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Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Abramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p L Podcast

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Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. Apparently, our

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Speaker 1: political backdrop is a made for TV and big screen movie.

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Speaker 1: Last night did not disappoint. Early morning hours, there was

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Speaker 1: a vote on the skinny repeal of Obamacare. It failed

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Speaker 1: with a dramatic thilmbs down from John McCain, who came

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Speaker 1: back up from Arizona despite his new diagnosis of brain

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Speaker 1: cancer to vote down and crush this bill. Here to

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Speaker 1: discuss Zach trac Er, healthcare reporter for Bloomberg News in

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Speaker 1: our Bloomberg eleven three oh studio, as well as Stephen

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Speaker 1: Dennis Center order for Bloomberg News. Who is on Capitol

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Speaker 1: Hill and who is at the proceedings last night or

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Speaker 1: I should I say today? Early this morning? I'm amazed

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Speaker 1: you're still up and uh and conscious at this point, Steve,

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Speaker 1: can you give us a sense of what it was

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Speaker 1: like on the floor in the moments leading up to

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Speaker 1: the momentous John McCain thumbs down, as well as just

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Speaker 1: afterwards as everyone tried to digest what this failure meant. Yeah,

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Speaker 1: so it was a really insane night. Um talked to

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Speaker 1: John McCain several times leading up to him walking into

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Speaker 1: the chamber, and he had told us and other reporters

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Speaker 1: about two hours earlier that he was prepared to vote

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Speaker 1: no if he didn't get at these assurances from the

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Speaker 1: House and he wasn't necessarily satisfied with Paul Ryan's answers,

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Speaker 1: and he wanted to talk to his governor. And then

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Speaker 1: I got him right before he went on the floor,

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Speaker 1: and he said, you know, I'll let you know. He

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Speaker 1: told another reporter of the show was about to go

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Speaker 1: on or something or watch the show, and so we

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Speaker 1: sprinted upstairs into the chamber to see what he was

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Speaker 1: gonna do. And the first thing he did is walked

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Speaker 1: up to Chuck Schumer. Chuck Schumer something, had a big

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Speaker 1: smile on his face and put his arm around McCain.

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Speaker 1: And then McCain goes over to John Coryn, the Republican whip,

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Speaker 1: who suddenly is a very agitated, upset turns around because

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Speaker 1: the thumbs down to another senator, and I spurnt it

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Speaker 1: out of the chamber because it looked like this thing

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Speaker 1: was going to go down and McCain was going to

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Speaker 1: vote no. And over the course of the next hour

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Speaker 1: there was an, you know, just a massive effort to

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Speaker 1: try to get John McCain or Lisa mccowsky to change

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Speaker 1: their minds. And Mike Pence came over and talked to

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Speaker 1: him for about half an hour, talked to him off

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Speaker 1: the floor. It looks like there may have been a

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Speaker 1: phone call with the president. Other senators one after another

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Speaker 1: came and tried to talk McCain out of it. In

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Speaker 1: the meantime, Lisa mccowski and Susan Collins are sort of

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Speaker 1: on each of his shoulders and sort of protecting him,

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Speaker 1: and McCain ultimately stood fast and Lisa mccowski stood fast,

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Speaker 1: and Collins voted no for first Denmarkowski and uh McCain's

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Speaker 1: sort of for effect came in and was the third

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Speaker 1: no vote um and there was audible guests inside the chamber,

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Speaker 1: especially from the Democratic side, and you know, just a

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Speaker 1: crazy scene that sort of a madhouse in the in

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Speaker 1: the Capital afterwards with a Republican the days mad uncertain

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Speaker 1: what to do, and Democrats also because they certainly weren't

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Speaker 1: expecting this. Zach Tracer, I wonder if you could come

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Speaker 1: in and tell us what does this mean now for

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Speaker 1: Americans who have been using insurance that is available through

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Speaker 1: the Affordable Care Act, well, Obamacare, it survived another sort

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Speaker 1: of near death experience. UM. It remains to be seen

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Speaker 1: what this means. You know, for the next few years,

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Speaker 1: we're still going to be relying on, you know, a

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Speaker 1: Trump administration that's declared this law dead. That's you know,

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Speaker 1: Donald Trump tweeting let it fail, um, you know. So,

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Speaker 1: so we're gonna be relying on those folks too, you know,

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Speaker 1: run open enrollment starts in November to make sure this

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Speaker 1: market works going into UM. So you know, it's still

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Speaker 1: a lot of open questions about what the administration will do. UM.

