>> norwood going to be in a recession or a rocky landing? i think soft landing is off the table. >> the consumer will follow where the labor market goes and that is why i emphasize the labor market. >> the inflation story and probably more important the jobs story is build something in flux. >> if they want to get inflation to 2% within six months, even one year, they're going to have to overdo it. >> if powell overshoot, we will see a material slowdown. >> this is bloomberg surveillance with tom keene, and lisa abramowicz. >> good morning from london, this is "bloomberg surveillance" en route -- on bloomberg radio. jon ferro is off because he does not want to have to deal with our english breakfast references today and he will come back on tuesday and tell us all of the things we got wrong i'm sure. we are countdown to the consumer in the united states and we will

get to spending data hair in about half -- data here and have in our time there and i wonder what this will show if it confirms bank of america view of the strength of the consumer. tom: the consumer is a huge question here. what i would say, and i will go to a comment made by the great environmentalist and economist of london school of economics, this entire week we have had, people are puzzled and you are right, in that they are no more puzzled over the consumer than anything else. puzzled. lisa: i think that's the biggest take away from davo's this year, where we just came from, that there was so much bearishness that somehow that was the consensus and that is perhaps the optimism you see today. possibly the first weekly gain going back in two weeks. tom: and bond market, we make jokes about the seven-year auction but it is reaffirming the appetite out there globally for u.s. paper. 2.72% and the 10 year coming out

the take to take but a two week basis. lisa: tom keene cares about bond options. tom: i do. . lisa: that's my biggest take away. tom: our schedule to be in london today, monday is memorial day and a fractured united states of america. we will be in transit and jon ferro is scheduled to be with us tuesday as well and we will begin an eventful week looking at the american labor economy and onto a critically important ecb meeting. maybe the one look forward to the most with christine lagarde. will you give us a brief are the hour? lisa: sure. tom: are you going to dash the ethro? lisa: we will be looking a personal conception, personal spending, and personal income at 8:30. at 10:00 a.m., we get university of michigan the sentiment which will probably come in around the

same level as it was before, the weakest level since 2011 and we have a slew of incredible guests. christian may like coming up with jp morgan as we try to discern the dynamics of an oil market, a crude market in oil. tom: i told mohamed el-erian this may be a more important interview then the doctor and hang up the phone -- hung up the phone. she never hangs up the phone. this is not consumer finance, it is not lightweight. when you have liz young spirit to your investment strategy from her work at bny mellon, her charter financial analyst work as well, thrilled to have her today but with a much more in the trenches view. liz young, forget about the spread market, forget about hyper pro fixed income analysis, how do people out there recover massive bond price losses? liz: the massive bond price

losses early occurred earlier this year. the first was really painful and painful for stocks. that was a tough corded to get there where you have both bonds and stocks going down at the same time. everybody that had been screaming 60/40 is dead is it saying i told you so. it did not work in the first quarter but we are in a place were bonds had sold off more than stocks in the first quarter and in the second quarter, they had a chance to rally back at some of the diversification benefits here again, at least in the last month or so. moving through the rest of the year, it is yet to be seen what is going to happen. it is dependent on what the fed actually does and how the narrative shifts. i think as you have already pointed out, the consumer is the most important data point here. lisa: you've gone from advising on institutional investors and right now as sophia you feel

more with retail investors and frankly younger ones at that has some of the tech savvy provosts of sophia will cater to. how's the different after all of the retail interest of younger individuals? is that shifting at all as some of the turmoil of 2022. liz: the difference in investor base has really shown a lot of different preferences for what they want to be invested in. it is a much more tech savvy base, younger generation is much more tech savvy, just more used to that. there's more interest in the titans of tech and investing in things that are communications based. they are not as interested in traditional finance companies, there's not a lot of investment in things i banks or finance in general. there are different preferences there. the other thing is obviously a huge interest in crypto and a lot of opinions on what central banks control and what we can do in the economy and the control that we are under as far as central banks go around the

