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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple card Playing and Broud Auto with the

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Speaker 1: Bloomberg Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: All right, so we know a big, big day out

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Speaker 2: in the Bay Area today with Apple and their new

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Speaker 2: iPhone and new product launches. Mark German he covers all

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Speaker 2: the technology stuff out there for Bloomberg News. Mark, I've

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Speaker 2: already informed Tim Cook that I am, in fact going

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Speaker 2: to be upgrading my phone here in the not too

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Speaker 2: distant future to the iPhone sixteen. I guess I am

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Speaker 2: who cares and they're very excited. Are people excited for

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Speaker 2: this event here today?

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Speaker 3: And if so, why, Yes, it's all about the iPhone

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Speaker 3: this year. This is actually going to be more of

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Speaker 3: a muted release, right, So this is not a big

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Speaker 3: year over year overhaul. Remember last year they added the

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Speaker 3: Titanium show. Well, this year is more about refinements, increased

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Speaker 3: processing performance to better support artificial intelligence, improve displays on

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Speaker 3: the Pro model, so slightly bigger screens is about a

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Speaker 3: five percent display increase, but because the bezels around the

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Speaker 3: display are smaller, that increase is actually going to be

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Speaker 3: more noticeable than a five percent increase would normally suggest

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Speaker 3: if you heard that. The other big enhancement is going

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Speaker 3: to be a camera button. This is going to be

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Speaker 3: on all four new models, both the low end and

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Speaker 3: the high end models, and it basically works the same

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Speaker 3: as a DSLR button, right, So you soft touch it

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Speaker 3: to autofocus on a subject, you press it in in

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Speaker 3: order to actually take that photo or a video. You're

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Speaker 3: also going to be able to swipe on it up

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Speaker 3: and down or left to right in order to zoom

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Speaker 3: in and out of the subject. So it's essentially the

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Speaker 3: same camera controls that you've had on the display now

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Speaker 3: relegated to a harbor button on the side of the phone.

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Speaker 3: And the bet there is that will help people take

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Speaker 3: more pictures and maybe better pictures, which of course is

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Speaker 3: going to translate to people needing to buy iPhone with

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Speaker 3: more storage base, which obviously costs more, and bigger iCloud

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Speaker 3: storage plans, which obviously will generate more revenue for Apple

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Speaker 3: on both of those things, right, So it's I guess

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Speaker 3: a win for consumers and a double win for Apple.

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Speaker 4: Does that imply then a supercycle definitely taking hold in

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Speaker 4: twenty four to twenty five.

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Speaker 5: There's no iPhone supercycle.

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Speaker 3: There have been some analyst claims over the last several

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Speaker 3: weeks about a supercycle coming with these new iPhones. I

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Speaker 3: would have to say that they're either making things up,

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Speaker 3: or getting bad information, or just trying to pump the

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Speaker 3: stock price for their own self interests.

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Speaker 5: Right.

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Speaker 3: The reality is that the numbers that we're seeing in

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Speaker 3: terms of iPhone orders from the supply chain probably indicate

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Speaker 3: an annual decline.

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Speaker 5: On iPhone unit shipments.

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Speaker 3: Now, an annual decline doesn't necessarily mean a revenue decline, right,

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Speaker 3: Because they're adding new features through these higher end models,

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Speaker 3: particularly making the lower end Pro model even better at

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Speaker 3: one thousand dollars price point. You may be seeing people

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Speaker 3: who normally would buy the seven ninety nine version go

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Speaker 3: to the nine nine version, which could raise overall asps.

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Speaker 3: In terms of an iPhone supercycle, that normally means big

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Speaker 3: hardware changes, We're not getting that this time around. It

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Speaker 3: also would mean that Apple intelligence would be ready to go,

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Speaker 3: but I would say it's half baked.

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Speaker 5: If even that.

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Speaker 3: A lot of the new features aren't coming until December,

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Speaker 3: and many more aren't coming until the middle of next year.

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Speaker 5: So if you're anticipating an.

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Speaker 3: iPhone supercycle, if you believe there will ever be an

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Speaker 3: iPhone supercycle again, a I would say, adjust your expectations

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Speaker 3: for twenty twenty four, maybe focused on September twenty twenty five,

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Speaker 3: when the iPhone seventeen launches with more significant enhancements.

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Speaker 6: What is Apple Intelligence?

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Speaker 3: Apple Intelligence is artificial intelligence for Apple customers, right, So

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Speaker 3: that's the Apple branded version of their AI platform coming

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Speaker 3: as part of iOS eighteen point one sometime in October.

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Speaker 3: That's including summaries of notifications. That's including phone call recording

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Speaker 3: and automated transcriptions. That's including transcriptions and voice memos is

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Speaker 3: including voice recording, and the nosapp. It's including gen Mojis,

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Speaker 3: which uses artificial intelligence to create your own emoji characters.

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Speaker 4: My daughter loves that, by the way, like they're making emojis,

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Speaker 4: Like she takes my phone and does the things and

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Speaker 4: she makes chiffs and all this stuff. Like the young kids,

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Speaker 4: they love it.

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Speaker 3: I think the gen moojis are going to be incredibly popular.

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Speaker 3: I think it's going to be at the center of

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Speaker 3: many of Apple's advertisements for these features, but that's not

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Speaker 3: coming until December.

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Speaker 5: So I'm not sure.

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Speaker 3: How that can sell new iPhones in September if it's

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Speaker 3: not going to be available until December.

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Speaker 5: So I have some big.

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Speaker 3: Questions about where analysts get their information from, why they

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Speaker 3: say the things they do, and why some.

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Speaker 5: Of them are considered reputable.

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Speaker 3: So I think that people need to be able to

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Speaker 3: separate the signal from the noise. And that's why I'm

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Speaker 3: so happy to come on here and explain and provide

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Speaker 3: a dose of reality.

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Speaker 4: So but the dumb question, So Paul gets his new

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Speaker 4: phone in October, can he just update the stuff when

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Speaker 4: the cool things like the emoji stuff comes out?

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Speaker 3: Yes, he can'tolutely and it's not a dumb question, right,

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Speaker 3: So what we're going to see our Apple Intelligence features

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Speaker 3: rolling out probably over the course the next six to

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Speaker 3: nine months, with constant software updates. Now this is new

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Speaker 3: for Apple. This is not something they've done in the past.

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Speaker 3: Usually you get one big software update every September and

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Speaker 3: you're pretty.

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Speaker 5: Much set safe for buck mixes and.

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Speaker 3: Maybe a couple of enhancements here or there until the

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Speaker 3: following September. This time around is going to be a

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Speaker 3: gradual release. Now, why are they doing that, because Apple

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Speaker 3: Intelligence simply is not ready. There's a lot of testing

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Speaker 3: that needs to go into this. And the reason Apple

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Speaker 3: Intelligence has been behind is because they're responding late to

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Speaker 3: this AI praise. They really didn't start getting to work

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Speaker 3: on these AI enhancements until the second half of twenty

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Speaker 3: twenty two after they saw chat GPT launch. Right, this

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Speaker 3: was really something that was developed over the course of

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Speaker 3: twenty twenty three and into the first half of twenty

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Speaker 3: twenty four.

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Speaker 5: And their development.

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Speaker 3: Cycles for major new initiatives like this, these normally can

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Speaker 3: take three to four years, right, but they did it

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Speaker 3: basically in half the time.

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Speaker 2: So, yeah, you raised a good point earlier, mark that

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Speaker 2: there's a reasonable scenario, just given the size of the market,

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Speaker 2: that there really are no supercycles unlikely to be a

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Speaker 2: super cycle again for the Apple iPhone. Is that a

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Speaker 2: belief that's widely held out there.

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Speaker 3: It's widely held by me, and I think it's widely

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Speaker 3: held by people who really understand this stuff.

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Speaker 5: You know, the last time we.

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Speaker 3: Got a true, true iPhone supercycle was back in twenty fourteen,

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Speaker 3: ten years ago, with the release of the iPhone six

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Speaker 3: and six plus two reasons.

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Speaker 5: That was the first time.

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Speaker 3: That they made substantial screen size increases to the iPhone.

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Speaker 3: That was your first Apple fablet, right, moving to the

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Speaker 3: four point seven to five point five in screen sizes.

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Speaker 5: Massive.

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Speaker 3: Also, that was the same year where they struck the

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Speaker 3: carrier agreement with China Mobile in China, the biggest wireless

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Speaker 3: carrier in the world, adding an addressable market, an additional

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Speaker 3: addressable market of one billion people, right, So that is

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Speaker 3: what really elicited that supercycle, and that was a two

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Speaker 3: three year thing, So that was great for Apple. We

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Speaker 3: saw another big bounce in twenty seventeen with the iPhone ten.

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Speaker 3: Obviously that was major in terms of asps or great

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Speaker 3: the starting price right by three hundred dollars from seven

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Speaker 3: hundred and two one thousand. That was a big upgrade

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Speaker 3: with face idea. Then we saw that again with the

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Speaker 3: iPhone twelve, five G all four models at the tail

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Speaker 3: end of twenty twenty, at the top of COVID when

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Speaker 3: people were splurging on money, right, So that was a

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Speaker 3: big one.

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Speaker 5: But since the iPhone twelve and twenty twenty and the

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Speaker 5: advent of five G for Apple.

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Speaker 3: We haven't seen major, major, major significant changes.

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Speaker 5: Maybe they're coming at the end of next year. Maybe

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Speaker 5: that will.

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Speaker 3: Create a supercycle, but I want people to know, don't

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Speaker 3: expect one this year.

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Speaker 4: All Right, We're on't up more Apple in just a moment. Also, Hey,

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Speaker 4: Mark Ourman, Thanks lot really appreciated. Bloomer Technology senior reporter

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Speaker 4: joining us from California.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple Car Play and

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Speaker 1: Android Auto with the Bloomberg Business app. You can also

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Speaker 1: listen live on Amazon Alexa from our flagship New York station.

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Speaker 1: Just say Alexa Play Bloomberg eleven thirty.

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Speaker 4: Speaking of sectors, good to look at. Looking at Apple,

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Speaker 4: it's about one point three percent today. It is their

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Speaker 4: glow time event, as we've been talking about. But Bloomberg

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Speaker 4: Big Take had a fantastic piece today and we wanted

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Speaker 4: to dive into Austin car technology reporter for Bloomberg News.

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Speaker 4: It's titled Apple's Rise from Rebel to three point four

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Speaker 4: trillion dollar world power. It's great to get you on this, Austin.

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Speaker 4: It was a wonderful piece. Distracted me from my whole

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Speaker 4: car ride.

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Speaker 2: Into the office.

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Speaker 4: Can you just connect all the dots from like the

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Speaker 4: eighties until now.

