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Speaker 3: So I don't know if you know this, guys, but

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Speaker 3: four point six trillion dollars worth of market cap is

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Speaker 3: reporting this week.

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Speaker 4: It was the third I.

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Speaker 3: Think busiest week for the S and P in terms

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Speaker 3: of earnings. John Tucker super pumped. So I was reading,

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Speaker 3: I'm Gina marn Adams Bloomberg Intelligence. He's a senior, a

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Speaker 3: chief equity strategist, I should say, and they were kind

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Speaker 3: of taking that broader look on the earning season, and

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Speaker 3: she'd a really interesting point, And Gina, this is why

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Speaker 3: I wanted to get you on to talk about it.

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Speaker 3: You guys say that if you look at guidance by

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Speaker 3: the firms looking at about sixteen percent earnings growth, but

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Speaker 3: earning's growth by analysts sees significantly less.

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Speaker 4: Is that kind of gap weird?

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Speaker 5: It is unusually large what we do find. Alex, First,

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Speaker 5: thank you for having me on. Thank you for reading

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Speaker 5: the work oh always. What we usually find is that

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Speaker 5: company's guidance is a pretty good proxy for what to

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Speaker 5: expect during the earning season. Analysts over the last several

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Speaker 5: quarters have underestimated earnings have also undershot guidance, not just

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Speaker 5: by this huge amount though. For instance, coming into the

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Speaker 5: second quarter earning season, analysts we're expecting about eight percent

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Speaker 5: earnings growth, our guidance model was saying twelve. We ended

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Speaker 5: up getting fourteen. This time around, analysts are expecting merely

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Speaker 5: four percent earnings growth and our guidance model is saying

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Speaker 5: fifteen sixteen, So it's a very big gap. I think

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Speaker 5: a couple of things really explain the gap this time around.

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Speaker 5: The first is when you look at the sector concentration

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Speaker 5: of guidance, only about a fifth of S and P

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Speaker 5: five hundred companies tend to guide earnings. That tend that

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Speaker 5: surprises a lot of people. It's not every company gives

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Speaker 5: us guidance. We have to rely on a small subset

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Speaker 5: of companies for this analysis. But nonetheless, of those about

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Speaker 5: one hundred companies that give us guidance, most of them

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Speaker 5: are tech, communications and consumer discretionary companies, so they also

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Speaker 5: are concentrated in certain sectors. Now, Tech and communications in particular,

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Speaker 5: we know are the strongest segments of the S and

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Speaker 5: P five hundred. We've seen that play out over the

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Speaker 5: last year and a half. The weakest players in the

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Speaker 5: S and P five hundred are energy companies. They're still

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Speaker 5: producing double digit declines and earnings. Analyst consensus thinks they're

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Speaker 5: going to give us another twenty percent drop in earnings

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Speaker 5: year over year. They don't give us guidance at all.

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Speaker 5: For the most part, they're just absent in the guidance trends,

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Speaker 5: so that we could have a sector skew happening. Nonetheless,

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Speaker 5: that sector skew existed last quarter, and it gave us

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Speaker 5: pretty good indication that analysts were too bearish.

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Speaker 6: Maybe it's just I want to underpromise and over deliver

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Speaker 6: from my bi rated stocks. That's been known to happen,

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Speaker 6: you know, once or twice. Yeah, once or twice. I

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Speaker 6: never did it, of course, But no, no, no, of course.

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Speaker 7: Yeah.

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Speaker 6: Talk to us about the Magnificent seven and their presence

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Speaker 6: in the marketplace in terms of taking this market higher.

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Speaker 6: How important are they still and maybe from an earning's

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Speaker 6: perspective to.

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Speaker 5: Yeah, well, clearly the market moves higher faster when the

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Speaker 5: MAG seven are rising. Right when the Mag seven are leading,

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Speaker 5: as we saw for the last majority of the last

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Speaker 5: year or so, the market moves up at a faster

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Speaker 5: pace because they're the bigger stocks. They're the biggest market

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Speaker 5: cap latings they do matter. You can, however, have periods

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Speaker 5: of time in which the Magnificent seven are not leading

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Speaker 5: the market and you still have games. The third quarter

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Speaker 5: was a good example of that. The Mag seven really

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Speaker 5: sputtered a bit in the third quarter sort of. We

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Speaker 5: saw rotation move into other stocks. All other sectors started

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Speaker 5: to break out in the month of August, reaching new

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Speaker 5: highs when the Mag seven was still struggling beneath its

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Speaker 5: former peak, and stocks still rose, but the rate of

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Speaker 5: appreciation in the S and P five hundred does shift

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Speaker 5: when your smaller players are rising faster than your bigger players.

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Speaker 5: The worst case scenario is the MAG seven falls. It's

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Speaker 5: really difficult for the index to make gains when the

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Speaker 5: Mag seven is selling off because they're so big. In particular,

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Speaker 5: Tech and communications as whole sectors are gigantic. They're forty

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Speaker 5: percent of the market cap of the index. So when

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Speaker 5: those stocks are struggling it's very difficult for the rest

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Speaker 5: of the S and P to recover, particularly at this

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Speaker 5: stage of the cycle when you still have commodity prices

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Speaker 5: and commodity length sectors as operating as a drag on

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Speaker 5: index and a drag on index earnings. You do need

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Speaker 5: some stability in the rest of the index to overcome

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Speaker 5: that earnings drag and that price drag. But they are

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Speaker 5: still important. It's a matter of degree of importance, and

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Speaker 5: you know, they're very important to the rate of appreciation

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Speaker 5: in the market. They're very important to the overall trend

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Speaker 5: in the market, and increasingly important also as a driver

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Speaker 5: of earnings growth on the S and P five hundred.

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Speaker 3: Right, because of the hyperscaler situation, Like the more capex

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Speaker 3: they spend, the more it trickles down into other sectors

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Speaker 3: and other companies as well. What kind of capac spend

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Speaker 3: from the hyperscaler is you think we're going to see

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Speaker 3: for next year, and has that compare, say to this year,

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Speaker 3: and is that like a disappointment, like what is good

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Speaker 3: and bad? I'm using air quotes.

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Speaker 5: Yeah, I don't have any specific numbers on the hyperscalers.

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Speaker 5: In particular, I would lean on our analysts in order

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Speaker 5: to sort of derive those type of nuanced expectations or

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Speaker 5: micro expectations. In terms of macro, what we're seeing is

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Speaker 5: companies have realigned their capital spending in line with their sales,

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Speaker 5: So capex ratios capex to sales ratios across the s

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Speaker 5: and P five hundred are very close to normalized. Now

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Speaker 5: we're looking at still double digit capital spending growth, but

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Speaker 5: that's down from extreme rapid capital spending growth coming out

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Speaker 5: of the recession that we had in twenty twenty two.

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Speaker 5: The vast majority of that improvement has come from tech

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Speaker 5: and communication stocks, but you're seeing across the board more

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Speaker 5: normalized capital spending, with the exception again of energy, where

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Speaker 5: this is just a big drag on the index. The

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Speaker 5: commodity sensitive segments of the index are still experiencing low

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Speaker 5: capex relative to sales. I do think that tech is

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Speaker 5: a big portion of the overall optimism with respect to capex,

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Speaker 5: but it's not the only thing happening. Healthcare is another

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Speaker 5: area where we should see improvement in capital spending. Financials

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Speaker 5: have been somewhat reticent to improve their capital spending pace,

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Speaker 5: as we've been quite cautious or many financials managers have

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Speaker 5: been quite cautious with respect to the outlook. That group

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Speaker 5: is starting to talk about spending on AI, for example,

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Speaker 5: so that's something to watch going into twenty twenty five.