world. it is a completely different narrative. there are different interests and risk appetites. i think the investor today, and this is not necessarily younger investors, but a lot of investors today have become much more short-term focused because we are hanging on data points every week, watching the market every day. when you have big swings like this, he causes people to be more short-term focus whereas financial advisors and may more experienced investors are ones of yesterday are more concerned of a five to 10 year period diversification, traditional asset allocation. lisa: how do you direct that in your comment considering the fact they will possibly have a shorter time horizon, greater risk appetite at a time when we also are watching tick by tick with an incredible amount of uncertainty and humility, each data point, not knowing which way the fed will go in and which way the economy will go? liz: if we compare this

environment to say the environment of 2020 when a lot of the newer investors came into the system and were trading and got really interested in it, which i think is wonderful, this however is an environment where you need to do less. as things change on a daily basis, you can feel like you are wrong on a daily basis and that is when you start to make a mistake, that is when you start to make reactionary moves in your portfolio, trading moves instead of investing moves. this is a time where if you want to buy things because you have cash on the sidelines from earlier in the year where you took profits, that's great. start dripping into some of the things that look interesting and will be bargains in three years time but this is not a time where you try to chase and call a bottom, call a peak, call an inflection point because in flexion points are happening daily. tom: i want to go friday nerd on you. i know you can handle this. it will be fun. i want to talk about as you mentioned earlier the 60/40

diversification model which clearly has been tested in the recent months. i want to go back to peter lynch of fidelity, the famous word, worseification. i want to with the markowitz territory on how you do this and how you diversify. what have we learned about the deworseification of 60/40 in the last quarter? liz: we've learned it is actually back and it is working again. the reason it started to be talked about the 60/40 was dead because we went through a 40 year rally in bonds. tom: thank you. liz: it didn't seem like bonds would provide the diversification for the drawdown in equities. the whole point of a 60/40 is 60% equities. equities can have deeper drawdowns than bonds. they want to buffer the drawdown and foreign investor -- for an investor, it is important to

avoid the huge loss in stocks so bonds were supposed to provide that. if you remember the last five to 10 years, we have had this huge growth in alternative assets. i would put crypto into that category but alternative assets, things that can provide another layer of diversification that are now available to the individual investor. previously, alternatives were only available to investors with high net worth and institutions. now they are available widely. the 60/40 has turned into may be something that includes i don't know, maybe 10% or 20% alt depending on the investor but it is something that is may be a little antiquated. but bonds have provided diversification in the last few months. tom: did she just call me antiquated? [laughter] lisa: i think she is saying those are. are you trying to get her -- tom: thank you so much. sofi there with a real edge to the consumer and technology for it. that was brilliant and these are

really important questions. i think everybody knows i'm not big on 60/40. i had the honor of talking to markowitz about this and i'm not big on the 60/40 certitude. lisa: i think 60 form the means -- 60/40 means something for different people. they talk of the mix of the 60 and mix of the 40 but we are hearing how much is a mix of everything until you disregard the whole thing in general. tom: i will go with liz ann saunders at schwab, say good morning to dr. ross at m.i.t.. factor analysis was really important as a buffet against the massive vacation of the business. lisa: and frank lee that has been underscored in the past six months because it has all been sector by sector what has done well and what has not done well. what are you doing? tom: i just learned here, it is like an old chrysler van, i've got a coffee cup sitting here. lisa: it is really lovely. tom: i can put my coffee cup

there. my tang, it fits the tang size as well. it is very cool. [laughter] lisa: we are enjoying london. tom: we are enjoying london. we are even on speaking terms, even better. dow futures up 18, this is an important interview as we talked to jordan rochester, a different view, george sarah vallas, a global head of fx on deutsche bank. on radio and television, good morning. ♪ ritika: keeping you up-to-date with news from around the world, i'm ritika gupta. wes johnson says there is no point in negotiating with vladimir putin. the british prime ministers sat down for an interview bloomberg. how can you deal with a crocodile when it is in the middle of eating her left leg? what's the negotiation? that is what putin is doing. he will try to freeze the conflict, he will try to calls for a cease-fire -- called for a

