Ep.60: Biden's Big Oil Play & Recession Warning

Hello and welcome to episode 60 of the Market Maker podcast, and gonna run through the main highlights of the week. Um, but before I begin, just wanted to say to any students who do listen to the, the podcast to check out our Amplify Me YouTube channel, because I've been dropping 2 times per week some catch-up conversations I've been having with our alumni. And it's been not only really great to catch up with them and see what they've been up to, but to hear just some of the the incredible difference of their stories. Um, there was one, one chap I didn't quite realize— I knew he was, um, a really keen sportsman, didn't quite realize he was a pro swimmer. And then so chose to go to Loughborough, actually switched from swimming to then join the GB rowing team. Obviously, obviously. But then the pandemic hit and he had to kind of rethink because they couldn't train, and that was a real kind of disruption to his entire plan. He's actually pivoted, still at Loughborough Uni, and is now going to be joining Lazard on an investment banking internship, which I thought was just great. That switch.

Yeah.

And then going from another one, this, this will speak to your heart, Piers. A chap I spoke to last week And he, he obviously was with us, um, in the summer of 2021 to train mechanical engineering, and now he's going to be joining a trading role at HSBC. Wow, sounds very similar actually to someone else I know.

I, I did see that on, uh, was it on your Market Maker email? They had the kind of subject line was mechanical engineering to HSBC.

I'm sorry, did you think that was going to be you?

Were you— I thought it was going to be all about me. So then I opened it up, really excited to just read about myself, and I'm not mentioned at all. Like, cheers.

So just to recap for, um, for anyone who's just joining at episode 60, you were a mechanical, mechanical engineering, right?

Mechanical engineering student, yeah. And then moved in straight into finance with HSBC. So yeah, trod that path. Yeah, I knew not— it was a lot— we're talking 20 years ago now, but I guess there's similarities, right? In that you're going from a non-finance background into the world of finance. I mean, these days though, it's— I don't know, the landscape's way different, I would say, for youngsters coming through now, just in terms of well, the knowledge you've got to have or the experience you need to have gained to kind of bridge that gap between non-finance and trying to get a role in finance. And look, that's mainly because I guess this— I guess content information is so much more readily available than back in my day. So I think the bar has been raised. Right.

So there was no internet back in your day, right?

Hang on a minute. Although I will say, this is going to properly age me, and people listening to this are going to go, what? My first ever email address, I didn't have email until I started university. And that's just because it didn't really exist. I mean, I started university October 1997. And so yeah, literally my first email address. And I didn't have a phone. I think it was probably— I think it might have been the second year of university I got a phone, and only because no one else had one. Basically, I had the first phone, and only because it was my dad's. My dad was traveling a lot for work. He was on the road a lot. So he had one. He was like an early adopter, let's call it. And so he was changing handsets. I mean, I say handsets, I mean backpacks. You needed some kind of heavy lifting equipment to take this thing around. So I had this brick, it was nicknamed the brick by my mates. But yeah, I had a mobile phone in year 2 when no one else did. And then like the Nokia revolution.

Oh, okay. So it all makes sense now. It's completely clear to me because— how long have you been married for, Piers?

Uh, I've been married for 7— coming up 17 years.

Okay, so— and you didn't— so me quickly running the math, so you probably met your wife Sue when the brick came out.

You are— you are nail on the head. I was rocking a mobile phone and I was the coolest guy on campus.

That was it. Just locked it in first year. Bang. Want to do a call? Want to call your mom and dad on the break?

Absolutely.

Anyhow, I don't want to make you feel any older, so we'll move on. And by the way, you can take off your Dyson Zone headphones with your air purifier mask, by the way. Well, I saw that this week.

Oh my God, did you? Yeah, you see the pictures of that?

Yeah, um, yeah, I'm not— don't buy that.

No one's ready for that. That's— that's— are you sure that's— I mean, you know, it's the 1st of April today.

I did think that.

Yeah, it's gotta be an April Fool's joke.

No, but well, it can't be an April Fool's joke, not on April 1st, surely.

Well, this, this is true. Yeah, all right. Yeah, strange one.

Well, let me just do a quickfire through some of the week's major news, and absolutely feel free, Piers, to jump in if you've got your two pence to add. But Vladimir Putin, he said that Russia would continue supplying gas to Europe even as it demands customers pay in rubles. And you might have clocked that he was having a lot of conversations, or Russia were, with India. I just find that whole situation just so fascinating on the geopolitics. Whilst the West is taking very stern kind of position in a unified way. But at the same time, we definitely want to embed ourselves with India and China for the long term. Yeah, India are having complete conversations directly because I was reading about it, the amount of military equipment that Russia provide to India. Um, and then basically the Indians saying, okay, yeah, we'll, um, we'll find some way of circumventing the SWIFT ban. So that we can continue propping up and purchasing oil of the— and paying in rubles. Yeah, but yeah, but the ruble, how's that, how's that going at the minute?

