WEBVTT - Venezuela Debt Gets China Support, AllianceBernstein's Khan Says 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg p m L Podcast. I'm pim 0:00:08.400 --> 0:00:11.440 Fox along with my co host Lisa Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:32.040 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:32.080 --> 0:00:34.800 There was a report late yesterday in the Wall Street 0:00:34.880 --> 0:00:38.760 Journal talking about how JP Morgan, which operates the main 0:00:39.080 --> 0:00:42.640 benchmark that is used to invest in emerging markets debt, 0:00:42.760 --> 0:00:46.160 the JP Morgan may be forced to remove Venezuelan debt 0:00:46.320 --> 0:00:50.480 from its benchmark index as a result of U S sanctions, 0:00:50.680 --> 0:00:54.200 details of which are expected to be announced today. They 0:00:54.200 --> 0:00:55.800 may have already been announced. They want to check that 0:00:55.840 --> 0:00:57.480 because that was supposed to come at eleven. I want 0:00:57.480 --> 0:00:59.680 to bring in Shamila Khan. She is director of Emerging 0:00:59.680 --> 0:01:03.720 Market Debt and Alliance Bernstein in New York. And Shamila, 0:01:03.800 --> 0:01:06.800 I want to start by talking about the market response 0:01:06.840 --> 0:01:09.680 to some of the rumors. I have been very surprised 0:01:09.720 --> 0:01:12.360 to see no market response, and I would think that 0:01:12.400 --> 0:01:16.040 there would be a massive further decline in Venezuela bonds. 0:01:16.080 --> 0:01:19.760 Should there be a removal of this UH, this particular 0:01:19.800 --> 0:01:23.120 type of debt from benchmark indexes. What's going on here? 0:01:23.840 --> 0:01:26.200 So what's going on really is a lot of uncertainty 0:01:26.240 --> 0:01:28.880 in terms of what kind of sanctions are going to 0:01:28.959 --> 0:01:32.520 be announced. To the extent that the U. S. Treasury 0:01:32.560 --> 0:01:34.760 sticks to the kind of sanctions they employed at the 0:01:34.800 --> 0:01:38.640 time of the Russian invasion of Ukraine UH and only 0:01:38.760 --> 0:01:42.240 limit the sanctions to newly issued debt in the future 0:01:42.480 --> 0:01:46.200 of Venezuelan entities, then the impact on the index is 0:01:46.240 --> 0:01:48.560 going to be fairly negligible, which is why you're not 0:01:48.680 --> 0:01:54.200 saying as seeing a tremendous price response UM in the bonds. UH. 0:01:54.240 --> 0:01:56.760 In addition, there have been some humors, rumors in the 0:01:56.840 --> 0:02:00.240 last day or so off you know, Chinese involvement in 0:02:01.480 --> 0:02:05.760 helping the Venezuelan government make its Maartom payments UM, which 0:02:05.760 --> 0:02:08.600 are being negotiated in China by Venezuelan officials that have 0:02:08.720 --> 0:02:12.120 been further supportive of prices. Wow, that's really interesting. I 0:02:12.160 --> 0:02:14.360 just want to bring you some headlines related to this. 0:02:14.480 --> 0:02:17.920 So President Trump has just as we were introducing you, 0:02:18.280 --> 0:02:22.040 Trump signed an executive order on new Venezuela sanctions that 0:02:22.080 --> 0:02:26.840 include UH some ban in dealing in new debt and 0:02:26.919 --> 0:02:30.000 equity from the state run oil company which is trades 0:02:30.080 --> 0:02:33.799 under the tick Peta VESA, as well as Venezuela Venezuela 0:02:33.840 --> 0:02:37.920 government issued debt and equity UM. We had been hearing 0:02:38.240 --> 0:02:41.000 that this could be potentially nuanced so that it wouldn't 0:02:41.040 --> 0:02:45.200 necessarily affect people in the US trading existing bonds between 0:02:45.280 --> 0:02:47.680 each other. But we still need to parse through the 0:02:47.720 --> 0:02:49.760 details and we will bring them to you when we 0:02:49.840 --> 0:02:53.480 get them. But Shamila, what about from your perspective, does 0:02:53.480 --> 0:02:58.000 Alliance Bernstein own Venezuela and debt? Have you been selling 0:02:58.240 --> 0:03:01.080 your holdings of it? And now where do you expect 0:03:01.080 --> 0:03:04.560 to go from here with those holdings? So, Alliance Pornstein 0:03:04.639 --> 0:03:07.919 manages