Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keane, along with Jonathan Farrell and Lisa Abramowitz.
Speaker 2: Join us each day for insight from the best and economics, geopolitics,
Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,
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Speaker 3: Sarah Hunt with us now Chief market Strategist to Alpine
Speaker 3: Saxon Woods. Sarah, wonderful to see you. Let's start here.
Speaker 3: Give us one good reason to buy gm Ford and
Speaker 3: stillansis with this going on.
Speaker 4: I think that's a very difficult question.
Speaker 5: I mean, you'll see that the stocks are only a
Speaker 5: little bit lower in pre market. It really is going
Speaker 5: to depend on how long this takes to work through.
Speaker 5: I think there's a lot of things that are on
Speaker 5: the table. I think job security is definitely part of
Speaker 5: it for the union, and I think the real question
Speaker 5: for those three is how you continue to be competitive
Speaker 5: globally when you've got these issues going on at home,
Speaker 5: and you've got issues with higher oil prices, right because
Speaker 5: those cars are more expensive, not only to buy, but
Speaker 5: to fuel right now too. So I think that there
Speaker 5: are a lot of problems right now in the auto sector,
Speaker 5: and I think for those three in particular, this is
Speaker 5: not a great time for them to be facing this
Speaker 5: sort of action.
Speaker 2: The emotion here of a president today goes down to
Speaker 2: the manufacturing multiplier yours in my ute, where it was
Speaker 2: simple a manufacturing job was better than being a TV
Speaker 2: anchor because it was more productive for America. Is there
Speaker 2: a manufacturing multiplier still.
Speaker 1: In this nation?
Speaker 5: Well, I think there's definitely a manufacturing multiplier, and I
Speaker 5: think that the targeted strikes are showing you exactly how
Speaker 5: when you've changed the manufacturing to each plant does a
Speaker 5: different thing and gets it to the ultimate end assembly
Speaker 5: that I can strike anywhere, and I can have a
Speaker 5: big effect on a giant network in a small way.
Speaker 5: So there's definitely a problem there. And the question about manufacturing,
Speaker 5: we're trying to reshore manufacturing right so this is part
Speaker 5: of I think the big labor question of when I
Speaker 5: reachhore manufacturing, what's going to happen to prices? And I
Speaker 5: think globally we're setting ourselves up between energy situations and
Speaker 5: re bringing production back home to have just higher prices
Speaker 5: across the board. So I think that there's a longer,
Speaker 5: big tail here to some of these discussions that are
Speaker 5: not just about individual micro situations.
Speaker 6: But AI is going to solve it all. It's going
Speaker 6: to create robots and all sorts of programs that can
Speaker 6: just make all of the things that we need. I mean,
Speaker 6: this is sort of the great hope to keep pricing down.
Speaker 6: Why wouldn't you just head your bets and going to
Speaker 6: strong into energy, go strong ino tech, and forget the
Speaker 6: rest of it.
Speaker 5: Well, you know, we've been positive amount energy and that
Speaker 5: has not been the best thing to be all year.
Speaker 5: But I think it's finally starting to come around. And
Speaker 5: it's actually coming around almost too quickly because oil prices
Speaker 5: have risen so quickly that it's almost an issue. But
Speaker 5: I think that that's part of the problem for the
Speaker 5: general populace is that if I am going to do
Speaker 5: this with robots, if AAI is going to save me
Speaker 5: from a productivity standpoint, then what am I then?
Speaker 4: How am I going to have job security?
Speaker 5: And I think that that's part of the tension that's
Speaker 5: going on right now, especially with the automakers.
Speaker 6: Elaborate on that why do you say almost too quickly.
Speaker 5: Because it does have demand destruction issues. Right when oil
Speaker 5: prices shoot up dramatically, you do start to see demand destruction.
Speaker 5: And part of the reason the oil prices have gone
Speaker 5: up is because the Saudias are taking oil off the market,
Speaker 5: and at a time when we've essentially depleted our spr
Speaker 5: so there isn't a lot of backstop in terms of
Speaker 5: excess productivity I mean xx production of oil, and especially
Speaker 5: with the US, as John pointed out earlier, at record
Speaker 5: highs for production. So I think that that movement higher
Speaker 5: is not The stocks haven't caught up to it.
Speaker 4: Because they don't really believe it right.
Speaker 5: So from an investment standpoint, you're not getting the benefit
Speaker 5: of those higher oil prices, but you are seeing them
Speaker 5: on a consumer problem as a consumer problem.
Speaker 3: Thirty five percent move since June our has been quite
Speaker 3: a move, Sarah. Do you see these multinationals, these big
Speaker 3: oil integrated companies leaning harder into fossil fuels. There's a
Speaker 3: big conversation about where BP is going in Europe, Where
Speaker 3: shall it's going in Europe? What are the US players
Speaker 3: doing in energy?
Speaker 5: I think every single one of them is trying to
Speaker 5: find a way to be both relevant in fossil fuels,
Speaker 5: but also to look towards the future where fossil fuels
Speaker 5: pay us play a smaller part. The question really is
Speaker 5: the timing on that. And I've said before that I
Speaker 5: think that that tail is a lot longer than people
Speaker 5: want it to be in terms of what countries are
Speaker 5: trying to legislate and also what people would like to see.