cease-fire. ritika: he added more sophisticated rocket systems be sent to ukraine so they can hit russian targets further away. it is the latest u.s. challenge to hit china, the biden administration in taiwan plan to announce negotiations to increase economic tides -- economic ties between enhancing economic cooperation and supply-chain resiliency. a deal would short force a trade agreement with taiwan. the white house are scribbling to do something about the record high gasoline prices in an election year. bloomberg learned the biden administration reached out to the oil industry about restarting shuttered refineries. the average price of a gallon of unleaded gasoline sits at $4.60 wednesday. senate democrats said they were a bit more optimistic about a compromise with republicans on gun control legislation in the wake of the texas school massacre. democrats appear to be willing to accept incremental steps. many stent tears -- many

senators are going home for a recess. global equity funds its other inflows -- biggest inflows in weeks led by u.s. stocks, investing $20 billion in the global stocks in the weeks that ended west day -- ended wednesday. global news, 24 hours a day, on air and on "bloomberg quicktake," powered by more than 2700 journalists and analysts in over 120 countries. i am ritika gupta. this is bloomberg. ♪

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>> am the world of politics to the world of business, balance of power with david westin, analysis, insight, from players, weekdays. this is bloomberg. >> 109 is where i'm getting my fair value for the euro but i think, given the trade lapsing in the main train partner, china, under pressure, hero supremacy is still possible in the months ahead. tom: jordan rochester there with a good conversation. we are having wonderful discussions and no surprise, in

london, on foreign exchange. lisa abramowicz and tom keene, jonathan ferro scheduled to return a number of days, laid, something about jet fuel. we look forward to seeing, i believe we all get together again tuesday in new york. the homework of what we invented at "bloomberg surveillance," difference of opinion, how you will be hit over the head with a difference of opinion. george sarah bellus has to do tagteam with hooper, ruskin, and the rest of them a deutsche bank. she joins us this morning. global fx research. george, you say this is the mother of all safe haven moves to u.s. dollar. we are looking at euro, looking at yen, and you say focus on the flow to dollars. george: that's right. if you look at the last six months, you can see in the data, you've seen a huge accumulation of dollar cash by investors. so investors have been selling

u.s. equities, selling this but they have been keeping the dollar cash and not only that, accumulating even more. when you look at the size of that accumulation, it has reached historically high levels, similar to covid and the trump trade were. so that outlook for the next few months, the simple point is the dollar is pricing so much bad news in the market is so overweight the dollar that risk is any sort of margin and extreme risk premiums. tom: with respect to your boss who is worried about fiscal -- and dollar strength getting out of hand, there are others picking up on this and are looking for redox of the plaza cord. you go the other way and say we will not see a redux of plaza with the dollar, it will happen. maybe we need a motel 6 at

newark airport in new jersey. higher we not going to need a plaza accord? george: i think the simple answer is the ecb. the ecb will do the job and as we've seen over the last few weeks, the ecb starting to wake up to the reality that rates need to be raised quickly. we are only in inflation print away and let see what happens next week but we are only in inflation print away from a 50 basis point hike in the july meeting in the market has been so focused on the present -- the fed story it has missed the european story. the european story has a mix of very high inflation but also outperforming growth. it is surprising how pessimistic the market is consistently on european growth. if you look at data surprises, they are moving in favor of europe. consensus gdp forecast for this year higher in europe than the

u.s.. i believe in the fiscal policy europe has an important fiscal policy, it has been using policy to offset the energy cross and it will have more defense spending, it has the ngu fund and i think the state has been set for european capex. i'm on the optimistic end as far as the european story goes and i think potentially we have significantly more repricing to have for the ecb. lisa: when you say significant more repricing, you are even looking out to 110 and possibly 120i believe going forward versus the dollar. how much would you have to see a weakening to change your view? george: i think if you take a step back and look at the euro, up until 2014, even during the euro zone crisis, it was at a 120-140 range. then the ecb went negative. -- negative during 2014 to 2015

and that shifted from 120 to 140, down to essentially 103 and 120. what i most focused on is the entire european rate is shift back -- shifted back. that should be a significant structural support for the euro. demand is focus on the duration in the eric -- the european trade balance. the u.s. balance is deteriorating even faster. i think the story going forward is the effect of positive rates in europe and what it does to the capital accounts. lisa: there's also this weird aspect of the dollar which is the commodities are priced in it. as the dollar weakens, as you predict, that will mean even higher costs to fuel, which has been one of the drivers of inflation in the euro region. how much is that factoring into your expectation? george: it's interesting because