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Speaker 7: You want me to summarize forty years and a minute,

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Speaker 7: I can you bet you've got okay? Well, well, really,

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Speaker 7: what this story does is chart why and how Apple

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Speaker 7: found in its position today, facing a big anti trust

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Speaker 7: lawsuit in the US, a lot of regulatory pressure in Europe,

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Speaker 7: as well as a lot of really just skepticism and

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Speaker 7: criticism for a lot of the partners and developers that

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Speaker 7: have depended on Apple over the years. And it charts

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Speaker 7: how basically Apple has changed from thatnineteen eighty four era

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Speaker 7: when it released the Mac it was seen as this

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Speaker 7: sort of disruptive force in the technology industry to twenty

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Speaker 7: twenty four when a lot of people think that this

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Speaker 7: is a sort of domineering force that needs to be disrupted.

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Speaker 7: So we go through from the Mac to the iPod

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Speaker 7: and iPhone up through present day with the release of

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Speaker 7: the iPhone, the new iPhone sixteen later today, and it's

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Speaker 7: just really just putting all the pieces together about how

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Speaker 7: Apple finds itself.

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Speaker 5: In that position now.

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Speaker 2: And Austin along with Max Chafkin, you guys reported this story.

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Speaker 6: Just fantastic work.

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Speaker 2: But for me, Cameron Galley who does all the illustrations

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Speaker 2: just made it really cool and really interactive, some awesome

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Speaker 2: stuff as always.

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Speaker 6: So Austin, where do you think Apple goes from here?

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Speaker 6: What's is it just new products?

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Speaker 2: Is it maybe getting more ingrained in our daily lives?

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Speaker 6: If that's even possible.

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Speaker 2: What do you think kind of a longer term vision

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Speaker 2: is for the folks in Kupertino?

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Speaker 7: Look, I mean, I think a really good question for

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Speaker 7: listeners right now or even you guys, is just, you know,

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Speaker 7: going to release this new iPhone. If you guys are

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Speaker 7: Apple users, have you ever seriously considered switching to a

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Speaker 7: different device or is it just the default? Now that

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Speaker 7: I'm going to upgrade to the iPhone sixteen? Maybe at default?

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Speaker 7: And so I think the question is how long can

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Speaker 7: that last where it is just sort of the default?

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Speaker 7: I mean, even their new features that are going to

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Speaker 7: release today are all about you know, AI and how

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Speaker 7: that ties into some of its hardware. But in all honesty,

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Speaker 7: they're two years late to AI. A lot of the features.

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Speaker 7: Mark German or Apple colleague, is reporting that won't really

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Speaker 7: release until twenty twenty five, at which point maybe you

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Speaker 7: should just wait for the iPhone seventeen and I just

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Speaker 7: think there's a big question about you know, Apple's products

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Speaker 7: are still good. They still make you know, the best laptop,

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Speaker 7: the best you know, watch and earbuds. I'm talking through

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Speaker 7: my AirPods right now. But at the same time, when

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Speaker 7: they don't face that type of pressure, does their products

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Speaker 7: just become too incremental and too boring? And I think

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Speaker 7: that is when you're going to see a lot more

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Speaker 7: disruptives trying to change the way computing works and work

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Speaker 7: outside of the Apple ecosystem. But the problem for consumers

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Speaker 7: like us is we're kind of stuck in it. I'm

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Speaker 7: not going to switch anytime soon for sure.

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Speaker 4: Well then to that point, but I found also interesting,

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Speaker 4: and I didn't know in the piece that you wrote,

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Speaker 4: was sort of Tim Cook's role in managing Apple supply chain,

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Speaker 4: and you dug deep into Apple would have a supply

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Speaker 4: chain partner and then in essence look to manufacture that

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Speaker 4: in house, and then booed that company, which is really

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Speaker 4: messed up tons of companies around the world. Can you

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Speaker 4: give us some detail on that. Sure.

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Speaker 7: The most infamous example actually goes back about a decade ago.

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Speaker 7: Apple was developing these new sapphire screams that were going

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Speaker 7: to be altered durable instead of the glass that they

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Speaker 7: currently use, and they sort of outsourced it to a

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Speaker 7: partner and then left that partner on the hook with

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Speaker 7: all the liability when Apple decided not to go that

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Speaker 7: route because the sapphire wasn't quite going as fast as

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Speaker 7: they could develop it for the iPhone. And I think

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Speaker 7: that we sort of positioned that as symbolic of what

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Speaker 7: Apple has seen with a few of the partners they've

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Speaker 7: worked with over the years, not just in the supply chain,

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Speaker 7: but also on the software ecosystem side. It's really fascinating

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Speaker 7: all this sort of trend that we see of a

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Speaker 7: partner really excited to work with Apple in the beginning,

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Speaker 7: like Goldman Sachs on the Apple Card or even General Motors.

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Speaker 7: We side as another example of working them on CarPlay,

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Speaker 7: and then years go by and suddenly they're not so

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Speaker 7: happy with the relationship with the Apple anymore. And I

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Speaker 7: think that really has become our trend in recent years

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Speaker 7: as the company has grown to this massive, multi trillion

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Speaker 7: dollar force that essentially it's Apple's where or the highway.

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Speaker 7: And I'm just curious how long that will last with

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Speaker 7: partners before they say you know what enough is enough, and.

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Speaker 2: You know, Austin, I think for a lot of investors,

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Speaker 2: one of the longer term issues that's still always out

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Speaker 2: there and is probably increasing in concern. It's just the

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Speaker 2: regulatory risk for not just Apple but kind of big

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Speaker 2: tech in general, but certainly for Apple given their marketing position.

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Speaker 2: How do you think the companies kind of how do

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Speaker 2: they react to that? And just in terms of a

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Speaker 2: long term thread or headwind.

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Speaker 7: Well, actually, I mean the DOJ case in the US.

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Speaker 7: You know, they just released their complaint in March. Apple

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Speaker 7: is pushed to dismiss it just earlier in August. That's

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Speaker 7: going to play out over the course of years. I

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Speaker 7: think that, you know, the preceding cases with the DOJ

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Speaker 7: and IBM, or DJ and Microsoft. I mean this last many,

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Speaker 7: many years, but we're already seeing sort of a precursor

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Speaker 7: to that, and what's happening in Europe with the Digital

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Speaker 7: Markets Act, which has already pushed Apple to change a

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Speaker 7: ton In fact right now in Europe, because of those

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Speaker 7: regulatory changes, you can get an alternative marketplace, meaning you

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Speaker 7: don't just have to rely on Apple's app store. You're

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Speaker 7: you're actually able to delete a lot of native Apple

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Speaker 7: apps that you can't delete the US, you can delete Safari.

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Speaker 7: You'll eventually be able to delete your phone app, your

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Speaker 7: camera app, the app store and just use alternative products

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Speaker 7: from the third party ecosystem. And so what you're seeing

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Speaker 7: in Europe is this almost two track system where they

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Speaker 7: have a lot more flexible sort of computing platform than

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Speaker 7: anywhere else if you're an Apple user. So I think

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Speaker 7: what they've sort of done is take this almost whack

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Speaker 7: a mole approach to regulation and the EU, and even

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Speaker 7: in some of the pressure they've seen in the US,

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Speaker 7: they've had to open up that walled garden that, as

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Speaker 7: we refer to it, sort of their closed ecosystem a

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Speaker 7: little bit more in a way that Apple doesn't like

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Speaker 7: because they lose control. But for consumers in a lot

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Speaker 7: of ways, it's a little bit interesting to watch this

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Speaker 7: company have to change and not just have it the

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Speaker 7: Apple approach. They're going to have to, at least in

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Speaker 7: Europe so far, open up their walled garden a little bit,

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Speaker 7: allows some more players within their ecosystem to run some

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Speaker 7: of those fundamental parts.

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Speaker 4: Yeah, which is why it's so interesting to read the

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Speaker 4: piece because it really reminds us that Apple wasn't the

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Speaker 4: leader forty years ago, that it was a very different

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Speaker 4: world when it came to PCs. You can definitely read

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Speaker 4: this Big Take and more on the Bloomberg and at

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Speaker 4: Bloomberg dot com slash Big Take. Definitely check it out,

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Speaker 4: really wonderful stuff. Plus, if you're joining us from Boston, Massachusetts,

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Speaker 4: like Austin is, if you're listening to us in Boston,

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Speaker 4: does now ninety two nine FM in Boston. I could

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Speaker 4: have done a little bit better, but I did it

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Speaker 4: all right, Austin, Thanks a lot, Austin Car Technology Reporter.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Applecar playing Android OUTO

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Speaker 1: with the Bloomberg Business That listener on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 4: Okay, let's get to another chap story here that we're

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Speaker 4: looking on. That's HSBC is looking at potentially merging it's

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Speaker 4: commercial and investment bank to cut some cost. We wanted

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Speaker 4: to get more on that with too much netsl senior

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Speaker 4: US Banks analyst. He joins us from Bloomberg Intelligence from London.

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Speaker 4: Can you just walk me through why and sort of

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Speaker 4: what this would look like.

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Speaker 8: Yes, hey, hey guys, thank you very much for having me.

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Speaker 8: So cost cutting, yes, so that's definitely something on top

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Speaker 8: of our gendle of the new new HSBCCO who has

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Speaker 8: just started started his position a couple of days ago.

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Speaker 8: So why cost cutting? First of all, we are seeing

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Speaker 8: a revenue weekending outdocouse weekending because of interest rates are

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Speaker 8: going down the next two years and the hedges. We

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Speaker 8: need to do something to keep the profitability and they

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Speaker 8: would love to stay at around the meeting's rot and

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Speaker 8: in order to achieve that, they need to cost codes

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Speaker 8: because there's little options to do with revenues.

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Speaker 2: So what is the competitive position for hs SPC. Just

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Speaker 2: break it down for it because I think a lot

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Speaker 2: of our listeners and viewers some don't have a great

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Speaker 2: handle on it.

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Speaker 8: Yeah, So first of all, we need to understand that

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Speaker 8: HSBC is very much heavily emerging market focused bank. If

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Speaker 8: you are emerging market focused bank, of course you have

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Speaker 8: much better opportunity to grow your revenues, your growth your lending.

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Speaker 8: But if you look into the outlook, it's not had

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Speaker 8: to rose the story anymore because now we have much

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Speaker 8: higher interest rates, red are going to go down. GDP

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Speaker 8: is not so growing south fast as it does in

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Speaker 8: the past, so revenue is going to flat in the

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Speaker 8: next two three years. But if you look, if you

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Speaker 8: are emerging market focused bank as well, you are facing

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Speaker 8: higher inflation costs and because of the higher wage inflation

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Speaker 8: those markets, etc. Your costs, but it is growing. On

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Speaker 8: top of that, you have to invest in digitalization, transformation,

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Speaker 8: et cetera. So everybody is doing this globally, so there

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Speaker 8: is massive cost pressure. And looking at HSBC, which is

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Speaker 8: spread across more than fifty markets, mainly in Asia right

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Speaker 8: now after recent recent restructuring, you know there's a massive

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Speaker 8: and they have to do something about this to streamline

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Speaker 8: the operations. They have started this already a couple of

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Speaker 8: years ago under no Queen and they've done quite good

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Speaker 8: job cutting costs by more than five billions. However, there

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Speaker 8: are still lots of things to be done, and one

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Speaker 8: of those aspects we definitely head counts and then maybe

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Speaker 8: looking into cost base and look at headcounts and try

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Speaker 8: to have some synergies in those two businesses, which will

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Speaker 8: combined have around forty billions in revenues, will be the biggest,

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Speaker 8: biggest revenue driver for HSBC Marke bigger than wealth and

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Speaker 8: every which is the key focus of the bank at

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Speaker 8: the moment.

