Latest / Bloomberg Intelligence / Inflation, Private Credit, Bob Iger, and Earnings (Podcast)

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Inflation, Private Credit, Bob Iger, and Earnings (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller.
• 0:05
  Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
• 0:09
  Speaker 2: and Bloomberg experts, along with essential market moving news.
• 0:14
  Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
• 0:17
  Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
• 0:20
  Speaker 1: All right, a lot of economic data to digest this
• 0:24
  Speaker 1: week on the inflation front, and you know we've got
• 0:26
  Speaker 1: the CPI yesterday, PPI today. My guest to take away
• 0:30
  Speaker 1: for a lot of folks is pretty darn good as
• 0:32
  Speaker 1: it relates to the Federal Reserve. But let's talk to
• 0:34
  Speaker 1: somebody who does this stuff for living. Jennifer Lee, Senior
• 0:37
  Speaker 1: economists and Managing director at BMO Capital Markets. Jennifer, again,
• 0:41
  Speaker 1: a lot of inflation data this week, what is your takeaway?
• 0:46
  Speaker 3: First of all, good morning, and thanks for having me on.
• 0:48
  Speaker 4: My takeaway is that finally, finally, finally, all of these
• 0:50
  Speaker 4: Fed rate hips are making an impact on inflation, bringing
• 0:54
  Speaker 4: it down to that what I used to think was
• 0:57
  Speaker 4: the elusive two percent target is finally starting to happen.
• 0:59
  Speaker 4: By down a two year low for the headline PPI
• 1:02
  Speaker 4: we saw this morning. I was just like glancing at
• 1:04
  Speaker 4: some of the details, but looks pretty good.
• 1:06
  Speaker 3: Only up a.
• 1:07
  Speaker 4: Tenth for both the headline and the core and down
• 1:11
  Speaker 4: to I think it was like three year lows or
• 1:13
  Speaker 4: something for the year of your basis. So again, all
• 1:16
  Speaker 4: those FED rate hikes are starting to kick in, and
• 1:18
  Speaker 4: we're finally starting to see the fruits of their labor.
• 1:22
  Speaker 5: We're finally starting to see it, but we are still
• 1:24
  Speaker 5: not at that two percent number. What do you think
• 1:28
  Speaker 5: might be the catalyst to finally get us down to
• 1:32
  Speaker 5: the FEDS desired inflation rate.
• 1:35
  Speaker 4: I think you will have to take well, first of all,
• 1:36
  Speaker 4: just in terms of our FED rate outlook. I mean,
• 1:38
  Speaker 4: we're still looking for that FED rate hike next or
• 1:42
  Speaker 4: in two weeks, I guess on July twenty sixth. You know,
• 1:45
  Speaker 4: even though we're seeing this, you know, promising inflation data,
• 1:49
  Speaker 4: the fact that we just are still arising, running pretty hot.
• 1:53
  Speaker 4: Job demand is still pretty strong, Housing is still has
• 1:56
  Speaker 4: already found a footing.
• 1:57
  Speaker 3: Business investment is decent.
• 1:59
  Speaker 4: Consumer spend took the leave of breather last month, and
• 2:02
  Speaker 4: but the month before that they're reading hot as well.
• 2:05
  Speaker 4: All that sort of sets the stage I think for
• 2:08
  Speaker 4: another rate hike in July, and this slower inflation data
• 2:13
  Speaker 4: I think gives them the door to or gives them
• 2:15
  Speaker 4: the leewage to sort of talk about moderating the pace
• 2:19
  Speaker 4: of rate hikes, needing more time to assess that economic
• 2:22
  Speaker 4: landscape that they've been talking about lately, and this will
• 2:24
  Speaker 4: do it. And of course, but keeping rates at these
• 2:28
  Speaker 4: restrictive levels will help bring down that level back down
• 2:31
  Speaker 4: to our inflation back down to two percent eventually. But
• 2:34
  Speaker 4: you know, definitely not a rate cut story just yet, all.
• 2:37
  Speaker 1: Right, So that's kind of where I think the market's
• 2:39
  Speaker 1: probably trying to go. I think the market is probably discounting,
• 2:41
  Speaker 1: you know, a July rate hike and then you know,
• 2:44
  Speaker 1: a pause again.
• 2:46
  Speaker 6: The question then.
• 2:46
  Speaker 1: Becomes how long is that pause? And is that a
• 2:49
  Speaker 1: twenty twenty four event that we might stay at these
• 2:53
  Speaker 1: levels of rates.
• 2:55
  Speaker 4: So our again first official pecast is just one more
• 2:57
  Speaker 4: rate hike and that will be it again base case,
• 3:01
  Speaker 4: but then staying at these levels, and so I don't
• 3:03
  Speaker 4: think rate cuts are going to be a story until
• 3:05
  Speaker 4: probably mid twenty twenty four. We used to talk about,
• 3:08
  Speaker 4: you know, early twenty twenty four for rate cuts. But
• 3:10
  Speaker 4: now we're thinking a little bit later, and that's because
• 3:12
  Speaker 4: we're also shifting our call for that elusive slow down again.
• 3:18
  Speaker 3: So now we're looking for more softer growth.
• 3:20
  Speaker 4: In around Q four Q one now, so around that
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  Speaker 4: trend of the year, as opposed to Q three and
• 3:25
  Speaker 4: Q four.
• 3:26
  Speaker 3: So you just can't argue with the data.
• 3:28
  Speaker 4: It's been very resilient overall, you know, it's again difficult.
• 3:32
  Speaker 3: To argue with it. So we're pushing out that that
• 3:34
  Speaker 3: slow down a little bit by quarter.
• 3:36
  Speaker 5: Yeah, and another thing that you note is that the
• 3:38
  Speaker 5: greenback is struggling a little bit following some of this
• 3:41
  Speaker 5: economic softness, hitting a fourteen month low. I believe to
• 3:45
  Speaker 5: what extent is dollar weakness part of your calculation for
• 3:49
  Speaker 5: what our economy is going to look like in the
• 3:51
  Speaker 5: second half of the year.
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  Speaker 4: The US dollar has been or had been running super
• 3:55
  Speaker 4: strong up until you know, yesterday, and so we're finally
• 3:58
  Speaker 4: going to see that dollar week to start kicking in,
• 4:01
  Speaker 4: and we're seeing it. And it's also helping because a
• 4:03
  Speaker 4: lot of the other central banks are not yet ready
• 4:06
  Speaker 4: to hit the pause button just yet, you know, aside
• 4:09
  Speaker 4: from the bank handa, you know, I think we're they're
• 4:12
  Speaker 4: probably that's probably it for the Bank Canada for the
• 4:14
  Speaker 4: for the rest of this year. RBA looks like they're
• 4:18
  Speaker 4: almost done. But you've got the ECB in the Bank
• 4:19
  Speaker 4: of England or is still going whole hog on that
• 4:22
  Speaker 4: rate tightening front, so that's also going to boost there.
• 4:26
  Speaker 4: That's so that's also helping their their currencies the same
• 4:29
  Speaker 4: time with the flip with the flip side of the
• 4:30
  Speaker 4: weaker greenback.
• 4:32
  Speaker 1: So can we take the recession talk off the table
• 4:38
  Speaker 1: right now?
• 4:40
  Speaker 3: Official recession? Yeah, it's possible.
• 4:43
  Speaker 4: I mean, we've always been in that soft, soft landing,
• 4:48
  Speaker 4: mild recession, moderate recession camp, but.
• 4:50
  Speaker 3: We were never in that hard landing camp.
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  Speaker 4: And now I means it is quite possible that we
• 4:55
  Speaker 4: will see and some people always say, what the heck
• 4:57
  Speaker 4: does that mean?
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  Speaker 3: But you know, no landing. At the very beginning, I
• 4:59
  Speaker 3: used to say landing.
• 5:00
  Speaker 4: Soft landing, no landing, And it's possible that we could
• 5:02
  Speaker 4: start seeing things glide and you know, like nothing is impossible,
• 5:05
  Speaker 4: but this is kind of looking more possible. But at
• 5:07
  Speaker 4: the same time, the longer they able rates up in
• 5:10
  Speaker 4: the in that restricted territory in order to get CPI
• 5:13
  Speaker 4: back down to two percent, we will probably need to
• 5:16
  Speaker 4: have that breaking in the economy.
• 5:18
  Speaker 5: Well, there's the recession for all of us, and then
• 5:20
  Speaker 5: there's the markets, right, and they don't always agree. Do
• 5:24
  Speaker 5: you envision us seeing a little bit more of a
• 5:27
  Speaker 5: risk on trade in the second half of the year
• 5:30
  Speaker 5: after the Fed does potentially start to tone down and
• 5:35
  Speaker 5: soften the rate height cycle that we're seeing.
• 5:38
  Speaker 3: We could see that's a good question.
• 5:40
  Speaker 4: So we could see risk on because of the fact
• 5:42
  Speaker 4: that the Fed is going to stop start talking about
• 5:45
  Speaker 4: leaving rates as is more firmly as opposed to talking
• 5:48
  Speaker 4: about needing more time. But at the same time, why
• 5:51
  Speaker 4: are they talking about needing more to aura staying on
• 5:54
  Speaker 4: hold is because the economy is finally starting to slow
• 5:57
  Speaker 4: and again this is when you're going to start to
• 5:58
  Speaker 4: see softer data. We're starting to talk about the debt
• 6:02
  Speaker 4: recession again, or at least that soft landing coming into
• 6:05
  Speaker 4: play in the fourth quarter or so.
• 6:07
  Speaker 3: So it's it's gonna be a little a little bit
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  Speaker 3: of mix.
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  Speaker 4: I don't know which one is going to oweigh the other,
• 6:11
  Speaker 4: because again, yes, it's good news for the markets that
• 6:13
  Speaker 4: the Fed's not going to keep tightening, but at least
• 6:15
  Speaker 4: at the same time, it's bad news because that means
• 6:17
  Speaker 4: the economy is slowing and it's not needed anymore.
• 6:20
  Speaker 1: So I guess one of the issues for a lot
• 6:24
  Speaker 1: of investors is just kind of you know, we think
• 6:26
  Speaker 1: beyond twenty four, I mean, yeah, beyond twenty three into
• 6:29
  Speaker 1: twenty four to twenty five, what kind of economic growth
• 6:32
  Speaker 1: do you think is reasonable for an economy that has
• 6:35
  Speaker 1: dealt with this much inflation?
• 6:38
  Speaker 4: So we're probably going to see at least some sub
• 6:41
  Speaker 4: below average at least for a little while. So we
• 6:43
  Speaker 4: you know, for this year, we have about one point
• 6:46
  Speaker 4: seven percent growth, and that was a little bit higher
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  Speaker 4: than we had originally because of this delayed slow down.