a number of funds that are benchmarked to emerging 0:03:07.960 --> 0:03:12.160 market solvereign in disease that include Venezuela debt. As such, 0:03:12.280 --> 0:03:15.160 we are holders of Venezuela debt. But our stance in 0:03:15.240 --> 0:03:19.240 Venezuela has been very defensive for some time, and the 0:03:19.280 --> 0:03:21.960 way we think about Venezuela is really take a very 0:03:22.000 --> 0:03:27.000 strong fundamental stance with respect to these country's um future 0:03:27.639 --> 0:03:30.919 with respect to ability to pay back its debt um. 0:03:30.960 --> 0:03:33.600 There is no real reason Venezuela should be in the 0:03:33.639 --> 0:03:37.400 economic situation it is in right now. Uh. It has 0:03:37.440 --> 0:03:41.840 a lot of resources and it definitely does not appear 0:03:41.880 --> 0:03:44.480 to us a solvency issue, but rather a liquidity issue 0:03:44.720 --> 0:03:46.640 and the fact that the country does not have a 0:03:46.640 --> 0:03:49.600 credible regime and has not been able to attract investment 0:03:49.640 --> 0:03:52.680 into the country. We do not see the current situation 0:03:52.720 --> 0:03:55.480 as a sustainable situation. We do believe that there will 0:03:55.520 --> 0:03:57.720 be a change in the future which will lead to 0:03:57.760 --> 0:04:01.040 a better economic situation in Venezuela. And when we are 0:04:01.120 --> 0:04:04.520 putting together our exposures, we keep this fundamental view in mind, 0:04:04.960 --> 0:04:08.400 because our investments are always forward looking as far as 0:04:08.440 --> 0:04:11.880 fundamentals are concerned. Well, Shamala, I just want to give 0:04:11.920 --> 0:04:13.640 you the opportunity. I mean, if you're talking about the 0:04:13.640 --> 0:04:17.640 country's ability to repay it stead or potential ability, what 0:04:17.720 --> 0:04:20.960 about the potential ability of the country to restructure itself. 0:04:21.000 --> 0:04:22.559 I mean, that doesn't look like it's going to happen, 0:04:22.560 --> 0:04:26.040 at least internally. And uh, have you had any pushback 0:04:26.080 --> 0:04:28.599 from investors who say, you know what, we really don't 0:04:28.640 --> 0:04:32.719 want our money being lent to any entity that is 0:04:32.720 --> 0:04:36.640 supported by such a repressive regime. That's absolutely true, and 0:04:36.720 --> 0:04:39.680 that is something that we don't think is sustainable. We 0:04:39.720 --> 0:04:42.760 do not believe that the repressive regime is a sustainable 0:04:42.920 --> 0:04:47.440 regime in the near future, uh and in the medium term, 0:04:47.800 --> 0:04:50.080 as a result of which we believe that there will 0:04:50.120 --> 0:04:52.680 be a change to a more credible regime which will 0:04:52.760 --> 0:04:55.880 be able to put together policies um and that is 0:04:56.040 --> 0:04:58.039 what we are looking for in order to be less 0:04:58.080 --> 0:05:01.000 defensive in our positioning in when as Allah. The other 0:05:01.040 --> 0:05:03.520 thing to keep in mind is that prices are already 0:05:03.560 --> 0:05:06.039 at very depressed levels. They are at all time lows 0:05:06.080 --> 0:05:07.920 and for many of the bonds, and they are treating 0:05:08.360 --> 0:05:11.440 below what has been historically the recovery rates on emerging 0:05:11.480 --> 0:05:15.320 market sovereigns. So to a great extent, this country is 0:05:15.360 --> 0:05:20.080 already pricing in a restructuring of its external debt, Shamila. So, 0:05:20.440 --> 0:05:23.720 given the fact that we are getting now new sanctions 0:05:23.800 --> 0:05:26.880 by the US on Venezuela debt and equity, do you 0:05:27.040 --> 0:05:29.680 have any sense of how this could affect your day 0:05:29.680 --> 0:05:32.960 to day? Does this change anything about the way you 0:05:33.040 --> 0:05:38.320 approach investing in Venezuela well? We were expecting sanctions from 0:05:38.360 --> 0:05:40.400 the United States, so this is something that we have 0:05:40.520 --> 0:05:45.640 taken into consideration when constructing our own portfolios, and at 0:05:45.640 --> 0:05:49.080 this point as we are really seeing the headlines