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This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Right now, we want to turn our attention, and we've decided we had to go to Japan. Shisuki Yamada drives the yen for Bank of America with wonderful academics out of the Massachusetts Institute of Technology in Stanford and joins us right now. Shisuki, are you surprised that we don't have a stronger yen moving from 162 stronger to 158 in your key breakpoint of 155?
Well, thanks for inviting me here. Well, I think the authorities are determined to break $155 this time around. I think right now they're probably waiting for events such as NFB prints tomorrow. But this time around, I think the cost of failure is too high because they couldn't break $155. If they can't break this time, I think the market will.
basically assume the authorities have run out of options to defend the yen. The romance of this is George Soros and a guy named Druckenmiller a few years ago, where basically the market vigilantes tell the authorities what's going to happen. Is that an ancient idea or is the market telling the authorities in Japan and for that matter, the secretary of treasury what to do? Yeah, well, I think the Takahichi administration has potentially underestimated the market force up until now. But I do think the coordination with the U.S. basically means Japan cannot indefinitely rely on intervention because you ask someone to join your project, you have to have a goal. And that goal cannot be just to buy time for yourself, right? So I think this time around, this coordination appears to have been well prepared in advance. I think that implies the Japanese government is...
this time, prepared to respond with a comprehensive package, including faster budget hikes. Shashuke, how important is it that the U.S. worked in coordination with the Bank of Japan in this particular case? I think it is quite important from two perspectives. One is that unilateral intervention obviously have a limit, which is the balance of FX reserves Japan hold. But as the U.S. joins, ultimately, the U.S. can sell the U.S. dollar issues. So I think it removes a hard limit on the intervention. And secondly, I think U.S. coordination is key because without coordination on a broader community, I don't think that Japan can determine to respond with a comprehensive package.
Because, you know, current administration really, you know, historically believes in easy monetary policy and, you know, lose fiscal policy. So we understand that the U.S. Fed sold euros to buy yen, as opposed to dollars. Does that suggest maybe their commitment isn't as great as it possibly could be? Yeah, I mean, I think there are two aspects, right? I mean, first of all, they didn't sell U.S. dollar, the currency.
Obviously, that could imply somewhat soft commitment at the moment. But I think there's an alternative aspect. That is, because they sold Europe, there is a possibility that European policymakers may have been given a notice. So this coordination could be on a broader scale, let's say, in the G7 community. We have to see. But I think the commitment could be that strong. I want to get this question in because I think culturally it's just so, so important. Our perception, Shisuke, is the large multinationals drive the bus. This time around in this modern...
age the domestic japanese the small business the people politically and even financially do they have more power now where they're harmed by weak yen they're harmed by higher yields do they have more power than 20 or 40 years ago Well, that's a tough question, but I have to say that this time it's not all bad when it comes to what's happening in Japan. I mean, here's the fact about Japan, right? Since last spring, so that's when the yen started to weaken again, Japanese equity has been the best performer in the market, right? And we've seen the biggest balance of payment surplus in Japan among the developed nations, right? So I think economically or in the equity market, things are great. Japanese bank stocks have outperformed US bank stocks. So I think, you know...
We're not in a recession. We're not in a debt crisis. The weak yen hurts. But I think from the public, maybe the pressure is not as strong as people think outside of Japan. And obviously, the question is why the yen has been so weak, despite good things like strong equity. And policy risk is one. But I think there is an alternative hypothesis, which is that equity has been too strong.
Meaning, you know, outperformance of Japanese equities has basically led to excess yen selling from foreign investors. Shizuki, thank you so much. Shizuki Yamada with the Bank of America, head of Japan, FX rates. Stay with us. More from Bloomberg Surveillance coming up after this.
