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Venezuela Bonds Have More Upside On Regime Change · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma wits each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Well, right now, Venezuela has two
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  Speaker 1: presidents sort of. The current president of the person who
• 0:27
  Speaker 1: has been in charge, Nicholas Maduro, has come under a
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  Speaker 1: president of pressure. We have a new thirty five year
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  Speaker 1: old who declared himself the rightful president of the nation
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  Speaker 1: in front of the National Assembly's thirty five years old.
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  Speaker 1: He is uh Guido, who is actually represent was actually
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  Speaker 1: supported by President Trump and a host of other nations.
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  Speaker 1: Joining us down to talk about this. Eric Fine, portfolio
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  Speaker 1: manager focusing on the emerging markets fixed income strategy at
• 0:53
  Speaker 1: Vannet Global in New York, joining us here in our
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  Speaker 1: interactive broker studios. Eric, thank you so much for being here.
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  Speaker 1: Why is this different than previous bouts of turmoil and
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  Speaker 1: unrest in Venezuela? Yep, great, great, question um number one,
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  Speaker 1: a new president was sworn in the That was the
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  Speaker 1: event um number two. Of a range of countries in
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  Speaker 1: the hemisphere UH recognized him as a new president, including
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  Speaker 1: the U S which is important because it has sticks
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  Speaker 1: um everything from UH the you know, an extreme version
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  Speaker 1: would be military action or freezing or diverting control of
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  Speaker 1: assets let's say Petavesa or certainly Sitco, which is in
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  Speaker 1: the US, the refineries in the US. Another one is
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  Speaker 1: another important thing to notice that violence was relatively low
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  Speaker 1: compared to the last big protests in indicating um reluctance
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  Speaker 1: on the possibly indicating reluctance on the part of security
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  Speaker 1: forces to to you know, confront the population UM. And similarly,
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  Speaker 1: when Maduro gave his speech at the presidential palace UM
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  Speaker 1: there were not a lot of the not a lot
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  Speaker 1: of key high command officials standing next to him. Normally,
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  Speaker 1: when the president would say there's UH, there's a coup attempt,
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  Speaker 1: you would expect not just the defense minister to issue
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  Speaker 1: a Twitter statement, You'd expect a lot of the high
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  Speaker 1: command to do it as well. So I'd say those
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  Speaker 1: are the key those are the key developments. But the
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  Speaker 1: most important a new president was sworn in and a
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  Speaker 1: number of key countries recognized him. So I thought that
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  Speaker 1: was critical that the fact that you know, recognized so
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  Speaker 1: quickly by many countries three minutes afterwards exactly. So, um,
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  Speaker 1: what are the next steps that investors should be looking
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  Speaker 1: forward to see which way this thing could go? I, Uh,
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  Speaker 1: it's very dynamic, So it's hard to say. There's a
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  Speaker 1: strong temptation to say it's binary. Either the opposition wins
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  Speaker 1: and Maduro's out, or Maduro's out, or more remains and
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  Speaker 1: muddles through for another few months, and in which case,
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  Speaker 1: you know, we'll just keep talking about it and we'll
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  Speaker 1: see then. Um, I would say there might be and
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  Speaker 1: I'd say that those are two serious scenarios. Um, But
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  Speaker 1: there's a third scenario in which the military fractures. A
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  Speaker 1: lot of a lot of the powerful folks in the
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  Speaker 1: military are on sanctions lists with the US, and so
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  Speaker 1: an amnesty domestically isn't going to really mean much to them.
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  Speaker 1: They the temptation for them is to dig in their heels.
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  Speaker 1: So I'd say there is that risky scenario of the
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  Speaker 1: military breaking up in the fractions, But I basically look
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  Speaker 1: for disaffection within the military disaffection between the military and
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  Speaker 1: the government. Um U. S actions can do a lot
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  Speaker 1: of can can can really pressure things, um UM. But
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  Speaker 1: there is this other scenario of of of factionalization, which
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  Speaker 1: could you know, which means we'll have to keep talking
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  Speaker 1: about it. So Venezuela is a really important country for
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  Speaker 1: the entire Latin American economy, given how much of an
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  Speaker 1: oil producer it is. It also is a very big obligor, right.
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  Speaker 1: I mean, it has seventy two billion dollars of debt,
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  Speaker 1: including a whole host of bonds that are default. Of
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  Speaker 1: the prices on those bonds surging on the hope that
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  Speaker 1: Nicholas Maduro will get kicked out of power and we'll
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  Speaker 1: get someone else in Guido in particular, How hopeful are
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  Speaker 1: you that this price rise in these bonds is legitimate?
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  Speaker 1: I mean, are you are you going more heavily into
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  Speaker 1: Venezuela dead? So UM, we can only comment on where
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  Speaker 1: we were at the end of December, because we're in
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  Speaker 1: the middle of January, and at the end of December
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  Speaker 1: we did have an overweight exposure to Venezuela. UM and
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  Speaker 1: it was optionality was that this scenario was possible and
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  Speaker 1: if it happened, there was a lot of upside, and
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  Speaker 1: if it didn't happen, we were kind of already there.
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  Speaker 1: UM and so UM, I think there there remains significant
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  Speaker 1: upside to the bonds, UM, but one needs to be
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  Speaker 1: sensitive and cautious about that scenario I mentioned. I think
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  Speaker 1: that's the risky scenario. UM. I would say that the
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  Speaker 1: upside for Venezuela is there are many reasons for it,
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  Speaker 1: but one is with the high you know, among the
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  Speaker 1: highest proven oil reserves in the world. That's the kind
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  Speaker 1: of situation where credit can turn around very very quickly
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  Speaker 1: with US and I m F support. Moreover, in a
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  Speaker 1: by definition of friendly government. In this scenario, UM, you
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  Speaker 1: can get the key thing that I've seen defining good workouts,
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  Speaker 1: which is quick. Right. So I've been you know, I've
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  Speaker 1: been doing this for decades and I guess almost thirty years.
