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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day, we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moven news.

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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 3: All right, we need to get.

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Speaker 1: The latest reporting from Israel and obviously a fluid situation.

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Speaker 1: Ethan Browner joins us. He is the bureau chief in

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Speaker 1: Israel for Bloomberg News. He's in Tel Aviv. Even thanks

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Speaker 1: so much for joining us here. Can you give us

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Speaker 1: the latest reporting from the ground in Israel?

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Speaker 3: What's developing right now?

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Speaker 4: Sure, we're still in basically a large waiting mode for

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Speaker 4: Israel to begin the next part of its massive operation.

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Speaker 4: Still his three hundred thousand guys in uniform. They've kind

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Speaker 4: of they've built a contemporary base with infrastructure near Gaza

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Speaker 4: from which they're going to launch operation. It's almost certain

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Speaker 4: it's a ground operation, but they haven't officially announced it.

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Speaker 4: At the same time, the Americans have sent a bunch

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Speaker 4: of help because the Israelis say that their material is

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Speaker 4: fairly stretched, both in terms of their ability to monitor

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Speaker 4: from the air what they're hitting and even basic things

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Speaker 4: like helmets for their soldiers. They say, everyone has a helmet,

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Speaker 4: but some of them are old and lousy, and there's

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Speaker 4: some protective gear some. By the way, some of the

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Speaker 4: protest movement that was working very hard against the government

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Speaker 4: has now turned itself into a fundraising operation to help

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Speaker 4: troops and families in the south, and they've raised tens

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Speaker 4: of millions of dollars in order to excuse me, I'm sorry,

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Speaker 4: in order to help those in the south and soldiers

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Speaker 4: get protective gear. So there is a lot going on

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Speaker 4: at the same time as southern Lebanon. People are afraid

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Speaker 4: that something's going to happen there. They are driving away

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Speaker 4: that could because his ballood does decide to come in.

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Speaker 4: I live in Tel Aviv and we have had missiles

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Speaker 4: from Gaza hit Tel Aviv three times today. Hasbella is

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Speaker 4: also known to have long range missiles that can reach here,

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Speaker 4: so it's pretty intense.

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Speaker 2: So Ethan, what does it look like to a mass

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Speaker 2: three hundred thousand soldiers.

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Speaker 3: Outside of Gaza.

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Speaker 2: I mean, that's a large number of people for an

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Speaker 2: area of land that I'm going to say is roughly

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Speaker 2: the size of you know, New York plus Westchester.

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Speaker 4: No, look, it's a good question. I mean they're not

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Speaker 4: all in one spot, but I mean there are because

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Speaker 4: there are people have gone north there, people have gone

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Speaker 4: to the West Bank.

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Speaker 3: There are people.

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Speaker 4: But three hundred thousand men are in uniform as reservists, So.

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Speaker 5: It's a lot of people.

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Speaker 4: I agree with you. Now, they're obviously going to try

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Speaker 4: to take them into Gaza soon because they feel that

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Speaker 4: they need to strike while the ironness out, while the

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Speaker 4: world still has in its mind the images of the

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Speaker 4: slaughter on Saturday, of kids at a rave concert and

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Speaker 4: families that are key boots and so on. So they

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Speaker 4: clearly want to move quickly. One of the things that

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Speaker 4: they've had more trouble with than they expected is was

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Speaker 4: the sort of securing of the south and the border fence.

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Speaker 4: They have largely done that now, but that was so

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Speaker 4: incredibly breached by Hamas fighters on Saturday, and they now

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Speaker 4: it looks like there were probably close to two thousand

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Speaker 4: Hamas guys.

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Speaker 5: Who came in on Saturday.

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Speaker 4: They'd been saying one thousand, but today they said that

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Speaker 4: they found fifteen hundred bodies of Hamas guys, and they've

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Speaker 4: taken a bunch of people prisoners, so it's closer to

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Speaker 4: two than one.

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Speaker 1: So ethan, what is the expectation for the next step

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Speaker 1: for Isra? Are they going to send in tens of

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Speaker 1: thousands or more troops into Gaza? And if so, what

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Speaker 1: would be the objective?

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Speaker 4: So they're not, of course telling us, and we can

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Speaker 4: only speculate, but the objective seems to be to put

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Speaker 4: in a large way, the way they're saying it is,

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Speaker 4: it's to send a message and make clear to Ramas

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Speaker 4: that it never again will carry out an attack like

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Speaker 4: it did on Saturday. It will not have the capacity

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Speaker 4: because we're going to take down every ability of their

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Speaker 4: to do so. Now, is this really possible? And if

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Speaker 4: you go door to door in this way, aren't you

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Speaker 4: going to lose a lot of guys? It does seem

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Speaker 4: like they're going to lose a lot of guys. It

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Speaker 4: feels like they have decided that they're going in that

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Speaker 4: there is an almost existential cause that they think that

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Speaker 4: they have here to send this message not just to Ramas,

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Speaker 4: but to the greater greater region, to Isbela and to

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Speaker 4: Iran that Israel is willing to lose people and to

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Speaker 4: fight in an ugly way to It's a very interesting

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Speaker 4: shift that has occurred here because just a week ago,

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Speaker 4: if you like, it was all about making you know,

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Speaker 4: the new Middle East with Saudi Arabia and railroads and

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Speaker 4: optic fibers. And now it's we are we have to

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Speaker 4: send a military message of muscle, and that's what we're

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Speaker 4: focused on.

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Speaker 5: Now.

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Speaker 4: It'll I think it's a hell of a gambole. We

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Speaker 4: shall see where it goes.

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Speaker 2: Do you think we're gonna have to see this fight

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Speaker 2: broadened out? I mean you mentioned hes belaw is lobbing

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Speaker 2: down missiles from Lebanon, and of course all of this

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Speaker 2: hamas Hesbelah is funded. I think, to the tune of

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Speaker 2: I heard this morning, ninety three percent by Iran.

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Speaker 5: I'm an.

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Speaker 2: So you know, I suppose you can have an academic

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Speaker 2: debate about whether or not Iran new every single detail

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Speaker 2: of this plan and green stamped it at every step

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Speaker 2: of the way.

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Speaker 3: But it doesn't really matter.

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Speaker 2: If they're the ones who are funding everything, you need

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Speaker 2: to take the fight to them.

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Speaker 4: Well, I mean, I don't think that they want to

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Speaker 4: take the fight to them, right, I mean in that

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Speaker 4: would be a really a kind of regional conflagration that

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Speaker 4: is almost unimaginable, both in terms of supplies of oil

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Speaker 4: and everything to the world and the number of people involved.

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Speaker 4: So in fact, the US has sent this big fleet

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Speaker 4: right to the eastern med it's on its way to

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Speaker 4: send a message to his Ballah to say don't send

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Speaker 4: any missiles down, and to send a message to a

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Speaker 4: Ran to say we're going to limit it to this.

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Speaker 4: So I don't Ran meanwhile sending messages saying, if you

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Speaker 4: guys go and start killing people in Gaza, you should

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Speaker 4: know that you're.

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Speaker 5: Going to pay a price.

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Speaker 4: We don't know what that means, but it may mean something.

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Speaker 4: So I don't think the goal here is to bring

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Speaker 4: it to a broader front, but it may happen anyway.

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Speaker 4: I'm not sure how well thought out this all is.

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Speaker 4: I do know there is an incredible sense of fury

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Speaker 4: and humiliation in Israel, and I'm not sure that makes

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Speaker 4: for the best laid plans.

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Speaker 3: It's definitely scary.

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Speaker 2: Yeah, I wonder what the mood is like on the ground, Ethan.

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Speaker 3: I mean, you're you know, covering this.

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Speaker 2: I imagine in a professional sense every waking moment of your

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Speaker 2: life right now. But when you stop and reflect personally,

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Speaker 2: or when you look around at the you know, human costs.

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Speaker 2: I mean, how terrifying is it.

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Speaker 3: It's terrifying.

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Speaker 4: It's utterly terrifying. And and I'm you know, I'm not

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Speaker 4: in Israeli and so I don't have that same sense

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Speaker 4: that they have. But I have been amazed since Saturday

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Speaker 4: morning at the complete shift turning on a dime of

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Speaker 4: people I know here who all they cared about before

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Speaker 4: was stopping the judicial overhaul and trying to drive Benjamin

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Speaker 4: Sanyahu from office, And now all they want to do

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Speaker 4: is go in and be hard asses in Gaza.

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Speaker 5: They it's just.

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Speaker 4: They want to go in and they want to fight back.

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Speaker 4: They've there's almost like a genetic impact here on Jewish

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Speaker 4: DNA and Israel that what they saw happen on Saturday

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Speaker 4: reminded them of the Holocaust, reminded them of pilgrums, reminded

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Speaker 4: them of things that they decided to build this state

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Speaker 4: to stop from happening. And that sense deep fury and

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Speaker 4: cause and purpose is everywhere right now. I know it

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Speaker 4: won't last, but it is everywhere right now. And when

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Speaker 4: you see also videos of the soldiers gathered near Gaza.

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Speaker 4: They are pumped up and they are ready to go in.

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Speaker 1: So, Ethan, how are the folks. So you're in Tel Aviv? Now,

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Speaker 1: do you have family there as well?

