WEBVTT - US Weighs Google Breakup, Hurricane Milton 0:00:02.440 --> 0:00:09.119 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:09.160 --> 0:00:13.320 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:13.360 --> 0:00:16.360 Eastern on Apple Cardplay and Android Auto with the Bloomberg 0:00:16.400 --> 0:00:19.840 Business App. Listen on demand wherever you get your podcasts, 0:00:19.960 --> 0:00:21.680 or watch us live on YouTube. 0:00:23.000 --> 0:00:24.520 Let's get back to the other story of the morning, 0:00:24.520 --> 0:00:27.680 and that's what's happening with Google. So joining us as man, 0:00:27.720 --> 0:00:30.800 you've seing Bloomberg Intelligence senior tech industry analyst on a 0:00:30.840 --> 0:00:35.400 potential Google breakup. Okay, so the DOJ considering asking a 0:00:35.400 --> 0:00:37.760 federal judge to force Google to sell off parts of 0:00:37.760 --> 0:00:40.720 its business. What do you think is actually going to happen? 0:00:41.320 --> 0:00:44.960 Well, so there are three big lawsuits out there against 0:00:45.000 --> 0:00:48.720 Google in the US, two from DOJ. One is the 0:00:48.800 --> 0:00:52.920 monopoly lawsuit with the lost and that's where we're looking 0:00:52.960 --> 0:00:56.400 at remedies. The other one is also from DJ against 0:00:56.400 --> 0:01:00.120 their ad tech business, where the DOJ is looking at 0:01:00.160 --> 0:01:02.920 their at tech stack and how you know they control 0:01:02.960 --> 0:01:05.640 all parts of this stack. The third one is from 0:01:05.760 --> 0:01:10.680 the you know, different state attorney journals, again targeting their 0:01:10.800 --> 0:01:14.480 attach business. So when I look at you know, everything 0:01:14.720 --> 0:01:19.040 that obviously regulators want to change with Google. The ad 0:01:19.080 --> 0:01:21.960 tech piece is the one which comes up over and 0:01:22.040 --> 0:01:25.039 over again, the fact that they control different parts of 0:01:25.120 --> 0:01:28.720 the ads TAC. Now in the monopoly lawsuit, they're talking 0:01:28.720 --> 0:01:31.959 about a force breakup of the Chrome business or the 0:01:32.040 --> 0:01:35.959 play store business, Android business. I think it's very hard 0:01:36.319 --> 0:01:38.720 to take out, you know, a single product from a 0:01:38.760 --> 0:01:41.480 company like Google and say this is a separate entity. 0:01:41.520 --> 0:01:44.680 It's just like it's all run or shared infrastructure. I 0:01:44.680 --> 0:01:49.000 can't imagine you know, doing that with Google, and you know, 0:01:49.080 --> 0:01:51.680 doing it successfully in the sense that Android can be 0:01:51.720 --> 0:01:55.600 a separate company. Maybe YouTube, But again with YouTube, it's 0:01:55.680 --> 0:01:58.320 run on that same infrastructure that searches run on. So 0:01:58.400 --> 0:02:00.800 how do you split that infrastructure. It's very hard to 0:02:00.800 --> 0:02:01.920 do it at the product level. 0:02:01.960 --> 0:02:03.880 All right, here's some inside Bloomberg for you. You can 0:02:03.920 --> 0:02:06.560 get really smart on a new piece of information that 0:02:06.640 --> 0:02:08.720 just hit the tape about a company type in the 0:02:08.760 --> 0:02:12.800 ticker goog L for Google. Hit equity, then hit BECO 0:02:13.040 --> 0:02:16.440 BICO for Bloomberg Intelligence company Research, and you'll get what's 0:02:16.480 --> 0:02:18.919 called a recent event reaction. So I want to know 0:02:19.000 --> 0:02:23.600 immediately what Mandeep Singh thinks about this stuff and what 0:02:23.680 --> 0:02:26.040 I read. I didn't expect to read we see a 0:02:26.080 --> 0:02:28.440 breakup of Google's add tech business as the most likely 0:02:28.520 --> 0:02:30.919 outcome for remedy in the company's monopoly case with the 0:02:31.000 --> 0:02:33.560 US Justice Department. I thought what I would have read is, 0:02:33.639 --> 0:02:36.160 I don't worry about it, but this has some teeth here. 0:02:36.520 --> 0:02:38.400 This is what you're kind of well, because the loss 0:02:38.639 --> 0:02:41.840 that first lawsuit at the dog and the second one 0:02:41.880 --> 0:02:45.400 the ad tech as well, it's very likely that the 0:02:45.720 --> 0:02:49.480 judge will rule against Google. So when you lose the cases, 0:02:49.600 --> 0:02:53.320 there has to be both behavior and structural remedy. And 0:02:53.440 --> 0:02:56.040 in the case of behavior remedy, yeah, they can't make 0:02:56.160 --> 0:02:59.840 those payments to Apple anymore. To be the default sir, 0:03:00.400 --> 0:03:02.839 or any other hardware maker, they will have to open 0:03:02.960 --> 0:03:06.040 up Android to offer search screens so that you just 0:03:06.160 --> 0:03:09.760 don't have to use Chrome or Google Search. You can 0:03:09.840 --> 0:03:12.640 use bing search for example. So choice screens is another 0:03:12.720 --> 0:03:16.440 behavior elder. But the structured remedy in terms of a 0:03:16.560 --> 0:03:20.000 forced sale, I find it hard to believe that the 0:03:20.120 --> 0:03:22.920 dot will ask them to sell a product. It has 0:03:22.960 --> 0:03:25.080 to be more at the technology stack level. 0:03:25.240 --> 0:03:27.720 So when we go to the ad tech stack, maybe 0:03:27.760 --> 0:03:30.320 that just demptail with what you were saying, so what 0:03:30.440 --> 0:03:33.600 does control the ad tech stack mean when you're talking 0:03:33.639 --> 0:03:34.239 about Google? 0:03:34.440 --> 0:03:38.720 So think of how an ad exchange works. You have 0:03:38.960 --> 0:03:42.560 the supply side, you know in terms of the publisher 0:03:42.720 --> 0:03:45.200 ad inventory, and then you have the demand side, the 0:03:45.320 --> 0:03:49.440 advertisers who are buying those ads, and then you have 0:03:49.520 --> 0:03:52.480 the exchange in the middle, who is matching the supply 0:03:52.640 --> 0:03:56.800 and the demand side for ads. Google has a products 0:03:57.000 --> 0:04:01.000 across the stack where they have a man side platform, 0:04:01.320 --> 0:04:04.200 They have a supply side AD platform. They are an 0:04:04.240 --> 0:04:07.640 online exchange and they've built it over the years because 0:04:08.640 --> 0:04:11.640 they made a few acquisitions. Double Click was the most 0:04:11.760 --> 0:04:16.760 notable one where they acquired all the capabilities to really 0:04:16.920 --> 0:04:20.480 operate as an entity that knows everything when it comes 0:04:20.640 --> 0:04:24.200 to digital ads being sold in the marketplace. So they 0:04:24.320 --> 0:04:27.080 control that stack end to end. That's why when you 0:04:27.200 --> 0:04:30.800 compare Google's ad pricing to everyone else out there, they 0:04:30.839 --> 0:04:34.360 are far superior. One they have the best targeting. The 0:04:34.520 --> 0:04:37.440 other is when you're operating a stack where you have 0:04:38.120 --> 0:04:41.360 the dominant product across the different pieces, you have a 0:04:41.440 --> 0:04:45.760 pricing advantage. And that's what you know. The regulators are 0:04:45.920 --> 0:04:49.160 saying that this company controls pretty much everything in the 0:04:49.279 --> 0:04:49.839 ad stack. 0:04:51.040 --> 0:04:56.040 But the advertisers themselves they're not complaining, of course not. 0:04:56.279 --> 0:04:59.640 I mean they're getting like, who are they protecting? 0:04:59.760 --> 0:05:02.640 This a solution in search of a problem here in 0:05:02.720 --> 0:05:04.920 my opinion, because I have a competition in this market, 0:05:05.240 --> 0:05:09.680 I think I have competition. I mean Google's huge, so Facebook, 0:05:09.880 --> 0:05:11.480 and now I've got this little company in a Seattle 0:05:11.520 --> 0:05:16.360 called Amazon. They're monster's advertising player. So where's the problem here? 0:05:16.480 --> 0:05:18.920 So it all comes down to how you look at 0:05:18.960 --> 0:05:21.200 the market. If you look at the market the way 0:05:21.240 --> 0:05:24.640 you just described, where Meta is as formidable as Google 0:05:24.720 --> 0:05:28.160 and Amazon is a big third player, then yes there 0:05:28.279 --> 0:05:31.599 is competition. But when you look at certain type of ads, 0:05:31.680 --> 0:05:34.920 whether it's on the desktop or you know the third 0:05:35.000 --> 0:05:38.440 party ads that are going through Google Ad Exchange, these 0:05:38.520 --> 0:05:41.440 companies don't overlap. Like remember, Meta is a walled garden, 0:05:41.960 --> 0:05:45.279 even though it's big in terms of the digital ad advertising, 0:05:45.600 --> 0:05:49.039 it's its own world garden. Amazon is its own walled 0:05:49.080 --> 0:05:52.880 garden Google. So these companies have their own swim lanes. 0:05:53.360 --> 0:05:56.280 They are big in terms of the digital ad dollars, 0:05:56.560 --> 0:05:59.240 but they have their own swim lanes. They don't overlap. 0:05:59.360 --> 0:06:02.400 And that's the objection that I think regulators have. 0:06:02.640 --> 0:06:06.440 Okay, so if they wound up, you know, moving around 0:06:06.480 --> 0:06:08.640 that ad tech stack and changing stuff up, what does 0:06:08.680 --> 0:06:10.960 that change look like and how much money could then 0:06:11.120 --> 0:06:11.719 Google lose? 0:06:12.240 --> 0:06:15.240 Well, so Google Search obviously is a two hundred billion 0:06:15.320 --> 0:06:18.159 dollar rund raiate business, still the cash cow for Google. 0:06:18.640 --> 0:06:21.880 So that's where you know the Google network piece, which 0:06:22.000 --> 0:06:25.760 is the ads that Google shows on third party platforms. 0:06:25.800 --> 0:06:29.320 So one is Google showing ads on YouTube and their 0:06:29.360 --> 0:06:32.600 own search page. The other is Google showing ad on 0:06:32.800 --> 0:06:36.120 let's say New York Times or some other publisher. Because 0:06:36.160 --> 0:06:39.640 it's going through the Google Ad Exchange. That's the part 0:06:39.760 --> 0:06:42.480 that can be divested where and it's a thirty two 0:06:42.560 --> 0:06:45.320 billion dollar rund rate business within that two hundred billion, 0:06:45.839 --> 0:06:48.920 that's the part that's not growing. But you could argue 0:06:49.040 --> 0:06:51.560 could be split up in a way where I think 0:06:51.600 --> 0:06:54.840 Google maybe a smaller search ad business, But at the 0:06:54.880 --> 0:06:57.240 same time that will appease the regulators because they're not 0:06:57.440 --> 0:06:59.400 controlling different parts of the ads stack. 