come 0:05:49.120 --> 0:05:52.679 out as we speak. From what I can understand based 0:05:52.720 --> 0:05:54.960 on what I'm reading right now, it is a ban 0:05:55.080 --> 0:05:57.880 on dealing in new debt, which is debt which will 0:05:57.920 --> 0:06:00.520 be issued in the future, which would not impact any 0:06:00.520 --> 0:06:03.520 of the existing debt. There are some headlines about certain 0:06:03.560 --> 0:06:07.400 bonds possibly getting impacted. It's unclear to me which bonds 0:06:07.440 --> 0:06:09.719 those are, but what we have tried to do is 0:06:09.760 --> 0:06:13.559 limit our holdings to the Venezuelan bonds, which we believe 0:06:13.560 --> 0:06:16.640 will not be controversial with respect to payments and are 0:06:16.680 --> 0:06:20.520 generally accepted by the opposition as legal debt. Thank you 0:06:20.600 --> 0:06:22.839 very much for being with us. Shamaila Khan is the 0:06:22.880 --> 0:06:26.440 director of Emerging Market Debt for Alliance Bernstein And once again, 0:06:26.920 --> 0:06:31.080 President Donald Trump has signed an order that imposes new 0:06:31.200 --> 0:06:34.039 U S sanctions on Venezuela and debt. This is new 0:06:34.080 --> 0:06:36.800 debt from the government as well as from the state 0:06:37.120 --> 0:06:52.680 oil company Petasa. Well, how about ordering your dinner from Amazon. 0:06:52.839 --> 0:06:56.200 It doesn't seem too far of idea, and indeed, with 0:06:56.240 --> 0:06:58.560 the purchase of Whole Foods, it seems like something is 0:06:58.600 --> 0:07:00.359 going to happen at least next week and terms of 0:07:00.400 --> 0:07:02.400 prices here. To tell us more about the effect on 0:07:02.400 --> 0:07:06.400 the grocery store industry is Shira Overday are technology columnists 0:07:06.400 --> 0:07:09.920 are Bloomberg gad Fly. She follows all of this technology 0:07:09.960 --> 0:07:13.040 for our fast commentary section of Bloomberg and you can 0:07:13.040 --> 0:07:16.000 follow her on Twitter at Shira Overday. And also whether 0:07:16.040 --> 0:07:19.200 us we have Sarah Halzac, our retail columnist for Bloomberg 0:07:19.240 --> 0:07:21.680 gad Fly. It's all coming together and you can follow 0:07:21.960 --> 0:07:25.640 Sarah at on Twitter at Sarah Halzack. Um. You know, Sarah, 0:07:25.640 --> 0:07:28.280 maybe we should just start with you, as uh, someone 0:07:28.320 --> 0:07:33.520 that's following retail. What effect do you believe the move 0:07:33.600 --> 0:07:35.880 by Amazon to acquire Whole Foods? What do you think 0:07:35.920 --> 0:07:39.200 it will make the other grocery stores do, because they're 0:07:39.200 --> 0:07:41.160 not going to just sit back and wait for someone 0:07:41.200 --> 0:07:44.160 else to take their market share away. That's exactly right, 0:07:44.200 --> 0:07:46.040 and I think what it's gonna do is really put 0:07:46.080 --> 0:07:48.840 pressure on them to squeeze every bit of pricing they 0:07:48.880 --> 0:07:52.320 can out of what they're offering to customers. You know, 0:07:52.440 --> 0:07:54.520 Whole Foods for a long time now has had this 0:07:54.600 --> 0:07:58.400 reputation as whole paycheck. They really hadn't been competitive on 0:07:58.400 --> 0:08:01.280 a price front. And so as consumer gets more health 0:08:01.360 --> 0:08:04.320 minded and they want these organics, there's been a lot 0:08:04.360 --> 0:08:07.640 of room for other grocers to take share their Kroger, Walmart, 0:08:07.680 --> 0:08:10.560 all the legal they're offering these kinds of products at 0:08:10.560 --> 0:08:13.240 better prices. Now that Amazon is going to make Whole 0:08:13.280 --> 0:08:15.920 Foods get serious about being competitive in that way, it 0:08:15.960 --> 0:08:18.520 really throws down the gauntlet to the rest of the sector. Shira, 0:08:18.600 --> 0:08:21.440 I want to bring you in here from the Amazon perspective. 