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You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. Joining us now, Energy Fellow at the University of Houston barely describes Ed Heer's just definitive global ability. Folks, they have Paul Sankey with us and Ed Heer's is what it's about. Down at the bottom of your note, I've been emphasizing this. The refinery world is turned upside down. Explain to mere mortals why the refinery world is in real issue like diesel at $160 a barrel equivalent.
and how we're going to extricate ourselves from that mess. I think I saw 175. So the reason is there's a shortage of refined products across the globe. And here in the U.S., we've been exporting refined products now for about 10 years. We bring in more, we export what we don't use. In the U.S., we've been doing wonderfully well to reduce our reliance upon refined products. I mean, we're seeing growth, not necessarily altogether in EVs.
But the hybrids, which get double the mileage of a normal automobile. And so the refineries have the ability, the capacity to send product overseas. As the war kicked off, Exxon Mobil chartered a couple of tankers to start sending gasoline and diesel to the Asian markets. It is a great time to be a refiner. Once every 25 years, it's a good time to be a refiner.
I'm actually surprised, or maybe I'll put it this way. Should I be surprised that oil prices, Brent, are not higher than they are? I mean, we've got this war in the Middle East. We've got Russia sanctions, plus they're in a war. Why isn't oil, Brent, like $150? I don't understand. You know, I look at WTI because, of course, that's what we have to buy. And Brent should be whatever the transport cost is from the Gulf of Mexico up to Brent. Brent, the amount of Brent crude that's produced today is less than 1,000 barrels a day. Really? And so the Brent benchmark is a fiction. So let's go to WTI. It's a fiction. In fact, Brent includes a portion, WTI includes a portion of Riata.
whatever the price is. Why aren't we there? At 106 million barrels a day pre-war, with 10 million supposedly off the market, we should have seen a price of oil hit about $200 a barrel. Why we haven't? Well, China has cut its imports now by 5 million barrels a day. We've got increased production, or rather increased oil, coming to market because the Venezuelan sanctions have been released. UAE has kicked up production significantly. We've been running down the SPR at about 2.5 million barrels a day. So the net effect...
is about 2 million barrels a day off the market. So that leads to a 50% price increase off of the pre-war price of $56 a barrel, which is what it was in January before the market priced in the war. As an energy person, do you just assume that the Middle East source of oil is going to be compromised for as long as we can see? Because the state of Hormuz arguably will never be open. It's hard to say. I mean, you know, the Middle East has to sell that oil to somebody in order to make a living. In 1956, with the Suez crisis, Eisenhower was approached by the UK, by France, by Israel to join in in retaking the Suez Canal because it was the bottleneck for oil going to Europe. And Eisenhower said, why?
You can just send it around. He didn't want to get involved with that. He knew that no matter who owned the oil in the Middle East, the only way it had value was for it to be sold. And eventually, they'll all come to some sort of agreement, or there will be demand destruction as they fight it out amongst themselves. And we've got to run, but I've got to get this in. When a professor comes in of his acclaim, Ed Hurst's acclaim at UH, and he writes a separate paragraph, hey, Tom's stupid, Blackstone Anervis, ask me. So private equity, Blackstone, wants to take AI and bring it into the oil business, and you're apoplectic about it. Discuss.
So InterVest is compiling data on every user or every royalty owner and actually every oil producer. They have data down to the granular level on wells, on property holdings. This is information that, for example, ExxonMobil, EOG, Chevron, ordinarily they fight hammer, tongue, tooth and nail not to let that out. But now Blackstone is putting itself in a position of grabbing all of this data across private companies. And of course, if you're a royalty owner, they know your bank account. They know your social security number.
They know what your interest is in this well over here, the one in West Texas, the one in Colorado, the one in West Virginia. They must be apoplectic on landmen. Well, just imagine Bloomberg having all of the private data here. And then... Now they've gone into a banking mode. They will make you a payday loan on your royalties for the next three or four months. And, you know, in Houston, some of the wealthiest oil guys are actually the estate attorneys who've been making a market in the little fragments. So where's the outcome of this for people scared of AI? They should be terrified because what this system is doing is it's overseeing all of the data. It's filling and plugging numbers. You wind up as a user getting money taken out of your account. Interest numbers change. There can be different owner numbers. And plus, they use open servers across the globe.
