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Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you.

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Speaker 1: Along with my co host Lisa Brahma Wicks. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. Looking at oil here today, Brent

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Speaker 1: crude and w t I down just about one percent today.

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Speaker 1: They certainly rallied a little bit off of the geopolitical

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Speaker 1: uncertainty over the last several days, but perhaps not as

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Speaker 1: much as traders initially would have thought. We're gonna get

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Speaker 1: the latest from Wells Fitzpatrick Wells as a managing director

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Speaker 1: equity Research covering all things UH expiration and production for

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Speaker 1: sun Trust Robinson Humphreys based in Houston, Texas. Well, thanks

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Speaker 1: so much for joining us, so give us a sense

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Speaker 1: of how your stocks, the E n P stocks kind

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Speaker 1: of have been reacting over the last several days to

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Speaker 1: what appears to be a little bit more volatile energy space. Yeah,

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Speaker 1: thanks thanks for having me on um. As you said,

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Speaker 1: prices of jump, but only about two bucks um. You know,

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Speaker 1: that's a that's a relatively modest move that tells you

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Speaker 1: that the market isn't pricing in any sort of crisis

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Speaker 1: related outages. And you know, of course without those crisis

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Speaker 1: related outages, we're going to be in this kind of

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Speaker 1: fifty five to sixty five range. That being said, what

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Speaker 1: the heightened tension does is it firms us up at

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Speaker 1: the top end of that range, which is is massively

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Speaker 1: important for the group. I mean, the difference between fifty

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Speaker 1: five dollars and sixty five dollars on w T I

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Speaker 1: is a difference between two times that to EVA don

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Speaker 1: one and a half, or the difference between being free

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Speaker 1: cash flow neutral and having a seven percent free cash

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Speaker 1: flow yield for the group. So, even though we haven't

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Speaker 1: seen a big move UH from the recent escalation, it's

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Speaker 1: good to have us firm up in in the upper

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Speaker 1: end of that range, and that should be able to

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Speaker 1: carry on to a pretty positive the names. One interesting

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Speaker 1: development over the past week or so has been the

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Speaker 1: dramatic outperformance of shale companies versus the major oil producers,

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Speaker 1: and I'm wondering whether they are taking advantage of this

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Speaker 1: pop in oil prices to extend their credit lines with

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Speaker 1: banks to borrow more money, basically to push out any

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Speaker 1: kind of financing gaps in order to prevent or immunize

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Speaker 1: themselves against a drop in the value of oil. Yeah, no,

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Speaker 1: that that that that's a great question, um, and and

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Speaker 1: will certainly see it help them in revolver redeterminations in

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Speaker 1: the first quarter here. Uh, for a lot of these guys.

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Speaker 1: That's going to be very important. You bring up a

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Speaker 1: good point because some of the uh, the higher debt

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Speaker 1: load gods, I'd point to maybe an extraction, maybe a

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Speaker 1: whiting that move from fifty five to or from sixty

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Speaker 1: five to sixty five excuse me, takes them from three

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Speaker 1: times to two times debt. So it's really it's it's

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Speaker 1: a heck of a lifeline, um for these guys. Uh.

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Speaker 1: You know, as far as refinancing and the bond market

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Speaker 1: still seems a little bit cold on the names. But um,

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Speaker 1: you know, of course that can turn pretty quickly if

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Speaker 1: if we stay up in this range and companies throw

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Speaker 1: off the metrics that should allow them to well. If

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Speaker 1: if oil does stay up in this higher range and

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Speaker 1: that that helps the balance sheets. Do you expect to

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Speaker 1: see a pickup in consolidation activity in your space, or

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Speaker 1: do you think a lot of the bigger players might

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Speaker 1: sit on the sidelines. It really depends on how the

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Speaker 1: stocks respond. Um. I think that given what we've seen

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Speaker 1: of consolidation, it's more often I don't want to stay force,

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Speaker 1: but you know the company is being consolidated. Don't always

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Speaker 1: have the strongest hand. And in so much as a

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Speaker 1: higher oil price will strengthen these companies, I mean, just

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Speaker 1: looking at the forty five companies that we follow, it

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Speaker 1: adds over ten billion dollars in in Eva da UM so,

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Speaker 1: so they'll have stronger hands and they'll be able to

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Speaker 1: to maybe defend against that a little bit better to

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Speaker 1: go and a loan strategy will look a little bit better.