0:07:00.000 --> 0:07:03.440 We talk to institutional investors out there these days, how 0:07:03.520 --> 0:07:06.560 do they think about the regulatory risk over big tech 0:07:06.680 --> 0:07:08.720 these days? And how's that change over the last three. 0:07:08.640 --> 0:07:09.120 Or four years? 0:07:09.840 --> 0:07:12.840 I mean right now, everyone wants to know who will 0:07:12.880 --> 0:07:15.680 be the dominant player when it comes to LLMS and 0:07:15.800 --> 0:07:19.440 you know, generative AI, whether Google will end up losing 0:07:19.560 --> 0:07:23.240 its dominance in search because of these LLM players. And 0:07:23.360 --> 0:07:26.760 that's where I think again, the products that Google has, 0:07:26.880 --> 0:07:31.920 whether it's Android or YouTube or cloud, they're critical to 0:07:32.080 --> 0:07:36.760 maintaining Google's lead in that LLLM and generative AI space 0:07:36.800 --> 0:07:40.400 where they do have competition from Open AI, Microsoft, And 0:07:40.520 --> 0:07:43.200 that's what investors are most focused on. It's always about 0:07:43.240 --> 0:07:46.320 the future five ten years down the line, and that's 0:07:46.360 --> 0:07:48.960 where the growth is. And the companies with the best 0:07:49.040 --> 0:07:52.880 large languid models have an advantage. And Google, because of 0:07:53.000 --> 0:07:55.920 the fact that they own these family of apps, they 0:07:56.000 --> 0:07:58.840 have a data advantage. For the large anguid models, it's 0:07:58.920 --> 0:08:01.760 their proprietary day, so they don't want to give away 0:08:01.840 --> 0:08:05.800 YouTube or you know, just have that separate in terms 0:08:05.840 --> 0:08:07.320 of all, Yeah. 0:08:07.240 --> 0:08:09.520 It needs the beast in essence, for lack of a 0:08:09.560 --> 0:08:12.240 better word, they don't have to buy to feed the beast. Okay, 0:08:12.360 --> 0:08:16.600 So when we wind up hearing numbers and earnings, what 0:08:16.760 --> 0:08:19.440 kind of growth are we going to see for these 0:08:19.520 --> 0:08:22.200 big tech companies and what's going to be considered good, 0:08:22.480 --> 0:08:24.400 like eighteen percent growth. Is that going to be good 0:08:24.640 --> 0:08:25.920 enough for what I mean? 0:08:26.200 --> 0:08:29.520 Right now? We look at Microsoft growing mid teens. Obviously 0:08:29.720 --> 0:08:32.679 the growth part of the business is Azure Cloud. In 0:08:32.760 --> 0:08:36.760 the case of Google, Look search business may probably grow 0:08:36.880 --> 0:08:40.600 you know, low teens, it's still is growing double digit, 0:08:40.679 --> 0:08:43.079 which is remarkable for you know, a business of two 0:08:43.120 --> 0:08:45.800 hundred billion dollars round rate. That just goes to show 0:08:45.880 --> 0:08:49.760 that Google Search still dominates and that's why they get 0:08:49.800 --> 0:08:53.760 so much regulatory scrutiny. But the growth part of the 0:08:53.800 --> 0:08:56.640 business is the Google cloud business. I think that's where 0:08:56.720 --> 0:08:59.320 you will see the growth thirty percent growth, and it's 0:08:59.440 --> 0:09:03.960 driven by companies deploying their you know, large angrid model, 0:09:04.080 --> 0:09:06.679 deploying generative AI. Where do you do that? You do 0:09:06.800 --> 0:09:09.679 that on the cloud. And the cloud side is big 0:09:09.840 --> 0:09:12.680 enough for you know, all three players, whether it's Microsoft, 0:09:12.760 --> 0:09:15.360 Amazon and Google, to do well. So I think we'll 0:09:15.440 --> 0:09:18.120 see a lot of cloud business. And YouTube I think 0:09:18.320 --> 0:09:21.640 is a great standalone business, but there is a cyclical 0:09:21.760 --> 0:09:24.400 element to it, and that's why YouTube business growing as 0:09:24.520 --> 0:09:25.800 fast as their cloud business. 0:09:25.880 --> 0:09:29.079 The reason we have like twenty seven techannels of Bloomberg Intelligence, 0:09:29.080 --> 0:09:31.240 I mean, they're all over the place is because I 0:09:31.280 --> 0:09:34.480 think the US just said fifty years ago, just light 0:09:34.600 --> 0:09:36.800 touch on regulatory let these guys in Silicon Valley do 0:09:36.840 --> 0:09:40.000 their thing, and that's what created the great technology boom 0:09:40.040 --> 0:09:43.439 in my opinion, as opposed to Europe, which you got 0:09:43.480 --> 0:09:46.200 nothing right. So now I'm not sure if the cat's 0:09:46.240 --> 0:09:47.559 out of the bag for a lot of these things. 0:09:47.800 --> 0:09:50.240 Yeah, I don't know. I don't know. It makes life 0:09:50.320 --> 0:09:53.200 more interesting though, for our intertrust to people and Mandy 0:09:53.800 --> 0:09:55.520 a job, all right, many things a lot man you've 0:09:55.520 --> 0:09:57.720 seeing joining us from Bloomberg Intelligence. 0:09:59.280 --> 0:10:03.760 You're listening the Bloomberg Intelligence Podcast. Catch us live weekdays 0:10:03.800 --> 0:10:07.040 at ten am Eastern on applecar Play and Android Auto 0:10:07.200 --> 0:10:09.920 with the Bloomberg Business Act. You can also listen live 0:10:10.080 --> 0:10:13.199 on Amazon Alexa from our flagship New York station, Just 0:10:13.280 --> 0:10:15.840 Say Alexa, playing Bloomberg eleven. 0:10:15.640 --> 0:10:19.640 Thirty from Alex Steel alongside Paul Sweeney. This is Bloomberg 0:10:19.679 --> 0:10:22.840 Intelligence Radio. We are broadcasting to live from Interactive Broker 0:10:22.880 --> 0:10:25.520 Studio right here in Midtown Manhattan. For the last few days, 0:10:25.559 --> 0:10:28.040 though Paul and I were in Orlando at a Commonwealth 0:10:28.080 --> 0:10:31.640 Advisor's conference, and Orlando was getting a little bit dicey 0:10:31.760 --> 0:10:33.480 the winds are picking up. You had rain, and it 0:10:33.559 --> 0:10:36.040 looks like that Hurricane Milton is just barreling towards that 0:10:36.120 --> 0:10:40.720 west coast and it's very, very dangerous, particularly for those 0:10:40.840 --> 0:10:42.760 on that west coast. So you want to take a 0:10:42.800 --> 0:10:44.640 little bit of a deep dive to kind of understand 0:10:44.679 --> 0:10:47.559 what it means, say for power and utilities and the grid, 0:10:47.600 --> 0:10:49.160 because no doubt power is going to go out, but 0:10:49.240 --> 0:10:51.480 how long it stays et cetera is going to be 0:10:51.600 --> 0:10:54.679 very pivotal. Mike Sullivan is Energy and Utilities consultant at 0:10:54.720 --> 0:10:58.120 PA Consulting joining us. Now, Mike, this is a very 0:10:58.240 --> 0:11:01.640 silly question, but how do's a hurricane like this impact 0:11:01.720 --> 0:11:04.280 the grid and utilities? Like, what's the sequence of events 0:11:04.360 --> 0:11:05.280 of how this plays out? 0:11:07.520 --> 0:11:10.960 Okay, oh, good morning, and thanks for having me. At first, 0:11:11.040 --> 0:11:14.559 it goes without saying that Milton is on track. This 0:11:14.880 --> 0:11:17.520 will probably be one of the most destructive hurricanes in 0:11:17.600 --> 0:11:21.960 Florida history, and there will be extended power outages, both 0:11:22.000 --> 0:11:26.640 from wins and the wave surge, so both of those 0:11:26.679 --> 0:11:30.720 things will be in play. I think the most important 0:11:30.800 --> 0:11:37.880 thing is for the public to remember that the local 0:11:37.960 --> 0:11:42.080 officials are first and foremost their choice for information there 0:11:42.480 --> 0:11:47.400 These emergency management organizations, they are the glue that provide 0:11:47.480 --> 0:11:53.600 coordination between the state organizations, federal organizations, and first responders 0:11:53.760 --> 0:11:58.680 like utility workers. And right now there are some estimates 0:11:58.720 --> 0:12:00.800 that's saying there were over thirty five thousand out of 0:12:00.880 --> 0:12:04.760 state utility workers who have converged on Florida to help 0:12:04.840 --> 0:12:10.319 in restoration. So it's it's going to be a huge effort. 0:12:10.480 --> 0:12:16.199 It's going to take days to restore power, and it's 0:12:16.280 --> 0:12:17.760 quite a job the utilities are up against. 0:12:18.640 --> 0:12:21.480 So, Mike, give us a sense here of kind of 0:12:21.520 --> 0:12:23.839 the risk to Florida here. I mean, they've been through 0:12:23.880 --> 0:12:27.840 this so many times. Unfortunately, what can what have they done? 0:12:27.920 --> 0:12:29.920 What can they do? What should they do to maybe 0:12:29.960 --> 0:12:33.320 try to I don't know, safe proof their grid perhaps 0:12:33.440 --> 0:12:35.079 a little bit more. Is there anything that can be done? 0:12:36.960 --> 0:12:43.000 Sure, there's actually a state law in Florida that requires 0:12:43.040 --> 0:12:48.920 that utilities file storm protection plans every three years. You know, 0:12:49.000 --> 0:12:52.800 the basic construct or compact that utilities have is to 0:12:52.880 --> 0:12:59.280 provide safe, reliable, and affordable power to all customers. Over 0:12:59.320 --> 0:13:02.480 the last decade, so that has layered on top of 0:13:02.600 --> 0:13:06.679 that has become that has come into play two other 0:13:06.760 --> 0:13:13.880 objectives the clean energy transition and hardened and more resilient grids. 0:13:14.520 --> 0:13:19.600 So all the utilities have filed these plans to make 0:13:19.679 --> 0:13:24.679 their grid stronger to withstand events like this, to be 0:13:24.760 --> 0:13:27.240 able to restore power faster, and then you know, to 0:13:27.320 --> 0:13:31.320 think about the overall survivability of the communities that they serve. 