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Speaker 2: All right, so we know a big, big day out
Speaker 2: in the Bay Area today with Apple and their new
Speaker 2: iPhone and new product launches. Mark German he covers all
Speaker 2: the technology stuff out there for Bloomberg News. Mark, I've
Speaker 2: already informed Tim Cook that I am, in fact going
Speaker 2: to be upgrading my phone here in the not too
Speaker 2: distant future to the iPhone sixteen. I guess I am
Speaker 2: who cares and they're very excited. Are people excited for
Speaker 2: this event here today?
Speaker 3: And if so, why, Yes, it's all about the iPhone
Speaker 3: this year. This is actually going to be more of
Speaker 3: a muted release, right, So this is not a big
Speaker 3: year over year overhaul. Remember last year they added the
Speaker 3: Titanium show. Well, this year is more about refinements, increased
Speaker 3: processing performance to better support artificial intelligence, improve displays on
Speaker 3: the Pro model, so slightly bigger screens is about a
Speaker 3: five percent display increase, but because the bezels around the
Speaker 3: display are smaller, that increase is actually going to be
Speaker 3: more noticeable than a five percent increase would normally suggest
Speaker 3: if you heard that. The other big enhancement is going
Speaker 3: to be a camera button. This is going to be
Speaker 3: on all four new models, both the low end and
Speaker 3: the high end models, and it basically works the same
Speaker 3: as a DSLR button, right, So you soft touch it
Speaker 3: to autofocus on a subject, you press it in in
Speaker 3: order to actually take that photo or a video. You're
Speaker 3: also going to be able to swipe on it up
Speaker 3: and down or left to right in order to zoom
Speaker 3: in and out of the subject. So it's essentially the
Speaker 3: same camera controls that you've had on the display now
Speaker 3: relegated to a harbor button on the side of the phone.
Speaker 3: And the bet there is that will help people take
Speaker 3: more pictures and maybe better pictures, which of course is
Speaker 3: going to translate to people needing to buy iPhone with
Speaker 3: more storage base, which obviously costs more, and bigger iCloud
Speaker 3: storage plans, which obviously will generate more revenue for Apple
Speaker 3: on both of those things, right, So it's I guess
Speaker 3: a win for consumers and a double win for Apple.
Speaker 4: Does that imply then a supercycle definitely taking hold in
Speaker 4: twenty four to twenty five.
Speaker 5: There's no iPhone supercycle.
Speaker 3: There have been some analyst claims over the last several
Speaker 3: weeks about a supercycle coming with these new iPhones. I
Speaker 3: would have to say that they're either making things up,
Speaker 3: or getting bad information, or just trying to pump the
Speaker 3: stock price for their own self interests.
Speaker 5: Right.
Speaker 3: The reality is that the numbers that we're seeing in
Speaker 3: terms of iPhone orders from the supply chain probably indicate
Speaker 3: an annual decline.
Speaker 5: On iPhone unit shipments.
Speaker 3: Now, an annual decline doesn't necessarily mean a revenue decline, right,
Speaker 3: Because they're adding new features through these higher end models,
Speaker 3: particularly making the lower end Pro model even better at
Speaker 3: one thousand dollars price point. You may be seeing people
Speaker 3: who normally would buy the seven ninety nine version go
Speaker 3: to the nine nine version, which could raise overall asps.
Speaker 3: In terms of an iPhone supercycle, that normally means big
Speaker 3: hardware changes, We're not getting that this time around. It
Speaker 3: also would mean that Apple intelligence would be ready to go,
Speaker 3: but I would say it's half baked.
Speaker 5: If even that.
Speaker 3: A lot of the new features aren't coming until December,
Speaker 3: and many more aren't coming until the middle of next year.
Speaker 5: So if you're anticipating an.
Speaker 3: iPhone supercycle, if you believe there will ever be an
Speaker 3: iPhone supercycle again, a I would say, adjust your expectations
Speaker 3: for twenty twenty four, maybe focused on September twenty twenty five,
Speaker 3: when the iPhone seventeen launches with more significant enhancements.
Speaker 6: What is Apple Intelligence?
Speaker 3: Apple Intelligence is artificial intelligence for Apple customers, right, So
Speaker 3: that's the Apple branded version of their AI platform coming
Speaker 3: as part of iOS eighteen point one sometime in October.
Speaker 3: That's including summaries of notifications. That's including phone call recording
Speaker 3: and automated transcriptions. That's including transcriptions and voice memos is
Speaker 3: including voice recording, and the nosapp. It's including gen Mojis,
Speaker 3: which uses artificial intelligence to create your own emoji characters.
Speaker 4: My daughter loves that, by the way, like they're making emojis,
Speaker 4: Like she takes my phone and does the things and
Speaker 4: she makes chiffs and all this stuff. Like the young kids,
Speaker 4: they love it.
Speaker 3: I think the gen moojis are going to be incredibly popular.
Speaker 3: I think it's going to be at the center of
Speaker 3: many of Apple's advertisements for these features, but that's not
Speaker 3: coming until December.
Speaker 5: So I'm not sure.
Speaker 3: How that can sell new iPhones in September if it's
Speaker 3: not going to be available until December.
Speaker 5: So I have some big.
Speaker 3: Questions about where analysts get their information from, why they
Speaker 3: say the things they do, and why some.
Speaker 5: Of them are considered reputable.
Speaker 3: So I think that people need to be able to
Speaker 3: separate the signal from the noise. And that's why I'm
Speaker 3: so happy to come on here and explain and provide
Speaker 3: a dose of reality.
Speaker 4: So but the dumb question, So Paul gets his new
Speaker 4: phone in October, can he just update the stuff when
Speaker 4: the cool things like the emoji stuff comes out?
Speaker 3: Yes, he can'tolutely and it's not a dumb question, right,
Speaker 3: So what we're going to see our Apple Intelligence features
Speaker 3: rolling out probably over the course the next six to
Speaker 3: nine months, with constant software updates. Now this is new
Speaker 3: for Apple. This is not something they've done in the past.
Speaker 3: Usually you get one big software update every September and
Speaker 3: you're pretty.
Speaker 5: Much set safe for buck mixes and.
Speaker 3: Maybe a couple of enhancements here or there until the
Speaker 3: following September. This time around is going to be a
Speaker 3: gradual release. Now, why are they doing that, because Apple
Speaker 3: Intelligence simply is not ready. There's a lot of testing
Speaker 3: that needs to go into this. And the reason Apple
Speaker 3: Intelligence has been behind is because they're responding late to
Speaker 3: this AI praise. They really didn't start getting to work
Speaker 3: on these AI enhancements until the second half of twenty
Speaker 3: twenty two after they saw chat GPT launch. Right, this
Speaker 3: was really something that was developed over the course of
Speaker 3: twenty twenty three and into the first half of twenty
Speaker 3: twenty four.
Speaker 5: And their development.
Speaker 3: Cycles for major new initiatives like this, these normally can
Speaker 3: take three to four years, right, but they did it
Speaker 3: basically in half the time.
Speaker 2: So, yeah, you raised a good point earlier, mark that
Speaker 2: there's a reasonable scenario, just given the size of the market,
Speaker 2: that there really are no supercycles unlikely to be a
Speaker 2: super cycle again for the Apple iPhone. Is that a
Speaker 2: belief that's widely held out there.
