Millions of Australians decide whether or not to vote back in the Conservatives after nine years under the party’s rule. BBC’s Katie Silver and Australian economist Tim Harcourt tell us more. Rising fuel prices have led food delivery drivers to strike for days in the United Arab Emirates, where industrial action is banned. BBC’s Sameer Hashmi explains their struggle from Dubai. Adi Imsirovic from the Oxford Institute for Energy Studies gives us his views on the former German chancellor Gerhard Schroeder’s recent resignation from the board of directors of Russia’s state-owned oil company, Rosneft. In Korea, president Joe Biden begins his five-day Asia trip with a visit to a Samsung semiconductor plant. We talked to Carolina Milanesi, president of analyst and market research firm Creative Strategies, about this. Vivienne Nunis is joined throughout the programme by guests Tony Nash, Chief Economist at Complete Intelligence in Houston, Texas, and Karen Percy, Senior freelance reporter in Melbourne.
Show Notes
VN: Tony Nash, who’s the chief economist at Complete Intelligence in Houston, Texas, is one of them. Welcome back to the program, Tony.
TN: Hi, Vivian. Thank you.
VN: Thanks for joining us again, Tony Nash. Listening to that. It’s interesting, isn’t it? It doesn’t matter where you are in in the world. The energy crisis triggered by the war in Ukraine is forcing drivers to fill the pinch wherever they are.
TN: Yes. I live in Texas, and we produce a lot of oil here.
VN: What’s the situation there?
TN: Oil is rising pretty quickly. The price of gasoline is rising pretty quickly. So both regard to the UAE. I spent a bit of time in the region, and the prices are always lower. They’re very cheap. But what’s interesting about the delivery business is if the cost of petrol is impacting the delivery business, that could be a real issue for that business model. I think we’ve been in an era of relatively low petrol prices, and if those prices remain high, it could be a real challenge for that business model at some point.
VN: So you’re saying that fuel prices are already cheaper compared to, say, global averages in the US, and I guess they are in the US as well. They’re heavily subsidized, aren’t they? I guess the question is, should governments be stepping in where they can to ease that pressure on drivers and everyone facing various cost of living pressures?
TN: Well, with UAE, actually, the prices in May for fuel are lower than they were in April. They’re still elevated, but they have come down a small amount, like 2% or something. But I think if the government is to help people, all that will do is I think we’ll only have higher crew prices or higher sorry, fuel prices. So it’s a hard thing to say, but I think more money toward it will only make those prices higher as more people consume kind of at the same levels, but with the subsidies. So it’s a very hard time. And I think it’s something that maybe the companies should help their drivers with, not necessarily the governments. These people are working on behalf of the company. And so perhaps the company should help their drivers a little bit with fuel.
VN: Tony, this story is moving all the time, isn’t it? We’ll get to some of that in a moment. But firstly, it was rather extraordinary, wasn’t it, that Gerhard Schroeder didn’t resign from that position on the board of Rosneft until today?
TN: Yeah. It’s weird that he took up the position in the first place. I remember when it happened 20 or so years ago, and it just seemed like a strange appointment at the time. But it took him 20 years to make the decision. So, yeah, it’s well overdue and it seemed fishy from the start. And I think Germans have been extraordinarily patient in putting their pressure on him to get it done.
VN: Well, we don’t know there was anything fishy, of course. I mean, perhaps the pressure only really came on to him since this invasion by Russia into Ukraine, given that before that, Russia and German energy relations were pretty tight.
TN: Sure. Yeah. But Germany had at some point looked at, say, taking LNG from other parts of the world, Qatar, US, other places, and they chose not to do that and really have Russia as their only source, I believe, largely because of lobbying that Schroeder participated in. So had Schroeder not worked with Gasprom, there’s a feasible scenario that Germany would have multiple sources of natural gas and oil and not really just looking at Russia.
VN: I mean, Tony, I guess what is fairly obvious that it was a very lucrative position there, and that’s probably one of the reasons why he stayed so long.
TN: Sure. And as a former Prime Minister, it is awkward for him to lobby to single source energy from one country. I get it. Of course, it’s lucrative and everybody has to pay the bills somehow. But this was particularly odd.
VN: Okay. Let’s leave it there. Thank you both for your thoughts on that. Tony. It was interesting, wasn’t it, how President Biden almost made a beeline to that Samsung plant straight off the plane after he landed in South Korea, obviously underlining that relationship with South Korea, but also the importance of semiconductors in today’s economy.
TN: Sure. So I live in Texas, and Samsung last year announced a $17 billion chip Fab investment just north of Austin, Texas. And Texas Instruments is also building a new chip Fab in North Texas. So there are three new chip fabs that have been announced or major new chip fabs that have been announced in the US over the past couple of years. And two of them are in Texas. And so that $17 billion of investment that Samsung is making is really the reason for the trip. So that chip Fab that’s in Texas, there’s got to be a lot of thank yous to Samsung for making that investment in the US.
VN: So it’s not a wider move then by the US to really try and encourage that kind of thing in its own shores. We talk about onshoring we’ve seen so many delays in global supply chains throughout the pandemic. We’ve seen shipping crises. Is this an idea to try and prevent any of that from happening in the past and get those made in the country closer to some of those big companies like Apple and intel, for instance.
