Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Tesla
Speaker 1: is under investigation by the Justice Department over public statements
Speaker 1: made by the company and CEO Ellen Mosk. The shares
Speaker 1: are down about two percent, making a little bit of
Speaker 1: gains against the initial losses on that headline. We will
Speaker 1: monitor it for you. Perhaps it is perfect timing, then
Speaker 1: that we talk about what it is to be a
Speaker 1: private company rather than a public company, and what it
Speaker 1: means to be a good manager versus a bad manager.
Speaker 1: Here joining us now is Nigel tracks Best, executive chairman
Speaker 1: of the Duncan Brands Group, also the author of a book,
Speaker 1: The Culture Challenge or The Challenge Culture. Excuse me why
Speaker 1: the most successful organizations run on pushback? Nigel, thank you
Speaker 1: so much for being with us. Delighted to be here.
Speaker 1: Decades of experience in this business, you know, just just
Speaker 1: talking about Tesla and some of the issues that they've
Speaker 1: had with going private or going public. From your perspective,
Speaker 1: is it better to be a private company? And why?
Speaker 1: Great question, And as a very happy second time Tesla owner,
Speaker 1: really yeah, yeah, I mean I think the machine is awesome.
Speaker 1: As someone said last week, it's artificial intelligence on wheels,
Speaker 1: So I think the product is fantastic, do you No, no, no.
Speaker 1: I bought the stock a long time ago and got
Speaker 1: out with a very hefty gain. But anyway, um, but
Speaker 1: it's a fascinating question. It's a it's a question that's
Speaker 1: discussed in the book. Because I joined Duncan back in
Speaker 1: two thousand nine and we were private, I think we
Speaker 1: were helped, which is going to sound slightly contradictory by
Speaker 1: the fact it was in the middle of the recession.
Speaker 1: You can't get more in the middle of the recession
Speaker 1: than January two thousand and nine. And we spent the
Speaker 1: first year studying the company and our franchisees with several
Speaker 1: microscopes because everyone was under severe pressure and and in
Speaker 1: many ways, when I look back, that was good. But
Speaker 1: I was supported with a phenomenal group of private equity firms,
Speaker 1: being Carlisle and thhle. We had an excellent board, and
Speaker 1: what is interesting is that two of those original board
Speaker 1: members are still on our board now um uh still
Speaker 1: on the board um And we went completely public in
Speaker 1: two thousand and twelve. So I like being private, but
Speaker 1: I'm one of the few CEOs that actually likes being
Speaker 1: public as well, because I truly believe that the questions
Speaker 1: from people like yourself, or from analysts and certainly investors
Speaker 1: have a role to make you better. They constantly challenged
Speaker 1: the status quo, which is what what my book's all about.
Speaker 1: It's about getting input from informed outsiders. It is the
Speaker 1: outside looking in. And I truly believe you know that
Speaker 1: good managers, as you say, good leaders, can operate in
Speaker 1: both private circumstances and public circumstances. Nigel Travis as the
Speaker 1: author of the Challenge Culture why the most successful organizations
Speaker 1: run on pushback. In addition to your role at Duncan Brands,
Speaker 1: you previously have experienced as the chief operating officer Blockbuster.
Speaker 1: You also worked at Burger King and you've also had
Speaker 1: a career at Papa John's. You've also helped to restructure
Speaker 1: an English football team, Layton Orients. Can you tell us
Speaker 1: what some of those things have in common. Well, actually
Speaker 1: cook quite a bit um. Firstly, the English football team,
Speaker 1: which UH a consultium led by myself bought the club
Speaker 1: June last year. We had no bank account, no credit
Speaker 1: card processing and worst of all, no players. But we
Speaker 1: applied the challenge culture and everything we did. And the
Speaker 1: challenge culture is about two things. Is about challenging, which
Speaker 1: is what everyone focuses on, but mostly it's about culture.
Speaker 1: So to link all those companies together over time, I've
Speaker 1: tried to develop a very positive culture in all the companies.