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Speaker 5: The long story short is CAPEX will still likely contribute

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Speaker 5: to growth and likely contribute to overall optimist The only

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Speaker 5: area where we may be spending a little too much

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Speaker 5: is in tech and communications is among these companies where

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Speaker 5: they've ramped up spending so fast, sales now need to

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Speaker 5: spend a little bit of time catching up to accommodate

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Speaker 5: that spending pace.

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Speaker 6: So what sectors are screening well for you guys these days, Gina.

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Speaker 5: Sure, it's a combination, a strange combination of cyclicals and

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Speaker 5: defensive sectors. We actually still have both tech and communications

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Speaker 5: the giants in the middle of our sectors scorecard. That

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Speaker 5: happened for the first time in several quarters back in June.

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Speaker 5: They dropped out of the leadership position on our sector

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Speaker 5: rotation model and have been kind of sitting in the

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Speaker 5: middle instead. It's more segments like healthcare, which was a

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Speaker 5: big laggard last year, still a growth industry, but a

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Speaker 5: little bit of defensive quality. Real estate is toward the

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Speaker 5: top of our sector's scorecard. Even some of the consumer

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Speaker 5: stocks and the consumer staples group with screen as relatively

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Speaker 5: well positioned given the dynamics of sectors right now, and

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Speaker 5: interest rates seem to be driving a lot of choices

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Speaker 5: because financials and utilities are toward the top of the

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Speaker 5: scorecard as well, So fat that the Fed is reversing policy,

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Speaker 5: creating a potential improvement and lending conditions. Also, that rally

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Speaker 5: in the long end of the curve, reducing pressure on

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Speaker 5: some of the high borrowers in the index does seem

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Speaker 5: to be characterizing the sector scorecard to some degree. At

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Speaker 5: the same time, recovery and laggarts, So recovery and earnings

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Speaker 5: laggards such as healthcare, real estate is starting to show.

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Speaker 3: Up, all right, you know, super appreciate it. It was a

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Speaker 3: really great piece. I love digging into all your research,

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Speaker 3: you know, Martin Adams, she heads up our equity strategist

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Speaker 3: coverage for Bloomberg Intelligence. Only the best for you guys

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Speaker 3: here at Bloomberg Intelligence.

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Speaker 1: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.

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Speaker 6: Crazy story out there Southwest Airlines one of my favorite

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Speaker 6: stock symbols love LUV for love Field. Out there in

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Speaker 6: the Dallas area, they have Elliott Management Investment Management calling

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Speaker 6: for a special shareholder meeting, which is kicking off their

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Speaker 6: firm's first US proxy fight since twenty seventeen. Let's get

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Speaker 6: the latest reporting all that, Crystal see Bloomberg US Deals Reporter.

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Speaker 6: So Elliott Management, Southwest, Southwest Airlines, what's the history there?

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Speaker 8: Yeah, So Elliott actually unveild does Steak in June saying

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Speaker 8: that they have a significant position in Southwest and at

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Speaker 8: this point they have eleven percent steak in Southwest, which

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Speaker 8: is very very sizable in percentage and in a dollar

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Speaker 8: amount it works about two billion dollars. What we know

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Speaker 8: here is that Elliott's calling a special share owder meeting,

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Speaker 8: which is an out of cycle investment meeting, and they're

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Speaker 8: trying to elect eight members into the board.

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Speaker 3: Does love aka that's Luv is the ticket for Southwest?

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Speaker 4: Does Southwest have a leg to stand on?

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Speaker 8: So Southwest actually just put out a statement. They're saying

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Speaker 8: that they have made every effort to reach a constructive

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Speaker 8: resolution with Elliott. We all know that proxy fights are

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Speaker 8: very expensive, They're very time consuming. So I think what

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Speaker 8: Southwest here is saying that they've heard investors' feedback that

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Speaker 8: nobody wants to fight. And it's actually something that's very

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Speaker 8: common in the activism world that the investor would tell

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Speaker 8: you they don't want to fight, company tell you they

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Speaker 8: don't want to fight. Activists doesn't want to fight either,

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Speaker 8: but somehow they can't come to resolution, and here we are.

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Speaker 8: So the contention, the tension here is really that Southwest

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Speaker 8: has said that they are backing the management at backing

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Speaker 8: the CEO, Bob Jordan, and they will already they have

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Speaker 8: already done enough board refreshment, whereas Elliott thinks they need

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Speaker 8: a control in the board to bank further changes.

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Speaker 6: Well, as you point out, I mean you're reporting here

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Speaker 6: Elliott's they do this a lot in terms of activism,

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Speaker 6: but what they don't typically do is take it to

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Speaker 6: a shareholder vote. They usually get what they want. I

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Speaker 6: guess before then, what's different here, do you think?

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Speaker 8: Yeah, so they have never done the US proxy fight

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Speaker 8: since twenty seventeen. But this is quite significant in the

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Speaker 8: activism world. They are usually very effective. The second they

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Speaker 8: show up in any stock immediately the company take them,

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Speaker 8: you know, very seriously. They try to come to a

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Speaker 8: resolution because, like I said, proxy fights lengthy and costly.

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Speaker 8: But southrest here somehow it is like evolved into this

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Speaker 8: and that at many points, like people thought they could

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Speaker 8: have resolved. But I guess, like, yeah, there's some differences here.

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Speaker 3: What does Elliott want Southwest to do that Southwest is

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Speaker 3: not doing because you'd think at this point it'd be

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Speaker 3: like all options, all hands on Southwest deck here.

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Speaker 8: Yes, So Elliott has asked for three main things, which

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Speaker 8: is leadership change, management change, board change, as well as

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Speaker 8: operational improvement. And they've they've kind of pinned this on

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Speaker 8: the CEO, Bob Jordan this whole time, saying that he's

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Speaker 8: not the right person to execute whatever strategy that the

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Speaker 8: company has put out. The company has said they would

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Speaker 8: add revenue, they would cut cost.

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Speaker 5: Uh.

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Speaker 8: They even like kind an investor day in late September,

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Speaker 8: and none of that kind of I guess like fulfilled

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Speaker 8: like Elliott Stamon, which is a majority in the boardroom.

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Speaker 8: So this is where we are, and they're calling it

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Speaker 8: requested a meeting for December tenth, which is one of

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Speaker 8: the busiest traveling season in the US in the world,

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Speaker 8: and so it's an interesting timing. And this is also

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Speaker 8: one thing that Southwest is pointing at is like it's

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Speaker 8: they call this a selfish request in their statements, saying

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Speaker 8: that it is a time where Southwest should be executing.

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Speaker 6: Southwest they in July adopted a poison pill, so they're

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Speaker 6: taking this seriously for sure.