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Speaker 1: But for the time being, you know, this this is

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Speaker 1: the law of the land. Uh, Steve, I want to

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Speaker 1: get your sense on what's next for the Republicans that

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Speaker 1: already have been some calls for Senate Majority Leader McConnell

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Speaker 1: to step down or give over the proceedings to somebody else.

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Speaker 1: With respect to healthcare. But this is a huge blow

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Speaker 1: politically because this is the one thing that they wanted

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Speaker 1: to get done. Um, certainly in the first year. Uh,

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Speaker 1: you know, initially, what's the next up there? Yeah, I

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Speaker 1: think that there's really a choice now for the president.

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Speaker 1: You know a Zach was saying, you know, the president

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Speaker 1: has to make a choice now. Does he want to

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Speaker 1: maybe pivot? You know, there's all these talks. Maybe at

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Speaker 1: some point Trump will pivot. Uh, he can do what

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Speaker 1: he did last night and just talk about letting the

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Speaker 1: law the law of al maybe trying to sabotage it

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Speaker 1: and try to bring the Democrats to the table with threats.

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Speaker 1: I don't think that's gonna work. Um, there are things

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Speaker 1: you can do with Democrats. Mr McConnell didn't sound particularly

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Speaker 1: interested in and uh, you know, he said that he

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Speaker 1: didn't think there was gonna be a lot of interests

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Speaker 1: among Republicans and bailing out insurance companies, which is sort

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Speaker 1: of might be code for just giving more money to

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Speaker 1: the system for things like cost sharing subsidies. But Zach,

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Speaker 1: I want to bring you in here. So if Congress

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Speaker 1: does nothing, what would happen to Obamacare and its current form. Well,

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Speaker 1: the big question that we're watching UM, as Steve pointed out,

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Speaker 1: is what happens with these cost sharing subsidies. These need

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Speaker 1: to be paid each month. There's a big legal dispute

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Speaker 1: going on over whether there whether it's legal for them

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Speaker 1: to be paid UM. And essentially this legal dispute gives

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Speaker 1: the Trump administration UM some ability to decide to stop

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Speaker 1: paying them at any time. So there's this big, big

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Speaker 1: threat hanging over the Affordable Care Act. And if these

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Speaker 1: were pulled UM, insurers have said either that they would

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Speaker 1: pull out of markets, UM, they would raise premium something like.

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Speaker 1: I mean this is you know, sort of the nuclear

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Speaker 1: option that they do have going forward. Stephen, maybe you

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Speaker 1: could shed a little light on this. This seems to

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Speaker 1: be this desire for in fighting, right there's in fighting

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Speaker 1: with the Republicans in Congress, there's infighting inside the White House,

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Speaker 1: there's infighting when it comes to this healthcare initiative. What

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Speaker 1: is cause is that you've been covering this? Do you

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Speaker 1: have a sense of what is deeply responsible for this? Well,

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Speaker 1: there's a lot of different reasons, right, UM for when

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Speaker 1: you lose a bill like this. It's not just one reason.

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Speaker 1: There's there's many different reasons said to have the sort

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Speaker 1: of this kind of catastrophe. I think one of them

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Speaker 1: has to be the Trump White Houses incomplete chaos. I mean,

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Speaker 1: the there's been basically this complete utter meltdown in the

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Speaker 1: last few days with Scaramucci in his profanity lace tirade

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Speaker 1: to the New Yorker about Ryan's previous This is not

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Speaker 1: what you This is not the sign of a well

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Speaker 1: functioning White House trying to pass its number one legislative

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Speaker 1: priority on the Senate floor. But hang on, but Stephen,

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Speaker 1: but is it? But is it the characteristic of, let's say,

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Speaker 1: an administration that wants to do away with the old

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Speaker 1: levers of power and to create the very kind of

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Speaker 1: conditions that you're describing because they don't trust the old

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Speaker 1: way of doing business. I guess though, But I mean,

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Speaker 1: you know, there's a math problem here. The math problem

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Speaker 1: is that they have fifty two Republican senators. They don't

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Speaker 1: have sixty, they don't have seventy, they don't have fifty five.