Speaker 1: I think we've got an extremely positive culture in Duncan
Speaker 1: where people have always been encouraged to challenge, pushback too,
Speaker 1: if you like, take all the hierarchical boundaries out the way.
Speaker 1: Papa John's, despite some of their recent problems, we had
Speaker 1: a great culture when I was there, and I did
Speaker 1: it there without changing any of the leadership team. You
Speaker 1: did a whole digital initiative there. Oh yeah, yeah. We
Speaker 1: we became the leaders of online pizza ordering in nineteen sorry,
Speaker 1: two thousand and five, two thousand and six, and I
Speaker 1: focused on that because when I was at Blockbuster we
Speaker 1: did a lot of great things. We had to constantly
Speaker 1: fight new technology challenges coming towards us all the time.
Speaker 1: We probably didn't tackle Netflix early enough. We certainly didn't
Speaker 1: tackle Netflix early enough, and we could have bought the
Speaker 1: company for about fifty million it's now worth I think
Speaker 1: a hundred and sixty billions, something like that. But we
Speaker 1: came back hard and we put them under pressure. And
Speaker 1: after I left, after my then boss John anti Arco left,
Speaker 1: the company struggled and eventually went bankrupts in two thousand
Speaker 1: and ten. But we could have been the leaders. So
Speaker 1: I think the messages you've got to constantly look at,
Speaker 1: look where you are, how you challenge going forward, how
Speaker 1: you challenge the status quo, but all within the context
Speaker 1: to answer your question of a very positive, people oriented culture.
Speaker 1: And that's what the books about. It's not just the challenging,
Speaker 1: it's about creating that culture. We should live every day.
Speaker 1: You should set an example of what it's about every day,
Speaker 1: and I truly think we've demonstrated that at Duncan. I
Speaker 1: want to go back to something that you were talking
Speaker 1: about with respect to being a public company, that that
Speaker 1: actually encourages a challenge culture, and I want to ask
Speaker 1: you about the fact that we've seen a growing number
Speaker 1: of companies go private from being public. Are you concerned
Speaker 1: that that doesn't foster enough of a challenge culture that
Speaker 1: potentially companies will end up struggling or being failures because
Speaker 1: they're not getting scrutinized and questioned every step of the way.
Speaker 1: I think that's a great question. And it's interesting that
Speaker 1: the number of public companies, and I think this is
Speaker 1: what you're referring to, is declining at quite a rapid rate.
Speaker 1: I think it's down by something like that may not
Speaker 1: be right, but yeah, it's traumatic. And I think the
Speaker 1: point you make is fair comment because we all need
Speaker 1: outsider input looking in. I mean, one of the benefits
Speaker 1: we have in Duncan and we had the same in
Speaker 1: Pupa John's, and we have the same at the football club.
Speaker 1: The football club we have fans rather than franchisees. Duncan
Speaker 1: and Papa John's we have franchisees. They are the ultimate challenges.
Speaker 1: But some times you need people standing right outside the
Speaker 1: organization looking at trends and by the way, analysts, this
Speaker 1: is what people don't realize. Analysts, good analysts like some
Speaker 1: of the people we have in our industry, and by
Speaker 1: the way, we have thirty five analysts who follow Duncan,
Speaker 1: which is probably too many, but thirty five. The benefit
Speaker 1: is they talk to the competition, they followed the trends,
Speaker 1: and they make you think the whole time. So the
Speaker 1: Challenge culture, a major part of it has been being
Speaker 1: pushed to think and say what direction are we going in?
Speaker 1: Is it right or not? And by the way, just
Speaker 1: say something on Duncan. Under the new leader, Dave Hoffman,
Speaker 1: we're going in exactly the right direction. Well done, Thank
Speaker 1: you very much for coming in and spending time with us.
