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Iran Tensions Firm Up Bullish Picture For Crude · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you.
0:05
Speaker 1: Along with my co host Lisa Brahma Wicks. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
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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. Looking at oil here today, Brent
0:21
Speaker 1: crude and w t I down just about one percent today.
0:24
Speaker 1: They certainly rallied a little bit off of the geopolitical
0:28
Speaker 1: uncertainty over the last several days, but perhaps not as
0:30
Speaker 1: much as traders initially would have thought. We're gonna get
0:33
Speaker 1: the latest from Wells Fitzpatrick Wells as a managing director
0:36
Speaker 1: equity Research covering all things UH expiration and production for
0:40
Speaker 1: sun Trust Robinson Humphreys based in Houston, Texas. Well, thanks
0:44
Speaker 1: so much for joining us, so give us a sense
0:46
Speaker 1: of how your stocks, the E n P stocks kind
0:49
Speaker 1: of have been reacting over the last several days to
0:51
Speaker 1: what appears to be a little bit more volatile energy space. Yeah,
0:55
Speaker 1: thanks thanks for having me on um. As you said,
0:58
Speaker 1: prices of jump, but only about two bucks um. You know,
1:02
Speaker 1: that's a that's a relatively modest move that tells you
1:04
Speaker 1: that the market isn't pricing in any sort of crisis
1:08
Speaker 1: related outages. And you know, of course without those crisis
1:11
Speaker 1: related outages, we're going to be in this kind of
1:13
Speaker 1: fifty five to sixty five range. That being said, what
1:17
Speaker 1: the heightened tension does is it firms us up at
1:20
Speaker 1: the top end of that range, which is is massively
1:23
Speaker 1: important for the group. I mean, the difference between fifty
1:27
Speaker 1: five dollars and sixty five dollars on w T I
1:29
Speaker 1: is a difference between two times that to EVA don
1:32
Speaker 1: one and a half, or the difference between being free
1:34
Speaker 1: cash flow neutral and having a seven percent free cash
1:37
Speaker 1: flow yield for the group. So, even though we haven't
1:40
Speaker 1: seen a big move UH from the recent escalation, it's
1:44
Speaker 1: good to have us firm up in in the upper
1:46
Speaker 1: end of that range, and that should be able to
1:48
Speaker 1: carry on to a pretty positive the names. One interesting
1:52
Speaker 1: development over the past week or so has been the
1:54
Speaker 1: dramatic outperformance of shale companies versus the major oil producers,
1:59
Speaker 1: and I'm wondering whether they are taking advantage of this
2:03
Speaker 1: pop in oil prices to extend their credit lines with
2:07
Speaker 1: banks to borrow more money, basically to push out any
2:09
Speaker 1: kind of financing gaps in order to prevent or immunize
2:12
Speaker 1: themselves against a drop in the value of oil. Yeah, no,
2:16
Speaker 1: that that that that's a great question, um, and and
2:19
Speaker 1: will certainly see it help them in revolver redeterminations in
2:23
Speaker 1: the first quarter here. Uh, for a lot of these guys.
2:26
Speaker 1: That's going to be very important. You bring up a
2:28
Speaker 1: good point because some of the uh, the higher debt
2:31
Speaker 1: load gods, I'd point to maybe an extraction, maybe a
2:34
Speaker 1: whiting that move from fifty five to or from sixty
2:37
Speaker 1: five to sixty five excuse me, takes them from three
2:40
Speaker 1: times to two times debt. So it's really it's it's
2:44
Speaker 1: a heck of a lifeline, um for these guys. Uh.
2:48
Speaker 1: You know, as far as refinancing and the bond market
2:50
Speaker 1: still seems a little bit cold on the names. But um,
2:55
Speaker 1: you know, of course that can turn pretty quickly if
2:57
Speaker 1: if we stay up in this range and companies throw
3:00
Speaker 1: off the metrics that should allow them to well. If
3:03
Speaker 1: if oil does stay up in this higher range and
3:05
Speaker 1: that that helps the balance sheets. Do you expect to
3:07
Speaker 1: see a pickup in consolidation activity in your space, or
3:13
Speaker 1: do you think a lot of the bigger players might
3:14
Speaker 1: sit on the sidelines. It really depends on how the
3:18
Speaker 1: stocks respond. Um. I think that given what we've seen
3:23
Speaker 1: of consolidation, it's more often I don't want to stay force,
3:27
Speaker 1: but you know the company is being consolidated. Don't always
3:30
Speaker 1: have the strongest hand. And in so much as a
3:33
Speaker 1: higher oil price will strengthen these companies, I mean, just
3:35
Speaker 1: looking at the forty five companies that we follow, it
3:38
Speaker 1: adds over ten billion dollars in in Eva da UM so,
3:42
Speaker 1: so they'll have stronger hands and they'll be able to
3:45
Speaker 1: to maybe defend against that a little bit better to
3:47
Speaker 1: go and a loan strategy will look a little bit better.