Speaker 5: But the truth of the matter is that you do
Speaker 5: need fossil fuels, and you're going to need them for
Speaker 5: a longer period of time. And the earlier discussion about
Speaker 5: emerging markets that they're not going to be able to
Speaker 5: transition to electric all that quickly. The infrastructure isn't even there.
Speaker 5: So as they grow bigger their demand for oil, even
Speaker 5: if it's coming down in OECD countries, it's going to
Speaker 5: be going up another place.
Speaker 2: They got airlines flat on their back. Airlines have been
Speaker 2: a post pandemic disaster. In terms of shareholder return, I've
Speaker 2: got Exxon with three percent diviot and okay, generous, I
Speaker 2: guess the five year dividend growth rate is totally unacceptable.
Speaker 2: Are they going to get used to cast religion? Are
Speaker 2: they going to become like Apple and start throwing cash back.
Speaker 5: I wouldn't want to opine on Exxon specifically. I think
Speaker 5: some of the other oil stocks have definitely gotten religion
Speaker 5: on the divid end and return of capital to shareholders,
Speaker 5: because I think that that was something that they've been
Speaker 5: told by Wall Street and by investors that they want.
Speaker 5: They don't want them to go out and spend all
Speaker 5: this money on production when oil prices are not as
Speaker 5: high as they were right now, but they would like
Speaker 5: to see some return of capital. So I think that
Speaker 5: there has been some change in the way that capital
Speaker 5: allocation is looked at across the industry.
Speaker 3: Does it matter who's in the White House when it
Speaker 3: comes to the energy patch. We make a big deal
Speaker 3: about policy coming out of President Biden, former President Donald Trump.
Speaker 3: Crudes back in the nineties, but crude production in America
Speaker 3: it's close to all time highs Sarah. And that's happening
Speaker 3: with this very anti fossil fuel tone coming out of
Speaker 3: the White House. Does it even make a difference, what
Speaker 3: they've got to say?
Speaker 5: It makes a difference when it comes to permitting, and
Speaker 5: it makes a difference when it comes to.
Speaker 4: Production that you don't have yet.
Speaker 5: Right if you're looking at an area where we've been
Speaker 5: able to extract a lot more oil out of fields
Speaker 5: that we're already there with the technology changes, and that's
Speaker 5: where your productivity comes in. Then is it matters less
Speaker 5: when it comes to looking at new areas to be
Speaker 5: able to either explore or drill. Then it starts to
Speaker 5: make it different on the edges.
Speaker 3: Sarah Hunt, thank you. It's going to see you here
Speaker 3: in New York. Sarah Hunt of v APPI Saxon.
Speaker 2: Woods bearing gifts this morning from New Orleans on television.
Speaker 2: It is aunt Sally's pralines. They're for Bramo And here
Speaker 2: you go, Lisa.
Speaker 3: We're not saying Sally. I was saying Sally, not Sally's accent.
Speaker 2: No, I don't I don't have a they count on radio.
Speaker 2: It's yeah, it's like a calorie count on radio. That's
Speaker 2: all you need to know. Anya Trees joins us here
Speaker 2: from Encyclopedic on Washington, and very importantly Henriette. In this moment,
Speaker 2: this is a president who's got to come up with
Speaker 2: a new statement for a president on labor unrest.
Speaker 1: What does it sound like?
Speaker 7: I think you're exactly right, falling back on that Scranton
Speaker 7: narrative and speaking to labor unions, the way that this
Speaker 7: administration has their entire term. We've done this before, they
Speaker 7: have a huge success rate. So I think there's a
Speaker 7: lot of maybe not surprise in DC, but it's a
Speaker 7: different circumstance now that there's actually striking happening, and I
Speaker 7: assume it's Defcon one up there and they're all going
Speaker 7: to work to result this one.
Speaker 3: What do you think this response is going to be.
Speaker 3: And let's dig into this. He already cut off the
Speaker 3: railroad workers from striking. He can't do that with this.
Speaker 3: Even though they did that, they still went around saying
Speaker 3: that they were the most pro union administration in the
Speaker 3: history of all administrations in the United States of America.
Speaker 3: I'm not sure how you can be so pre union
Speaker 3: without giving people the right to strike. Now they're on strike,
Speaker 3: shouldn't you be supporting them?
Speaker 7: And it's interesting to watch because there's a number of
Speaker 7: Democratic lawmakers in the Senate and the House who are
Speaker 7: going to join the strike. Right So you have this
Speaker 7: situation where the White House is obviously going to try
Speaker 7: to get the strike to conclude, but there's a host
Speaker 7: of Democrats who are actually going to strike with them.
Speaker 7: So it's a bit of a two sided videotape right there.
Speaker 6: What about the Republicans? Where should they be coming in
Speaker 6: or where are they coming in to try to capitalize
Speaker 6: on something that's fraught on both sides, because this is
Speaker 6: no longer a one party kind of issue with unions.
