WEBVTT - P&L: Puzder May Drop Out, BNA's Ognanovich says (Correct) 0:00:04.760 --> 0:00:07.720 Welcome to the Bloomberg P and L Podcast. I'm Pim 0:00:07.800 --> 0:00:11.080 Fox along with my co host Lisa Abramowitz. Each day 0:00:11.119 --> 0:00:14.360 we bring you the most important, noteworthy, and useful interviews 0:00:14.400 --> 0:00:16.560 for you and your money, whether at the grocery store 0:00:16.800 --> 0:00:19.960 or the trading floor. Find the Bloomberg P L Podcast 0:00:20.000 --> 0:00:28.720 on iTunes, SoundCloud and at Bloomberg dot com. I think 0:00:28.720 --> 0:00:31.480 it's important for us to take a look and get 0:00:31.520 --> 0:00:34.840 an update on what's been going on on Capitol Hill. 0:00:35.040 --> 0:00:39.880 I want to bring in Nancy Agnanovich. She covers politics, 0:00:39.880 --> 0:00:45.320 and it's been carefully watching the candidates for uh President 0:00:45.320 --> 0:00:49.080 elect Donald Trump's cabinet and how the testimonies have been going. 0:00:49.080 --> 0:00:51.800 So Nancy, can you give us some of the highlights 0:00:52.080 --> 0:00:55.160 of what we've heard so far. Things are moving ahead, 0:00:55.200 --> 0:00:59.560 They're just not moving ahead as quickly as Republican leaders 0:00:59.640 --> 0:01:05.720 would love um. This morning, Senator Corker's predicted confirmation for 0:01:06.200 --> 0:01:09.880 Rex Tillerson, even though some Republicans are opposed to him 0:01:10.040 --> 0:01:14.320 because of his relationship with Vladimir Putin and his positions 0:01:14.360 --> 0:01:18.520 on some issues related to Russia. Jeff sessions nomination to 0:01:18.600 --> 0:01:23.720 the Attorney General is moving ahead. The Judiciary Committee appears 0:01:23.760 --> 0:01:27.520 to be scheduling a vote on Tuesday on that UM 0:01:27.680 --> 0:01:31.880 Senator's predict he will be confirmed. UM. Tom Price is 0:01:31.920 --> 0:01:35.720 having a hearing this morning at the Health, Education, Labor 0:01:35.800 --> 0:01:38.520 Pensions Committee. I believe that for you just let me 0:01:38.520 --> 0:01:40.160 break in. It's it because they just want to mention 0:01:40.200 --> 0:01:44.959 that the Senator Bernie Sanders is currently questioning Tom Price 0:01:45.959 --> 0:01:49.960 is if you look at the sort of back and 0:01:50.040 --> 0:01:54.880 forth between Democrats and Republicans, do you see any big 0:01:55.000 --> 0:01:59.559 stumbles or any obstacles for any of the nominees. Well, 0:01:59.680 --> 0:02:03.800 the that we really wondered about was Tillerson, but they 0:02:03.880 --> 0:02:08.000 appear the Republican leaders appear to be skipping over the committee, 0:02:08.200 --> 0:02:11.000 or rather, if the committee doesn't approve him, they'll take 0:02:11.040 --> 0:02:14.320 it right to the floor, where Republican leaders predict that 0:02:14.440 --> 0:02:17.840 got the votes to confirm him. We haven't hearn a 0:02:17.880 --> 0:02:22.679 lot about Um, the nominee for for Labor. There's been 0:02:22.840 --> 0:02:27.320 some concern that his hearing has been postponed UM well 0:02:27.360 --> 0:02:31.960 into February. That's one person who I've heard off the record, 0:02:32.360 --> 0:02:35.960 perhaps could drop out, but otherwise they seem to be 0:02:36.000 --> 0:02:40.480 going forward, just in a slower way than maybe Mitch McConnell, 0:02:40.480 --> 0:02:43.880 the Republican leader, had wanted, yeah, when you referred to Tillerson, that's, 0:02:43.919 --> 0:02:47.320 of course Rex Tillerson, who is the nominee for Secretary 0:02:47.320 --> 0:02:49.200 of State. I want to talk a little bit more 0:02:49.240 --> 0:02:54.240 about Tom Price. He's Georgia Representative. Price. He is being 0:02:54.280 --> 0:02:58.480 grilled in part on his stock picks. He has been 0:02:58.520 --> 0:03:03.400 accused of buying stocks in anticipation of certain legislation being 0:03:03.440 --> 0:03:07.600 passed and profiting when those stocks rose. Have we learned 0:03:07.720 --> 0:03:12.920 anything further on that issue so far? Today? There's a 0:03:12.919 --> 0:03:15.600 lot of um, you know, concern about this because this 0:03:15.720 --> 0:03:19.239 violates the law that prevents members of Congress from engaging 