The full episode was posted at https://www.channelnewsasia.com. It may be removed after a few weeks. This video segment is owned by CNA.
Show Notes
CNA: Welcome back to Asia First. Wall Street took a hit overnight amid concerns that a rise in Omicron cases would stall growth and add to inflationary pressures. Experts say supply chains and corporate profits could be dealt another blow as the possibility of increased restrictions is back on the table.
The Dow and the Nasdaq tumbled 1.2 percent. The S&P 500 closed 1.1 lower, with financials and materials among the biggest decliners. Also weighing on sentiment, Goldman Sachs has lowered its US growth forecast for next year. This after Senator Joe Manchin said over the weekend he would oppose President Biden’s 1.75 trillion dollar spending bill.
Let’s bring in Tony Nash. Now, he’s founder and CEO of Complete Intelligence, joining us from Houston, Texas. Lots to talk about today, Tony. So let’s start with Omicron. How much do you think potential measures are going to dent economic growth given the spread of the highly transmissible variant coinciding with the end of the era of cheap money?
TN: Yeah, it’s a good question. I think it really depends on where in the US you are. I’m in Texas and in in certain parts of the country you could barely tell that there’s a pandemic. There aren’t restrictions at all here, in Florida and other places. And also, we had our surge a couple months ago. So we’re on the downside of that surge now.
In the north, where you have kind of seasonal viruses, they’re on the up upward motion of the surge and so there’s a lot of sensitivity in northern states like New York, Boston, or Massachusetts, Washington DC, Michigan those sorts of places. So I think what you’re seeing is a kind of seasonal sensitivity because of Omicron and people getting nervous and so you know, again it really all depends where you are in the US.
For the upcoming Christmas break, flights are packed. Americans are traveling again. These sorts of things are happening. So, of course, there’s always a risk that people will do a hard lockdown like DC has put in some new measures today. But other places are seeing the virus as endemic and just kind of trying to move on with it. So, I think it could go either way but I don’t necessarily think we’ll have sustained negative impact. We could have short-term negative impact.
CNA: What about the risk from Fed moves and do you think the projected three rate hikes next year are going to be enough to contain inflation given the potential for Omicron to cause these price pressures to spike?
TN: Sure. You know, I do think that the Fed will pursue the tightening, meaning of its balance sheet pretty quickly. I think the rate hikes they’ll probably do one and wait and see and then they’ll proceed with the others later.
I think we can’t forget that 2022 is a midterm election year in the US and the Fed, you know, they they try to stay nonpartisan sometimes. But you know, there’s going to be a lot of pressure for them to make sure that the economy continues growing at an acceptable pace and kind of pushes down against inflation, So they’re in a tricky spot so they can’t just go out of the gate with three rises. They have to take one. See how the market digests it. Continue to build up expectations for the later rate rises then proceed based on how the expectations are set in.
CNA: What would that mean for the flows into markets given how Biden administrations Build Back Better Plan is also facing a setback? We could see a narrower bill than the 1.75 trillion on the social and climate front. What then do you think the market drivers are going to be if both the central bank and the government are curtailing that stimulus?
TN: Right. You know it is possible. Like I said earlier, kind of travel those sorts of things are coming back. I think Americans are just dying to get back to something that’s a little more regular, a little less constricted.
You know we do see things like food, entertainment, travel these sorts of things moving. Temporarily, we do see things like technology dialing back. But you know as we get into Q1 or Q2, we think that stuff will come back and be interesting again. So. But not necessarily as much of the work from home activities. People here are gradually getting back into the office.
So you know what we will see say for US equity markets is because tapering and interest rates we will likely see a stronger Dollar and that stronger Dollar will attract more money from the rest of the world as well. So both domestic growth, although it’ll be a bit tepid in ’22 will help to continue to push markets marginally.
We’re not going to see massive growth like we saw in ’21. But the the strengthening US dollar will draw up liquidity from other parts of the world, too.
CNA: Just very quickly if you can, Tony. What do you think the outlook for energy demand and oil prices is going to be like given how some countries are already reverting back to containment measures?
TN: Yeah. Oil is tricky. In the near term, I think oil is a little bit tricky for the next few months. I think the outlook is better as we get say to the end of Q1 and into Q2. But for now, we’re not expecting a dramatic upturn in crude prices like we’ve seen in gas prices in Europe and other places.
CNA: Okay, we’ll leave it there for today and keep an eye on those commodities. Thanks very much for sharing your insights with us. Tony Nash of Complete Intelligence.
Tony Nash joins Daniel Lacalle in a discussion on the rise of the machines in a form of AI and machine learning and how Complete Intelligence helps clients automate budgeting with better accuracy using newer technologies like now casts. How GDP predictions are actually very erroneous yet nobody gets fired? And how about China’s GDP as well, and why it’s different from other economies? All these and so much more in markets in this fun discussion.
The video above is published by Daniel Lacalle – In English.
Show Notes
DL: Hello everyone and welcome to this podcast. It is a great pleasure to have somebody that you should actually follow in social media on Twitter, Tony Nash. He is somebody that you definitely need to need to look for because it has very very interesting ideas. Tony, how are you?
TN: Great, thanks Daniel. Thanks so much for having me today.
DL: It’s a tremendous pleasure as I said I was very much looking forward to to have a chat with you. Please introduce a little bit yourself. A little bit to our audience and let us know what is it that you do.
TN: Sure, thanks Daniel. My name is Tony Nash. I live in Houston, Texas. I’ve spent actually most of my life outside of the U.S. I spent most of my 20s in Europe, North Europe, the UK, Southern Europe and from my 30s to almost the end of my 40s I was in Asia. And so you know being in the U.S., Europe and Asia has really given me personally an interesting view on things like trade economics markets and so on and so forth.
During that time I was the global head of research for the economist out of London, I was based in Singapore at the time. Led the global research business. I moved from there to lead Asia consulting for a firm called IHS Markit which is owned by S&P now.
And after that I started my current firm Complete Intelligence which is a machine learning platform. We do global markets currencies, commodities, equity indices, economic concepts. We also do corporate revenue and expense forecasting so we’ll automate budgeting for large multinational firms.
DL: Wow! amazing. Truly amazing. You probably have a very interesting viewpoint on something that a lot of the people that follow us have probably diverging views. Know the situation about the impact of algorithms in the market the impact of high frequency trading and machines in markets.
We had a chat a few months ago with a professor at the London School of Economics that he used to invite me to his year-end lectures to to give a master class. And he mentioned that he was extremely concerned about the almost the rise of the machines. What is your view on this?
TN: I think so an Algo is not an Algo, right? I mean, I think a lot of the firms that are using Algo’s to trade are using extremely short-term algorithmic trading say horizons. Okay? So they’re looking at very short-term momentum and so on and so forth. And that stuff has been around for 10 plus years, it continues to improve. That’s not at all what we do we do monthly interval forecasts, Okay?
Now, when you talk to say an economist they’re looking at traditional say univariate and multivariate statistical approaches, which are kind of long-term trendy stuff. It’s not necessarily exclusively regression, it gets more sophisticated than that.
When we talk to people about machine learning, they assume we’re using exclusively those kind of algorithms. It’s not the case. There’s a mix we run what’s called an ensemble approach. We have some very short-term approaches. We have some longer-term traditional say econometric approaches. And then we use a configuration of which approach works best for that asset or that revenue line in a company or that cost line or whatever for that time.
So we don’t have let’s say, a fixed Algo for gold, Okay? Our algorithm for the gold price is continually changing based upon what’s happening in the market. Markets are not static, right? Trade flows economics, you know, money flows whatever they’re not static. So we’re taking all of that context data in. We’re using all of that to understand what’s happening in currencies, commodities and so on, as well as how that’s impacting company sales. Down to say the department or sub department level.
So what we can do with machine learning now. And this is you know when you mentioned should we fear the rise of the machines. We have a very large client right now who has hundreds of people involved in their budgeting process and it takes them three to four months to do their budgeting process. We’ve automated that process it now takes them 72 hours to run their annual budgeting process, okay? So it was millions of dollars of time and resources and that sort of thing. We’ve taken them now to do a continuous budgeting process to where we churn it out every month. So the CFO, the Head of FP&A and the rest of the say business leadership, see a refresh forecast every month.
Here’s the difference with what we do, compared to what a lot of traditional forecasters and machine learning people do, we track our error, okay? So we will as of next month have our error rates for everything we forecast on our platform. You want to know the error for our gold price forecast, it’ll be on there. You’ll know the error for our Corn, Crude, you know, JPY whatever, it’s on there. So many of our clients use our data for their kind of medium term trades so they have to know how to hedge that trade, right? And so if we have our one, three month error rates on there, something like that it really helps them understand the risk for the time horizon around which they’re trading. And so we do the same for enterprises. We let them know down to a very detailed level to error rates in our forecast because they’re taking the risk on what’s happening, right? So we want them to know the error associated with what they’re doing with what we’re doing.
So coming out of my past at the economist and and IHS and so on and so forth. I don’t know of anybody else who is being transparent enough to disclose their error rates to the public on a regular basis. So my hope is that the bigger guys take a cue from what we’re doing. That customers demand it from what we’re doing. And demand that the larger firms disclose their error rates because I think what the people who use information services will find is that the error rates for the large firms are pretty terrible. We know that they’re three to seven times our error rates in many cases but we can’t talk about that.
DL: But it’s an important thing. What you’ve just mentioned is an important thing because one of the things that is repeated over and over in social media and amongst the people that follow us is well, all these predictions from the IMF, from the different international bodies not to the IMF. Actually the IMF is probably one of the one that makes smaller mistakes but all of these predictions end up being so aggressively revised and that it’s very difficult for people to trust those, particularly the predictions.
TN: Right. That’s right.
DL: And one of the things that, for example when we do now casts in our firm or when with your clients. That’s one of the things that very few people talk about, is the margin of error is what has been the mistake that we have made in the in that previous prediction. And what have we done to correct it because one might probably you may want to expand on this. Why do you think that the models that are driving these now cast predictions from investment banks in some cases from international bodies and others? Are very rarely revised to improve the prediction and the predictability of the of the figures and the data that is being used in the model.
TN: It’s because the forecasters are not accountable to the traders, okay? One of the things I love about traders is they are accountable every single day for their PNO.
DL: Yeah, right.
TN: Every single day, every minute of every day they’re accountable for their PNO. Forecasters are not accountable to a PNO so they put together some really interesting sophisticated model that may not actually work in the real world, right? And you look at the forward curves or something like that, I mean all that stuff is great but that’s not a forecast, okay? So I love traders. I love talking to traders because they are accountable every single day. They make public mistakes. And again this is part of what I love about social media is traders will put their hypothesis out there and if they’re wrong people will somewhat respectfully make fun of them, okay?
DL: Not necessarily respectfully but they will.
TN: In some cases different but this is great and you know what economists and industry forecasts, commodity forecasters these guys have to be accountable as well. I would love it if traders would put forecasters up to the same level of criticism that they do other traders but they don’t.
DL: Don’t you find it interesting? I mean one of the things that I find more intellectually dishonest sometimes is to hear some of the forecasters say, well we’ve only made a downgrade of one point of one percentage point of GDP only.
TN: Only, right. It’s okay.
DL: So that is that we’ve grown accustomed to this idea that you start the year with a prediction of say, I don’t know three percent growth, which goes down to below two. And that doesn’t get anybody fired, it’s sort of like pretty much average but I think it’s very important because one of the things. And I want to gather your thoughts about this. One of the things that we get from this is that there is absolutely no analysis of the impact of stimulus packages for example, when you have somebody is announcing a trillion dollar stimulus package that’s going to generate one percent increase in trendline GDP growth it doesn’t. And everybody forgets about it but the trillion dollars are gone. What is your thoughts on this?
