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Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim

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Speaker 1: Fox along with my co host Lisa Abramowitz. Each day

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

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Speaker 1: for you and your money, whether at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg P L Podcast

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Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. I think

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Speaker 1: it's important for us to take a look and get

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Speaker 1: an update on what's been going on on Capitol Hill.

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Speaker 1: I want to bring in Nancy Agnanovich. She covers politics,

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Speaker 1: and it's been carefully watching the candidates for uh President

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Speaker 1: elect Donald Trump's cabinet and how the testimonies have been going.

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Speaker 1: So Nancy, can you give us some of the highlights

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Speaker 1: of what we've heard so far. Things are moving ahead,

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Speaker 1: They're just not moving ahead as quickly as Republican leaders

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Speaker 1: would love um. This morning, Senator Corker's predicted confirmation for

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Speaker 1: Rex Tillerson, even though some Republicans are opposed to him

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Speaker 1: because of his relationship with Vladimir Putin and his positions

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Speaker 1: on some issues related to Russia. Jeff sessions nomination to

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Speaker 1: the Attorney General is moving ahead. The Judiciary Committee appears

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Speaker 1: to be scheduling a vote on Tuesday on that UM

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Speaker 1: Senator's predict he will be confirmed. UM. Tom Price is

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Speaker 1: having a hearing this morning at the Health, Education, Labor

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Speaker 1: Pensions Committee. I believe that for you just let me

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Speaker 1: break in. It's it because they just want to mention

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Speaker 1: that the Senator Bernie Sanders is currently questioning Tom Price

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Speaker 1: is if you look at the sort of back and

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Speaker 1: forth between Democrats and Republicans, do you see any big

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Speaker 1: stumbles or any obstacles for any of the nominees. Well,

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Speaker 1: the that we really wondered about was Tillerson, but they

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Speaker 1: appear the Republican leaders appear to be skipping over the committee,

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Speaker 1: or rather, if the committee doesn't approve him, they'll take

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Speaker 1: it right to the floor, where Republican leaders predict that

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Speaker 1: got the votes to confirm him. We haven't hearn a

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Speaker 1: lot about Um, the nominee for for Labor. There's been

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Speaker 1: some concern that his hearing has been postponed UM well

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Speaker 1: into February. That's one person who I've heard off the record,

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Speaker 1: perhaps could drop out, but otherwise they seem to be

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Speaker 1: going forward, just in a slower way than maybe Mitch McConnell,

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Speaker 1: the Republican leader, had wanted, yeah, when you referred to Tillerson, that's,

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Speaker 1: of course Rex Tillerson, who is the nominee for Secretary

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Speaker 1: of State. I want to talk a little bit more

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Speaker 1: about Tom Price. He's Georgia Representative. Price. He is being

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Speaker 1: grilled in part on his stock picks. He has been

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Speaker 1: accused of buying stocks in anticipation of certain legislation being

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Speaker 1: passed and profiting when those stocks rose. Have we learned

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Speaker 1: anything further on that issue so far? Today? There's a

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Speaker 1: lot of um, you know, concern about this because this

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Speaker 1: violates the law that prevents members of Congress from engaging

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Speaker 1: and insider trading. Um. In terms of today, I don't

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Speaker 1: think we're hearing him, you know, say anything to indicate that,

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Speaker 1: you know, acknowledging that this was in violation of the law.

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Speaker 1: The issue there is that he introduced legislation very narrow

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Speaker 1: in scope that was going to help an industry shortly

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Speaker 1: after he allegedly bought a stock. I mean, it all

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Speaker 1: happened in a very short time frame, and Democrats are

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Speaker 1: really pressing for more information on this. In addition to that,

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Speaker 1: he has traded a lot of healthcare stocks while sitting

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Speaker 1: on powerful committees like Houseways and Means in Budget that

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Speaker 1: have jurisdiction over the health care industry. And so this

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Speaker 1: issue is going to you know, continue to be in

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Speaker 1: the forefront for a while, not just at the Help

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Speaker 1: Committee today, but next Tuesday when he goes before the

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Speaker 1: Finance Committee. I also want to just touch on Betsy

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Speaker 1: devas she had her confirmation hearing, I believe yesterday, right

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Speaker 1: she was midnight last night. She is Donald Trump's nominee

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Speaker 1: to be the next Secretary of Education, and one of

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Speaker 1: the big stories out of that is that she supports

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Speaker 1: gun possession in schools. Um. I imagine that there was

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Speaker 1: quite a bit said other than that, Um, But can

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Speaker 1: you give us a sort of some highlights. Well, that

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Speaker 1: definitely would raise so many concerns among Democrats, maybe even Republicans. Um.

