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BI Weekend: US Election, Berkshire Earnings · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence
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Speaker 1: with Alex Steinhl and Paul Sweeney.
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Speaker 2: The real app performance has been in US corporate high yield.
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Speaker 3: Are the companies lean enough?
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Speaker 4: Have they trimmed all the fats?
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Speaker 2: The semiconductor business is a really cyclical business.
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Speaker 1: Breaking market headlines and corporate news from across the globe.
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Speaker 3: Do investors like the M and A that we've seen?
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Speaker 2: These are two big time blue chip companies.
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Speaker 3: The window between the peak and cut changing super fast.
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Speaker 1: Bloomberg Intelligence with Alex Steinhl and Paul'sweeny.
0:40
Speaker 5: On Bloomberg Radio. I'm Paul sween and I'm John Tucker
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Speaker 5: filling in for Alex Steele.
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Speaker 2: On today's Bloomberg Intellivision show. We dig inside the big
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Speaker 2: business stories impacting Wall Street and global markets.
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Speaker 5: Each and head. Every week, we provide in depth research
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Speaker 5: and data on some of the two thousand companies at
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Speaker 5: one hundred and thirty industries our analysts cover worldwide.
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Speaker 2: Today, we'll look at why Berkshire Hathaway's cash pile has
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Speaker 2: reached a record plus.
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Speaker 5: We'll discuss where wind and solar energy storage will be
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Speaker 5: within the next decade.
1:09
Speaker 2: But first we begin with our top story, the twenty
1:11
Speaker 2: twenty four US election. This week, Donald Trump was elected
1:15
Speaker 2: the forty seventh President of the United States, reclaiming the
1:17
Speaker 2: White House and pulling off a stunning political comeback.
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Speaker 5: If heated Vice President Kamala Harris after she replaced an
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Speaker 5: unpopular President Joe Biden in the campaign's final months.
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Speaker 2: For more on Donald Trump's election, guest host Damian Sasara
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Speaker 2: and I were joined by Nathan Dean, Bloomberg Intelligence Senior
1:33
Speaker 2: policy analyst. We first asked Nathan how Trump's future presidency
1:36
Speaker 2: will impact different industries like banks.
1:39
Speaker 6: With the financial services industry, it all came down to
1:41
Speaker 6: this rule called the Basel three end game. You know,
1:43
Speaker 6: as outlined by the FED. You're talking about a nine
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Speaker 6: percent increase for the GESIPS, the Bank America JP Morgan's
1:49
Speaker 6: of you will about three to four percent in terms
1:51
Speaker 6: of the regional banks. Now, with President Trump winning the
1:54
Speaker 6: office of the control of the currency is likely going
1:56
Speaker 6: to flip on day one of next year. So this
1:59
Speaker 6: rule is effective indefinitely delayed. You know this, you would
2:02
Speaker 6: need to FED, the OCC and the FDIC to move forward.
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Speaker 6: Now we think at thirty percent chance of it being
2:07
Speaker 6: finalized by twenty twenty six. The reason why we're not
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Speaker 6: down to zero is because there is potential out there
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Speaker 6: that a Republican led regulator may try and move forth
2:15
Speaker 6: with it. But the idea is going to be completely different,
2:18
Speaker 6: and they're going to essentially start from scratch. So if
2:20
Speaker 6: you're talking about capital requirements on a global scale, remember
2:23
Speaker 6: the European banks have already implemented their version of this.
2:25
Speaker 6: There could be some questions here on if the Americans
2:28
Speaker 6: aren't going to do this, why should the Europeans on
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Speaker 6: these same sides. So certainly a lot to play here
2:32
Speaker 6: in terms of the you know, deregulatory efforts amongst the
2:35
Speaker 6: investment banks.
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Speaker 7: Nathan Dean, you are the consummate Washington insider. When I
2:38
Speaker 7: need to get my what ifs answered about what's happening
2:41
Speaker 7: in Washington, I call you. So I have a question here,
2:44
Speaker 7: What name should I be looking at more closely than others?
2:47
Speaker 7: Bill Lackman, Elon Musk's got Bess and Howard Luckneck. I mean,
2:50
Speaker 7: talk to us about what the potential for a Trump
2:52
Speaker 7: cabinet may very well look like.
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Speaker 6: Yeah, so you know, obviously the big question is you're
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Speaker 6: going to get the Wall Street President Trump? Or are
3:01
Speaker 6: you going to get a populist President Trump? And that's
3:04
Speaker 6: the question that I don't think anybody really has an
3:06
Speaker 6: answer to, because you know, for example, at the SEC,
3:08
Speaker 6: you know you have Commissioner Hester Purse, who I think
3:10
Speaker 6: would be a very popular SEC chair coming from more
3:14
Speaker 6: of the conservative wing the populist side of the party.
3:16
Speaker 6: But then there's also going to be folks like former
3:18
Speaker 6: JA Clayton. You know, obviously his name's been in there
3:20
Speaker 6: for a Treasury but you know, somebody like a disciple,
3:24
Speaker 6: if you will, a commissioner or chairman Clayton could be
3:27
Speaker 6: also a named at the SEC. So the question that
3:29
Speaker 6: we have, and we should find out about this more
3:31
Speaker 6: over the next few weeks, is are you going to
3:32
Speaker 6: get the populist Trump? Are the Wall Street Trump? And
3:35
Speaker 6: I think you're probably going to get a combination of
3:37
Speaker 6: the both, where if President Trump cares about your issue
3:40
Speaker 6: in terms of he specifically wants to be involved, you'll
3:44
Speaker 6: get a populist Trump. If it's something where he's happy
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Speaker 6: to delegate to other folks in Washington, then I think
3:49
Speaker 6: you may get a Wall Street Trump.
3:50
Speaker 7: Well ly than it took a long time for Trump
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Speaker 7: to pick his cabinet and his players back the first
3:54
Speaker 7: time around. Apparently he's much more prepared this time. Talk
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Speaker 7: to us about timing around some of those selections. When
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Speaker 7: can we expect to hear something there?