Speaker 1: Nigel Travis, the author of The Challenge Culture, Why the
Speaker 1: most successful organizations run on pushback. He is the executive
Speaker 1: chairman and the former chief executive of Duncan Donuts and
Speaker 1: Baskin Robins. Don't want to miss out on the imp
Speaker 1: laeve that he has a lot of doughnuts and ice cream,
Speaker 1: because I will tell you he is not. He's very fit,
Speaker 1: keep working out, challenged myself every day. All right, we uh,
Speaker 1: we appreciate it and we look forward to having you
Speaker 1: in the future. Much appreciated. China has decided to levy
Speaker 1: levy tariffs on about sixty billion dollars worth of imports
Speaker 1: from the United States. This is contingent, of course, on
Speaker 1: the plan tariffs on two billion dollars worth of Chinese goods.
Speaker 1: China plans to slap additional tariffs on over five thousand
Speaker 1: categories of US products with two levels of tara phrase
Speaker 1: ten and five percent. Here to tell us more about
Speaker 1: the issue is Leland Miller. He is the chief executive
Speaker 1: of China beige Book International. You can follow their work
Speaker 1: on Twitter at China beige Book. Leland Miller. Always a pleasure,
Speaker 1: Thank you for coming in. Do you believe that this
Speaker 1: back and forth in tariffs will have a meaningful effect
Speaker 1: on the Chinese economy. I think it will. I think
Speaker 1: it already has. And we've got some new data they're
Speaker 1: coming out next week that I think will shine a
Speaker 1: light on on on on what is happening and and
Speaker 1: and you know not that nothing is hit except the
Speaker 1: fifty billions so far, and even that is just a
Speaker 1: few weeks in. If that is showing an effect, then
Speaker 1: it tells you a lot about what two billion will do,
Speaker 1: and what about what will fillion will do? So I
Speaker 1: do think it is is it's already showing an effect. Uh,
Speaker 1: we'll have a little bit more on that week. Well,
Speaker 1: it's manufacturing. So manufacturing has been going strong for a
Speaker 1: long time, and in China, in China, and uh and
Speaker 1: and I think that the manufacturing sector has gotten skittish
Speaker 1: on what's going on next and and uh, and that's
Speaker 1: one of their real concern points. Well, the Shanghai composit
Speaker 1: rallied overnight in the heel on the heels of this news.
Speaker 1: One theory had been, first of all, it had been
Speaker 1: so beaten up and had been trade at its lowest level.
Speaker 1: But also there are some theories out there that China
Speaker 1: will come back with some kind of infrastructure project that
Speaker 1: will help bolster the economy. So how does that factor
Speaker 1: in and doesn't that offset this? Yeah, I think that
Speaker 1: that's part of it. Um, China is now faced with
Speaker 1: a serious trade threat that looks like it's going through,
Speaker 1: in which case the government's gonna have to respond. So
Speaker 1: I think it's going to be all systems go. We're
Speaker 1: already seeing a little bit of that about that in
Speaker 1: the in the credit world. Uh. And so there's that.
Speaker 1: And I think the other part about this is that
Speaker 1: the two billion didn't come out of nowhere. This was
Speaker 1: going through. The surprise I think was that they they
Speaker 1: expedited the process a bit and they moved up the
Speaker 1: implementation date. But the two billion has been talked about
Speaker 1: for months. It was always going through. Uh even if
Speaker 1: you were to have a deal later this fall, the
Speaker 1: president wanted that two either hovering right over him or
Speaker 1: recently into effect in order to negotiate. So the twitter billion,
Speaker 1: I don't think it's any major surprise. Leland. Tell us
Speaker 1: about the Chinese economy right now. You spend a lot
Speaker 1: of time time analyzing it, where its strengths and weaknesses. Well,
Speaker 1: the two thousands, sixteen, two thousands seventeen years, we're all
Speaker 1: about recovering from the early crisis and recovering the economy
Speaker 1: into a into a period of strength and stability entering
Speaker 1: the Party Congress, and they accomplished that. I think that
Speaker 1: when we talked about this throughout twenty seventeen, it was,
Speaker 1: you know, all systems go, things are looking good. They
Speaker 1: didn't have this trade war hanging over them in seventeen
Speaker 1: and and since then things have gotten a little bit
Speaker 1: more tricky. So you have this, you have the trade
Speaker 1: war looming, you have uh A a bunch of sectors
Speaker 1: in the economy, the old economy, manufacturing, property and others
Speaker 1: that have been run so hard for so long that
Speaker 1: they're starting to weaken. And so you have this possibility
Speaker 1: of a weakening economy with looming tariffs overhead, and it's
Speaker 1: making people nervous. And so the big question is how
Speaker 1: accurate official data are on credit, which they're saying there's
Speaker 1: not that much barring yet and investment and they're saying
Speaker 1: that this is at historic lows. Now, we don't agree
Speaker 1: with that, and we'll have some different takes on that
Speaker 1: in the coming weeks. I think that official data tells
Speaker 1: you a good story three months earlier, but I think
Speaker 1: there's some there's some new developments on the horizon right now.