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Speaker 8: Yeah, so a poison till is you know, as you know,

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Speaker 8: something that stopped someone from the hostel takeover. And Elliott

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Speaker 8: at that point had like close to ten percent, and

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Speaker 8: ten percent is a threshold to call a special meeting,

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Speaker 8: and the poison pillars for twelve and a half percent,

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Speaker 8: so it stops Elliott from getting more shares than that,

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Speaker 8: and once they do, acquiring more show would become really costly.

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Speaker 8: So it's also a kind of rare occurrence these days.

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Speaker 8: Not a lot of the company put in poison pills.

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Speaker 8: But again, Southwest is life full of surprises.

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Speaker 3: Yeah, tell me about it just before you go. How

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Speaker 3: when these things unfold, is like Elliott Managements what they

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Speaker 3: want now like here's the best bid, but like I'll

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Speaker 3: take a little bit less, or do they really want

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Speaker 3: to replace all these board seats, et cetera, et cetera.

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Speaker 8: So from our reporting, actually both sides have like spent

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Speaker 8: a lot of time trying to figure out like how

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Speaker 8: to not go to a fight, like whether we can

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Speaker 8: do like Elliott had asked for majority seats. So at

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Speaker 8: one point they nominated ten directors, and then Southwest Change

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Speaker 8: came back and said, well, six of our directors left,

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Speaker 8: were three seats open, which you pick three instead? You know,

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Speaker 8: it's always a constant negotiation, is it? Three is a ten?

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Speaker 8: And I'm sure everything has been discussed. Everything you know

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Speaker 8: on the table has been has been talked about, and

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Speaker 8: but this is this is this is it? Like this

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Speaker 8: will be up to shareholders to vote on who actually

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Speaker 8: gets the majority in the boardroom.

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Speaker 3: All right, Crystal, thanks a lot, really appreciate it. Crystal

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Speaker 3: see joining us Bloomberg US Deals reporter.

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Speaker 4: That's kind of fuss fun something to talk about.

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Speaker 6: I know, I like it.

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

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Speaker 1: weekdays at ten am Eastern on Affo card Playing and

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Speaker 3: Ale steal here alongside John Tuger and pauls we need.

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Speaker 3: This is Bloomberg Intelligence Radio. We are broadcasting to live

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Speaker 3: from Interactive Broker Studio right here in midtown Manhattan. Those

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Speaker 3: bond guys are still sleeping, but we're here and we're

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Speaker 3: definitely working.

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Speaker 4: Also working.

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Speaker 3: Christina Hooper, chief Global market strategist over at Invesco. She

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Speaker 3: joins us now in studio. Christina, I keep but yeah, okay,

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Speaker 3: it's forty six record highs potentially if we close at.

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Speaker 4: These levels for the SMP. Do you buy it?

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Speaker 3: As in, are we climbing a walla warry? Or is

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Speaker 3: this like a fundamentally lead driven rally and do you

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Speaker 3: buy it?

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Speaker 9: I do buy it, so for a few reasons. First

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Speaker 9: of all, we have central banks at our back. And

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Speaker 9: it's not just the FED easing. We have a number

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Speaker 9: of central banks easing. It's an environment of accommodation and

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Speaker 9: that is supportive of risk assets, including equities, and I

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Speaker 9: would argue that is the single largest driver of markets

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Speaker 9: right now. But we also have an economy that is

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Speaker 9: on pretty solid footing in the United States, and actually

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Speaker 9: elsewhere not so bad either. We're getting stimulus from China,

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Speaker 9: so I think the global picture is quite good, but

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Speaker 9: in particular in the US, I think that this is

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Speaker 9: an economy that is going to slow only modestly, and

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Speaker 9: then is going to quickly reaccelerate, probably by the end

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Speaker 9: of this year early next year.

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Speaker 6: All right, Given that background stocks versus bonds, let's start there.

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Speaker 9: So I think there's a place for both in one's portfolio.

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Speaker 9: It's important to be well diversified. I would err on

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Speaker 9: the side of an overweighting of stocks relative to bonds,

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Speaker 9: but I still see an attractive picture, especially now that

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Speaker 9: yields have backed up. As an entry point for fixed income.

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Speaker 9: This is an economy. I mean, in a normal environment,

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Speaker 9: what we would see is the FED cutting as an

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Speaker 9: economy is in bad shape. This is a very different scenario.

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Speaker 9: So we can go out on the risk spectrum when

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Speaker 9: it comes to fixed income as well.

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Speaker 3: Isn't the reacceleration though, a risk because if you get

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Speaker 3: really reacceleration of growth and inflation, that means actually the

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Speaker 3: Fed's going to have to revert and start hiking again.

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Speaker 4: Is that a scenario for you.

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Speaker 9: Well, that's certainly a risk, but I think it's an

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Speaker 9: unlikely risk right now. And I'm looking at six months

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Speaker 9: out and what I see as an attractive picture for equities,

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Speaker 9: And let's face it, if we get to an environment,

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Speaker 9: I think what's much more likely is that we have

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Speaker 9: a FED that slows down is easy, and I'm very

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Speaker 9: comfort with that because it's slowing down, it's easing for

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Speaker 9: good reasons.

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Speaker 6: So what do you think the FED will do for

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Speaker 6: the remainder on the next three four meetings?

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Speaker 2: Maybe?

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Speaker 4: So I think that for.

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Speaker 9: This year we're probably only going to get twenty five

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Speaker 9: basis points more and I'm very comfortable with that through

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Speaker 9: the end of twenty four, Okay, and then I think

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Speaker 9: we will see continued easing next year and we'll probably

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Speaker 9: get maybe one hundred, one hundred and twenty five basis

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Speaker 9: points if all goes well with this economy, which knock

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Speaker 9: on wood, will happen.

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Speaker 4: If we do Tucker, did you have something?

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Speaker 5: Oh?

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Speaker 4: Oh if I'm just talking to myself, Ohky, it's.

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Speaker 3: A distinction we need to make here over So, but

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Speaker 3: if we only get twenty five to the rest of

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Speaker 3: the year, and we have to price that out. Does

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Speaker 3: that cause turbulence in the market or do you think

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Speaker 3: then earnings will be strong enough to show guys we're good?

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Speaker 9: I think so what we So we have gotten only

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Speaker 9: a little bit of earning season thus far, but my

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Speaker 9: takeaways are that the consumer is quite strong. Yes, there

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Speaker 9: are there's weakness in lower income consumers, but the overall

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Speaker 9: picture is a positive one. Companies are in pretty good shape,

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Speaker 9: their plans to do more business travel next year. We're

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Speaker 9: seeing a lot of different areas of real strength with

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Speaker 9: a few pockets of weakness. So I think that absolutely

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Speaker 9: can be the picture and can I think encourage investors

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Speaker 9: to continue to move stocks higher this year.

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Speaker 6: So are there sectors here that you want to play here?

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Speaker 6: Because I'm I'm just looking at just at today's action.

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Speaker 6: You know, the best performance has been some of the

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Speaker 6: tried and true mag seven, the Invidios, the Metas, the

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Speaker 6: Googles of the world. Are you comfortable still making that

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Speaker 6: play or are you looking for value or in other

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Speaker 6: parts of the market.

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Speaker 9: So this is an environment that will support a big

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Speaker 9: tent under which many asset classes can exist, Although I

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Speaker 9: do think the greatest potential from here are the smaller

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Speaker 9: caps and the cyclicals because they are so closely correlated

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Speaker 9: with the economy, and if you believe there's going to

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Speaker 9: be an economic reacceleration, then and I do, I would

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Speaker 9: argue for at least a modest overweighting of the cyclicals

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Speaker 9: and the small caps.