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Speaker 6: Yeah, so I think you're gonna hear it, probably before
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Speaker 6: probably within the next few weeks. I mean to your point,
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Speaker 6: you know, they've been talking about this for some time.
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Speaker 6: But I would also note that the Republican Senate is
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Speaker 6: gonna be able to confirm a lot of President Trump's
4:11
Speaker 6: appointees on a much quicker basis than if you were
4:14
Speaker 6: to have a Democrat controlled Senate or even a fifty
4:16
Speaker 6: or fifty one. Now why do we care about this, Well,
4:19
Speaker 6: because the faster that those regulatory leaders come in place,
4:22
Speaker 6: the faster they can start these deregulatory efforts. You know,
4:25
Speaker 6: a regulatory leader, for the most part, can't just come
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Speaker 6: in and say, right, this regulation, we're going to just
4:30
Speaker 6: completely roll it back on day one.
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Speaker 2: It's gonna take.
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Speaker 6: Nine months, twelve months, if not even two years to
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Speaker 6: move forth on that effort. So the quicker those regulatory
4:37
Speaker 6: leaders come in place, the quicker the de regulatory effort
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Speaker 6: can take place.
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Speaker 2: Nathan, President elect Trump is se had lame duck president?
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Speaker 2: Is that a fair way to look at it?
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Speaker 1: Now?
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Speaker 6: So generally, and I say this generally, in the second
4:49
Speaker 6: term of a presidential term, if you will, I think
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Speaker 6: President Obama or President George W. Bush, you usually have
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Speaker 6: about eighteen months to expend your political capital. First one
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Speaker 6: hundred days of the presidency is critical. But as soon
5:00
Speaker 6: as Congress begins to think about their mid term elections
5:03
Speaker 6: and then as the result when they come back, you know,
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Speaker 6: why should they stick their necks out for the president
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Speaker 6: who's going to be gone? So what do presidents tend
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Speaker 6: to do. They tend to go internationally, and they tend
5:11
Speaker 6: to travel because the power of the presidency is more
5:13
Speaker 6: powerful there. So, you know, we do think President Trump
5:16
Speaker 6: is going to be spending a lot of time abroad, Ukraine,
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Speaker 6: Middle East, for example, China. There's a lot of stuff
5:21
Speaker 6: that he can do there. But I wouldn't call him
5:23
Speaker 6: a lame duck just yet, because again, the power of
5:25
Speaker 6: the presidency is more powerful there.
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Speaker 7: You know that China tariffs are coming. You're betting, man,
5:30
Speaker 7: what kind of tariff regime do you think we're entering into?
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Speaker 7: Is it going to be that ten percent broad is
5:34
Speaker 7: it going to be sixty percent on China? What are
5:36
Speaker 7: you hearing?
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Speaker 6: So this is where I think the process of tariff
5:40
Speaker 6: is key. Now, remember, let's just say January twentieth, President
5:43
Speaker 6: comes in. You see a red line over the terminal.
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Speaker 6: You say, President Trump signs an executive order saying tariffs
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Speaker 6: are coming. In the language of that executive order, however,
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Speaker 6: I think you'll see language that says the tariff is
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Speaker 6: not coming for two hundred and seventy days or three
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Speaker 6: hundred and sixty five days. Why, Because tariffs are negotiation tools.
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Speaker 6: President Trump doesn't know what the reciprocal tariff on China
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Speaker 6: from China would be, and President Trump wants to use
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Speaker 6: this as a negotiation. So I think there's going to
6:05
Speaker 6: be language in there allowing flexibility. Allowed President Trump to
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Speaker 6: come back and say, ah, maybe not sixty percent, maybe
6:10
Speaker 6: we'll go to ten percent because China gave us a
6:12
Speaker 6: win or something like that. So what we're saying is
6:14
Speaker 6: watch out for that headline risk in the first or
6:16
Speaker 6: second quarter of next year. But then you're gonna get
6:19
Speaker 6: probably six months to actually truly understand what that tariff
6:22
Speaker 6: will look like before it goes into fruition.
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Speaker 4: All right.
6:24
Speaker 5: Thanks to Nathan Dean, Bloomberg Intelligence Senior policy analyst.
6:28
Speaker 2: Staying on the US election guest host Damian Sasaur and
6:31
Speaker 2: I were joined by Wendy Schuller, professor at Brown University.
6:34
Speaker 2: She gave us her take on the twenty twenty four
6:36
Speaker 2: US election, along with some of its political ramifications. And
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Speaker 2: we first asked Wendy, what happens next for the Democratic
6:42
Speaker 2: Party during a Trump presidency?
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Speaker 8: Well, you have to ask yourself why.
6:46
Speaker 9: You know, popular incumbent senators have been reelected before could
6:49
Speaker 9: not withstand the red wave, and so you can attribute
6:53
Speaker 9: it to Trump charisma the Trump followers. We can do
6:56
Speaker 9: that if we want to as observers, but you know
6:59
Speaker 9: this and deep, This reaction across voters, across different kinds
7:04
Speaker 9: of voters, from different backgrounds, different ages. This ran deep,
7:08
Speaker 9: and it was a signal that said, we don't like
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Speaker 9: the policies that you're enacting, So what can they do?
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Speaker 8: I think it's informative to go back to Obama. Obama
7:17
Speaker 8: had a much stricter border.
7:18
Speaker 9: Policy than Joe Biden, and I think he did that
7:21
Speaker 9: because he sensed there wasn't enough support in America for
7:24
Speaker 9: something more liberal and more open, so you can say
7:27
Speaker 9: to yourselves, the Democrats closed the border for too late.
7:30
Speaker 9: The Democrats didn't push hard enough to get those interest
7:32
Speaker 9: rates down. The Democrats didn't pay attention to the price
7:35
Speaker 9: of eggs, and that's unusual for the Democrats, who usually
7:39
Speaker 9: care a lot about the price of eggs. So I
7:41
Speaker 9: think this is not necessarily a reboot completely, but they
7:45
Speaker 9: have got to meet the voter where the voter is.
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Speaker 8: The voter was not with the Democratic Party.
