WEBVTT - Apple’s Upbeat Forecast Clouded by Cost Fears 0:00:02.759 --> 0:00:10.600 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.640 --> 0:00:14.600 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.640 --> 0:00:17.880 Eastern on Apple, Cocklay and Android Auto with the Bloomberg 0:00:17.960 --> 0:00:21.080 Business App. Listen on demand wherever you get your podcasts, 0:00:21.400 --> 0:00:23.120 or watch us live on YouTube. 0:00:23.680 --> 0:00:26.920 Big Big Week four Tech earnings here. The Apple numbers 0:00:26.960 --> 0:00:29.880 came out last night. I thought they were like, really good. 0:00:30.400 --> 0:00:33.080 So what does the stock market do? Down one percent 0:00:33.080 --> 0:00:35.040 in the stock here today. I've been doing this stock 0:00:35.040 --> 0:00:37.240 market thing for forty years. No idea how it works. 0:00:37.440 --> 0:00:40.720 Dan Ives does the globalhead of Technology Research Weber Securities Joints. 0:00:40.720 --> 0:00:43.239 It's live here in our Bloomberg Interactive Broker studio. Dan, 0:00:43.240 --> 0:00:44.360 what did you make of the quarter last night? 0:00:44.400 --> 0:00:46.920 For I mean now is a staggering quarter in terms 0:00:46.960 --> 0:00:49.680 of what you saw on iPhone, specifically in terms of China, 0:00:49.680 --> 0:00:53.080 I mean chininga massive towwind services strong. 0:00:53.360 --> 0:00:55.400 I don't miss say best case. 0:00:55.200 --> 0:00:59.400 Scenario that you could have seen the stock performance today, 0:00:59.520 --> 0:01:01.920 I'd say it's a massive head scratcher. I mean this 0:01:01.960 --> 0:01:04.480 is look, this is one where I think this stock 0:01:04.520 --> 0:01:07.960 should be up five to eight percent relative you know 0:01:08.040 --> 0:01:09.880 to what they perform and the guidance. 0:01:10.200 --> 0:01:11.800 But I think it also just comes down to the 0:01:11.920 --> 0:01:12.399 we've talked. 0:01:12.240 --> 0:01:14.399 About so much in the show, right, is that, what's 0:01:14.440 --> 0:01:18.440 the AI strategy, what's the monization? Show us the playbook. 0:01:18.680 --> 0:01:21.720 That's not Cooper Tino, that's not their DNA. And I 0:01:21.720 --> 0:01:24.399 think that's why the stock's kind of to little Larry 0:01:24.480 --> 0:01:26.480 David in terms of the reaction. 0:01:26.920 --> 0:01:29.080 So, how has it been their AI push because they 0:01:29.080 --> 0:01:31.959 have face concerns and they've really lagged behind their megacap 0:01:32.000 --> 0:01:32.760 tech peers. 0:01:33.240 --> 0:01:36.399 Look, I mean they they've watched AI from the stands, 0:01:36.560 --> 0:01:39.440 and I think that's been disappointing to many, including us, 0:01:39.640 --> 0:01:41.839 because you have the biggest install based in the world, 0:01:42.160 --> 0:01:44.720 you have one point five million iPhones. But now it 0:01:44.720 --> 0:01:47.440 comes down to the Google Gemini partnership is the first 0:01:47.440 --> 0:01:51.360 big step. They're bringing an outside talent, which is I 0:01:51.400 --> 0:01:54.600 think unique to what we've seen there. And then this 0:01:54.680 --> 0:01:56.920 is what I believe is going to build into a 0:01:57.000 --> 0:02:01.400 subscription service. I mean that is not being factored into 0:02:01.440 --> 0:02:03.320 the stock. And just I just go back to like 0:02:03.400 --> 0:02:06.200 a year ago, look at Google New York City cab 0:02:06.280 --> 0:02:08.920 drivers parish on it. Now today they're doing you know, 0:02:08.960 --> 0:02:11.400 tick er Tate parades for it. You go back to 0:02:11.480 --> 0:02:14.640 Meta a quarter ago. Now look at in this court. 0:02:14.720 --> 0:02:17.320 So we're just going to go through this just very 0:02:17.360 --> 0:02:19.359 sensitive time for tech investors. 