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Speaker 3: It's interesting you say that because we had an article

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Speaker 3: out today on the Boombrag that talked about how the

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Speaker 3: russell is still ten percent below its record highs, but

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Speaker 3: the small cap six hundred, which has more exposure to

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Speaker 3: say quality, is almost near that twenty twenty one record.

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Speaker 3: So is there a distinction within that small cap space.

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Speaker 9: Well, I certainly think there is a distinction right now,

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Speaker 9: but that could change. Again.

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Speaker 4: We are just at.

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Speaker 9: The start of what could be a significant economic reacceleration,

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Speaker 9: so I won't dismiss parts of the small cap universe.

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Speaker 9: What I would say though, is that right now, as

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Speaker 9: there is still some hesitancy and apprehension, there's a fair

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Speaker 9: amount of uncertainty about a lot of different things, including

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Speaker 9: what the Fed's going to do and who's going to

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Speaker 9: win the presidential election, we're likely to see more of

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Speaker 9: a focus and a desire to be in quality.

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Speaker 6: End the Bloomberg Index browser shows me kind of how

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Speaker 6: the fixed income market is behaving, even though they're not

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Speaker 6: working today. By far, the best performance has been US

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Speaker 6: corporate high yield. Is that played out or is there

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Speaker 6: still opportunity there? And I yield.

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Speaker 9: I think there's opportunity there. It's not a surprise to me.

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Speaker 9: In fact, I go back to the last time the

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Speaker 9: FED was able to successfully tighten and avoid a recession,

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Speaker 9: so that was ninety four ninety five. They began to

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Speaker 9: cut in ninety five ninety six, and if you look

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Speaker 9: at the first six months of performance for a variety

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Speaker 9: of different asset classes, as the FED started to cut,

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Speaker 9: high yield bonds did very well in that period. And

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Speaker 9: I'm not surprised because they were cutting into a good environment,

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Speaker 9: not dissimilar to where we are today.

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Speaker 3: Do you think that the post election makeup will be

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Speaker 3: a headwind or a tailwind?

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Speaker 4: I can see a case for both.

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Speaker 3: Right, you get a headwind corporate taxes and tariffs is

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Speaker 3: uncertainty removed in some capacity. Therefore there's been capex companies

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Speaker 3: on the sidelines, not doing stuff they want to do,

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Speaker 3: and therefore they go do it.

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Speaker 4: Which one? Which camp are you in?

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Speaker 5: Here.

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Speaker 9: I think it's going to be a net positive because

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Speaker 9: we are going to see people coming off the sidelines

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Speaker 9: we saw in the Federal Reserve Beige Book, and we're

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Speaker 9: hearing it in some of the earnings calls that there

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Speaker 9: are companies and consumers that are sitting on their hands

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Speaker 9: right now, and so I think that encourages them to

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Speaker 9: come back in spend more. So I think it's a

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Speaker 9: net positive. Also, I harken back to the view that

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Speaker 9: it is the FED that is a far more important

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Speaker 9: driver earnings.

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Speaker 6: Just starting here, What do you need to see from

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Speaker 6: Corporate America this earning season.

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Speaker 9: Well, I think they're going to beat expectations. That's what

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Speaker 9: we need to see, and I think it's going to

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Speaker 9: be very easy to do that. Expectations have been managed well,

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Speaker 9: have been essentially downwardly revised, and so it's going to

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Speaker 9: be able to They're going to be able to beat

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Speaker 9: expectations by a significant amount, and I think that's.

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Speaker 4: Really all we need to see.

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Speaker 9: Also, I think it's important the guidance that we get

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Speaker 9: for the future, and I think we will get relatively

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Speaker 9: positive guidance.

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Speaker 3: Can we briden out for sec where else outside the

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Speaker 3: US is a good opportunity.

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Speaker 9: Well, I'm excited about UK equities.

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Speaker 4: What said?

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Speaker 3: No one literally ever that that's not true? One or

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Speaker 3: two people maybe in my time.

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Speaker 4: How come? Well, valuations are very attractive, as they have

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Speaker 4: been forever.

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Speaker 9: Okay, But the catalyst is that we are now in

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Speaker 9: an easing cycle and that certainly will be a helpful driver.

439
00:22:34,840 --> 00:22:38,640
Speaker 9: It's also an economy that's actually in relatively good shape now.

440
00:22:38,880 --> 00:22:41,800
Speaker 9: Consumer sentiment has turned negative recently, and I think what

441
00:22:41,840 --> 00:22:44,520
Speaker 9: we're seeing is a sitting on of hands, not dis

442
00:22:44,560 --> 00:22:48,040
Speaker 9: similar to the US right now because everyone's waiting and

443
00:22:48,119 --> 00:22:51,880
Speaker 9: worrying about the autumn budget. But once that has been released,

444
00:22:51,920 --> 00:22:54,400
Speaker 9: I think we can move on from there, and that

445
00:22:54,440 --> 00:22:57,159
Speaker 9: could very well be a catalyst in and of itself.

446
00:22:57,119 --> 00:22:59,960
Speaker 6: Which aid Keir Starmer on saying that the UK is

447
00:23:00,119 --> 00:23:00,960
Speaker 6: open for business.

448
00:23:01,359 --> 00:23:01,960
Speaker 4: I bet he did.

449
00:23:02,040 --> 00:23:05,760
Speaker 6: Yeah, yeah, all right, So AI. It seems like the

450
00:23:05,840 --> 00:23:09,399
Speaker 6: AI hype in the market has kind of faded a

451
00:23:09,440 --> 00:23:11,520
Speaker 6: little bit now. People are starting to think about I

452
00:23:11,560 --> 00:23:14,560
Speaker 6: don't know, mundane things about getting returns on investment and

453
00:23:14,680 --> 00:23:18,080
Speaker 6: use cases and so on and so forth. How do

454
00:23:18,160 --> 00:23:20,280
Speaker 6: you guys that invest go, how do your tech people

455
00:23:20,280 --> 00:23:22,560
Speaker 6: what do they tell you about AI and what you

456
00:23:22,560 --> 00:23:24,560
Speaker 6: should be paying for it and how you should be

457
00:23:24,760 --> 00:23:25,920
Speaker 6: getting exposure to it.

458
00:23:26,760 --> 00:23:30,679
Speaker 9: Well, when we think about AI, it's really about how

459
00:23:30,720 --> 00:23:33,760
Speaker 9: it can help companies and how it can help the economy,

460
00:23:33,760 --> 00:23:36,720
Speaker 9: as opposed to I'm not thinking so much about myself,

461
00:23:37,480 --> 00:23:41,400
Speaker 9: and so I'm excited. I think that certainly there has

462
00:23:41,560 --> 00:23:46,440
Speaker 9: been a trend towards over investment in AI, but companies

463
00:23:46,520 --> 00:23:50,000
Speaker 9: are making a rational decision and saying that it makes

464
00:23:50,040 --> 00:23:54,639
Speaker 9: sense that the opportunity cost of not investing that risk

465
00:23:55,119 --> 00:23:57,640
Speaker 9: is far more significant. And by the way, there are

466
00:23:57,680 --> 00:24:02,520
Speaker 9: some ancillary benefits to invest in that it structurally improves

467
00:24:02,600 --> 00:24:08,600
Speaker 9: their technology in general, and they're better poised for the future.