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Speaker 4: I have cousins, I do have a wife. I don't

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Speaker 4: have children here kids in New York.

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Speaker 5: Yah.

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Speaker 3: Yah.

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Speaker 1: I'll be interesting to see because it's just it's such

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Speaker 1: a difficult situation there on the.

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Speaker 5: Ground, very difficult.

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Speaker 4: And everybody's got kids, cousins, brothers, husbands and who are

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Speaker 4: now in uniforms. So a lot of people know people

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Speaker 4: who died on Saturdays as well.

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Speaker 1: All right, Ethan, thank you so much. We really appreciate

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Speaker 1: getting some time with you. Ethan Bronner. He is the

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Speaker 1: bureau chief Bloomberg News in Tel Aviv, Israeli bureau chief.

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Speaker 1: Appreciate getting a few minutes of his time. We understand.

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Speaker 2: I'll tell you what we don't is you know, we

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Speaker 2: haven't and we don't I guess on radio or television

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Speaker 2: go into the horrendous crimes that were committed over the weekend.

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Speaker 3: I mean Ethan mentioned the.

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Speaker 2: Mass murders at the music festival, and when you read

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Speaker 2: some of the reporting about that.

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Speaker 3: It's just so bad that it's hard even to talk

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Speaker 3: about publicly. No, and that's why.

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Speaker 2: And I can't imagine how human beings would do that.

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Speaker 2: You know, maybe someone a sick individual, but how would

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Speaker 2: a group of humans do that to another group?

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Speaker 1: And that's why getting Ethan's on the ground reporting was

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Speaker 1: fantastic to get a sense of kind of what he's

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Speaker 1: seeing with the people on the street and how committed

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Speaker 1: they are to you know, going in and kind of

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Speaker 1: re and re retaliating. So again, probably some more difficult

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Speaker 1: news before it gets better over there, but we will

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Speaker 1: obviously have full reporting going forward.

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Speaker 6: You're listening to the team Ken's are Live program Bloomberg

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Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot com,

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Speaker 6: the iHeartRadio app, and the Bloomberg Business app, or listen

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Speaker 6: on demand wherever you get your podcasts.

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Speaker 1: All right, let's bring in Ira Jersey here. He's a

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Speaker 1: chief US interest rate strategist for Bloomberg Intelligence. We're going

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Speaker 1: to get some inflation data over the next couple of days,

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Speaker 1: and I think most people feel like it's going to

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Speaker 1: show continued moderation in inflation, both at the producier level

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Speaker 1: and at the consumer level. If I'm the Fed, is

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Speaker 1: that enough to kind of say, all right, I can

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Speaker 1: just sit on my hands for a while and see

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Speaker 1: how things play out. Is that kind of how it

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Speaker 1: should be?

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Speaker 7: Well, assuming we do continue to get moderation, I think

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Speaker 7: that there's a risk that some of the moves that

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Speaker 7: we saw last month in oil prices are going to

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Speaker 7: maybe lift the headline numbers a little bit, particularly in

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Speaker 7: the consumer price data. But it's really the key, I

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Speaker 7: think will be the core inflation data. So what is

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Speaker 7: core core CPI? Does that continue to moderate and assuming

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Speaker 7: it does that, then it probably gives some cover for

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Speaker 7: the Federal Reserve to to not hike again in November.

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Speaker 7: I still think that that, you know, there's less than

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Speaker 7: fifty to fifty chance that they actually do at this point,

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Speaker 7: and I think things like, you know, global geopolitical tensions

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Speaker 7: increasing certainly is something else that will weigh on whether

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Speaker 7: or not they're going to hike interest rates again. So

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Speaker 7: so yeah, you know, I would argue that that, yes,

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Speaker 7: this data that we're getting this week is critical, but

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Speaker 7: it's there's a lot of other moving pieces obviously.

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Speaker 5: To the to the mathematics of another hike or not.

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Speaker 2: One of those moving pieces, I guess is real rates,

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Speaker 2: And in intense it reminds me of Mike mclonoy says

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Speaker 2: higher prices are.

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Speaker 3: The best cure for high prices exactly.

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Speaker 2: I guess it's the opposite in the bond world, right.

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Speaker 2: If these prices fall to a loone enough, everyone's going

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Speaker 2: to come in and start buying them.

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Speaker 5: Yeah.

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Speaker 7: So I think for rates, you know, there is a

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Speaker 7: level where where bond yields are attractive. And certainly when

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Speaker 7: you look at things like tips yields two and a

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Speaker 7: half percent, you know, a little bit lessan two and

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Speaker 7: a half percent for ten year tips yields, You know

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Speaker 7: that I think is pretty attractive to some people.

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Speaker 5: But then when you go back and you look at

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Speaker 5: the historical.

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Speaker 7: Context, where were those types of yields in the late

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Speaker 7: nineteen nineties when tips started to trade, and then before

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Speaker 7: the global financial crisis, you still had tips yields that were.

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Speaker 5: Were three percent or above.

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Speaker 7: So I think from when people look at these charts,

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Speaker 7: it's only relative to the last ten or fifteen years

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Speaker 7: that real yields are particularly high. So I do think

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Speaker 7: that though that you know, they're not they're not unattractive

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Speaker 7: at these levels would be would be what I would say.

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Speaker 7: And now there are much more interesting inflation hedge than

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Speaker 7: they were when tips yields were negative. Right when tip

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Speaker 7: yields were negative one hundred basis points, that meant in

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Speaker 7: order to you know, just to break even, you'd have

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Speaker 7: to have inflation of at least one hundred basis points.

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Speaker 7: But you know, for a bond investor, you want to

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Speaker 7: have a return above inflation.

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Speaker 5: And you know, we're finally at a.

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Speaker 7: Level where I think people could be comfortable that we're

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Speaker 7: reasonably enough above inflation in terms of the yield that

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Speaker 7: you get that that you can continue to see some

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Speaker 7: some nipping at the at the edges there, especially if

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Speaker 7: the Federal Reserve is going to be done hiking rates.

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Speaker 1: Well as you well know, I it's world known here

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Speaker 1: that I have taken recession off the table, and I

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Speaker 1: think the yield curve is kind of supporting me here.

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Speaker 1: I'm going at the inversion inversion of the yield curve.

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Speaker 1: It's only negative thirty basis points today, and back in

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Speaker 1: July was you know, north of one hundred.

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Speaker 3: So what's that tell you?

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Speaker 7: Yeah, So, so it's not a surprise to me that

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Speaker 7: we've we've become less inverted. It's the way that we

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Speaker 7: become less inverted that was a little bit surprising to me. So,

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Speaker 7: you know, our our view had been that as the

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Speaker 7: Federal Reserve winds down its hiking cycle, that we'd see

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Speaker 7: two year yields start to come down versus ten year

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Speaker 7: yields basically staying the same, and we've gotten.

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Speaker 5: Just the opposite of that.

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Speaker 7: And I think that that's a reflection and a major reflection.

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Speaker 7: Not so much of that the Fed is going to

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Speaker 7: be done, because the Fed, even if it hikes again,

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Speaker 7: is probably done after one more hike. It's more how

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Speaker 7: long do they keep rates at this level and if

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Speaker 7: you're right, Paul, and we don't get a recession, which

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Speaker 7: is more or less the view that we take here

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Speaker 7: at Bloomberg Intelligence rates strategy is the yields can wind up,

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Speaker 7: you know, basically pancaking. So we're calling it a pancake

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Speaker 7: of a yield curve where you can have two year yields,

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Speaker 7: five year yields, ten year yelds basically at the same

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Speaker 7: ish level and wind up maintaining that for the next

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Speaker 7: six to nine months, and then you probably start to see,

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Speaker 7: you know, calls for a cut, people worry about growth

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Speaker 7: in twenty twenty five and the like. Because the longer

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Speaker 7: the Fed holds rates high, the deeper a recession that

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Speaker 7: the market's going to price. So I do think that

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Speaker 7: eventually it's going to be time to get into what

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Speaker 7: we call both steepening, which is buy two year notes,

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Speaker 7: keep ten year notes kind of market weight or underweight,

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Speaker 7: and then you wind up seeing a pretty significant steepening

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Speaker 7: of the YILD curve.

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Speaker 2: What would do you think cause the Fed to cut rates?

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Speaker 2: Are we talking about unemployment breaching a certain level for

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Speaker 2: and a half percent for example? Is it about the

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Speaker 2: speed rather than the level, you know, if it jumps

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Speaker 2: up all of a sudden to over four or.

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Speaker 3: Is it about you know, GDP slowdown? What do you think?

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Speaker 7: Yeah, so, if there's some kind of exogynous shock that

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Speaker 7: causes mass layoffs, then certainly the Federal Reserve would take notice.

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Speaker 7: But remember I do think that in this environment, and

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Speaker 7: given how difficult it has been for the Federal Reserve

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Speaker 7: to kind of get inflation expectations and maintain inflation expectations

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Speaker 7: to be relatively low, I think that you have to

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Speaker 7: have not only an increase in the unemployment rate, but

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Speaker 7: you also have to have a continued decline of inflation.

