Latest / Bloomberg Intelligence / Wall Street’s Shale Mania Is Like The First Dotcom Bubble

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Wall Street’s Shale Mania Is Like The First Dotcom Bubble · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money. Whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg P and L
• 0:20
  Speaker 1: Podcast on United States oil growth in oil production in
• 0:27
  Speaker 1: Texas and the Permian and Bakan geological regions. They have
• 0:31
  Speaker 1: now put US total oil production ahead of Russia for
• 0:35
  Speaker 1: the first time since You can credit technology, the shale revolution,
• 0:41
  Speaker 1: and lots of money with this advancement. Here to tell
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  Speaker 1: us more about it is Bethanie McClain, the author and
• 0:47
  Speaker 1: contributing editor to Vanity Fair and the author of a
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  Speaker 1: new book entitled Saudi America, The Truth about Fracking and
• 0:54
  Speaker 1: How It's Changing the World. Bethany, thank you very much
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  Speaker 1: for coming in. Just start off by explaining to people
• 1:02
  Speaker 1: what you learned as you made all of the investigations
• 1:06
  Speaker 1: to do this book. Because there's been a lot of
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  Speaker 1: headlines about fracking, the shale revolution, the technology. What did
• 1:14
  Speaker 1: you find out after you did all of your investigational work.
• 1:18
  Speaker 1: So the thing that obsessed me, the question that obsessed
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  Speaker 1: me was how it could be true that fracking could
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  Speaker 1: be changing the world and it is. It's reshaping geopolitics.
• 1:27
  Speaker 1: You just saw the numbers you cited, but that the
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  Speaker 1: industry doesn't make money, that it's on this shaky financial footing,
• 1:33
  Speaker 1: and how could both things be true at once? And
• 1:36
  Speaker 1: so that's the question I set out to answer. I
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  Speaker 1: guess what I learned. I came to this broader realization
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  Speaker 1: that this whole concept of energy and dependence, which has
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  Speaker 1: been pushed by every president since the nineties seventies, is
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  Speaker 1: this exalted grand goal we needed to achieve, that it's
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  Speaker 1: somewhat of a of a fraud today. Um, it doesn't
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  Speaker 1: make sense as a broad goal. I have to wonder.
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  Speaker 1: You wrote the first skeptical art goal about Enron back
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  Speaker 1: in two thousand one. Of course, Enron collapsed under accounting fraud.
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  Speaker 1: Is there something that is similar about the way that
• 2:10
  Speaker 1: the shale story is being told today? It's an interesting question.
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  Speaker 1: I don't. I suppose there's a certain lack of transparency
• 2:19
  Speaker 1: in in shale, but I think you can you can
• 2:22
  Speaker 1: figure it out if you delve into the details. I
• 2:24
  Speaker 1: actually think it might be the opposite and that the
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  Speaker 1: problems with the industry are right there on the surface.
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  Speaker 1: It's pretty easy to tell that the industry doesn't make
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  Speaker 1: any money. It's just that it's not something we want
• 2:34
  Speaker 1: to take into account as we think about it. So
• 2:36
  Speaker 1: it's so interesting. We've been talking about this. They used
• 2:38
  Speaker 1: to cover debt markets very very closely, and we were
• 2:41
  Speaker 1: talking about just this explosion of shale debt that got
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  Speaker 1: absolutely punished in two thousand two sixteen. Uh, And now
• 2:49
  Speaker 1: people are saying, well, the existing companies are in good shape,
• 2:52
  Speaker 1: because it was sort of, you know, this was like
• 2:54
  Speaker 1: a sort of a sweep of all bad ones and
• 2:56
  Speaker 1: the ones that are remaining are strong and healthy. Do
• 2:59
  Speaker 1: you think that's true or do you think there's still
• 3:00
  Speaker 1: is a lot of fragility. I think there's some truth
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  Speaker 1: to it. But the wipeout wasn't what it would have
• 3:05
  Speaker 1: been because Wall Street was there. Wall Street remained willing
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  Speaker 1: to finance these companies. Banks remained willing to restructure debt.
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  Speaker 1: Part of that has to do with the dynamics that
• 3:14
  Speaker 1: are keeping the industry going, which is the flood of
• 3:17
  Speaker 1: pension fund money into private equity firms and credit hedge funds,
• 3:20
  Speaker 1: and the credit hedge funds then invested in the distress
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  Speaker 1: debt of these of these energy companies, so the money
• 3:26
  Speaker 1: was still there, it didn't go away, And I think
• 3:29
  Speaker 1: the the the final answer to what you just said
• 3:32
  Speaker 1: is that the industry still isn't making money. Um. The
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  Speaker 1: most recent analysis I saw was a Wall Street Journal
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  Speaker 1: analysis I think it was either the first or the
• 3:39
  Speaker 1: second quarter of two thousand eighteen that only five companies
• 3:42
  Speaker 1: produced positive cash flow. Energy companies that specialize in fracking.
