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On this episode of On The Tape Dan Nathan, Guy Adami and Danny Moses are hanging IRL as the kids say for this week’s episode. The guys react to Wednesday’s Federal Reserve meeting (1:00). Elon Musk is selling more of his Tesla stock, what does this mean for the world’s most valuable automaker (18:40)? The crew also breakdown SEC reforms and what impact this will have on the retail trader (23:00). Danny gives out his favorite picks for the NFL this week (29:45). After the break, Helima Croft joins the show to discuss the impact of OPEC’s recent oil production cut (34:40) and Russia’s war in Ukraine (43:40). We wrap by asking Helima “What’s The Trade” for 2023 (1:07:00).
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Show Transcript:
Guy Adami: [00:00:00] CME Ad. [00:00:01][0.4]
Dan Nathan: [00:00:31] iConnections Ad. [00:00:31][0.5]
Guy Adami: [00:01:21] 1972 seems to be coming up an awful lot these days. Peter Boockvar wrote about 1972 how the Fed thought they had beaten inflation only to find it come back in spades in 73. But 1972 was also a year that the following song was released. And this is rolling around in my head over the last couple of days. An artist named Johnny Nash. By the way, you are listening to the on the tape podcast Guy Admi here always joined by Dan Nathan and Danny Moses. The name of the song Danny I can see clearly now the rain is gone. [00:01:54][33.1]
Danny Moses: [00:01:55] I can see clearly noow the rain is gone. [00:01:57][1.5]
Guy Adami: [00:01:58] I can see all obstacles in my way. And I’ll tell you, for the last few weeks, I haven’t been able to see all that clearly in terms of the markets. A couple of these rallies have really caught me off guard, but over the last 24 hours, things have sort of crystallized for me. My glasses are back on. I can fact can see clearly now because what’s abundantly clear now to the market as well, Jerome Powell and his band of merry men and a few women are steadfast in their desire not only to defeat inflation, but to put it in the ground. And I will tell you, up until the last couple of days, the market was not taking that seriously. And finally, we’re starting to see the market react to what I think’s been inevitable for quite some time Danny. [00:02:45][47.2]
Danny Moses: [00:02:46] I thought you were going to do a little Counting Crows. It’s been a long December because it feels like this is a long December. We are only halfway through this month. I get the last week doesn’t count its close up season but I went back and look. So there was a quote from Powell in June. He spoke somewhere. I don’t think it was the Federal Reserve press conference per se after a meeting. But he said, quote, We understand better how little we understand about inflation. And I remember talking about it on the show six months ago. And so you’re right. So what really happened? Remember, the dot plots are done quarterly. So we had a meeting of the Fed between the September and the December meeting, which happened yesterday. Right. So let’s just put that in context. Yes. You got the CPI number was better than expected, less inflation saying with you got some other stuff mixed in there. And the thing about it is, Guy, we talked last week I said last week on the show things are clear now than they have been in the entire year because you can see what’s going to happen with the setup. So what did he do? He took any expectation which affected the stock market, but in the rates market, they’re not listening to him or they don’t believe him because it’s becoming clear by the minute that it’s a recession that’s going to happen. He lowered GDP assumptions, he raised unemployment assumptions. Yet he said he’s going to go a little bit further than where the market was expecting, call it. 17 of the 19 federal officials that voted are all above 5% now. I don’t believe it. I’m not going to bet Dan again on it, but that’s kind of where we are. So all we did was have a reset. We’ve run this 3000 on the S&P to 41, back to 39 to 4000. We’re sitting here and we know where it is, down 39 what the FactSet machine saying here but somewhere in there and so all this to me I’ll turn it to Dan your thoughts in a second is what do we do now as we go into 2023? And the last thing I’ll say is I think the Fed stuff is in the rearview mirror. What do I mean, it’s just noise now. Now let’s focus on fundamentals and what really matters. And you better understand the bottom up fundamentals of the things that you own, because it’s going to be, I think, a very rough first quarter as we turn the calendar. [00:04:36][110.6]
Dan Nathan: [00:04:37] You did call the rally Guy in mid-October and maybe it kind of overshot a little bit to the upside. He got, what, 4100 in the S&P 500. We had, I think, all been in agreement that the likelihood that the S&P would roundtrip its move back to its pre-pandemic highs just in around 3400 or so from February 2020, made a lot of sense to us for a whole host of reasons. And so when you think about this week, we knew that CPI was a huge catalyst last month. Remember that in November we had like a 4% rally after it came in just slightly below expectations. We had that same thing. And I guess the tell on Tuesday morning was that the S&P gapped up to 3% or something, gave most of it back. And then we had the Fed meeting. And again, I think investors wanted to rally stocks because they’re getting what they expected, that the Fed is going to slow the pace of rate increases, that they will be coming to an end at some point in the first half of 2023. But they’re not listening. And Powell said this again and again and again is that the rate is going to stay high until guys point, until that inflation comes down really hard. And I just don’t get it. You know, Tuesday morning is kind of interesting. You guys saw that like the futures started rallying very quickly, like a minute before the CPI print came out. And that is a qualitative thing. This is really important. That was somebody who think they got the number ahead of time. [00:06:00][82.4]
Danny Moses: [00:06:00] Or did actually get the number [00:06:00][0.1]
Dan Nathan: [00:06:01] Or did actually get the number. And they were buying futures and they beat them up 1%. Okay, before the number again. But then think about what happens intraday at 2:00 on Wednesday when the Fed release comes out. And the only thing and it was not a preempted and the algos read it and they do something so I guess my point is really funny it. Tells you that people are predisposed to want to buy something they think is better because they want this long nightmare of 2022 to be over in the stock market. Yet coming into today, we were only down this bloodbath that we have Thursday. We’re taping this into the close. We’re only down like 16% in the S&P 500. And that just seems like lunacy given what we are going to be faced, what you guys both just outlined, that we’re in store for from an economic standpoint in 2023. [00:06:46][44.9]
Guy Adami: [00:06:47] Such a huge story this year has been energy. And we’re going to have Helima Croft with us in a few minutes as well. She is the absolute acts in the space. We’ll have a great conversation with her because energy plays such an important role in all of this. Curious as to her thoughts. But, Danny, it’s not just us. I mean, Christine Lagarde has made it perfectly clear that they need to do the same thing in terms of the ECB. So this is now if you look globally, everybody’s trying to tamp down the one thing they wanted for so long. Inflation. [00:07:15][28.0]
Danny Moses: [00:07:16] Yeah, I got 50 bps, ECB, 50 bps, Bowie 50 bps, Swiss Bank. And I’ll just tell you that at least as it relates here to the US, bad data is now bad data. Retail sales came out today. They were not good. I mean, much worse than expected. And I think that’s the fear. At the end of the day, what drives this economy is the US consumer. We’ve seen savings rates plummet, we’ve seen credit being taken out at astronomical levels and we’re going to roll this calendar and variable rates keep moving higher things in your credit card or lines of credit or whatever you have. And here we are. There’s reports that, you know, Bank of America and Morgan Stanley are going to write down some of this debt that they’ve been carrying all year on some of these deals that they were unable to offload and things like that. How is that going to get any easier or better? And someone asked that question in the press conference yesterday. Are you concerned about credit spreads? Are you are you watching them? And people were begging for something. So now we have this six week gap all of January to deal and it is going to be a wild month in January. They’ll be fed, speak will be things like that. But what I believe as they sit here right now and they’ve gone farther than I think they should have, that’s just me personally. And the obsession with your point Guy getting it to the 2% or it’s obvious that inflation is coming down. How quickly? I don’t know. But they are going to force us into a bitter recession. But here’s what you have to you’ve got to deal with it. And CEOs of public companies don’t have the luxury to depend on the Fed for how they’re going to what their rates are going to be on their debt. They have to operate as normal businesses. And I’ll say it again, you want to own good cash flowing companies with decent balance sheets that aren’t relying on earnings to either take out debt to buy back stock or have to refinance debt at a higher rate because that is going to be a major theme. And that’s what strategists are going to do. And one last thing now you got me going. If Powell worked at any bank in the U.S., I’m saying as a strategist on Wall Street, he’d have been fired a long time ago. Right. Let me just say that. So that’s what I got to say about that. But bad data is now bad data. So the thought that bad retail, whatever is going to changing the Fed’s going to doing is not going to get you out of the hole. [00:09:08][111.9]