you finally start to see the ecb discussions evolve in the mention of the euro significantly more. in the -- and the french central bank governor a few weeks ago highlighted the euro in the middle of the speech and when it goes lower, you raise the senses to the top of the speech. a higher euro, the correlation has flipped. we have been seeing stronger commodities but i weekend europe at the same time. if the euro reverses course and starts depreciating, the ecb is very aware of that and reduces some of the influences of inflation pressure. as the ecb is now focused on the fact it risks being behind the curve, a similar situation to where the fed was a few months ago. tom: george saravelos, thank you so much for all your work for us. to you and your team including

the out or session call. i want to go back to davos and as george alluded to, you have huge leadership on this. that is locked down, china, boring, let's move on. you and others have said no, it will end, then what? to me besides the ecb meeting, will it be good to get pharaoh back? do we know it we talk about? lisa: we're looking forward to having him back. tom: but china is a big deal. lisa: especially as we get more insight into what some of these lockdowns mean, with respect to supply chains. tom: but they will end. lisa: so they will end, what happens then? you have a population not fully immunized but how do you get there? and what kind of social unrest you get on the way? i say this as there's an article today about the apple factory, the manufacturers and how there are huge incidences of unrest in

some of these places because people have been quarantined from their family is, they have been isolated so much it has been problematic. tom: it is tv and we make jokes about this but you are right, this is not funny. i'm suggesting they do not have a choice, they have to fix these. these are immovable forces for totalitarian regime. lisa: perhaps this is why premier league of cheng was talking about how this will affect the economy in such a big way. there is some speculation that maybe this is the predecessor to a softening. lisa: we will see. there is a lot out there. bloomberg with an important article today, the domestic view from beijing, really a must-read. i'm trying to get that out on twitter. green on the screen, futures up nine, we quote the dow futures only when ferro is not here. 27.18. sterling, it is a full english sterling, 1.2 634.

tom: bloomberg surveillance from london, lisa abramowicz and tom keene, jonathan ferro, there has

been a ferro siding, something about ac milan, i'd have no idea what that means. he is scheduled tuesday in america. we do have monday off but bloomberg will be monitoring global news of the american memorial day. there is today and on a friday, sort of go, really? there is a ton of american economic data beginning to come out looking at things like retail inventories, far more the spending income, and the pce deflator as well. here is in new york michael mckee. michael: good morning tom and lisa, let's talk about the deaf leaders -- deflator's first. the pce deflator, the headline number comes in up point 2%. that is significantly down from .9% the prior month and that makes the year-over-year headline number 6.3%. the core, which a lot of people are following because they think

the fed will be more interested in that given what is driving inflation these days, core up when 3%, same as last month but that pushes us down to a four handle, 4.9% for the pce core, down from 5.2%. the inflation numbers show a little bit of improvement. personal income up .4% on the month, personal spending u .9% on the month, both a take down from where they were in march. but still healthy numbers, real personal spending. this is interesting, up 7%, up only .2% last month and the issue there is that you have to subtract inflation from the spending numbers. it looks like spending was reasonably strong, even without that. the other number out this morning is also good news, the trade balance for april came in at $105 billion. it was 105 -- 120.5 billion

dollars last month and trade subtracts from gdp, a big head to gdp last month because of the trade balance deteriorating to a record low. so we see some improvement there. still big but mathematically it will help. tom: michael, these are fascinating data. i think we will see a turn in the market with the two year yield giving me a fractional left right now but i would really stay tuned to see with those yield dynamics do. michael, i want you to do what you do best, take the inflation data of mr. powell's pce deflator and bring it right over to what we see at 10:00 new york time with the one year and five to 10 year university of michigan guesstimates on inflation. how does a pro like you link those two together? michael: it has been interesting the last couple of weeks we have seen inflation break even small on wall street, five and 10 year numbers coming down as the