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Speaker 7: Wendy, you mention the border, and let's look ahead here.
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Speaker 7: Trump is about to embark on what many believed to
7:53
Speaker 7: be the largest deportation program in US history. How does
7:58
Speaker 7: he expect to round them all up? And does he
8:00
Speaker 7: intend to send him.
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Speaker 9: Well, you know Trump, Trump always surprises us in the
8:05
Speaker 9: sense that he'll sort of.
8:06
Speaker 8: Go off the ranch and then I'll kind of moderate.
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Speaker 1: You know.
8:08
Speaker 8: The idea is how long does Trump want to be president?
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Speaker 9: You know, he's constitutionally prohibited from electing, being elected, and serving,
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Speaker 9: not from running, and so you know, does he want
8:18
Speaker 9: to last long time?
8:19
Speaker 8: Maybe get rid of the twenty second Amendment. I don't
8:21
Speaker 8: know what he plans, but I think he.
8:23
Speaker 9: Will scale this idea back especially since the border has
8:27
Speaker 9: been shut down and you know, undocumented migration has slowed
8:31
Speaker 9: so much.
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Speaker 8: Does he really have to do this? Does he have
8:34
Speaker 8: to disrupt the country this way? You know, he could
8:37
Speaker 8: do some of it, but I don't think the pressure's on.
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Speaker 9: Him to do all of it, because Biden has already
8:41
Speaker 9: taken this step and he'll keep that policy in place.
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Speaker 7: Wendy, you mention the twenty second Amendment. You're not the
8:46
Speaker 7: first one to talk about it, but you know what
8:47
Speaker 7: I'm most interested in, and it's the FED right. And
8:49
Speaker 7: Trump has made no secret about his intention to have
8:52
Speaker 7: a greater say and monetary policy here in the US.
8:55
Speaker 7: My question for you is what legal mechanisms can Trump
8:57
Speaker 7: take advantage of in order for the to give the
8:59
Speaker 7: over LA Office more control. More saying monetary policy, well,
9:02
Speaker 7: I mean the.
9:03
Speaker 8: Federal Reserve Act.
9:04
Speaker 9: I mean literally the Act creating Federal Reserve and all
9:06
Speaker 9: the bills that have come you know after that and
9:08
Speaker 9: reauthorizing it. You know, that's something that's been sort of
9:11
Speaker 9: a partnership with private monetary institutions, banks and the federal government.
9:17
Speaker 9: And the thing about Donald Trump is gonna need cash, right,
9:19
Speaker 9: you can't, you know, you can't crash the government and
9:22
Speaker 9: crash the economy by the federal government running out of cash.
9:26
Speaker 9: So there is a symbiotic relationship between really big banks
9:29
Speaker 9: and the Federal Reserve itself and the success of a president.
9:33
Speaker 8: So there's going to have to be negotiations there. But
9:36
Speaker 8: I don't think the.
9:36
Speaker 9: Heads of big banks you're just going to hand over
9:38
Speaker 9: the keys of the kingdom to the president of the
9:40
Speaker 9: United States and amount of who they are, and so
9:42
Speaker 9: that will be a negotiation, and Trump fancies himself as
9:44
Speaker 9: a very good negotiator.
9:46
Speaker 2: Wendy, does Kamala Harris have it future as a leader
9:48
Speaker 2: of the Democratic Party. I'm thinking maybe in four years time.
9:52
Speaker 2: I think.
9:52
Speaker 9: I think, all things considered, she ran a good campaign
9:55
Speaker 9: what she was given, the time frame that she had
9:57
Speaker 9: to work within, and her balancing act of trying to
10:00
Speaker 9: separate from the Biden record and also present some sort
10:03
Speaker 9: of plan for the future and bringing in and solidifying
10:06
Speaker 9: particularly younger women, even older women. I think there's still
10:09
Speaker 9: a block and a constituency that she can tap if
10:12
Speaker 9: she wanted to run again. I just don't see this
10:15
Speaker 9: as a Kamala Harris failed campaign. I see it as
10:18
Speaker 9: Trump being a former president and energizing their base and
10:21
Speaker 9: not making the same campaign mistakes they did in twenty twenty,
10:24
Speaker 9: and the Biden record. I don't know if anybody could
10:27
Speaker 9: have won in the face of those numbers.
10:29
Speaker 7: Wendy, I wonder if you could shift your attention here
10:31
Speaker 7: to what's going on in Ukraine. Obviously, Zelenski was the
10:34
Speaker 7: firebrand who rejected Trump's request for information on Hunter Biden's
10:38
Speaker 7: dealings back during his first tenure. And what comes next
10:41
Speaker 7: for the Ukraine, for Zelenski, for Central Europe, and for
10:45
Speaker 7: Russia under a Trump administration.
10:47
Speaker 9: Well, I think Trump is a fan of Putin, and
10:50
Speaker 9: I think Trump has said before that he thinks there's
10:52
Speaker 9: a deal that can be reached. So my guess is
10:55
Speaker 9: Trump says, listen, we're not going to send you the
10:57
Speaker 9: same kind of weaponry, We're not going to support the
11:00
Speaker 9: same way. Go to the table, cut a deal, give
11:03
Speaker 9: up crimea I mean literally, these are the things that
11:05
Speaker 9: he'll say. And maybe we'll make sure that more of
11:08
Speaker 9: your people don't get killed. I mean, I think that's
11:09
Speaker 9: what we'll do. And in the Middle East, you know,
11:11
Speaker 9: I think people who think that he'll be a diehard
11:13
Speaker 9: suborn of Israel maybe, but he may go to the
11:16
Speaker 9: Saudia's and say, what kind of deal you want to
11:18
Speaker 9: cut to get this thing over with against Iran. I mean,
11:20
Speaker 9: he wants to make deals and be the hero. And
11:23
Speaker 9: that's something we've seen before and we'll see again. So
11:25
Speaker 9: whatever whoever's dealing with him has to be able to
11:28
Speaker 9: give him some sort of victory he can walk away with.
11:30
Speaker 5: All right, thanks to Wendy Schilder, professor at Brown University.