TN: Well, I think those are related in as much as… let’s say somebody downgraded GDP by one percent. What they’re not accounting for, What I think they’re not accounting for is let’s say the economic impact kind of multiplier. And I say that in quotes for that government spending, right? So in the old days you would have a government spending of say you know 500 billion dollars and let’s say that was on infrastructure. Traditionally you have a 1.6 multiplier for infrastructure spend so over the next say five years that seeps into the economy in a 1.6 times outs. So you get a double bang right you get the government spending say one-to-one impact on the economy. Then you get a point six times that in other industries but what’s actually happened.
And Michael Nicoletos does some really good analysis on this for China, for example. He says that for every unit of say debt that’s taken out in China, which is government debt. It takes eight something like eight units of debt to create one unit of GDP. So in China for example you don’t have an economic multiplier you have an economic divisor, right?
DL: Exactly.
TN: So the more the Chinese government spends actually the less GDP growth which is weird, right? But it tells me that China is an economy that is begging for a market. A real market, okay? Rather than kind of central planning and you and Europe. I’m sure you’re very familiar with the Soviet Union. I studied a lot of that in my undergrad days very familiar with the impact of central planning. China there’s this illusion that there is no central planning in China but we’re seeing with the kind of blow-ups in the financial sector that there is actually central planning in China.
And if you look at the steel sector you look at commodity consumption, these sorts of things it’s a big factor of china still, right? So but it’s incredibly inefficient spending. It’s an incredibly inefficient way and again it’s a market that is begging for an open economy because they could really grow if they were open but they’re not. They have a captive currency they have central planning and so on and so forth.
Now I know some of the people watching, you’re going to say you’ve never been to China, you don’t understand. Actually I have spent a lot of time in China, okay? I actually advise China’s Economic Planners for about a year and a half, almost two years on the belt and road initiative. So I’ve been inside the bureaucracy not at the high levels where they throw nice dinners. I’ve been in the offices of middle managers for a long time within the Chinese Central Government so I understand how it works and I understand the impact on the economy.
DL: Don’t you think it’s interesting though that despite the evidence of what you just mentioned. And how brutal it has been because it’s multiplied by 10. How many units of debt are required to generate one unit of GDP in a little bit more than a decade? Don’t you find it frustrating to read and hear that what for example the United States needs is some sort of central planning like the Chinese one. And that in fact the the developed economies would be much better off if they had the type of intervention from from the government that China has?
TN: Sure, well it’s it’s kind of the fair complete that central bankers bring to the table. I have a solution. We need to use this solution to bring fill in the blank on desired outcome, okay? And so when central bankers come to the table they have there’s an inevitability to the solution that they’re going to bring. And the more we rely on central bankers the more we rely on centralized planning. And so I’ve had so many questions over the last several years, should the us put forward a program like China’s belt and road program, okay?
We know the US, Europe, the G20 nobody needs that, okay? Why? Because Europe has an open market and great companies that build great infrastructure. The US has an open market and although European infrastructure companies are better. The US has some pretty good companies that build infrastructure in an open market. So why do we need a belt and road program? Why do we need central planning around that? And we can go into a lot of detail about what’s wrong with the belton road and why it’s not real, okay? But that type of central planning typically comes with money as the as kind of the bait to get people to move things. And so we’re already doing that with the FED and we’re already doing that with treasure with money from the treasury, right?
And if you look at Europe you’re doing it with the ECB. You’re doing it with money from finance ministries. The next question is, does the government start actually taking over industries again? And you know maybe not and effectively in some ways they kind of are in some cases. And the real question is what are the results and I would argue the results are not a multiplier result they are a divisor result.
DL: Absolutely. Absolutely it is we saw it for example. I think it’s, I mean painfully evident in the junk plan in Europe or the growth and jobs plan of 2009 that destroyed four and a half million jobs. It’s not easy to to achieve this.
TN: You have to try to do that.
DL: You have to really really try it, really try.
I think that you mentioned a very important factor which is that central banking brings central planning because central banks present a program of monetary easing of monetary policy. And they say well we don’t do fiscal policy but they’re basically telling you what fiscal policy has to be implemented to the point that their excuse for the lack of results of monetary policy tends to be that the that the transmission mechanism of monetary policy is not working as it should. Therefore because the demand for credit is not as much as the supply of money that have invented. They say, well how do we fill in the blank? Oh it has to be government spending. It has to be for planning. It has to be so-called infrastructure spending from government.
You just mentioned a very important point there is absolutely no problem to invest in infrastructure. There’s never been more demand for a good quality infrastructure projects from private equity, from businesses. But I come back to the point of of central banks and a little bit about your view. How does prolonging easing measures and maintaining extremely low rates affect these trends in growth and in these trends in in productivity?
TN: Well, okay, so what you brought up about central banks and the government as the transmission mechanism is really important. So low interest rates Zerp and Nerp really bring about an environment where central banks have forced private sector banks to fail as the transmission mechanism. Central banks make money on holding money overnight, that’s it. They’re not making money necessarily or they’re not doing it to successfully to impact economies. They’re not successfully lending out loans because they say it’s less risky buying bonds. It’s less risky having our money sit with the Fed. It’s less risky to do this stuff than it is to loan out money. Of course it’s less risky, right? That’s goes without saying.
So you know I think where we need to go with that is getting central banks out of that cycle is going to hurt. We cannot it… cannot hurt, well I would say baby boomers in the West and and in Northeast Asia which has a huge baby boomer cohort. Until those guys are retired and until their incomes are set central banks cannot take their foot off the gas because at least in the west those folks are voters. And if you take away from the income of that large cohort of voters then you’ll have, I guess I think from their perspective you’ll have chaos for years.
So you know we need to wait until something happens with baby boomers. You tell central banks and finance ministries or treasuries will kind of get religion and what will happen is behind baby boomers is a small cohort generally, okay? So it’s that small cohort who will suffer. It’s not Baby Boomers who will suffer. It’s that small cohort who will suffer. It’s the wealth of that next generation that Gen x that will suffer when central banks and finance ministries get religion.
So we’re probably looking at ten more years five more years of this and then you’ll see kind of… you remember what a rousing success Jeff Sax’s shock therapy was, right?
DL: Yeah.
TN: So of course it wasn’t and it’s you know but it’s gonna hurt and it’s gonna hurt in developed countries in a way that it hasn’t hurt for a long time. So that kind of brings to the discussion things like soundness of the dollar, status of the Euro that sort of thing. I think there are a lot of people out there who have this thesis. I think they’re a little early on it.
DL: Yeah, I agree.
TN: So economists you know these insurance people see it from a macro perspective but often they come to the conclusion too early. So I think it’s a generational type of change that’ll happen and then we start to see if the US wants the dollar to remain preeminent. They’re going to have to get religion at the central bank level. They’re going to have to get religion at the fiscal level and really start ratcheting down some of the kind of free spending disciplines they’ve had in the past.
DL: Yeah, it’s almost inevitable that you’re in a society that is aging. The net prison value of bad decisions for the future is too positive for the voters that are right now with the middle age, in a certain uh bracket of of age. Me, I tried the other day my students I see you more as the guys that are going to pay my pension than my students. So yeah…
TN: But it’s you and me who will be in that age bracket who will pay for it. It’s the people who are 60 plus right now who will not pay for it. So they’ll go through their lives as they have with governments catering to their every need, where it’s our age that will end up paying for it. So people our age we need to have hard assets.
DL: Absolutely.
TN: You know when the time comes we have to have hard assets because it’s going to be…
DL: That is one of one of the mistakes that a lot of the people that follow us around. They they feel that so many of the valuations are so elevated that maybe it’s a good time to cash in and simply get rid of hard assets, I say absolutely the opposite because you’ve mentioned a very important thing which is this religious aspect that we’ve that we’ve gotten into. And I for just for clarity would you care to explain for people what that means because…
TN: I say get religion? I mean to become disciplined.
DL: I know like you because that is an important thing.
TN: Yes, sorry I mean if anybody but to become disciplined about the financial environment and about the monetary environment.
DL: Absolutely because one of the things that people tend to believe when you talk about religion and the the state planners religion and and central bank’s religion is actually the opposite. So I wanted to write for you to very make it very clear. That what you’re talking about is discipline you’re not talking about the idea of going full-blown MMT and that kind of thing.
TN: No. I think if there is if there is kind of an MMT period, I think it’s a I don’t think it’s an extended period. I think it’s an experiment that a couple of countries undertake. I think it’s problematic for them. And I think they try to find a way to come back but…
DL: How do you come back from that because one of the problems that I find when people bring the idea of well, why not try. I always, I’m very aware and very concerned about that thought process because you know I’ve been very involved in analyzing and in helping businesses in Argentina, in Hawaii, in Brazil and it’s very difficult to come back. I had a discussion yesterday with the ex-minister of economy of Uruguay and Ignacio was telling me we started with a 133 percent inflation. And we were successful in bringing it down to 40 and that was nine years.
TN: Right. So, yeah I get how do you come back from it look at Argentina. look at Zimbabwe. I think of course they’re not the Fed. They’re not you know the EU but they are very interesting experiments when people said we’re going to get unhinged with our spending. And we’re going to completely disregard fundamentals. Which I would say I would argue we are on some level disregarding fundamentals today but it’s completely you know divorced from reality. And if you take a large economy like the US and go MMT it would take a very long time to come back.
DL: Absolutely.
TN: So let’s let’s look at a place like China, okay? So has China gone MMT? Actually, not really but their bank lending is has grown five times faster than the US, okay? So these guys are not lending on anything near fundamentals. Sorry when I say five times faster what I mean is this it grew five times larger than the bank lending in the US, okay? So China is a smaller economy and banks have balance sheets that are five times larger than banks in the US. And that is that should be distressing followers.
DL: Everybody say that the example of China doesn’t work because more debt because it’s growing faster what you’ve just said is absolutely critical for for some of our followers.
TN: Right, the other part about China is they don’t have a convertible currency. So they can do whatever they want to control their currency value while they grow their bank balance sheets. And it’s just wonderland, it’s not reality so if that were to happen there are guys out there like Mike Green and others who look at a severe devaluation of CNY. And I think that’s more likely than not.
DL: Yeah, obviously as well. I think that the the Chinese government is trying to postpone as much as it can the devaluation of the currency based on a view that the imbalances of the economy can be sort of managed through central planning but what ends up happening is that you’re basically just postponing the inevitable. And getting a situation in which the actual devaluation when it happens is much larger. It reminds me very much. I come back to the point of Argentina with the fake peg of the peso to the dollar that prolonging it created a devastation from which they have not returned yet.
TN: Right. And if you look at China right now they need commodities desperately, okay? Metals, they need energy desperately and so on and so forth. So they’ve known this for months. So they’ve had CNY at about six three, six four to the dollar which is very strong. And it was trading a year ago around seven or something like that. So they’ve appreciated it dramatically and the longer they keep it at this level. The more difficult it’s going to be on the other side. And they know it these are not stupid people but they understand that that buying commodities is more important for their economy today because if people in China are cold this winter and they don’t have enough nat gas and coal then it’s going to be a very difficult time in the spring for the government.
DL: And when you and coming back to that point there’s a double-edged sword. On the one side you have a currency that is out to free sheet are artificially appreciated. On the other side you also have price controls because coal prices are limited by the government. And therefore you’re creating on the one hand a very big monetary hole and on the other hand a very big financial hole in the companies that are selling at a loss.