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Speaker 1: They have fifty two, and two of them are Lisa

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Speaker 1: Murkowski and Susan Collins, who owe nothing to Donald Trump. Uh.

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Speaker 1: Lisa Murkowski gets elected with independence and Democrats in Alaska.

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Speaker 1: She you know, she is based. She doesn't face a

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Speaker 1: reelection until two and John McCain has brain Cancer's John McCain.

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Speaker 1: He can do what wants the you know, the one

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Speaker 1: punishment was rand Paul preventing him from doing his defense

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Speaker 1: bill today. But you know, I think John McCain ultimately

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Speaker 1: is the one person who could probably uh safely kill

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Speaker 1: this bill and not really have to worry about some

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Speaker 1: some massive repercussions. And if they were to try to

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Speaker 1: do threats against these senators. There was a clumsy threat

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Speaker 1: against Murkowski. I don't see how that does anything but

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Speaker 1: backfire when you only have a margin of two makes sense,

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Speaker 1: you know how to do the math for us. Thanks

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Speaker 1: very much, Bloomberg. Stephen Dennis, our congressional reporter. Our thanks

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Speaker 1: also to Zach Tracer, our healthcare reporter. We've got much

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Speaker 1: more coming up. This is Bloomberg. We have been talking

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Speaker 1: about the FDS surprise decision and to cut the amount

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Speaker 1: of nicotine and cigarettes to non addictive levels, or that

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Speaker 1: the least is the plan. I want to bring an

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Speaker 1: Anna Edney. She's our healthcare reporter here at Bloomberg News.

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Speaker 1: And Anna, before we get into the details of this

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Speaker 1: and talk a little bit about the response with shares

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Speaker 1: of Philip Morris and Ultria plummeting. I want to just ask,

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Speaker 1: do you have any idea what precipitated this announcement by

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Speaker 1: the f D A. Well, it's something they have been

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Speaker 1: talking about, um even before the new FDA Commissioner, Scott

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Speaker 1: Gottlieb got there. Um Mitzadella, who's ahead of the tobacco

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Speaker 1: center there, He's made references um in the past to

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Speaker 1: wanting to focus more on nicotine, to sort of taking

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Speaker 1: a more nicotine centric approach um to how they deal

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Speaker 1: with tobacco products. And so it seems like, you know,

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Speaker 1: with with Gottlieb coming in that then maybe that was

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Speaker 1: something that was able to be um hastened and that um,

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Speaker 1: you know, possibly some of some of his ideas um

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Speaker 1: kind of made this a bigger deal than it would

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Speaker 1: have been before. And isn't it also a direct sort

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Speaker 1: of an effort on the part of the FDA to

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Speaker 1: encourage what they describe as safer alternatives to cigarettes, such

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Speaker 1: as e cigarettes and vapor products. Definitely, the FDA has

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Speaker 1: been looking into whether there are you know, safer products,

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Speaker 1: so they they have authority through a two thousand nine

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Speaker 1: law to kind of look at UM these reduced risk

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Speaker 1: products is what they call them, and try to maybe

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Speaker 1: get those UM FDA clearance. And so you know, they

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Speaker 1: haven't quite stood behind anything yet and said hey, this

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Speaker 1: is better for you UM than a cigarette might be.

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Speaker 1: And they haven't really pushed back quite as a policy,

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Speaker 1: but it looks like that could be the way that

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Speaker 1: they're moving with this decision. They also talked about targeted

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Speaker 1: relief I believe on the timeline for the f d

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Speaker 1: AH looking at the regular regular regulations and the application submissions, right, yeah,

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Speaker 1: that's right, the you know, to to be able to

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Speaker 1: get in their UM these reduced rest products to turn

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Speaker 1: in kind of the information they need to UM to

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Speaker 1: be able to get on the market. They pushed that

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Speaker 1: back so that UM and tried to ease some of

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Speaker 1: the regulations so that you know, they could support the

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Speaker 1: alternative is basically to smoking, the what they call combustible cigarettes.

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Speaker 1: So anna, if they've been if the FDI, f d

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Speaker 1: A has been talking about this for a while, why

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Speaker 1: was there such a dramatic response in the shares of

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Speaker 1: Philip Morris and Altria I think it was, you know,

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Speaker 1: something that they have hinted up, but no one really

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Speaker 1: knew exactly how they would implement it. Um as far

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Speaker 1: as the the nicotine um levels goes as reducing those,

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Speaker 1: and we still don't exactly know how they'll implement it.

