Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p L Podcast
Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. Apparently, our
Speaker 1: political backdrop is a made for TV and big screen movie.
Speaker 1: Last night did not disappoint. Early morning hours, there was
Speaker 1: a vote on the skinny repeal of Obamacare. It failed
Speaker 1: with a dramatic thilmbs down from John McCain, who came
Speaker 1: back up from Arizona despite his new diagnosis of brain
Speaker 1: cancer to vote down and crush this bill. Here to
Speaker 1: discuss Zach trac Er, healthcare reporter for Bloomberg News in
Speaker 1: our Bloomberg eleven three oh studio, as well as Stephen
Speaker 1: Dennis Center order for Bloomberg News. Who is on Capitol
Speaker 1: Hill and who is at the proceedings last night or
Speaker 1: I should I say today? Early this morning? I'm amazed
Speaker 1: you're still up and uh and conscious at this point, Steve,
Speaker 1: can you give us a sense of what it was
Speaker 1: like on the floor in the moments leading up to
Speaker 1: the momentous John McCain thumbs down, as well as just
Speaker 1: afterwards as everyone tried to digest what this failure meant. Yeah,
Speaker 1: so it was a really insane night. Um talked to
Speaker 1: John McCain several times leading up to him walking into
Speaker 1: the chamber, and he had told us and other reporters
Speaker 1: about two hours earlier that he was prepared to vote
Speaker 1: no if he didn't get at these assurances from the
Speaker 1: House and he wasn't necessarily satisfied with Paul Ryan's answers,
Speaker 1: and he wanted to talk to his governor. And then
Speaker 1: I got him right before he went on the floor,
Speaker 1: and he said, you know, I'll let you know. He
Speaker 1: told another reporter of the show was about to go
Speaker 1: on or something or watch the show, and so we
Speaker 1: sprinted upstairs into the chamber to see what he was
Speaker 1: gonna do. And the first thing he did is walked
Speaker 1: up to Chuck Schumer. Chuck Schumer something, had a big
Speaker 1: smile on his face and put his arm around McCain.
Speaker 1: And then McCain goes over to John Coryn, the Republican whip,
Speaker 1: who suddenly is a very agitated, upset turns around because
Speaker 1: the thumbs down to another senator, and I spurnt it
Speaker 1: out of the chamber because it looked like this thing
Speaker 1: was going to go down and McCain was going to
Speaker 1: vote no. And over the course of the next hour
Speaker 1: there was an, you know, just a massive effort to
Speaker 1: try to get John McCain or Lisa mccowsky to change
Speaker 1: their minds. And Mike Pence came over and talked to
Speaker 1: him for about half an hour, talked to him off
Speaker 1: the floor. It looks like there may have been a
Speaker 1: phone call with the president. Other senators one after another
Speaker 1: came and tried to talk McCain out of it. In
Speaker 1: the meantime, Lisa mccowski and Susan Collins are sort of
Speaker 1: on each of his shoulders and sort of protecting him,
Speaker 1: and McCain ultimately stood fast and Lisa mccowski stood fast,
Speaker 1: and Collins voted no for first Denmarkowski and uh McCain's
Speaker 1: sort of for effect came in and was the third
Speaker 1: no vote um and there was audible guests inside the chamber,
Speaker 1: especially from the Democratic side, and you know, just a
Speaker 1: crazy scene that sort of a madhouse in the in
Speaker 1: the Capital afterwards with a Republican the days mad uncertain
Speaker 1: what to do, and Democrats also because they certainly weren't
Speaker 1: expecting this. Zach Tracer, I wonder if you could come
Speaker 1: in and tell us what does this mean now for
Speaker 1: Americans who have been using insurance that is available through
Speaker 1: the Affordable Care Act, well, Obamacare, it survived another sort
Speaker 1: of near death experience. UM. It remains to be seen
Speaker 1: what this means. You know, for the next few years,
Speaker 1: we're still going to be relying on, you know, a
Speaker 1: Trump administration that's declared this law dead. That's you know,
Speaker 1: Donald Trump tweeting let it fail, um, you know. So,
Speaker 1: so we're gonna be relying on those folks too, you know,
Speaker 1: run open enrollment starts in November to make sure this
Speaker 1: market works going into UM. So you know, it's still
Speaker 1: a lot of open questions about what the administration will do. UM.