Well, I was just going to say, um, you know, we were talking about Ray Dalio's kind of, um, you know, long-term changing world order and the kind of super long-term kind of, um, cycle where you get superpowers coming and going. We were talking about that the other day, but you know, this is another definitely another sort of, uh, chapter in that story. It's where actually the West and their power and control is waning, because you've got India talking to Russia about— well, we'll have— but the thing about it is, because of the pandemic, governments on around the planet are in severe debt, right? So they're financially incredibly strained, and then the oil price spikes India, I mean, they're not— what's the Cold War to them? It's nothing, right? In the short term, at least. So they're financially strained. Oil's gone through the roof. Hang on, here's Russia going, look, we can actually sell you some oil below market prices. And they're like, yep. Because India have got a big problem in that they don't produce much of their own oil. It's pretty much all imported. So they're in for India, this oil price spike's a nightmare. So yeah, any kind of avenue to try and find cheaper prices, well, they're going to take it. And who can blame them, to be honest, in the short term? So yeah, it's just another sign that the West and their kind of control over the global political situation is definitely on the wane. With the ruble, it just caught my eye. Obviously, we were talking about it a few weeks ago when the invasion began and the ruble got absolutely slammed, record all-time ever lows against the dollar. And obviously, the invasion's been ongoing and maybe Russia are getting pegged back and sanctions are obviously still fully enforced and even Will we get more sanctions? We don't know yet. But I guess what I'm saying is all of the reasons as to why the ruble collapsed are still there, yet the ruble has now almost made a full recovery. It's just— it's actually, as of pretty much this morning, it's 4% off a full rebound from the entire sell-off that we saw when they invaded. And actually, in the short term, it looks like some of Putin's tricks are actually doing a job. I mean, there were some pretty aggressive policies that he put in place to try and halt the collapse of the currency. So the central bank raised interest rates from 9.5% to 20% in one meeting. They then imposed a 30% fee on purchases of foreign exchange. So just making it just too expensive to bother trying to convert your rubles into something else. Then actually, I didn't realize this one, but exporters, so those selling oil and gas, they were mandated to convert 80% of their foreign exchange earnings to rubles. So when Rosneft is selling their oil to whoever and getting euros back, they have to switch up 80% of that into rubles. All of this helping to prop up the currency, and it's actually almost made a full recovery. Of course, this is It collapsed because the West put lots of sanctions around SWIFT, but then also locking down their $650 billion foreign exchange reserves that Russia have, and so on and so forth. So on the face of it, in the short term, it looks, wow, okay, the ruble's recovered here. Great. Well done, Vlad. However, if you look a little bit further out down the futures curve, What that's telling you is actually this short-term rally— sorry, this rally in the ruble is actually probably short-lived because of those short-term functions. And actually, if you look further out, then actually in— I think it's the 12-month forward, it's trading at 110 against the dollar. So just to give you an idea, it kind of traded back to 80 against the dollar at the moment, right, the ruble. But the 1-year forward is trading at 110. So that means the ruble will then— well, they're expecting the ruble to devalue again. And actually, if you look at the black market, the ruble's trading anywhere between 135 and 250 against the dollar. So basically, it looks like in the short term, some of these kind of capital control policies by Putin has propped up the currency, but It probably is the case that more medium term that it's going to be a temporary bounce.

It's interesting because like when you think about that situation and the immediacy of what has to happen now from the authorities, whether government-led or central bank, and then repercussions over, let's say, a more medium-term horizon, say 12 to 18 months. It's interesting from a central banking rate point of view to tackle inflation, from a Biden oil flood the market point of view to tackle inflation. is a recurring theme across the broader landscape at the moment. If you were an investor— I'm not talking a fund manager, I'm not talking— I'm just talking you're a person investing in markets as a normal consumer— what is the best strategy here? Like, you're not institutional, so I'm not looking at some sophisticated structured product of hedging myself and XYZ. Just, is cash better at this point, and then you're looking later to deploy once there's more, like, time?

