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S&P 500 Earnings Outlook · Bloomberg Intelligence

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Speaker 3: So I don't know if you know this, guys, but
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Speaker 3: four point six trillion dollars worth of market cap is
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Speaker 3: reporting this week.
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Speaker 4: It was the third I.
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Speaker 3: Think busiest week for the S and P in terms
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Speaker 3: of earnings. John Tucker super pumped. So I was reading,
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Speaker 3: I'm Gina marn Adams Bloomberg Intelligence. He's a senior, a
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Speaker 3: chief equity strategist, I should say, and they were kind
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Speaker 3: of taking that broader look on the earning season, and
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Speaker 3: she'd a really interesting point, And Gina, this is why
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Speaker 3: I wanted to get you on to talk about it.
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Speaker 3: You guys say that if you look at guidance by
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Speaker 3: the firms looking at about sixteen percent earnings growth, but
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Speaker 3: earning's growth by analysts sees significantly less.
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Speaker 4: Is that kind of gap weird?
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Speaker 5: It is unusually large what we do find. Alex, First,
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Speaker 5: thank you for having me on. Thank you for reading
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Speaker 5: the work oh always. What we usually find is that
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Speaker 5: company's guidance is a pretty good proxy for what to
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Speaker 5: expect during the earning season. Analysts over the last several
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Speaker 5: quarters have underestimated earnings have also undershot guidance, not just
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Speaker 5: by this huge amount though. For instance, coming into the
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Speaker 5: second quarter earning season, analysts we're expecting about eight percent
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Speaker 5: earnings growth, our guidance model was saying twelve. We ended
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Speaker 5: up getting fourteen. This time around, analysts are expecting merely
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Speaker 5: four percent earnings growth and our guidance model is saying
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Speaker 5: fifteen sixteen, So it's a very big gap. I think
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Speaker 5: a couple of things really explain the gap this time around.
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Speaker 5: The first is when you look at the sector concentration
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Speaker 5: of guidance, only about a fifth of S and P
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Speaker 5: five hundred companies tend to guide earnings. That tend that
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Speaker 5: surprises a lot of people. It's not every company gives
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Speaker 5: us guidance. We have to rely on a small subset
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Speaker 5: of companies for this analysis. But nonetheless, of those about
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Speaker 5: one hundred companies that give us guidance, most of them
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Speaker 5: are tech, communications and consumer discretionary companies, so they also
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Speaker 5: are concentrated in certain sectors. Now, Tech and communications in particular,
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Speaker 5: we know are the strongest segments of the S and
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Speaker 5: P five hundred. We've seen that play out over the
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Speaker 5: last year and a half. The weakest players in the
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Speaker 5: S and P five hundred are energy companies. They're still
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Speaker 5: producing double digit declines and earnings. Analyst consensus thinks they're
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Speaker 5: going to give us another twenty percent drop in earnings
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Speaker 5: year over year. They don't give us guidance at all.
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Speaker 5: For the most part, they're just absent in the guidance trends,
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Speaker 5: so that we could have a sector skew happening. Nonetheless,
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Speaker 5: that sector skew existed last quarter, and it gave us
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Speaker 5: pretty good indication that analysts were too bearish.
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Speaker 6: Maybe it's just I want to underpromise and over deliver
2:59
Speaker 6: from my bi rated stocks. That's been known to happen,
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Speaker 6: you know, once or twice. Yeah, once or twice. I
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Speaker 6: never did it, of course, But no, no, no, of course.
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Speaker 7: Yeah.
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Speaker 6: Talk to us about the Magnificent seven and their presence
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Speaker 6: in the marketplace in terms of taking this market higher.
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Speaker 6: How important are they still and maybe from an earning's
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Speaker 6: perspective to.
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Speaker 5: Yeah, well, clearly the market moves higher faster when the
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Speaker 5: MAG seven are rising. Right when the Mag seven are leading,
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Speaker 5: as we saw for the last majority of the last
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Speaker 5: year or so, the market moves up at a faster
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Speaker 5: pace because they're the bigger stocks. They're the biggest market
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Speaker 5: cap latings they do matter. You can, however, have periods
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Speaker 5: of time in which the Magnificent seven are not leading
3:40
Speaker 5: the market and you still have games. The third quarter
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Speaker 5: was a good example of that. The Mag seven really
3:45
Speaker 5: sputtered a bit in the third quarter sort of. We
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Speaker 5: saw rotation move into other stocks. All other sectors started
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Speaker 5: to break out in the month of August, reaching new
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Speaker 5: highs when the Mag seven was still struggling beneath its
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Speaker 5: former peak, and stocks still rose, but the rate of
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Speaker 5: appreciation in the S and P five hundred does shift
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Speaker 5: when your smaller players are rising faster than your bigger players.
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Speaker 5: The worst case scenario is the MAG seven falls. It's
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Speaker 5: really difficult for the index to make gains when the
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Speaker 5: Mag seven is selling off because they're so big. In particular,
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Speaker 5: Tech and communications as whole sectors are gigantic. They're forty
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Speaker 5: percent of the market cap of the index. So when
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Speaker 5: those stocks are struggling it's very difficult for the rest
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Speaker 5: of the S and P to recover, particularly at this
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Speaker 5: stage of the cycle when you still have commodity prices
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Speaker 5: and commodity length sectors as operating as a drag on
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Speaker 5: index and a drag on index earnings. You do need
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Speaker 5: some stability in the rest of the index to overcome
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Speaker 5: that earnings drag and that price drag. But they are
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Speaker 5: still important. It's a matter of degree of importance, and
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Speaker 5: you know, they're very important to the rate of appreciation
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Speaker 5: in the market. They're very important to the overall trend
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Speaker 5: in the market, and increasingly important also as a driver
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Speaker 5: of earnings growth on the S and P five hundred.
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Speaker 3: Right, because of the hyperscaler situation, Like the more capex
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Speaker 3: they spend, the more it trickles down into other sectors
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Speaker 3: and other companies as well. What kind of capac spend
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Speaker 3: from the hyperscaler is you think we're going to see
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Speaker 3: for next year, and has that compare, say to this year,
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Speaker 3: and is that like a disappointment, like what is good
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Speaker 3: and bad? I'm using air quotes.
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Speaker 5: Yeah, I don't have any specific numbers on the hyperscalers.
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Speaker 5: In particular, I would lean on our analysts in order
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Speaker 5: to sort of derive those type of nuanced expectations or
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Speaker 5: micro expectations. In terms of macro, what we're seeing is
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Speaker 5: companies have realigned their capital spending in line with their sales,
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Speaker 5: So capex ratios capex to sales ratios across the s
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Speaker 5: and P five hundred are very close to normalized. Now
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Speaker 5: we're looking at still double digit capital spending growth, but
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Speaker 5: that's down from extreme rapid capital spending growth coming out
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Speaker 5: of the recession that we had in twenty twenty two.
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Speaker 5: The vast majority of that improvement has come from tech
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Speaker 5: and communication stocks, but you're seeing across the board more
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Speaker 5: normalized capital spending, with the exception again of energy, where
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Speaker 5: this is just a big drag on the index. The
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Speaker 5: commodity sensitive segments of the index are still experiencing low
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Speaker 5: capex relative to sales. I do think that tech is
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Speaker 5: a big portion of the overall optimism with respect to capex,
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Speaker 5: but it's not the only thing happening. Healthcare is another
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Speaker 5: area where we should see improvement in capital spending. Financials
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Speaker 5: have been somewhat reticent to improve their capital spending pace,
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Speaker 5: as we've been quite cautious or many financials managers have
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Speaker 5: been quite cautious with respect to the outlook. That group
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Speaker 5: is starting to talk about spending on AI, for example,
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Speaker 5: so that's something to watch going into twenty twenty five.