Speaker 1: Perhaps credit is expanding pretty quickly as they loosen up
Speaker 1: the strings. I'm just wondering. One thing that we're waiting
Speaker 1: for is details on retaliation from China. What could some
Speaker 1: of those measures be in addition to some of the
Speaker 1: tariffs that they've put out there on sixty billion dollars
Speaker 1: of US goods, But what could they do as far
Speaker 1: as basically shifting their supply chains and their lines of
Speaker 1: business away from the US. Well, they are going to
Speaker 1: have to look into that the same way that the
Speaker 1: US is looking into it. They're gonna have a harder
Speaker 1: time because I think that the you know, the US
Speaker 1: trade with China is very one sided at this point,
Speaker 1: and so the US is other places that can go China.
Speaker 1: China wants to have markets for its goods, it's it's
Speaker 1: going to be hard to avoid the US. So they
Speaker 1: have a much tougher task here. But the z t
Speaker 1: E incident was a wake up call for them. I
Speaker 1: think that the the escalation and their of of these
Speaker 1: tariffs and their apparent weakness in the face of them,
Speaker 1: is another wake up call. So, you know what, what
Speaker 1: we're seeing right now, independent of tariffs, and independent of
Speaker 1: whether we somehow see a fall deal or a deal
Speaker 1: in in early twenty nineteen, is a decoupling of the
Speaker 1: U S and Chinese economies. And I think that that
Speaker 1: is setting itself down a path that's not yet irreversible,
Speaker 1: but is looking like this is going to be the
Speaker 1: thing that defines the next decade. If that is indeed
Speaker 1: what defines the next decade, where will the capital come
Speaker 1: from in order to continue the accelerated growth that China
Speaker 1: wants to enjoy. Well, you know, China in some ways
Speaker 1: is a very attractive market. Now. You don't have a
Speaker 1: very good regulatory structure. You don't trust that the government
Speaker 1: is going to do what it says it's going to do.
Speaker 1: On the other hand, you have enormous opportunities. You've got
Speaker 1: a huge consumer base, you've got um interest rates that
Speaker 1: that should be paying out relatively healthily, and as long
Speaker 1: as you're in a low interest rate world, which we're
Speaker 1: emerging from right now. So you've got this bod market
Speaker 1: that's that's crying out for foreign capital. So there are
Speaker 1: opportunities there. But the Chinese really have to get there,
Speaker 1: get their economy into shape, and they have to be
Speaker 1: more open, and I think they would be forced into
Speaker 1: that the more they're back into a corner. Leland Miller,
Speaker 1: such a pleasure having you on. Thank you so much
Speaker 1: for coming in. Thank you. Really interesting him this idea
Speaker 1: that the decoupling of the US and Chinese economies will
Speaker 1: be the defining feature of the next decade. According to
Speaker 1: Leland Miller, chief executive officer of the China Beige Book International,
Speaker 1: there's been a lot of money raised recently for real estate,
Speaker 1: for example, Carlisle has raised five and a half billion
Speaker 1: dollars for its private equity real estate for fund. Black
Speaker 1: Stone has said to raise more than eighteen billion dollars
Speaker 1: for a real estate fund. And now we learned that
Speaker 1: ox IF is looking to raise two point eight billion
Speaker 1: dollars for real estate. So our next guest is probably
Speaker 1: a very popular individual. Scott Lawler is the chief executive
Speaker 1: of a way Point Residential and he joins us here
Speaker 1: in our eleven three oh studios. Scott, thank you very
Speaker 1: much for being here. Are you at all surprised at
Speaker 1: the amount of money that's being raised by private equity
Speaker 1: firms to invest in real estate? Well, first, thanks for