3:50
Speaker 1: Uh So, I I wouldn't expect it to to accelerate,
3:55
Speaker 1: uh that trend with the major's coming in. And the
3:58
Speaker 1: other thing worth pointing out is at this point, the
4:01
Speaker 1: majors have a heck a lot of shale, especially in
4:04
Speaker 1: the Permium basin, which, as y'all know, is is the
4:06
Speaker 1: favorite basin right now. So there's not necessarily a burning
4:10
Speaker 1: desire for them to get anything unless it is quasi
4:12
Speaker 1: distress and of course this this turns out around a
4:15
Speaker 1: little bit. I'm wondering if you could zoom out and
4:17
Speaker 1: give us a sense of how long lasting you think
4:19
Speaker 1: this popping oil prices uh is and whether we has
4:23
Speaker 1: more legs in terms of upside. I mean, do you
4:25
Speaker 1: think that, barring some further escalation, oil prices can stay
4:29
Speaker 1: where they are? Do you think that the pressure is lower? Frankly,
4:34
Speaker 1: I think they could stay where they are, and I
4:35
Speaker 1: think that they can go higher. I mean, you know,
4:39
Speaker 1: I understand that it's been three or four days since
4:41
Speaker 1: since the attack, and and so it seems as though
4:44
Speaker 1: there's a calm. But what's worth remembering is that the
4:47
Speaker 1: Supreme Leader declared three days of mourning and the likelihood
4:51
Speaker 1: of them attacking during that three days was pretty small.
4:54
Speaker 1: Now that three days is coming to an end, so
4:56
Speaker 1: the next hours are going to be very important for
4:59
Speaker 1: the oil markets. Um And and you know, Lauran has
5:02
Speaker 1: made it very clear that the military option is still
5:04
Speaker 1: on the table. Really, the first time that that would
5:07
Speaker 1: have come to fruition is today, So it's worth keeping
5:11
Speaker 1: a close eye on if if you want to look
5:14
Speaker 1: at it from sort of short, medium and long term
5:16
Speaker 1: effects from a short term. We obviously we got the
5:19
Speaker 1: popping crewed. Another thing that we got about that people
5:22
Speaker 1: don't talk quite as much about is we got a
5:24
Speaker 1: premium in the US contract, So the US gained about
5:27
Speaker 1: two bucks in the media and aftermath of the attack
5:30
Speaker 1: versus Arab light um. And then of course Iran abandoned
5:34
Speaker 1: the nuclear deal, so more international pressure could take another
5:37
Speaker 1: three hundred thousand barrels out of their exports, which would
5:40
Speaker 1: take it to zero. And most importantly, most importantly, and
5:44
Speaker 1: I think some people miss this, is that the other
5:46
Speaker 1: thing that this does is that if a democrat wins,
5:51
Speaker 1: this makes it so much harder to uh to find
5:55
Speaker 1: it to taunt with with Iran. And that was the
5:58
Speaker 1: nightmare scenario, was that in one you have at the
6:01
Speaker 1: tont and one to two million barrels of Iranian crewed
6:05
Speaker 1: come back into the market. This makes that vanishing lee
6:08
Speaker 1: small chance of happening, and of course underpins a more
6:12
Speaker 1: bullish longer term viewing group. Hey, wells, what are the
6:15
Speaker 1: companies that you cover doing in terms of production as
6:18
Speaker 1: you look forward to they taking advantage of some some higher
6:21
Speaker 1: prices here? Well, actually, it's it's it's it's been a
6:24
Speaker 1: little bit of a shift um. As you know, the
6:26
Speaker 1: sectors touch out of favor to say it, to say
6:29
Speaker 1: it nicely, UM, And and the company's have been moving
6:33
Speaker 1: towards free cash flow buy backs, etcetera. Which is why
6:37
Speaker 1: you know that range of fifty to sixty five. It's
6:40
Speaker 1: so important to be in the top end of that
6:42
Speaker 1: range when you're throwing off high single digit free cash
6:44
Speaker 1: flow yields and you can actually deliver. Uh, you can
6:47
Speaker 1: actually deliver on that. But in general, the growth rate
6:51
Speaker 1: in the US has really really slowed. UM. I mean
6:55
Speaker 1: oil or gas for example. Uh, the e I A
6:58
Speaker 1: predicts that gas production will be flat December to December,
7:01
Speaker 1: which is is really remarkable coming off the growth that
7:05
Speaker 1: we've seen. Oil will be up, but it'll be up
7:08
Speaker 1: a lot more modestly. I mean, you're talking December to
7:10
Speaker 1: December of something like four dred thousand verses. You know,
7:13
Speaker 1: prior years you're north of a million, So you have
7:16
Speaker 1: a pretty dramatic pullback. And I think that the incremental
7:19
Speaker 1: cash that will come in the door from this higher
7:21
Speaker 1: price will likely be used to fuel those those buybacks
7:25
Speaker 1: as debt repurchases, um, etcetera. To to really fix the
7:29
Speaker 1: financial situation versus putting more holes in the ground. Well,
7:33
Speaker 1: Wells Fitzpatrick, thank you so much for being with us.