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  Speaker 1: The often, the most usually, the most important determinant of
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  Speaker 1: the value of a bond in a non performing situation
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  Speaker 1: is not the deal you get, it's how quickly it comes.
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  Speaker 1: You should be discounting these things at high high rates,
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  Speaker 1: and if it happens quickly, the price should go up.
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  Speaker 1: Let's just talk though, for a second, about the toll
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  Speaker 1: that the Nicholas Maduro regime has had on this nation.
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  Speaker 1: I mean it's lost tremendous numbers of its people. Its
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  Speaker 1: population has been decimated. I mean, is oil enough to
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  Speaker 1: make its economy strong enough to legitimize its debtload and
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  Speaker 1: legitimize the pop in the in the bonds that we're seeing. Um, well,
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  Speaker 1: I think that's I think that's complicated. Um um. As
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  Speaker 1: a stand on a standalone basis, you could so I
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  Speaker 1: would say a few things. UM. Number one, it's not
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  Speaker 1: just um um oil. It's economic management. UM. There have
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  Speaker 1: been subs there, A lot of spending was essentially through
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  Speaker 1: subsidization of gasoline. Right you Famously you could pay a
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  Speaker 1: quarter to fill up your tank in a suburban um
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  Speaker 1: um and uh a quarter of US twenty five cents
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  Speaker 1: um worth of a bolivars um the absence of a
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  Speaker 1: floating exchange rate regime, which orthodox you know thinking would
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  Speaker 1: tell you is is reasonable or something towards that is reasonable.
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  Speaker 1: So it's not just the debt load. What I'd say
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  Speaker 1: about the debtload is there is going to be a
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  Speaker 1: renegotiation UM. And the renegotiation could create a lot of
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  Speaker 1: room a lot more room. So Peta Vesa has more
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  Speaker 1: bonded debt UM and less hidden debt. Venezuela, the obl
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  Speaker 1: board called Venezuela has more hidden debt and and less
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  Speaker 1: UH is the opposite situation. And very importantly, a lot
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  Speaker 1: of this hidden debt is Chinese and Russian and how
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  Speaker 1: that gets treated, and China in particular has not participated
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  Speaker 1: in the sort of post Breton Woods, Paris Club London
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  Speaker 1: Cup structure. That's a longer discussion. We talked about it
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  Speaker 1: when I was here last I'm a but debt diplomacy
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  Speaker 1: in UH was a big issue when I was last year. Actually,
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  Speaker 1: when you're asking me what happened and I'm f debt
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  Speaker 1: diplomacy and how China um, will you know the there's
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  Speaker 1: a caricature but lend money and then um when it
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  Speaker 1: doesn't get paid in the case of Shri Lunka, see support, right,
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  Speaker 1: That really is when you think about China and Russia.
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  Speaker 1: It's not just the US that has an interest here.
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  Speaker 1: China and Russia have been supporting Maduro. They have an
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  Speaker 1: interest there that to me represents I would guess if
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  Speaker 1: I'm thinking about the bonds or just the risk assessment
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  Speaker 1: of that country a significant risk for a viable workout
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  Speaker 1: solution that you might be interested in. Yes, it's a
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  Speaker 1: it's a it's a big risk depending on the political
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  Speaker 1: and policy scenario. And I'd say mostly the political scenario. Um,
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  Speaker 1: if you get one of these, if you get the
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  Speaker 1: what I think most people would say is the positive
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  Speaker 1: outcome of of of of the existing government leaving UM
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  Speaker 1: new government coming in led by Guido initially U S
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  Speaker 1: I M F announcing they're willing, willing to work with them. Um.
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  Speaker 1: Then um, I think, Uh, there's there's substantial further upside
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  Speaker 1: in the bonds, and I think we're gonna be looking
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  Speaker 1: at scenarios where where Russia and China get you know,
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  Speaker 1: those obligations might be in a completely different queue. I
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  Speaker 1: think the things that will be in the front of
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  Speaker 1: the queue or in one type of Q will obviously
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  Speaker 1: be petavas in Venezuela bonds. Pharmaceutical obligations are an obvious
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  Speaker 1: one too. You want the company's back, so things like that.