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Speaker 7: So in a situation where you have the PC deflator

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Speaker 7: running at three percent or three point two percent and

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Speaker 7: the unemployment rate rises a little bit over a few months,

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Speaker 7: I think the Fed still on hold. Right, They're still

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Speaker 7: going to be worried about that inflation component of a

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Speaker 7: lot of the data, right, and their mandate. They do

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Speaker 7: have this dual mandate, which sometimes makes a little tricky

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Speaker 7: for them. Right, If you're the European Central Bank and

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Speaker 7: you only care about inflation, then you know, it's a

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Speaker 7: little bit easier to kind of manage your rate and

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Speaker 7: rate expectations. So I do think it has to be

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Speaker 7: the unemployment rate rising very quickly, but only in an

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Speaker 7: environment where inflation is moderate continuing to moderate.

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Speaker 5: HIRA.

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Speaker 1: When you talk to your institutional investor clients, the folks

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Speaker 1: you've been talking to for years, what's the trade they're

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Speaker 1: talking about most these days.

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Speaker 7: Yeah, So it was a couple of weeks ago. The

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Speaker 7: idea of being long duration because typically typically the longer

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Speaker 7: end of the yield curve does pretty.

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Speaker 5: Well when the Fed.

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Speaker 7: When the FED stops its hiking cycles, and I think

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Speaker 7: a lot of people were the wrong way. So people

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Speaker 7: are a little bit nervous and and you know, don't

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Speaker 7: want to take big positions right now because there's a

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Speaker 7: lot of uncertainty and the direction not so much of

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Speaker 7: monetary policy, but more in terms of positioning in the market,

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Speaker 7: what the supply story is going to be, because deficits

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Speaker 7: continue to be run pretty high, so people are worried

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Speaker 7: that there's there's been a supply shock a little bit,

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Speaker 7: although that's our data and our work suggests that that's

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Speaker 7: not as much the case. But nonetheless, I think there's

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Speaker 7: a lot of people out there who got burned and

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Speaker 7: would just rather you know, stay market wade or just

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Speaker 7: sit on their hands and not do a lot. Yet,

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Speaker 7: until there's you know, a more significant it becomes much

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Speaker 7: clearer what the direction of the economy and monetary policy

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Speaker 7: is going to be.

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Speaker 1: Hey, Ira, how's liquidity in the marketplace? If I if

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Speaker 1: I call up my you know, the Govey desk at

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Speaker 1: you know, JP Morgan and Goldman Sachs, can they make

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Speaker 1: me a nice deep market.

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Speaker 7: They haven't been able to recently, so the liquidity has

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Speaker 7: been pretty poor.

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Speaker 5: Are really in the last eighteen months.

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Speaker 7: And I think a big part of that is just

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Speaker 7: because the market's gotten so big, and the pipes that

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Speaker 7: all of this money and all these bonds have to

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Speaker 7: flow through is it has basically remained the same size.

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Speaker 7: So you have a lot more flow and a lot

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Speaker 7: more supply out there that needs to find a home.

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Speaker 7: And on the other side, you know, you don't have

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Speaker 7: dealers that are willing to take on the size and

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Speaker 7: warehouse risk the way that they were you know, prior

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Speaker 7: to the global financial crisis, prior to the Basle new

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Speaker 7: Basle regulations that that kind.

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Speaker 5: Of constrain the way that dealers can operate. So part

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Speaker 5: of the.

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Speaker 7: Reason why we've seen a lot of the volatility in

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Speaker 7: the market has been a little bit of liquidity, you know.

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Speaker 7: That being said, like top line, like, if you want

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Speaker 7: to do you know, social what I call social size,

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Speaker 7: you can probably.

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Speaker 5: Get it done.

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Speaker 7: But if you want to do a bigger trade, it's

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Speaker 7: going to be more difficult to get off. So people

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Speaker 7: are going to add leg into these trades, which just

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Speaker 7: means that you might have, you know, longer.

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Speaker 5: Periods of time that you have to shift your risk around.

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Speaker 7: So another reason why you might just want to sit

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Speaker 7: on your hands for a little while.

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Speaker 2: What about the auctions and especially any longer dated treasury auctions.

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Speaker 2: How much do dealers, primary dealers take down now?

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Speaker 3: And you know who's the rest?

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Speaker 7: So dealers actually have been taking down historically tiny amounts.

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Speaker 5: So in a lot of in a lot of.

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Speaker 7: Treasury auctions, dealers used to used to take a bulk

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Speaker 7: of auctions, you know, forty forty percent, thirty percent. Now

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Speaker 7: in many many auctions they take less than ten And

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Speaker 7: it's really the demand from domestic asset managers and foreigners

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Speaker 7: that wind up being the mix of buyers of these

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Speaker 7: of these auctions.

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Speaker 5: There is higher.

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Speaker 7: Savings now than there was, say fifteen years ago in

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Speaker 7: the United States, when we had a significant amount of dissavings.

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Speaker 7: So some of the money ends up going back into

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Speaker 7: into into various you know, we call it savings vehicles,

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Speaker 7: whether those are insurance funds or or even baby boomers,

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Speaker 7: you know, shifting money out of equities and into fixing

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Speaker 7: come mutual funds or ETFs.

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Speaker 5: All of those flows to.

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Speaker 7: Combined and meant that asset managers have been you know,

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Speaker 7: by far the largest buyer at auction.

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Speaker 1: All right, are thanks so much for joining us as always.

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Speaker 1: Ira Jersey, chief US interest rate Strategists for Bloomberg Intelligence,

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Speaker 1: joining us from Princeton.

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Speaker 6: You're listening to the tape. Ken's our live program Bloomberg

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Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

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00:20:25,520 --> 00:20:28,320
Speaker 6: You can also listen live on Amazon Alexa from our

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Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.

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Speaker 1: Matt Miller, Paul Sweeney live here in our Bloomberg Interactive

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Speaker 1: Brokers studio looking at pepsi. They reported some results a

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Speaker 1: little bit better than expected. Let's break it down. We

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Speaker 1: can do that with Ken Shay. He's the senior analyst

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Speaker 1: covers beverages, tobaccos, and cannabis with Bloomberg Intelligence. So we're

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Speaker 1: going to break that down. Ken, Thanks so much for

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Speaker 1: joining us here talk to us about pepsi headed our

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Speaker 1: friends there in Purchase, New York.

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Speaker 8: Do Yeah, hi, Paul. They did really, really well, you know,

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Speaker 8: as is PepsiCo style. It was a report that exceeded

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Speaker 8: expectations as they normally do. But you know, sales were

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Speaker 8: up a nice strong high single digit rate EPs came

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Speaker 8: in about fourteen percent. Both again beat expectations, and importantly,

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Speaker 8: the underlying trends were good. The games were broad based,

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Speaker 8: international was really strong, which off set a lot of

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Speaker 8: currency had winds still, and the company's outlook was also favorable.

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Speaker 8: They lifted their outlook for core EPs justice for currency

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Speaker 8: up a little bit, and they even went out unusual

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Speaker 8: for them and looked out to twenty four and I

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Speaker 8: think of a lot of detail, but they said that,

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Speaker 8: you know, their long term algorithm, which is mid single

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Speaker 8: digit revenue and high single digit EPs growth, looked like

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Speaker 8: it was going to hit the high end of those ranges.

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Speaker 8: So overall you had to have a hard time finding

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Speaker 8: a lot of fault with these numbers today.

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Speaker 2: What is the what is the the currency headwind? Is

444
00:22:03,840 --> 00:22:07,320
Speaker 2: it the fact that the dollar is so strong that

445
00:22:07,400 --> 00:22:10,159
Speaker 2: the revenues they're bringing in from elsewhere are lower.

446
00:22:11,880 --> 00:22:15,480
Speaker 8: Yeah, that's right. The recent strength of the dollar, uh,

447
00:22:15,520 --> 00:22:20,440
Speaker 8: you know versus the pound in particular has been weighing

448
00:22:20,480 --> 00:22:25,119
Speaker 8: a little bit on their on their reported numbers. You know,

449
00:22:25,160 --> 00:22:26,919
Speaker 8: that's been going on for quite some time now. It

450
00:22:26,960 --> 00:22:30,200
Speaker 8: made extend a little bit further. But again, I think

451
00:22:30,240 --> 00:22:33,520
Speaker 8: the underlying fundamentals of the business are are are very favorable.

452
00:22:33,520 --> 00:22:35,639
Speaker 8: I think that's what investors are looking at. You know,

453
00:22:35,640 --> 00:22:38,439
Speaker 8: they're also looking at this whole notion of the obesity drugs.

454
00:22:38,600 --> 00:22:41,280
Speaker 8: You know what I mean to jump to probably a

455
00:22:41,359 --> 00:22:42,720
Speaker 8: question that was coming up, but a lot a lot

456
00:22:42,720 --> 00:22:46,600
Speaker 8: of investors were nervous about the talk about obesity drugs.