market seems to accept the fact the fed can get inflation under control so we are watching to see where the consumer is at this point. the new york fed puts out a survey of consumer expectations for inflation. it found the long term three to five years was 3%. consumers were pretty optimistic about inflation coming down as well. we will see if that gets confirmed by the university of michigan numbers. tom: in all those numbers and make he is expert at this, i'm only pretending i'm doing it, i will suggest 5.2% down to 4.9% on the pce core deflator year-over-year, at least he gets my attention. with an equity left, futures up 13, dow futures up 30. we continue to look at the markets. michael mckee, thank you. we set aside the global economy and do this with neil sharing, always a complex readable note from capital economics joining us in our london studios. neil, of the triangle, the

tripod you are looking at of global economics, what interests me is your study of real wages. what i find fascinating in the united states is on an x axis, the area under this collapse in the real wage, boy is it long. the inter-grand of negative real wages is really getting substantial. how does that affect behavior in the next year? neil: we've got a flavor of that in the data that has come out. we have had personal consumption grow .9 percent but incomes grow much less in terms of consumption. consumers are dipping into their savings. you're right that there has been an erosion of real wages in the u.s. and i think that will start away -- start to weigh on demand. compare that with what the fed is doing, housing will slow, and i think there will be a recession though. the data we have this morning is a testament to that. if you're looking for a

recession and are concerned about squeeze of real incomes, here in europe is the place to look. in terms of trade shop europe is experiencing is an order of magnitude greater than that to the u.s.'s experience is priced to the surgeon that is heading consumers in europe. lisa: i do want to follow along with that. i would love to get your sense of what it does when people see real negative wages. we talk about how the consumer continues to spend in the united states and we see that with a tuck coming in faster than expected in the prior month. does it matter the earnings are less on an inflation-adjusted basis or do they have so much cash in savings and frankly the availability of credit to go out and buy whatever they want that it does not matter? neil: the interest in things is a different story in the u.s. compared with eurozone. in the u.s., there is a larger fiscal stimulus. if you look where real incomes will be, at the end of this year compared to the pre-pandemic a level in the u.s., they will be

a bit higher despite surge of inflation we have had, just because the normal income growth through the pandemic was so strong. in europe, they will be dire. lisa: it is very controversial. you talk about the stimulus and checks and a lot of people blame them for the influx of the united states today. what is your view on the ramification of stimulus? was it more inflationary than anything else hampering of the consumer in terms of what they can spend in real terms or was it an official in terms of the saving that people have currently? neil: i think i separate the fiscal stimulus from the monetary stimulus. on the fiscal side, in the initial period of the pandemic, it was absolutely the right thing to do. i think the issue to my mind was it probably went too far. the third round was excessive and that is when it all started. so it wasn't so much the wrong thing to do in and of itself, it was the scale i think was the issue. tom: i want to look at the data

that michael mckee was helping us with in the united states. i think this is something very germane to a longer-term view as well. for those of you on radio, we spike higher in the full faith in credit yields in america and as we heard from michael mckee, who was speaking while everyone was acting, maybe not. those yields have turned around and come in and i think it will be fascinating to see. tell me how in long-term economics you use the short termism of the bond markets to try to guess where the long-term economics is going. how do you use the day-to-day, moment to moment fluctuation to observe the confidence of where we are going? neil: i think it is difficult. i think what you have described shows the danger of having too much certainty in the markets. their appointment and then down the other. i think the shape of the curb is all fully -- is arguably more

important. whether it is flattening, steeping, whether it is going to the long end or the short end, what the market has told us over the last three months really is they think the fed has got this. short end has come down, the long and has come down, the recession risk has been priced out a bit of the bond market. inflation concerns are dissipating. i think the interesting point will be does inflation come down from eight to five, to four, almost certainly. does the fed have to go again? lisa: just to wrap it up with your focus on europe, saying it is a different story here, speak to george sarah bellis's point, that we have more momentum in the region that a lot of people expected and he thinks fiscal spending will provide discount. what is your view? neil: i think there is truth to the view that incoming data in

the eurozone has not been as bad as you might expect. we so we had the pmi's earlier this week and they held a bit better than we have anticipated and many others anticipated. i come back to the fundamentals here which is that europe, unlike the euro s -- the u.s., is a huge net energy impulse or -- importer. the terms of trade have collapsed, that has manifested in a huge squeeze on consumers and there's not much fiscal policy can do to offset that. i think in the u.k., yesterday it only offsets about half of the squeeze in disposable incomes. tom: get us to the day on harder carbons and jp morgan. what is your call on brent crude one year out and why? neil: i think it will stay elevated for the next six to nine months and i think it might start to diminish but it will not collapse. tom: is $100 the new $60? neil: i would imagine 12 months