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  Speaker 1: But China, Russia, it's about the future and are they're
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  Speaker 1: going to be a big part of the future of
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  Speaker 1: a Venezuela with that leadership. I doubt it, so the
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  Speaker 1: incentives are low. Just thirty seconds here, I'm wondering if
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  Speaker 1: it's unfair to cast the US is support of Guido,
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  Speaker 1: the opposition leader, as yet another front of the US
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  Speaker 1: China battle. Absolutely, I would say not no, that, I
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  Speaker 1: would say, this is a domestic thing, and this is
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  Speaker 1: this is a domestic situation that's been festering for you
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  Speaker 1: could argue for over ten years, um and uh. The
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  Speaker 1: governments around the world are responding to it um. However,
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  Speaker 1: because China and Russia are involved, it may offer other
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  Speaker 1: opportunities for US geostras rategy to flex itself in an
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  Speaker 1: area where China and Russia really at the end of
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  Speaker 1: the day, are aren't aren't really involved, or it's not
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  Speaker 1: a big part of their national interests, when it's obviously
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  Speaker 1: a more clear part of US national interests. Eric, Fine,
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  Speaker 1: thank you so much for being with us. Really really
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  Speaker 1: wonderful insight on a day or we're actually starting to
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  Speaker 1: see some of the change come to fruition that people
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  Speaker 1: have been talking about in Venezuela. Market's kind of mixed
• 9:32
  Speaker 1: here this morning, but I didn't notice, you know, just
• 9:34
  Speaker 1: looking at my screen that year to date, the Russell
• 9:37
  Speaker 1: two thousand is the best performer, up eight point three
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  Speaker 1: with us right now. To talk to us about what's
• 9:42
  Speaker 1: going on a small capital is Dave Wilson, Bloomberg Stocks
• 9:44
  Speaker 1: Reporter and Paul. We're actually seeing gains in the smaller
• 9:49
  Speaker 1: companies today, unlike they're larger piers. The Russell two thousand index,
• 9:53
  Speaker 1: up four tenths of a percent, is even hired by
• 9:57
  Speaker 1: one tenth of a percent at the moment. Now, the
• 10:00
  Speaker 1: Russell's sharpest game belongs to the the Triumph Groove, whose ticker
• 10:03
  Speaker 1: is t g I. The aircraft parts maker has risen
• 10:06
  Speaker 1: almost twenty eight percent trying for reach a deal to
• 10:09
  Speaker 1: transfer a wing building business to Canada's Bombardier Invocare ticker
• 10:15
  Speaker 1: i VC has gained ten a half percent. The healthcare
• 10:18
  Speaker 1: distributor received a by rating and new coverage that Needum
• 10:21
  Speaker 1: and Brooks Automation ticker b r k S is up
• 10:24
  Speaker 1: eight percent now. This company supplies chip production software and services,
• 10:29
  Speaker 1: so it's part of a much bigger rally after results
• 10:32
  Speaker 1: from the chip equipment maker LAMB Research, as well as
• 10:36
  Speaker 1: a chip companies Texas Instruments and zy Links. Now the
• 10:40
  Speaker 1: Russell steepest drop belongs to Briggs and Stratton ticker b
• 10:43
  Speaker 1: g g UH, the maker of Vengeance for lawnmowers and
• 10:46
  Speaker 1: other equipment, is down almost sixty and a half percent
• 10:49
  Speaker 1: after posting an unexpected loss for the physical second quarter,
• 10:53
  Speaker 1: and Wave Life Sciences ticker w V has fallen. The
• 10:58
  Speaker 1: drug developer is raising a hundred fifty million dollars to
• 11:00
  Speaker 1: a share sale equivalent to a twelve percent stake. Dave Wilson,
• 11:04
  Speaker 1: Bloomberg Stocks editor and a columnist as well as contributor
• 11:07
  Speaker 1: to Bloomberg Television and Radio, thank you so much for
• 11:09
  Speaker 1: being with us. I gotta say, Paul. One as a
• 11:12
  Speaker 1: class that has remained very confusing to me over the
• 11:14
  Speaker 1: past few weeks is oil. There's just so many conflicting
• 11:17
  Speaker 1: issues here. On one hand, it's sort of a proxy
• 11:20
  Speaker 1: for global growth and where people think it's going. On
• 11:23
  Speaker 1: the other hand, it's a supplied demand picture. And to
• 11:26
  Speaker 1: sort of pass us all out, UH, to give us
• 11:28
  Speaker 1: a sense of where some of the oil executives are
• 11:31
  Speaker 1: thinking things might be going, let's bring in Javier Blass,
• 11:34
  Speaker 1: who is on site at Davos. He has our chief
• 11:36
  Speaker 1: energy correspondent for Bloomberg, so have here right now. We're
• 11:40
  Speaker 1: kind of going sideways. Actually looking at Brent. Uh, that's
• 11:44
  Speaker 1: actually a little down on the day. I'm just wondering
• 11:47
  Speaker 1: what the tone is among the oil executives and others
• 11:51
  Speaker 1: that you're speaking with at Davos. The tone is positive
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  Speaker 1: for oil prices. At the executives think that the market
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  Speaker 1: is slowly tightening because Opec, I'm particularly the RABA are
• 12:00
  Speaker 1: cutting production and they're cutting quite aggressively. But there are
• 12:04
  Speaker 1: so many head winds. One is that OPEC was producing
• 12:07
  Speaker 1: a lot at the end of last year. The other
• 12:10
  Speaker 1: one is uncertainty around the global economy and also China.
• 12:14
  Speaker 1: And the third one is that the US production, particularly
• 12:17
  Speaker 1: in Texas and other places including Oklahoma and North Dakota,
• 12:20
  Speaker 1: continues to be very strong and that is putting a
• 12:23
  Speaker 1: cap on prices. Add to that, Iran and Venezuela and
• 12:27
  Speaker 1: everyone here is positive but rather confused or where is
• 12:31
  Speaker 1: gonna be the next leg for oil prices? Well have
• 12:34
  Speaker 1: here you mentioned Venezuela and that country now has the
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  Speaker 1: benefit of the guess of two presidents um so obviously
• 12:40
  Speaker 1: political instability in that very important important oil market. With
• 12:46
  Speaker 1: you know, Venezuela. I was surprised to learn just recently
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  Speaker 1: in one of the largest oil reserves is held by Venezuela.
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  Speaker 1: What are you hearing over there as it relates to
• 12:54
  Speaker 1: the political issue at Venezuela, what that might do to
• 12:57
  Speaker 1: the future of oil markets well too. Things over the
• 13:00
  Speaker 1: short term, everyone is concerned this could be a bullish
• 13:03
  Speaker 1: factor for two reasons. One is that the White House
• 13:06
  Speaker 1: is considering, but has not taken yet action about imposing
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  Speaker 1: oil sanctions on Venezuela that will be restricting or or
• 13:14
  Speaker 1: including including banning the importation of Venezuelan and crude oil
• 13:18
  Speaker 1: into the United States. Remember, Venezuela is the third largest
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  Speaker 1: source of crude oil for include oil for the US.
