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Welcome to the Week Ahead with Tony Nash. In this episode, we discussed three crucial topics:
- Central Banks Unveiled: We’re joined by Arno Venter to unravel the mystery behind central banks’ actions and their impact on trading. Is the European Central Bank lagging in the fight against inflation, and what does it mean for the market?
- Diesel and Refinery Challenges: Tracy Shuchart enlightens us on the increasing troubles faced by aging refineries in the U.S. With a 53% rise in unplanned mechanical issues, we explore how this contributes to rising gasoline prices. Plus, find out which markets are hit hardest by Russia’s ban on gasoline and diesel exports.
- Venezuelan Migrants and U.S. Elections: Albert Marko discusses the Biden administration’s decision to extend protection to a significant number of Venezuelan migrants in the U.S. We dissect the motives behind this move, whether it’s election-year politics or a strategy to boost oil supply amid Saudi Arabian cuts.
Join us for a clear and concise analysis of these important topics in plain language you can understand. Stay informed for the week ahead! Don’t forget to like, subscribe, and share for more valuable insights.
Key themes:
- Central banks breaking things
- Diesel & refinery alerts
- Venezuela migrants & crude supply?
Transcript
Tony Nash
Hi, everyone. Welcome to the week ahead. I’m Tony Nash. Today, we’re joined by Arno Venter from South Africa, Tracy Shuchart and Albert Marko. We had a big Fed meeting. We’ve had some really interesting things happening with POJ this week. And so, of course, we’re going to talk about central banks breaking things today. Arno is going to talk us through that. Tracy is going to walk us through diesel and refineries. There is quite a lot happening there and some things we’ve talked about for a long time, but it’s a good reminder of what’s happening in those markets. And then we had a big announcement in the US about Venezuelan migrants. I want to dig into that a little bit and understand what is happening there. Before we get started, I want to let you know about a new free tier we have within CI Markets, our Global Market Forecasting Platform. We want to share the power of CI Markets with everyone. So we’ve made a few things free. First, economics. We share all of our global economics forecast for the top 50 economies. We also share our major currency forecasts, as well as Nikkei 100 stocks.
Tony Nash
So you can get a look at what do our stock forecast look like. There is no credit card required. You can just sign up on our website and get started right away. So check it out. CI Market’s Free. Look at the link below and get started ASAP. Thank you.
Tony Nash
Guys, thanks so much for taking time out of your week for this. Arno, it’s great to have you on. Thanks for coming. I’ve got a tweet on the screen. You pretty much called how the Fed would move this week and said the reaction would be a nightmare to trade. Can you talk us through that? Why is it a nightmare to trade?
Arno Venter
Well, to be honest, I wish I can take credit for calling the outcome, but the tricky outcome I was actually looking for was a Fed that decided to drop the 2023 dot to show no more hikes for this year and then ramp up the 2024 dots to above 5 %. So that was actually what I was going for. And my thinking with that was that if we got that, it would have been a nightmare for the markets to digest because you would have a doveish outcome on the 2023 dots, because no longer seeing scope for November, but then obviously ramping up to 2024. And I just thought that would be the worst case scenario for markets out there, because you would have so much to a volatility. But I mean, in the end, they actually delivered quite a hawkish message. I expected them to move up that 2024 one, but it was… I didn’t expect them to do 2025. I thought that was quite hawkish. That was quite a strong message from them saying that not only are we going to hike November, but we’re going to follow through with… We only see scope for 50.
Arno Venter
And if you think about it from a timing perspective, the fact that they had 100 priced in for June, that meant that cuts could have potentially happened somewhere, let’s say, quarter two as early as that. If you think of four hikes making room for that within their meetings, the fact that they went 50 probably pushes that all the way back to the second half of next year and then only the first half of 2025. So that was pretty hawkish stuff. Definitely not what I expected on that 2023 dot. For me, it’s like that last hike, does it really matter at this stage in the cycle? I think they could have let that one out and just still gave a signal that listen, hire for longer is here to stay. But that last hike, I just don’t know whether it’s worth it at this stage. We also had Powell kind of alluding to the same thing. They asked saying, Listen, why not just hike then now? Why do it a month later? It doesn’t really matter. He even said, Listen, maybe one more hike doesn’t matter. But anyway, yeah. I wish I could take credit.