Speaker 3: It's widely held by me, and I think it's widely
Speaker 3: held by people who really understand this stuff.
Speaker 5: You know, the last time we.
Speaker 3: Got a true, true iPhone supercycle was back in twenty fourteen,
Speaker 3: ten years ago, with the release of the iPhone six
Speaker 3: and six plus two reasons.
Speaker 5: That was the first time.
Speaker 3: That they made substantial screen size increases to the iPhone.
Speaker 3: That was your first Apple fablet, right, moving to the
Speaker 3: four point seven to five point five in screen sizes.
Speaker 5: Massive.
Speaker 3: Also, that was the same year where they struck the
Speaker 3: carrier agreement with China Mobile in China, the biggest wireless
Speaker 3: carrier in the world, adding an addressable market, an additional
Speaker 3: addressable market of one billion people, right, So that is
Speaker 3: what really elicited that supercycle, and that was a two
Speaker 3: three year thing, So that was great for Apple. We
Speaker 3: saw another big bounce in twenty seventeen with the iPhone ten.
Speaker 3: Obviously that was major in terms of asps or great
Speaker 3: the starting price right by three hundred dollars from seven
Speaker 3: hundred and two one thousand. That was a big upgrade
Speaker 3: with face idea. Then we saw that again with the
Speaker 3: iPhone twelve, five G all four models at the tail
Speaker 3: end of twenty twenty, at the top of COVID when
Speaker 3: people were splurging on money, right, So that was a
Speaker 3: big one.
Speaker 5: But since the iPhone twelve and twenty twenty and the
Speaker 5: advent of five G for Apple.
Speaker 3: We haven't seen major, major, major significant changes.
Speaker 5: Maybe they're coming at the end of next year. Maybe
Speaker 5: that will.
Speaker 3: Create a supercycle, but I want people to know, don't
Speaker 3: expect one this year.
Speaker 4: All Right, We're on't up more Apple in just a moment. Also, Hey,
Speaker 4: Mark Ourman, Thanks lot really appreciated. Bloomer Technology senior reporter
Speaker 4: joining us from California.
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Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 4: Speaking of sectors, good to look at. Looking at Apple,
Speaker 4: it's about one point three percent today. It is their
Speaker 4: glow time event, as we've been talking about. But Bloomberg
Speaker 4: Big Take had a fantastic piece today and we wanted
Speaker 4: to dive into Austin car technology reporter for Bloomberg News.
Speaker 4: It's titled Apple's Rise from Rebel to three point four
Speaker 4: trillion dollar world power. It's great to get you on this, Austin.
Speaker 4: It was a wonderful piece. Distracted me from my whole
Speaker 4: car ride.
Speaker 2: Into the office.
Speaker 4: Can you just connect all the dots from like the
Speaker 4: eighties until now.
Speaker 7: You want me to summarize forty years and a minute,
Speaker 7: I can you bet you've got okay? Well, well, really,
Speaker 7: what this story does is chart why and how Apple
Speaker 7: found in its position today, facing a big anti trust
Speaker 7: lawsuit in the US, a lot of regulatory pressure in Europe,
Speaker 7: as well as a lot of really just skepticism and
Speaker 7: criticism for a lot of the partners and developers that
Speaker 7: have depended on Apple over the years. And it charts
Speaker 7: how basically Apple has changed from thatnineteen eighty four era
Speaker 7: when it released the Mac it was seen as this
Speaker 7: sort of disruptive force in the technology industry to twenty
Speaker 7: twenty four when a lot of people think that this
Speaker 7: is a sort of domineering force that needs to be disrupted.
Speaker 7: So we go through from the Mac to the iPod
Speaker 7: and iPhone up through present day with the release of
Speaker 7: the iPhone, the new iPhone sixteen later today, and it's
Speaker 7: just really just putting all the pieces together about how
Speaker 7: Apple finds itself.
Speaker 5: In that position now.
Speaker 2: And Austin along with Max Chafkin, you guys reported this story.
Speaker 6: Just fantastic work.
Speaker 2: But for me, Cameron Galley who does all the illustrations
Speaker 2: just made it really cool and really interactive, some awesome
Speaker 2: stuff as always.
Speaker 6: So Austin, where do you think Apple goes from here?
Speaker 6: What's is it just new products?
Speaker 2: Is it maybe getting more ingrained in our daily lives?
Speaker 6: If that's even possible.
Speaker 2: What do you think kind of a longer term vision
Speaker 2: is for the folks in Kupertino?
Speaker 7: Look, I mean, I think a really good question for
Speaker 7: listeners right now or even you guys, is just, you know,
Speaker 7: going to release this new iPhone. If you guys are
Speaker 7: Apple users, have you ever seriously considered switching to a
Speaker 7: different device or is it just the default? Now that
Speaker 7: I'm going to upgrade to the iPhone sixteen? Maybe at default?
Speaker 7: And so I think the question is how long can
Speaker 7: that last where it is just sort of the default?
Speaker 7: I mean, even their new features that are going to
Speaker 7: release today are all about you know, AI and how
Speaker 7: that ties into some of its hardware. But in all honesty,
Speaker 7: they're two years late to AI. A lot of the features.
Speaker 7: Mark German or Apple colleague, is reporting that won't really
Speaker 7: release until twenty twenty five, at which point maybe you
Speaker 7: should just wait for the iPhone seventeen and I just
Speaker 7: think there's a big question about you know, Apple's products
Speaker 7: are still good. They still make you know, the best laptop,
Speaker 7: the best you know, watch and earbuds. I'm talking through
Speaker 7: my AirPods right now. But at the same time, when
Speaker 7: they don't face that type of pressure, does their products
Speaker 7: just become too incremental and too boring? And I think
Speaker 7: that is when you're going to see a lot more
Speaker 7: disruptives trying to change the way computing works and work
Speaker 7: outside of the Apple ecosystem. But the problem for consumers
Speaker 7: like us is we're kind of stuck in it. I'm
Speaker 7: not going to switch anytime soon for sure.
Speaker 4: Well then to that point, but I found also interesting,
Speaker 4: and I didn't know in the piece that you wrote,
Speaker 4: was sort of Tim Cook's role in managing Apple supply chain,
Speaker 4: and you dug deep into Apple would have a supply
Speaker 4: chain partner and then in essence look to manufacture that
Speaker 4: in house, and then booed that company, which is really
Speaker 4: messed up tons of companies around the world. Can you
Speaker 4: give us some detail on that. Sure.
Speaker 7: The most infamous example actually goes back about a decade ago.
Speaker 7: Apple was developing these new sapphire screams that were going
Speaker 7: to be altered durable instead of the glass that they
Speaker 7: currently use, and they sort of outsourced it to a
Speaker 7: partner and then left that partner on the hook with
Speaker 7: all the liability when Apple decided not to go that
Speaker 7: route because the sapphire wasn't quite going as fast as
Speaker 7: they could develop it for the iPhone. And I think
Speaker 7: that we sort of positioned that as symbolic of what
Speaker 7: Apple has seen with a few of the partners they've
Speaker 7: worked with over the years, not just in the supply chain,
Speaker 7: but also on the software ecosystem side. It's really fascinating
Speaker 7: all this sort of trend that we see of a
Speaker 7: partner really excited to work with Apple in the beginning,
Speaker 7: like Goldman Sachs on the Apple Card or even General Motors.
