Latest / Bloomberg Intelligence / A Collapsing Venezuela Could Jolt Oil Market, Denning Says

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A Collapsing Venezuela Could Jolt Oil Market, Denning Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg P and L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Let's
• 0:32
  Speaker 1: talk about another portfolio. Oil, The portfolio that exists in
• 0:36
  Speaker 1: Venezuela is hurting, and here to tell us more about
• 0:38
  Speaker 1: it is Liam Denning. He is our energy, mining and
• 0:41
  Speaker 1: commodities calumnist for Bloomberg Gadfly. Liam, thank you very much
• 0:45
  Speaker 1: for being here. Um, all right, we know Venezuela's economy
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  Speaker 1: is a mess. We know the politics is a mess. Uh.
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  Speaker 1: What is the likelihood that they will find a friendly nation,
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  Speaker 1: whether it be Russia or China or somebody to loan
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  Speaker 1: them more money, uh and perhaps help them stave off
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  Speaker 1: that day of reckoning? Um? Well defined friendly? I mean
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  Speaker 1: I think that non hostile, because I mean the United
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  Speaker 1: States is even talking about more sanctions on Venezuela. Yeah,
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  Speaker 1: I think so. The situation right now is they've got
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  Speaker 1: declining all production Um. The economy is in a tailspin,
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  Speaker 1: and they've got at least five billion dollars or so
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  Speaker 1: of both sovereign debt and debt that resides at the
• 1:35
  Speaker 1: state or company coming due by the end of the year.
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  Speaker 1: So one possible route for them is to get more
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  Speaker 1: money from China and Russia. My senses, China may be
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  Speaker 1: reluctant to put more into this, since it may be
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  Speaker 1: just throwing, you know, good money after bad um. I
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  Speaker 1: think with Russia it's it's more interesting because as there
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  Speaker 1: are reports that the Russians are attempting to renegotiate some
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  Speaker 1: some clauses around collateral with existing I mean, right, the
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  Speaker 1: Russia isn't and they already have a stake in No,
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  Speaker 1: they lent money to collateral I beg your pardon, and
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  Speaker 1: it's collateralized with a roughly half steak in Sitgo, which
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  Speaker 1: is the the Venezuelan refiner. Now, quite sensibly, they may
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  Speaker 1: be the Russians maybe trying to renegotiate that because it's
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  Speaker 1: it's unclear that if that ever came to pass, they
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  Speaker 1: could actually take possession of those assets. So Leon, let's
• 2:41
  Speaker 1: zoom out a little bit, because Venezuela is a hotspot
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  Speaker 1: right now of difficulties on a number of levels, and
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  Speaker 1: it's sort of re introduces this idea of political risk
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  Speaker 1: in the oil market that really has been sort of absent.
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  Speaker 1: And I'm wondering, let's say Venezuela does become the for
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  Speaker 1: us to big oil producer to withdraw from the market
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  Speaker 1: due to political risk or to pull back. Would that
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  Speaker 1: actually cause oil prices to rally? Would that be a
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  Speaker 1: positive factor or would that possibly be a negative with
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  Speaker 1: people wondering what will happen? Uh? I think, you know,
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  Speaker 1: if if there is some sort of general generalized collapse
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  Speaker 1: in Venezuela and it takes barrels off the market, that
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  Speaker 1: is generally going to be seen as bullish for prices.
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  Speaker 1: I think the thing to watch out for though, is,
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  Speaker 1: you know, we have seen this happened before. I mean,
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  Speaker 1: you look at a country like Libya, where the country
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  Speaker 1: literally fell apart. It's being run by three different competing governments.
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  Speaker 1: Their production has actually been coming back recently to the
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  Speaker 1: extent that it's You've now got Opec and the countries
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  Speaker 1: that are trying to limit supply actually trying to nudge
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  Speaker 1: Libya towards limiting its output, which is kind of crazy
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  Speaker 1: for a country that really needs the revenue. UM. I
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  Speaker 1: think what I take away from Venezuela is if we
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  Speaker 1: if we really step back and we look at what's
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  Speaker 1: happened in the last few years, UM, what people have
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  Speaker 1: been waiting for is some kind of big pullback in
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  Speaker 1: US shale are either money runs out, companies go bankrupt,
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  Speaker 1: people get laid off, production goes down. Now, it did
• 4:21
  Speaker 1: go down, but then it rebounded quite quickly, and I
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  Speaker 1: think if we're looking for barrels coming off the market,
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  Speaker 1: it's not going to be the more flexible UM companies
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  Speaker 1: that are operating in places like Texas, because you know,
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  Speaker 1: even if those companies go bankrupt, someone else just takes
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  Speaker 1: over the assets and starts running it. I think it's
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  Speaker 1: much more likely that we see problems on the supply
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  Speaker 1: side in these economies which are very beholden to the
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  Speaker 1: old price, which haven't restructured, and where there's really very
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  Speaker 1: little flexibility on both the economic and the political side
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  Speaker 1: to deal with the pressure that they're under. Liam are
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  Speaker 1: really interesting point and one that I hadn't really thought about.