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Speaker 4: It's something damn question. But if it's such a it

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Speaker 4: makes so much sense. Why haven't they done it already?

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Speaker 5: Well, that's a good question for.

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Speaker 8: The four CEO who just left no queen and the

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Speaker 8: new guy is coming and he has to deliver something

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Speaker 8: and he has to why he hadn't done before Because

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Speaker 8: we were living in different interest rate environments right here

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Speaker 8: linking in the interest rates environment that we're supporting revenues,

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Speaker 8: but the condition has changed. Environments has changed now that

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Speaker 8: the expectations for US rates, global rates are going up

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Speaker 8: and down. The volatility is quite high, but I think

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Speaker 8: we now expect, we know more or less that the

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Speaker 8: rest is going to come down and the sensit and

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Speaker 8: EDGESBC is one of the most sensitive bank to cut

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Speaker 8: in indust right, so they have to do something quickly

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Speaker 8: and definitely the new CEO needs to deliver something, needs

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Speaker 8: to convince market that he can get the handle of

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Speaker 8: on cost causes. Definitely the big issue. Have been writing

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Speaker 8: about this quite a lot. You want to deliver. If

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Speaker 8: you are Amergic focused bank, you want to deliver revenue

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Speaker 8: revenue Manda's cost which recall operating joes. You want to

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Speaker 8: have a round one to three percent. And at the

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Speaker 8: moment they're running negative jobs into the future, so it's

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Speaker 8: not the compelling story for HSBC. Hence cost focus right

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Speaker 8: now is very important, and they would replicate possibly what

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Speaker 8: Standard Charge did at the beginning of the year where

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Speaker 8: they also plan to merge to you and its just

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Speaker 8: to cost cut costs and they are able to keep

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Speaker 8: cost flatish in the next two years, and possibly HBC

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Speaker 8: is going to follow the same path.

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Speaker 6: Tomash.

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Speaker 2: I'm just looking at the p GEO function to see

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Speaker 2: where they get their revenue from a geographic perspective, and

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Speaker 2: again about you know there at half the revenues comes

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Speaker 2: out of Asia, about almost forty percent comes out of Europe,

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Speaker 2: only about ten percent out of North America. So have

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Speaker 2: they can they be a significantly profitable and generate the

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Speaker 2: types of returns they need to without having a bigger

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Speaker 2: presence in North America.

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Speaker 8: Well, if you look at they have been very much

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Speaker 8: dealer reading themselves or they were the risking themselves when

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Speaker 8: they were you know, they existed France, Canada, they have

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Speaker 8: some US as well. They cut on operations over there

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Speaker 8: now heavily focusing on Asia at the moment, and Asia

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Speaker 8: growth is what they want to level and embark on.

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Speaker 8: They definitely look into wealth management and if you look

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Speaker 8: at new stories over the bloom work, there's a lots

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Speaker 8: of stories. They're hiring people more people in Hong Kong

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Speaker 8: or in Singapore because they want to really compete with

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Speaker 8: wealth management and this is the area of their growth.

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Speaker 8: And whenever they talk about interest rate cutting just or

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Speaker 8: lending growth is very difficult and the moment, so wealth

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Speaker 8: management is definitely something they want to they want to

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Speaker 8: explore further and that's the area of growth for them.

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Speaker 8: It's in Asia, but also in Middle East where where

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Speaker 8: we have the largest non millionaires billionaires come to the market,

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Speaker 8: and they want to definitely couple supports meeting this in

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Speaker 8: this AREO.

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Speaker 4: All right, Tamash, thanks a lot. Tamash Netzel joining us

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Speaker 4: senior EU Banks analyst for Bloomberg Intelligence.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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00:20:26,600 --> 00:20:29,320
Speaker 1: Just say Alexa, play Bloomberg eleven thirty.

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00:20:31,040 --> 00:20:34,200
Speaker 4: Alex Steel here alongside Paul Sweeney. This is Bloomberg Intelligence Radio.

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00:20:34,280 --> 00:20:36,879
Speaker 4: We cover all the tap news in business, economics and

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00:20:36,960 --> 00:20:39,600
Speaker 4: finance or lens of our Bloomberg Intelligence folks. They cover

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00:20:39,680 --> 00:20:42,520
Speaker 4: two thousand companies in one hundred and thirty industries all

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00:20:42,760 --> 00:20:45,240
Speaker 4: around the world. We also like to take a broader

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00:20:45,280 --> 00:20:46,720
Speaker 4: view and kind of step back and look at what

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Speaker 4: the pros are doing. And for that we go to

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00:20:48,280 --> 00:20:51,240
Speaker 4: Chuck Lieberman, co founder and chief investment officer and Advisor's

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00:20:51,280 --> 00:20:54,200
Speaker 4: Capital Management. They have just under eight billion dollars in

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00:20:54,400 --> 00:20:55,760
Speaker 4: assets under management.

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Speaker 2: Great great person.

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Speaker 4: To talk to, Chuck. Do you care if the FED

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Speaker 4: twenty five or fifty at the next meeting, if they

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Speaker 4: cut seventy five or fifty for the rest of the year.

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Speaker 9: I do care because of the message that it sends

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Speaker 9: in terms of the economic impact that's likely to be

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00:21:11,080 --> 00:21:15,439
Speaker 9: small twenty five or fifty. I don't think the market

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00:21:15,560 --> 00:21:18,680
Speaker 9: is on board with what they're likely to do. I

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00:21:18,760 --> 00:21:21,480
Speaker 9: think they're going to do less rather than more. The

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Speaker 9: market's price for one hundred and twenty five basis points

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00:21:24,840 --> 00:21:27,040
Speaker 9: between now and the end of the year. I just

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Speaker 9: don't see that as feasible without a recession.

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Speaker 2: So we had a wholesal of economic data last week.

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Speaker 2: Comment leading with the jobs number on Friday, it appears

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00:21:36,840 --> 00:21:39,399
Speaker 2: economy slowing. Is it slung at a rate that a

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Speaker 2: Do you agree with that? And are you concerned that

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Speaker 2: maybe it's slowing too much?

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Speaker 9: It is definitely slowing. But as I joked, good luck

475
00:21:47,400 --> 00:21:51,280
Speaker 9: trying to avoid getting a traffic ticket. If you tell

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00:21:51,320 --> 00:21:53,720
Speaker 9: the cop you slowed from one hundred and you slowed

477
00:21:53,720 --> 00:21:56,160
Speaker 9: down to one hundred miles an hour in a seventy zone,

478
00:21:56,840 --> 00:21:59,960
Speaker 9: that's not going to fly very well. The economy has slow.

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00:22:00,160 --> 00:22:02,040
Speaker 9: We're growing at a more moderate rate, but we're still

480
00:22:02,119 --> 00:22:05,920
Speaker 9: growing north of two percent, and fundamentally that's a very

481
00:22:06,080 --> 00:22:10,159
Speaker 9: solid growth rate. Productivity is adding one one and a

482
00:22:10,200 --> 00:22:14,639
Speaker 9: half percent a year, labor force is adding, domestic labor

483
00:22:14,680 --> 00:22:17,280
Speaker 9: force is adding a half a percent a year. Maybe

484
00:22:17,880 --> 00:22:20,399
Speaker 9: all of the rest is coming from immigration, and so

485
00:22:20,600 --> 00:22:22,959
Speaker 9: we have the capacity to grow at two percent a year.

486
00:22:23,040 --> 00:22:25,600
Speaker 9: We're doing that. So that's very solid growth.

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00:22:25,760 --> 00:22:27,720
Speaker 4: So if we have that solid growth, is it that

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00:22:28,119 --> 00:22:30,800
Speaker 4: the FED will cut less in the short term? But

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00:22:30,880 --> 00:22:32,960
Speaker 4: the amount of cuts over all in the cycle is

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Speaker 4: the same. Or do you think that we need to

491
00:22:35,160 --> 00:22:37,160
Speaker 4: start and we I mean investors, you can start pairing

492
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Speaker 4: back what they think neutral is.

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00:22:39,800 --> 00:22:42,440
Speaker 9: Well, I think that the market has a bad sense

494
00:22:42,480 --> 00:22:45,800
Speaker 9: of what neutral is. And one way to see that

495
00:22:46,000 --> 00:22:48,840
Speaker 9: is people say that monetary policy is very tight. They

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00:22:48,880 --> 00:22:51,120
Speaker 9: look at the funds rate and they look at inflation

497
00:22:51,240 --> 00:22:54,720
Speaker 9: and they say interest rates are high. True, if you

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Speaker 9: look at the tenure however, relative to inflation, the real

499
00:22:58,760 --> 00:23:01,080
Speaker 9: rate on the ten year is is not very high.

500
00:23:01,359 --> 00:23:04,200
Speaker 9: And yet that's the rate that matters much more for corporations,

501
00:23:04,240 --> 00:23:08,200
Speaker 9: it matters more for mortgage rates. It's a much more

502
00:23:08,359 --> 00:23:11,720
Speaker 9: critical interest rate. And on that basis, monetary policy is

503
00:23:11,840 --> 00:23:14,359
Speaker 9: not tight. It might even be considered loose.

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00:23:15,320 --> 00:23:19,159
Speaker 2: So given that backdrop, with the economy, with the federal reserve,

505
00:23:20,240 --> 00:23:22,119
Speaker 2: where are the best opportunities these days for you?

506
00:23:22,200 --> 00:23:24,680
Speaker 6: Do you find them in the equity markets? In fixed gum?

507
00:23:24,800 --> 00:23:26,560
Speaker 6: Are there certain sectors that screen well for you?

508
00:23:27,680 --> 00:23:31,520
Speaker 9: Fixed income is not that attractive, especially because the market

509
00:23:31,600 --> 00:23:33,919
Speaker 9: is anticipating a lot more cuts than I think are

510
00:23:34,040 --> 00:23:38,040
Speaker 9: likely to come. But the equity market I think offers

511
00:23:38,119 --> 00:23:43,880
Speaker 9: good value, especially the disliked, unloved SMP four ninety three,

512
00:23:45,240 --> 00:23:49,000
Speaker 9: the MAGS seven obviously are through the roof, and I

513
00:23:49,040 --> 00:23:51,720
Speaker 9: think a reasonable case can be made that justifies that

514
00:23:52,280 --> 00:23:55,160
Speaker 9: they all have high growth rates. They have enormous growth potential.