Dan Nathan: [00:09:09] Did you just pull a Forrest Gump. [00:09:09][0.0]
Danny Moses: [00:09:10] That’s all I got to say about that. [00:09:11][0.7]
Dan Nathan: [00:09:11] Yeah, that’s what you did here. You know, it’s interesting what you just mentioned about strategists and we’ve been talking about earnings growth for this year and it’s been coming down pretty hard. Our friend John Butters over there at FactSet had a report out today in his earnings insights blog. He said despite a difficult comparison of high growth and calendar year 2021, analysts predict earnings growth of 5.1% for the S&P 500 for this year 2022. The estimate is below the growth rates of 6.9% on September 30th and 9.1% on June 30th. Okay. So as rates have gone higher, as financial conditions have gotten tighter, we’re seeing analysts, strategists ratchet those down. But let’s talk about next year because we’re still expecting, what, mid-single digits earnings growth year over year from 2022? We don’t know where that’s going to shake out, but let’s assume it’s low single digits. And Butters also had a report out a couple of weeks ago. I think I quoted that strategists over the last 25 years, one year out, overestimate S&P earnings by nearly 7%. Right. So, Guy, if you think about it this way, you know, you’ve been talking about what is a trough multiple for the S&P 500. We haven’t had earnings bottomed out for 2022. We’ll know that at some point, you know, in mid, I guess Q1 of 2023. And then just how aggressive will strategists be for the year? Because if I’m one of those strategists and I still got my job, I’m going to kind of kitchen sink this thing because don’t you want to be in a scenario where you’re not just continually ratcheting this thing down and chasing the way Danny was in the NFL last week, we’re gonna get to tha,t chasing a little bit, you know what I mean? And I also think maybe, guy, does this happen because we’ve been saying this was not a one quarter of that. We were waiting for all the biggest names in the Nasdaq to guide down and all of them did the top five or so. And so if they basically just kind of kitchen sink 2023 calendar year, that might be a good sign that we can try to put in a bottom at some point between Q1, Q2 ish of next year. [00:11:06][114.7]
Guy Adami: [00:11:07] Absolutely. And I think if you listen to Mike Wilson, we’ve had him on a number of times now. That’s exactly the type of outcome that he’s been talking about. And quite frankly, it’s happening right before our very eyes. I mean, that prescient call he made, I believe, on October 14th. Calling for a 15% rally. It basically happened to the T and as we stated last week, that’s not an easy call to make for somebody in his seat. Happen to be the right call. And, you know, he’s talked about the potential for the S&P to go down to 3000 under a number of different circumstances, which again seem to be playing out. I’ll say this, though. Valuations absolutely matter and the market is still too expensive. And certain names, if you look at the move Nvidia’s had since that October trough flow of, I think one eight, that stocks rallied close to 70% from trough to peak. I mean, that’s a ridiculous move in a stock that’s still down over 50% from its all time high. And I will tell you, that stock went from being relatively inexpensive at its trough to expensive yet again. So I think there’s a rollover for a lot of these high growth, high valuation names that a lot of people caught over the last month and a half. But if you’re not taking profits, I think you’d be sitting with losers over the next couple of weeks Dan. [00:12:22][75.7]
Danny Moses: [00:12:23] By the way, guy, happy almost birthday let me just say. [00:12:26][2.5]
Dan Nathan: [00:12:26] Dec 18 [00:12:26][0.0]
Guy Adami: [00:12:27] Appreciate that. [00:12:27][0.5]
Danny Moses: [00:12:28] So the almost that but let me say you brought up a good point. So if I think when is the trough going to be and you obviously want to put a higher multiple on what you believe are trough earnings and that’s how this kind of work. So if the S&P were to go to $200 for earnings in 2023 and you felt like there was an inflection occurring at any point during the year, third or fourth quarter, you can throw an 1819 multiple on that and get yourself back up to 36 or 3700. But I want to point this out because this was the theme all year last year is that we came out of COVID, remember? So 20 was kind of a wash. 21 obviously people were putting everything back together and 22 was obviously a growth year reacceleration for many companies. I won’t go through each company, but many companies. So year over year earnings growth looked very good. Rest assured that 23 versus 22 is going to be pretty much ugly all year, not just because of the slowdown in software spending and not just because, but just in general in this resurgence of what is kind of a normalized rate going to look like. And to me, that’s going to be a big theme. And so when you see it hit earnings growth 3% off of a 14%, but still good, still fine. But I think, Dan, it’s something really have to look at. [00:13:31][63.2]
Dan Nathan: [00:13:31] Well, that’s the last piece of the puzzle if you’re thinking about. So if the Fed finally gets their wish and they see unemployment tick up. So some people are suggesting now where do they want to see it go to? Guy, you and I just had a discussion. 5% probably doesn’t stay there for too long because Danny, at that point, the Fed probably finally pivots or at least they kind of figure out how to take the rate down and they’ll start and they’ll do you know, they’ll stop QT. They’ll you know, they’ll basically loosen financial conditions. Maybe they don’t have an actual pivot, but that might be the thing where alarm bells go off. But the question is, is that good for equities at that point you know. [00:14:06][35.4]
Guy Adami: [00:14:07] I’ve tried to figure this out. What are they targeting like? When are they going to flinch? And I’ve said for a while I didn’t think it was the equity market. I thought at best you need the S&P to get down to 3000 before they even considered doing something. So that wasn’t really in their purview. The credit markets don’t seem to be flinching at all. The credit markets seem to be running somewhat orderly, although there’s some cracks in that armor. You know what, they’re targeting unemployment without question. It’s 5%, in my opinion. I’m not suggesting I’m right. If you’re looking for a Fed pause, pivot, whatever, it’s going to come in the form ten of unemployment rate at 5%. And to your point, what does the equity market look like with 5% unemployment? What does the economy look like? That’s what we have to sort of figure out. And I think that’s we’re going to be struggling with early in 2023. [00:14:54][46.9]
Dan Nathan: [00:14:55] You know, our good friend Liz Young on Thursday tweeted this and Liz Young, the head strategist over at SoFi. And just you know, on the tape policy there’s going to be more of Liz Young in 2023 she’s going to start joining guidance of myself on a monday bonus episode of On the Tape. We’re going to do a look ahead on what we’re most focused on and what we think could happen. And then we’ll do our Friday wrap with our longer interview. So stay tuned for that in 2023. But Liz had a good tweet this morning. She’s saying, on average, the S&P 500 peaks just before the start of a recession and bottoms about 3 to 7 months after it began. But before the recession ends, for what it’s worth, the average recession is about 12 to 18 months long. Okay. This is going to be the game that everybody’s playing. So we’re now we’re talking is the base case a soft landing? And a soft landing probably means a mild recession. What are the situations that could cause a deep, drawn out recession? That would be unemployment guy going up well beyond that sort of 5% in a Fed overstaying its welcome on the tightening side. And so I just say this, S&P down 17, 18%. It was up, what, 28, 29% last year with dividends, whatever. Does not encapsulate what has gone on in the economy here globally and what we’re likely to see in the first half of 2023. [00:16:12][77.0]
Danny Moses: [00:16:13] Yeah. And then you mention QT. I mean, I looked at the balance sheet of the Fed, it’s about eight and a half trillion, still rides down from nine. Coming down, you know, and he said, we’re going to keep going. 95 billion a month, treasuries and mortgage backed securities. If I were him, I’d be dumping treasuries with the with the rates down here coming in as quickly as I could. But that’s just me. But again, it’s about money, supply and money in the market. And let’s just not forget, this is a reversion to the mean, so to speak, from 2009 ten up until 2021, basically. Right. And you just can’t erase or ignore the amount of liquidity that was pouring into the market. It’s one thing for the Fed to raise rates. It’s another to keep taking liquidity out of the market in the form of quantitative tightening. And that’s going to continue. And I do believe if something does break and something will break in 2023. We’ve seen things squeak. Obviously. [00:16:58][45.0]
Dan Nathan: [00:16:59] What does that mean? Just real quickly, break. So you just talked about credit a little bit. Like, is it something in credit here? Is there more fraud? You know what I mean? Is there is there [00:17:06][7.8]