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  Speaker 4: But for next year, we've got I think it's a
• 6:55
  Speaker 4: half percent growth, which is obviously very sluggish. And then
• 6:59
  Speaker 4: for the year after we're going to start seeing some
• 7:01
  Speaker 4: improvement as the rate cuts start kicking in. But again,
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  Speaker 4: I think we're probably going to see some sub average
• 7:06
  Speaker 4: growth at least over the next few years.
• 7:09
  Speaker 5: And where do you think that that sub average growth
• 7:12
  Speaker 5: is going to be the most prevalent in the coming years.
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  Speaker 3: In terms of where? By by country or.
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  Speaker 7: Yeah, yeah, like in terms of demo and geographic.
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  Speaker 4: So I think the US will probably be just again
• 7:27
  Speaker 4: because America is you know, it's still going to be
• 7:28
  Speaker 4: the strongest with all the different positive fundamental factors behind it.
• 7:32
  Speaker 4: I think the US will still emerge, probably stronger than
• 7:36
  Speaker 4: emerge at a faster pace. I guess from this recept
• 7:39
  Speaker 4: from the slowdown than everyone else. The areas where I'm
• 7:42
  Speaker 4: going to be a little bit more worried will be
• 7:44
  Speaker 4: Europe and the UK, only because you know, they've already
• 7:47
  Speaker 4: had the other issues you know that are not related
• 7:49
  Speaker 4: to pandemic, you know, like Brexit for example. At the
• 7:51
  Speaker 4: same time, you also have higher inflation and higher interest
• 7:55
  Speaker 4: rates staying longer higher for longer there, and they're again
• 7:58
  Speaker 4: they're still going a whole hog on tightening front. I
• 8:01
  Speaker 4: think the ACB minutes today we're alluding to the fact
• 8:03
  Speaker 4: that you know, there are more governing Council members from
• 8:06
  Speaker 4: the ACV are thinking about September. I think it's a
• 8:09
  Speaker 4: bit early, but you know that's something that you know,
• 8:11
  Speaker 4: it's becoming more of a reality, possibly in the next
• 8:14
  Speaker 4: in the next little while.
• 8:15
  Speaker 1: Jennifer, you also got another initial job as claims number
• 8:18
  Speaker 1: today came in better than expected, uh and showing a
• 8:20
  Speaker 1: decline from from from last week. Again, just another data
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  Speaker 1: point on what is kind of a very solid labor market.
• 8:26
  Speaker 1: What do you make of this labor market? Is this
• 8:28
  Speaker 1: surprised you at all?
• 8:29
  Speaker 6: The strength.
• 8:32
  Speaker 3: Broadly?
• 8:33
  Speaker 4: No, And then I mean it's still strong. At the
• 8:35
  Speaker 4: same time, it is starting to soften, you know that.
• 8:37
  Speaker 4: You know, two hundred thousand, nine thousand increases that we
• 8:40
  Speaker 4: saw on perros was still below expected. But like I
• 8:42
  Speaker 4: said before, any during any other given year, it's still
• 8:45
  Speaker 4: a very solid number. But I think there are still
• 8:48
  Speaker 4: some other issues that are coming in play, like again demographics,
• 8:53
  Speaker 4: people retire, changing retirement patterns, people retiring earlier, people having
• 8:57
  Speaker 4: the fewer kids, you know, so all and of course
• 9:00
  Speaker 4: the aging of the of the of the global population.
• 9:02
  Speaker 4: All that feeds into tighter lot but labor markets. So
• 9:06
  Speaker 4: this is an issue I think that's going to be
• 9:08
  Speaker 4: playing on for some time. It's not going to be
• 9:09
  Speaker 4: like what we saw earlier, like half a year ago,
• 9:12
  Speaker 4: but at the same time, it's not going to be.
• 9:15
  Speaker 3: As loose, I guess, as you know, one would expect.
• 9:18
  Speaker 3: It was interesting. I was looking at the NFI the
• 9:21
  Speaker 3: survey earlier this week.
• 9:22
  Speaker 4: I was looking at like over the past decades, Like
• 9:24
  Speaker 4: you know, the they were talking about the single biggest
• 9:27
  Speaker 4: problem that you're reporting. So over the last decade, I
• 9:30
  Speaker 4: think the inflation. Of course it was like up and down,
• 9:32
  Speaker 4: but overall it was still pretty modest, being the inflation
• 9:35
  Speaker 4: being the number one problem, but.
• 9:37
  Speaker 3: Labor market labor quality was like still owned around the.
• 9:40
  Speaker 1: Yeah, Jennif're gonna have to wrap it up right there
• 9:41
  Speaker 1: just because of the time, but appreciate getting your thoughts.
• 9:43
  Speaker 1: Jennifer Lee, Senior economist at BMO Capital Markets.
• 9:46
  Speaker 6: This is Bloomberg.
• 9:48
  Speaker 8: You're listening to the team can't Live program Bloomberg Markets
• 9:52
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• 10:02
  Speaker 6: Tech Talk Today a good one.
• 10:04
  Speaker 1: We have folks at Huawei Technologies Steve Geisler, US Chief
• 10:09
  Speaker 1: Intellectual Property Council and Andy Perty, Huawei USA Chief Security Officer.
• 10:15
  Speaker 1: They joined us for a roundtable in Huawei's twenty twenty
• 10:18
  Speaker 1: three Innovation and IP form at its Chinese headquarters today. Steve,
• 10:23
  Speaker 1: before we get to kind of what you guys are
• 10:24
  Speaker 1: doing at your forum today in Shenzhen, China. Talk to
• 10:28
  Speaker 1: Steve what it's like at your company dealing with sanctions,
• 10:32
  Speaker 1: just particularly the US. How has that impacted your business?
• 10:39
  Speaker 9: So my business, I'm a lawyer within the Huawei corporate family,
• 10:43
  Speaker 9: so for me personally, it means more work.
• 10:47
  Speaker 10: It does.
• 10:47
  Speaker 9: However, me as an American, I have to always be
• 10:50
  Speaker 9: mindful of the export control and the distanctions laws. Because
• 10:56
  Speaker 9: I work in intellectual property. That does, of course put
• 10:59
  Speaker 9: some constraints on me. But by and large, my day
• 11:02
  Speaker 9: to day job deals with patents which are publicly known.
• 11:06
  Speaker 9: Of course, the word patent means open, so I deal
• 11:09
  Speaker 9: with technologies once they've already become public, and I deal
• 11:13
  Speaker 9: a lot with licensing with other companies, and so my
• 11:17
  Speaker 9: day to day job is not impacted nearly as much
• 11:20
  Speaker 9: as if I were, say an engineer working within the
• 11:23
  Speaker 9: Huawei corporate family.
• 11:26
  Speaker 5: Okay, well, because you're a lawyer, I know that you
• 11:28
  Speaker 5: are not going to answer this question, Steven, but just
• 11:30
  Speaker 5: to throw it to you, what does Huawe's return to
• 11:34
  Speaker 5: the five G phone market look like? And what does
• 11:37
  Speaker 5: the smartphone business continue to look like for Huawei given
• 11:41
  Speaker 5: these sanctions?
• 11:43
  Speaker 9: I will definitely give you the lawyerly answer, but the
• 11:46
  Speaker 9: correct answer. My job really is not to predict it.
• 11:48
  Speaker 9: It's just to prepare. So if Huawei were to return
• 11:52
  Speaker 9: to the five G phone market, I need to make
• 11:54
  Speaker 9: sure that we have the licenses in place, such as
• 11:58
  Speaker 9: the five G Standard Essential Path licenses with our licensing
• 12:02
  Speaker 9: partners to make sure that we would allow for that.
• 12:05
  Speaker 9: Quawei previously did have five five G phones, so we
• 12:08
  Speaker 9: have most of those patents patent license agreements already in place.
• 12:12
  Speaker 9: So I my part, my role in terms of preparation
• 12:16
  Speaker 9: for such a contingency is already underway. But in terms
• 12:21
  Speaker 9: of predicting and in the sales visibility of our product mix,
• 12:27
  Speaker 9: people like Andy certainly can can address that.
• 12:29
  Speaker 11: But for me, I prepare.
• 12:31
  Speaker 3: I don't predict, all right, so let me job.
• 12:34
  Speaker 6: So Andy, let's let's let's bring you in here.
• 12:36
  Speaker 1: Andy Purtty, chief Security Officer or Huawei Technologies in the US.
• 12:40
  Speaker 1: Talk to us about what you guys are doing, uh
• 12:43
  Speaker 1: with this innovation in ip form in Shenzen today. What
• 12:46
  Speaker 1: are some of the big products and services you guys
• 12:48
  Speaker 1: are talking about here.
• 12:49
  Speaker 12: Yeah, this is a part of our bigger effort that
• 12:53
  Speaker 12: you touched only with Steve A moment ago. Given the
• 12:56
  Speaker 12: situation that we face in the United States and around
• 12:59
  Speaker 12: the world, we've been trying to and we've been successful
• 13:03
  Speaker 12: at adjusting our business strategy and changing our portfolios with
• 13:07
  Speaker 12: a huge historic investment in R and B over twenty
• 13:10
  Speaker 12: five percent of our global revenues, so that we can
• 13:13
  Speaker 12: customize our products for our carriers, our enterprises, and our consumers.
• 13:17
  Speaker 12: But the three key things of technology that we are
• 13:20
  Speaker 12: embracing that are part of that are digitalization, intelligence, and
• 13:25
  Speaker 12: carbon neutrality. So our focus company has been on connectivity,
• 13:29
  Speaker 12: computing devices, intelligent auto solutions, and digitalization of power. And
• 13:35
  Speaker 12: you can see that in the example we talk about AI,
• 13:38
  Speaker 12: the pengu Ai three dot zero that we're going to
• 13:42
  Speaker 12: be talking about in this conference, which is heavily focused
• 13:44
  Speaker 12: on weather and the Nature magazine has just issued a
• 13:49
  Speaker 12: major article about weather prediction. It's very exciting about how
• 13:52
  Speaker 12: AI is making going to make every industry more productive
• 13:56
  Speaker 12: and efficient and it's going to reshape all industries with
• 13:59
  Speaker 12: a focus is really on industry industry AI.
• 14:03
  Speaker 6: So Andy just.
• 14:04
  Speaker 1: From the technology standpoint, the commercial standpoint, what are your
• 14:08
  Speaker 1: leaders in China telling you about, you know, kind of
• 14:12
  Speaker 1: their strategy for dealing with the West, whether as customers,
• 14:15
  Speaker 1: as supply chain, what scenario you're operating under, like how
• 14:20
  Speaker 1: you create a three to five year business plan.
• 14:23
  Speaker 12: Well, as I said, we have, we're leveraging the convergence
• 14:28
  Speaker 12: of technologies five G, cloud, censor technology, AI, catalyzing the
• 14:33
  Speaker 12: digitalization of industries that we've been working on, and actually
• 14:36
  Speaker 12: moving toward five point five G, which is some of
• 14:38
  Speaker 12: the other things we're going to be talking about today.
