Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moven news.
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Speaker 3: All right, we need to get.
Speaker 1: The latest reporting from Israel and obviously a fluid situation.
Speaker 1: Ethan Browner joins us. He is the bureau chief in
Speaker 1: Israel for Bloomberg News. He's in Tel Aviv. Even thanks
Speaker 1: so much for joining us here. Can you give us
Speaker 1: the latest reporting from the ground in Israel?
Speaker 3: What's developing right now?
Speaker 4: Sure, we're still in basically a large waiting mode for
Speaker 4: Israel to begin the next part of its massive operation.
Speaker 4: Still his three hundred thousand guys in uniform. They've kind
Speaker 4: of they've built a contemporary base with infrastructure near Gaza
Speaker 4: from which they're going to launch operation. It's almost certain
Speaker 4: it's a ground operation, but they haven't officially announced it.
Speaker 4: At the same time, the Americans have sent a bunch
Speaker 4: of help because the Israelis say that their material is
Speaker 4: fairly stretched, both in terms of their ability to monitor
Speaker 4: from the air what they're hitting and even basic things
Speaker 4: like helmets for their soldiers. They say, everyone has a helmet,
Speaker 4: but some of them are old and lousy, and there's
Speaker 4: some protective gear some. By the way, some of the
Speaker 4: protest movement that was working very hard against the government
Speaker 4: has now turned itself into a fundraising operation to help
Speaker 4: troops and families in the south, and they've raised tens
Speaker 4: of millions of dollars in order to excuse me, I'm sorry,
Speaker 4: in order to help those in the south and soldiers
Speaker 4: get protective gear. So there is a lot going on
Speaker 4: at the same time as southern Lebanon. People are afraid
Speaker 4: that something's going to happen there. They are driving away
Speaker 4: that could because his ballood does decide to come in.
Speaker 4: I live in Tel Aviv and we have had missiles
Speaker 4: from Gaza hit Tel Aviv three times today. Hasbella is
Speaker 4: also known to have long range missiles that can reach here,
Speaker 4: so it's pretty intense.
Speaker 2: So Ethan, what does it look like to a mass
Speaker 2: three hundred thousand soldiers.
Speaker 3: Outside of Gaza.
Speaker 2: I mean, that's a large number of people for an
Speaker 2: area of land that I'm going to say is roughly
Speaker 2: the size of you know, New York plus Westchester.
Speaker 4: No, look, it's a good question. I mean they're not
Speaker 4: all in one spot, but I mean there are because
Speaker 4: there are people have gone north there, people have gone
Speaker 4: to the West Bank.
Speaker 3: There are people.
Speaker 4: But three hundred thousand men are in uniform as reservists, So.
Speaker 5: It's a lot of people.
Speaker 4: I agree with you. Now, they're obviously going to try
Speaker 4: to take them into Gaza soon because they feel that
Speaker 4: they need to strike while the ironness out, while the
Speaker 4: world still has in its mind the images of the
Speaker 4: slaughter on Saturday, of kids at a rave concert and
Speaker 4: families that are key boots and so on. So they
Speaker 4: clearly want to move quickly. One of the things that
Speaker 4: they've had more trouble with than they expected is was
Speaker 4: the sort of securing of the south and the border fence.
Speaker 4: They have largely done that now, but that was so
Speaker 4: incredibly breached by Hamas fighters on Saturday, and they now
Speaker 4: it looks like there were probably close to two thousand
Speaker 4: Hamas guys.
Speaker 5: Who came in on Saturday.
Speaker 4: They'd been saying one thousand, but today they said that
Speaker 4: they found fifteen hundred bodies of Hamas guys, and they've
Speaker 4: taken a bunch of people prisoners, so it's closer to
Speaker 4: two than one.
Speaker 1: So ethan, what is the expectation for the next step
Speaker 1: for Isra? Are they going to send in tens of
Speaker 1: thousands or more troops into Gaza? And if so, what
Speaker 1: would be the objective?
Speaker 4: So they're not, of course telling us, and we can
Speaker 4: only speculate, but the objective seems to be to put
Speaker 4: in a large way, the way they're saying it is,
Speaker 4: it's to send a message and make clear to Ramas
Speaker 4: that it never again will carry out an attack like
Speaker 4: it did on Saturday. It will not have the capacity
Speaker 4: because we're going to take down every ability of their
Speaker 4: to do so. Now, is this really possible? And if
Speaker 4: you go door to door in this way, aren't you
Speaker 4: going to lose a lot of guys? It does seem
Speaker 4: like they're going to lose a lot of guys. It
Speaker 4: feels like they have decided that they're going in that
Speaker 4: there is an almost existential cause that they think that
Speaker 4: they have here to send this message not just to Ramas,
Speaker 4: but to the greater greater region, to Isbela and to
Speaker 4: Iran that Israel is willing to lose people and to
Speaker 4: fight in an ugly way to It's a very interesting
Speaker 4: shift that has occurred here because just a week ago,
Speaker 4: if you like, it was all about making you know,
Speaker 4: the new Middle East with Saudi Arabia and railroads and
Speaker 4: optic fibers. And now it's we are we have to
Speaker 4: send a military message of muscle, and that's what we're
Speaker 4: focused on.
Speaker 5: Now.
Speaker 4: It'll I think it's a hell of a gambole. We
Speaker 4: shall see where it goes.
Speaker 2: Do you think we're gonna have to see this fight
Speaker 2: broadened out? I mean you mentioned hes belaw is lobbing
Speaker 2: down missiles from Lebanon, and of course all of this
Speaker 2: hamas Hesbelah is funded. I think, to the tune of
Speaker 2: I heard this morning, ninety three percent by Iran.
Speaker 5: I'm an.
Speaker 2: So you know, I suppose you can have an academic
Speaker 2: debate about whether or not Iran new every single detail
Speaker 2: of this plan and green stamped it at every step
Speaker 2: of the way.
Speaker 3: But it doesn't really matter.
Speaker 2: If they're the ones who are funding everything, you need
Speaker 2: to take the fight to them.
Speaker 4: Well, I mean, I don't think that they want to
Speaker 4: take the fight to them, right, I mean in that
Speaker 4: would be a really a kind of regional conflagration that
Speaker 4: is almost unimaginable, both in terms of supplies of oil
Speaker 4: and everything to the world and the number of people involved.