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Speaker 1: That is something that we have heard the gun industry

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Speaker 1: say would perhaps cut down on, you know, crimes in

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Speaker 1: the school, but it really hasn't gotten any traction. So

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Speaker 1: this is really, you know, something perhaps that people weren't expecting.

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Speaker 1: On top of that, she already was raising a lot

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Speaker 1: of concern because these two went before that committee last

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Speaker 1: night for her hearing without having the required paperwork in order,

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Speaker 1: and she has Senator Schumer, the Democratic leader, said five

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Speaker 1: billion dollars in assets, and they haven't seen financial disclosure

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Speaker 1: paperwork yet. And she's also allegedly violated campaign finance laws.

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Speaker 1: So there are a lot of issues there that her

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Speaker 1: come her nomination raises. Having said that, Nancy, you just

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Speaker 1: quickly procedural roadblocks to this, or the Republicans have got

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Speaker 1: that sewed up well. Procedurally, they're not getting to move

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Speaker 1: them as quickly as they want. For example, Friday after

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Speaker 1: the inauguration, four o'clock in the afternoon, the Senator McConnell

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Speaker 1: wanted to start moving nominations, approving them on the floor,

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Speaker 1: but unless he gets consent from Democrats, he can't bring

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Speaker 1: them up for votes on Friday. The Senate rules don't

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Speaker 1: allow for nominations to be approved the very same day

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Speaker 1: that they get sent officially got to the Senate. Not

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Speaker 1: happen until next week. Thank you very much, Nancy Agnanovitch,

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Speaker 1: our senior reporter for Bloomberg b n A PM Fox.

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Speaker 1: It is my privilege to introduce a very special guest.

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Speaker 1: We have Ira Milstein in our studio with US senior

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Speaker 1: partner at Wild gatchel uh And who is a professor

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Speaker 1: a law professor at the IRA Milstein Milstein Center for

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Speaker 1: Global Markets and Corporate Ownership at Columbia Law School. IRA.

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Speaker 1: You wrote a book talking about all of the problems

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Speaker 1: in corporate America today and some of the issues that

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Speaker 1: you see that need to be remedied. What do you

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Speaker 1: think is the number one deficit on corporate boards today

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Speaker 1: the ability to go long term. Uh, that's the big problem.

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Speaker 1: They're all sort of wedded to the capital market, which

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Speaker 1: is forcing them to go short term. Well, can you

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Speaker 1: give us some examples of specific corporate situations where where

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Speaker 1: they decided to go short term where they should have

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Speaker 1: thought long term. Well, yeah, I can give you a

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Speaker 1: specifical example of where somebody is going long term at

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Speaker 1: the moment, which are general motives they're now thinking about

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Speaker 1: building new plants in the United States and hiring more

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Speaker 1: people and so on. And whether there's going to be

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Speaker 1: a little hit on the market because they're investing in

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Speaker 1: the future rather than immediate I don't know. I would

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Speaker 1: hope that would be deplauded, but you don't know. I

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Speaker 1: want you to just take us a step back, because

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Speaker 1: people may not recognize the breath and experience of your career.

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Speaker 1: You have represented companies such as General Electric, General Motors.

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Speaker 1: I mean you have really been in just about is

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Speaker 1: there any boardroom in America? You have not been in Facebook? Facebook?

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Speaker 1: You have? Well, now there's a chance, because maybe we

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Speaker 1: get you and Mark Zuckerberg connected them. I'm available. Well okay, Well,

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Speaker 1: well I'm glad that you use that as an example,

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Speaker 1: because I'm wondering, would you provide an example of how

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Speaker 1: a board shouldn't work to Mark Zuckerberg so he does

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Speaker 1: not fall into that trap. Well, let's put them to

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Speaker 1: one side. I'd rather not talk about an individual company,

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Speaker 1: but in terms of how boards should not work, it's

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Speaker 1: a problem when there's a family owned or a dominant

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Speaker 1: or a dominant personality that owns most of the stock.

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Speaker 1: That's a problem because the issue of whether or not

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Speaker 1: the stuff he's going to respond to stockholder pressure, whether

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Speaker 1: he's going to respond to other directors is a question.