0:08:21.880 --> 0:08:24.560 It's not that novel of an idea. If you cut prices, 0:08:24.560 --> 0:08:26.720 people will be more interested in something, right, and this 0:08:26.760 --> 0:08:29.320 is sort of it's but it's business model. But I 0:08:29.320 --> 0:08:32.440 imagine that there are reasons that Whole Foods didn't have 0:08:32.600 --> 0:08:34.760 lower prices to begin with. In other words, that cuts 0:08:34.760 --> 0:08:37.439 into their margins and their profit margins. I mean, where 0:08:37.640 --> 0:08:41.240 is the long term goal here for Amazon and how 0:08:41.280 --> 0:08:44.160 profitable is this model? It's a fair quiesh. I mean, 0:08:44.200 --> 0:08:48.720 it's it's worth noting that even a grocer like Whole Foods, 0:08:48.760 --> 0:08:52.360 albeit an expensive grocer like Whole Foods has significantly better 0:08:52.400 --> 0:08:55.920 operating margins than Amazon. Right You're talking five percent in 0:08:55.960 --> 0:08:58.400 the last quarter for Whole Foods, a five percent operating 0:08:58.400 --> 0:09:01.240 margins and two percent operating margins for Amason. So it's 0:09:01.240 --> 0:09:03.480 weird when you acquire a grocer and you're buying a 0:09:03.559 --> 0:09:07.720 higher margin business than the what you already have. But look, 0:09:08.000 --> 0:09:10.679 you saw what Amazon did right away, which is really 0:09:10.800 --> 0:09:14.200 it just shows their ruthless genius, which is they set 0:09:14.240 --> 0:09:17.679 out on day one to change the perception of Whole 0:09:17.720 --> 0:09:22.200 Foods as this expensive place to buy fancy groceries that 0:09:22.559 --> 0:09:25.320 you know, they use the word savings and you know, 0:09:25.520 --> 0:09:29.199 organic foods for everyone, uh several times in their news 0:09:29.240 --> 0:09:33.600 announcement yesterday. And it's really about changing the perception and 0:09:33.640 --> 0:09:36.720 getting more people in the door and starting to steal 0:09:36.720 --> 0:09:40.120 that market share from other grocers. Well, you know these uh, 0:09:40.360 --> 0:09:41.920 this idea that there's going to be let's say, a 0:09:41.960 --> 0:09:46.440 membership program that would morph from Amazon Prime over to 0:09:46.520 --> 0:09:49.360 let's say a point of sales system at Whole Foods, 0:09:49.920 --> 0:09:52.959 is that something shure that you believe is just gonna, 0:09:53.120 --> 0:09:56.200 you know, normally going to happen. I mean they endicate 0:09:57.040 --> 0:09:59.400 I will say it's unclear exactly how that's gonna work, right. 0:09:59.440 --> 0:10:03.959 Amazon's said yesterday that they're going to essentially make Amazon Prime, 0:10:04.040 --> 0:10:08.000 their existing hundred dollar a year shopping club, into the 0:10:08.040 --> 0:10:11.240 sort of loyalty card program for Whole Foods, and we 0:10:11.280 --> 0:10:13.240 didn't get a lot of details, but you can sort 0:10:13.240 --> 0:10:16.960 of imagine that Amazon will try to make it worth 0:10:17.320 --> 0:10:20.800 Prime members time to shop at Whole Foods and not 0:10:20.880 --> 0:10:23.839 at other places. And that's a clever idea. Well, and 0:10:24.360 --> 0:10:26.400 just to follow up the idea about point of sale 0:10:26.559 --> 0:10:29.000 is that maybe you will be in a situation in 0:10:29.000 --> 0:10:31.440 which you will not have to actually give your credit 0:10:31.480 --> 0:10:35.800 card or your cash in order to make a transit 0:10:36.240 --> 0:10:39.360 a purchase at Whole Foods because you're a Prime customer, 0:10:39.520 --> 0:10:42.120 you're logged in, you're done, it goes into your Amazon ACA. 0:10:42.240 --> 0:10:44.160 Maybe I don't. I don't think we're there yet. We 0:10:44.280 --> 0:10:47.280 will see exactly how they integrate the sort of cash 0:10:47.320 --> 0:10:50.400 register system with Prime. But you can sort of imagine 0:10:50.520 --> 0:10:52.400 where you go to check out, if you're a Prime member, 0:10:52.640 --> 0:10:56.360 you get a better discount on those bananas or that 0:10:56.480 --> 0:10:58.440 jar of peanut butter than you would if you're not 0:10:58.559 --> 0:11:01.160 a Prime member. And again, it means that if your 0:11:01.240 --> 0:11:04.440 prime member, and a lot tens of millions of Americans are, 0:11:04.920 --> 0:11:06.920 that gives you an extra incentive to shop at Whole 0:11:06.920 --> 0:11:09.240 Foods and not at the Kroger or whatever down the street. 