Depends on your risk profile or risk appetite. Um, you know, defensive is good. Um, I, I, I guess the sensible thing is to use most of your capital and deploy it in a defensive way But with a small amount of your capital, maybe go after some of these shorter-term large fluctuations because there's some huge opportunity. But it's just super high risk because the speed and distance some of these markets are moving, it's just savage. And if you get on the wrong side of it, then you are very vulnerable to— the psychology of letting losses get out of control. And so that's why if you do want to go after some of these short-term plays, you've got to do it in a way where the amount of capital you're deploying on those kind of strategies is relatively very low to the amount of capital you've got to invest overall. That's how I play it. Then secondly, whilst you're— I don't know, for stuff like oil, and we'll talk about it in detail in a minute with Biden's move, but I think with oil, yeah, I think a lot of people listening may be playing a long-term strategy with oil that might be centered around the longer-term lack of infrastructure and the longer-term supply-demand imbalances. And it might be that it's been— obviously oil prices have gone up dramatically, but they've blipped quite sharply lower yesterday. And I guess this is a test of your mettle. It's a test of your conviction over your trade. All these kind of episodes are trying to knock your confidence. They're trying to— this is what markets do. I mean, it just feels like they're trying to do everything to get you out of your position, to scare you out of the market. And I think you've got to stand firm. And you've got to play— noise, I guess the amplitude of the noise at the moment is huge. And so it's never been harder to kind of stay true and stick to your conviction.

Yeah, it's always interesting what you said, like working with, uh, retail traders over the years. It's almost like they're one, two lots and they feel like, yeah, the market knows about my one or two lot position and they're coming after me. Uh, but yeah, as you said, totally psychological in, in that way. But, um, well, look, let's, let's move on. There's plenty of other headlines to, to quickly touch on for the week. The other were a growing number of US institutions becoming more bearish on China. So namely Morgan Stanley, they cut back, so did Citi, their growth forecast for China. They were citing strict adherence to its non-tolerance policy expected to stay in the coming months. This comes with their outbreak at the moment, about as bad as it has been. I think it was this week, wasn't it? Shanghai, uh, they're going on a two-part lockdown in different parts of the, the city. Um, but of course this is going to be a much more longer drawn-out thing, uh, as I just mentioned with the zero tolerance policy. And what we have seen earlier this week, Chinese manufacturing service PMIs both dipped below 50 into contraction territory. That's the first time that's happened since the onset in Wuhan of the initial COVID outbreak in, in Feb of 2020. So definitely keeping an eye on that. Um, later today we've got non-farm payrolls, so We're recording this on Friday morning. Later this afternoon, that is coming out. Expected to be a good report, and the market probability at the moment is at 69% for a 50 basis point rate hike. So that has come off a bit.

It has, yeah.

Um, I think it was up and around 80 at one point, but today's number expected to support the narrative for that move. And then we got Flipping over to Bitcoin and the crypto space, Bitcoin getting close to knocking on the 50K marker again. I can see in the futures market, which I look at, the Bitcoin future having run up to that point has faded back down to around 45 as of right now. But any thoughts on the crypto?

Yeah, I mean, these crypto fans, they've been finally a bit of respite. Finally, people looking at their crypto accounts and just enjoying having the position on again. I think it's been a very painful few months. It's been one where I guess, again, coming back to psychology, if you've got your crypto wallet or your crypto account or whatever it is, then I think for a few months now, people haven't really been looking at their account. They haven't been going on their phone and just checking in, how much are we up today? Because it was always down and down again and 10% down and 25% down. And it's like, I'm just going to ignore it. So you just delete the app kind of thing. But of course, when markets start going back up, you're there checking every 5 minutes. It's gone up another percent. Oh, wow. Another percent. Great. And you feel good about your position again. But It's been a very big move to the upside across the crypto space. I guess it's technical. We have the downtrend that started beginning in November, and now we know bottomed out in— when was it? Mid or towards the end of January. For Bitcoin, that was a move from $60,000 let's just call it $67,000 down to $35,000. So a big sell-off. And then we chopped sideways for a bit and we broke the downtrend. And what's happened this week is actually Bitcoin's made a new high for the year. So it's broken out of its consolidation range, having had a big sell-off, sideways consolidation range, now it's broken to the upside. For Bitcoin, that was anywhere around the $44,000 level. It broke that, we've had a really strong pop to the upside. It's similar technical situation for most of these coins. You've seen this strong technical push to the upside. Bitcoin's pulling back today to test $45,000. This is like, now you've broken up above the range, and now it'll pull back and it'll be interesting to see if we now get support. On the top side of that previous range. So a lot of it's technical. I mean, of course, I guess the macro side of things, we haven't had much new negative. I mean, obviously the Ukraine-Russia thing's still ongoing, but it hasn't— I guess you would maybe describe it from an investor's point of view, it hasn't re-escalated. So I think maybe the macro side of things has just calmed down and that's enabled the technicals to kind of kick in. And that's, uh, it mainly is a technical sharp break, uh, to the upside. So yeah, people enjoying looking at their crypto accounts.