7:36
Speaker 1: Well As Fitzpatrick Managing director focused on energy and research
7:41
Speaker 1: and e m P sector generally at sun Trust Robinson Humphrey.
7:59
Speaker 1: Joining us now is David Wayner of Bloomberg News. David,
8:02
Speaker 1: what was the biggest takeaway that you got from this
8:05
Speaker 1: press conference? Yeah? I think I think exactly that he's
8:10
Speaker 1: responding to this sort of wingering question that many people have.
8:15
Speaker 1: What is the U S strategy in the Middle East?
8:17
Speaker 1: What is the U S strategy and Iran specifically? And
8:20
Speaker 1: I think what he's trying to say is this, you know,
8:22
Speaker 1: this is tethered to a strategy. This is part of
8:25
Speaker 1: business as usual for US. You know, we have a
8:27
Speaker 1: strategy in Iran which is a maximum pressure campaign, UH
8:31
Speaker 1: to put you know, maximum pressure economically on Iran with
8:34
Speaker 1: sanctions to respond to any threats that they have against
8:38
Speaker 1: US troops or US assets. UM. And that's what we
8:41
Speaker 1: did when we took out Solemney. So I think he's
8:44
Speaker 1: sort of trying to um to really show that the
8:48
Speaker 1: that there is this sort of holistic approach. Interesting, David
8:52
Speaker 1: is there any sense within Washington d C the extent
8:56
Speaker 1: to which this administration will go uh, if there is
9:00
Speaker 1: in fact the next step a retterritory step for the
9:02
Speaker 1: U S. If in fact Iran UH does retaliate. Yeah,
9:07
Speaker 1: I think we're we're being a lot of different uh,
9:10
Speaker 1: you know, a lot of different signals here. And that's
9:12
Speaker 1: definitely sort of a billion dollar question here. You know,
9:15
Speaker 1: what what would the US do if Iran took action?
9:18
Speaker 1: Around is carefully signaling and uh and making it very
9:22
Speaker 1: clear that they plan to to retaliate, but within some
9:26
Speaker 1: sort of um, you know, within some sort of confines
9:29
Speaker 1: of what they call international rules. Right, Um, So we'll
9:34
Speaker 1: have to see. But I don't think we have a
9:35
Speaker 1: clear signal of what the U S would do. David
9:38
Speaker 1: Winner stick with us. We want to bring into the
9:40
Speaker 1: conversation Ariel Cohen. He's senior fellow at the Atlantic Council
9:43
Speaker 1: and founding principle of International market analysis. Ariel, can you
9:46
Speaker 1: give us a sense of whether we are getting a
9:48
Speaker 1: clear picture of what the US has planned and how
9:52
Speaker 1: far it is willing to go in response to any
9:55
Speaker 1: retaliatory measures taken by the Iranian government. Well, I think uh,
10:01
Speaker 1: Mr Trump is articulating a very strong stance, probably went
10:07
Speaker 1: too far referring to cultural sites, as we witnessed at
10:12
Speaker 1: this press conference and from the statement of many American politicians, experts,
10:18
Speaker 1: et cetera. People are very uncomfortable with US um committing
10:25
Speaker 1: any kind of war crimes, and justifiably so we shouldn't.
10:28
Speaker 1: But in terms of Mr. Crump being Mr Trump and
10:32
Speaker 1: missing with Iran's Iranians heads UM, I think he probably
10:38
Speaker 1: did it, not fully, not being fully cognizant what he's
10:42
Speaker 1: getting into. In terms of the actual fight, UH, Iran
10:47
Speaker 1: is no match to the United States extentionally and of
10:51
Speaker 1: course not unconventional. They don't have nuclear weapons as far
10:55
Speaker 1: as we know. But in terms of this indirect warfare,
10:59
Speaker 1: the they excel in UM terrorist attacks, UH, subversion, weaponizing
11:07
Speaker 1: Shia minorities throughout the Middle East, UH, the creation of
11:11
Speaker 1: the so called Iranian Crescent from the Mediterranean to the
11:15
Speaker 1: Holy City of Comb in Iran. They're doing all that.