Speaker 7: It's really not. And I think that Democrats really focus
Speaker 7: on this because President Trump, when he was in office,
Speaker 7: was so successful at taking so much of the union
Speaker 7: vote away from the Democratic Party, and that's a material
Speaker 7: shift that Democrats have to worry about for the future.
Speaker 7: So when you see, for example, Trump comment on this,
Speaker 7: it's really deflective and moving away to electric vehicles. So
Speaker 7: we're anti electric vehicles, which is of course a big
Speaker 7: component of this. But we've just subsidized the entire electric
Speaker 7: vehicle industry substantially, whether through.
Speaker 6: The Chips Act or through the IRA.
Speaker 7: Treasury is working on all those electric vehicle tax credits
Speaker 7: right now and more. That's what is at the heart
Speaker 7: of this debate, because they are they need less workers
Speaker 7: for those vehicles.
Speaker 6: Does it look less likely that if the auto manufacturers
Speaker 6: did to run into trouble on the heels of some
Speaker 6: of the labor pushback and their financial situation did weaken
Speaker 6: substantially that any kind of future bailout is off the
Speaker 6: the way that it was back in the day.
Speaker 7: Oh my gosh, I was in the Senate when we
Speaker 7: did the auto bailouts. I don't want to hear that again.
Speaker 7: I mean, not to bring it in, but you know,
Speaker 7: Mitt Romney is retiring, so maybe we that's terrible, But no,
Speaker 7: I don't think that there would be another bailout. I
Speaker 7: don't think that that is something that this administration or
Speaker 7: America is prepared for. At this point. We passed a
Speaker 7: lot of spending bills. I don't see a sector specific
Speaker 7: bailout occurring anytime soon.
Speaker 2: Twenty twenty union vote Biden fifty seven percent, Trump forty percent.
Speaker 2: At the margin, critically from four years before, Biden did
Speaker 2: way better than Hillary Clinton. Where are we now, drag
Speaker 2: it forward three and a half years. Does Biden still
Speaker 2: have the union vote majority.
Speaker 7: I think that when you look at not necessarily the
Speaker 7: union vote, but all voting turnout, there are other issues
Speaker 7: that are bigger than just union issues. And we've kept
Speaker 7: all those tariffs on which labor unions are in some
Speaker 7: case supportive of the administration has gone a long way
Speaker 7: towards reshoring those Union votes, so I think they stay.
Speaker 7: But Trump is got a stranglehold on his party and
Speaker 7: so none of those voters are leaving. So I wouldn't
Speaker 7: be surprised if it was exactly the same.
Speaker 3: I'm not sure how we can have a viable auto
Speaker 3: industry in Europe or in the United States without monster
Speaker 3: tariffs protecting this industry. I'm not sure how it can
Speaker 3: be viable given what's happening in China at the moment.
Speaker 3: The opportunity that they have to produce vehicles at much
Speaker 3: lower price, is much lower cost than the Europeans. The
Speaker 3: Europeans are already complaining about that. Isn't that the direction
Speaker 3: we're traveling in here? That Europe's about to smack tariffs
Speaker 3: even higher and basically say the same thing as America.
Speaker 3: You want to sell here, produce here.
Speaker 7: Absolutely, I mean tariff's, state subsidization, domestic subsidization for endshoring,
Speaker 7: all of that is very much in the cards, and
Speaker 7: I think for the foreseeable future under this administration or
Speaker 7: in the case that Trump wins.
Speaker 3: Have we thought this through about what this ev transition
Speaker 3: is actually going to look like and how costly it
Speaker 3: could be governments Europe, China, the United States.
Speaker 7: I don't think so. And you're seeing that in a
Speaker 7: lot of the delays of these regulations coming out on
Speaker 7: clean energy, not necessarily just on electric vehicles, but the solar,
Speaker 7: the hydrogen, all of those alternative clean energy components are
Speaker 7: requiring tremendous amounts of manpower at Treasury, and one of
Speaker 7: the things I hear most frequently is we just don't
Speaker 7: have the experts to finalize these rags. We're working on it.
Speaker 7: We know that Commerce Secretary Romando is staffing up Commerce
Speaker 7: with one hundred and fifty two hundred new people to
Speaker 7: address how to roll this money out where it should go,
Speaker 7: how slowly to phase in these changes, how tire freights
Speaker 7: should work in conjunction, whether with the EU or with Mexico.
Speaker 7: Those clean steel TIFFs, what are those really about?
Speaker 8: You know?
Speaker 7: So they're all connected. But I think it's slow going,
Speaker 7: and industry is very very keen on getting the details.
Speaker 3: We're going to be talking about this for a while,
Speaker 3: no doubt about it. And Redda, thank you, it's great
Speaker 3: to see you and redd to trace their Veda pounas,
Speaker 3: and thank you for the treats ys well, I appreciate
Speaker 3: that too.
Speaker 2: Joining us now amid this flow and we're watching from
Speaker 2: the White House to see when the President will speak.
Speaker 1: As R J. Gallo, Senior Vice President con Federated or measin.
Speaker 2: We're thrilled that he could join us this morning because
Speaker 2: he's got the smartest bond note of the week.
Speaker 8: R J.