468
00:24:08,600 --> 00:24:12,960
Speaker 9: As a result, we're already seeing that companies are getting

469
00:24:13,200 --> 00:24:17,639
Speaker 9: benefits from their AI investment. On an earnings call less quarter,

470
00:24:17,680 --> 00:24:20,159
Speaker 9: I believe it was Walmart that talked about how AI

471
00:24:20,320 --> 00:24:26,040
Speaker 9: has helped with online sales, and that is not an anomaly.

472
00:24:26,280 --> 00:24:28,720
Speaker 9: A number of companies are seeing that, and that's just

473
00:24:28,760 --> 00:24:30,760
Speaker 9: the low hanging fruit. I think we're going to see

474
00:24:31,000 --> 00:24:33,240
Speaker 9: AI pay dividends for years to come.

475
00:24:33,600 --> 00:24:35,280
Speaker 3: So pause into AI and I want to talk about

476
00:24:35,359 --> 00:24:38,320
Speaker 3: China Xus there. So just quickly, we have about a

477
00:24:38,320 --> 00:24:41,080
Speaker 3: minute left. If you're talking about a global using cycle

478
00:24:41,119 --> 00:24:44,160
Speaker 3: in essence exception of Japan, does China fit that bill

479
00:24:44,200 --> 00:24:44,439
Speaker 3: for you?

480
00:24:45,320 --> 00:24:50,840
Speaker 9: Absolutely? It is a very stimulative environment right now in China,

481
00:24:51,119 --> 00:24:54,400
Speaker 9: and it's not just monetary policy. We're getting fiscal stimulus

482
00:24:54,480 --> 00:24:56,680
Speaker 9: as well, and I think that is very compelling.

483
00:24:57,359 --> 00:24:59,520
Speaker 6: A lot of China folks felt like it wasn't enough,

484
00:25:00,240 --> 00:25:02,399
Speaker 6: and I guess some people are saying, yeah, maybe it's

485
00:25:02,440 --> 00:25:04,160
Speaker 6: not enough, but there's more to come, so don't worry

486
00:25:04,160 --> 00:25:06,760
Speaker 6: about it. I mean, I don't follow that closely to you,

487
00:25:06,880 --> 00:25:07,840
Speaker 6: is it?

488
00:25:08,040 --> 00:25:08,119
Speaker 7: So?

489
00:25:08,320 --> 00:25:11,679
Speaker 9: I think I think it's more about we don't have

490
00:25:11,880 --> 00:25:15,440
Speaker 9: enough details yet, Although I'm excited. There are slow rolling

491
00:25:15,440 --> 00:25:18,520
Speaker 9: out details, but everything we've heard thus far suggests these

492
00:25:18,520 --> 00:25:22,240
Speaker 9: are going to be more structural reforms aimed at supporting

493
00:25:22,280 --> 00:25:25,399
Speaker 9: the economy over the medium and longer term. So we

494
00:25:25,520 --> 00:25:30,320
Speaker 9: might not get that immediate payoff, but as details continue

495
00:25:30,400 --> 00:25:33,520
Speaker 9: to emerge, I think the picture will get more and

496
00:25:33,560 --> 00:25:34,200
Speaker 9: more positive.

497
00:25:34,280 --> 00:25:36,600
Speaker 3: Right It's not like cutting checks right now to help

498
00:25:36,600 --> 00:25:39,280
Speaker 3: stimulates a little bit more nuanced. Christina, it's so good

499
00:25:39,320 --> 00:25:40,560
Speaker 3: to see you, so thanks so much for.

500
00:25:40,520 --> 00:25:41,560
Speaker 4: Coming, and we really appreciate it.

501
00:25:41,640 --> 00:25:45,960
Speaker 3: Christina Hooper a chief global market strategist over at Invesco.

502
00:25:47,200 --> 00:25:51,119
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

503
00:25:51,200 --> 00:25:54,040
Speaker 1: weekdays at ten am Eastern on applecar.

504
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505
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506
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Speaker 1: flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.

507
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Speaker 6: Alex Deal Paul Sweeney. We're live here in our Bloomberg

508
00:26:07,600 --> 00:26:11,479
Speaker 6: Interactive Broker's studio. We're streaming live on YouTube. That is

509
00:26:11,520 --> 00:26:13,840
Speaker 6: the Internet. I've been told go to YouTube dot com,

510
00:26:13,840 --> 00:26:16,720
Speaker 6: Seart's Bloomberg Live Radio, and that's where you will find us.

511
00:26:17,280 --> 00:26:19,520
Speaker 6: I covered the media industry for a long time, and boy,

512
00:26:19,560 --> 00:26:22,320
Speaker 6: when I was covering it, everybody was making money. But man,

513
00:26:22,400 --> 00:26:25,360
Speaker 6: the last seven eight nine years, it's been a really

514
00:26:25,440 --> 00:26:30,320
Speaker 6: tough place for investors to find consistent shareholder returns. And

515
00:26:30,359 --> 00:26:32,920
Speaker 6: the big challenge for global media has been the single

516
00:26:33,000 --> 00:26:34,600
Speaker 6: court cutting. I mean, it used to be such a

517
00:26:34,640 --> 00:26:37,720
Speaker 6: great model and one hundred million American homes, we're paying,

518
00:26:37,760 --> 00:26:39,800
Speaker 6: you know, one hundred bucks a month for all kinds

519
00:26:39,800 --> 00:26:41,520
Speaker 6: of five hundred channels and all that kind of stuff.

520
00:26:41,560 --> 00:26:45,240
Speaker 6: But since a cord cutting has really escalated or accelerator

521
00:26:45,280 --> 00:26:46,960
Speaker 6: over the last several years. Has been really a tough

522
00:26:47,000 --> 00:26:49,719
Speaker 6: business model, and the companies you're trying to adapt, investors

523
00:26:49,760 --> 00:26:51,359
Speaker 6: are trying to adapt. And I'll tell you the person

524
00:26:51,920 --> 00:26:54,640
Speaker 6: the analyst who called this out first in my opinion

525
00:26:54,760 --> 00:26:57,919
Speaker 6: and the loudest highlighting it as a risk for global

526
00:26:57,960 --> 00:26:59,760
Speaker 6: media was Rich Greenfield. He's a partner and co founder

527
00:26:59,760 --> 00:27:03,720
Speaker 6: of Shed Partners. He joins us here. Rich, again, from

528
00:27:03,720 --> 00:27:06,840
Speaker 6: my perspective, you were absolutely one of the first, if

529
00:27:06,880 --> 00:27:09,960
Speaker 6: not the first, to really highlight this cord cutting risk

530
00:27:10,119 --> 00:27:13,959
Speaker 6: for global media. Can you step back and help us

531
00:27:13,960 --> 00:27:17,080
Speaker 6: think about where we are today and where we go

532
00:27:17,119 --> 00:27:19,560
Speaker 6: because I'm just not sure when an if to invest

533
00:27:19,600 --> 00:27:20,720
Speaker 6: in a media company anymore.

