Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Big Big Earnings Week
Speaker 1: really focus on technology. Some disappointments out there for sure,
Speaker 1: although Apple kind of maybe saved the day a little
Speaker 1: bit at the at the end here with some decent numbers.
Speaker 1: Let's kind of bring it all into perspective tied altogether,
Speaker 1: We're gonna round table at today with Cameron christ macro
Speaker 1: strategists with Bloomberg News, plus Punum Goyle, senior e commerce
Speaker 1: analysts with Bloomberg Intelligence, covers all things retail. Cameron, let's
Speaker 1: start off with you here, just you know, stepping back
Speaker 1: from the Microsoft's, the Google's, the metas of the world.
Speaker 1: Do you still consider or should the market still consider
Speaker 1: big tech as a driver as a market leader for
Speaker 1: this global equity market. Well, I think you have to
Speaker 1: just given the waiting in various indices. I mean, if
Speaker 1: you look at the SNP or even m s c
Speaker 1: I Old Country World Index. I mean, who do you have?
Speaker 1: It's it's the familiar names, uh, most of which are
Speaker 1: directly or tangentially technology related. I mean, technically Amazon is
Speaker 1: considered discretionary these days, but I think we all know
Speaker 1: that they're valued as a as a technology stock. So
Speaker 1: I think, of course, um, when you're talking about anything
Speaker 1: but very ephemeral, short term moves, you you have to
Speaker 1: you have to consider the tech sector as as sort
Speaker 1: of the hegemonic driver almost, And when it comes to
Speaker 1: the tech sector, it's interesting you look at Apple, you
Speaker 1: look at Amazon to opposite reactions. They're basically Apple canceling
Speaker 1: out Amazon's loss on a points basis. If you look
Speaker 1: at the SMP five hundred and potam, when you think
Speaker 1: about the Amazon earnings that we've gotten, the wipe out
Speaker 1: that we're seeing in the stock, what do you think
Speaker 1: is the bigger issue here? Was it the warning about
Speaker 1: the holiday period or is it what's happening in a
Speaker 1: w S. I think it's a WS more so. We
Speaker 1: we know that holiday will be weaker than it has
Speaker 1: been just because of inventories being high and inflation curving.
Speaker 1: Consumers fund. But on the A W S front, that
Speaker 1: was a surprise. Um, really just at the big delta
Speaker 1: that we saw versus estimates largely as you know, they
Speaker 1: also said that they were exiting the quarter at a
Speaker 1: mid twenties run rate, which is pretty weak considering the
Speaker 1: thirty one percent that they've been tracking for the past
Speaker 1: four quarters. Cameron, I'd love to get your sense here.
Speaker 1: We're at about halfway through earnings here, any takeaways for
Speaker 1: you here? I mean, I know the big question for
Speaker 1: a lot of investors is, as I listened to some
Speaker 1: of these conference calls, is kind of the forward guidance
Speaker 1: and how bad will a recessionary environment be for some
Speaker 1: of these businesses? What? What? What have you learned so far? Yeah,
Speaker 1: I mean the there's a couple of a couple of
Speaker 1: things to unpack. Uh, you know, there's the the actual
Speaker 1: earnings we've seen relative to expectation. I mean, they've beaten,
Speaker 1: but they always beat, right, I mean, under promise and
Speaker 1: over deliver is sort of the business model of Wall Street. Um,
Speaker 1: the magnitude of surprise has been the more or less
Speaker 1: the slowest m on both the top and bottom line
Speaker 1: basis since the advent of COVID, so that probably tells
Speaker 1: us something. UH. I I do think that forward looking
Speaker 1: UH guidance is significant UM, and I take what was
Speaker 1: take on board what we said about a WS. But
Speaker 1: the fact is is that Amazon guidance UH for the
Speaker 1: fourth quarter puts its overall year on your revenue growth
Speaker 1: UH the second lowest in the company's history UH less
Speaker 1: than five percent. If you take the midpoint of the
Speaker 1: guidance range UM, that's less than inflation UM. And that's
Speaker 1: pretty significant because we're these companies at the top of
Speaker 1: the pyramid have valuations that are consistent with secular growth.
Speaker 1: And I think what Amazon and Meta in particular are
Speaker 1: saying is that these companies are actually significantly exposed to
Speaker 1: cyclical vulnerability. And the question we have to ask is
Speaker 1: should these companies have a secular valuation premium if they're
Speaker 1: turning into more secularly cyclically vulnerable companies. I think that
Speaker 1: you can make a good argument that that no, there
Speaker 1: there's some of this premium that has been given to
Speaker 1: these firms over the last ten years maybe should should
Speaker 1: be withdrawn. Well, there's some key differences between Meta and Amazon,
Speaker 1: one of them being that Meta is just funneling billions
Speaker 1: of dollars into the metaverse. I am so excited to
Speaker 1: see how that turns out. Amazon, on the other hand,
Speaker 1: PUNA is really looking at cutting costs here. What magnitude
Speaker 1: are we talking about and where? Sure, the costs are
Speaker 1: largely going to be cut on the retail side, um
Speaker 1: really when you look at technology as well as investments
Speaker 1: in fulfillment, logistics, transputation. So we heard from them that
Speaker 1: they were expected to cut a billion and the one
Speaker 1: point five billion dollars from two Q to three Q.