11:34
Speaker 5: Coming up, we're going to talk more on why Donald
11:35
Speaker 5: Trump winning the US presidency is leaving banks hopeful.
11:39
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Speaker 5: I'm Paul Sweeney and I'm John Tucker. This is Bloomberg.
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Speaker 2: I'm Paul Sween.
12:17
Speaker 5: And I'm John Tucker. Filling in for Alex Steele.
12:19
Speaker 2: We continue with another conversation related to the twenty twenty
12:22
Speaker 2: four US election.
12:23
Speaker 5: This week, Donald Trump was elected forty seventh president of
12:26
Speaker 5: the United States, and according to Bloomberg Intelligence Research, Trump's
12:30
Speaker 5: victory is giving banks optimism for less regulation.
12:33
Speaker 2: For more on this, John and I were joined by
12:35
Speaker 2: Alison Williams, Bloomberg Intelligence senior analysts covering the global banks.
12:38
Speaker 5: We first asked Allison why bank shares rallied afternoons of
12:42
Speaker 5: Donald Trump becoming president elect.
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Speaker 10: So we see three things. So the big one is
12:48
Speaker 10: less regulation. Secondly higher industrates, and then third we really
12:54
Speaker 10: see some momentum for fee revenue, which has really been
12:56
Speaker 10: powering the big banks that I cover. So the regulation
13:01
Speaker 10: is the big one, and it's not just some of
13:04
Speaker 10: the specific issues for the banks as a whole in
13:07
Speaker 10: one or two banks, but it is just, you know,
13:10
Speaker 10: the feeling that the pendulum can swing the other way
13:12
Speaker 10: right so that there won't be new regulations and that
13:15
Speaker 10: some of the things that are sort of in the
13:18
Speaker 10: pipeline could be watered down or pushed out. That baso
13:21
Speaker 10: three endgame has been the big one for the largest banks.
13:25
Speaker 10: And you know, basil dictates that all jurisdictions around the
13:31
Speaker 10: world have to do some form of implementation. But the
13:34
Speaker 10: US proposal that came out in twenty twenty three was
13:37
Speaker 10: really much stricter than we saw in other regions. We
13:40
Speaker 10: had already had some expectations that that would be watered
13:43
Speaker 10: down from you know, comments that Powell had made and
13:47
Speaker 10: also comments from bar in September, so some of that
13:50
Speaker 10: was sort of in the stocks, but I think the
13:52
Speaker 10: feeling is, you know, from our regulatory group that the
13:58
Speaker 10: things could either get pushed further out or they could
14:01
Speaker 10: be water down even further. And so that's good for
14:04
Speaker 10: the banks because their excess capital is something like five
14:07
Speaker 10: to fifteen percent of their market caps. So definitely that
14:11
Speaker 10: was something aiding City Group in Wells Fargo as well
14:14
Speaker 10: as someone like Morgan, Stanley and Goldman, where even with
14:18
Speaker 10: the water even with the sort of lighter touch in September,
14:22
Speaker 10: they were still going to have a deficit in their capital.
14:25
Speaker 10: So some positive news.
14:26
Speaker 2: On that front.
14:27
Speaker 10: Also, as you know, you know, Wells Fargo has had
14:30
Speaker 10: this asset cap for a long time. City Group there's
14:33
Speaker 10: been some concerns, especially around when they reported their results,
14:37
Speaker 10: that they could face more scrutiny, So just a particular
14:40
Speaker 10: easing I think also benefited those couple of banks. And
14:45
Speaker 10: then there are some other things related to card and
14:48
Speaker 10: consumer and finance as well. On the interest rate funds,
14:51
Speaker 10: all these banks are positioned for higher rates, so we
14:55
Speaker 10: know that, you know, we'll be watching the FED in
14:57
Speaker 10: terms of short term rates. I think in general that
15:02
Speaker 10: also got a lift. And then finally from our viewpoint,
15:05
Speaker 10: the big thing is that we see momentum and fees
15:07
Speaker 10: and that's been a huge boost to the earnings for
15:10
Speaker 10: these banks.
15:10
Speaker 5: Just back to the Buzzo three endgame rules, the idea
15:15
Speaker 5: is give me the dummies version. You had to set
15:17
Speaker 5: aside more capital basically in case things went south, so
15:22
Speaker 5: the financial institutions wouldn't ruin the economy, right, So that's
15:27
Speaker 5: freed up. Does that now go back to shareholders? Is
15:31
Speaker 5: that the idea?
15:33
Speaker 10: That is the idea, and so Boso three endgame rules. So,
15:38
Speaker 10: as you know, Baso three is something that sort of
15:40
Speaker 10: came after the financial crisis, and there's been many iterations.
15:44
Speaker 10: Thus the reference to this last set of rules as
15:47
Speaker 10: endgame and basically what that dictated was that as they
15:51
Speaker 10: measure their risk weighted assets, there would be big increases
15:55
Speaker 10: in that, and thus they'd be having to hire a
15:58
Speaker 10: hole more capital against that. And so based on third
16:03
Speaker 10: quarter earnings and fourth quarter requirements, their excess capital was
16:08
Speaker 10: five to fifteen percent of their market cap. Under the
16:12
Speaker 10: Basil three rules, that would turn to deficits across the bank,
16:16
Speaker 10: so they would have to find a way to increase
16:19
Speaker 10: their capital. There is a timeline, so they probably would
16:23
Speaker 10: have done that through internal capital generation. But to your point,
16:26
Speaker 10: they that would have been capital that they could not
16:28
Speaker 10: return to shareholders.
16:29
Speaker 5: Can I just who has the most capital to be
16:33
Speaker 5: returned to shareholders?
16:35
Speaker 10: Well, based on the requirements today, City Group, their excess
16:40
Speaker 10: capital is something like fifteen percent of.
16:43
Speaker 2: Their market cap.
16:45
Speaker 10: Okay, all right, And I would and I would point
16:48
Speaker 10: out also that you know these banks have and so
16:52
Speaker 10: by the way, like the banks do sort of target
16:55
Speaker 10: holding a buffer to the requirements. So there's a little
16:58
Speaker 10: bit of that, but I think you know, in general,
17:01
Speaker 10: it is the fact that buybacks will likely go up.