0:03:19.240 --> 0:03:22.799 and insider trading. Um. In terms of today, I don't 0:03:22.800 --> 0:03:26.480 think we're hearing him, you know, say anything to indicate that, 0:03:26.919 --> 0:03:29.960 you know, acknowledging that this was in violation of the law. 0:03:30.120 --> 0:03:34.600 The issue there is that he introduced legislation very narrow 0:03:34.639 --> 0:03:39.120 in scope that was going to help an industry shortly 0:03:39.200 --> 0:03:42.880 after he allegedly bought a stock. I mean, it all 0:03:42.920 --> 0:03:46.000 happened in a very short time frame, and Democrats are 0:03:46.000 --> 0:03:49.640 really pressing for more information on this. In addition to that, 0:03:50.040 --> 0:03:53.760 he has traded a lot of healthcare stocks while sitting 0:03:53.800 --> 0:03:57.400 on powerful committees like Houseways and Means in Budget that 0:03:57.480 --> 0:04:01.800 have jurisdiction over the health care industry. And so this 0:04:01.840 --> 0:04:04.160 issue is going to you know, continue to be in 0:04:04.200 --> 0:04:07.000 the forefront for a while, not just at the Help 0:04:07.040 --> 0:04:10.480 Committee today, but next Tuesday when he goes before the 0:04:10.560 --> 0:04:14.680 Finance Committee. I also want to just touch on Betsy 0:04:14.760 --> 0:04:18.040 devas she had her confirmation hearing, I believe yesterday, right 0:04:18.080 --> 0:04:22.720 she was midnight last night. She is Donald Trump's nominee 0:04:23.000 --> 0:04:26.279 to be the next Secretary of Education, and one of 0:04:26.320 --> 0:04:29.600 the big stories out of that is that she supports 0:04:29.920 --> 0:04:34.920 gun possession in schools. Um. I imagine that there was 0:04:35.000 --> 0:04:38.120 quite a bit said other than that, Um, But can 0:04:38.160 --> 0:04:41.839 you give us a sort of some highlights. Well, that 0:04:42.040 --> 0:04:48.320 definitely would raise so many concerns among Democrats, maybe even Republicans. Um. 0:04:48.360 --> 0:04:54.240 That is something that we have heard the gun industry 0:04:54.480 --> 0:04:59.320 say would perhaps cut down on, you know, crimes in 0:04:59.360 --> 0:05:03.200 the school, but it really hasn't gotten any traction. So 0:05:03.440 --> 0:05:06.960 this is really, you know, something perhaps that people weren't expecting. 0:05:07.360 --> 0:05:10.160 On top of that, she already was raising a lot 0:05:10.200 --> 0:05:13.840 of concern because these two went before that committee last 0:05:13.960 --> 0:05:18.359 night for her hearing without having the required paperwork in order, 0:05:18.839 --> 0:05:23.080 and she has Senator Schumer, the Democratic leader, said five 0:05:23.120 --> 0:05:26.960 billion dollars in assets, and they haven't seen financial disclosure 0:05:27.000 --> 0:05:33.120 paperwork yet. And she's also allegedly violated campaign finance laws. 0:05:33.160 --> 0:05:35.360 So there are a lot of issues there that her 0:05:35.400 --> 0:05:39.800 come her nomination raises. Having said that, Nancy, you just 0:05:39.920 --> 0:05:43.839 quickly procedural roadblocks to this, or the Republicans have got 0:05:43.880 --> 0:05:48.440 that sewed up well. Procedurally, they're not getting to move 0:05:48.480 --> 0:05:52.400 them as quickly as they want. For example, Friday after 0:05:52.440 --> 0:05:56.080 the inauguration, four o'clock in the afternoon, the Senator McConnell 0:05:56.120 --> 0:05:59.880 wanted to start moving nominations, approving them on the floor, 0:06:00.600 --> 0:06:04.960 but unless he gets consent from Democrats, he can't bring 0:06:05.040 --> 0:06:07.719 them up for votes on Friday. The Senate rules don't 0:06:07.720 --> 0:06:10.960 allow for nominations to be approved the very same day 0:06:11.000 --> 0:06:16.440 that they get sent officially got to the Senate. Not 0:06:16.640 --> 0:06:20.000 happen until next week. Thank you very much, Nancy Agnanovitch, 0:06:20.080 --> 0:06:35.040 our senior reporter for Bloomberg b n A PM Fox. 0:06:35.080 --> 0:06:37.960 It is my privilege to introduce a very special guest. 