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Speaker 1: Uh So, I I wouldn't expect it to to accelerate,

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Speaker 1: uh that trend with the major's coming in. And the

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Speaker 1: other thing worth pointing out is at this point, the

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Speaker 1: majors have a heck a lot of shale, especially in

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Speaker 1: the Permium basin, which, as y'all know, is is the

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Speaker 1: favorite basin right now. So there's not necessarily a burning

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Speaker 1: desire for them to get anything unless it is quasi

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Speaker 1: distress and of course this this turns out around a

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Speaker 1: little bit. I'm wondering if you could zoom out and

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Speaker 1: give us a sense of how long lasting you think

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Speaker 1: this popping oil prices uh is and whether we has

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Speaker 1: more legs in terms of upside. I mean, do you

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Speaker 1: think that, barring some further escalation, oil prices can stay

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Speaker 1: where they are? Do you think that the pressure is lower? Frankly,

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Speaker 1: I think they could stay where they are, and I

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Speaker 1: think that they can go higher. I mean, you know,

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Speaker 1: I understand that it's been three or four days since

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Speaker 1: since the attack, and and so it seems as though

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Speaker 1: there's a calm. But what's worth remembering is that the

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Speaker 1: Supreme Leader declared three days of mourning and the likelihood

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Speaker 1: of them attacking during that three days was pretty small.

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Speaker 1: Now that three days is coming to an end, so

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Speaker 1: the next hours are going to be very important for

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Speaker 1: the oil markets. Um And and you know, Lauran has

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Speaker 1: made it very clear that the military option is still

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Speaker 1: on the table. Really, the first time that that would

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Speaker 1: have come to fruition is today, So it's worth keeping

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Speaker 1: a close eye on if if you want to look

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Speaker 1: at it from sort of short, medium and long term

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Speaker 1: effects from a short term. We obviously we got the

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Speaker 1: popping crewed. Another thing that we got about that people

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Speaker 1: don't talk quite as much about is we got a

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Speaker 1: premium in the US contract, So the US gained about

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Speaker 1: two bucks in the media and aftermath of the attack

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Speaker 1: versus Arab light um. And then of course Iran abandoned

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Speaker 1: the nuclear deal, so more international pressure could take another

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Speaker 1: three hundred thousand barrels out of their exports, which would

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Speaker 1: take it to zero. And most importantly, most importantly, and

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Speaker 1: I think some people miss this, is that the other

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Speaker 1: thing that this does is that if a democrat wins,

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Speaker 1: this makes it so much harder to uh to find

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Speaker 1: it to taunt with with Iran. And that was the

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Speaker 1: nightmare scenario, was that in one you have at the

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Speaker 1: tont and one to two million barrels of Iranian crewed

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Speaker 1: come back into the market. This makes that vanishing lee

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Speaker 1: small chance of happening, and of course underpins a more

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Speaker 1: bullish longer term viewing group. Hey, wells, what are the

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Speaker 1: companies that you cover doing in terms of production as

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Speaker 1: you look forward to they taking advantage of some some higher

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Speaker 1: prices here? Well, actually, it's it's it's it's been a

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Speaker 1: little bit of a shift um. As you know, the

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Speaker 1: sectors touch out of favor to say it, to say

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Speaker 1: it nicely, UM, And and the company's have been moving

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Speaker 1: towards free cash flow buy backs, etcetera. Which is why

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Speaker 1: you know that range of fifty to sixty five. It's

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Speaker 1: so important to be in the top end of that

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Speaker 1: range when you're throwing off high single digit free cash

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Speaker 1: flow yields and you can actually deliver. Uh, you can

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Speaker 1: actually deliver on that. But in general, the growth rate

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Speaker 1: in the US has really really slowed. UM. I mean

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Speaker 1: oil or gas for example. Uh, the e I A

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Speaker 1: predicts that gas production will be flat December to December,

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Speaker 1: which is is really remarkable coming off the growth that

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Speaker 1: we've seen. Oil will be up, but it'll be up

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Speaker 1: a lot more modestly. I mean, you're talking December to

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Speaker 1: December of something like four dred thousand verses. You know,

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Speaker 1: prior years you're north of a million, So you have

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Speaker 1: a pretty dramatic pullback. And I think that the incremental

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Speaker 1: cash that will come in the door from this higher

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Speaker 1: price will likely be used to fuel those those buybacks

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Speaker 1: as debt repurchases, um, etcetera. To to really fix the

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Speaker 1: financial situation versus putting more holes in the ground. Well,

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Speaker 1: Wells Fitzpatrick, thank you so much for being with us.

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Speaker 1: Well As Fitzpatrick Managing director focused on energy and research

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Speaker 1: and e m P sector generally at sun Trust Robinson Humphrey.

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Speaker 1: Joining us now is David Wayner of Bloomberg News. David,

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Speaker 1: what was the biggest takeaway that you got from this

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Speaker 1: press conference? Yeah? I think I think exactly that he's

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Speaker 1: responding to this sort of wingering question that many people have.

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Speaker 1: What is the U S strategy in the Middle East?