0:13:32.880 --> 0:13:38.120 I think goes without saying that the number and the 0:13:38.760 --> 0:13:41.599 impact of the kinds of events we've been seeing in 0:13:41.760 --> 0:13:46.840 recent years requires the greater investments be made. Those protection 0:13:47.000 --> 0:13:52.440 plans are good starts, but these grids are expansive. They've 0:13:52.559 --> 0:13:55.560 been built over one hundred plus years, and they need 0:13:55.640 --> 0:14:01.599 to be hardened and also expanded to to support the 0:14:01.679 --> 0:14:06.080 Queen Energy transition and greater electrification due to data centers 0:14:06.160 --> 0:14:08.520 and a lot of other increasing electrical load. 0:14:09.160 --> 0:14:10.360 Who pays for that? 0:14:11.120 --> 0:14:13.559 Is it going to be utilities and the rate payers 0:14:13.720 --> 0:14:15.880 or is it more of a grid operator? Is it 0:14:15.920 --> 0:14:17.439 the government? Where does that come from? 0:14:19.440 --> 0:14:25.160 So mostly, you know, I said part of utilities compact 0:14:25.240 --> 0:14:29.520 is to keep rates affordable. All of these the investments 0:14:29.560 --> 0:14:34.680 cost money. I mean, you're rebuilding major parts of the grid, 0:14:35.400 --> 0:14:40.240 and yes, ultimately it does come down to raising rates 0:14:40.560 --> 0:14:43.720 or rate payers, all right, So. 0:14:44.520 --> 0:14:47.880 Mike, you think about our grid and you just look 0:14:47.920 --> 0:14:53.120 at the wires strung on these poles, It just it 0:14:53.280 --> 0:14:55.640 just seems like so technologically out of step with where 0:14:56.200 --> 0:15:01.200 our economy is. Underground wires, isn't that the future? I mean, 0:15:01.480 --> 0:15:03.480 as long stuff's above ground, it's going to be at 0:15:03.560 --> 0:15:06.680 risk to hurricanes and it all kinds of weather. 0:15:06.560 --> 0:15:08.600 Talk about being expensive and rapairers pan or. 0:15:10.200 --> 0:15:14.360 Sure, sure, absolutely, And for the last thirty years or so, 0:15:15.360 --> 0:15:21.000 all new communities are supplied with underground service, So that's 0:15:21.000 --> 0:15:23.920 been going on for some time. It's the older infrastructure. 0:15:24.600 --> 0:15:28.080 Oftentimes communities are served they were built in the thirties 0:15:28.120 --> 0:15:31.760 and forties with what we call real lot construction. That's 0:15:32.400 --> 0:15:36.960 the lines that run behind people's backyards and butt up 0:15:36.960 --> 0:15:42.560 against other backyards. And those overhead lines are the ones 0:15:43.600 --> 0:15:48.000 that are particularly susceptible to coming down and taking an 0:15:48.080 --> 0:15:51.640 awfully long time to put back up because they serve 0:15:51.760 --> 0:15:52.680 only a few customers. 0:15:53.680 --> 0:15:56.640 So when you say that, okay, so a lot of 0:15:56.720 --> 0:15:58.600 investment needs to go in to help all of these things, 0:15:58.600 --> 0:16:01.320 whether it's the energy transition or it's weather proofing, etc. 0:16:01.560 --> 0:16:03.360 And you mentioned that rate payers eventually are going to 0:16:03.400 --> 0:16:05.600 have to pay. I mean, there's only so much tolerance 0:16:05.680 --> 0:16:09.440 for that. Do we know an estimate of what weather 0:16:09.560 --> 0:16:13.560 proofing this industry as well as energy transitioning this industry 0:16:13.640 --> 0:16:14.400 is going to cost. 0:16:16.360 --> 0:16:22.000 So part of the problem is that oftentimes regulators, state 0:16:22.080 --> 0:16:28.800 regulators who approve these plans don't adequately consider what I 0:16:28.880 --> 0:16:33.200 call stack value. Is you are trying to build and 0:16:33.360 --> 0:16:39.880 upgrade your grid for more renewable resources, greater electrification. That is, 0:16:39.880 --> 0:16:42.160 they have to have more capacity and at the same 0:16:42.240 --> 0:16:48.840 time to build build them back more resiliently. Those two things, 0:16:48.880 --> 0:16:51.360 when you think about them as a stacked value, it 0:16:51.440 --> 0:16:58.320 becomes more understandable, more digestible. Estimates for undergrounding, it's very expensive, 0:17:00.120 --> 0:17:03.840 and power White has a particularly extensive undergrounding program underway 0:17:03.920 --> 0:17:07.960 right now, but you know, it's a million dollars to 0:17:08.119 --> 0:17:10.200 two million dollars depending on which part of the country 0:17:10.200 --> 0:17:14.480 you're talking about to underground lines. And most of the 0:17:14.560 --> 0:17:17.200 lines that are are overhead and cause most of the 0:17:17.240 --> 0:17:19.360 problems are ones that run up and down city streets, 0:17:21.200 --> 0:17:24.600 commercial areas, that kind of thing. And even in the 0:17:24.680 --> 0:17:28.840 best case, whether they're hardened or not. You know, oftentimes 0:17:29.320 --> 0:17:32.800 in major hurricanes like this, it's not just trees toppling 0:17:32.880 --> 0:17:36.080 on wines, but it's flying debris hitting poles and lines 0:17:36.119 --> 0:17:40.240 and things like that. So an event like Milton is 0:17:41.840 --> 0:17:46.280 particularly problematic, but increased investment can certainly help. 0:17:46.880 --> 0:17:48.760 Hey, Mike, thanks so much for joining us. Really appreciate 0:17:48.760 --> 0:17:52.119 getting your insights here. Michael Salvin, he's the energy and 0:17:52.200 --> 0:17:56.879 you Tooty's consultant for PA consultant. They're based down in Annapolis, Maryland. 0:17:56.920 --> 0:18:01.600 There so again the hurricane barreling towards the west coast 0:18:01.680 --> 0:18:04.760 of Florida. John Sucker and I read the book The Grid, 0:18:04.960 --> 0:18:06.000 so we consider our Oh you. 0:18:06.040 --> 0:18:10.200 Did, wait, we're now already all right, all right, fine, 0:18:10.200 --> 0:18:10.840 I'm under list. 0:18:11.320 --> 0:18:14.520 The technology looks like nineteen twenty oh oh yeah, and 0:18:14.560 --> 0:18:16.960 you know, like really, I mean, can't we do anything? 0:18:17.000 --> 0:18:19.359 But as Mike Sulin was saying, the new stuff gets built, 0:18:19.359 --> 0:18:22.080 it's getting built on the underground. So first, after our 0:18:22.119 --> 0:18:24.120 good friends in Florida, this is Bloomberg. 0:18:25.840 --> 0:18:29.680 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:18:29.800 --> 0:18:32.520 weekdays at ten am Eastern on Apple car Playing and 0:18:32.640 --> 0:18:35.480 Broid Auto with the Bloomberg Business app. Listen on demand 0:18:35.560 --> 0:18:39.200 wherever you get your podcasts or watch us live on YouTube. 0:18:40.760 --> 0:18:43.480 All right, in the markets, what do you do if 0:18:43.520 --> 0:18:45.440 it's still going to be higher for longer? In that 0:18:45.760 --> 0:18:48.520 maybe we're pricing out some cuts by the Fed in 0:18:48.600 --> 0:18:50.960 twenty twenty five this year, maybe a done deal next 0:18:51.040 --> 0:18:53.320 year though the market has repriced a bit. So let's 0:18:53.320 --> 0:18:56.000 get some details with Shelby McFadden investment analyst and Motley 0:18:56.040 --> 0:18:59.920 Fool asset Management. Shelby, it's always so wonderful to speak 0:19:00.080 --> 0:19:02.520 with you. One of my big questions is if we 0:19:02.640 --> 0:19:05.119 do get a longer economic cycle and the idea is 0:19:05.240 --> 0:19:07.439 higher rates for a little bit longer, lower than they 0:19:07.440 --> 0:19:11.560 are today, but still relatively higher, can stocks continue to 0:19:11.680 --> 0:19:14.240 beat bonds? And if so, wear in stocks? 0:19:16.160 --> 0:19:18.480 Yeah, I do think that the battle starts to get 0:19:18.480 --> 0:19:21.240 a little bit closer, because really the question is when 0:19:22.480 --> 0:19:27.000 will consumers or investors rather make that switch from bonds 0:19:27.080 --> 0:19:29.760 to risky assets. Right, So, the fact that stocks have 0:19:29.880 --> 0:19:33.280 continued to beat bonds thus far has already been something 0:19:33.359 --> 0:19:35.200 that's a bit more of a phenomenon, and we know 0:19:35.320 --> 0:19:37.840 the main leaders that are driving that. So it would 0:19:37.880 --> 0:19:39.960 really have to be a matter of in my view, 0:19:40.640 --> 0:19:42.520 you know, yields coming down to such a level that 0:19:42.600 --> 0:19:44.399 they are higher than we've been used to over the 0:19:44.520 --> 0:19:47.400 last four years or so, but not quite high enough 0:19:47.480 --> 0:19:50.760 to justify completely coming out of risk assets. So I 0:19:50.800 --> 0:19:53.000 think that's the sort of fundamental part of it. I 0:19:53.080 --> 0:19:56.639 think the second part really comes from the narrative, Right, 0:19:56.760 --> 0:19:59.520 what is it that these growth companies claim to be offering. 0:19:59.640 --> 0:20:03.440 What is the secular shift that's going to propel so 0:20:03.600 --> 0:20:05.280 much of this growth? If the growth is not going 0:20:05.359 --> 0:20:07.680 to be broad, if it's going to continue to be concentrated, 0:20:08.040 --> 0:20:09.479 then I think it might be a little bit more 0:20:09.520 --> 0:20:11.400 of a tussle between the two for stocks to keep 0:20:11.440 --> 0:20:11.800 on winning. 0:20:13.080 --> 0:20:15.880 Shelby, I'm just a little uncertain about the consumer. Yes, 0:20:15.960 --> 0:20:17.880 I like rates coming down, and I think that's good 0:20:17.920 --> 0:20:20.400 for the consumer, But how do you guys think about 0:20:20.400 --> 0:20:23.520 the consumer and owning stocks that are dependent upon the 0:20:23.560 --> 0:20:25.159 consumer and retail spending? 0:20:26.480 --> 0:20:26.680 Yeah? 0:20:26.680 --> 0:20:27.160 Absolutely. 0:20:27.320 --> 0:20:29.520 I mean from what we've seen from a lot of 0:20:29.560 --> 0:20:32.640 the banks, the payment processors thus far, and of course 0:20:32.720 --> 0:20:35.200 knowing that we've got banks coming up soon, has been 0:20:35.280 --> 0:20:38.840 that consumers for the most part are doing okay. That's 0:20:38.880 --> 0:20:40.960 not to say that inflation is completely over. That's not 0:20:41.080 --> 0:20:43.119 to diminish the fact that in some locales it's a 0:20:43.160 --> 0:20:45.760 bit more significant and over certain goods and surfaces, but 0:20:45.880 --> 0:20:48.000 for the most part, people seem to have adjusted. They 0:20:48.119 --> 0:20:51.320 have definitely spent downsaving, so discretionary is a little bit lower, 0:20:51.960 --> 0:20:54.800 but they have figured out how to live on the 0:20:54.880 --> 0:20:56.960 income that they have. The job switching has slowed down 0:20:56.960 --> 0:20:59.440 a lot, so we're not as barish on the consumer 0:20:59.480 --> 0:21:01.840 as a whole some others might be. But in terms 0:21:01.880 --> 0:21:04.680 of playing the consumer, that's where the active management comes in. 0:21:05.040 --> 0:21:07.320 We take the time to pick the companies that are 0:21:07.400 --> 0:21:10.080 run well. They have great operational leverage, they can go 0:21:10.119 --> 0:21:12.800 ahead and move with the consumer as they need to. 0:21:13.119 --> 0:21:15.560 So that's why we've got companies like Costco in our 0:21:15.760 --> 0:21:19.040 Malipul one hundred in our Global Opportunities Fund. Those are 0:21:19.160 --> 0:21:21.560 names that are consumer facing, but they tend to do 0:21:21.680 --> 0:21:23.920 the best out of their peers because of how nimble 0:21:23.960 --> 0:21:24.199 they are. 0:21:24.680 --> 0:21:27.200 Which also on your list is American Express, and the 0:21:27.280 --> 0:21:30.200 idea typically is that, oh, American Express caters to higher 0:21:30.200 --> 0:21:32.680 income earners, so if you're looking at the K shape economy, 0:21:33.080 --> 0:21:34.560 that part of the K is actually going to do 0:21:34.680 --> 0:21:37.639 really well. BTIG actually cut the credit card company to 0:21:37.720 --> 0:21:41.480 sell from neutral saying that fundamentals are slowing for those 0:21:41.560 --> 0:21:43.119 super prime customers. 