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Speaker 5: The long story short is CAPEX will still likely contribute
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Speaker 5: to growth and likely contribute to overall optimist The only
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Speaker 5: area where we may be spending a little too much
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Speaker 5: is in tech and communications is among these companies where
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Speaker 5: they've ramped up spending so fast, sales now need to
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Speaker 5: spend a little bit of time catching up to accommodate
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Speaker 5: that spending pace.
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Speaker 6: So what sectors are screening well for you guys these days, Gina.
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Speaker 5: Sure, it's a combination, a strange combination of cyclicals and
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Speaker 5: defensive sectors. We actually still have both tech and communications
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Speaker 5: the giants in the middle of our sectors scorecard. That
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Speaker 5: happened for the first time in several quarters back in June.
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Speaker 5: They dropped out of the leadership position on our sector
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Speaker 5: rotation model and have been kind of sitting in the
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Speaker 5: middle instead. It's more segments like healthcare, which was a
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Speaker 5: big laggard last year, still a growth industry, but a
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Speaker 5: little bit of defensive quality. Real estate is toward the
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Speaker 5: top of our sector's scorecard. Even some of the consumer
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Speaker 5: stocks and the consumer staples group with screen as relatively
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Speaker 5: well positioned given the dynamics of sectors right now, and
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Speaker 5: interest rates seem to be driving a lot of choices
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Speaker 5: because financials and utilities are toward the top of the
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Speaker 5: scorecard as well, So fat that the Fed is reversing policy,
8:14
Speaker 5: creating a potential improvement and lending conditions. Also, that rally
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Speaker 5: in the long end of the curve, reducing pressure on
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Speaker 5: some of the high borrowers in the index does seem
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Speaker 5: to be characterizing the sector scorecard to some degree. At
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Speaker 5: the same time, recovery and laggarts, So recovery and earnings
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Speaker 5: laggards such as healthcare, real estate is starting to show.
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Speaker 3: Up, all right, you know, super appreciate it. It was a
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Speaker 3: really great piece. I love digging into all your research,
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Speaker 3: you know, Martin Adams, she heads up our equity strategist
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Speaker 6: Crazy story out there Southwest Airlines one of my favorite
9:12
Speaker 6: stock symbols love LUV for love Field. Out there in
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Speaker 6: the Dallas area, they have Elliott Management Investment Management calling
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Speaker 6: for a special shareholder meeting, which is kicking off their
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Speaker 6: firm's first US proxy fight since twenty seventeen. Let's get
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Speaker 6: the latest reporting all that, Crystal see Bloomberg US Deals Reporter.
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Speaker 6: So Elliott Management, Southwest, Southwest Airlines, what's the history there?
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Speaker 8: Yeah, So Elliott actually unveild does Steak in June saying
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Speaker 8: that they have a significant position in Southwest and at
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Speaker 8: this point they have eleven percent steak in Southwest, which
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Speaker 8: is very very sizable in percentage and in a dollar
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Speaker 8: amount it works about two billion dollars. What we know
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Speaker 8: here is that Elliott's calling a special share owder meeting,
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Speaker 8: which is an out of cycle investment meeting, and they're
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Speaker 8: trying to elect eight members into the board.
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Speaker 3: Does love aka that's Luv is the ticket for Southwest?
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Speaker 4: Does Southwest have a leg to stand on?
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Speaker 8: So Southwest actually just put out a statement. They're saying
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Speaker 8: that they have made every effort to reach a constructive
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Speaker 8: resolution with Elliott. We all know that proxy fights are
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Speaker 8: very expensive, They're very time consuming. So I think what
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Speaker 8: Southwest here is saying that they've heard investors' feedback that
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Speaker 8: nobody wants to fight. And it's actually something that's very
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Speaker 8: common in the activism world that the investor would tell
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Speaker 8: you they don't want to fight, company tell you they
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Speaker 8: don't want to fight. Activists doesn't want to fight either,
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Speaker 8: but somehow they can't come to resolution, and here we are.
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Speaker 8: So the contention, the tension here is really that Southwest
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Speaker 8: has said that they are backing the management at backing
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Speaker 8: the CEO, Bob Jordan, and they will already they have
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Speaker 8: already done enough board refreshment, whereas Elliott thinks they need
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Speaker 8: a control in the board to bank further changes.
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Speaker 6: Well, as you point out, I mean you're reporting here
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Speaker 6: Elliott's they do this a lot in terms of activism,
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Speaker 6: but what they don't typically do is take it to
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Speaker 6: a shareholder vote. They usually get what they want. I
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Speaker 6: guess before then, what's different here, do you think?
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Speaker 8: Yeah, so they have never done the US proxy fight
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Speaker 8: since twenty seventeen. But this is quite significant in the
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Speaker 8: activism world. They are usually very effective. The second they
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Speaker 8: show up in any stock immediately the company take them,
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Speaker 8: you know, very seriously. They try to come to a
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Speaker 8: resolution because, like I said, proxy fights lengthy and costly.
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Speaker 8: But southrest here somehow it is like evolved into this
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Speaker 8: and that at many points, like people thought they could
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Speaker 8: have resolved. But I guess, like, yeah, there's some differences here.
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Speaker 3: What does Elliott want Southwest to do that Southwest is
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Speaker 3: not doing because you'd think at this point it'd be
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Speaker 3: like all options, all hands on Southwest deck here.
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Speaker 8: Yes, So Elliott has asked for three main things, which
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Speaker 8: is leadership change, management change, board change, as well as
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Speaker 8: operational improvement. And they've they've kind of pinned this on
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Speaker 8: the CEO, Bob Jordan this whole time, saying that he's
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Speaker 8: not the right person to execute whatever strategy that the
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Speaker 8: company has put out. The company has said they would
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Speaker 8: add revenue, they would cut cost.
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Speaker 5: Uh.
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Speaker 8: They even like kind an investor day in late September,
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Speaker 8: and none of that kind of I guess like fulfilled
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Speaker 8: like Elliott Stamon, which is a majority in the boardroom.
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Speaker 8: So this is where we are, and they're calling it
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Speaker 8: requested a meeting for December tenth, which is one of
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Speaker 8: the busiest traveling season in the US in the world,
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Speaker 8: and so it's an interesting timing. And this is also
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Speaker 8: one thing that Southwest is pointing at is like it's
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Speaker 8: they call this a selfish request in their statements, saying
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Speaker 8: that it is a time where Southwest should be executing.
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Speaker 6: Southwest they in July adopted a poison pill, so they're
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Speaker 6: taking this seriously for sure.
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Speaker 8: Yeah, so a poison till is you know, as you know,
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Speaker 8: something that stopped someone from the hostel takeover. And Elliott
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Speaker 8: at that point had like close to ten percent, and
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Speaker 8: ten percent is a threshold to call a special meeting,
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Speaker 8: and the poison pillars for twelve and a half percent,
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Speaker 8: so it stops Elliott from getting more shares than that,
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Speaker 8: and once they do, acquiring more show would become really costly.
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Speaker 8: So it's also a kind of rare occurrence these days.
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Speaker 8: Not a lot of the company put in poison pills.
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Speaker 8: But again, Southwest is life full of surprises.
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Speaker 3: Yeah, tell me about it just before you go. How
13:27
Speaker 3: when these things unfold, is like Elliott Managements what they
13:31
Speaker 3: want now like here's the best bid, but like I'll
13:34
Speaker 3: take a little bit less, or do they really want
13:36
Speaker 3: to replace all these board seats, et cetera, et cetera.
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Speaker 8: So from our reporting, actually both sides have like spent
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Speaker 8: a lot of time trying to figure out like how
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Speaker 8: to not go to a fight, like whether we can
13:46
Speaker 8: do like Elliott had asked for majority seats. So at
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Speaker 8: one point they nominated ten directors, and then Southwest Change
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Speaker 8: came back and said, well, six of our directors left,
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Speaker 8: were three seats open, which you pick three instead? You know,
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Speaker 8: it's always a constant negotiation, is it? Three is a ten?