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  Speaker 1: They're valued on how much acreage they have, right, how
• 3:53
  Speaker 1: much acreage they have plus how much production they have,
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  Speaker 1: not on how profitable they are how did we get there?
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  Speaker 1: So people have been willing to fund shale based on
• 4:05
  Speaker 1: this belief that it's going to be profitable one day,
• 4:07
  Speaker 1: and so in the absence of real profits, they've come
• 4:10
  Speaker 1: up with other ways to value it, which has been
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  Speaker 1: multiples of acreage looking at production growth. To me, it's
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  Speaker 1: very reminiscent of the first dot com boom boom, when
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  Speaker 1: dot com companies were valued as a multiple of eyeballs.
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  Speaker 1: Because in the absence of traditional measures of profitability, if
• 4:26
  Speaker 1: you want to value things, you have to turn to
• 4:28
  Speaker 1: non traditional and you have to find something that's positive, right,
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  Speaker 1: But that's enabled this whole mechanism to work. And it's
• 4:35
  Speaker 1: too cynical to call it a daisy chain, but it's
• 4:38
  Speaker 1: meant that you can build fat private equity, can fund
• 4:41
  Speaker 1: a fracking company and take it public or sell it
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  Speaker 1: to an already public company, and everybody can make money.
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  Speaker 1: But that extract money along the way, But that doesn't
• 4:50
  Speaker 1: mean in the end that the industry is making money.
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  Speaker 1: The industry's net debt in was two hundred billion dollars.
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  Speaker 1: It's increase from two thous five This is according to
• 5:01
  Speaker 1: some Columbia University professor's statistics that you cited in a
• 5:05
  Speaker 1: recent story that you wrote for The Times. For the
• 5:07
  Speaker 1: New York Times, I'm just wondering, can you fast forward
• 5:10
  Speaker 1: for us? What is the consequence of the fact that
• 5:13
  Speaker 1: these private equity and private debt funds are financing and
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  Speaker 1: industry that is held up with great esteem from a
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  Speaker 1: policy perspective, but has not made any money. So I
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  Speaker 1: think there are two answers to that. One is a
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  Speaker 1: financial answer, and it worries me. Pension funds around the
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  Speaker 1: country are in dire shape. They in the absence of
• 5:31
  Speaker 1: any returns in traditional fixed income markets. They've started putting
• 5:35
  Speaker 1: their money into private equity firms. If the returns aren't
• 5:38
  Speaker 1: there at the end of the day, and if the
• 5:40
  Speaker 1: daisy chain stops in the private equity portfolios, that's problematic
• 5:45
  Speaker 1: for pension funds around around the country, and that's a
• 5:48
  Speaker 1: real issue given that they are underfunded anyway. I think
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  Speaker 1: the broader question, though, is sort of more of an
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  Speaker 1: existential one, even beyond the financial repercussions of this, which
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  Speaker 1: is that we're beating our chest about energy and dependence
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  Speaker 1: and how rate it is that we're now the biggest
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  Speaker 1: producer of oil, ahead of Russia and Saudi Arabia. But
• 6:04
  Speaker 1: what does that really mean if there's a risk to production,
• 6:08
  Speaker 1: if the capital dries up and energy is Energy is
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  Speaker 1: the foundation of national security. World wars have been one
• 6:16
  Speaker 1: and lass based on access to energy. It's incredibly important,
• 6:20
  Speaker 1: and I don't like seeing short term, short term policy
• 6:24
  Speaker 1: and the absence of long term thinking. Just to pick
• 6:28
  Speaker 1: up on the figure, Lisa that you mentioned, the two
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  Speaker 1: billion dollars worth of debt that has been raised in
• 6:33
  Speaker 1: order to support the fracking industry. Based on your research,
• 6:38
  Speaker 1: would that two billion dollars be better served if it
• 6:42
  Speaker 1: was spent investigating new sources of renewable energy. That is
• 6:48
  Speaker 1: a really hard question to answer, because I do think
• 6:52
  Speaker 1: that unleashing our supply of oil and natural gas has
• 6:54
  Speaker 1: had some positives. UM, it's given us leverage, it gives
• 6:58
  Speaker 1: Europe leverage, and negotiating with Russia over its supply of
• 7:01
  Speaker 1: natural gas. I think that natural gas is actually more
• 7:05
  Speaker 1: real than oil is. Um it's it's more economically viable
• 7:09
  Speaker 1: than producing oil is. And so there's some really good
• 7:11
  Speaker 1: things about this. But one other thing I was really
• 7:13
  Speaker 1: struck by and doing this book, where the number of
• 7:15
  Speaker 1: smart investors I talked to who are not investing in
• 7:19
  Speaker 1: oil and gas anymore because the age of renewables is coming.