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Speaker 1: What is the U S strategy and Iran specifically? And

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Speaker 1: I think what he's trying to say is this, you know,

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Speaker 1: this is tethered to a strategy. This is part of

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Speaker 1: business as usual for US. You know, we have a

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Speaker 1: strategy in Iran which is a maximum pressure campaign, UH

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Speaker 1: to put you know, maximum pressure economically on Iran with

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Speaker 1: sanctions to respond to any threats that they have against

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Speaker 1: US troops or US assets. UM. And that's what we

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Speaker 1: did when we took out Solemney. So I think he's

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Speaker 1: sort of trying to um to really show that the

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Speaker 1: that there is this sort of holistic approach. Interesting, David

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Speaker 1: is there any sense within Washington d C the extent

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Speaker 1: to which this administration will go uh, if there is

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Speaker 1: in fact the next step a retterritory step for the

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Speaker 1: U S. If in fact Iran UH does retaliate. Yeah,

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Speaker 1: I think we're we're being a lot of different uh,

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Speaker 1: you know, a lot of different signals here. And that's

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Speaker 1: definitely sort of a billion dollar question here. You know,

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Speaker 1: what what would the US do if Iran took action?

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Speaker 1: Around is carefully signaling and uh and making it very

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Speaker 1: clear that they plan to to retaliate, but within some

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Speaker 1: sort of um, you know, within some sort of confines

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Speaker 1: of what they call international rules. Right, Um, So we'll

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Speaker 1: have to see. But I don't think we have a

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Speaker 1: clear signal of what the U S would do. David

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Speaker 1: Winner stick with us. We want to bring into the

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Speaker 1: conversation Ariel Cohen. He's senior fellow at the Atlantic Council

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Speaker 1: and founding principle of International market analysis. Ariel, can you

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Speaker 1: give us a sense of whether we are getting a

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Speaker 1: clear picture of what the US has planned and how

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Speaker 1: far it is willing to go in response to any

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Speaker 1: retaliatory measures taken by the Iranian government. Well, I think uh,

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Speaker 1: Mr Trump is articulating a very strong stance, probably went

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Speaker 1: too far referring to cultural sites, as we witnessed at

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Speaker 1: this press conference and from the statement of many American politicians, experts,

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Speaker 1: et cetera. People are very uncomfortable with US um committing

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Speaker 1: any kind of war crimes, and justifiably so we shouldn't.

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Speaker 1: But in terms of Mr. Crump being Mr Trump and

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Speaker 1: missing with Iran's Iranians heads UM, I think he probably

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Speaker 1: did it, not fully, not being fully cognizant what he's

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Speaker 1: getting into. In terms of the actual fight, UH, Iran

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Speaker 1: is no match to the United States extentionally and of

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Speaker 1: course not unconventional. They don't have nuclear weapons as far

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Speaker 1: as we know. But in terms of this indirect warfare,

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Speaker 1: the they excel in UM terrorist attacks, UH, subversion, weaponizing

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Speaker 1: Shia minorities throughout the Middle East, UH, the creation of

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Speaker 1: the so called Iranian Crescent from the Mediterranean to the

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Speaker 1: Holy City of Comb in Iran. They're doing all that.

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Speaker 1: They are now less one um quarterback, and that was

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Speaker 1: Mr Sulimani. General Sulimani UH. He was not a regular

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Speaker 1: military He was a paramilitary leader who was engaged deeply

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Speaker 1: for decades in terrorist activity and in that respect his

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Speaker 1: elimination was justified. So Ariel wanted to get your thoughts

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Speaker 1: on a Secretary Pompeio said that Iran's nuclear program is

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Speaker 1: more diminished than it was under the j c p

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Speaker 1: o A deal that President Trump pulled out of. Is

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Speaker 1: that in fact the case from your understanding, I'm not sure,

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Speaker 1: and these things are very nicole and you need a

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Speaker 1: lot of classified information to really analyze it. If Mr Pompere,

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Speaker 1: who has better access to a classified information than I do,

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Speaker 1: says so, uh, it would be m a challenge to

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Speaker 1: all of us to prove him wrong. Uh. The question

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Speaker 1: is how many centri futures they have running now, and

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Speaker 1: the fact that they're already the Iranians already made a

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Speaker 1: classic Iranian move, we killed soley money. They're moving on

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Speaker 1: a different chessboard, and on the nuclear chess board, they're

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Speaker 1: saying there are no limitations anymore, uh, in terms of enrichment.