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  Speaker 1: That would be very bullish on the short term. Or
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  Speaker 1: it could be a situation of civil undras in the country,
• 13:30
  Speaker 1: and again that will be bullish. Production could fall. But
• 13:33
  Speaker 1: over the long term, if we have a transition or
• 13:36
  Speaker 1: political transition, things could turn quite rather barries for oil prices.
• 13:41
  Speaker 1: Because Venezuela, as you said, has a lot of oil reserves,
• 13:44
  Speaker 1: the coal start increasing production. Remember, in the late ninety nineties,
• 13:49
  Speaker 1: Venezuela was pumping around three point five million bottles a day.
• 13:53
  Speaker 1: It barely does one million today. So it has the
• 13:55
  Speaker 1: capacity to increase production quite significantly. How much for that
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  Speaker 1: lower prices given the fact that we have oil productions
• 14:02
  Speaker 1: out of the US at record highs and climbing to
• 14:05
  Speaker 1: new records every month. Well, that's one of the that's
• 14:09
  Speaker 1: the biggest cup factor. I was talking only a few
• 14:12
  Speaker 1: hours ago with a market don and he's the CEO
• 14:14
  Speaker 1: of Mercuria, one of the world's largest oil traders, and
• 14:18
  Speaker 1: he was telling me that he thinks that prices are
• 14:19
  Speaker 1: going to go a bit higher, potentially sixty five maybe
• 14:22
  Speaker 1: seventy dollars a barrel. But beyond there, he said, then
• 14:26
  Speaker 1: you really trigger the big machine of the Permian in
• 14:29
  Speaker 1: West Texas. You get another lack of increasing production from
• 14:33
  Speaker 1: the US and then prices go down and OPEC is
• 14:35
  Speaker 1: in trouble. So for OPEC, the sweet spot will be
• 14:38
  Speaker 1: to try to keep prices around sixty seventy dollars a barrel,
• 14:43
  Speaker 1: which is good enough for them, potentially not as high
• 14:46
  Speaker 1: as they will like Brent, right, I'm talking about oil
• 14:50
  Speaker 1: which currently but but that that will that will mean
• 14:54
  Speaker 1: that that they keep in check a U S production.
• 14:57
  Speaker 1: As you say, it's increasing, it goes up every week.
• 15:00
  Speaker 1: We're close to twelve million barrels a day, and we're
• 15:03
  Speaker 1: probably gonna add another million million point two barrels a
• 15:07
  Speaker 1: day uh in two thousand and nineteen. And let's not
• 15:10
  Speaker 1: forget last year in two thousand and eighteen, production increased
• 15:14
  Speaker 1: by two million bars a day. That was the largest
• 15:16
  Speaker 1: increase on an annual base in the United States in
• 15:19
  Speaker 1: a hundred years. So just real quickly, have you what
• 15:22
  Speaker 1: are you hearing over there? And doubles about Russia? They
• 15:24
  Speaker 1: seemed to be a wild card? Is a wild card?
• 15:27
  Speaker 1: Is a world card? In different factors? One is what
• 15:30
  Speaker 1: is gonna what is gonna happen with the collaboration between
• 15:33
  Speaker 1: OPEK and Russia. The Russians are are starting to sound like, um,
• 15:37
  Speaker 1: they're not that happy with the production cards. So that's
• 15:39
  Speaker 1: one wild car. Second world card on Russia. What is
• 15:42
  Speaker 1: gonna be Russia doing versus Iran and Syria. Third one
• 15:47
  Speaker 1: Venezuela Russia. Moscow has come supporting Nicolas Maduro today, so
• 15:51
  Speaker 1: that's gonna be also another big factor for the old market.