• 7:22
  Speaker 1: The only question is when, and once we know the
• 7:25
  Speaker 1: answer to when, the price of oil will go into
• 7:28
  Speaker 1: a cyclical into a secular decline and never recover. That's
• 7:31
  Speaker 1: what happened with coal. And so for us to fall
• 7:33
  Speaker 1: behind in the race to develop renewables is for us
• 7:36
  Speaker 1: to look at the world as it is and not
• 7:38
  Speaker 1: the world as it's going to be, and perhaps seed
• 7:40
  Speaker 1: American leadership in the world of the future. Bethany McLean,
• 7:44
  Speaker 1: thank you so much for coming in really fascinating. Bethany
• 7:47
  Speaker 1: McLean is an author and contributing an editor at Vanity Fair.
• 7:51
  Speaker 1: Her new book is Saudi America, The Truth about Fracking
• 7:54
  Speaker 1: and how It's Changing the World. And she was the
• 7:57
  Speaker 1: one who wrote the first skeptical article about and Ron.
• 8:01
  Speaker 1: I just want to bring you some breaking headlines Goldman
• 8:04
  Speaker 1: Sacks confirming Stephen's share as chief financial officer, also saying
• 8:08
  Speaker 1: that they are going to name John Waldron as president.
• 8:12
  Speaker 1: This according to The Wall Street Journal. We will bring
• 8:15
  Speaker 1: you more throughout the day as that unfold. Coming up
• 8:19
  Speaker 1: Bloomberg Politics, Policy, power and Law. I'm Lisa Bramwitz along
• 8:23
  Speaker 1: up co host Pim Fox, and this is Bloomberg. Commercial
• 8:29
  Speaker 1: Banking in the United States, particularly in the Northeastern regions,
• 8:33
  Speaker 1: is our focus. And Don McCree is the vice chairman
• 8:35
  Speaker 1: and the head of commercial banking for Citizens Financial Group.
• 8:39
  Speaker 1: They're based in Providence, Rhode Island. But Don joins us
• 8:42
  Speaker 1: here in our eleven three oh studios, Donn, I gotta
• 8:45
  Speaker 1: ask your thirty year veteran of JP Morgan, Right, that's right,
• 8:49
  Speaker 1: What what caused you? What is Citizens Bank? For a
• 8:52
  Speaker 1: lot of people don't know about Citizens Bank. They know
• 8:54
  Speaker 1: about maybe the changes that went on inside the banking
• 8:57
  Speaker 1: industry in general. But tell us about Since Bank and
• 9:00
  Speaker 1: why you decided that this is where you want to
• 9:02
  Speaker 1: hang your hat. So Citizens Bank has been around for
• 9:05
  Speaker 1: a very long time. UH in recent years. It was
• 9:08
  Speaker 1: part of Royal Bank of Scotland, big British bank, which
• 9:11
  Speaker 1: actually experienced difficulty in the financial crisis. It ultimately resulted
• 9:16
  Speaker 1: in Citizens Bank going public about four and a half
• 9:18
  Speaker 1: years ago. UM. When I looked at the situation at
• 9:22
  Speaker 1: at citizens what I saw was an exciting opportunity to
• 9:26
  Speaker 1: be part of a ground floor build of a brand
• 9:28
  Speaker 1: new independent financial institution. UM. The strategy we've been employing,
• 9:32
  Speaker 1: and the strategy that was exciting to me is a
• 9:35
  Speaker 1: growth strategy. It's an expansion strategy in terms of client base.
• 9:39
  Speaker 1: It's an opportunity to deploy what has been a very
• 9:42
  Speaker 1: healthy level of capital UM and it really was an
• 9:45
  Speaker 1: opportunity to provide a service level to clients that we
• 9:48
  Speaker 1: think is is quite different and quite differentiating. It's an
• 9:51
  Speaker 1: interesting time to be in banking right now. I'm just
• 9:54
  Speaker 1: thinking about yesterday's Global Financial Service Services Conference hosted by
• 9:59
  Speaker 1: Barclays in New York, and it did create a lot
• 10:02
  Speaker 1: of concern that perhaps there wouldn't be the same kind
• 10:04
  Speaker 1: of loan growth going forward that there has been in
• 10:07
  Speaker 1: the past, and this could be a headwind profitability. What's
• 10:09
  Speaker 1: your take on that. So, I think the topic of
• 10:12
  Speaker 1: loan growth has been in the forefront for for several
• 10:14
  Speaker 1: quarters and maybe several years now. Um, there's a lot
• 10:17
  Speaker 1: of optimism coming off the tax cuts that the administration
• 10:21
  Speaker 1: rolled out almost a year ago now, and a lot
• 10:23
  Speaker 1: of expectation that loan growth would be quite robust. It's
• 10:26
  Speaker 1: it's been relatively benign. We we actually been growing much
• 10:30
  Speaker 1: quicker on the loan line than most of the competition,
• 10:32
  Speaker 1: and that's been a result of geographic expansion and client expansion,
• 10:36
  Speaker 1: and you have to lower standards as a result. No,
• 10:38
  Speaker 1: you know, we really haven't. And I think one of
• 10:40
  Speaker 1: the things that every banker will always balance is that
• 10:42
  Speaker 1: question of credit and structure and terms and loan growth.