You know who's enjoyed, um, or been the biggest kind of payoff from the crypto, crypto space this week?

Elon?

Football player?

Oh yes, Messi.

Messi signed a $20 million Just $20 million, 3-year deal to promote, um, a new, a new crypto fan token platform. So yeah, bagging himself an extra $20 mil.

Yeah, well, you know, he's got to find work, you know, because he's going to be going to be retiring from his day job soon. So, you know, he's got to find, he's got to find some avenue to keep, you know, keep his lifestyle going. Well, $20 mil How long? For how many years is that?

3 years.

So he's got to promote that for 3 years. Yeah, that's all right, isn't it? That's a decent gig.

Well, let's hope he's filing his tax returns. So then let's have a look elsewhere then. Um, in the UK, um, one of the major things you're likely to read today, the 1st of April, is your energy bills are going to get a heck of a lot more expensive. This isn't unforeseen, it was always going to come, comes as part of OFGEM's cap increase, just given the wholesale price increases that we've had. Customers on a default tariff could see gas costs go up 81%, electricity prices 36%. Comes at a point where living standards are falling at their fastest pace in at least 66 years at the moment in the UK. At the same time, looking at UK economy, house prices Got to be falling, right? It's funny, isn't it? I mean, I don't know when that conversation would have started for you, um, perhaps the first few years when you started working, people saying, oh, Piers, you should get on the housing ladder, and you're probably saying at the time, it's a bubble, they shouldn't be buying at these levels. But UK house prices have risen at their fastest pace in 18 years. Annual growth has hit 14.3%. Price-to-earnings ratio, as you would imagine, is now all-time high. I couldn't actually find the figure, but last time I looked, I mean, it's just frighteningly disproportionate to people's wages at this point in time. So yeah, the housing market just isn't stopping, it seems, at this point.

Some of it, by the way, can I just add in a slightly different angle here? Because obviously people look at house prices and they It's always about, well, supply and demand, I guess, like any financial asset, right? The price is driven by supply and demand. However, there is quite a big unusually large external element to come in here, which is inflation. Because the cost of building a house now has gone through the roof. I did there. But so there's stuff like lumber costs. It's actually been right up at the top end of the scale of these commodity inflation spikes. And actually, this was pre-Russia-Ukraine. So the cost of building a house is feeding down in— so that's obviously new supply, right? The new housing stock coming on the market is having to be sold at a higher price because The builders just don't have the margin anymore, and that's having a filter-through effect to the secondary market of existing housing stock. So there is that inflation element that's playing an unusually large role across the housing spectrum.

And then just to cover off the more of a corporate finance theme, global deal-making, has fallen to its lowest level since the start of the pandemic. First quarter this year, 23% lower than the same period of last year. SPACs— the SPAC attack is over. Um, they're pulling back. It's down 78%. But the PE firms are deploying their cash. They've had their strongest ever start to the year. Um, one of the big deals that came out this week was, uh, RBC Wealth Management agreeing to buy Bruin Dolphin. Yeah, all cash deal, $1.6 billion. Yeah, so there's still activity happening.

It's quite interesting what you said there. So M&A deals generally are down— what did you say, 25% down year on year?

23.

Yeah, but the private equity space are having this— their strongest ever quarter in terms of volume of investment.

Yep. So that FT this morning.

Yeah, that's an interesting divergence there, isn't it? I guess the thing about PE, um, there's certain, certain, um, pots of money that these PE firms have, um, to invest, um, are on the side here in the UK at least. There's this thing called VCT, uh, it's like Venture Capital Trust money, and basically the government have huge tax incentives for investors to invest their money. And that's because they want investors to kind of be investing in entrepreneurs and investing in economic growth essentially in the end, right? So there's a lot of tax benefits. However, there's a time limit. So these PE firms have got to deploy the capital within a certain period of time. And if they don't, they've got to give it back. So the PE is slightly unusual in that the clock is ticking, and it's almost like, right, we've got to go for these deals. So maybe there's an element of that.

Well, yeah, I mean, the article itself does talk about the vast cash piles accumulated during the pandemic. And numbers-wise, the buyout groups backed $288 billion worth of deals. That's a 17% rise compared to the first 3 months of '21. But if you remember the first 3 months of '21, that was when we had quite a severe— we went into a full lockdown, wasn't it, in the UK at that point?

Yeah, that's right.

So I guess on a comparable basis, you can understand why the numbers are probably looking like that. Yeah, like for like. But yeah, arguably though, the biggest news of the week wasn't in financial markets, uh, was that this year's Oscars I'm sure everyone has seen that.

Were the Oscars on?