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  Speaker 1: Another word, stopped looking for shell producers to cut production.
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  Speaker 1: It's really going to be some kind of crisis in
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  Speaker 1: one of these other producers, like a venezuela that's going
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  Speaker 1: to take barrels off the market. Liam Denning, Energy Mining
• 5:13
  Speaker 1: and commodities columnist for Bloomberg Gadfly. His work is tremendous.
• 5:17
  Speaker 1: Check it out bloomberg dot com, slash gadfly or on
• 5:21
  Speaker 1: Bloomberg and I gadfly. Plastic surgery is a huge business, Phim.
• 5:37
  Speaker 1: I didn't realize that Americans spent more than sixteen billion
• 5:41
  Speaker 1: dollars on cosmetic plastic surgeries minimally invasive procedures last year.
• 5:45
  Speaker 1: It's the most on record. And give us a sense
• 5:47
  Speaker 1: of how much uh this business is growing. I want
• 5:50
  Speaker 1: to bring in Dr Stafford brumand he's a plastic surgeon
• 5:53
  Speaker 1: at seven forty Park Plastic Surgery on the Upper East
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  Speaker 1: Side of New York City. And Dr Bruman, thank you
• 6:00
  Speaker 1: so much for joining us. I'd love to get a
• 6:02
  Speaker 1: sense from you in the growth of the industry in
• 6:05
  Speaker 1: the past few years. What procedures have been the absolute
• 6:08
  Speaker 1: most popular? Well, there are a slew of procedures which
• 6:12
  Speaker 1: people come in for from non invasive injectables and surgery.
• 6:18
  Speaker 1: So in the injectables realm. It's grown a lot in
• 6:22
  Speaker 1: our practice. It's grown almost year over year and keeps growing.
• 6:27
  Speaker 1: Are you talking about fillers and botox? Fillers? Botox and fillers,
• 6:32
  Speaker 1: and then the other ones are noninvasive treatments like skin
• 6:34
  Speaker 1: tightening and fat freezing which is cool sculpt and all therapy.
• 6:39
  Speaker 1: So they can have treatments which are not surgical, uh,
• 6:43
  Speaker 1: either injectables or superficial treatments that make them look better,
• 6:47
  Speaker 1: and those have grown immensely. They're more popular. It delays
• 6:51
  Speaker 1: plastic surgery, h surgery itself, but doesn't eliminate the need
• 6:56
  Speaker 1: for surgery. Can you speak about some of the individual
• 6:59
  Speaker 1: company ease that have maybe pioneered or producing new types
• 7:04
  Speaker 1: of therapies or services that you didn't have let's say
• 7:07
  Speaker 1: five years ago. Well, Botox now is a brand name
• 7:10
  Speaker 1: and everyone knows Botox and is really not afraid of it,
• 7:13
  Speaker 1: and that's owned by Allergan, and Allergan I think was
• 7:16
  Speaker 1: recently bought by activists. So it's a whole range of companies.
• 7:20
  Speaker 1: But they have brought along Botox, which has many uses
• 7:24
  Speaker 1: as well as cosmetic uses. It's Botox cosmetica or cosmetic,
• 7:29
  Speaker 1: but they also have cool sculpt which was fat freezing,
• 7:31
  Speaker 1: which was a technology where you did not have to
• 7:34
  Speaker 1: have surgery, just had a cooling device sort of strapped
• 7:38
  Speaker 1: to you and that area lost the fat that it
• 7:40
  Speaker 1: was treating. It froze it basically, And they just recently
• 7:43
  Speaker 1: bought that as well. Uh So, and there are other
• 7:46
  Speaker 1: companies that still have other botox or botulism talks and products,
• 7:51
  Speaker 1: uh Like Valiant bought Medicis a while back, so there
• 7:55
  Speaker 1: are other companies that do that. There's another one traded Revance,
• 7:57
  Speaker 1: which is a small company which has another uh Bauchlism
• 8:00
  Speaker 1: talks and product. Is this like all the effect of
• 8:05
  Speaker 1: Instagram and selfies where people an increasing number of people
• 8:09
  Speaker 1: are obsessed with the way that they look, or is
• 8:14
  Speaker 1: this uh simply the normalizing of an ongoing trend where
• 8:18
  Speaker 1: people just want to look their best and if they
• 8:20
  Speaker 1: can find a procedure to help them do that, they'll
• 8:22
  Speaker 1: do that. I mean, how much excessive surgery did see?