• 10:46
  Speaker 1: And we're we have a very disciplined process at the
• 10:49
  Speaker 1: bank and we pass on a lot and and yet
• 10:52
  Speaker 1: we've been able to grow. So I think what you
• 10:53
  Speaker 1: heard at of Barclays yesterday is a continuation of a
• 10:57
  Speaker 1: theme which is a real question around how quickly, loans
• 11:00
  Speaker 1: are gonna are going to continue to grow in the
• 11:02
  Speaker 1: in the marketplace, speak about mergers and acquisitions and how
• 11:06
  Speaker 1: companies face the issue of whether they're going to grow
• 11:08
  Speaker 1: organically or whether they're going to make acquisitions, and also
• 11:12
  Speaker 1: about the abundance or lack there of of suitable candidates
• 11:16
  Speaker 1: at a suitable value. So that's a incredibly uh interesting
• 11:21
  Speaker 1: story for us. I was on one of your shows
• 11:23
  Speaker 1: about six months ago talking about an acquisition that we did,
• 11:26
  Speaker 1: which was a company called Western Reserve Partners, which is
• 11:29
  Speaker 1: a middle market oriented mergers and acquisition firm. Uh and
• 11:33
  Speaker 1: and just a baseline, are client base is about three
• 11:37
  Speaker 1: quarters middle market private companies or maybe maybe maybe some
• 11:41
  Speaker 1: uh a little bit less than that. UH and R
• 11:44
  Speaker 1: M and A practice is really aimed at both the
• 11:46
  Speaker 1: private equity firms and those midsized companies. Now in the
• 11:49
  Speaker 1: midsize company space, there is extremely robust M and A
• 11:53
  Speaker 1: right now, and which where it really drives it is
• 11:56
  Speaker 1: the opportunity to grow, as you say, expand someone's business
• 11:59
  Speaker 1: by combining with a like trind company. But it's often
• 12:02
  Speaker 1: a change of control transaction where a private family is
• 12:05
  Speaker 1: selling out of their ownership position. We see a very
• 12:08
  Speaker 1: robust POPE pipeline in our business, and we in fact
• 12:11
  Speaker 1: do a survey every year of CEOs of our client base, uh,
• 12:15
  Speaker 1: and it's kind of spiked at the highest it's ever
• 12:18
  Speaker 1: been in terms of desire to transact, buy and sell
• 12:21
  Speaker 1: UM Now, M and A obviously takes a long time.
• 12:24
  Speaker 1: It's it's it's a you know, often a year long
• 12:27
  Speaker 1: process as a company prepares and then sells itself. But
• 12:29
  Speaker 1: what we see in our in our business is a
• 12:31
  Speaker 1: lot of activity in our pipelines are quite strong. You
• 12:33
  Speaker 1: said there, it's a lot of competition. And for your business,
• 12:36
  Speaker 1: given the clients that you are targeting, who is your
• 12:39
  Speaker 1: biggest competition it's everybody, uh, non banks, non banks and
• 12:44
  Speaker 1: large banks firms in other words, because targeting think about
• 12:48
  Speaker 1: loan funds, non non bank providers of loan capital UM.
• 12:51
  Speaker 1: So it's like direct lending absolutely. And and you know,
• 12:56
  Speaker 1: I've been in this business, as you guys said, for
• 12:58
  Speaker 1: thirt or five years. There has always been us competition
• 13:01
  Speaker 1: UM and it comes in various forms and sizes um
• 13:05
  Speaker 1: at at at different points in the cycle. But I
• 13:08
  Speaker 1: think you can always combat competitive environments by providing high
• 13:12
  Speaker 1: quality service and attention topliance. Is this time difference somehow,
• 13:16
  Speaker 1: I don't. I really don't think so. I think I
• 13:18
  Speaker 1: think what is a little bit um different UM is
• 13:22
  Speaker 1: there is a lack of demand, as you said, for
• 13:25
  Speaker 1: capital um in the form of loans across the board.
• 13:28
  Speaker 1: So so new money financing is has been running relatively
• 13:32
  Speaker 1: low for many years now, So there's a supply and
• 13:34
  Speaker 1: demand disequilibrium which is basically creating the more intense competitive environment.
• 13:40
  Speaker 1: Speak if you count a little bit about the lending
• 13:42
  Speaker 1: that you're doing, particularly when it comes to real estate.