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Speaker 1: So that means they can go to enriching all the

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Speaker 1: way up to nine that they need of uranium enriched

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Speaker 1: in order to produce nuclear weapons. The other question I'm

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Speaker 1: asking myself to what extent countries with nuclear expertise who

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Speaker 1: are engaged in a strategic competition with US, Russia and

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Speaker 1: China are going to help Iran now to develop their

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Speaker 1: nuclear the potential nuclear um web and especially the means

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Speaker 1: of delivering the rockets in the warheads. I think the

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Speaker 1: war warnts are absolutely key. Yes, well, and actually David

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Speaker 1: that that brings me to a question that I have,

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Speaker 1: which is what is the international response, both from allies

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Speaker 1: as well as UH non allies of the United States

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Speaker 1: to its actions with respect to Iran. I think you

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Speaker 1: know what you're hearing from, you know everyone, both allies

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Speaker 1: and U S ravals. There's you know, calls to the

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Speaker 1: escalate There's some lot of sort of behind the scenes

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Speaker 1: UH discussion going on. A Reef has already said, UH

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Speaker 1: confirmed that he's going to be at Davos, although he

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Speaker 1: didn't get his visa so far to come to New York.

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Speaker 1: He was supposed to be at the United Nations on

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Speaker 1: Thursday for a Security Council meeting. So there's a lot

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Speaker 1: of back channeling going on, a lot of calls for

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Speaker 1: the escalation UM even the sort of you know, the

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Speaker 1: regional U S allies such as Israel, Saudi Arabia and

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Speaker 1: the U A E. Uh, they're not interested in an

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Speaker 1: escalation here. Israel has been relatively quiet. Um. I mean

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Speaker 1: they praised the US action, but they're distancing themselves from

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Speaker 1: specific strike on Sulamani. So UM, you know, I think

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Speaker 1: there's gonna be a lot of uh you know, quite

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Speaker 1: a quite a significant attempt to reduce tensions here. And

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Speaker 1: I would also note that you know, Iran has generally

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Speaker 1: responded this way when something like this happened, rhetorically speaking,

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Speaker 1: but in terms of action, Uh, they're going to be

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Speaker 1: very careful and calibrated. And I you know, if you

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Speaker 1: if you look back to the last time someone really

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Speaker 1: senior uh in this apparatus was thinking was was killed

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Speaker 1: Imad Mougnia Hasbalah, but he was very close. Uh. It

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Speaker 1: actually took maybe you know, a decade. Uh, it took

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Speaker 1: years until you saw a reaction. Um. And so it's

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Speaker 1: gonna take some time for us to see the repercussions

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Speaker 1: of this Aria. What do you think Iran will do

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Speaker 1: in terms of retaliation? What are their capabilities? Well, Iran

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Speaker 1: demonstrated a totally chilling capability when it knocked out half

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Speaker 1: of Saudi oil producing UM infrastructure, including the Abu Kaiks facility,

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Speaker 1: which is absolutely crucial. I war gamed a strike on

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Speaker 1: Abu Kaik and the Saudi facilities about ten years ago.

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Speaker 1: The results were much worse, much more catastrophic that than

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Speaker 1: what we found today. Why because of the massive US

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Speaker 1: oil producing capacity UH from shale so uh, the Iranians

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Speaker 1: are capable of doing a lot of damage to the

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Speaker 1: Saudi oil capacity and that may tip the global oil market,

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Speaker 1: throwing the prices into a much higher rage. On the

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Speaker 1: other hand, people ask me if I think they would

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Speaker 1: block uh blockade the strait of hormones, the bottleneck through

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Speaker 1: which global oil is moving out of the Persian Gulf

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Speaker 1: to the global markets, and I said no, because this

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Speaker 1: will be Iran shooting itself, not in the food, but

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Speaker 1: in the head, because that would stop Iranian exports. And

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Speaker 1: also on the table as the US warning, not the

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Speaker 1: fifty two cultural site, but very uh important, very vital

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Speaker 1: to Iran um Hard Island Oil terminal that is responsible

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Speaker 1: for the majority of Iranian oil exports. If they make

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Speaker 1: a big move uh, they're Hard Island Oil Terminal will

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Speaker 1: be UH in play and potentially devastated by the US Airport.

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Speaker 1: Harry'll Cohen, thank you so much for being with us

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Speaker 1: Aero Cone, Senior Fellow at the Atlantic Council and founding

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Speaker 1: principle of international market Analysis. Also our thanks to David

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Speaker 1: Wayner and Bloomberg International Government Reporter, both commenting on that

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Speaker 1: press conference and the US strategy with Iran. Time to

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Speaker 1: check in with Bloomberg Opinion, we welcome Jim Bianco, President,

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Speaker 1: founder Bianco Research. Uh. He is based in Chicago. Interesting, Uh,

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Speaker 1: Jim just wanted to get your thoughts just kind of

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Speaker 1: on the last few days the the re emergence, if

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Speaker 1: you will, of geopolitical risk coming out of the Mid East.