11:19
Speaker 1: They are now less one um quarterback, and that was
11:25
Speaker 1: Mr Sulimani. General Sulimani UH. He was not a regular
11:29
Speaker 1: military He was a paramilitary leader who was engaged deeply
11:36
Speaker 1: for decades in terrorist activity and in that respect his
11:40
Speaker 1: elimination was justified. So Ariel wanted to get your thoughts
11:43
Speaker 1: on a Secretary Pompeio said that Iran's nuclear program is
11:46
Speaker 1: more diminished than it was under the j c p
11:49
Speaker 1: o A deal that President Trump pulled out of. Is
11:52
Speaker 1: that in fact the case from your understanding, I'm not sure,
11:57
Speaker 1: and these things are very nicole and you need a
12:01
Speaker 1: lot of classified information to really analyze it. If Mr Pompere,
12:05
Speaker 1: who has better access to a classified information than I do,
12:08
Speaker 1: says so, uh, it would be m a challenge to
12:12
Speaker 1: all of us to prove him wrong. Uh. The question
12:16
Speaker 1: is how many centri futures they have running now, and
12:19
Speaker 1: the fact that they're already the Iranians already made a
12:22
Speaker 1: classic Iranian move, we killed soley money. They're moving on
12:27
Speaker 1: a different chessboard, and on the nuclear chess board, they're
12:30
Speaker 1: saying there are no limitations anymore, uh, in terms of enrichment.
12:35
Speaker 1: So that means they can go to enriching all the
12:37
Speaker 1: way up to nine that they need of uranium enriched
12:42
Speaker 1: in order to produce nuclear weapons. The other question I'm
12:45
Speaker 1: asking myself to what extent countries with nuclear expertise who
12:49
Speaker 1: are engaged in a strategic competition with US, Russia and
12:52
Speaker 1: China are going to help Iran now to develop their
12:56
Speaker 1: nuclear the potential nuclear um web and especially the means
13:02
Speaker 1: of delivering the rockets in the warheads. I think the
13:04
Speaker 1: war warnts are absolutely key. Yes, well, and actually David
13:08
Speaker 1: that that brings me to a question that I have,
13:10
Speaker 1: which is what is the international response, both from allies
13:13
Speaker 1: as well as UH non allies of the United States
13:18
Speaker 1: to its actions with respect to Iran. I think you
13:21
Speaker 1: know what you're hearing from, you know everyone, both allies
13:25
Speaker 1: and U S ravals. There's you know, calls to the
13:28
Speaker 1: escalate There's some lot of sort of behind the scenes
13:31
Speaker 1: UH discussion going on. A Reef has already said, UH
13:35
Speaker 1: confirmed that he's going to be at Davos, although he
13:38
Speaker 1: didn't get his visa so far to come to New York.
13:41
Speaker 1: He was supposed to be at the United Nations on
13:43
Speaker 1: Thursday for a Security Council meeting. So there's a lot
13:46
Speaker 1: of back channeling going on, a lot of calls for
13:48
Speaker 1: the escalation UM even the sort of you know, the
13:53
Speaker 1: regional U S allies such as Israel, Saudi Arabia and
13:57
Speaker 1: the U A E. Uh, they're not interested in an
14:00
Speaker 1: escalation here. Israel has been relatively quiet. Um. I mean
14:04
Speaker 1: they praised the US action, but they're distancing themselves from
14:08
Speaker 1: specific strike on Sulamani. So UM, you know, I think
14:13
Speaker 1: there's gonna be a lot of uh you know, quite
14:15
Speaker 1: a quite a significant attempt to reduce tensions here. And
14:19
Speaker 1: I would also note that you know, Iran has generally
14:22
Speaker 1: responded this way when something like this happened, rhetorically speaking,
14:26
Speaker 1: but in terms of action, Uh, they're going to be
14:28
Speaker 1: very careful and calibrated. And I you know, if you
14:31
Speaker 1: if you look back to the last time someone really
14:33
Speaker 1: senior uh in this apparatus was thinking was was killed
14:38
Speaker 1: Imad Mougnia Hasbalah, but he was very close. Uh. It
14:43
Speaker 1: actually took maybe you know, a decade. Uh, it took
14:47
Speaker 1: years until you saw a reaction. Um. And so it's
14:51
Speaker 1: gonna take some time for us to see the repercussions
14:54
Speaker 1: of this Aria. What do you think Iran will do
14:57
Speaker 1: in terms of retaliation? What are their capabilities? Well, Iran
15:01
Speaker 1: demonstrated a totally chilling capability when it knocked out half
15:07
Speaker 1: of Saudi oil producing UM infrastructure, including the Abu Kaiks facility,
15:13
Speaker 1: which is absolutely crucial. I war gamed a strike on
15:17
Speaker 1: Abu Kaik and the Saudi facilities about ten years ago.