Danny Moses: [00:17:07] You’re seeing the tide go out, right? You’re seeing I mean, we can see the frauds really sitting right now in the crypto market. But when you see things that occurred earlier in the year, like nickel trading on the LME and things like that, or you have these crazy moves in natural gas and commodities, you hear about people getting carried out, you hear about hedge funds that are shutting down that happening and archegos happens. Does it take the system [00:17:26][18.3]
Dan Nathan: [00:17:26] Does the stock market break, though? Because, you know, Guy, it makes this point. I love this point when he does. This is like everybody talks about panic. This has been a very orderly sell off all year. All you have to do is look at the channel, the S&P. We actually haven’t had too much panicky action. You know, the S&P right now as we’re talking, is down nearly 3% or the Nasdaq’s more than 3% into the close on Thursday. And the VIX is like, I don’t know, up a few percent or something, trading at 23. That does not speak to panic. So we haven’t had that yet in the stock market despite the losses that we’ve had. [00:17:55][29.0]
Danny Moses: [00:17:56] I think that the Blackstone theory. Right. It’s not a again, nothing wrong with Blackstone. They did nothing wrong, you see. Very clear. But that’s an elephant, like I said, going through a mousehole. And you know what it comes down to, Dan? People start to sell the equity markets when they can’t get their money out of, quote, other things. And that’s what happens. And so if I’m hung on a trade somewhere and may be in credit, what do I do? I’m going to go buy puts on the S&P or start selling my equities because I either need liquidity or no. And I think we’re going to deal with and that’s going to be a long game. I don’t mean to be again, there’s always going to be things to buy, right? Not just puts on things, always things to buy. And so, again, be realistic as you look through and just be logical of what this is all going to mean. And when I see something, I don’t know if it will be, you know, reverse repo or something, but believe me, we continue this Fed keeps your foot on the pedal as far as raising rates and you’re seeing the economic numbers start to come in, it’s inevitable. [00:18:44][48.3]
Dan Nathan: [00:18:45] You sound like Elon Musk and Cathie Wood because they’re basically really worried about the slowdown. [00:18:49][3.9]
Danny Moses: [00:18:49] I’m just saying it me in the same sentence. [00:18:51][1.2]
Dan Nathan: [00:18:51] I’m just saying. But that’s what Musk tweeted. [00:18:52][1.3]
Danny Moses: [00:18:53] That’s up to him. Except I don’t own a shitty companies in. Oh, innovative ETFs. Whatever you get me. All right. Anyway [00:19:01][8.5]
Guy Adami: [00:19:02] You know something dawned on me as I sat here. You know, again, Johnny Nash comes to mind. I can, in fact, see clearly. Now, you know what else I can see? The correlation between the stock performance of Tesla last year, around the time the NFL’s season started was extraordinary. I mean, Tesla was lower left, upper right sort of coincided with your remarkable year last year. Danny And it’s coincidence or not, in a year where you’re an extraordinarily pedestrian, 19 and 19 and one, it coincides with the demise of Tesla during this football season. I don’t know if it’s coincidence or not. What I will say, though, quickly, Tesla, we’ve been talking about $150 seemingly for the last six or eight months. We get a lot of vitriol on Twitter. People say we’re haters. I’m not we’re just trying to sort of outline and talk about where we things are going. Tesla made a 52 week low on Thursday of 153.28, close enough for government work. But Danny, a lot of weird things are going on in Tesla and I’m looking to tee you up a little bit, but here we are. [00:20:06][63.4]
Danny Moses: [00:20:06] Let me just say I’ll take Owen, 38 and Tesla going down. I’ll take in 66 in the NFL and Tesla going down. I have a lot more riding on Tesla going down. I even care about the NFL. It’s a hobby. It’s fun. I play some games. Sure, I gamble on it, but let me just say that. So again, I swear, every time I take the train in or coming in the studio, I go, all right, avoid Tesla today, don’t need to talk about it. But he puts himself out there front and center and you can’t not talk about it because it’s one of the largest companies in the market. Right. And he’s sold more stock now in the last year than majority of companies have in market cap. So you have to discuss it. What in the hell is going on? He’s selling stock now. Yes, another 3.6 billion, followed by another three point whatever billion just a couple weeks ago. And he’s not saying why he’s doing it. We can put it together and kind of figure out why he’s doing it, because he’s probably getting margin call. And we saw the news a couple of weeks ago that the banks that have some of this unsecured debt would love to lower the rate for him. The only way they’re going to lower the rate for him is to use his Tesla as margin and borrow against it. And whatever the bottom line is, these two stocks continue to be intertwined more and more. And that’s not what Tesla bulls and I’ll call them decibels. That’s fine. If you want to believe the fundamentals of a company, that’s great. But I’ll tell you, made an interesting point yesterday. He basically insinuated, hey, don’t worry, Twitter will end up being good for. House of shareholders that quote and I said on this podcast a couple of months ago and I kind of threw it out there because I actually heard it somewhere else that I think that Tesla might buy Twitter. Oh, Dan, you’re crazy. You’re crazy. Okay. Why did he buy Solar City in 2016? What were the two companies had nothing to do with each other. Oh, yeah. They’re both good for the environment. Tesla and Solar City. But one is solar panels on rooftop. One’s a car. He did it because he got margin called $250 million. Everybody go and look it up. You can pretend that was the entire sole reason that he did it was for self-preservation. So don’t kid yourself. Do I think Tesla buys Twitter? Probably not. But if he does, is it 42 billion? No. But even 13 billion clears his ass with the banks. And that’s what it. [00:21:58][112.0]
Dan Nathan: [00:21:59] It’s absolutely nuts. A year ago, this stock Tesla had a $1.2 trillion market cap and he started selling. He tweeted out, Should I sell stock to pay taxes? You rember that. And, you know, back then I remember saying this on a podcast, actually, Kara Swisher kind of smacked me down on it. I said, the stock is trading like they’re going to buy space X his other company that actually you could see that would make some sense in some way, shape or form. You just say in. [00:22:25][26.4]
Danny Moses: [00:22:26] In Musk’s world it would make sense not in the regular world [00:22:26][0.2]
Dan Nathan: [00:22:27] But not Twitter. I mean, what I’m saying is so it’s funny [00:22:30][2.4]
Danny Moses: [00:22:30] What do you mean you can download in real time and get geographical maps of where you are. [00:22:34][3.2]
Dan Nathan: [00:22:34] And think about this. This week as he was selling 22 million shares at 52 week lows, at two year lows, there was also a block of Space X secondary. This is insiders very likely him. Now, here’s the thing. This is a private company. It last value this company on the last sale that they did at $125 billion. That was earlier this year. So Elon is also selling Space X supposedly at $140 billion. Can you guys think of another private tech company on the planet Earth that actually has a market higher in 2022? It doesn’t exist. So there’s a bit of Fugazi going on over there, right? Like, so to me, people are like, Listen, I’m getting a lot of unsolicited hate. I do this on fast money. Welcome to my blog. I know. And I’ve been doing a long time, longer than we’ve been podding and everything like that. So I feel your pain a little bit. You just said something about the tide going out. The stock market before the CPI was up 18% from its October lows. And during that same period, I think Tesla shares were down about 20%. Something’s wrong here. I mean, that’s just a matter of fact. And it could be broader than a guy that just has margin calls. [00:23:40][65.9]
Guy Adami: [00:23:40] Something else happened this week, sort of not being covered by the media for whatever reason because it’s been such a big market week, fed week, a lot of things going on. But these trading reforms from the SEC or front center, Danny, I know this is something you watch and I mention it because magically Ken Griffin’s tax returns apparently were leaked and I don’t believe in coincidences, but a lot of things are happening on sort of the payment for to flow stuff, all the things you’ve talked about seemingly for the last year and a half. [00:24:07][27.2]