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Speaker 1: How does that kind of fit into kind of how

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Speaker 1: you're thinking about the markets for you know, the thing

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Speaker 1: about it is everybody's wondering when is the next recession

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Speaker 1: going to occur? Because it's been eleven years since we've

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Speaker 1: had one, and it's the longest period that we've ever had.

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Speaker 1: And I've been arguing that the natural state of an

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Speaker 1: economy is to expand it will expand forever and ever,

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Speaker 1: but it never does because something comes along and breaks it.

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Speaker 1: In the leading cause over the last many decades of

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Speaker 1: breaking an economy in the recession has been a spike

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Speaker 1: in energy prices. So when you get these events that

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Speaker 1: you've had in the Middle East over the last week

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Speaker 1: or so, you start to wonder if history is going

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Speaker 1: to repeat itself again. Are we going to have a

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Speaker 1: spike in energy prices and will that bring down the

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Speaker 1: economy like it has so many times before. And I'll

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Speaker 1: remind you that in two thousand eight, we did get

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Speaker 1: to a hundred and forty seven dollars on West Texas

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Speaker 1: Intermediate by June of two thou eight, so there was

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Speaker 1: spike of energy prices then as well too. A lot

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Speaker 1: of people are expecting that the next move for the

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Speaker 1: Federal Reserve will be lower than the Federal cut once

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Speaker 1: more this year. That's what's being priced into the rates market.

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Speaker 1: I'm wondering, do you think that that is required in

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Speaker 1: order to keep the economy going or do you think

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Speaker 1: that the FED should cut more or not cut at all?

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Speaker 1: I do. I do lean towards the FED cutting um.

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Speaker 1: I think that they will cut one more time. And

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Speaker 1: if I had to uh put a bias on that,

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Speaker 1: I think that the bias would be that they would

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Speaker 1: more than once uh. And I think they would probably

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Speaker 1: do it in the first half of the year. They

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Speaker 1: will definitely once we get into the second half of

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Speaker 1: the year, try and sit on their hands because of

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Speaker 1: the election. But history shows sometimes they're forced to move

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Speaker 1: on election right before elections. Remember two thousand and eight

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Speaker 1: when they did some of the most extraordinary things they've

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Speaker 1: done in their history literally days before the election. I

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Speaker 1: do think though, that if you look at the shape

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Speaker 1: of the yield curve, it is back positive, but at

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Speaker 1: only twenty six basis points, it is well below its

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Speaker 1: long term average, which should be about a hundred and

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Speaker 1: twenty basis points, and it is telling us I've always

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Speaker 1: looked at the yield curve is being something very simple,

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Speaker 1: is that when the yolk curve is inverted, are very flat,

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Speaker 1: it's a market signal that maybe the funds rate or

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Speaker 1: the policy rate is too high, especially when it's inverted,

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Speaker 1: and even when it's very flat. And I would call

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Speaker 1: twenty basis points where we are now flat. So I

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Speaker 1: think that there's gonna be downward pressure on interest rates

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Speaker 1: and the lack of inflation. The thing that the FETE

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Speaker 1: has been scratching their head about should be embraced by

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Speaker 1: them and say, look, there isn't any there's room for

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Speaker 1: us to lower interest rates, and I think they'll eventually

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Speaker 1: come to their view. Jim, do we still need to

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Speaker 1: worry about that short end of the curve the repo

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Speaker 1: market that was obviously much in the news several months ago,

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Speaker 1: a little bit less so today. Yeah, No, I definitely

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Speaker 1: think we should worry about it. Um it is. It

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Speaker 1: has been drugged into submission by the FETE. They've just

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Speaker 1: buried it with with supply. They've supplied m repubs to

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Speaker 1: the tunes of hundreds of billions of dollars and brought

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Speaker 1: another hundreds of billions of dollars of bills to keep

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Speaker 1: the market quiet. All Right, it's quiet. It's not a problem.

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Speaker 1: It's not an immediate worry today, tomorrow, next week. But

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Speaker 1: what is most concerning is I don't hear a plan

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Speaker 1: from them on how to fix this. I don't hear

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Speaker 1: a plan for them on how to get out of this.

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Speaker 1: Other than that they just keep throwing the junkie a

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Speaker 1: dime bag every week and saying here, we'll get you

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Speaker 1: the next week. We'll get you the next week. That

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Speaker 1: being just more repose supply every week. That's not a

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Speaker 1: long term fix. It's been four months. It's time for

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Speaker 1: them to kind of step up to the plate and say, Okay,

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Speaker 1: here's how we're going to fix this problem. I might

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Speaker 1: add I think I know why. I think they know that.