Speaker 4: So in fact, the US has sent this big fleet
Speaker 4: right to the eastern med it's on its way to
Speaker 4: send a message to his Ballah to say don't send
Speaker 4: any missiles down, and to send a message to a
Speaker 4: Ran to say we're going to limit it to this.
Speaker 4: So I don't Ran meanwhile sending messages saying, if you
Speaker 4: guys go and start killing people in Gaza, you should
Speaker 4: know that you're.
Speaker 5: Going to pay a price.
Speaker 4: We don't know what that means, but it may mean something.
Speaker 4: So I don't think the goal here is to bring
Speaker 4: it to a broader front, but it may happen anyway.
Speaker 4: I'm not sure how well thought out this all is.
Speaker 4: I do know there is an incredible sense of fury
Speaker 4: and humiliation in Israel, and I'm not sure that makes
Speaker 4: for the best laid plans.
Speaker 3: It's definitely scary.
Speaker 2: Yeah, I wonder what the mood is like on the ground, Ethan.
Speaker 3: I mean, you're you know, covering this.
Speaker 2: I imagine in a professional sense every waking moment of your
Speaker 2: life right now. But when you stop and reflect personally,
Speaker 2: or when you look around at the you know, human costs.
Speaker 2: I mean, how terrifying is it.
Speaker 3: It's terrifying.
Speaker 4: It's utterly terrifying. And and I'm you know, I'm not
Speaker 4: in Israeli and so I don't have that same sense
Speaker 4: that they have. But I have been amazed since Saturday
Speaker 4: morning at the complete shift turning on a dime of
Speaker 4: people I know here who all they cared about before
Speaker 4: was stopping the judicial overhaul and trying to drive Benjamin
Speaker 4: Sanyahu from office, And now all they want to do
Speaker 4: is go in and be hard asses in Gaza.
Speaker 5: They it's just.
Speaker 4: They want to go in and they want to fight back.
Speaker 4: They've there's almost like a genetic impact here on Jewish
Speaker 4: DNA and Israel that what they saw happen on Saturday
Speaker 4: reminded them of the Holocaust, reminded them of pilgrums, reminded
Speaker 4: them of things that they decided to build this state
Speaker 4: to stop from happening. And that sense deep fury and
Speaker 4: cause and purpose is everywhere right now. I know it
Speaker 4: won't last, but it is everywhere right now. And when
Speaker 4: you see also videos of the soldiers gathered near Gaza.
Speaker 4: They are pumped up and they are ready to go in.
Speaker 1: So, Ethan, how are the folks. So you're in Tel Aviv? Now,
Speaker 1: do you have family there as well?
Speaker 4: I have cousins, I do have a wife. I don't
Speaker 4: have children here kids in New York.
Speaker 5: Yah.
Speaker 3: Yah.
Speaker 1: I'll be interesting to see because it's just it's such
Speaker 1: a difficult situation there on the.
Speaker 5: Ground, very difficult.
Speaker 4: And everybody's got kids, cousins, brothers, husbands and who are
Speaker 4: now in uniforms. So a lot of people know people
Speaker 4: who died on Saturdays as well.
Speaker 1: All right, Ethan, thank you so much. We really appreciate
Speaker 1: getting some time with you. Ethan Bronner. He is the
Speaker 1: bureau chief Bloomberg News in Tel Aviv, Israeli bureau chief.
Speaker 1: Appreciate getting a few minutes of his time. We understand.
Speaker 2: I'll tell you what we don't is you know, we
Speaker 2: haven't and we don't I guess on radio or television
Speaker 2: go into the horrendous crimes that were committed over the weekend.
Speaker 3: I mean Ethan mentioned the.
Speaker 2: Mass murders at the music festival, and when you read
Speaker 2: some of the reporting about that.
Speaker 3: It's just so bad that it's hard even to talk
Speaker 3: about publicly. No, and that's why.
Speaker 2: And I can't imagine how human beings would do that.
Speaker 2: You know, maybe someone a sick individual, but how would
Speaker 2: a group of humans do that to another group?
Speaker 1: And that's why getting Ethan's on the ground reporting was
Speaker 1: fantastic to get a sense of kind of what he's
Speaker 1: seeing with the people on the street and how committed
Speaker 1: they are to you know, going in and kind of
Speaker 1: re and re retaliating. So again, probably some more difficult
Speaker 1: news before it gets better over there, but we will
Speaker 1: obviously have full reporting going forward.
Speaker 6: You're listening to the team Ken's are Live program Bloomberg
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Speaker 1: All right, let's bring in Ira Jersey here. He's a
Speaker 1: chief US interest rate strategist for Bloomberg Intelligence. We're going
Speaker 1: to get some inflation data over the next couple of days,
Speaker 1: and I think most people feel like it's going to
Speaker 1: show continued moderation in inflation, both at the producier level
Speaker 1: and at the consumer level. If I'm the Fed, is
Speaker 1: that enough to kind of say, all right, I can
Speaker 1: just sit on my hands for a while and see
Speaker 1: how things play out. Is that kind of how it
Speaker 1: should be?
Speaker 7: Well, assuming we do continue to get moderation, I think
Speaker 7: that there's a risk that some of the moves that
Speaker 7: we saw last month in oil prices are going to
Speaker 7: maybe lift the headline numbers a little bit, particularly in
Speaker 7: the consumer price data. But it's really the key, I
Speaker 7: think will be the core inflation data. So what is
Speaker 7: core core CPI? Does that continue to moderate and assuming
Speaker 7: it does that, then it probably gives some cover for
Speaker 7: the Federal Reserve to to not hike again in November.
Speaker 7: I still think that that, you know, there's less than
Speaker 7: fifty to fifty chance that they actually do at this point,
Speaker 7: and I think things like, you know, global geopolitical tensions
Speaker 7: increasing certainly is something else that will weigh on whether
Speaker 7: or not they're going to hike interest rates again. So
Speaker 7: so yeah, you know, I would argue that that, yes,
Speaker 7: this data that we're getting this week is critical, but
Speaker 7: it's there's a lot of other moving pieces obviously.
Speaker 5: To the to the mathematics of another hike or not.
Speaker 2: One of those moving pieces, I guess is real rates,
Speaker 2: And in intense it reminds me of Mike mclonoy says
Speaker 2: higher prices are.