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Speaker 1: They thinking like this sounds pretty I don't know, sketchy,

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Speaker 1: not sketchy as he likes. I don't know, you know,

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Speaker 1: if this is kosher, but as as far as like,

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Speaker 1: you know, sort of a sketch of a plan. They're

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Speaker 1: planning to look at this and maybe address this. So

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Speaker 1: it's sort of the reason why I sort of have

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Speaker 1: doubts about the response in the market to this. I

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Speaker 1: think you're right that it is a sketchypho plan. And

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Speaker 1: that's something that that Commissioner Gottlieb has been doing in

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Speaker 1: many different areas. He's saying, here's where I'm going. He's

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Speaker 1: not waiting until everything is fully ready to go. He's

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Speaker 1: kind of giving people direction on different things, whether it's

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Speaker 1: drugs or medical devices, UM, and here on tobacco. As

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Speaker 1: you know, this is where this is where he's looking.

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Speaker 1: This is what he would like to do. UM what

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Speaker 1: comes out me and you know, that's a that's a

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Speaker 1: totally different question. UM. You know, I think right now

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Speaker 1: we're probably there probably lobbyists, UM, tobacco lobbyists all across

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Speaker 1: Washington gearing up to do a lot of work in

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Speaker 1: the next you know, a few months or year, however

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Speaker 1: long this might take to come up with UM and

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Speaker 1: talking to lawmakers. You know, there's a there's a good

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Speaker 1: chance that there are some maybe particularly Republicans, who who

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Speaker 1: don't want to interfere with cigarette products and might seek

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Speaker 1: to block this. Well, maybe you could just also talk

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Speaker 1: about the initiatives. I know that Philip Morris, for example, Uh,

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Speaker 1: they're the maker of Marlborough. They have their own smokeless cigarette,

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Speaker 1: right the what is it I i q O S Yeah, yeah,

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Speaker 1: the you can't say it as nicely as Marlborough ken

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Speaker 1: you right now? Um. They So, you know the notes

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Speaker 1: I've seen this morning coming in from some of the

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Speaker 1: analysts on Wall Street who cover tobacco companies directly saying

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Speaker 1: that that could be a benefit, um, for for Philip Morrison,

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Speaker 1: that they might be able to kind of take the

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Speaker 1: lead in this in this market, given the shift that

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Speaker 1: FDA is kind of starting to put in place. UM,

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Speaker 1: these the non combustible cigarettes, they are considered more like

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Speaker 1: products that would heat up instead of burn, so they

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Speaker 1: kind of heat slowly at at a much lower rate um.

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Speaker 1: And so you know, those kind of products could be

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Speaker 1: where they're headed, and it looks like they kind of

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Speaker 1: have the jump on that. I want to thank you

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Speaker 1: very much for being with us a very important topic

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Speaker 1: on EDNY explaining what is going on with the Food

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Speaker 1: and Drug Administration working to cut the amount of nicotine

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Speaker 1: in cigarettes to non addictive levels, the goal preventing thousands

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Speaker 1: of tobacco related deaths a year. It was a surprise

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Speaker 1: move and the shares are certainly reacting to it. Looking

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Speaker 1: at the shares of Altria Group, they are down nine

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Speaker 1: and a half percent. British American tobacco down more than

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Speaker 1: six and a half percent. Uh, this is a story

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Speaker 1: obviously we will continue to follow. Thank you very much.

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Speaker 1: Don't you think it is I think it's fascinating, But

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Speaker 1: I also don't totally understand the response because everyone, if

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Speaker 1: everyone knows the FDA has been working on something, and

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Speaker 1: then they put out something saying we're working on something,

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Speaker 1: and everyone freaks out. I don't totally get it. Well,

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Speaker 1: now it's on paper and they can all freak out

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Speaker 1: and they're selling this thought. David Garrity is our just

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Speaker 1: our guest now. He is the chief executive of g

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Speaker 1: v A Research, and he is also a columnist at Investopedia.