• 14:41
  Speaker 12: So we're heavily investing in what we can do in
• 14:44
  Speaker 12: terms of develop technologies to help the telecom carriers raise
• 14:48
  Speaker 12: their capabilities to supply five G and hopefully five point
• 14:53
  Speaker 12: five G, and to help the customers and industry spectors
• 14:57
  Speaker 12: around the world, such as you can see the benefits
• 15:00
  Speaker 12: the Panglo three dot ZHO.
• 15:02
  Speaker 5: So, given that, I'm curious if this kind of overall
• 15:05
  Speaker 5: push into IP licensing, does that mean that your focus
• 15:08
  Speaker 5: is more on back end technology versus more consumer facing products.
• 15:15
  Speaker 12: Steve, you may want to touch on this also, but no,
• 15:17
  Speaker 12: it's the smartphone issue has been what was dramatically affected
• 15:21
  Speaker 12: the ability of American companies to sell the nonsensitive five
• 15:25
  Speaker 12: G five G chips for our phones. So everything else
• 15:29
  Speaker 12: we've been emphasizing with the digitalization, and we've been able
• 15:32
  Speaker 12: to our enterprise business by thirty percent in twenty twenty two.
• 15:37
  Speaker 12: Using the themes of digitalization and digital transformation. We've leveled
• 15:41
  Speaker 12: off that drop in our consumer business and we expect
• 15:44
  Speaker 12: our carrier business to meet expectations.
• 15:49
  Speaker 1: Steve, you have any thoughts there as to kind of
• 15:51
  Speaker 1: how you guys are navigating some of the from a
• 15:53
  Speaker 1: patent perspective.
• 15:55
  Speaker 9: Yeah, so, as any said, so, the IP actually is
• 15:59
  Speaker 9: somewhat detached, and that's not completely detachedble we typically are
• 16:02
  Speaker 9: going to be patenting the same technologies that would be
• 16:05
  Speaker 9: in our product mix. However, just because we don't sell
• 16:08
  Speaker 9: a product in the United States does not mean we're
• 16:10
  Speaker 9: not going to get a US patent.
• 16:12
  Speaker 10: So, for instance, as of the end of.
• 16:13
  Speaker 9: Last year, we had one hundred and twenty thousand patents
• 16:16
  Speaker 9: globally that were active, including about twenty two thousand active
• 16:20
  Speaker 9: US patents. We had about forty thousand Chinese and European
• 16:25
  Speaker 9: patents each at the.
• 16:27
  Speaker 10: End of last year.
• 16:28
  Speaker 9: But in terms of the patenting, we just for instance,
• 16:33
  Speaker 9: Wi Fi six, which is the new version of Wi
• 16:37
  Speaker 9: Fi that is now being commercialized that's out on the market.
• 16:42
  Speaker 9: Quawei has about twenty percent nineteen to twenty percent of
• 16:46
  Speaker 9: the standard essential patents that would be used when someone
• 16:50
  Speaker 9: is making, using, or selling a Wi Fi six enabled product.
• 16:54
  Speaker 9: So that is the type of R and D that
• 16:57
  Speaker 9: as And said, we actually have increased R and D
• 17:00
  Speaker 9: funding up to twenty three billion US dollars last year alone,
• 17:05
  Speaker 9: and so Bawa has no choice but to continue to
• 17:08
  Speaker 9: innovate and still has product sales. However, those products sales geographically,
• 17:13
  Speaker 9: the footprint has changed since five years ago, and also
• 17:17
  Speaker 9: the product mix. There's a different focus for sure within
• 17:21
  Speaker 9: various industries.
• 17:22
  Speaker 5: Andy, in our final minute with you here, given what
• 17:26
  Speaker 5: Stephen was just talking about with ideation and R and D,
• 17:30
  Speaker 5: what do your plans look like for five G chip
• 17:32
  Speaker 5: procurement domestically in China.
• 17:36
  Speaker 11: Well, we have.
• 17:37
  Speaker 12: Been continuing to emphasize the diversification our portfolio of our
• 17:41
  Speaker 12: supply chain so that we can meet the needs of
• 17:44
  Speaker 12: our customers. I don't have any comment yet on the
• 17:48
  Speaker 12: explosion of news stories on what we're talked about, but
• 17:53
  Speaker 12: we are proceeding on the assumption that we have certain
• 17:55
  Speaker 12: limitations and we're going to continue to grow our businesses
• 17:58
  Speaker 12: in other areas such as small finding, smart roots, smartboards,
• 18:01
  Speaker 12: electric power railway and moving into five point five, which
• 18:05
  Speaker 12: is very exciting. Frankly, you know, when you talk about
• 18:07
  Speaker 12: the one piece of the technology innovation our leaders of
• 18:12
  Speaker 12: Ken who are vice chairman, is estimated we look at
• 18:14
  Speaker 12: AID ninety eight percent of all AI is going to
• 18:17
  Speaker 12: be industry and some agriculture, and only two percent is consumer.
• 18:20
  Speaker 12: And the focus recently has been on consumer, the generated AI,
• 18:24
  Speaker 12: but it's going to be much more important than that
• 18:26
  Speaker 12: to the world.
• 18:27
  Speaker 6: All right, Andy, thank you so much for joining us.
• 18:29
  Speaker 1: Andy Purty, chief security officer for Huawei Technologies in Steve Geisler,
• 18:34
  Speaker 1: US chief Intellectual Property Council, and I know both of
• 18:37
  Speaker 1: these gentlemen got their law degrees from the University of Virginia.
• 18:41
  Speaker 6: So wahu wa.
• 18:42
  Speaker 8: You're listening to the tape Can's our live program Bloomberg
• 18:45
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 18:49
  Speaker 8: tune in app, Bloomberg dot Com.
• 18:50
  Speaker 13: And the Bloomberg Business app.
• 18:52
  Speaker 8: You can also listen live on Amazon Alexa from our
• 18:55
  Speaker 8: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
• 19:01
  Speaker 6: We're welcoming Randy swimmer into the studio as well. Always
• 19:03
  Speaker 6: left chatting with Randy.
• 19:04
  Speaker 1: He's co head of senior Lending and he's a senior
• 19:06
  Speaker 1: managing director Churchill Asset Management. Randy, one of the many
• 19:09
  Speaker 1: reasons we love speaking to you because you're an expert
• 19:11
  Speaker 1: in this private credit business out there, which has been
• 19:13
  Speaker 1: such a hot market getting lots of capital and has
• 19:17
  Speaker 1: really become a big part of the capital market. It's
• 19:18
  Speaker 1: really passed since the Great Financial Crisis. How is your
• 19:22
  Speaker 1: business today in what appears to be a market that
• 19:26
  Speaker 1: is seeing inflation moderate maybe taking the recession story off
• 19:30
  Speaker 1: the table a little bit.
• 19:31
  Speaker 6: How's that?
• 19:32
  Speaker 1: How are you seeing that in your business of directly lending?
• 19:35
  Speaker 14: Yeah, first of all, thanks again for having me on.
• 19:37
  Speaker 14: So I did some homework just for you, Paul. So
• 19:39
  Speaker 14: looked for the first half numbers for our business to
• 19:43
  Speaker 14: sort of get a sense for how we're doing. Turns out,
• 19:46
  Speaker 14: and we have a senior debt business and a junior
• 19:48
  Speaker 14: capital business all with you know, under the Churchill banner.
• 19:52
  Speaker 14: We did one hundred and seventy five deals in the
• 19:55
  Speaker 14: first half of the year. Okay, five billion dollars across
• 20:00
  Speaker 14: those two platforms.
• 20:01
  Speaker 6: Right, So, I was like whoa, that's your firm, by
• 20:04
  Speaker 6: the way.
• 20:04
  Speaker 14: So we're like total committed capital of about forty six billion,
• 20:10
  Speaker 14: and then you throw our Arkmont sister company in Europe,
• 20:13
  Speaker 14: they're another twenty twenty five billion, so you know. But
• 20:15
  Speaker 14: the thing that surprised me a little bit is that
• 20:19
  Speaker 14: despite a lot of the softness in M and A
• 20:22
  Speaker 14: that we saw on the first half, what's driving our
• 20:25
  Speaker 14: deal flow is the kind of migration from public credit
• 20:29
  Speaker 14: to private credit because the banks have been a bit
• 20:32
  Speaker 14: offline with some of the liquid loans. They don't have
• 20:36
  Speaker 14: clearing price, they don't have COLO formation, a lot of
• 20:40
  Speaker 14: the cache is coming out of retail funds not going in,
• 20:43
  Speaker 14: and so they're a bit offline, and so a lot
• 20:45
  Speaker 14: of that activity has come to the direct lender, so
• 20:46
  Speaker 14: that's helping us. And then we have the scale we
• 20:49
  Speaker 14: can commit you know, four or five hundred million dollars
• 20:52
  Speaker 14: per deal and get stuff done. So those combinations of
• 20:56
  Speaker 14: things makes it right now pretty attractive.
• 20:58
  Speaker 15: So so back when the FED was a zero in
• 21:00
  Speaker 15: the ten year, wasn't even at two percent, the demand
• 21:05
  Speaker 15: for private credit from investors was very high because a huge,
• 21:10
  Speaker 15: huge premium with not a whole lot more risk for
• 21:13
  Speaker 15: better returns. Now that you get five percent plus on
• 21:17
  Speaker 15: corporates and unis are not that far behind, how does
• 21:21
  Speaker 15: that affect your investor base? What are they looking at
• 21:24
  Speaker 15: in the world of private credit as a as an
• 21:27
  Speaker 15: asset class.
• 21:27
  Speaker 14: So Barry, that's exactly the question that comes up at
• 21:30
  Speaker 14: these investor meetings, and the answer is that the opportunity
• 21:35
  Speaker 14: in private debt is not necessarily a timing thing, because
• 21:39
  Speaker 14: to your point, it was very attractive two years ago.
• 21:42
  Speaker 14: It's more attractive from a pure yield perspective today relative
• 21:47
  Speaker 14: still relative to corporates. The question is how long will
• 21:50
  Speaker 14: that attractive corporate and high yield bond trade last. If
• 21:56
  Speaker 14: what Paul says, it's true, and we're starting to see
• 21:58
  Speaker 14: a little softening in the numbers which we saw today,
• 22:00
  Speaker 14: and it looks like the FED might you know, maybe
• 22:02
  Speaker 14: they raised once, maybe they you know, maybe once and done.
• 22:05
  Speaker 14: Then at some point rates are going to start to
• 22:08
  Speaker 14: come down. What's going to happen for investors who are
• 22:10
  Speaker 14: looking for long term income streams is they're going to
• 22:14
  Speaker 14: see those corporate bond rates start to come back down again,
• 22:17
  Speaker 14: and eventually whether it goes back down to where bonds
• 22:20
  Speaker 14: were kind of three to four percent the way they
• 22:23
  Speaker 14: were two years ago or something in between where they
• 22:26
  Speaker 14: are now. It's going to come down. Whereas the illiquidity
• 22:30
  Speaker 14: premium that investors in private debt get has been the
• 22:34
  Speaker 14: same throughout that period, roughly three hundred basis points. So
• 22:38
  Speaker 14: whatever liquid is getting, we're getting three percent more.