534
00:27:22,280 --> 00:27:26,080
Speaker 10: Well, look, I think it's really hard. There's no doubt

535
00:27:26,119 --> 00:27:31,560
Speaker 10: that chord cutting has accelerated. And because chord cutting has accelerated,

536
00:27:32,480 --> 00:27:37,600
Speaker 10: all of the legacy traditional media companies have all jumped

537
00:27:37,600 --> 00:27:41,320
Speaker 10: headfirst into streaming. But as they've done that, they've actually,

538
00:27:41,400 --> 00:27:45,439
Speaker 10: you know, to make the streaming services compelling. They've pushed

539
00:27:45,480 --> 00:27:48,760
Speaker 10: all of their great content to their streaming services. So

540
00:27:48,800 --> 00:27:52,920
Speaker 10: you don't, you know, outside of live sports, there isn't

541
00:27:52,960 --> 00:27:56,399
Speaker 10: a whole heck of a lot that's really compelling. Sure,

542
00:27:56,480 --> 00:27:59,359
Speaker 10: you've got news or if you care about MSNBC or

543
00:27:59,400 --> 00:28:02,600
Speaker 10: Fox News, although even CNN you can now get as

544
00:28:02,640 --> 00:28:06,280
Speaker 10: part of Max. And so the number of things that

545
00:28:06,320 --> 00:28:12,080
Speaker 10: you need the traditional bundle for has really shrunk pretty dramatically.

546
00:28:12,760 --> 00:28:15,199
Speaker 10: And I think, you know, as you get more and

547
00:28:15,280 --> 00:28:19,560
Speaker 10: more streaming services with great content and all the original

548
00:28:19,640 --> 00:28:23,120
Speaker 10: content that you can't find on linear, it's pushing more

549
00:28:23,119 --> 00:28:26,439
Speaker 10: and more people to cut the chord. Or even if

550
00:28:26,480 --> 00:28:28,320
Speaker 10: they don't cut the cord, you know, maybe they're a

551
00:28:28,359 --> 00:28:30,560
Speaker 10: subscriber for part of the year, but you know, nobody

552
00:28:30,600 --> 00:28:34,199
Speaker 10: signed up for Comcast or Charter Spectrum. Nobody used to

553
00:28:34,200 --> 00:28:37,240
Speaker 10: sign up for three or four months. Now you can,

554
00:28:37,400 --> 00:28:40,280
Speaker 10: like signing up for YouTube TV for a few months

555
00:28:40,480 --> 00:28:42,760
Speaker 10: is easy. You know, you can watch for football season

556
00:28:42,840 --> 00:28:46,080
Speaker 10: or if you love postseason baseball, go sign up, then

557
00:28:46,120 --> 00:28:48,920
Speaker 10: you can cancel. I mean, it's just so easy to

558
00:28:49,040 --> 00:28:50,040
Speaker 10: come in and out.

559
00:28:51,200 --> 00:28:53,600
Speaker 4: Yeah, it's those dynamics.

560
00:28:53,080 --> 00:28:56,320
Speaker 10: Are so different from the way it was where nobody

561
00:28:56,360 --> 00:28:58,560
Speaker 10: called up Comcasts to have them rip the equipment out

562
00:28:58,600 --> 00:28:59,520
Speaker 10: halfway through the year.

563
00:29:00,720 --> 00:29:03,360
Speaker 3: So to that point, I feel like saying this is

564
00:29:03,360 --> 00:29:04,680
Speaker 3: going to get me in trouble somewhere?

565
00:29:05,160 --> 00:29:07,000
Speaker 4: Why is linear TV still a thing?

566
00:29:09,080 --> 00:29:12,160
Speaker 10: Linear TV is? I mean, I honestly think the only

567
00:29:12,280 --> 00:29:17,560
Speaker 10: reason there are sixty seven sixty eight million homes paying

568
00:29:18,040 --> 00:29:21,040
Speaker 10: you know, upwards of between seventy five and one hundred

569
00:29:21,080 --> 00:29:24,720
Speaker 10: and twenty probably five dollars a month is live sports.

570
00:29:24,960 --> 00:29:28,240
Speaker 10: I mean, sure, there's definitely some there's definitely an older

571
00:29:28,280 --> 00:29:31,080
Speaker 10: demographic that has been doing it and you know, will

572
00:29:31,080 --> 00:29:33,840
Speaker 10: never churn. But I think the reason why you have

573
00:29:34,520 --> 00:29:39,719
Speaker 10: millions subscribing to YouTube TV and Hulu Live and continuing

574
00:29:39,720 --> 00:29:42,520
Speaker 10: to take Comcast is for live sports. I mean, if

575
00:29:42,560 --> 00:29:47,360
Speaker 10: you want to watch all football games, college pro, you

576
00:29:47,520 --> 00:29:52,040
Speaker 10: need a subscription to cable, satellite or one of these

577
00:29:52,160 --> 00:29:55,160
Speaker 10: over the top like you know, YouTube TV bundles. There's

578
00:29:55,200 --> 00:29:57,640
Speaker 10: no getting away from it. You still can't sure can

579
00:29:57,680 --> 00:30:00,960
Speaker 10: you replicate a bunch of it in streaming? Yes, you

580
00:30:00,960 --> 00:30:03,680
Speaker 10: know next year you'll be able to get even ESPN

581
00:30:03,840 --> 00:30:07,080
Speaker 10: direct to consumer in September twenty twenty five, when you know,

582
00:30:07,120 --> 00:30:09,800
Speaker 10: Iiger finally pulls a trigger on that. But if you

583
00:30:09,800 --> 00:30:12,719
Speaker 10: want to watch Fox Sports, you know, Fox football games

584
00:30:13,000 --> 00:30:15,960
Speaker 10: yesterday afternoon, there's only one way to do it, which

585
00:30:16,000 --> 00:30:17,000
Speaker 10: is sign up for a bundle.

586
00:30:17,880 --> 00:30:21,239
Speaker 6: All right, Rich, So if I'm the management team, if

587
00:30:21,280 --> 00:30:23,680
Speaker 6: I am the board level at some of these linear

588
00:30:23,720 --> 00:30:27,720
Speaker 6: media companies, what do I do. Is there ever a

589
00:30:27,760 --> 00:30:30,360
Speaker 6: world when I can generate the profitability and the returns

590
00:30:30,400 --> 00:30:32,720
Speaker 6: that I did six seven years ago? Or is that

591
00:30:32,760 --> 00:30:33,959
Speaker 6: model just gone?

592
00:30:35,960 --> 00:30:36,160
Speaker 7: Look?