• 8:25
  Speaker 1: It's really a matter of function of both. I think
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  Speaker 1: that uh, social media has propelled this to a new level.
• 8:32
  Speaker 1: And I also think that people really are working harder
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  Speaker 1: and longer and want to be relevant and they have
• 8:38
  Speaker 1: to look the part. So they come in seeing how
• 8:41
  Speaker 1: they can still be relevant in the workforce. Uh, and
• 8:44
  Speaker 1: so it's a matter, it really is. Bifurcates that way.
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  Speaker 1: It's the young person coming in knowing that they've seen
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  Speaker 1: selfies and they are on social media and Facebook, and
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  Speaker 1: more middle aged or older group wanting to have plastic
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  Speaker 1: surgery to stay in the workforce. That's that's fascinating point.
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  Speaker 1: In other words, people who are older knowing that they
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  Speaker 1: might be replaced more quickly if they don't look young well,
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  Speaker 1: or they'll come in they say, you know what, I
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  Speaker 1: work with all these young people. I can't look like
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  Speaker 1: someone's uncle or grandmother. I've got to look younger. So
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  Speaker 1: they want to do something that will transform them but
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  Speaker 1: not change them, so that they can be still relevant
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  Speaker 1: in the workforce. You notice he keeps looking at me
• 9:25
  Speaker 1: whenever he says those yeah, I saw those eyes. Dr Broman,
• 9:32
  Speaker 1: I'm when I ask you about the practice that you
• 9:37
  Speaker 1: know you happen to be a plastic surgeon, but I
• 9:39
  Speaker 1: mean you're a medical doctor, so you've got to practice.
• 9:42
  Speaker 1: The software that you use, the management systems that you use. Uh.
• 9:46
  Speaker 1: That is big business. Athena Health, for example, one of
• 9:49
  Speaker 1: the big software practice providers. Can you give us some
• 9:54
  Speaker 1: insight into what has changed there? And this whole idea
• 9:56
  Speaker 1: of trying to digitize people's medical records so it it
• 10:00
  Speaker 1: becomes a more efficient service, because not all places are
• 10:04
  Speaker 1: as efficient. To some the trend is to go to
• 10:07
  Speaker 1: electronic medical records. In plastic surgery practices, you don't necessarily
• 10:12
  Speaker 1: have to do that because it's a smaller practice, but
• 10:15
  Speaker 1: when you're affiliated with a hospital as we are at
• 10:17
  Speaker 1: seven forty part plastic surgery, you can get the software
• 10:21
  Speaker 1: UH and the electronic records through the hospital system, which
• 10:24
  Speaker 1: is Mount Sinai Hospital, or you can get your own system,
• 10:28
  Speaker 1: which is what we have. And they're smaller players in
• 10:30
  Speaker 1: that field. So it's not only in plastic surgeries at
• 10:33
  Speaker 1: botox and fillers, but it's UH medical records, it's information technology, UH,
• 10:39
  Speaker 1: it's devices. So there's a whole different slew of things
• 10:42
  Speaker 1: to to look at in the medical space. But they're
• 10:46
  Speaker 1: smaller players. Ours as next Tech, which is a privately
• 10:49
  Speaker 1: held company which is really on the forefront of dermatology
• 10:53
  Speaker 1: and plastic surgery and ophthalmology, and that's the system we
• 10:56
  Speaker 1: use and it's specialized, right I mean, that's what's so
• 10:59
  Speaker 1: interesting is that the the market in a sense is
• 11:01
  Speaker 1: fragmented because the software has been built for specific types
• 11:05
  Speaker 1: of practice. A specialties every specially has its own needs,
• 11:09
  Speaker 1: and we have our needs where we need to show
• 11:11
  Speaker 1: photographs and file photographs and uh interact with the hospital
• 11:16
  Speaker 1: and keep our own records sort of in shape so
• 11:19
  Speaker 1: that our office can work more efficiently. You know, before
• 11:23
  Speaker 1: the segment, we were talking about how in your view,
• 11:26
  Speaker 1: sometimes your role is as much a physician and a
• 11:29
  Speaker 1: surgeon as it is a psychiatrist or a psychologist and
• 11:33
  Speaker 1: a therapist, and that when people come to you, it's
• 11:37
  Speaker 1: really part of your job to let them know if
• 11:40
  Speaker 1: you think that perhaps they ought to go a different route,
• 11:43
  Speaker 1: if perhaps it's not a responsible surgery. Can you talk
• 11:46
  Speaker 1: a little bit about that. A plastic surgery is a
• 11:49
  Speaker 1: two way street. So we have to listen to our
• 11:52
  Speaker 1: patients to see what brings them in and what concerns
• 11:55
  Speaker 1: them and what we can do to help them. But
• 11:57
  Speaker 1: then we have to project and help them figure out
• 12:01
  Speaker 1: what works and what we can do legitimately and rightly.