457
00:22:46,680 --> 00:22:49,080
Speaker 8: How's it going to weigh on the snack and confection

458
00:22:49,160 --> 00:22:51,920
Speaker 8: of food companies. They seem to allay those fears and said, look,

459
00:22:52,400 --> 00:22:56,399
Speaker 8: there's no real evidence of that happening now. And you know,

460
00:22:56,480 --> 00:22:59,360
Speaker 8: I'm looking at you know, the past per capita consumption

461
00:22:59,680 --> 00:23:03,760
Speaker 8: of salty snacks and it's been rising at a you know,

462
00:23:04,000 --> 00:23:07,119
Speaker 8: low single digit steady rate over the last few years,

463
00:23:07,320 --> 00:23:10,640
Speaker 8: higher than sweet snacks. So I don't see really being

464
00:23:10,960 --> 00:23:13,399
Speaker 8: an issue in the near term. I think that's helping

465
00:23:13,920 --> 00:23:15,200
Speaker 8: the share of sentiment today.

466
00:23:15,359 --> 00:23:18,520
Speaker 2: Well they have I mean, they expect core earnings per

467
00:23:18,520 --> 00:23:21,200
Speaker 2: share growth of thirteen percent.

468
00:23:21,359 --> 00:23:22,640
Speaker 5: At costan currencies.

469
00:23:22,880 --> 00:23:23,520
Speaker 3: That's strong.

470
00:23:24,320 --> 00:23:29,960
Speaker 2: Organic revenue growth forecasts at ten percent, so that's big

471
00:23:30,119 --> 00:23:33,000
Speaker 2: and I wonder if the you know, we talk obviously

472
00:23:33,040 --> 00:23:35,200
Speaker 2: a lot on the show about the GLP one drugs,

473
00:23:35,240 --> 00:23:40,480
Speaker 2: the obesity drugs and their effect on consumer discretionary stocks.

474
00:23:40,520 --> 00:23:43,040
Speaker 2: And you know, after news like what we saw at

475
00:23:43,080 --> 00:23:45,600
Speaker 2: Walmart last week where they said people who get these

476
00:23:45,640 --> 00:23:49,520
Speaker 2: drugs have a smaller calorie basket, that makes sense. On

477
00:23:49,560 --> 00:23:51,880
Speaker 2: the other hand, we also talk about weed a lot, Ken,

478
00:23:53,080 --> 00:23:55,960
Speaker 2: and I'm here to tell you that.

479
00:23:57,280 --> 00:24:00,360
Speaker 3: The wait is the crazy bunches.

480
00:24:00,119 --> 00:24:03,960
Speaker 2: The craving for salty snacks and sugary drinks. Probably I'm

481
00:24:03,960 --> 00:24:05,640
Speaker 2: guessing rises.

482
00:24:05,320 --> 00:24:07,040
Speaker 3: If you're using marijuana products.

483
00:24:07,119 --> 00:24:09,800
Speaker 2: So I guess these things are kind of running across currents,

484
00:24:09,800 --> 00:24:10,680
Speaker 2: aren't they.

485
00:24:11,440 --> 00:24:14,760
Speaker 8: You know, that's I agree, Matt. And that's a potential

486
00:24:14,840 --> 00:24:17,320
Speaker 8: a trend line that they don't point out, but it's

487
00:24:17,359 --> 00:24:20,840
Speaker 8: probably there. You know, other long term secular gains to

488
00:24:20,920 --> 00:24:23,240
Speaker 8: their favor, you know, or when you think about a

489
00:24:23,240 --> 00:24:25,920
Speaker 8: company as global as they are, you know, it's the

490
00:24:26,280 --> 00:24:30,000
Speaker 8: urbanization of you know, consumers. You know, they have access

491
00:24:30,000 --> 00:24:32,159
Speaker 8: to more access to convenience stores or a lot of

492
00:24:32,160 --> 00:24:36,879
Speaker 8: these things are sold rising middle class and wealth they

493
00:24:36,920 --> 00:24:41,320
Speaker 8: can buy these evaluated products. And then consumers today, at

494
00:24:41,400 --> 00:24:43,480
Speaker 8: least that I do anyway, you know, I graze throughout

495
00:24:43,520 --> 00:24:45,800
Speaker 8: the day every time I go, you know, buy the

496
00:24:45,880 --> 00:24:48,840
Speaker 8: kitchen I'll grab something, you know, a snack or something,

497
00:24:48,840 --> 00:24:51,760
Speaker 8: and that's how people eat today. The traditional three meals

498
00:24:52,280 --> 00:24:54,760
Speaker 8: are kind of going out with the dinosaur. And so

499
00:24:54,840 --> 00:24:57,520
Speaker 8: this play all those play really well at a Petsico's

500
00:24:57,560 --> 00:24:58,520
Speaker 8: business model.

501
00:24:59,000 --> 00:25:02,200
Speaker 3: All Right, So Pepsi COO the dividend.

502
00:25:02,280 --> 00:25:05,160
Speaker 1: They've got a little more than a three percent dividend.

503
00:25:05,800 --> 00:25:07,760
Speaker 1: They've got a lot of cash on the balance sheet.

504
00:25:07,760 --> 00:25:09,680
Speaker 1: They throw off a lot of free cash flow. What's

505
00:25:09,720 --> 00:25:12,720
Speaker 1: the dividend story, what's the cash return story for Pepsi.

506
00:25:13,920 --> 00:25:16,760
Speaker 8: Yeah, so PepsiCo is very balanced when it comes to

507
00:25:16,800 --> 00:25:23,280
Speaker 8: the capital allocation through long term capital allocation and prioritizes dividends,

508
00:25:24,080 --> 00:25:26,720
Speaker 8: you know, select on a selective basis. They'll buy some

509
00:25:26,760 --> 00:25:31,439
Speaker 8: shares back. And you know, their algorithm is, you know,

510
00:25:31,920 --> 00:25:35,280
Speaker 8: with sales growing a mid single digit and EPs growing

511
00:25:35,359 --> 00:25:38,600
Speaker 8: high single digit, low double digit, they believe that even

512
00:25:38,760 --> 00:25:41,000
Speaker 8: you know, at a current pe they can kind of

513
00:25:41,080 --> 00:25:43,719
Speaker 8: churn out kind of a low double digit total return

514
00:25:44,440 --> 00:25:46,920
Speaker 8: for investors. And that's kind of what they've been doing.

515
00:25:47,600 --> 00:25:51,840
Speaker 8: And you know, if the if the algorithm's working, why

516
00:25:51,960 --> 00:25:53,560
Speaker 8: why break it? Right, So this is what they've been

517
00:25:53,600 --> 00:25:56,680
Speaker 8: saying for a long time, you know, and the company

518
00:25:56,840 --> 00:25:59,440
Speaker 8: pointed out today their stability. You know, you've looked back

519
00:25:59,440 --> 00:26:00,760
Speaker 8: five to ten year there's a lot of been a

520
00:26:00,800 --> 00:26:08,200
Speaker 8: lot of macro shok events, pandemics, earning economic expansions, slowdowns,

521
00:26:08,800 --> 00:26:12,080
Speaker 8: you know, disruptions and Europe whatever. And they keep saying

522
00:26:12,119 --> 00:26:15,679
Speaker 8: the same long term algorithm, and they've beaten revenue expectations

523
00:26:15,720 --> 00:26:18,880
Speaker 8: of the last five years one of the time, earnings

524
00:26:18,920 --> 00:26:23,359
Speaker 8: expectations ninety five percent of the time. So the company

525
00:26:23,400 --> 00:26:25,080
Speaker 8: pointed that I was saying, you know, there's a lot

526
00:26:25,080 --> 00:26:28,480
Speaker 8: of questions about these these obese drugs and so on.

527
00:26:28,800 --> 00:26:30,440
Speaker 8: You know, we're just going to keep doing what we're doing,

528
00:26:30,880 --> 00:26:33,040
Speaker 8: and we have a pretty good track record in meeting

529
00:26:33,040 --> 00:26:34,880
Speaker 8: and beating our guidance.

530
00:26:36,160 --> 00:26:40,760
Speaker 2: By the way, I must drink five to ten cans

531
00:26:40,960 --> 00:26:45,960
Speaker 2: of flavored selter water every day every day. I mean,

532
00:26:45,960 --> 00:26:48,800
Speaker 2: it's it's huge. I think in this country, maybe it's

533
00:26:48,840 --> 00:26:52,359
Speaker 2: just this area because the Polar selter water, you know,

534
00:26:52,359 --> 00:26:55,199
Speaker 2: they're based in Worcester, mass These the Polar beverages. But

535
00:26:55,560 --> 00:26:59,480
Speaker 2: I've noticed other countries don't have this yet. The no calorie,

536
00:26:59,600 --> 00:27:03,400
Speaker 2: no sh ugur basically just stelter water with a hint

537
00:27:03,400 --> 00:27:03,960
Speaker 2: of flavor.

538
00:27:04,520 --> 00:27:06,359
Speaker 3: Is that a growing trend?

539
00:27:07,480 --> 00:27:11,800
Speaker 8: Oh, sure it is, Matt, PepsiCo a wish PepsiCo would

540
00:27:11,840 --> 00:27:14,920
Speaker 8: spend a little more time on its on its international markets. Uh,

541
00:27:15,000 --> 00:27:19,760
Speaker 8: you know, performing really well, and you know it's a

542
00:27:19,800 --> 00:27:25,680
Speaker 8: smaller portfolio of their food, snack and beverage portfolios outside

543
00:27:25,720 --> 00:27:28,080
Speaker 8: the US, but that certainly is you know. I wrote

544
00:27:28,080 --> 00:27:31,560
Speaker 8: a recent report on Bloomberg Intelligence about the enhanced water

545
00:27:31,640 --> 00:27:34,320
Speaker 8: market and how it's really stepping forward to be a

546
00:27:34,359 --> 00:27:38,359
Speaker 8: really strong growth area for these companies. Has it got unnoticed?