Tony Nash
That’s interesting. Why do you think they’re waiting? Do you think they’re spooked? Do you think they’re looking at markets and they’re a little bit worried about things?
Arno Venter
I think what happened is I think they… Their communication, we know they don’t like to surprise when it comes to the rate decision itself. They would often surprise with the statement and the language and the tone, et cetera. What they don’t like to do is spook us on rates. And we had, what was it, four or five or six of the FMC members coming out, basically telling us they feel it’s better to pause in September. So I think the only reason why they pause this time round is because they told us they were going to do it and they don’t want to spook the markets. We went into blackout. They couldn’t really change that view. But I mean, it’s silly to this whole skip thing. If you’re going to hike anyway, just hike. Get it over with, get it up to that level. I know they would say that they don’t have a level in mind, but we know they have a level in mind. Just get to that level and then keep it there. But this flip flopping is just… But it is what it is. I mean, that’s central.
Tony Nash
Getting to six always seemed a little bit extreme, right?
Arno Venter
Yeah. I mean, look, inflation was very scary. I mean, it’s still scary looking at what’s happening now in commodity markets. I think they’re getting a little bit of a wake-up call. It was quite interesting to hear Pal talk about their forecasters saying that they’ve got the best in the business. I’m not sure about that. But anyway, 6% we’re so close to it that I think we were going to get close to six when they started. I didn’t think so. But inflation was just… It’s been on a rampage. So the level makes sense, but doing this whole skip thing for me is just a waste of time.
Tony Nash
Yeah, I used to work for two of the forecasters they rely on, and they’re really good talkers.
Albert Marko
Their problem is simply inflation. They’re trying to sit there and be cute about, Oh, data-driven, so on, so forth. But because of the political policies that are countering any Fed policy, they’re stuck between a rock and a hard place. I’ve always said that they’re going to get to six %. One way or another, they’re going to get there. That’s mainly due to inflation, and it’s not stopping. It’s reaccelerating. Oil has been on a rampage. They can sit there and put out whatever dot plots they want. But I don’t even take those seriously, to be honest with you. I think last year, their dot plot said they’d be down to 1%. I mean, that’s a joke.
Tony Nash
It’s good for sell-side research, right? I mean, it’s good fought for sell-side research.
Albert Marko
Yeah, that’s fine. You want to talk to fundamental guys and data-driven traders? Sure. You’re going to look at all that stuff because it moves the markets in the short term. But if you look over the long term, their political policies have gotten in the way and this is where we are.
Arno Venter
It was quite clear from what he has to say that they’re not really sure of anything right now. They gave us these dots and yes, it was much more hawkish than I thought it would be. But it doesn’t seem like they really know where it’s going. I think when he says we are taking this meeting by meeting, they really mean it this time because they have no clue. Listen, when we get to November, we’ll make a call and see whether that’s the right one type of thing.
Tony Nash
I think- Go ahead, Albert.
Albert Marko
Yeah, there’s no question. Arno is absolutely correct. They’re taking a meeting by meeting. They’re forced to take it meeting by meeting. They’re forced to take a meeting by meeting. Now there is no long-term strategy that the Fed has or policy or tools in the toolbox that they can use to bring inflation down to two % again. That is a pipe dream. It’s not going to happen. And more importantly, you’ve actually seen some Fed research come out recently talking about, Oh, well, maybe 4% should be the standard going forward. They’re already starting this narrative, Tony. They’re already starting it. Now, I don’t think that we’re going to say the Fed say 4% is the target, but don’t be surprised if 2.75 or 2.5 and then three comes along in a year or two and so on and so forth because there’s just no possible way we’re getting back to 2%.
Tony Nash
They’ll work on inflation bands like they work on rate hike bands within 50 basis points or something like that. They’ll be right technically, but will they really be right precisely? Maybe.
Albert Marko
Yeah, that’s right, Tony, because most of the markets… We had 9% inflation here in the United States last year. That means $100 item is 109. 3% this year or 4% this year doesn’t mean that you’re paying 104. It means you’re paying 113 for items. So you’re still 13, 14% up from pre-COVID.
Tony Nash
Do you think that they’re trying to get parts of the economy into a deflationary position, groceries, things like that?