0:02:19.560 --> 0:02:22.280 Looking at the Mark German Bloomberg News his reporting today, 0:02:22.480 --> 0:02:25.000 maybe some concerns he's calling out about gross margins in 0:02:25.040 --> 0:02:28.720 the current period due to rising memory prices, also some 0:02:28.800 --> 0:02:32.720 supply chain constraints with the iPhones three nanometer processor. Are 0:02:32.760 --> 0:02:35.160 all those things kind of suggesting to investors maybe we're 0:02:35.160 --> 0:02:37.519 going to have great sales, but maybe not the margins 0:02:37.560 --> 0:02:39.400 were looking forth, Yeah, I. 0:02:39.280 --> 0:02:42.320 Think that's I mean, I think that's in telegraph. But 0:02:42.440 --> 0:02:44.520 I do believe you have pricing increases when it comes 0:02:44.560 --> 0:02:48.079 to iPhone eighteen called one hundred hundred and fifty dollars. 0:02:48.639 --> 0:02:50.639 But Paul, I think, like what ultimately is going to 0:02:50.720 --> 0:02:53.680 move the stock, Like when investors are focusing on how 0:02:53.680 --> 0:02:56.200 do you get to three twenty five, three to fifty, 0:02:56.200 --> 0:02:57.200 how do you have a stock with. 0:02:57.200 --> 0:02:59.440 A three in front of it? It's not going to 0:02:59.560 --> 0:03:01.560 be sales margins. 0:03:01.680 --> 0:03:05.600 It comes down to lay out the AI strategy, show 0:03:05.720 --> 0:03:09.880 us the playbook, and that's why like Cook's gonna stay CEO. 0:03:09.880 --> 0:03:13.680 In my opinion, till that baton's handed because this is 0:03:13.760 --> 0:03:16.160 so important, I think to his legacy. 0:03:16.320 --> 0:03:18.720 And what about how it's coping with tariffs. The company 0:03:18.760 --> 0:03:21.720 said that it created a one point for billion dollar headwind. 0:03:21.880 --> 0:03:23.280 Have we reached the worst? 0:03:23.600 --> 0:03:23.799 Yeah? 0:03:23.840 --> 0:03:26.200 I think worst is probably in the rearview mirror network. 0:03:26.240 --> 0:03:28.799 That's why I also play nice in the sandbox in DC, 0:03:29.440 --> 0:03:32.359 which Trump has been huge positive but it goes back 0:03:32.360 --> 0:03:35.960 to cook ten percent politician ninety percent CEO. So he's 0:03:35.960 --> 0:03:39.440 been able to navigate that extremely well. Now investors are okay, 0:03:39.440 --> 0:03:43.520 it's good time. What should the growth catalyst? It was 0:03:43.560 --> 0:03:45.720 a huge step in the right direction last night, but 0:03:45.840 --> 0:03:48.080 you see, like investors and this is going to be 0:03:48.120 --> 0:03:52.400 a narrow in this tech earning season. Any blemish anything 0:03:52.480 --> 0:03:55.040 investors don't like, they're going to take these stocks down. 0:03:55.120 --> 0:03:56.880 And we saw that with Microsoft and others. 0:03:57.640 --> 0:03:59.600 Talks about trying to hear because that's been a big 0:04:00.280 --> 0:04:03.440 and overhang for this company for the last couple of years, 0:04:03.440 --> 0:04:05.560 if not more. What do you think the status is 0:04:05.640 --> 0:04:06.800 right there about China and Apple? 0:04:06.840 --> 0:04:08.480 Well, I think it's a lot more positive today. 0:04:08.480 --> 0:04:10.280 I mean, go back, they were kind of in the 0:04:10.280 --> 0:04:12.960 middle of a sort of old Western fight between US 0:04:13.000 --> 0:04:16.920 and China now is those tensions have come down. That's 0:04:16.960 --> 0:04:19.080 how that's been a huge positive for Apple. That's why 0:04:19.560 --> 0:04:22.839 Apple and Tasla are the two tech companies are always 0:04:22.920 --> 0:04:26.320 caught in there. I think you've seen those talents. Look, 0:04:26.360 --> 0:04:30.200 it's so important twenty percent iPhone sales. You need that 0:04:30.440 --> 0:04:33.200 to be a market that's showing growth. And that's why 0:04:33.240 --> 0:04:36.400 you're seeing it. They're delivering everything you want to see. 0:04:36.400 --> 0:04:37.680 But the one thing that's. 0:04:37.480 --> 0:04:40.320 Missing, it's the AI strategy. 0:04:39.760 --> 0:04:43.440 And that ultimately, that's that's really the hearts and lungs 0:04:43.480 --> 0:04:45.440 of what's gonna Haven't. 0:04:45.120 --> 0:04:46.960 They articulated a strategy and maybe. 