TN: That’s true but I would say one slight adjustment to that things like electricity prices are controls. When power generators buy coal, they buy that in a spot market, okay? So coal prices have been rising where electricity prices are highly regulated by the government this is why we’ve seen blackouts and brownouts and power outages in China. And why it’s impacted their manufacturing base because they’re buying coal in a spot market and then they’re having to sell it at a much lower price in the retail market.
And so again this is the problem with central planning this is the problem with kind of partial liberalization of markets. You liberalize the coal price but you keep the electricity price regulated and if you don’t have the central government supporting those power plants they just blow up all over the place. And we’ve seen the power generators in the UK go bankrupt. We saw some here in Texas go bankrupt a couple years ago because of disparities like that and those power generators in the UK going bankrupt that’s the market working, right? So we need to see that in China as well.
DL: Yeah, it’s a very very fascinating conversation because on the other hand for example in Europe right now with the energy shortage we’re seeing that a few countries Spain, France, etc. are actually trying to convince the European Union, the European Commission to try to get into a sort of intervened market price in the in the generation business. Which would be just like you’ve mentioned an absolute atrocity very very dangerous.
TN: This creates a huge liability for the government.
DL: It creates a massive liability for the government. This is a key point that people fail to understand the debate in the European union is that, oh it’s a great idea because France has this massive utility company that is public. And therefore there’s no risk it had to be bailed out twice by the taxpayers. People tend to forget that you’re paying for that.
TN: But again this is what’s that block of voters who doesn’t really care about the impact 10 or 20 years down the road. That’s the problem. There’s a huge block of voters who don’t really care what the cost is because the government’s going to borrow money long-term debt. And it’s going to be paid back in 10 or 20 years and the biggest beneficiaries of this and the people on fixed incomes they actually don’t care what the cost is.
DL: Yeah, yeah exactly, exactly. There’s this fantastic perverse incentive to pass the bill to the next generation. And that obviously is where we are right now. Coming back to the point of the infrastructure plans and the belt and road plan. What in your view are the the lessons that we must have learned or that we should be learning from the Belgian road initiative?
TN: So here’s a problem with the Belton road and I had a very candid discussion with a senior official within China’s NDRC in probably 2015 which was early on, okay? And this person told me the following they said the Belgian road was designed to be a debt financed plan. What’s happening now, and again this was six or seven years ago, very early on in the in the belts and road dates. They said the beneficiary countries are pushing back and forcing us to take equity in this infrastructure, okay?
Now why does that matter well the initial build out of infrastructure is about five percent of the lifetime cost of that asset, okay? So if you’re if China is only involved in the initial build out they’re taking their five percent, it’s a loan and they get out. If they’re equity holders in that let’s say they’re 49 equity holders in an Indonesian high-speed rail then they become accountable for part of that build-out. And then they have to maintain the other 95 of the cost for the next 30 to 50 years. So they thought they were going to be one and done in and out. We do this infrastructure we get out they owe us money and it’s really clean what’s happened is they’ve had to get involved in the equity of those assets.
And so I’ve since had some uh government officials from say Africa ask me what do we do with the Belton road with china? Very simple answer force them to convert the debt to equity, okay? They become long-term involved on a long-term basis. They become involved in those assets and then they’re have a different level of interest in them in the quality maintenance and everything else but they’re also on the long-term basis accountable for the costs.
So they don’t just build a pretty airport that and I’m not saying this necessarily happens but they don’t just build a pretty airport that falls apart in five years, okay? They then have to think about the long-term impacts and long-term maintenance costs of that airport, right? And so but you know the original design of the Belton road was debt financing. Mobilizing workers and so on and so forth what it’s become is a mix of debt and equity financing. And that’s not what the Chinese government has wanted.
So I’ve been telling people for three or four years the Belton road is dead, okay? And people push back me and say no it’s not, you know think tank people or whatever. But they don’t understand the fundamental fact of how the Belton road was designed it was designed as a one-and-done debt financed infrastructure build out it’s become a long-term investment all around the world. So it’s a different program. It’s failed, okay?
They’re not going to make the money they thought yes they’ll keep some workers busy but they’re not going to make the money they thought. All of those assets, almost all those assets are financed in US dollars, okay? So they’re not getting their currency out. It’s not becoming an international unit like they had hoped. They’re it’s not they’re not clean transactions and so on and so forth. So this is what’s happened with the Belgian road. So the lesson learned is they should have planned better. And they should have had a better answer to you become an equity owner. And uh
I think you know if any western governments want to have kind of a belt and road type of initiative. They’re going to have to contend with the demand from some of these countries that they become equity owners. And I think that’s a bad idea for western governments to be equity owners in infrastructure assets so you know this is this is the problem.
Japanese have taken a little bit different because of where the Yen is and because of where interest rates are in Japan. Japanese have basically had kind of zero interest or close to zero interest on the infrastructure they’ve built out. And so they haven’t gone after it as aggressively as China has. They’ve had a much cleaner um structure to those agreements. And so they’ve been, I think pretty successful in staying out of the equity game and staying more focused on the debt financing for their infrastructure initiatives.
DL: Oh, absolutely big lesson, big lesson there because the we see now that the vast majority of those projects are impossible to the debt is impossible to be repaid. There’s about 600 billion dollars of unpayable debt out there. And we also have the example from from the internationalization of the French, Spanish, Italian companies into Latin America that they fell into the same trap. They started with a with a debt-financed infrastructure build type of clean slate program that ended up owning equity. And in some cases with nationalizations hopefully that will not…
TN: And watch for debt to equity conversions in these things. It’s good. There’s going to be huge pressure because the Chinese say the exit bank the CDB. A lot of these organizations are going to be forced to convert that debt to equity and then unload it on operating companies in China. They’re not going to want to do it but we’re going to start to see more and more pressure there over the next couple of years.
DL: Great! Well I’m absolutely convinced that will happen. Tony, we’ve run out of time so it’s been an incredible conversation lots of things that are very very interesting for our followers. We will give all the details to follow you and to get more information about your company in the details of the of the video. And thank you so much for your time. I hope that that we will be able to talk again in a not too distant future.
BBC Business Matters is joined by our founder Tony Nash for this episode to talk about US’s $3.5 trillion spending plans. Will it get approved before the G20 meeting in Glasgow? Also discussed are the energy crisis with very high gas prices and Russia’s use of energy as a political weapon against Europe. Has Houston changed because of the pandemic and discussion on climate change?
There are intensive discussions on Capitol Hill to try and break the deadlock over his proposed $3.5 trillion spending plans. Those plans have lead to deep divisions in his own Democratic Party. So how close to a deal are we? We get analysis from Natalie Andrews, Congress Reporter for the Wall Street Journal. And is Russia using energy as a political weapon? The question is frequently asked in Europe and it’s now being asked in Moldova, a former Soviet Republic that’s been trying to move away from Russia’s orbit and develop closer ties to the EU. It follows the decision by the Russian state-owned gas company Gazprom to reduce supplies to Moldova and to threaten to suspend them completely. Moscow correspondent Steve Rosenberg has been to Moldova to find out what’s behind the latest gas crisis. Also in the programme, we look at why has the iconic French fashion house Jean Paul Gaultier – known for cone-shaped corsets worn by Madonna for example – decided to allow people to rent some of its most iconic pieces? And Fergus Nicoll investigates what efforts are some cities making to combat climate change. And we’re joined throughout the programme by Tony Nash Tony Nash of Complete Intelligence in Houston, Texas and Jeanette Rodrigues, South Asia Managing Editor of Bloomberg in Dubai.
Show Notes
RT: Tony Nash, founder of the Complete Intelligence, is based in Houston in Texas. And I would imagine, Tony, that you’ve been watching a bit of baseball over the last few days.
TN: Just a little bit Rahul. Thank you.
RT: And if it’s been good for you so far.
TN: Well, up until last night, it was pretty good. It’s the World Series Baseball Championship. The Houston Astros are in the final two teams playing for the Championship.
RT: And the reason they didn’t go so well because I don’t think they won their first game that we may have talked to Tony a little bit more about that in the program.
Tony, can I come to you here first? Because we heard from the Moldova and government Minister. They’re saying, “Look, I can’t predict where gas prices are going to be in two months time.” As much as of the Northern Hemisphere goes into winter. Gone. Has the guest for us. Where do you think gas prices are going to be higher or lower than where they are now? Because they are very high, aren’t they?
TN: Gas prices continue to rise for at least the next two months, if not into, say, February. So we have tight gas supplies now. We have growing demand now. We have people, a lot of whom are in their house all day, so they have to heat their house where they would normally be in an office, those sorts of things. So it’s an issue that we haven’t really had to face for quite some time. At the same time, we’re seeing inflation in other areas hitting people’s pocketbooks. So I think it’s sensitive in a way that many, many people could not have seen.
RT: President Biden is leaving for the G20 summit in Rome. Then, of course, he’s coming to Glasgow. The COP26. Will you have a deal? Do you think, Tony before he departs American shores?
TN: I don’t think so. There’s a problem with paying for it. And it’s really strange to hear someone say that Democrats are saying they’ll literally vote for anything that goes to the floor, which tells me they’re pretty desperate for something. They’ve tried things like what they’re calling a billionaire tax, which is actually a tax on income of even things that are in your retirement account portfolio.
RT: But is that not a bad idea maybe to try and generate some money? A lot of our listeners will be thinking it’s quite surprising that America doesn’t have paid family leave already?
TN: Well, companies do offer people time off and paid time off when they have a child or something like that, or when there’s a sick family member or something like that. So it’s not something that doesn’t happen here in America. I think somehow it’s being portrayed that Americans don’t do that. It’s not 8 to 12 weeks or something like it is in Europe. But there is time off for that sort of thing. So we’re just in a different place in our social development and we prioritize different things thanEurope. So I think the US is not Europe. The US will never be Europe, or it’ll be a long, long time before it’s Europe. And American taxpayers aren’t willing to pay for that. So they have to find a way to pay for it. And the problem is they can’t find a way to pay for the programs that they want in the bill.
RT: So what’s the soultion going to be here because there will have to be that always is.
TN: A smaller bill. That’s it. I mean, it’s going to be a smaller bill. It’s going to be a trillion, maybe slightly more, something like that, which… I just want to repeat that and say it slowly, a trillion dollars. Okay. So let that sink in. This is not small money. Okay. And it’s a very political tactic to aim very high and then act like you’re disappointed when it comes in at a third of that. But it’s still a TRILLION dollars. Okay. That’s less than the entire bailout of the global financial crisis in the US economy, which was 860 billion or something like that. So it’s less than that entire bailout. So it’s huge money.
RT: It is a lot of money. Let’s look at where you are, Tony, because you’re in Texas, a region synonymous, really, with oil and with gas. As we see these prices increasing so dramatically, do you think that people within those industries, then look at it and think maybe they have a longer shelf life then some people thought they were going to do with that movement to renewables?
TN: Oh, yeah, I think they do. I don’t think hydrocarbons are going away, partly because every plastic that you use is made from hydrocarbons. When Greenpeace protested a vessel, they used a plastic boat to protest. Plastics aren’t going away. I think that the bigger issue that you raised is energy as a political weapon. And I think Russia using energy as a political weapon toward Maldova, toward Europe, toward China, toward other places, I think is a reality that we face when you face tight supplies.
RT: Do you think Europe was naive here in some respects, because if you look at it now, with so much of Europe and Europe dependent on Russian gas supplies, this was always going to be a possibility, if not a probability.