• 12:05
  Speaker 1: So we've got to sort of figure out where they're
• 12:08
  Speaker 1: coming from, whether it's the right indications, whether it's the
• 12:11
  Speaker 1: right requirements, whether they're medically in the right place to
• 12:15
  Speaker 1: have this sort of surgery, and then we have to
• 12:17
  Speaker 1: discuss with them the options. What's a bad reason to
• 12:21
  Speaker 1: want to get There are many bad reasons and so
• 12:25
  Speaker 1: each person has their own take on it. But whether
• 12:28
  Speaker 1: it's a relationship issue, whether it is trying to look
• 12:34
  Speaker 1: like someone that they shouldn't be trying to look like. Uh,
• 12:37
  Speaker 1: there are a lot of reasons for it, or peer pressure.
• 12:40
  Speaker 1: So there are some reasons not to do surgery. And
• 12:44
  Speaker 1: we as a as a body, as plastic surgeons, are
• 12:47
  Speaker 1: offering our services to help them. We're here to help people.
• 12:50
  Speaker 1: We want people happy. We're and then make people happy business.
• 12:54
  Speaker 1: So if we can't do that and we think that
• 12:57
  Speaker 1: their objectives are not legitimate it, then we'll tell them
• 13:01
  Speaker 1: we talked to them. I want to thank you for
• 13:03
  Speaker 1: talking with us. Dr Stafford Boumant is a plastic surgeon
• 13:07
  Speaker 1: with seven forty park plastic surgery and very interesting, very
• 13:12
  Speaker 1: interesting conversation about the nature of plastic surgery. Well, we'll
• 13:28
  Speaker 1: be looking forward to earnings from the Walt Disney Company
• 13:31
  Speaker 1: plus Alphabet the parent company of Google, and here to
• 13:34
  Speaker 1: help us understand what to look for is Paul Sweeney,
• 13:36
  Speaker 1: US Director of Research and Senior Media Internet Analyst for
• 13:39
  Speaker 1: Bloomberg Intelligence. He can be followed on Twitter at pt Sweeney. Alright,
• 13:46
  Speaker 1: pt Sweeney, this report today. I want to focus on
• 13:50
  Speaker 1: the combination perhaps of Alphabet and Walt Disney because when
• 13:55
  Speaker 1: I look at the dashboard, which I compliment you one
• 13:59
  Speaker 1: on Bloomberg and Intelligence because it gives you every piece
• 14:01
  Speaker 1: of data. As if I didn't know that Don Kirk
• 14:04
  Speaker 1: was the big movie of the weekend, Uh, I find
• 14:07
  Speaker 1: that it's Facebook and Alphabet those are the ones that
• 14:12
  Speaker 1: are really competing for the ad dollars for companies such
• 14:16
  Speaker 1: as the Walt Disney Company and ESPN. Is there an overlap?
• 14:19
  Speaker 1: Is there? Because it seems as though there's a bleed
• 14:22
  Speaker 1: between one kind of company and another. Content is a
• 14:24
  Speaker 1: very fuzzy thing. Now, yes, I think you know, we've
• 14:27
  Speaker 1: seen something that we've been talking about in the t
• 14:30
  Speaker 1: MT technology, media and telecom space for the last twenty years.
• 14:33
  Speaker 1: Is this convergence of technology and media and content and uh,
• 14:37
  Speaker 1: and we're really really are seeing it really over the
• 14:40
  Speaker 1: last five to six seven years really accelerate and so
• 14:43
  Speaker 1: examples would be a traditional technology companies such as Google
• 14:47
  Speaker 1: as actually, through their ownership of YouTube, one of the
• 14:49
  Speaker 1: biggest television platforms in the business on a global basis, uh,
• 14:53
  Speaker 1: and part of their you know, they're probably generating you know,
• 14:56
  Speaker 1: several billion dollars of advertising revenue on YouTube. So there's
• 15:00
  Speaker 1: a classic example. And then another would be you know,
• 15:03
  Speaker 1: a T and T, the largest telecommunications companies spending eighty
• 15:06
  Speaker 1: five billion dollars to buy Time Warner to get those
• 15:09
  Speaker 1: assets to put that content over their wireless network here.