• 13:44
  Speaker 1: I note, for example, the chocolate factory in Mansfield in
• 13:48
  Speaker 1: mass You've been loaning money also for affordable housing projects.
• 13:53
  Speaker 1: Talk a little bit about that side of the business.
• 13:55
  Speaker 1: So our real estate businesses is a little over ten
• 13:57
  Speaker 1: percent of our overall business right now. I was actually
• 14:00
  Speaker 1: with real estate clients in Washington, d C. Yesterday. UM.
• 14:03
  Speaker 1: Our approach to real estate is really twofold. One is,
• 14:05
  Speaker 1: as you say, we do a lot of community lending
• 14:08
  Speaker 1: around our community reinvestment activities, and that's a big part
• 14:11
  Speaker 1: of every bank's activities. And then on our mainstream real
• 14:14
  Speaker 1: estate business. Our our approaches really to select very strong
• 14:18
  Speaker 1: sponsors and very strong developers and travel with those developers
• 14:22
  Speaker 1: across the country. So we've been expanding our real estate
• 14:24
  Speaker 1: in different parts of the country and it's a business
• 14:26
  Speaker 1: we we quite like. It's there's a little bit of
• 14:28
  Speaker 1: pressure right now given tariffs and the cost of raw materials.
• 14:31
  Speaker 1: But uh, the feedback I got, at least in the
• 14:34
  Speaker 1: d C yesterday area yesterday was quite strong. Thank you
• 14:37
  Speaker 1: so much for being with us. We'll have to have
• 14:39
  Speaker 1: you back in to talk about the confidence and why
• 14:41
  Speaker 1: there hasn't been more demand for loans from the private sector.
• 14:45
  Speaker 1: Don McCree, vice chairman and head of Commercial Biking, its
• 14:48
  Speaker 1: Citizens Financial Group and Providence Rhode Island, but he made
• 14:50
  Speaker 1: the trackdown here to New York and our eleven three
• 14:53
  Speaker 1: oh studios here at Bloomberg and least Abramoy. It's along
• 14:57
  Speaker 1: with my co host Pim Fox is his bomber markets.
• 15:04
  Speaker 1: The Turkish Central Bank raises overnight repo rates to pent
• 15:09
  Speaker 1: in order to forestall a decline and the value of
• 15:12
  Speaker 1: the Turkish lira. Here to tell us more about emerging
• 15:15
  Speaker 1: market assets and the ramifications is Vincent Signerella, our global
• 15:20
  Speaker 1: market strategist for Bloomberg. He joins us here in our
• 15:24
  Speaker 1: eleven three oh studios, Vincent, it's always a pleasure to
• 15:27
  Speaker 1: have you here. Is this going to be enough to
• 15:29
  Speaker 1: forestall continued declines in value of the Turkish lyra? I mean,
• 15:35
  Speaker 1: come on, who's who's kidding? Who is it? This is
• 15:38
  Speaker 1: window dressing now always a pleasure as well, Pim, Uh No,
• 15:41
  Speaker 1: it's not so much window dressing. This is actually very
• 15:44
  Speaker 1: calming for the markets. There was concerned that the central
• 15:47
  Speaker 1: bank would back off under pressure from President Urdwan, who
• 15:51
  Speaker 1: previously made a statement that race should be going down,
• 15:53
  Speaker 1: that up and actually through the market. Really a curve
• 15:56
  Speaker 1: ball with that one. And then essentially, uh we had
• 16:00
  Speaker 1: a consensus, a very loose consensus, for three fifty basis points.
• 16:04
  Speaker 1: So this move to this level is calming for the moment.
• 16:08
  Speaker 1: The real question is going to come in the future
• 16:10
  Speaker 1: when inflation begins to pick up again. Will the central
• 16:13
  Speaker 1: bank respond in the future, because which obviously sounds high
• 16:18
  Speaker 1: to us, didn't sound high to me in the eighties. Yeah,
• 16:21
  Speaker 1: but you know, I want to go exactly to what
• 16:22
  Speaker 1: you just said. What was that all about with everyone
• 16:25
  Speaker 1: coming out and saying they should drop rates and then
• 16:27
  Speaker 1: just hours minutes after that the central Bank came out
• 16:31
  Speaker 1: and so that they were raising rights. I can't honestly
• 16:34
  Speaker 1: go into what the President of Turkey was thinking at
• 16:37
  Speaker 1: the moment, into his mind. You can't no idea. All right, Well,
• 16:41
  Speaker 1: what I do want to ask you about is how
• 16:43
  Speaker 1: much is this a turning point or potential turning point
• 16:46
  Speaker 1: for the entire complex of em currencies, Because we are
• 16:49
  Speaker 1: seeing a rally today, for example, in the South African rand,
• 16:52
  Speaker 1: which a lot of people were pointing to as suffering
• 16:54
  Speaker 1: the contagion effects of the Turkish larra falling out of bed.