0:06:38.040 --> 0:06:41.960 We have Ira Milstein in our studio with US senior 0:06:42.000 --> 0:06:46.000 partner at Wild gatchel uh And who is a professor 0:06:46.440 --> 0:06:49.719 a law professor at the IRA Milstein Milstein Center for 0:06:49.720 --> 0:06:53.400 Global Markets and Corporate Ownership at Columbia Law School. IRA. 0:06:54.000 --> 0:06:57.080 You wrote a book talking about all of the problems 0:06:57.120 --> 0:06:59.880 in corporate America today and some of the issues that 0:07:00.080 --> 0:07:03.200 you see that need to be remedied. What do you 0:07:03.240 --> 0:07:07.120 think is the number one deficit on corporate boards today 0:07:07.839 --> 0:07:12.080 the ability to go long term. Uh, that's the big problem. 0:07:12.320 --> 0:07:15.480 They're all sort of wedded to the capital market, which 0:07:15.560 --> 0:07:19.640 is forcing them to go short term. Well, can you 0:07:19.680 --> 0:07:23.240 give us some examples of specific corporate situations where where 0:07:23.240 --> 0:07:24.960 they decided to go short term where they should have 0:07:24.960 --> 0:07:27.040 thought long term. Well, yeah, I can give you a 0:07:27.120 --> 0:07:30.000 specifical example of where somebody is going long term at 0:07:30.040 --> 0:07:33.840 the moment, which are general motives they're now thinking about 0:07:34.240 --> 0:07:37.200 building new plants in the United States and hiring more 0:07:37.280 --> 0:07:40.400 people and so on. And whether there's going to be 0:07:40.440 --> 0:07:44.040 a little hit on the market because they're investing in 0:07:44.120 --> 0:07:47.280 the future rather than immediate I don't know. I would 0:07:47.320 --> 0:07:50.680 hope that would be deplauded, but you don't know. I 0:07:50.680 --> 0:07:52.960 want you to just take us a step back, because 0:07:53.000 --> 0:07:57.640 people may not recognize the breath and experience of your career. 0:07:57.720 --> 0:08:02.960 You have represented companies such as General Electric, General Motors. 0:08:03.000 --> 0:08:05.520 I mean you have really been in just about is 0:08:05.560 --> 0:08:10.080 there any boardroom in America? You have not been in Facebook? Facebook? 0:08:10.120 --> 0:08:12.400 You have? Well, now there's a chance, because maybe we 0:08:12.480 --> 0:08:17.840 get you and Mark Zuckerberg connected them. I'm available. Well okay, Well, 0:08:18.840 --> 0:08:20.679 well I'm glad that you use that as an example, 0:08:20.720 --> 0:08:25.000 because I'm wondering, would you provide an example of how 0:08:25.040 --> 0:08:28.880 a board shouldn't work to Mark Zuckerberg so he does 0:08:28.960 --> 0:08:31.480 not fall into that trap. Well, let's put them to 0:08:31.520 --> 0:08:34.079 one side. I'd rather not talk about an individual company, 0:08:34.080 --> 0:08:37.000 but in terms of how boards should not work, it's 0:08:37.040 --> 0:08:39.959 a problem when there's a family owned or a dominant 0:08:40.080 --> 0:08:42.720 or a dominant personality that owns most of the stock. 0:08:43.000 --> 0:08:46.320 That's a problem because the issue of whether or not 0:08:46.960 --> 0:08:50.400 the stuff he's going to respond to stockholder pressure, whether 0:08:50.880 --> 0:08:54.679 he's going to respond to other directors is a question. 0:08:55.040 --> 0:08:57.520 When you're the dominant guy and you really own most 0:08:57.559 --> 0:09:00.960 of the stock, there's very little let people can do 0:09:01.080 --> 0:09:05.520 to shake you up, and that's generally not terribly healthy. Well, 0:09:05.520 --> 0:09:07.920 which General motors. I mean, has the push to invest 0:09:08.080 --> 0:09:13.840 in us UH manufacturing and new R and D plans? 0:09:14.080 --> 0:09:16.560 Has this come from the board? Yeah? I believe so. 0:09:16.720 --> 0:09:21.120 I think Mary Bara, who is a sensational CEO, is 0:09:21.840 --> 0:09:25.480 changed the whole tenor of the place and she's very responsive. 