Speaker 1: They only cut one billion, largely because they couldn't cut
Speaker 1: the costs and their productivity due to fulfilling demand for
Speaker 1: the additional prime day sales and early acts of sales
Speaker 1: that they had in three Q and four Q. UM.
Speaker 1: It's going to be hard for them to cut costs.
Speaker 1: It will not come easy. They're going to have to
Speaker 1: look at some of their strategic initiatives as well as
Speaker 1: some of those experimental initiatives that they have to really
Speaker 1: um expand those margins. But at the end of the day,
Speaker 1: the margins are driven by a w S seven more
Speaker 1: than seventy of the margins on an manual basis, or
Speaker 1: the profits, I should say come from it up us
Speaker 1: and in the latest quarter three Q over a hundred percent.
Speaker 1: So we need to see those a w S margins
Speaker 1: extand again, and we think they will. It'll just be
Speaker 1: a matter of time. The next few quarters are challenging,
Speaker 1: but a WS does have potential to expand again, both
Speaker 1: from revenue and a margin standpoint. All right, put him
Speaker 1: great stuff as always, put him boil. She's a senior
Speaker 1: retail analysts Bloomberg Intelligence covering all the e commerce uh
Speaker 1: stuff as well. She's been there since the beginning of
Speaker 1: that evolution in retail. Plus Camraon Christ macro strategists with
Speaker 1: Bloomberg News, giving us kind of just a holistic view
Speaker 1: of here of what we've seen from these tech earnings. UM,
Speaker 1: some disappointments kind of across the board, maybe the exception
Speaker 1: of Apple, but according to Camera, no reason to think
Speaker 1: that they will no longer be market leaders, just given
Speaker 1: their propensity and their big size in the indexes. Said Oakley.
Speaker 1: He's a founder managing partner to Oxbell Advisors. We've talked
Speaker 1: to him for a long time. He's down in Austin, Texas,
Speaker 1: US UM, but we've got them in our studio today
Speaker 1: for the first time ever. How cool is that? Ted?
Speaker 1: Thanks so much for joining us here. Um, you know,
Speaker 1: I don't know. We've we're coming through earnings here. I
Speaker 1: got a market that's down, my fixed income portfolios down
Speaker 1: double digits. What do I do from here? Is this
Speaker 1: the bottom? Can I start just loading in some stocks
Speaker 1: and bonds here? Well, I would say, Well, I would
Speaker 1: not do that. I think, Uh, I think what what
Speaker 1: the Fed has given you is a little by time
Speaker 1: with the one in one year and maybe eighteen month
Speaker 1: treasury at four and a half percent, now you can
Speaker 1: afford to hold it, you know. And somebody tells me, now, hey,
Speaker 1: I can get a five percent dividend on something. I said,
Speaker 1: wait a minute, how about four and a half on
Speaker 1: a treasury? We have no risk on it? And so
Speaker 1: I think that's what's going on. But I wouldn't step
Speaker 1: into that. We really feel like this has probably two
Speaker 1: or three quarters to go, maybe a little longer. Well,
Speaker 1: explain that timeline. What's going to happen in these two
Speaker 1: to three quarters. Are you waiting for the Federals or
Speaker 1: to take their foot off the gas a little bit? Well, Katie,
Speaker 1: they could, but I think people if they look at history,
Speaker 1: it always goes to show the market keeps on going down.
Speaker 1: But here's why. For us, we think that earnings, if
Speaker 1: you look at deceleration, they're up, but it's been really
Speaker 1: decelerating now for four quarters in a row. We think
Speaker 1: that's going to continue into negative territory over the next
Speaker 1: three quarters. And as that happens, I think people have
Speaker 1: to readjust the level of what they're willing to pay
Speaker 1: for stocks. You know they talk about multiples, Well, the
Speaker 1: multiple is going gonna go up because your earnings are
Speaker 1: gonna need to go down, and I think they forget
Speaker 1: to factor that in here. All right, Ted, you're from Texas.
Speaker 1: Texas Tech was your underground. I'm just gonna profile you,
Speaker 1: Ted and assume that you have a call on oil,
Speaker 1: on energy, I got w TR crew to oil about
Speaker 1: eighty eight dollars a barrel. Here. What's your calling oil?
Speaker 1: And what's what are your I know you're good friends
Speaker 1: when you're sitting around chatting down in Texas, you're talking oil.
Speaker 1: What's the call there? Well, you know oil companies can
Speaker 1: make money at eight and they can make money at eight,
Speaker 1: so you know, we own uh energy one production companies
Speaker 1: on pipelines that sort of thing too. But what's happening is,
Speaker 1: you know, the large companies really have cut so far
Speaker 1: back on capex so that it's changed the industry industry,
Speaker 1: and it has helped the independence quite a bit. I
Speaker 1: think to do more. But for us, if you just
Speaker 1: look out over the next two years, we think it
Speaker 1: moves higher over time. Um, you know, we're we're getting
Speaker 1: to a point where it's supply to man is is
Speaker 1: fairly equal. So uh and I understand it. And by
Speaker 1: the way, I'm all for taking care of that, you know,
Speaker 1: the environment of green I really am. I just think
Speaker 1: the timeline is all a bit so that's that's where
Speaker 1: I think. So I think it it does go higher.