TN: That has been underway for probably five years. The movement to getting technology firms, particularly semiconductor and defense related technology firms, building more either in the US or in the NAFTA or the North American Trade Agreement area. So that started particularly after the 2016 election, and it’s continued in the Biden administration trying to get more of that technology development and technology manufacturing in the US.
VN: And right where you are in Texas. Well, not exactly where you are, but somewhere in Texas we’re hearing not just about these semiconductor plants, but also, of course, Tesla moving a Gigafactory there as well, out of California and into Texas.
TN: Right. Tesla, Oracle, HP, many firms have decided to relocate to Texas. It’s a great workforce. I’m here. I run an artificial intelligence company here, and people here like to work. And so it’s a really good location for technology companies.
VN: It’s not just the hard work, though, isn’t it? Also about tax rates, if I recall.
TN: It’s about tax rates. It’s about research dollars. So the universities here get a massive amount of research dollars and spend a lot of money on research. And it’s the quality of education that’s here. So all of those things combined, of course, Samsung got subsidies for building its Fab and Taylor, but I think they could probably get subsidies from anybody. They’re kind of really looking at the whole environment that they plant their business in.
VN: It’s interesting because we always think, well, originally we thought about California dominating the tech industry. Now we’re hearing about Texas, as you’ve just mentioned. I spoke to Carolina, who we heard from earlier. She’s actually moved out of California into Atlanta. And she told me that’s a growing tech hub, too, used to be a kind of base for telecoms companies, but now it’s attracting some of those tech firms, too.
TN: Yeah, I think there are a lot of kind of mini tech hubs around the US, and you can find them in different clusters around the US. And so it’s really just a matter of what critical mass can you get and what specialization can you get, and then how do you build around those specializations? So, for example, Tesla moves to Austin, and their vendors are then required to move to Austin as well. Right. And that creates a cluster around what Tesla does. So really getting those bigger fish to move their vendors and build that whole system is pretty critical. And the Texas governor, Greg Abbott, has actually done a really good job of recruiting those firms here because it’s only the last four or five years that a lot of that’s happened.
VN: Okay, well, thank you, Tony, for all of that insight from Texas. Do you take ketchup and mustard on your hot dogs?
TN: You’re supposed to only eat mustard on hot dogs. I’m sorry, but this is the law of the land.
KP: It’s an abomination. I have a Canadian Hudson who does the same thing.
VN: Okay, so just mustard, you said. Okay, Tony asking you in watching along in the US. I mean, Boeing getting into this private space race. Now, Boeing has been in the news for all the wrong reasons over the last few years. Those two very serious fatal crashes. There’s a lot riding on this venture, Tony. Have I still got you there?
TN: Yeah, I’m here. Can you hear me?
VN: Yeah. So just talking about Boeing, they’ve had a pretty rough ride, given those two facial crashes. A lot riding on this venture into space.
TN: Absolutely. And they need some good news stories. And if this is a good news story for for them, that’s great. I hope it ends up well.
VN: Okay. Thank you, Karen Percy in Melbourne and Tony Nash in Texas. You’ve been listening to business matters with me, Vivian Nunes. Thanks for the team in Manchester here as well. Bye for now.
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.
They discussed food inflation and when can we expect that to happen? And what about the energy markets, specifically crude oil and what’s the expectation there? What can the central banks do to curb inflation? And what will happen if Russia defaults on its debt?
Show Notes
CNA: Let’s bring in Tony Nash, founder and CEO of Complete Intelligence for the risks ahead for investors. Tony, as we heard there from the chief of the World Food Program, we are seeing a perfect storm. And the worry is these is rising food prices will hit emerging markets in particular. How do you think that will play out for the rest of the year?
TN: I think it’s going to be very difficult. If we look at places like Egypt that are very dependent on Ukrainian agricultural products, we expect to see really large inflation, although it hasn’t really hit yet. But we do expect that to hit in a few months as the shortfall of those products hit those markets. So your guest from the World Food Program, he was right on. We expect to see some real issues with food products in Europe and in emerging markets.
CNA: The other thing that markets are worried about or investors are worried about is the energy prices. How long do you think oil markets are going to take to find their footing? I mean, we have some headway made in alternative supplies, and we have even Japan reportedly pushing the UAE to pump up their supplies, their production.
TN: Right? Yeah. Obviously, energy had a near term peak about a week ago when Brent and WTI both went to 131. 40. That came down to the 90s US dollar terms last week. And obviously it’s up above 100. Now. We don’t expect in the near term, say in the next few weeks to hit, say, 131. 40. Again, we think that we kind of will stay within a range short of some unexpected geopolitical events. So if the war were to ratchet up, if other things were to happen, then, of course, we could expect all the prices to rise further. But countries are working on finding alternative sources to Russian crude, or at least the reduced output of Russian crude. And we see India and Russia, we saw this last week where they came to an agreement to pay in Indian rupees. And Japan is the middleman of that. It’s actually cleared in Japanese yen. So your story on Japan going to the UAE. Japan is taking a very active role in energy supplies globally to help people have additional supplies. So what we’re also seeing that isn’t talked about much now is propane stocks. Propane stocks are very low, and so we do expect propane stocks, which in places like India or in agriculture globally.