0:09:25.720 --> 0:09:28.400 Are there any other examples of companies that that are 0:09:28.440 --> 0:09:30.600 doing it the right way with boards that are active 0:09:30.600 --> 0:09:33.520 in the correct way. Yeah. I think by looking back 0:09:33.520 --> 0:09:36.160 at history, I think I Been did it the right way. 0:09:36.200 --> 0:09:38.199 I think A T and T did it the right way. 0:09:38.720 --> 0:09:41.960 I think Computer Associates did it the right way. They 0:09:42.040 --> 0:09:44.080 all took a look at where they were and decided 0:09:44.080 --> 0:09:46.400 they couldn't stay where they were there to do something different, 0:09:46.880 --> 0:09:51.120 and in all those cases, those companies took a hit. Um. 0:09:51.240 --> 0:09:53.520 When we talk about activist board members, I mean they 0:09:53.559 --> 0:09:57.800 have to come from somewhere. Where are the best activist 0:09:57.880 --> 0:10:01.320 board members coming from? Or quit they come from? Now 0:10:01.360 --> 0:10:05.360 that's a fantastic question. They have to come from. They 0:10:05.360 --> 0:10:08.960 have to come from some place. And my view is 0:10:09.000 --> 0:10:12.240 that boards themselves have to dig them up. In other words, 0:10:12.880 --> 0:10:17.079 the Nominating and Governance Committee of of the board, if 0:10:17.080 --> 0:10:21.560 it wants activist directors, has to search for and activate them. 0:10:21.640 --> 0:10:23.439 But what types of people? I mean, is it going 0:10:23.480 --> 0:10:25.320 to be a carl Icon or is it going to 0:10:25.360 --> 0:10:29.640 be a professor somewhere now? Professors? You know, I don't 0:10:29.640 --> 0:10:32.640 believe in terribly much. I don't think we're terribly good 0:10:32.679 --> 0:10:36.040 at risk taking. Uh So I think you need people 0:10:36.080 --> 0:10:39.000 who have a vision, and the primary vision I think 0:10:39.000 --> 0:10:42.800 you need is somebody who knows right from wrong. That's 0:10:42.880 --> 0:10:47.080 my primary that's my primary goal because in all these cases, 0:10:47.679 --> 0:10:51.480 where is the deficiency? Something goes wrong? Take a look 0:10:51.520 --> 0:10:56.120 at the Volkswagon, take a look at what's happening around us, 0:10:56.440 --> 0:10:58.520 And in all of those cases you can ask you 0:10:58.520 --> 0:11:01.200 where was the board? What were they doing? Where they sleep? 0:11:01.240 --> 0:11:04.360 Are they paying no attention? I don't know. I wasn't there. 0:11:04.760 --> 0:11:07.360 I can only make a guess. So I think that 0:11:07.440 --> 0:11:11.080 wherever you have a natural disaster of some kind in 0:11:11.120 --> 0:11:14.040 the company, you must ask the question why, why where 0:11:14.120 --> 0:11:16.560 was the board? Why did it take somebody to come 0:11:16.559 --> 0:11:18.320 in and shake them up? Why did why did they 0:11:18.360 --> 0:11:21.559 get into trouble? And where a company falls behind, it 0:11:21.640 --> 0:11:25.000 gets off the cliff because they weren't modern, you would say, 0:11:25.040 --> 0:11:28.239 where were they? Why aren't they interested in growth? And innovation. 0:11:28.760 --> 0:11:32.280 So I'm looking for people who will stand up to 0:11:32.400 --> 0:11:36.280 the management, who will ask the right questions, and who 0:11:36.360 --> 0:11:39.880 will look to do what's good for the whole corporation, 0:11:40.280 --> 0:11:44.840 not for some individual sharehold Without naming names, can you 0:11:44.920 --> 0:11:49.680 get provide us an anecdote of board policy or board 0:11:49.760 --> 0:11:55.360 relationships that you've seen that you have had trouble believing 0:11:55.440 --> 0:11:58.680 really exists, or you could name names. I can name names. 0:11:59.720 --> 0:12:03.800 That's asked. One of my favorites is Drexel. When Mike 0:12:03.840 --> 0:12:06.480 Milken was sent out to the West coast all alone 0:12:07.040 --> 0:12:10.319 to do his trading by himself and nobody looking. What 0:12:10.400 --> 0:12:14.280 was the result the jail sentence, and it was where 0:12:14.320 --> 0:12:16.440 was the board? Why weren't they looking? Why did they 0:12:16.520 --> 0:12:19.960 let him go? And why wasn't somebody paying attention to 0:12:20.040 --> 0:12:23.320 what he was doing. Is there a way for investors 0:12:23.360 --> 0:12:26.240 to gauge how effective the board is other than just 0:12:26.280 --> 0:12:28.319 looking at the incremental changes? I mean, is there sort 0:12:28.320 --> 0:12:31.280 of a hallmark of a good board. The hallmark of 0:12:31.280 --> 0:12:35.000 a good board is a performance of the company. If 0:12:35.040 --> 0:12:38.200 the company is performing well, the chances are there's a 0:12:38.200 --> 0:12:42.320 good board in there someplace. Although sometimes performing well as 0:12:42.360 --> 0:12:46.440 an handicap because you're going to sleep. Uh So, But generally, 0:12:46.480 --> 0:12:49.199 I mean you're you're feeling is that if the company 0:12:49.240 --> 0:12:52.800 is doing well, the board is functioning, it's easy to 0:12:52.880 --> 0:12:56.000 find bad corporate governors because wherever you find a company 0:12:56.000 --> 0:12:58.320 that got into big trouble, fell off the cliff, didn't 0:12:58.360 --> 0:13:01.280 go modern, you have to yourself where is the board? 