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Speaker 1: And David, you're gonna tell us a little bit about

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Speaker 1: Amazon earnings or lack thereof, right, certainly, Well, no, with

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Speaker 1: regards Amazon, mean, we're looking at a company here that historically,

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Speaker 1: you know, over the twenty years that has been public

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Speaker 1: and obviously the years before then when it was private,

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Speaker 1: has typically focused very very much on gaining market share

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Speaker 1: and has not been shy about spending money in order

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Speaker 1: to do that. And now while we're in a situation

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Speaker 1: here where revenues are continuing to outpace analyst expectations, the

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Speaker 1: company hasn't necessarily fully made its turn towards a commitment

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Speaker 1: to consistent profit that people were hoping for, in which

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Speaker 1: I think has been instrumental in helping to drive the

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Speaker 1: stock price higher over the last twelve the twenty four months.

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Speaker 1: You know, Shara O. V Day, a Bloomberg Gadfly columnist here,

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Speaker 1: had made a really good point, I thought, which is

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Speaker 1: why our shareholders surprised by this. Amazon has said, we

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Speaker 1: are going to spend money on new initiatives, we are

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Speaker 1: not going to try to generate even bigger profits. This

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Speaker 1: shouldn't have come as a surprise, so why did it?

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Speaker 1: I think on the margin, what you have to consider

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Speaker 1: is that as Amazon has grown and gone into more

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Speaker 1: verticals and has essentially captured the market capitalization associated with

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Speaker 1: those prospective competitors, that the pool, if you will, of

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Speaker 1: institutional investors investing in Amazon are no longer strictly speaking,

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Speaker 1: the technology oriented investors that it was in the past.

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Speaker 1: That now people have begun to look upon Amazon as

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Speaker 1: being a proxy or an eligible substitute for investing in

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Speaker 1: the retail sector or investing in the consumer sector. And

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Speaker 1: I would argue that the expectations associated with those investors

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Speaker 1: and they're investing parameters have obviously favored profits more over time.

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Speaker 1: And so it's these new marginal investors or investors coming

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Speaker 1: in on the margin who arguably are the ones that

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Speaker 1: Amazon needs to be concerned with, and the ones who

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Speaker 1: are concerned about Amazon's expense growth well, and Amazon plays

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Speaker 1: in so many different fields just as you described, and

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Speaker 1: I keep thinking of the Amazon effort when it comes

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Speaker 1: to your living room, whether it is the Alexa uh

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Speaker 1: speaker that is connected to their vast inventory of stuff

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Speaker 1: that you might not need, plus also their entertainment offerings

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Speaker 1: with Amazon Prime Video that competes directly with Apple in

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Speaker 1: many ways. And if you could talk about Apple, because

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Speaker 1: they're going to be releasing their results on Tuesday, certainly well,

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Speaker 1: I mean Amazon waiting in very, very effectively, but you

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Speaker 1: and an Apple arguably seems to have been late in

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Speaker 1: terms of the battle for the living room, if we will,

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Speaker 1: But I would say that you know, in the case

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Speaker 1: of looking at Apple, we do have something to look

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Speaker 1: forward to in the fall, which is the introduction of

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Speaker 1: the tenure anniversary iPhone um price points. They are seen

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Speaker 1: to be moving north of a thousand dollars, So there

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Speaker 1: may be some questions about affordability from a consumer standpoint,

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Speaker 1: but nevertheless, from an investor's perspective, owning Apple ahead of

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Speaker 1: a product introduction has typically been a good time to

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Speaker 1: own the stock. And if we wanted to look at

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Speaker 1: sort of evaluation of Apple relative it's to its growth rate,

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Speaker 1: say is compared with Amazon, Apple is trading it far

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Speaker 1: less of a demanding multiple relative to its expected growth

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Speaker 1: rate based upon earnings estimates held by put out by

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Speaker 1: the Street versus those of Amazon, and so as a

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Speaker 1: result of investors wanted to have exposure to tech. You know,

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Speaker 1: from a tactical standpoint, probably not a bad idea to

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Speaker 1: be looking at Apple over Amazon in here, David, I

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Speaker 1: love the war for the living room. It's sort of

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Speaker 1: could connote a lot of things, but this is perhaps

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Speaker 1: not the one that people think of with you know,

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Speaker 1: marital discord, but even you know, I want to talk

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Speaker 1: a little bit about a point that Liam Dunning of

