces of
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  Speaker 1: this is, as you know, we're in a retail crisis
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  Speaker 1: and many stores are are struggling, and for various reasons.
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  Speaker 1: Some would say it's the online presence of some of
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  Speaker 1: the big guys, but I would also say that a
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  Speaker 1: lot of it has to do with their death structuring.
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  Speaker 1: How they those companies borrowed money over the past ten
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  Speaker 1: or fifteen years, it's now coming to that they can't resolve.
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  Speaker 1: What's important about that for the consumer is that we
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  Speaker 1: you see in UM locations as well as UM broadly based,
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  Speaker 1: like in the asset back securities for securitized portfolios of
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  Speaker 1: retail store credit when the store announces. When a company
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  Speaker 1: announces either bankruptcy or a closing, consumers respond by going
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  Speaker 1: delinquent on those cards. Now, what the consumers may not
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  Speaker 1: realize is that they still owe that money. The creditors
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  Speaker 1: to those organizations surely are going to go after that
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  Speaker 1: that money. But um, you know, it's a very bad
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  Speaker 1: consumer behavior. But I think the consumers in some minds
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  Speaker 1: are thinking, Wow, you know this company just went bankrupt
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  Speaker 1: declared bankruptcy, so I don't have to pay them back,
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  Speaker 1: and we're seeing weird behaviors that way. So this is
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  Speaker 1: one reason perhaps why the delinquencies are going up. In
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  Speaker 1: other words, yes, yes, savings rates in the United States,
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  Speaker 1: according to Bank rd about Americans save absolutely nothing. Another
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  Speaker 1: fifth say that they save just five pc of their
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  Speaker 1: income or less. Do they need to save more money
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  Speaker 1: for things such as retirement or indeed any financial emergency? Um. Absolutely.
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  Speaker 1: And the hard part of that is that, um, you know,
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  Speaker 1: if we look on the flip side, that wages, real
• 7:09
  Speaker 1: wages really haven't risen that much. And we're celebrating rising
• 7:13
  Speaker 1: wages today because they're up around two percent. But I
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  Speaker 1: think we've been below two percent on wage increases, but
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  Speaker 1: for the past ten years we've run two percent on inflation.
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  Speaker 1: The real value of the money people bring home is
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  Speaker 1: less and less, and so savings out of that is
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  Speaker 1: very hard. Now we can quibble about whether the savings
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  Speaker 1: UM numbers are are accurate. One of the problems that
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  Speaker 1: I haven't looking at this is that I might look
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  Speaker 1: at a study, for example, by one of the largest
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  Speaker 1: um UM mutual fund companies, and they'll say, oh, the
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  Speaker 1: average balance of somebody is fifty dollars, but that's only
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  Speaker 1: at their shop. So maybe there's more money out there
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  Speaker 1: than we think um through these four oh one K
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  Speaker 1: plans or or other savings instruments. But the bottom line
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  Speaker 1: is that too many people end up at retirement with
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  Speaker 1: a very small cushion and source of security is not enough.
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  Speaker 1: It's great maybe you're only gonna live ten years, but
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  Speaker 1: if you're gonna live thirty years, which is more of
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  Speaker 1: the average expectancy now, it makes it very hard. Amy
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  Speaker 1: cruise Cuts, thank you so much for being with us.
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  Speaker 1: Amy cruiz Cuts, chief economist for Equifax. You know, the
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  Speaker 1: aggregate household death balances are now nearly half a trillion
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  Speaker 1: more than they were at the prior peak back in
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  Speaker 1: two thousand and eight. There is a dilemma right now
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  Speaker 1: in stock markets. Is it a good thing that US
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  Speaker 1: companies are spending so much of the money that they're
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  Speaker 1: saving from the tax cut on shared by backs and dividends.
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  Speaker 1: Here to answer that, Barry James. He is president and
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  Speaker 1: chief investment officer of James Investment Research, which oversees about
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  Speaker 1: seven billion dollars and is based in Ohio, but joins
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  Speaker 1: us here in our eleven three studios today. So Barry
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  Speaker 1: I was looking at this Goldman's Acts research showing that
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  Speaker 1: the highest proportion of companies cash is going towards share
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  Speaker 1: by backs and dividends, while a much lower percentage is
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  Speaker 1: going to plant improvements and salary increases, etcetera. Does this
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  Speaker 1: concern you and one uh one form. It does can
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  Speaker 1: concern us, Lisa, because you eventually need organic growth in
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  Speaker 1: order to sustain not just the economy but the markets themselves.