• 16:58
  Speaker 1: So is this sort of a sign in Turkey is
• 17:00
  Speaker 1: taking its currency crisis seriously and perhaps people will start
• 17:05
  Speaker 1: to be a little more confident with emerging markets or
• 17:06
  Speaker 1: is that going too far? I think confidence is probably
• 17:08
  Speaker 1: a little too far. I think it's definitely a pause. Um,
• 17:13
  Speaker 1: Like you said, the czar is higher up one, but
• 17:16
  Speaker 1: we're still seeing pressure around the Argentine pay so that's
• 17:18
  Speaker 1: down one. Brazil is off the lows of the day,
• 17:23
  Speaker 1: but but still down three tents of a percent. But
• 17:26
  Speaker 1: we're definitely seeing a little bit of pressure backing off
• 17:29
  Speaker 1: that it came back on a touch after Trump's tweet
• 17:32
  Speaker 1: that the Wall Street Journal had it wrong that we
• 17:35
  Speaker 1: don't need to make a deal with China. China needs
• 17:37
  Speaker 1: to make a deal with US, and and some are
• 17:39
  Speaker 1: basically looking at this situation with the tariffs is hard
• 17:44
  Speaker 1: to believe if you want to bring manufacturing jobs back
• 17:46
  Speaker 1: to the United States that these are going to be
• 17:48
  Speaker 1: of a temporary nature. They need to be far longer
• 17:51
  Speaker 1: and lasting, so that could continue to weigh and and
• 17:54
  Speaker 1: potentially continue to weigh on e M. I think, Vincent,
• 17:57
  Speaker 1: do you remember the movie Patent? Yeah, okay, you remember
• 18:00
  Speaker 1: that scene where Omar Bradley, you know, he's arguing with
• 18:04
  Speaker 1: George Patton and he says, you know, I can read
• 18:07
  Speaker 1: a map when you look at what Turkey just did
• 18:10
  Speaker 1: raising interest rates at the same time that they are
• 18:14
  Speaker 1: now requiring companies in Turkey in order to transact all
• 18:19
  Speaker 1: of their business in Turkish lira. Doesn't this mean that
• 18:22
  Speaker 1: if you want to borrow money in Turkey it now
• 18:25
  Speaker 1: costs you a lot more. How does that help the
• 18:28
  Speaker 1: underlying economy? Well, it really doesn't help the underlying economy
• 18:32
  Speaker 1: in the short term. What what the hope is and
• 18:35
  Speaker 1: this is, you know, if if you think back to
• 18:38
  Speaker 1: the US and our inflation situation in the eighties. The
• 18:41
  Speaker 1: hope is actually to slow the economy. I mean by
• 18:43
  Speaker 1: slowing the economy is slow inflation. The idea is you
• 18:47
  Speaker 1: need to crush this very steep inflation every trend, even
• 18:51
  Speaker 1: if it means to slow the economy down, because you
• 18:53
  Speaker 1: can go back to lower rates to stimulate the economy
• 18:56
  Speaker 1: in the future. I understand, how is that going to
• 18:58
  Speaker 1: make it possible for these comp needs to repay their
• 19:01
  Speaker 1: dollar denominated debts and how is that going to make
• 19:04
  Speaker 1: it possible for Turkish banks to continue to operate if
• 19:08
  Speaker 1: they've extended all these loans to these Turkish companies. Well,
• 19:12
  Speaker 1: with the currency improving, it does help the dollar denominated
• 19:15
  Speaker 1: debt because the depreciation and the currency is what affected
• 19:18
  Speaker 1: that that sovereign And actually, as you mentioned the corporations,
• 19:21
  Speaker 1: that's a good point because it's the corporate debt that's
• 19:24
  Speaker 1: the issue in Turkey, not as much as the sovereign situation.
• 19:27
  Speaker 1: So the the local companies really did need a break
• 19:31
  Speaker 1: with the currency in order to help repay that dollar debt.
• 19:34
  Speaker 1: The question is doesn't continue the line. Goldman Sactor has
• 19:37
  Speaker 1: put out a piece They're looking at five and they say,
• 19:41
  Speaker 1: this is the sixty one retracement from the highs of August.
• 19:45
  Speaker 1: So if we don't get back below the levels of
• 19:47
  Speaker 1: basically six double O and we continue to hold there,
• 19:51
  Speaker 1: the markets are likely to try the upside again and
• 19:53
  Speaker 1: put some pressure on the government. Vince, you're a former trader.
• 19:56
  Speaker 1: You talk with a lot of traders. How many of
• 19:58
  Speaker 1: them do you hear actually saying all I'm going into Turkey. No,
• 20:02
  Speaker 1: not really, you're like, none of that? Really that many?