Speaker 7: We side as another example of working them on CarPlay,
Speaker 7: and then years go by and suddenly they're not so
Speaker 7: happy with the relationship with the Apple anymore. And I
Speaker 7: think that really has become our trend in recent years
Speaker 7: as the company has grown to this massive, multi trillion
Speaker 7: dollar force that essentially it's Apple's where or the highway.
Speaker 7: And I'm just curious how long that will last with
Speaker 7: partners before they say you know what enough is enough, and.
Speaker 2: You know, Austin, I think for a lot of investors,
Speaker 2: one of the longer term issues that's still always out
Speaker 2: there and is probably increasing in concern. It's just the
Speaker 2: regulatory risk for not just Apple but kind of big
Speaker 2: tech in general, but certainly for Apple given their marketing position.
Speaker 2: How do you think the companies kind of how do
Speaker 2: they react to that? And just in terms of a
Speaker 2: long term thread or headwind.
Speaker 7: Well, actually, I mean the DOJ case in the US.
Speaker 7: You know, they just released their complaint in March. Apple
Speaker 7: is pushed to dismiss it just earlier in August. That's
Speaker 7: going to play out over the course of years. I
Speaker 7: think that, you know, the preceding cases with the DOJ
Speaker 7: and IBM, or DJ and Microsoft. I mean this last many,
Speaker 7: many years, but we're already seeing sort of a precursor
Speaker 7: to that, and what's happening in Europe with the Digital
Speaker 7: Markets Act, which has already pushed Apple to change a
Speaker 7: ton In fact right now in Europe, because of those
Speaker 7: regulatory changes, you can get an alternative marketplace, meaning you
Speaker 7: don't just have to rely on Apple's app store. You're
Speaker 7: you're actually able to delete a lot of native Apple
Speaker 7: apps that you can't delete the US, you can delete Safari.
Speaker 7: You'll eventually be able to delete your phone app, your
Speaker 7: camera app, the app store and just use alternative products
Speaker 7: from the third party ecosystem. And so what you're seeing
Speaker 7: in Europe is this almost two track system where they
Speaker 7: have a lot more flexible sort of computing platform than
Speaker 7: anywhere else if you're an Apple user. So I think
Speaker 7: what they've sort of done is take this almost whack
Speaker 7: a mole approach to regulation and the EU, and even
Speaker 7: in some of the pressure they've seen in the US,
Speaker 7: they've had to open up that walled garden that, as
Speaker 7: we refer to it, sort of their closed ecosystem a
Speaker 7: little bit more in a way that Apple doesn't like
Speaker 7: because they lose control. But for consumers in a lot
Speaker 7: of ways, it's a little bit interesting to watch this
Speaker 7: company have to change and not just have it the
Speaker 7: Apple approach. They're going to have to, at least in
Speaker 7: Europe so far, open up their walled garden a little bit,
Speaker 7: allows some more players within their ecosystem to run some
Speaker 7: of those fundamental parts.
Speaker 4: Yeah, which is why it's so interesting to read the
Speaker 4: piece because it really reminds us that Apple wasn't the
Speaker 4: leader forty years ago, that it was a very different
Speaker 4: world when it came to PCs. You can definitely read
Speaker 4: this Big Take and more on the Bloomberg and at
Speaker 4: Bloomberg dot com slash Big Take. Definitely check it out,
Speaker 4: really wonderful stuff. Plus, if you're joining us from Boston, Massachusetts,
Speaker 4: like Austin is, if you're listening to us in Boston,
Speaker 4: does now ninety two nine FM in Boston. I could
Speaker 4: have done a little bit better, but I did it
Speaker 4: all right, Austin, Thanks a lot, Austin Car Technology Reporter.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 4: Okay, let's get to another chap story here that we're
Speaker 4: looking on. That's HSBC is looking at potentially merging it's
Speaker 4: commercial and investment bank to cut some cost. We wanted
Speaker 4: to get more on that with too much netsl senior
Speaker 4: US Banks analyst. He joins us from Bloomberg Intelligence from London.
Speaker 4: Can you just walk me through why and sort of
Speaker 4: what this would look like.
Speaker 8: Yes, hey, hey guys, thank you very much for having me.
Speaker 8: So cost cutting, yes, so that's definitely something on top
Speaker 8: of our gendle of the new new HSBCCO who has
Speaker 8: just started started his position a couple of days ago.
Speaker 8: So why cost cutting? First of all, we are seeing
Speaker 8: a revenue weekending outdocouse weekending because of interest rates are
Speaker 8: going down the next two years and the hedges. We
Speaker 8: need to do something to keep the profitability and they
Speaker 8: would love to stay at around the meeting's rot and
Speaker 8: in order to achieve that, they need to cost codes
Speaker 8: because there's little options to do with revenues.
Speaker 2: So what is the competitive position for hs SPC. Just
Speaker 2: break it down for it because I think a lot
Speaker 2: of our listeners and viewers some don't have a great
Speaker 2: handle on it.
Speaker 8: Yeah, So first of all, we need to understand that
Speaker 8: HSBC is very much heavily emerging market focused bank. If
Speaker 8: you are emerging market focused bank, of course you have
Speaker 8: much better opportunity to grow your revenues, your growth your lending.
Speaker 8: But if you look into the outlook, it's not had
Speaker 8: to rose the story anymore because now we have much
Speaker 8: higher interest rates, red are going to go down. GDP
Speaker 8: is not so growing south fast as it does in
Speaker 8: the past, so revenue is going to flat in the
Speaker 8: next two three years. But if you look, if you
Speaker 8: are emerging market focused bank as well, you are facing
Speaker 8: higher inflation costs and because of the higher wage inflation
Speaker 8: those markets, etc. Your costs, but it is growing. On
Speaker 8: top of that, you have to invest in digitalization, transformation,
Speaker 8: et cetera. So everybody is doing this globally, so there
Speaker 8: is massive cost pressure. And looking at HSBC, which is
Speaker 8: spread across more than fifty markets, mainly in Asia right
Speaker 8: now after recent recent restructuring, you know there's a massive
Speaker 8: and they have to do something about this to streamline
Speaker 8: the operations. They have started this already a couple of
Speaker 8: years ago under no Queen and they've done quite good
Speaker 8: job cutting costs by more than five billions. However, there
Speaker 8: are still lots of things to be done, and one
Speaker 8: of those aspects we definitely head counts and then maybe
Speaker 8: looking into cost base and look at headcounts and try
Speaker 8: to have some synergies in those two businesses, which will
Speaker 8: combined have around forty billions in revenues, will be the biggest,
Speaker 8: biggest revenue driver for HSBC Marke bigger than wealth and
Speaker 8: every which is the key focus of the bank at
Speaker 8: the moment.
Speaker 4: It's something damn question. But if it's such a it
Speaker 4: makes so much sense. Why haven't they done it already?