0:04:46.800 --> 0:04:49.640 That strategy is we're just gonna wait and we're gonna 0:04:49.680 --> 0:04:51.479 partner with whoever we need to partner with, and that 0:04:51.560 --> 0:04:52.280 is our strategy. 0:04:52.360 --> 0:04:54.440 Have they said that or is that not enough? 0:04:54.520 --> 0:05:00.360 Look, they've been it's essentially the last few wwdcs. 0:04:59.279 --> 0:05:02.200 It's been about to the future. Michael J. Fox moment right. 0:05:02.400 --> 0:05:04.800 The point is like they've really been on a treadmill 0:05:04.839 --> 0:05:07.760 at two point five speed. I think part of it 0:05:07.800 --> 0:05:09.160 was like they were hoping it was going to be 0:05:09.240 --> 0:05:13.360 internally developed that wasn't going to happen. They've probably been 0:05:13.480 --> 0:05:17.479 I think slow and culturally it's actually hurt them. That's 0:05:17.520 --> 0:05:21.440 why you start to see changes. And ultimately they needed 0:05:21.480 --> 0:05:24.240 Google win the DOJ suit for this to happen. If 0:05:24.560 --> 0:05:28.040 Google don't win dojsuit, this can this partnership can happen. 0:05:28.480 --> 0:05:31.239 Should they have bought Perplexity, should they have done others? 0:05:31.279 --> 0:05:34.279 Of course, But that's why this is go time for Apple, 0:05:34.640 --> 0:05:38.120 and that's what the stocks reflecting investors like, should give 0:05:38.200 --> 0:05:38.799 me something? 0:05:39.160 --> 0:05:40.880 And do you say that they have a chance in 0:05:40.920 --> 0:05:42.160 overtaking their peers. 0:05:42.600 --> 0:05:44.680 Look, I think when you have the biggest install based 0:05:44.680 --> 0:05:46.320 in the world and you have a Hall of Fame 0:05:46.400 --> 0:05:50.159 Mount Rushmore CEO like Cook, you could be late to 0:05:50.240 --> 0:05:54.719 the game, but twenty twenty six, they can't fumble the football. 0:05:54.880 --> 0:05:57.960 This this has to sort of be their moment. I 0:05:57.960 --> 0:06:00.240 think it's off to a strong start, but as we're 0:06:00.279 --> 0:06:04.040 seeing in tech, this is gonna be much more highly screwtinized. 0:06:04.040 --> 0:06:06.359 You're not going to get be given the sort of 0:06:06.400 --> 0:06:07.440 maybe latitude. 0:06:07.960 --> 0:06:10.240 Just give them this market thirty seconds left before we 0:06:10.320 --> 0:06:11.800 let you go. Can you give us your call on 0:06:11.880 --> 0:06:12.560 Tesla right here? 0:06:13.000 --> 0:06:15.000 I mean, I think it's going to be a historical 0:06:15.080 --> 0:06:18.960 year for Tesla. It's the autonomous and robotics error that's 0:06:19.000 --> 0:06:22.000 now taking place, plus thing about SpaceX and XAI. What 0:06:22.120 --> 0:06:26.560 that's doing the musk ecosystem, Muscu's wartime CEO, and it 0:06:26.600 --> 0:06:29.719 comes down that's why six hundred spase case, eight hundreds 0:06:29.720 --> 0:06:34.480 bowl case, and this now starts the AI revolution at Tesla. 0:06:34.400 --> 0:06:38.000 SpaceX that I feel happens that that's gonna lift just 0:06:38.040 --> 0:06:40.000 the whole feeling about Elon in general. 0:06:40.000 --> 0:06:42.560 I would think, Look, it goes back to like he's 0:06:42.760 --> 0:06:45.960 playing you know, he's playing like chess, others playing checkers 0:06:45.960 --> 0:06:49.000 when it comes to what he's navigating here, and that's 0:06:49.040 --> 0:06:52.440 what haters will hate. But when SpaceX comes out, I mean, 0:06:52.480 --> 0:06:54.679 you know you're talking about we're basically make some amost 0:06:54.720 --> 0:06:55.360 a trillion. 0:06:55.120 --> 0:06:57.560 Biggest listing every I mean one and a half trillion 0:06:57.600 --> 0:07:00.160 dollar evaluation. That would be just extraordinary to see with 0:07:00.240 --> 0:07:02.920 us more from Bloomberg Intelligence coming up after this. 0:07:06.760 --> 0:07:10.480 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:07:10.560 --> 0:07:13.640 weekdays at ten am Eastern on applecar Play and Android 0:07:13.640 --> 0:07:16.960 Auto with the Bloomberg Business app. Listen on demand wherever 0:07:17.040 --> 0:07:20.120 you get your podcasts, or watch us live on YouTube. 