0:21:43.160 --> 0:21:43.680 What do you see? 0:21:45.160 --> 0:21:46.720 Yeah, so, for the one thing, we do know that 0:21:46.760 --> 0:21:49.240 they're a little bit sticky, and yes we have that 0:21:49.840 --> 0:21:53.880 slightly longer runway for higher end consumers, but they tend 0:21:54.000 --> 0:21:56.679 to have already made the big decisions to get rid 0:21:56.680 --> 0:21:59.119 of large bills, right, So if they've sort of held 0:21:59.160 --> 0:22:02.000 on to that end fee card for about two years 0:22:02.080 --> 0:22:04.760 in this tightening cycle, they tend to be in that 0:22:05.440 --> 0:22:08.239 part of that what is it, a less seity curve 0:22:08.280 --> 0:22:09.880 where it's kind of like, you know what, we're good 0:22:09.920 --> 0:22:12.000 to go here, even though we may be in a 0:22:12.000 --> 0:22:14.520 little bit of a higher for longer situation. There has 0:22:14.640 --> 0:22:17.040 been some relief, right, There has been some relief on 0:22:17.200 --> 0:22:20.600 credit conditions, and if we even get another twenty five 0:22:20.640 --> 0:22:23.320 basis point cut this year and maybe another one in 0:22:23.480 --> 0:22:26.320 Q one, that makes even better conditions for going a 0:22:26.359 --> 0:22:29.160 little bit down market. Now in looking at American Express, 0:22:29.280 --> 0:22:31.880 they're not interested in going completely down the river. That's 0:22:31.960 --> 0:22:35.280 not really their prerogative, but there is an opportunity in 0:22:35.359 --> 0:22:39.000 the high earning categories of gen Z and young millennials 0:22:39.119 --> 0:22:41.200 that they have an opportunity to go ahead and catch, 0:22:41.280 --> 0:22:43.359 but also knowing that these earners have a little bit 0:22:43.359 --> 0:22:46.159 short of a credit history, so as credit conditions soften, 0:22:46.240 --> 0:22:48.560 there is an opportunity there to go ahead and get 0:22:48.600 --> 0:22:50.919 a little bit more of the market, to go ahead 0:22:50.960 --> 0:22:54.680 and sort of adhere with they're already sticky premium base. 0:22:55.480 --> 0:22:58.320 I'm still a Green card holder. They try to sell me, 0:22:58.600 --> 0:23:00.520 upsell me for all the other stuff, like I'm staying 0:23:00.560 --> 0:23:02.280 with the classic green card. 0:23:02.359 --> 0:23:03.280 Okay, here's my thing with you. 0:23:03.480 --> 0:23:03.920 What you need. 0:23:04.400 --> 0:23:07.440 So my husband has the purple fancy one, right, somehow 0:23:07.480 --> 0:23:09.119 I only have the silver one. But I'm the one 0:23:09.160 --> 0:23:11.879 that spends all the money and pays the bills, and 0:23:12.000 --> 0:23:13.840 I don't like them. But I don't like that at all. 0:23:13.880 --> 0:23:15.760 And somehow I'm not in charge of this. It's still 0:23:15.800 --> 0:23:21.480 in their hist him nothing me. I think it's five 0:23:21.600 --> 0:23:22.280 hundred dollars. 0:23:22.400 --> 0:23:24.480 Oh that's such a company. 0:23:24.880 --> 0:23:27.280 Please, all right, Shelby, let's get remembers. 0:23:27.440 --> 0:23:30.200 Let's go where John and I shop Costco. It's not 0:23:30.359 --> 0:23:32.720 just for the dollar fifty hot dog. Talk to us 0:23:32.720 --> 0:23:33.840 about the Costco story. 0:23:35.320 --> 0:23:38.280 Yeah, the Costco story is one of just prime operators. 0:23:38.320 --> 0:23:40.040 I mean, I think that's the simplest way to put it, 0:23:40.680 --> 0:23:43.840 so they were able to navigate not only supply shortages 0:23:44.440 --> 0:23:47.119 in sort of the mid days of the pandemic recovery period, 0:23:47.560 --> 0:23:50.879 but also navigating the depths of inflation or the heights, 0:23:50.920 --> 0:23:53.640 if you will. They were one of the few companies 0:23:53.680 --> 0:23:56.440 that was boasting about lowering prices. So not only do 0:23:56.520 --> 0:23:58.560 they have this annuity model where they're going to be 0:23:59.040 --> 0:24:01.760 making the majority of their money in terms of absolute dollars, 0:24:01.800 --> 0:24:06.119 but in margin on the annual fee that they're charging, 0:24:06.680 --> 0:24:09.359 but they're able to garner more consumers by saying, hey, 0:24:09.440 --> 0:24:11.680 we're going to give you the best deal you can get. 0:24:12.200 --> 0:24:13.879 Obviously in a large amount, so as long as you 0:24:13.920 --> 0:24:16.119 have another room in your house. But they're able to 0:24:16.240 --> 0:24:18.680 keep people in that regard, and because it's an annual fee, 0:24:18.760 --> 0:24:22.280 it's something you budget for once and then it stick. Also, 0:24:22.440 --> 0:24:24.880 knowing that they were probably going to have more in stock, 0:24:25.000 --> 0:24:28.680 having that really robust shifting network allowed them to hold 0:24:28.760 --> 0:24:31.840 on to people. So I think consumers knowing that Costco 0:24:31.920 --> 0:24:33.960 is sort of on their side is a breath of 0:24:34.040 --> 0:24:36.800 fresh air compared to some of the other retailers. So 0:24:36.880 --> 0:24:39.520 the operators they have the succession planning went fantastic Over 0:24:39.560 --> 0:24:41.960 the last twelve months, no one's really had any concerns, 0:24:42.000 --> 0:24:44.080 and there's a huge opportunity. 0:24:43.760 --> 0:24:44.320 For e comm. 0:24:44.640 --> 0:24:47.000 A lot of folks really just kind of trudged through 0:24:47.080 --> 0:24:50.480 it on the sort of legacy platform. There's that Instacart 0:24:50.600 --> 0:24:53.080 partnership they have right now, but we give Costco to 0:24:53.119 --> 0:24:55.000 the five to ten years. They may really have something 0:24:55.080 --> 0:24:56.600 to compete with some of the peers on e comm. 0:24:56.840 --> 0:24:58.800 All right, Shelby, we always appreciate you. You have the 0:24:59.000 --> 0:25:01.520 best stuff, honestly, thank you so much. Shelby mcfadd investment 0:25:01.560 --> 0:25:05.280 analyst in Motley Fool Asset Management, joining us from Alexandria, Virginia. 0:25:05.280 --> 0:25:06.639 Wait a second, they have one hundred. They have a 0:25:06.800 --> 0:25:07.800 dollar fifty hot dog. 0:25:08.080 --> 0:25:10.040 Still yeah, still fifty? 0:25:10.080 --> 0:25:10.359 What is it? 0:25:10.440 --> 0:25:10.640 John? 0:25:10.920 --> 0:25:11.840 I buy him at bulk? 0:25:12.240 --> 0:25:13.440 No, it's what is the dollar fifty? 0:25:13.600 --> 0:25:14.680 But the one where you go and you get it 0:25:14.760 --> 0:25:17.359 like in in maybe to get it long rack of the. 0:25:17.640 --> 0:25:18.920 Door there, it's to die for. 0:25:19.880 --> 0:25:21.200 I still don't have a membership. 0:25:21.400 --> 0:25:23.880 I mean, at least happened your shot there without a membership. 0:25:24.400 --> 0:25:24.960 He doesn't show you. 0:25:25.040 --> 0:25:27.439 You want to tell her, oh, you. 0:25:27.520 --> 0:25:28.600 Use someone else in membership? 0:25:28.760 --> 0:25:29.200 I got it. 0:25:29.320 --> 0:25:31.800 I admit, I admit to not pick look at me 0:25:31.920 --> 0:25:32.880 being all smart. 0:25:33.040 --> 0:25:38.440 All right, you're listening to the Bloomberg Intelligence Podcast. Catch 0:25:38.520 --> 0:25:41.520 us live weekdays at ten am Eastern on Apple, card 0:25:41.600 --> 0:25:44.719 Play and Android Otto with the Bloomberg Business. You can 0:25:44.760 --> 0:25:48.000 also listen live on Amazon Alexa from our flagship New 0:25:48.080 --> 0:25:51.720 York station Just say Alexa playing Bloomberg eleven thirty. 0:25:53.280 --> 0:25:56.119 You know, so Disney was closing, Yes, Paul got in 0:25:56.200 --> 0:25:56.960 in the nick of time. 0:25:57.080 --> 0:25:59.359 Yeah, so I was there. When was that there? 0:25:59.560 --> 0:26:01.040 Sunday, Sunday, Monday. 0:26:00.840 --> 0:26:04.359 Sunday, Monday, a little bit Monday, and even during the 0:26:04.440 --> 0:26:07.359 rain and it was raining, it didn't stop people at all. 0:26:07.480 --> 0:26:11.560 You buy the poncho for like fifteen bucks each, but 0:26:11.720 --> 0:26:14.920 you buy the poncho and they're just standing there and yeah, Yeah, 0:26:15.240 --> 0:26:17.520 Disney's a place. It's kind of like when I go skiing, 0:26:17.720 --> 0:26:20.040 I don't even think about the money I'm spending because 0:26:20.040 --> 0:26:22.639 that would be too upsetting and impact your enjoyment of 0:26:22.680 --> 0:26:24.160 what you're doing. She just kind of shut your eyes 0:26:24.200 --> 0:26:26.159 and go That's how you do it at Disney. But 0:26:26.200 --> 0:26:28.719 apparently there's gonna be a financial impact to this whole thing. 0:26:28.880 --> 0:26:30.600 Interesting, and wonder how long it gets depends on how 0:26:30.600 --> 0:26:32.760 long it's gonna be closed and if there's gonna be flooding. 0:26:33.080 --> 0:26:33.680 And all the like. 0:26:34.119 --> 0:26:36.840 Fortunately, we pay somebody to think about this stuff, Keitha Ranganath, 0:26:36.880 --> 0:26:39.080 and she's a media analyst for Bloomberg Intelligence. One of 0:26:39.119 --> 0:26:41.600 the big names that she covers is the Walt Disney Company. 0:26:41.680 --> 0:26:44.520 She knows it back, you know, inside and out. And 0:26:45.119 --> 0:26:46.840 you know, Githa, you know, I've covered Disney for a 0:26:46.880 --> 0:26:49.800 long time and we never really cared that much about 0:26:49.880 --> 0:26:52.160 the theme parks. They were in nice business, they contributed 0:26:52.280 --> 0:26:56.160 nice profits, they kind of grew every year. But now 0:26:56.680 --> 0:26:58.560 if you think about the Walt Disney Company investing in 0:26:58.600 --> 0:27:01.480 the Walt Disney Company, you better be really bullish on 0:27:01.640 --> 0:27:03.920 the theme park business because that's now the major part 0:27:03.960 --> 0:27:06.240 of the profitability. So talk to us about the theme 0:27:06.280 --> 0:27:08.120 park business and what might be some of the risks 0:27:08.160 --> 0:27:09.600 for shutting down Walt Disney World. 