Speaker 3: The best cure for high prices exactly.
Speaker 2: I guess it's the opposite in the bond world, right.
Speaker 2: If these prices fall to a loone enough, everyone's going
Speaker 2: to come in and start buying them.
Speaker 5: Yeah.
Speaker 7: So I think for rates, you know, there is a
Speaker 7: level where where bond yields are attractive. And certainly when
Speaker 7: you look at things like tips yields two and a
Speaker 7: half percent, you know, a little bit lessan two and
Speaker 7: a half percent for ten year tips yields, You know
Speaker 7: that I think is pretty attractive to some people.
Speaker 5: But then when you go back and you look at
Speaker 5: the historical.
Speaker 7: Context, where were those types of yields in the late
Speaker 7: nineteen nineties when tips started to trade, and then before
Speaker 7: the global financial crisis, you still had tips yields that were.
Speaker 5: Were three percent or above.
Speaker 7: So I think from when people look at these charts,
Speaker 7: it's only relative to the last ten or fifteen years
Speaker 7: that real yields are particularly high. So I do think
Speaker 7: that though that you know, they're not they're not unattractive
Speaker 7: at these levels would be would be what I would say.
Speaker 7: And now there are much more interesting inflation hedge than
Speaker 7: they were when tips yields were negative. Right when tip
Speaker 7: yields were negative one hundred basis points, that meant in
Speaker 7: order to you know, just to break even, you'd have
Speaker 7: to have inflation of at least one hundred basis points.
Speaker 7: But you know, for a bond investor, you want to
Speaker 7: have a return above inflation.
Speaker 5: And you know, we're finally at a.
Speaker 7: Level where I think people could be comfortable that we're
Speaker 7: reasonably enough above inflation in terms of the yield that
Speaker 7: you get that that you can continue to see some
Speaker 7: some nipping at the at the edges there, especially if
Speaker 7: the Federal Reserve is going to be done hiking rates.
Speaker 1: Well as you well know, I it's world known here
Speaker 1: that I have taken recession off the table, and I
Speaker 1: think the yield curve is kind of supporting me here.
Speaker 1: I'm going at the inversion inversion of the yield curve.
Speaker 1: It's only negative thirty basis points today, and back in
Speaker 1: July was you know, north of one hundred.
Speaker 3: So what's that tell you?
Speaker 7: Yeah, So, so it's not a surprise to me that
Speaker 7: we've we've become less inverted. It's the way that we
Speaker 7: become less inverted that was a little bit surprising to me. So,
Speaker 7: you know, our our view had been that as the
Speaker 7: Federal Reserve winds down its hiking cycle, that we'd see
Speaker 7: two year yields start to come down versus ten year
Speaker 7: yields basically staying the same, and we've gotten.
Speaker 5: Just the opposite of that.
Speaker 7: And I think that that's a reflection and a major reflection.
Speaker 7: Not so much of that the Fed is going to
Speaker 7: be done, because the Fed, even if it hikes again,
Speaker 7: is probably done after one more hike. It's more how
Speaker 7: long do they keep rates at this level and if
Speaker 7: you're right, Paul, and we don't get a recession, which
Speaker 7: is more or less the view that we take here
Speaker 7: at Bloomberg Intelligence rates strategy is the yields can wind up,
Speaker 7: you know, basically pancaking. So we're calling it a pancake
Speaker 7: of a yield curve where you can have two year yields,
Speaker 7: five year yields, ten year yelds basically at the same
Speaker 7: ish level and wind up maintaining that for the next
Speaker 7: six to nine months, and then you probably start to see,
Speaker 7: you know, calls for a cut, people worry about growth
Speaker 7: in twenty twenty five and the like. Because the longer
Speaker 7: the Fed holds rates high, the deeper a recession that
Speaker 7: the market's going to price. So I do think that
Speaker 7: eventually it's going to be time to get into what
Speaker 7: we call both steepening, which is buy two year notes,
Speaker 7: keep ten year notes kind of market weight or underweight,
Speaker 7: and then you wind up seeing a pretty significant steepening
Speaker 7: of the YILD curve.
Speaker 2: What would do you think cause the Fed to cut rates?
Speaker 2: Are we talking about unemployment breaching a certain level for
Speaker 2: and a half percent for example? Is it about the
Speaker 2: speed rather than the level, you know, if it jumps
Speaker 2: up all of a sudden to over four or.
Speaker 3: Is it about you know, GDP slowdown? What do you think?
Speaker 7: Yeah, so, if there's some kind of exogynous shock that
Speaker 7: causes mass layoffs, then certainly the Federal Reserve would take notice.
Speaker 7: But remember I do think that in this environment, and
Speaker 7: given how difficult it has been for the Federal Reserve
Speaker 7: to kind of get inflation expectations and maintain inflation expectations
Speaker 7: to be relatively low, I think that you have to
Speaker 7: have not only an increase in the unemployment rate, but
Speaker 7: you also have to have a continued decline of inflation.
Speaker 7: So in a situation where you have the PC deflator
Speaker 7: running at three percent or three point two percent and
Speaker 7: the unemployment rate rises a little bit over a few months,
Speaker 7: I think the Fed still on hold. Right, They're still
Speaker 7: going to be worried about that inflation component of a
Speaker 7: lot of the data, right, and their mandate. They do
Speaker 7: have this dual mandate, which sometimes makes a little tricky
Speaker 7: for them. Right, If you're the European Central Bank and
Speaker 7: you only care about inflation, then you know, it's a
Speaker 7: little bit easier to kind of manage your rate and
Speaker 7: rate expectations. So I do think it has to be
Speaker 7: the unemployment rate rising very quickly, but only in an
Speaker 7: environment where inflation is moderate continuing to moderate.
Speaker 5: HIRA.
Speaker 1: When you talk to your institutional investor clients, the folks
Speaker 1: you've been talking to for years, what's the trade they're
Speaker 1: talking about most these days.
Speaker 7: Yeah, So it was a couple of weeks ago. The
Speaker 7: idea of being long duration because typically typically the longer
Speaker 7: end of the yield curve does pretty.
Speaker 5: Well when the Fed.