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  Speaker 1: The other side of it, though, is as a shareholder,
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  Speaker 1: we don't mind share share by backs in any way,
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  Speaker 1: shape or form. And we've done studies that show the
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  Speaker 1: companies that have the higher levels of share by backs
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  Speaker 1: their their stocks actually outperform so over the next six
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  Speaker 1: to twelve months, so that's a positive thing. And also
• 9:43
  Speaker 1: getting more money back in terms of dividends is positive
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  Speaker 1: as well from the shareholder standpoint. But again it's not
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  Speaker 1: a sustainable model. All right, Let's talk about the fund
• 9:53
  Speaker 1: that you run. This is the Golden Rainbow Fund, the
• 9:56
  Speaker 1: symbol g l r b x I. Note that is
• 10:00
  Speaker 1: balanced funds, so that you can have stocks as well
• 10:03
  Speaker 1: as bonds, and you have a boatload of treasuries in
• 10:06
  Speaker 1: the fund right now, tell us why do you have that?
• 10:10
  Speaker 1: And then we can talk about some individual company names. Sure,
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  Speaker 1: the objectives of the fund are growth and income, but
• 10:15
  Speaker 1: preservation of capital in declining markets. And you did mention
• 10:19
  Speaker 1: we do our own research. Every weekend, we do an
• 10:21
  Speaker 1: analysis of the markets and try to measure risk. And
• 10:23
  Speaker 1: I've been doing it for forty five years. This isn't
• 10:25
  Speaker 1: something new for us, and so we adjust the allocation
• 10:28
  Speaker 1: between stocks and bonds based on where we see the
• 10:30
  Speaker 1: risk levels both in stocks and bonds. Um we see
• 10:33
  Speaker 1: from the stock side right now that maybe the foundation
• 10:37
  Speaker 1: is a little weak at the moment. Prices are fairly high.
• 10:41
  Speaker 1: You've got the tax cuts which we talked about, tend
• 10:43
  Speaker 1: not to be very promising. The year after the tax
• 10:46
  Speaker 1: cut is actually implemented, which is right now, they only
• 10:49
  Speaker 1: tend to see about an average of two percent return.
• 10:51
  Speaker 1: And of course we've got too much optimism, so we've
• 10:54
  Speaker 1: kind of got into this. Uh, I don't know trading
• 10:56
  Speaker 1: pattern at the moment. And one thing, when you're in
• 10:59
  Speaker 1: a period maybe of correction, having some bonds is very
• 11:02
  Speaker 1: very helpful in terms of stabilizing the portfolio. Obviously you're
• 11:06
  Speaker 1: not going to make a lot in terms of interest payments.
• 11:09
  Speaker 1: But again, the key is preserving capital in declining markets,
• 11:13
  Speaker 1: and that's one of the things we try to set
• 11:14
  Speaker 1: ourselves aside on. So when did you most recently shift
• 11:18
  Speaker 1: to a greater allocation to safety two bonds? Well, that
• 11:21
  Speaker 1: was the latter part of last year. Um, we had
• 11:26
  Speaker 1: lowered the amount of equities we have. And I don't
• 11:28
  Speaker 1: want to give the impression where market timers, because we
• 11:31
  Speaker 1: know that that doesn't work for us. But we do
• 11:33
  Speaker 1: try to shift based upon risk levels. And so we've
• 11:36
  Speaker 1: gotten down about now we're you know, with a market
• 11:40
  Speaker 1: down a little bit, we've been doing a little bit
• 11:41
  Speaker 1: of buying. So but you had been down bonds and
• 11:44
  Speaker 1: now you've been buying stocks, and so now you're buying stocks.
• 11:48
  Speaker 1: That's what I was going to ask. Where are you now?