Speaker 1: The only thing would would thwart it in the short run,
Speaker 1: which we think could happen, by the way, is if
Speaker 1: your economy is slow enough all over the world, there
Speaker 1: will be a short period in there three to six
Speaker 1: months where oil can can foll back. Something we'll see.
Speaker 1: And if we think about the energy sector for so
Speaker 1: long it was winning by so much. When you translate
Speaker 1: that oil call into the stock market, has the energy
Speaker 1: trade run its course? You know, Kedy probably has to
Speaker 1: a degree. I think you're you're onto something there. I
Speaker 1: think a lot of people really focused on it, and
Speaker 1: they were too they had too much oil and their portfolios,
Speaker 1: particularly on the professional side. And what's happening if you
Speaker 1: look at the companies, they've sort of been trading those
Speaker 1: highs now for you know, they had a high, they
Speaker 1: fell off, came back, but they haven't made significant new
Speaker 1: highs here. And so I think you, I think you
Speaker 1: you could be very right on that. It ted You've
Speaker 1: You've had a heck of a career here founding Oxbow Advisors. Uh,
Speaker 1: you've written nine books. You're also the chairman emeritus and
Speaker 1: founder of Foster Angels of South Texas, the largest foster
Speaker 1: child foundation in South Texas. Talk to us about that,
Speaker 1: how's it, how's the environment down there as it relates
Speaker 1: to foster care and things like that, because there's always
Speaker 1: so much discussion. We hear in York, we hear about
Speaker 1: the border and all those types of things. What's it
Speaker 1: really like feeds boots on the ground in South Texas well,
Speaker 1: we have to the two foundations are both the same side.
Speaker 1: There two separate foundations, but we also did Foster Angels
Speaker 1: of Central Texas, which is out of Austin. So between
Speaker 1: the two we cover about sixty five counties in Texas.
Speaker 1: And but you know, having done that, have really helped
Speaker 1: foster children for twenty five years. Our problem is is
Speaker 1: that since their wards of the state, foster children are
Speaker 1: unfortunately out of sight and so you you can't get
Speaker 1: people to understand really apply to a foster child and
Speaker 1: what we do at Foster Angeles and we try to
Speaker 1: give them things very quickly within forty eight hours that
Speaker 1: will help their staff to esteem if they want something.
Speaker 1: But the problem in the state, to answer your question,
Speaker 1: is we have a lot of people who don't understand
Speaker 1: the system. They don't pay the people in the system,
Speaker 1: the CPS any money they have about at turnover rate
Speaker 1: if you can imagine, and so uh, everything compounds on itself,
Speaker 1: and so you have the problem with foster families. We
Speaker 1: don't have near enough and part of the ones we
Speaker 1: do have are actually not that good. Who have a
Speaker 1: lot of great ones, don't get me wrong, but a
Speaker 1: lot of them just do it for the money. And
Speaker 1: then you have a lot of CPS workers that it's
Speaker 1: a tough job and that's just a turnover. We have
Speaker 1: those two things going on. Then they've had a lawsuit
Speaker 1: from UM that I don't agree with it necessarily, but
Speaker 1: what's happened is it's really put a lot of pressure
Speaker 1: on the system because they am to respond to lawsuit
Speaker 1: instead of helping instead of helping children. So it sounds
Speaker 1: like a lot of red tape like we have here
Speaker 1: and you have in Texas and every state. And I
Speaker 1: am very familiar with the New York's floor is all
Speaker 1: the big state, right California. We all have the same problem.
Speaker 1: You have the same problem here too. All right, well,
Speaker 1: we appreciate you doing all anything you can do to
Speaker 1: help there. That that's great stuff. Ted Oakley, Founder and
Speaker 1: managing partner Oxbow Advisers. I want to get to rate
Speaker 1: the our next guest because she is in studio. So
Speaker 1: that's two guests in a row in studio. These are
Speaker 1: folks that we've talked to before, but we have them
Speaker 1: in the studio. Solday, it's a Friday. There's no Bloomberg
Speaker 1: employees here today, but other folks are coming in. Allison.
Speaker 1: Right now, our CEO of Seventh Generation joins us in
Speaker 1: our Bloomberg Interactive Broker studio. Allison, thanks so much for
Speaker 1: joining us. Tell us just give us the overview what
Speaker 1: seventh generation is? What are you guys up to? Yeah, first,
Speaker 1: thank you so much for having me. It's great to
Speaker 1: see you all. Yeah, and a little bit about seven generations.
Speaker 1: So we are a household cleaning company that focuses on
Speaker 1: our mission of transforming the world into a healthy, sustainable,
Speaker 1: and equitable place for the next seven generations. So yeah, like,
Speaker 1: no small goals for us. So I give us a
Speaker 1: sense of kind of like some of your products, who
Speaker 1: you do business with, how you get your products at
Speaker 1: here in the marketplace. Yeah, great, So I think you
Speaker 1: will likely see us walking down any grocery store aisle,
Speaker 1: Target aisle on Amazon dot Com, Walmart aisle in the
Speaker 1: categories of laundry, detergent, household cleaners, and dish products and so. Um.