• 15:13
  Speaker 1: So we really are seeing the convergence here as consumers
• 15:16
  Speaker 1: spend more and more of their time online, if you will,
• 15:19
  Speaker 1: on outside of the traditional media ecosystem. Yeah, Paul, you
• 15:23
  Speaker 1: were saying before the segment that seventy percent of display ads.
• 15:28
  Speaker 1: I just I can't believe the seventy percent of display
• 15:30
  Speaker 1: ads are going to Google and Facebook, and that proportion
• 15:34
  Speaker 1: has been going up, and that's been taking away from
• 15:37
  Speaker 1: platforms such as Disneys and other more traditional media companies.
• 15:42
  Speaker 1: I'm trying to understand how effective some of these ads are.
• 15:45
  Speaker 1: I mean, I think about, for example, the Google search
• 15:48
  Speaker 1: ads and how often do people really click on them?
• 15:51
  Speaker 1: How valuable is that to retailers and others that are
• 15:54
  Speaker 1: doing the advertising. Well, what's interesting when you when if
• 15:57
  Speaker 1: you went to the television up from presentations and may
• 16:00
  Speaker 1: all the big broadcast networks, they would tell you that
• 16:02
  Speaker 1: digital advertising is not nearly as effective as some people believe.
• 16:06
  Speaker 1: There is a lot of audience fraud. You can't even
• 16:08
  Speaker 1: really measure accurately the audience that is seen your ad
• 16:11
  Speaker 1: number one, number two, You don't know where your ad
• 16:14
  Speaker 1: is actually being placed in many instances on the internet. Uh,
• 16:17
  Speaker 1: and they're obviously those famous examples where an advertiser would
• 16:21
  Speaker 1: have its message you know, next to some type of
• 16:23
  Speaker 1: isis you know, video or certainly content that you don't
• 16:26
  Speaker 1: want to be associated with. Whereas on a broadcasting cable
• 16:28
  Speaker 1: networks you know exactly where your ad will be. It
• 16:30
  Speaker 1: is a advertiser safe environment. That being said, the dollars
• 16:34
  Speaker 1: the numbers tell a different story. TV ad spending this
• 16:37
  Speaker 1: year will be up probably low single digits, whereas digital
• 16:41
  Speaker 1: advertising across the Internet will probably be up fifteen to
• 16:45
  Speaker 1: seventeen percent. So advertisers continue to allocate more and more
• 16:48
  Speaker 1: of their budgets to digital advertising platforms, and as you mentioned, um,
• 16:53
  Speaker 1: it really is a d wopply for big brand advertisers.
• 16:56
  Speaker 1: If they want to allocate their dollars onto the Internet
• 16:58
  Speaker 1: broadly defined, they really only have to two choices, and
• 17:01
  Speaker 1: that is Facebook, UH and Google. So UM and everybody
• 17:06
  Speaker 1: else is kind of fighting for the scraps, which are
• 17:08
  Speaker 1: big scraps and they're growing, but Google and Facebook are
• 17:11
  Speaker 1: really the dominant players here. UM, and I think a
• 17:14
  Speaker 1: lot of advertisers are saying, yes, we have issues about measurement,
• 17:17
  Speaker 1: Yes we have issues about accountability and context, but at
• 17:20
  Speaker 1: the end of the day, we know that our consumers
• 17:23
  Speaker 1: are audiences are spending more line and more time online
• 17:26
  Speaker 1: and therefore we need to be there as well talking
• 17:28
  Speaker 1: about spending spending more money for live sports and when
• 17:31
  Speaker 1: if you could talk to the issue of ESPN some
• 17:35
  Speaker 1: comparisons to a year ago, so that we understand what's
• 17:38
  Speaker 1: going to happen this afternoon when they tell us about
• 17:40
  Speaker 1: the operations of ESPN and so on. Yes, so the
• 17:43
  Speaker 1: challenge UH for ESPN. In the space of probably two
• 17:46
  Speaker 1: years to maybe three years, ESPN has gone from the
• 17:49
  Speaker 1: crown jewel of the Walt Disney investment story UH to
• 17:52
  Speaker 1: being really the big question mark. And that is because Uh,
• 17:55
  Speaker 1: I'm very similar to what we're seeing across the entire
• 17:58
  Speaker 1: television ecosystem. Even the mighty ESPN is losing subscribers to
• 18:03
  Speaker 1: chord cutting and chord shaving as people try to pair back. Uh,
• 18:07
  Speaker 1: they're spending on the traditional pay TV packages. Even ESPN
• 18:10
  Speaker 1: is filling it. So they have lost you know, several
• 18:13
  Speaker 1: probably four to five million subscribers over the last four
• 18:15
  Speaker 1: or five years um. And that is impacting their ability
• 18:19
  Speaker 1: to charge for advertising and as well as it impacts
• 18:22
  Speaker 1: their affiliate fees that they can charge to their distributors.