0:27:10.640 --> 0:27:13.240 Yeah, absolutely right, Paul. So it's it's about a third 0:27:13.320 --> 0:27:16.680 of revenue, but it's about two thirds of profits. 0:27:16.720 --> 0:27:16.920 Wow. 0:27:17.440 --> 0:27:20.880 So almost yeah, almost sixty to sixty five percent of profits. 0:27:20.920 --> 0:27:24.120 And that is a complete shift, as you correctly pointed out, 0:27:24.119 --> 0:27:25.840 from just a few years ago, maybe even just five 0:27:25.920 --> 0:27:28.359 years ago before they kind of went into the streaming 0:27:28.400 --> 0:27:31.240 business before the linear TV business kind of is seeing 0:27:31.280 --> 0:27:33.720 the circular declines that it is right now. So it 0:27:33.880 --> 0:27:35.960 really the picture has kind of completely changed, and that 0:27:36.160 --> 0:27:38.399 means there is a lot of attention and a lot 0:27:38.480 --> 0:27:42.119 of focus on the theme parks. We do have, you know, 0:27:42.280 --> 0:27:45.439 some prior hurricane closures to go by, So they had 0:27:45.520 --> 0:27:48.920 one in twenty twenty two, which was Hurricane Ian when 0:27:49.000 --> 0:27:51.880 they closed the park for two days. With Hurricane Ian, 0:27:51.920 --> 0:27:55.159 they lost about sixty five million dollars. That was the 0:27:55.240 --> 0:27:59.080 operating income impact. You had Hurricane Irma in you know, 0:27:59.160 --> 0:28:02.000 twenty seventeen it was one hundred million dollar impact. We 0:28:02.160 --> 0:28:05.240 think though that with more and more reliance on the 0:28:05.320 --> 0:28:08.080 theme parks, just with the fact you know that it's 0:28:08.119 --> 0:28:11.520 become a bigger revenue contributor, a bigger profit contributor, obviously 0:28:11.640 --> 0:28:15.360 the financial hit is also going to be larger. Remember 0:28:15.680 --> 0:28:18.399 just the Florida parks pull in roughly one hundred and 0:28:18.480 --> 0:28:21.320 thirty five to one hundred and forty thousand visitors every 0:28:21.480 --> 0:28:25.240 single day. It's fifty million visitors a year, so you know, 0:28:25.359 --> 0:28:28.520 it obviously has huge ramifications it's losing roughly, you know, 0:28:28.680 --> 0:28:33.080 fifty million dollars per day. We think the operating income 0:28:33.200 --> 0:28:35.720 impact will be at least at least one hundred and 0:28:35.720 --> 0:28:36.440 twenty five million. 0:28:36.720 --> 0:28:37.680 So this is the first time. 0:28:39.080 --> 0:28:40.720 This is the first time I've been to a Disney 0:28:40.720 --> 0:28:43.360 property as a civilian. The other times I've been to 0:28:43.480 --> 0:28:46.320 a Disney property is always with Bob Iger walking next 0:28:46.400 --> 0:28:48.280 to me, so we have that analyst and investors and 0:28:48.320 --> 0:28:50.800 things like that. When they either close the park so 0:28:50.880 --> 0:28:52.440 we're the only ones there, or they give us like 0:28:52.520 --> 0:28:55.760 some super duper passes that we can zip at any line. 0:28:55.960 --> 0:28:57.880 This is the first time I wanted, like a civilian 0:28:57.920 --> 0:28:59.360 red to kind of wait in line and do all 0:28:59.400 --> 0:29:02.360 that kind of stuff. But and jillions of people do 0:29:02.400 --> 0:29:02.760 it as key. 0:29:03.160 --> 0:29:03.320 Yeah. 0:29:04.000 --> 0:29:07.600 At the airport, there were definitely reports of little children 0:29:07.720 --> 0:29:10.720 being just sobbing because they had to leave Disney. So 0:29:11.280 --> 0:29:13.520 just okay, you said they're losing fifty million dollars per 0:29:13.600 --> 0:29:15.800 day by shutting down Disney World, Like that's that's how 0:29:15.920 --> 0:29:20.360 big that Florida resort is for them. I heard that right, Yes, absolutely, yes, 0:29:20.560 --> 0:29:23.760 So it go ahead. Do they wind up? Do they 0:29:23.840 --> 0:29:26.600 make that up? Is it in the pent up demand 0:29:26.760 --> 0:29:27.960 or is this just lost. 0:29:29.160 --> 0:29:31.600 This will pretty much be lost, because remember it's not 0:29:31.880 --> 0:29:34.200 just the par closure. There is obviously going to be 0:29:34.480 --> 0:29:38.240 some you know, longer ranging repercussions for you know, all 0:29:38.320 --> 0:29:42.120 of the theme park businesses in Florida, in the Orlando area. 0:29:42.800 --> 0:29:46.720 So we are actually expecting attendance itself for the fiscal 0:29:46.760 --> 0:29:49.120 first quarter, which is the current quarter, to actually beat 0:29:49.160 --> 0:29:53.600 down maybe about mid single digits. Attendance was flatish in 0:29:53.720 --> 0:29:56.680 the you know, in the September quarter. It is definitely 0:29:56.760 --> 0:29:59.959 that there is definitely pressure all around and this obviously 0:30:00.200 --> 0:30:02.560 is not going to help them at all. The other 0:30:02.680 --> 0:30:05.080 thing that we're watching for alex as we kind of 0:30:05.120 --> 0:30:07.880 get into twenty twenty five, and this is going to 0:30:07.920 --> 0:30:11.080 be a special pain point for Disney, is that Universal, 0:30:11.360 --> 0:30:14.440 its closest rival, actually has a new theme part that 0:30:14.480 --> 0:30:18.840 they're opening in Orlando, and that basically doubles Universal's footprint. 0:30:19.000 --> 0:30:23.320 They're adding Epic Universe sometime in March April of next year. Again, 0:30:23.400 --> 0:30:26.120 a lot of people have been holding back on their 0:30:26.880 --> 0:30:29.000 you know, travel to Universal because they knew, they know 0:30:29.120 --> 0:30:31.280 this new attraction is coming, and so again we think 0:30:31.320 --> 0:30:32.640 that's going to be a little bit of a hit 0:30:32.760 --> 0:30:35.160 for Disney once we get into twenty twenty five. 0:30:35.240 --> 0:30:37.320 It's funny you mentioned that gig because I wrote Home 0:30:37.520 --> 0:30:40.120 with a Scottish family. They're on their way back to 0:30:40.160 --> 0:30:43.080 their home in Dundee, Scotland, and my seat my new 0:30:43.320 --> 0:30:45.479 buddy Rarely. I thought he was eighteen. He turns out 0:30:45.520 --> 0:30:46.080 he's thirteen. 0:30:46.480 --> 0:30:46.720 Huge. 0:30:46.760 --> 0:30:48.800 The girl in a big over there. But they came 0:30:48.880 --> 0:30:51.560 as a family. They came over from Scotland to Orlando 0:30:52.200 --> 0:30:54.360 just to go to Universal. They didn't go to Disney. 0:30:54.400 --> 0:30:56.600 They're wait a minute, So I turned on to asked 0:30:56.640 --> 0:30:58.640 this mom, this kid's tell me you guys came all 0:30:58.680 --> 0:31:01.040 the way here and you just went Universal, and she said, yeah, 0:31:01.040 --> 0:31:02.840 they're big like Harry Potter fans, so they do all 0:31:02.840 --> 0:31:05.240 that kind of yeah stuff. So that's and that's a 0:31:05.320 --> 0:31:07.600 Comcast property, Isn't that right, Keitha. 0:31:08.040 --> 0:31:10.320 That is a Comcast dropped And you're absolutely right. I 0:31:10.400 --> 0:31:12.560 mean it's for the younger kids, like the two to ten. 0:31:13.000 --> 0:31:15.080 I think Disney still continues to be the go to, 0:31:15.440 --> 0:31:17.120 but once you get into the teenage years, Yeah, you're 0:31:17.120 --> 0:31:19.440 absolutely right. Harry Potter seems to be like the bigger 0:31:19.480 --> 0:31:22.560 attraction you find a lot of families going there, and 0:31:22.640 --> 0:31:24.200 Epic Universe is going to have a lot of that 0:31:24.320 --> 0:31:24.640 as well. 0:31:24.760 --> 0:31:26.520 Also, to be fair, can't they just like hop over 0:31:26.680 --> 0:31:28.720 pairs to go to Disney World there? It's not the same, 0:31:28.760 --> 0:31:30.560 it's not the same. Okay, well, fair enough. 0:31:30.440 --> 0:31:32.920 Been there, done that. Hey, Keith it I know Disney 0:31:33.800 --> 0:31:36.160 is really ramping up their investment in their parks, right, 0:31:36.360 --> 0:31:38.920 Didn't they like double their capex over the next number 0:31:38.920 --> 0:31:39.280 of years. 0:31:40.240 --> 0:31:44.000 Yes, sixty billion dollars in capex spending over the next 0:31:44.040 --> 0:31:46.680 ten years. Almost twelve to fifteen billion dollars of that 0:31:46.800 --> 0:31:49.360 will just be for new cruise ships. They're really kind 0:31:49.360 --> 0:31:52.120 of doubling down on the cruises, so that's going to 0:31:52.160 --> 0:31:54.800 be a big part of their business going forward. But absolutely, 0:31:54.840 --> 0:31:57.840 they're almost doubling their footprint in some of the areas, 0:31:57.880 --> 0:32:00.760 like especially in California, they're kind of going to their footprint, 0:32:00.880 --> 0:32:05.080 going to almost add a whole new park in you know, 0:32:05.240 --> 0:32:07.920 in Orlando when all is said and done. So, yeah, 0:32:08.000 --> 0:32:10.480 big investment in in the parks, and they're kind of 0:32:10.560 --> 0:32:13.440 hoping that's going to pay off as they keep increasing prices. 0:32:13.720 --> 0:32:15.880 So I sent Paul an article this morning. Was one 0:32:15.880 --> 0:32:17.640 of the first things, I read that when it ran, 0:32:17.720 --> 0:32:20.680 it came in that Disneyland raises prices by about six 0:32:20.800 --> 0:32:25.240 percent on the most popular days. So the most expensive 0:32:25.280 --> 0:32:28.040 tickets now, typically weekends and holidays, are climbing over six 0:32:28.120 --> 0:32:31.040 percent two hundred and six dollars a day. At what 0:32:31.280 --> 0:32:34.440 point here are we capping out on price increases. I mean, 0:32:34.440 --> 0:32:36.000 if you have a family of four and there are 0:32:36.040 --> 0:32:38.680 two parents, it's twelve hundred dollars for one day. 0:32:40.640 --> 0:32:42.320 I don't think we're capping out. I think, you know, 0:32:42.400 --> 0:32:44.640 Paul kind of summed this up perfectly. You know, once 0:32:44.720 --> 0:32:47.280 you go there, you're not thinking of how much you're spending. 0:32:47.760 --> 0:32:50.400 And so actually, as we kind of model out the 0:32:50.520 --> 0:32:53.200 average prices, you know, it's close to about it's about 0:32:53.200 --> 0:32:55.960 one hundred and ninety dollars right now, the average you know, 0:32:56.040 --> 0:32:59.480 per capita spending per person. We think this pretty much 0:32:59.520 --> 0:33:02.160 goes to a about three hundred dollars over the course 0:33:02.200 --> 0:33:03.520 of the next four to five years. 