Albert Marko
Yeah, of course. That’s whatever politically advantageous it is for the 2024, that’s what they’re going to target.
Tony Nash
They’re looking for deflation in certain aspects, in certain segments.
Albert Marko
Yeah. I just don’t know how they’re going to do it.
Tony Nash
Okay.
Tracy Shuchart
Have to bring up that I do think that they’re very unsure and don’t really know what’s going on right now. Because even during that presser, some reporter asked, Would you call a soft landing expectation plausible? The first thing out of Powell’s mouth was, no. Then he went off and he backtracked with some garbled words out.
Tony Nash
How to destroy a year and a half of narrative.
Tracy Shuchart
Right. Again, and I just felt the whole time, I had made notes that he was just very contradictory and came off very unsure.
Tony Nash
He did. I felt that same thing, that he was very hawkish, but he wasn’t confidently hawkish. And it tells me that they’re a little worried, I think. And I think the data that comes in in October, we really need to be looking at some things falling over. So here’s just an anecdote that I know about. I have a friend who runs a shop, and they had to hire people over the past year at a certain wage. They’re now offering new people a much lower wage than they paid last year. They’re looking at cycling out those higher wage people with lower wage workers. That is one way to get services wage deflation, I think.
Albert Marko
Yeah, but productivity goes down. There’s a double edged sword here.
Tony Nash
Maybe. It might. I don’t know. But I think the people on the front lines who are managing shops, who are managing landscaping firms, who are managing a lot of this stuff, they’re really looking at how do they bring down their hourly wage because their customers can’t take any more price hikes. And so for these services firms, they’re trying to figure out how to bring that down by 10 %, 20 %, something like that. That so that they don’t have to continue to pass price hikes onto their customer because their customers, they just can’t take it anymore. We’re at that point in the cycle, I believe, where the consumer is fatigued. Now, there are plenty of people on social media who would tell you the consumer isn’t fatigued, all this stuff, but the American consumer, I think, is very fatigued.
Albert Marko
We’re certainly getting there. Certainly getting there. You can even see it in the luxury items market where you go, Just go to a mall, walk into a Gucci store. A year ago, it was filled to the brim with everyone buying $800 juice. Today you go there and there’s maybe two people in it. You can see it on the ground. I don’t need data numbers to look at it.
Tony Nash
Right, exactly. Arno, look… Go ahead.
Tony Nash
No, go ahead to add to that.
Arno Venter
I think the other thing that is also a canary in the coal mine is all of the strikes happening. You don’t see that happen unless people are really getting squeezed. I think that is a very good barometer to show us that, listen, even though spending has held up okay, the consumer is getting squeezed right now, and they won’t be doing all of this strike action if it’s not hurting at this stage.
Tony Nash
That’s right. Exactly. We are at that weird point where there has to be a turn somewhere. I think we’re going to start seeing in the data and we may have a month in the next couple of months that really surprises to the downside conveniently, but it might be true too.
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AI
Thank you and now back to the show.
Tony Nash
Let’s talk about other central banks, Arno. We’ve seen the ECB continue to go into rate hikes. They’re slightly behind the Fed, I think, in terms of hikes. Now, even though the ECB continues to hike, the euro continues to weaken against the dollar. We have a chart here that shows one year, USD against the euro. Is the ECB still… Do you believe the ECB is still behind the US in terms of inflation fighting?
Arno Venter
Absolutely. We’re almost 2% difference on the headline over a percentage difference on the core. The problem that we have in Europe right now in terms of inflation is that they, unlike the US, they don’t produce. So they are in a much tighter situation right now. You can obviously add in China into that mix as well. But sticking to inflation, they’re definitely behind the curve, definitely behind the Fed. But the big difference here is that they don’t have the economic data right now to back up more tightly. If you take a look at US data, even though there is definitely showing up, I mean, Atlanta Fed GDP, I looked at this earlier, we saw a full spot, nine %. I know that’s going to be revised lower, but growth is holding up much better. So growth is okay in the US. There’s been that whole US exceptionalism narrative running around. And I think that’s been the biggest negative driver for the euro right now. But in terms of the ECB, where they are right now is a much bigger rock and a hard place compared to the Fed, because they actually have the growth data that is so dismal.