547
00:27:38,600 --> 00:27:39,840
Speaker 8: It's just that don't talk about it a lot. I

548
00:27:39,840 --> 00:27:42,080
Speaker 8: mean to come out with a Gatorade of water right now,

549
00:27:42,080 --> 00:27:46,520
Speaker 8: which is basically, you know, a product that fits into

550
00:27:46,760 --> 00:27:51,480
Speaker 8: lifestyles with alkaline water and low calories.

551
00:27:51,119 --> 00:27:53,000
Speaker 3: The functional functional water.

552
00:27:53,520 --> 00:27:55,720
Speaker 8: It's a functional waters. That's that's right, thank you. And

553
00:27:56,440 --> 00:27:59,199
Speaker 8: it's a really great market. I mean, it hits on

554
00:27:59,320 --> 00:28:01,600
Speaker 8: so many who were attributes and where they're going right

555
00:28:01,640 --> 00:28:04,080
Speaker 8: now gives them a great runway for growth.

556
00:28:05,200 --> 00:28:07,480
Speaker 1: All right, Ken, thanks so much for joining us. Ken Shay,

557
00:28:08,240 --> 00:28:11,879
Speaker 1: Senior equity analysts. Bloomberg Intelligence follows all the beverage companies

558
00:28:11,920 --> 00:28:15,960
Speaker 1: at tobacco companies, the cannabis companies as well, so look.

559
00:28:15,800 --> 00:28:17,520
Speaker 2: I'm gonna write them. I'm gonna write them a message

560
00:28:17,560 --> 00:28:20,159
Speaker 2: right now. I need I need Ken to help me

561
00:28:20,200 --> 00:28:21,119
Speaker 2: out with questions.

562
00:28:21,320 --> 00:28:22,920
Speaker 3: Okay for the Pepsi CFO.

563
00:28:22,960 --> 00:28:24,879
Speaker 2: I don't know if I mentioned I don't know if

564
00:28:24,920 --> 00:28:27,399
Speaker 2: I mentioned that I'm interviewing the CFO Pepsi at one

565
00:28:28,320 --> 00:28:29,600
Speaker 2: today on Bloomberg Television.

566
00:28:29,720 --> 00:28:32,520
Speaker 1: Okay, so you need some good questions to ask to

567
00:28:32,560 --> 00:28:34,880
Speaker 1: sound smart Ye to talk to me, I said, I answer,

568
00:28:34,880 --> 00:28:38,040
Speaker 1: you do it. Okay, PEPSI good numbers today have the

569
00:28:38,080 --> 00:28:39,480
Speaker 1: pricing power, that's for sure.

570
00:28:41,120 --> 00:28:44,520
Speaker 6: You're listening to the team. Ken's our live program Bloomberg

571
00:28:44,560 --> 00:28:47,920
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,

572
00:28:48,040 --> 00:28:51,160
Speaker 6: the iHeartRadio app and the Bloomberg Business App, or listen

573
00:28:51,240 --> 00:28:53,360
Speaker 6: on demand wherever you get your podcasts.

574
00:28:55,000 --> 00:28:58,600
Speaker 1: Let's get back to the geopolitics Israel and what it

575
00:28:58,640 --> 00:29:01,680
Speaker 1: means for the region, the greater Middle East region. We

576
00:29:01,720 --> 00:29:03,720
Speaker 1: want to go to Sam Dagger. He's a reporter covering

577
00:29:03,720 --> 00:29:07,719
Speaker 1: Saudi Arabia form Bloomberg News. He is located in Dubai.

578
00:29:07,840 --> 00:29:10,120
Speaker 1: Right now, Sam, can you talk to us about kind

579
00:29:10,160 --> 00:29:13,280
Speaker 1: of We're just a few days into what's been developing

580
00:29:13,400 --> 00:29:14,080
Speaker 1: in Israel.

581
00:29:15,360 --> 00:29:17,880
Speaker 3: Give us your sense of what you're hearing, what your sources.

582
00:29:17,560 --> 00:29:20,600
Speaker 1: Are telling you about some of the ramifications for the

583
00:29:20,640 --> 00:29:22,360
Speaker 1: greater Middle East region.

584
00:29:23,920 --> 00:29:26,760
Speaker 9: Absolutely great to be with you. I mean, obviously, the

585
00:29:27,640 --> 00:29:32,200
Speaker 9: one thing in terms of ramifications that everybody's talking about

586
00:29:32,360 --> 00:29:35,960
Speaker 9: is what does this do to efforts US led efforts

587
00:29:36,480 --> 00:29:41,560
Speaker 9: to get Saudi Arabia and Israel to normalize their relations.

588
00:29:41,600 --> 00:29:43,720
Speaker 9: I mean, obviously the US has put a lot of

589
00:29:43,760 --> 00:29:47,280
Speaker 9: effort into this. The Biden administration had come out openly

590
00:29:47,360 --> 00:29:51,160
Speaker 9: and said it was optimistic and there were certain things

591
00:29:51,160 --> 00:29:54,000
Speaker 9: that they needed to work out with the Saudis and

592
00:29:54,040 --> 00:29:57,600
Speaker 9: with these Raelis as well, and things were progressing, and

593
00:29:57,800 --> 00:30:00,280
Speaker 9: we had the crown princes from Howning been Sla just

594
00:30:00,320 --> 00:30:04,840
Speaker 9: three weeks ago saying that progress was being made every

595
00:30:04,960 --> 00:30:08,520
Speaker 9: day and that we were getting closer to a deal,

596
00:30:09,000 --> 00:30:12,000
Speaker 9: and then this that kind of puts the freeze on

597
00:30:11,640 --> 00:30:12,880
Speaker 9: on on everything at a time.

598
00:30:12,920 --> 00:30:17,560
Speaker 2: Being Sam, we you know, especially being in New York,

599
00:30:19,000 --> 00:30:22,240
Speaker 2: I think here for the most part one side of

600
00:30:22,280 --> 00:30:25,800
Speaker 2: this story. So many people here obviously have very close

601
00:30:25,800 --> 00:30:28,400
Speaker 2: connections to Israel, have family members that live in Israel,

602
00:30:29,280 --> 00:30:32,520
Speaker 2: and of course the you know, atrocities committed by the

603
00:30:32,640 --> 00:30:37,000
Speaker 2: terrorists over the weekend aren't a great way for them

604
00:30:37,040 --> 00:30:38,920
Speaker 2: to for you know, for them.

605
00:30:38,760 --> 00:30:39,760
Speaker 3: To tell their story.

606
00:30:40,000 --> 00:30:42,120
Speaker 2: But there are two sides to this thing, right, So

607
00:30:42,440 --> 00:30:49,360
Speaker 2: being there, do you hear a lot from the Palestinian side.

608
00:30:49,320 --> 00:30:53,360
Speaker 9: Well, I mean, I'm in Dubai. I'm mainly hearing from

609
00:30:54,000 --> 00:30:57,600
Speaker 9: people in the region. I mean Saudi's and Marati's, people

610
00:30:57,640 --> 00:31:02,240
Speaker 9: in the Gulf who are coming out. I mean, I'm

611
00:31:02,240 --> 00:31:04,840
Speaker 9: not saying all of them, but there are people in

612
00:31:04,880 --> 00:31:07,880
Speaker 9: this region, including many Saudis, who are coming out in

613
00:31:08,000 --> 00:31:13,320
Speaker 9: support of Hamas and saying, you know, this is long overdue.

614
00:31:13,400 --> 00:31:15,720
Speaker 9: I mean, I'm just quoting them now saying this is

615
00:31:15,920 --> 00:31:20,640
Speaker 9: in response to all of the atrocities. And again this

616
00:31:20,760 --> 00:31:25,800
Speaker 9: is them speaking that Israel has been committing against them

617
00:31:26,040 --> 00:31:30,760
Speaker 9: and that this is in response to all of that,

618
00:31:30,920 --> 00:31:35,120
Speaker 9: all the injustices. Again I'm just quoting them that the

619
00:31:35,200 --> 00:31:39,160
Speaker 9: Palestinians have been subjected to. And so you have people

620
00:31:39,240 --> 00:31:40,880
Speaker 9: in this part of the world who are looking at

621
00:31:40,880 --> 00:31:41,440
Speaker 9: it differently.

622
00:31:42,520 --> 00:31:47,080
Speaker 1: Sam, what role do you think Saudi Arabia would like

623
00:31:47,160 --> 00:31:49,920
Speaker 1: to play in this or if any, or do they

624
00:31:49,960 --> 00:31:51,440
Speaker 1: do you think they prefer to just kind of stay

625
00:31:51,440 --> 00:31:52,320
Speaker 1: on the sidelines here.