Speaker 1: But for the time being, you know, this this is
Speaker 1: the law of the land. Uh, Steve, I want to
Speaker 1: get your sense on what's next for the Republicans that
Speaker 1: already have been some calls for Senate Majority Leader McConnell
Speaker 1: to step down or give over the proceedings to somebody else.
Speaker 1: With respect to healthcare. But this is a huge blow
Speaker 1: politically because this is the one thing that they wanted
Speaker 1: to get done. Um, certainly in the first year. Uh,
Speaker 1: you know, initially, what's the next up there? Yeah, I
Speaker 1: think that there's really a choice now for the president.
Speaker 1: You know a Zach was saying, you know, the president
Speaker 1: has to make a choice now. Does he want to
Speaker 1: maybe pivot? You know, there's all these talks. Maybe at
Speaker 1: some point Trump will pivot. Uh, he can do what
Speaker 1: he did last night and just talk about letting the
Speaker 1: law the law of al maybe trying to sabotage it
Speaker 1: and try to bring the Democrats to the table with threats.
Speaker 1: I don't think that's gonna work. Um, there are things
Speaker 1: you can do with Democrats. Mr McConnell didn't sound particularly
Speaker 1: interested in and uh, you know, he said that he
Speaker 1: didn't think there was gonna be a lot of interests
Speaker 1: among Republicans and bailing out insurance companies, which is sort
Speaker 1: of might be code for just giving more money to
Speaker 1: the system for things like cost sharing subsidies. But Zach,
Speaker 1: I want to bring you in here. So if Congress
Speaker 1: does nothing, what would happen to Obamacare and its current form. Well,
Speaker 1: the big question that we're watching UM, as Steve pointed out,
Speaker 1: is what happens with these cost sharing subsidies. These need
Speaker 1: to be paid each month. There's a big legal dispute
Speaker 1: going on over whether there whether it's legal for them
Speaker 1: to be paid UM. And essentially this legal dispute gives
Speaker 1: the Trump administration UM some ability to decide to stop
Speaker 1: paying them at any time. So there's this big, big
Speaker 1: threat hanging over the Affordable Care Act. And if these
Speaker 1: were pulled UM, insurers have said either that they would
Speaker 1: pull out of markets, UM, they would raise premium something like.
Speaker 1: I mean this is you know, sort of the nuclear
Speaker 1: option that they do have going forward. Stephen, maybe you
Speaker 1: could shed a little light on this. This seems to
Speaker 1: be this desire for in fighting, right there's in fighting
Speaker 1: with the Republicans in Congress, there's infighting inside the White House,
Speaker 1: there's infighting when it comes to this healthcare initiative. What
Speaker 1: is cause is that you've been covering this? Do you
Speaker 1: have a sense of what is deeply responsible for this? Well,
Speaker 1: there's a lot of different reasons, right, UM for when
Speaker 1: you lose a bill like this. It's not just one reason.
Speaker 1: There's there's many different reasons said to have the sort
Speaker 1: of this kind of catastrophe. I think one of them
Speaker 1: has to be the Trump White Houses incomplete chaos. I mean,
Speaker 1: the there's been basically this complete utter meltdown in the
Speaker 1: last few days with Scaramucci in his profanity lace tirade
Speaker 1: to the New Yorker about Ryan's previous This is not
Speaker 1: what you This is not the sign of a well
Speaker 1: functioning White House trying to pass its number one legislative
Speaker 1: priority on the Senate floor. But hang on, but Stephen,
Speaker 1: but is it? But is it the characteristic of, let's say,
Speaker 1: an administration that wants to do away with the old
Speaker 1: levers of power and to create the very kind of
Speaker 1: conditions that you're describing because they don't trust the old
Speaker 1: way of doing business. I guess though, But I mean,
Speaker 1: you know, there's a math problem here. The math problem
Speaker 1: is that they have fifty two Republican senators. They don't
Speaker 1: have sixty, they don't have seventy, they don't have fifty five.
Speaker 1: They have fifty two, and two of them are Lisa
Speaker 1: Murkowski and Susan Collins, who owe nothing to Donald Trump. Uh.
Speaker 1: Lisa Murkowski gets elected with independence and Democrats in Alaska.
Speaker 1: She you know, she is based. She doesn't face a
Speaker 1: reelection until two and John McCain has brain Cancer's John McCain.