Speaker 1: having me, And I would not say I'm surprised because
Speaker 1: this is a trendline that's been evolving throughout this psycho
Speaker 1: where you know, after the crash, the manager field, if
Speaker 1: you will, real estate investment manager playing field got shaken
Speaker 1: up quite a bit and the few survivors capitalized on
Speaker 1: that opportunity and suddenly there were a fewer managers and
Speaker 1: much much larger funds. And that's continued. Obviously now there's
Speaker 1: more managers back in the game, but the trend towards
Speaker 1: mega funds, if you will, amongst sort of the all
Speaker 1: the fame name managers has been in place for some
Speaker 1: time and they've been successful with it all, right, But
Speaker 1: here we are, two thousand eighteen, some people are seeing
Speaker 1: some possible wobbles in the US housing market. There isn't
Speaker 1: the same kind of dynamism that we saw during the recovery,
Speaker 1: certainly in terms of price increases. Where are the opportunities, right? So,
Speaker 1: I mean, you know, ten billion, eighteen billion, that's a
Speaker 1: lot of money to invest, for sure, But in a week,
Speaker 1: I mean, this is we're talking literally, these are the
Speaker 1: past week. But it's important to understand how they define
Speaker 1: their playing field. So you know, you don't deploy a
Speaker 1: fund like that. And it's not for me to say
Speaker 1: these guys run their business other than we all know
Speaker 1: they've done it very well. But you know they're thinking
Speaker 1: in terms First of all, they're thinking globally of course um.
Speaker 1: And secondly, um, you know, in terms of say larger transactions,
Speaker 1: say there's been a public to private activity and so
Speaker 1: on in the reach sector and things like that. So
Speaker 1: they're really in the mega trade business. And when you
Speaker 1: can't you raise funds at that level, you're kind of
Speaker 1: playing at a different tier, and the and the competitive
Speaker 1: supply and demand dynamics are different. So someone like me
Speaker 1: and I have to be careful where I play because
Speaker 1: in certain places that could be fifty folks chasing an opportunity,
Speaker 1: and I don't want to be the fifty one. But
Speaker 1: when you're playing at their level, that's not the case.
Speaker 1: We hold on a second, So this is important. These
Speaker 1: are direct competitors to you in certain circumstances. How do
Speaker 1: you ensure that you're not playing in the same sandbox?
Speaker 1: What's the sandbox that you see the opportunities for a
Speaker 1: fund of your size? Right, So we're the biggest cut
Speaker 1: obviously is deal size, Right, So if you read about
Speaker 1: you know, five billion dollar public to private transaction as
Speaker 1: an example, it's probably not going to be us, you know,
Speaker 1: leading the charge there. So we're playing in smaller markets.
Speaker 1: We're doing deals that are maybe fifty million dollars on
Speaker 1: average of total capitalization, and we would very very rarely
Speaker 1: cross paths with someone who had a ten billion dollar
Speaker 1: fund because they're not going to get that money out
Speaker 1: the door efficiently doing fifty million dollar deals. They're going
Speaker 1: to get it out the door doing very very large transactions.
Speaker 1: So it's a it's a very different playing field, all right,
Speaker 1: very different playing field residential rental properties, that's that's a
Speaker 1: specialty for you. That's right. Where are you looking to expand?
Speaker 1: So we've been expanding the last couple of years, UM
Speaker 1: in a couple of ways. I define it by geography
Speaker 1: and I define it by strategy. So we really found
Speaker 1: the greatest opportunity for the most part, not exclusively, but
Speaker 1: heavily focusing on some smaller markets, UM, which are different
Speaker 1: than when i've student housing, for example in North Carolina.