Danny Moses: [00:24:08] Well, listen, they’re all common sense things that Gensler promised when he came in a few years ago that he was going to address. And now he’s finally, quote, doing something. We’ll see what actually happens. Joe Saluzzi at Themis has a great note out. He always does. Very insightful. You know, there’s basically four proposals that are on the board in the comment period. You can guess where the hate comments are going to come from right in the paper, water flow market make world is open until March 31st and it could be extended longer. But basically it’s saying that retail customers should get the benefit of best price execution, the best liquidity in the market rebates should not be the driver of where an order is directed. Right. Just kind of common sense stuff. Now, half the retail investors or 90% don’t care. They’ll say that, oh, I like what? I don’t change anything that I have and I totally get that. And then if the market goes down, the blame dislocation on some of these changes, whatever the bottom line is, people are that when people trade on inside information, obviously, Barry Diller, where’s the I’ll say the where’s the Activision Microsoft thing I buried? Anyway, people are upset. Keep in mind that on this paper for water flow, I will say it again that you get to see the words before anyone and you are in and out of a stock risk free. What service are you providing? Right. You’ve got to find the natural right anyway. So I’ve been on this thing a long time. I’ve kind of given up on waiting for something, but payment for order, flow and rebates are the two easiest things to attack. I hope something happens. I want to have faith that James is going to do something, but get ready for a pretty wild, you know, 90-100 day comment period of what’s going to happen. [00:25:29][81.4]
Guy Adami: [00:25:30] Yeah, I mean he Gensler said that competitive auctions could save, invest or retail investors a billion and a half dollars a year. I mean, I don’t know where they come up with these numbers and we sort of differ on this. I’m not nearly as exercised about this entire thing. Maybe I should read more into it. My point all along has been the playing field has never been more level for the retail investor. The information they have access to zero commissions, tight spreads and I don’t really know what we’re looking to solve for here, but maybe I’m off the rails a little bit. But that’s just my view on the entire thing. But as they say, that’s what makes markets. [00:26:06][36.2]
Danny Moses: [00:26:07] So ne of the names obviously that was front and center with all the market making and the underbelly of trading was GameStop, right. That was the one thing that happened that kind of caused the call for a lot of this reform. And people on both sides, whether you’re bullish GameStop or bearish GameStop. I was kind of was the poster child for all of this. And as you know, last week, which subsequently you found out on Twitter that I got my GameStop portion of this on this episode, got cut last week because dad didn’t find it bad, warranted to come in. And I was adamant about just getting it out there so people understood because I felt and I do feel that that company, which is representative many other meme stocks was at kind of a tipping point doesn’t trade on fundamentals. What causes a non fundamental stock to go down the stock actually going down and people asking questions what is this thing? Where is it? So another war from this kind of trading in. But again, GameStop was the one name that kind of reflected all this market structure stuff at the same time. [00:26:55][48.4]
Dan Nathan: [00:26:55] Danny, I’m sorry about that. You’re like the first guy to listen to our podcast every Friday morning when it drops. Is that what’s going on? And I was like, I don’t know. We’re looking to like shorten the thing up a little bit. We talked a lot about it. You know, for me, I think about that GameStop period and this was January, February of 2021, and we had just started the podcast and we spent some time talking about it from market structure to the mania as to, you know, all that sort of stuff. And to us at the time it was a sign that it was over. Think about that. And we started getting really bearish on a whole host of things that made absolutely no sense from a valuation standpoint. And the whole theme of on the tape in 2021 is that bubbles are coming unwound, despite the fact that the S&P and the Nasdaq are not telling you that. And that’s been our mantra for two years. And I guess last Friday, when I’m thinking about this thing, I’m like, you know what, we’re about to go into 2023. [00:27:43][47.3]
Danny Moses: [00:27:43] Hold on was it a conscious thought. [00:27:44][1.0]
Dan Nathan: [00:27:45] That, you know, no, no, no, have. But my point was this and I’d love to get your take on this is like we’ve been putting together every week for two years, and I want to put like some of those stories to bed because I don’t think it’s an investable stock, but I also don’t think it’s a stock that warrants a whole heck of a lot of attention anymore. And that’s my point. You’ve had a beat on this year. Fantastic. At these sorts of stories. I mean I mean that you start a newsletter, you’ll make $1,000,000. [00:28:12][27.1]
Danny Moses: [00:28:13] Well, I’ll just say that. So the Jon Stewart show was about GameStop, right? But I got to meet some of the people that were watching it. And I honestly felt heart to heart that I want to help people. And I’ve said this all the time. Oh, no, Dan, you’re just talking about. No, I’m not. I don’t want you to get sucked in right by Ryan Cohen and these people, they’re telling you in a seven minute [00:28:29][16.4]
Dan Nathan: [00:28:30] Who’s getting sucked in, though? [00:28:31][0.4]
Danny Moses: [00:28:32] How much hate I get from retail investors. [00:28:34][2.0]
Dan Nathan: [00:28:35] It’s the same morons that were on Reddit two years ago but they’re getting smaller so they don’t have any money left Danny they lost it all in Dogecoin. [00:28:45][9.7]
Danny Moses: [00:28:44] Can I help you? I feel like I can help them. But let me just say this. You said a few minutes ago, I use it as a barometer. It’s what I’ve been saying for two years on the show. The health of the. So where are we now? We are now in the sixth or seventh inning, right? I said Tesla needs to fully break before we kind of clean up Barney style this market. Right. [00:28:59][15.4]
Dan Nathan: [00:28:59] So do you want people listen to this, though? Do you want people listen to this to actually buy puts or short the stock? [00:29:04][4.2]
Danny Moses: [00:29:04] I want people that own it to sell it. They don’t have to do it. Okay, that’s all I’m asking for dan. And it does matter. And it’s still a $6 billion company and still a guy like Ryan Cohen. They can go out and look what he did to Bed Bath Beyond. If you listen to me on that, at the time, the thing was 25, $30. It was a joke. The debt was trading at $0.30. We look at balance sheets of companies. The one thing GameStop doesn’t have is debt. So that’s why it hasn’t crashed yet. But they don’t have earnings anyway. Move on. But that Dan to me it’s important because I think people out there, listen, maybe, just maybe they don’t own or don’t short it, let them know and be aware so they don’t get trapped when the stocks at tend to even buy it there. [00:29:37][33.5]
Guy Adami: [00:29:38] So to put a ribbon on this, there’s this misguided belief for a long time and I’ve read it over and over again that as long as this crowd owned the stock, almost by definition it couldn’t go lower. It was like a Braveheart thing. As long as we hold the line, we’re not going to get eviscerated. We’re not going to get destroyed. I mean, it’s just patently false. I mean, the stock’s going down right before their very eyes, and I think they’re learning the hard way. And Danny tried to shed some light on this, I think correctly. So what I’d also like to shine some light on is week 15 in a league where they play for pay, where, as I’ve mentioned, you’ve been a pedestrian 500 19, 19 and one, but you have an opportunity now in the final four weeks of the season to acquit yourself, to show, to separate the wheat from the chaff, to rise above. So with that, Danny, I pass it over to you. [00:30:29][51.1]
Danny Moses: [00:30:29] You know what? I was excited coming in here. I did. I. I was pressing last week. I wanted to separate myself for the wins and losses, and that was like the equivalent of losing ten hands in blackjack, going to the ATM, coming back and just pressing, just leave the casino at that point. But whatever one or four worst I will ever do, I would say, because I’m never going to pick five games again. That being said, you know what, I’m excited, guy. And it’s going to be on your birthday. I’m picking against your New York Giants. And let me just say this about your little Daniel Jones experiment. You guys now have to choose if you’re going to franchise tag him or Barkley, right? I can tell you which one I would do, but your little giant experiment is quickly coming to an end. So the most underrated team in all of sports, not NFL, are the Washington commanders. Do you realize that they’ve only lost one game since week five? I mean, and that was only a three point loss to Minnesota. They’re coming off of a bye week. The last time they played before the bye week was the Giants Giants 20 point The line is four and a half to the point you made to me last week about Guy, about don’t take Minnesota because they’re begging you. They’re begging you to take the Giants. I’m taking Washington minus four and a half. I think they’re going to stomp on him. I like Cincinnati. I’ve been shorting Tampa all year, as you know. And every time I do this, it’s a half point problem. So I’m taking Cincinnati minus three at Tampa. Feels like Brady’s just kind of lost a little bit. That team’s really not that good. So if it’s three and a half, do yourself a favor by the half point for, you know, -120. And then no one gave Baltimore a chance last week, obviously, because Lamar Jackson is out. But here they are again, getting points again in Cleveland. I mean, maybe they found something here on the running game. I like Baltimore. I see two and a half and three out there, Baltimore plus three at Cleveland. If it’s two and a half again, I buy it two plus three. So Baltimore plus three, Cincinnati minus three and Washington minus four and a half. Against your New York football Giants guy. [00:32:10][100.5]