• 15:55
  Speaker 1: Have your blass, thank you very much? How areas? The
• 15:57
  Speaker 1: chief energy correspanner for Bloomberg News called in from Davos Switzerland. Well,
• 16:13
  Speaker 1: investors in the Walt Disney Company and Compcast, they know
• 16:16
  Speaker 1: very well that one of the best businesses in those
• 16:18
  Speaker 1: big media companies is their theme park business. Theme park business,
• 16:22
  Speaker 1: you know, we see a quarter after quarter, year after
• 16:24
  Speaker 1: year double ditchit profit growth, and as a result, big
• 16:26
  Speaker 1: companies like Disney and Comcast continue to ramp up their
• 16:29
  Speaker 1: investment in their parks and resorts business. One of our
• 16:32
  Speaker 1: next guest is certainly one of the beneficiaries of that
• 16:35
  Speaker 1: increase investment in the in the theme park and an
• 16:37
  Speaker 1: attractions business. That is Mike Conson. He is CEO of
• 16:41
  Speaker 1: pg A V Destinations Companies based in St. Louis. But
• 16:44
  Speaker 1: Mike is in here with in New York with our
• 16:46
  Speaker 1: Bloomberg Interactive Broker Studio. So, Mike, thanks so much for
• 16:49
  Speaker 1: being here. Can you just give us and our listeners
• 16:52
  Speaker 1: just a quick snapshot of what you do and how
• 16:55
  Speaker 1: you play in the theme park business. Well, sure, thank
• 16:57
  Speaker 1: you for having me. So. We started in the theme
• 17:00
  Speaker 1: park business back in the late sixties and we were
• 17:03
  Speaker 1: involved in the development of some of the early theme
• 17:05
  Speaker 1: parks in the United States like Bush Gardens and Williamsburg
• 17:08
  Speaker 1: and got our got our sense of roller coasters and
• 17:12
  Speaker 1: entertainment and and how these parks operate in function. And
• 17:15
  Speaker 1: since that time, we've been fortunate to see that continue,
• 17:18
  Speaker 1: not just in the United States and grow around the world. So,
• 17:22
  Speaker 1: given the progress in both designing these a roller coasters
• 17:26
  Speaker 1: as well as executing them, are there any roller coasters
• 17:29
  Speaker 1: that you would just not go on? Well, you know,
• 17:32
  Speaker 1: I like them all, but this is a danger perspective. Yeah, yeah,
• 17:36
  Speaker 1: you know. You you can go to some of the
• 17:38
  Speaker 1: historic theme parks in Europe where they have wooden roller
• 17:43
  Speaker 1: coasters actually have a brakeman who actually pulls a lever
• 17:46
  Speaker 1: to stop the coaster with and then break it. So
• 17:49
  Speaker 1: I always wondered what happens if something happens to the brakeman,
• 17:52
  Speaker 1: you know. So those are those are those cross the
• 17:55
  Speaker 1: line for me? Those are a little scary. So, Mike,
• 17:57
  Speaker 1: we've seen you know, if you think about the theme
• 17:59
  Speaker 1: park business, obviously in the United States, you think about
• 18:01
  Speaker 1: Disney and Orlando and in l A. But you know,
• 18:05
  Speaker 1: the investment that we're seeing and these companies are making
• 18:08
  Speaker 1: outside of the US is just you know, staggering. I know,
• 18:12
  Speaker 1: for example, Disney spent five billion dollars on its Shanghai resort.
• 18:16
  Speaker 1: What are you seeing kind of globally in demand for
• 18:20
  Speaker 1: some of these properties. Well, it's extraordinary. And if you
• 18:22
  Speaker 1: had asked me ten years ago, could I predict this
• 18:25
  Speaker 1: kind of growth? I don't think anyone really could have
• 18:27
  Speaker 1: foreseen it. And I think there are a lot of
• 18:29
  Speaker 1: forces in play. Obviously, Uh, the brands, the intellectual properties
• 18:33
  Speaker 1: associated with these entities are huge, and they're being consumed
• 18:37
  Speaker 1: globally now. So you know, this is a major brands
• 18:40
  Speaker 1: touch point for so many of the consumers in places
• 18:43
  Speaker 1: like China and the Middle East and so forth. We
• 18:46
  Speaker 1: see countries in places like the Middle East who are
• 18:49
  Speaker 1: trying to shift from a petro based economy to entertainment
• 18:53
  Speaker 1: and tourism. And we've been involved in some of these projects,
• 18:56
  Speaker 1: and one of the things that's interesting about those is
• 18:59
  Speaker 1: that those our tantamount to building a new national identity.
• 19:02
  Speaker 1: You know, think of the UAE as a destination, not
• 19:05
  Speaker 1: as a place of oil wealth. I love that Paul
• 19:08
  Speaker 1: is interested in, you know, how businesses are expanding into
• 19:11
  Speaker 1: theme parks and I'm just wondering, are my children going
• 19:14
  Speaker 1: to die on these things? And I'm wondering, you know,
• 19:15
  Speaker 1: there's a rumor. I remember a sort of old wives
• 19:19
  Speaker 1: tale that crazy people design these. Uh is that true
• 19:22
  Speaker 1: that they sort of get mad men to go in
• 19:23
  Speaker 1: there and imagine the craziest pattern and then they create
• 19:27
  Speaker 1: that recreate that. You know, you'd be surprised. I mean,
• 19:30
  Speaker 1: there is a crazy aspect to it, right, But but
• 19:32
  Speaker 1: we're working with some of the most precise Swiss engineers
• 19:37
  Speaker 1: in the world who are calculating g forces that your
• 19:40
  Speaker 1: children would experience on the ride. And it is they
• 19:43
  Speaker 1: know so much now about the physiological effects of rides
• 19:47
  Speaker 1: that you know, what a person can tolerate and what
• 19:49
  Speaker 1: a broad range of people can tolerate. Right, So, um,
• 19:52
  Speaker 1: they're very precise about all this, so don't worry. And
• 19:56
  Speaker 1: how much is sort of an average cause to how
• 19:59
  Speaker 1: much can people charged for one ride? Oh, I don't know.
• 20:02
  Speaker 1: You know, most of them are packaged in the context
• 20:04
  Speaker 1: of large attractions like theme parks and so uh. But
• 20:08
  Speaker 1: it is interesting that there are r a y on
• 20:10
  Speaker 1: a new coaster in an existing theme park. You know,
• 20:12
  Speaker 1: this thing is often pained for itself within a year
• 20:14
  Speaker 1: or two. And that's remarkable. Yeah, it's it's just amazing.
• 20:17
  Speaker 1: You know, when the Comcast Corporation bought NBC Universal. They
• 20:21
  Speaker 1: kind of thought the theme park business, which is a
• 20:23
  Speaker 1: throwaway business. They were buying the cable networks and the
• 20:25
  Speaker 1: studios and things like that. But they've since found that
• 20:28
  Speaker 1: it is one of the best, consistent, most profitable businesses,
• 20:31
  Speaker 1: uh they have. So, so, what are some of the
• 20:34
  Speaker 1: cool projects you're either working on or have you've recently launched.