Speaker 1: That's right, Well, that's as it relates to specialty. So
Speaker 1: we've gone into smaller geographies half a million million person
Speaker 1: metro areas, and in addition, we've gone into specialty property
Speaker 1: types such as student and senior, and we find those
Speaker 1: are more compelling areas right now than say keeping it
Speaker 1: you know what I call center of the fairway, if
Speaker 1: you stick with just conventional and just in the major metros,
Speaker 1: it's where you see the fiercest competition and in my view,
Speaker 1: the most troublesome pricing. So how much more are you
Speaker 1: getting with respect to returns to invest in some of
Speaker 1: these smaller opportunities that have a smaller pool of competitors
Speaker 1: than the large cat type deals. The spread isn't what
Speaker 1: it used to be, and I wish it was greater.
Speaker 1: There's some I mean, look, if you talk about prime
Speaker 1: properties and major metros, you know cap rates and you
Speaker 1: know going in returns are sub four percent frequently. Um,
Speaker 1: we're at least a hundred a hundred fifty basis points
Speaker 1: higher than that. So I'd rather play a hundred fifty
Speaker 1: basis points higher and be in Omaha, de Moin or
Speaker 1: what have you, then pay a three seventy five to
Speaker 1: be in San Francisco. Doesn't mean I'm right. There's a
Speaker 1: lot of smart folks. You see it differently. It's just
Speaker 1: what we do. Are you concerned about the amount of
Speaker 1: money going into this space and how high valuations have gotten.
Speaker 1: I'm absolutely concerned about the amount of money in the
Speaker 1: space because it makes our life very difficult, you know.
Speaker 1: It's why we have to focus on specialty property types,
Speaker 1: why we focus on smaller markets. Um, we are constantly
Speaker 1: looking for opportunity. You know, I call outside the center
Speaker 1: of the fairway. We have to rummage around in the
Speaker 1: rough quite a bit. We're in a we're in the
Speaker 1: one in a hundred business, which is a very tough
Speaker 1: way to make a living. We look at a hundred
Speaker 1: deals to do one. But keep in mind our business
Speaker 1: is still quite a bit less efficient than the securities world.
Speaker 1: It's more efficient than it was thirty years ago, but
Speaker 1: less efficient by far than say, trading securities. And so
Speaker 1: the point is, if you're willing to endure the brain
Speaker 1: damage and the wheel spinning of the one in a hundred,
Speaker 1: you can find risk adjusted opportunity. That's how we define
Speaker 1: the business is we're looking for miss price risk. You know,
Speaker 1: I want to ask you to describe what it's like
Speaker 1: to build student housing now compared to what your dorm
Speaker 1: room looked like back in ninety two. For in a
Speaker 1: lot of ways, I'm very jealous of those who were
Speaker 1: born thirty years later. To me, that's one of them.
Speaker 1: I was actually at my old school recently. Of course,
Speaker 1: my daughter is looking at it, and we looked at
Speaker 1: the dorm and she thought I was joking, and it
Speaker 1: looked more like a prison cell than say the dorm
Speaker 1: she'd seen at all the other schools we were trying.
Speaker 1: Actually was riot proof. It was the biggest cement structure.
Speaker 1: Literally it was built for riot proof situations. But if
Speaker 1: all our kids saw our dorms, they won't believe it.
Speaker 1: And so now the world has changed profoundly, which is
Speaker 1: part of the opportunity because it's not just a matter
Speaker 1: of existing inventory relative to demand. It's the quality and appropriate.
Speaker 1: It's if you will have the existing inventory relative to
Speaker 1: current taste and preference. And there's been a massive shift.
Speaker 1: Basically the younger kids, you know, demand more and the
Speaker 1: markets providing it, whether it's the physical layout, the services, amenities,
Speaker 1: all that kind of stuff. I mean, you really, you,
Speaker 1: as a parent, are you going to pay for it?
Speaker 1: I mean, how much you're gonna pay for your kids housing?