Speaker 1: Gallow knows that one of.
Speaker 2: The efficacious things to do in bonds is look at
Speaker 2: the Bloomberg Total Return Index and see that for all
Speaker 2: the talk yap about coupon credit spreads blah blah blah,
Speaker 2: bonds have gone nowhere.
Speaker 8: R J.
Speaker 2: Gallow hypothesizes that bonds are not back.
Speaker 1: Thank you, r J.
Speaker 2: I looked at the chart off your note and I
Speaker 2: was thunderstruck. How the blended price of bonds is really
Speaker 2: not advanced? Is it still a bond depression?
Speaker 9: Well, in the note that you were talking about there,
Speaker 9: I made the point that when we started the year,
Speaker 9: we felt that it was going to be a favorable
Speaker 9: one for bonds, and clearly it's fallen short. The Treasury
Speaker 9: index is basically zero, the egg is up I think
Speaker 9: a half a percent, So yes, it's been disappointing.
Speaker 8: I would also note glass half full.
Speaker 9: The double digit losses of last year, or call the
Speaker 9: ages down like thirteen percent, are clearly behind us, and
Speaker 9: looking forward, we're much more optimistic that the time for
Speaker 9: fixed income giving you sort of mid low single digit
Speaker 9: positive returns and acting as a powerful diversifier in your portfolio.
Speaker 9: That is, in fact back with the yields at the
Speaker 9: highest in the last twelve to fifteen years. We think
Speaker 9: value has been restored and fixed income investors should think
Speaker 9: about extending some duration. Getting out of cash legging into
Speaker 9: fixed income will be a good move over the next
Speaker 9: twelve twenty four months.
Speaker 1: Okay, twelve to twenty four months. I'm going to get going.
Speaker 2: When do I get back to the regression line that
Speaker 2: I had for thirty years? You know, the bill gross
Speaker 2: great moderation, price up, up, up up up. How many
Speaker 2: years is it going to take to recover from what
Speaker 2: we've seen in the last two years.
Speaker 9: I hate to say it, but I think that the
Speaker 9: zero lower bound, you know, present, it's a significant wall
Speaker 9: to anything like the returns that we saw over the
Speaker 9: twenty thirty years leading up to the pandemic. If anything,
Speaker 9: we believe that it's quite possible that equilibrium mealds are
Speaker 9: higher post pandemic than they were for the decade plus prior.
Speaker 8: It'll be interesting to see if the.
Speaker 9: FED goes there with its long run dot maybe inching
Speaker 9: up in the dot plot closer to maybe three, maybe
Speaker 9: a little higher. If you look at forward curves, you
Speaker 9: can see that the market is there. The market believes
Speaker 9: equilibriy meals are higher, and in that sense, it's going
Speaker 9: to be a while before we see big price returns
Speaker 9: from taking a fixed income, high quality fixed income investment. Instead,
Speaker 9: I think we'll probably be looking for oscillating markets around
Speaker 9: a higher equilibrium, which will still provide a nice return
Speaker 9: in ballast for your portfolio, but it's not apt to
Speaker 9: be double digit price returns anytime too soon.
Speaker 6: Is this higher yield driven by inflation or driven by
Speaker 6: something else, Whether it's a budget deficit that spooks investors
Speaker 6: or a changing central bank regime in Japan, that's a
Speaker 6: great question.
Speaker 9: I think that there's been a number of factors that
Speaker 9: have shifted us towards what's probably a slightly higher equilibrium
Speaker 9: yield environment. The budget deficits a big part of it.
Speaker 9: Sovereign debt has exploded. We've got a lot of debt
Speaker 9: to roll over. Obviously, we have structural imbalances here in
Speaker 9: the US that no one wants to deal with in Washington.
Speaker 9: So that's one factor. I think on the favorable side,
Speaker 9: a lot of talk about AI about technological innovation. In
Speaker 9: the long run, when you have technological innovation, your potential
Speaker 9: growth rate goes up, higher potential growth rates, higher equilibrium yields.
Speaker 9: That's actually a positive thing that could put more people
Speaker 9: to work. Of course, you've got to talk about the
Speaker 9: issues of displacement, who gets jobs out of the new technology,
Speaker 9: who loses them? But ultimately, I think higher potential growth rates,
Speaker 9: larger budget deficits, and some pushback against internationalization, the pushback
Speaker 9: against the global trade marketplace that helped to produce low
Speaker 9: inflation and low yields prior to the pandemic.
Speaker 8: Now you're talking about on shoring.
Speaker 9: That's a big change, and I think ultimately that too
Speaker 9: is probably going to lift yelds a little higher, as
Speaker 9: the disinflationary impact of globalization might not be as strong
Speaker 9: as it was in the prior ten.
Speaker 8: Or fifteen years.
Speaker 6: That's in the years ahead. In the here and now,
Speaker 6: we're looking at an UAW strike that's roiling washing, it's Royling, Washington, DC,
Speaker 6: but also Detroit. Does that factor into your yield call?
Speaker 6: Does that factor into the bond space as you look
Speaker 6: out to understand the growth as well as the inflation picture.