out between $90 and 100. lisa: thank you. tom: neil shearing of capital economics, helped us very many times before including on new year's eve shows. easily when it shows up sober. lisa: what he is saying about -- saying is fascinating about the importation of hydrocarbons in europe and this make me wonder what the constraint is around the dollar weakening too much. because that will only? prices more. and create a real issue. it is a complicated scenario, but the different outlooks for europe and the u.s. continues to be a theme. tom: i will go to the back end of the gdp equation and i think we're looking at this holistic leanne i'm looking at it as domestic y equals c plus y equals g. then you have the noise on the backend. and don't observes with his classic optimism that it is about a resilient american

economy, it services being the key dynamic as we open up. we are completely focused on goods now. lisa: a lot of people would agree with him though the services out recently was not good. it came in disappointing so there are these noisy numbers coming out and making it difficult. tom: way too optimistic this morning. without question, our interview of the day on oil, christian may lake of jp morgan with their important research on resilient and higher oil prices. from london, lisa abramowicz and tom keene, this is bloomberg. ritika: keeping you up-to-date from news from around the world, i'm ritika gupta. a boris johnson pulled no punches when bloomberg asked about the prospect of negotiating with vladimir putin, the british prime minister responding how can you deal with a crocodile when in the middle -- when it is in the middle of eating your left leg. he says the russian president is do not be trusted. profits the chinese industrial

firms decline last month. profits fell 8.5% on april from a year ago. covid outbreaks and lockdowns disrupted factory production, and transport logistics. for american workers saying companies are becoming more cautious after handing out hefty salary increases over the last year. economists expect data to show annual wage growth this month as 5.2% down from 5.5% in april. the fed sees wage growth as a because of inflation. governor greg abbott has reportedly dropped plans to address the national rifle association's meeting today. the nra is meeting in houston days after the school massacre in uvalde, texas. according to the dallas morning news, abbott will be in uvalde sending a message to the nra and instead, former president trump will deliver his speech in person. movie theater owners in the u.s. hope the next movie, top gun maverick, gives them a

supersonic boost. the sequel to tom cruise's 1986 blockbuster is expected to bring in $130 million in its opening weekend. i would make it the third biggest box office opening since the start of the pandemic over the last few years. millions of consumers have gotten used to watching movies at home on streaming services. global news, 24 hours a day, on air and on "bloomberg quicktake," powered by more than 2700 journalists and analysts in over 120 countries. i'm ritika gupta. this is bloomberg. ♪

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>> i think the fed is going to have to decide between two policy mistakes, at the brakes too hard and risk recession or tap the brakes and stop -- and having inflation well into 2023. lisa: mohamed el-erian and the

university of cambridge. he hung up on me because i care more about christian mailing than i do mohamed el-erian. i know dr. el-erian and his busy day i cambridge will listen into these important words on your headache, my headache, everybody's headache globally, global energy and oil. christian may lake of global energy strategist and jp morgan, their london shop drop 100 pages on where we are going and the vector is $150 a barrel somewhere out there. it is thrilled to have you join us. christian, i want to talk about the complex microeconomics here. we have lots of people looking at it, add morrison of citigroup, jeff curry, micro economist at goldman sachs. what is the distinction of jp morgan research as everyone looks for a new energy regime? christyan: he sort of set it in the question, which is commodities. it is not about commodities, it

is about molecules. energy molecules, how do we find jules, whether never form it is, -- whatever form it is, whether is clean, fossil fuel, and approaching with a much more holistic way. as we look for jules for energy, we are quickly running short into major deficits of energy. tom: i got interrupted because this is massive jargon. jewels is not around the corner where you buy two carrots out of guilt on your way back to new york, it is joules, thermodynamics. christyan: exactly. when we then look for energy and look across all of the fuels we have, be it oil, gas, renewables, there lies the issue, that when you talk about how to solve for the deficit, you have to find energy that can be used to produce chemicals and produce highs in the tesla's. equally you find energy for the e.m. world that does not have the infrastructure and what that