Speaker 5: Well, that's a good question for.
Speaker 8: The four CEO who just left no queen and the
Speaker 8: new guy is coming and he has to deliver something
Speaker 8: and he has to why he hadn't done before Because
Speaker 8: we were living in different interest rate environments right here
Speaker 8: linking in the interest rates environment that we're supporting revenues,
Speaker 8: but the condition has changed. Environments has changed now that
Speaker 8: the expectations for US rates, global rates are going up
Speaker 8: and down. The volatility is quite high, but I think
Speaker 8: we now expect, we know more or less that the
Speaker 8: rest is going to come down and the sensit and
Speaker 8: EDGESBC is one of the most sensitive bank to cut
Speaker 8: in indust right, so they have to do something quickly
Speaker 8: and definitely the new CEO needs to deliver something, needs
Speaker 8: to convince market that he can get the handle of
Speaker 8: on cost causes. Definitely the big issue. Have been writing
Speaker 8: about this quite a lot. You want to deliver. If
Speaker 8: you are Amergic focused bank, you want to deliver revenue
Speaker 8: revenue Manda's cost which recall operating joes. You want to
Speaker 8: have a round one to three percent. And at the
Speaker 8: moment they're running negative jobs into the future, so it's
Speaker 8: not the compelling story for HSBC. Hence cost focus right
Speaker 8: now is very important, and they would replicate possibly what
Speaker 8: Standard Charge did at the beginning of the year where
Speaker 8: they also plan to merge to you and its just
Speaker 8: to cost cut costs and they are able to keep
Speaker 8: cost flatish in the next two years, and possibly HBC
Speaker 8: is going to follow the same path.
Speaker 6: Tomash.
Speaker 2: I'm just looking at the p GEO function to see
Speaker 2: where they get their revenue from a geographic perspective, and
Speaker 2: again about you know there at half the revenues comes
Speaker 2: out of Asia, about almost forty percent comes out of Europe,
Speaker 2: only about ten percent out of North America. So have
Speaker 2: they can they be a significantly profitable and generate the
Speaker 2: types of returns they need to without having a bigger
Speaker 2: presence in North America.
Speaker 8: Well, if you look at they have been very much
Speaker 8: dealer reading themselves or they were the risking themselves when
Speaker 8: they were you know, they existed France, Canada, they have
Speaker 8: some US as well. They cut on operations over there
Speaker 8: now heavily focusing on Asia at the moment, and Asia
Speaker 8: growth is what they want to level and embark on.
Speaker 8: They definitely look into wealth management and if you look
Speaker 8: at new stories over the bloom work, there's a lots
Speaker 8: of stories. They're hiring people more people in Hong Kong
Speaker 8: or in Singapore because they want to really compete with
Speaker 8: wealth management and this is the area of their growth.
Speaker 8: And whenever they talk about interest rate cutting just or
Speaker 8: lending growth is very difficult and the moment, so wealth
Speaker 8: management is definitely something they want to they want to
Speaker 8: explore further and that's the area of growth for them.
Speaker 8: It's in Asia, but also in Middle East where where
Speaker 8: we have the largest non millionaires billionaires come to the market,
Speaker 8: and they want to definitely couple supports meeting this in
Speaker 8: this AREO.
Speaker 4: All right, Tamash, thanks a lot. Tamash Netzel joining us
Speaker 4: senior EU Banks analyst for Bloomberg Intelligence.
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Speaker 4: Alex Steel here alongside Paul Sweeney. This is Bloomberg Intelligence Radio.
Speaker 4: We cover all the tap news in business, economics and
Speaker 4: finance or lens of our Bloomberg Intelligence folks. They cover
Speaker 4: two thousand companies in one hundred and thirty industries all
Speaker 4: around the world. We also like to take a broader
Speaker 4: view and kind of step back and look at what
Speaker 4: the pros are doing. And for that we go to
Speaker 4: Chuck Lieberman, co founder and chief investment officer and Advisor's
Speaker 4: Capital Management. They have just under eight billion dollars in
Speaker 4: assets under management.
Speaker 2: Great great person.
Speaker 4: To talk to, Chuck. Do you care if the FED
Speaker 4: twenty five or fifty at the next meeting, if they
Speaker 4: cut seventy five or fifty for the rest of the year.
Speaker 9: I do care because of the message that it sends
Speaker 9: in terms of the economic impact that's likely to be
Speaker 9: small twenty five or fifty. I don't think the market
Speaker 9: is on board with what they're likely to do. I
Speaker 9: think they're going to do less rather than more. The
Speaker 9: market's price for one hundred and twenty five basis points
Speaker 9: between now and the end of the year. I just
Speaker 9: don't see that as feasible without a recession.
Speaker 2: So we had a wholesal of economic data last week.
Speaker 2: Comment leading with the jobs number on Friday, it appears
Speaker 2: economy slowing. Is it slung at a rate that a
Speaker 2: Do you agree with that? And are you concerned that
Speaker 2: maybe it's slowing too much?
Speaker 9: It is definitely slowing. But as I joked, good luck
Speaker 9: trying to avoid getting a traffic ticket. If you tell
Speaker 9: the cop you slowed from one hundred and you slowed
Speaker 9: down to one hundred miles an hour in a seventy zone,
Speaker 9: that's not going to fly very well. The economy has slow.
Speaker 9: We're growing at a more moderate rate, but we're still
Speaker 9: growing north of two percent, and fundamentally that's a very
Speaker 9: solid growth rate. Productivity is adding one one and a
Speaker 9: half percent a year, labor force is adding, domestic labor
Speaker 9: force is adding a half a percent a year. Maybe
Speaker 9: all of the rest is coming from immigration, and so
Speaker 9: we have the capacity to grow at two percent a year.
Speaker 9: We're doing that. So that's very solid growth.
Speaker 4: So if we have that solid growth, is it that
Speaker 4: the FED will cut less in the short term? But
Speaker 4: the amount of cuts over all in the cycle is
Speaker 4: the same. Or do you think that we need to
Speaker 4: start and we I mean investors, you can start pairing
Speaker 4: back what they think neutral is.
Speaker 9: Well, I think that the market has a bad sense
Speaker 9: of what neutral is. And one way to see that
Speaker 9: is people say that monetary policy is very tight. They
Speaker 9: look at the funds rate and they look at inflation
Speaker 9: and they say interest rates are high. True, if you
Speaker 9: look at the tenure however, relative to inflation, the real
Speaker 9: rate on the ten year is is not very high.
Speaker 9: And yet that's the rate that matters much more for corporations,
Speaker 9: it matters more for mortgage rates. It's a much more
Speaker 9: critical interest rate. And on that basis, monetary policy is
Speaker 9: not tight. It might even be considered loose.
Speaker 2: So given that backdrop, with the economy, with the federal reserve,
Speaker 2: where are the best opportunities these days for you?
Speaker 6: Do you find them in the equity markets? In fixed gum?
Speaker 6: Are there certain sectors that screen well for you?
Speaker 9: Fixed income is not that attractive, especially because the market
Speaker 9: is anticipating a lot more cuts than I think are
Speaker 9: likely to come. But the equity market I think offers
Speaker 9: good value, especially the disliked, unloved SMP four ninety three,
Speaker 9: the MAGS seven obviously are through the roof, and I
Speaker 9: think a reasonable case can be made that justifies that
Speaker 9: they all have high growth rates. They have enormous growth potential.