And so any bad actor can just go right into it. We got to go. But Edders, you got to come back and continue this discussion because this touches folks on the fears that so many people have of AI. They're acting like a bank and they're not regulated like a bank. That's the point. The regulation's not there. Professor Hurst, thank you so much. Always with the University of Houston. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. We made a commercial. Steve Lenzone made a special commercial about the Standard Charter Bank. Yeah, okay. And Steve Englinder's brilliance in foreign exchange. Suki Cooper has a privilege of sitting with him. Global Head of Commodities at Standard Charter Bank with their whole Pacific Rim. How's the Pacific Rim doing with the war in the Eastern Mediterranean is a general statement.
I think there's so much market focus there, but we have to remember that the geopolitics, while it's been setting the tempo for much of the commodities, some of the base that's been set by some of the structural drivers we've seen this morning in terms of copper surprise still being potentially one of the most underappreciated risks there. But for the gold market, we still see that structural demand is still wanting to lean in and allocate once there's a little bit more clarity on uncertainty there. So we saw gold at $5,000 an ounce. Experts will tell me, boy, that's really, really toppy here. But then we pull back to 4,000, a big move down. What's the fundamental call on gold today? Is it feel attractive or not?
I'd say if we're looking on a longer term basis, it might look relatively expensive. But if we're looking at the macro risks right now, then it still looks underappreciated. So the base, we think, has formed quite well, especially as we're in the middle of a seasonal week period for consumption. And on top of that, we have a lot of macro headwinds that have been priced in, especially with the market swinging so sharply to expecting rate hikes in the US. So we think that prices have held up very well at these sort of levels. And now I think if we're starting to see an unwinding of some of that positioning that was very, very in that hawkish stance, we'll see gold starting to gain more traction. Silver, I see down 14% this year. I mean, I don't know anything about the commodity space, but I always feel like gold and silver.
Kind of trade intended, but not really. What's the feeling on gold here? I'm sorry, silver, pardon me. If gold is our barometer for uncertainty, silver is our kicker on uncertainty, plus the outlook for the industrial picture. And the silver market, on the one hand, did incredibly well when we saw so much retail demand at the start of the year. But now we're starting to see some of these risks lurking in the background around substitution risk, especially for the solar industry. So on the one hand, you've got that AI demand boost that's growing, but the substitution risk on the solar side could be quite sharp. Okay, let's go. I mean, I happen to be in a small store on 57th Street Tiffany the other day.
And the elevator randomly got me off at the silver floor. It was just packed. Is silver a big part of jewelry or is it really driven by solar panels? It's a significant part, but it's not the main part of jewelry consumption. At the moment, we're seeing much more, even though we've seen the solar demand starting to shrink, it's still much larger. The industrial silver. Industrial usages are much larger. It's more than half of the consumption that we see. Is there like a shortage of silver, like mines versus gold? This is a really fascinating development, because if we go back five years, I would have been sat here saying silver's very well supplied, there's plenty of off-ground stock. But we've had five successive years of an undersupplied market, so that readily available stock is no longer there, and that's one of the reasons we're seeing these sharp moves.
ignorant on this i feel like right now i gotta go read everything suki's written plus three books on silver you know i just i'm just not up to speed i know why am i so dumb on silver why do we not look at silver like we look at gold or oil silver is fascinating in that it's used in so many different facets like from water purification to wood preservation and we don't realize how many parts of our lives it touches and then you've got the ev demand aspect too but i think it tends to be looked at more so as a precious metal rather than its industrial components i mean all i know time about commodities is glco glco go on the bloomberg terminal global commodity prices and i click on the metals and it gives me the base metals They're all up double digits this year. Ferrous metals down. I don't know. It's iron ore and all that stuff. But then I go to precious metals, and the precious metals are down kind of 15% across the board here. Really? Platinum, palladium. Talk about those, because what's driving the story there?