• 11:50
  Speaker 1: I mean, are you basically more risk on? Do you
• 11:51
  Speaker 1: think that the values have declined enough to be uh
• 11:54
  Speaker 1: to to prove attractive at this point? Yes, Um, that's
• 11:57
  Speaker 1: the very interesting time we're in. Think we're in a
• 12:00
  Speaker 1: great shift, if you will, a paradigm shift. It's been
• 12:04
  Speaker 1: all large cap and growth uh for you know, probably
• 12:07
  Speaker 1: about ten years and what we've seen even this year,
• 12:09
  Speaker 1: the market went down in the first quarter, in small
• 12:12
  Speaker 1: caps didn't go down as much, and so I think
• 12:14
  Speaker 1: that shift is coming into smaller caps. That's one of
• 12:16
  Speaker 1: the areas we've been moving into. Also, we call them bargains.
• 12:20
  Speaker 1: People talk about value whatever you want to call it, um,
• 12:23
  Speaker 1: but those have been ignored for quite some time. And
• 12:26
  Speaker 1: um they tend to work very very well, uh most
• 12:30
  Speaker 1: of the time, and they hadn't. So I think both
• 12:32
  Speaker 1: of those are coming into into view. It's almost like
• 12:36
  Speaker 1: the year and two thousand, the NASTAC fell thirty eight
• 12:39
  Speaker 1: percent and a small cap value went up twenty two
• 12:42
  Speaker 1: Not saying that this is two thousand, but this is
• 12:46
  Speaker 1: the type of circumstances I think could be unfolding. And
• 12:48
  Speaker 1: so when the market pulls back to a little buying,
• 12:50
  Speaker 1: when the market jumps up, maybe do a little trimming.
• 12:53
  Speaker 1: Let's talk about one stock in the portfolio, Advanced Energy Industries.
• 12:58
  Speaker 1: They're based in the Fort colin Colorado. What do you
• 13:01
  Speaker 1: like about this company? How did you find it? First
• 13:03
  Speaker 1: of all, that's always a great, great question. We have
• 13:07
  Speaker 1: clients and Fort Collins, but no, that's not how I
• 13:09
  Speaker 1: found it um we um. With our research, we try
• 13:13
  Speaker 1: to rate UH securities how closely they meet our criteria
• 13:16
  Speaker 1: of good value, of good historical earnings, not the projected earnings.
• 13:20
  Speaker 1: We we haven't found a lot of use for that.
• 13:22
  Speaker 1: And then the price appreciation. We like to see it
• 13:25
  Speaker 1: out perform in the market. So this meets all of those,
• 13:28
  Speaker 1: all of those criteria. You know. This is one that
• 13:30
  Speaker 1: works in engineered power conversion type area. Almost a little
• 13:36
  Speaker 1: techy if you will, but a low pe of only fourteen.
• 13:39
  Speaker 1: The earnings year over year about thirty increase, uh so,
• 13:45
  Speaker 1: cash flows increasing rapidly. Cash flow from operations is strong.
• 13:49
  Speaker 1: Uh No real debt, so it's got lots of those.
• 13:52
  Speaker 1: And the other thing is is number one in its
• 13:54
  Speaker 1: market um so it has about of that marketplace. So
• 13:58
  Speaker 1: um and we talked about buying back chairs. Guess what
• 14:01
  Speaker 1: they're doing. They're buying back chairs. I want to thank
• 14:03
  Speaker 1: you very much for being with us, insightful. We wish
• 14:06
  Speaker 1: I had more time. He could talk about more the
• 14:08
  Speaker 1: details of the of the fund. It's called the Golden
• 14:11
  Speaker 1: Rainbow Fund. The symbol there is g l r b X.
• 14:15
  Speaker 1: Barry James is the president and the chief investment Research
• 14:18
  Speaker 1: Officer of Barry James Investment Research, helping to manage more
• 14:22
  Speaker 1: than seven billion dollars of customer assets much appreciated. Russian
• 14:41
  Speaker 1: President of Vladimir Putin speaks with Israeli Prime Minister Benjamin
• 14:45
  Speaker 1: Netan Yahoo the topic Syria are a topic also Syria.