effectively means is being sure energy we seem to come back to fossil fuels. tom: did you see how he got the jab in on tesla? the tires are made of oil. , did you know that? lisa: i thing we heard that from bridgewater, even the renewables, you have to get the stuff out of the ground first. why aren't oil prices higher given your thesis? christyan: when you sort of run through the deficits in different fuels, we are effectively fully loaded out apart from oils and oil, there is still pairs -- still spare capacity but that is quickly running dry. oil pressure should be higher. thinking about the marginal cost to reduce the oil, it is getting close to $100 and that is different than the $40 you hear when talking about it on the ground. 1400 is the price cash flow needed to feed the equity and shareholders. now the social tax and windfall, all of these things are inflationary because you have to feed all of these mounds before

you put an extra dollar into oil capex and that is around 100. then you add 20 to 30 in terms of what is this spare capacity worth? historically it has been between 30 and $40. in other words, there's a lot of upside to prices from him. lisa: translate $125 per barrel into gasoline prices into the refineries. christyan: our commodities team has done this and we are headed toward six dollars potentially. lisa: in the united states? christyan: absolutely. you will see this pass-through with retail prices and question is how does an windows man respond -- does demand respond? we have never been below 5% spare capacity in the world and that equates to a bigger premium for oil then what you would expect it to be given that it does not cost that much to produce it. tom: you and i had to read cover to cover the prize years ago. you but the prize just to

walk around campus and look cool, didn't matter if you read it. the answer as juergen would say, they have the power of the prize. what is the power the saudi soul given the jp morgan view -- saudis hold given the jp morgan view? christyan: when we launch our bullish view 2020, i was speaking to the saudis and they were still investing in the wells so that when needed they could switch. i remember the summer of 2020, why would we need the wells? we had too much oil, demand is 75 million barrels, but they continued to invest in total capacity. there we are two years later and now we need those barrels and the only one available are the barrows because they invested when everyone was not are the saudis. lisa: if we get six dollars per barrel, six dollars per gallon of gasoline, i'm trying to wrap my head around that. we get demand destruction? have we reached that point or will it keep climbing? christyan: short answer, no.

i think we can cope with those prices, i thing we can cope with oil prices significantly higher over a period of time. coming back to the report we did, one thing we discovered is the resilience of emerging markets to a higher prices -- to higher prices. this is not about why cycle to work or do i drive to work. this is about living. when you think about in terms of the conflict they have, do we buy oil for the sake of oil or do we suffer the consequences, hunger, riots, revolutions, whatever. that is a much more difficult crossroads and that is why we see the resilience -- we think the resilience will be higher. tom: do you support the windfall profit tax? christyan: i think ultimately if it helps consumers, yes, but the problem is all it is doing is creating inflationary backdrop for oil. soon other majors have to pay more tax when they could have otherwise invested and all that does is raise the breakevens. remember all the mouths they have to feed, whether equity,

the debt, the project, you have another mouth to feed which is additional taxes. so again, what does the oil price need to raise to raise the capex in oil? it has gone up significantly. tom: thank you for joining us. he is with jp morgan as i said before, we always protect the copyright of all of our guests research material. i urge you to go to jp morgan and get your hands on their important 100 pages. you agree or disagree with that, other people go though other way, but -- go the other way but it will make you more informed on economics. are we done on tv? lisa: we are done on tv. tom: you and i got through the week. we are not on speaking terms but it is ok. lisa: we are kind of speaking next to each other on podium, podia? [laughter] tom: coming up, david westin will not go light. lisa: that noise, what is going on? [laughter]

♪ >> back to a special update. i'm andrew krasner. going beyond tact continues the incredible win streak on day five in paris. the world number one is now unbeaten in 30 straight matches after she took out allie rift to reach the third round. the polish star dropped two games in the dominating victory and looked in total control of her game on the clay. madison keys also enjoyed a good day at the office. the american home favorite, caroline garcia, in two type beds move on. up next for her, elaina rapa chena. jessica pergola also with the red white and blue but the new yorker needed three sets to dispatch ukraine and alina colony now. don't forget tennis channels live daily coverage starts at 5:00 a.m. eastern. i'm andrew krasner.

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