• 20:37
  Speaker 1: What are you guys doing well? Since we were talking
• 20:39
  Speaker 1: about the global theme park industry, I would mention Ocean Kingdom,
• 20:42
  Speaker 1: which was built in China before Disney Shanghai opened, and
• 20:47
  Speaker 1: until Disney Shanghai opened, I would say it was probably
• 20:49
  Speaker 1: the best, arguably the best theme park in China, built
• 20:52
  Speaker 1: near Hong Kong and Macau. And in fact, one of
• 20:54
  Speaker 1: the big plans for that park was that the Hong
• 20:57
  Speaker 1: Kong to chew Hi Bridge would open. It's the largest,
• 21:00
  Speaker 1: the longest oversea bridge in the world, so it's fifty
• 21:03
  Speaker 1: two kilometers, So now you can go directly from Hong
• 21:05
  Speaker 1: Kong to this park and and without a necessarily even
• 21:09
  Speaker 1: having a Chinese visa, so that that that project is
• 21:12
  Speaker 1: now hosting about ten million visitors a year. So I'm
• 21:15
  Speaker 1: wondering you know, we hear a lot about the experience
• 21:18
  Speaker 1: and how important it is. I'm wondering, can you imagine
• 21:20
  Speaker 1: a Macy's roller coaster and orders from roller coaster at
• 21:22
  Speaker 1: will point to two retailers and malls get into it.
• 21:26
  Speaker 1: You know, it's interesting. I think that I think that
• 21:28
  Speaker 1: there's a lot of room for growth. I mean, I
• 21:30
  Speaker 1: think that the new wave of intellectual properties that we
• 21:34
  Speaker 1: see connected to theme park and roller coaster experiences are
• 21:37
  Speaker 1: video games for instance, you know, highly immersive story based
• 21:41
  Speaker 1: experiences that that are very visceral, right, so it translates
• 21:44
  Speaker 1: beautifully into something like a like a ride. Um. But yeah,
• 21:47
  Speaker 1: I think I think that more consumer brands will find
• 21:50
  Speaker 1: their way into this into this area as well. And
• 21:52
  Speaker 1: what are some of the technologies that are driving And
• 21:55
  Speaker 1: you said, you've you know, you've got some of these
• 21:56
  Speaker 1: amazing world class and engineers. I would think, you know,
• 22:00
  Speaker 1: consumers they you know, just I would guess their demands
• 22:02
  Speaker 1: are always going up in the Millennials want this wonderful experience.
• 22:06
  Speaker 1: What are some of the new technologies that you think
• 22:08
  Speaker 1: you're going to be important going forward? Well, I think
• 22:09
  Speaker 1: I think the integration of story and media is going
• 22:12
  Speaker 1: to change continue to change this. Obviously with you know,
• 22:15
  Speaker 1: the Harry Potter project down in Orlando for the Universal,
• 22:18
  Speaker 1: they went into new avenues of exploration of how you
• 22:23
  Speaker 1: how you take a coaster which is a moving experience
• 22:25
  Speaker 1: and yet you have it makes sense visually and you know,
• 22:28
  Speaker 1: cognitively to to a visitor flying through some environment and
• 22:32
  Speaker 1: the story is still powerful and apparent to you know,
• 22:34
  Speaker 1: the hippogriff is chasing you or whatever whatever it is.
• 22:37
  Speaker 1: But I think that you know, we we we put
• 22:40
  Speaker 1: VR glasses on people. You know, you've done all of
• 22:42
  Speaker 1: this sort of thing. That's so cool. So what's been
• 22:45
  Speaker 1: your favorite project to work on? You know, I don't
• 22:50
  Speaker 1: choose between my children right now. I think I think
• 22:53
  Speaker 1: that that, uh, there are a lot of good ones.
• 22:55
  Speaker 1: I think some of them are not theme park based. Okay,
• 22:58
  Speaker 1: So so I love the American Space program. So we
• 23:01
  Speaker 1: did a project called Space Shuttle Atlantis at Kennedy Space Center,
• 23:04
  Speaker 1: which celebrated the completion of the Space Shuttle program and
• 23:07
  Speaker 1: and is now you know, hosting a couple of million
• 23:10
  Speaker 1: people a year there. And it's not the biggest thing
• 23:12
  Speaker 1: we've ever done, about a hundred million, but it's but
• 23:14
  Speaker 1: it's very powerful, and it replicates the experience of launching
• 23:17
  Speaker 1: into space. It does, and it also has the actual
• 23:20
  Speaker 1: space shuttle Space Shuttle Atlantis, which went into space thirty
• 23:23
  Speaker 1: three times and fortunately came back so we can put
• 23:26
  Speaker 1: it in a museum. That's so cool. How many times
• 23:29
  Speaker 1: in a row can you go on a I don't know.
• 23:31
  Speaker 1: It's again. We had a lot of fun in the
• 23:34
  Speaker 1: early days, you know that was that was a lot
• 23:35
  Speaker 1: of fun. But that my kids love it. And I
• 23:37
  Speaker 1: tell you that the team park business is a fantastic
• 23:39
  Speaker 1: business and the millennials love the experience absolutely. Mike cons
• 23:42
  Speaker 1: and thank you so much for being with us. My
• 23:44
  Speaker 1: Consint a chief executive officer of p G a V
• 23:47
  Speaker 1: Destinations based in St. Louis, joining us here in our
• 23:50
  Speaker 1: Bloomberg Interactive Brokers studios. I gotta say I can't go
• 23:54
  Speaker 1: on roller coasters the way I used to, but they
• 23:56
  Speaker 1: always look amazing. And I will say Coney Island is
• 23:59
  Speaker 1: a lot of fun too. On the phone with us
• 24:12
  Speaker 1: to discuss what's going on in the US airline businesses
• 24:15
  Speaker 1: George Ferguson. George is a senior aerospace, defense and airline
• 24:19
  Speaker 1: analyst at Bloomberg Intelligence He comes to us from Bloomberg
• 24:22
  Speaker 1: Intelligence headquarters in Princeton, New Jersey. So, George, thanks for
• 24:25
  Speaker 1: being with us. And I know you're busy this morning
• 24:27
  Speaker 1: with a lot of these earnings, resorts reports and pretty
• 24:30
  Speaker 1: good numbers. So what are the highlights from your perspective? Yeah,
• 24:33
  Speaker 1: I think the markets. Uh, well, first, good morning, thanks
• 24:36
  Speaker 1: for having on. Paul. Good good talk to you. Um.