Speaker 1: He can do what wants the you know, the one
Speaker 1: punishment was rand Paul preventing him from doing his defense
Speaker 1: bill today. But you know, I think John McCain ultimately
Speaker 1: is the one person who could probably uh safely kill
Speaker 1: this bill and not really have to worry about some
Speaker 1: some massive repercussions. And if they were to try to
Speaker 1: do threats against these senators. There was a clumsy threat
Speaker 1: against Murkowski. I don't see how that does anything but
Speaker 1: backfire when you only have a margin of two makes sense,
Speaker 1: you know how to do the math for us. Thanks
Speaker 1: very much, Bloomberg. Stephen Dennis, our congressional reporter. Our thanks
Speaker 1: also to Zach Tracer, our healthcare reporter. We've got much
Speaker 1: more coming up. This is Bloomberg. We have been talking
Speaker 1: about the FDS surprise decision and to cut the amount
Speaker 1: of nicotine and cigarettes to non addictive levels, or that
Speaker 1: the least is the plan. I want to bring an
Speaker 1: Anna Edney. She's our healthcare reporter here at Bloomberg News.
Speaker 1: And Anna, before we get into the details of this
Speaker 1: and talk a little bit about the response with shares
Speaker 1: of Philip Morris and Ultria plummeting. I want to just ask,
Speaker 1: do you have any idea what precipitated this announcement by
Speaker 1: the f D A. Well, it's something they have been
Speaker 1: talking about, um even before the new FDA Commissioner, Scott
Speaker 1: Gottlieb got there. Um Mitzadella, who's ahead of the tobacco
Speaker 1: center there, He's made references um in the past to
Speaker 1: wanting to focus more on nicotine, to sort of taking
Speaker 1: a more nicotine centric approach um to how they deal
Speaker 1: with tobacco products. And so it seems like, you know,
Speaker 1: with with Gottlieb coming in that then maybe that was
Speaker 1: something that was able to be um hastened and that um,
Speaker 1: you know, possibly some of some of his ideas um
Speaker 1: kind of made this a bigger deal than it would
Speaker 1: have been before. And isn't it also a direct sort
Speaker 1: of an effort on the part of the FDA to
Speaker 1: encourage what they describe as safer alternatives to cigarettes, such
Speaker 1: as e cigarettes and vapor products. Definitely, the FDA has
Speaker 1: been looking into whether there are you know, safer products,
Speaker 1: so they they have authority through a two thousand nine
Speaker 1: law to kind of look at UM these reduced risk
Speaker 1: products is what they call them, and try to maybe
Speaker 1: get those UM FDA clearance. And so you know, they
Speaker 1: haven't quite stood behind anything yet and said hey, this
Speaker 1: is better for you UM than a cigarette might be.
Speaker 1: And they haven't really pushed back quite as a policy,
Speaker 1: but it looks like that could be the way that
Speaker 1: they're moving with this decision. They also talked about targeted
Speaker 1: relief I believe on the timeline for the f d
Speaker 1: AH looking at the regular regular regulations and the application submissions, right, yeah,
Speaker 1: that's right, the you know, to to be able to
Speaker 1: get in their UM these reduced rest products to turn
Speaker 1: in kind of the information they need to UM to
Speaker 1: be able to get on the market. They pushed that
Speaker 1: back so that UM and tried to ease some of
Speaker 1: the regulations so that you know, they could support the
Speaker 1: alternative is basically to smoking, the what they call combustible cigarettes.
Speaker 1: So anna, if they've been if the FDI, f d
Speaker 1: A has been talking about this for a while, why
Speaker 1: was there such a dramatic response in the shares of
Speaker 1: Philip Morris and Altria I think it was, you know,
Speaker 1: something that they have hinted up, but no one really
Speaker 1: knew exactly how they would implement it. Um as far
Speaker 1: as the the nicotine um levels goes as reducing those,
Speaker 1: and we still don't exactly know how they'll implement it.
Speaker 1: They thinking like this sounds pretty I don't know, sketchy,
Speaker 1: not sketchy as he likes. I don't know, you know,
Speaker 1: if this is kosher, but as as far as like,
Speaker 1: you know, sort of a sketch of a plan. They're
Speaker 1: planning to look at this and maybe address this. So
Speaker 1: it's sort of the reason why I sort of have
Speaker 1: doubts about the response in the market to this. I
Speaker 1: think you're right that it is a sketchypho plan. And
Speaker 1: that's something that that Commissioner Gottlieb has been doing in
Speaker 1: many different areas. He's saying, here's where I'm going. He's
Speaker 1: not waiting until everything is fully ready to go. He's
Speaker 1: kind of giving people direction on different things, whether it's
Speaker 1: drugs or medical devices, UM, and here on tobacco. As
Speaker 1: you know, this is where this is where he's looking.