515
00:23:55,880 --> 00:23:59,440
Speaker 9: Companies are typically doing very, very well. I think you

516
00:23:59,480 --> 00:24:01,440
Speaker 9: can look at you have to look at them actually

517
00:24:01,520 --> 00:24:05,200
Speaker 9: one at a time and judge their prospects. The four

518
00:24:05,320 --> 00:24:09,919
Speaker 9: ninety three are relatively ignored, and there's great value across

519
00:24:10,000 --> 00:24:12,560
Speaker 9: the board and whole sectors. So it's not hard to

520
00:24:12,680 --> 00:24:17,399
Speaker 9: find stocks with good, solid prospects, good dividends and trading

521
00:24:17,480 --> 00:24:21,560
Speaker 9: it ten times earnings or even less. So that's real value.

522
00:24:21,880 --> 00:24:24,720
Speaker 4: Okay, So where I guess what spaces like? Are you

523
00:24:24,800 --> 00:24:26,879
Speaker 4: going to go like deep cyclical there? Do you just

524
00:24:26,960 --> 00:24:29,239
Speaker 4: look for value? Is it dividend players? Is it going

525
00:24:29,280 --> 00:24:31,360
Speaker 4: to be just safety trades in those four ninety.

526
00:24:31,160 --> 00:24:35,080
Speaker 9: Three Well, I manage a portfolio that is income oriented.

527
00:24:35,680 --> 00:24:38,800
Speaker 9: We call it growth excuse me, income with growth, So

528
00:24:39,000 --> 00:24:43,359
Speaker 9: it's an equity based, income oriented portfolio. I've got lots

529
00:24:43,400 --> 00:24:46,880
Speaker 9: of exposure to the energy sector through Master Limited Partnership,

530
00:24:46,920 --> 00:24:49,840
Speaker 9: Soil and Guests partnerships. I've got lots of exposure to

531
00:24:49,920 --> 00:24:54,119
Speaker 9: business development companies, very high yielding companies because they're required

532
00:24:54,160 --> 00:24:57,080
Speaker 9: to pay out their profits. I've got exposure to parts

533
00:24:57,119 --> 00:25:00,840
Speaker 9: of the market where I think there's real value. And

534
00:25:00,960 --> 00:25:04,480
Speaker 9: then the banking sector of the financials. The financials are

535
00:25:04,560 --> 00:25:08,520
Speaker 9: typically still cheap, still offer very good dividends, and they're

536
00:25:08,680 --> 00:25:10,960
Speaker 9: very well capitalized, and the companies will do well.

537
00:25:11,320 --> 00:25:14,879
Speaker 2: So you mentioned banks financials, Do you have exposure to

538
00:25:14,920 --> 00:25:17,920
Speaker 2: regional banks as well, Yeah, a couple. And how concerned

539
00:25:18,000 --> 00:25:21,200
Speaker 2: are you about commercial real estate and the exposure there,

540
00:25:21,240 --> 00:25:23,600
Speaker 2: because I mean, alex linees is something we probably try

541
00:25:23,640 --> 00:25:24,920
Speaker 2: to get as many guests on as we kind of

542
00:25:24,920 --> 00:25:26,440
Speaker 2: talk about commercial real estate in general.

543
00:25:26,720 --> 00:25:31,200
Speaker 9: Well, there's no question that the office space market is problematical,

544
00:25:31,760 --> 00:25:34,200
Speaker 9: but that's only a small fraction of the overall real

545
00:25:34,320 --> 00:25:38,040
Speaker 9: estate market. I've seen numbers like six or seven percent

546
00:25:38,080 --> 00:25:41,119
Speaker 9: of the total commercial real estate market is office. The

547
00:25:41,240 --> 00:25:43,600
Speaker 9: rest of it is fine. The part of the market

548
00:25:43,680 --> 00:25:48,200
Speaker 9: that I really like are nursing homes. They got crushed

549
00:25:48,320 --> 00:25:52,200
Speaker 9: during the pandemic for obvious reasons. The stocks are still cheap.

550
00:25:52,600 --> 00:25:57,800
Speaker 9: Businesses recovering, not surprisingly, occupancy is rising, rates are rising.

551
00:25:58,080 --> 00:26:01,960
Speaker 9: Their biggest problem is getting labor labor costs arising, but

552
00:26:02,240 --> 00:26:05,800
Speaker 9: profitability is improving. They pay high dividends, perfect for my

553
00:26:05,920 --> 00:26:09,000
Speaker 9: strategy of income with growth. We're producing over six percent

554
00:26:09,160 --> 00:26:12,760
Speaker 9: yields on that strategy and we've still got some growth

555
00:26:13,119 --> 00:26:15,720
Speaker 9: embedded in there as well. So it's a great way

556
00:26:15,760 --> 00:26:18,240
Speaker 9: to generate income in a cheap part of the market.

557
00:26:18,359 --> 00:26:20,840
Speaker 4: So staying on that for a second. With commercial real estate,

558
00:26:21,080 --> 00:26:24,439
Speaker 4: aside from office, we generally hear like student housing, senior housing,

559
00:26:25,480 --> 00:26:28,560
Speaker 4: and also wear housing. Is there like another leg or

560
00:26:28,600 --> 00:26:30,760
Speaker 4: something to that that's also interesting to you in that space?

561
00:26:32,040 --> 00:26:37,200
Speaker 9: Well, it's all one offs. So for example, there's a

562
00:26:37,520 --> 00:26:42,000
Speaker 9: APR Properties which does experiential type of things. They own

563
00:26:42,119 --> 00:26:46,040
Speaker 9: top golf outlets, say they own movie theaters. The movie

564
00:26:46,119 --> 00:26:49,320
Speaker 9: theater business is struggling obviously, but it is coming back

565
00:26:50,200 --> 00:26:52,840
Speaker 9: and top golf and other parts are doing well. So

566
00:26:53,240 --> 00:26:54,400
Speaker 9: that's an interesting play.

567
00:26:54,640 --> 00:26:55,080
Speaker 5: We own it.

568
00:26:55,760 --> 00:26:57,200
Speaker 9: So there are lots of opportunities.

569
00:26:57,280 --> 00:26:58,040
Speaker 5: You just have to dig.

570
00:26:58,680 --> 00:27:01,360
Speaker 2: So when you talk about your dividends strategy, I guess

571
00:27:01,480 --> 00:27:03,800
Speaker 2: almost biygn ific definition, you don't have a big exposure

572
00:27:03,840 --> 00:27:06,560
Speaker 2: to technology because I look at a company today. The

573
00:27:06,640 --> 00:27:09,119
Speaker 2: story today is Apple and the new phone launch and

574
00:27:09,160 --> 00:27:11,440
Speaker 2: we're covering it like crazy here at Bloomberg. But you

575
00:27:11,520 --> 00:27:13,080
Speaker 2: look at this company that got one hundred and fifty

576
00:27:13,080 --> 00:27:14,520
Speaker 2: billion in cash. You're going to throw off one hundred

577
00:27:14,520 --> 00:27:17,320
Speaker 2: million dollars a year in free cash flow no dividend.

578
00:27:17,680 --> 00:27:19,159
Speaker 4: You you should know that this is a point of

579
00:27:20,119 --> 00:27:21,119
Speaker 4: He gets very upset by this.

580
00:27:21,280 --> 00:27:22,920
Speaker 6: I argue with Tim Cook about this all the time.

581
00:27:23,080 --> 00:27:24,520
Speaker 6: I do, usually over a cocktail.

582
00:27:24,600 --> 00:27:27,480
Speaker 2: But what do you say, how do you think about

583
00:27:27,480 --> 00:27:30,360
Speaker 2: the technology companies and dividend given all the cash flow

584
00:27:30,359 --> 00:27:30,560
Speaker 2: they have.

585
00:27:30,760 --> 00:27:33,880
Speaker 9: Okay, so as a fiduciary, we've got to diversified portfolio,

586
00:27:34,040 --> 00:27:36,720
Speaker 9: so we have to have some exposure to technology. Okay,

587
00:27:37,119 --> 00:27:40,439
Speaker 9: there are companies that pay dividends and they're still doing fine.

588
00:27:40,880 --> 00:27:43,120
Speaker 9: Seagate Technology is one of the ones that we own.

589
00:27:43,800 --> 00:27:46,720
Speaker 9: Broadcom is another. We've owned that one for a while.

590
00:27:47,000 --> 00:27:51,440
Speaker 9: These are among our lowest yielding holdings in the portfolio strategy. Nonetheless,

591
00:27:51,440 --> 00:27:54,840
Speaker 9: it gives us some exposure to technology, and Broadcomm is

592
00:27:54,920 --> 00:27:57,800
Speaker 9: going to benefit from AI. So we're playing that game too.

593
00:27:58,040 --> 00:28:00,360
Speaker 4: And it's been one of the most undervalued players versus

594
00:28:00,440 --> 00:28:02,800
Speaker 4: like an Nvidia. It's really underperformed from that perspective.

595
00:28:02,840 --> 00:28:05,679
Speaker 9: Well, it's undervaluant in that it hasn't performed as well

596
00:28:05,720 --> 00:28:08,560
Speaker 9: as in video, but then few things have. But it's

597
00:28:08,680 --> 00:28:11,440
Speaker 9: great value and we'll do fine. And that's where long

598
00:28:11,520 --> 00:28:14,680
Speaker 9: term players, we're not trying to make the buck in

599
00:28:14,760 --> 00:28:15,639
Speaker 9: the next twenty minutes.

600
00:28:16,080 --> 00:28:19,200
Speaker 2: Tax policy, it's an election year. Tax policies can be

601
00:28:19,240 --> 00:28:21,679
Speaker 2: front and center here for both candidates. What's it mean

602
00:28:21,760 --> 00:28:23,399
Speaker 2: for again, an income investor like.

603
00:28:23,440 --> 00:28:26,600
Speaker 9: You, it matters a lot. So one of the things

604
00:28:26,680 --> 00:28:29,640
Speaker 9: that we look at is how is the tax treatment

605
00:28:29,720 --> 00:28:32,960
Speaker 9: of the dividends that we produce. We prefer ones where

606
00:28:33,080 --> 00:28:38,040
Speaker 9: there's some shelter, which MLPs do. It's great reads do

607
00:28:38,160 --> 00:28:42,280
Speaker 9: as well. Interest is taxed at full income tax rates,

608
00:28:42,320 --> 00:28:44,560
Speaker 9: so that's not as great and we don't have a

609
00:28:44,640 --> 00:28:47,600
Speaker 9: large exposure there. And actually our exposure to fixed income

610
00:28:47,720 --> 00:28:50,320
Speaker 9: is a little bit below average, which rather be eighty

611
00:28:50,400 --> 00:28:53,920
Speaker 9: equity twenty percent fixed, we're more like fifteen closer to

612
00:28:54,040 --> 00:28:57,040
Speaker 9: fifteen fixed right now because we don't see the bond

613
00:28:57,120 --> 00:28:58,440
Speaker 9: market is particularly attractive.