0:07:21.000 --> 0:07:24.240 We've spoken to I don't know many many voices on 0:07:24.360 --> 0:07:27.520 this pick of mister Walsh for the FED chair. We've 0:07:27.560 --> 0:07:31.240 had people like Neil Dudda very negative. We've had people 0:07:31.280 --> 0:07:34.840 like Terry Haynes a Pangaea quite positive. Yes, so there 0:07:34.840 --> 0:07:37.800 seems to be a wide range of views out there. 0:07:37.920 --> 0:07:41.800 A about mister Walsh as a nominee number one and 0:07:41.880 --> 0:07:45.160 number two just kind of about you know, policies in general. 0:07:45.400 --> 0:07:47.720 So we'll have to see how that plays out. One 0:07:47.760 --> 0:07:51.480 voice we absolutely wanted to get to hear from is 0:07:51.560 --> 0:07:54.240 Danielle di Martino Boo. She's the CEO and chief strategistic 0:07:54.320 --> 0:07:57.400 QI Research and she spent a good stretch at the 0:07:57.480 --> 0:08:00.800 Dallas Fed, so she knows how all this stuff works. Danielle, 0:08:00.960 --> 0:08:03.400 love to get your opinion on the nomination of mister 0:08:03.480 --> 0:08:04.880 Kevin Walsh. 0:08:04.920 --> 0:08:06.920 Well, I'm I'm cautiously hopeful. 0:08:07.320 --> 0:08:11.360 UH President Richard Fisher served when worsh was on the board, 0:08:11.680 --> 0:08:16.040 and they were two large deterrens of quantitative easing UH 0:08:16.680 --> 0:08:21.360 worse famously called QE reverse Robin Hood. He and I 0:08:21.400 --> 0:08:24.120 said on a panel when he was at Stanford a 0:08:24.160 --> 0:08:27.920 few years ago, and we share the same views that 0:08:28.160 --> 0:08:33.319 going as far out on the easing spectrum as QE 0:08:34.120 --> 0:08:36.960 was not good for the financial markets, was not good 0:08:37.000 --> 0:08:42.240 for the for the overall US public. And I'm hoping 0:08:42.840 --> 0:08:45.200 that he doesn't go in that direction, that he's not 0:08:45.360 --> 0:08:48.880 tempted to go to zero interest rate policy again, and 0:08:48.880 --> 0:08:51.439 that we steer clear of QE and continue to shrink 0:08:51.480 --> 0:08:53.679 the size of the Fed's balance sheet. These are all 0:08:53.720 --> 0:08:57.120 things that worsh has indicated that he would advocate for doing, 0:08:57.200 --> 0:08:59.040 and I hope that he follows through with that. 0:09:00.080 --> 0:09:02.720 After the nomination there will be the confirmation, and we've 0:09:02.840 --> 0:09:05.240 had some of the sources telling us that it may 0:09:05.280 --> 0:09:07.600 not be as smooth. What is your projection for that? 0:09:09.120 --> 0:09:13.240 Well, you know, I listened live when Senator Tom Tillis. 0:09:12.920 --> 0:09:17.040 Was interviewed earlier this morning on Bloomberg and he has 0:09:17.080 --> 0:09:20.160 a very good point. And it's not that he's philosophically 0:09:20.200 --> 0:09:22.600 misaligned with Kevin Walsh. In fact, I think he thinks 0:09:22.600 --> 0:09:25.360 he's a great candidate, But he was He used the 0:09:25.360 --> 0:09:28.800 word frivolous as it pertained to the lawsuit that he 0:09:29.000 --> 0:09:32.439 was waiting until the Department of Justice's frivolous lawsuit was. 0:09:34.400 --> 0:09:34.880 Frivolous. 0:09:34.960 --> 0:09:40.439 Charges were dropped against Chair Powell before proceeding with any nominee. 0:09:40.440 --> 0:09:43.880 I think Senator Thune, Senator Majority Leader Thune has backed 0:09:43.960 --> 0:09:46.560 that this will not be possible. You will not be 0:09:46.600 --> 0:09:51.400 able to progress Worsh through the nomination process, unt build 0:09:51.440 --> 0:09:55.640 the Department of Justice releases Durrum Pale from these criminal charges. 