Speaker 8: Yes, it does. I mean obviously it cuts in two ways.
Speaker 9: First and foremost, these workers are looking for raises. It's
Speaker 9: no surprise we dealt with the highest inflation in forty years.
Speaker 9: A lot of workers are looking for raises. That makes
Speaker 9: sense as they deal with the higher cost of living.
Speaker 9: You stop there, you would think that strikes have to
Speaker 9: be inflationary. Ultimately, however, you've got to consider the near
Speaker 9: term impact of a strike is less production, less economic activity,
Speaker 9: and the multiplier effects that occur in the local economies
Speaker 9: around these three plants, and if it extends to more plants,
Speaker 9: that economic impact only grows. I think ultimately, this idea
Speaker 9: of empowered labor across the country is very predictable. At
Speaker 9: a point in time like this, I think it's challenging
Speaker 9: for the White House that you guys have been saying.
Speaker 9: I think from an economic standpoint, I'm focusing a little
Speaker 9: bit more on the growth headwind that's going to produce
Speaker 9: in the near term. It's not the case that every
Speaker 9: dollar raises that the auto companies are going to give
Speaker 9: these workers to get them back on the job, that
Speaker 9: those that's going to be simply passed through one for
Speaker 9: one into higher prices at the dealership where we buy
Speaker 9: our cars.
Speaker 3: I've got an any question out, Jay, Can I squeeze
Speaker 3: it in because I've only got about thirty seconds left
Speaker 3: with you? Do I want to avoid industries that are
Speaker 3: witnessing like we see in airlines, like we see in automakers,
Speaker 3: this powerful movement from labor.
Speaker 8: In terms of what industries you would go to to avoid.
Speaker 3: Should I avoid the airlines? Should I avoid the automakers
Speaker 3: purely because of the evidence of labor market power? Should
Speaker 3: I avoid those industries?
Speaker 9: Well, I do think it's clearly a margin compression story
Speaker 9: in these industries. As of a saying the automakers won't
Speaker 9: be able to price pass through to price one for one,
Speaker 9: the raise is that their workers are going to get
Speaker 9: I clearly think that is a challenge in terms of
Speaker 9: sector rotation on the equity side.
Speaker 8: I don't know if I've necessarily avoid it.
Speaker 9: That's really not my main main area of expertise, I
Speaker 9: can tell you on the fixed income side, we've been
Speaker 9: relatively cautious on investment grade corporates and high yield because
Speaker 9: we think a broad based margin compression is a story
Speaker 9: that's still out there, and we're not as optimistic on
Speaker 9: corporate profits in general.
Speaker 8: I would focus on that from a broader macro perspective.
Speaker 3: Interesting, Alja, thank you. I chick out of the Federated
Speaker 3: Hermes on some important issues.
Speaker 2: We're going to go to Disney Plus and the intractable
Speaker 2: issues that mister Eiger faces. Getha Raganathen joins right now
Speaker 2: with Bloomberg Intelligence and Githa. To me, this is about
Speaker 2: fancy companies flying in fancy Kinsey, BCG Bain people to
Speaker 2: strategists to save the day. What would the strategists say
Speaker 2: this morning to mister Iiger. Let's pick on McKenzie McKinsey.
Speaker 2: Media shows up. What do they say to the leader
Speaker 2: of Disney.
Speaker 10: Well, they already have it's good morning, town, thanks for
Speaker 10: having it. So they already have a lot of things
Speaker 10: that are going on right now at Disney. So you
Speaker 10: have on one side, you have the streaming business, which,
Speaker 10: as you've just pointed out, is losing subscribers, but then
Speaker 10: the whole narrative there has really kind of shifted away
Speaker 10: from subscribers to profitability. So somehow Bob Iger has to
Speaker 10: show that this business is going to be profitable sooner
Speaker 10: rather than later. We know Netflix has kind of already
Speaker 10: set the template in the market. There is a blueprint
Speaker 10: for streaming profitability, so they have to figure out a
Speaker 10: way to get there. But more important for Disney right
Speaker 10: now is to somehow kind of show the market that
Speaker 10: they have a plan for their linear TV networks. And
Speaker 10: the linear TV networks have really been in the news
Speaker 10: a lot over the past few days, whether it was
Speaker 10: that dispute with Charter and more recently, you know, all
Speaker 10: of these news reports about them looking to kind of
Speaker 10: dispose of some of their networks and multiple bidders emerging.
Speaker 10: So there's a lot going on there. But I think
Speaker 10: as as soon as mister Eiger can kind of clarify
Speaker 10: the narrative, it's all going to become much better.
Speaker 1: We Githa.
Speaker 2: You know, we had Michael Nathanson commenting earlier, and I
Speaker 2: look at Mafatt Nathanson for ten years has talked about
Speaker 2: cord cutting, and they were correct and I believe Mafatt
Speaker 2: Nathanson would say, you know, what had actually happened faster
Speaker 2: than we thought. Is Eiger listening to the public. Is
Speaker 2: Iiger listening to Seth Rosen?
Speaker 10: He absolutely is, and he's been forced to. I mean,
Speaker 10: the data is staring at you, you know, in the face.