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Speaker 1: When you're the dominant guy and you really own most

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Speaker 1: of the stock, there's very little let people can do

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Speaker 1: to shake you up, and that's generally not terribly healthy. Well,

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Speaker 1: which General motors. I mean, has the push to invest

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Speaker 1: in us UH manufacturing and new R and D plans?

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Speaker 1: Has this come from the board? Yeah? I believe so.

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Speaker 1: I think Mary Bara, who is a sensational CEO, is

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Speaker 1: changed the whole tenor of the place and she's very responsive.

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Speaker 1: Are there any other examples of companies that that are

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Speaker 1: doing it the right way with boards that are active

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Speaker 1: in the correct way. Yeah. I think by looking back

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Speaker 1: at history, I think I Been did it the right way.

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Speaker 1: I think A T and T did it the right way.

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Speaker 1: I think Computer Associates did it the right way. They

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Speaker 1: all took a look at where they were and decided

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Speaker 1: they couldn't stay where they were there to do something different,

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Speaker 1: and in all those cases, those companies took a hit. Um.

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Speaker 1: When we talk about activist board members, I mean they

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Speaker 1: have to come from somewhere. Where are the best activist

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Speaker 1: board members coming from? Or quit they come from? Now

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Speaker 1: that's a fantastic question. They have to come from. They

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Speaker 1: have to come from some place. And my view is

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Speaker 1: that boards themselves have to dig them up. In other words,

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Speaker 1: the Nominating and Governance Committee of of the board, if

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Speaker 1: it wants activist directors, has to search for and activate them.

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Speaker 1: But what types of people? I mean, is it going

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Speaker 1: to be a carl Icon or is it going to

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Speaker 1: be a professor somewhere now? Professors? You know, I don't

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Speaker 1: believe in terribly much. I don't think we're terribly good

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Speaker 1: at risk taking. Uh So I think you need people

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Speaker 1: who have a vision, and the primary vision I think

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Speaker 1: you need is somebody who knows right from wrong. That's

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Speaker 1: my primary that's my primary goal because in all these cases,

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Speaker 1: where is the deficiency? Something goes wrong? Take a look

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Speaker 1: at the Volkswagon, take a look at what's happening around us,

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Speaker 1: And in all of those cases you can ask you

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Speaker 1: where was the board? What were they doing? Where they sleep?

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Speaker 1: Are they paying no attention? I don't know. I wasn't there.

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Speaker 1: I can only make a guess. So I think that

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Speaker 1: wherever you have a natural disaster of some kind in

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Speaker 1: the company, you must ask the question why, why where

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Speaker 1: was the board? Why did it take somebody to come

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Speaker 1: in and shake them up? Why did why did they

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Speaker 1: get into trouble? And where a company falls behind, it

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Speaker 1: gets off the cliff because they weren't modern, you would say,

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Speaker 1: where were they? Why aren't they interested in growth? And innovation.

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Speaker 1: So I'm looking for people who will stand up to

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Speaker 1: the management, who will ask the right questions, and who

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Speaker 1: will look to do what's good for the whole corporation,

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Speaker 1: not for some individual sharehold Without naming names, can you

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Speaker 1: get provide us an anecdote of board policy or board

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Speaker 1: relationships that you've seen that you have had trouble believing

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Speaker 1: really exists, or you could name names. I can name names.

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Speaker 1: That's asked. One of my favorites is Drexel. When Mike

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Speaker 1: Milken was sent out to the West coast all alone

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Speaker 1: to do his trading by himself and nobody looking. What

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Speaker 1: was the result the jail sentence, and it was where

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Speaker 1: was the board? Why weren't they looking? Why did they

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Speaker 1: let him go? And why wasn't somebody paying attention to

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Speaker 1: what he was doing. Is there a way for investors

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Speaker 1: to gauge how effective the board is other than just

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Speaker 1: looking at the incremental changes? I mean, is there sort

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Speaker 1: of a hallmark of a good board. The hallmark of

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Speaker 1: a good board is a performance of the company. If

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Speaker 1: the company is performing well, the chances are there's a

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Speaker 1: good board in there someplace. Although sometimes performing well as

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Speaker 1: an handicap because you're going to sleep. Uh So, But generally,

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Speaker 1: I mean you're you're feeling is that if the company

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Speaker 1: is doing well, the board is functioning, it's easy to

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Speaker 1: find bad corporate governors because wherever you find a company

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Speaker 1: that got into big trouble, fell off the cliff, didn't

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Speaker 1: go modern, you have to yourself where is the board?