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Speaker 1: The reason is that they've overregulated the short end of

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Speaker 1: the yield curve. It has not been able to come

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Speaker 1: to come to grips with that regulation. They need to

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Speaker 1: back off that regulation. But they've been getting pressure from

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Speaker 1: no less than Liz warrened Sheila Bear former FDI c

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Speaker 1: had Alan Bleer, former Flights chairman the FED saying don't

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Speaker 1: back off on the regulations. Okay. If you don't do that,

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Speaker 1: there's no way to fix this problem. And that's why

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Speaker 1: I think they're kind of stuck right now. You've got

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Speaker 1: away with words. Jim Bianco throwing the Junkia dime bag.

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Speaker 1: I love speaking with you, and Jim Bianco always a pleasure,

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Speaker 1: President and founder of Bianco Research and a Bloomberg Opinion contributor.

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Speaker 1: Joining us from Chicago and actually interesting, uh to see

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Speaker 1: that today the REPO operation operated by the New York

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Speaker 1: Federal Reserve was oversubscribed for the first time, and a

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Speaker 1: couple of the operations, So showing ongoing demand for this

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Speaker 1: liquidity at a time when there are a lot of

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Speaker 1: questions about the REPO operations. Well, the fourth most read

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Speaker 1: story on the Bloomberg terminal uh this today is about

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Speaker 1: the credit card business and gas stations. Apparently the gas

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Speaker 1: stations are not prepared to accept the chip reader credit

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Speaker 1: cards and apparently that's going to be a big problem.

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Speaker 1: Really interesting story here. Jenny Seraine, the reporter on that story,

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Speaker 1: finance reporter for Bloomberg News, joins us here on o

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Speaker 1: Bloomberg Interactive Broker Studio. Jenny, I didn't even know this

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Speaker 1: was a thing. Scope it out force. What's going on? Um? Yeah,

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Speaker 1: I think a lot of people maybe haven't been um,

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Speaker 1: you know, it's like it's not some thing a lot

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Speaker 1: of people pay attention to. But basically five years ago

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Speaker 1: here in the US, we started making this transition to

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Speaker 1: chip cards, um, and so people should be seeing that,

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Speaker 1: you know, at your regular Bodego, your regular grocery store

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Speaker 1: instead of swiping we now dip UM and gas stations

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Speaker 1: have been a little bit behind. They were given a

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Speaker 1: little bit longer of a deadline to make that upgrade

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Speaker 1: because um, you actually have to rip out the pump

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Speaker 1: from the concrete and you know, replace it there. And

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Speaker 1: it's a very big expense. Um. And so the industry

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Speaker 1: kind of recognized that, um. And so that deadline is

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Speaker 1: actually replaced the whole pump as opposed to just some

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Speaker 1: little thing that accepts the corder card. Yes, so the

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Speaker 1: hardware for this is just a very unusual beast um.

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Speaker 1: And so yeah, these gas station operators actually have to

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Speaker 1: rip out from the concrete. Yeah. Well that's actually interestingly

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Speaker 1: this story. I gotta say, I noticed that the people

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Speaker 1: who were quoted where people who are involved in the

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Speaker 1: installation of some of these events saying they're woefully behind.

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Speaker 1: They gotta get on this. I mean, how big of

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Speaker 1: a push is uh their ports on their part. I

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Speaker 1: think everyone realizes that the deadline is coming. Um. And

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Speaker 1: so what that deadline basically means is that after October,

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Speaker 1: if a gas station hasn't upgraded its systems, it will

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Speaker 1: suddenly face all liability for any card fraud that happens

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Speaker 1: at the station. And so it's a big expense that's

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Speaker 1: coming for these station operators. UM. But yeah, the industry

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Speaker 1: just says it's going to be really tough to make

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Speaker 1: it on the credit card side. How much more secure

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Speaker 1: is the chip versus the swipe And by the way,

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Speaker 1: I really I want to incorporate that into my lexicon

431
00:24:30,720 --> 00:24:34,960
Speaker 1: instead of swiping we now did okay? Carry on? Um? Yeah,

432
00:24:35,040 --> 00:24:37,679
Speaker 1: well it's uh. So the chip was basically designed to

433
00:24:37,680 --> 00:24:40,560
Speaker 1: head off counterfeit card fraud. So that's uh. You know,

434
00:24:40,680 --> 00:24:43,040
Speaker 1: I think a few years ago the real risk was

435
00:24:43,640 --> 00:24:47,480
Speaker 1: hackers would attach skimming devices onto the point of sale um,

436
00:24:47,520 --> 00:24:49,280
Speaker 1: and so when you swiped your card, they were able

437
00:24:49,320 --> 00:24:51,400
Speaker 1: to get all of the card data and then basically

438
00:24:51,400 --> 00:24:53,320
Speaker 1: go and make a counterfeit card and use that wherever

439
00:24:53,359 --> 00:24:55,920
Speaker 1: they wanted to. So the chip basically heads that off

440
00:24:55,960 --> 00:24:58,680
Speaker 1: by each time you dip your card, it creates a

441
00:24:58,760 --> 00:25:01,200
Speaker 1: unique number, and so even if the hacker has infiltrated

442
00:25:01,240 --> 00:25:03,360
Speaker 1: that point of sale device, they can't go and make

443
00:25:03,400 --> 00:25:05,359
Speaker 1: copies of that card and use it wherever they want.