Speaker 10: So there's absolutely there's no way to sugar quote the
Speaker 10: fact that the industry is losing subscribers. We've lost roughly
Speaker 10: twenty five to thirty million subscribers over the past you know,
Speaker 10: five to ten years, so that is, you know, the
Speaker 10: writing is on the wall. Bob Eiger has said that,
Speaker 10: you know, they are willing to take the steps. It's
Speaker 10: actually publicly said that the linear TV business is no
Speaker 10: longer core to Disney. And if you just kind of
Speaker 10: look at the Disney profitability profile for twenty twenty three,
Speaker 10: out of the thirteen billion dollars that they will generate
Speaker 10: in trofits this year, seventy five percent of that is
Speaker 10: going to come from parks. So they really know where
Speaker 10: they need to kind of focus. It has to be
Speaker 10: on the parks business and getting that to even higher profitability,
Speaker 10: and it has to be reducing losses in the streaming
Speaker 10: business as well as kind of keeping you know, the
Speaker 10: linear TV business in in cruise control, because the streaming
Speaker 10: business will lose close about three billion dollars this year.
Speaker 6: Today, it seems like stock investors are getting the message, Githa.
Speaker 6: We are seeing nine tensiever percent pop in the Disney
Speaker 6: shares ahead of the open. It does seem to be
Speaker 6: like that is the narrative that's coming out of this, right,
Speaker 6: especially not giving subscribers for Disney Plus, which is a
Speaker 6: successful platform, but not necessarily emphasizing growth. And then the
Speaker 6: news about ABC, does this mean they're not going to
Speaker 6: be investing in content that they're hoping to save money
Speaker 6: on that front.
Speaker 10: They definitely, I mean, that's a great point, Lisa, and
Speaker 10: they definitely are looking to save money on content. So
Speaker 10: they had initially projected about thirty billion dollars thirty thirty
Speaker 10: one billion dollars in content costs for twenty twenty three.
Speaker 10: They've actually taken that down to twenty seven billion, So
Speaker 10: there's already been some reduction on that front. Of course,
Speaker 10: that is largely in part due to the Hollywood, you know,
Speaker 10: the dual strikes. But even going forward, I think they
Speaker 10: are going to take a really really disciplined approach. I mean,
Speaker 10: bar Bieger has openly said that, you know, they're not
Speaker 10: going to be green lighting projects left right and center,
Speaker 10: whether it's for the film business, whether it's for the
Speaker 10: TV business. So they're definitely taking a hard look. And
Speaker 10: remember they haven't really performed all that well on the
Speaker 10: content front as well, especially you brought up Elemental. That's
Speaker 10: a great point. I mean, we've seen a string of
Speaker 10: misfires from the Disney studio. I mean, this is one
Speaker 10: of the one of the best performing studios in the
Speaker 10: history of you know, films, and so it's kind of
Speaker 10: been a little bit of a disappointment. But I think
Speaker 10: he is kind of really looking to revamp all of
Speaker 10: the content franchises right now.
Speaker 6: At the same time, ESPN long considered a contender for
Speaker 6: a sale for buy Disney at a time, and it
Speaker 6: was at the heart of a dispute with Cable over
Speaker 6: the past couple of days. Is that still for sale?
Speaker 6: Is that still the rumor out there, or is there
Speaker 6: going to really focus on expanding and fortifying this because
Speaker 6: sports really are the heartbeat of all of our media content.
Speaker 10: I absolutely agree. I actually think it's the latter that
Speaker 10: they will look to keep the ESPN network. What they're
Speaker 10: trying to get rid off is the rest of the
Speaker 10: linear network portfolio. They do realize that they can have
Speaker 10: They have a lot of opportunity with the ESPN. They're
Speaker 10: already paying about nine billion dollars every year in sports
Speaker 10: content costs. You know, there's a huge advertising business there,
Speaker 10: there's a huge, huge afflid business, and I think there
Speaker 10: is a lot of potentials. I think they will look
Speaker 10: to keep ESPN dispose off the rest.
Speaker 2: Yeah, but the heart of the matter is you led
Speaker 2: with GETA and you're expert on this is everybody needs
Speaker 2: to be Netflix. So Disney Plus picks up the Australian
Speaker 2: animation Bluey, and it's Bluey Healer and his sister Bingo Healer,
Speaker 2: and that's all great. Can blue from Australia deliver for
Speaker 2: eiger twenty one percent ebitda margins.
Speaker 10: It actually can? It is going to take a little
Speaker 10: bit of time. You know, what Netflix has achieved has
Speaker 10: been over a period of you know, ten, twelve, thirteen years.
Speaker 10: You know, remember just a few years ago we were
Speaker 10: criticizing them for burning about three and a half four
Speaker 10: billion dollars in cash, So it's taken a while. So
Speaker 10: you know, yes, they have kind of set the template,
Speaker 10: and Disney needs to take a page out of the
Speaker 10: Netflix playbook so it knows exactly what it needs to hit,
Speaker 10: and I think they will by fiscal twenty twenty five
Speaker 10: twenty twenty six, we are going to see this business
Speaker 10: generate fairly good margins and ultimately get to that twenty
Speaker 10: twenty five percent margins. I think it's absolutely achievable, but
Speaker 10: of course a lot needs to be done before we
Speaker 10: can hit those targets.