• 22:41
  Speaker 15: We've been discussing the window that has been opening up
• 22:45
  Speaker 15: to extenduration lock in higher rates after the better part
• 22:51
  Speaker 15: of a decade of you know, bonds not really generating
• 22:55
  Speaker 15: a lot. Suddenly, whether it's private credit or corporates vis
• 23:00
  Speaker 15: this whole asset class has become a whole lot more attractive.
• 23:03
  Speaker 15: But who knows how long that window is going to
• 23:05
  Speaker 15: be open.
• 23:06
  Speaker 14: For correct And so the thing about private debt is
• 23:09
  Speaker 14: that you can trace the higher yields and better structures
• 23:13
  Speaker 14: and all the things that you know back for decades.
• 23:17
  Speaker 14: So the opportunity really isn't a timing issue. It's more
• 23:21
  Speaker 14: of a strategic issue. You decide that you are going
• 23:25
  Speaker 14: to have some part of your portfolio always in private debt.
• 23:30
  Speaker 14: And so what we're seeing now with our investors and
• 23:33
  Speaker 14: increasing number of them are saying, you know, I want five, ten, fifteen, percent,
• 23:37
  Speaker 14: whatever that number is always in my overall portfolio. I
• 23:40
  Speaker 14: have room for fixed income, I've got room for public equities,
• 23:43
  Speaker 14: I've got room for real estate, but I really want
• 23:46
  Speaker 14: some core assets in private debt.
• 23:48
  Speaker 5: But does that allocation start to change as people maybe
• 23:52
  Speaker 5: get a little bit of FOMO for things like an
• 23:55
  Speaker 5: AI rally for example.
• 23:57
  Speaker 14: Well, what's happening in the public market is that things
• 24:02
  Speaker 14: will come and go depending on where the current trade is.
• 24:05
  Speaker 14: To your point, and we saw obviously rally and technology
• 24:09
  Speaker 14: stocks and so forth. But what happens is depending on
• 24:12
  Speaker 14: what's going on with the rest of the economic climate,
• 24:16
  Speaker 14: some of those opportunities tend to fade. We certainly saw
• 24:20
  Speaker 14: that with crypto. We've seen that, you know in other areas,
• 24:23
  Speaker 14: the Spack rally for example, that we were talking about
• 24:27
  Speaker 14: here in the studios a year or two ago. And
• 24:31
  Speaker 14: the thing that investors really want to focus on now
• 24:33
  Speaker 14: is stability. Okay, so yield is great, but stability of
• 24:38
  Speaker 14: income is even more important to them, and so going
• 24:42
  Speaker 14: into it with an manager that has a track record
• 24:45
  Speaker 14: to deliver these stable, higher returns is probably foremost in
• 24:50
  Speaker 14: their minds.
• 24:50
  Speaker 1: Right now, what sectors do you guys like these days
• 24:53
  Speaker 1: he did a Conjigian transactions in the first six months,
• 24:56
  Speaker 1: or some sectors you're you really like here, or some
• 24:58
  Speaker 1: of you're invoiding.
• 24:58
  Speaker 14: I know you're gonna ask this question, and so I
• 25:01
  Speaker 14: went back and that by far and away, it's business
• 25:04
  Speaker 14: services because things that companies like landscaping companies. I like
• 25:10
  Speaker 14: to use this because regardless of whether building is occupied
• 25:14
  Speaker 14: or not, you still have to modilawn, plow the snow,
• 25:18
  Speaker 14: had you trim the hedges, and so landscaping escaping companies
• 25:22
  Speaker 14: because they have to be there. Twenty four to seven
• 25:25
  Speaker 14: alarm companies, same thing. Security businesses, anything where you have
• 25:29
  Speaker 14: consistent cash flow and growth over a long period of time.
• 25:32
  Speaker 14: Those are the kinds of companies we like. Healthcare, technology, software,
• 25:37
  Speaker 14: logistics businesses, anything that requires moving boxes around. Right now,
• 25:41
  Speaker 14: I mean, I don't know about you, but my family's
• 25:42
  Speaker 14: ordering more boxes, delivering to the front door, and all
• 25:46
  Speaker 14: the support, the back office, the middle office related to
• 25:50
  Speaker 14: those kinds of businesses are doing well right now.
• 25:54
  Speaker 15: Really quite interesting. You know, last year, before we really
• 25:59
  Speaker 15: had a firm grasp of exactly how fast and far
• 26:03
  Speaker 15: CPI would would fall, a lot of people piled into
• 26:08
  Speaker 15: private debt, especially with a lot of younger companies. You
• 26:11
  Speaker 15: guys have been around for a long time. I'm wondering
• 26:14
  Speaker 15: how you look at the competition in the space and
• 26:18
  Speaker 15: how many people kind of top ticked the market last year.
• 26:22
  Speaker 14: Yeah, So one of the questions from a credit perspective is,
• 26:26
  Speaker 14: you know, did you go in with companies that are
• 26:28
  Speaker 14: now hurting as a result of some of the dynamics
• 26:30
  Speaker 14: inflation wise you've talked about. And the advantage that we
• 26:33
  Speaker 14: have is that we are we invest only with private
• 26:36
  Speaker 14: equity backed companies, and so the amount of cash equity
• 26:39
  Speaker 14: that they're putting into these businesses is like sixty five
• 26:42
  Speaker 14: percent of the total capital structure, which is a record high.
• 26:45
  Speaker 14: The other thing is, you know, they have their own
• 26:47
  Speaker 14: money at stake. They're helping us to find the best companies,
• 26:51
  Speaker 14: and even in that universe, we're still just kind of
• 26:55
  Speaker 14: picking the best of the best. So we see a
• 26:57
  Speaker 14: thousand deals a year and we do sixty and so
• 27:01
  Speaker 14: from that perspective, what we're looking for is to sift
• 27:05
  Speaker 14: through the ones that don't have that long track record,
• 27:07
  Speaker 14: sift through the ones that are not cyclical, that don't
• 27:10
  Speaker 14: have customer concentration. We just turned a deal down this morning.
• 27:13
  Speaker 14: Because the business has only been around for five years
• 27:16
  Speaker 14: and had customer concentration with three main customers. If you
• 27:20
  Speaker 14: lose any one of those three, you're in trouble. So
• 27:22
  Speaker 14: our job is to really pick winners.
• 27:24
  Speaker 6: I understand your tennis fan.
• 27:26
  Speaker 14: Yeah, going to Wimbledon this weekend, are you what are
• 27:28
  Speaker 14: you gonna What are you gonna say?
• 27:29
  Speaker 6: Women's finals, women's finals, Yes, sir, all right.
• 27:32
  Speaker 1: We had one of the semifinals that just got done earlier,
• 27:35
  Speaker 1: so we have one finalist in there.
• 27:37
  Speaker 6: It's funny. That should be great. That's have you been
• 27:38
  Speaker 6: there before.
• 27:39
  Speaker 14: I've known this my first time.
• 27:40
  Speaker 6: It's awesome. You're gonna love it.
• 27:42
  Speaker 14: I'm not playing, but I launch all right, very good.
• 27:45
  Speaker 1: H Randy schwimmert cohed of Senior Lendy and he's just
• 27:48
  Speaker 1: senior managing director Churchill Asset Management.
• 27:52
  Speaker 8: You're listening to the team Can's are live program Bloomberg
• 27:55
  Speaker 8: Markets weekdays at ten am Eastern.
• 27:57
  Speaker 13: On Bloomberg dot com, the iHeart Radio.
• 28:00
  Speaker 8: And the Bloomberg Business app, or listen on demand wherever
• 28:03
  Speaker 8: you get your podcast.
• 28:06
  Speaker 5: We are really excited about our next guest here because
• 28:09
  Speaker 5: we've got Laura Mody coming on. She is the CEO
• 28:11
  Speaker 5: and co founder of Bobby. This is an infinite formula company.
• 28:17
  Speaker 5: It's organic. They've got some big name investors on the
• 28:20
  Speaker 5: list here with Gwyneth Paltrow at twenty two million dollars,
• 28:24
  Speaker 5: and we're excited to talk with them, Paul and Barry,
• 28:26
  Speaker 5: because they've got some big news for us, this company
• 28:30
  Speaker 5: acquiring Nature's One. We don't have the exact details in
• 28:34
  Speaker 5: terms of the finances here, but it was a seventy
• 28:36
  Speaker 5: million dollar Series C round of funding to acquire Nature's One,
• 28:41
  Speaker 5: and this is part of their overall strategy to kind
• 28:43
  Speaker 5: of diversify their holdings here.
• 28:46
  Speaker 7: So I think we have Bobby.
• 28:48
  Speaker 5: We've got Bobby CEO on the phone here, Laura Mody.
• 28:51
  Speaker 5: Thank you so much for joining us, Laura, as I
• 28:54
  Speaker 5: was just explaining this acquisition of Nature's One.
• 28:57
  Speaker 7: How does that acquisition.
• 28:58
  Speaker 5: Factor into your our strategic push to increase domestic access
• 29:04
  Speaker 5: to infant formula here in the US.
• 29:07
  Speaker 16: Yeah, Hi, lovely to be back with you guys again. Look,
• 29:10
  Speaker 16: this acquisition is so much greater than Bobby and Nature's One.
• 29:15
  Speaker 16: The significance of our two companies coming together is the
• 29:18
  Speaker 16: biggest diversification move in the history of USNS and formula
• 29:23
  Speaker 16: and after last year's shortage, this is what the industry needs.
• 29:28
  Speaker 16: We need more competition, we need more options, and this
• 29:31
  Speaker 16: allows us to be able to serve more of the
• 29:33
  Speaker 16: market over the coming years.
• 29:36
  Speaker 6: So what does Nature's want do?
• 29:38
  Speaker 1: So talk to us about this distract what this company
• 29:40
  Speaker 1: does and kind of how it dovestail dovetails in with
• 29:43
  Speaker 1: kind of your business at Bobby and the baby formula
• 29:46
  Speaker 1: delivery business.
• 29:48
  Speaker 16: Yeah, so nature is One is actually you know, pioneers
• 29:52
  Speaker 16: in the world of organic impurity. They've been around for
• 29:55
  Speaker 16: the last twenty six years. They've spent the majority of
• 29:59
  Speaker 16: their time and focused on the popular formula. I would
• 30:02
  Speaker 16: actually refer to their founder and CEO really as the
• 30:06
  Speaker 16: godfather of formula here in the US, an organic formula.
• 30:10
  Speaker 16: He had the foresight back in two twenty and nineteen
• 30:14
  Speaker 16: to build a state of the art infant formula facility
• 30:17
  Speaker 16: in Ohio, and he had no idea what would come
• 30:21
  Speaker 16: in twenty twenty two when we were hit with the
• 30:23
  Speaker 16: national infant formula shortage. But in twenty twenty two, at
• 30:26
  Speaker 16: the end of last year, it got completed and he
• 30:29
  Speaker 16: became the first new infant formula facility to be built
• 30:33
  Speaker 16: in forty years from the ground up.