593
00:30:36,200 --> 00:30:38,720
Speaker 10: I think if any of these companies was able to

594
00:30:38,760 --> 00:30:41,720
Speaker 10: get up into the top echelon, you know, to be

595
00:30:41,840 --> 00:30:45,880
Speaker 10: a dominant player in streaming, that's certainly possible. Paul, I mean,

596
00:30:45,920 --> 00:30:48,960
Speaker 10: I don't I wouldn't say. I think saying never is

597
00:30:49,080 --> 00:30:52,719
Speaker 10: sort of difficult. But right now, I'd say, all of

598
00:30:52,760 --> 00:30:56,040
Speaker 10: these traditional media companies, the one thing they're struggling with

599
00:30:56,200 --> 00:31:00,240
Speaker 10: is they don't they're really optimizing for the wrong thing there,

600
00:31:00,280 --> 00:31:03,280
Speaker 10: like they've been focused on. Initially, they were just focused

601
00:31:03,320 --> 00:31:06,000
Speaker 10: on subscriber growth, and so they just gunned it for

602
00:31:06,040 --> 00:31:09,400
Speaker 10: subscriber growth. Profitability didn't matter. They were just you know,

603
00:31:09,480 --> 00:31:12,560
Speaker 10: losses were piling up billions. I think between all of

604
00:31:12,600 --> 00:31:14,720
Speaker 10: the major companies. I think they were losing like upwards

605
00:31:14,760 --> 00:31:17,560
Speaker 10: of twelve billion dollars if you aggregated it all together

606
00:31:17,600 --> 00:31:23,080
Speaker 10: between Disney and Warner and Peacock. So they realize that's

607
00:31:23,120 --> 00:31:26,120
Speaker 10: not sustainable. So now they've been you know, slashing the

608
00:31:26,120 --> 00:31:29,880
Speaker 10: amount of programming, slashing the marketing, raising the price. And

609
00:31:30,080 --> 00:31:33,040
Speaker 10: the thing that they're all missing is they're not gunning

610
00:31:33,080 --> 00:31:37,120
Speaker 10: for time spent like Netflix never wants you leaving, Amazon

611
00:31:37,480 --> 00:31:38,640
Speaker 10: never wants you leaving.

612
00:31:39,280 --> 00:31:39,760
Speaker 1: I think the.

613
00:31:40,440 --> 00:31:42,800
Speaker 10: Challenge for all of these companies is they're stuck in

614
00:31:42,840 --> 00:31:46,000
Speaker 10: this weird middle of like they don't have enough scale,

615
00:31:47,080 --> 00:31:50,280
Speaker 10: they don't really have the balance sheets to invest aggressively

616
00:31:50,320 --> 00:31:52,320
Speaker 10: because they're dealing with you know, just as you were

617
00:31:52,320 --> 00:31:54,920
Speaker 10: talking about at the beginning of this interview, the pressure

618
00:31:55,120 --> 00:31:57,120
Speaker 10: from cord cutting on the linear business. We didn't even

619
00:31:57,120 --> 00:31:59,800
Speaker 10: talk about advertising, which is under pressure. So your core

620
00:31:59,800 --> 00:32:02,800
Speaker 10: business is under pressure. It's very hard when your core

621
00:32:02,840 --> 00:32:06,480
Speaker 10: business is under pressure to deploy even more capital to

622
00:32:06,600 --> 00:32:09,440
Speaker 10: really gun it in the new business. And so you're

623
00:32:09,440 --> 00:32:11,160
Speaker 10: stuck in this sort of what I would call this

624
00:32:11,240 --> 00:32:14,720
Speaker 10: sort of ugly middle where you don't have enough scale,

625
00:32:15,120 --> 00:32:17,880
Speaker 10: you haven't hit scale, and you don't really have a

626
00:32:17,960 --> 00:32:22,560
Speaker 10: clear path. You're sort of hoping for consolidation, whether that's

627
00:32:22,560 --> 00:32:27,800
Speaker 10: streamer consolidation or whole company consolidation. But it is certainly

628
00:32:27,840 --> 00:32:30,160
Speaker 10: a very difficult place to be, and I think if

629
00:32:30,160 --> 00:32:32,320
Speaker 10: you look at this stock, all of these stocks as

630
00:32:32,360 --> 00:32:35,640
Speaker 10: a group, it hasn't been pretty. I don't care whether

631
00:32:35,640 --> 00:32:39,480
Speaker 10: it's Warner Brothers, Discovery or Disney, even Comcasts, like this

632
00:32:39,600 --> 00:32:43,440
Speaker 10: whole space has not been a great place to make money.

633
00:32:43,480 --> 00:32:46,800
Speaker 10: And I don't think in the next twelve months do

634
00:32:46,880 --> 00:32:49,880
Speaker 10: I see any green shoots or some major change it's

635
00:32:49,880 --> 00:32:51,840
Speaker 10: going to make you say, oh my god, this space

636
00:32:51,920 --> 00:32:53,440
Speaker 10: is on fire. Answer is no.

637
00:32:54,160 --> 00:32:55,960
Speaker 6: Hey, rich, before I let you go, Tom Keen wanted

638
00:32:56,000 --> 00:32:58,840
Speaker 6: me to ask you here, Warner Brothers Discovery, can you

639
00:32:58,840 --> 00:33:00,280
Speaker 6: give me thirty seconds on that name.

640
00:33:02,880 --> 00:33:07,360
Speaker 10: Look, it's David Zaslov has to prove to Wall Street.

641
00:33:07,640 --> 00:33:12,000
Speaker 10: This is purely a David Zaslov execution story. They didn't

642
00:33:12,000 --> 00:33:15,240
Speaker 10: renew the NBA. Yes, they're suing. I think there's highly

643
00:33:15,400 --> 00:33:19,160
Speaker 10: unlikely to win that suit. But the key question for

644
00:33:19,280 --> 00:33:24,200
Speaker 10: the future of WBT Warner Brothers Discovery is was dropping

645
00:33:24,240 --> 00:33:27,360
Speaker 10: the NBA or not renewing the NBA? Is that existential?

646
00:33:27,400 --> 00:33:30,000
Speaker 10: Because if they can get their deals done with Comcast

647
00:33:30,080 --> 00:33:33,600
Speaker 10: and other distributors over the coming year, then getting rid

648
00:33:33,680 --> 00:33:36,000
Speaker 10: of you know what would have been two plus billion

649
00:33:36,040 --> 00:33:38,360
Speaker 10: dollars of cost is a home run.

650
00:33:38,400 --> 00:33:38,880
Speaker 1: For the stop.

651
00:33:39,560 --> 00:33:42,719
Speaker 10: Investors don't believe it. Investors believe that this is a

652
00:33:42,760 --> 00:33:46,400
Speaker 10: catastrophic loss that they're going to get, maybe not dropped

653
00:33:46,680 --> 00:33:50,479
Speaker 10: by Comcast, but a severe reduction in fees. And so

654
00:33:50,880 --> 00:33:55,080
Speaker 10: this is purely can David Zaslov prove two investors that

655
00:33:55,120 --> 00:33:58,640
Speaker 10: they are strong enough to withstand the loss of the NBA.

656
00:33:58,760 --> 00:34:00,760
Speaker 10: You're going to find out over the next six months.

657
00:34:00,920 --> 00:34:02,760
Speaker 6: All Right, Rich, always great to talk with You really

658
00:34:02,800 --> 00:34:04,800
Speaker 6: appreciate you taking a few minutes of your time. Rich Greenfield.

659
00:34:04,840 --> 00:34:07,680
Speaker 6: He's a partner and co founder of Lightshed Partners.

660
00:34:09,120 --> 00:34:13,040
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

661
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Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto

662
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Speaker 1: with the Bloomberg Business app. You can also listen live

663
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Speaker 1: on Amazon Alexa from our flagship New York station, Just

664
00:34:23,160 --> 00:34:27,960
Speaker 1: say Alexa, Play Bloomberg eleven thirty.