0:33:04.120 --> 0:33:06.600 And nobody does it better than Disney. I mean, you 0:33:06.680 --> 0:33:09.440 get this little wristband, so you know, you're not even 0:33:09.520 --> 0:33:11.320 physically taking out your credit card. 0:33:11.280 --> 0:33:13.400 So easy to tap it and you just tap and go, 0:33:13.680 --> 0:33:15.560 and you know, it's just and you. 0:33:15.520 --> 0:33:17.080 Don't see it until you look at your credit card 0:33:17.120 --> 0:33:18.800 statement in like a month or something exactly. 0:33:18.960 --> 0:33:22.040 So it's nobody's better at it than Disney. All right, 0:33:22.080 --> 0:33:25.080 So let's step back on the Disney story here, the 0:33:25.080 --> 0:33:27.920 theme parks. We've got a good handle on that. Where 0:33:28.040 --> 0:33:31.440 are we in terms of profitability of the streaming business? 0:33:32.400 --> 0:33:35.000 Is this still a big big headwind for the company 0:33:35.040 --> 0:33:35.440 in the stock? 0:33:36.520 --> 0:33:39.440 Not anymore, Paul, So you know, the turnaround has finally 0:33:39.560 --> 0:33:42.720 taken place. It happened last quarter, and we are actually 0:33:42.760 --> 0:33:45.440 going to see the streaming business now become a major 0:33:45.640 --> 0:33:48.120 contributor to actually the bottom line. So so far it 0:33:48.160 --> 0:33:50.720 has been a huge drag. There were almost four billion 0:33:50.800 --> 0:33:53.280 in losses just a few years ago. But now we're 0:33:53.360 --> 0:33:55.960 seeing that it's breaking even. It's going to become a 0:33:56.000 --> 0:34:00.640 positive profit contributor. Why, because they're increasing prices. You're going 0:34:00.720 --> 0:34:03.120 to see a huge jump in your Disney Plus subscription 0:34:03.240 --> 0:34:07.360 come October seventeenth. They're cracking down on password sharing. That's 0:34:07.400 --> 0:34:10.560 something that you know, they're just copying from what Netflix did. Again, 0:34:10.600 --> 0:34:13.760 that should lead to a nice bump in their average 0:34:13.800 --> 0:34:17.360 revenue per user. And then they're also they've also introduced 0:34:17.400 --> 0:34:19.920 the advertising tier, and so advertising, which is already a 0:34:19.960 --> 0:34:22.160 pretty big business for them, they're really going to double 0:34:22.239 --> 0:34:25.080 down on that as well. So they have multiple levers 0:34:25.160 --> 0:34:27.400 that they're pulling now. As far as the streaming business 0:34:27.480 --> 0:34:28.319 is concerned. 0:34:28.920 --> 0:34:31.760 What how is the stock trading? Is the stock trading 0:34:32.040 --> 0:34:34.760 encompassing all of this? Do you think it's undervalued? Overvalued? 0:34:34.800 --> 0:34:36.840 I know you guys don't give actual valuations on the 0:34:36.880 --> 0:34:39.360 equity market for that, but I'm just curious is to 0:34:39.400 --> 0:34:41.320 see in terms of relative valuation. 0:34:42.360 --> 0:34:44.600 I think in terms of relative valuation it's definitely a 0:34:44.680 --> 0:34:47.080 little bit undervalued right now. And I think that's just 0:34:47.160 --> 0:34:49.160 because you know, we kind of have to wait for 0:34:49.680 --> 0:34:52.560 higher visibility in terms of the theme parks. So they 0:34:52.600 --> 0:34:55.520 have clearly said that the theme park business is going 0:34:55.560 --> 0:34:58.759 to be under pressure through most of fiscal twenty twenty five. 0:34:59.239 --> 0:35:03.080 So we see like a nice ramp up in growth 0:35:03.320 --> 0:35:06.279 with the parks. I think we're going to see that 0:35:07.280 --> 0:35:10.480 somewhat of a negative sentiment and somewhat if that's sustained pressure. 0:35:10.480 --> 0:35:13.399 Boy, because it seemed like it seemed for a while there. 0:35:13.520 --> 0:35:15.680 Once they make that turn, that's when you want to 0:35:15.719 --> 0:35:17.759 dive into the stock. But I guess that's at a 0:35:17.800 --> 0:35:20.279 time where maybe the US consumers you know, a little 0:35:20.280 --> 0:35:22.319 bit weaker on the margin, and that's going to hit 0:35:22.360 --> 0:35:26.480 the theme parks compared to what yours or exactly yes, 0:35:26.800 --> 0:35:29.160 spending like crazy. They're gonna have a blowout quarter this quarter, 0:35:29.239 --> 0:35:31.439 gith that you can call it right now, all right, Githy, 0:35:31.440 --> 0:35:33.480 thanks so much for joining us. Githa RANGANATHANCI is a 0:35:33.600 --> 0:35:36.960 US media analyst for Bloomberg Intelligence. She covers all that stuff. 0:35:37.040 --> 0:35:40.439 Disney obviously a huge, huge name in that sector, and again, 0:35:40.520 --> 0:35:43.400 investors have been waiting for the turn and profitability for 0:35:43.480 --> 0:35:45.800 the streaming business, and it looks like they're at that 0:35:45.880 --> 0:35:48.239 point making that turn there to profitability. So we'll see 0:35:48.520 --> 0:35:50.480 to what extent taken Rampant. I mean, you look at 0:35:50.520 --> 0:35:53.120 the margins, the profit margins at Netflix, and I don't 0:35:53.120 --> 0:35:54.600 think Disney is saying they're going to get to those 0:35:54.640 --> 0:35:57.160 profit margage margins. But if they get to something close 0:35:57.239 --> 0:35:59.759 to that, that's a lot of cash and a lot 0:35:59.800 --> 0:36:03.120 of earnings here for the company. So but the stock, again, 0:36:03.160 --> 0:36:05.279 it's one hundred and sixty seven billion dollar market cap stock, 0:36:05.320 --> 0:36:07.560 but it's only up two percent year to date only 0:36:07.640 --> 0:36:11.440 up about ten percent or trailing twelve months, badly trailing 0:36:11.680 --> 0:36:14.120 the market there. And that's what Scott, that's been, you know, 0:36:14.160 --> 0:36:16.600 a real concern for media investors, the sector tough for 0:36:16.680 --> 0:36:18.200 that sector to work if Disney sstant work. 0:36:18.280 --> 0:36:20.840 Yeah, yeah, absolutely U I've takeing a look at all 0:36:20.880 --> 0:36:23.640 of that. As Hurricane Milton continues to bear down on 0:36:23.840 --> 0:36:26.640 Florida with house toppling Wins. 0:36:28.280 --> 0:36:32.120 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:36:32.239 --> 0:36:35.760 weekdays at ten am Eastern on applecar Play and Android 0:36:35.800 --> 0:36:38.520 Auto with the Bloomberg Business app. You can also listen 0:36:38.680 --> 0:36:41.719 live on Amazon Alexa from our flagship New York station 0:36:42.120 --> 0:36:44.880 just say Alexa playing Bloomberg eleven thirty. 0:36:46.560 --> 0:36:48.839 I was just looking at an Nvidia that is within 0:36:48.880 --> 0:36:51.680 a couple of points of its all time high again, 0:36:51.760 --> 0:36:53.040 So there was a little bit of a solved there 0:36:53.080 --> 0:36:54.600 in some of those AI names. But they seem to 0:36:54.640 --> 0:36:56.719 be coming back a little bit, So see what's going 0:36:56.719 --> 0:36:59.120 on there. Kim Forrest joins us. She's a founder and 0:36:59.200 --> 0:37:01.640 she's a chief investment an officer at Boco Capital Partners. 0:37:01.640 --> 0:37:04.799 She's at there in Pittsburgh and longtime technology analysts really 0:37:04.840 --> 0:37:07.359 have some good views there and I love to Kim. 0:37:07.400 --> 0:37:09.279 I love to get your thoughts kind of on this 0:37:09.480 --> 0:37:11.719 AI traded. You know, had a little bit of a 0:37:11.840 --> 0:37:14.880 lull there for a while, but it seems to be 0:37:14.960 --> 0:37:16.840 coming back. How do you think about it? 0:37:19.200 --> 0:37:22.560 Well, it's generative AI is the thing, and it has 0:37:22.640 --> 0:37:25.440 been the thing for I don't know, maybe twenty four 0:37:25.520 --> 0:37:27.839 months now, it seems like forever. But here we are, 0:37:28.600 --> 0:37:32.399 and every once in a while people go, uh, oh, wait, 0:37:32.800 --> 0:37:36.520 it's it's wrong, sometimes right, and then they go wait, 0:37:36.880 --> 0:37:39.520 like it doesn't solve any problems, but we know it's cool, 0:37:39.680 --> 0:37:42.880 So should we keep funding it, you know, as investors? 0:37:43.239 --> 0:37:46.200 And the answer seems to be yes. But there are fears, 0:37:46.440 --> 0:37:50.160 and I think rightly placed, that we don't really know 0:37:50.320 --> 0:37:53.120 how big this market is. We keep being told that, 0:37:53.400 --> 0:37:56.120 you know, data centers are going to take over large 0:37:56.200 --> 0:37:59.200 swaths of America. I don't know that. I believe that. 0:37:59.640 --> 0:38:02.840 I think think my biggest problem with generative AI is 0:38:03.320 --> 0:38:07.040 there it's unclear about what problem it's solving, and then 0:38:07.120 --> 0:38:09.200 that leads to the question how much would you pay 0:38:09.640 --> 0:38:12.040 to solve this problem? And I don't have answers to 0:38:12.120 --> 0:38:13.839 either one of those, And I think that's what makes 0:38:14.239 --> 0:38:15.920 a lot of investors uncomfortable. 0:38:16.360 --> 0:38:19.640 Well, maybe given that lack of comfort there and maybe 0:38:19.680 --> 0:38:22.480 some of the finer points of the AI story, is 0:38:22.640 --> 0:38:26.759 technology still a sector that can lead the broader markets higher, 0:38:26.840 --> 0:38:28.600 like it's done for much of the last I don't know, 0:38:28.680 --> 0:38:29.600 ten or fifteen years. 0:38:31.000 --> 0:38:35.279 Absolutely, I'm a cute you know, even though I'm like 0:38:35.440 --> 0:38:37.360 a little bit of a doubting Thomas here on the 0:38:37.400 --> 0:38:38.359 whole generative AI. 0:38:39.120 --> 0:38:40.759 I used to work in AI, and I. 0:38:40.880 --> 0:38:43.760 Know the power of the problems that it can solve, 0:38:44.200 --> 0:38:47.360 and they're much smaller than somebody talking to a computer 0:38:47.480 --> 0:38:50.399 and say design me a new car. Computer, Like, that's 0:38:50.480 --> 0:38:53.799 not a thing, you know, ridiculous, you know, just one 0:38:53.960 --> 0:38:58.040 sentence problem solving, you know what I mean. But I 0:38:58.239 --> 0:39:03.239 do think that productivity is the thing that drives businesses 0:39:03.320 --> 0:39:07.520 to invest, and that drives technology companies to try to 0:39:08.040 --> 0:39:11.080 solve those business problems. And at the end of the day, 0:39:11.320 --> 0:39:15.239 that is what drives technology. Although people like to use it, 0:39:15.400 --> 0:39:18.440 it's fun, it's interesting, but they don't pay nearly as 0:39:18.520 --> 0:39:20.879 much as businesses do to run technology. 