TN: Absolutely. Yes. So, look, I live in Texas. We sell oil and gas to the world. If we had a captive market, we would be tempted to charge higher prices. But we sell to markets all over the world in a competitive system. Europe locked itself into the agreement with Russia, and we could have a long discussion about this. But Europe locked itself in, and so they’re captive. And that’s a huge problem for Europe. And that’s one that Angela Merkel’s and others got Europe into. And conveniently, they’re not going to be around to get them out because they’re out of office. So it’s a really convenient agreement that they came to just in time for them to go out of office.
RT: Let’s go to Houston, Texas. And, Tony, are you seeing Houston change very much, whether that’s a consequence of the pandemic, whether that’s because of a debate about the climate?
TN: So we have obviously a lot of very large oil and gas firms here. And there is a lot of investment in alternative energy sources by those players. So you could argue that it’s just an ESG play for the equity markets. But I think there is sincerity within the companies to be the sources of energy, not necessarily just to be the source of oil and gas.
RT: What if they put in? Do you have no car zones in Houston? How would that go down with the public there?
TN: Houston is a pretty spread out town. So there are some streets that are no car streets, but it’s not large areas, and it’s in very small kind of old-ish parts of town. But other towns? Yeah, absolutely. Up in Dallas, other places, Austin, definitely. There are no car zones in those towns as well. Houston is just a very spread out town. And so it’s very hard to do here.
RT: Tony, let’s come to you first. Let’s ask you, what are you wearing at the moment, Tony, are you wearing a smoking tuxedo jacket? I hope you’re wearing something.
TN: I am head to toe couture. I mean, everything I wear every day is couture. I’m kidding. I’m just in a light blue shirt and jeans. Just came straight from work. But when I think about this business, your guest described negotiate Close as rich and sexy. That describes me perfectly. So of course, I’m going to be a customer.
RT: Okay, let’s get a bit more personal if you are married, if you don’t mind me asking, of course. What did you wear on your wedding day?
TN: Well, this was in the 90s. I wore a Hugo Boss tuxedo. My wife wore a custom dress. So we were married in Sausalito, California. It was a wonderful day.
RT: I’m sure it was. And I suppose you could afford to do that. But if you couldn’t have afforded that, would you now, if you’re going to get married again? Clearly, hopefully not. But would you consider renting something expensive that you couldn’t be able to afford?
TN: Yeah. Why not? Sure if I wanted to. I would absolutely do it.
RT: Tony, next time you’re on Business Matters, we expect you to be in your wedding suit and we expect pictures to be posted as well. Do you think it does? I know what you’re talking about, Jean Paul Gaultier. Do you think it does diminish the brand if they’re renting some of those close out? Does it lose a little bit?
TN: I think right now with kind of the borrowing culture that we have the renting culture, I really don’t think it loses anything. I think people want the experience of doing something nice, wearing something nice, eating something nice and I don’t think it diminishes at all. I think when I was in my 20s, owning it was necessary. Now I think people are happy to rent.
RT: That’s is a very good point. Thank you, Tony. Thank you, Jeanette. If you want to listen to something nice tune into Business Matters, we’ll be back. Same time. Same place tomorrow. Bye.
BFM 89.9 The Morning Run talks to Tony Nash for his insights on the US economy. Why the tech industry is performing better than other industries? Is it the new inflation theme? And how about the reflation narrative? How will that affect price pressures for corporates in Q4 of 2021? Why is China importing less from the US while exporting a whole lot more? What’s the status of the supply chain issues amidst the coming holiday season?
❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.
Show Notes
KHC: Okay, well, the Dow was unchanged. Basically, it just went side raced last night. The S&P was up by 0.3%. The Nasdaw was up by 0.7%. Preceding that, the Nikkei was down by 0.3%. The Hang Seng was actually closed due to the typhoon and also today for a public holiday. The Shanghai was up by nearly half a percentage point. The Sci by one and a half percent. Of course, FBM KCI yesterday up by 1%.
SM: And for some thoughts on what’s moving markets, we speak to Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Thanks for joining us today.
So last night Nasdaq did better than the other indices on the back of tech companies having better pricing power. Do you see this being the new theme as inflation rises?
TN: Sure. I mean, I think tech prices can be adjusted pretty quickly for the most part. And I think especially with tech hardware, people understand that supply chain issues are very real. So I think the ability to change prices in tech are pretty quick, especially around software and software services. I think whether it’s prices rising or even in the case of additional competition, prices falling, I think they can do it in tech much more quickly than they can in other industry sectors.
KHC: Yeah. And, Tony, most of the news has focused on the effects of the energy crisis on China and, of course, in Europe. But in what race does this crunch impact the US. Is American immune from it?
TN: Oh, no, not at all. I think there are some considerations in the US. First is how regulated are the markets. So when you look at markets like New York, Massachusetts, California, highly regulated markets. Also, they don’t really have energy. They don’t have natural gas and oil, or they don’t really actively drill for it there. So they’ll have a tougher time over the winter, I think. In places like Texas and the Gulf Coast in the south, where we drill oil and gas in Texas, we also drill offshore in the Gulf of Mexico. We have supply, we have the pipelines in place. They’re pretty unregulated markets. We’ll find it easier here because of the availability of the energy and the infrastructure that we have.
SM: And looking at the reflation narrative. It’s starting to get louder in markets. Do you think last quarters corporate earnings were affected by rising price pressures, or is that going to be felt more in the coming Q4?
TN: Yeah. I think they were a little bit, but not much. Don’t forget in really Q2 of 2020 and early Q3 is when companies really started shedding costs because of a COVID. So they reaped those year on year profit benefits. Those profit growth benefits through 2021, so far. But that base effect really comes to an end in Q3 of ’21. So we’ve expected. Well, since the end of Q2 earnings, we’ve been telling people Q3 earnings will be worth because those base effects are gone and also because inflation has intensified. So, yeah, it definitely gets worse than Q3.
KHC: Yeah. So we are on the cusp of earning seasons reporting. And of course, I think Delta reports later today. JP Morgan as well. What’s your sense of what corporate earnings will be in this coming quarter?
TN: Well, they’ll still be earnings, but the growth rate will definitely be slower this quarter. There are some areas where they’ll continue steady. But in things like travel, where we’ve seen with airlines where we’ve seen fuel prices rise, we could see some real issues there. Not major issues, but we would see that eating into profit margin.
KHC: Okay. Let’s talk about the China trade surplus then, of course, with the US rising record high in September. Tony, why is trying to import less from the US while exporting a whole lot more currently?
TN: Well, part of what we’ve seen, the US exports a lot of ag and energy to China. And so when commodities prices rise, China buys less. We saw things like corn and sorghum and soybeans rises in the middle and end of Q2, early Q3 rose pretty dramatically and trying to slow down its buys of those. Now we see natural gas rising pretty rapidly, actually. So a year and a half ago, it was, say, a 1.5 in the US. Natural gas is now $5 in the US. So it’s risen pretty dramatically. So trying to slowed the buys of, say, US natural gas. They’ve also slowed some buys of, say, natural gas and all from other parts of the world.
So they’re buying commodities. They can slow those buys. And we’ve seen that impact, for example, on their electricity markets. The US buys largely manufactured goods. And so because of supply chain issues, Americans have really been over buying what’s available so that they can ensure supplies for months ahead. So there’s still, say empty shelves in many cases in the US. There are still backlogs. But we’re over buying because people don’t want to see empty shelves here.
SM: And I guess one final question, Tony, before we let you go, taking a look at our region, the Asian region. The economic outlook seems more brilliant in Asia as countries reopen. Which economies do you see outperforming as border restrictions lesson in this part of the world?
TN: Yeah. We definitely hope to see Asia come back pretty strong. We expect India, China, Taiwan, Philippines, Australia to perform best in Q4. Australia, obviously on the back of commodity and energy price exports. China and Taiwan on the back of global manufacturing kind of supply chains. Of course, they won’t be totally cleared up in Q4, but we will see continued buying and over buying for those items. So we don’t necessarily see it as a border issue because travelers, for example, we’ll have to consider how long will they have to quarantine if they do travel, because we don’t necessarily expect that to go away soon. So we don’t expect the cross border restrictions lightning up to impact too much. It will impact a bit, but we don’t see too much upside in Q4 yet.
SM: Tony, thanks as always for speaking with us. That was Tony Nash, CEO of Complete Intelligence, giving us a view of the economies in Asia that could improve as economies open up. But he says travel is still not going to be that lightning rod for growth or activity at this moment. Things are still going to be cautious on that front.
KHC: Yeah. The aviation sector has really come into focus in the last few days. Air Asia has been top volume in the last few days, and I think it looks. Look at Southeast Asia’s region. I mean, travel is such a huge factor in the economies. We know that Indonesia is slowly opening up. Bali has talked about opening up. Thailand is opening up. No choice, right? Obviously, with tourism, such a systemic part of the economy. China is still locked up. China is actually arages biggest market, right? So many destinations.
India is still locked up. So it’s a mixed bag. Right? But the one thing that has really put a spanner in the works is this whole inflation thing. You know how the Fed talked about how it’s going to be transitory is gonna be here for the short term. It’s not the case. I mean, you’ve seen wages go through the roof, supply chain disruptions, which is send prices higher labor shortages, much more jobs than people get to apply for. In fact, people are leaving jobs like in F&B, restaurants, waiting jobs, low pay, long hours. They go into much better paying jobs. Energy price as I think Brent, this morning’s at $83. Global energy crunch so much this inflation is commit malicious. I don’t now what that’s going to do? The market. But it’s definitely something.
SM: Watch out for that’s. Right. And if we’re talking about supply chain bottlenecks that are contributing to inflation, we have a story here coming out of the US, where President Joe Biden wants to break a log jam at US ports and stave off a holiday season of shortages and delays. Tony was speaking earlier about empty shelves in the US and the fact that US customers are overbuying because there’s so much demand. But supply chain is blocking these products from getting to the shelves. And Joe Biden wants to solve this by making ports operate longer just to clear that backlog. But that isn’t really quite solving the problem because, as you pointed out, there are other trends, such as the labor issues that are finally coming to a head in this scenario. And it’s causing a lot of chaos in terms of supply chains.
KHC: Yeah. Because, you know, this part of California, in fact, part of Los Angeles, right. It’s one of the biggest basic choke points for supply into the US. And, I mean, that’s got, like something like 60 to 70 container ships waiting in the Bay just to get in and offload this stuff. It’s incredible. To supply chain shortages, I think that’s supposed to last until 2023. Right.
SM: Right.
KHC: And there’s this huge amount of capital going into the US in the semiconductor companies that are just building chips which are going to require less energy and smaller to just alleviate some of this choke point. This bottleneck is crazy. I mean, this is how capitalism world sometimes.
SM: The juxtaposition to what happened last year is so stark. Last year, there were enough containers. They couldn’t leave their forte because they just couldn’t get the containers to ship their products. And now they’re just too many of them, and they’re jamming up the Port. So it’s really curious how the pandemic has kind of shifted us from one extreme to the next term in the economy. Stay tuned to BFM 89 nine.
CEO Tony Nash joins CNA’s Asia First program to explain the logic behind the US market’s performance. Will the better-than-expected retail sales continue to the Christmas season? What is his outlook for Q3 and what’s hampering the economic recovery in the States? And what are at stake around the success of the $3.5T infrastructure bill?
CNA: Well, Wall Street closed mixed in the State overnight as the major indices fail to build on Wednesday strong performance, while for the session, the blue chip Dow closed lower by two tenths of 1%, and the S&P 500 fell by a similar percentage.
However, the Nasdaq managed to eak out second consecutive day of gains. Well, this after investors digested mixed economic readings released before with the opening Bell when August retail sales surprised the market and rose 0.7% from the month prior, with analyst expecting a decline. But on the downside, jobless claims rose from last week’s pandemic low.