626
00:31:53,920 --> 00:31:55,600
Speaker 9: No, I mean definitely, I think they want to play

627
00:31:55,600 --> 00:31:58,960
Speaker 9: a role in terms of just ending this. And they

628
00:31:59,000 --> 00:32:02,840
Speaker 9: came out today said this, and they said, I mean,

629
00:32:03,200 --> 00:32:06,800
Speaker 9: the Crown Prince spoke, Mohammed Ben Solomon spoke today with

630
00:32:06,880 --> 00:32:13,640
Speaker 9: the president of Pastini Authority, Mahmudabasi, spoke to the Jordanian

631
00:32:13,720 --> 00:32:17,120
Speaker 9: king and the Egyptian president, and then his foreign minister

632
00:32:17,640 --> 00:32:20,120
Speaker 9: spoke to his counterparty in the US, Anthony Lincoln. So

633
00:32:20,160 --> 00:32:22,920
Speaker 9: they're quite active, and they're saying this must must not

634
00:32:23,160 --> 00:32:26,920
Speaker 9: spread beyond beyond Gaza.

635
00:32:27,160 --> 00:32:30,440
Speaker 2: And the problem is we're hearing reports that missiles are

636
00:32:31,080 --> 00:32:36,560
Speaker 2: being lobbed out of Lebanon. Obviously, the West Bank could

637
00:32:36,600 --> 00:32:41,480
Speaker 2: be a real problem area, although for now it seems,

638
00:32:42,080 --> 00:32:45,040
Speaker 2: at least from the reports I've read, that most of

639
00:32:45,080 --> 00:32:48,280
Speaker 2: the threats are coming out of Gaza. How do you

640
00:32:48,400 --> 00:32:53,160
Speaker 2: think things may change once Israel sends its troops into

641
00:32:53,360 --> 00:32:54,520
Speaker 2: the Gaza strip.

642
00:32:56,640 --> 00:32:59,160
Speaker 9: They will change a great deal. I mean, obviously depends

643
00:32:59,160 --> 00:33:02,640
Speaker 9: on the scale of the Israeli operation and once we

644
00:33:03,800 --> 00:33:06,640
Speaker 9: unfortunately start start to see the carnage that may be

645
00:33:06,680 --> 00:33:09,560
Speaker 9: associated with this type of operation. I mean, the again,

646
00:33:09,600 --> 00:33:13,040
Speaker 9: depending on on on on the scale of the operation,

647
00:33:13,160 --> 00:33:17,440
Speaker 9: then obviously things are are going to change. Uh, there

648
00:33:17,480 --> 00:33:21,240
Speaker 9: are concerns also, I mean you named Lebanon, West Bank,

649
00:33:21,320 --> 00:33:24,640
Speaker 9: other places, Uh, Syria. I mean we' we haven't reported

650
00:33:24,640 --> 00:33:29,080
Speaker 9: this ourselves, but we've seen reports of of of of

651
00:33:29,160 --> 00:33:33,000
Speaker 9: Iranian proxies moving from certain parts of this Ayria. Of

652
00:33:33,000 --> 00:33:36,000
Speaker 9: Syria closer to the border.

653
00:33:35,680 --> 00:33:41,840
Speaker 2: With Israel are Jordan and Egyptian? Are there no threats

654
00:33:41,840 --> 00:33:44,560
Speaker 2: from those two neighbors.

655
00:33:45,040 --> 00:33:48,720
Speaker 9: In terms of direct threats to Israel, yes, I mean

656
00:33:48,920 --> 00:33:51,280
Speaker 9: not that we know of, but in terms of the

657
00:33:51,320 --> 00:33:54,440
Speaker 9: sentiment on the street, obviously most people in those countries

658
00:33:54,800 --> 00:33:56,160
Speaker 9: are with the Palestinians.

659
00:33:56,640 --> 00:33:58,440
Speaker 3: Yeah, I'm just trying to round up the region. You

660
00:33:58,480 --> 00:34:00,840
Speaker 3: look at the mat the vast majority.

661
00:34:00,960 --> 00:34:05,120
Speaker 2: It's such a tightly new area. And you know, I

662
00:34:05,160 --> 00:34:07,800
Speaker 2: wonder if all the work that's been done to get

663
00:34:08,400 --> 00:34:12,080
Speaker 2: the Saudis on, you know, on the same page as

664
00:34:12,080 --> 00:34:15,080
Speaker 2: the Israelis, it will be undone if there's a massive attack,

665
00:34:15,239 --> 00:34:18,319
Speaker 2: I mean, if there's a massive response here, Sam, does

666
00:34:18,320 --> 00:34:23,560
Speaker 2: it look like any kind of reconciliation with Saudi Arabia

667
00:34:23,640 --> 00:34:24,200
Speaker 2: is off the table?

668
00:34:24,239 --> 00:34:27,320
Speaker 9: Then I don't think we should jump to that conclusion

669
00:34:27,360 --> 00:34:30,200
Speaker 9: right away. I mean as are my story today points out.

670
00:34:30,239 --> 00:34:32,880
Speaker 9: I mean, obviously this is a blow to the Saudi

671
00:34:33,000 --> 00:34:35,560
Speaker 9: vision for the region. I mean the Saudi vision. I

672
00:34:35,600 --> 00:34:39,440
Speaker 9: mean it's not only they have they don't. They don't

673
00:34:39,480 --> 00:34:42,000
Speaker 9: just have a vision for Saudi Arabia, the Vision twenty thirty.

674
00:34:42,040 --> 00:34:43,960
Speaker 9: They have a vision for the entire region, which says,

675
00:34:44,280 --> 00:34:49,319
Speaker 9: you know, shared economic benefits and prosperity. It should take

676
00:34:49,440 --> 00:34:54,600
Speaker 9: precedence over wars and ideological differences. I mean things at

677
00:34:54,920 --> 00:34:57,560
Speaker 9: this part of the world has been mired in for decades.

678
00:34:57,600 --> 00:34:59,680
Speaker 9: That's their vision, and they're saying, you want to work

679
00:34:59,719 --> 00:35:02,480
Speaker 9: with every and you saw the concrete steps that they've

680
00:35:02,520 --> 00:35:05,600
Speaker 9: taken since the beginning of the year. They've they've reached

681
00:35:05,600 --> 00:35:08,080
Speaker 9: a tent where they'ran that was broken by the Chinese.

682
00:35:08,960 --> 00:35:12,440
Speaker 9: They are negotiating directly with the Iranian backed with the

683
00:35:12,520 --> 00:35:15,080
Speaker 9: rebels in Yemen. This is a country where they've been

684
00:35:15,120 --> 00:35:18,680
Speaker 9: involved in war for eight years. They've they've made overtures

685
00:35:18,719 --> 00:35:21,759
Speaker 9: to char Lassad who was backed by the Iranians. So

686
00:35:21,840 --> 00:35:25,040
Speaker 9: they're doing everything to time down tensions. That's their vision.

687
00:35:25,080 --> 00:35:30,520
Speaker 9: Their vision is development, prosperity, juxtaposed the Iranian vision, which

688
00:35:30,560 --> 00:35:34,960
Speaker 9: is aren't resistance, you know, quote unquote the annihilation of Israel,

689
00:35:35,040 --> 00:35:38,000
Speaker 9: which is what the Supreme Leader said. I mean that's

690
00:35:38,000 --> 00:35:40,560
Speaker 9: the vision of Iran. So you've got two competing visions.

691
00:35:41,000 --> 00:35:44,120
Speaker 9: Obviously the Saudi vision has been delta blow. But I

692
00:35:44,160 --> 00:35:47,319
Speaker 9: wouldn't be jumping to conclusions, you know, right away and

693
00:35:47,360 --> 00:35:48,800
Speaker 9: say it's completely off the table.

694
00:35:50,200 --> 00:35:52,759
Speaker 1: Yes, Tim, you raised the issue of Iran, and that's

695
00:35:52,920 --> 00:35:54,719
Speaker 1: clearly for a lot of observers one of the big

696
00:35:54,800 --> 00:35:57,920
Speaker 1: big wild cards here. What role do you think Saudi

697
00:35:57,920 --> 00:36:00,759
Speaker 1: Arabia and maybe some of the golf neighbors there can

698
00:36:00,960 --> 00:36:04,880
Speaker 1: have as it relates to I guess just mediating with

699
00:36:05,239 --> 00:36:08,160
Speaker 1: Iran or just dealing with Iran or communicating with Iran.

700
00:36:08,440 --> 00:36:09,680
Speaker 1: How do you see that playing out?

701
00:36:10,719 --> 00:36:12,800
Speaker 9: I mean potentially, But I mean the one country that

702
00:36:13,120 --> 00:36:16,399
Speaker 9: has the most contact with the Iranians at the moment

703
00:36:16,520 --> 00:36:19,439
Speaker 9: is Katar. I mean, it mediated the US hostage release,

704
00:36:19,480 --> 00:36:23,879
Speaker 9: if you remember, so they're the countries in the best

705
00:36:23,960 --> 00:36:26,920
Speaker 9: position to be involved anyway. And obviously, I mean the

706
00:36:27,040 --> 00:36:31,320
Speaker 9: Martis and the Saudis of late have you know, contacts

707
00:36:31,400 --> 00:36:34,239
Speaker 9: now with the Iranians. Maybe they'll play a role too,

708
00:36:34,360 --> 00:36:38,000
Speaker 9: but it's too early to see if that's going to happen.