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Speaker 8: And I'm sure everything has been discussed. Everything you know
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Speaker 8: on the table has been has been talked about, and
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Speaker 8: but this is this is this is it? Like this
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Speaker 8: will be up to shareholders to vote on who actually
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Speaker 8: gets the majority in the boardroom.
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Speaker 3: All right, Crystal, thanks a lot, really appreciate it. Crystal
14:18
Speaker 3: see joining us Bloomberg US Deals reporter.
14:21
Speaker 4: That's kind of fuss fun something to talk about.
14:23
Speaker 6: I know, I like it.
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Speaker 3: from Interactive Broker Studio right here in midtown Manhattan. Those
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Speaker 3: bond guys are still sleeping, but we're here and we're
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Speaker 4: Also working.
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Speaker 3: Christina Hooper, chief Global market strategist over at Invesco. She
14:56
Speaker 3: joins us now in studio. Christina, I keep but yeah, okay,
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Speaker 3: it's forty six record highs potentially if we close at.
15:03
Speaker 4: These levels for the SMP. Do you buy it?
15:05
Speaker 3: As in, are we climbing a walla warry? Or is
15:07
Speaker 3: this like a fundamentally lead driven rally and do you
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Speaker 3: buy it?
15:10
Speaker 9: I do buy it, so for a few reasons. First
15:13
Speaker 9: of all, we have central banks at our back. And
15:17
Speaker 9: it's not just the FED easing. We have a number
15:20
Speaker 9: of central banks easing. It's an environment of accommodation and
15:24
Speaker 9: that is supportive of risk assets, including equities, and I
15:27
Speaker 9: would argue that is the single largest driver of markets
15:32
Speaker 9: right now. But we also have an economy that is
15:34
Speaker 9: on pretty solid footing in the United States, and actually
15:38
Speaker 9: elsewhere not so bad either. We're getting stimulus from China,
15:42
Speaker 9: so I think the global picture is quite good, but
15:45
Speaker 9: in particular in the US, I think that this is
15:48
Speaker 9: an economy that is going to slow only modestly, and
15:51
Speaker 9: then is going to quickly reaccelerate, probably by the end
15:54
Speaker 9: of this year early next year.
15:56
Speaker 6: All right, Given that background stocks versus bonds, let's start there.
16:00
Speaker 9: So I think there's a place for both in one's portfolio.
16:03
Speaker 9: It's important to be well diversified. I would err on
16:06
Speaker 9: the side of an overweighting of stocks relative to bonds,
16:10
Speaker 9: but I still see an attractive picture, especially now that
16:13
Speaker 9: yields have backed up. As an entry point for fixed income.
16:17
Speaker 9: This is an economy. I mean, in a normal environment,
16:21
Speaker 9: what we would see is the FED cutting as an
16:24
Speaker 9: economy is in bad shape. This is a very different scenario.
16:28
Speaker 9: So we can go out on the risk spectrum when
16:31
Speaker 9: it comes to fixed income as well.
16:33
Speaker 3: Isn't the reacceleration though, a risk because if you get
16:36
Speaker 3: really reacceleration of growth and inflation, that means actually the
16:38
Speaker 3: Fed's going to have to revert and start hiking again.
16:40
Speaker 4: Is that a scenario for you.
16:42
Speaker 9: Well, that's certainly a risk, but I think it's an
16:45
Speaker 9: unlikely risk right now. And I'm looking at six months
16:48
Speaker 9: out and what I see as an attractive picture for equities,
16:51
Speaker 9: And let's face it, if we get to an environment,
16:54
Speaker 9: I think what's much more likely is that we have
16:56
Speaker 9: a FED that slows down is easy, and I'm very
16:59
Speaker 9: comfort with that because it's slowing down, it's easing for
17:02
Speaker 9: good reasons.
17:02
Speaker 6: So what do you think the FED will do for
17:04
Speaker 6: the remainder on the next three four meetings?
17:06
Speaker 2: Maybe?
17:06
Speaker 4: So I think that for.
17:08
Speaker 9: This year we're probably only going to get twenty five
17:10
Speaker 9: basis points more and I'm very comfortable with that through
17:14
Speaker 9: the end of twenty four, Okay, and then I think
17:16
Speaker 9: we will see continued easing next year and we'll probably
17:20
Speaker 9: get maybe one hundred, one hundred and twenty five basis
17:22
Speaker 9: points if all goes well with this economy, which knock
17:26
Speaker 9: on wood, will happen.
17:29
Speaker 4: If we do Tucker, did you have something?
17:32
Speaker 5: Oh?
17:32
Speaker 4: Oh if I'm just talking to myself, Ohky, it's.
17:34
Speaker 3: A distinction we need to make here over So, but
17:38
Speaker 3: if we only get twenty five to the rest of
17:39
Speaker 3: the year, and we have to price that out. Does
17:41
Speaker 3: that cause turbulence in the market or do you think
17:43
Speaker 3: then earnings will be strong enough to show guys we're good?
17:47
Speaker 9: I think so what we So we have gotten only
17:50
Speaker 9: a little bit of earning season thus far, but my
17:53
Speaker 9: takeaways are that the consumer is quite strong. Yes, there
17:58
Speaker 9: are there's weakness in lower income consumers, but the overall
18:02
Speaker 9: picture is a positive one. Companies are in pretty good shape,
18:06
Speaker 9: their plans to do more business travel next year. We're
18:11
Speaker 9: seeing a lot of different areas of real strength with
18:14
Speaker 9: a few pockets of weakness. So I think that absolutely
18:17
Speaker 9: can be the picture and can I think encourage investors
18:23
Speaker 9: to continue to move stocks higher this year.
18:26
Speaker 6: So are there sectors here that you want to play here?
18:29
Speaker 6: Because I'm I'm just looking at just at today's action.
18:31
Speaker 6: You know, the best performance has been some of the
18:33
Speaker 6: tried and true mag seven, the Invidios, the Metas, the
18:36
Speaker 6: Googles of the world. Are you comfortable still making that
18:39
Speaker 6: play or are you looking for value or in other
18:42
Speaker 6: parts of the market.
18:43
Speaker 9: So this is an environment that will support a big
18:46
Speaker 9: tent under which many asset classes can exist, Although I
18:50
Speaker 9: do think the greatest potential from here are the smaller
18:53
Speaker 9: caps and the cyclicals because they are so closely correlated
18:57
Speaker 9: with the economy, and if you believe there's going to
19:00
Speaker 9: be an economic reacceleration, then and I do, I would
19:03
Speaker 9: argue for at least a modest overweighting of the cyclicals
19:08
Speaker 9: and the small caps.
19:08
Speaker 3: It's interesting you say that because we had an article
19:10
Speaker 3: out today on the Boombrag that talked about how the
19:12
Speaker 3: russell is still ten percent below its record highs, but
19:15
Speaker 3: the small cap six hundred, which has more exposure to
19:18
Speaker 3: say quality, is almost near that twenty twenty one record.
19:22
Speaker 3: So is there a distinction within that small cap space.
19:25
Speaker 9: Well, I certainly think there is a distinction right now,
19:28
Speaker 9: but that could change. Again.
19:30
Speaker 4: We are just at.
19:31
Speaker 9: The start of what could be a significant economic reacceleration,
19:35
Speaker 9: so I won't dismiss parts of the small cap universe.
19:39
Speaker 9: What I would say though, is that right now, as
19:43
Speaker 9: there is still some hesitancy and apprehension, there's a fair
19:46
Speaker 9: amount of uncertainty about a lot of different things, including
19:49
Speaker 9: what the Fed's going to do and who's going to
19:51
Speaker 9: win the presidential election, we're likely to see more of
19:54
Speaker 9: a focus and a desire to be in quality.
19:59
Speaker 6: End the Bloomberg Index browser shows me kind of how
20:03
Speaker 6: the fixed income market is behaving, even though they're not
20:06
Speaker 6: working today. By far, the best performance has been US
20:10
Speaker 6: corporate high yield. Is that played out or is there
20:14
Speaker 6: still opportunity there? And I yield.