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Speaker 1: Those are areas where the board should have been involved.

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Speaker 1: Can you give us twenty five seconds on the succession

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Speaker 1: planning that exists or doesn't exist for companies, it varies seconds.

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Speaker 1: It exists, but in some places it doesn't exist. In

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Speaker 1: other than wordplay, Uh, it's it's tough and everybody's got

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Speaker 1: to be willing to play that game, including the CEO.

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Speaker 1: Thank you very much for spending time with us. Ira

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Speaker 1: Millstein is a senior partner at while gotchall. He is

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Speaker 1: also the author of the new book The Activist Director,

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Speaker 1: Lessons from the Boardroom and the Future of the Corporation.

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Speaker 1: And I also just want to mention that he is

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Speaker 1: the author of many other books called such titles as

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Speaker 1: The Recurrent Crisis in Corporate Governance and the Limits of

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Speaker 1: Corporate Power. So certainly, uh, someone with a lot of

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Speaker 1: experience knowing what goes on in the corporate board well,

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Speaker 1: especially somebody who has been in the boardrooms of con Ed, Drexel, Burnham,

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Speaker 1: Lambert General Motors. This is somebody with a lot of experience.

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Speaker 1: In other words, go out read the book and we're

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Speaker 1: gonna learn more about the oil business and oil prices.

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Speaker 1: We have Julian Lee. He is the oil strategist for

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Speaker 1: Bloomberg News and he joins us from London. Julian, always

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Speaker 1: a pleasure to talk with you. I've got to begin

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Speaker 1: by getting your thoughts here about if a club makes

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Speaker 1: a decision that they're going to do something like cut

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Speaker 1: back on the production of oil, and then one of

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Speaker 1: those club members decides to breach this agreement, either surreptitiously

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Speaker 1: or overtly. Uh, what does that mean, especially when you

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Speaker 1: have a competitor breathing down your neck for the biggest

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Speaker 1: market that you're currently so apply. I think it means

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Speaker 1: that we are in the world of normal OPEQ politics.

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Speaker 1: To perfectly Hones, I think we have to put all

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Speaker 1: this in perspective. You know, this is very early days

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Speaker 1: of the agreement. The agreement came into effect on the

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Speaker 1: first of January, so we're literally just over two weeks.

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Speaker 1: Give people the I just let that for you be

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Speaker 1: a platform. We'll give people the detail absolutely. I mean,

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Speaker 1: we had this agreement. OPEC agreed at the end of

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Speaker 1: November that they would cut output collectively by about one

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Speaker 1: point two million barrels a day from the start of January.

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Speaker 1: The agreement covered all members of OPEQ, with the exception

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Speaker 1: of Nigeria and Libya, who are allowed to produce at

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Speaker 1: will because both of those were suffering unforeseen disruptions to

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Speaker 1: their production. Iran was given permission under the agreement to

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Speaker 1: raise its output slightly from the level that it was

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Speaker 1: at late last year. All other members were and are

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Speaker 1: still meant to cut back. Um, we're starting to get

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Speaker 1: oil ministers from from all of the member countries saying

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Speaker 1: that they are implementing these cuts. We are doing some

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Speaker 1: of our own monitoring of of what's going on. We

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Speaker 1: track the tankers leaving the oil export terminals of various

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Speaker 1: Opeque countries and those are showing at the moment a

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Speaker 1: slightly different picture. We're seeing no real cut yet in

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Speaker 1: in h shipments out of Iraq, for instance, But you know,

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Speaker 1: it has to be said, it's early days and when

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Speaker 1: you're tracking tankers, you can only really see a cargo

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Speaker 1: is loaded when the tanker leaves. Now you know, we

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Speaker 1: we see a bunch of tankers leaving Iraq, if one

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Speaker 1: of them is delayed by a day over half a month,

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Speaker 1: that can make a difference of a hundred and twenty

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Speaker 1: thousand barrels a day to the average export rates. So

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Speaker 1: you know, these figures are going to to I think,

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Speaker 1: show a lot of variation in the early part of

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Speaker 1: any month. Um, we're still going to need to wait

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Speaker 1: a little longer to see what's really going on. But

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Speaker 1: at the moment we have we have no very hard

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Speaker 1: physical evidence that cuts are being made, but it could

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Speaker 1: equally be argued that we have very little hard physical

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Speaker 1: evidence that they're not either. Well, one thing that we

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Speaker 1: do have some hard evidence about is that shail production

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Speaker 1: in the US has been re accelerating a bit. How

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Speaker 1: does this pressure o PET members. Well, I think this

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Speaker 1: this potentially causes quite significant problems for OPET going forwards.