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Speaker 1: Bloomberg made earlier in the show where he was talking

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Speaker 1: about Exxon and that the issue with the shares falling

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Speaker 1: after the release of their their second quarter earnings really

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Speaker 1: came because their prices were already so elevated their share

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Speaker 1: price um that anything but perfection was going to be

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Speaker 1: such a disappointment. I mean, as Amazon basically in the

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Speaker 1: same boat, and that going forward, unless they're able to

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Speaker 1: deliver the sky in the moon, you're going to see

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Speaker 1: a continued weakness in their shares. Now, I would say that,

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Speaker 1: you know, given the midpoint guidance for operating UH income

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Speaker 1: for Amazon in the third quarter, that number being you know,

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Speaker 1: a negative I think one million dollars. So the company

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Speaker 1: arguably saying that they might be in a position just

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Speaker 1: to lose money in the third quarter. UM. Investors typically

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Speaker 1: had looked for Amazon for a big finish to the year,

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Speaker 1: a big fourth quarter, and so I would say that

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Speaker 1: probably Amazon trades flat to down, but find some support,

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Speaker 1: you know, going into maybe the end of August, beginning

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Speaker 1: of September, when investors start setting themselves up for a

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Speaker 1: run into the year end. And the fact is that

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Speaker 1: Amazon is going to be very well positioned with the

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Speaker 1: recent Amazon Prime Day. Uh, they've sold more Echo Slash

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Speaker 1: Alexa powered devices, UM, you know from that standpoint, and

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Speaker 1: they're moving into more categories. So clearly the share of

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Speaker 1: wallet they'll be gaining, arguably is going to be growing.

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Speaker 1: And bottom line, we are looking at an economy that

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Speaker 1: probably remains relatively stable going into the second half of

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Speaker 1: the year, both domestically, and we're seeing some strength coming

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Speaker 1: in major markets such as Europe overseas. David, just quickly,

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Speaker 1: do you believe that people will be speaking into their

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Speaker 1: Alexa devices ordering groceries from whole foot Um. We'll have

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Speaker 1: to see if the Trump administration allows that transaction to

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Speaker 1: move forward, but I would certainly expect that, yes, this

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Speaker 1: is something likely to happen. Well done, all right, Yeah,

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Speaker 1: I mean honestly, I think that this is uh, this

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Speaker 1: is really key. I was reading on the Market's Live

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Speaker 1: blog on Bloomberg how the IT sell off and Amazon's

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Speaker 1: shares has really driven and sell off across emerging markets equities,

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Speaker 1: and how this has had huge ripple effects in a

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Speaker 1: variety of markets. So clearly what happens here has a

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Speaker 1: very very big ramification on many other markets. David Garretty,

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Speaker 1: thank you so much for joining us. David Garretty as

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Speaker 1: chief executive officer of g v A Research and a

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Speaker 1: columnist and invest Opedia, and he always provides good insight

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Speaker 1: into the world of fang and technology. Coming up, Politics,

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Speaker 1: Policy and Power with Amy Morris and Roz Krasney. Amy,

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Speaker 1: I hear that there's some I don't know stuff going

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Speaker 1: down in Washington these days. We have ten shows in one.

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Speaker 1: We're gonna take twenty pounds of news and put it

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Speaker 1: in a five pounds show. The Russia sanctions bill could

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Speaker 1: face a presidential veto Russia's reacting to it as well.

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Speaker 1: We're gonna follow all of that. The Affordable Care Act

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Speaker 1: repeal has collapsed. You may have heard Senate Republicans blocked

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Speaker 1: that bill. We're gonna find out where they go from here. Also,

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Speaker 1: we got the second quarter GDP numbers, and it is

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Speaker 1: also Trump's first full economic quarter, so we'll find out

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Speaker 1: a little bit more about how he is doing as well. Well.