In parts of the US, propane stocks are a major concern for people I know in Singapore for cooking these sorts of things. Propane is an issue. We expect to see inflation, ongoing inflation with propane given the low stocks globally.
CNA: What about the role that the US central bank can play in all this? How limited is it? I mean, we are expecting very aggressive tightening from the Fed, but how effective is that going to be to curb inflation?
TN: Well, because the inflation is not demand driven inflation. It’s supply driven inflation. So the fed can only do so much and their job will generally be reduced to kind of killing demand. So demand destruction is really what the fed will have to do in order to curb inflation. They can’t really do anything to open up the Port of Shenzhen. They can’t do anything to affect, say, supply chain disruptions so they’ll do what they can behind the scenes. But we do expect to see quantitative tightening in probably may we expect to see four to five, maybe six rate hikes this year and that will damper demand. That is the main purpose of what the fed will do because they really need to stop people buying so much so that the supply chains can have a breather and really get more product to market.
CNA: Tony, just very quickly, before I let you go, the risk and worry also is about a default from Russian assets. It’s paid some of its dollar debt but it’s still on the hook for more foreign currency debt. Do you think that is going to be the worst case scenario?
TN: I don’t think it’s the worst case scenario but I think it could be a bad scenario. I would say one of the things to watch. There is European banks a lot of European banks are deep into Russian debt and how they trade on European markets is a good indicator of the likelihood of Russia paying back that debt. So they did make a payment last week and there is an expectation that they will continue to make payments but really they could default at any time and really nobody can do anything about it. So a lot of this is very risky and we just won’t know over the next, say, two to three months whether they will continue to be paid.
CNA: Yet more unknowns the market.
Tony, thank you for your analysis, Tony ash of complete intelligence that’s.
This week, we saw commodities skyrocket then drop off. We saw crude oil hit levels not seen since 2008, with gasoline and home heating prices on everyone’s minds. The nickel market broke the LME. Chinese tech and real estate bloodbath. And – despite all of this – Janet Yellen assured us there will be no recession in the US. Quite a week.
As we said last week:
– Tracy called for commodity price volatility – across sectors
– Downside bias in equities with high volatility. Albert predicted 4200-4250 and pretty much nailed it.
– Sam said a Fed rate rise would become boring and talk of QT would disappear.
This episode we talked about mostly the energy commodities with the continuing Russia-Ukraine conflict. Can the US use other alternatives like the West African oil to replace Russian oil? What are the politics around Venezuelan oil and why is it the same as getting Russian oil?How about uranium — and can the US produce it and will the conflict affect rare earths? Is this war the reason for the US’s inflation? How will inflation actually play with voters in this year’s US election? Lastly, what’s happening in Chinese tech and real estate and why there’s a bloodbath and for how long will this continue?
This is the tenth episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.
TN: Hi, everyone, and welcome to The Week Ahead. My name is Tony Nash. I’m joined by Tracy Shuchart, Albert Marko, and Sam Rines. Before we get started, I appreciate if you could like and subscribe to our YouTube channel. And also please know that we have a special offer for Week Ahead viewers for CI Futures, which is our market data and forecast platform. CI Futures has about 800 assets across commodities, currencies and equity indices and a couple thousand economic variables. We track our error. We have very low error rates. So we’re offering CI Futures to Week Ahead viewers at a $50 a month promotion. You can see the URL right now. It’s completeintel.com/weekaheadpromo. That’s a 90% off of our usual price. So thanks for that.
So these week, guys, we saw commodities skyrocket and then drop off. We saw crude oil hit levels not seen since 2008. With gasoline and home heating prices really on everyone’s minds. The nickel market broke the LME, Chinese tech and real estate. We saw a blood bath there. And despite all of this, Janet yelling assured of us that there will be no recession in the US. So it was quite a week.
So let’s look at last week. Tracy called for commodity price volatility across sectors. So it wasn’t just an oil call, it was across sectors. And we saw that in spades. We talked about a downside bias in equities and high volatility. Albert predicted a 4242 50 range, and he pretty much nailed that. And then Sam said that a Fed rate rise would become pretty boring and talk of QT would kind of disappear. And we’ve really seen that happen over the past week. So, well done, guys. I think we need to really focus on inflation this week. Inflation and quantity prices are on everyone’s mind. Energy is the first kind of priority, but it’s really come across, like we said, nickel and other things.
So, Tracy, let’s start there. We have a viewer question from At Anton Fernandez, Russian oil, if you don’t mind helping us understand the environment for Russian oil and what’s happening there and some of the alternatives, which we’ve covered a little bit before, but also West Africa. Is West Africa viable within that? So if you don’t mind talking to us a little bit about what’s happening in the crude market and also help us with a little bit of understanding of the context of West Africa.