0:11:09.400 --> 0:11:11.600 And I just want to point out that Amazon shares 0:11:11.600 --> 0:11:15.319 have actually been down for a third consecutive day, so 0:11:15.360 --> 0:11:18.480 even though yes, Kroger shares and other grocery store shares 0:11:18.520 --> 0:11:21.880 have gone down, although Kroger's bouncing back a little bit today, Uh, 0:11:21.920 --> 0:11:25.200 you know, Amazon's down too with the question of profit margins. 0:11:25.520 --> 0:11:27.280 But Sarah, I want to bring you back in here. 0:11:27.320 --> 0:11:31.960 Amazon one in the retail war or is winning because 0:11:32.160 --> 0:11:36.680 not just on lowering prices, they also found a way 0:11:36.679 --> 0:11:41.000 to distribute goods efficiently and quickly as well as often cheap, 0:11:41.080 --> 0:11:43.480 more cheaply but not always. Um, I want to give 0:11:43.520 --> 0:11:47.080 you a chance to sort of argue the case for 0:11:47.400 --> 0:11:51.040 why this may not work in the grocery industry. In 0:11:51.080 --> 0:11:53.880 other words, does Amazon have to compete on a level 0:11:53.920 --> 0:11:57.319 that goes beyond just lowering prices? And what is the 0:11:57.360 --> 0:12:00.640 barrier to entry there? Yeah, so put some plea. A 0:12:00.720 --> 0:12:03.840 perishable supply chain is just a whole different ball game 0:12:04.080 --> 0:12:06.319 than the kind of supply chain the Amazon has built 0:12:06.320 --> 0:12:09.800 already for selling US laundry detergent and selling US sweaters 0:12:09.840 --> 0:12:12.000 and all that kind of stuff. Right, So, someone in 0:12:12.040 --> 0:12:14.000 the grocery business once told me, for example, when you're 0:12:14.040 --> 0:12:17.000 thinking about grocery delivery, you have to consider things like 0:12:17.040 --> 0:12:20.920 that when bananas ripen, they emit something that makes apples 0:12:21.000 --> 0:12:23.560 ripen at a different pace than if they were not 0:12:23.720 --> 0:12:26.520 next to that banana. Right. This is supply chain no 0:12:26.640 --> 0:12:30.240 how that the Walmarts and the Trader Joe's and Krogers 0:12:30.240 --> 0:12:32.920 of the world had been building for a really long time. 0:12:33.320 --> 0:12:36.840 The Amazon simply doesn't have. And so Whole Food certainly 0:12:36.880 --> 0:12:39.160 has some of that know how, But it'll be interesting 0:12:39.160 --> 0:12:42.320 to see how Amazon is able to kind of leverage 0:12:42.360 --> 0:12:46.840 that and expand it more widely. Sarah, I beg your pardon. No, 0:12:46.920 --> 0:12:48.559 I was just gonna say that. I mean, Sarah makes 0:12:48.559 --> 0:12:50.400 a good point, which is that Amazon has been in 0:12:50.400 --> 0:12:54.840 the grocery business for ten years. So they've had Amazon Fresh, 0:12:54.920 --> 0:12:57.640 which is their grocery delivery service, up and running starting 0:12:57.640 --> 0:13:02.120 in Seattle and in other market now to um for 0:13:02.200 --> 0:13:04.480 ten years and it really hasn't made much of a 0:13:04.559 --> 0:13:07.240 dent in the grocery industry, and that points to some 0:13:07.280 --> 0:13:10.000 of the issues that Sarah pointed out, that they haven't 0:13:10.040 --> 0:13:14.760 necessarily figured out the sort of logistical dynamics of the 0:13:14.760 --> 0:13:17.800 grocery business quite yet. You know, they're smart people, they 0:13:17.840 --> 0:13:20.160 can figure it out, but you know, ten years of 0:13:20.200 --> 0:13:23.240 experience has shown that they haven't necessarily cracked it yet. Well, 0:13:23.400 --> 0:13:25.679 and to your point, I just want to apply that 0:13:25.720 --> 0:13:28.600 to whole foods, because, you know, Sarah, it looks as 0:13:28.600 --> 0:13:34.000 though what the sales are perishable foods at whole foods, right, 0:13:34.040 --> 0:13:38.679 nonperishable items they fare pretty poorly at whole foods, they do. 0:13:38.920 --> 0:13:40.640 And I think that that sort of gets to this 0:13:40.720 --> 0:13:43.600 idea that you know, people are willing to spend a 0:13:43.600 --> 0:13:45.719 little bit more for the things they're putting inside their 0:13:45.720 --> 0:13:48.560 bodies for feeling like they're having grass fed beef and 0:13:48.800 --> 0:13:52.360 you know, chicken that's not treated with antibiotics. They're willing 0:13:52.400 --> 0:13:55.120 to plunk down more money for those kinds of things. 