• 18:25
  Speaker 1: So they have revenue challenges at ESPN. And that's a
• 18:28
  Speaker 1: problem because their costs, their costs are primarily programming, and
• 18:32
  Speaker 1: those programming rights fees to the NFL into Major League Baseball,
• 18:36
  Speaker 1: into the NBA, those are very big numbers. And that's right,
• 18:40
  Speaker 1: isn't that right for the For the NBA. Uh, yeah,
• 18:43
  Speaker 1: it was actually an additional for dollars above their last contracts,
• 18:46
  Speaker 1: So they have billions of dollars of rights fees that
• 18:49
  Speaker 1: are long term, multi year contracts that are fixed at
• 18:53
  Speaker 1: a time when their revenue is being pressured. That's the
• 18:55
  Speaker 1: challenge for ESPN. Well, and it's not just ESPN for Disney, right,
• 18:59
  Speaker 1: because we also have gotten news that thirty eight thou
• 19:02
  Speaker 1: Florida union workers are looking for higher wages and are
• 19:07
  Speaker 1: prepared to be pretty aggressive with that. How realistic is
• 19:10
  Speaker 1: it that their wages could be increased enough to make
• 19:13
  Speaker 1: a material dent in disneys earnings and potentially hurt them. Yeah,
• 19:17
  Speaker 1: that's it's gonna be an interesting question to see how
• 19:19
  Speaker 1: they talk about it on the call coming up on
• 19:21
  Speaker 1: their earnings. UM. That is the parks and resorts business
• 19:24
  Speaker 1: has actually been a great story for the Walt Disney
• 19:26
  Speaker 1: Company over the last four or five years. This is
• 19:28
  Speaker 1: a business that, um, you know, is a minta high
• 19:31
  Speaker 1: single digit revenue growth business, a low double digit profit
• 19:34
  Speaker 1: growth business. So this is a business that they need
• 19:37
  Speaker 1: to really manage their costs well. Um So that and
• 19:41
  Speaker 1: they're one of the largest costs obviously is their personnel costs.
• 19:43
  Speaker 1: And to the extent that they have a material impact
• 19:46
  Speaker 1: uh to the cost in Florida, which is their biggest
• 19:48
  Speaker 1: market globally, that will have an impact marginally, I think
• 19:52
  Speaker 1: on the profitability of that business. But I think investors
• 19:55
  Speaker 1: still view that business is a very good business as
• 19:57
  Speaker 1: a business that is worthy of more investment. And in fact,
• 20:00
  Speaker 1: we see the Walt Disney Company investing, you know, every
• 20:03
  Speaker 1: year more and more in their parks and resorts businesses
• 20:05
  Speaker 1: around the world, from Shanghai to Orlando to California, to
• 20:09
  Speaker 1: additional cruise ships. Uh. So that's a business they like.
• 20:12
  Speaker 1: That's a business. Actually, the Comcast, through its acquisition of Universal, uh,
• 20:17
  Speaker 1: got all the parks and resorts from Universal. That's a
• 20:19
  Speaker 1: business Comcast like. So the theme park business globally is
• 20:22
  Speaker 1: a very good business. And of course the Disney as
• 20:24
  Speaker 1: a world leader, aren't they just about to celebrate something
• 20:27
  Speaker 1: like their ten million visitor Torobabling park in China and uh, well, China, China.
• 20:32
  Speaker 1: The first year they had I guess, I guess it
• 20:35
  Speaker 1: was about ten million, and that was kind of their goal.
• 20:37
  Speaker 1: And then now that now they're in year two. So
• 20:39
  Speaker 1: Shanghai has generally been very successful for them, and in fact,
• 20:42
  Speaker 1: they've announced additional expansion of Shanghai uh to fuel what
• 20:47
  Speaker 1: they believe will be future growths there. So I think
• 20:50
  Speaker 1: that was a I think most investors view that is
• 20:51
  Speaker 1: a very good investment. Thank you so much for joining us.