TS: Yeah. So if we look at the crude market in general, what we have been seeing, we’ve seen sanctions from Canada, which is basically political. They haven’t bought anything since 2019. We also saw Australia sanctioned oil, but they had only bought a million barrels over the last year. It’s nothing. The US only 600,000 bpd. That is nothing. And UK is going to take a year to get off oil because it’s 11% of their imports as opposed to 2% of our imports. That said, what we are seeing in this market is a lot of self sanctioning. Right.
So we’re saying we have nine Afromax Russian oil tankers basically sitting aisle because they can’t get insurance and nobody wants to pick up oil right from them. Actually, what is most surprising right now, I have to say, is that looking at Asian buyers, everybody thought that Asian buyers because it would be offered at such a discount, they would be buying this stuff up like crazy. But there was just an auction for SoKo, which is a very popular grade with South Korea, China, Singapore and Hawaii, and there was literally zero bids.
TN: Really? Wow.
TS: The next auction that we need to be looking for is ESPO, which is the most popular grade for China refiners. But if we see a zero bid there, that would be indicative of saying that we’re taking a lot of brush and barrels.
TN: Chinese we’re not seeing any interest there, at least so far.
TS: Right. Which is quite incredible because the Chinese have always decided to be apolitical. Right. And they don’t recognize Unilateral sanctions and they have stressed that. So whatever sanctions that the west has, China says we don’t care about that. We saw that with Iran as well.
TN: Right.
TS: But it’s pretty incredible to see this particular auction go at zero bid. Right. In regards to looking at West Africa, I’ve been talking about this since 2020. Niama is a very interesting place. There’s been a lot of offshore activity there. And so I think that is a place to be looking for. The problem is that looking at offshore projects, they take it’s a seven to ten year timeline, as opposed to something like Shell, which is six months to 18 months. But yes, there’s definitely opportunity.
TN: So is West African crew substitutional with Russian crude?
TS: No, it is not.
TN: Okay. So is it lighter, that sort of thing?
TS: It’s lighter. It’s lighter crude oil, what we’re looking at right now. And this is exactly why the US went to Venezuela and said, we’ll be willing to lift sanctions with you as long as you only sell us oil.
TN: Right.
TS: And the funny thing is that they have a very good relationship with Russia. The problem with this sort of relationship is that we could inadvertently be buying from Venezuela that is actually Russian oil.
TN: Sure. Exactly. So it’s an interesting point on Venezuela. Albert, what are the politics around that we just pick up the phone. Does Lincoln just have a conversation with Venezuela? We send a deputy sect down there, do a deal. How does that work? And is that palatable?
AM: No, it’s not palatable. It’s an absolute joke. Like Tracy said, the Russians have their tentacles all over Venezuelan oil, that you would be self sanctioning yourself from Russian oil globally, but then buying from Venezuela, which is going to be mixed because everybody in the industry knows that if you want to mix oil, you do it in the Caribbean, especially from sanctioned oil from overseas. So it’s not palatable. It’s a joke. I don’t understand what they’re trying to do. It’s just a Wally world at this point.
TN: I guess the thing that I’m continually astounded by is the diplomatic actions of the US administration from Anchorage through this week with Venezuela. They just seem to be tripping all over themselves. What am I missing? Like they just seem to be eroding credibility by the day. Is that fair to say?
AM: It’s more than fair. They’re throwing spaghetti at the wall and seeing what sticks based only upon their little echo chamber of ideology. And it’s extremely naive ideology when it comes to geopolitics or what they’re doing right now.
You can try to erase Russia and go play and then think that you can go to Iran and cut a deal with Iran, not understanding that Russia is going to sabotage that deal. Right. Like they did just today.
TN: Tight diplomatically. While we’re on this this week, the headline said that the UAE and Saudi declined having talks with Joe Biden this week. Is that true? Is the headline the reality of it? And from the time Biden came into office, he was not friendly to Saudi Arabia. So is this payback from that?
TS: No, I don’t think so. Sorry.
AM: Actually, I think it is that it is payback because you have the Saudis and the UAE that have security concerns with the Houthis and the Iranians. And if you’re sitting there approaching the Iranians playing all nice with them, what do you think MBS is going to do?
TS: I agree with Albert on that respect. I just want to interject that the OPEC + Alliance has mainly tried to stay apolitical. Right. So just because the United States says OPEC produce this much more, Saudi Arabia and UAE, which are both the producers that can produce more than the rest, had come out this week and said no, we’re in this alliance and this is how it is, which is totally understandable.
AM: Yeah, but Tracy, but the problem is OPEC saying that is one thing but not taking his call.
TS: No, I agree with you. I agree with you that we have burned bridges. I’m not disagreeing with you here whatsoever. I’m just taking a different kind of look at this.
TN: Sam, what’s your view on that? I’m not hearing you.
SR: Can you hear me now?
TN: Yes, sir.
SR: I would say the naivety of believing that you’re going to have a JCPOA deal or you’re going to be able to have some sort of comeback in terms of Venezuela. So you add the two of those together and who cares relative to what you need to replace Richmond Oil? I mean, it would be great and fine, whatever, but it’s nowhere near enough simply. Right. But it’s also a political naivety to believe that you’re going to have that type of dialogue and you’re going to have it quickly.
TN: Right.