709
00:36:39,440 --> 00:36:42,879
Speaker 1: All right, Thanks very much, Really appreciate getting your thoughts there.

710
00:36:43,400 --> 00:36:48,360
Speaker 1: Sam Dag at Dagger, he's a reporter in Dubai talking

711
00:36:48,640 --> 00:36:52,800
Speaker 1: with us about the greater i think Middle Eastern golf issue.

712
00:36:53,239 --> 00:36:54,960
Speaker 3: As this unfolds into you're.

713
00:36:54,840 --> 00:36:58,200
Speaker 6: Listening to the tape can't ourn live program Bloomberg Markets

714
00:36:58,280 --> 00:37:01,640
Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune

715
00:37:01,719 --> 00:37:04,640
Speaker 6: in app, Bloomberg dot Com, and the Bloomberg Business App.

716
00:37:04,719 --> 00:37:07,480
Speaker 6: You can also listen live on Amazon Alexa from our

717
00:37:07,560 --> 00:37:12,200
Speaker 6: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.

718
00:37:13,160 --> 00:37:15,080
Speaker 1: At Miller Pulse when you live here in our Bloomberger

719
00:37:15,120 --> 00:37:18,440
Speaker 1: Interactive Brokers studio. One of the big moves yesterday in

720
00:37:18,520 --> 00:37:21,440
Speaker 1: response to the news coming out of Israel over the

721
00:37:21,480 --> 00:37:24,600
Speaker 1: weekend is crude oil. We had WTI crude oil, Brent

722
00:37:24,640 --> 00:37:27,359
Speaker 1: crude oil up about four to five percent yesterday. Both

723
00:37:27,400 --> 00:37:29,360
Speaker 1: of those are pulling back about one percent today, so

724
00:37:29,440 --> 00:37:32,239
Speaker 1: a little bit of a more stability coming into that market.

725
00:37:32,280 --> 00:37:33,920
Speaker 1: But we want to get a sense of kind of

726
00:37:33,960 --> 00:37:38,680
Speaker 1: what the war in Israel means for the global energy space,

727
00:37:38,680 --> 00:37:40,560
Speaker 1: and for that we turn a Fernando Ali. He is

728
00:37:40,640 --> 00:37:44,520
Speaker 1: the senior analyst for Bloomberg Intelligence covering global energy. So Fernanda,

729
00:37:44,600 --> 00:37:47,120
Speaker 1: let's start with Chevron. Talk to us about what's happening

730
00:37:47,160 --> 00:37:48,759
Speaker 1: in there, because I know they have a field in

731
00:37:49,000 --> 00:37:53,000
Speaker 1: Israel that I believe the Israeli government has asked them

732
00:37:53,080 --> 00:37:54,839
Speaker 1: or ordered them to shut down. So let's talk first

733
00:37:54,840 --> 00:37:55,600
Speaker 1: about Chevron.

734
00:37:56,640 --> 00:38:01,000
Speaker 10: Yeah, absolutely, they have tomorrow into Leviathan Fields, their natural

735
00:38:01,080 --> 00:38:05,480
Speaker 10: gas fields offshore in Israel that produce around fifty five

736
00:38:05,560 --> 00:38:08,960
Speaker 10: to sixty thousand barrels of oil equivalent a day of

737
00:38:09,160 --> 00:38:13,640
Speaker 10: natural gas that tend shipped to Israel and sometimes regasif

738
00:38:14,400 --> 00:38:19,040
Speaker 10: gas liquefied and shipped out elsewhere. So it's a small

739
00:38:19,120 --> 00:38:22,239
Speaker 10: percentage of their current production. They intend to grow in

740
00:38:22,360 --> 00:38:26,880
Speaker 10: the region, but obviously this disruption may cause some slows

741
00:38:26,920 --> 00:38:30,040
Speaker 10: down and some second thoughts around there, but it's not

742
00:38:30,320 --> 00:38:33,600
Speaker 10: a significant short term impact for the company itself.

743
00:38:34,880 --> 00:38:37,600
Speaker 1: But I know, I guess I'm sorry just for Europeans

744
00:38:37,640 --> 00:38:40,840
Speaker 1: they were getting some of you they were obviously lost

745
00:38:40,920 --> 00:38:43,440
Speaker 1: the supply from Russia last winter, they're getting some of

746
00:38:43,520 --> 00:38:45,040
Speaker 1: it was coming out of Israel.

747
00:38:45,120 --> 00:38:47,320
Speaker 3: So is that a concern for European buyers?

748
00:38:48,280 --> 00:38:51,480
Speaker 10: Well, not just Israel, but then the broader scope of it,

749
00:38:51,640 --> 00:38:55,120
Speaker 10: because they get a lot from Qatar, and Qatar shares

750
00:38:55,480 --> 00:38:58,480
Speaker 10: its gas field, the Northfield, the largest in the world

751
00:38:58,880 --> 00:39:03,200
Speaker 10: with Iran, So that is a significant concern if there

752
00:39:03,440 --> 00:39:06,640
Speaker 10: is an escalation and if Iran is involved in how

753
00:39:06,680 --> 00:39:11,040
Speaker 10: we get liquified natural gas from Quitar over to western Europe.

754
00:39:11,600 --> 00:39:15,280
Speaker 2: What's up with that giant natural gas field in Holland

755
00:39:15,800 --> 00:39:17,279
Speaker 2: that they've decided not to use?

756
00:39:17,480 --> 00:39:18,360
Speaker 3: Are they still using that?

757
00:39:19,680 --> 00:39:23,719
Speaker 10: Groningen is going to be shuttered this year. So no,

758
00:39:24,800 --> 00:39:28,400
Speaker 10: because of the earthquakes and other and global warming concerns

759
00:39:28,760 --> 00:39:32,960
Speaker 10: in Holland, they are decommissioning that field. It has been underproducing.

760
00:39:33,040 --> 00:39:35,040
Speaker 10: They had extended the life for a little bit, but

761
00:39:35,120 --> 00:39:37,479
Speaker 10: they will decommission Groninggen, all.

762
00:39:37,440 --> 00:39:40,480
Speaker 1: Right, So, Fernando, I think the expectation is that this

763
00:39:40,600 --> 00:39:44,279
Speaker 1: conflict the Indusraal is going to intensify, maybe expand and

764
00:39:44,360 --> 00:39:46,640
Speaker 1: scope a little bit. Give us a sense of kind

765
00:39:46,640 --> 00:39:50,000
Speaker 1: of what the global oil markets are telling you over

766
00:39:50,000 --> 00:39:50,919
Speaker 1: the last couple of days.

767
00:39:52,160 --> 00:39:55,759
Speaker 10: Well, the pass back yesterday is really around reinforcing the

768
00:39:56,320 --> 00:39:59,560
Speaker 10: Iran sanctions and the likelihood of a deal with the

769
00:39:59,719 --> 00:40:04,160
Speaker 10: US being off the table. After the attacks, I'll caveat

770
00:40:04,239 --> 00:40:07,279
Speaker 10: that Iran has been able to export a lot of

771
00:40:07,360 --> 00:40:13,200
Speaker 10: it's screwed through the shadow tanker market. The official numbers

772
00:40:13,239 --> 00:40:16,719
Speaker 10: show a huge decrease, but we know that some of

773
00:40:16,760 --> 00:40:19,120
Speaker 10: those volumes had made its way to countries that don't

774
00:40:19,120 --> 00:40:24,440
Speaker 10: observe the sanctions as tightly. This obviously lowers their overall

775
00:40:24,520 --> 00:40:27,480
Speaker 10: revenues for the country, because as you limit the amount

776
00:40:27,520 --> 00:40:30,440
Speaker 10: of buyers, it becomes more difficult for them to get

777
00:40:30,600 --> 00:40:34,640
Speaker 10: a full price for their barrels, especially because China, the

778
00:40:34,719 --> 00:40:38,160
Speaker 10: largest oil importer in the world, has said they're done

779
00:40:38,960 --> 00:40:43,160
Speaker 10: issuing import quotas in twenty twenty three, So that creates

780
00:40:43,520 --> 00:40:47,200
Speaker 10: a significant log gym in those countries, especially after Saudi

781
00:40:47,200 --> 00:40:50,400
Speaker 10: Arabia had just raised prices in to Asia.

782
00:40:52,680 --> 00:40:53,160
Speaker 3: All Right, So.

783
00:40:54,719 --> 00:40:59,000
Speaker 2: When we see oil coming back up to eighty five

784
00:40:59,080 --> 00:41:01,480
Speaker 2: dollars a barrel from you know, it had dropped to

785
00:41:01,640 --> 00:41:04,440
Speaker 2: eighty two, but not nearly reaching the ninety five dollars

786
00:41:04,520 --> 00:41:08,120
Speaker 2: of barrow last week, doesn't that signify that people just

787
00:41:08,239 --> 00:41:09,480
Speaker 2: aren't very worried right now.