• 24:39
  Speaker 1: I think the excitement here is is a bit about American,
• 24:41
  Speaker 1: which is showing capacity increases I think lower than we
• 24:46
  Speaker 1: all expected. Um, They're a little more contained, and I
• 24:50
  Speaker 1: think there's some hope in the industry that we could
• 24:52
  Speaker 1: see less capacity come to the business over which would
• 24:56
  Speaker 1: help fairs. Uh. You know, if we can get fairs
• 24:59
  Speaker 1: to rise in this busines, we could probably improve profit
• 25:01
  Speaker 1: margins year over year. What about pricing power? Yeah, So
• 25:06
  Speaker 1: what I told you was where I thought the excitement
• 25:08
  Speaker 1: was coming from. Um, what I think is that there's
• 25:11
  Speaker 1: still too much capacity coming to this market and that's
• 25:13
  Speaker 1: going to really challenge pricing power. So American looked kind
• 25:18
  Speaker 1: of contained in their discussions about capacity uh this morning.
• 25:22
  Speaker 1: But we've got Delta and United, which you're adding. I
• 25:25
  Speaker 1: think you know, United have like five percent in the
• 25:27
  Speaker 1: first quarter, Delta like four percent. We're still growing, They're
• 25:32
  Speaker 1: still growing at rates above GDP growth, and so we
• 25:36
  Speaker 1: think that's a negative for pricing power. Well, most people
• 25:40
  Speaker 1: are are predicting, most airlines predicting guiding to sort of
• 25:44
  Speaker 1: flat to hire uh you know, revenue per available seat
• 25:49
  Speaker 1: mile or whatever metric they're using. I think there's still
• 25:53
  Speaker 1: some some potential here for weekness. We could be flat
• 25:55
  Speaker 1: or even down. And I think another challenge we have
• 25:58
  Speaker 1: out there is this him it shut down, and as
• 26:01
  Speaker 1: it drags on, I think there's a risk that flyers
• 26:04
  Speaker 1: won't want to be booking uh, you know, trips, they
• 26:07
  Speaker 1: won't be going to the airport and managing potential risk
• 26:09
  Speaker 1: with security. So I think one que especially, we could
• 26:13
  Speaker 1: have some challenges from that as well. But I think
• 26:15
  Speaker 1: pricing power is the big challenge. So what did the
• 26:17
  Speaker 1: as you listen to the quarterly conference calls with management,
• 26:20
  Speaker 1: what are they saying about the shutdown? Are they in
• 26:23
  Speaker 1: fact seeing any early signs to demand? Yes, so I'd say,
• 26:28
  Speaker 1: you know, United in Delta came much earlier, so there
• 26:30
  Speaker 1: wasn't a lot of commentary. We've just gotten through American
• 26:33
  Speaker 1: now it's it's closing as we speak. UM, not a
• 26:36
  Speaker 1: lot of commentary on the government shutdown yet. I've seen
• 26:40
  Speaker 1: some numbers thrown around the industry that maybe it's impacted
• 26:44
  Speaker 1: revenues by a hundred or a hundred and fifty million
• 26:46
  Speaker 1: dollars or you know, sort of a hundred million dollar levels.
• 26:49
  Speaker 1: And we're talking about industry that's going to have probably
• 26:53
  Speaker 1: thirty billion in revenues in one queue. So so far,
• 26:57
  Speaker 1: estimates are that it really hasn't impacted much. But remember,
• 27:01
  Speaker 1: we've gone through one miss paycheck, um, and we're getting
• 27:04
  Speaker 1: ready to come up to the second miss paycheck for
• 27:06
  Speaker 1: T s A workers this Friday, and I think things
• 27:09
  Speaker 1: get a bit more precarious after that about getting this
• 27:12
  Speaker 1: people to strow up to work, and you know, clearing
• 27:15
  Speaker 1: security lines are having security lines flow smoothly. So, George,
• 27:19
  Speaker 1: can you set us up taking a step back at
• 27:21
  Speaker 1: the war between the older behemoths in the airline industry
• 27:26
  Speaker 1: and the sort of newer upstarts that have catered to
• 27:29
  Speaker 1: people who are looking for discount fairs Southwestern Jet Blue
• 27:32
  Speaker 1: versus Delta an American, And I'm wondering how that's lighting up,
• 27:35
  Speaker 1: And I'm I'm pitting these against each other because of
• 27:39
  Speaker 1: the unions, because of the legacy workers and some of
• 27:42
  Speaker 1: the other issues that Delta an American have been pretty
• 27:46
  Speaker 1: vocal about. Where are we on that? Yeah, I mean,
• 27:49
  Speaker 1: so we expect it. We haven't gotten a full guide
• 27:52
  Speaker 1: into some of those fast movers yet, but we've looked
• 27:57
  Speaker 1: at the number of airplanes they're receiving and some of
• 27:59
  Speaker 1: their sc jeels guidance, and we really expect that. You know,
• 28:03
  Speaker 1: the ones that will bring a lot of capacity to
• 28:05
  Speaker 1: the market, the airlines and bring a lot of capacity
• 28:07
  Speaker 1: will be Frontier, will be Spirit airlines, even Jet Blue
• 28:12
  Speaker 1: is probably a bit a bit contained Southwest, those even
• 28:16