SR: On the front of Saudi and UAE, I would say it is both an OPEC Plus. We’re not going to blow this up before it blows up on its own from the call it the allies of OPEC. Plus.
It’s also the UAE and Saudi is saying, remember, you want to be friends with us, US.
TN: Yeah.
SR: Don’t pretend you don’t want to be.
TN: Right.
SR: So I would say it’s politics in the best possible way on that front. And on Iran, JCPOA, and Venezuela, it was wishful thinking to think that the Russians were going to say no on both fronts.
TN: Well, and the Chinese. Right. I think there are a number of Venezuela has relationships with both Russia and China.
TS: That’s all I was saying is that OPEC is not going to give up that plus alliance. They’re going to try to stay apolitical. Right. Whatsoever. Do I think that the United States is pushing OPEC to Russia and China? Absolutely. Do you see the huge deal that Saudi Arabia made today? Absolutely. Right.
So they’re looking at investing further into China because they are being pushed away from the United States. So agree on that aspect. But I’m just trying to say that they do try to stay apolitical. If you look at the history of OPEC, Iran and Saudi Arabia have been able to subsist cohesively in the OPEC alliance, regardless of the years of them being enemies and having proxy wars against each other. That’s all I’m saying.
TN: Okay. Let’s move on to the next thing. There are a couple of questions about commodities, Tracy, and let’s just cover these really quickly. We have a question about uranium from @JSchwarz91. Will the US ban or will Russia restrict its uranium and could the US actually start producing uranium on its own? Is that a possibility?
TS: The US won’t restrict uranium. It hasn’t restricted uranium because we actually buy a significant amount of uranium from them. It’s easy to say we can skip 600 barrels per day of oil, but not as easy to do with uranium. We’ve stayed away from that.
Will Russia decide to not sell to us? Again, it’s about money, so probably not unless we really push a button in there. Can we produce that amount of uranium in the United States? Absolutely not.
TN: Interesting. Okay. Let’s also move on to rare Earth. So we have a question from @snyderkr0822. He’s asking about the impact of Russia and Ukraine on the availability of rare earths. Is that a factor or is rare Earth more of a China thing?
TS: That’s more of a China thing. We all have to watch to see if China sides with Russia and see how that market ends up. But really, they’re the largest producer in the world, and that’s who we are largely dependent on for rare earths.
TN: Okay, great. Thanks for that.
Now let’s move on to kind of this war driven inflation narrative that we’ve seen over the past a couple of weeks. We had February inflation come out today, and I feel almost as if we’re being tested as a trial balloon for an inflation narrative that inflation is kind of Russia’s fault.
So, Sam, can you talk us through some of the economics of this? Is inflation a new thing like did it just happened two weeks ago?
SR: No. So the inflation narrative going forward, there’s some validity to Russia being the reasoning behind an increase over a base case. Whatever you want to decide that base case is. But in February, January. December and November, those are not in any way related to Russia generally.
What’s interesting to me is how many people are kind of forgetting that, we kind of had a little bit of a log jam breakup in supply chains beginning to occur. It looks like we were going to get a little bit of respite from that narrative. But now if you looked at what’s going on in the neon market, if you look kind of six to twelve to 18 months down the road, it looks a lot less like we’re going to have that log jam broken up and a lot more like we’re going to have somewhat persistent inflation that there is no way for the Fed to solve. There’s no way for the ECB to solve BOJ, et cetera. You’re just going to have to continue to have this hawkish language to try to tamp down those longer term expectations.
TN: Demand destruction.
SR: Demand destruction. But it’s really hard to destroy demand for semiconductors when they’re in everything from my daughter’s doll to my laptop. It is very difficult to destroy that much demand and create an inflationary environment that is less toxic to the Fed or to the ECB without breaking something.
So if the Fed isn’t willing to break something in the next call it six months. They’re not going to break inflation. And if you print out six months from now, you’re breaking something into a midterm election.
TN: Right.
SR: So I’m so much skeptical on the Fed’s ability to do anything at this point.
TN: Right. That’s a great transition to Albert. So how is inflation playing with voters?
AM: Oh, it’s absolutely nuclear football. Allowing inflation to go this high is just going to be devastating to the Democratic Party and Joe Biden. But I want to go back because I have a couple of contentious things to say. Right.
TN: Please do.
SR: Oh, God! Right.
AM: So everyone is pricing in five, six, seven hikes at the moment. Right. But inflation at the moment has probably taken three of them out of the equation because the money’s gone. It’s erasing money left and right at the moment, from the federal point of view, it’s like, why really get rid of it all? That why really attack it when it’s doing our job for us where we only now have to hike three times. Right.
And on top of that, something even more contentious is everyone knows that once the VIX gets to a certain price, somebody sells it off. Right. Somebody industry. Right. But everybody knows that. And when everyone knows that, the house casino usually moves to a different area. What about oil? What if somebody with a big account has bought oil futures and every time it gets to the 120s or 130s, they just crush it for $1015 and the market rallies again.
So this artificial inflation that obviously we have real inflation just because of wage inflation and supply chain. But there’s a little bit of artificial, artificial aspect to it that I think the Fed has been using. Politically, it’s going to be extremely damaging. But for their point of view is if they can get over it and then get the rate hikes out of the way and then maybe probably start QE later in the summer, They could suck their voters at the beginning of the economy back on track again. I don’t think it’s going to work.