Speaker 3: Okatha, let me share some of my emails with you, Hi, Jonathan.
Speaker 3: The price of Hulu no Ads plus Live TV, Disney
Speaker 3: Plus no Ads, and ESPN plus with ads will increase
Speaker 3: on October twelve, twenty three to eighty nine ninety nine.
Speaker 3: Take eighty nine wow nine month you two eighteen nine
Speaker 3: ninety nine a month.
Speaker 1: Ninety bucks I believe is what we call that. Yeah,
Speaker 1: that's like a barrel of oil. Barrel Ino's living room.
Speaker 6: Where we're at a thousand bucks a year more than that.
Speaker 3: That is where we're at.
Speaker 1: Bramo does a math. That's ridiculous.
Speaker 3: That's ridiculous, Gaitha. Can they put up prices anymore.
Speaker 10: I mean, it's it's going to be tough. But actually
Speaker 10: the recent deal that they did with Charter suggests that
Speaker 10: they are now willing to kind of rebundle all these services.
Speaker 10: I think in many ways that was kind of a
Speaker 10: landmark deal. You know we are coming. I know it
Speaker 10: sounds almost silly and ironic, but yes, there is going
Speaker 10: to be the great cable. Rebundling Charter was the first step.
Speaker 10: I think we're going to see many more of those
Speaker 10: deals happen.
Speaker 3: Gaitha, Thank you announced that bro blimpag Intelligence.
Speaker 1: Long ago.
Speaker 2: Stuart Wallace helped build this out Bloomberg Hydrocarbons, and the
Speaker 2: leadership has been Javier Bloss, writing for Bloomberg Opinion and
Speaker 2: of course the book award winning the World for Sale.
Speaker 2: Mister Bloss joins this morning, how I want to get
Speaker 2: away from market economics and I want to talk about
Speaker 2: the culture and fabric that you wrote about in the
Speaker 2: World for Sale. If you interpolate out one hundred dollars
Speaker 2: Saudi light, what does it do to the royal family?
Speaker 2: What doeses it do to the fabric and culture of
Speaker 2: Saudi Arabia, Well.
Speaker 11: What it does for the royal families. They immediately became
Speaker 11: very popular. You saw it on the G twenty a
Speaker 11: few days ago in India where President Biden was again
Speaker 11: shaking hands with Mohammed bin Salman, the Crown Prince of
Speaker 11: Saudi Arabia, and using the own wars of the President
Speaker 11: of the US President he wanted to make of Mohammed
Speaker 11: bin salmana paraya in international economics, and now he is
Speaker 11: shaking hands one hundred dollars. It just transforms the Saudi
Speaker 11: royal family into a mass knee, the sole one that
Speaker 11: everyone needs to told, everyone needs to debate because one
Speaker 11: hundred dollars oil, it's going to have a profound economic implications,
Speaker 11: just when central banks are trying to decide that whether
Speaker 11: they have done enough for inflation.
Speaker 2: I have a president Brian Biden is going to speak
Speaker 2: of an autos strike today. He and I remember when
Speaker 2: there were a lot of VW Rabbit diesels sold in
Speaker 2: America and Detroit was hammered, and then nineteen eighty six
Speaker 2: happened and Opek was broken, the price plunged. Is there
Speaker 2: any ability to break OPAQ Opek plus to break the
Speaker 2: Saudist in twenty twenty four.
Speaker 12: No, I don't think so.
Speaker 11: I think that OPEC and OPEC plus, particularly this joint
Speaker 11: agreement between the Russians and the Southeast, is still very strong,
Speaker 11: and the Southeast have absolute control of the market right now,
Speaker 11: both on the upside and on the town side. They
Speaker 11: have demonstrated that they have the ability to push prices
Speaker 11: much higher than that many have anticipated, and they can
Speaker 11: do the other way down. They demonstrated only a few
Speaker 11: years ago that they are willing and they are capable
Speaker 11: of sometimes the market is needed to punish rivals or
Speaker 11: to force the collapse of US domestic oil production.
Speaker 12: So I think that they are really on the driving seat.
Speaker 6: How much does the price of crude operate on a
Speaker 6: lag And I guess maybe I've been tied up too
Speaker 6: much in monetary policy, but this idea that if Saudi
Speaker 6: Arabia is cutting production at a time we're heading into
Speaker 6: a bigger consumption period, whether it's the holidays or whether
Speaker 6: it's heating, that you're going to see a rapid spiking
Speaker 6: prices as inventories get depleted that much faster. How much
Speaker 6: is that concern?
Speaker 11: There is a concern, and certainly the Saudists have to
Speaker 11: cut production to bring the price. What it is today,
Speaker 11: but let's not forget that a production from unexpected sources
Speaker 11: have increased significantly this year. We were not expecting a
Speaker 11: much of an increasing production from an esports from Iran, however,
Speaker 11: Iran is this year the second largest source of incremental
Speaker 11: oil supply into the market, only behind the usail industry.