0:13:55.280 --> 0:13:57.760 The man for toilet paper, they're just not willing to 0:13:57.800 --> 0:14:01.040 pay a premium, and so that that's one challenging thing 0:14:01.040 --> 0:14:02.559 they'll have to contend with. You know, I think it's 0:14:02.559 --> 0:14:05.440 really interesting to note that back in two thousand nine, 0:14:05.480 --> 0:14:08.880 when Whole Foods had only two d seventy three stores. Uh. 0:14:09.000 --> 0:14:12.520 Some research from canter Retail shows that seven percent of 0:14:12.559 --> 0:14:15.320 shoppers said during that time period they visited Whole Foods 0:14:15.360 --> 0:14:18.880 on a monthly basis. Now they have over four hundred stores. 0:14:19.320 --> 0:14:21.640 The sheriff shoppers that visit them on a monthly basis 0:14:21.720 --> 0:14:25.520 is virtually unchanged. So they're really having trouble growing the 0:14:25.600 --> 0:14:28.960 base of customers who are interested in their product. And 0:14:29.000 --> 0:14:33.240 I think that that package dry goods uh price issue 0:14:33.360 --> 0:14:35.480 is a big one. Thank you so much for joining 0:14:35.520 --> 0:14:38.080 us great insight. Sarah how Zac and Shara over Day, 0:14:38.320 --> 0:14:42.240 both Godfly columnists, they don't jointly wrote a column on 0:14:42.320 --> 0:14:45.680 this issue that's fabulous. Check it out Bloomberg dot com 0:14:45.840 --> 0:14:49.480 slash god Fly, also on the Bloomberg at NI space 0:14:49.640 --> 0:15:06.000 god Fly. The National Hurricane Center says that the storm 0:15:06.360 --> 0:15:10.200 Hurricane Harvey has maximum sustained winds of a hundred and 0:15:10.240 --> 0:15:13.120 ten miles per hour and it is just below the 0:15:13.160 --> 0:15:16.480 category three level four A storm. Forecasters say the storm 0:15:16.520 --> 0:15:19.440 is expected to reach that mark before making landfall late 0:15:19.480 --> 0:15:23.280 today and early Saturday in Texas. And here to tell 0:15:23.400 --> 0:15:26.120 us more about this is Shenando Bassu. He is a 0:15:26.160 --> 0:15:30.040 meteorologist and gas analyst for Bloomberg New Energy Finance, and 0:15:30.080 --> 0:15:32.640 he joins us here in our studio. Shenando, thanks very 0:15:32.720 --> 0:15:35.080 much for being with us. Maybe just give everyone a 0:15:35.200 --> 0:15:37.840 detailed over you know, view of what what we can 0:15:37.880 --> 0:15:41.640 expect over the next let's says hey, Pam. Yeah, thanks 0:15:41.640 --> 0:15:43.920 so much for having me here. So of course we 0:15:44.040 --> 0:15:46.680 know that right now Hurricane Harvey is going to be 0:15:46.720 --> 0:15:49.600 strengthening up to a category three. But what's unusual about 0:15:49.600 --> 0:15:52.640 the storm really is how quickly it has intensified. It's 0:15:52.920 --> 0:15:57.280 intensified so rapidly over the last forty eight hours UM 0:15:57.320 --> 0:15:59.600 as of this morning, the central pressure down to about 0:15:59.640 --> 0:16:01.960 nine and seendy millibars, and of course those wind speeds 0:16:01.960 --> 0:16:05.080 making it up there to about ten. And the other 0:16:05.160 --> 0:16:07.800 big piece of this is the duration and the amount 0:16:07.840 --> 0:16:10.320 of rain that we're going to be getting. Um we're 0:16:10.320 --> 0:16:13.200 looking at up to thirty or even over thirty inches 0:16:13.240 --> 0:16:16.920 of rain in parts of the coastal part of Texas 0:16:17.000 --> 0:16:19.600 as a result of the storm and the trajectory it's 0:16:19.600 --> 0:16:22.000 expected to take, I mean even as late as next 0:16:22.080 --> 0:16:26.400 Monday or Tuesday, that storm, Hurricane Harvey just still kind 0:16:26.400 --> 0:16:30.000 of hovering over um the central and eastern part of 0:16:30.480 --> 0:16:33.240 coastal Texas there. Yeah, people have talked about how it's 0:16:33.240 --> 0:16:36.040 going to stall out over Texas and it's going to 0:16:36.120 --> 0:16:39.960 be stalling out over populated areas of