0:09:56.400 --> 0:10:00.600 Danielle, how do you think mister wash will move as 0:10:00.600 --> 0:10:02.760 it relates to interest rate policy? There are you know 0:10:02.880 --> 0:10:04.640 a lot of folks have pointed out that he's become 0:10:04.720 --> 0:10:09.080 maybe even more dubvish, less hawkish with time in most 0:10:09.080 --> 0:10:11.600 recent times, and that may or may not have some 0:10:12.520 --> 0:10:15.160 political ramifications. 0:10:15.640 --> 0:10:17.920 How do you think he'll try to proceed with this FED? 0:10:19.200 --> 0:10:20.040 So you know, of. 0:10:19.960 --> 0:10:23.480 Course that is going to be the perception. I've seen 0:10:23.520 --> 0:10:26.199 a lot of the comments that he's made, but. 0:10:26.200 --> 0:10:27.480 I would I would just say this. 0:10:27.600 --> 0:10:30.440 I think that coming in that Worsh will be more 0:10:30.480 --> 0:10:34.080 aligned with Christopher Waller and that he will recognize that 0:10:34.080 --> 0:10:36.840 the FED is failing on its employment mandate and use 0:10:37.400 --> 0:10:43.199 research and data and alternative data sets to justify continuing 0:10:43.240 --> 0:10:45.360 to bring the FED funds rate down. And I think 0:10:45.360 --> 0:10:49.160 that that's entirely appropriate. But again I'm hoping that that 0:10:49.280 --> 0:10:54.160 he aligns back with his original thinking that zero interest 0:10:54.240 --> 0:10:56.960 rate policy is not the way to go, and that 0:10:57.000 --> 0:10:59.920 he finds a more reasonable FED funds floor somewhere around 0:11:00.160 --> 0:11:00.800 two percent. 0:11:01.600 --> 0:11:03.920 So if Worsh does become the FED chair, what changes 0:11:03.960 --> 0:11:09.800 first for markets? Policy direction, communication, or maybe reaction function. 0:11:11.840 --> 0:11:13.880 I think reaction function becomes critical. 0:11:13.880 --> 0:11:16.319 We have to remember that Worsh was he was a 0:11:16.360 --> 0:11:20.360 critical player during the global financial crisis. He has deep 0:11:20.440 --> 0:11:24.120 understandings of financial markets. We've seen some movement and leverage 0:11:24.160 --> 0:11:26.800 loans this week, We've seen a lot. 0:11:26.640 --> 0:11:29.120 Of activity in private credit. 0:11:29.679 --> 0:11:32.120 The good news is we need somebody who has a 0:11:32.200 --> 0:11:35.360 deep understanding of the banking system and the financial system, 0:11:35.559 --> 0:11:38.880 their linkages, and I think he'll be able to be 0:11:39.000 --> 0:11:45.600 a good steward at the FED given the extended valuations 0:11:45.640 --> 0:11:48.280 we've seen in some of the kind of risks and 0:11:48.320 --> 0:11:51.240 threats of financial instability that are percolating out there. 0:11:52.200 --> 0:11:55.920 Danielle, he has a remit or he's talking about a 0:11:55.920 --> 0:12:00.160 remit to narrow the focus of the FED here. Do 0:12:00.200 --> 0:12:02.680 you think that's widely shared at the FED? 0:12:04.760 --> 0:12:07.520 Well, I wish it was more widely shared. 0:12:07.600 --> 0:12:09.679 I've long said that we need to go back to 0:12:09.720 --> 0:12:12.599 having just the inflation mandate, and that the inflation and 0:12:12.720 --> 0:12:16.440 labor mandates are inherently in conflict with one another. He's 0:12:16.480 --> 0:12:19.840 also advocated to continue shrinking the Fed's balance sheet even 0:12:19.880 --> 0:12:22.880 if he brings interest rates down, and I hope he 0:12:22.920 --> 0:12:25.440 goes forward with that as well. But you're right he 0:12:25.440 --> 0:12:28.400 would have an uphill battle with a lot of the 0:12:28.720 --> 0:12:31.720 more dubbish members of the board, but he would certainly 0:12:31.760 --> 0:12:35.240 be more aligned with individuals who are Federal Reserve district 0:12:35.240 --> 0:12:39.280 presidents who do not advocate for a larger balance sheet. 0:12:39.400 --> 0:12:41.000 What do you think FED Chairman j Powell will do 0:12:41.000 --> 0:12:43.120 when he steps down from his leadership position. Do you 0:12:43.120 --> 0:12:44.920 think he'll stay on the board or who just sail 0:12:44.960 --> 0:12:46.200 off into the sunset? 