Speaker 1: We really have distribution in you know, most everyday stores. Um,
Speaker 1: and so we're we're really part of everyone's households. This
Speaker 1: is Bloomberg Radio. So I have to ask you about
Speaker 1: the supply chain it's always been talking about for two years.
Speaker 1: Tell us how the past two years have been for
Speaker 1: you in terms of managing that. Oh, my goodness, it's
Speaker 1: been a wild ride. So UM we are we do
Speaker 1: operate in the categories of cleaning and paper products. So
Speaker 1: you know, over the course of we saw record growth
Speaker 1: behind those products and record inability to meet the demand
Speaker 1: of both our retailers and our consumers. And so that
Speaker 1: was a pretty wild ride for us to just really
Speaker 1: make sure that we could deliver on what consumers and
Speaker 1: retailers were asking us for UM And then on the
Speaker 1: other side of it, I think it has been a
Speaker 1: combination of both figuring out how consumers are going to
Speaker 1: be cleaning UM in today's world, and then also making
Speaker 1: sure that we have a supply chain that is future
Speaker 1: fit for this type of volatility, because I will tell
Speaker 1: you that even today, while the demand is not as
Speaker 1: high as it was, I think we're still working on
Speaker 1: back tracking a lot of the supply chain decisions and
Speaker 1: retrofitting our supply chain to make sure that we can
Speaker 1: can meet the day to day demands. So how did
Speaker 1: your business and how did demand for your products kind
Speaker 1: of evolved during the pandemic, Because it seemed like for
Speaker 1: a while there we were cleaning everything, including the groceries
Speaker 1: we brought home from the supermarket and then leave them outside.
Speaker 1: God what we didn't know. Amazing, But anyway, here we are.
Speaker 1: How did that impact your business? Yeah? Sure, so I think,
Speaker 1: like like our our peers in the category, I think
Speaker 1: we just saw unprecedented demand for anything that cleans, and
Speaker 1: so we do operate in the disinfecting cleaning category, So
Speaker 1: we do create a line of products that are UM
Speaker 1: that killed of germs, and so we really saw that
Speaker 1: range of products UM flying off the shelves as soon
Speaker 1: as literally as soon as they were set UM. So
Speaker 1: you know, it was really it was really challenging for
Speaker 1: us to track how high is high and bring us
Speaker 1: to now and bring us into the future. You know,
Speaker 1: you mentioned how people clean have has changed. How are
Speaker 1: you adapting to that and what trends have you noticed? Yeah,
Speaker 1: so there's there's kind of two big things that are
Speaker 1: emerging in our business right now. So one, I think
Speaker 1: UM consumers first of all, are still sitting on quite
Speaker 1: a bit of product that they bought, and so I think, UM,
Speaker 1: we're still working through the tail end of product on hand. UM.
Speaker 1: They're also thinking about cleaning differently. I think the role
Speaker 1: of efficacy in what is clean has become much more prevalent.
Speaker 1: Given our conversations around germs and safety even past COVID, Right, So,
Speaker 1: I think there's a lot of things happening in the
Speaker 1: news now from a health perspective. Um this on top
Speaker 1: of the fact that we are a sustainable business, right,
Speaker 1: so we really focus on the environmental aspect of the
Speaker 1: products that we make. And the challenging thing right now
Speaker 1: is that there's some very real concerns for the U.
Speaker 1: S consumer between financial insecurity, UM inflation, or health and safety.
Speaker 1: And so we are seeing the environment slip a little
Speaker 1: bit from what's the top of mind for consumers in
Speaker 1: their day to day and so we've really had to pivot, right. So,
Speaker 1: I think one of the things that we're working on
Speaker 1: as a team is how do we make sure our
Speaker 1: communication is super sharp from an efficacy perspective, so we
Speaker 1: work as well as our conventional counterparts, So how do
Speaker 1: we make that point really clear? And then also how
Speaker 1: do we dial up the urgency around the environmental concerns
Speaker 1: like the earth is burning, we must do something about it,
Speaker 1: and so how can we just make sure that stays
Speaker 1: top of mind. You mentioned inflation. Uh, it seems like
Speaker 1: we just we're getting through a big earning cycle here
Speaker 1: we're hearing from a lot of companies report earnings in
Speaker 1: their inflation is right there. How has it impacted your business? Yeah, so,
Speaker 1: I think we certainly have not been immune to a
Speaker 1: lot of the challenges that most companies are facing in
Speaker 1: terms of rising costs for materials, and so we, like
Speaker 1: the categories, have had to adjust our pricing. But the
Speaker 1: one thing that I'm super proud to talk about is
Speaker 1: the fact that you know where we make our biggest
Speaker 1: investment is in our product So we use a hunt
Speaker 1: as much as plant based materials as we can, up
Speaker 1: to a hundred percent, and most of our products we
Speaker 1: also focus on using as much better plastic as we can,
Speaker 1: so we use a hundred percent post consumer recycled plastic
Speaker 1: in our packaging. UM and so those are expensive right there,
Speaker 1: are expensive before the pandemic. Right. It's the quality that
Speaker 1: we're investment that we're making, and so the thing that
Speaker 1: we've had to really work for is how do we
Speaker 1: make sure that we maintain committed to that quality of ingredient,
Speaker 1: to that equality of environmental standard and make adjustments around that. UM.