614
00:28:58,720 --> 00:29:03,400
Speaker 4: So if to say are raised, does that change then

615
00:29:03,480 --> 00:29:05,800
Speaker 4: the dividend payout situation that you're talking about, it.

616
00:29:05,840 --> 00:29:09,520
Speaker 9: Will hurt, but it will hurt everything. All stocks will

617
00:29:09,600 --> 00:29:12,920
Speaker 9: be worth less because of a higher dividend a higher

618
00:29:13,520 --> 00:29:18,040
Speaker 9: tax rate. So you have to pick your poison, and

619
00:29:18,640 --> 00:29:21,840
Speaker 9: the question is which ones will be hurt the least. Again,

620
00:29:22,200 --> 00:29:27,520
Speaker 9: if it's a matter of full tax applicability for interest,

621
00:29:27,800 --> 00:29:31,240
Speaker 9: that gets hurt even more than stocks. In the case

622
00:29:31,280 --> 00:29:34,640
Speaker 9: of stock, some pay return of capital, they will be

623
00:29:34,800 --> 00:29:37,560
Speaker 9: hurt the least. So, yeah, it will affect some of

624
00:29:37,640 --> 00:29:38,480
Speaker 9: our allocations.

625
00:29:38,720 --> 00:29:40,400
Speaker 2: When you sit down with the management teams of the

626
00:29:40,720 --> 00:29:43,920
Speaker 2: companies you own and you talked about use of cash

627
00:29:44,040 --> 00:29:48,640
Speaker 2: and cash repatriation, buybacks versus dividends, what's your what's the discussion?

628
00:29:48,720 --> 00:29:48,760
Speaker 5: Like?

629
00:29:48,800 --> 00:29:49,360
Speaker 6: What points do you?

630
00:29:49,440 --> 00:29:49,560
Speaker 5: Maan?

631
00:29:50,080 --> 00:29:54,000
Speaker 9: I love it when they do buybacks, but often they

632
00:29:54,160 --> 00:29:56,760
Speaker 9: feel like they've got to do some dividends to play

633
00:29:56,800 --> 00:30:01,760
Speaker 9: care shareholders. I look how whoever they return capital is good.

634
00:30:02,240 --> 00:30:05,160
Speaker 9: If they're producing enough free cash flow that they can

635
00:30:05,200 --> 00:30:08,680
Speaker 9: afford to buy back or pay out higher dividends. Either

636
00:30:08,840 --> 00:30:13,880
Speaker 9: one works for me. Theoretically, I shouldn't care. That's what

637
00:30:13,960 --> 00:30:17,400
Speaker 9: the mathematics say. As long as they return capital, are

638
00:30:17,400 --> 00:30:21,360
Speaker 9: profitable and they're growing their earnings and they return on

639
00:30:21,480 --> 00:30:22,960
Speaker 9: capital is high, I'm.

640
00:30:22,880 --> 00:30:25,840
Speaker 4: Happy if we see increase in capital gains tax does that.

641
00:30:26,480 --> 00:30:28,520
Speaker 6: How do you think about that again, that hurts.

642
00:30:29,080 --> 00:30:32,360
Speaker 9: It hurts the valuation of these companies and so, but

643
00:30:32,600 --> 00:30:35,440
Speaker 9: it's in across the board type of damage. It will

644
00:30:35,520 --> 00:30:37,400
Speaker 9: hurt the valuation of the entire stock market.

645
00:30:37,840 --> 00:30:40,840
Speaker 6: So what's the big issue that you're focusing on right

646
00:30:40,920 --> 00:30:41,640
Speaker 6: now with your team?

647
00:30:43,520 --> 00:30:46,440
Speaker 9: Well, I think the issue that everyone's struggling with or

648
00:30:46,600 --> 00:30:48,960
Speaker 9: talking about is whether or not the economy is likely

649
00:30:49,040 --> 00:30:51,800
Speaker 9: to lapse in recession anytime soon. I think the answer

650
00:30:51,920 --> 00:30:54,480
Speaker 9: is no. When I look at the economy, I have

651
00:30:54,600 --> 00:30:58,800
Speaker 9: a tough time constructing a recession scenario. The easiest way

652
00:30:58,840 --> 00:31:01,440
Speaker 9: to make that case is to say that interest rates

653
00:31:01,480 --> 00:31:04,320
Speaker 9: have gone up a lot and that will cause a recession. Well,

654
00:31:04,480 --> 00:31:06,920
Speaker 9: we've been sitting in that boat for a long time

655
00:31:06,960 --> 00:31:09,760
Speaker 9: and it hasn't happened. And is a reason it hasn't happened.

656
00:31:10,040 --> 00:31:12,920
Speaker 9: The consumer is in very good shape. Job growth is

657
00:31:12,960 --> 00:31:17,280
Speaker 9: still solid. Income growth is even more solid. So consumers

658
00:31:17,320 --> 00:31:19,680
Speaker 9: have the capacity to spend, and that's seventy percent of

659
00:31:19,720 --> 00:31:24,920
Speaker 9: the economy. Capital investment. We're trying to promote green initiatives.

660
00:31:25,000 --> 00:31:29,080
Speaker 9: We're trying to bring business back to the US, manufacturing

661
00:31:29,160 --> 00:31:31,760
Speaker 9: back to the US. That's a tailwind for the economy.

662
00:31:32,560 --> 00:31:37,000
Speaker 9: We happen to have a severe housing shortage, so even

663
00:31:37,080 --> 00:31:40,280
Speaker 9: though mortgage rates are high, it hasn't crushed the housing

664
00:31:40,360 --> 00:31:43,280
Speaker 9: market as much as it would have if we didn't

665
00:31:43,320 --> 00:31:46,320
Speaker 9: have that housing shortage. And if interest rates dip, you're

666
00:31:46,360 --> 00:31:48,320
Speaker 9: going to see housing takeoffs like a bansheet.

667
00:31:48,400 --> 00:31:50,400
Speaker 4: All right, great stuff, Really appreciate It'm s so good

668
00:31:50,400 --> 00:31:52,600
Speaker 4: talking to you. Chuck Lieberman, co founder and chief investment

669
00:31:52,640 --> 00:31:55,360
Speaker 4: officer Advisor's Capital Management, Joining us there.

670
00:31:56,840 --> 00:32:00,680
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

671
00:32:00,800 --> 00:32:04,320
Speaker 1: weekdays at ten am Eastern on applecar Play and Android

672
00:32:04,360 --> 00:32:07,080
Speaker 1: Auto with the Bloomberg Business app. You can also listen

673
00:32:07,240 --> 00:32:10,320
Speaker 1: live on Amazon Alexa from our flagship New York station,

674
00:32:10,720 --> 00:32:13,440
Speaker 1: Just say Alexa playing Bloomberg eleven thirty.

675
00:32:15,080 --> 00:32:17,840
Speaker 4: So one soccer're watching today that is doing absolutely nothing

676
00:32:18,240 --> 00:32:20,959
Speaker 4: is Starbucks waiting at ninety one dollars sixteen cents. It's

677
00:32:21,080 --> 00:32:23,000
Speaker 4: literally flat on the day, But it's a big day

678
00:32:23,520 --> 00:32:27,600
Speaker 4: because incoming chief executive officer Brian Nicol has to live

679
00:32:27,720 --> 00:32:30,880
Speaker 4: up to the hype that really propelled Cheryl's higher. It's

680
00:32:30,920 --> 00:32:33,640
Speaker 4: his first day a CEO of Starbucks. Michael Hale and

681
00:32:33,640 --> 00:32:37,479
Speaker 4: Bloomberg intelligence senior restaurant and food service analyst is joining us. Now,

682
00:32:37,680 --> 00:32:39,600
Speaker 4: what First of all, how long do you think the

683
00:32:39,760 --> 00:32:41,520
Speaker 4: market gives him before they judge him.

684
00:32:44,280 --> 00:32:48,240
Speaker 10: Yeah, it's tough to say, right, you know, I think

685
00:32:48,360 --> 00:32:51,320
Speaker 10: really it's going to take some time. You know, you

686
00:32:51,400 --> 00:32:53,920
Speaker 10: don't turn around an aircraft carrier on a dime. You know,

687
00:32:54,040 --> 00:32:58,360
Speaker 10: Starbucks is a behemoth of a company, So I think

688
00:32:58,400 --> 00:33:01,400
Speaker 10: the market gives him some time. He's got phenomenal track record,

689
00:33:01,880 --> 00:33:04,840
Speaker 10: right what he's done at Taco Bell and then Chipotle,

690
00:33:05,000 --> 00:33:09,920
Speaker 10: obviously we're very impressive, you know, and he's really you know,

691
00:33:10,040 --> 00:33:11,560
Speaker 10: the first thing he's going to do, I think is

692
00:33:11,600 --> 00:33:13,640
Speaker 10: just try to change that culture, right, bringing in a

693
00:33:13,720 --> 00:33:18,320
Speaker 10: culture of transparency, accountability, talking about he's going to talk

694
00:33:18,360 --> 00:33:22,240
Speaker 10: about hard work and compensating his employees for doing a

695
00:33:22,280 --> 00:33:25,200
Speaker 10: good job, because you know, those are some of the

696
00:33:25,280 --> 00:33:29,200
Speaker 10: things he talked about changing at Chipotle on his first

697
00:33:29,240 --> 00:33:31,480
Speaker 10: earnings call there. So you know, all that stuff's going

698
00:33:31,520 --> 00:33:32,840
Speaker 10: to take a little bit of time, and because of

699
00:33:32,920 --> 00:33:36,120
Speaker 10: his track record, he'll get he'll get a pretty long leash.

700
00:33:36,160 --> 00:33:39,360
Speaker 6: I think, what what are the challenges facing this company?

701
00:33:39,360 --> 00:33:42,360
Speaker 2: Because just as a consumer, I mean the Starbucks and

702
00:33:42,440 --> 00:33:43,160
Speaker 2: Route thirty five and.

703
00:33:43,160 --> 00:33:44,120
Speaker 6: Wall Township, New Jersey.

704
00:33:44,160 --> 00:33:45,200
Speaker 2: They do a great job.

705
00:33:45,520 --> 00:33:46,240
Speaker 6: People are great.

706
00:33:46,560 --> 00:33:48,800
Speaker 2: It just works like a charm. Stores in great shape.

707
00:33:49,000 --> 00:33:50,760
Speaker 2: The one in Summit's good, It's always packed.