Arno Venter
I mean, if you take a look at today’s French Flash PMI data that came out, it’s pretty dismal. The German data was better than expected, but we’re still below 40 on manufacturing. So it’s looking bleak. I just don’t think they know they’re behind. Everybody knows they’re behind. But the growth data doesn’t allow them right now to be as hawkish as they should have been. They should have gone much more aggressive earlier, but where they are now, they can’t anymore. They should have done it earlier, but now it’s like a rock and a hard place. And again, if you take a look at what commodities are doing right now, that whole reacceleration and inflation narrative, it’s something… I didn’t think they would even mention it, but I was quite surprised that all of these central bank meetings, all of them mentioned the recent moving commodity prices. You would think they would try and steer away from it, but they actually all said, Listen, this is something we’re watching. It’s a concern. But what can they do? If they continue hiking right now, if Germany is already in a recession, how much worse can it get for them?
Arno Venter
They’re in between a rock and a hard place right now.
Tony Nash
Given the economic data prints, do you think the ECB has overtightened given their performance?
Arno Venter
No, I don’t think so. I think the cycle just caught up to them a little bit earlier. I think the big difference between, I would say, Europe and the US in terms of the hiking cycle is a big component of their problem, I think, was China. Everybody was expecting China to do okay. And I mean, that narrative has just been completely smacked out of the park. So I think for them, the cycle caught up a lot faster because China, that massive exposure to China was a big influence for them. And obviously, they are more exposed right now to all of the other geopolitical concerns going on. In terms of whether they’ve overtightened, I think they could have done more. They should have done more a lot earlier. The one thing that I think is quite interesting, is that even though most of the data is probably made up that we get from China anyway, but if we get data in Q4 that looks slightly better than expected, at some stage you would expect things to start looking okay, even if it’s not real numbers. And I do think that the sentiment when it comes to the Euro or the Eurozone right now has been pretty pessimistic for good reason.
Arno Venter
But if China does start showing some signs of recovery, whether that’s real or not, that could feed into some sentiment for the Eurozone. And if the data starts looking slightly better, maybe there’s a scope for them to potentially hold rates higher for longer as they plan to. If that doesn’t happen in China tanks, we probably looking at the first central bank to cut rates in terms of the ECB. But I do think quarter four could be a little bit of a wild card looking at China right now.
Tony Nash
Okay, interesting. So you don’t think Europe is necessarily done. They’re just in a data-dependent hold pattern, it sounds like.
Arno Venter
I think if growth held up, they wouldn’t have called a pause last week, or at least signaled that they are done. I think if growth looked better, like the Fed, they would have rather opted for maybe one or two more hikes. But we know that from a political perspective, Germany, so Germany is so important for their decision making. When you look at German data, it’s like that’s the elephant in the room. Everybody is looking at Germany when you want to make a policy decision. I think that’s where the problem comes in is they have to talk more garbage for the sake of the growth story. If that wasn’t the case, I think they could have done one or two more. They should have. If you think of what they’re doing.
Tony Nash
I get the sense if we had a German ECB head, they would have hiked earlier and sharper. But because we have a French ECB head, it’s been slower and more moderate. I could be wrong, but that’s the way it seems to me. Can we talk about Japan for a little bit and BOJ and some of the dilemmas they’re facing? We have this BOJ chief who’s relatively new. He’s been in the seat for about six months. We’re standing pat on policy. We’re not necessarily taking action either way. Is that really a function of the Japanese economy? I mean, the PMIs came in pretty weak, even weaker than expected this week. Imports are way down, like double-digit down in the same way it was last quarter when they had that stellar GDP growth, but it was just stellar GDP because of the import adjustment. The BOJ is obviously very important in terms of obviously Asian trade and money markets. So what is the BOJ thinking right now? And do you think they’ll move soon or do you think they’ll just continue to play it safe and sit where they are?