• 30:35
  Speaker 11: In the US.
• 30:37
  Speaker 15: Laura Barry Riddholts here, So it sounds like putting together
• 30:41
  Speaker 15: a couple of these parts. You're going for scale so
• 30:45
  Speaker 15: that if there is any sort of disruption in the future,
• 30:49
  Speaker 15: you'll be able to meet consumer demand. How large do
• 30:52
  Speaker 15: you have to be to avoid the sort of problems
• 30:55
  Speaker 15: that we saw during the pandemic and the lockdowns.
• 31:00
  Speaker 10: Question.
• 31:01
  Speaker 16: This is not just about and building one facility and
• 31:06
  Speaker 16: calling it a day. We need to build redundancy. This
• 31:10
  Speaker 16: industry needs resiliency so that we don't go through this again.
• 31:13
  Speaker 16: So today we've been using a contract manufacturer to make
• 31:17
  Speaker 16: our product, and we're going to keep doing that. We're
• 31:19
  Speaker 16: going to double down with them. We're going to stay
• 31:22
  Speaker 16: with them longer while we also build the resiliency to
• 31:25
  Speaker 16: get our own facility up and running to also produce
• 31:29
  Speaker 16: more products. The downside of last year was that there
• 31:32
  Speaker 16: was few facilities making too few products. So when one
• 31:37
  Speaker 16: of those facilities is no longer able to produce product,
• 31:40
  Speaker 16: we're going to be experiencing a shortage. Now, I will
• 31:44
  Speaker 16: admit that Bobby is not going to be the cure
• 31:47
  Speaker 16: solution to ensure that we avoid this. But I'm going
• 31:50
  Speaker 16: to do my damn best to make sure the Bobby's
• 31:53
  Speaker 16: never in the center of another shortage again.
• 31:56
  Speaker 1: And as many of our listeners know, we started speaking
• 31:58
  Speaker 1: with Laura back in the pandem again when this shortage
• 32:01
  Speaker 1: came to the fore and we needed to get real
• 32:03
  Speaker 1: smart on the baby formula business real quick, and Laura
• 32:06
  Speaker 1: was kind enough to speak with this several times during
• 32:08
  Speaker 1: that process. So it's great to see Laura and Bobby
• 32:10
  Speaker 1: continue to grow here. So Laar, give us the lay
• 32:14
  Speaker 1: of the land today. How have things changed in the
• 32:17
  Speaker 1: greater you know, baby formula business as it relates to logistics.
• 32:21
  Speaker 1: Are we in a better place today than we were
• 32:23
  Speaker 1: you know, a year ago, two years ago?
• 32:26
  Speaker 16: Well, i'd like to say chester yesterday's acquisition, we are.
• 32:32
  Speaker 16: The shortage itself is beginning to subside, which means shells
• 32:36
  Speaker 16: are getting stocked and there's access to more formula, but
• 32:40
  Speaker 16: it's spotty, and it's spotty because consumer buying behavior has
• 32:44
  Speaker 16: also changed, so there may be some shelves that remain
• 32:47
  Speaker 16: out of stock while others are plentiful. What we need
• 32:51
  Speaker 16: to do is we need to adjust to this changing
• 32:53
  Speaker 16: landscape and consumer behavior, which includes what are the products
• 32:56
  Speaker 16: that they need now and where do they need them?
• 32:58
  Speaker 16: That I would say is we're still somewhat in a crisis.
• 33:02
  Speaker 16: From that respect. The other thing that hasn't changed is
• 33:05
  Speaker 16: we're still putting out products from the same few facilities.
• 33:08
  Speaker 16: We are not in a position of the country where
• 33:10
  Speaker 16: we can turn around and confidently say that it's another
• 33:15
  Speaker 16: bacteria hits the facility that we wouldn't be in this again.
• 33:18
  Speaker 16: I actually think we are truly one bacteria away from
• 33:20
  Speaker 16: having another shortage like last year, and the only way
• 33:23
  Speaker 16: to get out of that is through the incentives and
• 33:28
  Speaker 16: investment made in further domestic manufacturing.
• 33:32
  Speaker 5: In our final couple of minutes with you, Laura, I
• 33:34
  Speaker 5: want to switch gears a little bit because I'm so
• 33:37
  Speaker 5: interested in your history and your previous life before Bobby,
• 33:41
  Speaker 5: when you were working at Google, and you've talked about
• 33:44
  Speaker 5: day trading as an important part of your time there
• 33:47
  Speaker 5: that helped you to buy your first home, and that's
• 33:49
  Speaker 5: why it was so important to you to kind of
• 33:51
  Speaker 5: open up investment into Bobby for women in particular, talk
• 33:55
  Speaker 5: to me about the other ways that being a trader
• 33:58
  Speaker 5: yourself has impacted the way that you run the business.
• 34:03
  Speaker 16: Great question. Did not see that coming here.
• 34:06
  Speaker 5: I'm a big fan of the Cut because I used
• 34:08
  Speaker 5: to work there, so that's where I'm getting that.
• 34:10
  Speaker 16: I love it. Look, my passion is really in women
• 34:16
  Speaker 16: having financial independence, and I think in a lot of ways,
• 34:21
  Speaker 16: whether it's trading or just understanding the financial system, women
• 34:25
  Speaker 16: are often left in the dark and behind. It can
• 34:28
  Speaker 16: be sometimes seen as an old boys club, whether it's
• 34:31
  Speaker 16: from the nomenclature to just the tools that exist. So
• 34:35
  Speaker 16: one of my deep passions is making sure that we're
• 34:38
  Speaker 16: in we are growing a business to allow women to
• 34:42
  Speaker 16: become financially savvy, and you see that in many of
• 34:44
  Speaker 16: our practices today. One of those is that I think
• 34:48
  Speaker 16: it was in our fundraise for our series day we
• 34:51
  Speaker 16: opened up a small portion of the round to allow
• 34:54
  Speaker 16: our own customers moms to invest in the business. And
• 34:58
  Speaker 16: instead of how having a minimum dollar to be able
• 35:02
  Speaker 16: to put in, we actually created a cap that allowed
• 35:05
  Speaker 16: several hundred moms to be able to invest in business.
• 35:08
  Speaker 1: Yep, that's a fat, I mean fascinating story all around here.
• 35:11
  Speaker 1: We're glad we get to stay in touch with you,
• 35:13
  Speaker 1: Lara and keep us up today. What's happening in your
• 35:15
  Speaker 1: business and your industry? Law Mody, CEO and co founder
• 35:19
  Speaker 1: of Bobby.
• 35:19
  Speaker 8: You're listening to the tape. Can's our live program Bloomberg
• 35:23
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 35:26
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• 35:28
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• 35:30
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• 35:32
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• 35:38
  Speaker 6: We'd be streaming on that thing called YouTube.
• 35:41
  Speaker 1: Just go to YouTube and search Bloomberg Global News and
• 35:43
  Speaker 1: that's you get the video feed there all right. The
• 35:45
  Speaker 1: absolute top media analyst on Wall Street in my opinion,
• 35:48
  Speaker 1: and it's an informed opinion. Michael nathan SI, founding partner
• 35:51
  Speaker 1: and senior Research Channels at Moffat Nathanson joins us via zoom. Michael,
• 35:54
  Speaker 1: thanks so much for taking the time. I got to
• 35:57
  Speaker 1: start with Disney. You know, back in the day, I
• 36:00
  Speaker 1: told a professor Buddy Mine and Harvard Business School, I
• 36:03
  Speaker 1: got a case study for you how to really do
• 36:06
  Speaker 1: an effective UH succession planning? And that was Bob Ayger
• 36:10
  Speaker 1: the Walt Disney Company. I'm thinking the Tom Staggs Jay
• 36:14
  Speaker 1: Russolo set up that nice race.
• 36:16
  Speaker 6: We thought everybody on the street was happy with it.
• 36:18
  Speaker 6: We thought, boy, these are two good people.
• 36:20
  Speaker 1: And then it didn't work out, and Bob kept extending
• 36:23
  Speaker 1: and extending, and all the executives left and here we
• 36:25
  Speaker 1: are again. So what do you make of what's going
• 36:28
  Speaker 1: on at Disney?
• 36:30
  Speaker 11: Yeah, thanks Paul, pretty nice, nice comments. That really means
• 36:34
  Speaker 11: a lot, So thank you for that. There's a lot
• 36:37
  Speaker 11: to unpack here, right, So start with where you began,
• 36:40
  Speaker 11: which is believe or not. There's there's not a bench
• 36:45
  Speaker 11: yes year that's ready to take over leadership. I think
• 36:50
  Speaker 11: part of it is that the company is in such
• 36:53
  Speaker 11: different businesses in different birth life cycles. Right. So Parks,
• 36:58
  Speaker 11: the guys you mentioned stagger In Resulo you know Staggers
• 37:02
  Speaker 11: a CFO. Rosulo was the head of Parks. Parks has
• 37:05
  Speaker 11: a different type of business model than Media. Now streaming
• 37:08
  Speaker 11: is their their big bet is. Streaming is a completely
• 37:10
  Speaker 11: different business model. So it's such a broad set of assets,
• 37:15
  Speaker 11: and you need someone who's who has got creative sensibilities
• 37:19
  Speaker 11: or trustworthiness. It's it's a hard job. But to your
• 37:23
  Speaker 11: first point, yeah, it's kind of amazing that this lead
• 37:26
  Speaker 11: into it. There hasn't been a bench of emerging candidates
• 37:30
  Speaker 11: besides Bob Kaipik in hindsight, was the wrong person. We
• 37:34
  Speaker 11: thought that almost right away. So that continues, right the
• 37:39
  Speaker 11: hunt for the next executive continues. We've got more time
• 37:42
  Speaker 11: on his hands. But that's just part of the story,
• 37:44
  Speaker 11: I think.
• 37:45
  Speaker 1: And so, Michael, the bigger issue, well not the big issue,
• 37:48
  Speaker 1: but the operating issue for Bob Byger and the management
• 37:50
  Speaker 1: team is, boy, how do you manage this transition from
• 37:53
  Speaker 1: the traditional business where you had cable companies and salt companies,
• 37:58
  Speaker 1: you know, giving you a steady profit, to now the
• 38:00
  Speaker 1: streaming business where the economics are really uncertain. Let's start
• 38:03
  Speaker 1: with ESPN. What would you recommend to Bob Eyer on
• 38:06
  Speaker 1: the board that they do with ESPN?