The picture for the PGMs, platinum and palladium, has become much more micro in comparison to macro. So last year, maybe you could have said that platinum was riding on the coattails of gold. But this year, we've seen some of the supply concerns maybe take a backseat, much more focus on the demand side, and whether we might see auto demand being scaled back, or whether there might be some challenges around the recycling side. But we still see that the platinum market's undersupplied for this year. Palladium tilting to a surplus. But having said that, the investment demand has turned a lot weaker. There's still that structural story that is supportive of platinum. Two things I can get this in. So to summarize, your long gold here.
We still see upside risk from here. We have 4,650 as our Q4 average. Okay, this is a listener email saying it's part of Ask Radio. Sure, that's how it works. This is Mrs. Keene, somewhere like a number of streets up. Can you ask Suki, is the ratio of the $29,000 Elsa Peretti small bone cuff in yellow gold $29,000 versus $2,100 for the same silver cuff? Is that a proper ratio to look at gold to silver for a mere mortal out there?
The gold silver ratio is one that people like to look at over the longer term, and it tells us whether one is overvalued or undervalued, but there isn't a fundamental basis that drives what that long-term average would be. So we're starting to see that ratio normalizing at the current level. At Tiffany? At the retail level, there's many other dynamics that are at play. Oh, really? Oh, really?
Well, I mean, to me, when you look at diamonds, and now you get the elaborate diamonds, that puts that market in total. See, Suki's like, she's got the standard charter look on. She's not layering this morning. No. What you do is you layer and you mix your gold and your silver. I learned this. And you do that. I mean, thank you so much. Folks, my ignorance of silver is just stunning. I mean, I just have to read up on it. Is there like a silver council, like a gold council? There's a silver institute. Lots of great data. Silver institute. There is. So I should go to their website to get smarter. Absolutely, yes. There's lots of great data. Please don't be a stranger. I'm smarter. Suki Cooper. Thank you so much. Global Out of Commodities and silver at the Standard Charter Bank.
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You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. At New York Live, she's at Sweet Greens three days a week. Julia Herman joins us. Do you go to Sweet Greens? I have to agree with the prices. Did you throw that in the New York Live family? Is that what we're doing? That's what we roll. You have a brilliant note. What do you expect out of Notre Dame? It's like wicked conventional, and I really respect that right now. What do you learn from a treasury curve, the vanilla difference between twos and tens, or dare I say in a worse kind of way, three months and 30 years?
Well, really what we've learned from the curve in the last few weeks is that investors are struggling with not if the Fed's going to contain inflation, but what their glide path forward is from here. And we can learn that because we can dissect what's happening in the 10-year and the 30-year. We know that inflation expectations are still anchored. 30s. Well, we're looking at spreads across the entirety of the curve. But if we just take the individual tenors themselves, we can break this down into inflation expectations versus real yield. It's real yield that has driven the rate move in the last few weeks. And this is almost all attributable to term premium. And we know that fiscal questions have been the huge contributing driver to that term premium increase lately. But what happened, of course, last week is now we have these increased contributions of questions of how the Fed is planning to contain inflation. But the Fed's not really telling us too much these days here. Is that frustrating for you and for the market? It seems like some certain folks in the market are saying, I don't like this new regime, this new sheriff in town.
Well, you know, it's not necessarily frustrating because, candidly, a lot of the curve has done a good job of tightening financial conditions even without a ton of guidance or specifically a rate move, of course, by the Fed. Now, given, of course, that the geopolitical situation is so tenuous right now, so uncertain, and we also know that the Fed's tools are not well suited to cope with a supply-side inflation shock like the one we're dealing with, candidly, you know, if the Fed hikes in the near term or stays on hold is less important right now than if financial conditions are tightening naturally across the curve. You have no rate rise, right? Sorry? You have on a Fed call, you have no rate rise? Right, we have the Fed on the whole three-year end. Why? Because the Fed has two mandates. And if you look at the labor side of the Fed's mandate, obviously we'll get the jobs report tomorrow. But candidly, the jobs market is in something as close to an equilibrium as a team of economists could really hope for. We have wage growth decelerating to a really nice, sustainable three and a half-ish percent. Yes, hiring has been relatively stable, but it hasn't been re-accelerating in a huge way. This is not, to us, a labor market that can tolerate a sustained hiking cycle. Of course, we also know it's not a labor market that has needed a lot of cuts for support. It looks like the bond markets...