Arno Venter
I think their biggest problem has been history. Time is not on their side. I think that whole deflation narrative that we’ve had in place for what’s a three decades, I just think that that whole thing, they’re not able to shake that off. There’s some positive signs in terms of wages. It does seem like they’re really trying their best, at least from a policy perspective, to try and boost wages and try and get inflation of that way. But I think one of the… Let’s just assume wages do go up decently. Will they be able to change the Japanese consumer’s mind, their whole mentality that’s around spending and not being as frugal? Unless you change that and unless you change the demographics, they’re always going to have this type of tail problem following them. So I don’t know. Everybody got excited a couple of months ago about them potentially moving. And look, inflation, I think they could have taken a shot at it. With inflation where it is, just try something different maybe for a change. You’ve tried this for three decades. It hasn’t worked. You haven’t stimulated the economy at all. So maybe try something else.
Arno Venter
But I think for them it’s really… I don’t think they’re going to move soon. They should have done it already. They had the chance, but I don’t know, this bank, I think, is just stuck in that mentality. It’s going to be difficult to, I think, persuade them otherwise.
Tony Nash
Because they’re so integrated with China, do you think they’re caught given China’s downturn? Do you think they’re caught between, say, the US running a little bit hot and China running pretty cold? Are they caught in the middle, you think?
Arno Venter
I don’t think it’s necessarily a caught in the middle scenario. A couple of months ago, they had a good chance to move away. The markets gave them that leeway as well. If everybody was prepped for them to start moving away, I think they should have taken that chance when they could. And you know what? A couple of quarters later, they could have maybe said, hey, we made a mistake because growth is slowing down. But I mean, growth has been anemic for three decades. They oscillate between no growth and very little growth. So it’s like maybe they should have moved ahead of… But at this time, I think regardless of China or the US, they need to make a decision to move away from this type of policy. And if they don’t take the shot now with inflation at the highest levels in four decades, I’m not sure what’s going to convince them. I mean, growth, I don’t think at this stage, growth should be their driver. I think at this stage, they should look at inflation as you know what, let’s just hike interest rates and see what happens. Obviously, there’s a lot of concerns with the amount of JJBs they’re holding.
Arno Venter
There’s a lot of losses in store for if they move yield. So maybe it’s more a case of the balance sheet. Maybe that’s the concern. Maybe they would… But how can you reverse that? After you’ve bought, I think they’re sitting on what, 51 or 52 % of all JJBs in circulation.
Tony Nash
And the to the apps, right?
Arno Venter
You have to either stop and then start getting rid of that, unless I don’t know. I don’t know what they can do. They’ve dug a big hole for themselves.
Tony Nash
Albert, what do you think about BOJ? Do you think they should move a little bit more hawkish?
Albert Marko
I think they should to head off inflation. I think they do have a wage inflation problem on coming. I think because of China’s slowdown and their manufacturing has been increasing slightly, I think that they are going to have a problem with inflation. I think they should move right now, but who knows what they’re thinking behind the scenes, and who knows what Yellen and the Treasury are asking them to do on the back end. I agree with Arno, they should move, but they’re probably not going to.
Tony Nash
Tracy, with Japan’s import data down so dramatically, are they importing less energy? Is that a part of a component of it?
Tracy Shuchart
They were at one time. They are the largest importer of natural gas in the world. They were just surpassed by China. We did see a little bit of slowdown, but we also have seen some projects with Russia that are new in the Arctic to secure supply. That dynamic’s changed a little bit, so they’re now a partial owner of that. But we are seeing what’s really interesting in the energy sector that we’re seeing in Japan is them reigniting their nuclear capacity and opening up and extending nuclear facilities. That’s been very good for the uranium market.
Tony Nash
Great. I noticed you said partnering with Russia. Let’s just hold that for a minute. Okay, Tracy, let’s move on to energy. You put out a brilliant tweet earlier this week about aging refineries in the US. We’ve talked about this many times before, so this should not be news to any regular week ahead watchers. You said unplanned mechanical issues are up 53% from last year. How much has this stuff contributed to higher gasoline prices in the US?
Tracy Shuchart
Well, certainly it does add a problem because when you have demand that is still high and increasing into the year, we have a demand for gas is 6.8% higher than it was this time last year. We have increasing demand and obviously we have a shrinking or stagnant refining capacity in that in itself is obviously going to be a problem. Now you add on more downtime for these refiners due to mechanical problems and that just exacerbates the situation.
Tony Nash
When you said 6.8%, is that the price or the volume? Sorry, I missed that.
Tracy Shuchart
6.8% demand, higher demand than we were at this time last year.