Speaker 9: Companies are typically doing very, very well. I think you
Speaker 9: can look at you have to look at them actually
Speaker 9: one at a time and judge their prospects. The four
Speaker 9: ninety three are relatively ignored, and there's great value across
Speaker 9: the board and whole sectors. So it's not hard to
Speaker 9: find stocks with good, solid prospects, good dividends and trading
Speaker 9: it ten times earnings or even less. So that's real value.
Speaker 4: Okay, So where I guess what spaces like? Are you
Speaker 4: going to go like deep cyclical there? Do you just
Speaker 4: look for value? Is it dividend players? Is it going
Speaker 4: to be just safety trades in those four ninety.
Speaker 9: Three Well, I manage a portfolio that is income oriented.
Speaker 9: We call it growth excuse me, income with growth, So
Speaker 9: it's an equity based, income oriented portfolio. I've got lots
Speaker 9: of exposure to the energy sector through Master Limited Partnership,
Speaker 9: Soil and Guests partnerships. I've got lots of exposure to
Speaker 9: business development companies, very high yielding companies because they're required
Speaker 9: to pay out their profits. I've got exposure to parts
Speaker 9: of the market where I think there's real value. And
Speaker 9: then the banking sector of the financials. The financials are
Speaker 9: typically still cheap, still offer very good dividends, and they're
Speaker 9: very well capitalized, and the companies will do well.
Speaker 2: So you mentioned banks financials, Do you have exposure to
Speaker 2: regional banks as well, Yeah, a couple. And how concerned
Speaker 2: are you about commercial real estate and the exposure there,
Speaker 2: because I mean, alex linees is something we probably try
Speaker 2: to get as many guests on as we kind of
Speaker 2: talk about commercial real estate in general.
Speaker 9: Well, there's no question that the office space market is problematical,
Speaker 9: but that's only a small fraction of the overall real
Speaker 9: estate market. I've seen numbers like six or seven percent
Speaker 9: of the total commercial real estate market is office. The
Speaker 9: rest of it is fine. The part of the market
Speaker 9: that I really like are nursing homes. They got crushed
Speaker 9: during the pandemic for obvious reasons. The stocks are still cheap.
Speaker 9: Businesses recovering, not surprisingly, occupancy is rising, rates are rising.
Speaker 9: Their biggest problem is getting labor labor costs arising, but
Speaker 9: profitability is improving. They pay high dividends, perfect for my
Speaker 9: strategy of income with growth. We're producing over six percent
Speaker 9: yields on that strategy and we've still got some growth
Speaker 9: embedded in there as well. So it's a great way
Speaker 9: to generate income in a cheap part of the market.
Speaker 4: So staying on that for a second. With commercial real estate,
Speaker 4: aside from office, we generally hear like student housing, senior housing,
Speaker 4: and also wear housing. Is there like another leg or
Speaker 4: something to that that's also interesting to you in that space?
Speaker 9: Well, it's all one offs. So for example, there's a
Speaker 9: APR Properties which does experiential type of things. They own
Speaker 9: top golf outlets, say they own movie theaters. The movie
Speaker 9: theater business is struggling obviously, but it is coming back
Speaker 9: and top golf and other parts are doing well. So
Speaker 9: that's an interesting play.
Speaker 5: We own it.
Speaker 9: So there are lots of opportunities.
Speaker 5: You just have to dig.
Speaker 2: So when you talk about your dividends strategy, I guess
Speaker 2: almost biygn ific definition, you don't have a big exposure
Speaker 2: to technology because I look at a company today. The
Speaker 2: story today is Apple and the new phone launch and
Speaker 2: we're covering it like crazy here at Bloomberg. But you
Speaker 2: look at this company that got one hundred and fifty
Speaker 2: billion in cash. You're going to throw off one hundred
Speaker 2: million dollars a year in free cash flow no dividend.
Speaker 4: You you should know that this is a point of
Speaker 4: He gets very upset by this.
Speaker 6: I argue with Tim Cook about this all the time.
Speaker 6: I do, usually over a cocktail.
Speaker 2: But what do you say, how do you think about
Speaker 2: the technology companies and dividend given all the cash flow
Speaker 2: they have.
Speaker 9: Okay, so as a fiduciary, we've got to diversified portfolio,
Speaker 9: so we have to have some exposure to technology. Okay,
Speaker 9: there are companies that pay dividends and they're still doing fine.
Speaker 9: Seagate Technology is one of the ones that we own.
Speaker 9: Broadcom is another. We've owned that one for a while.
Speaker 9: These are among our lowest yielding holdings in the portfolio strategy. Nonetheless,
Speaker 9: it gives us some exposure to technology, and Broadcomm is
Speaker 9: going to benefit from AI. So we're playing that game too.
Speaker 4: And it's been one of the most undervalued players versus
Speaker 4: like an Nvidia. It's really underperformed from that perspective.
Speaker 9: Well, it's undervaluant in that it hasn't performed as well
Speaker 9: as in video, but then few things have. But it's
Speaker 9: great value and we'll do fine. And that's where long
Speaker 9: term players, we're not trying to make the buck in
Speaker 9: the next twenty minutes.
Speaker 2: Tax policy, it's an election year. Tax policies can be
Speaker 2: front and center here for both candidates. What's it mean
Speaker 2: for again, an income investor like.
Speaker 9: You, it matters a lot. So one of the things
Speaker 9: that we look at is how is the tax treatment
Speaker 9: of the dividends that we produce. We prefer ones where
Speaker 9: there's some shelter, which MLPs do. It's great reads do
Speaker 9: as well. Interest is taxed at full income tax rates,
Speaker 9: so that's not as great and we don't have a
Speaker 9: large exposure there. And actually our exposure to fixed income
Speaker 9: is a little bit below average, which rather be eighty
Speaker 9: equity twenty percent fixed, we're more like fifteen closer to
Speaker 9: fifteen fixed right now because we don't see the bond
Speaker 9: market is particularly attractive.
Speaker 4: So if to say are raised, does that change then
Speaker 4: the dividend payout situation that you're talking about, it.
Speaker 9: Will hurt, but it will hurt everything. All stocks will
Speaker 9: be worth less because of a higher dividend a higher
Speaker 9: tax rate. So you have to pick your poison, and
Speaker 9: the question is which ones will be hurt the least. Again,
Speaker 9: if it's a matter of full tax applicability for interest,
Speaker 9: that gets hurt even more than stocks. In the case
Speaker 9: of stock, some pay return of capital, they will be
Speaker 9: hurt the least. So, yeah, it will affect some of
Speaker 9: our allocations.
Speaker 2: When you sit down with the management teams of the
Speaker 2: companies you own and you talked about use of cash
Speaker 2: and cash repatriation, buybacks versus dividends, what's your what's the discussion?
Speaker 5: Like?
Speaker 6: What points do you?
Speaker 5: Maan?
Speaker 9: I love it when they do buybacks, but often they
Speaker 9: feel like they've got to do some dividends to play
Speaker 9: care shareholders. I look how whoever they return capital is good.