20:16
Speaker 9: I think there's opportunity there. It's not a surprise to me.
20:18
Speaker 9: In fact, I go back to the last time the
20:21
Speaker 9: FED was able to successfully tighten and avoid a recession,
20:25
Speaker 9: so that was ninety four ninety five. They began to
20:28
Speaker 9: cut in ninety five ninety six, and if you look
20:32
Speaker 9: at the first six months of performance for a variety
20:35
Speaker 9: of different asset classes, as the FED started to cut,
20:39
Speaker 9: high yield bonds did very well in that period. And
20:43
Speaker 9: I'm not surprised because they were cutting into a good environment,
20:48
Speaker 9: not dissimilar to where we are today.
20:50
Speaker 3: Do you think that the post election makeup will be
20:53
Speaker 3: a headwind or a tailwind?
20:55
Speaker 4: I can see a case for both.
20:56
Speaker 3: Right, you get a headwind corporate taxes and tariffs is
21:00
Speaker 3: uncertainty removed in some capacity. Therefore there's been capex companies
21:04
Speaker 3: on the sidelines, not doing stuff they want to do,
21:06
Speaker 3: and therefore they go do it.
21:07
Speaker 4: Which one? Which camp are you in?
21:09
Speaker 5: Here.
21:09
Speaker 9: I think it's going to be a net positive because
21:11
Speaker 9: we are going to see people coming off the sidelines
21:13
Speaker 9: we saw in the Federal Reserve Beige Book, and we're
21:15
Speaker 9: hearing it in some of the earnings calls that there
21:18
Speaker 9: are companies and consumers that are sitting on their hands
21:22
Speaker 9: right now, and so I think that encourages them to
21:25
Speaker 9: come back in spend more. So I think it's a
21:28
Speaker 9: net positive. Also, I harken back to the view that
21:32
Speaker 9: it is the FED that is a far more important
21:35
Speaker 9: driver earnings.
21:37
Speaker 6: Just starting here, What do you need to see from
21:40
Speaker 6: Corporate America this earning season.
21:42
Speaker 9: Well, I think they're going to beat expectations. That's what
21:44
Speaker 9: we need to see, and I think it's going to
21:46
Speaker 9: be very easy to do that. Expectations have been managed well,
21:50
Speaker 9: have been essentially downwardly revised, and so it's going to
21:54
Speaker 9: be able to They're going to be able to beat
21:56
Speaker 9: expectations by a significant amount, and I think that's.
21:59
Speaker 4: Really all we need to see.
22:00
Speaker 9: Also, I think it's important the guidance that we get
22:03
Speaker 9: for the future, and I think we will get relatively
22:06
Speaker 9: positive guidance.
22:07
Speaker 3: Can we briden out for sec where else outside the
22:11
Speaker 3: US is a good opportunity.
22:12
Speaker 9: Well, I'm excited about UK equities.
22:15
Speaker 4: What said?
22:16
Speaker 3: No one literally ever that that's not true? One or
22:20
Speaker 3: two people maybe in my time.
22:22
Speaker 4: How come? Well, valuations are very attractive, as they have
22:25
Speaker 4: been forever.
22:26
Speaker 9: Okay, But the catalyst is that we are now in
22:31
Speaker 9: an easing cycle and that certainly will be a helpful driver.
22:34
Speaker 9: It's also an economy that's actually in relatively good shape now.
22:38
Speaker 9: Consumer sentiment has turned negative recently, and I think what
22:41
Speaker 9: we're seeing is a sitting on of hands, not dis
22:44
Speaker 9: similar to the US right now because everyone's waiting and
22:48
Speaker 9: worrying about the autumn budget. But once that has been released,
22:51
Speaker 9: I think we can move on from there, and that
22:54
Speaker 9: could very well be a catalyst in and of itself.
22:57
Speaker 6: Which aid Keir Starmer on saying that the UK is
23:00
Speaker 6: open for business.
23:01
Speaker 4: I bet he did.
23:02
Speaker 6: Yeah, yeah, all right, So AI. It seems like the
23:05
Speaker 6: AI hype in the market has kind of faded a
23:09
Speaker 6: little bit now. People are starting to think about I
23:11
Speaker 6: don't know, mundane things about getting returns on investment and
23:14
Speaker 6: use cases and so on and so forth. How do
23:18
Speaker 6: you guys that invest go, how do your tech people
23:20
Speaker 6: what do they tell you about AI and what you
23:22
Speaker 6: should be paying for it and how you should be
23:24
Speaker 6: getting exposure to it.
23:26
Speaker 9: Well, when we think about AI, it's really about how
23:30
Speaker 9: it can help companies and how it can help the economy,
23:33
Speaker 9: as opposed to I'm not thinking so much about myself,
23:37
Speaker 9: and so I'm excited. I think that certainly there has
23:41
Speaker 9: been a trend towards over investment in AI, but companies
23:46
Speaker 9: are making a rational decision and saying that it makes
23:50
Speaker 9: sense that the opportunity cost of not investing that risk
23:55
Speaker 9: is far more significant. And by the way, there are
23:57
Speaker 9: some ancillary benefits to invest in that it structurally improves
24:02
Speaker 9: their technology in general, and they're better poised for the future.
24:08
Speaker 9: As a result, we're already seeing that companies are getting
24:13
Speaker 9: benefits from their AI investment. On an earnings call less quarter,
24:17
Speaker 9: I believe it was Walmart that talked about how AI
24:20
Speaker 9: has helped with online sales, and that is not an anomaly.
24:26
Speaker 9: A number of companies are seeing that, and that's just
24:28
Speaker 9: the low hanging fruit. I think we're going to see
24:31
Speaker 9: AI pay dividends for years to come.
24:33
Speaker 3: So pause into AI and I want to talk about
24:35
Speaker 3: China Xus there. So just quickly, we have about a
24:38
Speaker 3: minute left. If you're talking about a global using cycle
24:41
Speaker 3: in essence exception of Japan, does China fit that bill
24:44
Speaker 3: for you?
24:45
Speaker 9: Absolutely? It is a very stimulative environment right now in China,
24:51
Speaker 9: and it's not just monetary policy. We're getting fiscal stimulus
24:54
Speaker 9: as well, and I think that is very compelling.
24:57
Speaker 6: A lot of China folks felt like it wasn't enough,
25:00
Speaker 6: and I guess some people are saying, yeah, maybe it's
25:02
Speaker 6: not enough, but there's more to come, so don't worry
25:04
Speaker 6: about it. I mean, I don't follow that closely to you,
25:06
Speaker 6: is it?
25:08
Speaker 7: So?
25:08
Speaker 9: I think I think it's more about we don't have
25:11
Speaker 9: enough details yet, Although I'm excited. There are slow rolling
25:15
Speaker 9: out details, but everything we've heard thus far suggests these
25:18
Speaker 9: are going to be more structural reforms aimed at supporting
25:22
Speaker 9: the economy over the medium and longer term. So we
25:25
Speaker 9: might not get that immediate payoff, but as details continue
25:30
Speaker 9: to emerge, I think the picture will get more and
25:33
Speaker 9: more positive.
25:34
Speaker 3: Right It's not like cutting checks right now to help
25:36
Speaker 3: stimulates a little bit more nuanced. Christina, it's so good
25:39
Speaker 3: to see you, so thanks so much for.
25:40
Speaker 4: Coming, and we really appreciate it.
25:41
Speaker 3: Christina Hooper a chief global market strategist over at Invesco.
25:47
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
25:51
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25:53
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25:56
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26:05
Speaker 6: Alex Deal Paul Sweeney. We're live here in our Bloomberg
26:07
Speaker 6: Interactive Broker's studio. We're streaming live on YouTube. That is
26:11
Speaker 6: the Internet. I've been told go to YouTube dot com,
26:13
Speaker 6: Seart's Bloomberg Live Radio, and that's where you will find us.