TN: Let’s say a month or so ago there was suspicion that we would be doing QT in say June, July. That’s off the table now because of the money that inflation is taken out of the market, right?
AM: Absolutely.
TN: But we’ll do rate hikes and have QE potentially?
AM: That’s right. That’s my point.
TN: You’re in an insane phase of economic history.
AM: It’s just look around, Tony. What’s not insane at the moment?
TN: Undoing this.
TS: That’s 100% fact.
TN: Undoing this is going to be insane. Okay, speaking of undoing crazy stuff, the Chinese techs and real estate stocks really have some problems this week.
So Albert, Sam, can you guys talk a little bit about that? And we have a tweet showing some stocks from Tencent, Alibaba, JD, other ones down 50, 60, 80%. So what’s happening with the tech blood bath in China?
SR: I’ll just do a quick start. Did you see the numbers coming out of JD? They were horrible. I mean, they were absolutely atrocious. So, yeah, you’re going to get a sell off in tech broadly across the board in China. When your numbers are horrible, then you’re going to have additional pressure put on the potential for delisting in the US and the general call it risk off move in markets. So you’ve got the trifecta of horrible for Chinese tech in a nutshell.
But the JD numbers were absolutely atrocious on a revenue growth line. And there’s no way to save Chinese tech if you’re going to have numbers like that. If you continue to have numbers like that, guess what? Look out, because the bottom is not in.
On the Chinese real estate front, I think Albert has a much better view on this than I do. But I would say if you’re going to have a risk off in tech, good luck having a risk on in real estate.
TN: Sorry. Let me stop you before I move on to real estate. So the tech story, what I’m pulling away from there is that it’s potentially disposable income story at the retail level, at the consumer level, and tells me that China is way overdue with its stimulus. Is that fair to say?
SR: That’s harder to say.
TN: Okay.
SR: I would be very careful in saying that the Chinese consumer is not there. China is coming with stimulus. If you’re trying to hit 5.5 by the end of this year and you’re going into a plum, guess what? You got to hit the pedal.
TN: Well, they better hurry up.
SR: They’ve got time, but they’re going to hit the pedal. And the question is how do they hit the pedal? And it’s got to be the consumer because they’re not going to hit it on real estate.
TN: No, they’re not. Going through some of the real estate.
AM: Yeah, well, I have a couple of points to make on. I have a couple of points about the tech. China tech. What was interesting is Sam is right. JD numbers were horrible. Right. This SEC Delisting thing pointed out five companies. Right. Just five. And the big ones. Gamble is a big one. And whatnot. But why only five? It happened to be the only five that actually did their accounting and submitted their accounting numbers. Right. And would that actually let a snowball effect out to say, Holy crap, they will take down every single Chinese number, Chinese company in the market. That’s why a lot of this actually sold off harder than you think it would sell off.
Going to the real estate market. I mean, 75% of China’s fault is real estate. So unless Xi wants pitchforks and torches coming after him, he’s going to have to stimulate the economy, something to support the real estate market.
TN: Yeah. It seems like it’s going to have to come hard and fast. I could be wrong. But, you know, with.
AM: I think by June. I think by June he’s got to do something. He has to.
SR: Hit through the middle.
AM: Absolutely.
TN: Good. And do you guys have any ideas on what exact forms that’s going to take? I mean, of course they’re new triple R, of course, taking a new infrastructure spending. They do the stuff. They announce it every other year. Are there other forms that you have in mind that will take that?
AM: I don’t, to be honest with you, that is $64 million question. To be honest. That’s a big question. That’s very complex.
SR: Yeah. And if I had the answer to that question, I probably wouldn’t be on this call.
TN: Come on, Sam. We know you would.
SR: I would be on a yacht somewhere.
TN: Yeah, that’s right.
TS: It’s interesting about that. If you look at the energy perspective, they just had a meeting and they totally decided that they’re going back to coal other than anything else. So that to me that signifies we have stress in other markets. Right. We cannot spend the money in other places. So we’re going to go back to what we do best, what we know best. And they also offered, if you look at internal documents that are offering huge discounts for going back into the coal industry or whatever. I just like to.
TN: So there’s still 73% coal for their power generation, something like that?
TS: Yes. So for them, they backtracked on COP. They need the money right now, in other words.
TN: Right. So the whole Paris agreement is a convenient agreement, is that what you’re saying?
TS: Correct.
TN: Okay, very good. It’s good to know that we’re all committed to the future. Okay. So guys, speaking of the future, finally, what do you view for the week ahead? Albert, let’s start with you. Maybe with China. Do you think there’s more to come with the blood bath in China?
AM: I think there’s another week or two to come with China blood bath. And I think that’s going to obviously lean on our equities going into Fed week.
TN: Right.
AM: So yeah, I think we’ll be another down week.
TN: Okay. And guys, what about US equities? Are we on a steady decline down to some number 4300 whatever it is, or are we kind of about there? What do you feel is going to happen over the next week?
AM: I think we’ll be sub 4000 by the end of the week at some point.