15:20
Speaker 1: The results were much worse, much more catastrophic that than
15:25
Speaker 1: what we found today. Why because of the massive US
15:29
Speaker 1: oil producing capacity UH from shale so uh, the Iranians
15:34
Speaker 1: are capable of doing a lot of damage to the
15:37
Speaker 1: Saudi oil capacity and that may tip the global oil market,
15:42
Speaker 1: throwing the prices into a much higher rage. On the
15:46
Speaker 1: other hand, people ask me if I think they would
15:49
Speaker 1: block uh blockade the strait of hormones, the bottleneck through
15:53
Speaker 1: which global oil is moving out of the Persian Gulf
15:57
Speaker 1: to the global markets, and I said no, because this
16:00
Speaker 1: will be Iran shooting itself, not in the food, but
16:03
Speaker 1: in the head, because that would stop Iranian exports. And
16:07
Speaker 1: also on the table as the US warning, not the
16:09
Speaker 1: fifty two cultural site, but very uh important, very vital
16:15
Speaker 1: to Iran um Hard Island Oil terminal that is responsible
16:22
Speaker 1: for the majority of Iranian oil exports. If they make
16:25
Speaker 1: a big move uh, they're Hard Island Oil Terminal will
16:30
Speaker 1: be UH in play and potentially devastated by the US Airport.
16:35
Speaker 1: Harry'll Cohen, thank you so much for being with us
16:36
Speaker 1: Aero Cone, Senior Fellow at the Atlantic Council and founding
16:39
Speaker 1: principle of international market Analysis. Also our thanks to David
16:42
Speaker 1: Wayner and Bloomberg International Government Reporter, both commenting on that
16:46
Speaker 1: press conference and the US strategy with Iran. Time to
17:07
Speaker 1: check in with Bloomberg Opinion, we welcome Jim Bianco, President,
17:10
Speaker 1: founder Bianco Research. Uh. He is based in Chicago. Interesting, Uh,
17:15
Speaker 1: Jim just wanted to get your thoughts just kind of
17:17
Speaker 1: on the last few days the the re emergence, if
17:21
Speaker 1: you will, of geopolitical risk coming out of the Mid East.
17:24
Speaker 1: How does that kind of fit into kind of how
17:27
Speaker 1: you're thinking about the markets for you know, the thing
17:33
Speaker 1: about it is everybody's wondering when is the next recession
17:36
Speaker 1: going to occur? Because it's been eleven years since we've
17:40
Speaker 1: had one, and it's the longest period that we've ever had.
17:43
Speaker 1: And I've been arguing that the natural state of an
17:47
Speaker 1: economy is to expand it will expand forever and ever,
17:50
Speaker 1: but it never does because something comes along and breaks it.
17:54
Speaker 1: In the leading cause over the last many decades of
17:57
Speaker 1: breaking an economy in the recession has been a spike
18:00
Speaker 1: in energy prices. So when you get these events that
18:04
Speaker 1: you've had in the Middle East over the last week
18:07
Speaker 1: or so, you start to wonder if history is going
18:10
Speaker 1: to repeat itself again. Are we going to have a
18:12
Speaker 1: spike in energy prices and will that bring down the
18:15
Speaker 1: economy like it has so many times before. And I'll
18:18
Speaker 1: remind you that in two thousand eight, we did get
18:21
Speaker 1: to a hundred and forty seven dollars on West Texas
18:24
Speaker 1: Intermediate by June of two thou eight, so there was
18:26
Speaker 1: spike of energy prices then as well too. A lot
18:31
Speaker 1: of people are expecting that the next move for the
18:33
Speaker 1: Federal Reserve will be lower than the Federal cut once
18:36
Speaker 1: more this year. That's what's being priced into the rates market.
18:39
Speaker 1: I'm wondering, do you think that that is required in
18:42
Speaker 1: order to keep the economy going or do you think
18:45
Speaker 1: that the FED should cut more or not cut at all?
18:49
Speaker 1: I do. I do lean towards the FED cutting um.