Speaker 1: This is what he would like to do. UM what
Speaker 1: comes out me and you know, that's a that's a
Speaker 1: totally different question. UM. You know, I think right now
Speaker 1: we're probably there probably lobbyists, UM, tobacco lobbyists all across
Speaker 1: Washington gearing up to do a lot of work in
Speaker 1: the next you know, a few months or year, however
Speaker 1: long this might take to come up with UM and
Speaker 1: talking to lawmakers. You know, there's a there's a good
Speaker 1: chance that there are some maybe particularly Republicans, who who
Speaker 1: don't want to interfere with cigarette products and might seek
Speaker 1: to block this. Well, maybe you could just also talk
Speaker 1: about the initiatives. I know that Philip Morris, for example, Uh,
Speaker 1: they're the maker of Marlborough. They have their own smokeless cigarette,
Speaker 1: right the what is it I i q O S Yeah, yeah,
Speaker 1: the you can't say it as nicely as Marlborough ken
Speaker 1: you right now? Um. They So, you know the notes
Speaker 1: I've seen this morning coming in from some of the
Speaker 1: analysts on Wall Street who cover tobacco companies directly saying
Speaker 1: that that could be a benefit, um, for for Philip Morrison,
Speaker 1: that they might be able to kind of take the
Speaker 1: lead in this in this market, given the shift that
Speaker 1: FDA is kind of starting to put in place. UM,
Speaker 1: these the non combustible cigarettes, they are considered more like
Speaker 1: products that would heat up instead of burn, so they
Speaker 1: kind of heat slowly at at a much lower rate um.
Speaker 1: And so you know, those kind of products could be
Speaker 1: where they're headed, and it looks like they kind of
Speaker 1: have the jump on that. I want to thank you
Speaker 1: very much for being with us a very important topic
Speaker 1: on EDNY explaining what is going on with the Food
Speaker 1: and Drug Administration working to cut the amount of nicotine
Speaker 1: in cigarettes to non addictive levels, the goal preventing thousands
Speaker 1: of tobacco related deaths a year. It was a surprise
Speaker 1: move and the shares are certainly reacting to it. Looking
Speaker 1: at the shares of Altria Group, they are down nine
Speaker 1: and a half percent. British American tobacco down more than
Speaker 1: six and a half percent. Uh, this is a story
Speaker 1: obviously we will continue to follow. Thank you very much.
Speaker 1: Don't you think it is I think it's fascinating, But
Speaker 1: I also don't totally understand the response because everyone, if
Speaker 1: everyone knows the FDA has been working on something, and
Speaker 1: then they put out something saying we're working on something,
Speaker 1: and everyone freaks out. I don't totally get it. Well,
Speaker 1: now it's on paper and they can all freak out
Speaker 1: and they're selling this thought. David Garrity is our just
Speaker 1: our guest now. He is the chief executive of g
Speaker 1: v A Research, and he is also a columnist at Investopedia.
Speaker 1: And David, you're gonna tell us a little bit about
Speaker 1: Amazon earnings or lack thereof, right, certainly, Well, no, with
Speaker 1: regards Amazon, mean, we're looking at a company here that historically,
Speaker 1: you know, over the twenty years that has been public
Speaker 1: and obviously the years before then when it was private,
Speaker 1: has typically focused very very much on gaining market share
Speaker 1: and has not been shy about spending money in order
Speaker 1: to do that. And now while we're in a situation
Speaker 1: here where revenues are continuing to outpace analyst expectations, the
Speaker 1: company hasn't necessarily fully made its turn towards a commitment
Speaker 1: to consistent profit that people were hoping for, in which
Speaker 1: I think has been instrumental in helping to drive the
Speaker 1: stock price higher over the last twelve the twenty four months.
Speaker 1: You know, Shara O. V Day, a Bloomberg Gadfly columnist here,
Speaker 1: had made a really good point, I thought, which is
Speaker 1: why our shareholders surprised by this. Amazon has said, we
Speaker 1: are going to spend money on new initiatives, we are
Speaker 1: not going to try to generate even bigger profits. This
Speaker 1: shouldn't have come as a surprise, so why did it?