Speaker 1: Is that okay with you? That question exactly. We're gonna
Speaker 1: next time. I'm going to bring an eighteen year old
Speaker 1: young lady and she's going to join this conversation and
Speaker 1: she's gonna say, yes, my dad's gonna pay. We welcome that.
Speaker 1: If you buck now probably is hearing this loud and clear, Yeah, sure,
Speaker 1: but um, you know, it's just something that's changed profoundly
Speaker 1: over the course of a generation. And so as a result,
Speaker 1: there's an opportunity even if there's a market with plenty
Speaker 1: of inventory, there's a very good chance the majority that
Speaker 1: inventory is just not favored by the current generation. Real quick,
Speaker 1: thirty seconds. How close are we to the next downturn
Speaker 1: of the housing market? Well, um, that's a tough one.
Speaker 1: I call it the end in question. I get asked
Speaker 1: it every day and book and say, Scott, would inning
Speaker 1: are we in? And you know my answer is, I'm
Speaker 1: not sure it's possible to answer the question, bequesse to
Speaker 1: say we're in the seventh three hinting is to say here,
Speaker 1: it's synonymous with asking, if you had just said to me, right, Scott,
Speaker 1: when is the recession going to hit what? You know,
Speaker 1: what quarter of what year? How long? How bad? My
Speaker 1: answer will be, I don't exactly. So we are not
Speaker 1: believers in market timing, and I talked to my investors
Speaker 1: about this lot. We're very, very big believers in doing
Speaker 1: quite a bit of severe downside sensitivity analysis. And so
Speaker 1: my answer to the question always is here's what happens
Speaker 1: if and making sure we're okay when the music stops
Speaker 1: playing that we're fine, as opposed to here's why it's
Speaker 1: going to happen in the third quarter of nineteen or
Speaker 1: what have you? Scott Lawler, thank you so much. A
Speaker 1: much more sophisticated, nuanced, and intelligent answer, although you could
Speaker 1: have said, you know. September two thousand and one, Scott Lawler,
Speaker 1: founder and chief executive officer of Waypoint Residential, thank you
Speaker 1: so much. The price of oil moves higher. Brent oil
Speaker 1: seventy eight dollars eighty five cents of barrel. West Texas
Speaker 1: intermediate crude trades at sixty nine dollars and seventy two
Speaker 1: cents of barrel. What's next for crude? Julian Lee are
Speaker 1: oil strategies for Bloomberg News joins us from London. Julian
Speaker 1: what are the implications for increased sanctions against Iran and
Speaker 1: the price of crude oil? Well, I think that we
Speaker 1: are going to see further declines in Iranian production and
Speaker 1: Iranian exports. We've already seen as of the first half
Speaker 1: of September that those flows coming out of Iran are
Speaker 1: down by around about a million barrels a day from
Speaker 1: where they were in April. That's the last full month
Speaker 1: before President Trump announced that he was pulling the US
Speaker 1: out of the Iran nuclear deal and that the sanctions
Speaker 1: would snap back. So we've lost a million barrels a day,
Speaker 1: and we're still a month and a half away from
Speaker 1: the data at which those sanctions are to be fully implemented.
Speaker 1: So I think over the next six weeks or so,
Speaker 1: we will lose more Iranian oil. We could lose easily
Speaker 1: another half a million barrels a day if you look
Speaker 1: at what is still going to to Europe, to Japan,
Speaker 1: Um and places like Turkey and India, who, even if
Speaker 1: they don't fully stop buying Uranian oil, are likely to
Speaker 1: start trimming the amount that they purchase. So, Julian, let's
Speaker 1: take a step back here, because the broader picture is
Speaker 1: that oil is going offline in Venezuela, it's going offline
Speaker 1: in Iran, and there is a question of whether Saudia,
Speaker 1: Arabia and Russia, some of the biggest producers in the world,
Speaker 1: are willing to increase their production to offset the declines
Speaker 1: that we're seeing in Venezuela as well as i Ran.