Speaker 1: So I think we really focus as a team to
Speaker 1: say we have to keep the quality of the product
Speaker 1: intact during this time, to what degree have you passed
Speaker 1: on those higher costs? How much have you raised prices? Yeah,
Speaker 1: so it really does vary by category, right, So I think, um,
Speaker 1: it depends on the sub segment that you're looking at.
Speaker 1: But I think we do our absolute best to minimize
Speaker 1: the amount that we pass on. But at the end
Speaker 1: of the day, I need to make sure that this
Speaker 1: financial model continues to make a sense. So UM as
Speaker 1: a company, we have certainly made it our priority to
Speaker 1: ensure that sustainable products maintain as much accessibility from a
Speaker 1: price point as possible. So one of our biggest priorities
Speaker 1: is dispelling the myth that natural products have to be
Speaker 1: more expensive. Um. So, as a business, we always work
Speaker 1: to make sure that we keep our pricing as accessible
Speaker 1: as we can. But I think that you know that's
Speaker 1: really been tested during these times. Are you based? We are,
Speaker 1: and every company that we talked to for the last
Speaker 1: boy two and a half years site labor as a challenge.
Speaker 1: What's it like in Burlington, Vermont and the other places
Speaker 1: maybe where you operate? Yeah, great, so I think, um,
Speaker 1: you know, actually, one of the biggest changes that we've
Speaker 1: made from a working perspective UM as well. Our headquarters
Speaker 1: is based in Burlington, Vermont. We're really opening up a
Speaker 1: wide net of remote working for our company. So we're
Speaker 1: casting a wide net to make sure that we get
Speaker 1: you know, the most amazing talent into our company, no
Speaker 1: longer letting our headquarter location dictate that. And so it's
Speaker 1: actually been a great way for us to really rethink
Speaker 1: talent strategy. We've got I've got a hundred um. But
Speaker 1: remember we are owned by Unilever, so I think there's
Speaker 1: a much larger ecosystem that supports us. So UM, I
Speaker 1: like to think that there's millions of people out there
Speaker 1: working for us. Alison, thank you so much for joining us.
Speaker 1: Allison written now our CEO of seventh Generation joining us
Speaker 1: live in our Bloomberg Interactive Broker studio, which we appreciate
Speaker 1: making a trip down from Burlington and Yorth, home of
Speaker 1: the University of Vermont cat amounts. How about that? My
Speaker 1: knowledge is my knowledge is just all over the past,
Speaker 1: worthless trivia. I've got it. It's a big oil companies
Speaker 1: reporting um some numbers, and boy, when those guys make money,
Speaker 1: they make a lot. Yeah. So I mean, you know,
Speaker 1: when we talk big energy. When we talk big oil.
Speaker 1: We talked to Fernando Valet. He's a senior oil and
Speaker 1: gas analyst at Bloomberg intellig just another guest of ours
Speaker 1: in the Bloomberg Interactive Broker Studio. I don't know what's
Speaker 1: going on to it. I think we're being punked. Are
Speaker 1: we giving something out at the door or something to
Speaker 1: get we haven't gotten waiting for. Fernando's talked to us
Speaker 1: about Chevron, talked us about Exxon. I mean, I gotta
Speaker 1: assume at eighty eight bucks a barrel, they're making some
Speaker 1: money here. Yeah, and they actually made some money because
Speaker 1: there's a catch up. Usually contracts for lerg loqual Financial
Speaker 1: Gas lag anywhere between three or six months, so they're
Speaker 1: really getting into that peak of the oil price from
Speaker 1: the second quarter on the l n G side, and
Speaker 1: that's probably going to last until the fourth quarter. And
Speaker 1: this is a reminder, cutter gas. It's Excellent's best asset
Speaker 1: by far at points it contributes as much income, so
Speaker 1: they're very exposed to that, and it explains the record
Speaker 1: profits in third the third quarter. Okay, so the superlatives
Speaker 1: here are pretty amazing. Excen highest profit and it's a
Speaker 1: hundred and fifty two year history. Yeah, I'm reading a
Speaker 1: Bloomberg News story right in front of me. Chevron almost
Speaker 1: almost second past quarterly result. Ever, I'm gonna be pessimistic.
Speaker 1: When when does the boom time's ends? This can't last forever, Well,
Speaker 1: it can't, but it can get worse actually before it
Speaker 1: gets better. I think in the short term, you're correct.