708
00:33:52,080 --> 00:33:53,600
Speaker 6: What do they need to do here? I don't think

709
00:33:53,600 --> 00:33:54,280
Speaker 6: anything's broken.

710
00:33:55,400 --> 00:33:56,600
Speaker 10: Well, it depends on the store.

711
00:33:57,440 --> 00:33:57,600
Speaker 2: You know.

712
00:33:57,680 --> 00:33:59,600
Speaker 10: It sounds like that location is doing pretty well. But

713
00:33:59,640 --> 00:34:03,120
Speaker 10: they have of thousands and thousands of locations across the globe.

714
00:34:03,160 --> 00:34:05,400
Speaker 10: I mean, you know, in the US, operations is a

715
00:34:05,440 --> 00:34:09,520
Speaker 10: big issue. You know, drink orders have become more complicated.

716
00:34:10,200 --> 00:34:14,719
Speaker 10: Digital orders have kind of changed the experience for the

717
00:34:15,120 --> 00:34:19,880
Speaker 10: in cafe customer, right Like it was it became popular

718
00:34:19,960 --> 00:34:23,560
Speaker 10: because the briests knew your name, right, and the level

719
00:34:23,600 --> 00:34:27,160
Speaker 10: of service was phenomenal for a chain of that size, right,

720
00:34:27,239 --> 00:34:33,400
Speaker 10: And through digital ordering and these very complicated orders, you know,

721
00:34:33,520 --> 00:34:37,560
Speaker 10: they've lost some of that, right And so so operations,

722
00:34:37,600 --> 00:34:39,439
Speaker 10: you know, they're losing a lot of orders because people

723
00:34:39,440 --> 00:34:41,600
Speaker 10: are trying to place them on the app and the

724
00:34:41,680 --> 00:34:45,560
Speaker 10: wait times are kind of obnoxious at times, right, And

725
00:34:45,719 --> 00:34:49,920
Speaker 10: so I think operations is going to be his primary focus.

726
00:34:50,200 --> 00:34:54,960
Speaker 10: Running the best cafes possible is really going to be

727
00:34:55,320 --> 00:34:57,800
Speaker 10: job number one. But there's a bunch of different issues,

728
00:34:57,840 --> 00:35:01,200
Speaker 10: you know, operations is just one of them. Politics has

729
00:35:01,320 --> 00:35:05,800
Speaker 10: been an issue, right. Starbucks has always been a brand

730
00:35:05,920 --> 00:35:08,399
Speaker 10: that that kind of puts their politics in your face,

731
00:35:08,480 --> 00:35:12,480
Speaker 10: and I think I think Brian Nichol is gonna want

732
00:35:12,480 --> 00:35:14,400
Speaker 10: to step back from that, right because of.

733
00:35:14,560 --> 00:35:15,799
Speaker 1: All of the the.

734
00:35:17,320 --> 00:35:20,120
Speaker 10: You know, all the issues they've had with their customer base. Right,

735
00:35:20,160 --> 00:35:23,120
Speaker 10: people haven't been happy with you know, there's been some

736
00:35:23,239 --> 00:35:27,279
Speaker 10: boycott talks online about their stance on the Israel Hamas War,

737
00:35:28,120 --> 00:35:31,520
Speaker 10: about their stance and how they've handled the union negotiations,

738
00:35:31,640 --> 00:35:33,960
Speaker 10: you know, so that's a big thing. And then you know,

739
00:35:34,080 --> 00:35:37,520
Speaker 10: we think eventually, once they have the stores running really

740
00:35:37,600 --> 00:35:39,879
Speaker 10: really well, they're going to start spending some more money

741
00:35:39,920 --> 00:35:42,920
Speaker 10: on marketing. Maybe not a ton of money, but we

742
00:35:43,000 --> 00:35:46,520
Speaker 10: would expect them to start spending on marketing.

743
00:35:46,880 --> 00:35:47,040
Speaker 4: You know.

744
00:35:47,480 --> 00:35:50,480
Speaker 10: It's not something that that Starbucks has traditionally done. But

745
00:35:50,560 --> 00:35:53,800
Speaker 10: it also wasn't something that Chipotle had traditionally done, and

746
00:35:53,880 --> 00:35:57,040
Speaker 10: it's been paying them dividends now for a handful of years.

747
00:35:57,200 --> 00:35:59,399
Speaker 4: So I think with Chipotle, though, we just maybe Paul

748
00:35:59,440 --> 00:36:02,680
Speaker 4: can attest. Is it like there's a menu and it's basic,

749
00:36:02,800 --> 00:36:05,200
Speaker 4: Like they're add ons, right, but like it's a basic menu.

750
00:36:05,320 --> 00:36:09,040
Speaker 4: Starbucks menu is like explosive, Like they can't even have

751
00:36:09,320 --> 00:36:11,759
Speaker 4: all the options up on the ordering board because they're

752
00:36:11,800 --> 00:36:14,440
Speaker 4: just too many. So it does working with operations and

753
00:36:14,520 --> 00:36:16,279
Speaker 4: getting that better, I mean, they have to pair back

754
00:36:16,320 --> 00:36:17,760
Speaker 4: their menu and get back to their base.

755
00:36:18,920 --> 00:36:19,120
Speaker 5: Yeah.

756
00:36:19,239 --> 00:36:19,680
Speaker 1: Probably.

757
00:36:19,880 --> 00:36:23,040
Speaker 10: You know, we had been critical of the previous management

758
00:36:23,080 --> 00:36:27,320
Speaker 10: team because they kept rolling out new menu platforms and

759
00:36:27,440 --> 00:36:30,520
Speaker 10: then in the next breath talking about improving throughput. But

760
00:36:30,840 --> 00:36:33,560
Speaker 10: you can't have both. So we fully expect them to

761
00:36:33,640 --> 00:36:36,759
Speaker 10: pair back this menu, make it easier to execute in

762
00:36:36,920 --> 00:36:42,200
Speaker 10: the cafes, right, make lives easier for their employees, and

763
00:36:42,680 --> 00:36:45,160
Speaker 10: get the orders out faster. So yeah, I think that's

764
00:36:45,239 --> 00:36:47,759
Speaker 10: going to be a major part of what they do

765
00:36:47,920 --> 00:36:48,560
Speaker 10: going forward.

766
00:36:49,360 --> 00:36:53,000
Speaker 2: I mean, Bloomberg had a story from last in twenty

767
00:36:53,040 --> 00:36:55,680
Speaker 2: twenty three where I mean the variations if you add

768
00:36:55,840 --> 00:36:58,760
Speaker 2: all the potential options, there's like billions of different types

769
00:36:58,800 --> 00:37:00,840
Speaker 2: of drinks that could be oh yeah, you know, so

770
00:37:00,960 --> 00:37:01,600
Speaker 2: it's just at.

771
00:37:01,480 --> 00:37:03,359
Speaker 4: It and there's like the cold drink, there's the tea,

772
00:37:03,400 --> 00:37:06,360
Speaker 4: there's the refreshers, then there's the frozen refreshers and the

773
00:37:06,480 --> 00:37:08,680
Speaker 4: blended refreshers, And I know this because my daughter likes

774
00:37:08,719 --> 00:37:11,120
Speaker 4: those things. By sometimes you get them frozen and sometimes

775
00:37:11,120 --> 00:37:12,759
Speaker 4: they're not. It's very cold.

776
00:37:12,840 --> 00:37:14,680
Speaker 2: I know, I don't know how they do it, and

777
00:37:14,800 --> 00:37:17,200
Speaker 2: my power, you know, my hats off to them. All right,

778
00:37:17,239 --> 00:37:20,000
Speaker 2: let's step back and look at the restaurants space in

779
00:37:20,120 --> 00:37:24,120
Speaker 2: general here. You've got some research out recently restaurant promotions

780
00:37:24,200 --> 00:37:25,680
Speaker 2: marketing heat up. That's not what.

781
00:37:25,760 --> 00:37:27,319
Speaker 6: Shareholders want to hear, do they.

782
00:37:29,239 --> 00:37:31,920
Speaker 10: No, But restaurants are kind of desperate right now to

783
00:37:32,000 --> 00:37:36,320
Speaker 10: get some traffic into their stores. Low income consumers. Spending

784
00:37:36,400 --> 00:37:39,160
Speaker 10: has been very weak. This seems to be spreading to

785
00:37:39,280 --> 00:37:42,399
Speaker 10: the middle income consumers, right, based on the industry data

786
00:37:42,440 --> 00:37:47,439
Speaker 10: that we've seen, which showed an improvement you know, last

787
00:37:47,520 --> 00:37:50,840
Speaker 10: month in August, but it was still negative at casual

788
00:37:50,920 --> 00:37:54,920
Speaker 10: dining restaurants, at family dining restaurants and a quick service, right,

789
00:37:55,040 --> 00:37:58,360
Speaker 10: and so they bounced from that horrific July numbers that

790
00:37:58,440 --> 00:38:02,560
Speaker 10: we saw, but still or negative. And so yeah, restaurants

791
00:38:02,760 --> 00:38:06,040
Speaker 10: are trying to do whatever they can to bring you know,

792
00:38:06,560 --> 00:38:09,759
Speaker 10: those low income consumers and middle income consumers back into

793
00:38:09,800 --> 00:38:11,759
Speaker 10: their restaurants. You know, just for example, it was you know,

794
00:38:11,880 --> 00:38:14,240
Speaker 10: I think it's thirty five out of the last thirty

795
00:38:14,360 --> 00:38:18,359
Speaker 10: seven quarters quick service chains have had negative traffic, right,

796
00:38:18,440 --> 00:38:21,760
Speaker 10: And so that's that's not a sustainable type of situation

797
00:38:21,800 --> 00:38:24,120
Speaker 10: when you have same source sales rising because your prices

798
00:38:24,160 --> 00:38:27,600
Speaker 10: are going up, but traffic can continues to decline. Eventually,

799
00:38:27,680 --> 00:38:30,719
Speaker 10: there's a tipping point, and that's what we've seen this year.

800
00:38:31,239 --> 00:38:33,920
Speaker 4: So to that point, then which ones are do you

801
00:38:34,040 --> 00:38:36,239
Speaker 4: have faith that can maintain some kind of margin and

802
00:38:36,400 --> 00:38:37,640
Speaker 4: also grow their top line.

803
00:38:39,840 --> 00:38:42,640
Speaker 10: You know, it's some of these chains that have a

804
00:38:42,800 --> 00:38:47,520
Speaker 10: big gap on pricing, you know, in terms of you know,

805
00:38:47,920 --> 00:38:50,520
Speaker 10: they've been pricing less than their competitors, right, So if

806
00:38:50,600 --> 00:38:53,560
Speaker 10: you're providing a lot of value, and value can be

807
00:38:53,600 --> 00:38:57,360
Speaker 10: two ways. It can be a better price, but it

808
00:38:57,440 --> 00:38:59,919
Speaker 10: also can be a lot more food for what you pay.