the state. What 0:16:40.160 --> 0:16:43.120 have the evacuation order has been like and what is 0:16:43.160 --> 0:16:46.480 the expected damage supposed to be? Yeah, I mean the 0:16:46.600 --> 0:16:48.840 damage of course is a big part of this, certainly 0:16:48.920 --> 0:16:53.080 to coastal oil and gas infrastructure. We've already been seeing 0:16:53.280 --> 0:16:56.440 offshore platforms being evacuated on you know, all the major 0:16:56.520 --> 0:16:58.720 oil companies and all their smaller e nps as well 0:16:58.840 --> 0:17:03.800 evacuating their their oil platforms and UM as far as 0:17:04.080 --> 0:17:06.680 you know, the gas gas infrastructure is a little bit 0:17:06.680 --> 0:17:08.879 different though, because you know, we haven't seen that much 0:17:08.920 --> 0:17:11.720 of a price movement yet in gas, and that's because 0:17:11.720 --> 0:17:14.359 you know, ever since um, you know, two thousand and 0:17:14.400 --> 0:17:16.280 eight with Gustav and Ike, you know, a lot of 0:17:16.320 --> 0:17:19.720 that infrastructure has been beefed up, and also the gas 0:17:19.760 --> 0:17:23.280 production environment has changed substantially, with a lot of that 0:17:23.320 --> 0:17:27.440 production shifting over to the northeast. So as a result, 0:17:27.480 --> 0:17:29.399 you know, we're not going to be seeing a whole 0:17:29.440 --> 0:17:32.560 lot of movement in the gas markets from the supply side. Now, 0:17:32.840 --> 0:17:34.879 going back to your point about the effects and the 0:17:35.080 --> 0:17:38.560 demand is really the big story here. With um effects 0:17:38.640 --> 0:17:41.440 of course of the power markets with multiple power outages 0:17:41.440 --> 0:17:44.359 and that kind of thing, flooding impacting a lot of 0:17:44.400 --> 0:17:47.960 the power assets down there, and also the wind farms 0:17:47.960 --> 0:17:51.000 with the high winds that are expected tell us about 0:17:51.040 --> 0:17:54.280 how the demand will go down number one, because it's 0:17:54.280 --> 0:17:57.240 going to be a weekend and also you have the 0:17:57.280 --> 0:18:00.639 situation it's just gonna be less use of electricity, yeah, 0:18:00.720 --> 0:18:03.880 for sure, um. You know, with people evacuating the area, 0:18:03.920 --> 0:18:06.240 and of course also industry shutting down. You know a 0:18:06.280 --> 0:18:08.720 lot of the plants and and factories and so on 0:18:08.720 --> 0:18:10.960 and so far in that area shutting down. You know, 0:18:11.000 --> 0:18:16.040 we're expecting uh, just industrial demand alone to account for 0:18:16.040 --> 0:18:19.440 about two to mc f of gas per day um. 0:18:19.520 --> 0:18:21.680 So that that piece of it shutting down. Also, we 0:18:21.760 --> 0:18:25.199 have a major nuclear plant, South Texas Nuclear that is 0:18:25.560 --> 0:18:30.040 probably going to be shutting down maybe today or early tomorrow, um. 0:18:30.040 --> 0:18:32.920 And that going offline accounts for about two gig lots 0:18:32.960 --> 0:18:35.399 of power right there, so you know, and in the 0:18:35.440 --> 0:18:39.280 aftermath of the storm, you know, gas generation will have 0:18:39.359 --> 0:18:41.640 to fill in for that missing nuclear piece right there. 0:18:41.720 --> 0:18:44.320 You know, it's interesting we were talking about this right 0:18:44.359 --> 0:18:47.440 before the segment when we were talking about how gasoline 0:18:47.520 --> 0:18:51.280 prices have increased. That's probably where you've seen the biggest 0:18:51.720 --> 0:18:56.240 effect of this impending hurricane, with prices at one point 0:18:56.359 --> 0:19:00.280 rising to the highest levels since November. Yet this will 0:19:00.280 --> 0:19:04.000 not translate to higher prices that people end up paying 0:19:04.040 --> 0:19:07.760 at the gas station simply because of the production. You 0:19:07.840 --> 0:19:10.080 sort of touched on this, but can you give us 0:19:10.080 --> 0:19:13.560 a sense of how much production has moved away, frankly 0:19:13.640 --> 0:19:16.720 from this region in Texas and more up north to 0:19:16.920 --> 0:19:20.040 say North Dakota and the shell production. Yeah, yeah, sure, 0:19:20.119 --> 0:19:22.119 So I think there are a couple of pieces to that. 0:19:22.200 --> 0:19:24.439 So the first is, of course, with the number of 0:19:24.480 --> 0:19:27.480 refineries that have gone down just today, I think we're 0:19:27.560 --> 0:19:30.800 just in just around the eight mark that has gone offline, 0:19:30.840 --> 0:19:32.960 which is certainly higher than what you would see on 0:19:33.000 --> 0:19:34.760 a you know, on a day to day kind of basis. 