• 14:50
  Speaker 1: Here to help us understand it is Larry Liebert. He
• 14:52
  Speaker 1: is our national security editor for Bloomberg. Larry laid down
• 14:56
  Speaker 1: exactly or what we believe we exactly know right now
• 15:00
  Speaker 1: about what's going on in the region and what what
• 15:03
  Speaker 1: are some of the likely scenarios. Well, we do know
• 15:07
  Speaker 1: that the President toned down his rhetoric a little of
• 15:11
  Speaker 1: this morning, at least in terms of the timing of attack.
• 15:14
  Speaker 1: He didn't anything. I didn't say exactly when and exactly whether. UH.
• 15:17
  Speaker 1: And there are high level talks going on. UH. In
• 15:20
  Speaker 1: particular in this case, we're seeing the US worked with
• 15:23
  Speaker 1: allies France and the UK. France especially ready and willing
• 15:28
  Speaker 1: UH to join in, if not take the lead, in
• 15:31
  Speaker 1: some sort of response to this presumed chemical attack. UH.
• 15:36
  Speaker 1: But there are others offering some notes of caution and
• 15:39
  Speaker 1: UH just this morning, just a short while ago, in
• 15:43
  Speaker 1: his testimony, Defense Sextuary, Jim Mattis, appearing before the House
• 15:47
  Speaker 1: Armed Services Committee, UH said that the risk of this
• 15:52
  Speaker 1: kind of thing is getting out of control. Now. He
• 15:55
  Speaker 1: was just he didn't say, don't do it, but he
• 15:57
  Speaker 1: was pointing out there was all of them eelstrom of
• 16:01
  Speaker 1: activity there with with Russia there, with Iran there, with
• 16:05
  Speaker 1: US forces, with Turkey there, that things could go around
• 16:09
  Speaker 1: in any kind of strike. Uh. So that's a note
• 16:12
  Speaker 1: of caution. Uh. He also said that some things, like
• 16:17
  Speaker 1: a chemical text, something's clearly require a response. You know, Larry,
• 16:22
  Speaker 1: you talk about all the different voices, whether it's General
• 16:25
  Speaker 1: Maddus or President Trump's tweets weighing in on this issue.
• 16:29
  Speaker 1: Of course, we also have John Bolton, who just recently
• 16:32
  Speaker 1: took the home as the National Security Advisor to President Trump.
• 16:37
  Speaker 1: His deputy just quit or was pushed out, and there
• 16:40
  Speaker 1: has been quite a few exits from the department. How
• 16:44
  Speaker 1: does that affect the USS response to some of these threats. Well,
• 16:47
  Speaker 1: I think you're going to clearly have the the Central
• 16:50
  Speaker 1: National Security Team, which now which still includes Pompeo, the
• 16:56
  Speaker 1: newcomer a nominee for State who's CIA te Secretary Maddis
• 17:03
  Speaker 1: uh and uh. And and now Mr Bolton at the table,
• 17:07
  Speaker 1: and they're backed up, I think in particular by the U. S. Military,
• 17:11
  Speaker 1: and it's it's expertise. So uh, you know, it is
• 17:15
  Speaker 1: a time of tumult. There is a lot of speculation,
• 17:18
  Speaker 1: which Pompeo hit back at today and his confirmation hearing
• 17:22
  Speaker 1: that these are hard liners, he said he rejected that description,
• 17:26
  Speaker 1: which are so many would put on him. But uh,
• 17:30
  Speaker 1: there's there is a sense of change, there is a
• 17:32
  Speaker 1: sense of a harder line coming, but there's also sort
• 17:34
  Speaker 1: of a continuum of expertise at the Pentagon and elsewhere. Larry,
• 17:41
  Speaker 1: I don't want to diminish anything having to do with
• 17:43
  Speaker 1: the humanitarian aspect of the situation, but what is really
• 17:46
  Speaker 1: the strategic interest of the United States in this Well,
• 17:50
  Speaker 1: that's uh, that's to some extent what Secretary Maddis was saying.
• 17:53
  Speaker 1: He was saying that there is a humanitarian goal sometimes
• 17:57
  Speaker 1: to uh to take some action. Uh. And obviously there's
• 18:02
  Speaker 1: also the strategic sense that to the extent that a
• 18:06
  Speaker 1: President rop who was clearly torn on this issue of Syria,
• 18:10
  Speaker 1: to the extent he liked the US to pull out.