809
00:39:01,680 --> 00:39:05,680
Speaker 10: But some of these companies that that you know, people

810
00:39:05,760 --> 00:39:10,040
Speaker 10: see value at, you know, Rank, Wingstop, Chipotle, Texas Roadhouse.

811
00:39:10,120 --> 00:39:12,600
Speaker 10: These are all of the chains that have been outperforming.

812
00:39:12,719 --> 00:39:14,480
Speaker 10: These all of the chains that have been able to

813
00:39:14,640 --> 00:39:17,080
Speaker 10: drive traffic, and a big part of it is being

814
00:39:17,200 --> 00:39:21,320
Speaker 10: priced below competitors. You know, wink Stops raised prices about

815
00:39:21,360 --> 00:39:24,040
Speaker 10: half as much as their competitors, and on their last

816
00:39:24,040 --> 00:39:28,239
Speaker 10: earnings call. They credited that as a big reason for

817
00:39:28,360 --> 00:39:29,760
Speaker 10: their for their phenomenal quorder.

818
00:39:30,239 --> 00:39:32,440
Speaker 2: All right, Michael Halen, thank you so much for joining us.

819
00:39:32,440 --> 00:39:35,760
Speaker 2: Michaelin he's a senior restaurant and food service anamals Bloomberg Intelligence,

820
00:39:36,000 --> 00:39:38,239
Speaker 2: joining us from Princeton. Tuck a little Starbucks first day

821
00:39:38,280 --> 00:39:41,239
Speaker 2: for the new CEO there. I'm happy with my Starbucks.

822
00:39:41,560 --> 00:39:44,960
Speaker 6: Uh interesting Starbucks. I went, I go like once a week.

823
00:39:45,239 --> 00:39:47,439
Speaker 2: Oh okay, I used to go more of it. But yeah,

824
00:39:48,880 --> 00:39:50,640
Speaker 2: double short mocha very easy.

825
00:39:51,320 --> 00:39:51,960
Speaker 6: What's your go to?

826
00:39:52,640 --> 00:39:55,520
Speaker 4: Oh yeah, he's gonna okay, it is an Americano sometimes

827
00:39:55,560 --> 00:39:58,200
Speaker 4: I sometimes not half calf alma milk to Stevia.

828
00:39:58,600 --> 00:40:00,200
Speaker 6: Wow, that's which.

829
00:40:00,239 --> 00:40:04,400
Speaker 4: Actually for a Starbucks order, isn't really that bad? Like

830
00:40:04,520 --> 00:40:07,359
Speaker 4: there's no syrup, there's no Whippi things. It's not it's

831
00:40:07,440 --> 00:40:08,160
Speaker 4: you know, okay.

832
00:40:08,440 --> 00:40:10,080
Speaker 2: I think the younger you are, the more CREATI if

833
00:40:10,120 --> 00:40:12,239
Speaker 2: you are with your coffee orders, I thank you.

834
00:40:12,760 --> 00:40:13,560
Speaker 6: I'm just so sweet.

835
00:40:13,719 --> 00:40:15,400
Speaker 2: I mean, and the kids, some of the kids come

836
00:40:15,440 --> 00:40:18,279
Speaker 2: out with these things. I'm like, you know, how many

837
00:40:18,400 --> 00:40:20,920
Speaker 2: druiders of a basic cup of coffee can you have? There?

838
00:40:20,960 --> 00:40:25,760
Speaker 6: But apparently there's a lot. But again, Strawbucks. Who knew.

839
00:40:27,280 --> 00:40:31,120
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

840
00:40:31,239 --> 00:40:34,760
Speaker 1: weekdays at ten am Eastern on applecar Play and Android

841
00:40:34,800 --> 00:40:37,520
Speaker 1: Auto with the Bloomberg Business App. You can also listen

842
00:40:37,680 --> 00:40:40,759
Speaker 1: live on Amazon Alexa from our flagship New York station.

843
00:40:41,160 --> 00:40:43,879
Speaker 1: Just say Alexa play Bloomberg eleven thirty.

844
00:40:45,880 --> 00:40:49,120
Speaker 4: Alex Steel here alongside Paul Sweeney. This is Bloomberg Intelligence Radio.

845
00:40:49,440 --> 00:40:51,640
Speaker 4: We bring you all the news and business, economic and

846
00:40:51,719 --> 00:40:54,360
Speaker 4: finance through our lens of our Bloomberg Intelligence analysts. They

847
00:40:54,440 --> 00:40:57,000
Speaker 4: cover two thousand companies and one hundred and thirty industries

848
00:40:57,080 --> 00:41:00,040
Speaker 4: all around the world every Monday at this time. And

849
00:41:00,160 --> 00:41:02,719
Speaker 4: we like to bring you another arm of Bloomberg, and

850
00:41:02,840 --> 00:41:06,239
Speaker 4: that's Bloomberg n e F originally or previously known as

851
00:41:06,320 --> 00:41:08,920
Speaker 4: New Energy Finance. So the team in Bloomberg that tracks

852
00:41:09,200 --> 00:41:14,280
Speaker 4: and analyzes the energy transition from commodities to power, to transport, industry,

853
00:41:14,320 --> 00:41:17,000
Speaker 4: buildings and agg sectors. And here with us for more

854
00:41:17,200 --> 00:41:22,280
Speaker 4: is Brenna Casey, Bloomberg b n e F Carbon Capture Analyst. Brenna.

855
00:41:23,000 --> 00:41:25,560
Speaker 4: We take a look at, say, how carbon capture has grown,

856
00:41:25,560 --> 00:41:27,239
Speaker 4: the amount of money that's been put in Oh oh,

857
00:41:27,320 --> 00:41:28,439
Speaker 4: so Sorry, Paul's a question.

858
00:41:29,600 --> 00:41:32,960
Speaker 2: Pre question, Can you define what carbon capture is probably

859
00:41:33,000 --> 00:41:33,640
Speaker 2: the better question.

860
00:41:33,840 --> 00:41:38,920
Speaker 11: Yes, Yeah, So basically simply CCUS carbon capture, utilization, and storage.

861
00:41:39,000 --> 00:41:43,200
Speaker 11: It's kind of just a way to abate emissions from

862
00:41:43,440 --> 00:41:48,080
Speaker 11: heavy industry, so things like petrochemical refineries, integrated steel mills,

863
00:41:48,560 --> 00:41:49,760
Speaker 11: hydrogen blue hydrogen.

864
00:41:50,000 --> 00:41:50,239
Speaker 6: Okay.

865
00:41:50,800 --> 00:41:54,040
Speaker 11: Natural gas processing is a huge historical and use sector.

866
00:41:54,239 --> 00:41:57,160
Speaker 4: So basically there's some sectors that you cannot decarbonize and

867
00:41:57,239 --> 00:41:59,680
Speaker 4: you and they have to exist, like you need cement

868
00:41:59,840 --> 00:42:01,520
Speaker 4: for example, So this is a way to kind of

869
00:42:01,520 --> 00:42:02,960
Speaker 4: get them out of the air. And then the question

870
00:42:03,040 --> 00:42:03,319
Speaker 4: is kind of.

871
00:42:03,320 --> 00:42:03,800
Speaker 2: What do you do with it?

872
00:42:03,920 --> 00:42:05,920
Speaker 4: Do you reuse it somewhere? Do you put it somewhere?

873
00:42:06,000 --> 00:42:07,960
Speaker 4: Do you store it in a rock or somewhere else?

874
00:42:08,680 --> 00:42:10,800
Speaker 4: And it's been a huge focus for a lot of companies,

875
00:42:12,360 --> 00:42:14,880
Speaker 4: energy companies and a like in oil companies for example,

876
00:42:14,960 --> 00:42:17,120
Speaker 4: what has been the investment cycle like and where are

877
00:42:17,200 --> 00:42:18,000
Speaker 4: we now in that cycle?

878
00:42:18,719 --> 00:42:22,960
Speaker 11: Yeah, So if we're looking particularly to the US following

879
00:42:23,000 --> 00:42:26,719
Speaker 11: the Inflation Reduction Act, we saw this catalysis of not

880
00:42:26,880 --> 00:42:30,320
Speaker 11: only project announcements but kind of you know Series A,

881
00:42:30,800 --> 00:42:33,920
Speaker 11: you know, lots of equity financing into that into the

882
00:42:34,000 --> 00:42:38,239
Speaker 11: market right now. As you know, the IRS is still

883
00:42:38,320 --> 00:42:40,800
Speaker 11: yet to address forty five Q. So that's the inflation

884
00:42:40,920 --> 00:42:43,279
Speaker 11: reduction Yeah, yeah, so the Inflation Reduction Act, which was

885
00:42:43,360 --> 00:42:46,359
Speaker 11: signed into law, you know, two years ago. Forty five

886
00:42:46,440 --> 00:42:49,120
Speaker 11: q's in investment tax credit that the government is proposing

887
00:42:49,640 --> 00:42:53,160
Speaker 11: to you know, heavy emitters. They can if they meet X,

888
00:42:53,320 --> 00:42:56,200
Speaker 11: y Z requirements, then then they can take this credit

889
00:42:56,640 --> 00:42:59,080
Speaker 11: and apply it to their tax burden. And you know,

890
00:42:59,520 --> 00:43:01,600
Speaker 11: kind of how to mitigate the cost of ccs because

891
00:43:01,640 --> 00:43:03,240
Speaker 11: it's extremely capexx intensive.

892
00:43:03,760 --> 00:43:05,319
Speaker 4: So if you store your carbon er get it out

893
00:43:05,320 --> 00:43:06,440
Speaker 4: of the air, you get a text crdit.

894
00:43:06,480 --> 00:43:08,719
Speaker 11: Okay, yeah, it's like eighty five dollars per ton if

895
00:43:08,719 --> 00:43:11,120
Speaker 11: you store it, and then sixty if you reutilize it.

896
00:43:11,239 --> 00:43:11,920
Speaker 2: Yeah, exactly.

897
00:43:13,280 --> 00:43:16,120
Speaker 11: However, the IRS has yet to finalize the criteria, so

898
00:43:16,320 --> 00:43:20,880
Speaker 11: developers don't know what actually constitutes as a project that

899
00:43:20,960 --> 00:43:23,680
Speaker 11: can qualify for these sorts of credits, and so what

900
00:43:23,800 --> 00:43:28,040
Speaker 11: we've actually seen is not only investment taper off, but

901
00:43:28,520 --> 00:43:31,080
Speaker 11: just announcements of you know, future projects into the sector.