• 38:08
  Speaker 11: Yeah, so Paul started ESPN and is right. You know
• 38:11
  Speaker 11: when you covered the stock way back when it was
• 38:14
  Speaker 11: it was a driver of free cash flow and the
• 38:16
  Speaker 11: driver profitability ESPN and you'll laugh if and to us
• 38:22
  Speaker 11: a it's really unclear how ESPN could work on a
• 38:26
  Speaker 11: standalone basis as a drifting consumer service. Right, the price
• 38:31
  Speaker 11: point has to be quite high, the will be more
• 38:35
  Speaker 11: seasonal than it is now. We think the best idea
• 38:37
  Speaker 11: is to either create a sports only bundle with other
• 38:41
  Speaker 11: sports led programmers, or put sport into the Disney plus
• 38:47
  Speaker 11: Food bundle. Right, so you either have to go all
• 38:49
  Speaker 11: in on sports or use sports strategically. It's unclear at
• 38:53
  Speaker 11: this point what Disney wants to do. I think they
• 38:54
  Speaker 11: really want to maintain an ESPN brand as a standalone
• 38:58
  Speaker 11: APT we think, but even today when Baba's was talking
• 39:01
  Speaker 11: about it, it's unclear what the path looks like going forward.
• 39:05
  Speaker 11: We studied ESPN for a long time, you know, we
• 39:09
  Speaker 11: used to be more sanguine about the future of ESPN,
• 39:12
  Speaker 11: but cork cutting has gotten so bad and a cost
• 39:15
  Speaker 11: of sports keeps rising that it's not an easy, clear
• 39:19
  Speaker 11: answer that you you know, for your question. Our best
• 39:22
  Speaker 11: bet is to try to keep the bundle alive by
• 39:25
  Speaker 11: shrinking it down to sports only. When hit the bundle,
• 39:29
  Speaker 11: what remains the PATV bundle, So shrinking down to sports only.
• 39:32
  Speaker 1: So when you talk to institutional investors, Michael just about
• 39:35
  Speaker 1: you know, the big media companies, how confident are you
• 39:40
  Speaker 1: that they can make this transition broadly speaking, the industry
• 39:45
  Speaker 1: to a streaming economic model. Because if I'm an investor,
• 39:47
  Speaker 1: I'm like, I just don't know, and as a result,
• 39:50
  Speaker 1: I'm not going to invest.
• 39:52
  Speaker 11: Yeah for people, So if you're head our work, we
• 39:57
  Speaker 11: had a Noe doubt today where my partner Robert Fishman
• 40:00
  Speaker 11: covers a lot of media names equated today's linear TV
• 40:05
  Speaker 11: to radio and exactly. And it feels like that, right, Paul,
• 40:10
  Speaker 11: where the uncerting, the uncerting index is so high for
• 40:14
  Speaker 11: the future and the pivot here seems so complicated that
• 40:18
  Speaker 11: we're finding just a lack of interest even for Disney. Right,
• 40:22
  Speaker 11: So we upgraded Disney when Box came back in ninety,
• 40:25
  Speaker 11: Bucks stock went to one twenty. That's our price targets
• 40:28
  Speaker 11: back to ninety again. But even Disney has lost kind
• 40:32
  Speaker 11: of the goodwill of the instrutional investors that are out there, Right,
• 40:35
  Speaker 11: So there's just a lack of interest here, like radio,
• 40:39
  Speaker 11: which is a sad commentary. But a lot of this,
• 40:42
  Speaker 11: Paul and I've talked over the many years, has been
• 40:44
  Speaker 11: self inflicted. Right, didn't have to be this bad. They
• 40:48
  Speaker 11: licensed their content to Netflix. They then all pivoted hard
• 40:52
  Speaker 11: to streaming without much thought about profitability, and they've killed
• 40:56
  Speaker 11: the golden goose. Right, It's really sad, like, there'll be
• 40:58
  Speaker 11: a textbook written about how this was. You know, a
• 41:01
  Speaker 11: lot of this was self inflicted in terms of the
• 41:03
  Speaker 11: wounds in the industry.
• 41:05
  Speaker 1: I think in your next life you can write that
• 41:06
  Speaker 1: book in your spare time. Michael, Hey, let's talk about
• 41:09
  Speaker 1: a name that just jumps out of a lot of investors,
• 41:12
  Speaker 1: maybe of some interest, Paramount. What does this company do?
• 41:15
  Speaker 1: What does Sherry Redstone really want to do with this company?
• 41:17
  Speaker 1: Because you know, we kind of thought that they didn't
• 41:19
  Speaker 1: have this scale before. Nothing's changed, maybe even it's become
• 41:22
  Speaker 1: more pronounced that risk.
• 41:24
  Speaker 11: No, so we and Robert has a we have a
• 41:26
  Speaker 11: sell on Paramount. You may be shot to know or
• 41:29
  Speaker 11: not know that they generate no pre cash flow and
• 41:33
  Speaker 11: they're highly leveraged. And the bullet caase is simply that
• 41:37
  Speaker 11: someone is going to buy them. Yeah, you Warren Buffett's
• 41:39
  Speaker 11: an investor, and like that's hoss. Like if that's what
• 41:43
  Speaker 11: you have as a bullet case, and then we're worried
• 41:45
  Speaker 11: about it. We think just they're over leveraged to cable networks,
• 41:49
  Speaker 11: the lack of profitability and streaming.
• 41:52
  Speaker 15: It's just a.
• 41:53
  Speaker 11: Tough hand they have. And I think, you know, they
• 41:55
  Speaker 11: just got to give them a quarter, and I think
• 41:58
  Speaker 11: if you moved to like this arms dealer or you
• 42:00
  Speaker 11: start selling your content, I'm not sure there's a there there.
• 42:04
  Speaker 11: At the end of the day, eventually you're seeing Netflix, Amazon,
• 42:07
  Speaker 11: Apple make their own content. So maybe they'll buy the
• 42:11
  Speaker 11: mission impossible. Maybe they'll buy, you know, the top gun
• 42:14
  Speaker 11: from you, but they won't license all your content because
• 42:17
  Speaker 11: they don't have to anymore. I think you picked that one,
• 42:20
  Speaker 11: and that's a tough handpong. We're quite negative on the
• 42:24
  Speaker 11: outcome there.
• 42:25
  Speaker 5: Hey, Michael, this is Madison a question about this, and
• 42:28
  Speaker 5: it's funny.
• 42:28
  Speaker 7: I was talking to my friends last.
• 42:30
  Speaker 5: Night who all really hate the paramount app so not
• 42:33
  Speaker 5: a great sign for them. But when you look at
• 42:35
  Speaker 5: a Netflix in particular, they've really gone all in on
• 42:40
  Speaker 5: creating this really cheap reality TV content that can.
• 42:45
  Speaker 7: Air for them and does really, really well.
• 42:48
  Speaker 5: Disney doesn't really have an option for that necessarily.
• 42:52
  Speaker 7: Do you see Disney.
• 42:53
  Speaker 5: Going into a cheaper content creation strategy in order to
• 42:59
  Speaker 5: compete with the likes Netflix.
• 43:01
  Speaker 11: It's funny. We've studied that question by looking at Netflix.
• 43:05
  Speaker 11: Netflix the viewership that eight and ten percent of the
• 43:07
  Speaker 11: viewership would be unscripted reality every every month, every quarter,
• 43:11
  Speaker 11: eight ten percent. It's not a big number, but to
• 43:13
  Speaker 11: your point, the stuff they have probably out punches, you
• 43:17
  Speaker 11: know what the costs are making it. Disney has National
• 43:22
  Speaker 11: Disney Plus, is that Geo Whoo has The Bachelor. Our
• 43:26
  Speaker 11: vision is that at some point Disney Plus and Who
• 43:28
  Speaker 11: will get combined. Now Geo really hasn't sparked. It looks
• 43:32
  Speaker 11: like the same level of engagement that Netflix's reality shows have.
• 43:37
  Speaker 11: But we think that at some point when they combined
• 43:39
  Speaker 11: Disney Plus and Whulu to your comment, didn't have to
• 43:42
  Speaker 11: lean more into unscripted reality. You know, again the Bachelor,
• 43:46
  Speaker 11: it's made by warners, but it's it's a good observation.
• 43:51
  Speaker 11: The opposite side, Warner Brothers has now Max has great
• 43:55
  Speaker 11: HBO stuff and now all the Discovery content. They probably
• 43:59
  Speaker 11: have almost too much reality programming there. So as I
• 44:03
  Speaker 11: think Netflix has figured out the perfect blend, I think
• 44:06
  Speaker 11: to your point, others will have to follow that blend.
• 44:08
  Speaker 1: And if there isn't enough headwinds for just strategically for
• 44:11
  Speaker 1: the industry, now they've got, you know, potentially a pair
• 44:13
  Speaker 1: of strikes, one from the writers and now potentially one
• 44:17
  Speaker 1: from the actors. Boy, how big of a problem is
• 44:20
  Speaker 1: this for the industry? Michael, do you think these things
• 44:22
  Speaker 1: get resolved.
• 44:25
  Speaker 11: I think it's a huge problem. I think it's happening
• 44:28
  Speaker 11: at a time of great difficulties for the industry, a
• 44:34
  Speaker 11: kind of structural change. The directors have settled, the writers
• 44:39
  Speaker 11: have not, and the actress likely will go on strike.
• 44:43
  Speaker 11: I think it's gonna be really damaging. And the problem,
• 44:45
  Speaker 11: I think is that the sides are so far apart,
• 44:48
  Speaker 11: given that the writers are still in strike and the
• 44:52
  Speaker 11: economicy industry is we've just talked about it really really challenging.
• 44:56
  Speaker 11: So I think there needs to be some realization that
• 45:01
  Speaker 11: the music common ground here, something has to give. I
• 45:04
  Speaker 11: worry that this goes on through the summer is going
• 45:06
  Speaker 11: to really affect the fourth quarter and all the new
• 45:09
  Speaker 11: programming for broadcasts and some of the broadcast networks that
• 45:13
  Speaker 11: we cover will be in a really bad position. And
• 45:15
  Speaker 11: it's also going to hurt streaming companies that are looking
• 45:17
  Speaker 11: for new, fresh content by the first half of next year.
• 45:21
  Speaker 11: But it has real implications here. But it doesn't seem
• 45:24
  Speaker 11: to us to be settling anytime. In the fact, feels
• 45:27
  Speaker 11: like it could drag on Paul, which is not It's
• 45:30
  Speaker 11: not a good outcome for anybody.
• 45:31
  Speaker 1: Hey, Michael, just lastly, love to just get your your
• 45:34
  Speaker 1: top pick here. What are you guys in your team
• 45:36
  Speaker 1: kind of out there with your clients.