Speaker 11: The Saudist have cut production to accommodate in sol ways
Speaker 11: the returnal of Iran and making sure that the price
Speaker 11: remains as high. But looking at the demand side, it's
Speaker 11: just fine. We're a record high demand above pre COVID levels.
Speaker 11: Demand in China looks robots is not as it was
Speaker 11: in previous years, but this is still doing well. Gasoline
Speaker 11: and jet fuel in particular, and elsewhere the demand perhaps
Speaker 11: is not just spectacular, nothing to write home, but it's healthy.
Speaker 12: It's nothing to panic.
Speaker 6: At this point. There were some hopes that during the
Speaker 6: G twenty you would hear a better meeting between President
Speaker 6: bid Muhammed build someone, maybe a fist bump, something to
Speaker 6: give a sense of okay, is there going to be
Speaker 6: some pressure by Washington and Riad to maybe ease off
Speaker 6: these cuts increase production. There was a handshake, There wasn't
Speaker 6: much else have we gleaned anything from what happened in
Speaker 6: that meeting?
Speaker 12: No, nothing from that meeting.
Speaker 11: And it's quite surprising how silence the White House has
Speaker 11: been with the Saudi production cuts and the fact that
Speaker 11: we are back to one hundred the levels gasoline and
Speaker 11: diesel prices, in particular diesel in the United States are
Speaker 11: climbing very rapidly, and the White House has not say
Speaker 11: a p about what the Saudis.
Speaker 12: Had up to. I mean, in the past, you will
Speaker 12: you will have.
Speaker 11: The Press Secretary is denouncing the maneuvers, and I think
Speaker 11: that that's the main reason for that, is all the
Speaker 11: political maneuvering and diplomacy that is going on between the
Speaker 11: United States, Saudi Arabia, and Israel for some kind of
Speaker 11: diplomatic deal between the three sides. And that's to me
Speaker 11: the main reason why the Bide and administration has been
Speaker 11: relatively silent on one hundred dollars oil AaB.
Speaker 3: How small is the strategic petranium reserve in America now.
Speaker 11: Well, it's the smallest in forty years. We used for
Speaker 11: a lot of last year we have not put back.
Speaker 11: The White House keeps saying that we are gonna buy
Speaker 11: but it's not happening, and by the way it looked
Speaker 11: at the time like a very smart trade. Perhaps the
Speaker 11: best oil trade may just sell the SPR at very
Speaker 11: high levels in twenty twenty two, buy it back in
Speaker 11: twenty twenty three a much lower levels. WTI is more
Speaker 11: or less where it was a year ago when we
Speaker 11: were selling the SBR. That trade is off, and now
Speaker 11: potentially rather than making a big profit, the White House
Speaker 11: may and just losing money is if it needs.
Speaker 12: To buy by barrels.
Speaker 11: But so far there is no indication that the Department
Speaker 11: of Energy of the White House in any rush whatsoever
Speaker 11: to reveal the strategic Patrollium reserve. All the purchases that
Speaker 11: have been made so far are very very small.
Speaker 3: So from your perspective, how vulnerable is this country to
Speaker 3: a price shock a supply shock? Have you given? The
Speaker 3: production in America? It's very close to all time highs
Speaker 3: and the SPR is so low.
Speaker 11: Well, it is more robos that it was twenty years
Speaker 11: ago because it has a lot more domestic production. That's
Speaker 11: without doubt, and within at the time that President Biden
Speaker 11: have been the the in the White House, US production
Speaker 11: has to continue to climb to an old time high.
Speaker 11: But we were to have to do something similar to
Speaker 11: twenty twenty two. We have one one final bullet into
Speaker 11: to be used. That's as much as oil as is
Speaker 11: back on the SBR. We use a lot and there
Speaker 11: is no much.
Speaker 2: Left avia help me get ready for next week. We
Speaker 2: have Christian mail like a JP Morgan and it's really magisterial.
Speaker 2: Study a year ago of over one hundred dollars oil
Speaker 2: was based on a merging market demand. In your study
Speaker 2: of this and all the resources you have, is there
Speaker 2: a resiliency and growth to emerging market barrels per day?
Speaker 11: There is a still I mean, if we look at
Speaker 11: an oil demand in China and India elsewhere in Asia,
Speaker 11: they are consuming a lot more oil than in the past,
Speaker 11: but they consume a fraction of what Europe and the
Speaker 11: United States do on a per capita basis. And yes,
Speaker 11: those countries will perhaps kip a technology and may not
Speaker 11: use as many gasoline and diesel cars as we have
Speaker 11: used in.
Speaker 12: The West because they will move to electrify.
Speaker 11: But you see where the population is growing, where the
Speaker 11: economic growth is coming in this planet. That's Asia, that's Africa,
Speaker 11: that's Latin America, and there is going to be more
Speaker 11: need for energy, and I think a lot of that
Speaker 11: energy is going to remain for sil films.
Speaker 3: Aviah, this was great, fantastic column and on Bloomberg Today.
Speaker 3: Have a blast there. Bloomberg Opinion on Triple digit Crude
Speaker 3: at a read.
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