17:05
Speaker 10: These banks already have buyback programs in place so they
17:08
Speaker 10: can execute on them. But it's also the math. If
17:11
Speaker 10: you have higher equity, your return on equity is going
17:14
Speaker 10: to be lower, and that's how investors value stock. So
17:18
Speaker 10: there is definitely the higher buybacks, but also I think
17:22
Speaker 10: it is the sentiment that is helping bank multiples. This
17:27
Speaker 10: specific regulation, but also less regulation in general. One other
17:31
Speaker 10: area I didn't talk about with regard to regulation is
17:34
Speaker 10: less antitrust. So that's good for M and A and
17:37
Speaker 10: that's really why you saw Goldman and Morgan Stanley very
17:40
Speaker 10: the stocks reacting to that.
17:42
Speaker 8: All right.
17:42
Speaker 5: Thanks to Alison Williams, Bloomberg Intelligence Senior analysts Global banks
17:46
Speaker 5: and asset Managers.
17:48
Speaker 2: Each week we look at research from Bloomberg n EF
17:51
Speaker 2: previously known as New Energy Finance. They're the team at
17:53
Speaker 2: Bloomberg that tracks and analyzes the energy transition from commodities
17:57
Speaker 2: to power, transport, industries, buildings, and agri cultural sectors. This
18:01
Speaker 2: week we took a look at Bloomberg neef's outlook for
18:03
Speaker 2: wind and solar energy storage over the next ten years.
18:06
Speaker 2: Guest host Jess Mett and I were joined by Yao Sachini,
18:09
Speaker 2: Bloomberg NEF head of Energy Storage. We first asked her
18:13
Speaker 2: where we are in terms of energy storage just.
18:16
Speaker 11: For some context, and we're going to talk about some
18:18
Speaker 11: of the analysis that we actually published around the clean
18:20
Speaker 11: energy market outlook specifically look at the US for some contexts.
18:25
Speaker 11: There's just been a lot of investment that's been pouring
18:27
Speaker 11: into clean power segments. We've seen a lot of that
18:30
Speaker 11: accelerated over the last I guess two years, and since
18:34
Speaker 11: then Inflation Reduction Act passed, facilitating a lot of new
18:37
Speaker 11: investments into wind, solar and storage sectors, which are the
18:40
Speaker 11: sectors that we cover in that particular report. There's about
18:45
Speaker 11: there's about three hundred billion dollars invested across these sectors
18:48
Speaker 11: a wind, solar, storage, and other clean transportation and other
18:52
Speaker 11: sectors in twenty twenty three. That's about twenty two percent
18:57
Speaker 11: higher than we saw in previous years. And then what
18:59
Speaker 11: we were doing this report is to have a twenty
19:01
Speaker 11: thirty five view, So in the next decade, what do
19:03
Speaker 11: we investments and capacity editions look like around these clean sectors.
19:09
Speaker 11: There is actually a lot that's that's bound to happen
19:12
Speaker 11: in terms of just what's committed to date happening over
19:15
Speaker 11: the next few years, and that's likely to unlock a
19:18
Speaker 11: lot more investment over the twenty thirty five period.
19:21
Speaker 2: Are the risks to some of those moneies that have
19:23
Speaker 2: already been committed ear marked.
19:26
Speaker 11: Yeah, So what we did, I guess the way we
19:29
Speaker 11: think about it is to look at what is our
19:31
Speaker 11: expectation in the market out to twenty thirty five. So
19:34
Speaker 11: for some context, our expectation in terms of our forecast
19:37
Speaker 11: for winds, solar and storage installations is about one point
19:41
Speaker 11: one tarrawat of new yeah, new capacity editions out to
19:45
Speaker 11: twenty thirty five. For context, in the US power grid,
19:50
Speaker 11: as of the end of twenty twenty three, there was
19:52
Speaker 11: about one point two terrawat of cumulative installed power generation capacity.
19:57
Speaker 11: So essentially we're about doubling in terms of capacity in
20:00
Speaker 11: the grid out to twenty thirty five. But that addition
20:03
Speaker 11: is just from when solar and storage, which is really
20:06
Speaker 11: impressive in terms of the risk factors to your question.
20:10
Speaker 11: So the way we were investigating that in the report,
20:13
Speaker 11: or analyze that in the report is to try to
20:15
Speaker 11: think about us in the worst case scenario. So there's
20:19
Speaker 11: a lot of investment that's already been committed at the
20:21
Speaker 11: back of the investment tax credits and some of the
20:23
Speaker 11: other incentives in the Inflation Reduction Act, but we wanted
20:27
Speaker 11: to look at Okay, so what happens if these incentives,
20:30
Speaker 11: so the investment tax credit actually gets repealed right away,
20:35
Speaker 11: which is of course a worst case scenario. It's not
20:37
Speaker 11: our expectation of what will happen, but it gives us
20:40
Speaker 11: some benchmark of what could happen. And under that scenario,
20:44
Speaker 11: it's about a seventeen percent decline, so it's a fifth
20:47
Speaker 11: of capacity that gets dropped or not built in the
20:50
Speaker 11: twenty thirty five timeframe. One additional component is like if
20:54
Speaker 11: that actually would were to happen, is that projects would
20:57
Speaker 11: try to rush to try to be built before that
21:01
Speaker 11: step down happens, which could happen in the end of
21:03
Speaker 11: twenty twenty six or the end of twenty twenty five.
21:06
Speaker 11: So essentially there's a rush to build. A decline in
21:09
Speaker 11: the market, and then the market picks up up again,
21:11
Speaker 11: but not at the same rate or not to the
21:13
Speaker 11: same degree as it would in a non repeal scenario.
21:16
Speaker 11: So that's how we looked at.
21:17
Speaker 4: That walk us through the key fundamentals that you think
21:20
Speaker 4: have helped build the industry.