Yeah, were the Oscars on? Yeah, you could be right in saying that, but I'm sure everyone's seen it. Will Smith giving the slap down to Chris Rock live on TV and, uh, the little kind of verbal sparring that ensued thereafter. But, um, yeah, just, just, just crazy watching that. I woke up in the morning and this is what I normally do. My routine is I put out a morning note that I circulate on Twitter, on my Twitter account. I go through, I'm looking at market news. But when I go on Twitter, I can see the trending hashtags or trending words on Twitter. It was coming up with Will Smith. Then someone left a comment on a video I did the day before saying, "Oh, no mention of Will Smith." I was talking about markets. I was like, What's going on? Had a look, watched it, the clip, the full clip, and I was just like, this is like half 6 in the morning. You're thinking, have I woken up yet? Is this real?

Well, right, yeah.

But yeah, me saying, is this real? Was it real?

Was it real? Well, let's, let's just— let me ask you a question. Let's just for one second say it is, it was genuine. Yeah. Um, was he right, or was, was he in the right or in the wrong?

Will Smith, he's in the wrong. Okay, yeah, I'm not going to skirt the issue. He's in the wrong. He should be— he should give his Oscar back. He should be banned from the Academy. He should be dropped by any sponsorship deals. It's wrong.

Don't sit on the fence. No. But what about— all right, I'm going to play the other side of that then. You know, shouldn't he be standing up for— standing up for his wife and his family? Shouldn't he— what about, you know, standing up against bullies?

You know, so is that the— so let's say a guy in a bar says something to me with my wife, so I should just go up, punch him in the face, and then the whole party ensues. His friends hit my— we have a big bar crawl, big bar fight. Like, that's, that's not the, that's not the way. If you want to, um, let's say, shed light on alopecia and all these other things and protect your family, there's, there's other means of doing that than doing that.

Yeah, I think you're right. What, in hindsight, what he should have done was stand up and walked out and, right, not be there when he's announced as the winner.

You know, that would have been— and then if he would have gone, because obviously it's his first Oscar, if he would have gone, "Take that, I'm not part of this," that would have been incredibly long-lasting, powerful, a moment that would have been— he would be recognized for a long time.

Absolutely.

That's the way to do it.

But he let his emotions get away from him.

Hell hath no fury than a woman scorned. And her face— if that was my wife and she pulled that face, I'd go up and slap him. So I don't know where that feeling comes from because I'd rather not be on the wrong side of my missus. So, um, but look, a couple of stats there. 40 million Americans used to routinely watch the Oscars through the '90s. This is live, 40, 4-0, 4-0. Yeah, through the '90s and the noughties, um, Sunday show clocked in at 17.

Oh wow.

And it's been on the, on the, on the decline for consecutive years actually. And they did a poll of the actual movies, and you know, recently there's been Korean movies and lots of other small more budget type films that are getting airplay. Actually, the majority of Americans, this poll found, only heard of 2 of the 10 Best Picture nominees.

Wow.

But that's a problem, right? Because if you look at Netflix and streaming services, a lot of it is foreign film. And if I remember back to the '90s when I was a kid, it was all Hollywood. Yeah. But it wasn't anything else than Hollywood.

Yeah, that's right. And that's how there's the big releases in the cinema. And, you know, every couple of weeks there's a new release and everyone trots down and we all watch it. But yeah, there's so many different sources of this content now coming left, right and center. And, you know, if you don't have a Netflix account, well then, yeah, you won't have heard of it or obviously not seen it. So yeah, it's a problem. They need to evolve. The Oscars. Yeah, they need to evolve like the industry has evolved. And well, so this comes full circle back to the first point. Was it staged?

Oh yeah, I mean, you look at those numbers and you do think, because I'm probably going to tune in and watch next year just in case, right?

Will Smith is front row. Let's go.

Right, so let's get into one of the— we got two topics we're going to discuss in just a bit more detail. One being the announcement of the US to tap the SPR to a historical amount. And then we're going to talk— probably coincides with this, um, to dovetail the US yield curve inversion which we had at the beginning of the week. So to start with, the US will release roughly a million barrels of oil a day from its reserves for 6 months beginning in May. This is a historic drawdown aimed at combating obviously rising inflation. There's a few different angles here, I guess, on timing, the rationale, the implication, um, and so forth. It's not the first time the US have done this, of course. They've done two other large releases of oil during the pandemic in the past 6 months— 50 million barrels in November, 30 million came in March after the Russian invasion as well. But this was a total of 180 million So he's definitely ramping it up, and yesterday's price movement was pretty severe. I mean, we saw a sizable sell-off. We have seen quite an aggressive bounce actually this morning, but we were trading pre-announcement around a 108 handle in front month WTI futures. We got down, we actually broke 100, um, in the overnight Asia-Pac session. Initial thoughts, Piers, on what's happened?