26:17
Speaker 6: I covered the media industry for a long time, and boy,
26:19
Speaker 6: when I was covering it, everybody was making money. But man,
26:22
Speaker 6: the last seven eight nine years, it's been a really
26:25
Speaker 6: tough place for investors to find consistent shareholder returns. And
26:30
Speaker 6: the big challenge for global media has been the single
26:33
Speaker 6: court cutting. I mean, it used to be such a
26:34
Speaker 6: great model and one hundred million American homes, we're paying,
26:37
Speaker 6: you know, one hundred bucks a month for all kinds
26:39
Speaker 6: of five hundred channels and all that kind of stuff.
26:41
Speaker 6: But since a cord cutting has really escalated or accelerator
26:45
Speaker 6: over the last several years. Has been really a tough
26:47
Speaker 6: business model, and the companies you're trying to adapt, investors
26:49
Speaker 6: are trying to adapt. And I'll tell you the person
26:51
Speaker 6: the analyst who called this out first in my opinion
26:54
Speaker 6: and the loudest highlighting it as a risk for global
26:57
Speaker 6: media was Rich Greenfield. He's a partner and co founder
26:59
Speaker 6: of Shed Partners. He joins us here. Rich, again, from
27:03
Speaker 6: my perspective, you were absolutely one of the first, if
27:06
Speaker 6: not the first, to really highlight this cord cutting risk
27:10
Speaker 6: for global media. Can you step back and help us
27:13
Speaker 6: think about where we are today and where we go
27:17
Speaker 6: because I'm just not sure when an if to invest
27:19
Speaker 6: in a media company anymore.
27:22
Speaker 10: Well, look, I think it's really hard. There's no doubt
27:26
Speaker 10: that chord cutting has accelerated. And because chord cutting has accelerated,
27:32
Speaker 10: all of the legacy traditional media companies have all jumped
27:37
Speaker 10: headfirst into streaming. But as they've done that, they've actually,
27:41
Speaker 10: you know, to make the streaming services compelling. They've pushed
27:45
Speaker 10: all of their great content to their streaming services. So
27:48
Speaker 10: you don't, you know, outside of live sports, there isn't
27:52
Speaker 10: a whole heck of a lot that's really compelling. Sure,
27:56
Speaker 10: you've got news or if you care about MSNBC or
27:59
Speaker 10: Fox News, although even CNN you can now get as
28:02
Speaker 10: part of Max. And so the number of things that
28:06
Speaker 10: you need the traditional bundle for has really shrunk pretty dramatically.
28:12
Speaker 10: And I think, you know, as you get more and
28:15
Speaker 10: more streaming services with great content and all the original
28:19
Speaker 10: content that you can't find on linear, it's pushing more
28:23
Speaker 10: and more people to cut the chord. Or even if
28:26
Speaker 10: they don't cut the cord, you know, maybe they're a
28:28
Speaker 10: subscriber for part of the year, but you know, nobody
28:30
Speaker 10: signed up for Comcast or Charter Spectrum. Nobody used to
28:34
Speaker 10: sign up for three or four months. Now you can,
28:37
Speaker 10: like signing up for YouTube TV for a few months
28:40
Speaker 10: is easy. You know, you can watch for football season
28:42
Speaker 10: or if you love postseason baseball, go sign up, then
28:46
Speaker 10: you can cancel. I mean, it's just so easy to
28:49
Speaker 10: come in and out.
28:51
Speaker 4: Yeah, it's those dynamics.
28:53
Speaker 10: Are so different from the way it was where nobody
28:56
Speaker 10: called up Comcasts to have them rip the equipment out
28:58
Speaker 10: halfway through the year.
29:00
Speaker 3: So to that point, I feel like saying this is
29:03
Speaker 3: going to get me in trouble somewhere?
29:05
Speaker 4: Why is linear TV still a thing?
29:09
Speaker 10: Linear TV is? I mean, I honestly think the only
29:12
Speaker 10: reason there are sixty seven sixty eight million homes paying
29:18
Speaker 10: you know, upwards of between seventy five and one hundred
29:21
Speaker 10: and twenty probably five dollars a month is live sports.
29:24
Speaker 10: I mean, sure, there's definitely some there's definitely an older
29:28
Speaker 10: demographic that has been doing it and you know, will
29:31
Speaker 10: never churn. But I think the reason why you have
29:34
Speaker 10: millions subscribing to YouTube TV and Hulu Live and continuing
29:39
Speaker 10: to take Comcast is for live sports. I mean, if
29:42
Speaker 10: you want to watch all football games, college pro, you
29:47
Speaker 10: need a subscription to cable, satellite or one of these
29:52
Speaker 10: over the top like you know, YouTube TV bundles. There's
29:55
Speaker 10: no getting away from it. You still can't sure can
29:57
Speaker 10: you replicate a bunch of it in streaming? Yes, you
30:00
Speaker 10: know next year you'll be able to get even ESPN
30:03
Speaker 10: direct to consumer in September twenty twenty five, when you know,
30:07
Speaker 10: Iiger finally pulls a trigger on that. But if you
30:09
Speaker 10: want to watch Fox Sports, you know, Fox football games
30:13
Speaker 10: yesterday afternoon, there's only one way to do it, which
30:16
Speaker 10: is sign up for a bundle.
30:17
Speaker 6: All right, Rich, So if I'm the management team, if
30:21
Speaker 6: I am the board level at some of these linear
30:23
Speaker 6: media companies, what do I do. Is there ever a
30:27
Speaker 6: world when I can generate the profitability and the returns
30:30
Speaker 6: that I did six seven years ago? Or is that
30:32
Speaker 6: model just gone?
30:35
Speaker 7: Look?
30:36
Speaker 10: I think if any of these companies was able to
30:38
Speaker 10: get up into the top echelon, you know, to be
30:41
Speaker 10: a dominant player in streaming, that's certainly possible. Paul, I mean,
30:45
Speaker 10: I don't I wouldn't say. I think saying never is
30:49
Speaker 10: sort of difficult. But right now, I'd say, all of
30:52
Speaker 10: these traditional media companies, the one thing they're struggling with
30:56
Speaker 10: is they don't they're really optimizing for the wrong thing there,
31:00
Speaker 10: like they've been focused on. Initially, they were just focused
31:03
Speaker 10: on subscriber growth, and so they just gunned it for
31:06
Speaker 10: subscriber growth. Profitability didn't matter. They were just you know,
31:09
Speaker 10: losses were piling up billions. I think between all of
31:12
Speaker 10: the major companies. I think they were losing like upwards
31:14
Speaker 10: of twelve billion dollars if you aggregated it all together
31:17
Speaker 10: between Disney and Warner and Peacock. So they realize that's
31:23
Speaker 10: not sustainable. So now they've been you know, slashing the
31:26
Speaker 10: amount of programming, slashing the marketing, raising the price. And
31:30
Speaker 10: the thing that they're all missing is they're not gunning
31:33
Speaker 10: for time spent like Netflix never wants you leaving, Amazon
31:37
Speaker 10: never wants you leaving.
31:39
Speaker 1: I think the.
31:40
Speaker 10: Challenge for all of these companies is they're stuck in
31:42
Speaker 10: this weird middle of like they don't have enough scale,
31:47
Speaker 10: they don't really have the balance sheets to invest aggressively
31:50
Speaker 10: because they're dealing with you know, just as you were
31:52
Speaker 10: talking about at the beginning of this interview, the pressure
31:55
Speaker 10: from cord cutting on the linear business. We didn't even
31:57
Speaker 10: talk about advertising, which is under pressure. So your core
31:59
Speaker 10: business is under pressure. It's very hard when your core
32:02
Speaker 10: business is under pressure to deploy even more capital to
32:06
Speaker 10: really gun it in the new business. And so you're
32:09
Speaker 10: stuck in this sort of what I would call this
32:11
Speaker 10: sort of ugly middle where you don't have enough scale,
32:15
Speaker 10: you haven't hit scale, and you don't really have a
32:17
Speaker 10: clear path. You're sort of hoping for consolidation, whether that's
32:22
Speaker 10: streamer consolidation or whole company consolidation. But it is certainly
32:27
Speaker 10: a very difficult place to be, and I think if
32:30
Speaker 10: you look at this stock, all of these stocks as
32:32
Speaker 10: a group, it hasn't been pretty. I don't care whether
32:35
Speaker 10: it's Warner Brothers, Discovery or Disney, even Comcasts, like this
32:39
Speaker 10: whole space has not been a great place to make money.