Speaker 7: When the FED stops its hiking cycles, and I think
Speaker 7: a lot of people were the wrong way. So people
Speaker 7: are a little bit nervous and and you know, don't
Speaker 7: want to take big positions right now because there's a
Speaker 7: lot of uncertainty and the direction not so much of
Speaker 7: monetary policy, but more in terms of positioning in the market,
Speaker 7: what the supply story is going to be, because deficits
Speaker 7: continue to be run pretty high, so people are worried
Speaker 7: that there's there's been a supply shock a little bit,
Speaker 7: although that's our data and our work suggests that that's
Speaker 7: not as much the case. But nonetheless, I think there's
Speaker 7: a lot of people out there who got burned and
Speaker 7: would just rather you know, stay market wade or just
Speaker 7: sit on their hands and not do a lot. Yet,
Speaker 7: until there's you know, a more significant it becomes much
Speaker 7: clearer what the direction of the economy and monetary policy
Speaker 7: is going to be.
Speaker 1: Hey, Ira, how's liquidity in the marketplace? If I if
Speaker 1: I call up my you know, the Govey desk at
Speaker 1: you know, JP Morgan and Goldman Sachs, can they make
Speaker 1: me a nice deep market.
Speaker 7: They haven't been able to recently, so the liquidity has
Speaker 7: been pretty poor.
Speaker 5: Are really in the last eighteen months.
Speaker 7: And I think a big part of that is just
Speaker 7: because the market's gotten so big, and the pipes that
Speaker 7: all of this money and all these bonds have to
Speaker 7: flow through is it has basically remained the same size.
Speaker 7: So you have a lot more flow and a lot
Speaker 7: more supply out there that needs to find a home.
Speaker 7: And on the other side, you know, you don't have
Speaker 7: dealers that are willing to take on the size and
Speaker 7: warehouse risk the way that they were you know, prior
Speaker 7: to the global financial crisis, prior to the Basle new
Speaker 7: Basle regulations that that kind.
Speaker 5: Of constrain the way that dealers can operate. So part
Speaker 5: of the.
Speaker 7: Reason why we've seen a lot of the volatility in
Speaker 7: the market has been a little bit of liquidity, you know.
Speaker 7: That being said, like top line, like, if you want
Speaker 7: to do you know, social what I call social size,
Speaker 7: you can probably.
Speaker 5: Get it done.
Speaker 7: But if you want to do a bigger trade, it's
Speaker 7: going to be more difficult to get off. So people
Speaker 7: are going to add leg into these trades, which just
Speaker 7: means that you might have, you know, longer.
Speaker 5: Periods of time that you have to shift your risk around.
Speaker 7: So another reason why you might just want to sit
Speaker 7: on your hands for a little while.
Speaker 2: What about the auctions and especially any longer dated treasury auctions.
Speaker 2: How much do dealers, primary dealers take down now?
Speaker 3: And you know who's the rest?
Speaker 7: So dealers actually have been taking down historically tiny amounts.
Speaker 5: So in a lot of in a lot of.
Speaker 7: Treasury auctions, dealers used to used to take a bulk
Speaker 7: of auctions, you know, forty forty percent, thirty percent. Now
Speaker 7: in many many auctions they take less than ten And
Speaker 7: it's really the demand from domestic asset managers and foreigners
Speaker 7: that wind up being the mix of buyers of these
Speaker 7: of these auctions.
Speaker 5: There is higher.
Speaker 7: Savings now than there was, say fifteen years ago in
Speaker 7: the United States, when we had a significant amount of dissavings.
Speaker 7: So some of the money ends up going back into
Speaker 7: into into various you know, we call it savings vehicles,
Speaker 7: whether those are insurance funds or or even baby boomers,
Speaker 7: you know, shifting money out of equities and into fixing
Speaker 7: come mutual funds or ETFs.
Speaker 5: All of those flows to.
Speaker 7: Combined and meant that asset managers have been you know,
Speaker 7: by far the largest buyer at auction.
Speaker 1: All right, are thanks so much for joining us as always.
Speaker 1: Ira Jersey, chief US interest rate Strategists for Bloomberg Intelligence,
Speaker 1: joining us from Princeton.
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Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 1: Matt Miller, Paul Sweeney live here in our Bloomberg Interactive
Speaker 1: Brokers studio looking at pepsi. They reported some results a
Speaker 1: little bit better than expected. Let's break it down. We
Speaker 1: can do that with Ken Shay. He's the senior analyst
Speaker 1: covers beverages, tobaccos, and cannabis with Bloomberg Intelligence. So we're
Speaker 1: going to break that down. Ken, Thanks so much for
Speaker 1: joining us here talk to us about pepsi headed our
Speaker 1: friends there in Purchase, New York.
Speaker 8: Do Yeah, hi, Paul. They did really, really well, you know,
Speaker 8: as is PepsiCo style. It was a report that exceeded
Speaker 8: expectations as they normally do. But you know, sales were
Speaker 8: up a nice strong high single digit rate EPs came
Speaker 8: in about fourteen percent. Both again beat expectations, and importantly,
Speaker 8: the underlying trends were good. The games were broad based,
Speaker 8: international was really strong, which off set a lot of
Speaker 8: currency had winds still, and the company's outlook was also favorable.
Speaker 8: They lifted their outlook for core EPs justice for currency
Speaker 8: up a little bit, and they even went out unusual
Speaker 8: for them and looked out to twenty four and I
Speaker 8: think of a lot of detail, but they said that,
Speaker 8: you know, their long term algorithm, which is mid single
Speaker 8: digit revenue and high single digit EPs growth, looked like
Speaker 8: it was going to hit the high end of those ranges.
Speaker 8: So overall you had to have a hard time finding
Speaker 8: a lot of fault with these numbers today.
Speaker 2: What is the what is the the currency headwind? Is
Speaker 2: it the fact that the dollar is so strong that
Speaker 2: the revenues they're bringing in from elsewhere are lower.
Speaker 8: Yeah, that's right. The recent strength of the dollar, uh,
Speaker 8: you know versus the pound in particular has been weighing
Speaker 8: a little bit on their on their reported numbers. You know,
Speaker 8: that's been going on for quite some time now. It
Speaker 8: made extend a little bit further. But again, I think
Speaker 8: the underlying fundamentals of the business are are are very favorable.
Speaker 8: I think that's what investors are looking at. You know,
Speaker 8: they're also looking at this whole notion of the obesity drugs.