• 45:37
  Speaker 11: Okay, So in media all separate media and Internet, right,
• 45:41
  Speaker 11: so we keep adding coverage, So Robbins Media World, our
• 45:45
  Speaker 11: top picks would be Fox because Fox is just sports
• 45:48
  Speaker 11: and news, and Disney for a larg term view that
• 45:51
  Speaker 11: ninety bucks I share. You know, if Bob Ayer can
• 45:54
  Speaker 11: be successful, you know, we think there's thirty dollars of upside,
• 45:58
  Speaker 11: So Disney Fox top we have paramounts is short. In Internet,
• 46:03
  Speaker 11: we keep pushing Meta has been a really great nice
• 46:07
  Speaker 11: year for us and Alphabet because we think the AI
• 46:11
  Speaker 11: fears the chat, GPT killing Google Search will overstated. So
• 46:15
  Speaker 11: you know, we stay with those behemoth and you know
• 46:19
  Speaker 11: that's been an easy call. And we think that there's
• 46:21
  Speaker 11: this real dispersion of digital advertisements going to put up
• 46:25
  Speaker 11: really nice growth and linear networks going to have a
• 46:28
  Speaker 11: early heart iime growing Paul all our radio back when
• 46:31
  Speaker 11: when you and I were young, we were younger men.
• 46:34
  Speaker 1: That's right, exactly, all right, Michael, thanks for giving us
• 46:36
  Speaker 1: a couple minutes of your time. We really appreciate it.
• 46:37
  Speaker 1: Michael Nathanson again one of the the the top analysts
• 46:41
  Speaker 1: covering the media space, or just in a Wall Street
• 46:42
  Speaker 1: and General founding partner senior research analysts at Maffatt Nathanson.
• 46:46
  Speaker 8: You're listening to the tape Can's are live program Bloomberg
• 46:49
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 46:52
  Speaker 8: tune in app, Bloomberg dot Com.
• 46:54
  Speaker 13: And the Bloomberg Business App.
• 46:56
  Speaker 8: You can also listen live on Amazon Alexa from our
• 46:59
  Speaker 8: flagship New York's Just Say Alexa playing Bloomberg eleven thirty.
• 47:04
  Speaker 1: We had some arnings today Pepsi. I'm a coke guy,
• 47:07
  Speaker 1: but I'm just as happy drinking Pepsi. I'll be honest
• 47:09
  Speaker 1: with you. I have no real loyalty Ken Shay. He
• 47:12
  Speaker 1: does this stuff for a living. He follows all these
• 47:14
  Speaker 1: consumer companies. He's a senior equity analyst to Bloomberg Intelligence. Ken,
• 47:17
  Speaker 1: thanks so much for joining us here on zoom What
• 47:19
  Speaker 1: did you learn from Pepsi today.
• 47:22
  Speaker 17: Hi, Paul, Well, we learned again the power of Pepsi's brands.
• 47:26
  Speaker 17: You know, I think everyone respects their brands and their
• 47:29
  Speaker 17: ability to pass on price increases. But I think there
• 47:32
  Speaker 17: may have been some underlying skepticism that it could continue
• 47:36
  Speaker 17: for so long, and it has, and you know, the
• 47:40
  Speaker 17: second half of the year, the company is mentioning that
• 47:42
  Speaker 17: commodity costs may ease a little bit, it may not
• 47:44
  Speaker 17: be as aggressive with pricing. I think that's giving people
• 47:48
  Speaker 17: a little relief. You know, pricing has been in double
• 47:50
  Speaker 17: digit for a while now with this company, but they're
• 47:52
  Speaker 17: investing in the brands. So what we learned is that
• 47:54
  Speaker 17: the company has really powerful brands. They're not afraid to
• 47:57
  Speaker 17: invest in them and price accordingly.
• 48:00
  Speaker 5: And to what extent do you see that price power,
• 48:03
  Speaker 5: pricing power continuing through the second half of the year,
• 48:06
  Speaker 5: because in the last earning cycle they were sort of
• 48:09
  Speaker 5: like bragging about their ability to increase prices.
• 48:12
  Speaker 7: Is that going to keep happening?
• 48:14
  Speaker 17: You that's the million doile of the question. You know,
• 48:17
  Speaker 17: I'd be reluctant to bet against them, though, you know,
• 48:20
  Speaker 17: this earnings report was their eighteenth beat in a row.
• 48:23
  Speaker 17: They have an ability better than their peers to manage
• 48:29
  Speaker 17: their volume and pricing such that revenues keep coming in strong.
• 48:34
  Speaker 17: They invest quite a bit. Their capecks is a little
• 48:37
  Speaker 17: bit higher than their peers, but they invest or a manufacturer,
• 48:40
  Speaker 17: they own their bottlers too, They invest in productivity. It's
• 48:44
  Speaker 17: really showing in the bottom line. So if they can
• 48:46
  Speaker 17: continue that top line strength and can continue to what
• 48:49
  Speaker 17: they're doing in the second half, then we're looking at
• 48:53
  Speaker 17: you know, another high single digit kind of EPs gain
• 48:56
  Speaker 17: in the second half.
• 48:57
  Speaker 1: Hey can this there's still any vestages left of that
• 48:59
  Speaker 1: old Cold war of years gone past, and they still
• 49:01
  Speaker 1: fight for market chair Coke and Pepsi or is it
• 49:04
  Speaker 1: kind of fizzled out for lack of a or.
• 49:07
  Speaker 17: Well, you know, they they don't speak about it that much,
• 49:10
  Speaker 17: PepsiCo market share because they really are a full, you know,
• 49:14
  Speaker 17: sweet portfolio beverage company, whether it's the Gator Raye sports
• 49:18
  Speaker 17: drinks or now they're investing heavily in energy drinks. The
• 49:22
  Speaker 17: juice is still tease now alcoholic beverage, you know, a
• 49:26
  Speaker 17: venture with Bustin Beer. It's small, but they don't get
• 49:29
  Speaker 17: caught up too much in the carbonate cola aisle share
• 49:33
  Speaker 17: like co Cola is much more concentrated in as much.
• 49:39
  Speaker 5: All right, we've got like twenty seconds left with you here.
• 49:42
  Speaker 5: But in those final twenty seconds, I did want to
• 49:44
  Speaker 5: ask you about.
• 49:46
  Speaker 7: The downside of the dollar. Do you think Pepsi's incredibly
• 49:50
  Speaker 7: excited about that? Or am I overblowing that.
• 49:52
  Speaker 9: A little bit?
• 49:54
  Speaker 17: No, you're not. I mean is it's been a Kurche's
• 49:57
  Speaker 17: been a drag for the last all year two or so.
• 50:02
  Speaker 17: You're still seeing a modest drag in the in the
• 50:03
  Speaker 17: second half. They may be a little conservative given a
• 50:06
  Speaker 17: dollar weakness of late, and we think there's still gonna
• 50:10
  Speaker 17: be a slight drag, but we think it's a good
• 50:13
  Speaker 17: thing for them.
• 50:13
  Speaker 13: You know.
• 50:14
  Speaker 17: All that's being equal, Let's drag it better, all.
• 50:17
  Speaker 1: Right, Ken, thanks so much for joining us, Ken Shay,
• 50:19
  Speaker 1: senior equity analysts. It covers all the consumer products companies,
• 50:22
  Speaker 1: a lot of the beverage companies, to tobacco companies, the
• 50:25
  Speaker 1: weed company, So he's got the whole portfolio there, and
• 50:27
  Speaker 1: we appreciate getting a few minutes of his time there.
• 50:29
  Speaker 8: You're listening to the tape Cat's are live program Bloomberg
• 50:32
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 50:36
  Speaker 8: tune in app, Bloomberg dot Com.
• 50:38
  Speaker 13: And the Bloomberg Business App.
• 50:39
  Speaker 8: You can also listen live on Amazon Alexa from our
• 50:42
  Speaker 8: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
• 50:48
  Speaker 1: Madison Mills, Paul Sweene Here in our Bloomberg Interactive Workers studio,
• 50:51
  Speaker 1: a little bit of an M and A trade here
• 50:53
  Speaker 1: today exce on to by Denbury for four point nine
• 50:56
  Speaker 1: billion dollars in CO two pipeline push. Get the latest
• 51:00
  Speaker 1: on this transaction. Kevin Crowley joins this senior US oil
• 51:04
  Speaker 1: reporter for Bloomberg News.
• 51:05
  Speaker 10: Kevin, are you based in?
• 51:06
  Speaker 6: Are you in Houston?
• 51:08
  Speaker 10: That's right?
• 51:09
  Speaker 11: Yep?
• 51:09
  Speaker 10: I mean Houston yet where Egxon is just relocated you.
• 51:14
  Speaker 1: Okay, how hard is it going to be in Houston today?
• 51:17
  Speaker 10: I think it's I think we're going to be a
• 51:18
  Speaker 10: one hundred, but it feels like it's more than one
• 51:20
  Speaker 10: hundred and ten or so. So we're staying firmly inside
• 51:23
  Speaker 10: in the air conditioning.
• 51:24
  Speaker 1: And judging by your accent, you're not a Houston native.
• 51:26
  Speaker 1: I mean, you don't know you're genetically you're not made
• 51:28
  Speaker 1: up for this weather, are you.
• 51:30
  Speaker 10: That's that's right, that's right. Once it gets to about eighty,
• 51:34
  Speaker 10: I start to start to melt.
• 51:36
  Speaker 1: Ha hang out in the air conditioning there, talk to
• 51:39
  Speaker 1: us about this Exon deal. What is Denbury and why
• 51:42
  Speaker 1: is Exxon sholling out four point nine billion dollars?
• 51:46
  Speaker 10: So it's a it's a really interesting deal. It's really
• 51:48
  Speaker 10: it's really a low carbon play for for for Exxon,
• 51:52
  Speaker 10: Denbury was is a what's called an enhanced oil recovery specialist.
• 51:59
  Speaker 10: So they they move, they use carbon dioxide in old
• 52:05
  Speaker 10: wells in order to produce more more oil. Now they
• 52:07
  Speaker 10: have a key asset here, which is the which is
• 52:10
  Speaker 10: a thirteen hundred one hundred mile pipeline network, which is
• 52:14
  Speaker 10: the largest carbon dioxide pipeline network in the US. And
• 52:18
  Speaker 10: Eggson really wants this pipeline network in order to boost
• 52:23
  Speaker 10: its its carbon capture business. It's a really it's a
• 52:26
  Speaker 10: really unique asset that Egxons saw as critical to its
• 52:30
  Speaker 10: to its whole low carbon strategy, and that's why it's
• 52:33
  Speaker 10: really paying this five billion dollars.
• 52:34
  Speaker 6: What is a carbon dioxide pipeline? What is it?
• 52:38
  Speaker 1: Transfers carbon dioxide? But from where to wear and for
• 52:41
  Speaker 1: what reason?
• 52:41
  Speaker 6: I don't understand?
• 52:42
  Speaker 10: Right, that's right, trans right, it transports carbon dioxide. So
• 52:46
  Speaker 10: so Denbury Denbury used to use carbon dioxide to push
• 52:52
  Speaker 10: into old oil wells in order to extract crude. This
• 52:56
  Speaker 10: is this is a very mature business. It's a very
• 52:58
  Speaker 10: reliable business, but it's a very high cost business. And
• 53:00
  Speaker 10: actually Denbury got Denbury went bankrupt in twenty twenty and
• 53:05
  Speaker 10: so has been on the recovery track for the last
• 53:08
  Speaker 10: three years.