Guy Adami: [00:32:10] Giants will franchise Daniel Jones at the level where if somebody claims them off the franchise, they’ll get 2 1st round draft picks. That probably comes in around $30 million. Daniel Jones, by the way, will be a top ten quarterback in the NFL. Yes, I believe that. Saquon has played himself on to a different team next year, I think. But we’ll see. I will say this, the Bengals are going to roll, so I’m with you on that. Chase Young coming back for Washington is a big deal don’t forget that, because that’s obviously a put added pressure on a suspect offensive line. But before we get out of here, I just want to say this. Lest you think again, we’re all doom and gloom. Oh, yes, I can make it now. The pain is gone. All of the bad feelings have disappeared. Here’s the rainbow I’ve been praying for. And folks, we’re going to get that early in 2023. But until then, Dan Nathan, it’s going to be some rough sailing, I believe. [00:33:08][57.2]
Dan Nathan: [00:33:08] It feels that way. Do us a favor here. Send us in some questions. Contact at risk reversal. We’re going to do a holiday week mailbag. It could be anything about 2023 outlooks, anything breaking down, stuff that went on 2022. We want to answer as many of your questions as we can. So please, you can tweet them at us at on the tape pod or email them to us. So stick around. We got Helima Croft when we come back. [00:33:33][24.7]
Guy Adami: [00:33:36] CME ad. [00:33:37][1.0]
Dan Nathan: [00:34:13] iConnections Ad. [00:34:13][0.3]
Guy Adami: [00:35:02] FactSet Ad. [00:35:02][0.4]
Dan Nathan: [00:35:41] Helima Croft is a managing director and head of Global Commodity Strategy and Middle East and North Africa Research at RBC Capital Markets. She specializes in geopolitics and energy, leading a team of commodity strategies that cover energy, metals and cross commodity investor activity, as well as policy analysis and both Washington and global political insights. Helima is a member of the National Petroleum Council, a select group of individuals who advise, inform and make recommendations to the Secretary of Energy with respect to any matter relating to oil and natural gas. Helima, welcome back to On the tape. [00:36:15][33.9]
Guy Adami: [00:36:16] So every once in a while on CNBCs fast money, you’ll hear me talk about the Parthenon and who’s on the Parthenon. And I will tell you without equivocation, folks, if I were to create the Parthenon for energy analysts, people that understand the space, it’s Helima Croft. I’m telling you, you’re at the top of the list, and we’ve said that for years. How are you, Helima? [00:36:38][21.7]
Helima Croft: [00:36:38] I’m so good. It’s so great to be back with you today. [00:36:41][2.8]
Guy Adami: [00:36:42] It’s amazing. It’s an interesting times. And listen, I want to do a 30,000 foot, but we had Paul Sankey and he’s, by the way, another great analyst in the energy space. [00:36:50][8.5]
Helima Croft: [00:36:51] Oh, he’s fantastic. Yes, absolutely. [00:36:53][2.0]
Guy Adami: [00:36:54] And we spoke to Paul on fast money and he said by early May he thought brent crude, which is currently trading about 80 bucks, could get to about 120, which I can do that math. That’s a 50% rally from here. And I’ll tell you some of the fits and starts we’ve seen in energy over the last six months supply breakdowns, demand, destruction, all these different things. My sense is the supply and demand fundamentals have not changed at all since last time we spoke. [00:37:22][28.2]
Helima Croft: [00:37:23] Well, I think one of the big factors that we’re looking at right now is what really happens with China, because there’s all this speculation that with the lifting of COVID restrictions, that we could see a significant uptick in Chinese demand. I mean, it’s amazing, actually, that oil was as high as it was this year, given how weak Chinese demand has been. So the question is, are they going to see this reopening through? If that is the case, that’s a major tailwind for oil into 2023. So that to me is like the top story to watch now on the supply side. We’re still in the early days of these sanctions on Russian oil and the price cap. We can talk about that more. But what was interesting this year is the Biden administration really worked to exempt Russian oil from any sanctions. So we had that initial rally in March and the war started as people couldn’t figure out whether they could do business with Russia or not. We had this buyer strike. I think we talked about that when I was last on. But then once it became clear that there were not significant sanctions on Russian oil, a lot of buyers came into the market, particularly India, and were prepared to buy that Russian crude. So the question is, as we look at 2023, are these sanctions have been put in place by the European Union. Are they going to cause any significant reduction in Russian oil volumes? What happens in February when the products ban starts? So to me, that’s the interesting thing with supply, a wildcard still will be what happens with Russia. [00:38:49][86.2]
Danny Moses: [00:38:50] All right. So you cover I think it’s the hardest, most complex sector to cover that there is. So the question, which is hard to answer, but I’d love to get your thoughts, is how do you decipher geopolitics priced in to oil and commodities? How do you break that down? And sorry, this is the course supply demand price and this is ongoing geopolitical noise price. Can you try to break that down for us? [00:39:09][19.1]
Helima Croft: [00:39:10] Well, I think what we’ve really had is that we had that run up a can I go back to that moment that I was on with you? Because I was such a really important moment because right after the war started, we were having this run up in prices and there was a strong speculation that we could see significant Russian volumes come off the market on a sustained basis because of this war. And then it recovered. And I think a lot of market participants are afraid to basically speculate now on any further Russian disruptions. They basically said, look, we thought we’d see Russian disruptions. We bet on that. And yet Russian volumes have held up. So I think right now a lot of market participants are fading any story about potential supply issues around this war? So when you have the Russians say we’re not going to sell to anybody that might buy the price cap, basically anyone who says we’re going to charge you 60 or below, the Russians have said we’re not going to sell to you. People are like, that’s just noise. When you’ve had some suspicious, suspicious pipeline incidents like we saw with a Nordstrom pipeline mysteriously explode, market participants have said, well, you know what, I’m not really going to focus on that because again, we were burned by what happened in the early days on the war. So I’m not going to take that risk now. So I don’t think there’s a lot of geopolitical risk premium actually in the market right now. I think that’s basically been faded since the spring. [00:40:33][83.1]
Guy Adami: [00:40:34] No question about it. And the interesting thing is, as much as we like to think that OPEC is not nearly as relevant as they once were, they’re still pretty relevant out there. And I think people underestimate the importance. And I will tell you, if you listen to some of the things that they said about, again, demand destruction and a slowdown in global economies. To me, Helima, they’re setting up for another cut in oil production. And I think that, again, lends itself to the bulk camp. [00:41:03][29.1]
Helima Croft: [00:41:05] 100%. I mean, I don’t put OPEC actually in the geopolitical story. I think it’s really a market story. I think it really goes to the economics of the key oil producing countries and what price do they need to fulfill their very important domestic obligations when it comes to spending? And so when you think about Saudi Arabia, when you think about the other big opaque players, you always want to think about what is they will say they’re not targeting price, but clearly there is a price that makes it all work for them. And I think that you want to pay very, very close attention to His Royal Highness Prince Abdullah bin Salman, the Saudi oil minister. He really sees himself as a central banker of oil. And it was pretty clear in September when he started talking about low liquidity in the market, contributing to volatility. He was really setting up for a situation where they would come back into the market. Remember, we had that October vopak cut, the headline cut of 2 million barrels a day that caught the White House off guard. But if you paid attention to the signals that he was sending, it was pretty clear in the weeks going into that OPEC meeting in October, they were looking to short circuit what they saw as a macro sell off that wasn’t really being driven by fundamentals. So pay close attention in the coming weeks to. O statements coming from him about how he sees the trajectory of the market, because OPEC is a really important factor when we think about 2023. And I just don’t think they’re going to sit on the sidelines if we have another major macro sell off. [00:42:44][99.1]
Dan Nathan: [00:42:45] So, Helima, earlier this week, OPEC signaled that demand, or at least their expectations for demand, was going to be weaker in 2023. What is the signaling there for that? And is it really setting up for some sort of cut so we could see a price increase in the not so distant future? [00:43:01][16.1]