Speaker 1: I think on the margin, what you have to consider
Speaker 1: is that as Amazon has grown and gone into more
Speaker 1: verticals and has essentially captured the market capitalization associated with
Speaker 1: those prospective competitors, that the pool, if you will, of
Speaker 1: institutional investors investing in Amazon are no longer strictly speaking,
Speaker 1: the technology oriented investors that it was in the past.
Speaker 1: That now people have begun to look upon Amazon as
Speaker 1: being a proxy or an eligible substitute for investing in
Speaker 1: the retail sector or investing in the consumer sector. And
Speaker 1: I would argue that the expectations associated with those investors
Speaker 1: and they're investing parameters have obviously favored profits more over time.
Speaker 1: And so it's these new marginal investors or investors coming
Speaker 1: in on the margin who arguably are the ones that
Speaker 1: Amazon needs to be concerned with, and the ones who
Speaker 1: are concerned about Amazon's expense growth well, and Amazon plays
Speaker 1: in so many different fields just as you described, and
Speaker 1: I keep thinking of the Amazon effort when it comes
Speaker 1: to your living room, whether it is the Alexa uh
Speaker 1: speaker that is connected to their vast inventory of stuff
Speaker 1: that you might not need, plus also their entertainment offerings
Speaker 1: with Amazon Prime Video that competes directly with Apple in
Speaker 1: many ways. And if you could talk about Apple, because
Speaker 1: they're going to be releasing their results on Tuesday, certainly well,
Speaker 1: I mean Amazon waiting in very, very effectively, but you
Speaker 1: and an Apple arguably seems to have been late in
Speaker 1: terms of the battle for the living room, if we will,
Speaker 1: But I would say that you know, in the case
Speaker 1: of looking at Apple, we do have something to look
Speaker 1: forward to in the fall, which is the introduction of
Speaker 1: the tenure anniversary iPhone um price points. They are seen
Speaker 1: to be moving north of a thousand dollars, So there
Speaker 1: may be some questions about affordability from a consumer standpoint,
Speaker 1: but nevertheless, from an investor's perspective, owning Apple ahead of
Speaker 1: a product introduction has typically been a good time to
Speaker 1: own the stock. And if we wanted to look at
Speaker 1: sort of evaluation of Apple relative it's to its growth rate,
Speaker 1: say is compared with Amazon, Apple is trading it far
Speaker 1: less of a demanding multiple relative to its expected growth
Speaker 1: rate based upon earnings estimates held by put out by
Speaker 1: the Street versus those of Amazon, and so as a
Speaker 1: result of investors wanted to have exposure to tech. You know,
Speaker 1: from a tactical standpoint, probably not a bad idea to
Speaker 1: be looking at Apple over Amazon in here, David, I
Speaker 1: love the war for the living room. It's sort of
Speaker 1: could connote a lot of things, but this is perhaps
Speaker 1: not the one that people think of with you know,
Speaker 1: marital discord, but even you know, I want to talk
Speaker 1: a little bit about a point that Liam Dunning of
Speaker 1: Bloomberg made earlier in the show where he was talking
Speaker 1: about Exxon and that the issue with the shares falling
Speaker 1: after the release of their their second quarter earnings really
Speaker 1: came because their prices were already so elevated their share
Speaker 1: price um that anything but perfection was going to be
Speaker 1: such a disappointment. I mean, as Amazon basically in the
Speaker 1: same boat, and that going forward, unless they're able to
Speaker 1: deliver the sky in the moon, you're going to see
Speaker 1: a continued weakness in their shares. Now, I would say that,
Speaker 1: you know, given the midpoint guidance for operating UH income
Speaker 1: for Amazon in the third quarter, that number being you know,
Speaker 1: a negative I think one million dollars. So the company
Speaker 1: arguably saying that they might be in a position just
Speaker 1: to lose money in the third quarter. UM. Investors typically
Speaker 1: had looked for Amazon for a big finish to the year,
Speaker 1: a big fourth quarter, and so I would say that
Speaker 1: probably Amazon trades flat to down, but find some support,
Speaker 1: you know, going into maybe the end of August, beginning
Speaker 1: of September, when investors start setting themselves up for a
Speaker 1: run into the year end. And the fact is that
Speaker 1: Amazon is going to be very well positioned with the
Speaker 1: recent Amazon Prime Day. Uh, they've sold more Echo Slash
Speaker 1: Alexa powered devices, UM, you know from that standpoint, and
Speaker 1: they're moving into more categories. So clearly the share of
Speaker 1: wallet they'll be gaining, arguably is going to be growing.