• 18:13
  Speaker 1: This is a message to Russia in particular as well
• 18:17
  Speaker 1: as the Syrian regime. Uh, that the world community can't
• 18:23
  Speaker 1: abide uh sort of a permanent free reign of terror
• 18:26
  Speaker 1: in Syria. So UH, there is an argument that at
• 18:29
  Speaker 1: some point you have to signal uh a demand for
• 18:34
  Speaker 1: some restraint. Uh. That and I and that's as far
• 18:37
  Speaker 1: as it goes. But if you took a purely strategic views,
• 18:40
  Speaker 1: as Matters suggested, UH, if it wasn't a matter of
• 18:43
  Speaker 1: such great outrage over crossing this particular humanitarian line, the
• 18:48
  Speaker 1: US probably wouldn't get involved. So since you mentioned Mike Pompeo,
• 18:53
  Speaker 1: who is currently testifying in front of Congress, we should
• 18:57
  Speaker 1: know some of the headlines that are coming out. People
• 18:59
  Speaker 1: say Pompeo did say that he spoke with Robert Mueller,
• 19:03
  Speaker 1: he declined to provide details. Is this significant because he
• 19:08
  Speaker 1: declined to provide details? Are sure? But it does show you,
• 19:12
  Speaker 1: I mean he he would have talked to him and
• 19:14
  Speaker 1: is in his role as a CIA director. Uh. The
• 19:19
  Speaker 1: question is, UH, what exactly was Mueller looking for from him?
• 19:25
  Speaker 1: And clearly uh, if nothing else, it is yet another
• 19:29
  Speaker 1: minder of the extraordinary breadth uh and uh reach of
• 19:35
  Speaker 1: Mueller's investigation, which increasingly is alarming and angering the president. Larry,
• 19:43
  Speaker 1: any chance that Mr Pompeo is not confirmed the Secretary
• 19:46
  Speaker 1: of State, there's a chance. You know, he was handily
• 19:49
  Speaker 1: confirmed for a c I A. You know he does.
• 19:52
  Speaker 1: He is a farmer, a member of Congress. Uh. Yet
• 19:55
  Speaker 1: there are concerns about the State Department at its leadership,
• 19:59
  Speaker 1: and about again his hawk ish views, even though he
• 20:02
  Speaker 1: fought against that. In his testimony today he tried to
• 20:05
  Speaker 1: address a number of those things. First of all, he
• 20:07
  Speaker 1: said that the US would be very tough on Russia.
• 20:10
  Speaker 1: The time for softness is over, which seems a message
• 20:12
  Speaker 1: to the president too. And uh. And and he he
• 20:16
  Speaker 1: vouched for the State Department bureaucracy, the diplomat to have
• 20:21
  Speaker 1: felt so abused and direct Gerson. So that will please
• 20:24
  Speaker 1: some members, but whether it's enough to win him the
• 20:27
  Speaker 1: confirmation isn't yet clear. Larry Liebert, thank you so much
• 20:30
  Speaker 1: for being with us. Larry Liebert, national Security editor for Bloomberg.
• 20:47
  Speaker 1: All right, right now, taking a look at West Texas
• 20:49
  Speaker 1: and to media, cruited is down about eight tenths of
• 20:52
  Speaker 1: a percent, a drop of fifty eight cents of barrel
• 20:54
  Speaker 1: to sixty six dollars and cents And here do I
• 20:57
  Speaker 1: tell us why this is all happening is our own
• 20:59
  Speaker 1: Mike mcgloane, he's an expert when it comes to everything commodities.
• 21:02
  Speaker 1: These our commodity strategist for Bloomberg Intelligence. Mike, always a pleasure,
• 21:06
  Speaker 1: Thanks for coming into the studio uh OPAC today saying
• 21:10
  Speaker 1: that those production cuts, yes, they are working, they are
• 21:13
  Speaker 1: in place. But US shale producers they're saying, just go
• 21:17
  Speaker 1: ahead and pump the oil. YEA. Well that's the that's
• 21:19
  Speaker 1: the battle. It's going to continue, and I have a
• 21:21
  Speaker 1: suspicion that Ope is probably gonna lose. They need continued situations.