Helima Croft: [00:43:02] Again, OPEC you always want to pay attention to what they’re signaling in terms of market fundamentals. So you have what gets put out by essentially the OPEC research department. That’s important. But you also want to pay close attention, I would say, to the policymakers in OPEC and watch if the statements coming from the key OPEC ministers that are essentially the decision makers. Does that mirror what the research department in OPEC is putting out? So if you start to see in the coming weeks statements from the really influential ministers talking about the demand outlook, or if you hear statements for them talking about low liquidity contributing to volatility, those are the type of statements that I would watch for that could signal their getting prepared to come back into the market now. Right now, the key OPEC decision makers have said there’s too much uncertainty. We don’t know how this whole price cap policy is going to really play out. We don’t know what’s going to happen on February five when the EU goes forward with a product ban. So Russia will not be able to sell any product to Europe. The question about what will that do to oil prices? What’s going to happen with the China reopening? They’re saying right now there’s too much uncertainty to come in with a strong policy response, but at some point they’re going to have clear signals about where this is headed. And that will be the kind of moment where you look for OPEC action. They’re not going to wait, I think, till June to have their next OPEC meeting with a policy change. [00:44:35][92.4]
Danny Moses: [00:44:35] So in your opinion, and you mentioned this prior comments, but what does this Russia price cap at $60 really mean to the market? [00:44:42][6.5]
Helima Croft: [00:44:43] This is such an interesting story and we got very close. I don’t think market participants realized how close we were to having very significant sanctions put on Russia that could have disrupted potentially millions of barrels of Russian exports. What the price cap policy is designed to do is essentially to keep Russian barrels on the market. So if you go back to the summer, in the summer, the European Union announced a six package of sanctions, which included the ban on seaborne oil imports from Russia into Europe, but also included a ban on the provision of services to move Russian barrels to third countries. So shipping, insurance brokering. And policymakers in Washington, in particular, the Treasury Department, look at their services sanctions and said, wow, those could essentially be like secondary sanctions. And if those sanctions are imposed, given the outsized role of Europe and the U.K. in shipping and insurance, if those services cannot be provided to move Russian barrels to India, to Turkey, to China, you could see a significant reduction in Russian exports. They pegged it at potentially 2 to 3 million barrels and they became very concerned about having a supply shock. So they were very concerned about the inflationary impact, the full implementation of the six pack of sanctions. Hence, they got to work on a price cap plan which would allow Western service providers to continue to move Russian barrels to these third markets. As long as consumers in those countries attest to the fact that they were paying at the cap or below. And this is why we had this big debate in the last couple of weeks about what would the cap be. And it came clear that what they were looking at the U.S. in terms of a cap was something that was high enough that would incentivize Russia to keep selling their oil, to essentially say, fine, I will sell under the cap and ensure that there was no major disruption in the market. I think what got everybody tripped up was the question about how could you enforce the cap? Would Russia play along? It became pretty clear when you talk to U.S. officials that it was not going to be a very rigorous enforcement regime. The goal wasn’t like, in the case of Iran, sanctions to keep the barrels off the market, but to actually ensure that they would stay on the market. And so we still have to see what the Russian response is going to be. The Russians have said they’re not going to sell to countries that basically abide by the cap or consumers and abide by the cap. But right now, we’re not seeing massive indications of Russian disruption. There have been some signs that we’ve seen some falloff in Russian exports, some issues around logistical challenges, particularly in Turkey, with tankers moving through these key straits, but nothing yet to indicate that we’re going to have a major disruption yet. But if you look out into winter, it’s pretty clear. The Russians do want to cause massive economic unease in the West. They potentially have this kind of winter period to try to really force the West to reconsider its support for Ukraine. And the question is, will they do something on the energy side to try to really push prices higher to make Western nations reconsider their support for this war. So I do think we’re not out of the woods by any means in terms of the Russian response, but we can’t say with certainty what it’s going to be. [00:48:12][209.0]
Danny Moses: [00:48:12] Just a quick follow up on that. So I know you can’t say where you were not in the CIA but just [00:48:16][4.1]
Helima Croft: [00:48:17] I was an analyst. So actually I can say that. Yes. I was not Jason Bourne. I was an analyst. [00:48:23][6.1]
Danny Moses: [00:48:23] Okay. But with that being said, any read on Putin’s health? And my question is not trying to predict his death and demise, but what will happen or what would happen if Putin loses control? [00:48:33][10.1]
Helima Croft: [00:48:34] This is a great question. I was actually I spent the last two weeks in Washington and we had a meeting, you know, last week we’ve met with defense officials, intelligence officials. And it was interesting when they talked about support for Putin, because a lot of financial market participants always ask me, you know, how long can this go on? When when will somebody killed Putin? When will you have a major uprising that sort of topples and from power in Russia, particularly because of this mass mobilization of Russian men calling them up to fight in Ukraine. And when you talk to senior military officials, when you talk to people in the security establishment, intelligence community, they say, well, yes, economic circumstances are getting tougher in Russia. But even if there has been some softening of support for Putin, he does not seem at risk of being overthrown by popular uprising in Russia. And also, if you look at who surrounds him in his inner circle, he is surrounded by hardliners. So if Putin were to go, there is a risk that it will be somebody that replaces him that will be even more hardline. So right now, there’s no indication that he’s going to be overthrown. And one former four star general said, look, if you think about the Cold War and the tough situation that Russia went through, even in the Cold War, there was no major uprising that threatened the regime. And so, again, there’s nothing to indicate right now that his days are numbered. And if, again, if he were to be overthrown by someone in the inner circle, you could be looking at a hard liner there. But that does not mean that Putin does not feel under pressure because of this war, because if he were to lose this war, the real question would be how long could he survive that within his own circle? [00:50:21][107.0]
Guy Adami: [00:50:22] So I know you don’t know who Bert Blyleven is. I don’t expect you to know. But he had one of the nastiest curve balls in the history of Major League Baseball. So you’re about to get a curve ball. [00:50:32][9.7]
Helima Croft: [00:50:33] Okay, let’s do it [00:50:33][0.8]
Guy Adami: [00:50:34] From Guy Adami I guarantee you will, Jack this one, but here you go. So a lot of people have called for the demise of the US dollar as a reserve currency. You’ve heard that over the last couple of years and people speculate ten or 15 years from now. But very quietly, President Xi made a visit to his friends in Saudi Arabia and they signed a bunch of deals. Listen. That’s a story in and of itself. But the back story is what’s the chances that oil gets denominated in yuan? Because if that happens, that’s a bit of a game changer, I think, for global economies. I think [00:51:10][35.4]
Helima Croft: [00:51:10] That is a fantastic question and you are not the first to ask me that. And I think that this is something that the Chinese government would love to see happen. I think that there’s nothing to indicate yet that despite the fact that Saudi Arabia and the UAE and other Gulf countries look to the east as the major market going forward, they see their economic future lying in the east and they are deepening their partnership with China. There’s nothing to indicate right now that they are going to change in terms of how oil is denominated, what’s the major currency for oil. So there’s nothing to indicate that yet. I also would say that this would be something that the US would be very concerned about. The US is, even though we’ve talked about sort of that, the move away from the Middle East, I think there is still concern in Washington, deep concern about growing Chinese and Russian influence in the Middle East. And this would be part of our engagement with these countries in the Gulf, I think would be around this issue about oil, the dollar. So I think that would be something in our conversations with the US Government we would stress that we would see that as a very worrying development. But again, nothing to indicate yet there’s going to be any change in that policy in terms of how oil is priced and how it’s settled. [00:52:34][83.4]
Danny Moses: [00:52:34] So you were just down in Washington. I want to hear more about that. You you’re around a bunch of CEOs. I’m curious if the ESG conversation has completely moved to the back burner and the focus is it just on energy stability and security versus ESG? Are you sensing that? [00:52:49][14.5]