Ah, look, there's so many different angles to this story. I'm not quite sure where to start. Let's start with the political angle first. So Biden's got midterms November. And obviously, he's getting slammed. His ratings are down. And one of the issues is the petrol pump the, the cost of fuel at the pump. Okay, so this is his immediate, um, strategy. Let's get the fuel at the pump cost down.

And to give that some, some context, the average of polls at the moment, Biden's approval rating is down at 41.5%. But break that down, an NBC poll showed that only 33% approved of his handling of the economy, and 38% blame him for inflation going up.

Right. Yeah. So look, his immediate strategy is I've got to try and turn this around before November. One thing people really care about, that is, they in their day-to-day life, the electorate in their day-to-day life, they're filling up their car with petrol. And my God, this is expensive. Why is it so expensive? Who's in control here? What the hell's going on at the top? So he's got to address that fuel pump cost. At the moment, it broke above $4. And this is, I guess, one of the key things. To give you an idea, this is $4 a gallon. Now, in the US— and that's a record, by the way. So in the US, if you take the last 20 years, like in the '00s, It kind of trended from about $1.50 a gallon up to kind of top out at about $3. Then we had an oil spike in 2008 where oil hit $150 a barrel. In 2008, the petrol pump cost got up to $4. Then it came back down sharply. And basically, ever since then, ever since 2008, petrol pump costs have been in the range of $2 to $4. Per gallon. And in recent years, since in the last 7 years, it's been $2 to $3 per gallon. Now, Russia-Ukraine's kicked off, and now it's broken up above $4, and everyone's shouting and screaming about it. So his initial reaction is, got to get this price down. How am I going to do it? And there's 2 parts to this strategy. We will talk about the risks more medium term in a minute, but his 2-part strategy is, let's flood the market with excess supply. Let's add 1 million barrels more per day from our emergency reserves. Okay. Second part, he's trying to persuade Congress to implement a— what he's described as a use-it-or-lose-it policy towards oil producers, and particularly shale oil producers. And basically what he wants is Congress to introduce a new law where operators forfeit leases on federal lands if they do not opt to drill on them. He's trying to force US shale producers to drill more oil. At the moment, US production is at 11.6 million barrels per day. That's compared to the high, which is 13 million barrels per day. So in theory, there's about 1.4 million barrels per day of excess capacity there, right? But What all the oil firms are doing now the price of oil's gone through the roof is they're paying back the investors who've been panicking through COVID because oil dropped and collapsed obviously in 2020. And so all the investors are getting the money back. They're getting dividends, there's share buybacks going on, and Biden's going, oi, stop that. Use that money to actually increase production. So his plan is If I can just— for this 180 days, I'll flood the market with my oil to give you lot time to ramp up production so that then your oil will continue to do the job. This is his—

I thought Biden was green. I thought that was the whole campaigning.

What? There's an election to win. Who cares about the environment?

Who cares about what I said to get elected? So yeah, the other, the other layer on with this as well is that the— whenever a big political announcement comes out that's in, in some way unscheduled, it's never, um, by real surprise from a strategic point of view from whoever's saying it. In this case, administration, because they came out and made this announcement right in the middle of the monthly OPEC meeting. Like, literally this. And not even that, they drip fed the sauce out in the overnight session where in European time, then before the OPEC meeting, and then they then confirmed it in the middle of the OPEC meeting.

That's just like a middle finger up to Saudi who aren't actually prepared to give Biden any face. And that's because, well, I guess a few reasons, but number one, Biden, when he came into office, was quite aggressive about Saudi and the Khashoggi incident and wanting to, you know, stand up against that. Number two, the US are desperate to do a nuclear deal with Iran to try and get more oil back into the market. And obviously Saudi do not want US to do a deal with Iran. And so, you know, the Saudis are like, screw you. You know, so when Biden's desperately trying to say to Saudi, look, ramp up production, ramp up production, buy more, accelerate your increase in production, Saudi like, whatever. So yeah, he's had to go it alone.

But as well, the added benefit or upside for him is that he looks like he's being protective and assertive of American interests. And that's what he's trying to spin. But look, I don't want to sound like we're, we're talking down Biden too much. So just before anyone starts going, oh, you sound like Trump guys, I just want to even the score a little bit. Because I was thinking, I'm sure Trump sat there on the sidelines watching all this, thinking about what's my next move. And I was just having a look because this week I saw, um, the stats behind the downloads for his Truth app, which obviously hasn't been out that long.

Truth Social.

Do you know how many, uh, app downloads he gets a day on Truth Social? What do you reckon?