18:53
Speaker 1: I think that they will cut one more time. And
18:55
Speaker 1: if I had to uh put a bias on that,
18:58
Speaker 1: I think that the bias would be that they would
19:00
Speaker 1: more than once uh. And I think they would probably
19:03
Speaker 1: do it in the first half of the year. They
19:05
Speaker 1: will definitely once we get into the second half of
19:08
Speaker 1: the year, try and sit on their hands because of
19:11
Speaker 1: the election. But history shows sometimes they're forced to move
19:14
Speaker 1: on election right before elections. Remember two thousand and eight
19:18
Speaker 1: when they did some of the most extraordinary things they've
19:20
Speaker 1: done in their history literally days before the election. I
19:24
Speaker 1: do think though, that if you look at the shape
19:26
Speaker 1: of the yield curve, it is back positive, but at
19:30
Speaker 1: only twenty six basis points, it is well below its
19:34
Speaker 1: long term average, which should be about a hundred and
19:35
Speaker 1: twenty basis points, and it is telling us I've always
19:39
Speaker 1: looked at the yield curve is being something very simple,
19:42
Speaker 1: is that when the yolk curve is inverted, are very flat,
19:44
Speaker 1: it's a market signal that maybe the funds rate or
19:48
Speaker 1: the policy rate is too high, especially when it's inverted,
19:52
Speaker 1: and even when it's very flat. And I would call
19:54
Speaker 1: twenty basis points where we are now flat. So I
19:57
Speaker 1: think that there's gonna be downward pressure on interest rates
20:00
Speaker 1: and the lack of inflation. The thing that the FETE
20:03
Speaker 1: has been scratching their head about should be embraced by
20:06
Speaker 1: them and say, look, there isn't any there's room for
20:09
Speaker 1: us to lower interest rates, and I think they'll eventually
20:11
Speaker 1: come to their view. Jim, do we still need to
20:13
Speaker 1: worry about that short end of the curve the repo
20:15
Speaker 1: market that was obviously much in the news several months ago,
20:18
Speaker 1: a little bit less so today. Yeah, No, I definitely
20:21
Speaker 1: think we should worry about it. Um it is. It
20:25
Speaker 1: has been drugged into submission by the FETE. They've just
20:28
Speaker 1: buried it with with supply. They've supplied m repubs to
20:33
Speaker 1: the tunes of hundreds of billions of dollars and brought
20:34
Speaker 1: another hundreds of billions of dollars of bills to keep
20:37
Speaker 1: the market quiet. All Right, it's quiet. It's not a problem.
20:41
Speaker 1: It's not an immediate worry today, tomorrow, next week. But
20:44
Speaker 1: what is most concerning is I don't hear a plan
20:47
Speaker 1: from them on how to fix this. I don't hear
20:49
Speaker 1: a plan for them on how to get out of this.
20:52
Speaker 1: Other than that they just keep throwing the junkie a
20:55
Speaker 1: dime bag every week and saying here, we'll get you
20:58
Speaker 1: the next week. We'll get you the next week. That
21:00
Speaker 1: being just more repose supply every week. That's not a
21:04
Speaker 1: long term fix. It's been four months. It's time for
21:07
Speaker 1: them to kind of step up to the plate and say, Okay,
21:10
Speaker 1: here's how we're going to fix this problem. I might
21:12
Speaker 1: add I think I know why. I think they know that.
21:15
Speaker 1: The reason is that they've overregulated the short end of
21:19
Speaker 1: the yield curve. It has not been able to come
21:22
Speaker 1: to come to grips with that regulation. They need to
21:25
Speaker 1: back off that regulation. But they've been getting pressure from
21:28
Speaker 1: no less than Liz warrened Sheila Bear former FDI c
21:31
Speaker 1: had Alan Bleer, former Flights chairman the FED saying don't
21:35
Speaker 1: back off on the regulations. Okay. If you don't do that,
21:39
Speaker 1: there's no way to fix this problem. And that's why
21:41
Speaker 1: I think they're kind of stuck right now. You've got
21:43
Speaker 1: away with words. Jim Bianco throwing the Junkia dime bag.
21:46
Speaker 1: I love speaking with you, and Jim Bianco always a pleasure,
21:50
Speaker 1: President and founder of Bianco Research and a Bloomberg Opinion contributor.
21:54
Speaker 1: Joining us from Chicago and actually interesting, uh to see
21:58
Speaker 1: that today the REPO operation operated by the New York
22:01
Speaker 1: Federal Reserve was oversubscribed for the first time, and a
22:04
Speaker 1: couple of the operations, So showing ongoing demand for this
22:08
Speaker 1: liquidity at a time when there are a lot of
22:10
Speaker 1: questions about the REPO operations. Well, the fourth most read
22:28
Speaker 1: story on the Bloomberg terminal uh this today is about
22:32
Speaker 1: the credit card business and gas stations. Apparently the gas
22:35
Speaker 1: stations are not prepared to accept the chip reader credit
22:39
Speaker 1: cards and apparently that's going to be a big problem.