444
00:25:05,440 --> 00:25:08,200
Speaker 1: So that kind of fraud is what this is really addressing,

445
00:25:08,240 --> 00:25:10,320
Speaker 1: and it is a lot safer. You know, we've seen

446
00:25:10,760 --> 00:25:13,360
Speaker 1: uh counterfeit fraud dollars fall by you know, more than

447
00:25:13,359 --> 00:25:17,239
Speaker 1: fifty since the deadline, and so it has addressed that.

448
00:25:17,359 --> 00:25:20,560
Speaker 1: Now hackers don't just go away because you've taken away

449
00:25:20,640 --> 00:25:24,040
Speaker 1: one form. So we've seen a subsequent increase in other

450
00:25:24,080 --> 00:25:26,080
Speaker 1: types of card fraud that the industry is now trying

451
00:25:26,080 --> 00:25:28,879
Speaker 1: to address. But UM, at least for counterfeit card fraud,

452
00:25:29,000 --> 00:25:30,800
Speaker 1: the chip did do what it was supposed to. Different

453
00:25:31,040 --> 00:25:33,440
Speaker 1: When I'm over in London for business, I noticed people

454
00:25:33,520 --> 00:25:35,520
Speaker 1: just kind of tapping their card and so when I

455
00:25:35,560 --> 00:25:37,359
Speaker 1: walk up to get us pay for a sandwich, the

456
00:25:37,760 --> 00:25:39,840
Speaker 1: person going to counter just like size because now they

457
00:25:39,840 --> 00:25:43,560
Speaker 1: have to dip it and do it exactly signed something.

458
00:25:44,000 --> 00:25:47,159
Speaker 1: What's that technology? Why don't you have that? It's it's coming.

459
00:25:47,240 --> 00:25:49,840
Speaker 1: So the US is woefully behind the rest of the

460
00:25:49,840 --> 00:25:52,560
Speaker 1: world in terms of adoption of tap to pay UM

461
00:25:52,640 --> 00:25:54,520
Speaker 1: and but it's coming. So you've seen it so far.

462
00:25:54,720 --> 00:25:56,840
Speaker 1: The m t A has started to install these readers

463
00:25:56,840 --> 00:25:58,719
Speaker 1: on the subway, so you should start to see that

464
00:25:59,080 --> 00:26:01,840
Speaker 1: more and more. And I think retailers kind of UM

465
00:26:01,880 --> 00:26:03,840
Speaker 1: and a lot of ways follow transit. So when you

466
00:26:03,880 --> 00:26:07,399
Speaker 1: see these big transit operators adopting that technology, you should

467
00:26:07,400 --> 00:26:09,960
Speaker 1: start to see other retailers. But yeah, it's this one

468
00:26:10,040 --> 00:26:12,560
Speaker 1: area of finance where you know, the US has long

469
00:26:12,600 --> 00:26:14,720
Speaker 1: been a leader, and so many things within the credit

470
00:26:14,720 --> 00:26:17,120
Speaker 1: card industry. But this is where we really fall behind. Well,

471
00:26:17,119 --> 00:26:19,760
Speaker 1: going back to gas stations. If they're spending all this

472
00:26:19,880 --> 00:26:24,520
Speaker 1: money to implement entirely new pumps to dip rather than swipe,

473
00:26:24,600 --> 00:26:25,919
Speaker 1: are they gonna have to do it again so that

474
00:26:25,960 --> 00:26:29,280
Speaker 1: we can tap? So it should be one upgrade. Um,

475
00:26:29,320 --> 00:26:30,640
Speaker 1: that's what you've seen with a lot of the other

476
00:26:30,680 --> 00:26:34,000
Speaker 1: retailers who had the deadline. Um, so it should be

477
00:26:34,040 --> 00:26:37,679
Speaker 1: one upgrade. Now, just because a retailer adopts the dipping

478
00:26:37,840 --> 00:26:40,520
Speaker 1: does not mean they have to adopt tapping. So some

479
00:26:40,560 --> 00:26:42,760
Speaker 1: retailers have said they don't want to. Um. There's a