Uh, downloads per day, um Well, I know he had some very punchy forecasts in terms of active users by year end. But how long has it—

He's got a big following on social as well.

How long has it been available for, this app? Maybe a month or something? Anyway, I think let's say a day. I'm going to say it's got to be 100,000 a day for him to really be— Gathering some momentum.

8,000.

Ouch.

And when he initially— yeah, the initial launch of the app, it hit 170,000, but it's slowly declining to the point now it's got to 8,000. Uh, the number of daily active users on Apple devices over the past week, so DAUs, the closely followed metric that you look at for these types of kind of software, I guess, usage. 513,000.

Jeez.

To give you a bit of context, daily active users at Twitter, 217 million. And he's clocking in at half a mil.

He's got a real problem here because launching any new kind of social platform like that, momentum is absolutely everything. And looks like he's lost it. So could die on its face.

Yeah, the Digital World Acquisition Corp, that was his SPAC, if you remember, merging with the Trump Media Tech Group. Um, that shed 31% of its value since it hit the peak in February, so only a few weeks ago.

Well, he's going to have to run for election again, you know, because he's going to need some marketing airtime for his act. And the best way to do that is to try and run for a second term in the White House.

Yeah, I guess for nothing else than other than your own personal gain.

Yeah, well, that's the only reason he'd do it.

Yeah. Oh no, it's for the love of the country, Piers.

What?

Um, but guys, just to conclude on the oil situation then, One of the things that people talk about a lot is this structural deficit. One of the other things I saw was about market rebalancing, the fact that the market's short of Russian crude, what's the actual implication? I guess my question is, the price of oil has come down in the 24-hour period since this announcement has happened. This is going to happen over a 6-month period. What is the the longer-term impact of this? I mean, is this going to work or not?

Well, it for sure increases the risk and uncertainty ahead. I'm just, to start with, talking about the Strategic Petroleum Reserve. The US have the largest reserves in the planet— on the planet. These reserves are a great cushion against any kind of dramatic scenario where the supply of oil sharply drops. It's an incredibly important buffer. Right. And it's been sat there. And actually, if you look back over the last 20 years, right, the amount of oil in the reserves has been the lowest until now. The lowest was about 550 million barrels, and that was back in the year 2001. Then it climbed to about 700 million barrels by 2005. And then it sat at 700 million barrels then all the way through to about 2018. It's kind of been drifting a little bit lower since then. But Biden's talking about taking this from, let's just say, 650 million barrels down to 300— what is it, 375 million, I think, something like that, right?

Well, as of March 25th, their stockpile was at 568.

Okay. Well, that's because he's already tapped it a couple of times. So it's already on the down. But my point is, it's going to now sharply drop. This really important global buffer is going to halve in size. And actually, I didn't realize, but the International Energy Agency, they've got these kind of, I guess, member states of the IEA, of which the US is a member state. Have to have at least 90 days of net oil imports in their reserves at all times. Okay, now this move by Biden takes— will take the oil reserve— actually, I've got the number here— it'll take the US reserve down to 353 million. Okay, 90 days of imports is 315 million. So basically, he's cutting the buffer to just 38 million barrels, right? Now, that is fine if Congress passed this bill and US oil producers start ramping up production, because then his plan is to start buying oil back to replenish the reserve. Okay, two problems with that. Number one, will Congress be able to get this bill through. Don't know. At the very best, it takes forever to get bills through Congress, especially when you're heading into an election, by the way, and Congress is very divided. And so chances of that, I think, are probably limited in the near term. Secondly, you've got banks and traders actually spinning this on its head and saying, actually, this is bullish for price medium term. And if you have a look at futures pricing now in 2023, they're on the up. Because what they're seeing now, what they're going now is, well, we've for sure got guaranteed increased demand in 2023 because the US are going to have to be replenishing. There'll be big buyers in the market replenishing their stock. And obviously the biggest risk of all is if the Russia-Ukraine thing escalates further, if more Russian crude comes offline, well then our buffer has vanished. And so I'll go back to my point at the start, the risks have ramped higher. The risk of oil spiking, I don't know, to whatever price you can think of, $200, $250, the risk of that has increased. I'm not saying it'll happen, but the risk will increase if some of these kind of ducks don't fall into line. —so he's playing a very dangerous game here, I would say. One saving grace may be if the global economy does turn over and go into recession, and then the demand side dampens. That would help the situation from purely an oil price point of view. But yeah, this is a dangerous tightrope.