21:23
Speaker 11: Absolutely, so, I think we're obviously in an acceleration mode
21:26
Speaker 11: at the moment. It's almost like certain key elements are
21:29
Speaker 11: keeping the market from growing as quickly as it could.
21:32
Speaker 11: But in terms of the fundamentals in the past, major
21:35
Speaker 11: one is the fact that the cost of wind, solar,
21:38
Speaker 11: and storage and batteries has come down significantly over the
21:41
Speaker 11: last decades. That's really made the cost of these technologies
21:45
Speaker 11: competitive against conventional generation, conventional fossil fuel generators in the
21:50
Speaker 11: US that would be trying to displace gas. And we
21:53
Speaker 11: do see in most of the markets of the US
21:56
Speaker 11: wind and solar are competitive against gas. Of course, they
21:58
Speaker 11: don't deliver energy at all, like twenty four to seven,
22:01
Speaker 11: and that's where batteries comes in. So the cost of batteries,
22:05
Speaker 11: like specifically lithiuman batteries has fallen by more than ninety
22:09
Speaker 11: percent over the last decade, which is significant.
22:11
Speaker 2: How's the US doing you quote some really big numbers
22:14
Speaker 2: here in terms of investment in tara watts and all those.
22:18
Speaker 2: How are we versus the rest of the world in
22:20
Speaker 2: terms of, you know, just in terms of really embracing
22:23
Speaker 2: cleaner energy.
22:24
Speaker 11: Yeah, so on a country level basis, the US is
22:27
Speaker 11: probably second in terms of staffed investments in these sectors.
22:31
Speaker 11: That's because China is really the giant in terms of
22:34
Speaker 11: attracting new investment into wins, solar and even batteries segments.
22:38
Speaker 11: And there's a bit of a pickup game in terms
22:40
Speaker 11: of some of the key segments in terms of the
22:42
Speaker 11: manufacturing side, so the supply chain and trying to invest
22:45
Speaker 11: that and bring that into the US. With mixed levels
22:48
Speaker 11: of comparative success across different sectors.
22:52
Speaker 4: What should we expect for wind and solar capacity build
22:56
Speaker 4: in twenty twenty five for those forecasts.
22:58
Speaker 11: Yeah, so we're expecting most of them to grow. That's
23:01
Speaker 11: certainly true for solar and storage. When when more or
23:05
Speaker 11: less keeping a pace, generally, our expectation is that there
23:11
Speaker 11: will be more investment going in. And that's because there's
23:14
Speaker 11: just a lot of projects in the pipeline that are
23:16
Speaker 11: essentially contracted to meet utility demands. So a lot of
23:21
Speaker 11: the US utilities have been you know, contracting working in
23:24
Speaker 11: power because they, as I said, they're cheaper, but also
23:27
Speaker 11: because they might have some specific goals in order to decarbonize.
23:32
Speaker 11: I guess the other factors is just the corporate side.
23:36
Speaker 11: So a lot of the you know, the Amazons and Googles,
23:38
Speaker 11: these companies have increasingly also been looking for cleaner portfolios
23:42
Speaker 11: of energy generation to be meeting their demand.
23:46
Speaker 2: Thanks to ye Josa Kenny Bloomberg, any head of energy storage.
23:49
Speaker 5: Coming up on a program, we're going to break down
23:51
Speaker 5: why Berkshire Hathaways cash pile has reached a record.
23:55
Speaker 2: You're listening to the Bloomberg Intelligence on Bloomberg Radio, providing
23:57
Speaker 2: in depth research and data on two thousand companies in
24:00
Speaker 2: one hundred and thirty industries. You can access Bloomberg Intelligence
24:03
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24:04
Speaker 5: I'm Paul Sweeney and I'm John Tucker, and this is Bloomberg.
24:12
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24:16
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24:20
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24:23
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24:26
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24:30
Speaker 5: I'm Paul Sweeney and I'm John Tucker filling in for
24:33
Speaker 5: Alex Steele.
24:34
Speaker 2: We moved out of corporate earnings. Berkshire Hathaway recently reported
24:36
Speaker 2: third quarter earnings and said that it's cash power reached
24:39
Speaker 2: three hundred and twenty five billion dollars in the third quarter.
24:42
Speaker 5: And this comes as Berkshire's CEO Warren Buffett continued to
24:45
Speaker 5: refrain from major acquisitions while trimming some of the most
24:49
Speaker 5: significant equity stakes for.
24:51
Speaker 2: More at guests, Hos, Jess, Mett, and I were joined
24:53
Speaker 2: by Matthew Palizola, Bloomberg Intelligence Senior analyst P and C
24:57
Speaker 2: Insurance for First asked Matthew to break down berkshire most
25:00
Speaker 2: recent quarter.
25:01
Speaker 12: When you look at their earnings, there's a couple of
25:03
Speaker 12: layers you have to unpeel. First, their gap earnings were
25:08
Speaker 12: swayed by investment changes. Buffett himself has said, you kind
25:12
Speaker 12: of just throw that out. We don't really look at that.
25:14
Speaker 12: It was like twenty six I think billion versus an
25:16
Speaker 12: eleven billion loss in the year ago. Those numbers are
25:20
Speaker 12: a little bit irrelevant. The next part is their earnings
25:23
Speaker 12: from operating companies. Those, if you look at just the
25:26
Speaker 12: number they give you, those were down about six percent.
25:28
Speaker 12: What happened there, though, was they have a lot of
25:31
Speaker 12: yen debt and there was a big four x loss
25:34
Speaker 12: in there, so peel that back. The operating company's earnings
25:38
Speaker 12: were up a little bit, which is less than I expected.
25:42
Speaker 12: The insurance operation had a couple of unforeseen negatives in it,
25:49
Speaker 12: and that really turned it down, some of them I
25:52
Speaker 12: don't think are ongoing things. But that was really the
25:55
Speaker 12: negative variance was in the insurance business.
25:57
Speaker 4: Something because we were actually chatting about this earlier when
26:00
Speaker 4: it came to the percent of their cash pilot Berkshire Hathaway.