Speaker 1: There might be some weakness we saw obviously towards the
Speaker 1: end of the third quarter and start now the fourth quarter,
Speaker 1: weakness in oil prices. But then refining margins have taken
Speaker 1: off again, especially led by diesel. We have an article
Speaker 1: out talking about how diesel shortages are going to be
Speaker 1: crippling to the East coast and UH and that will
Speaker 1: benefit a lot of the refiners UM and and their
Speaker 1: margins are going to continue to creep higher in the
Speaker 1: fourth quarter, and we're thinking to the first quarter. But
Speaker 1: even if we go to a little bit lower and
Speaker 1: we are about down from the highs and the second
Speaker 1: quarter for Brent UH, we still think they generate a
Speaker 1: significant excess cash flow. And the cash balance for Excell
Speaker 1: now's the thirty billion dollars, and we think even if
Speaker 1: it's a little bit lower, they still have to find
Speaker 1: a home for those uh dollars because their net debt
Speaker 1: is almost to net cash. So I mean, I'm just
Speaker 1: looking at Chevron Chevron US equity. Then I go f
Speaker 1: a function financial analysis. I mean, twelve billion of cash,
Speaker 1: twenty six billion of debt. You know, the next couple
Speaker 1: of years, thirty five billion in free cash flow each year.
Speaker 1: Why aren't these guys doing two things? Drilling more holes
Speaker 1: in the ground for more supply, building more refineries so
Speaker 1: we don't have those diesel shortages in the Northeast. Not
Speaker 1: that I drive a diesel vehicle, that's Matt Miller's game.
Speaker 1: But are they investing back into their businesses? Well, but
Speaker 1: you do eat food that takes that diesel, and you
Speaker 1: buy from Amazon, who uses that diesel as well, so
Speaker 1: it's important for you as well. Uh, They're well, refineries
Speaker 1: are just impossible to build in the US in the
Speaker 1: current environmental climate and regulatory climate. Payback is very long
Speaker 1: and you need to have some assurances that you're actually
Speaker 1: going to be able to continue producing for fifteen to
Speaker 1: thirty years, and we're just not there today. Uh So
Speaker 1: we don't expect those to be built. Um in the
Speaker 1: Middle Eastern Asia really where we're seeing a confinery capacity
Speaker 1: on the on the upstream side, we agree, and we
Speaker 1: think will mark yet another increase in spending from these guys. Uh,
Speaker 1: we haven't seen a lot of exploration. We think exploration
Speaker 1: will come back strong from three on deep water. Exxon
Speaker 1: made more discoveries out in Guiana, which is a burgeoning
Speaker 1: oil province there for them. Have you ever been down
Speaker 1: on an oil rigging? Uh? Yeah, I've been to a
Speaker 1: couple in Brazil back in because you're out in the
Speaker 1: middle of nowhere on this rig offshore. And I've been
Speaker 1: in the I've been in the middle of the Amazon
Speaker 1: as well, on an onshore rig in the middle of
Speaker 1: the Amazon. Rang. I don't think I would love that.
Speaker 1: Maybe in the Amazon, I don't. I would climbing the
Speaker 1: stairs on the side of a boat in the water.
Speaker 1: It's pretty interesting. You have to climb with your hands.
Speaker 1: It's oh my god. I would probably panic. Is peak oil?
Speaker 1: Is that still a thing? I don't. We should talk
Speaker 1: about it two or three or four years ago. I
Speaker 1: think we need more oil, don't we. Well, that's our belief,
Speaker 1: and you know, contrary to a contrary to the international
Speaker 1: energy agencies forecast or we think we're still going to
Speaker 1: to to higher levels over the next several years. If
Speaker 1: you look at emerging markets, there are the main drivers
Speaker 1: of oil demand growth. Uh, and we haven't really found
Speaker 1: a solution for or. They're grit issues for their consumption
Speaker 1: and in order for them to improve their quality of life,
Speaker 1: they need to consume more energy and right now that
Speaker 1: has to be fossil fuels. There are the alternatives. Aren't
Speaker 1: enough to sustain an improvement in life for five billion people?
Speaker 1: Can let me ask you a question. Can the world
Speaker 1: exist without Russian energy? Yes? But not without Russian energy
Speaker 1: and without seeing growth from other regions. We have a
Speaker 1: lot of resources in Canada, we have a lot of
Speaker 1: resources in Venezuela. We have a lot of resources in
Speaker 1: the US, but they need to be developed. Can the
Speaker 1: world exists this winter without Russian energy? Yes, but cartailing
Speaker 1: a lot of industrial activities, So you're going to have
Speaker 1: to prioritize safety over the economy. And I think that's
Speaker 1: what Europe has already done. That's how we got tomentary
Speaker 1: fill was by cartailing economic activity OPEC plus How powerful
Speaker 1: is it today relative to maybe the past? I think
Speaker 1: especially Saudi and the u A are extremely power powerful
Speaker 1: and they know uh, they know that, uh, and their
Speaker 1: comments around Saudi first are really uh indicative of that. Um.
Speaker 1: We have given them some of that power by moving
Speaker 1: offshoring energy production and energy security. So I think it
Speaker 1: bhoos us to take some of that back and and
Speaker 1: really look at North America as a source of clean
Speaker 1: energy because it can be the cardboard, uh, the carboards,
Speaker 1: the carbonized and improved, and we have some of the
Speaker 1: more strict environmental rules compared to other energy producers out
Speaker 1: in there. All right, good stuff, as always went back.
Speaker 1: I could talk energy all day. It's just like it's
Speaker 1: a global issue. It's a geopolitical issue. It's just our
Speaker 1: good friends down to Texas and Oklahoma issue lots of
Speaker 1: stuff there. So Fernando Valet he does that for us. Uh.