Helima Croft: [00:52:49] Well, I think it’s remarkable. I was just at the National Petroleum Council meeting in Washington yesterday was to hear Secretary Granholm talk now about a managed transition. Remember when the Biden administration came into office and the first thing they did was basically put Keystone XL in the coffin? And you look at the first sort of executive order is, remember, have the halt on new licenses for drilling on federal lands. And there is a real question mark about would the Biden administration look to use the permitting process to shrink the footprint of shale? And what’s so fascinating now is you now have the Biden administration saying, look to the major energy CEOs. We need to have basically as much production as we can. And, you know, you have senior administration officials like Almost Hochstein saying to energy investor, that’s basically un-American for you to basically demand that, you know, U.S. oil and gas companies, you know, return capital to shareholders like put it in the ground and produce more. So to me, that’s a remarkable change in U.S. policy. They’re certainly saying, look, the net zero imperative remains. Decarbonization remains a huge goal of this government. The Inflation Reduction Act is signaling the direction of travel in terms of how we want to expand the growth of renewables. But they are also saying that we cannot have supply shocks and that traditional fossil fuels will play a role in the transition. And the message to all those energy CEOs is we want more production from you. So to me, it’s a remarkable shift. And if we had not had this war between Russia and Ukraine and we had not had all these concerns about energy security, would the Biden administration be in the position it is now and asking for more production from oil and gas companies? To me, the energy security imperative has really changed the conversation in Washington. It’s not that they’re ESG mandate from, at least in the government standpoint, has gone away, but now energy security has really come up front and center in terms of policy concern. [00:55:06][136.4]
Danny Moses: [00:55:07] Along those same lines. Clean energy, nuclear is as we’re seeing a lot of news recently. Curious your thoughts? Was that talked about down in D.C.? I know that was petroleum down there, but just in general, thoughts on nuclear. Some fusion thing happened that seemed to be exciting. I won’t pretend to know what it was, but again where where we in that because I know a lot of people have invested in the space waiting for that opportunity. [00:55:26][19.2]
Helima Croft: [00:55:27] I mean, clearly, again, when we talk about that, are signals from the government, the U.S. government, in terms of nuclear? I mean, that is clearly one of the key components to the net zero strategy. So that is something where even before the Russia Ukraine war, nuclear was certainly seen as how are you going to get to net zero without nuclear? So that is a key part of the mix. It’ll be interesting when you want to think about Europe, Europe strategy. I mean, clearly, France is very focused on nuclear. Germany was always going to be the interesting case. And what’s fascinating is when you think about how Germany made this bargain in terms of being hooked on cheap Russian natural gas, it was in part because they decided after Fukushima that they were getting rid of nuclear. And so certainly the U.S. is focused on nuclear. Certainly France is focus on nuclear. To me, it’s going to be very interesting to see what other countries put nuclear in the mix. When want to think about how do you get to these net zero objectives? [00:56:32][65.0]
Guy Adami: [00:56:33] Helima one of the things that I’ve thought, whether it’s correct or not, it’s just a view that I have. If Vladimir Putin were to lose to Ukraine, that is an embarrassment. That will haunt him through the end of time. But losing to NATO is it horse of a different color? In other words, if he stood up against NATO and lost, that’s something he could probably palette. And what is my point? Backed into a corner. I’m not so sure he wouldn’t use a tactical nuke against one of the western European countries and effectively bring NATO into this entire thing. Is that plausible? [00:57:06][32.6]
Helima Croft: [00:57:07] I mean, I think the way people in Washington are looking at it is if he was facing significant battlefield losses, could he potentially use a tactical there and Ukraine could potentially test a nuke in order to change calculations in the West? Because clearly the West does not want to get into a negative confrontation with Russia. The United States has made it very clear they do not want to become formally involved in this conflict. So an interesting question would be if he were to test the nuke, if he were to use a tactical. In Ukraine, would that be a red line that would bring the United States and NATO’s formal end to the conflict if it wasn’t being deployed against a NATO member like Poland or Estonia? And what would be the cost for that? I mean, there is some concern that if you were to cross that Rubicon, that it could potentially force the West to come to the negotiating table because of a fear of what this type of conflict could mean. You have senior military officials that the four stars I’ve talked about saying that if he were to do this, the response from the United States would have to be very strong, not just because of Vladimir Putin, but because there are a number of other rogue states that have nuclear capabilities like North Korea or are getting close to having them like Iran. So if we do not respond strongly to Putin using a nuke or testing a nuke, that could be a very dangerous signal to nuclear armed autocrats around the world. But it is not clear, even when our conversation is in Washington now. There’s no consensus on what the response could be to that type of weapon being used. But people are not writing it off. I think market participants have written this off, but people in Washington are not writing off a scenario under which this could become a nuclear conflict. [00:59:09][122.3]
Dan Nathan: [00:59:11] Guy Danny and I spent a lot of time looking at the stock market. You know that or the dumb guys talking on the Fast Money Show and everything like that. But everyone’s become like a macro expert in the last few years, some of the most volatility has been in currencies and commodities and rates and that sort of thing. I’m just curious. How closely do you look at that? I know we just talked a little bit about the dollar and how crude is denominated. We’re starting to see the ten year U.S. Treasury yield come back to three and a half percent. It was just at 4.3%. A few weeks ago. The U.S. dollar is off significantly over the last few weeks or so, more than 5% or so. And crude. I mean, this move in crude, everyone I know it seemed to be a consensus trade that this is where you wanted to be an energy stocks have acted really well relative to the price of the commodities since the highs over the last few months or so. I’m just curious, like what are some of the key inputs that you think about when you’re trying to think of crude as a macro asset rather than just focusing on it individually? [01:00:04][53.4]
Helima Croft: [01:00:05] No, I think what’s really important when you want to think about price of oil and certainly want to think about because you brought the issue of OPEC brought up previously is like how they focus on the macro story and you can get these macro sell offs that are not reflective of fundamentals at all times. And certainly when I spent time in the kingdom and it’s been the year that I’ve been back to Saudi Arabia, they have indicated unease about this sort of relentless rate hiking schedule. And from their standpoint, when they look at key inputs, when they have to decide whether to take action in the market, they are focusing a lot on Jay Powell. And so when you raised the issue earlier about what you we watching as a potential trigger for OPEC action, we brought up issues about and demand. We brought up issues about potential supply disruptions out of Russia. But they also really watched these macro moves. And they have also they’ve indicated that their concern about this rate hiking schedule and that would be a catalyst when we think about catalysts for additional OPEC action, that would be the kind of catalyst you want to listen for their statements around the rate hiking cycle about Powell, that those are the kind of things that could bring them back into this market. [01:01:25][79.6]
Guy Adami: [01:01:26] First of all, I was commodities trader for a long time and I’ll give the Biden administration a lot of credit. I mean, they released from the SPR at significantly higher prices than we are now. That’s one half of the trade. The hardest part about prop trading, though, is taking profits are getting out and they haven’t gotten out yet. So what’s your sense? Do they have a game plan? Did that even come up when you were down in D.C.? [01:01:46][20.3]