• 21:26
  Speaker 1: What we're happy happy right now. Missiles flying in the
• 21:28
  Speaker 1: Middle East. Trade attentions gield political attentions. You need that
• 21:32
  Speaker 1: to keep oil higher because that supply from the US
• 21:35
  Speaker 1: is going exponential. And don't have to take my word
• 21:37
  Speaker 1: for it, taking the word for the market. The amount
• 21:39
  Speaker 1: of commercial um commercial shorts in the market is parabolic,
• 21:43
  Speaker 1: which means people are bringing on more production U S
• 21:45
  Speaker 1: it's being somewhat heads. Also, you look at crude oil,
• 21:48
  Speaker 1: it's it finally got above that six six six level.
• 21:50
  Speaker 1: Thank god, we don't have to look at that level anymore.
• 21:52
  Speaker 1: But I think it's very It's one of the most
• 21:54
  Speaker 1: risky commodities. I'm bullish on commodities with crude oil is
• 21:56
  Speaker 1: the one that's most likely to mean revert. I e.
• 21:59
  Speaker 1: It's very expensive, it has supply coming on and you
• 22:02
  Speaker 1: look at this week, aluminiums up twice as much as
• 22:05
  Speaker 1: crude oil on the week on these geopolitical tensions, which
• 22:08
  Speaker 1: it should be. But crude oil, it's a bullmarket. It's
• 22:11
  Speaker 1: just it has to deal with supply, too much supply. So, Mike,
• 22:14
  Speaker 1: we just came off the three the biggest three day
• 22:17
  Speaker 1: jump in crude value since December. A lot of this
• 22:22
  Speaker 1: did have to do with geopolitical risk. I'm wondering, let's
• 22:25
  Speaker 1: say there was some kind of disruption of production in
• 22:28
  Speaker 1: the Middle East akin to what people were pricing in.
• 22:32
  Speaker 1: Would that be enough to justify how much prices increased.
• 22:37
  Speaker 1: It's absolutely, it's how do you quantify that. It's necessary,
• 22:40
  Speaker 1: you kind of need it because the situation remains the same.
• 22:43
  Speaker 1: The US is now importing. Our net imports are not
• 22:46
  Speaker 1: only about six million barrels a day, that's the least
• 22:49
  Speaker 1: in was it five or six decades, And it's trending lower.
• 22:52
  Speaker 1: It's the lowest. It's continuing to go that way, and
• 22:54
  Speaker 1: they have to OPEC in Russia has to offset that
• 22:57
  Speaker 1: with more cuts. So it's that battle which which has
• 23:00
  Speaker 1: been favorable. It's been good and got crudroil certain levels.
• 23:03
  Speaker 1: It's getting a little expensive here and now we're starting
• 23:06
  Speaker 1: to here worries about a little demand destruction. But that's
• 23:08
  Speaker 1: also the big picture in this. In this country, there's
• 23:10
  Speaker 1: just no demand. I mean, the man is not. There is,
• 23:12
  Speaker 1: but it's not in picking up like it did in
• 23:14
  Speaker 1: the in the old days, you know, and when we
• 23:16
  Speaker 1: had you know, all the gas um the the gas causers.
• 23:19
  Speaker 1: I mean, I drive a volt and a lot of
• 23:21
  Speaker 1: people do that. Now we just don't have to worry
• 23:23
  Speaker 1: about that incremental demand and more in this country. Really
• 23:26
  Speaker 1: you try, I didn't know that. What made you do that? Well,
• 23:30
  Speaker 1: you get on or twenty miles for gallon. The government
• 23:33
  Speaker 1: subsidized it, and a lot of people are going that way.