Speaker 8: You know what I mean to jump to probably a
Speaker 8: question that was coming up, but a lot a lot
Speaker 8: of investors were nervous about the talk about obesity drugs.
Speaker 8: How's it going to weigh on the snack and confection
Speaker 8: of food companies. They seem to allay those fears and said, look,
Speaker 8: there's no real evidence of that happening now. And you know,
Speaker 8: I'm looking at you know, the past per capita consumption
Speaker 8: of salty snacks and it's been rising at a you know,
Speaker 8: low single digit steady rate over the last few years,
Speaker 8: higher than sweet snacks. So I don't see really being
Speaker 8: an issue in the near term. I think that's helping
Speaker 8: the share of sentiment today.
Speaker 2: Well they have I mean, they expect core earnings per
Speaker 2: share growth of thirteen percent.
Speaker 5: At costan currencies.
Speaker 3: That's strong.
Speaker 2: Organic revenue growth forecasts at ten percent, so that's big
Speaker 2: and I wonder if the you know, we talk obviously
Speaker 2: a lot on the show about the GLP one drugs,
Speaker 2: the obesity drugs and their effect on consumer discretionary stocks.
Speaker 2: And you know, after news like what we saw at
Speaker 2: Walmart last week where they said people who get these
Speaker 2: drugs have a smaller calorie basket, that makes sense. On
Speaker 2: the other hand, we also talk about weed a lot, Ken,
Speaker 2: and I'm here to tell you that.
Speaker 3: The wait is the crazy bunches.
Speaker 2: The craving for salty snacks and sugary drinks. Probably I'm
Speaker 2: guessing rises.
Speaker 3: If you're using marijuana products.
Speaker 2: So I guess these things are kind of running across currents,
Speaker 2: aren't they.
Speaker 8: You know, that's I agree, Matt. And that's a potential
Speaker 8: a trend line that they don't point out, but it's
Speaker 8: probably there. You know, other long term secular gains to
Speaker 8: their favor, you know, or when you think about a
Speaker 8: company as global as they are, you know, it's the
Speaker 8: urbanization of you know, consumers. You know, they have access
Speaker 8: to more access to convenience stores or a lot of
Speaker 8: these things are sold rising middle class and wealth they
Speaker 8: can buy these evaluated products. And then consumers today, at
Speaker 8: least that I do anyway, you know, I graze throughout
Speaker 8: the day every time I go, you know, buy the
Speaker 8: kitchen I'll grab something, you know, a snack or something,
Speaker 8: and that's how people eat today. The traditional three meals
Speaker 8: are kind of going out with the dinosaur. And so
Speaker 8: this play all those play really well at a Petsico's
Speaker 8: business model.
Speaker 3: All Right, So Pepsi COO the dividend.
Speaker 1: They've got a little more than a three percent dividend.
Speaker 1: They've got a lot of cash on the balance sheet.
Speaker 1: They throw off a lot of free cash flow. What's
Speaker 1: the dividend story, what's the cash return story for Pepsi.
Speaker 8: Yeah, so PepsiCo is very balanced when it comes to
Speaker 8: the capital allocation through long term capital allocation and prioritizes dividends,
Speaker 8: you know, select on a selective basis. They'll buy some
Speaker 8: shares back. And you know, their algorithm is, you know,
Speaker 8: with sales growing a mid single digit and EPs growing
Speaker 8: high single digit, low double digit, they believe that even
Speaker 8: you know, at a current pe they can kind of
Speaker 8: churn out kind of a low double digit total return
Speaker 8: for investors. And that's kind of what they've been doing.
Speaker 8: And you know, if the if the algorithm's working, why
Speaker 8: why break it? Right, So this is what they've been
Speaker 8: saying for a long time, you know, and the company
Speaker 8: pointed out today their stability. You know, you've looked back
Speaker 8: five to ten year there's a lot of been a
Speaker 8: lot of macro shok events, pandemics, earning economic expansions, slowdowns,
Speaker 8: you know, disruptions and Europe whatever. And they keep saying
Speaker 8: the same long term algorithm, and they've beaten revenue expectations
Speaker 8: of the last five years one of the time, earnings
Speaker 8: expectations ninety five percent of the time. So the company
Speaker 8: pointed that I was saying, you know, there's a lot
Speaker 8: of questions about these these obese drugs and so on.
Speaker 8: You know, we're just going to keep doing what we're doing,
Speaker 8: and we have a pretty good track record in meeting
Speaker 8: and beating our guidance.
Speaker 2: By the way, I must drink five to ten cans
Speaker 2: of flavored selter water every day every day. I mean,
Speaker 2: it's it's huge. I think in this country, maybe it's
Speaker 2: just this area because the Polar selter water, you know,
Speaker 2: they're based in Worcester, mass These the Polar beverages. But
Speaker 2: I've noticed other countries don't have this yet. The no calorie,
Speaker 2: no sh ugur basically just stelter water with a hint
Speaker 2: of flavor.
Speaker 3: Is that a growing trend?
Speaker 8: Oh, sure it is, Matt, PepsiCo a wish PepsiCo would
Speaker 8: spend a little more time on its on its international markets. Uh,
Speaker 8: you know, performing really well, and you know it's a
Speaker 8: smaller portfolio of their food, snack and beverage portfolios outside
Speaker 8: the US, but that certainly is you know. I wrote
Speaker 8: a recent report on Bloomberg Intelligence about the enhanced water
Speaker 8: market and how it's really stepping forward to be a
Speaker 8: really strong growth area for these companies. Has it got unnoticed?
Speaker 8: It's just that don't talk about it a lot. I
Speaker 8: mean to come out with a Gatorade of water right now,
Speaker 8: which is basically, you know, a product that fits into
Speaker 8: lifestyles with alkaline water and low calories.
Speaker 3: The functional functional water.
Speaker 8: It's a functional waters. That's that's right, thank you. And
Speaker 8: it's a really great market. I mean, it hits on
Speaker 8: so many who were attributes and where they're going right
Speaker 8: now gives them a great runway for growth.
Speaker 1: All right, Ken, thanks so much for joining us. Ken Shay,
Speaker 1: Senior equity analysts. Bloomberg Intelligence follows all the beverage companies
Speaker 1: at tobacco companies, the cannabis companies as well, so look.