Speaker 1: So I'm wondering, from your perspective, do you think that
Speaker 1: Usha and Saudi Arabia are willing to produce more or
Speaker 1: do they want to see the price rise to increase
Speaker 1: their profits to shore up their economy is I'm thinking,
Speaker 1: particularly of Russia. I don't think they do particularly want
Speaker 1: to see the price rise. I think they are fairly
Speaker 1: content with the sort of level that we see at
Speaker 1: the moment, both of them. Yeah, absolutely, I think that
Speaker 1: the question is not so much whether they want to
Speaker 1: increase production as to whether they are able to increase production.
Speaker 1: Saudi Arabia is producing about ten point four million barrels
Speaker 1: a day at the moment. That was our estimate for August.
Speaker 1: It's never produced more than ten point six ten point seven,
Speaker 1: so it's getting close to not the theoretical limit of
Speaker 1: its capacity, but certainly the uh if you like, the
Speaker 1: tested level of its capacity. We don't know how much
Speaker 1: beyond that it can go. Russia, too, I think, has
Speaker 1: increased its production since the early part of this year,
Speaker 1: when it was abiding by the deal it reached with Opeq.
Speaker 1: Their oil minister has said they can add another three
Speaker 1: hundred thousand barrels a day by the end of this year.
Speaker 1: But again that is taking us into uncharted territory for
Speaker 1: for post Soviet Russia, UM and the Russian government itself.
Speaker 1: I think it was the the Economy minister UM came
Speaker 1: out earlier earlier today, their finance minister who said that
Speaker 1: the break even price that Russia needs to balance its
Speaker 1: budget for is forty dollars a barrel UM. Now, yes,
Speaker 1: they'd like more than that because they would like to
Speaker 1: pay down some of their debt and build up a
Speaker 1: UM a sort of a rainy day funds. So they'd
Speaker 1: like more than forty. But I think both Saudi Arabia
Speaker 1: and Russia are very aware that when prices get too high,
Speaker 1: demand starts to suffer, and both of these countries want
Speaker 1: to be exporting oil and selling oil into the market
Speaker 1: for the long term future. Julian, just a little bit
Speaker 1: more on Iran. They don't just export crude. They also
Speaker 1: export condensate. This is that super light oil that's used
Speaker 1: in the petrochemical industry. Tell us about condensate and the
Speaker 1: potential buyers or those that are no longer buyers, Okay,
Speaker 1: I mean condensate is is interesting this time around because
Speaker 1: it was excluded from the sanctions when they were enacted
Speaker 1: under President Obama. UM. President Trump has made it very
Speaker 1: clear that he expects buyers to stop buying both crude
Speaker 1: and condensates. Condensates are if you like a much smaller
Speaker 1: pool of supply. There are fewer producers of condensates. It's
Speaker 1: essentially a very light liquid that comes out of gas fields. UM.
Speaker 1: The biggest buyer of irrain and condensate by far is
Speaker 1: South Korea. They have already stopped. The last ship carrying
Speaker 1: Iranian condensate to South Korea left I think in July.
Speaker 1: Um it arrived in early August. May have been June
Speaker 1: and July that it arrived, but certainly for the last
Speaker 1: month or two, South Korea has not bought any Iranian condensate.
Speaker 1: That causes a problem for South Korea in terms of
Speaker 1: finding alternative sources of supply. One of the one of
Speaker 1: the things is that the Iranian condensate is is quite
Speaker 1: high in sulfur. This is a a an element that
Speaker 1: that has to be removed from the condensate to make
Speaker 1: it consistent with product specifications, so it also makes it cheaper.
Speaker 1: I see, well, Julian Lee, We're gonna have to follow
Speaker 1: up on that next time. We have to leave it there.
Speaker 1: Julian Lee, Bloomberg ot oils strateg is coming to us
Speaker 1: from London. Definitely an interesting moment. We have a Brent
Speaker 1: crew climbing back up towards eighty dollars of barrel. Uh
Speaker 1: and uh. We'll see how that factors into both consumer
Speaker 1: prices as well as the political calculus. Thanks for listening
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
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