788
00:41:11,239 --> 00:41:13,840
Speaker 10: Well, I think it signifies that people are very worried

789
00:41:13,840 --> 00:41:16,759
Speaker 10: about demand and not so much about supply. It got it,

790
00:41:17,960 --> 00:41:20,880
Speaker 10: and that is really has been what Mike mcglohan and

791
00:41:20,920 --> 00:41:23,440
Speaker 10: I have arped on for the remainder of the year

792
00:41:23,640 --> 00:41:26,879
Speaker 10: and early twenty twenty fours that demand is really going

793
00:41:26,960 --> 00:41:29,640
Speaker 10: to be in the driver's seat, and all the OPEC

794
00:41:29,719 --> 00:41:33,680
Speaker 10: plus cuts they just create spare capacity that could come

795
00:41:33,760 --> 00:41:39,080
Speaker 10: in to satisfy supply in relatively short order. What this

796
00:41:39,320 --> 00:41:42,080
Speaker 10: does is that it does create a benefit for US

797
00:41:42,120 --> 00:41:44,920
Speaker 10: suppliers because there are fewer barrels that are allowed in

798
00:41:45,000 --> 00:41:48,560
Speaker 10: Western Europe and countries that are by by sanctions. So

799
00:41:49,080 --> 00:41:52,440
Speaker 10: the Brent WTI spread expect will continue to be very tight,

800
00:41:52,840 --> 00:41:55,640
Speaker 10: but the overall price of oil, we think will be

801
00:41:55,680 --> 00:41:56,480
Speaker 10: governed by demand.

802
00:41:57,280 --> 00:42:00,719
Speaker 1: What is the expectations this winter for Europe? Will they

803
00:42:00,760 --> 00:42:03,640
Speaker 1: have enough gas? Will they have enough fuel? Last winter

804
00:42:04,440 --> 00:42:07,279
Speaker 1: came in much better than expected from that From that issue.

805
00:42:08,040 --> 00:42:11,120
Speaker 10: Yeah, I mean, that's that's the million dollar question, probably

806
00:42:11,160 --> 00:42:14,960
Speaker 10: even more millions than that. They are at their highest

807
00:42:15,239 --> 00:42:20,360
Speaker 10: natural gas inventories for seasonally adjusted they're nearly full. And

808
00:42:21,239 --> 00:42:24,360
Speaker 10: where there's an issue is is Matt pointed growing against

809
00:42:24,440 --> 00:42:29,080
Speaker 10: offline Belgium and Germany they coommissioned their nuclear plants, so

810
00:42:29,200 --> 00:42:32,480
Speaker 10: their overall use of natural gas is likely to increase.

811
00:42:33,640 --> 00:42:36,000
Speaker 10: The question is last year we had the warmest winter

812
00:42:36,239 --> 00:42:39,919
Speaker 10: in fifty years on the northern hemisphere. If that's the case,

813
00:42:39,920 --> 00:42:43,480
Speaker 10: then they're probably fine. If they're not, then that inventory

814
00:42:43,520 --> 00:42:47,239
Speaker 10: will fall very quickly. It's not a whole season inventory,

815
00:42:47,920 --> 00:42:51,720
Speaker 10: it's a buffer. And the other issues that the diesel

816
00:42:51,800 --> 00:42:55,920
Speaker 10: side of the equation, we're considerably short, both in western

817
00:42:56,000 --> 00:43:00,719
Speaker 10: Europe and in eastern in the eastern United States and

818
00:43:00,760 --> 00:43:05,239
Speaker 10: North America, So if we haven't implement winter, even a

819
00:43:05,360 --> 00:43:09,920
Speaker 10: normal winter, it would really put pressure on those inventories.

820
00:43:10,280 --> 00:43:13,160
Speaker 10: And then you add the wrinkle of the straight or

821
00:43:13,160 --> 00:43:18,640
Speaker 10: horn moose, the one shipping lane for Qatari natural gas.

822
00:43:19,360 --> 00:43:22,240
Speaker 10: If that's shuttered, then it's a really big wrinkle.

823
00:43:23,000 --> 00:43:28,040
Speaker 2: How far out do people in your industry try and

824
00:43:28,120 --> 00:43:31,399
Speaker 2: forecast the weather. I'm just interested because you mentioned last

825
00:43:31,440 --> 00:43:34,839
Speaker 2: winter was unseasonally warm, and that's true. Can you look

826
00:43:34,880 --> 00:43:36,759
Speaker 2: at this winter already and tell what it's going to

827
00:43:36,800 --> 00:43:38,560
Speaker 2: be like with any kind of certainty?

828
00:43:39,600 --> 00:43:42,440
Speaker 10: Well, we try to forecast five years out, and we

829
00:43:42,600 --> 00:43:46,480
Speaker 10: are successful about two weeks out, maybe sometimes left in that.

830
00:43:48,239 --> 00:43:50,600
Speaker 10: It's very hard to forecast weather. I mean, I'm not

831
00:43:50,680 --> 00:43:55,000
Speaker 10: a meteorologist. But it's clearly very hard, as you can

832
00:43:55,040 --> 00:43:57,240
Speaker 10: tell from your weather app on your phone.

833
00:43:58,239 --> 00:44:01,399
Speaker 1: Fernando, what's the call in the energy space these days

834
00:44:01,440 --> 00:44:05,200
Speaker 1: about China both as a source of supply and more

835
00:44:05,239 --> 00:44:05,960
Speaker 1: importantly demand.

836
00:44:07,320 --> 00:44:07,440
Speaker 5: Well.

837
00:44:07,480 --> 00:44:09,440
Speaker 10: As a source of supply, they've been on the decline

838
00:44:09,520 --> 00:44:15,400
Speaker 10: since twenty fifteen twenty sixteen because their fields are relatively

839
00:44:15,480 --> 00:44:19,280
Speaker 10: high cost to continue production, so they haven't really invested

840
00:44:19,320 --> 00:44:23,160
Speaker 10: in growing the supply to the level required to recover

841
00:44:23,360 --> 00:44:28,719
Speaker 10: the post twenty fifteen levels. On the demand side, again,

842
00:44:28,840 --> 00:44:32,080
Speaker 10: our fear has been around the real estate environment, and

843
00:44:32,480 --> 00:44:36,960
Speaker 10: even with stimuli that's been promised by Beijing, the Chinese

844
00:44:37,000 --> 00:44:39,400
Speaker 10: consumer is in a fairly dire spot. You know, if

845
00:44:39,440 --> 00:44:42,919
Speaker 10: we look at how the average ways necessary to buy

846
00:44:43,320 --> 00:44:46,680
Speaker 10: an apartment in Beijing or Shanghai, it dwarfs New York

847
00:44:46,760 --> 00:44:52,040
Speaker 10: and London, which are, as we know, unaffordable, and so

848
00:44:52,200 --> 00:44:56,520
Speaker 10: much of the provincial government, obviously the real estate market,

849
00:44:56,600 --> 00:45:00,640
Speaker 10: and then the provincial banks relied on land sales and

850
00:45:00,760 --> 00:45:04,680
Speaker 10: development for their revenues, and with that drying up, it

851
00:45:04,880 --> 00:45:08,200
Speaker 10: creates a huge headwind for the country as a whole.

852
00:45:08,440 --> 00:45:10,920
Speaker 10: Everyone looks at China as having a fairly low debt

853
00:45:10,960 --> 00:45:14,320
Speaker 10: to GDP ratio. But that's without accounting for all the

854
00:45:14,400 --> 00:45:18,560
Speaker 10: provincial governments, all the provincial banks that ultimately rely on

855
00:45:18,680 --> 00:45:21,480
Speaker 10: those governments. So once you can consolidate that their level

856
00:45:21,719 --> 00:45:26,800
Speaker 10: of debt is fairly elevated and they'll need to rectify

857
00:45:27,120 --> 00:45:30,400
Speaker 10: rectify that in order to return to the growth. And

858
00:45:31,200 --> 00:45:35,040
Speaker 10: I'll mention that Exxon gave their guidance for the third

859
00:45:35,120 --> 00:45:41,560
Speaker 10: quarter and petrochemicals very linked to construction were down massively.

860
00:45:41,719 --> 00:45:43,760
Speaker 10: I mean they were less than half of the second

861
00:45:43,880 --> 00:45:45,400
Speaker 10: quarter results.

862
00:45:46,280 --> 00:45:48,800
Speaker 1: All right, Fernanda, thanks so much for joining us as always,

863
00:45:48,800 --> 00:45:52,480
Speaker 1: appreciate getting your global view on the energy space. Fernando Valley,

864
00:45:52,719 --> 00:45:56,480
Speaker 1: senior analysts Bloomberg Intelligence and Matt just staying on the

865
00:45:56,600 --> 00:45:57,520
Speaker 1: global energy plate.

866
00:45:59,000 --> 00:46:01,880
Speaker 2: Thanks for listening to the Blue Burg Markets podcast. You

867
00:46:01,960 --> 00:46:05,239
Speaker 2: can subscribe and listen to interviews at Apple Podcasts or

868
00:46:05,520 --> 00:46:09,200
Speaker 2: whatever podcast platform you prefer. I'm Matt Miller. I'm on

869
00:46:09,320 --> 00:46:11,799
Speaker 2: Twitter at Matt Miller nineteen seventy three.

870
00:46:12,280 --> 00:46:13,120
Speaker 3: And I'm Faull Sweeney.

871
00:46:13,160 --> 00:46:15,759
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you

872
00:46:15,840 --> 00:46:18,200
Speaker 1: can always catch us worldwide at Bloomberg Radio