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Speaker 1: We had the International Energy Agency, this is the statistical

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Speaker 1: arm of the U. S Department of Energy, who came

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Speaker 1: out with two publications last week. The first of them

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Speaker 1: was their short Term Energy Outlook, which they publish every month,

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Speaker 1: and in that they have revised up their US production

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Speaker 1: UM and principally that's been an upward revision to shale production. Now,

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Speaker 1: what for me was was key in this revision was

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Speaker 1: that this was revision to historical data for the fourth

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Speaker 1: quarter of twenty sixteen, and they increased that by around

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Speaker 1: a hundred thousand barrels a day UM. That tells me

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Speaker 1: that shale production was recovering even before OPEC did its deal.

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Speaker 1: And not only you know, had OPEC not done its deal,

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Speaker 1: but at that point the expectation for oil prices in

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Speaker 1: in SEV was round about fifty dollars a barrel. So

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Speaker 1: even with this expectation that prices wouldn't rise, shale producers

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Speaker 1: were still able to boost production. We're now in a

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Speaker 1: situation where prices have risen a bit um. The expectation

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Speaker 1: of analysts going forward is that they will rise further

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Speaker 1: over the course of this year. And what that suggests, sorry,

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Speaker 1: what that suggests to me is that the the i

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Speaker 1: AS forecast of three and twenty thousand barrels a day

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Speaker 1: of growth this year could be an underestimate. Julian Lee,

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Speaker 1: thank you so much for joining us. Julian the oil

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Speaker 1: strategist for Bloomberg Intelligence in London talking about us shall production,

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Speaker 1: how this could burst opex bubble at least brom woids

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Speaker 1: along with pim Fox this spoomer. All right, I want

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Speaker 1: to know if fifty six billion dollars can be wrong? Well,

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Speaker 1: Netflix has asked Jerry Seinfeld to bring his comedians and

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Speaker 1: cars getting coffee over to Netflix. Give it a park

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Speaker 1: I guess in their uh star parking lot. Here to

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Speaker 1: tell us a little bit more about this whole thing

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Speaker 1: is a Paul Sweeney. He's our star. He's our director

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Speaker 1: of North American research and media analysts for Bloomberg Intelligence.

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Speaker 1: Uh do you like these kinds of stories, Paul that

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Speaker 1: you know you get sort of weave in by saying,

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Speaker 1: you know, Jerry Seinfeld is going to now do his

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Speaker 1: ing on Netflix. And we're getting ready for the Netflix earnings,

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Speaker 1: which will be out this afternoon. Right, it's uh, well,

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Speaker 1: one thing we've seen from Netflix is I always joke

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Speaker 1: that Ted Sarandos, who's head of content acquisition at Netflix,

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Speaker 1: is the most popular person in Hollywood because he is

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Speaker 1: buying everything. He has a huge check book, he's opened

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Speaker 1: his checkbook and he's writing huge checks for content all

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Speaker 1: over the place to Jerry Seinfeld is just another example. UM.

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Speaker 1: So they're going to spend north of six billion dollars

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Speaker 1: on programming, which is compare that to CBS which might

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Speaker 1: spend three and a half to four billion dollars. So UM,

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Speaker 1: just huge amounts on on original content and content they're

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Speaker 1: buying from others. So UM, they are really gearing up

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Speaker 1: for the long term. How can investors look for results

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Speaker 1: from this UH open checkbook with the earnings that come

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Speaker 1: out later today. Well, it's something that the company has

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Speaker 1: coined as their virtuous circle, which is investments in programming

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Speaker 1: drive subscriber growth. Subscribe growth drives revenue and profits, which

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Speaker 1: funds even more investment capability into content. So the metric

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Speaker 1: that investors have really focused on for this company has

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Speaker 1: really been net subscriber growth UM. And now since they're

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Speaker 1: a global company, they break it down between domestic U

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Speaker 1: S subscriber growth and international And what we've seen obviously