Speaker 9: If they're producing enough free cash flow that they can
Speaker 9: afford to buy back or pay out higher dividends. Either
Speaker 9: one works for me. Theoretically, I shouldn't care. That's what
Speaker 9: the mathematics say. As long as they return capital, are
Speaker 9: profitable and they're growing their earnings and they return on
Speaker 9: capital is high, I'm.
Speaker 4: Happy if we see increase in capital gains tax does that.
Speaker 6: How do you think about that again, that hurts.
Speaker 9: It hurts the valuation of these companies and so, but
Speaker 9: it's in across the board type of damage. It will
Speaker 9: hurt the valuation of the entire stock market.
Speaker 6: So what's the big issue that you're focusing on right
Speaker 6: now with your team?
Speaker 9: Well, I think the issue that everyone's struggling with or
Speaker 9: talking about is whether or not the economy is likely
Speaker 9: to lapse in recession anytime soon. I think the answer
Speaker 9: is no. When I look at the economy, I have
Speaker 9: a tough time constructing a recession scenario. The easiest way
Speaker 9: to make that case is to say that interest rates
Speaker 9: have gone up a lot and that will cause a recession. Well,
Speaker 9: we've been sitting in that boat for a long time
Speaker 9: and it hasn't happened. And is a reason it hasn't happened.
Speaker 9: The consumer is in very good shape. Job growth is
Speaker 9: still solid. Income growth is even more solid. So consumers
Speaker 9: have the capacity to spend, and that's seventy percent of
Speaker 9: the economy. Capital investment. We're trying to promote green initiatives.
Speaker 9: We're trying to bring business back to the US, manufacturing
Speaker 9: back to the US. That's a tailwind for the economy.
Speaker 9: We happen to have a severe housing shortage, so even
Speaker 9: though mortgage rates are high, it hasn't crushed the housing
Speaker 9: market as much as it would have if we didn't
Speaker 9: have that housing shortage. And if interest rates dip, you're
Speaker 9: going to see housing takeoffs like a bansheet.
Speaker 4: All right, great stuff, Really appreciate It'm s so good
Speaker 4: talking to you. Chuck Lieberman, co founder and chief investment
Speaker 4: officer Advisor's Capital Management, Joining us there.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: Auto with the Bloomberg Business app. You can also listen
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Speaker 1: Just say Alexa playing Bloomberg eleven thirty.
Speaker 4: So one soccer're watching today that is doing absolutely nothing
Speaker 4: is Starbucks waiting at ninety one dollars sixteen cents. It's
Speaker 4: literally flat on the day, But it's a big day
Speaker 4: because incoming chief executive officer Brian Nicol has to live
Speaker 4: up to the hype that really propelled Cheryl's higher. It's
Speaker 4: his first day a CEO of Starbucks. Michael Hale and
Speaker 4: Bloomberg intelligence senior restaurant and food service analyst is joining us. Now,
Speaker 4: what First of all, how long do you think the
Speaker 4: market gives him before they judge him.
Speaker 10: Yeah, it's tough to say, right, you know, I think
Speaker 10: really it's going to take some time. You know, you
Speaker 10: don't turn around an aircraft carrier on a dime. You know,
Speaker 10: Starbucks is a behemoth of a company, So I think
Speaker 10: the market gives him some time. He's got phenomenal track record,
Speaker 10: right what he's done at Taco Bell and then Chipotle,
Speaker 10: obviously we're very impressive, you know, and he's really you know,
Speaker 10: the first thing he's going to do, I think is
Speaker 10: just try to change that culture, right, bringing in a
Speaker 10: culture of transparency, accountability, talking about he's going to talk
Speaker 10: about hard work and compensating his employees for doing a
Speaker 10: good job, because you know, those are some of the
Speaker 10: things he talked about changing at Chipotle on his first
Speaker 10: earnings call there. So you know, all that stuff's going
Speaker 10: to take a little bit of time, and because of
Speaker 10: his track record, he'll get he'll get a pretty long leash.
Speaker 6: I think, what what are the challenges facing this company?
Speaker 2: Because just as a consumer, I mean the Starbucks and
Speaker 2: Route thirty five and.
Speaker 6: Wall Township, New Jersey.
Speaker 2: They do a great job.
Speaker 6: People are great.
Speaker 2: It just works like a charm. Stores in great shape.
Speaker 2: The one in Summit's good, It's always packed.
Speaker 6: What do they need to do here? I don't think
Speaker 6: anything's broken.
Speaker 10: Well, it depends on the store.
Speaker 2: You know.
Speaker 10: It sounds like that location is doing pretty well. But
Speaker 10: they have of thousands and thousands of locations across the globe.
Speaker 10: I mean, you know, in the US, operations is a
Speaker 10: big issue. You know, drink orders have become more complicated.
Speaker 10: Digital orders have kind of changed the experience for the
Speaker 10: in cafe customer, right Like it was it became popular
Speaker 10: because the briests knew your name, right, and the level
Speaker 10: of service was phenomenal for a chain of that size, right,
Speaker 10: And through digital ordering and these very complicated orders, you know,
Speaker 10: they've lost some of that, right And so so operations,
Speaker 10: you know, they're losing a lot of orders because people
Speaker 10: are trying to place them on the app and the
Speaker 10: wait times are kind of obnoxious at times, right, And
Speaker 10: so I think operations is going to be his primary focus.
Speaker 10: Running the best cafes possible is really going to be
Speaker 10: job number one. But there's a bunch of different issues,
Speaker 10: you know, operations is just one of them. Politics has
Speaker 10: been an issue, right. Starbucks has always been a brand
Speaker 10: that that kind of puts their politics in your face,
Speaker 10: and I think I think Brian Nichol is gonna want
Speaker 10: to step back from that, right because of.
Speaker 1: All of the the.
Speaker 10: You know, all the issues they've had with their customer base. Right,
Speaker 10: people haven't been happy with you know, there's been some
Speaker 10: boycott talks online about their stance on the Israel Hamas War,
Speaker 10: about their stance and how they've handled the union negotiations,
Speaker 10: you know, so that's a big thing. And then you know,
Speaker 10: we think eventually, once they have the stores running really
Speaker 10: really well, they're going to start spending some more money
Speaker 10: on marketing. Maybe not a ton of money, but we
Speaker 10: would expect them to start spending on marketing.
Speaker 4: You know.
Speaker 10: It's not something that that Starbucks has traditionally done. But
Speaker 10: it also wasn't something that Chipotle had traditionally done, and
Speaker 10: it's been paying them dividends now for a handful of years.
Speaker 4: So I think with Chipotle, though, we just maybe Paul
Speaker 4: can attest. Is it like there's a menu and it's basic,
Speaker 4: Like they're add ons, right, but like it's a basic menu.
Speaker 4: Starbucks menu is like explosive, Like they can't even have
Speaker 4: all the options up on the ordering board because they're
Speaker 4: just too many. So it does working with operations and
Speaker 4: getting that better, I mean, they have to pair back
Speaker 4: their menu and get back to their base.
Speaker 5: Yeah.
Speaker 1: Probably.