• 20:05
  Speaker 1: I mean when you when you look at the overall picture,
• 20:07
  Speaker 1: you know, the equity indexes UM that track emerging markets, Uh,
• 20:11
  Speaker 1: they're better on the day, but still within a down trend.
• 20:15
  Speaker 1: That the ticker that I like to look at his
• 20:17
  Speaker 1: m x e f UM that's that's up a touch
• 20:20
  Speaker 1: on the day, not substantially, and the MSCI Emerging MSCI
• 20:24
  Speaker 1: Emerging Market UM stock in this it's off the lows,
• 20:28
  Speaker 1: it's taken a bit of a breather, but it's still
• 20:30
  Speaker 1: in a nice down channel. So we really need a
• 20:33
  Speaker 1: trend break, a nice down channel. In other words, it's
• 20:36
  Speaker 1: headed for more losses. Yeah. I don't think unless we
• 20:38
  Speaker 1: totally a nice, nice down channel. Me and someone's getting
• 20:42
  Speaker 1: their face this year. There you go, Vincent Cignarella. Vincent Signarella,
• 20:48
  Speaker 1: thank you so much for joining us. As always, we
• 20:51
  Speaker 1: love having you on global markets trategisty for Bloomberg, a
• 20:54
  Speaker 1: squawker on the other side, as well as a longtime
• 20:57
  Speaker 1: trader who really has that perspective um and has had
• 21:01
  Speaker 1: some very astute commentary over the past few months in particular,
• 21:06
  Speaker 1: so thank you. Definitely looking at a little bit of
• 21:09
  Speaker 1: a bounce, but it is far from calling game over
• 21:12
  Speaker 1: on the sell off in e M. We turn our
• 21:16
  Speaker 1: attention now to the land of groceries. Shares of Kroger
• 21:20
  Speaker 1: down a little bit more than nine. This is the
• 21:22
  Speaker 1: biggest decline in six months the supermarket chain, missing analyst
• 21:26
  Speaker 1: sales estimates, margins also narrow wing. Here to tell us
• 21:31
  Speaker 1: all about it is Matthew Boyle, us retail reporter for Bloomberg,
• 21:36
  Speaker 1: and you can follow Matthew on Twitter at biz boil.
• 21:40
  Speaker 1: I like that, alright, um, what's going on at Kroger.
• 21:45
  Speaker 1: I mean, you know, one day, everything's great. They've got
• 21:48
  Speaker 1: new alliances, they've got new joint ventures. You can order
• 21:52
  Speaker 1: your groceries picked them up at the store. They've got
• 21:55
  Speaker 1: simple truth. I believe the generic brand that the store
• 21:58
  Speaker 1: brand that's doing pretty well. What happened, Well, they're doing
• 22:02
  Speaker 1: a lot, but a lot of this is going to
• 22:04
  Speaker 1: take time, you know, pim. It's very high expectations were
• 22:09
  Speaker 1: coming into this quarter. You saw what Walmart and Target did.
• 22:12
  Speaker 1: They both had their best sales and in more than
• 22:14
  Speaker 1: a decade, so people were getting a little bit you
• 22:17
  Speaker 1: know amped up. Um. You know, it's a retail renaissance,
• 22:20
  Speaker 1: and it just kind of shows how we go from
• 22:22
  Speaker 1: you know, uh ex in retail here. Um. But Kroger
• 22:28
  Speaker 1: is doing a lot of the right things. They're remodeling stores,
• 22:31
  Speaker 1: you know, they're doing deals when in China with with
• 22:34
  Speaker 1: Ali Baba. But you know, these things are expensive. So
• 22:38
  Speaker 1: that's why the margins are down. And this is what
• 22:40
  Speaker 1: I'm wondering. I mean, investors just simply short term in
• 22:43
  Speaker 1: their view, and they don't view any of this as
• 22:45
  Speaker 1: positive in the long round, even though it's exactly what
• 22:47
  Speaker 1: Kroger a bit of an overreaction and the company was
• 22:49
  Speaker 1: frantically sort of you know, qualifying it's saying, well, if
• 22:52
  Speaker 1: you take out the impact of the story models, and
• 22:55
  Speaker 1: if you take out the impact of the price cuts,
• 22:58
  Speaker 1: they had made they same store sales would have been
• 23:01
  Speaker 1: over two percent, which so would have beat you know,
• 23:03
  Speaker 1: beaten the street. Um, but these days, you know, retail
• 23:05
  Speaker 1: investors don't seem to, you know how much patience for
• 23:09
  Speaker 1: explanations like that. So you're I think, you know, you're
• 23:12
  Speaker 1: it was a bit more pronounced. The share drop was
• 23:14
  Speaker 1: a bit more than I had anticipated. But these days
• 23:17
  Speaker 1: we're seeing shared declines of eight to ten percent even
• 23:20
  Speaker 1: when companies beat estimates. So when you miss, you're going