Speaker 1: He gets paid to do that for us, believe it
Speaker 1: or not, climbing up on ships and going out the
Speaker 1: oil rigs in the middle of the ocean. I mean,
Speaker 1: who knows, but he does that for Bloomberg Intelligence and
Speaker 1: we appreciate it. Again. W t I crude oil it's
Speaker 1: off a little bit today, a one point three, just
Speaker 1: under eighty eight dollars in barrel it. This is a
Speaker 1: treat for me, folks. Felix Dolett is in our studio
Speaker 1: and Katie another in studio. Guests, something's in the water today.
Speaker 1: I don't know everybody's coming into the student they want
Speaker 1: to be in our presence. I guess it might be
Speaker 1: the last lunch here at Bloomberg ever. So Felix do
Speaker 1: that editor for Bloomberg News. Um. He's also the editor
Speaker 1: of the Bloomberg Entertainment vertical screen Time. You can find
Speaker 1: that on Bloomberg dot com. But he's got a big
Speaker 1: take story and we love the big take stories, and
Speaker 1: this one's really right down my alley. So I turned
Speaker 1: to it right away on the train coming in, talking
Speaker 1: about HBO and Netflix, and it's really goes to the
Speaker 1: HBO story. Because Felix has got a new book out.
Speaker 1: It's coming out in just days. It's called It's Not
Speaker 1: TV The Spectacular Rise, Revolution and Future of HBO, which
Speaker 1: I cannot read, wait to read because I was there
Speaker 1: kind of ground zero during all that stuff at time
Speaker 1: Warner really cool stuff. So I Feelix, thanks so much
Speaker 1: for coming in our studio here talk to us about
Speaker 1: kind of what you found in your deep reporting of
Speaker 1: the history of HBO. Yeah, I mean it's fifty years.
Speaker 1: Incredible impact that HBO has had on uh TV, revolutionized comedy,
Speaker 1: drama documentaries. Um and uh this is this piece for
Speaker 1: the big take was you know, the first extra from
Speaker 1: the book. Uh. You know, HBO is the protagonist of
Speaker 1: our book, but we really kind of developed Netflix as
Speaker 1: the antagonist because I think there's such fascinating parallels and
Speaker 1: contrast between these two companies. Um and you know we
Speaker 1: really dug into that also. UM and this is this
Speaker 1: exert focus is really on two thousand ten, two thousand
Speaker 1: and eleven, during the time when they went from being
Speaker 1: you know, copasetic business partners in the era too suddenly
Speaker 1: during the switch to streaming, all of a sudden, realizing
Speaker 1: we're going to be huge intense rivals. Who would you
Speaker 1: say is winning To ask a very simple question, I
Speaker 1: think Netflix has a huge head start, especially if you
Speaker 1: look overseas. I mean, one interesting thing about HBO is
Speaker 1: for all the incredible branding that they've done with HBO
Speaker 1: over the years, where everything was about the HBO brand,
Speaker 1: premium cable. You know, you're paying Actra for this. Um
Speaker 1: all the shows feeding into that. Uh, you know, overseas
Speaker 1: they did kind of the opposite, so um, you know,
Speaker 1: overseas it was all about profit margins and licensing their
Speaker 1: shows to other networks. So the HBO brand does not
Speaker 1: actually have a huge amount of resonance outside the United States.
Speaker 1: And now as the global you know, the streaming wars
Speaker 1: are going global, I think that's where you see Netflix
Speaker 1: having this incredible advantage. You know, I think about the
Speaker 1: early days of HBO, and it was just so revolutionary
Speaker 1: with Jeff Bucas did there because big budgets. Okay for
Speaker 1: theatrical film, I get it, and you get a certain
Speaker 1: quality of that. You don't get that on TV. He
Speaker 1: didn't get that on cable. But all of a sudden,
Speaker 1: they put serious money behind some of these um series
Speaker 1: and I just watch for the first time after twenty years,
Speaker 1: The Wire, and that was really the series that changed
Speaker 1: the entire ballgame what could be on the small screen. Yeah,
Speaker 1: I mean they made a big switch in the mid
Speaker 1: nineties where you know, the early HBO series were very
Speaker 1: cheap looking. You know, if you go back and look
Speaker 1: at Tanner eighty eight or even Larry Sanders, which is
Speaker 1: an incredible show, but they didn't put a lot of
Speaker 1: money on the screen. Then it was you know, From
Speaker 1: the Earth to the Moon, which was a mini series
Speaker 1: Tom Hanks and Brian Grazer were doing. They said, you know,
Speaker 1: if you're going to do this mini series on HBO,
Speaker 1: it has to have real special effects. You guys cannot
Speaker 1: cheap out. And so yeah, Jeff Buchaus at the time
Speaker 1: as CEO, said, you know what, we are going to
Speaker 1: put a huge amount of money in here. We're gonna
Speaker 1: move to a more theatrical model where we'll spend a
Speaker 1: lot of money up front and then we'll figure out
Speaker 1: ways to try and monetize on the back end. And
Speaker 1: as it happened, that was also the period of time
Speaker 1: where direct TV was coming in to play. They were