Speaker 10: You know, we had been critical of the previous management
Speaker 10: team because they kept rolling out new menu platforms and
Speaker 10: then in the next breath talking about improving throughput. But
Speaker 10: you can't have both. So we fully expect them to
Speaker 10: pair back this menu, make it easier to execute in
Speaker 10: the cafes, right, make lives easier for their employees, and
Speaker 10: get the orders out faster. So yeah, I think that's
Speaker 10: going to be a major part of what they do
Speaker 10: going forward.
Speaker 2: I mean, Bloomberg had a story from last in twenty
Speaker 2: twenty three where I mean the variations if you add
Speaker 2: all the potential options, there's like billions of different types
Speaker 2: of drinks that could be oh yeah, you know, so
Speaker 2: it's just at.
Speaker 4: It and there's like the cold drink, there's the tea,
Speaker 4: there's the refreshers, then there's the frozen refreshers and the
Speaker 4: blended refreshers, And I know this because my daughter likes
Speaker 4: those things. By sometimes you get them frozen and sometimes
Speaker 4: they're not. It's very cold.
Speaker 2: I know, I don't know how they do it, and
Speaker 2: my power, you know, my hats off to them. All right,
Speaker 2: let's step back and look at the restaurants space in
Speaker 2: general here. You've got some research out recently restaurant promotions
Speaker 2: marketing heat up. That's not what.
Speaker 6: Shareholders want to hear, do they.
Speaker 10: No, But restaurants are kind of desperate right now to
Speaker 10: get some traffic into their stores. Low income consumers. Spending
Speaker 10: has been very weak. This seems to be spreading to
Speaker 10: the middle income consumers, right, based on the industry data
Speaker 10: that we've seen, which showed an improvement you know, last
Speaker 10: month in August, but it was still negative at casual
Speaker 10: dining restaurants, at family dining restaurants and a quick service, right,
Speaker 10: and so they bounced from that horrific July numbers that
Speaker 10: we saw, but still or negative. And so yeah, restaurants
Speaker 10: are trying to do whatever they can to bring you know,
Speaker 10: those low income consumers and middle income consumers back into
Speaker 10: their restaurants. You know, just for example, it was you know,
Speaker 10: I think it's thirty five out of the last thirty
Speaker 10: seven quarters quick service chains have had negative traffic, right,
Speaker 10: And so that's that's not a sustainable type of situation
Speaker 10: when you have same source sales rising because your prices
Speaker 10: are going up, but traffic can continues to decline. Eventually,
Speaker 10: there's a tipping point, and that's what we've seen this year.
Speaker 4: So to that point, then which ones are do you
Speaker 4: have faith that can maintain some kind of margin and
Speaker 4: also grow their top line.
Speaker 10: You know, it's some of these chains that have a
Speaker 10: big gap on pricing, you know, in terms of you know,
Speaker 10: they've been pricing less than their competitors, right, So if
Speaker 10: you're providing a lot of value, and value can be
Speaker 10: two ways. It can be a better price, but it
Speaker 10: also can be a lot more food for what you pay.
Speaker 10: But some of these companies that that you know, people
Speaker 10: see value at, you know, Rank, Wingstop, Chipotle, Texas Roadhouse.
Speaker 10: These are all of the chains that have been outperforming.
Speaker 10: These all of the chains that have been able to
Speaker 10: drive traffic, and a big part of it is being
Speaker 10: priced below competitors. You know, wink Stops raised prices about
Speaker 10: half as much as their competitors, and on their last
Speaker 10: earnings call. They credited that as a big reason for
Speaker 10: their for their phenomenal quorder.
Speaker 2: All right, Michael Halen, thank you so much for joining us.
Speaker 2: Michaelin he's a senior restaurant and food service anamals Bloomberg Intelligence,
Speaker 2: joining us from Princeton. Tuck a little Starbucks first day
Speaker 2: for the new CEO there. I'm happy with my Starbucks.
Speaker 6: Uh interesting Starbucks. I went, I go like once a week.
Speaker 2: Oh okay, I used to go more of it. But yeah,
Speaker 2: double short mocha very easy.
Speaker 6: What's your go to?
Speaker 4: Oh yeah, he's gonna okay, it is an Americano sometimes
Speaker 4: I sometimes not half calf alma milk to Stevia.
Speaker 6: Wow, that's which.
Speaker 4: Actually for a Starbucks order, isn't really that bad? Like
Speaker 4: there's no syrup, there's no Whippi things. It's not it's
Speaker 4: you know, okay.
Speaker 2: I think the younger you are, the more CREATI if
Speaker 2: you are with your coffee orders, I thank you.
Speaker 6: I'm just so sweet.
Speaker 2: I mean, and the kids, some of the kids come
Speaker 2: out with these things. I'm like, you know, how many
Speaker 2: druiders of a basic cup of coffee can you have? There?
Speaker 6: But apparently there's a lot. But again, Strawbucks. Who knew.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
Speaker 1: Auto with the Bloomberg Business App. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 4: Alex Steel here alongside Paul Sweeney. This is Bloomberg Intelligence Radio.
Speaker 4: We bring you all the news and business, economic and
Speaker 4: finance through our lens of our Bloomberg Intelligence analysts. They
Speaker 4: cover two thousand companies and one hundred and thirty industries
Speaker 4: all around the world every Monday at this time. And
Speaker 4: we like to bring you another arm of Bloomberg, and
Speaker 4: that's Bloomberg n e F originally or previously known as
Speaker 4: New Energy Finance. So the team in Bloomberg that tracks
Speaker 4: and analyzes the energy transition from commodities to power, to transport, industry,
Speaker 4: buildings and agg sectors. And here with us for more
Speaker 4: is Brenna Casey, Bloomberg b n e F Carbon Capture Analyst. Brenna.
Speaker 4: We take a look at, say, how carbon capture has grown,
Speaker 4: the amount of money that's been put in Oh oh,
Speaker 4: so Sorry, Paul's a question.
Speaker 2: Pre question, Can you define what carbon capture is probably
Speaker 2: the better question.
Speaker 11: Yes, Yeah, So basically simply CCUS carbon capture, utilization, and storage.
Speaker 11: It's kind of just a way to abate emissions from
Speaker 11: heavy industry, so things like petrochemical refineries, integrated steel mills,
Speaker 11: hydrogen blue hydrogen.
Speaker 6: Okay.
Speaker 11: Natural gas processing is a huge historical and use sector.
Speaker 4: So basically there's some sectors that you cannot decarbonize and
Speaker 4: you and they have to exist, like you need cement
Speaker 4: for example, So this is a way to kind of
Speaker 4: get them out of the air. And then the question
Speaker 4: is kind of.
Speaker 2: What do you do with it?
Speaker 4: Do you reuse it somewhere? Do you put it somewhere?
Speaker 4: Do you store it in a rock or somewhere else?
Speaker 4: And it's been a huge focus for a lot of companies,
Speaker 4: energy companies and a like in oil companies for example,
Speaker 4: what has been the investment cycle like and where are
Speaker 4: we now in that cycle?