Helima Croft: [01:01:47] That is a fantastic question because the Biden administration has really changed the use of the SPR. I mean, when I when I started in government, the SPR was supposed to be used for disruptions to US refineries, typically because of things like hurricanes. And then in the Arab Spring, when you had this disruption in Libya, you had a bit of a tweak in the use of the SPR, even though we did not have a disruption to a U.S. refinery during the Arab Spring, Libyan production went down and we release from the SPR to handle that situation. And some people would say we release from the SPR. They get other countries that had promised to export more to step up. This time we’re releasing the SPR specifically to deal with a price issue. And remember, the Biden administration started releasing from the SPR even before the Russian invasion of Ukraine, but when the invasion commenced. We saw in March the largest release from the SPR in U.S. history. Now, I don’t get the sense that there’s going to be another blockbuster SPR release given where we are in terms of the stockpiles. But they, I think, are certainly reserving the right to do some more incremental releases if there is a supply shock. And the question will be, at what point do they start buying back? They had signaled that in the low seventies they would start buying back. And then they qualified that by saying we will buy it back when we have it in the seventies for WTI, low seventies on a consistent basis. So we still don’t have a lot of clarity in terms of what consistent basis really means. But this has been a real evolution in policy. And if you want to think about why we’ve not been having triple digit oil prices, I do think the SPR played a really big role in that. [01:03:41][114.4]
Danny Moses: [01:03:42] All right. So I called Porter Collins and Vincent Daniels this morning, since they’re like energy bulls, they’ve been investing the space now for several years. When I told them you were coming on, they were very jealous. I had said, What would you ask her? They said, Ask you this question. I said, So in the world you got West Texas, you got Brant crude. And the difference in pricing obviously is the transport costs and so forth. In gas, it’s different, right? Because you have LNG terminals that need to be built. You see a huge bifurcation on prices between what in the U.S. and we ship it over to the UK and Europe and so forth. Where are we in that development in terms of being able to build these terminals and how long will it take for there to be a little bit more symmetry in natural gas prices globally? [01:04:19][36.8]
Helima Croft: [01:04:20] I mean, this is a great story for this year. I want to think about before the Russian invasion of Ukraine. Gas was not in the EU’s green taxonomy and a number of European countries were very much focused on renewables, nuclear, but not on natural gas. And they had their cheap natural gas from Russia in terms of pipeline. But when it came to other suppliers, one of the real issues, for example, with LNG was the failure to do long term pricing in terms of supplies. The difference with the Asian model and what we’ve really seen since this war has been this incredible shift when it comes to Europe. I mean, look how quickly Germany has pivoted on this issue and how fast they were in terms of breaking down regulatory barriers to really build out LNG infrastructure and beyond the infrastructure buildout that we’ve seen at this sort of rapid pace. What I also think is fascinating is you’re now starting to get long term contracts being signed with Qatar. I was in Qatar actually in March, and that was the big issue that Qatar is saying, is that they were happy to divert some cargoes to Europe that were not needed in Asia because of warmer weather, but that ultimately for Europe to have stability of supply formations like Qatar, they needed to move to a long term contracting model. So to me, it’s amazing how this war has changed. How Europe now sees natural gas is sort of an important feedstock even in the transition and how they have been quick. Countries like Germany have been super fast and have seen the urgency to build in infrastructure and move to this new pricing model. Now, one thing that’s really going to be fascinating to watch, so we’re going to switch back to the product story is really what happens again in February when Europe goes out in terms of Russian products. And that, I think is going to be very interesting because you have this situation, as you know, on the East Coast where you have products really below the five year average. In terms of inventories, you’ve seen diesel prices, heating oil prices really climb in the East Coast. And you have this potential competition brewing between Europe and the East Coast, the United States for product imports. And so I would say that we’re certainly not out of the woods when it comes to products. And we should be very closely watching and concerned about what happens know come February when that product ban starts. [01:06:59][159.5]
Guy Adami: [01:07:00] Helima, I have posited that the best thing that’s happened to the energy space is one, ESG and two, the policies of the Biden administration. And to a large extent, these companies are now better run, better capitalized, more efficient than they’ve ever been. And this might be the golden age of energy companies. Thoughts on that, as counterintuitive as that might sound? [01:07:25][25.0]
Helima Croft: [01:07:26] Well, again, I think just the difference that two years has made. I mean, remember, in 2020 after the crash, more oil negative and all the conversation was about peak demand with the age of oil over and then this rush to. That zero where they’re going to be stranded assets. And to me, we’re in a moment right now where, again, if you had the Biden administration talking about managed transition and now this new focus on how do you ensure stability of supply, even as we focus on energy transition and more conversations about the role of traditional fossil fuel companies and helping to scale up technology like hydrogen. I do feel like that they all the conversations about the best day to this companies being behind them, that has been fundamentally altered. [01:08:26][60.4]
Dan Nathan: [01:08:27] All right Helima so I’m going to be a dumb hedge fund client that you probably have to sit across the table from every once in a while and you just went through. [01:08:34][6.7]
Helima Croft: [01:08:35] No, I have no dumb hedge fund clients for the record. [01:08:37][2.6]
Dan Nathan: [01:08:38] No, you don’t. But we know plenty of dumb hedge fund guys that we’re buddies with, and generally they’re guys. And so you just kind of demystified a whole heck of a lot of stuff on some pretty complicated macro and geopolitical situations. And so here it is. What’s the trade? What’s the trade for 2023? Because isn’t that what they always ask at the end of the day? I mean, if we look at crude a year ago at this time, it was 70 and then it went to 120. Based on all the shocks that you were talking about and here we are, it’s kind of defying some of the consensus view. It got back towards 70, I think, earlier this week. It’s bounced a little bit. What do you think the consensus is heading into 2023 and what do you think the good trade as it relates to crude and some of the related products? [01:09:18][40.6]
Helima Croft: [01:09:19] Well, again, a lot of what I look at is what are the signpost and sort of policies that you need to watch for. And to me, we have said with the launch of the EU sanctions on December five, if these sanctions launch without a price cap, that’s incredibly bullish. They launched with a cap. So for now, it looks like we have Russian supply remaining on the market. To me that the next key inflection points are going to be really what happens with this China reopening, because that has been the real weakness for demand, has been China with this reopening. That is that that’s a tailwind for oil. But watch COVID cases in China. Watch how public health authorities are able to deal with what is expected to be a significant climb in COVID case counts. Will Chinese authorities be able to ramp up a vaccination program? Will they be able to essentially bring in new vaccine technology? Will we have a potential push back in China because of a health crisis? So to me, that is going to be such a key variable in terms of how China proceeds with this reopening. And the other one to watch, I mean, again, that is to me that the bull case for oil really rests on China. And also in terms of products like what really happens that does Europe, can they go forward with this product ban? In the case of crude. There are alternative suppliers. There was a lot of work to come up with. This almost carbon abatement mechanism to allow Russian oil to stay on the market products is going to be just that much more challenging. And so to me, if they launch this ban, it’s coming up very soon. We could see significant dislocations in the market. So again, to me, that’s another really big bull catalyst to watch for. [01:11:13][114.1]
Guy Adami: [01:11:15] I will tell you, you mention that you’re not Jason Bourne, but Robert Ludlum should write his next book and it should be called The Croft Chronicles because you’re a badass. And we thank you for joining us yet again, Helima. [01:11:26][11.2]
Helima Croft: [01:11:27] Thank you so much for having me. And again, I hope I get to return sometime in 2023 [01:11:32][5.0]
Guy Adami: [01:11:35] For sure, absolutely. [01:11:35][0.8]
Dan Nathan: [01:11:35] Thanks Helima [01:11:35][0.3]
Guy Adami: [01:11:36] Thanks once again to CME Group and I connections for sponsoring this episode of On the Tape. If you like what you heard, make sure you hit, follow and leave us a review. It helps people find our show and we love hearing from you can also email us at on the tape at risk reversal.come any time. Follow and connect with us on Twitter at on the tape pod and we’ll see you next time. [01:12:00][23.5]
Dan Nathan: [01:12:01] On the tape is a risk reversal media production. This podcast is for informational purposes only. All opinions expressed by me Dan Nathan Guy, Danny, Danny Moses and any other participants are solely our opinions and should not be relied upon for specific investment decisions. [01:12:01][0.0]
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