Speaker 1: getting an extra money from direct TV, and also DVDs
Speaker 1: were also hitting. And it turns out that those series
Speaker 1: that they created in the late nineties and early two thousands,
Speaker 1: Sex in the City, The Sopranos, six Ft Under the Wire,
Speaker 1: incredible series, an incredible run they had, and not only that,
Speaker 1: pulling a lot of subscribers, they could also take those
Speaker 1: shows and they remember those box that's they used to
Speaker 1: make a DVD box that those things were like pure gold,
Speaker 1: you know, by like one season the Sopranos was like
Speaker 1: a hundred dollars or something. It was absurd, but it
Speaker 1: was a great extra revenue stream that they could just
Speaker 1: continue to plow into making their shows look, you know,
Speaker 1: more like theatrical productions than anything else on TV. I
Speaker 1: gotta say, I haven't seen The Wire yet. I need
Speaker 1: to you do again. I just it was a twenty
Speaker 1: year anniversary and I said, boy, I've always said to myself,
Speaker 1: I need to watch that. So I started. You can
Speaker 1: now stream and binge it all the stuff that d
Speaker 1: to do, and it was awesome. Yeah, yeah, I have
Speaker 1: seen the Sopranos, I will say that. But Felix, so
Speaker 1: the big take today. It's an excerpt from your book,
Speaker 1: which is coming out next week, I believe remember on
Speaker 1: November one, sorry, right after Halloween. So the I was
Speaker 1: going to say, headline the title of your book, it's
Speaker 1: not TV. It's a Spectacular Rise, Revolution and Future of HBO.
Speaker 1: Let's talk about the future. Does it look like it
Speaker 1: looks pretty good right now? I think that, Um, you know,
Speaker 1: three years ago when we started the book and A
Speaker 1: T and T was taking Warner Media very slow, very
Speaker 1: classic magazine writer. You gotta yeah, it looked, you know,
Speaker 1: people were saying, oh, is this is this going to
Speaker 1: be the end of HBO. What's going to happen? Um.
Speaker 1: HBO has had an incredible strong two thousand one, two thousand,
Speaker 1: twenty two. You think about you know, the White Lotus succession,
Speaker 1: Mayor of Easton um and just this year with the
Speaker 1: Game of Throne sequel House of the Dragon, which has
Speaker 1: probably been the biggest thing in TV uple months. They're
Speaker 1: doing great. You know, Discovery has come in a T
Speaker 1: and T spun spun off Warner Media. They have new
Speaker 1: owners with Discovery. I think David Zaslav is a big
Speaker 1: supporter of the brand. UM. So, actually HBO is doing
Speaker 1: great and the method that they kind of perfected back
Speaker 1: in the eighties, you know, late eighties, nineties, two thousands,
Speaker 1: still very powerful, still a great way of doing television.
Speaker 1: But there's a lot of competition. Like I used to think,
Speaker 1: you know that the story was in Hollywood. If you
Speaker 1: really want to do something really high quality, you go
Speaker 1: to HBO. Now I've got Ted Surrandos and Netflix writing
Speaker 1: huge checks. I've got lots of other I got Amazon,
Speaker 1: appleple So how do they adapt? I guess they've had
Speaker 1: to adjust because you're right, in the old days, they
Speaker 1: could outspend everybody if they wanted a project. They just
Speaker 1: you know, we have this thing in the book called
Speaker 1: the HBO shrug, which was like, you know, we were
Speaker 1: gonna pay eighty million dollars for Banded Brothers, Well, we'll
Speaker 1: spend a hundred million. That's fine, And they didn't have
Speaker 1: to worry about it, and that was a huge advantage.
Speaker 1: I think they've adjusted in recent years because really, when
Speaker 1: Netflix came along and odd into programming in a big
Speaker 1: way over the past decade, they kind of stole that
Speaker 1: position in the marketplace from HBO because you know, the
Speaker 1: paradigm of tech investing, it's been all about growth, hasn't
Speaker 1: been about profits, and that positioned Netflix to really do
Speaker 1: the same thing to HBO that HBO used to do
Speaker 1: to everybody else, which was, like, you know, in the
Speaker 1: Expert in the Big Tape, we talk about Netflix swooping
Speaker 1: in and buying House of Cards, which was like their
Speaker 1: first big bed on the original program, and they offered
Speaker 1: a hundred million dollars two seasons without seeing a pilot
Speaker 1: it's crazy stuff, it's fun stuff. This is gonna be
Speaker 1: a great book. Felix, do you let editor Bloomberg News.
Speaker 1: He's got a new book coming out next week, which
Speaker 1: I'm gonna buy. I'm not gonna take one of the
Speaker 1: ones they have around here. It's entitled It's Not TV
Speaker 1: The Spectacular Rise Revolution in Future of HBO. Thanks for
Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
Speaker 1: listen to interviews with Apple Podcasts or whatever podcast platform
Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt
Speaker 1: Miller seventy three, and I'm fall Sweeney. I'm on Twitter
Speaker 1: at pt Sweeney. Before the podcast, you can always catch
Speaker 1: us worldwide at Bloomberg Radio