0:12:47.200 --> 0:12:49.840 I think it was very I think was very telling 0:12:50.280 --> 0:12:52.200 two markets, and it was very telling to the current 0:12:52.240 --> 0:12:54.920 administration that he refused to answer the question at the 0:12:54.920 --> 0:12:59.600 press conference. And I would encourage Jerome Powell to stay 0:12:59.640 --> 0:13:03.480 on through January of twenty twenty eight. Philosophically, at least 0:13:03.720 --> 0:13:05.400 we know that the two are aligned. 0:13:05.440 --> 0:13:07.320 The two do not like, or at least I. 0:13:07.320 --> 0:13:10.520 Should say, Jerome Palell back when he was first appointed 0:13:10.880 --> 0:13:15.400 to the FED came very close to dissenting against QE three. 0:13:15.600 --> 0:13:17.160 So I would hope that the two would be able 0:13:17.240 --> 0:13:19.960 to work together and that Jay Powell would stick around 0:13:20.160 --> 0:13:21.440 until his term ends. 0:13:22.280 --> 0:13:25.439 And if Warsh really is committed to the wearing rates 0:13:25.559 --> 0:13:28.000 very quickly, how much influence does the chair really have 0:13:28.200 --> 0:13:30.960 in persuading other governors Because it's not just his one vote, 0:13:31.000 --> 0:13:33.120 as everyone has repeatedly said. 0:13:34.040 --> 0:13:37.520 That is absolutely the case. He could be looking at 0:13:37.520 --> 0:13:38.360 a number. 0:13:38.080 --> 0:13:43.080 Of descents on day one. However, I think with the 0:13:43.160 --> 0:13:46.840 messages coming out, with just the clear data that we're seeing, 0:13:46.880 --> 0:13:50.160 whether it's Conference Board or University of Michigan, or the 0:13:50.200 --> 0:13:53.280 fact that so many Americans are not filing for unemployment 0:13:53.320 --> 0:13:56.600 insurance and yet Google Trends shows you that we've got 0:13:56.640 --> 0:13:59.719 an almost record level of American searching for file unemployment, 0:14:00.160 --> 0:14:02.960 I think that data will speak for itself and that 0:14:03.240 --> 0:14:06.320 many will be on board with lowering rates. If we 0:14:06.440 --> 0:14:09.480 have to wait to do so until June, I certainly 0:14:09.480 --> 0:14:10.679 hope that is not the case. 0:14:11.080 --> 0:14:14.160 Stay with us more from Bloomberg Intelligence coming up after this. 0:14:18.120 --> 0:14:21.840 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:14:21.920 --> 0:14:24.960 weekdays at ten am Eastern on Apple, Cocklay and Android 0:14:25.000 --> 0:14:28.320 Auto with the Bloomberg Business App. Listen on demand wherever 0:14:28.360 --> 0:14:31.480 you get your podcasts, or watch us live on YouTube. 0:14:32.240 --> 0:14:34.680 Here's another group of stocks I totally missed. You're to date. 0:14:35.200 --> 0:14:37.840 These big energy oil companies are just ripping here. 0:14:37.840 --> 0:14:41.000 Excellent up sixteen percent year to date, Chevron up fourteen percent. 0:14:41.120 --> 0:14:41.920 Nice moves there. 0:14:42.440 --> 0:14:45.920 The company's reported earnings and some pretty good numbers, I thought, 0:14:45.960 --> 0:14:46.480 But what do I know? 0:14:46.560 --> 0:14:49.240 Vince Piazza, he's the expert senior equity research channels. 0:14:49.240 --> 0:14:51.920 He covers all the oil and guests stuff for Bloomberg Intelligence. 0:14:52.200 --> 0:14:55.040 Joining us live here in our Bloomberg Interactive Broker studio. 0:14:55.080 --> 0:14:56.920 This may be the one, two, maybe three days he 0:14:56.920 --> 0:14:58.400 spends in the Big Apple we got him. 0:14:58.400 --> 0:14:59.520 Folks in studio. 0:15:00.160 --> 0:15:02.240 Talk to us about what you heard, what you learned 0:15:02.240 --> 0:15:04.880 from Exon Mobile, from Chevron, from the most recent earnings. 