32:43
Speaker 10: And I don't think in the next twelve months do
32:46
Speaker 10: I see any green shoots or some major change it's
32:49
Speaker 10: going to make you say, oh my god, this space
32:51
Speaker 10: is on fire. Answer is no.
32:54
Speaker 6: Hey, rich, before I let you go, Tom Keen wanted
32:56
Speaker 6: me to ask you here, Warner Brothers Discovery, can you
32:58
Speaker 6: give me thirty seconds on that name.
33:02
Speaker 10: Look, it's David Zaslov has to prove to Wall Street.
33:07
Speaker 10: This is purely a David Zaslov execution story. They didn't
33:12
Speaker 10: renew the NBA. Yes, they're suing. I think there's highly
33:15
Speaker 10: unlikely to win that suit. But the key question for
33:19
Speaker 10: the future of WBT Warner Brothers Discovery is was dropping
33:24
Speaker 10: the NBA or not renewing the NBA? Is that existential?
33:27
Speaker 10: Because if they can get their deals done with Comcast
33:30
Speaker 10: and other distributors over the coming year, then getting rid
33:33
Speaker 10: of you know what would have been two plus billion
33:36
Speaker 10: dollars of cost is a home run.
33:38
Speaker 1: For the stop.
33:39
Speaker 10: Investors don't believe it. Investors believe that this is a
33:42
Speaker 10: catastrophic loss that they're going to get, maybe not dropped
33:46
Speaker 10: by Comcast, but a severe reduction in fees. And so
33:50
Speaker 10: this is purely can David Zaslov prove two investors that
33:55
Speaker 10: they are strong enough to withstand the loss of the NBA.
33:58
Speaker 10: You're going to find out over the next six months.
34:00
Speaker 6: All Right, Rich, always great to talk with You really
34:02
Speaker 6: appreciate you taking a few minutes of your time. Rich Greenfield.
34:04
Speaker 6: He's a partner and co founder of Lightshed Partners.
34:09
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
34:13
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34:17
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34:23
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34:27
Speaker 4: Alex Steel, Paul Sweeney.
34:28
Speaker 3: This is Bloomberg Intelligence Radio. Every day Bloomberg puts out
34:32
Speaker 3: a big take.
34:33
Speaker 4: It's great stuff.
34:34
Speaker 3: You can get it on podcasts, you can get it
34:36
Speaker 3: in print, you can get it on Bloomberg dot com
34:38
Speaker 3: and on the terminal. And today's big Take story is
34:42
Speaker 3: cat bonds will help Florida but failed Jamaica. So that
34:45
Speaker 3: story is part of Bloomberg Green's investigation into how climate
34:48
Speaker 3: change is making parts of the planet uninsurable, leaving millions
34:52
Speaker 3: of people without a safety net. And the point is
34:55
Speaker 3: that governments and companies aren't prepared. And this is part three,
34:59
Speaker 3: So we want to turn to Bloomberg ESG editor Gautam
35:02
Speaker 3: Nick who joins us now walk us through this this
35:06
Speaker 3: part three of this series that you guys have been doing.
35:10
Speaker 7: Sure good to be on the show. So essentially, this
35:13
Speaker 7: particular story I've done with a couple of colleagues looks
35:16
Speaker 7: at catastrophe bonds. These are a bet on the probability
35:21
Speaker 7: of huge natural disasters like earthquakes, wildfires, floods, are hurricanes,
35:26
Speaker 7: And obviously the incidents of some of these events have
35:30
Speaker 7: gotten higher and the severity of some climate related events
35:36
Speaker 7: like hurricanes and floods have become more intense. So these
35:41
Speaker 7: catastrophe bonds are a way for insurance and reinsurance companies
35:47
Speaker 7: to pass on the risk of growing disasters onto Wall Street,
35:51
Speaker 7: onto the capital markets, and not to put it on
35:53
Speaker 7: their own balance sheet. The way it works is that
35:55
Speaker 7: if you're an investor in the bond, you can make
35:58
Speaker 7: a very large return, could be fined hard to find
36:01
Speaker 7: in you another fixed income product. However, if the particular
36:05
Speaker 7: disaster that is defined in the bond does occur, then
36:09
Speaker 7: you could lose some or even all of your invested capital.
36:13
Speaker 7: So it's a gamble on a weather disaster.
36:16
Speaker 6: Very simply.
36:17
Speaker 1: Did these work?
36:19
Speaker 7: Yes, they absolutely do work. So just to give you
36:22
Speaker 7: the broader context, about seventy percent of all catastrophe bonds
36:26
Speaker 7: are focused on the US windstorm sector use hurricanes and
36:30
Speaker 7: other severe name storms, and a big chunk of that
36:33
Speaker 7: relates to Florida. Obviously, this came into focus recently because
36:36
Speaker 7: of Hurricanes Helene and Milton back to back that caused
36:39
Speaker 7: a lot of flooding and wind damage as well. And
36:42
Speaker 7: the way it works is that if a particular threshold
36:46
Speaker 7: of losses is met for most of these catastrophe bonds,
36:51
Speaker 7: then the issuing party will get a good chunk of
36:54
Speaker 7: the money that's taken out from the money that the
36:58
Speaker 7: capital markets, the Wall Street investors put in when they
37:00
Speaker 7: bought the bond, and that money then goes to big
37:03
Speaker 7: to fix people's roofs and you know, rebuilt homes.
37:07
Speaker 4: When has it not worked?
37:08
Speaker 3: As I mentioned the title was, they helped Florida but
37:11
Speaker 3: failed Jamaica. So what's the scenario where they don't pay off?
37:14
Speaker 7: Yeah, So catastrophe bonds have been around for about twenty
37:18
Speaker 7: five to thirty years, and they've largely developed, as I said,
37:20
Speaker 7: in the US, but also in Europe and Japan against
37:23
Speaker 7: earthquake risk. But increasingly institutions like the World Bank, the IMF,
37:27
Speaker 7: the OECD are trying to popularize them in the developing world. Now,
37:31
Speaker 7: this is a part of the globe that is being
37:34
Speaker 7: disproportionately hit by a lot of climate losses to which
37:36
Speaker 7: they're not directly linked because you know, most of the
37:39
Speaker 7: emissions have come from since the Industrial Revolution in the
37:42
Speaker 7: western parts of the world, but a lot of these
37:44
Speaker 7: weather disasters are being you know focused on the you know,
37:49
Speaker 7: southern hemisphere. So the World Bank and other institutions are
37:53
Speaker 7: trying to get developing countries that are facing these risks
37:57
Speaker 7: to issue these catastrophe bonds that have been around in
38:00
Speaker 7: the West. But there is a problem the way the
38:04
Speaker 7: bond is structured. In the West, the ways developed seems
38:07
Speaker 7: to work quite well, but in a developing country because
38:12
Speaker 7: they don't have an insurance market. You can't actually calculate
38:16
Speaker 7: the total claims on an insured basis, so they've come
38:21
Speaker 7: up with a different way of structuring the bond. It's
38:25
Speaker 7: called a parametric approach. Basically, for a hurricane, it would
38:29
Speaker 7: simply be if the pressure of the hurricane hits a
38:32
Speaker 7: certain threshold, which indicates wind speed, then the bond will
38:36
Speaker 7: pay out. But if it misses, you get nothing. Even
38:40
Speaker 7: if you missed by the tiniest fractions, the rules say
38:43
Speaker 7: you will get zero, and that's sort of what happened
38:46
Speaker 7: with Jamaica.