Of course, to help us understand the logic behind all the market movements were joined by Tony Nash, founder and CEO with Complete Intelligence, speaking to us from Houston, Texas. Very good evening to you, Tony.
So we’re looking at the better than expected retail sales number. And do you expect that momentum to continue given that we are 100 days away to Christmas in the State side and 99 days away from here in Singapore side.
TN: And we certainly hope that continues. But it’s really uncertain, given some of the corporate outlooks and given some of the other indicators that we’ve seen: purchasing managers indices and the regional Fed reports, Fed Manufacturing reports.
The port hold-ups in Long Beach are not helpful either. It’s really hurt supply chain. So we could see that spending tick up. But we do expect prices to continue to rise. And so there’s really a trade off there in terms of the volume that’s sold and the value that’s sold. And when we’re looking at, say a 1% rise in value of retail sales, that’s quite frankly, not even keeping up with inflation.
CNA: In the meantime, we’re also seeing that the weekly jobless claims increased. And of course, before that, many economist with organizations like JP Morgan has downgraded their third quarter economic growth outlook. So what is your outlook there and what is hampering economic recovery over there in the State Side?
TN: Well, it’s really companies are not seeing great investment opportunities. So the demand for credit in the US, just like in China, and just like in Europe, the demand for credit is really declining.
So we’re not seeing companies spend on big ticket items. They’re not investing on new equipment, they’re not investing on new projects. And so that’s hurting everything downstream because there are impacts across the economic spectrum when companies decide to spend on big ticket items. This is hurting the US. It’s hurting China. It’s hurting Europe.
So between now and you mentioned the end of the year, we expect that corporate spending to have an impact, the damper in corporate spending. We expect the supply chain difficulties and inflation have impacts as well. And if unemployment continues to tick up like it did, we could have a very difficult Christmas season. And the Fed and city administration here in the US are really contending with that, because as they go into the last quarter of the year, they’d really like to see things tick up.
CNA: And talking about those spending of course, there’s one catalyst that investors are watching out would be the passage of the $3.5 trillion infrastructure bill. But given the situation that a Biden is facing now, do you think that this increasing likelihood that this bill can’t be get past?
TN: Yeah, I think you’re right. With the failed withdrawal from Afghanistan, Biden has really lost a lot of the support from Democratic moderates. And so he’s got the support of the extreme left Democrats. But a lot of the Democrats in the middle are really starting to say, “Hold on a minute. We need to be really careful about how much we support Biden,” because those guys have to be reelected in November of ’22. So from here on out, the voters in their respective districts will be paying a lot of attention to what they’re doing.
This 3.5 trillion infrastructure plan, only 1.2 trillion of it, I say “only” but 1.2 trillion of it is dedicated towards real hard infrastructure. The rest of it is a lot of social spending, a lot of pet projects, and that’s a lot of money. 2 trillion plus dollars.
So Americans are really tired of seeing big stimulus programs put out, and they’re really tired of seeing the pork going to people connected to politicians. So they’d much rather see the lower $1.2 trillion program. It’ll go direct to infrastructure. They’ll see it. It’ll be a very tangible spend.
One other thing to keep in mind is there is still $300 billion that haven’t been spent from the stimulus program that came out in Q1 of 2021. So a lot of Americans are asking, why do we need to green light another three plus trillion dollars in spending if we still have $300 billion that’s unspent?
CNA: All right, Tony, thank you so much indeed, for your analysis. Tony Nash, founder and CEO with Complete Intelligence.
Biden just announced that all Federal employees are required to be vaccinated. What does this mean to the US and especially the private sector? Tony Nash joins the BBC Business Matters for a discussion on this. Also discussed are the BRICS and how they are catching up to the world’s major economies and will the environment be a big priority in the next US election?
US President, Joe Biden, has announced that all federal workers have to be vaccinated against Covid-19. He’s also instructing the Department of Labor to draft a rule mandating that all businesses with 100 or more employees require their workers to get vaccinated or face weekly testing. And as the BRICS leaders meet, is the loose alliance of Brazil, Russia, India, China and South Africa working? We hear from Professor Miles Kahler, a Senior Fellow at the Council on Foreign Relations in Washington DC. Facebook has been accused of breaking UK equality law in the way it handles job adverts. The campaign group Global Witness said the social network failed to prevent discriminatory targeting of ads, and its algorithm was biased in choosing who would see them, as Naomi Hirst from the organisation explains. Also in the programme, we find out why the issue of climate change has become such a dominant theme in the upcoming German federal elections. And the American car giant, Ford will stop production in India; we get analysis from Nikhil Chawla, a business journalist and proud Ford owner based in Delhi. We’re joined throughout the programme by Jyoti Malhotra, National & Strategic Affairs Editor at The Print; she’s with us from New Delhi. And Tony Nash, co-founder and Chief Economist at Complete Intelligence, is with us from Houston, Texas. (Photo of President Joe Biden by Kevin Dietsch/Getty Images).
Show Notes
FW: It’s good to hear you, Tony. Back last summer, when the vaccine was a fantasy, we didn’t know how far they were getting and how fast they were working. I remember an astute commentator on this show saying it answers the question, should the federal government get involved in forcing people to have it, if and when it becomes available said, “no way, no way, because it’ll polarize opinion. Leave it to business.” Is the President going too far with this?
TN: I do think he is. I think forcing this through the private sector as an enforcement vehicle is polarizing, will say that much. I think this will drive a political wedge, like very few other things, and I think it’s somewhat intentional. I’ll say I don’t necessarily believe that public health is the guideline. I’m looking right now at COVID figures for Texas, and the fatality rate is something like 40% lower than it was during the cycle we had in Q1 in February.
So I think people are looking at the data we’re accustomed to COVID, and we’re accustomed to these data, and I think he sounded quite a lot like he was lecturing and talking down to people. And the folks that have not been vaccinated wouldn’t really appreciate that. So it’s politically polarizing. There will be more States rights issues that come out of this than I think he had intended.
FW: Okay, that’s an interesting thing that we’ll be watching. Is it not the case or there are those who may disbelieve the figures, the assertion being that 97% or so of those in hospital with COVID have not been vaccinated, and that would suggest that the president’s got the message exactly right. These 80 million, whatever their reasons, they are the most vulnerable.
TN: So, I haven’t seen those data divided at the state level, and those data differ dramatically from what we see out of Israel, which is one of the only governments that’s got very transparent data on who is vaccinated, at what stage they’re vaccinated and so on. So the data from Israel tell us very differently than 97%. So whether I’m vaccinated or not isn’t necessarily a part of this discussion. I think what really matters is we have to look at data, and the American system is one where if you look at American health care, if you look at American public health, for the most part in our history, individuals have been able to decide on the course of their own treatment and what has happened with American government that’s happened under Trump. This is happening under Biden. This has happened at some state levels where governments are telling people how they have to manage health care, and it’s not left up to them. So, again, this is translated by a number of Americans, not as a public health policy. iIt’s translated as an individual and States rights policy. So we’ve already had a number of governors, Oklahoma, Georgia, Missouri, other places, Florida and Texas will come out soon, basically saying this will not be enforced in my state and this is a state rights issue.
FW: Very interesting. Let’s go a very quick one if you would have both of you about the corporate side. Seems to me we discussed this a bit on the show, Tony, that in America, a company has immense power to tell its employees and fire them. We talked to one instance about CNN firing three employees who haven’t had the jab. Is that something that the President can count on?
TN: Can you count on companies to do that? Yeah. I think you’ll have plenty of companies who will not do it. So it will likely come the Federal through OSHA, which is a health and safety Department in the US government, and they’ll issue mandates. The question is around enforcement mechanisms. I think the main problem with this is the forcing it on smaller companies. The expectation is that it would be on bigger companies, but it’s companies down to 100 staff. And you’ve got a lot of very independent, very willful heads of smaller companies who will outright refuse to do this. I think larger kind of corporate America folks, no problem. They’ll get it done
FW. From a US perspective. Tony, thanks, Joy. From a US perspective, is this a kind disaster for Ford, or is he just a really hard nose business decision that has been made by Jim Farley and 2 billion for Ford? It’s affordable. Yeah.
TN: I think it’s just a business decision. I think Americans obviously want to expand overseas, but in markets where the difficult people understand. So I just think it’s seen as a business decision.
FW: And that moved to China. That Jose said that is the business decision.
TN: It is. Yeah. And for got some catching up to do with General Motors there as well. So I think that’s the bigger priority.
FW: Tony, react to that if you would, because there’s a suggestion and I might be taking this too far from what Jody was saying. But when we had the professor talking about these constant ideas of reforming the multilateral system and redefining a multipolar world, it sounds what Jet is suggesting is actually this is all a bit hypocritical because it’s going to be mono, polo or unipolar. It’s just going to be China, that’s all.
TN: Well, I think that’s possible. But I also think that if we look at the three most active participants in BRICS, Russia, India, China, they’re strategic competitors. Yes, they’re rising fast, but their strategic competitors and they’re neighbors. So I think BRICS is a really interesting organization, kind of to ensure that they don’t become competitors or aggressive competitors too quickly to be able to cooperate in finance, cooperate and kind of cross border things. Other social programs, investment, that sort of thing. I think I remember when BRICS was announced, and I think it was kind of a neat thing to have, but there wasn’t an understanding of how important these economies would actually be. Now that they’re there, of course, as Jose mentioned, Brazil in South Africa just haven’t kept up in terms of relevance and importance. But the Russia, India, China part of BRICS really has, it really has. And I think it’s necessary to keep the kind of temperature low between those countries. I think there’s a lot of friction between the or potential friction between those countries.
FW: So just to pick up on that. From a DC perspective, does the State Department watch a BRIC summit and think the three primarily, China, Russia, India, these are countries need to be following closely in what they do in their internal relationship because we have to watch them all for different reasons.
TN: Will the State Department watch the brick summit. I think they would. I am not sure what they would do with it, because I think the US has opportunities to apply diplomatic carrots and sticks in different ways outside of multilateral, because it’s one of the leading economies and one of the leading powers. It has opportunities outside of multilateral environments to do that. So what we have with BRICS is some countries that were, I guess, economically considered kind of small countries 15 years ago when it was formed. Now they’re actually big countries, and so they needed the multilateral environment in those days to get things done.
Now, they don’t necessarily need the multilateral environment as much. They can do more on their own. I would argue that any one of those top three BRICS countries potentially has more diplomatic ability than many countries in Europe. Whereas 1520 years ago, you couldn’t say that. So it’s really the countries themselves are a lot more powerful than they were. So I think it could potentially be an important organization to keep them somewhat aligned.
FW: Equipped Tony to you. Cop 26, just coming up in November. I guess that’s a full year ahead of the next midterms in the US. Would the environment play at all in the campaign?
TN: I think it will. I think it will be marginal. I think things like COVID and some social issues and the business cycle, to be honest, will be bigger issues than the environment. But of course, it’ll hit certain cities and certain demographics, but I don’t think it will be a major issue.
FW: Well, thank you both. It’s great having you with us. We’re off for now. Bye bye.
This is a special QuickHit Cage Match edition with returning guest Albert Marko, and joining us for the very first time Andreas Steno Larsen to talk about tapering. Will the Fed taper this year? If yes, when, how, and why? If no, why not? Also discussed are the housing market, China GDP, and corporate earnings.
Andreas is the chief global strategist at Nordea Bank, which is mostly a Nordic bank, but has a presence in large parts of Europe, but also in the US. He speaks on behalf of the bank on topics surrounding global markets and in particular bond markets.