Speaker 1: And bottom line, we are looking at an economy that
Speaker 1: probably remains relatively stable going into the second half of
Speaker 1: the year, both domestically, and we're seeing some strength coming
Speaker 1: in major markets such as Europe overseas. David, just quickly,
Speaker 1: do you believe that people will be speaking into their
Speaker 1: Alexa devices ordering groceries from whole foot Um. We'll have
Speaker 1: to see if the Trump administration allows that transaction to
Speaker 1: move forward, but I would certainly expect that, yes, this
Speaker 1: is something likely to happen. Well done, all right, Yeah,
Speaker 1: I mean honestly, I think that this is uh, this
Speaker 1: is really key. I was reading on the Market's Live
Speaker 1: blog on Bloomberg how the IT sell off and Amazon's
Speaker 1: shares has really driven and sell off across emerging markets equities,
Speaker 1: and how this has had huge ripple effects in a
Speaker 1: variety of markets. So clearly what happens here has a
Speaker 1: very very big ramification on many other markets. David Garretty,
Speaker 1: thank you so much for joining us. David Garretty as
Speaker 1: chief executive officer of g v A Research and a
Speaker 1: columnist and invest Opedia, and he always provides good insight
Speaker 1: into the world of fang and technology. Coming up, Politics,
Speaker 1: Policy and Power with Amy Morris and Roz Krasney. Amy,
Speaker 1: I hear that there's some I don't know stuff going
Speaker 1: down in Washington these days. We have ten shows in one.
Speaker 1: We're gonna take twenty pounds of news and put it
Speaker 1: in a five pounds show. The Russia sanctions bill could
Speaker 1: face a presidential veto Russia's reacting to it as well.
Speaker 1: We're gonna follow all of that. The Affordable Care Act
Speaker 1: repeal has collapsed. You may have heard Senate Republicans blocked
Speaker 1: that bill. We're gonna find out where they go from here. Also,
Speaker 1: we got the second quarter GDP numbers, and it is
Speaker 1: also Trump's first full economic quarter, so we'll find out
Speaker 1: a little bit more about how he is doing as well. Well.
Speaker 1: A lot to listen to ten shows in one Politics,
Speaker 1: Policy and Power with Amy Morris and Roz Krasny. They
Speaker 1: will jam it all in to that hour, and it
Speaker 1: is an important hour to listen to. I'm Lisa bram
Speaker 1: Woit's along with pim Fox. This is Bloomberg. I'm looking
Speaker 1: at the x On mobile, which missed estimates for earnings
Speaker 1: basically because cuts failed to offset output declines. To give
Speaker 1: us a little bit more perspective, I want to bring
Speaker 1: in Liam Denning Bloomberg Gadfly columnists who focuses on all
Speaker 1: things energy and Liam, what was the big takeaway for
Speaker 1: you from these earnings? Well, I think with with x
Speaker 1: On specifically, the big problem is that although they still
Speaker 1: generate a lot of money, Okay, they missed earnings estimates,
Speaker 1: but they're still you know, made three point four billion dollars,
Speaker 1: and they are still um for the third quarter in
Speaker 1: a row, covering their UM, their capex, and their dividends
Speaker 1: from cash flow from operations. The problem is they're just
Speaker 1: they're just trading it too big of a premium. As
Speaker 1: far as I can hold on, I say, this is
Speaker 1: actually really important because what do they have as far
Speaker 1: as cash flow? Three point four billion dollars that was
Speaker 1: earning earnings, So that that that they're earnings with three
Speaker 1: point four billion dollars, I mean, this is a tremendous amount.