• 23:22
  Speaker 1: to get punished. Do you hear from any analysts or
• 23:25
  Speaker 1: any experts who tell you this is an opportunity to
• 23:28
  Speaker 1: buy the stock of a company that's got what more
• 23:30
  Speaker 1: than actual grocery store outlets in thirty five states? And
• 23:36
  Speaker 1: also they operate fine jewelry stores that I did not
• 23:39
  Speaker 1: know it. Yeah, I mean, they're all over these They
• 23:41
  Speaker 1: own Turkey Hill, you know, they own uh, you know,
• 23:44
  Speaker 1: food brands as well, though they're they're currently in the
• 23:46
  Speaker 1: process of selling Turkey Hill. But Kroger is a very diversified,
• 23:50
  Speaker 1: interesting company. They've got a huge percentage of their sales
• 23:53
  Speaker 1: in their own brands, and that's very good for That's
• 23:56
  Speaker 1: that simple truth, simple truth, and others. Yeah, yeah, they're
• 23:59
  Speaker 1: saying they're they're sales of simple truth. We're in you know,
• 24:01
  Speaker 1: double digit games this year, and that's that's very much,
• 24:04
  Speaker 1: you know, a good thing for any retailer, because store
• 24:07
  Speaker 1: brands are way more profitable than you know, the national
• 24:10
  Speaker 1: brands like Kellogg and Campbell. Though, I will just push
• 24:12
  Speaker 1: back a little bit. I mean, perhaps what investors are
• 24:14
  Speaker 1: seeing is a company that is trying to spend. They
• 24:17
  Speaker 1: can keep up with Amazon and the like in the Walmart,
• 24:20
  Speaker 1: but it has just a smaller base to work from.
• 24:23
  Speaker 1: And that if you have a smaller base at this point,
• 24:25
  Speaker 1: even though they are behemoth, you could potentially be be
• 24:29
  Speaker 1: really hurt. It's funny, yeah, to kind of say Kroger
• 24:31
  Speaker 1: small and exactly the largest traditional supermarket in the nation,
• 24:36
  Speaker 1: but yet people looking at them there well you know,
• 24:38
  Speaker 1: what do you got? So it does kind of show.
• 24:39
  Speaker 1: And it's not just Amazon, it's not just Walmart. It's
• 24:41
  Speaker 1: all the little remember that the German discounters on the
• 24:45
  Speaker 1: low end, you know, biting and scraping and getting a
• 24:48
  Speaker 1: little all these one of those all the you know,
• 24:52
  Speaker 1: you you go into an all the store, a lettle store,
• 24:54
  Speaker 1: and you go, wow, sausages right next to toasters. I mean,
• 24:58
  Speaker 1: but look at what they're done in the UK and
• 25:00
  Speaker 1: quite impressive, and they want to do the same here.
• 25:02
  Speaker 1: It's so sad that that's what counts for the hunt
• 25:04
  Speaker 1: these days. For for humans, it's like to go in
• 25:06
  Speaker 1: it's not it's not to have both. This, yeah, Costco
• 25:12
  Speaker 1: is more of a treasure hunt, you know where you
• 25:15
  Speaker 1: know all the is a bit more of a well
• 25:16
  Speaker 1: I'm hunting and look what I found, you know, a
• 25:19
  Speaker 1: battery charger, but hey, who I needed one anyway, let's
• 25:22
  Speaker 1: pick it up. Could you just expand it? Because as
• 25:24
  Speaker 1: I said, I really did not under I underestimated the
• 25:28
  Speaker 1: jewelry business at Kroger. Yeah, they've got they've got jewelry stores.
• 25:33
  Speaker 1: I mean, Kroger wants you to be going in there
• 25:35
  Speaker 1: and you know, all things to all people. If you
• 25:38
  Speaker 1: you don't expect to be finding it there in the
• 25:40
  Speaker 1: same way that you don't expect to find you know, uh,
• 25:43
  Speaker 1: you know, high end diamonds at at a costco um.
• 25:47
  Speaker 1: But you know it's there and if it if it
• 25:49
  Speaker 1: drives a trip, if it drives an experience, which is
• 25:52
  Speaker 1: this buzzword in retail right now, you know everybody wants
• 25:55
  Speaker 1: shopping to be an experience. Um, that's a very good thing.
• 26:00
  Speaker 1: The various two diamonds. Yeah, Matt Boyle, thank you so
• 26:06
  Speaker 1: much for being with us. Matthew Boyle is US retail
• 26:07
  Speaker 1: reporter for Bloomberg News. Thanks for listening to the Bloomberg
• 26:12
  Speaker 1: P and L podcast. You can subscribe and listen to
• 26:15
  Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 26:20
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 26:24
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 26:27
  Speaker 1: You can always catch us worldwide on Bloomberg Radio