maybe doing the job for the Fed. I mean, we've got rates that are higher here, 10-year, you know, with a 464 handle. I mean, maybe that's, maybe the market's already spoken. Yeah, I think it has in many ways. And it's contributed to volatility on the equity side of things. Because there is a mismatch between highly narrow, volatile, cyclical market leadership. And by this, I specifically mean the chip leadership within tech. And that's less compatible with a more tight rates environment. Not necessarily because these companies need a lot of interest rate support in order to continue their CapEx cycle, but simply because the status of the economic cycle is a little bit more tenuous from here on out with a tighter rates environment.
Global market strategist, that's your title. How do you think about the U.S. versus the rest of the world these days? Well, I've been hearing more whispers and thoughts about this sell America trade, and it's something that we really push back on. If you look at actual treasury flows, we have seen consistent inflows from private foreign investors. And the only place where we've seen foreign investor convictions start to rattle has been in specific treasury flows from official investors, so foreign governments and foreign central banks.
But this is a trend that started in 2013 and has not been accelerating. So rather than a sell America trade, we think that there's actually a lot more robustness in the trade, that there is no alternative to the US. Julia Herman with this New York Life Investment Management. You know, I look at this, Julia, in the long term in the financial media is, what do you think, Paul, six months? Yeah. I'll pass the World Series maybe. You have, just as one statistic, 347 billion something in New York Life matched up against insurance and annuity liabilities. What do you say?
to the managers of a huge multi billion dollar portfolio at New York Life, where their short term is 10 years. Well, you know, we think about this on the strategy perspective of the asset management side, which is where our team sits, from the perspective of how do changes in the rate environment impact our holistic allocation considerations. So, for example, with the recent move in the long end of the curve, that for us really influences our duration view for the shorter term, which is that up until this point this year, we have been trying to stick toward the shorter side of neutral and duration. And now you're coming out. Yeah, at 4, 6, 4, 7 on the 10-year, that's a place where we would see more value. Okay, well, to explain, I think our audience doesn't know this. I mean, duration for New York Life or any other insurance company is a lot longer term, isn't it?
Are you going to buy 40-year Google paper today? Well, so I can only speak from the asset management side of the business, right? So from the asset management side, we would see a little bit more value at the 4.7. You know, what we have historically seen a little bit more of, though, is that, you know, systemically, there's an institutional bid around 5 for the 10-year. And so, you know, being able to creep into duration from here is not to say that we can't see a little bit more upward pressure on long rates. Again, that term premium, these questions around both fiscal and Fed-related risks are significant. But around 4.7, we would see those risks as asymmetric for investors. Credit risk.
Is it worth taking credit risk or you just click the coupon that the US government's giving you? It's a really good opportunity right now for not just short duration, but short maturity. credit right now, in our view. And that allows investors to think about that buy and hold opportunity, which, yes, which, as a total return perspective, is going to lean you more toward the yield perspective. Keeping everything short maturity, specifically, in our view, is a solve for the two key sources of volatility right now. Rates fall, of course, but also questions about the shorter-term economic outlook, given that the impact of higher gasoline prices stemming from Iran has already contributed to consumers trading down, for example. That's data out of the Beige Book in the last few weeks. And we can bolster portfolios against some of that near-term economic outlook volatility by keeping things shorter maturity. Julie, thank you so much. Julie Herman with us, Director of Global Market Strategy for The...
It's like Ohio State. The New York Life Investment Management. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.