Speaker 11: Yeah, So if we're looking particularly to the US following
Speaker 11: the Inflation Reduction Act, we saw this catalysis of not
Speaker 11: only project announcements but kind of you know Series A,
Speaker 11: you know, lots of equity financing into that into the
Speaker 11: market right now. As you know, the IRS is still
Speaker 11: yet to address forty five Q. So that's the inflation
Speaker 11: reduction Yeah, yeah, so the Inflation Reduction Act, which was
Speaker 11: signed into law, you know, two years ago. Forty five
Speaker 11: q's in investment tax credit that the government is proposing
Speaker 11: to you know, heavy emitters. They can if they meet X,
Speaker 11: y Z requirements, then then they can take this credit
Speaker 11: and apply it to their tax burden. And you know,
Speaker 11: kind of how to mitigate the cost of ccs because
Speaker 11: it's extremely capexx intensive.
Speaker 4: So if you store your carbon er get it out
Speaker 4: of the air, you get a text crdit.
Speaker 11: Okay, yeah, it's like eighty five dollars per ton if
Speaker 11: you store it, and then sixty if you reutilize it.
Speaker 2: Yeah, exactly.
Speaker 11: However, the IRS has yet to finalize the criteria, so
Speaker 11: developers don't know what actually constitutes as a project that
Speaker 11: can qualify for these sorts of credits, and so what
Speaker 11: we've actually seen is not only investment taper off, but
Speaker 11: just announcements of you know, future projects into the sector.
Speaker 11: Which what's kind of ironic is that if you look
Speaker 11: at investment numbers for last year for ccs in total,
Speaker 11: it was globally eleven point three billion higher than it's
Speaker 11: ever been before, the US to come around two point
Speaker 11: eight billion of that. However, that is all bolstered by
Speaker 11: just d OEE grants. So the DOE has, you know,
Speaker 11: these direct air capture hubs. They're trying to throw money
Speaker 11: at growing out midstream infrastructure, so trans like pipelines, the
Speaker 11: storage like storage basins you mentioned earlier. But there's really
Speaker 11: no FID is being taken in the sector at all. Besides,
Speaker 11: I think it was the hydrogen Bomont complex last year.
Speaker 4: So FID is Foreign Investment Decision Final best finstation. Sorry,
Speaker 4: And it basically means like, Okay, I have enough and
Speaker 4: I understand enough of the economics where I can actually
Speaker 4: like put money in the ground and like put a
Speaker 4: shovel on the ground and do some stuff. And that's
Speaker 4: where we're really lacking. Which rates of the question is
Speaker 4: it a is it building this stuff is still too complicated?
Speaker 4: Or is it the demand side? So I'm a company
Speaker 4: and I'm like, I can capture your carbon and I
Speaker 4: can store it for you, but how much are you
Speaker 4: willing to pay for that? Is that part of the
Speaker 4: issue now?
Speaker 11: Yeah, it's definitely kind of a sector by sector issue.
Speaker 11: So if you look to power, we're seeing the most
Speaker 11: cancelations in the power sector just because CCS is tremendously expensive,
Speaker 11: and so for seeing a project announced around, you know,
Speaker 11: thirty percent of those projects in the power sector are
Speaker 11: like they're probably going to get canceled. And that's because
Speaker 11: retrofitting with CCS adds around fifty six percent to the
Speaker 11: total l COE. So it's eight hundred million plus capex investments.
Speaker 11: If you look to something which.
Speaker 4: How did they recoup that? Because that's about power, it's
Speaker 4: either the company is paying for it or like, I'm
Speaker 4: paying for it in my bills, right, and that's the
Speaker 4: definite way of how they recoup that cash.
Speaker 11: Especially if you know the forty five Q credit if
Speaker 11: you are in a bit or two qualify, it only
Speaker 11: lasts twelve years. A lot of these lifetimes are twenty
Speaker 11: twenty five years, and so yeah, how do you kind
Speaker 11: of make that investment back carp.
Speaker 2: And capture losing some momentum because maybe just the transition
Speaker 2: to green in the US has become a little politicized
Speaker 2: and maybe it's losing a little bit of impetus.
Speaker 6: Are we falling behind other countries.
Speaker 5: For example, I.
Speaker 11: Mean, the US is definitely the market leader. So globally
Speaker 11: there's around four hundred and twenty four million metric tons
Speaker 11: of CU two capture capacity do to come online by
Speaker 11: twenty thirty five. Now, out of that, around one hundred
Speaker 11: and sixty I think it's one sixty three million tons
Speaker 11: is based in the US and following you know, the
Speaker 11: forty five q Invice Reduction Act. Even though there's you know,
Speaker 11: hiccups here, hiccups with transparence or permitting, we do see
Speaker 11: the United States as the best place in the world
Speaker 11: is to kind of build one of these projects.
Speaker 4: So what companies do you feel like have the real deal?
Speaker 4: It's I talk to a lot of companies and they're
Speaker 4: all going to try and sell me their carbon capture
Speaker 4: products and like why they're the best and how their
Speaker 4: economics work and all that stuff. Who actually can make
Speaker 4: this work?
Speaker 11: Yeah, I mean, if we're looking at power and hydrogen,
Speaker 11: which are the two leaders right now, kind of the
Speaker 11: biggest players here, we're seeing occidental energy. So not only
Speaker 11: are they looking to retrofit there, you know, natural gas
Speaker 11: assets with carbon capture, but they're also kind of taking
Speaker 11: this first mover run into the direct air capture space.
Speaker 11: So that's a really interesting company to watch in that
Speaker 11: kind of little corner. There's also you know, like air
Speaker 11: products for hydrogen excellon Mo. It's primarily these oil and
Speaker 11: gas majors that are moving around in the market because
Speaker 11: they have you know, just previous expertise, but they also
Speaker 11: understand the geology, how to store these things, how to
Speaker 11: build you know, these big expensive projects. So yeah, air
Speaker 11: products Oxy so oxy.
Speaker 4: Is one of the peer players for eanps for oil
Speaker 4: and gas. We talked to the CEO and she wants
Speaker 4: to eventually basically be a rent for higher direct air capture,
Speaker 4: So meaning like, hey, I need you to capture some stuff,
Speaker 4: and you build a plant near a factory or somewhere
Speaker 4: else and you just suck carbon out of the air
Speaker 4: and then therefore you're able to separate it and then
Speaker 4: store it somewhere or reuse it, and that's like what
Speaker 4: they want that business model to be. Amazon signed an
Speaker 4: off take with them. They wouldn't tell me the price.
Speaker 4: They're like it was really hard, Like you can get
Speaker 4: the off takes and like the buyers like an Amazon,
Speaker 4: but it is really expensive. Yet like it hasn't become
Speaker 4: easy on that sense, all right, Brenda, thanks a lot,
Speaker 4: really appreciated. Branda Casey, Bloomberg B and if carbon capture analyst.
Speaker 4: I obviously find this really interesting, I know. And the
Speaker 4: idea is, like you can do green all you want,
Speaker 4: but like we're not starting over from scratch, so you
Speaker 4: actually need carbon capture to get the existing emissions out
Speaker 4: because how else do you filter that. You can get trees,
Speaker 4: and that's awesome, and like we want trees, right, maybe
Speaker 4: the ocean, but we need all the things. Let's make
Speaker 4: all work.
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