0:13:01.720 --> 0:13:04.559 Those are areas where the board should have been involved. 0:13:05.559 --> 0:13:08.760 Can you give us twenty five seconds on the succession 0:13:08.880 --> 0:13:15.600 planning that exists or doesn't exist for companies, it varies seconds. 0:13:15.640 --> 0:13:19.640 It exists, but in some places it doesn't exist. In 0:13:19.760 --> 0:13:25.240 other than wordplay, Uh, it's it's tough and everybody's got 0:13:25.240 --> 0:13:27.360 to be willing to play that game, including the CEO. 0:13:28.120 --> 0:13:30.240 Thank you very much for spending time with us. Ira 0:13:30.559 --> 0:13:33.679 Millstein is a senior partner at while gotchall. He is 0:13:33.760 --> 0:13:36.520 also the author of the new book The Activist Director, 0:13:36.960 --> 0:13:40.920 Lessons from the Boardroom and the Future of the Corporation. 0:13:40.960 --> 0:13:42.480 And I also just want to mention that he is 0:13:42.520 --> 0:13:45.800 the author of many other books called such titles as 0:13:45.840 --> 0:13:50.200 The Recurrent Crisis in Corporate Governance and the Limits of 0:13:50.320 --> 0:13:54.280 Corporate Power. So certainly, uh, someone with a lot of 0:13:54.320 --> 0:13:58.440 experience knowing what goes on in the corporate board well, 0:13:58.520 --> 0:14:02.400 especially somebody who has been in the boardrooms of con Ed, Drexel, Burnham, 0:14:02.480 --> 0:14:05.559 Lambert General Motors. This is somebody with a lot of experience. 0:14:06.240 --> 0:14:19.840 In other words, go out read the book and we're 0:14:19.840 --> 0:14:23.480 gonna learn more about the oil business and oil prices. 0:14:24.800 --> 0:14:27.120 We have Julian Lee. He is the oil strategist for 0:14:27.280 --> 0:14:31.480 Bloomberg News and he joins us from London. Julian, always 0:14:31.520 --> 0:14:34.680 a pleasure to talk with you. I've got to begin 0:14:34.760 --> 0:14:39.120 by getting your thoughts here about if a club makes 0:14:39.160 --> 0:14:42.200 a decision that they're going to do something like cut 0:14:42.200 --> 0:14:46.040 back on the production of oil, and then one of 0:14:46.080 --> 0:14:51.560 those club members decides to breach this agreement, either surreptitiously 0:14:51.800 --> 0:14:55.760 or overtly. Uh, what does that mean, especially when you 0:14:55.840 --> 0:14:58.480 have a competitor breathing down your neck for the biggest 0:14:58.520 --> 0:15:02.720 market that you're currently so apply. I think it means 0:15:02.800 --> 0:15:06.680 that we are in the world of normal OPEQ politics. 0:15:06.840 --> 0:15:11.440 To perfectly Hones, I think we have to put all 0:15:11.440 --> 0:15:13.760 this in perspective. You know, this is very early days 0:15:13.800 --> 0:15:17.320 of the agreement. The agreement came into effect on the 0:15:17.400 --> 0:15:20.680 first of January, so we're literally just over two weeks. 0:15:20.960 --> 0:15:23.000 Give people the I just let that for you be 0:15:23.040 --> 0:15:25.880 a platform. We'll give people the detail absolutely. I mean, 0:15:25.880 --> 0:15:28.000 we had this agreement. OPEC agreed at the end of 0:15:28.040 --> 0:15:31.800 November that they would cut output collectively by about one 0:15:31.840 --> 0:15:34.640 point two million barrels a day from the start of January. 