0:15:04.960 --> 0:15:07.080 Yeah, well, well, I think for the most part what 0:15:07.160 --> 0:15:09.720 you've seen the last couple of days is really the 0:15:09.760 --> 0:15:14.560 after effects of the storm, right, especially helping natural gas 0:15:15.880 --> 0:15:20.640 and really the the underlying benchmarks for oil. But for 0:15:20.720 --> 0:15:24.240 the for the four q sherm on Exxon, you know, 0:15:24.320 --> 0:15:29.760 down sequentially on earnings, pretty much as expected though, right, 0:15:29.840 --> 0:15:33.360 because of the realization's quarter over quarter on the lower 0:15:34.560 --> 0:15:35.840 on lower oil prices. 0:15:36.080 --> 0:15:38.600 You know, going forward, it's steady, it's steady as she goes. 0:15:38.960 --> 0:15:43.560 Really, it's really about disciplined investing in the business, allowing 0:15:43.600 --> 0:15:48.600 the Permian and also Guyana uh uh to provide that upside. 0:15:48.680 --> 0:15:50.800 And really it's about the upstream side of the business, 0:15:50.920 --> 0:15:55.280 because the downstream is in a secular decline, a structural 0:15:55.320 --> 0:15:58.160 decline with the headwinds. But it's really about the upstream. 0:15:58.400 --> 0:16:00.280 It's really about the Permian. And you know about the 0:16:00.280 --> 0:16:04.640 Permian why because we watch Landman, that's right. So, but 0:16:05.480 --> 0:16:08.120 what we're going to see in twenty twenty six, really 0:16:08.120 --> 0:16:11.600 not only from the big integrates, but also from the 0:16:11.640 --> 0:16:14.560 other companies are going to reporting, is what do you 0:16:14.560 --> 0:16:16.000 think about natural gas. 0:16:15.760 --> 0:16:16.960 Here at these levels? 0:16:17.080 --> 0:16:18.960 And are they going to turn off the spig and 0:16:19.000 --> 0:16:21.720 on production, which we really don't view it as such. 0:16:21.800 --> 0:16:26.000 We think the capital discipline will be maintained. We don't 0:16:26.000 --> 0:16:28.800 think there'll be a great deal of production growth coming 0:16:28.800 --> 0:16:31.040 in twenty twenty six. And what you're going to get 0:16:31.320 --> 0:16:33.000 is a return of excess cash. 0:16:33.520 --> 0:16:36.560 So both Chevron and Exon beat earnings expectations this quarter. 0:16:36.680 --> 0:16:39.720 But Exon managed to grow profit and Chevron's profit declined 0:16:40.160 --> 0:16:44.760 despite the beat. What did Exon do correctly from an 0:16:44.800 --> 0:16:48.160 operational and strategic standpoint that maybe Chevron didn't. 0:16:48.440 --> 0:16:52.960 Yeah, so you know, Exon has a pioneer and that's Permian. 0:16:53.400 --> 0:16:59.000 So the Permian and the Guiana has worked out quite well. 0:16:59.480 --> 0:17:02.440 The usually the driver for Exxon. 0:17:02.840 --> 0:17:05.480 What's interesting though, when you think about the free cash 0:17:05.520 --> 0:17:10.560 flow that both Exon and Chevron generate. Exon somewhere around 0:17:10.600 --> 0:17:12.880 five and a half billion dollars, yet they paid out 0:17:12.920 --> 0:17:18.080 almost ten billion in distributions via share buybacks and dividends, 0:17:18.680 --> 0:17:22.000 and you know that can be done because of because 0:17:22.440 --> 0:17:26.760 because of Exon's financial flexibility, big cash hoard, so they 0:17:26.760 --> 0:17:31.680 can support those distributions and their shareholder engagement. Similar for Chevron, 0:17:31.760 --> 0:17:34.639 but Chevron a little bit lagging because of you know, 0:17:34.840 --> 0:17:38.399 they just acquired Hess. They're integrating Hess, so they're a 0:17:38.440 --> 0:17:41.920 little bit further behind the process. But also for them, 0:17:42.040 --> 0:17:44.840 they also have Guyana via HES and they also have 0:17:44.920 --> 0:17:48.200 the Permian as well, So somewhat smaller, some a little 0:17:48.200 --> 0:17:50.920 bit behind where Exon is, but they're catching up as well. 0:17:51.600 --> 0:17:54.879 Chevron's in Venezuela has been in Venezuela for a long time. 0:17:55.119 --> 0:17:57.560 Yes, lieperally the only ones. Everybody else said, the heck 0:17:57.600 --> 0:17:59.399 with this, what do you think is going to happen 0:17:59.440 --> 0:18:01.840 going forward with the change in regime? 