Speaker 2: I'm gonna write them. I'm gonna write them a message
Speaker 2: right now. I need I need Ken to help me
Speaker 2: out with questions.
Speaker 3: Okay for the Pepsi CFO.
Speaker 2: I don't know if I mentioned I don't know if
Speaker 2: I mentioned that I'm interviewing the CFO Pepsi at one
Speaker 2: today on Bloomberg Television.
Speaker 1: Okay, so you need some good questions to ask to
Speaker 1: sound smart Ye to talk to me, I said, I answer,
Speaker 1: you do it. Okay, PEPSI good numbers today have the
Speaker 1: pricing power, that's for sure.
Speaker 6: You're listening to the team. Ken's our live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,
Speaker 6: the iHeartRadio app and the Bloomberg Business App, or listen
Speaker 6: on demand wherever you get your podcasts.
Speaker 1: Let's get back to the geopolitics Israel and what it
Speaker 1: means for the region, the greater Middle East region. We
Speaker 1: want to go to Sam Dagger. He's a reporter covering
Speaker 1: Saudi Arabia form Bloomberg News. He is located in Dubai.
Speaker 1: Right now, Sam, can you talk to us about kind
Speaker 1: of We're just a few days into what's been developing
Speaker 1: in Israel.
Speaker 3: Give us your sense of what you're hearing, what your sources.
Speaker 1: Are telling you about some of the ramifications for the
Speaker 1: greater Middle East region.
Speaker 9: Absolutely great to be with you. I mean, obviously, the
Speaker 9: one thing in terms of ramifications that everybody's talking about
Speaker 9: is what does this do to efforts US led efforts
Speaker 9: to get Saudi Arabia and Israel to normalize their relations.
Speaker 9: I mean, obviously the US has put a lot of
Speaker 9: effort into this. The Biden administration had come out openly
Speaker 9: and said it was optimistic and there were certain things
Speaker 9: that they needed to work out with the Saudis and
Speaker 9: with these Raelis as well, and things were progressing, and
Speaker 9: we had the crown princes from Howning been Sla just
Speaker 9: three weeks ago saying that progress was being made every
Speaker 9: day and that we were getting closer to a deal,
Speaker 9: and then this that kind of puts the freeze on
Speaker 9: on on everything at a time.
Speaker 2: Being Sam, we you know, especially being in New York,
Speaker 2: I think here for the most part one side of
Speaker 2: this story. So many people here obviously have very close
Speaker 2: connections to Israel, have family members that live in Israel,
Speaker 2: and of course the you know, atrocities committed by the
Speaker 2: terrorists over the weekend aren't a great way for them
Speaker 2: to for you know, for them.
Speaker 3: To tell their story.
Speaker 2: But there are two sides to this thing, right, So
Speaker 2: being there, do you hear a lot from the Palestinian side.
Speaker 9: Well, I mean, I'm in Dubai. I'm mainly hearing from
Speaker 9: people in the region. I mean Saudi's and Marati's, people
Speaker 9: in the Gulf who are coming out. I mean, I'm
Speaker 9: not saying all of them, but there are people in
Speaker 9: this region, including many Saudis, who are coming out in
Speaker 9: support of Hamas and saying, you know, this is long overdue.
Speaker 9: I mean, I'm just quoting them now saying this is
Speaker 9: in response to all of the atrocities. And again this
Speaker 9: is them speaking that Israel has been committing against them
Speaker 9: and that this is in response to all of that,
Speaker 9: all the injustices. Again I'm just quoting them that the
Speaker 9: Palestinians have been subjected to. And so you have people
Speaker 9: in this part of the world who are looking at
Speaker 9: it differently.
Speaker 1: Sam, what role do you think Saudi Arabia would like
Speaker 1: to play in this or if any, or do they
Speaker 1: do you think they prefer to just kind of stay
Speaker 1: on the sidelines here.
Speaker 9: No, I mean definitely, I think they want to play
Speaker 9: a role in terms of just ending this. And they
Speaker 9: came out today said this, and they said, I mean,
Speaker 9: the Crown Prince spoke, Mohammed Ben Solomon spoke today with
Speaker 9: the president of Pastini Authority, Mahmudabasi, spoke to the Jordanian
Speaker 9: king and the Egyptian president, and then his foreign minister
Speaker 9: spoke to his counterparty in the US, Anthony Lincoln. So
Speaker 9: they're quite active, and they're saying this must must not
Speaker 9: spread beyond beyond Gaza.
Speaker 2: And the problem is we're hearing reports that missiles are
Speaker 2: being lobbed out of Lebanon. Obviously, the West Bank could
Speaker 2: be a real problem area, although for now it seems,
Speaker 2: at least from the reports I've read, that most of
Speaker 2: the threats are coming out of Gaza. How do you
Speaker 2: think things may change once Israel sends its troops into
Speaker 2: the Gaza strip.
Speaker 9: They will change a great deal. I mean, obviously depends
Speaker 9: on the scale of the Israeli operation and once we
Speaker 9: unfortunately start start to see the carnage that may be
Speaker 9: associated with this type of operation. I mean, the again,
Speaker 9: depending on on on on the scale of the operation,
Speaker 9: then obviously things are are going to change. Uh, there
Speaker 9: are concerns also, I mean you named Lebanon, West Bank,
Speaker 9: other places, Uh, Syria. I mean we' we haven't reported
Speaker 9: this ourselves, but we've seen reports of of of of
Speaker 9: Iranian proxies moving from certain parts of this Ayria. Of
Speaker 9: Syria closer to the border.
Speaker 2: With Israel are Jordan and Egyptian? Are there no threats
Speaker 2: from those two neighbors.
Speaker 9: In terms of direct threats to Israel, yes, I mean
Speaker 9: not that we know of, but in terms of the
Speaker 9: sentiment on the street, obviously most people in those countries
Speaker 9: are with the Palestinians.
Speaker 3: Yeah, I'm just trying to round up the region. You
Speaker 3: look at the mat the vast majority.
Speaker 2: It's such a tightly new area. And you know, I
Speaker 2: wonder if all the work that's been done to get
Speaker 2: the Saudis on, you know, on the same page as
Speaker 2: the Israelis, it will be undone if there's a massive attack,
Speaker 2: I mean, if there's a massive response here, Sam, does
Speaker 2: it look like any kind of reconciliation with Saudi Arabia
Speaker 2: is off the table?