0:15:35.080 --> 0:15:37.920 The agreement covered all members of OPEQ, with the exception 0:15:38.000 --> 0:15:41.680 of Nigeria and Libya, who are allowed to produce at 0:15:41.720 --> 0:15:46.280 will because both of those were suffering unforeseen disruptions to 0:15:46.320 --> 0:15:51.880 their production. Iran was given permission under the agreement to 0:15:52.200 --> 0:15:54.640 raise its output slightly from the level that it was 0:15:54.680 --> 0:15:58.520 at late last year. All other members were and are 0:15:58.640 --> 0:16:03.240 still meant to cut back. Um, we're starting to get 0:16:03.960 --> 0:16:06.960 oil ministers from from all of the member countries saying 0:16:06.960 --> 0:16:10.360 that they are implementing these cuts. We are doing some 0:16:10.520 --> 0:16:13.560 of our own monitoring of of what's going on. We 0:16:13.720 --> 0:16:18.760 track the tankers leaving the oil export terminals of various 0:16:18.760 --> 0:16:23.120 Opeque countries and those are showing at the moment a 0:16:23.360 --> 0:16:28.160 slightly different picture. We're seeing no real cut yet in 0:16:28.160 --> 0:16:33.000 in h shipments out of Iraq, for instance, But you know, 0:16:33.080 --> 0:16:34.960 it has to be said, it's early days and when 0:16:34.960 --> 0:16:39.560 you're tracking tankers, you can only really see a cargo 0:16:39.640 --> 0:16:42.760 is loaded when the tanker leaves. Now you know, we 0:16:42.760 --> 0:16:45.680 we see a bunch of tankers leaving Iraq, if one 0:16:45.760 --> 0:16:49.320 of them is delayed by a day over half a month, 0:16:49.400 --> 0:16:51.680 that can make a difference of a hundred and twenty 0:16:51.720 --> 0:16:54.360 thousand barrels a day to the average export rates. So 0:16:55.000 --> 0:16:57.880 you know, these figures are going to to I think, 0:16:57.920 --> 0:17:00.680 show a lot of variation in the early part of 0:17:01.400 --> 0:17:04.520 any month. Um, we're still going to need to wait 0:17:04.560 --> 0:17:07.840 a little longer to see what's really going on. But 0:17:07.920 --> 0:17:11.240 at the moment we have we have no very hard 0:17:11.600 --> 0:17:14.840 physical evidence that cuts are being made, but it could 0:17:14.880 --> 0:17:18.080 equally be argued that we have very little hard physical 0:17:18.119 --> 0:17:20.560 evidence that they're not either. Well, one thing that we 0:17:20.640 --> 0:17:24.280 do have some hard evidence about is that shail production 0:17:24.280 --> 0:17:27.920 in the US has been re accelerating a bit. How 0:17:27.960 --> 0:17:30.919 does this pressure o PET members. Well, I think this 0:17:30.920 --> 0:17:34.960 this potentially causes quite significant problems for OPET going forwards. 0:17:35.400 --> 0:17:38.400 We had the International Energy Agency, this is the statistical 0:17:38.480 --> 0:17:41.280 arm of the U. S Department of Energy, who came 0:17:41.280 --> 0:17:44.720 out with two publications last week. The first of them 0:17:44.800 --> 0:17:47.879 was their short Term Energy Outlook, which they publish every month, 0:17:48.359 --> 0:17:54.120 and in that they have revised up their US production 0:17:54.880 --> 0:17:59.000 UM and principally that's been an upward revision to shale production. Now, 0:17:59.240 --> 0:18:03.359 what for me was was key in this revision was 0:18:03.400 --> 0:18:06.399 that this was revision to historical data for the fourth 0:18:06.480 --> 0:18:10.240 quarter of twenty sixteen, and they increased that by around 0:18:10.240 --> 0:18:14.560 a hundred thousand barrels a day UM. That tells me 0:18:15.440 --> 0:18:21.320 that shale production was recovering even before OPEC did its deal. 0:18:22.400 --> 0:18:24.800 And not only you know, had OPEC not done its deal, 0:18:24.880 --> 0:18:29.000 but at that point the expectation for oil prices in 0:18:29.000 --> 0:18:33.000 in SEV was round about fifty dollars a barrel. So 0:18:33.359 --> 0:18:37.600 even with this expectation that prices wouldn't rise, shale producers 0:18:37.600 --> 0:18:39.879 were still able to boost production. We're now in a 0:18:39.920 --> 0:18:46.000 situation where prices have risen a bit um. The expectation 0:18:46.040 --> 0:18:48.800 of analysts going forward is that they will rise further 0:18:48.920 --> 0:18:51.840 over the course of this year. And what that suggests, sorry, 0:18:51.880 --> 0:18:54.440 what that suggests to me is that the the i 0:18:54.600 --> 0:18:57.439 AS forecast of three and twenty thousand barrels a day 0:18:57.480 --> 0:19:00.600 of growth this year could be