0:39:21.560 --> 0:39:24.160 All Right, Kim, We've got a federal reserve that isn't 0:39:24.400 --> 0:39:26.759 a rate cutting mode. Maybe there's some debate about how 0:39:27.200 --> 0:39:29.799 far and how quickly they do that if you look 0:39:29.800 --> 0:39:33.000 at the bond market. But earnings, I think they still matter, 0:39:33.239 --> 0:39:35.120 and JP Morgan is going to really kick things off 0:39:35.160 --> 0:39:37.920 on Friday. What are you looking for out of corporate 0:39:37.920 --> 0:39:38.920 American this earning season? 0:39:40.040 --> 0:39:44.440 Sure? Well, October is really the twitchiest earning season because 0:39:44.680 --> 0:39:48.160 a lot of companies didn't know if they were going 0:39:48.280 --> 0:39:51.640 to make their quarter because of the vacation schedule of everybody, 0:39:51.760 --> 0:39:55.160 So that always adds a layer of uncertainty. 0:39:54.760 --> 0:39:55.439 To this time. 0:39:56.000 --> 0:39:58.480 But that being said, I think the bar was set 0:39:58.560 --> 0:40:01.440 low enough. I haven't seen very many, if any pre 0:40:01.560 --> 0:40:06.680 announcements from companies. That's still ongoing as they tally things 0:40:06.760 --> 0:40:10.800 and the SEC forces a company to give in meaningful 0:40:11.000 --> 0:40:14.680 material information to its investors, so we always look for that, 0:40:14.840 --> 0:40:17.200 but I don't see very much much in the way 0:40:17.239 --> 0:40:20.319 of pre announcements. Now. What we're going to now look 0:40:20.400 --> 0:40:23.560 at is what do companies see going forward. I think 0:40:23.600 --> 0:40:26.240 there are some questions about whether or not this economy 0:40:26.400 --> 0:40:30.080 is truly as strong as some of the numbers forecast, 0:40:30.880 --> 0:40:33.040 So that is what we're going to be looking for 0:40:33.320 --> 0:40:37.360 all season long. All earning season is do the company 0:40:37.520 --> 0:40:40.520 see the next six months to a year strong week 0:40:40.840 --> 0:40:42.040 or somewhere in between. 0:40:43.200 --> 0:40:45.640 Do you think it's going to be mag seven or 0:40:45.719 --> 0:40:47.799 the other four hundred and ninety three stocks this time? 0:40:48.280 --> 0:40:50.560 Oh my god, I wish Meg seven would just take 0:40:50.600 --> 0:40:54.640 a break sometimes, you know, Oh gosh, But I think 0:40:54.719 --> 0:40:58.440 mag seven still has that generative AI magic going on. 0:40:59.600 --> 0:41:03.120 But there is room for other companies, especially in a 0:41:03.200 --> 0:41:07.440 declining rate the smaller companies get bought by larger companies, 0:41:07.880 --> 0:41:10.520 and that's really been in quite a lot because of 0:41:10.600 --> 0:41:13.719 the high interest rate environment. Now that companies know that 0:41:13.920 --> 0:41:17.000 the or have a pretty good idea that the interest 0:41:17.080 --> 0:41:20.359 rates are dropping, they are going to go back into 0:41:20.440 --> 0:41:23.400 the shopping mode, which is always exciting for me because 0:41:23.400 --> 0:41:24.960 I own some of those smaller names. 0:41:25.880 --> 0:41:28.600 So small cap again, we've heard it that maybe in 0:41:28.640 --> 0:41:30.880 a lower interest rate environment they will do better on 0:41:30.960 --> 0:41:34.319 a relative basis. Certainly there's valuation. There are there certain 0:41:34.440 --> 0:41:37.960 sectors on a small MidCap that screen well for you guys. 0:41:39.200 --> 0:41:43.719 Well you know, there's technology that's always good. And you 0:41:43.800 --> 0:41:48.640 know one of our smaller companies is getting bought by Synopsis. 0:41:48.760 --> 0:41:52.840 So that's really the key here is a small company 0:41:52.920 --> 0:41:56.200 that can fit into the larger companies product suite or 0:41:56.280 --> 0:41:59.759 expand its total addressable market. That's what you're looking for 0:42:00.040 --> 0:42:03.479 in a takeover candidate. And I think just about every 0:42:03.600 --> 0:42:08.399 industry has, you know, some smaller companies that could get 0:42:08.440 --> 0:42:10.200 bought by larger companies. 0:42:10.600 --> 0:42:11.000 You like. 0:42:13.719 --> 0:42:19.759 Like, yeah, say individual names, just give me Like, where 0:42:19.760 --> 0:42:21.600 are the sectors where that might make the most sense. 0:42:22.880 --> 0:42:26.520 Well, there's banking, there's always banking, right, there's too many banks. 0:42:26.800 --> 0:42:31.080 There's that technology. There's lots of point products that would 0:42:31.120 --> 0:42:35.719 go nicely into a larger, larger companies suite of products. 0:42:37.600 --> 0:42:40.440 Retail not so much, God knows, we love to talk 0:42:40.480 --> 0:42:44.399 about retail, but I think that's that looks pretty good 0:42:44.520 --> 0:42:50.360 for right now. Maybe industrials again, point products going into 0:42:50.480 --> 0:42:54.120 a larger company to allow that larger company to satisfy 0:42:54.239 --> 0:42:57.960 its customers with a broader suite of products. So those 0:42:58.000 --> 0:42:59.919 are the key areas that I look at. 0:43:00.320 --> 0:43:02.040 All right, Kim, thanks so much for joining us. Always 0:43:02.040 --> 0:43:04.760 appreciate getting your thoughts. Kim Farst. She is the founder 0:43:04.960 --> 0:43:08.000 and the chief investment officer Boca Capital Partners. There are 0:43:08.040 --> 0:43:09.760 out there in Pittsburgh, PA. 0:43:11.440 --> 0:43:15.279 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:43:15.400 --> 0:43:18.920 weekdays at ten am Eastern on applecar Play and Android 0:43:18.960 --> 0:43:21.680 Auto with the Bloomberg Business app. You can also listen 0:43:21.840 --> 0:43:24.919 live on Amazon Alexa from our flagship New York station, 0:43:25.320 --> 0:43:28.320 Just say Alexa play Bloomberg eleven thirty. 0:43:29.239 --> 0:43:31.480 Alex Olpaul Sweeney. You live here in our Bloomberg Interactive 0:43:31.480 --> 0:43:34.840 Brokers studio. We're streaming live on YouTube as well, so 0:43:34.960 --> 0:43:37.359 go over to that internet thing, YouTube dot com, Charch 0:43:37.440 --> 0:43:40.080 Bloomberg Local Radio, and that's where you'll find us. All right. 0:43:41.200 --> 0:43:44.560 Sustainable aviation fuel, I didn't know it was a thing. 0:43:45.120 --> 0:43:46.600 Alex knows it's a thing. I did not know it 0:43:46.680 --> 0:43:48.680 was a thing. Fortunately, we have people actually do that 0:43:48.760 --> 0:43:51.200 stuff here. Anna Davies is one of them. She's head 0:43:51.239 --> 0:43:54.839 of Renewable Fuels at b n EF. Joining us live 0:43:54.840 --> 0:43:58.600 here in our Bloomberg Interactive Brokers studio. And I just 0:43:58.960 --> 0:44:01.239 use jet fuel, throw it in my jet and I go, 0:44:01.680 --> 0:44:02.000 what is. 0:44:02.040 --> 0:44:03.839 Sustainablen't have an actual private jet. 0:44:04.640 --> 0:44:07.680 Just in my mind, what is a sustainable aviation fuel? 0:44:07.719 --> 0:44:08.080 What is it? 0:44:08.239 --> 0:44:11.160 And is it being used? And how well is it 0:44:11.239 --> 0:44:12.000 being used these days? 0:44:12.239 --> 0:44:15.520 So hey, nice to be here. What is sustainable aviation fuel. 0:44:15.600 --> 0:44:17.440 You use it exactly like that. You can throw it 0:44:17.480 --> 0:44:19.920 in your private jet and go and it'll work just 0:44:19.960 --> 0:44:23.239 the same way. Really, it is in as simplest form, 0:44:23.560 --> 0:44:26.640 molecularly pretty much identical to fossil jet fuel. The only 0:44:26.680 --> 0:44:29.640 difference is it doesn't come from fossil fuels, so mostly 0:44:29.760 --> 0:44:32.400 it comes at the moment from biofuels. So instead of 0:44:32.520 --> 0:44:36.200 having a crude oil, you're using a biooil, so something 0:44:36.239 --> 0:44:39.040 like soybean oil, or use cooking oil the leftover oils 0:44:39.080 --> 0:44:40.759 from your deep fryer. 0:44:40.960 --> 0:44:44.160 Which would be the issue now, supply or demand when 0:44:44.200 --> 0:44:45.040 it comes to staff. 0:44:45.200 --> 0:44:47.320 That is a very good question because everybody says we 0:44:47.400 --> 0:44:49.920 need more, there's not enough produced. There's all this demand 0:44:50.000 --> 0:44:52.120 that we need to replace fossil jet. But we have 0:44:52.239 --> 0:44:55.600 seen both suppliers and actually airlines kind of push back 0:44:55.680 --> 0:44:57.040 on roll back their targets. 0:44:57.719 --> 0:44:58.080 Right now. 0:44:58.200 --> 0:45:00.360 The problem is it's expensive and no but he is 0:45:00.480 --> 0:45:02.840 really willing to pay it. So we see buyers not 0:45:02.960 --> 0:45:05.120 quite willing or able to step in to take it, 0:45:05.200 --> 0:45:07.040 and as a result, we don't see suppliers able to 0:45:07.239 --> 0:45:09.080 secure financing to build their facilities. 0:45:09.120 --> 0:45:11.440 So how do That's a chicken and Yan type type 0:45:11.480 --> 0:45:14.080 of thing. How do you think you solve for that? 0:45:14.280 --> 0:45:16.440 Is that bringing the cost of production down? Is it 0:45:16.480 --> 0:45:17.800 trying to stimulate demand somehow? 0:45:18.120 --> 0:45:21.360 So we anticipate the cost of production at pnof we 0:45:21.440 --> 0:45:25.480 try and calculate and mart exactly, and we do not 0:45:25.600 --> 0:45:27.840 see the cost coming down to reach parity. Really like 0:45:27.880 --> 0:45:29.960 current jet fuel prices, it's always going to be orders, 0:45:30.160 --> 0:45:33.800 a couple orders the magnitude above. So the real crux 0:45:33.840 --> 0:45:36.400 that's needed is policy. You need to have a policy 0:45:36.480 --> 0:45:39.680 push to either incentivize its uptake or force it, and 0:45:39.760 --> 0:45:41.800 we're seeing both of those policies developing. 0:45:41.480 --> 0:45:44.000 Which basically what that means is that you have to 0:45:44.040 --> 0:45:46.840 subsidize the difference between staff and a regular jet fuel 0:45:47.080 --> 0:45:49.000 And what the IRA did it was really helpful and 0:45:49.080 --> 0:45:51.920 incentivizing the supply, but not the demand side of it. 0:45:52.640 --> 0:45:54.359 How close do you think that is right now? 0:45:54.840 --> 0:45:57.880 So the IRA, the Inflation Reduction Act, does offer a 0:45:58.000 --> 0:46:01.319 tax credit for sustainable aviation fiel perdu, which does help 0:46:01.360 --> 0:46:03.640 to project gap. There's still a lot of uncertainty as 0:46:03.719 --> 0:46:06.200 to what will qualify. You need to have a certain 0:46:06.239 --> 0:46:08.880 amount of types of feedstock in order to bring your 0:46:08.880 --> 0:46:11.640 actual emissions reduction down. That's a big issue in the market. 