0:19:34.760 --> 0:19:38.200 So that's what's taking a shot at the supply side 0:19:38.200 --> 0:19:40.840 of gasoline. That's why we're seeing a rise in the 0:19:40.880 --> 0:19:44.800 price there. As far as natural gas, however, um, because 0:19:44.840 --> 0:19:47.159 now we're seeing so much more production in in in 0:19:47.359 --> 0:19:50.480 the Marcellus regions up in Pennsylvania, and you know, the 0:19:50.520 --> 0:19:55.879 northeastern general Gulf production has declined significantly over the last 0:19:56.200 --> 0:19:59.880 you know, five to eight years, and so that air 0:20:00.040 --> 0:20:02.480 yet that region as a you know, production region, the 0:20:02.520 --> 0:20:05.320 importance of that has gone down real quick. Almost the 0:20:05.400 --> 0:20:07.560 last time that we saw a storm of this magnitude 0:20:07.640 --> 0:20:12.560 actually hit landfall in the US, UM in the US 0:20:12.720 --> 0:20:15.840 in Texas two thousand and eight. Was that was the 0:20:15.920 --> 0:20:18.960 last time we had a hurricane ike And was this 0:20:19.080 --> 0:20:21.280 Is this going to be more or is this gonna 0:20:21.320 --> 0:20:23.520 be weaker or stronger than I It's going to be 0:20:23.600 --> 0:20:26.680 about the same or a little bit stronger. Yeah, especially 0:20:26.920 --> 0:20:31.200 um with the precipitation in the rain. Yeah, definitely important 0:20:31.200 --> 0:20:33.600 to watch and anyone who's listening, who is in that area, 0:20:33.720 --> 0:20:36.480 please be safe. I am very concerned. It sounds like 0:20:36.480 --> 0:20:37.680 it's going to be a lot of rain and a 0:20:37.760 --> 0:20:40.560 lot of flooding and certainly very messy at the best 0:20:40.720 --> 0:20:44.440 and uh and potentially life threatening it worse. Shenando Basso, 0:20:44.520 --> 0:20:46.679 thank you so much for joining us. He's meteorologist and 0:20:46.720 --> 0:21:02.240 gas analysts for Bloomberg New Energy Finance. Talking about Hurricane Harvey. 0:21:04.040 --> 0:21:07.040 If you've noticed over the past couple of months, we've 0:21:07.080 --> 0:21:10.960 been talking a lot about range bound markets, sleepy markets, 0:21:11.080 --> 0:21:15.359 lack of volatility, lack of volumes, lack of impetus to sell, 0:21:15.640 --> 0:21:18.480 but bullish and here to explain whether we're gonna see 0:21:18.480 --> 0:21:19.840 anything that's going to break us out of this one 0:21:19.840 --> 0:21:22.840 way or another is David Ader. He's chief macro strategistic 0:21:22.880 --> 0:21:26.600 inform of financial intelligence. He is also a writer for 0:21:26.680 --> 0:21:30.240 our Bloomberg Profits UH section that's part of Bloomberg View 0:21:30.280 --> 0:21:32.840 and he also was the number one ranked US government 0:21:33.000 --> 0:21:38.200 bonds strategist by Institutional Investor magazine for ten years. David, 0:21:38.240 --> 0:21:40.840 thank you so much for joining us. You know I'd 0:21:40.840 --> 0:21:43.879 love to get your sins Right now. We are seeing 0:21:44.480 --> 0:21:48.000 treasury yields dip lower yet again, even as we see 0:21:48.200 --> 0:21:51.679 UH markets rally, stock markets rally, I'm looking at a 0:21:51.760 --> 0:21:54.560 ten year treasury yield UH that is lower than two 0:21:54.560 --> 0:21:57.400 point two percent. Where do you think we're headed with 0:21:57.440 --> 0:22:01.240 this treasury yield by the end of this year? Oh? 0:22:01.440 --> 0:22:04.760 I I think that there's a great chance we'll see 0:22:04.840 --> 0:22:10.679 two eleven. How's that for a traumatic call. I'm blown away, 0:22:11.320 --> 0:22:13.440 isn't it isn't it. I mean for the balance of 0:22:13.520 --> 0:22:16.240