Albert Marko is a consultant for financial firms and high net worth individuals trying to navigate Washington, DC and what the Fed and Congress are up to.
📊 Forward-looking companies become more profitable with Complete Intelligence. The only fully automated and globally integrated AI platform for smarter cost and revenue planning. Book a demo here.
This QuickHit episode was recorded on August 16, 2021.
The views and opinions expressed in this QuickHit Cage Match: Time to Taper? QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.
Show Notes
TN: So Andreas, I noticed you guys, you and Albert kind of in a Twitter fight last week about tapering, and that’s what really drew me to this discussion. I wanted to give you guys a platform to talk through this. So help me understand, you know. So what is your position? Why do you think it’s going to happen? When do you think it’s going to happen?
ASL: Well, I think tapering is right around the corner, and the basic reason is that I expect marked sequential improvements in the labor market in the US over the coming two or three quarters. If you look at it, very simply speaking, right now, there are more job openings than unemployed in the US. I know I disagree with Albert on this as well. But in the old world, that would at least have let the Fed to turn very, very hawkish when they can see such a rate between job openings and unemployed as we have right now.
I basically have a case that once these extraordinary benefits, they will end across the US during September. Then we will have an explosion in a positive sense in the US Labor market. And that is exactly what is needed to convince the Fed of tapering.
So my base case is a decision taken in September and then an implementation starting already in December this year. And I expect them to be done already during the first half of next year with the tapering process. So it’s fairly aggressive compared to the scenarios I’ve seen painted by by other analysts.
TN: That’s really interesting. I just want to clarify one thing. When you say explosion the labor market, you mean more people coming into the market?
ASL: Yeah. And they come into the market and fill these job openings right now, we have a low labor market mobility due to a lot of temporary factors. And once they’re gone, then we should expect employment to be almost running at full speed before New Years.
TN: Okay. Okay. Very interesting. Albert, take it away. Help me understand what you’re thinking.
AM: Well, I mean, I would agree with him in the old days. Right. But we are in a situation where these tapering assumptions are based on Fed rhetoric and the public comments that they’ve been making specifically addressing his unemployment, unemployment boost or surge.
You know, we still have COVID lockdown patchwork across the world happening at the moment. Australia, Japan, Taiwan, and most importantly, China, because no one’s looking right now in China, but China’s GDP looks like it’s not going to surpass two or 3% for the next four or five quarters. With that in mind, where the United States going to get inventory for the holiday season and have this boost in employment surge that we usually get on holiday season.
It’s just, to me, there’s so many negatives, so many variables with negative connotations towards it. I can’t see the Fed tapering and just absolutely obliterating the market right before mid term season coming up in 2022. It’s just for me, it’s just inconceivable for them to do such a thing like that.
TN: Okay. Understood. So, Andreas, what do you think? Let’s say it doesn’t happen in September. What is the Fed thinking through and what mechanisms do they have to use, say, instead of a taper? Are there other things they can do aside from taper that will basically bring about the same intended outcome?
ASL: Well, I want to first of all, address what Albert said on China. I perfectly agree with the view on China right now. China is slowing massively. But I actually find it very interesting that the Federal Reserve is now even more behind the curve when it comes to its reaction function compared to earlier cycles, given that they want to see realized progress in labor markets and not forecasted progress.
And we know that labor markets, they lack the actual economic development. So it’s almost a given in my view, that we have a surge in employment over the coming couple of quarters as a consequence of what happened during the first half of the year. So that’s one thing.
And the second thing is that what we see right now in China is another wave of restrictions that will lead to renewed supply chains disruptions across the globe. And again, we will have a wave of supply side inflation, which is the exact kind of inflation that we are faced with right now. And given how the Fed communicated just three months back, you have to be amazed by how scared they are of the supply side inflation, even though it’s not the kind of inflation that they like.
So I still think that they will react to this, even though it’s supply side driven. What they have in sort of the toolbox ahead of September is obviously that they could hint that the interest rate path further out could be hiked. But otherwise, I think the most obvious tool is to look at the purchases of mortgages. Since we currently have a situation where most US consumers, they are very worried or even scared of buying a house. Timing wise right now, as a consequence of the rapid rise we’ve seen in the house prices. And I guess that’s directly linked to what the Fed is done on mortgages.
TN: Yeah. I can tell you just from my observation here in Texas where we have a lot of people moving in. House prices have taken a pause for probably the last two or three months where things even two, three months ago wouldn’t stay on the market for, like, three days. We’ve started to see things on the market for longer.
And so, I’m seeing what you’re saying, Andreas, about the housing market. And the question is, can that stuff pick up again, and is it justified? Albert, what’s your response to Andreas statement?
AM: The best comparison that we have is the 2013 economy to today’s economy. No one can sit there and argue that today’s economy is stronger than 2013. And look what Tapering Tantrum did to 2013 market. It was an absolute debacle. Yellen was so put off by Bernanke’s Tapering that she refused to do it in 2015. And in 2017, when they even mentioned it again, the market took a leg down. So, with that, right? And especially with Andres mentioning the word inflation, which is an absolute bad word to talk about in DC, tapering would have to have the Fed admit wrongdoing on sticking inflation.
When have we ever seen the US Federal Reserve ever take blame for something that’s negative in the markets? They just simply don’t do that. In fact, what I think they’re going to end up doing is allowing a market correction late into the fall and then unleash another $3 trillion of QE with Yellen and Powell to support the markets. So which would be completely opposite of tapering.
TN: Yeah, that’s interesting. You have completely opposite views. And what’s your view on the possibility of QE? I mean, is it possible?
ASL: Well, I don’t think Albert and I disagree a whole lot on the structural view or outlook, since that QE is a permanent instrument and it’s needed to fund the debt load of the US Treasury. There is no doubt about it. The point being here that the Federal Reserve needs a positive excuse to start tapering. I agree with that as well. And that exact positive excuse will be another couple of very strong labor market reports.
That’s exactly what they’ve been telling us. That they want to see between 800K and 1 million jobs created a month would be enough for them to launch a Tapering decision in September. Whether they will succeed with the entire tapering process is whole different question, but I’m looking for that decision in September. And then I guess Albert and I will agree a lot on the market takeaways if they take such a decision.
AM: Let me ask you a question Andreas. What would happen if the United States Congress refuses to deal with the debt ceiling and have no fiscal at that point? What would happen then?
ASL: Well, in such case, there is a whole lot of issues that you need to take care of as a Fed Reserve. So first of all, I’m not too scared of that scenario. I consider very low probability. I’m interested if you have another opinion.
AM: I personally don’t think it happens until at the very earliest November.
ASL: Yeah, but, I mean, obviously, every time there’s a debt ceiling deadline, we know that the true deadline is not the suspension deadline, its the deadline when the US Treasury is not able to run on fuels any longer, right? And that would be sometime during late October, there about I agree with you on that. So we basically have a window right now without a whole lot of issuance due to the debt ceiling being in place. And I actually think that’s a decent window for the Federal Reserve to utilize if they want to start tapering, since there is a smaller issuance for the private sector to swallow in such case.
TN: Interesting. Okay. What are you guys seeing on the corporate side? Are you seeing strength on the corporate side? I know we just had earnings season and they were very strong, but are you seeing a justifiably strong corporate position to start to taper?
AM: Right now, I really don’t. I mean, the University of Michigan Consumer Confidence had collapse. I think today, New York’s Manufacturer Index came in at 18.3, which was an astounding collapses in itself. You know, I personally deal with a couple of hedge funds, and they have been well behind the curve in returns right now.
I think the best ones are sub 10% for the year, so they’re gonna have to move back into cyclicals, and they’re gonna have to move back into small caps to make up the difference before the year end. Simply just even discussing that option, it makes tapering, you know, even less of a likely outcome just because it would ruin the market.
ASL: Obviously, if you go long small caps right now into a tapering scenario, you will end up losing. I agree with that. That would be kind of the worst. Yeah, exactly. But otherwise, I have to agree that the corporate sector is more doubtful, I would say, than the US Treasury in terms of a tapering decision. I’m much more scared of the corporate debt load than I am of the US Treasury debt load.
The State’s currency issue is they can always get rid of such a scenario. But the corporate sector is bigger trouble than the US Treasury into this scenario that I depict.
AM: Yeah. I completely agree with that one.
TN: Wow. We end on agreement. Guys. Thank you so much for this. Thanks so much for your time. I really look forward to it. Andreas, I look forward to having you back. Albert, of course, we look forward to having you back. Have a great week ahead, guys. Thank you very much.
And for all you guys watching. Thanks for taking the time. Please subscribe to our channel. And we’ll see you next time. Thanks very much.
Corporate earnings are beating the Wall Street estimates — are these even accurate? For the exporting countries in Asia — will they be badly hit with further lockdowns? And why is WTI crude oil dropped all of a sudden? All these and more in this quick podcast interview with Tony Nash at the BFM 89.9 The Morning Run.
❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.
Show Notes
SM: BFM 89.9. Good morning. You are listening to the Morning Run. I’m Shazana Mokhtar in studio today with Wong Shou Ning and Philip See. First, though, as always, we recap how global markets ended the trading day.
PS: Yes, the U.S. was relatively mixed. The Dow is down 0.9%. S&P 500 also -0.5%. Nasdaq was up 0.1%, crossing over to the Pacific and Asia. Also a mixed day. The Nikkei was down 1.2%. Shanghai Composite and Hang Seng were both up 0.9%, Singapore up 1.1%. And actually, not surprisingly, FBN, Kilcher was down 1.6%.
SM: And for some insights into what’s moving markets, we have on the line Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Always good to have you. So looking at corporate second quarter earnings, they’ve been beating Wall Street estimates, yet a prevailing bearishness seems to be creeping into U.S. markets. Is this an accurate reading driven by the rise of Covid-19 cases from the Delta variant?
TN: Yeah, earnings are up about 90% year on year, and a lot of that really has to do with companies cutting back staff and trimming expenses. This is a really nice, obviously not unexpected, but a really nice pop. But the cutbacks have come to a limit if we’re straddling a come back. Part of that is revenues are up 22% on quarter, which is great. But given the cutbacks, it looks extraordinarily good. So these things have a way of winding down. There’s only so much you can only get this good for so long. So we do expect this to to erode a little bit going into next quarter.
WSN: But does this mean that markets will find it hard to go to the next leg up in?
TN: It depends. It depends on company performance, but it also depends on things like central bank activity and fiscal spending. So if we look at Covid, it depends on which way it’s going. And if Delta variant gets worse and the fatality rate gets worse, which isn’t here in Texas, the fatality rate per case is half of what it was back in February. So just six months ago, the fatality rate here was twice per case of Covid.
So we’re hearing a lot about case counts. But the reality is the fatalities are declining pretty rapidly. So here we see that is a good thing. And and so we’re hopeful that things will you know, we’ll continue to move back to a normal situation. But there’s a lot of talk about, you know, closing things down. New York just put coded passports in for going to restaurants and going out in public, the sort of thing.
What that does is that really it really hurts small local businesses. It hurts chains for, say, restaurants and shopping. It helps companies like Amazon that do a lot of local deliveries. So so if New York is going to lock down, it helps to work from home type of company try it. But it seems to me in the US it’s going to be really hard to close the US down again because there’s a lot of push back in the US to closing down in some places, not so much New York, California, those those places, but other places. If there was an attempt to lock down again here in Texas, people would be pretty resistant.
PS: And you made a point on central bank activity. Fed Vice Chairman Richard Clarida confirmed that they are on track to raise rates in twenty twenty three, but jobs data is soft. So how should we make of all this?