38:47
Speaker 6: It would seem like if you believe in climate change,
38:50
Speaker 6: and if you believe that weathers can become more and
38:52
Speaker 6: more unstable, it might be really hard to price the
38:55
Speaker 6: risk out here because it seems like the risk would
38:57
Speaker 6: always be going up of more and more again unstable
39:00
Speaker 6: weather and catastrophes. Here, how does the market account for that?
39:04
Speaker 7: You've been pointed a problem. So when someone's trying to
39:08
Speaker 7: calculate the risk of these kind of weather related catastrophe bonds,
39:12
Speaker 7: all you have really is historical data. So for hurricanes,
39:17
Speaker 7: you have one hundred and fifty hundred and seventy years,
39:19
Speaker 7: a pretty robust data going back and you can make
39:22
Speaker 7: a good estimate, but unfortunately the calculation has been muddied
39:29
Speaker 7: now with climate change, and these forecasts are of course
39:33
Speaker 7: forecasts is something that hasn't happened yet that will project
39:36
Speaker 7: it to happen, but you just don't know how it
39:38
Speaker 7: might unfold, depending on, you know, how the world reacts
39:42
Speaker 7: to increased CO two E missions. So the whole question
39:46
Speaker 7: is how do you incorporate the climate effect into this
39:50
Speaker 7: historical data and provide a really reliable metric for someone
39:55
Speaker 7: to make a financial bet on. And it's the uncertain
40:00
Speaker 7: and of well, to some extent the models that are
40:03
Speaker 7: used there by no means perfect, but also this extra
40:06
Speaker 7: new element that we've seen in the last few decades
40:09
Speaker 7: of climate change.
40:11
Speaker 3: So you guys, as I mentioned in the beginning, this
40:13
Speaker 3: is part three of a series that you guys have
40:15
Speaker 3: done into how climate change is making the planet uninsurable.
40:18
Speaker 4: What is your key takeaway here?
40:22
Speaker 7: I think one of the main takeaways would be that
40:25
Speaker 7: it is very hard to accurately model the risk of
40:30
Speaker 7: climate change, and of course their attempts being made to
40:34
Speaker 7: refine it constantly, But if you're trying to ensure a
40:39
Speaker 7: large proportion of the world that is not insured, in
40:42
Speaker 7: the developing world, also parts of Europe. I mean, there's
40:46
Speaker 7: a huge insurance protection gap in Europe, and even in
40:48
Speaker 7: the US, for example, in Florida, you know, insurance companies
40:52
Speaker 7: are moved out. They're not providing insurance in California for
40:55
Speaker 7: earthquake risks and wildfi they're moving out. So the main
40:58
Speaker 7: takeaway is that it's become a more difficult problem. It's
41:03
Speaker 7: becoming a more unensurable planet because of climate risk.
41:09
Speaker 6: All right, gauth Tom, thank you so much. We appreciate that.
41:11
Speaker 6: Got Tom and Nike Eesg editor for Bloomberg News, joining
41:15
Speaker 6: us on zoom from London. You can read gaut Tom's
41:18
Speaker 6: story and more from Bloomberg The Big Take on the
41:21
Speaker 6: Bloomberg Terminal and at Bloomberg dot com Slash Big Take.
41:25
Speaker 6: Some good stuff there, some great reporting, some great graphics.
41:28
Speaker 6: I always like the graphics folks do some great jobs
41:30
Speaker 6: to bring the stories to life there as well. Illustrations
41:34
Speaker 6: for this story by John Prevenure for Bloomberg Green like
41:37
Speaker 6: to call him out, So yeah, I would think, boy,
41:40
Speaker 6: if I'm trying to structure a bond, I'm like, I
41:42
Speaker 6: don't know how what the risk is this thing?
41:44
Speaker 11: It just seems like it's getting worse and worse every year.
41:46
Speaker 3: Well here's my question then too, is that say you're
41:48
Speaker 3: able to finally figure out the correct structure, right, then
41:51
Speaker 3: the weather changes again yep, So then how do you
41:53
Speaker 3: manage that part?
41:54
Speaker 5: Right?
41:55
Speaker 3: So, just because you might have you know, huge windstorms
41:57
Speaker 3: in one area, now, are you going to have them
41:59
Speaker 3: in fifteen years to have solar issues or is it
42:02
Speaker 3: going to be floods? It's something different than how do
42:03
Speaker 3: you manage that?
42:04
Speaker 8: Yeah?
42:04
Speaker 6: And if I'm on an investor in these bonds, I'm like,
42:06
Speaker 6: you better pay me a huge way.
42:08
Speaker 4: Which they do to be fair.
42:09
Speaker 5: Yea.
42:10
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42:15
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42:17
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42:28
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42:32
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42:33
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42:36
Speaker 3: and finance through a lens of our Bloomberg Intelligence Folks.
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42:41
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42:48
Speaker 3: to know from commodities, power, transport, industry, buildings, ag as
42:53
Speaker 3: well as how to finance the energy transition. And joining
42:57
Speaker 3: us now is Kyle Harrison, head of Sustainability Research at
43:00
Speaker 3: Bloomberg bn EF. He joins US now, So let's take
43:04
Speaker 3: a look at corporations and how many and what kind
43:07
Speaker 3: of corporations have signed green PPA is known as power
43:11
Speaker 3: purchase agreements, which is basically like they're getting their electricity
43:14
Speaker 3: and power and stuff through green things exactly.
43:17
Speaker 11: So they're locking into long term contracts for typically solar windpower,
43:21
Speaker 11: but we're now seeing them expand into other forms of
43:23
Speaker 11: low carbon technology for example like nuclear, like hydro and geothermal.
43:30
Speaker 11: Big technology companies have really led in this space. So
43:33
Speaker 11: it's the companies like Amazon, Meta, Google, Microsoft, they're signing
43:38
Speaker 11: the most deals at a large scale. But we're seeing
43:40
Speaker 11: a lot of heavy emitting, hard to abate sectors getting
43:42
Speaker 11: into this space now. So materials companies, industrials, oil and
43:46
Speaker 11: gas companies, they're starting to break into new markets where
43:49
Speaker 11: big tech maybe doesn't have as big of a footprint,
43:52
Speaker 11: and they're starting to sign these long term, large scale
43:54
Speaker 11: clean energy deals.
43:56
Speaker 6: Where are the clean energy deals happening? Is it here
43:59
Speaker 6: in the US? Is it in Europe? Where are these
44:01
Speaker 6: things mostly happening?
44:02
Speaker 11: Historically was the US, So between twenty fifteen and twenty
44:05
Speaker 11: twenty two, around two thirds of all these corporate clean
44:09
Speaker 11: energy power purchase agreements were signed in the United States.
44:12
Speaker 11: In twenty twenty three, that number drop to around forty
44:14
Speaker 11: five percent. So corporations are increasingly spreading out and signing
44:18
Speaker 11: deals in Europe, in Latin America and Southeast Asia for example.
44:22
Speaker 11: In Asia in particular, you have a lot of demand
44:25
Speaker 11: for electricity from corporations and you have a huge supply
44:27
Speaker 11: chain footprint, and historically those companies haven't been able to
44:31
Speaker 11: buy clean energy. But through a lot of policy lobbying
44:33
Speaker 11: and a lot of work on the ground with regulators,
44:36
Speaker 11: you now have opportunities to buy clean energy in Japan,
44:39
Speaker 11: South Korea, Vietnam's and new market So there's a lot
44:41
Speaker 11: of new, exciting expansion.
44:43
Speaker 3: What's the price for these things and how do they
44:45
Speaker 3: compare to traditional energy?