Speaker 1: So you're saying that basically all of the valuations right
Speaker 1: now are so elevated that anything but perfection and exceeding
Speaker 1: expectations will be a downer. Yes, and and particularly an
Speaker 1: xn's case, because Xxon historically has always traded at a
Speaker 1: premium compared to the likes of Shell, Chevron, VP, whatever,
Speaker 1: because they do have this reputation for for excellence and
Speaker 1: a great track record on on delivering projects and that
Speaker 1: sort of thing. But I just think that these days, UM,
Speaker 1: that maybe just a little too backward looking, because this
Speaker 1: company is challenged on several fronts, and if you look
Speaker 1: at its free cash flow versus a Shell, which delivered
Speaker 1: great results yesterday, that the disparity in valuation is quite stark. Well,
Speaker 1: the disparity also in the dividends is also dramatic. Well,
Speaker 1: the disparity in dividends is is actually not too dramatic
Speaker 1: if you consider that Shell at the moment is having
Speaker 1: to fund um some of its dividends with script is
Speaker 1: issuing new shares. But I think the biggest problem is
Speaker 1: Shell clearly delivered a lot more free cash flow this
Speaker 1: past quarter, and on a four quarter basis, it's it's
Speaker 1: really quite a lot. And if you look out ahead,
Speaker 1: analysts of forecasting Shell to deliver, you know, perhaps almost
Speaker 1: double the amount of free cash flow that Xon is
Speaker 1: set to deliver over the next three years, and your
Speaker 1: x ON trades at much bigger multiples and a much
Speaker 1: lower dividend yield than Shell. I guess I was also,
Speaker 1: you know, I was trying to have you read my mind.
Speaker 1: I apologize. I apologize because I also lumped in with Shell.
Speaker 1: I was thinking of Chevron, which also released results, and
Speaker 1: I was looking at their dividend and that is significantly
Speaker 1: greater than than Exxon. And the stocks moving higher today,
Speaker 1: do you think they're gonna have to sell even more
Speaker 1: acreage of like in the Permium Basin, in the in
Speaker 1: the A shale gas region. In terms of what Exon well, yeah,
Speaker 1: I mean that they're going to look at what Chevron
Speaker 1: is doing and go, well, maybe that that Xto acquisition,
Speaker 1: maybe we need to sell some of the acreage. I
Speaker 1: don't think so, you see, excellents, problem is really that
Speaker 1: it made a big bet on Russia. You may remember
Speaker 1: they signed this this very far reaching agreement. Yeah, the
Speaker 1: sacle And Islands. This is what Rex Tillers and Secretary
Speaker 1: of State got a metal well circling is actually running fine.
Speaker 1: It's more the agreement that they that they signed with
Speaker 1: Rosneft to to develop Russian shale and Russian Arctic offshore.
Speaker 1: And this was going to be the growth driver for
Speaker 1: Xon into the twenties. The problem is sanctions have largely
Speaker 1: closed off some of that and and so Excellent is
Speaker 1: actually pivoting closer into the Permian shale, where it's made
Speaker 1: a number of acquisitions. The difficulty it has is that
Speaker 1: the shale business is quite different from Exxon's bread and butter,
Speaker 1: which is which is big kind of mega projects. Shale
Speaker 1: is very capital intensive. It's much it's much more about
Speaker 1: repeating your success on a on a lot of smaller
Speaker 1: projects over and over again. Now there's no there's no
Speaker 1: doubt that Exon can bring some operational excellence to that
Speaker 1: sort of business, But whether it can achieve the sort
Speaker 1: of returns on capitol the shareholders have become used to
Speaker 1: over the past couple of decades, that's that really remains
Speaker 1: to the same. Thank you very much for being with us.
Speaker 1: Liam Denning is our Bloomberg gad Fly columnists. He covers energy,
Speaker 1: oil and all things related to fossil fuel. Just to
Speaker 1: be clear, m is not joining us. He is working
Speaker 1: from home where he can put his feet up and
Speaker 1: stay in his pajamas. So thank you for getting on
Speaker 1: the phone with us. But can you tell my resentment
Speaker 1: it's a Friday, clearly Okay, Well, and enjoy enjoy the lounge.
Speaker 1: Uh Liam, I'll just tell you that the ex On
Speaker 1: mobile shares they are right now, they are down to
Speaker 1: and a quarter percent. Thanks for listening to the Bloomberg
Speaker 1: pan l podcast. You can subscribe and listen to interviews
Speaker 1: at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm
Speaker 1: Pim Fox. I'm out there on Twitter at pim Fox.
Speaker 1: I'm out there on Twitter at Lisa Abramo. It's one
Speaker 1: before the podcast. You can always catch us worldwide on
Speaker 1: Bloomberg Radio