26:03
Speaker 4: So the last time it was around this high, the
26:05
Speaker 4: stock market continued to move on to records over the
26:08
Speaker 4: following fifty two weeks, but then the last time on
26:10
Speaker 4: this opposite into that the lowest percent of cash he
26:13
Speaker 4: had at any time over the past decade was right
26:16
Speaker 4: when the S and P five hundred briefly peid in
26:18
Speaker 4: twenty twenty one. So what's your thoughts whenever you're kind
26:22
Speaker 4: of thinking about what this could mean more broadly for
26:24
Speaker 4: where like major indexes and equities could potentially be headed.
26:27
Speaker 12: Yeah, so, I mean Buffett is a more of a
26:31
Speaker 12: time in than timing of the market right clearly, So
26:36
Speaker 12: I don't think he's making big moves on large expectations
26:41
Speaker 12: on the market.
26:42
Speaker 8: If you look what.
26:42
Speaker 12: Happened, they sold about twenty two billion dollars worth of
26:45
Speaker 12: Apple stock in the quarter. That's along with about nine
26:48
Speaker 12: and a half billion worth of Bank of America stock
26:51
Speaker 12: in the quarter. I don't think you look at that
26:54
Speaker 12: and say, Okay, he's completely parish on everything in the market.
26:57
Speaker 12: I think those were, you know, unique things. They were
26:59
Speaker 12: highly concentrated in Apple. Their Apple position is down seventy
27:03
Speaker 12: percent from its high in terms of the shares they own,
27:07
Speaker 12: so I think those things were unique to the stocks
27:10
Speaker 12: they own. Buffett has repeatedly talked about taxes going up.
27:14
Speaker 12: I don't think it's even an election cycle now, but
27:18
Speaker 12: he's just saying even longer term, there's probably only one
27:21
Speaker 12: direction taxes are going for us, and that's up. So
27:24
Speaker 12: you'd not be surprised to see them taking large gains
27:27
Speaker 12: off the board.
27:28
Speaker 2: So three twenty five billion dollars, is there any realistic
27:32
Speaker 2: scenario for deploying that capital over a multi year period.
27:36
Speaker 12: You know, it's tough. They are limited in how much
27:39
Speaker 12: shares they can buy back just on the float.
27:42
Speaker 5: We had wrote.
27:43
Speaker 12: You know, it's tough to see them doing a tens
27:46
Speaker 12: of billion dollar acquisition. There is the ownership in Chubb
27:51
Speaker 12: out there, which is you know, perhaps the megadeal that
27:55
Speaker 12: may or may not ever happen if they do something.
27:59
Speaker 12: They bought Allegation, which was an insurance company kind of
28:01
Speaker 12: conglomerate a couple years ago that was about twelve billion dollars.
28:04
Speaker 12: It seems like that's going to be the max on
28:06
Speaker 12: what they're going to do. But if I could predict
28:09
Speaker 12: a Buffet would do, I'd be on an island somewhere.
28:11
Speaker 2: So but no dividend.
28:14
Speaker 12: There will not be a dividend as long as Warren
28:16
Speaker 12: Buffett is sitting in all is that? I mean, I
28:18
Speaker 12: think he likes getting them, he doesn't like paying them.
28:21
Speaker 2: He says.
28:22
Speaker 12: You know, look I and I would agree with him.
28:25
Speaker 12: I'm better off holding this money than giving it. Your
28:28
Speaker 12: return on a divid end is going to be less
28:30
Speaker 12: than my return investing it. That probably hasn't been true
28:34
Speaker 12: actually recently, but I think that's his mindset.
28:37
Speaker 4: You were mentioning about how claims they were years ago
28:39
Speaker 4: are costing them more than expected. Walk us through that dynamic.
28:42
Speaker 12: Sure, So this is called reserve development. So what happens
28:45
Speaker 12: is insurance companies like so for example, Geico, they write auto,
28:49
Speaker 12: some home, well not really home, but they'll write auto.
28:52
Speaker 12: You're either going to have a car accident in a
28:53
Speaker 12: year or you're not. But they'll write some liability business
28:56
Speaker 12: where you may have a claim and that you might
29:00
Speaker 12: find out and they claim years into the future. And
29:03
Speaker 12: what is happening is you set up a reserve for
29:05
Speaker 12: that and that reserve could be wrong or they're almost
29:09
Speaker 12: always wrong right, but it could be wrong too low
29:11
Speaker 12: or wrong too high. And what had happened in the
29:14
Speaker 12: quarter was their reserve for their primary insurance business, A
29:19
Speaker 12: specific unit of it was quite wrong and there's there's
29:23
Speaker 12: new management took over that unit, and usually when that happens,
29:26
Speaker 12: they add to their reserves. If this was if this
29:29
Speaker 12: was just a you know, XYZ insurance company, this would
29:32
Speaker 12: be really bad. But it's Berkshire. Their financial strength is
29:36
Speaker 12: so superior to anything you might see that it's kind
29:40
Speaker 12: of just.
29:40
Speaker 5: A blip, all right. Thanks to Matthew Pallazola, Bloomberg Intelligence
29:44
Speaker 5: senior analysts P and C Insurance, it.
29:46
Speaker 2: Turned out to a recent deal in the data security business.
29:49
Speaker 5: Sofas agreed to buy secure Works for eight dollars fifty
29:52
Speaker 5: cents a share in cash at evaluation of eight hundred
29:55
Speaker 5: fifty nine million dollars for more.
29:57
Speaker 2: Guest host MLI, Grifeo and I were joined by Secure
29:59
Speaker 2: Works c CEO Wendy Thomas. We first asked Wendy to
30:02
Speaker 2: talk to us about why secure Works sold to sofos.
30:06
Speaker 13: This is a strategic combination of two longtime security market leaders,
30:10
Speaker 13: and so when you think about combining are two agnostic,
30:14
Speaker 13: very open platforms, decades of cybersecurity experience, and strong brands
30:19
Speaker 13: in the space. This is a way to really scale
30:23
Speaker 13: up and defeat the adversary at scale.
30:25
Speaker 3: What does it say about the current market for cybersecurity
30:29
Speaker 3: companies that this acquisition is going through.