  Speaker 1: talking about five pc growth. So I think what you
• 28:19
  Speaker 1: had here is you have these these ultra low costs
• 28:21
  Speaker 1: which have absolutely the cheapest cost to deliver seats in
• 28:25
  Speaker 1: the air continue to add large amounts of capacity because
• 28:30
  Speaker 1: airplanes are relatively cheap, less lessers, least rates, and some
• 28:34
  Speaker 1: of the newest airplanes are actually dropping right now. Um,
• 28:37
  Speaker 1: so these airlines can go secure lift fairly cheaply, and
• 28:41
  Speaker 1: they're really expanding and looking for market share. And if
• 28:44
  Speaker 1: you're Southwest, you just can't let that happen, uh more
• 28:47
  Speaker 1: so than the Americans and the United's UM and the Deltas,
• 28:51
  Speaker 1: which have more of a business component. But but so
• 28:54
  Speaker 1: I think, you know, part of this drive is again
• 28:56
  Speaker 1: those ultralow costs, which which can deliver seat miles cheaper,
• 29:00
  Speaker 1: contuning continue to keep the heat on the industry, and
• 29:03
  Speaker 1: it's hurting. You know, it's hurting the Southwest. It's even
• 29:06
  Speaker 1: hurting the Deltas, United's and Americans because of the back
• 29:09
  Speaker 1: of their cabins are filled with flyers that are flying
• 29:12
  Speaker 1: once or twice a year and are very, very price sensitive.
• 29:15
  Speaker 1: And I think and see sort of get that get
• 29:18
  Speaker 1: some relief from that aggressive expansion from those UH spirits
• 29:23
  Speaker 1: and UH and Frontiers and allegiance, it's going to be
• 29:26
  Speaker 1: hard to see pricing power come back to this industry.
• 29:28
  Speaker 1: Let's look at the cost side of the equation a
• 29:30
  Speaker 1: little bit, George. We've got the crude oil down around
• 29:33
  Speaker 1: fifty two a barrel. I'm guessing fuel has the relatively
• 29:37
  Speaker 1: lower fuel costs have been a tail wind, so to speak,
• 29:40
  Speaker 1: for the airlines. What are they saying about their outlook
• 29:42
  Speaker 1: for fuel? Yeah, so you know we're hearing a lot
• 29:45
  Speaker 1: of them give us uh, guidance for at least one
• 29:48
  Speaker 1: queue and sort of the two two dollars and five
• 29:51
  Speaker 1: cent range that's gonna look. It's gonna look a little
• 29:54
  Speaker 1: bit lower than some of them paid last year, but
• 29:56
  Speaker 1: not a lot. So it's so it's not a lot
• 29:59
  Speaker 1: of a pickup. You know. One of the perverse problems
• 30:02
  Speaker 1: with that is that as fuel prices stay contained, older
• 30:07
  Speaker 1: airplanes are more economical to fly, and so more people
• 30:11
  Speaker 1: fly more of their equipment instead of retiring it because
• 30:13
  Speaker 1: of uh, you know, because of an efficiency, and that
• 30:16
  Speaker 1: sort of leads to a little more capacity in the industry.
• 30:19
  Speaker 1: So it's it's kind of a double edged sword there.
• 30:22
  Speaker 1: So George, as you're talking, I just pulled up Google
• 30:25
  Speaker 1: Flights since sort of thinking, all right, I want to
• 30:27
  Speaker 1: check out some of these prices that are rock bottom.
• 30:29
  Speaker 1: They're not that rock bottom. First of all, let's just
• 30:31
  Speaker 1: put that out there. And then you also have a
• 30:33
  Speaker 1: situation where you're paying for everything under the sun, from
• 30:36
  Speaker 1: your coke can to the extra space that you have
• 30:38
  Speaker 1: to breathe right above your nose. I'm just wondering, do
• 30:41
  Speaker 1: you expect an increase in those add ons that you
• 30:44
  Speaker 1: have to pay for that we see as a common
• 30:47
  Speaker 1: feature of the frontiers of the world, for example. So
• 30:50
  Speaker 1: I don't expect an increase. I expect that they'll continue
• 30:53
  Speaker 1: the strategy that if you show up at the airport
• 30:56
  Speaker 1: and you don't know whether or not you've got bags,
• 30:58
  Speaker 1: you've got your bags on the flight, you'll find it
• 31:01
  Speaker 1: that you probably haven't paid for the bags, and it's
• 31:03
  Speaker 1: going to cost you a heck of a lot more
• 31:04
  Speaker 1: at the airport than it will at you know, if
• 31:08
  Speaker 1: you did it when you booked, So if you had
• 31:11
  Speaker 1: any questions about whether you did have an extra fee,
• 31:13
  Speaker 1: the answer is yes. George Ferguson, we love having you on.
• 31:17
  Speaker 1: Thank you so much. George Ferguson, Senior Aerospace, Defense and
• 31:20
  Speaker 1: Airlines analyst for Bloomberg Intelligence. Thanks for listening to the
• 31:24
  Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
• 31:27
  Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.
• 31:30
  Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
• 31:33
  Speaker 1: abram Woyit's I'm on Twitter at Lisa abram woits one
• 31:36
  Speaker 1: before the podcast. You can always catch us worldwide on
• 31:39
  Speaker 1: Bloomberg Radio.