480
00:26:42,800 --> 00:26:45,440
Speaker 1: lot of different reasons for that. Um. You know, a

481
00:26:45,520 --> 00:26:47,119
Speaker 1: lot of retailers are starting to come up with their

482
00:26:47,160 --> 00:26:49,440
Speaker 1: own forms of mobile payments, so they maybe don't want

483
00:26:49,680 --> 00:26:51,639
Speaker 1: you know, someone walking in and using Apple Bay. So

484
00:26:51,760 --> 00:26:54,360
Speaker 1: you've seen a little bit of kind of differentiation. It's

485
00:26:54,359 --> 00:26:57,399
Speaker 1: another area for retailers to kind of catch up. You know,

486
00:26:57,440 --> 00:26:59,880
Speaker 1: they've got a lot of catching up. I have to say,

487
00:26:59,880 --> 00:27:01,960
Speaker 1: I can just imagine someone coming up to one of

488
00:27:01,960 --> 00:27:04,359
Speaker 1: those things and just like taking their card, just like

489
00:27:04,440 --> 00:27:07,719
Speaker 1: snacking it and then dipping it and sliding it. I mean, honestly,

490
00:27:08,000 --> 00:27:11,560
Speaker 1: at a little confused after a while. Jenny, do carry cash?

491
00:27:12,440 --> 00:27:15,520
Speaker 1: I am a weird millennial that does carry cash. Yes,

492
00:27:15,640 --> 00:27:18,200
Speaker 1: you are a weird okay, because this kind of goes

493
00:27:18,240 --> 00:27:20,560
Speaker 1: to the issue of kind of the cashless society. And

494
00:27:20,640 --> 00:27:23,120
Speaker 1: you actually see some stores as a restaurant, I guess

495
00:27:23,119 --> 00:27:25,359
Speaker 1: they're right here on election to navtu you know, sign

496
00:27:25,400 --> 00:27:27,760
Speaker 1: out front and we do not accept cash. Yeah, but

497
00:27:27,760 --> 00:27:29,680
Speaker 1: it's kind of a gimmick, isn't it. I don't know,

498
00:27:29,880 --> 00:27:32,280
Speaker 1: it's you know, it's actually a big debate. Um. Folks

499
00:27:32,320 --> 00:27:36,359
Speaker 1: actually are now saying that going cashless might improper, you know,

500
00:27:36,400 --> 00:27:38,920
Speaker 1: take advantage of poor people who only carry cash and

501
00:27:38,960 --> 00:27:41,600
Speaker 1: don't have access to financial services. I carry cash. I

502
00:27:41,640 --> 00:27:45,480
Speaker 1: always carry cash, carry cash. No it asks, but I do.

503
00:27:45,840 --> 00:27:48,879
Speaker 1: But not that anyone should really back. How much does

504
00:27:48,880 --> 00:27:51,760
Speaker 1: it cost? It sounds like a lot um, so it

505
00:27:51,840 --> 00:27:55,320
Speaker 1: can vary. The averages are right now about thirty dollars

506
00:27:55,440 --> 00:27:58,040
Speaker 1: per store um to upgrade all of your pumps. And

507
00:27:58,160 --> 00:28:00,359
Speaker 1: you know, that's really hard for an industry where profit

508
00:28:00,400 --> 00:28:02,680
Speaker 1: margins are less than two percent, So it's a really

509
00:28:02,680 --> 00:28:05,600
Speaker 1: big outlay at any point in time that these gas

510
00:28:05,640 --> 00:28:09,160
Speaker 1: station operators are gonna have to make swipe, dip, tap, swipe, dip,

511
00:28:09,200 --> 00:28:11,359
Speaker 1: tap and swing. Thank you so much for being with us.

512
00:28:11,440 --> 00:28:14,280
Speaker 1: Jenny Serena, I'm gonna get I'm gonna get absolutely pummeled

513
00:28:14,280 --> 00:28:16,920
Speaker 1: for saying that Jenny Serena is a Bloomberg Finance reporter

514
00:28:16,960 --> 00:28:19,520
Speaker 1: training us here in our eleven three oh studies or

515
00:28:19,560 --> 00:28:22,119
Speaker 1: Interactive Proker Studios. Thanks for listening to the Bloomberg P

516
00:28:22,200 --> 00:28:24,760
Speaker 1: and L podcast. You can subscribe and listen to interviews

517
00:28:24,800 --> 00:28:28,560
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney,

518
00:28:28,640 --> 00:28:31,399
Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa Abram woids

519
00:28:31,400 --> 00:28:34,440
Speaker 1: I'm on Twitter at Lisa Abram Woyds one. Before the podcast,

520
00:28:34,480 --> 00:28:37,040
Speaker 1: you can always catch us worldwide on Bloomberg Radio