Tony Nash
Okay, great. Can you help me understand? You also posted about Russia’s ban on gasoline and diesel exports. What markets would that impact the most? Turkey or the EU or India? I’m not really sure.
Tracy Shuchart
It’s going to impact… Well, Turkey obviously is their largest buyer, and therefore the EU. The EU purchase a lot of diesel from Russia, even with the sanctions, because there’s loopholes, obviously, if it goes through Turkey, that’s fine, or if it’s by ship, that’s fine as well. That’s going to really impact the EU, and that’s why we saw… What day was that? That was just yesterday. Oh, my God. I’m losing track of-
Tony Nash
Long week.
Tracy Shuchart
But I know. Oh, my God. Anyway, yesterday, if you saw, what happened was we saw diesel refiners in the US spike. That was the only bright spot in oil and oil equities all day. But that’s because US refiners should likely benefit from the EU seeks alternatives. We still have a lot of refining capacity. They already do buy from us. We already do buy from them as well. I think it’ll be good for diesel refiner, certainly with all of that off the market. That’s just globally because they export a lot of diesel globally.
Tony Nash
Okay, But if we have refinery downtime and capacity impaired, how are we going to do… How is the US going to do that?
Tracy Shuchart
Well, but this is a global problem. We have Pyrenees and the Netherlands has gone down three times already this year. They have aging refining problems in the EU as well, and that’s the largest diesel refiner in all of Europe. We have a global refining capacity problem is really what it boils down to. Nobody wants to put money into refining capacity when you have governments telling you we want you disappeared by 2030.
Tony Nash
Right. We’re all going to be driving electric cars by.
Tracy Shuchart
2030, right? Right, exactly. This is really a global problem. It’s been a global problem, and it’s not going away anytime soon.
Tony Nash
Yeah. Okay, so you had some subtle points there, and I’m seeing a trend here. Japan is doing projects with Russia on the gas side. Europe is dependent on Russia for diesel still, as long as it goes through Turkey. Are these sanctions doing anything? It feels like this is just really a stupid fig leaf.
Tracy Shuchart
Well, if you look at it from the perspective of has Russia suffered from oil and gas sanctions as far as how much money they make? No, absolutely not. Price cap’s been exceeded? Yes. Has their economy been hurt in other ways? One could argue a little bit because if you look at all the stimulus measures they’ve put in place this year, which is very different for them, for their people to stimulate the economy as far as we’re going to give you money for kids, the more kids you have, we’re going to give you. There’s a lot of stimulus measures that did out there. But really, if we’re just looking at oil and gas sanctions and perspective of has it hurt them financially? No.
Tony Nash
Tracy, they don’t have McDonald’s anymore.
Tracy Shuchart
I know. Or Starbucks.
Tony Nash
Or Starbucks, right. They must be suffering. Okay. In terms of supply, I want to turn to Albert and talk about this Venezuela migrant issue and work that into potential supply angles. Albert, this week, the Biden administration extended protection for 472,000 Venezuelan migrants in the US. This is about the same size as the entire city of Raleigh, North Carolina, or Atlanta, Georgia. Imagine adding another one of those cities in one signature. It’s a significant number of people on the screen. I’ve got cities in the US that are about that size. 38th to 40th size of city is what the Biden administration just accepted into the US. I want to ask first on the political side. Why are they doing this? Is it election your politics? What is the American electorate feel about these types of immigration, illegal immigration issues?
Albert Marko
Well, obviously, immigration has become a hot topic ever since the sanctuary city issues in New York City is faced by, I think it’s only 100,000 migrants. Specifically with the Venezuelan move by the Biden administration, of course, is political. I think they’re miscalculating the political aspect of it because the Hispanic community in America is not unified. This is a fundamental flaw in their thinking for so long. You have Venezuelans, Puerto Ricans, Cubans, Mexicans, so on and so forth. They don’t like each other, first of all. For whatever reason they have against each other, they don’t even like each other. The Venezuelan move is, in my opinion, it was probably three-fold in their minds. One would be the political aspect of appeasing the Hispanic and immigration, the pro-immigration lobby. Two, Curry favor with the Venezuelans to probably get a little better deal on the Chevron or other waivers that they have for oil-producing contracts. The other issue is labor market. Accepting these amount of people probably helps the labor market fill in some of the gaps from the boomers leaving the market, from leaving the workforce. I think that’s what their calculations were. I don’t think any of them are going to work.