an underestimate. Julian Lee, 0:19:00.680 --> 0:19:02.720 thank you so much for joining us. Julian the oil 0:19:02.720 --> 0:19:07.200 strategist for Bloomberg Intelligence in London talking about us shall production, 0:19:07.400 --> 0:19:10.439 how this could burst opex bubble at least brom woids 0:19:10.640 --> 0:19:24.600 along with pim Fox this spoomer. All right, I want 0:19:24.640 --> 0:19:28.480 to know if fifty six billion dollars can be wrong? Well, 0:19:28.720 --> 0:19:34.239 Netflix has asked Jerry Seinfeld to bring his comedians and 0:19:34.320 --> 0:19:38.639 cars getting coffee over to Netflix. Give it a park 0:19:38.680 --> 0:19:42.200 I guess in their uh star parking lot. Here to 0:19:42.280 --> 0:19:44.400 tell us a little bit more about this whole thing 0:19:44.480 --> 0:19:46.800 is a Paul Sweeney. He's our star. He's our director 0:19:46.840 --> 0:19:51.640 of North American research and media analysts for Bloomberg Intelligence. 0:19:52.040 --> 0:19:54.200 Uh do you like these kinds of stories, Paul that 0:19:54.280 --> 0:19:56.760 you know you get sort of weave in by saying, 0:19:57.080 --> 0:19:59.320 you know, Jerry Seinfeld is going to now do his 0:20:00.119 --> 0:20:04.639 ing on Netflix. And we're getting ready for the Netflix earnings, 0:20:04.640 --> 0:20:07.040 which will be out this afternoon. Right, it's uh, well, 0:20:07.040 --> 0:20:09.120 one thing we've seen from Netflix is I always joke 0:20:09.200 --> 0:20:14.240 that Ted Sarandos, who's head of content acquisition at Netflix, 0:20:14.359 --> 0:20:18.199 is the most popular person in Hollywood because he is 0:20:18.200 --> 0:20:21.720 buying everything. He has a huge check book, he's opened 0:20:21.760 --> 0:20:25.000 his checkbook and he's writing huge checks for content all 0:20:25.000 --> 0:20:28.080 over the place to Jerry Seinfeld is just another example. UM. 0:20:28.160 --> 0:20:30.760 So they're going to spend north of six billion dollars 0:20:31.240 --> 0:20:34.359 on programming, which is compare that to CBS which might 0:20:34.400 --> 0:20:37.080 spend three and a half to four billion dollars. So UM, 0:20:37.200 --> 0:20:40.800 just huge amounts on on original content and content they're 0:20:40.800 --> 0:20:43.479 buying from others. So UM, they are really gearing up 0:20:43.480 --> 0:20:47.200 for the long term. How can investors look for results 0:20:47.400 --> 0:20:51.280 from this UH open checkbook with the earnings that come 0:20:51.280 --> 0:20:53.680 out later today. Well, it's something that the company has 0:20:53.680 --> 0:20:58.000 coined as their virtuous circle, which is investments in programming 0:20:58.119 --> 0:21:02.040 drive subscriber growth. Subscribe growth drives revenue and profits, which 0:21:02.080 --> 0:21:06.760 funds even more investment capability into content. So the metric 0:21:06.840 --> 0:21:09.960 that investors have really focused on for this company has 0:21:10.000 --> 0:21:13.440 really been net subscriber growth UM. And now since they're 0:21:13.440 --> 0:21:16.359 a global company, they break it down between domestic U 0:21:16.440 --> 0:21:19.800 S subscriber growth and international And what we've seen obviously 0:21:19.840 --> 0:21:21.440 over the last several years, and what's driven the stock 0:21:21.480 --> 0:21:22.960 over the last several years is the company has been 0:21:23.080 --> 0:21:26.560 very successful adding subscribers, first in the US UH and 0:21:26.640 --> 0:21:29.560 now globally, So that is the number one metric for 0:21:29.560 --> 0:21:33.040 the company is subscriber growth because that funds uh that 0:21:33.240 --> 0:21:36.280 or enables this virtuous circle, and if it goes wrong, 0:21:36.720 --> 0:21:40.199 it becomes a vicious circle. Because these programming uh uh 0:21:40.760 --> 0:21:45.000 obligations are long term, fixed obligations, and they have obligations 0:21:45.040 --> 0:21:49.159 of about fourteen billion dollars for programming going out over 0:21:49.160 --> 0:21:51.200 the next number of years. And in order to pay 0:21:51.240 --> 0:21:54.480 for those uh programming obligations, they have to continue to 0:21:54.480 --> 0:21:56.600 grow their subscribers and their revenue in their cash flow. 0:21:57.359 --> 0:21:59.840 Oh paying for this? Oh come on, Paul, so we 0:22:00.040 --> 0:22:02.920 you please stop. You know, that's just so like last century. 