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Speaker 1: over the last several years, and what's driven the stock

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Speaker 1: over the last several years is the company has been

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Speaker 1: very successful adding subscribers, first in the US UH and

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Speaker 1: now globally, So that is the number one metric for

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Speaker 1: the company is subscriber growth because that funds uh that

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Speaker 1: or enables this virtuous circle, and if it goes wrong,

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Speaker 1: it becomes a vicious circle. Because these programming uh uh

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Speaker 1: obligations are long term, fixed obligations, and they have obligations

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Speaker 1: of about fourteen billion dollars for programming going out over

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Speaker 1: the next number of years. And in order to pay

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Speaker 1: for those uh programming obligations, they have to continue to

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Speaker 1: grow their subscribers and their revenue in their cash flow.

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Speaker 1: Oh paying for this? Oh come on, Paul, so we

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Speaker 1: you please stop. You know, that's just so like last century.

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Speaker 1: This sounds like they're taking a leaf out of the

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Speaker 1: book of Jeff Bezos at Amazon. Yeah, it's uh, you

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Speaker 1: know Jeff Bezos in a sense that you know, profits

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Speaker 1: be damned. It's all about growth. And the Amazon investors

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Speaker 1: are clearly okay with that. I think a Netflix investors

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Speaker 1: uh now really want to see profit growth. And if

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Speaker 1: you look at some of the consensus estimates out there,

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Speaker 1: the street is looking for profit to double this year

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Speaker 1: versus last year and double again in effectively. So what's

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Speaker 1: what's happening at the company is their domestic US business

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Speaker 1: is actually very profitable. Um and a lot of handing

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Speaker 1: over an annuity every month exactly right. I mean just

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Speaker 1: as with Amazon and their Amazon Prime, you get certain privileges,

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Speaker 1: but also you get the daily fare of whatever it

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Speaker 1: is you want, maybe add ons and competition with cable

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Speaker 1: companies off for content? Are they paying the right price

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Speaker 1: price for this content? I mean right now, there's so

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Speaker 1: much competition. Yeah, it's the cost of content, particularly original

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Speaker 1: content is in fact growing up. They are still the

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Speaker 1: biggest game in town. They have the biggest check book,

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Speaker 1: a relative Yeah, and uh, you know Amazon, and uh,

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Speaker 1: that's a lot of the bad television. That's a lot

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Speaker 1: of television and there's no ratings. You don't know how

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Speaker 1: it's doing. I like comedians and getting no. No, I

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Speaker 1: didn't mean that, but I just meant that television. But

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Speaker 1: that I'm saying, if you if you have six billion

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Speaker 1: to spend, not all of it is going to be

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Speaker 1: a hit, right, And just why you do this? Right?

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Speaker 1: And and the interesting thing that for Netflix is they

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Speaker 1: never have to They never have a bad joke because

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Speaker 1: they have no ratings. And so Ted Serrandos, he's a

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Speaker 1: rock star because every show in theory is a hit

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Speaker 1: because we have no ratings to know whether they do

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Speaker 1: well or not. That the only metric that investors really

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Speaker 1: have is our subscribers continuing to grow, and if they are,

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Speaker 1: that presumably is because the programming is working. So all

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Speaker 1: of Netflix shows are being thrown into one basket, and

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Speaker 1: it is a basket that we will get more insight

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Speaker 1: into later today when Netflix earnings come out. Paul Sweeney,

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Speaker 1: thank you so much as always for joining us. Paul

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Speaker 1: Sweeney us director of Research and senior media Internet analyst

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Speaker 1: for Bloomberg Intelligence, and he joined us from our Bloomberg

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Speaker 1: eleven three oh studio. You know, Pim, I gotta say

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Speaker 1: I love that show and if you look at the

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Speaker 1: sort of YouTube hits, I mean it was going crazy.

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Speaker 1: So you know, maybe Netflix maybe six billion dollars, maybe

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Speaker 1: it was worth it. Thanks for listening to the Bloomberg

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Speaker 1: P and L podcast. You can subscribe and listen to

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Speaker 1: interviews at iTunes, SoundCloud, or whatever podcast platform you prefer.

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Speaker 1: I'm pim Fox. I'm out there on Twitter at pim Fox.

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Speaker 1: I'm out there on Twitter at Lisa Abramo. It's one

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Speaker 1: before the podcast. You can always catch us worldwide on

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Speaker 1: Bloomberg Radio.