0:18:01.920 --> 0:18:05.640 Change in Venezuela very slow, It'll be a very slow 0:18:05.880 --> 0:18:09.720 uptick in output. They're roughly around two hundred and fifty 0:18:09.720 --> 0:18:13.199 thousand barrels per day right now. You could see that 0:18:13.359 --> 0:18:16.200 doubling in about two years. But this is about sourcing 0:18:16.320 --> 0:18:21.359 in country, don't see. We don't see the backdrop for 0:18:21.800 --> 0:18:27.399 incremental higher investment in country to grow that output. We 0:18:27.560 --> 0:18:30.800 just see them reallocating within the country to get that 0:18:30.920 --> 0:18:34.280 output going. And two hundred and fifty thousand barrels over 0:18:34.359 --> 0:18:37.840 the next call twenty four months isn't really that big 0:18:38.520 --> 0:18:41.040 of a production boost. When you think about the global 0:18:41.119 --> 0:18:44.040 franchise and roughly four million barrels a day of output. 0:18:44.080 --> 0:18:46.719 It does seem like international opportunities are the way to go, 0:18:46.800 --> 0:18:49.520 at least for them. But in your view, which companies 0:18:49.600 --> 0:18:53.879 portfolio and growth investments, maybe our better position to deliver 0:18:54.040 --> 0:18:56.960 growth in the longer term for the price of oil. 0:18:57.200 --> 0:18:57.960 Oh. 0:18:58.000 --> 0:19:01.000 In my view, and we've said this in a lot 0:19:01.040 --> 0:19:03.600 of what we've published in the last year or so. 0:19:03.800 --> 0:19:08.199 Exon definitely because of the franchise in the Permian. Because 0:19:08.240 --> 0:19:11.560 of Guyana, Chevron will get there. 0:19:12.200 --> 0:19:16.520 They're lagging somewhat only because of the length the delayed 0:19:16.640 --> 0:19:20.639 arbitration over Hess, but now they have the Guyana piece 0:19:20.640 --> 0:19:24.879 as well, the participation with Exon in Guyana. They also 0:19:25.320 --> 0:19:28.920 have the Permian as well, So both of these enterprises 0:19:29.080 --> 0:19:32.640 have those key pillars for growth. For twenty twenty six, 0:19:32.720 --> 0:19:36.760 even out to twenty thirty, both have provided very reasonable 0:19:36.840 --> 0:19:38.280 growth expectations. 0:19:39.280 --> 0:19:41.440 A lot of those expectations a lot. 0:19:41.280 --> 0:19:45.360 Of that that the theme is really on the upstream 0:19:45.480 --> 0:19:47.720 side of the business. That's what we're going to drive 0:19:48.240 --> 0:19:51.879 the business for Exon. The downstream investments and the energy 0:19:52.240 --> 0:19:55.600 products that will also be a positive for them. But 0:19:55.960 --> 0:19:59.760 at this point Exon does seem to have the upper 0:19:59.800 --> 0:20:03.600 hand and in terms of the scale in the Permian 0:20:03.840 --> 0:20:07.840 and also Guyana as well, I will say that I 0:20:07.840 --> 0:20:10.880 wouldn't be surprised if more is done on the upstream 0:20:10.920 --> 0:20:14.359 side because this is a maturing industry, right and so 0:20:15.480 --> 0:20:18.639 consolidation is the key. What we have said in what 0:20:18.680 --> 0:20:22.000 we've published over the last several years is this industry 0:20:22.040 --> 0:20:26.480 needs to consolidate. We will have fewer but much larger 0:20:26.520 --> 0:20:30.119 players in the upstream business here in the lower forty 0:20:30.160 --> 0:20:32.560 eight that gas. But I'm just going over the last 0:20:32.600 --> 0:20:34.560 couple of months. We went from four dollars down to 0:20:34.680 --> 0:20:36.720 almost two and a half dollars. Now we're above four 0:20:36.720 --> 0:20:38.520 dollars for nat gas. It's been all over the place. 0:20:38.720 --> 0:20:42.080 How are investors playing that gas these days? So in 0:20:42.160 --> 0:20:46.760 our twenty twenty six outlook, we focused on NAC gas 0:20:47.119 --> 0:20:48.720 over WTI oil. 0:20:49.200 --> 0:20:51.080 There are structural. 0:20:50.520 --> 0:20:53.639