22:41
Speaker 1: Really interesting story here. Jenny Seraine, the reporter on that story,
22:46
Speaker 1: finance reporter for Bloomberg News, joins us here on o
22:48
Speaker 1: Bloomberg Interactive Broker Studio. Jenny, I didn't even know this
22:51
Speaker 1: was a thing. Scope it out force. What's going on? Um? Yeah,
22:55
Speaker 1: I think a lot of people maybe haven't been um,
22:58
Speaker 1: you know, it's like it's not some thing a lot
23:00
Speaker 1: of people pay attention to. But basically five years ago
23:02
Speaker 1: here in the US, we started making this transition to
23:05
Speaker 1: chip cards, um, and so people should be seeing that,
23:08
Speaker 1: you know, at your regular Bodego, your regular grocery store
23:11
Speaker 1: instead of swiping we now dip UM and gas stations
23:14
Speaker 1: have been a little bit behind. They were given a
23:16
Speaker 1: little bit longer of a deadline to make that upgrade
23:19
Speaker 1: because um, you actually have to rip out the pump
23:21
Speaker 1: from the concrete and you know, replace it there. And
23:24
Speaker 1: it's a very big expense. Um. And so the industry
23:27
Speaker 1: kind of recognized that, um. And so that deadline is
23:30
Speaker 1: actually replaced the whole pump as opposed to just some
23:33
Speaker 1: little thing that accepts the corder card. Yes, so the
23:37
Speaker 1: hardware for this is just a very unusual beast um.
23:40
Speaker 1: And so yeah, these gas station operators actually have to
23:42
Speaker 1: rip out from the concrete. Yeah. Well that's actually interestingly
23:47
Speaker 1: this story. I gotta say, I noticed that the people
23:49
Speaker 1: who were quoted where people who are involved in the
23:53
Speaker 1: installation of some of these events saying they're woefully behind.
23:56
Speaker 1: They gotta get on this. I mean, how big of
23:59
Speaker 1: a push is uh their ports on their part. I
24:01
Speaker 1: think everyone realizes that the deadline is coming. Um. And
24:04
Speaker 1: so what that deadline basically means is that after October,
24:08
Speaker 1: if a gas station hasn't upgraded its systems, it will
24:11
Speaker 1: suddenly face all liability for any card fraud that happens
24:14
Speaker 1: at the station. And so it's a big expense that's
24:16
Speaker 1: coming for these station operators. UM. But yeah, the industry
24:19
Speaker 1: just says it's going to be really tough to make
24:21
Speaker 1: it on the credit card side. How much more secure
24:24
Speaker 1: is the chip versus the swipe And by the way,
24:27
Speaker 1: I really I want to incorporate that into my lexicon
24:30
Speaker 1: instead of swiping we now did okay? Carry on? Um? Yeah,
24:35
Speaker 1: well it's uh. So the chip was basically designed to
24:37
Speaker 1: head off counterfeit card fraud. So that's uh. You know,
24:40
Speaker 1: I think a few years ago the real risk was
24:43
Speaker 1: hackers would attach skimming devices onto the point of sale um,
24:47
Speaker 1: and so when you swiped your card, they were able
24:49
Speaker 1: to get all of the card data and then basically
24:51
Speaker 1: go and make a counterfeit card and use that wherever
24:53
Speaker 1: they wanted to. So the chip basically heads that off
24:55
Speaker 1: by each time you dip your card, it creates a
24:58
Speaker 1: unique number, and so even if the hacker has infiltrated
25:01
Speaker 1: that point of sale device, they can't go and make
25:03
Speaker 1: copies of that card and use it wherever they want.
25:05
Speaker 1: So that kind of fraud is what this is really addressing,
25:08
Speaker 1: and it is a lot safer. You know, we've seen
25:10
Speaker 1: uh counterfeit fraud dollars fall by you know, more than
25:13
Speaker 1: fifty since the deadline, and so it has addressed that.
25:17
Speaker 1: Now hackers don't just go away because you've taken away
25:20
Speaker 1: one form. So we've seen a subsequent increase in other
25:24
Speaker 1: types of card fraud that the industry is now trying
25:26
Speaker 1: to address. But UM, at least for counterfeit card fraud,
25:29
Speaker 1: the chip did do what it was supposed to. Different
25:31
Speaker 1: When I'm over in London for business, I noticed people
25:33
Speaker 1: just kind of tapping their card and so when I
25:35
Speaker 1: walk up to get us pay for a sandwich, the
25:37
Speaker 1: person going to counter just like size because now they
25:39
Speaker 1: have to dip it and do it exactly signed something.