30:33
Speaker 13: The market is really looking for a single partner for cybersecurity,
30:38
Speaker 13: sort of a consolidated platform play that a one organization
30:43
Speaker 13: can increasingly address multiple use cases for their security needs,
30:47
Speaker 13: from being proactive about vulnerability management to reactive to detection
30:53
Speaker 13: and response capabilities all the way to AI powered platforms
30:56
Speaker 13: that can predict the next cyber attack. And so the
30:59
Speaker 13: scale all of R and D required to make that
31:02
Speaker 13: a reality for customers is one that requires scale in organizations.
31:07
Speaker 13: So to take two cash low positive growing leaders in
31:12
Speaker 13: the space and put them together means more scaled R
31:15
Speaker 13: and D to be better, faster, stronger for customers.
31:18
Speaker 2: What are your customers doing with cybersecurity these days in
31:21
Speaker 2: terms of their spending their investment.
31:24
Speaker 13: They are increasingly moving from what I would call preventative
31:28
Speaker 13: cybersecurity investments to proactive cybersecurity posture and risk management. This
31:35
Speaker 13: is all about moving towards increasing prevention and the reason
31:40
Speaker 13: is that dwell times of thread actors in an organization's
31:43
Speaker 13: environment have gone from months to days to now hours.
31:49
Speaker 13: So with the power of an AI powered platform, in
31:52
Speaker 13: order to really be able to keep constant visibility about
31:56
Speaker 13: potential holes in their attacks, right those unlocked doors, as
32:01
Speaker 13: I like to talk about, it requires technology to do that,
32:05
Speaker 13: technology to detect that someone's rattling that door handle, and
32:09
Speaker 13: the ability to immediately protect the organization from someone getting
32:13
Speaker 13: in and taking those valuable data assets or encrypting their
32:17
Speaker 13: systems with ransomware.
32:20
Speaker 3: So you're using an AI powered you're an AI powered
32:23
Speaker 3: security platform. I'm wondering how difficult it is right now
32:27
Speaker 3: to be a company that's using AI when it seems
32:31
Speaker 3: like demand is outpacing supply. Is that a challenge for
32:36
Speaker 3: you guys?
32:38
Speaker 13: Well, if you think about AI, that's a pretty broad category.
32:41
Speaker 13: And while you know, natural language processing and generative AI
32:46
Speaker 13: is the is the hot topic right now, and it
32:48
Speaker 13: has its place in security in terms of things like
32:52
Speaker 13: changing cybersecurity detections into readable language of what's going on
32:57
Speaker 13: to a business person. We've been using AI for a
33:01
Speaker 13: very long time in our platform. We started building it
33:03
Speaker 13: in twenty seventeen for things like machine learning, deep learning,
33:08
Speaker 13: statistical learning, in order to sort through tremendous amounts of
33:12
Speaker 13: data and find patterns of behavior that we can match
33:15
Speaker 13: to thread actors, the way that they try to come
33:17
Speaker 13: into an environment, the software that they use in those
33:20
Speaker 13: tactics and techniques, and a platform like that that can
33:23
Speaker 13: filter through a lot of data and find those patterns
33:26
Speaker 13: is the key to being able to protect an organization.
33:30
Speaker 13: So it's home built for both sofas and for secure
33:33
Speaker 13: works their hub platform and our Tage's platform. It just
33:37
Speaker 13: makes a ton of sense to be able to take
33:39
Speaker 13: the best of both worlds and put those together.
33:41
Speaker 1: All right.
33:41
Speaker 2: So you and I, Wendy, we first chatted back in
33:44
Speaker 2: twenty twenty one. How is your company? How has the
33:46
Speaker 2: industry changed over the last several years.
33:48
Speaker 13: The industry is, I think, on a path for the
33:52
Speaker 13: first long time to really consolidate, and that is frankly
33:56
Speaker 13: as a result of customer demand to be able to
33:59
Speaker 13: run a holistic security program. Understand frankly, quantify their risk,
34:07
Speaker 13: demonstrate where they've protected against that risk, and then have
34:10
Speaker 13: the accountability around who is attacking their environment and how
34:15
Speaker 13: they've protected against it for their boards and c suite.
34:19
Speaker 13: It's become a boardroom topic for the last couple of years,
34:23
Speaker 13: and so the ability of a security professional to elevate
34:26
Speaker 13: sort of a technical pursuit into the language of business
34:30
Speaker 13: and risk. It's probably the biggest change that I've seen
34:32
Speaker 13: over the last few years.
34:34
Speaker 3: I want to zoom out and just talk about the
34:36
Speaker 3: cyber industry more broadly and how different corporation should be
34:40
Speaker 3: thinking about the current state of threat to their businesses
34:46
Speaker 3: when it comes to cybersecurity. Are we worse off than
34:49
Speaker 3: we were maybe five years ago as hackers get more advanced.
34:53
Speaker 13: I would say that the great things about AI that
34:57
Speaker 13: have enabled us as businesses security companies to leverage the
35:02
Speaker 13: power of that AI has also represented a certain amount
35:05
Speaker 13: of peril in terms of empowering those thread actors as well,
35:09
Speaker 13: and whether it's nation states or cyber criminals who are involved,
35:13
Speaker 13: their ability to use the same sort of natural language
35:18
Speaker 13: processing technologies to make that phishing email much more believable.
35:22
Speaker 13: It really does look like it's coming from your bank
35:25
Speaker 13: or from a vendor that you use. And so the
35:30
Speaker 13: last line of defense, always beyond technology, is people, and
35:35
Speaker 13: the need for all of us to become more educated
35:38
Speaker 13: and just cyber aware is more important than ever. So
35:43
Speaker 13: there's always that human edge that can make the difference
35:47
Speaker 13: on top of technology to keep us all a little
35:50
Speaker 13: bit safer. When cyber criminals cannot make money off of
35:53
Speaker 13: global citizens, then we start to break that economic model,
35:57
Speaker 13: all right.
35:57
Speaker 5: Thanks to Secure Work CEO Wendy Thomas.
36:00
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