902
00:43:31,080 --> 00:43:33,279
Speaker 11: Which what's kind of ironic is that if you look

903
00:43:33,320 --> 00:43:35,640
Speaker 11: at investment numbers for last year for ccs in total,

904
00:43:35,719 --> 00:43:38,480
Speaker 11: it was globally eleven point three billion higher than it's

905
00:43:38,520 --> 00:43:41,719
Speaker 11: ever been before, the US to come around two point

906
00:43:41,760 --> 00:43:45,520
Speaker 11: eight billion of that. However, that is all bolstered by

907
00:43:45,719 --> 00:43:47,520
Speaker 11: just d OEE grants. So the DOE has, you know,

908
00:43:47,640 --> 00:43:51,200
Speaker 11: these direct air capture hubs. They're trying to throw money

909
00:43:51,239 --> 00:43:55,920
Speaker 11: at growing out midstream infrastructure, so trans like pipelines, the

910
00:43:56,000 --> 00:44:00,239
Speaker 11: storage like storage basins you mentioned earlier. But there's really

911
00:44:00,320 --> 00:44:02,640
Speaker 11: no FID is being taken in the sector at all. Besides,

912
00:44:02,680 --> 00:44:06,680
Speaker 11: I think it was the hydrogen Bomont complex last year.

913
00:44:06,800 --> 00:44:10,719
Speaker 4: So FID is Foreign Investment Decision Final best finstation. Sorry,

914
00:44:11,080 --> 00:44:13,080
Speaker 4: And it basically means like, Okay, I have enough and

915
00:44:13,120 --> 00:44:15,160
Speaker 4: I understand enough of the economics where I can actually

916
00:44:15,200 --> 00:44:16,680
Speaker 4: like put money in the ground and like put a

917
00:44:16,680 --> 00:44:18,640
Speaker 4: shovel on the ground and do some stuff. And that's

918
00:44:18,680 --> 00:44:20,960
Speaker 4: where we're really lacking. Which rates of the question is

919
00:44:21,000 --> 00:44:24,960
Speaker 4: it a is it building this stuff is still too complicated?

920
00:44:25,160 --> 00:44:27,360
Speaker 4: Or is it the demand side? So I'm a company

921
00:44:27,680 --> 00:44:29,360
Speaker 4: and I'm like, I can capture your carbon and I

922
00:44:29,400 --> 00:44:30,920
Speaker 4: can store it for you, but how much are you

923
00:44:30,960 --> 00:44:32,680
Speaker 4: willing to pay for that? Is that part of the

924
00:44:32,719 --> 00:44:33,160
Speaker 4: issue now?

925
00:44:33,920 --> 00:44:37,600
Speaker 11: Yeah, it's definitely kind of a sector by sector issue.

926
00:44:37,680 --> 00:44:40,120
Speaker 11: So if you look to power, we're seeing the most

927
00:44:40,160 --> 00:44:45,320
Speaker 11: cancelations in the power sector just because CCS is tremendously expensive,

928
00:44:45,400 --> 00:44:48,120
Speaker 11: and so for seeing a project announced around, you know,

929
00:44:48,280 --> 00:44:50,120
Speaker 11: thirty percent of those projects in the power sector are

930
00:44:50,320 --> 00:44:52,600
Speaker 11: like they're probably going to get canceled. And that's because

931
00:44:52,920 --> 00:44:56,840
Speaker 11: retrofitting with CCS adds around fifty six percent to the

932
00:44:56,920 --> 00:45:02,040
Speaker 11: total l COE. So it's eight hundred million plus capex investments.

933
00:45:02,080 --> 00:45:03,160
Speaker 11: If you look to something which.

934
00:45:03,400 --> 00:45:05,680
Speaker 4: How did they recoup that? Because that's about power, it's

935
00:45:05,680 --> 00:45:07,319
Speaker 4: either the company is paying for it or like, I'm

936
00:45:07,360 --> 00:45:09,080
Speaker 4: paying for it in my bills, right, and that's the

937
00:45:09,080 --> 00:45:10,760
Speaker 4: definite way of how they recoup that cash.

938
00:45:11,000 --> 00:45:13,200
Speaker 11: Especially if you know the forty five Q credit if

939
00:45:13,280 --> 00:45:15,200
Speaker 11: you are in a bit or two qualify, it only

940
00:45:15,280 --> 00:45:17,439
Speaker 11: lasts twelve years. A lot of these lifetimes are twenty

941
00:45:17,640 --> 00:45:20,399
Speaker 11: twenty five years, and so yeah, how do you kind

942
00:45:20,400 --> 00:45:21,840
Speaker 11: of make that investment back carp.

943
00:45:21,719 --> 00:45:27,120
Speaker 2: And capture losing some momentum because maybe just the transition

944
00:45:27,239 --> 00:45:29,600
Speaker 2: to green in the US has become a little politicized

945
00:45:29,640 --> 00:45:31,360
Speaker 2: and maybe it's losing a little bit of impetus.

946
00:45:31,400 --> 00:45:33,160
Speaker 6: Are we falling behind other countries.

947
00:45:33,200 --> 00:45:35,040
Speaker 5: For example, I.

948
00:45:35,080 --> 00:45:38,040
Speaker 11: Mean, the US is definitely the market leader. So globally

949
00:45:38,120 --> 00:45:41,640
Speaker 11: there's around four hundred and twenty four million metric tons

950
00:45:41,680 --> 00:45:44,200
Speaker 11: of CU two capture capacity do to come online by

951
00:45:44,239 --> 00:45:47,160
Speaker 11: twenty thirty five. Now, out of that, around one hundred

952
00:45:47,160 --> 00:45:50,480
Speaker 11: and sixty I think it's one sixty three million tons

953
00:45:51,680 --> 00:45:53,759
Speaker 11: is based in the US and following you know, the

954
00:45:53,840 --> 00:45:56,920
Speaker 11: forty five q Invice Reduction Act. Even though there's you know,

955
00:45:57,040 --> 00:46:02,279
Speaker 11: hiccups here, hiccups with transparence or permitting, we do see

956
00:46:02,320 --> 00:46:04,160
Speaker 11: the United States as the best place in the world

957
00:46:04,200 --> 00:46:06,160
Speaker 11: is to kind of build one of these projects.

958
00:46:06,320 --> 00:46:08,480
Speaker 4: So what companies do you feel like have the real deal?

959
00:46:08,520 --> 00:46:10,080
Speaker 4: It's I talk to a lot of companies and they're

960
00:46:10,080 --> 00:46:12,080
Speaker 4: all going to try and sell me their carbon capture

961
00:46:12,160 --> 00:46:14,480
Speaker 4: products and like why they're the best and how their

962
00:46:14,520 --> 00:46:17,759
Speaker 4: economics work and all that stuff. Who actually can make

963
00:46:17,800 --> 00:46:18,239
Speaker 4: this work?

964
00:46:18,800 --> 00:46:21,840
Speaker 11: Yeah, I mean, if we're looking at power and hydrogen,

965
00:46:21,880 --> 00:46:23,600
Speaker 11: which are the two leaders right now, kind of the

966
00:46:23,640 --> 00:46:26,920
Speaker 11: biggest players here, we're seeing occidental energy. So not only

967
00:46:26,960 --> 00:46:30,160
Speaker 11: are they looking to retrofit there, you know, natural gas

968
00:46:30,200 --> 00:46:33,840
Speaker 11: assets with carbon capture, but they're also kind of taking

969
00:46:33,920 --> 00:46:37,240
Speaker 11: this first mover run into the direct air capture space.

970
00:46:37,840 --> 00:46:40,000
Speaker 11: So that's a really interesting company to watch in that

971
00:46:40,680 --> 00:46:44,000
Speaker 11: kind of little corner. There's also you know, like air

972
00:46:44,120 --> 00:46:47,360
Speaker 11: products for hydrogen excellon Mo. It's primarily these oil and

973
00:46:47,400 --> 00:46:50,759
Speaker 11: gas majors that are moving around in the market because

974
00:46:50,760 --> 00:46:54,440
Speaker 11: they have you know, just previous expertise, but they also

975
00:46:54,560 --> 00:46:57,120
Speaker 11: understand the geology, how to store these things, how to

976
00:46:57,239 --> 00:47:01,200
Speaker 11: build you know, these big expensive projects. So yeah, air

977
00:47:01,280 --> 00:47:03,279
Speaker 11: products Oxy so oxy.

978
00:47:03,160 --> 00:47:05,560
Speaker 4: Is one of the peer players for eanps for oil

979
00:47:05,600 --> 00:47:07,319
Speaker 4: and gas. We talked to the CEO and she wants

980
00:47:07,360 --> 00:47:10,600
Speaker 4: to eventually basically be a rent for higher direct air capture,

981
00:47:10,680 --> 00:47:13,720
Speaker 4: So meaning like, hey, I need you to capture some stuff,

982
00:47:13,800 --> 00:47:15,920
Speaker 4: and you build a plant near a factory or somewhere

983
00:47:15,960 --> 00:47:17,600
Speaker 4: else and you just suck carbon out of the air

984
00:47:17,760 --> 00:47:19,719
Speaker 4: and then therefore you're able to separate it and then

985
00:47:19,840 --> 00:47:21,640
Speaker 4: store it somewhere or reuse it, and that's like what

986
00:47:21,719 --> 00:47:24,360
Speaker 4: they want that business model to be. Amazon signed an

987
00:47:24,400 --> 00:47:26,120
Speaker 4: off take with them. They wouldn't tell me the price.

988
00:47:26,200 --> 00:47:29,080
Speaker 4: They're like it was really hard, Like you can get

989
00:47:29,120 --> 00:47:31,200
Speaker 4: the off takes and like the buyers like an Amazon,

990
00:47:31,320 --> 00:47:34,200
Speaker 4: but it is really expensive. Yet like it hasn't become

991
00:47:34,320 --> 00:47:36,359
Speaker 4: easy on that sense, all right, Brenda, thanks a lot,

992
00:47:36,440 --> 00:47:41,080
Speaker 4: really appreciated. Branda Casey, Bloomberg B and if carbon capture analyst.

993
00:47:41,200 --> 00:47:44,920
Speaker 4: I obviously find this really interesting, I know. And the

994
00:47:45,000 --> 00:47:46,759
Speaker 4: idea is, like you can do green all you want,

995
00:47:46,880 --> 00:47:48,960
Speaker 4: but like we're not starting over from scratch, so you

996
00:47:49,080 --> 00:47:53,399
Speaker 4: actually need carbon capture to get the existing emissions out

997
00:47:53,440 --> 00:47:55,400
Speaker 4: because how else do you filter that. You can get trees,

998
00:47:55,440 --> 00:47:58,080
Speaker 4: and that's awesome, and like we want trees, right, maybe

999
00:47:58,120 --> 00:48:00,480
Speaker 4: the ocean, but we need all the things. Let's make

1000
00:48:00,560 --> 00:48:01,160
Speaker 4: all work.

1001
00:48:01,920 --> 00:48:06,440
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1002
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1003
00:48:09,880 --> 00:48:13,040
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1004
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1005
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1006
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