• 20:54
  Speaker 1: Paul Sweeney, US Director of Research and senior Media and
• 20:58
  Speaker 1: Internet analyst for Bloomberg Intelligence. He is now off to
• 21:02
  Speaker 1: a trip to Disney World with his family while he
• 21:05
  Speaker 1: checks out Disney earnings. We want to turn now to
• 21:19
  Speaker 1: Ira Jersey, are interest rate strategist for Bloomberg Intelligence, to
• 21:23
  Speaker 1: give us a little bit of a preview of this
• 21:25
  Speaker 1: week's f O m C meeting. Ira, what can we
• 21:28
  Speaker 1: expect to learn? Hey, pim, UM, So the Federal Reserve
• 21:32
  Speaker 1: is not going to hike this week. You know, the
• 21:33
  Speaker 1: markets pricing for a zero percent chance of a hike
• 21:36
  Speaker 1: this week, So that would certainly be the biggest shock
• 21:38
  Speaker 1: to the market, and I think you'd wind up seeing
• 21:40
  Speaker 1: to your notes sell off quite significantly if if they
• 21:43
  Speaker 1: were to do that. UM. But there is the possibility
• 21:47
  Speaker 1: that they can announce runoff this week, which UM I
• 21:50
  Speaker 1: think has caused some confusion and consternation around different market
• 21:54
  Speaker 1: segments about you know, exactly what does that mean? What
• 21:56
  Speaker 1: does it mean when the Federal Reserve starts to run
• 21:58
  Speaker 1: off um it's treasury and mortgage portfolio. So so they're
• 22:03
  Speaker 1: expected to start allowing some of their treasury mortgage backed
• 22:08
  Speaker 1: securities holdings to pay down starting as soon as what
• 22:12
  Speaker 1: October or September even UM, and the biggest question, according
• 22:17
  Speaker 1: to your latest research note is around mortgage backed securities, right,
• 22:21
  Speaker 1: that's where people are sort of girding for the most
• 22:24
  Speaker 1: potential volatility. Am I writing that? Yeah? I think that
• 22:28
  Speaker 1: that's that's where the biggest risk comes is really what
• 22:31
  Speaker 1: what what comes from that? And the reason is because
• 22:33
  Speaker 1: that can't be managed by the UM, by any bureaucracy.
• 22:37
  Speaker 1: So when the treasury portfolio runs off, even though some
• 22:41
  Speaker 1: months are going to run off significantly more treasuries than
• 22:44
  Speaker 1: than mortgage backed securities UM, the Treasury Department can determine
• 22:47
  Speaker 1: how that's going to come into the market. Is that
• 22:50
  Speaker 1: going to come into the market with them issuing more
• 22:52
  Speaker 1: ten year notes or thirty year thirty year bonds? The
• 22:54
  Speaker 1: answer is probably not. They'll end up issuing a lot
• 22:57
  Speaker 1: more TEA bills and two year and three year Now
• 23:00
  Speaker 1: it's a very short maturity, short duration, not a lot
• 23:03
  Speaker 1: of market risk instruments, whereas mortgages that it will have
• 23:07
  Speaker 1: to just be absorbed by the market based on how
• 23:10
  Speaker 1: much UM, how much people actually refinance our houses and
• 23:15
  Speaker 1: how much mortgage activity there is. So so so that's
• 23:18
  Speaker 1: something that's that can't be controlled as well. So that's
• 23:20
  Speaker 1: one of the reasons why we think that there could
• 23:24
  Speaker 1: be much more volatility and mortgage backed securities and say
• 23:26
  Speaker 1: treasury treasury securities because of this. So, just to be
• 23:30
  Speaker 1: clear of these mortgage backed securities are agency backed securities.
• 23:33
  Speaker 1: These are mortgages that are ensured by Fannie and Freddie
• 23:36
  Speaker 1: and Emayn May I'm wondering, how much do you expect
• 23:42
  Speaker 1: that mortgage rates could potentially increase if there is a
• 23:46
  Speaker 1: lack of clarity around the runoff program, specifically with respect
• 23:50
  Speaker 1: to mortag back securities. Well, so, I think the Fed's
• 23:53
  Speaker 1: done a good job in preparing the market for how
• 23:56
  Speaker 1: runoff the pace of runoff. But but one of the
• 23:59
  Speaker 1: interesting things is for mortgages, there's um the FED set
• 24:03
  Speaker 1: that they're going to allow up to twenty billion dollars
• 24:06
  Speaker 1: a month of their mortgage securities roll off. Now what's
• 24:09
  Speaker 1: interesting about that is that barely twenty billion dollars a
• 24:12
  Speaker 1: months is running off today, So there'll be many months
• 24:14
  Speaker 1: when um they run off everything out of their portfolio,
• 24:18
  Speaker 1: and all of that winds up going back in to
• 24:20
  Speaker 1: mortgage pools, so you wind up with with more mortgage
• 24:23
  Speaker 1: backed security issuance it winds up affecting UM what rates
• 24:27
  Speaker 1: are going to go out in the future. Now you
• 24:29
  Speaker 1: know how much that that's that's going to increase mortgage rates.