• 23:35
  Speaker 1: It's where that trends going. Everybody knows that. It's certainly
• 23:37
  Speaker 1: in the industrial countries like ours. The demands really coming
• 23:41
  Speaker 1: from the developed countries. We know that like China and
• 23:44
  Speaker 1: India and things but that major shift from the world's
• 23:48
  Speaker 1: largest demand factor in crudel is getting is becoming more
• 23:52
  Speaker 1: of a factor. And I'm I've been bullish on crude oil,
• 23:55
  Speaker 1: but at these levels it's just very expensive. If you
• 23:57
  Speaker 1: look at the trend just the last two years, the
• 23:59
  Speaker 1: bull market, it's had pretty significant ten dollar corrections. We're
• 24:02
  Speaker 1: a bit overdup from that. And unless we get more
• 24:05
  Speaker 1: bad you know, geopolitical data out of the Middle East,
• 24:09
  Speaker 1: it's gonna make crude to a more susceptible. Okay, but
• 24:11
  Speaker 1: you know the reason I ask you about being in
• 24:13
  Speaker 1: your vault is, uh, why you're driving in your vault.
• 24:17
  Speaker 1: You're not going to be subject to the increasing gasoline
• 24:19
  Speaker 1: prices which we're seeing in the United States. Tell me,
• 24:22
  Speaker 1: why is the price of gasoline? You look around, it's
• 24:25
  Speaker 1: over three bucks, even though the average they're saying to
• 24:27
  Speaker 1: seventy five. I mean, come on, you, you find it's
• 24:30
  Speaker 1: difficult to find gas for under three dollars a gallon.
• 24:33
  Speaker 1: We're also walking into the summer blend season, and summer
• 24:35
  Speaker 1: prices always higher because you have to use a summer blend,
• 24:38
  Speaker 1: So that'll kick it up a little bit. But my
• 24:40
  Speaker 1: indications from here, unless you get more tensions out on
• 24:43
  Speaker 1: the Middle East. Like Lisa mentions, you basically need that
• 24:46
  Speaker 1: to keep these prices higher. So after the summer's over,
• 24:50
  Speaker 1: after we get past that blend season, unless we can
• 24:53
  Speaker 1: get really good reasons for cutting from these producers who
• 24:57
  Speaker 1: actually need the money we can, they only gonna go
• 24:59
  Speaker 1: so long crude oil prices should have a tendency to
• 25:01
  Speaker 1: probably pick up. The difference is for investors in Crudel,
• 25:05
  Speaker 1: they have backradationl backgradation means if you're a buyer and
• 25:08
  Speaker 1: holder of Crudel, you get that you get positive return,
• 25:12
  Speaker 1: which you did in the past. You used to have
• 25:13
  Speaker 1: to pay for that role. Now it's positive. So Mike,
• 25:16
  Speaker 1: just real quick, which country in the Middle East is
• 25:19
  Speaker 1: most key to watch with respect to oil prices right now?
• 25:22
  Speaker 1: We well, it's right now. It's the when you see
• 25:25
  Speaker 1: headlines of Saudi Arabia and missiles right away, that means
• 25:29
  Speaker 1: Crudel gets bit and missiles signed over rehad So that's
• 25:33
  Speaker 1: you know, the other other countries are more perfect, but
• 25:35
  Speaker 1: Saudi a radios Arabia is the biggest producer. And when
• 25:38
  Speaker 1: I see Mrs see that, I would expect Crudel will
• 25:40
  Speaker 1: be up ten percent and it's only up six percent.
• 25:43
  Speaker 1: Part of the reason this week is it's already very
• 25:45
  Speaker 1: stretched and aluminum. Look at aluminium, it was at his
• 25:48
  Speaker 1: fifty two week average so and in a bull market,
• 25:50
  Speaker 1: so we had a lot more room to go up.
• 25:51
  Speaker 1: And that's kind of I look at it technically and
• 25:53
  Speaker 1: then open the fundamentals. Mike mclogan, we always love having you.
• 25:56
  Speaker 1: Thank you so much for being with us. Mike mcloonan
• 25:58
  Speaker 1: is a commodity strategistic for Bloomberg Intelligence, and of course,
• 26:01
  Speaker 1: aluminum jumping in part due to the news out of
• 26:05
  Speaker 1: Russia and Russol being sanctioned by the US possibly cutting
• 26:10
  Speaker 1: off its supplies. Thanks for listening to the Bloomberg P
• 26:16
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 26:19
  Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 26:23
  Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm
• 26:27
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 26:30
  Speaker 1: You can always catch us worldwide on Bloomberg Radio.