0:46:12.520 --> 0:46:14.160 It also is not only in place for a couple 0:46:14.160 --> 0:46:16.239 of years, which isn't going to help finance a thirty 0:46:16.320 --> 0:46:20.600 year facility. You see places like Europe taking the opposite approach, 0:46:20.640 --> 0:46:23.640 where they're just mandating blending in. So they're saying airlines 0:46:23.760 --> 0:46:26.920 and airports have to blend a certain amount and that's 0:46:26.960 --> 0:46:28.680 going to ramp up of the next few years. Sort 0:46:28.719 --> 0:46:30.640 it out, figure out the cost. And then you see 0:46:30.640 --> 0:46:34.040 places like Singapore which is actually imposing a levee on 0:46:35.200 --> 0:46:37.360 airline tickets and saying, okay, we think staff is going 0:46:37.440 --> 0:46:38.880 to cost this much in order to blend in, we 0:46:39.000 --> 0:46:42.080 have blending targets. We're just going to put an additional 0:46:42.200 --> 0:46:45.040 cost on airline tickets in order to cover the cost 0:46:45.120 --> 0:46:45.480 of staff. 0:46:46.160 --> 0:46:48.799 I mean, see what works in theory? That makes sense, right, 0:46:48.960 --> 0:46:50.840 Like you just pass it down to the consumer. But 0:46:50.880 --> 0:46:53.000 it does point out that any anyergery transition that you 0:46:53.120 --> 0:46:56.240 can do will eventually be then passed on to the consumer. 0:46:55.960 --> 0:46:57.000 Consumer or tax payer. 0:46:57.080 --> 0:46:57.239 Yeah. 0:46:57.320 --> 0:47:00.480 Probably interesting. So what the US airlines are here, I'm 0:47:00.480 --> 0:47:02.239 just reading some of your research here. So bn F 0:47:02.360 --> 0:47:06.040 tracks airline net zero commitments and sustainable aviation fuel commitments, 0:47:06.320 --> 0:47:08.960 and currently forty four airlines counting for just under half 0:47:09.040 --> 0:47:13.160 of jet fuel consumed globally have some saf target usually 0:47:13.239 --> 0:47:16.160 ten percent by twenty thirty. Is that good enough? 0:47:16.840 --> 0:47:19.200 Well, it's a target, So the question is will they 0:47:19.280 --> 0:47:19.960 hit those targets? 0:47:20.200 --> 0:47:20.600 Is it real? 0:47:21.040 --> 0:47:23.280 Can they do that? And that's where we are starting 0:47:23.320 --> 0:47:27.240 to see some airlines procure SAFF volumes like United procures 0:47:27.239 --> 0:47:29.239 a lot. If you fly out, if you fly on 0:47:29.400 --> 0:47:31.680 say United out of San Francisco or La chances are 0:47:31.719 --> 0:47:33.000 there some staff in the tank. 0:47:33.080 --> 0:47:33.680 Can they blend it? 0:47:34.040 --> 0:47:35.640 They can blend it one for one. That's one of 0:47:35.719 --> 0:47:38.040 the beautiful things about sustainable aviation fuel. 0:47:37.920 --> 0:47:40.280 Well all in that you can just like easy replacement, 0:47:40.920 --> 0:47:42.759 you can take the jet full fuel allowed and put 0:47:42.760 --> 0:47:44.640 it back in versus if you did a hydrogen plane 0:47:44.760 --> 0:47:45.760 or some other kind of plane. 0:47:45.880 --> 0:47:48.080 Yeah, so you don't need new tanks or new aircrafts. 0:47:48.600 --> 0:47:50.080 You can blend it up to fifty percent. 0:47:50.200 --> 0:47:52.400 Currently is the regulatory produces system. 0:47:52.920 --> 0:47:55.440 It is currently produced in very small quantities. So right 0:47:55.520 --> 0:47:57.800 now less than one percent of all jet fuel a 0:47:57.840 --> 0:48:00.319 sustainable aviation fuel. So we're talking very Smalllliams. 0:48:00.560 --> 0:48:01.200 It's produced. 0:48:01.400 --> 0:48:03.680 A lot of oil and gas companies and refiners are 0:48:03.719 --> 0:48:06.600 in on this space. So Neste, there's a company called 0:48:06.640 --> 0:48:09.240 World Energy and one called Montana Renewables that are producing 0:48:09.280 --> 0:48:14.240 at the moment. We're seeing P sixty six and Valero 0:48:14.400 --> 0:48:16.120 through their partnerships with Darling Ingredients. 0:48:16.400 --> 0:48:19.480 Those are regular refiners, so does like Valero regular who 0:48:19.560 --> 0:48:20.479 does jet fuel today? 0:48:21.080 --> 0:48:22.520 A lot of the refineries so if you think of 0:48:22.560 --> 0:48:23.400 a refinery, go. 0:48:23.440 --> 0:48:24.920 Talk to the refinery. So you guys need to put 0:48:24.960 --> 0:48:25.440 out more. 0:48:25.400 --> 0:48:26.920 And a lot of them are looking at it because 0:48:27.239 --> 0:48:29.080 a lot of the process at the moment is similar. 0:48:29.120 --> 0:48:31.279 You basically, instead of taking a crude oil, you take 0:48:31.280 --> 0:48:33.960 a biooil, you put it through a refinery and get 0:48:34.360 --> 0:48:37.240 sustainable aviation fuel. So you can actually convert some existing 0:48:37.360 --> 0:48:42.040 oil refineries to take biofeedstocks and therefore make these biofuels. 0:48:42.440 --> 0:48:43.560 So we are seeing them active. 0:48:43.680 --> 0:48:47.440 What about the okay, so a different question, how do 0:48:47.520 --> 0:48:51.280 you think this industry develops and where does the strength develop? 0:48:51.920 --> 0:48:53.520 So a lot of this is policy led. 0:48:53.560 --> 0:48:55.800 We are starting to see a lot of policies support 0:48:55.840 --> 0:48:57.840 it though, because aviation is one of the crucks you 0:48:57.880 --> 0:49:01.799 can make these types of sustainable fuels into a whole 0:49:01.800 --> 0:49:03.799 lot of things. You can make diesel molecules, you can 0:49:03.880 --> 0:49:07.759 make methanol molecules, petrochemicals, But aviation is the industry where 0:49:07.800 --> 0:49:10.279 there aren't any really good alternatives, especially if you're looking 0:49:10.280 --> 0:49:13.200 at like a twenty fifty SAP or net zero target, 0:49:13.360 --> 0:49:17.040 because hydrogen aircraft, electric aircraft, it takes decades to get 0:49:17.040 --> 0:49:17.680 those off the ground. 0:49:17.719 --> 0:49:19.200 It takes decades for fleets to roll over. 0:49:19.280 --> 0:49:22.400 So if you really want to decarbonize aviation by twenty fifty, 0:49:22.440 --> 0:49:24.919 you're going to need to decarbonize the fuel that they're 0:49:24.920 --> 0:49:27.439 currently using. So this is the area where we're seeing 0:49:27.440 --> 0:49:29.239 a lot of policy start to move. I've mentioned a 0:49:29.320 --> 0:49:31.719 few of them. We're starting to see some interest from 0:49:31.800 --> 0:49:34.560 different producers. We're starting to see a lot of investment 0:49:34.600 --> 0:49:37.160 going into this because everybody assumes the market will get there. So, 0:49:37.600 --> 0:49:40.239 for instance, there's a different way of producing it where 0:49:40.280 --> 0:49:43.200 you take green hydrogen and captured carbon dioxide to make 0:49:43.200 --> 0:49:46.239 the fuel that's popular because you don't have the food 0:49:46.320 --> 0:49:49.839 versus fuel issues of a biofuel. Just earlier this month, 0:49:49.920 --> 0:49:52.520 we saw Brookfield invest over a billion dollars into one 0:49:52.520 --> 0:49:53.920 of these e fuel facilities. 0:49:54.760 --> 0:49:56.160 I need to go check out when these word are 0:49:56.160 --> 0:49:58.640 these things are? They just like in Texas and Louisiana. 0:49:58.680 --> 0:49:59.960 World they California calful. 0:50:00.040 --> 0:50:01.719 A lot of the fuel is sold in California and 0:50:01.760 --> 0:50:03.839 a lot of the old refineries are being converted there, 0:50:03.920 --> 0:50:06.719 but they are being produced everywhere. It depends on where 0:50:06.719 --> 0:50:08.960 the feedstock is. So you can see a lot of 0:50:09.000 --> 0:50:11.080 feedstock in the Midwest. A lot of the productions coming 0:50:11.120 --> 0:50:14.200 out there. We're starting to see fuels which are take 0:50:14.280 --> 0:50:16.799 green hydrogen. They need to be near cheap renewable energy, 0:50:17.320 --> 0:50:19.040 and so you'll see a lot of these. 0:50:19.360 --> 0:50:23.239 Fuel as efficient as carbon the regular fuel, because I 0:50:23.239 --> 0:50:24.800 don't want to be thirty five thousand feet in the 0:50:24.800 --> 0:50:26.000 air and then engine. 0:50:26.080 --> 0:50:27.920 As reliable thank you yeah. 0:50:27.960 --> 0:50:31.680 So it has to produce. It produces jet aspec fuel. 0:50:32.560 --> 0:50:34.840 There are questions if you had one hundred percent staff 0:50:34.880 --> 0:50:37.600 in your tank. Actually, a lot of the fossil jet 0:50:37.680 --> 0:50:39.799 fuels have some aromatics that end up in the jet 0:50:39.840 --> 0:50:42.120 fuel stream and that actually helps with seals in the engine. 0:50:42.160 --> 0:50:44.920 So they're testing that out, but nobody we don't have 0:50:44.960 --> 0:50:47.000 the quantities produced that you're anywhere near one hundred percent 0:50:47.160 --> 0:50:48.840 these days, and in general, you could think of it 0:50:48.920 --> 0:50:50.640 as exactly the same as jet fuel. 0:50:52.120 --> 0:50:53.640 I mean, all these people get we haven't had like 0:50:53.960 --> 0:50:54.840 a clunker yet at it. 0:50:54.880 --> 0:50:58.120 And for a long time she used to cover literally 0:50:58.160 --> 0:51:02.919 everything at Bloomberg Intelligence, no PF. It was like oil 0:51:03.040 --> 0:51:04.600 was gas, it was all. It was all the things, 0:51:04.719 --> 0:51:05.920 all right, and I was good to see you, Thanks 0:51:05.920 --> 0:51:08.120 so much. Anna Davis, a head of renewable fuels over 0:51:08.160 --> 0:51:11.279 at Bloomberg b n e F, where we get all 0:51:11.440 --> 0:51:14.640 the data that you need to know about the energy transition, honestly, 0:51:14.719 --> 0:51:17.480 from oil to gas to hydrogen. We'd get it all 0:51:17.560 --> 0:51:17.759 for you. 0:51:18.360 --> 0:51:22.880 This is the Bloomberg Intelligence podcast, available on Apples, Spotify, 0:51:23.080 --> 0:51:26.720 and anywhere else you'll get your podcasts. Listen live each weekday, 0:51:26.880 --> 0:51:29.840 ten am to noon Eastern on Bloomberg dot com, the 0:51:29.960 --> 0:51:33.360 iHeartRadio app, tune In, and the Bloomberg Business app. You 0:51:33.440 --> 0:51:36.600 can also watch us live every weekday on YouTube and 0:51:36.760 --> 0:51:38.400 always on the Bloomberg Terminal