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Speaker 1: A lot to listen to ten shows in one Politics,

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Speaker 1: Policy and Power with Amy Morris and Roz Krasny. They

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Speaker 1: will jam it all in to that hour, and it

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Speaker 1: is an important hour to listen to. I'm Lisa bram

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Speaker 1: Woit's along with pim Fox. This is Bloomberg. I'm looking

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Speaker 1: at the x On mobile, which missed estimates for earnings

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Speaker 1: basically because cuts failed to offset output declines. To give

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Speaker 1: us a little bit more perspective, I want to bring

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Speaker 1: in Liam Denning Bloomberg Gadfly columnists who focuses on all

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Speaker 1: things energy and Liam, what was the big takeaway for

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Speaker 1: you from these earnings? Well, I think with with x

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Speaker 1: On specifically, the big problem is that although they still

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Speaker 1: generate a lot of money, Okay, they missed earnings estimates,

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Speaker 1: but they're still you know, made three point four billion dollars,

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Speaker 1: and they are still um for the third quarter in

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Speaker 1: a row, covering their UM, their capex, and their dividends

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Speaker 1: from cash flow from operations. The problem is they're just

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Speaker 1: they're just trading it too big of a premium. As

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Speaker 1: far as I can hold on, I say, this is

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Speaker 1: actually really important because what do they have as far

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Speaker 1: as cash flow? Three point four billion dollars that was

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Speaker 1: earning earnings, So that that that they're earnings with three

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Speaker 1: point four billion dollars, I mean, this is a tremendous amount.

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Speaker 1: So you're saying that basically all of the valuations right

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Speaker 1: now are so elevated that anything but perfection and exceeding

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Speaker 1: expectations will be a downer. Yes, and and particularly an

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Speaker 1: xn's case, because Xxon historically has always traded at a

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Speaker 1: premium compared to the likes of Shell, Chevron, VP, whatever,

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Speaker 1: because they do have this reputation for for excellence and

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Speaker 1: a great track record on on delivering projects and that

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Speaker 1: sort of thing. But I just think that these days, UM,

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Speaker 1: that maybe just a little too backward looking, because this

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Speaker 1: company is challenged on several fronts, and if you look

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Speaker 1: at its free cash flow versus a Shell, which delivered

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Speaker 1: great results yesterday, that the disparity in valuation is quite stark. Well,

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Speaker 1: the disparity also in the dividends is also dramatic. Well,

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Speaker 1: the disparity in dividends is is actually not too dramatic

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Speaker 1: if you consider that Shell at the moment is having

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Speaker 1: to fund um some of its dividends with script is

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Speaker 1: issuing new shares. But I think the biggest problem is

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Speaker 1: Shell clearly delivered a lot more free cash flow this

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Speaker 1: past quarter, and on a four quarter basis, it's it's

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00:24:54,840 --> 00:24:57,400
Speaker 1: really quite a lot. And if you look out ahead,

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00:24:57,440 --> 00:25:01,800
Speaker 1: analysts of forecasting Shell to deliver, you know, perhaps almost

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00:25:01,840 --> 00:25:04,240
Speaker 1: double the amount of free cash flow that Xon is

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00:25:04,240 --> 00:25:06,160
Speaker 1: set to deliver over the next three years, and your

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00:25:06,320 --> 00:25:09,320
Speaker 1: x ON trades at much bigger multiples and a much

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00:25:09,359 --> 00:25:12,960
Speaker 1: lower dividend yield than Shell. I guess I was also,

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00:25:13,240 --> 00:25:15,280
Speaker 1: you know, I was trying to have you read my mind.

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00:25:15,320 --> 00:25:19,520
Speaker 1: I apologize. I apologize because I also lumped in with Shell.

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00:25:19,600 --> 00:25:22,480
Speaker 1: I was thinking of Chevron, which also released results, and

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00:25:22,480 --> 00:25:25,120
Speaker 1: I was looking at their dividend and that is significantly

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00:25:25,119 --> 00:25:28,080
Speaker 1: greater than than Exxon. And the stocks moving higher today,

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00:25:28,119 --> 00:25:29,680
Speaker 1: do you think they're gonna have to sell even more

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00:25:29,760 --> 00:25:33,119
Speaker 1: acreage of like in the Permium Basin, in the in

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00:25:33,160 --> 00:25:38,280
Speaker 1: the A shale gas region. In terms of what Exon well, yeah,

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00:25:38,280 --> 00:25:39,800
Speaker 1: I mean that they're going to look at what Chevron

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00:25:39,880 --> 00:25:43,320
Speaker 1: is doing and go, well, maybe that that Xto acquisition,

448
00:25:43,320 --> 00:25:45,719
Speaker 1: maybe we need to sell some of the acreage. I

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00:25:45,760 --> 00:25:49,800
Speaker 1: don't think so, you see, excellents, problem is really that

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00:25:50,000 --> 00:25:53,160
Speaker 1: it made a big bet on Russia. You may remember

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00:25:53,200 --> 00:25:56,680
Speaker 1: they signed this this very far reaching agreement. Yeah, the

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00:25:56,680 --> 00:25:59,080
Speaker 1: sacle And Islands. This is what Rex Tillers and Secretary

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00:25:59,080 --> 00:26:03,040
Speaker 1: of State got a metal well circling is actually running fine.