44:47
Speaker 11: So that's big been one of the biggest drivers in
44:49
Speaker 11: the growth of this market. Right So through September of
44:52
Speaker 11: this year, companies have announced over thirty one gigawatts of
44:56
Speaker 11: clean energy through corporate power purchase agreements. That's the size
44:59
Speaker 11: of a small in a given year, and we're on
45:02
Speaker 11: record pace. And the biggest reason for that is that
45:04
Speaker 11: solarned wind on a new build basis are now cheaper
45:07
Speaker 11: than colon gas in many markets around the world. So
45:10
Speaker 11: as a corporate buyer, I can undercut those prices for
45:12
Speaker 11: power that I might be paying, for example, from a
45:15
Speaker 11: utility or from the grid by locking into a long
45:17
Speaker 11: term fixed contract for renewables.
45:19
Speaker 6: And for renewables. Is this is the adoption of renewables
45:23
Speaker 6: or the growth of the renewables market. Is that driven
45:25
Speaker 6: by the market or by regulations governments saying you gotta
45:30
Speaker 6: do this? What do we learn?
45:32
Speaker 11: I mean to the last question, it's really primarily driven
45:35
Speaker 11: by economics. But reliability is a huge factor here. So
45:38
Speaker 11: big technology companies they're now going out, they're building these
45:42
Speaker 11: data centers. You're seeing a big expansion in manufacturing capacity.
45:45
Speaker 11: All of this requires the lights to be on twenty
45:48
Speaker 11: four to seven, right, so you can't afford to have
45:51
Speaker 11: a power outage or a grid failure. So locking into
45:54
Speaker 11: one of these contracts for solarned wind that gives you
45:56
Speaker 11: more reliability. And again that expansion into other forms of
45:59
Speaker 11: what we would call zero carbon based load power that
46:02
Speaker 11: could generate twenty four to seven, like nuclear and geothermal,
46:05
Speaker 11: that also kind of emphasizes that reliability. So it's a
46:08
Speaker 11: combo of that along with sustainability.
46:10
Speaker 3: And how do you think that this sort of partnership
46:13
Speaker 3: and evolution happens. It's still going to be these long
46:15
Speaker 3: term power purchase agreements or is it going to be
46:17
Speaker 3: like these hyperscalers And you know, maybe even like a
46:20
Speaker 3: SMIT industry or the hard to abate industry just sets
46:23
Speaker 3: up like their little small modular reactor right next to
46:26
Speaker 3: their facility, or a wind farm right next to their facility.
46:30
Speaker 3: I mean, I'm being hyperbole, but you get the idea.
46:33
Speaker 3: Versus plugging into the grid for example, you.
46:35
Speaker 11: Definitely need collaboration on the grid side, right and the
46:38
Speaker 11: utility scale side of this market. Of course, there are
46:41
Speaker 11: opportunities to build a solar project or a wind farm
46:45
Speaker 11: on site and leverage energy storage to get that power directly,
46:49
Speaker 11: but we need utilities, right, and we need grid planners
46:52
Speaker 11: to start collaborating with these corporate buyers to ensure that
46:55
Speaker 11: this grid scale up is done sustainably. If we start
46:57
Speaker 11: to build all these hyperscaler data centers in for example,
47:01
Speaker 11: example the Data Center corridor in the eastern US or
47:03
Speaker 11: in Texas, you need to ensure that there's enough transmission
47:07
Speaker 11: capacity to ensure that that power gets moved from A
47:10
Speaker 11: to B right, So that starts to involve regulators, that
47:12
Speaker 11: starts to involve utilities. So it really is kind of
47:15
Speaker 11: an approach that everyone needs to be involved in for
47:17
Speaker 11: this to be successful.
47:18
Speaker 6: You know where they do wind farms in a big
47:20
Speaker 6: way Ireland, driving around tons of a lot of.
47:24
Speaker 11: Data centers in Ireland as well, so it's extra important
47:27
Speaker 11: there all right.
47:28
Speaker 6: So yeah, so they were ever there. There's big ones
47:31
Speaker 6: as well, and it's windy there, so it works being
47:35
Speaker 6: an island and all talk to just about you mentioned
47:36
Speaker 6: nuclear energy. What's the future of nuclear here in this country?
47:41
Speaker 6: Can we build these little nuclear plants that can do
47:43
Speaker 6: things and not pose a big risk.
47:45
Speaker 11: So I, unfortunately I can't comment too much on nuclear.
47:48
Speaker 11: If we have a nuclear guy, we do have a
47:49
Speaker 11: nuclear guy I'll leave it to him. But what I
47:53
Speaker 11: would say five people there, what I would say is right,
47:57
Speaker 11: there was a lot of a lot of noise around
48:00
Speaker 11: on this announcement from Microsoft around through Mile Island through
48:03
Speaker 11: My Island is a name, Right, that's a project that
48:05
Speaker 11: obviously evokes a lot of emotion. But we're going to
48:08
Speaker 11: see a lot of corporations continue to look for those
48:10
Speaker 11: deals with that zero carbon based low power. So we
48:13
Speaker 11: wrote about this the other week. This won't be the
48:15
Speaker 11: last nuclear deal from big tech, right, You'll see more
48:18
Speaker 11: geothermal deals. So it's going to play a really important
48:21
Speaker 11: role here as a reliable source of power that's also
48:24
Speaker 11: low carbon.
48:25
Speaker 3: What I think I understand though from that particular agreement
48:28
Speaker 3: is that the three mile So Constellation Energy will revamp
48:32
Speaker 3: its nuclear reactor and turn it online into the grid.
48:36
Speaker 3: Then Microsoft will pay the difference to Constellation Energy from
48:41
Speaker 3: what it would cost to get from the grid versus
48:43
Speaker 3: this nuclear facility. So it's like done differently. It's not
48:47
Speaker 3: like the nuclear is going to like plug right into
48:49
Speaker 3: a Microsoft hyperscaler.
48:50
Speaker 4: It's like they're still going to take from the grid.
48:52
Speaker 3: So it's all these like weird agreements that that I
48:55
Speaker 3: feel like you're going to have to tell you I
48:56
Speaker 3: read a book called did you They're very excited about
49:02
Speaker 3: reading the Grid and then newlicks Exactly do you want
49:06
Speaker 3: to know anything?
49:07
Speaker 4: They got it? What region is signing the most of
49:11
Speaker 4: these clean PPAs right now?
49:13
Speaker 11: It's Texas And it's based purely on economics. So in
49:16
Speaker 11: for example, northern and western Texas, the price of power
49:20
Speaker 11: for wind is incredibly cheap, and you have fantastic wind resources,
49:24
Speaker 11: so you have a lot of companies going out and
49:25
Speaker 11: signing deals there. But increasingly companies want to emphasize where
49:29
Speaker 11: can they make the biggest impact by adding clean power?
49:32
Speaker 11: If you already have all of this low carbon wind
49:36
Speaker 11: and solar generating in Texas, are you really making that
49:39
Speaker 11: much of a difference by adding another project there, for example,
49:41
Speaker 11: compared to the eastern US, where you have more coal power,
49:45
Speaker 11: right where you can have a bigger impact on decarbonizing
49:47
Speaker 11: the grid. So what we're going to slowly start to
49:49
Speaker 11: see is more corporations expand that footprint both to other
49:52
Speaker 11: parts of the United States outside of Texas, but other
49:55
Speaker 11: new regions in the world as well.
49:57
Speaker 6: Coal in the US anymore, we still have.
49:59
Speaker 11: Coal well, I mean I guess we can follow the
50:02
Speaker 11: lead of the UK, right, which just retired it. Yeah,
50:04
Speaker 11: that's final col project.
50:05
Speaker 4: But they still have them right.
50:07
Speaker 6: Uh Johnny in the boat.
50:11
Speaker 4: I do have a bag of cold in the base. Yes,
50:15
Speaker 4: John Tuckers.
50:15
Speaker 3: Can't know what you're actually kidding.
50:18
Speaker 4: Yeah, that's the thing. He's not all right. Thanks a lot.
50:21
Speaker 3: We really appreciate Chyleer Caryl Harrison, the last holdout Bloomberg Vienni,
50:26
Speaker 3: Head of Sustainability a research joining us on those trends
50:29
Speaker 3: in sustainability.
50:31
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50:39
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