Albert Marko
I think it’s a complete miscalculation in that front.
Tony Nash
Let’s tackle the labor market first. What segment of the US population does that hit? Are those new workers going to take down the rate that white-collar consultants and finance people can charge? Of course. They’re largely going to hit lower wage, hourly workers who are already having trouble making ends meet, right?
Albert Marko
That’s correct.
Tony Nash
I don’t understand if that is the traditional Democrat voter, then how is this helping their base?
Albert Marko
In the blue-collar… Listen.
Albert Marko
The Democrats have a problem with blue-collar workers leaving the party. There’s no question about that. Ever since Trump came in, he’s siphoned off numerous votes from that party. They have a problem with that. They’re trying to offset it with the Latino votes in certain areas of the country, mainly urban areas like DC, Philadelphia, Houston, so on and so forth. Like I said, this is a miscalculation on their part. This is probably going to anger a lot more blue-collar families that are most likely going to lose jobs or at least get their wages cut down.
Albert Marko
Yeah. Of course. Right now, plumbers are making unbelievable amounts of money. But as these lower-wage workers enter the workforce, I’m not saying maybe in a year, but four or five years, entrepreneurial Venezuelans will start hitting those markets, hitting the plumbing, electricians, and so on and so forth, and it’s going to be a problem.
Tony Nash
Arno, from your side of the world, I don’t know how much US immigration hits the news there. I know you don’t speak on behalf of entire nation, but what does it look like from outside of the US when you hear about US immigration issues?
Arno Venter
Well, I think for me, the biggest… How can I put this? I think the funniest thing is where it comes from. I think the country that it has to deal with, I think often you don’t have to be in the US to know when it’s purely politically motivated. So when you have Venezuela and stuff like that, you immediately know it’s going to be all about oil. So I think what’s interesting is the motives around it. It seems like every single thing is, and of course it is, but it seems like everything is just it’s a means to an end. But it does seem like from the outside, it seems like very little people that you talk to is happy with these decisions. Even those from the Democratic Party, it seems like everybody you talk to is just not happy with the way that these things are going. So it seems like it feels like they are doing their best to anger everybody on either side of the aisle. But yeah, it just looks all motivated from this side.
Tony Nash
Okay, interesting. Okay, Tracey, so if this is energy related, how much capacity does… First of all, why Venezuela? The grade of oil works well in US refineries, right?
Tracy Shuchart
Well, yes. But the-
Tony Nash
Okay, then if the grade of oil works well in US refineries, then is their crude capacity to come to the US?
Tracy Shuchart
No, that’s therein lies the problem is this government seems to think or this administration has this idea in their head that they can… Venezuela has the largest oil reserves in the world. They used to produce 4.5 million barrels a day. They’re at 700,000 per day from 4.5 million, let’s just put it that way. What they’ve had is years and years of mismanagement and degradation of their facilities. If the US really wants oil from Venezuela, they need to pour billions and billions and billions into infrastructure because it’s just not possible to get blood from a turnip, so to speak.
Tony Nash
Okay.
Tracy Shuchart
Think they’re completely delusional if they think that they can get any real capacity from venezuela at this point.
Tony Nash
We do have Jennifer Granholm as our energy secretary. That probably.
Tony Nash
Is the reason for the flawed thinking.
Albert Marko
A lot of trust in that one. But the other thing that I’ve always found hypothetical about the United States’s stance with Venezuela and the oil industry is there’s such huge climate warriors here in the United States, but they completely ignore that Lake Maracaibo has more oil in it than they’re probably exporting. That goes to what Tracy was saying about the infrastructure being so dilapidated there that it needs to get addressed. This is ridiculous. To work with a country that has oil directly spilled into Lake Maracaibo is unbelievable. I’m not a climate war and I’m not some hardcore climate, so on and so forth. But there’s certain things that you can’t sit there and dictate to the world and then completely ignore when it suits your interests.
Tony Nash
But it’s not here.
Albert Marko
I understand that.