And talking about the economy rolling over, A lot of the conversation earlier in the week was about the US Treasury yield curve inverted on Tuesday. It's the first time that's happened since 2019. The stats being that the curve is inverted before each recession since 1955, with the recession following between the range of 6 to 24 months. It's only provided a false signal once over that period. What do you read into that? I know there's always this— kind of history repeating itself, but is this time any different? There are circumstances that are a little bit different in terms of the fiscal monetary situation.

I mean, what I'd say first is that, that kind of, um, yeah, it's the best recession indicator, which means from a human behavioral point of view, it's almost like now ensured that it will continue to be the best, just because when it happens, when the yield curve inverts, which is when long-term yields drop below short-term yields, okay? When it happens, well, it's all over the press. Why? Oh my God, recession. India, what? Oh my God, we're going to have a recession. And of course, this then shapes behavior. And it shapes behavior on all levels of the economy, right? Yes, at the investor level. But then if you think about, I don't know, if you're running a business and you're thinking about long-term budgets for the next 12 months, right? How much am I going to invest in growth? And you're seeing a recession indicator flashing up all over the press. Well, then inevitably that's probably going to put you on the back foot and you'll be a bit more defensive, right? So it will influence investment, which then has a negative impact on growth. And so it's like a self-fulfilling scenario, right? So That's just one thing to say. However, this time round— I mean, and every time round, there's always elements and arguments that people spin, well, hang on, this time is different. And you've got an argument this time as well, whether it's going to play out or not, I'm not sure. But obviously, there's one big player in the US bond market, or the biggest player, has just stepped away from the table. So the biggest player is the US Central Bank. And they've been the biggest buyer of US government bonds, well, off and on, but for the last 12 years since the financial crisis in 2008 and 2009. They've just stepped away from the table. They're done. They're cashing their chips. We're out. QE is done. They are no longer buying in the market. More than that, given how hawkish Biden is— not Biden, Powell is— they're actually starting to talk about reducing their balance sheet. That means they're going to turn from net buyers to net sellers. This is having a distortive effect on the market pricing across the curve. Short-term yields are really high because rates are now going up and look, we're pricing in back-to-back 50s. So the short-term yields are really high. So what's happening on the long end of the yield curve? Well, there's a lot of volatility now. And actually, there's a bit of— and actually, the volatility levels on, let's say, the US 10-year bond, volatility levels are the highest apart from the coronavirus crisis hitting in Q1 of 2020. Apart from that, the volatility levels in Treasuries are the highest they've been for like decades. Okay. And this is because the Fed have stepped out, so liquidity has dropped. Liquidity have dropped because the biggest buyer has stepped out of the market. Number 2, we're also seeing a hangover from the kind of regulations that were brought in after the financial crisis, the capital Tier 1 regulations and the banks, the primary dealers who are really important members of these markets have actually stepped back and aren't buying anywhere near as much. That gap got filled by hedge funds and high-frequency trading firms. But what happens with those guys is any hint of trouble, well, they back off straight away. So all of a sudden now you've got a big drop in buyers and sellers, which means a big drop in liquidity, which means the price spikes are much, the volatility levels ramp higher. So you're seeing this happen particularly out on the kind of 10-year. But normally the recession risk is because short-term rates are higher because the Fed's hiking, but people believe they're hiking too fast and a recession is coming. So they're buying long-duration safe haven bonds, buying bonds means dropping yields, right? So you've got yields on the short end going up because of rate hikes. People think it's an error. They're buying safe haven debt, which is forcing yields down on the longer end. That's your inversion, and that's why it's called this recession barometer.

So, and just for people who are, let's say, not as sophisticated in looking at buying bonds in the long end They're just looking at that, or just long-only equity exposure. Just to be clear, the signal firing doesn't mean that's it, equities just start dropping, right? Timings-wise.

I mean, this is where the theory kind of, I guess, gets undermined because whilst it is a recession barometer, each time the yield curve is inverted, we get a recession. The amount of time between inversion and the actual recession beginning, as you said, is anywhere between 6 months and 24 months. So this does undermine the theory.

So I wish I could get that kind of wiggle room on any projects that I work on.

Exactly. So, but if you add in all the other kind of macro themes, then I mean, I don't think we need the yield curve to tell us there's a recession risk. I mean, it's almost like, why has it taken you so long, yield curve, to invert? Because hang on, we've been worried about recession for months now, given the inflation situation and Russia, Ukraine, and all the rest of it. So I don't think it's the biggest surprising news 'Oh my God, wow, let's start panicking.' It's just another piece of news that adds to the kind of building evidence that, yeah, economies are maybe in a bit of trouble as we move into the second half of the year.

Okay, well, on that bright note, let's wrap up the episode for today. Thank you, Piers, as ever, for sharing your insights. And yeah, I'll see you next week.

Yep, all the best. Have a good weekend.