TN: Yeah, I don’t see that happening. Look, you know, people talk about rates a lot, but the Fed has so many tools. I would expect the Fed to commence some sort of QE plan in the not too distant future before I would expect rates talk. I think we’re closer to QE than we are to rates much closer to QE than we are at a rate. So I don’t see rates changing certainly in obviously in twenty one. I don’t see them changing in twenty two. If it’s twenty three, maybe it’s the back half, but I just don’t see that happening simply because we’ve got to stop the flow of finance ministry and central bank activity going into economies globally first before we start to impose higher rates on borrowers. So we just need to get to a zero state or a semi normal state before we start imposing higher rates on borrowers.
SM: OK, and turning our attention closer to home, Tony. An economic upswing in Southeast Asia this year looks increasingly uncertain. And given that ASEAN is predominantly export dependent, how badly hit do you think countries in this region are going to be?
TN: Yeah, I think it’s hard. For those countries that have the benefit of, say, natural resources exports like Malaysia with palm oil and crude oil and other things, I think that helps. However, manufactured goods are difficult, partly on supply chain issues, partly on Covid, you know, restrictions and other things. So international transport is still in a very difficult situation. So I think it’s tough for Southeast Asia. I think there’s a big move in Europe and North America to have more manufacturing done nearby in regions.
So I think this, over a period that’s been protracted 18 months or longer. I think the more that happens, the more we see unwinding of global supply chains and the more we see the unwinding of Asia as the centralized manufacturing hub globally. I think we’ve seen more regional manufacturing. I don’t think that necessarily means that the manufacturing in China or other places are necessarily in danger. Unfortunately, a place that I think places that I think are more in danger of places like Malaysia, Thailand, the middle income, middle tier type of manufacturing countries. So the automation, competitiveness, these sorts of things are really much more important in places like Malaysia and Thailand.
WSN: And Tony, I want to switch to oil because when I look at the Bloomberg at the moment, WTI is showing at sixty eight U.S. dollars a barrel for delivery in September. What do you make of this sudden drop in prices? Is it due to demand decline?
TN: It’s on Covid fears. News all over the here in the U.S. It’s a lot of Covid fear mongering and you know, a lot of that. The media is based in New York and D.C. And so there’s a lot of chatter on the government side. And in New York, the New York media is trying to get the the focus away from Andrew Cuomo, the governor there, and really trying to focus on Covid and other things. So markets are reacting.
Business doesn’t want things closed down. Again, people in business don’t want to close down again. So I think, you know, you’re going to see a real push pull in markets over the next couple of weeks as that debate happens about two places closed down or not. And you’ll see some volatility in things like commodities and in other markets as that very active discussion continues.
SM: All right, Tony, thanks as always for your insights. That was Tony Nash, CEO of Complete Intelligence, talking to us about the situation of the economy in the US. And, you know, that push and pull between closing down, how do we deal with with the covid, but at the same time, you know, make sure the economy doesn’t suffer too much.
PS: You made a very interesting point that with closing down, who is affected the most. Right, with respect to businesses. He did say smaller businesses are more susceptible as result of a closure locked out. But the same is exactly the same thing you’re going to see across the board.
WSN: Yeah, yeah. I think he also brought up an interesting point about the fact that, yes, there is this decentralization of manufacturing hubs. Right. Because I think a lot of businesses are concerned that with covid-19 and they have really been proven that supply chains can be very easily disrupted. But ironically, Malaysia may not be a beneficiary. It might move to other countries. And it’s a question of whether we move up the value chain to provide that, you know, that that automation that we need do.
The things that we talk about are 4.0. I’ll be ready for it. Do we have to staff for it? Will they go to other countries? And he hinted that he might. So I’m just curious, in the longer term, what is our government’s plans, especially now 12 million, your plan confirmed to be in September and budget 2022 in October?
SM: That’s right. And we’re going to get a perspective on this later on in the show at seven forty five when we speak to the president of the Malaysian Semiconductor Industry Association. So stay tuned for that BFM eighty nine point nine.
Energy commodities experts Tracy Shuchart and Sam Madani joined forces in this special #QuickHit episode to talk about crude, OPEC+, JCPOA, and how lockdowns will affect the market this year. Most importantly, how investors should plan?
Tracy writes for a Hedge Fund Telemetry, where she is the energy and material strategist. She also manages an energy and materials portfolio for a family office. Meanwhile, Samir Madani is the co-founder of TankerTrackers.com. They’re an online service that keeps track of oil that’s being shipped around the world. His specialty is the tricky tankers, the ones that like to play according to the rules.
📊 Forward-looking companies become more profitable with Complete Intelligence. The only fully automated and globally integrated AI platform for smarter cost and revenue planning. Book a demo here.
This QuickHit episode was recorded on July 17, 2021.
The views and opinions expressed in this OPEC+, JCPOA & Delta Variant: Strength or weakness for oil & gas prices? QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.
Show Notes
TN: We’ve seen kind of an uplifting crude prices. We’ve seen things like copper prices come down, natural gas prices really start to see some upward pressure recently. At the same time, we’re seeing talk about the JCPOA and some other Middle East type of changes with OPEC+ and UAE and Saudi. What’s your thoughts on the crude and natural gas markets? We can talk about commodities generally.I know that’s a big, wide open question. Tracy, do you want to give us generally your view and some of your positioning at the moment?
TS: Well, I’m very bullish on commodities, particularly industrial metals, base metals and minerals needed for this energy transition. So copper and things of that nature.
This is CI Futures July forecast for COMEX Copper this YTD.
Discover the forecasts for nearly 1,000 other assets.
We have seen a little bit of a pullback in a lot of commodities, which is not surprising. We had such a large move up. However, everybody’s looking at this as a group like the CRB index rate has pulled back. But if you look at individual commodities, you’re still seeing iron ore still at highs. So it’s not like a whole commodity collapse. You’re still seeing strength in a lot of different areas.
So my positioning is instead of index, I’m positioned in individual stocks and particularly on the minor side, because minors are going to have the same capex problem that oil is having.
TN: OK, that’s a great point. Sam, what’s your view like generally with with energy?
SM: I remain bullish when it comes to oil in particular, and I pat myself on the back for having gone long in at the end of March last year, when the the mutual funds were at the all time lowest in regards to oil. And that’s come up quite a lot since then.
I do believe that we will probably find a good footholding now in the 70s. And in order for that to remain, I think something drastic is going to have to happen on the upward probably scathe $100 and come back down so that the OPEC can look like the good guys in the mid 70s. So I think also because of the fact that there’s a capex shortage in the oil sector, they need this revenue to come in order to sustain production as well.
My original intended investment horizon was around three to four years. I’m going to be cutting that short until September of next year because the issue that we have now is that the lockdowns are still in effect in many areas, but also when it comes to Europe where I’m situated, most of the inoculations have only gone through the first phase. So we’re still waiting for the second shot and therefore this summer will be delayed. We’re not going to be traveling everywhere like we were in 2019. Instead, that will happen most likely next summer.
There’s still one big run up towards the three-digit oil price and that would be most likely to happen next year rather than now.
This is CI Futures July forecast for COMEX Copper this YTD.
Discover the forecasts for nearly 1,000 other assets.
TN: So you brought up OPEC. There’s been news this week around OPEC+ and a deal with Saudi and UAE and some other Middle East dynamics. What’s your view on that? How much downward pressure will that put on crude markets?
TS: Because of those factors in the Middle East, because I am of a belief we will see a deal and we will get some more barrels on the market, the market is actually very tight right now. But we’re also having lockdowns in some places in Asia. So right now, we already are seeing a pullback in crude. Until we get a little bit more certain that 65-75 range will probably hold us for a while, I see some consolidation there and after $115 move from the lows last year, it makes sense for oil to chill out, consolidate here a little bit.
TN: Sam, what’s your view on the kind of OPEC+, Saudi, UAE and other kind of OPEC countries wanting to tag along on the UAE?
SM: I think one issue that they themselves want to know is status of the JCPOA. They really want to know how much of an issue Iran would be if their balance come back to market. Now, that’s a big if.
But if we look at what happened during the Trump administration, the United States pulled out of the deal and that was not good optics for the U.S. side. But now what’s happened is that Iran is not complying with the deal. So the ball is now in their court instead. So the Biden administration is saying, yes, the United States wants to be part of the deal, even though it’s not a very popular deal in the US. I don’t see any popular support for it. It’s more of a let’s just get back in there so Iran can improve its compliance. But they’re not improving their compliance. Instead, what they’re doing is going the other direction and they’re increasing their enrichment. They’re becoming more brazen about how they move around the world with Navy vessels and so on.
And now, of course, there’s an Iranian president that’s going to take office in August. So I think the deal will play fall apart instead because of the fact that Iran is not complying.
TN: If the deal falls apart, does that chaos help oil prices, meaning rise or does it create the perception that there will be a dramatically larger supply in the market?
SM: I think the initial reaction will be that, “Oh, these barrels are not going to be reentering the market, therefore the price will go higher.” So that’s the first automated response. But then, you know, the dust will begin to settle after a while when there’s an understanding of what kind of barrels are not entering the market.
So in Iran’s case, they are shipping sour crude. Whether it’s light or heavy, it’s sour. In order for that oil to become sweet, which is more attractive, you have to de-sulfur the oil. And so Iran, what they do is they give you a discount if you want to buy light sweet oil, but then they’re buying like sour oil. Iran gives $10 discount, for instance, and then they just remove the sulfur at the refinery at their own expense. And that’s what’s causing, for instance, West Africa to lower their exports. So moving out a lot less oil now out of Africa than before on account of China buying more Iranian oil instead.
TS: I think what people forget, there’s already a lot of Iranian oil on the market. So even if they came back at production of 4 to 4.5 million, it’s not really a lot of extra added barrels that are not already on the market.
SM: Exactly. And it will be absorbed by the demand that’s coming of course.
TN: But it seems to me the kind of perception of legitimacy that would come through JCPOA may calm prices down a bit through the kind of perception of legitimacy of that supply?
TS: Yeah. I mean, if it came to fruition, which I don’t foresee it, I have to agree with Sam on this point. But yeah, the market would think, oh, OK, we have all these barrels coming on even though there isn’t, and that it would be a numbers game from there, then you’d have to see supply and demand numbers from the various agencies monthly reports.
SM: And the thing also does not happen overnight. So even if the process of JCPOA happens and Biden finally signs, for instance, initially a waiver, the whole process takes forever to reboot again. We saw it last time. Remember Tracy back in years ago, it took many months.
And also in the case of Iran, most of their domestic national fleet is tied up containing gas condensate. So they have around 70 million barrels of gas condensates floating. And that used up nearly all of the VLCC supertankers, the ones that can carry two million barrels. So what Iran has done is they put additional vessels, vintage VLCC. So now they have 200 vessels as opposed to 70. And those are the ones, the foreign flagged vessels that are moving the oil mostly to China.
TN: You both mentioned lockdowns earlier in the conversation. And I think the tone here is that we have a pretty strong basis for rising crude prices. But we’ve seen some moves over the last week in the Netherlands and California and other places for maybe not full lockdowns, but more severe compliance with masks and other things and that seems to be leading toward potentially some lockdowns. First of all, if there are lockdowns coming, what would be driving that? And we all know about the Delta variant and stuff. But are there political factors that would be driving that? Second of all, if there were, how would that impact the six to nine month view of crude markets for you guys?