Speaker 9: Then I don't think we should jump to that conclusion
Speaker 9: right away. I mean as are my story today points out.
Speaker 9: I mean, obviously this is a blow to the Saudi
Speaker 9: vision for the region. I mean the Saudi vision. I
Speaker 9: mean it's not only they have they don't. They don't
Speaker 9: just have a vision for Saudi Arabia, the Vision twenty thirty.
Speaker 9: They have a vision for the entire region, which says,
Speaker 9: you know, shared economic benefits and prosperity. It should take
Speaker 9: precedence over wars and ideological differences. I mean things at
Speaker 9: this part of the world has been mired in for decades.
Speaker 9: That's their vision, and they're saying, you want to work
Speaker 9: with every and you saw the concrete steps that they've
Speaker 9: taken since the beginning of the year. They've they've reached
Speaker 9: a tent where they'ran that was broken by the Chinese.
Speaker 9: They are negotiating directly with the Iranian backed with the
Speaker 9: rebels in Yemen. This is a country where they've been
Speaker 9: involved in war for eight years. They've they've made overtures
Speaker 9: to char Lassad who was backed by the Iranians. So
Speaker 9: they're doing everything to time down tensions. That's their vision.
Speaker 9: Their vision is development, prosperity, juxtaposed the Iranian vision, which
Speaker 9: is aren't resistance, you know, quote unquote the annihilation of Israel,
Speaker 9: which is what the Supreme Leader said. I mean that's
Speaker 9: the vision of Iran. So you've got two competing visions.
Speaker 9: Obviously the Saudi vision has been delta blow. But I
Speaker 9: wouldn't be jumping to conclusions, you know, right away and
Speaker 9: say it's completely off the table.
Speaker 1: Yes, Tim, you raised the issue of Iran, and that's
Speaker 1: clearly for a lot of observers one of the big
Speaker 1: big wild cards here. What role do you think Saudi
Speaker 1: Arabia and maybe some of the golf neighbors there can
Speaker 1: have as it relates to I guess just mediating with
Speaker 1: Iran or just dealing with Iran or communicating with Iran.
Speaker 1: How do you see that playing out?
Speaker 9: I mean potentially, But I mean the one country that
Speaker 9: has the most contact with the Iranians at the moment
Speaker 9: is Katar. I mean, it mediated the US hostage release,
Speaker 9: if you remember, so they're the countries in the best
Speaker 9: position to be involved anyway. And obviously, I mean the
Speaker 9: Martis and the Saudis of late have you know, contacts
Speaker 9: now with the Iranians. Maybe they'll play a role too,
Speaker 9: but it's too early to see if that's going to happen.
Speaker 1: All right, Thanks very much, Really appreciate getting your thoughts there.
Speaker 1: Sam Dag at Dagger, he's a reporter in Dubai talking
Speaker 1: with us about the greater i think Middle Eastern golf issue.
Speaker 3: As this unfolds into you're.
Speaker 6: Listening to the tape can't ourn live program Bloomberg Markets
Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune
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Speaker 1: At Miller Pulse when you live here in our Bloomberger
Speaker 1: Interactive Brokers studio. One of the big moves yesterday in
Speaker 1: response to the news coming out of Israel over the
Speaker 1: weekend is crude oil. We had WTI crude oil, Brent
Speaker 1: crude oil up about four to five percent yesterday. Both
Speaker 1: of those are pulling back about one percent today, so
Speaker 1: a little bit of a more stability coming into that market.
Speaker 1: But we want to get a sense of kind of
Speaker 1: what the war in Israel means for the global energy space,
Speaker 1: and for that we turn a Fernando Ali. He is
Speaker 1: the senior analyst for Bloomberg Intelligence covering global energy. So Fernanda,
Speaker 1: let's start with Chevron. Talk to us about what's happening
Speaker 1: in there, because I know they have a field in
Speaker 1: Israel that I believe the Israeli government has asked them
Speaker 1: or ordered them to shut down. So let's talk first
Speaker 1: about Chevron.
Speaker 10: Yeah, absolutely, they have tomorrow into Leviathan Fields, their natural
Speaker 10: gas fields offshore in Israel that produce around fifty five
Speaker 10: to sixty thousand barrels of oil equivalent a day of
Speaker 10: natural gas that tend shipped to Israel and sometimes regasif
Speaker 10: gas liquefied and shipped out elsewhere. So it's a small
Speaker 10: percentage of their current production. They intend to grow in
Speaker 10: the region, but obviously this disruption may cause some slows
Speaker 10: down and some second thoughts around there, but it's not
Speaker 10: a significant short term impact for the company itself.
Speaker 1: But I know, I guess I'm sorry just for Europeans
Speaker 1: they were getting some of you they were obviously lost
Speaker 1: the supply from Russia last winter, they're getting some of
Speaker 1: it was coming out of Israel.
Speaker 3: So is that a concern for European buyers?
Speaker 10: Well, not just Israel, but then the broader scope of it,
Speaker 10: because they get a lot from Qatar, and Qatar shares
Speaker 10: its gas field, the Northfield, the largest in the world
Speaker 10: with Iran, So that is a significant concern if there
Speaker 10: is an escalation and if Iran is involved in how
Speaker 10: we get liquified natural gas from Quitar over to western Europe.
Speaker 2: What's up with that giant natural gas field in Holland
Speaker 2: that they've decided not to use?
Speaker 3: Are they still using that?
Speaker 10: Groningen is going to be shuttered this year. So no,
Speaker 10: because of the earthquakes and other and global warming concerns
Speaker 10: in Holland, they are decommissioning that field. It has been underproducing.
Speaker 10: They had extended the life for a little bit, but
Speaker 10: they will decommission Groninggen, all.
Speaker 1: Right, So, Fernando, I think the expectation is that this
Speaker 1: conflict the Indusraal is going to intensify, maybe expand and
Speaker 1: scope a little bit. Give us a sense of kind
Speaker 1: of what the global oil markets are telling you over
Speaker 1: the last couple of days.