25:44
Speaker 1: What's that technology? Why don't you have that? It's it's coming.
25:47
Speaker 1: So the US is woefully behind the rest of the
25:49
Speaker 1: world in terms of adoption of tap to pay UM
25:52
Speaker 1: and but it's coming. So you've seen it so far.
25:54
Speaker 1: The m t A has started to install these readers
25:56
Speaker 1: on the subway, so you should start to see that
25:59
Speaker 1: more and more. And I think retailers kind of UM
26:01
Speaker 1: and a lot of ways follow transit. So when you
26:03
Speaker 1: see these big transit operators adopting that technology, you should
26:07
Speaker 1: start to see other retailers. But yeah, it's this one
26:10
Speaker 1: area of finance where you know, the US has long
26:12
Speaker 1: been a leader, and so many things within the credit
26:14
Speaker 1: card industry. But this is where we really fall behind. Well,
26:17
Speaker 1: going back to gas stations. If they're spending all this
26:19
Speaker 1: money to implement entirely new pumps to dip rather than swipe,
26:24
Speaker 1: are they gonna have to do it again so that
26:25
Speaker 1: we can tap? So it should be one upgrade. Um,
26:29
Speaker 1: that's what you've seen with a lot of the other
26:30
Speaker 1: retailers who had the deadline. Um, so it should be
26:34
Speaker 1: one upgrade. Now, just because a retailer adopts the dipping
26:37
Speaker 1: does not mean they have to adopt tapping. So some
26:40
Speaker 1: retailers have said they don't want to. Um. There's a
26:42
Speaker 1: lot of different reasons for that. Um. You know, a
26:45
Speaker 1: lot of retailers are starting to come up with their
26:47
Speaker 1: own forms of mobile payments, so they maybe don't want
26:49
Speaker 1: you know, someone walking in and using Apple Bay. So
26:51
Speaker 1: you've seen a little bit of kind of differentiation. It's
26:54
Speaker 1: another area for retailers to kind of catch up. You know,
26:57
Speaker 1: they've got a lot of catching up. I have to say,
26:59
Speaker 1: I can just imagine someone coming up to one of
27:01
Speaker 1: those things and just like taking their card, just like
27:04
Speaker 1: snacking it and then dipping it and sliding it. I mean, honestly,
27:08
Speaker 1: at a little confused after a while. Jenny, do carry cash?
27:12
Speaker 1: I am a weird millennial that does carry cash. Yes,
27:15
Speaker 1: you are a weird okay, because this kind of goes
27:18
Speaker 1: to the issue of kind of the cashless society. And
27:20
Speaker 1: you actually see some stores as a restaurant, I guess
27:23
Speaker 1: they're right here on election to navtu you know, sign
27:25
Speaker 1: out front and we do not accept cash. Yeah, but
27:27
Speaker 1: it's kind of a gimmick, isn't it. I don't know,
27:29
Speaker 1: it's you know, it's actually a big debate. Um. Folks
27:32
Speaker 1: actually are now saying that going cashless might improper, you know,
27:36
Speaker 1: take advantage of poor people who only carry cash and
27:38
Speaker 1: don't have access to financial services. I carry cash. I
27:41
Speaker 1: always carry cash, carry cash. No it asks, but I do.
27:45
Speaker 1: But not that anyone should really back. How much does
27:48
Speaker 1: it cost? It sounds like a lot um, so it
27:51
Speaker 1: can vary. The averages are right now about thirty dollars
27:55
Speaker 1: per store um to upgrade all of your pumps. And
27:58
Speaker 1: you know, that's really hard for an industry where profit
28:00
Speaker 1: margins are less than two percent, So it's a really
28:02
Speaker 1: big outlay at any point in time that these gas
28:05
Speaker 1: station operators are gonna have to make swipe, dip, tap, swipe, dip,
28:09
Speaker 1: tap and swing. Thank you so much for being with us.
28:11
Speaker 1: Jenny Serena, I'm gonna get I'm gonna get absolutely pummeled
28:14
Speaker 1: for saying that Jenny Serena is a Bloomberg Finance reporter
28:16
Speaker 1: training us here in our eleven three oh studies or
28:19
Speaker 1: Interactive Proker Studios. Thanks for listening to the Bloomberg P
28:22
Speaker 1: and L podcast. You can subscribe and listen to interviews
28:24
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney,
28:28
Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa Abram woids
28:31
Speaker 1: I'm on Twitter at Lisa Abram Woyds one. Before the podcast,
28:34
Speaker 1: you can always catch us worldwide on Bloomberg Radio