TS: The United States is so big, I don’t believe that they’re going to lock down the whole country again. It just won’t happen. You would literally have riots on the streets in some places. So I don’t foresee that happening. I could see some of the states like California just reinstated their mask mandates. I’ve been watching those states that kind of had more severe lockdowns to begin with like Michigan. If they’d lockdown again in the fall, that would probably be more politically motivated, but we’ll have to see what the numbers are and whatnot.
As far as my crude view, I’m very bullish on crude. But that doesn’t mean like I’m expecting a $100 tomorrow. How I’m invested is longer term. So I’m invested for at least the next five years or so.
And I do believe that if we get through the fall and we don’t have lockdowns in the United States, Europe and Asia, then I definitely think six to nine months, we’re back in the swing of things, because that’ll put us right to basically next spring when oil demand really starts.
TN: Sam, what’s your view in Europe on lockdowns? Do you see that stuff coming back and how do you see that impacting consumption?
SM: I would think that it would be mostly in the countries with the high population density. Germany is obviously one of those countries and the UK is another. In other countries, not so much the case. I live here in Sweden. We never had lockdowns. So we had seniors living in retirement homes and so on. But then, we pretty much met the same statistic level as every other country — 10% population suffer through it, 1% or so perished as a result. But I don’t think that we’ll be seeing any big efforts on locking down countries again.
And what’s more interesting now is schools are coming up in a couple of months or at least a month and a half. Here in Sweden, life will pretty much continue as is. I have four kids and none of them missed more than a week of school, throughout the entire ordeal since 2020.
TN: So it sounds to me like you both see there may be some lockdowns at the edges, but it doesn’t sound like it’s something you expect to affect the mainstream. Maybe we see a slight dip in the rate of rise of demand. But it doesn’t sound like it’ll have a huge impact to the downside on energy prices generally, whether it’s crude or natgas or something like that. Is that fair to say?
SM: Yep.
TS: Absolutely.
TN: When it comes to natural gas, Tracy, I know you’ve been talking about that a lot lately. Can you tell us a little bit about your observations and your thesis and and what you’re seeing there?
TS: For natural gas, the reason I like it is it’s the great transition fuel especially for emerging markets, because it’s very inexpensive than to go straight into something like solar or wind just because the cost of those minerals and metals can make those are skyrocketing right now. So natural gas is abundant. It’s a great transition fuel. It’s cleaner burning than oil.
We just saw the EU green deal, they just stepped back and now are including that gas, whereas before there was no oil or gas, because I think they’re also realizing that it’s inexpensive, it’s a good transition fuel. If you look at Germany, there’s still a lot of coal going on in Germany. So for Europe, it’s not like fossil fuels are gone.
I think they realize also it’s an inexpensive transition fuel. In particular for the United States, what I like right now is we’re seeing European natgas ETF and JKM, which is the Asian natgas, are trading at significantly higher than the United States is right now. And so I think there is opportunity there because the US can export and still come in at a lower cost, even with the cost of transportation to Europe or to Asia.
TN: Interesting. Living in Texas, I have to say that I love that message. Sam, what about the tanker fleet? Is the global tanker fleet ready to to provide the capacity needed to power EMs with, say, American natgas or Middle Eastern natgas?
SM: So natgas, I haven’t checked too much. But tankers in general, the demand is not that great right now. When I say that, I mean that usually, they really step up to the plate whenever there’s a floating storage opportunity to talk about. So you had that case in Q2 of last year, and that really drove up the prices from the growing normal rate of 20,000 barrels a day to 500,000. That spike.
And it’s come down so much. Complete occupancy is far lower than what I normally see if I talk about the tonnage and it’s around under 40%, which is very little. We were looking at April of last year, it was around north of 55, close to 60%. So that’s a big swing. And that really crushed the prices for tanker rates. They’re even negative. Below zero. But when I look at the transfers of illicit oil, it’s around $38,000 a day. So there’s a lot lot of money to be made in those transfers, unfortunately. But for nat-G, I’m not entirely sure. So I can’t say for sure.
TN: OK, very good. Guys, thank you so much for your time. This has been really helpful. I’m really intrigued by kind of the long bull thesis for energy because we hope that we’re going to start recovering much quicker than we had been, which is fantastic. So thanks for your time. I really appreciate. Always, I really appreciate talking with you guys. Thanks very much.
Our CEO and founder Tony Nash is back on the BBC Business Matters for the discussion on US banks and why they are not helping enough during the pandemic, India’s Covid and their vaccine efforts, and Friends the Reunion.
Big US banks have been criticised for not doing enough to help ordinary people during the pandemic. The bosses of JP Morgan, Bank of America, Citigroup, Wells Fargo and Goldman Sachs were grilled during an appearance before US lawmakers.
Also in the programme, following the deaths of more than 315,000 people from coronavirus, India could fast track the clearance of some foreign vaccines in a bid to speed up vaccination in the country. The BBC’s Rahul Tandon has an extended report on how the country’s rollout is going so far.
Staying in India – we look at the relationship it has with Twitter. The information technology ministry in India has criticised the social media giant after it expressed concern over the potential threat to freedom of expression in the country.
Plus, as the cast of TV sitcom Friends reunite for a one-off special to look back at the making of the show, we discuss why it remains so popular.
Show Notes
RT: Then from Houston, Texas, we have the founder of Complete Intelligence, Tony Nash. I’m always very reassured to have Complete Intelligence on the program as a man of limited intelligence. Yes.
Tony, does that mean looking ahead and this is not a reflection on the current CEOs, but banks are going to have very different CEOs because it’s not all about the numbers anymore, is it?
TN: Well, I think these are smart CEOs, they can handle handle their own. I don’t necessarily think these guys are not skilled enough to handle these topics. These banks handle these topics every day. I think the range of questioning, to be honest, really shows just a lack of focus. These companies are better served when they focus on an issue and go deep on it.
RT: What should they be and focus on? What would you focus on?
TN: Whether it’s green loans or whether it’s access to finance are such rich topics that they could have spent the entire hearing on. And I think the hearing was really meant for a lot of one liners so that people could be seen in the media more than really a desire to dig deeply into this. So, for example, the the fees that were levied, the saving rate of Americans right now is 21 percent. Normally that’s five percent or seven percent, something like that, but it’s 21 percent.
So Americans generally have money. I’m not saying that it wasn’t the overdraft fees were not unfair in some cases, but it’s not as if that was kind of a massive hot button issue really until today. Americans hate banking fees. I think everyone hates banking fees. But I think it was just kind of an opportunistic thing to talk about.
What would have been really interesting to talk about is how those major banks, specifically for things like PPY loans, they did not cater to small businesses, OK, they catered to their largest clients.
RT: Interesting points that from Tony. What do you think? Tony. Anyway she’s part of the world that you know very well here entering an emerging market that should he said there with this strong man, but that’s something you’ll have to do if you want to grow your business.
TN: I think what Twitter has done with government accounts globally is it’s put a label this is from a government account or this is from a person who works for the government. So in the West and I’m sure in the U.K. and other places, you can see, for example, Chinese government spokespeople put out things that are obviously false that Twitter doesn’t police. They have to apply the rules evenly to everybody. So if they’re going to apply these rules to an Indian government official or an American government official, they have to also apply it to a Chinese government official or a Japanese government official. The problem that Twitter has is it is not treating its users equally around the globe.
RT: Twitter having to deal with people from countries. You may not be telling the truth. You mentioned China there. But if an Indian member of the government appears to be not telling the truth and Twitter says so, there’s nothing wrong with that. It has does to stand up on that principle now or does it cave in and say to the Indian government, “OK, we’re going to follow that rule because your market so big?”
TN: Well, Twitter is supposed to be a non-partizan platform. And so they are intervening as partizans at times, and that’s just not fair.
RT: They shouldn’t say anything. Just let people say what they want?
TN: I think they label as a government account. And if it’s seen as government propaganda, then either they let it go or they apply it evenly across all government accounts.
RT: Tony, if I can come to you firstly in Houston, in Texas, a personal question, I suppose. I mean, have you been vaccinated? Tell us a bit about the vaccination situation where I would imagine it’s quite good.
TN: So Texas has about 40 percent of its population vaccinated, and I think it’s 22 million people. So it’s nothing on the scale. I haven’t been vaccinated. I’ve wanted people who’ve needed it to go first. So I’m happy to wait on that so that older people or people at risk or whatever can go first. But the U.S. generally has about 40 percent of the population vaccinated. So things are pretty well advanced here. I was glad to see the U.S. government start to support India about a week and a half ago or something two weeks ago? I think it was really, really late. I think they should have supported India much, much earlier.
RT: Well, I think it’s very admirable that you’re that you’re that sort of attitude that you’ve taken to vaccination. Tony, if you want to get vaccinated in the U.S., what’s the process that you have to go through? One thing that intrigued me was that in India, a country where many people still struggle when it comes to the Internet, the booking system is only online at this particular point in time and only in English. You obviously have large Hispanic community in Texas. Tell us a little bit about how you book it and sort of language abilities that.
TN: It’s online in Texas that I haven’t booked again, because I’ve been waiting for all these other populations to clear, but in Texas it has to be in multiple languages. I mean, we have such large communities here, not just Hispanic communities, but Vietnamese communities and other communities. So it has to be in other languages on the site. A look while we’re talking and if I can find it in time, I’ll let you know.
RT: Great. But if you can’t go online because, you know, there are many parts of the world, as you know, my parents struggle to go online. Sometimes they struggle with many things, really. But online is one of them. Can you make a phone call in Texas to get it? Is there another way? Can you just walk into a center?
TN: I’m not sure if you can just walk in, but there are multiple ways of contact. I’m on the website now, so there are multiple ways to contact. It’s a very, very simple website and it’s a multi-language website. So, yeah, there are multiple ways to get in touch with them with phone number, toll free telephone numbers, even for hearing impaired telephone numbers. So there’s a lot of ways to contact.
RT: Can I just say that was Complete Intelligence there from Tony just getting on the website and doing some live reporting for duty. Certainly did a great job at the Olympic Games are being held in Texas, Tony. And they weren’t vaccines available for the local population. And then you had thousands of people coming in, athletes who would get the vaccination. Do you think that would annoy people?
TN: I don’t think it would annoy people, I mean, Texas is open, we have sporting events and concerts and everything that are alive now. So I, I think Texans view is, look, if you want to get the vaccine, that’s totally fine. If you don’t want to get it, that’s totally fine. And so, you know, if a lot of people were coming in with vaccines, I think people would be fine with it. I don’t think they would they would be concerned if they knew that infected people were coming in. But if people were coming in, you know, checked with vaccines or without vaccines, I don’t think anybody would really mind either way.
RT: Quickly, do you think it’ll go ahead to.
TN: The Olympics, yeah, I hope it does, but I’m not optimistic, I mean, I’m going to say no at this point, but I really wish it would. The world needs something positive to focus on, and an Olympics would be an amazingly positive thing for us to focus on that issue.
RT: I think we all need something positive to focus on. Which one of you is the big Friends fan or are you both maybe.
SR: I like friends, but not a super fan.
RT: Tony.
TN: That was I was in my 20s when friends was out, so it was just kind of on in the background. It was kind of about people around my age. We had Seinfeld, we had Friends. I mean, the 90s was some really great TV. So it was good. It was a good show.
It was of the time Ross had girlfriends of different races. Ross, his ex-wife was in a same sex couple. Now you know all that stuff. So, I mean, I hear that criticism. But I think at some level, you would always do things differently if you could redo them. But at the time, I think they did a lot. You can’t see history through today’s lenses. You really have to look at it at a contemporary through contemporary lens. And at the time, they were doing a lot of.
RT: Yes. Thank you very much to both of you. Let us end the program, whether you like it or not, with a theme tune from friends.
