Gary Cohn, President and COO of Goldman Sachs, spoke with Bloomberg Television’s Stephanie Ruhle about the oil market, the Nasdaq Composite Index, and Federal Reserve and European Central Bank policies. Cohn also discussed how he arrived at his perfect March Madness final four bracket picks — he says “it wasn’t dumb luck” and credits his Midwestern roots. He was joined by Rich Berlin, Director of Harlem, the charity that Cohn is supporting with his participation in Bloomberg’s Brackets for a Cause.

On the oil market, Cohen said: “I think the front end of oil can go down.  And I think we’re getting to that point….What I think we’re going to see happen is the front end of oil come down, the  back end is going to stay unchanged, and the contango’s going to widen.  That still means we’re going to wake up to one day where we see a headline where the spot price of oil is substantially lower than it is.  And I still believe that’s going to happen.”

Gary Cohn Goldman Sachs

When asked about Janet Yellen, Cohen said: I still think she’s going to be patient. I still think she’s going to be dovish…If you were Janet Yellen, you would want to raise interest rates; you’d want to have the ability to lower interest rates if something went wrong.  There’s nothing scarier than being head of the central bank and not having the ability to stimulate the economic cycle.  That’s a bad position to be in. On the flip side, she’s got a dual mandate.  She’s got an employment growth mandate and she has an inflation mandate.”

Gary Cohn: Oil to Stay Low, Yellen to Remain ‘Dovish’

How Did Goldman President Gary Cohn Pick His Final Four?

GARY COHN:  Right now we’re still in the mid to high $40.  We’ve been ticking around $45 – $50.  And what I said recently is I think the front end of oil can go down.  And I think we’re getting to that point.

If you look at the storage capacity in the mid-continent of the United States, we’re basically close to capacity.  So if much more oil comes into the system in the United States, we’re going to fill up capacity.  We’re going to fill up storage.  We’re going to have to price in more contango to attract in more storage.

So what I think we’re going to see happen is the front end of oil come down, the  back end is going to stay unchanged, and the contango’s going to widen.  That still means we’re going to wake up to one day where we see a headline where the spot price of oil is substantially lower than it is.  And I still believe that’s going to happen.

And a little bit of it is the extra supply but as you get into the turnaround cycle, refiners change their refining mix in the spring and the fall.  Right now we’re changing from a heavy heating oil mix to heavy gasoline mix.  And when they change that cycle, they stop consuming crude oil for a few weeks while they change.  So we’re seeing crude oil back up in the system right now.

So I still believe that’s going to happen even though we’ve seen this recent correction.  There’s still correction has meant that we’ve traded between this $45 – $50 range.

STEPHANIE RUHLE:  Distressed and high yield guys seem to think that oil is the holy grail right now, amazing opportunities.  Do you agree?

GARY COHN:  I don’t really agree.  I think we’re at this price level for a relatively long period of time.  We’ve got a lot of supply of oil in the system and we’re continuously building supply.  The new trend that’s going on that’s quite interesting is because there’s no demand for new wells, oil rigs, drilling rigs, have become very cheap.

So what’s going on right now is people are starting to drill a lot of wells.  They’re drilling the wells and they’re just capping the wells.  They’re not fracking them; they’re not bringing them on production.  That means you can drill the well, you can cap it, you can sell the forwards against it.  If the price of oil goes up, you frack the well and you deliver into it.  If the price of oil goes down, you back your hedges.

So there’s going to be some natural cap in the oil market for the relatively near future, so I don’t believe the price of oil by itself is the next great trade.  I do think there are going to be some distressed assets that come  back if the price of oil stays this cheap this long, and I do think that’s going to happen. But it’s going to take some time for that to work through the cycle.

RUHLE:  Well, another big basketball fan, Mark Cuban, seems to think that we’re in a bubble when he looks at the Nasdaq and how well it’s been doing.  Do you agree?

GARY COHN:  I never like disagreeing with Mark but I’m going to disagree with Mark.  So — and I’ve said this with you before.  When you look at the Nasdaq at 5,000 now versus where it was last time we were at 5,000, it’s substantially different.  The composition of the index is different.  The companies that make up the index are different.  The multiples are substantially different.  The earnings power is different.  The fact that you and I are using companies in the Nasdaq as part of our standard, daily living — and I’m not sure we could live without those companies today.  They have become part of our everyday life, and they’re making our life different.  They’re making our life better and we depend upon those companies.

So when you think about an environment where we’re using the products and goods and services that those Nasdaq companies produce every day, those companies seem relatively fairly valued to me.

RUHLE:  Do you think Janet Yellen is substantially different than you were expecting?  I mean, we thought she’d be patient.  We thought she’d be so dovish.  That’s not the case.

GARY COHN:  I still think she’s going to be patient.

RUHLE:  Really?

GARY COHN:  I still think she’s going to be dovish.  I’ve been saying that for a long time.  I still think that she’s got to be patient.  I understand that Janet Yellen wants to, and I understand the need that she really wants to raise interest rates.  If you were Janet Yellen, you would want to raise interest rates; you’d want to have the ability to lower interest rates if something went wrong.  There’s nothing scarier than being head of the central bank and not having the ability to stimulate the economic cycle.  That’s a bad position to be in.

So I understand her position.  On the flip side, she’s got a dual mandate.  She’s got an employment growth mandate and she has an inflation mandate.  There’s no inflation in the system; there’s no signs of inflation in the system.  I think Q1 GDP is going to be lower than people think.  I think Q1 earnings are going to be lower than people think.  And I think she’s

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