• 53:08
  Speaker 11: Now.
• 53:09
  Speaker 10: With the world's focused now on carbon emissions and particularly
• 53:14
  Speaker 10: the passing of the Inflation Reduction Act, these pipelines that
• 53:18
  Speaker 10: move carbon dioxide are now being repurposed for carbon capture.
• 53:22
  Speaker 10: So Egxon's plan here is to capture carbon emissions along
• 53:27
  Speaker 10: the Gulf coasts, which is full of refineries, chemical plants,
• 53:30
  Speaker 10: from the biggest concentration of industrial missions in the country.
• 53:35
  Speaker 10: They want to capture those carbon emissions, move them along
• 53:37
  Speaker 10: the Denbury pipelines and then bury them.
• 53:41
  Speaker 6: In the ground, bury carbon dioxide.
• 53:46
  Speaker 10: That's right, that's right. It's called carbon it's called carbon
• 53:48
  Speaker 10: capture and sequestration. It's the sequestration part of it, which
• 53:53
  Speaker 10: is which is where the magic happens really, whereas instead
• 53:55
  Speaker 10: of emitting carbon dioxide into the air, you can capture
• 54:00
  Speaker 10: it and you can bury it underground where they say
• 54:03
  Speaker 10: it will stay forever. So it's it's it's a way
• 54:05
  Speaker 10: of it's a way of being able to keep a
• 54:09
  Speaker 10: refinery or chemical plant going, but without the without the emissions.
• 54:14
  Speaker 7: Okay, so you mentioned the Inflation Reduction Act.
• 54:17
  Speaker 5: How much of this acquisition is directly related to that legislation.
• 54:24
  Speaker 10: Yes, it's absolutely critical. So I spoke. I spoke to
• 54:28
  Speaker 10: the Eggson executive kind of leading this this morning, Dan Aman,
• 54:32
  Speaker 10: who used to be at General Motors. He said, he
• 54:36
  Speaker 10: said the the Inflation Reduction Act was it was a
• 54:38
  Speaker 10: key catalyst. And without the Inflation Reduction Act, I think
• 54:41
  Speaker 10: this deal would have been a bit more, a bit
• 54:43
  Speaker 10: more challenged. And and what the what the Inflation Reduction
• 54:46
  Speaker 10: Act is that does really is it provides tax credits
• 54:49
  Speaker 10: for this whole process. I talked about capturing carbon and
• 54:52
  Speaker 10: then burying it, and you know Eggson can do this.
• 54:55
  Speaker 10: Eggxon think want to do this on a on a
• 54:58
  Speaker 10: really large scale, and those tax credits will be really
• 55:01
  Speaker 10: critical for Exon to really justify it to their shareholders
• 55:04
  Speaker 10: as to as to why they're doing it and to
• 55:09
  Speaker 10: ultimately make profits from this process.
• 55:11
  Speaker 1: Kevin kind of help us understand the differences to the
• 55:14
  Speaker 1: extent there are differences between how maybe some European energy
• 55:17
  Speaker 1: companies like British Petroleum or Total view the transition to
• 55:22
  Speaker 1: clean energy versus American energy companies like an Exxon Mobile.
• 55:27
  Speaker 1: What are the differences in how they're pursuing it, how
• 55:29
  Speaker 1: they view it?
• 55:31
  Speaker 10: Right, So, there was there was a key split really
• 55:34
  Speaker 10: around sort of four to five years ago where the
• 55:37
  Speaker 10: European majors, particularly BP, SHELL Total to a lesser extent,
• 55:41
  Speaker 10: decided that they were going they were going to go
• 55:44
  Speaker 10: hard into renewable energy. They were not going to be
• 55:47
  Speaker 10: oil and gas companies anymore, they were going to be
• 55:49
  Speaker 10: energy companies, and they were going to really focus on
• 55:51
  Speaker 10: things like winds, things like solar become big in power generation,
• 55:56
  Speaker 10: whereas the US oil majors were very much slow to
• 56:00
  Speaker 10: embrace like zero targets and things like that, and they
• 56:05
  Speaker 10: they've decided to really stick much more closely to oil
• 56:08
  Speaker 10: and gas, and their low carbon strategies were much more
• 56:10
  Speaker 10: about things that they were specifically good at, and eggs
• 56:14
  Speaker 10: on C's carbon capture is one of those things, which
• 56:17
  Speaker 10: is which which it has unique capability in it. Now
• 56:20
  Speaker 10: what's interesting now is we've seen this year in particular,
• 56:24
  Speaker 10: the European majors have somewhat sort of pivoted their strategy
• 56:28
  Speaker 10: to to come much more closely towards the towards the
• 56:31
  Speaker 10: US players, because they found that investing in renewables was
• 56:35
  Speaker 10: very very competitive, and that and that the returns were
• 56:38
  Speaker 10: really not as good. Is in, there are plenty of
• 56:40
  Speaker 10: people who can do wins, there are plenty of people
• 56:42
  Speaker 10: who can do solar. There are plenty of existing power
• 56:46
  Speaker 10: utilities all across the world. And BP and Shell really
• 56:49
  Speaker 10: found that, you know, competing with those large established players
• 56:52
  Speaker 10: and specialists in those areas was was not really a
• 56:55
  Speaker 10: very high return business model. So they've decided to pivot
• 57:00
  Speaker 10: bit more back to oil and gas and focus on
• 57:03
  Speaker 10: the low carbon areas where they can add some unique value.
• 57:06
  Speaker 10: That's certainly that's certainly Exon strategy.
• 57:08
  Speaker 5: It sounds like a critical part of Exon's future proving
• 57:12
  Speaker 5: strategy as well. But I'm curious, then, why are we
• 57:16
  Speaker 5: seeing a little bit of negativity when it comes to
• 57:18
  Speaker 5: the day's trade on the news the stock is down
• 57:21
  Speaker 5: by just over two percent at the moment.
• 57:24
  Speaker 10: Well, yeah, well they're paying they're paying all in stock,
• 57:26
  Speaker 10: so they're playing five billion dollars in stock, So that's
• 57:29
  Speaker 10: dilutive for the for the shares. So I think that's
• 57:32
  Speaker 10: probably the technical reasons why Exton is trading is trading
• 57:35
  Speaker 10: down today.
• 57:35
  Speaker 11: Now.
• 57:36
  Speaker 10: Exon's been buying back an enormous amount of stock of
• 57:41
  Speaker 10: the next eighteen months now. They had a record record
• 57:43
  Speaker 10: profits last year, so they're buying back a lot of stock.
• 57:46
  Speaker 10: So this obviously dilutes that, that loutes that mechanism. So
• 57:50
  Speaker 10: that's that's why eggsll is trading down today. It was
• 57:52
  Speaker 10: interesting is Denbury is trading down and normally the acquired
• 57:55
  Speaker 10: company would trade up. Some commentary in the in the
• 57:59
  Speaker 10: markets that some aolysts think this is higgs on, this
• 58:03
  Speaker 10: is paying is paying kind of a too lower price
• 58:06
  Speaker 10: for Denbris. So that's that's that's certainly an interesting one
• 58:09
  Speaker 10: to watch.
• 58:10
  Speaker 1: All Right, So Kevin, you're an Englishman in Houston, but
• 58:15
  Speaker 1: in Houston it's energy is business and job one. It's
• 58:18
  Speaker 1: business number one. I got w T I crudal oil
• 58:20
  Speaker 1: just under seventy six dollars a barrow here a little
• 58:23
  Speaker 1: bit of a rally. What is it when you go
• 58:24
  Speaker 1: to the local pub equivalent in Houston? What are the
• 58:29
  Speaker 1: folks talking about in terms of where they think oil
• 58:31
  Speaker 1: is going?
• 58:31
  Speaker 6: In terms of the price.
• 58:34
  Speaker 10: Everyone thinks it's going up. It's an oil town. It's
• 58:36
  Speaker 10: always going up. We think it's going to the moon.
• 58:39
  Speaker 10: One hundred dollars, one hundred dollars a barrel. It's it's
• 58:42
  Speaker 10: it's just it's just a matter of time. So yeah,
• 58:45
  Speaker 10: people people very very very very very very British as usual,
• 58:50
  Speaker 10: and I think I think you kind of have to
• 58:52
  Speaker 10: be to be in the oil business. It's a it's
• 58:53
  Speaker 10: a tough it's a tough business, lots of lots of
• 58:56
  Speaker 10: booms and busts. So it's certainly it's certainly the place
• 58:59
  Speaker 10: for for optimists.
• 59:01
  Speaker 1: How about nat gas, I mean natural gas has been
• 59:03
  Speaker 1: a different story.
• 59:04
  Speaker 6: What's the feeling about that?
• 59:07
  Speaker 10: Yeah, Well, that gas is we've basically got too much
• 59:11
  Speaker 10: of it. You know, there's huge amounts of gas comes
• 59:13
  Speaker 10: out of comes out of the permium basin, which is
• 59:15
  Speaker 10: primarily an oil basin, so natural gas is the essentially
• 59:19
  Speaker 10: a byproduct. So so really people are really waiting for
• 59:23
  Speaker 10: the liquefied natural gas export facilities along the Gulf coast
• 59:28
  Speaker 10: to come online. We had a huge project stanctioned just
• 59:33
  Speaker 10: last night actually, Brian Brownsville, South Texas, eighteen point four
• 59:38
  Speaker 10: billion dollar project, massive, so that's that's gonna that's going
• 59:42
  Speaker 10: to swallow up, so some of this excess gas and
• 59:44
  Speaker 10: exports it around the world. There's been three other final
• 59:48
  Speaker 10: investment decisions made, two other final investment decisions made on
• 59:52
  Speaker 10: such similar facilities this year alone. And really the whole,
• 59:57
  Speaker 10: the whole goal of this is to get sort of
• 59:59
  Speaker 10: US gas on on the water around the world, you know,
• 1:00:02
  Speaker 10: helping to replace Russian supplies, especially to Europe.
• 1:00:05
  Speaker 1: All Right, great reporting as always, Kevin Crowley, Senior US
• 1:00:08
  Speaker 1: oil reporter for Bloomberg News.
• 1:00:10
  Speaker 6: Again an Englishman in Houston. Good luck with that.
• 1:00:13
  Speaker 1: Before that he was in Johannesburg and then before that
• 1:00:15
  Speaker 1: in London, so he's been all over the place for
• 1:00:17
  Speaker 1: Bloomberg News.
• 1:00:22
  Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
• 1:00:25
  Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
• 1:00:29
  Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 1:00:32
  Speaker 2: at Matt Miller nineteen seventy three.
• 1:00:35
  Speaker 6: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
• 1:00:37
  Speaker 1: Before the podcast, you can always catch us worldwide at
• 1:00:40
  Speaker 1: Bloomberg Radio.