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00:26:03,160 --> 00:26:05,719
Speaker 1: It's more the agreement that they that they signed with

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00:26:05,840 --> 00:26:11,600
Speaker 1: Rosneft to to develop Russian shale and Russian Arctic offshore.

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00:26:11,600 --> 00:26:13,199
Speaker 1: And this was going to be the growth driver for

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00:26:13,440 --> 00:26:18,080
Speaker 1: Xon into the twenties. The problem is sanctions have largely

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00:26:18,320 --> 00:26:21,119
Speaker 1: closed off some of that and and so Excellent is

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00:26:21,160 --> 00:26:26,280
Speaker 1: actually pivoting closer into the Permian shale, where it's made

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00:26:26,280 --> 00:26:29,960
Speaker 1: a number of acquisitions. The difficulty it has is that

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Speaker 1: the shale business is quite different from Exxon's bread and butter,

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00:26:34,080 --> 00:26:37,160
Speaker 1: which is which is big kind of mega projects. Shale

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00:26:37,280 --> 00:26:41,600
Speaker 1: is very capital intensive. It's much it's much more about

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00:26:41,640 --> 00:26:44,240
Speaker 1: repeating your success on a on a lot of smaller

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00:26:44,320 --> 00:26:47,600
Speaker 1: projects over and over again. Now there's no there's no

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00:26:47,640 --> 00:26:51,439
Speaker 1: doubt that Exon can bring some operational excellence to that

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00:26:51,520 --> 00:26:54,400
Speaker 1: sort of business, But whether it can achieve the sort

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00:26:54,400 --> 00:26:58,000
Speaker 1: of returns on capitol the shareholders have become used to

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00:26:58,080 --> 00:27:01,800
Speaker 1: over the past couple of decades, that's that really remains

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00:27:01,800 --> 00:27:04,600
Speaker 1: to the same. Thank you very much for being with us.

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00:27:05,000 --> 00:27:08,320
Speaker 1: Liam Denning is our Bloomberg gad Fly columnists. He covers energy,

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00:27:08,480 --> 00:27:11,600
Speaker 1: oil and all things related to fossil fuel. Just to

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00:27:11,640 --> 00:27:14,119
Speaker 1: be clear, m is not joining us. He is working

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00:27:14,119 --> 00:27:16,159
Speaker 1: from home where he can put his feet up and

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00:27:16,200 --> 00:27:18,760
Speaker 1: stay in his pajamas. So thank you for getting on

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00:27:18,760 --> 00:27:20,720
Speaker 1: the phone with us. But can you tell my resentment

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00:27:20,720 --> 00:27:25,640
Speaker 1: it's a Friday, clearly Okay, Well, and enjoy enjoy the lounge.

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00:27:26,040 --> 00:27:28,600
Speaker 1: Uh Liam, I'll just tell you that the ex On

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00:27:28,680 --> 00:27:30,680
Speaker 1: mobile shares they are right now, they are down to

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00:27:31,000 --> 00:27:40,119
Speaker 1: and a quarter percent. Thanks for listening to the Bloomberg

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00:27:40,119 --> 00:27:43,520
Speaker 1: pan l podcast. You can subscribe and listen to interviews

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00:27:43,560 --> 00:27:48,760
Speaker 1: at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm

483
00:27:48,760 --> 00:27:51,800
Speaker 1: Pim Fox. I'm out there on Twitter at pim Fox.

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00:27:52,119 --> 00:27:54,800
Speaker 1: I'm out there on Twitter at Lisa Abramo. It's one

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00:27:55,080 --> 00:27:57,840
Speaker 1: before the podcast. You can always catch us worldwide on

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00:27:57,840 --> 00:28:03,080
Speaker 1: Bloomberg Radio