Tony Nash
Is it feasible, Albert and Tracy, that the US could end up spending billions and billions of dollars on Venezuelan upstream infrastructure in order to export more to US refineries as a counterweight to Saudi Arabia and OPEC?
Albert Marko
No, that would fall to… I’ll let Tracy go on more, but it’ll fall on Chevron and Exxon and others.
Tony Nash
Okay, so those guys would spend the money?
Albert Marko
Yeah, and what the United States backfills them later, who knows?
Tony Nash
But that’s going to take 10 years, right? It’s not.
Tony Nash
Something they can whip up.
Tracy Shuchart
Oh, no. Yeah, this is not going to come online at all. You need to completely rebuild these facilities. You need to rebuild their refines. You need to rebuild everything in that country. You’re not going to get away. The problem is it’s a black hole. You can pour all this money in this country and it’s all going to bribes and it’s all going to corruption and the government is still going to steal from the oil companies. It’s filling a black hole.
Albert Marko
What about the brain drain, Tracy? What about the brain drain of all the engineers that were qualified that most likely left to Iran or Iraq or something?
Tracy Shuchart
Oh, yeah, absolutely.
Tony Nash
Yeah. I was once working with a certain Asian government who was spending a trillion dollars on infrastructure. I was trying to encourage them to have transparent tendering. I asked them the question, How much are you willing to fall off the table to corruption? 10%, 20%, 30%, 40%. They wouldn’t answer the question. I don’t think particularly Americans understand how much socialist… I mean, of course, it happens in the West too, right? But how much money falls off the table to corruption in these centrally planned economies. If the US were to spend $50, $100 billion on the upstream in Venezuela, we could write 50% of that off, and it would not be focused on the upstream at all. It would be focused on going into different pockets. 30% is a small amount to siphon off to corruption.
Arno Venter
They should come and visit us here in South Africa to see what happens to all of those funds, all of these amazing projects.
Tony Nash
Tell us about it, Arno. Where does it go?
Arno Venter
Well, if you take a look at our biggest success story in terms of trying to sort out the electricity mess that we’re in, they are going on 10 years now, something that they should have spent, I think they should have spent two or three years on it. We’re going on 10 years now. It’s still broken. It’s still down. There’s still load shedding. Every single time that Western governments pour money into South Africa or economies like South Africa, it’s a fairy tale to think those things are going to go to those projects. Like you said, the correct wording is it’s a black hole. You are just going to keep on feeding money and it’s not going to give you the result you need.
Tony Nash
Okay, so we can conclude that a rational person may decide that the Venezuela move is not about upstream infrastructure, and it’s not about crude capacity coming to the US. It’s not about a counter to OPEC and Saudi Arabia, right? It has to be about labor cost, right?
Albert Marko
It has to be. There’s no other reasoning. I would say two-thirds labor cost, one-third appeasing the Hispanic vote. If I was supposed to give odds, that’s what I would say.
Tony Nash
Okay, interesting. It’s not just the Fed fighting inflation, it’s also the executive branch through immigration policy.
Albert Marko
Yeah, it’s coordinated. I mean, inflation has been a top issue for the past two years now. It’s not going away, it’s just getting worse. Of course, we’re going to have to try to address it one way or another.
Tony Nash
But it’s hurting the very lowest-end earners in the US economy. That’s the tragedy in this, is that, yes, it’s alleviating some stress, but it’s hurting the lowest-income earners in the US economy. Does that help services wages? Like in what time frame? Does it help in three months, six months, a year?
Albert Marko
Year.
Tony Nash
A year.
Albert Marko
Okay. Yeah, about a year.
Tony Nash
Okay. It’s going to take some time still.
Albert Marko
Especially in the hospitality sectors, I would definitely look at that come June, July, August of next year and could see it come down.
Tony Nash
Okay. All right. Well, we’ll wait a little bit right in the middle of election season. We’ll start just-
Albert Marko
Yeah, imagine that.
Tony Nash
What timing? -imagine that. Really interesting timing. Perfect. On that note, guys, thank you so much for your time. I really appreciate it. This has been really insightful. Thanks so much. Have a great weekend and have a great week ahead.
Albert Marko
Great day. Thank you.
Tracy Shuchart
Thank you.
Arno Venter
Thanks, guys.
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