• 24:32
  Speaker 1: Well back inn when the Fed allowed their mortgage backed
• 24:35
  Speaker 1: security portfolio to run off, you saw a significant volatility.
• 24:38
  Speaker 1: You saw swings of basis points within a few weeks
• 24:42
  Speaker 1: UH in UH in the market. So you know, it's
• 24:46
  Speaker 1: hard to judge exactly what the impact could be the
• 24:49
  Speaker 1: basis point per per dollar of runoff, but I think
• 24:53
  Speaker 1: you could wind up seeing significant volatility and you know,
• 24:55
  Speaker 1: twenty five basis point, thirty basis point increase in UM
• 24:59
  Speaker 1: in more could spreads compared to treasuries could uh could
• 25:02
  Speaker 1: potentially happen and that would obviously have an impact on
• 25:05
  Speaker 1: the broader broader economy um irish. Should we rename it
• 25:09
  Speaker 1: the debt ceiling? Should it just be like the debt
• 25:11
  Speaker 1: window because they always open it at the very last minute?
• 25:14
  Speaker 1: You know that that's you know, yeah, that's the one
• 25:16
  Speaker 1: thing that could probably uh, you know, stop the Federal
• 25:19
  Speaker 1: Reserve from actually uh starting to run off of their portfolio.
• 25:23
  Speaker 1: That they always wait till the last minute to raise
• 25:26
  Speaker 1: the death ceiling. It's actually from a for a lot
• 25:28
  Speaker 1: of strategists. It gives us something to right about. But
• 25:30
  Speaker 1: it's really quite um, it's really quite annoying because it's
• 25:33
  Speaker 1: a man made problem, right. It's it's not something that
• 25:36
  Speaker 1: is is societal. It's really Congress just not being willing
• 25:40
  Speaker 1: to change the rules. So they so they only they
• 25:44
  Speaker 1: can fund um. They can fund the government based on
• 25:47
  Speaker 1: the budget that they've already passed. So so it's right now.
• 25:52
  Speaker 1: Our expectation is early October is the time when they
• 25:56
  Speaker 1: actually run out of money to uh uh both cash
• 25:59
  Speaker 1: and uh debt limit. Um. Soon after that they'll wind
• 26:02
  Speaker 1: up running out of money in order to to actually
• 26:05
  Speaker 1: refinance debt. So there are some there are some suggestions
• 26:09
  Speaker 1: that some people in Congress want to do, like change
• 26:11
  Speaker 1: the debt deailing and say hey, you're allowed to refinance stuff,
• 26:13
  Speaker 1: you're just not allowed to issue new debt once you
• 26:16
  Speaker 1: reach the limit. Something like that would certainly give the
• 26:18
  Speaker 1: market some comfort. Um. You're starting to see actually the
• 26:21
  Speaker 1: market move a little bit. Um October te bills are
• 26:23
  Speaker 1: trading cheap to other T bills because people are worried
• 26:26
  Speaker 1: about you know, the missing a payment, even if it's
• 26:29
  Speaker 1: for a day, it's just really annoying um to have
• 26:32
  Speaker 1: to deal with that operational challenge. Hira, thank you so
• 26:35
  Speaker 1: much for joining us ire A Jersey as interest rate
• 26:37
  Speaker 1: strategist for Bloomberg Intelligence. Uh and I'm sure we'll be
• 26:41
  Speaker 1: speaking with you in the upcoming days and weeks. I
• 26:43
  Speaker 1: am very interested to see whether the Federal Reserve does
• 26:46
  Speaker 1: mention anything about this runoff program. If they don't, I
• 26:50
  Speaker 1: am sure there will be questions about how serious they
• 26:53
  Speaker 1: are about starting this runoff later this year, certainly in
• 26:57
  Speaker 1: the earlier part September or October should be interesting. Thanks
• 27:03
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 27:06
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 27:10
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 27:13
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 27:17
  Speaker 1: It's one before the podcast. You can always catch us
• 27:20
  Speaker 1: worldwide on Bloomberg Radio.