TN: Okay.
SR: Yeah. I wouldn’t be anything other than market neutral until immediately following the Fed meeting and then you just rip it to the upside.
TN: Okay.
AM: Yeah. The only thing that I have a concern about is we still have this Ukraine war going on which is giving outrageous headlines and then if the Fed hikes 25 basis points and then extremely hawkish tones while Putin is shelling Kiev.
TN: Right.
AM: It’s hard to rip until after that’s all settled.
TN: So sorry, Sam, in your scenario, are you saying the first half up until say Wednesday we have a pretty quiet market, then Thursday and Friday, things are pretty active to the?
SR: Oh no, I am not saying that you have a quiet market until the Fed. I’m saying you don’t want to take a position period until the Fed and then you either want to grip it or rip it one or the other.
AM: I agree with that one wholeheartedly.
TS: These markets will continue to be volatile until we have some resolution with this Ukraine Russia situation just because of all every day we’re seeing new sanctions against Russia and against commodities within Russia, at least for the commodity sector. I think we’ll continue to see volatility, but over the long term I’m still very bullish commodity.
TN: Okay. So Tracy, Sunday night, futures open, crude traded very high. Do you think there’s a possibility of us seeing another dramatic spike like that in the next week or two?
TS: I think that mostly been priced out of the market. I think that was priced in right. We saw a lot of that risk premium come out of the market, which I was very glad to see. I would personally be happy if we saw it traded in the 90s again before going into high demand season because I do think that we will trade higher on fundamentals. But it scares me when we have these big kick ups due to headlines and geopolitical risk.
So for me right now I would like to see this market come down a little bit. I’d like to see it pull back some and hopefully things will resolve quicker than sooner with this situation. But still going forward, I’m still very bullish this market.
TN: Okay. We didn’t talk at all about nickel and metal’s markets, but we saw the LME close today because of a nickel trade supposedly. Will we see those markets reopen and will we see nickel trade? Is it scheduled to trade again on Monday and is there the potential for commodity specific disruption and markets closing over the next week or two because of the volatility.
TS: There’s been a very high contention discussion right now, especially within the commodities industry. I would just say that it was kind of unprecedented what we saw there and the fact that they canceled all the trades. I would say that hedge funds are kind of backing away from that market right now because they’re skeptical of that market right now. But again, it’s not like I don’t want to say this is going to be the norm or anything like that.
TN: Okay.
TS: I think this was a one off crazy thing. It happened in the aluminum market years ago and you can even look it up on Wikipedia, right.
TN: Okay. Last thing week ahead with bonds. Sam, what are you thinking about bonds? We’ve seen the ten year go back up to about two. Are we going to see that continue to take up?
SR: I don’t know. I think the ten year is a little less interesting than the five year and the seven year.
TN: Okay.
SR: The five year and the seven year are really what you want to watch because if the fed goes 25 and goes really hawkish, it’s the five and the seven that you’re going to get the juice from and the ten and the 30 you’re going to get a little less so watch the five and seven. I think the five and seven are really interesting here. If you want to take a bet on a really hawkish Fed.
TN: Fantastic. Okay, guys. Thanks very much. Really appreciated. Have a great week ahead. Thank you very much.
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.
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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.
Tony Nash joins the BFM team, giving them his views on the equity markets, fixed income market, Fed Reserve, and oil prices. What’s his recommendation to investors now that Dow, S&P 500, and more equity markets have reached a new all-time highs? And what about the consensus on oil? With all the changes in the markets, are we seeing a new economic model?
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Show Notes
PS: Really good day in the U.S. The Dow and S&P 500 were up 0.3%. The Nasdaq was flat. Shanghai is up 0.7%. But the rest of Asian markets were down negative. Heng Seng was -0.4%. Nikkei down 1%, FTI down 1.5%. And back home, FBI culture was also down 0.01%.
WSN: So to help us make sense of where markets are going, we speak to Tony Nash, CEO of Complete Intelligence. Now, Tony, Nasdaq, S&P 500, Dow, all hit all-time highs. Does this make you actually nervous? Markets looking a bit toppish?
TN: I don’t know about toppish today, but I guess what people have to be aware of is how big is the gain from here? So whether you’re toppish now or toppish in October, you really have to be careful about the risk calculation right now and what your expectations are as things turn over in the coming quarter or two.
PS: But time to switch for anything. What asset classes or markets look attractive now?
TN: You know what. I think you just got to be careful all around. The expectation, evaluations, levels of investment, profits and so on seem pretty stretched as we’re in the middle of wage pressures, inflation pressures and stressed consumers. So I think there seems to be more risk than opportunity out there. So I think we’re in a pretty stretched market and short of more support from global governments. It’s really hard to justify significantly higher valuations.
SM: And everyone is, of course, looking at the Fed, where last night’s FOMC minutes, what financial markets expected from the Fed or or do you think they could have given more clarity on their monetary policy?
TN: Well, they can always give more clarity. I mean, there’s always kind of reading the tea leaves with the Fed. But I think what really came out of it was what was expected. It was pretty noncommittal. They said tapering is coming, but they didn’t say it’s coming soon. There’s no expectation of a rate hike hike soon. So it’s really the current status quo, whatever that is. But it’s kind of more of the same for more time.