0:22:02.960 --> 0:22:05.359 This sounds like they're taking a leaf out of the 0:22:05.359 --> 0:22:09.800 book of Jeff Bezos at Amazon. Yeah, it's uh, you 0:22:09.800 --> 0:22:12.480 know Jeff Bezos in a sense that you know, profits 0:22:12.520 --> 0:22:15.160 be damned. It's all about growth. And the Amazon investors 0:22:15.160 --> 0:22:18.639 are clearly okay with that. I think a Netflix investors 0:22:19.000 --> 0:22:21.720 uh now really want to see profit growth. And if 0:22:21.760 --> 0:22:23.680 you look at some of the consensus estimates out there, 0:22:24.560 --> 0:22:26.680 the street is looking for profit to double this year 0:22:27.080 --> 0:22:30.520 versus last year and double again in effectively. So what's 0:22:30.520 --> 0:22:33.000 what's happening at the company is their domestic US business 0:22:33.080 --> 0:22:36.800 is actually very profitable. Um and a lot of handing 0:22:36.840 --> 0:22:40.120 over an annuity every month exactly right. I mean just 0:22:40.280 --> 0:22:44.040 as with Amazon and their Amazon Prime, you get certain privileges, 0:22:44.119 --> 0:22:46.919 but also you get the daily fare of whatever it 0:22:46.960 --> 0:22:50.359 is you want, maybe add ons and competition with cable 0:22:50.400 --> 0:22:53.480 companies off for content? Are they paying the right price 0:22:53.560 --> 0:22:55.399 price for this content? I mean right now, there's so 0:22:55.480 --> 0:22:58.959 much competition. Yeah, it's the cost of content, particularly original 0:22:59.000 --> 0:23:02.000 content is in fact growing up. They are still the 0:23:02.040 --> 0:23:04.240 biggest game in town. They have the biggest check book, 0:23:04.240 --> 0:23:07.359 a relative Yeah, and uh, you know Amazon, and uh, 0:23:07.480 --> 0:23:09.560 that's a lot of the bad television. That's a lot 0:23:09.600 --> 0:23:11.640 of television and there's no ratings. You don't know how 0:23:11.640 --> 0:23:14.680 it's doing. I like comedians and getting no. No, I 0:23:14.720 --> 0:23:18.000 didn't mean that, but I just meant that television. But 0:23:18.640 --> 0:23:21.480 that I'm saying, if you if you have six billion 0:23:21.600 --> 0:23:23.520 to spend, not all of it is going to be 0:23:23.560 --> 0:23:25.680 a hit, right, And just why you do this? Right? 0:23:25.720 --> 0:23:27.960 And and the interesting thing that for Netflix is they 0:23:28.080 --> 0:23:30.640 never have to They never have a bad joke because 0:23:30.640 --> 0:23:33.960 they have no ratings. And so Ted Serrandos, he's a 0:23:34.040 --> 0:23:36.119 rock star because every show in theory is a hit 0:23:36.119 --> 0:23:37.760 because we have no ratings to know whether they do 0:23:37.800 --> 0:23:40.160 well or not. That the only metric that investors really 0:23:40.200 --> 0:23:43.520 have is our subscribers continuing to grow, and if they are, 0:23:44.000 --> 0:23:46.680 that presumably is because the programming is working. So all 0:23:46.680 --> 0:23:50.040 of Netflix shows are being thrown into one basket, and 0:23:50.040 --> 0:23:51.959 it is a basket that we will get more insight 0:23:52.240 --> 0:23:56.679 into later today when Netflix earnings come out. Paul Sweeney, 0:23:56.680 --> 0:23:59.280 thank you so much as always for joining us. Paul 0:23:59.320 --> 0:24:03.400 Sweeney us director of Research and senior media Internet analyst 0:24:03.480 --> 0:24:07.240 for Bloomberg Intelligence, and he joined us from our Bloomberg 0:24:07.240 --> 0:24:10.680 eleven three oh studio. You know, Pim, I gotta say 0:24:10.960 --> 0:24:12.680 I love that show and if you look at the 0:24:12.800 --> 0:24:15.640 sort of YouTube hits, I mean it was going crazy. 0:24:15.800 --> 0:24:18.360 So you know, maybe Netflix maybe six billion dollars, maybe 0:24:18.400 --> 0:24:26.480 it was worth it. Thanks for listening to the Bloomberg 0:24:26.520 --> 0:24:29.320 P and L podcast. You can subscribe and listen to 0:24:29.359 --> 0:24:34.600 interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. 0:24:34.920 --> 0:24:38.200