Speaker 10: Well, the pass back yesterday is really around reinforcing the
Speaker 10: Iran sanctions and the likelihood of a deal with the
Speaker 10: US being off the table. After the attacks, I'll caveat
Speaker 10: that Iran has been able to export a lot of
Speaker 10: it's screwed through the shadow tanker market. The official numbers
Speaker 10: show a huge decrease, but we know that some of
Speaker 10: those volumes had made its way to countries that don't
Speaker 10: observe the sanctions as tightly. This obviously lowers their overall
Speaker 10: revenues for the country, because as you limit the amount
Speaker 10: of buyers, it becomes more difficult for them to get
Speaker 10: a full price for their barrels, especially because China, the
Speaker 10: largest oil importer in the world, has said they're done
Speaker 10: issuing import quotas in twenty twenty three, So that creates
Speaker 10: a significant log gym in those countries, especially after Saudi
Speaker 10: Arabia had just raised prices in to Asia.
Speaker 3: All Right, So.
Speaker 2: When we see oil coming back up to eighty five
Speaker 2: dollars a barrel from you know, it had dropped to
Speaker 2: eighty two, but not nearly reaching the ninety five dollars
Speaker 2: of barrow last week, doesn't that signify that people just
Speaker 2: aren't very worried right now.
Speaker 10: Well, I think it signifies that people are very worried
Speaker 10: about demand and not so much about supply. It got it,
Speaker 10: and that is really has been what Mike mcglohan and
Speaker 10: I have arped on for the remainder of the year
Speaker 10: and early twenty twenty fours that demand is really going
Speaker 10: to be in the driver's seat, and all the OPEC
Speaker 10: plus cuts they just create spare capacity that could come
Speaker 10: in to satisfy supply in relatively short order. What this
Speaker 10: does is that it does create a benefit for US
Speaker 10: suppliers because there are fewer barrels that are allowed in
Speaker 10: Western Europe and countries that are by by sanctions. So
Speaker 10: the Brent WTI spread expect will continue to be very tight,
Speaker 10: but the overall price of oil, we think will be
Speaker 10: governed by demand.
Speaker 1: What is the expectations this winter for Europe? Will they
Speaker 1: have enough gas? Will they have enough fuel? Last winter
Speaker 1: came in much better than expected from that From that issue.
Speaker 10: Yeah, I mean, that's that's the million dollar question, probably
Speaker 10: even more millions than that. They are at their highest
Speaker 10: natural gas inventories for seasonally adjusted they're nearly full. And
Speaker 10: where there's an issue is is Matt pointed growing against
Speaker 10: offline Belgium and Germany they coommissioned their nuclear plants, so
Speaker 10: their overall use of natural gas is likely to increase.
Speaker 10: The question is last year we had the warmest winter
Speaker 10: in fifty years on the northern hemisphere. If that's the case,
Speaker 10: then they're probably fine. If they're not, then that inventory
Speaker 10: will fall very quickly. It's not a whole season inventory,
Speaker 10: it's a buffer. And the other issues that the diesel
Speaker 10: side of the equation, we're considerably short, both in western
Speaker 10: Europe and in eastern in the eastern United States and
Speaker 10: North America, So if we haven't implement winter, even a
Speaker 10: normal winter, it would really put pressure on those inventories.
Speaker 10: And then you add the wrinkle of the straight or
Speaker 10: horn moose, the one shipping lane for Qatari natural gas.
Speaker 10: If that's shuttered, then it's a really big wrinkle.
Speaker 2: How far out do people in your industry try and
Speaker 2: forecast the weather. I'm just interested because you mentioned last
Speaker 2: winter was unseasonally warm, and that's true. Can you look
Speaker 2: at this winter already and tell what it's going to
Speaker 2: be like with any kind of certainty?
Speaker 10: Well, we try to forecast five years out, and we
Speaker 10: are successful about two weeks out, maybe sometimes left in that.
Speaker 10: It's very hard to forecast weather. I mean, I'm not
Speaker 10: a meteorologist. But it's clearly very hard, as you can
Speaker 10: tell from your weather app on your phone.
Speaker 1: Fernando, what's the call in the energy space these days
Speaker 1: about China both as a source of supply and more
Speaker 1: importantly demand.
Speaker 5: Well.
Speaker 10: As a source of supply, they've been on the decline
Speaker 10: since twenty fifteen twenty sixteen because their fields are relatively
Speaker 10: high cost to continue production, so they haven't really invested
Speaker 10: in growing the supply to the level required to recover
Speaker 10: the post twenty fifteen levels. On the demand side, again,
Speaker 10: our fear has been around the real estate environment, and
Speaker 10: even with stimuli that's been promised by Beijing, the Chinese
Speaker 10: consumer is in a fairly dire spot. You know, if
Speaker 10: we look at how the average ways necessary to buy
Speaker 10: an apartment in Beijing or Shanghai, it dwarfs New York
Speaker 10: and London, which are, as we know, unaffordable, and so
Speaker 10: much of the provincial government, obviously the real estate market,
Speaker 10: and then the provincial banks relied on land sales and
Speaker 10: development for their revenues, and with that drying up, it
Speaker 10: creates a huge headwind for the country as a whole.
Speaker 10: Everyone looks at China as having a fairly low debt
Speaker 10: to GDP ratio. But that's without accounting for all the
Speaker 10: provincial governments, all the provincial banks that ultimately rely on
Speaker 10: those governments. So once you can consolidate that their level
Speaker 10: of debt is fairly elevated and they'll need to rectify
Speaker 10: rectify that in order to return to the growth. And
Speaker 10: I'll mention that Exxon gave their guidance for the third
Speaker 10: quarter and petrochemicals very linked to construction were down massively.
Speaker 10: I mean they were less than half of the second
Speaker 10: quarter results.
Speaker 1: All right, Fernanda, thanks so much for joining us as always,
Speaker 1: appreciate getting your global view on the energy space. Fernando Valley,
Speaker 1: senior analysts Bloomberg Intelligence and Matt just staying on the
Speaker 1: global energy plate.
Speaker 2: Thanks for listening to the Blue Burg Markets podcast. You
Speaker 2: can subscribe and listen to interviews at Apple Podcasts or
Speaker 2: whatever podcast platform you prefer. I'm Matt Miller. I'm on
Speaker 2: Twitter at Matt Miller nineteen seventy three.
Speaker 3: And I'm Faull Sweeney.
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
Speaker 1: can always catch us worldwide at Bloomberg Radio