We don’t really expect much to change in the Fed through 2022. Markets have sufficient headwinds as it is as the world re-normalizes. We don’t expect much exciting happening. We didn’t expect that this month. We don’t expect it for some time.
WSN: Is that why the 10-year bond yields in the U.S. dropped from a four-month low, 1.3163? I look at the bloom at the moment. DO you think…
TN: This could be. But it’s also, you know, the current Fed chair may not be renominated by Biden. And if Jerome Powell is out, we’re likely to see Lael Brainard come in, who is very much a monetary policy activist. So we could see a really active Fed, not a conservative and extremely dovish Fed if Lael Brainard comes in. So I think that could be part of the reason we’re seeing expectations change in some of the bond markets.
PS: Can we shift your attention over to oil? Because as you know, the lack of consensus in OPEC+ and with the failure to negotiate production quotas has really put pressure on oil prices again. Is this conflict going to introduce more short term volatility in oil markets?
TN: Sure, yeah. Until there’s agreement between the U.S. and Saudi Arabia, I think we are going to see volatility because as the UAE creates a gap in expectations, other players like Russia and other folks can potentially violate the OPEC+ agreement. OPEC doesn’t necessarily have a history of agreeing uniformly very often. OPEC+ agreement has been one where they’ve really abided by it pretty well. And so OPEC is more fractious than it is kind of universal. I think we’re going to see volatility for at least a short time. But I do think there is underlying strength in oil prices. We don’t expect the $100 oil any time this year. Some people are calling for that. But we do see continued build in the strength of oil prices through the end of the year marginal bill.
SM: All right. And looking at other indicators, I mean, the US economy is booming, but the US ISM non-manufacturing figure for June came in below market expectations. Could you give us some explanation on what were the reasons for that drop?
TN: You know, the main reason really is unemployment or employment. Companies have had to cope with fewer workers as these federal government subsidies have kept workers on the sidelines. Effectively, they’ve paid workers to sit at home more than they’d make in hourly jobs. And so small companies particularly have had to figure out a way to work without additional workers. So now a lot of those workers are coming off of the federal stimulus packages. But a lot of these small and mid-sized sized companies have kind of learned how to cope without as many workers.
So they’re not trusting new workers until wages really come down. So it’s really kind of putting an impediment in the path for especially small and mid-sized companies. And that’s where there’s a little bit of doubt in the ISM.
WSN: So are we seeing a new economic model then, Tony, where there’s a lot of what we expect in terms of the full and employment numbers will change?
TN: It’s a great question, I certainly hope not. Over the last year and a half, we’ve seen immense government intervention in markets globally. Was the stimulus too much? Was it misallocated? We can argue that all day long. But the fact is, we’ve seen immense government stimulus and it takes a long time for stimulus that large to wash through the system.
We’re seeing the back side and the down side of stimulus. You know, we’ve seen things like inflation rates rise, you know, all this stuff over second quarter, but that’s really just a year on year number. We’re seeing what’s called base effects there. We’re seeing the same in things like wages and impacts on markets from government activity. So Q2 was a huge anomaly for markets and for government because of what’s happening globally with Covid in Q2 of 2020. As we kind of come back to a relatively normal-ish market, maybe by Q4, you know, we’ll start to see more normal readings across wages across, profits and other things.
So there really is a slow build. And as more of that government stimulus gets pulled out of the market or at least slows down, we’ll start to see things normalize. I don’t necessarily think it’s a new model unless the government insists on continuing to intervene and subsidize markets.
WSN: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his views on the equity markets and even the fixed income market. But what was really surprising is that he thinks Jerome Powell will be replaced as the Fed chair. I was like, “this is news to me. I thought he was doing an OK job.” And usually I would imagine Joe Biden leading them to do their thing.
PS: That’s right. I wouldn’t expect Joe Biden to have places, political perspectives in the appointment of the Fed chair. But I think there are a lot of key decisions that has to be made. And that whole link between the tapering of his asset purchases and adjustment of interest rates, how do you have that delicate balancing act will be very critical.
WSN: Janet Yellen and Jerome Powell worked well together and Janet Yellen is his appointment. So I’m a little bit surprised by this news. But other news that I was like kind of focused on was also the fact that he thinks at the energy market upside is limited. So I think all of us as investors have to adjust our expectations in terms of the returns, because if you talk about the rally from March 2020 lows to now, it’s about 90%. And that’s staggering.
PS: And Tony is alluding to the fact that the stimulus was too broad, not targeted enough, I think, which basically resulted in a wash of cash, I think, creating a lot of frothy markets. And this is the challenge now.
WSN: So how does the bubble kind of burst, right, without creating chaos? Absolutely. You kind of want to deflate it, but not so much.
SM: And can I also draw your attention to something else that Tony said that caught my eye, the fact that he thinks oil isn’t going to hit $100 per barrel. We’re actually going to be discussing more on oil later at seven thirty after the bulletin with Sally Yilmaz of Bloomberg Intelligence. So stay tuned for that conversation on what the oil market’s going to look like.