665
00:34:27,120 --> 00:34:28,360
Speaker 4: Alex Steel, Paul Sweeney.

666
00:34:28,600 --> 00:34:32,879
Speaker 3: This is Bloomberg Intelligence Radio. Every day Bloomberg puts out

667
00:34:32,920 --> 00:34:33,359
Speaker 3: a big take.

668
00:34:33,400 --> 00:34:34,120
Speaker 4: It's great stuff.

669
00:34:34,160 --> 00:34:36,080
Speaker 3: You can get it on podcasts, you can get it

670
00:34:36,400 --> 00:34:38,440
Speaker 3: in print, you can get it on Bloomberg dot com

671
00:34:38,480 --> 00:34:41,560
Speaker 3: and on the terminal. And today's big Take story is

672
00:34:42,200 --> 00:34:45,640
Speaker 3: cat bonds will help Florida but failed Jamaica. So that

673
00:34:45,760 --> 00:34:48,800
Speaker 3: story is part of Bloomberg Green's investigation into how climate

674
00:34:48,880 --> 00:34:52,880
Speaker 3: change is making parts of the planet uninsurable, leaving millions

675
00:34:52,880 --> 00:34:55,560
Speaker 3: of people without a safety net. And the point is

676
00:34:55,600 --> 00:34:59,000
Speaker 3: that governments and companies aren't prepared. And this is part three,

677
00:34:59,080 --> 00:35:02,520
Speaker 3: So we want to turn to Bloomberg ESG editor Gautam

678
00:35:02,719 --> 00:35:05,920
Speaker 3: Nick who joins us now walk us through this this

679
00:35:06,080 --> 00:35:08,840
Speaker 3: part three of this series that you guys have been doing.

680
00:35:10,160 --> 00:35:13,080
Speaker 7: Sure good to be on the show. So essentially, this

681
00:35:13,880 --> 00:35:16,520
Speaker 7: particular story I've done with a couple of colleagues looks

682
00:35:16,560 --> 00:35:21,200
Speaker 7: at catastrophe bonds. These are a bet on the probability

683
00:35:21,280 --> 00:35:26,839
Speaker 7: of huge natural disasters like earthquakes, wildfires, floods, are hurricanes,

684
00:35:26,920 --> 00:35:30,279
Speaker 7: And obviously the incidents of some of these events have

685
00:35:30,440 --> 00:35:36,240
Speaker 7: gotten higher and the severity of some climate related events

686
00:35:36,280 --> 00:35:41,240
Speaker 7: like hurricanes and floods have become more intense. So these

687
00:35:41,480 --> 00:35:47,040
Speaker 7: catastrophe bonds are a way for insurance and reinsurance companies

688
00:35:47,080 --> 00:35:51,560
Speaker 7: to pass on the risk of growing disasters onto Wall Street,

689
00:35:51,600 --> 00:35:53,600
Speaker 7: onto the capital markets, and not to put it on

690
00:35:53,640 --> 00:35:55,799
Speaker 7: their own balance sheet. The way it works is that

691
00:35:55,800 --> 00:35:58,239
Speaker 7: if you're an investor in the bond, you can make

692
00:35:58,280 --> 00:36:01,720
Speaker 7: a very large return, could be fined hard to find

693
00:36:01,840 --> 00:36:05,840
Speaker 7: in you another fixed income product. However, if the particular

694
00:36:05,960 --> 00:36:09,640
Speaker 7: disaster that is defined in the bond does occur, then

695
00:36:09,760 --> 00:36:12,960
Speaker 7: you could lose some or even all of your invested capital.

696
00:36:13,120 --> 00:36:14,920
Speaker 7: So it's a gamble on a weather disaster.

697
00:36:16,440 --> 00:36:17,040
Speaker 6: Very simply.

698
00:36:17,040 --> 00:36:19,120
Speaker 1: Did these work?

699
00:36:19,520 --> 00:36:22,360
Speaker 7: Yes, they absolutely do work. So just to give you

700
00:36:22,400 --> 00:36:26,880
Speaker 7: the broader context, about seventy percent of all catastrophe bonds

701
00:36:26,880 --> 00:36:30,360
Speaker 7: are focused on the US windstorm sector use hurricanes and

702
00:36:30,400 --> 00:36:33,080
Speaker 7: other severe name storms, and a big chunk of that

703
00:36:33,200 --> 00:36:36,280
Speaker 7: relates to Florida. Obviously, this came into focus recently because

704
00:36:36,320 --> 00:36:39,560
Speaker 7: of Hurricanes Helene and Milton back to back that caused

705
00:36:39,600 --> 00:36:42,279
Speaker 7: a lot of flooding and wind damage as well. And

706
00:36:42,400 --> 00:36:46,799
Speaker 7: the way it works is that if a particular threshold

707
00:36:46,960 --> 00:36:50,600
Speaker 7: of losses is met for most of these catastrophe bonds,

708
00:36:51,000 --> 00:36:54,640
Speaker 7: then the issuing party will get a good chunk of

709
00:36:54,680 --> 00:36:58,239
Speaker 7: the money that's taken out from the money that the

710
00:36:58,280 --> 00:37:00,719
Speaker 7: capital markets, the Wall Street investors put in when they

711
00:37:00,719 --> 00:37:03,160
Speaker 7: bought the bond, and that money then goes to big

712
00:37:03,360 --> 00:37:06,520
Speaker 7: to fix people's roofs and you know, rebuilt homes.

713
00:37:07,320 --> 00:37:08,400
Speaker 4: When has it not worked?

714
00:37:08,400 --> 00:37:11,000
Speaker 3: As I mentioned the title was, they helped Florida but

715
00:37:11,040 --> 00:37:13,919
Speaker 3: failed Jamaica. So what's the scenario where they don't pay off?

716
00:37:14,760 --> 00:37:18,000
Speaker 7: Yeah, So catastrophe bonds have been around for about twenty

717
00:37:18,000 --> 00:37:20,719
Speaker 7: five to thirty years, and they've largely developed, as I said,

718
00:37:20,719 --> 00:37:23,160
Speaker 7: in the US, but also in Europe and Japan against

719
00:37:23,160 --> 00:37:27,520
Speaker 7: earthquake risk. But increasingly institutions like the World Bank, the IMF,

720
00:37:27,600 --> 00:37:31,600
Speaker 7: the OECD are trying to popularize them in the developing world. Now,

721
00:37:31,600 --> 00:37:34,080
Speaker 7: this is a part of the globe that is being

722
00:37:34,120 --> 00:37:36,759
Speaker 7: disproportionately hit by a lot of climate losses to which

723
00:37:36,760 --> 00:37:39,239
Speaker 7: they're not directly linked because you know, most of the

724
00:37:39,280 --> 00:37:42,160
Speaker 7: emissions have come from since the Industrial Revolution in the

725
00:37:42,160 --> 00:37:44,520
Speaker 7: western parts of the world, but a lot of these

726
00:37:44,520 --> 00:37:48,480
Speaker 7: weather disasters are being you know focused on the you know,

727
00:37:49,040 --> 00:37:53,280
Speaker 7: southern hemisphere. So the World Bank and other institutions are

728
00:37:53,320 --> 00:37:57,040
Speaker 7: trying to get developing countries that are facing these risks

729
00:37:57,040 --> 00:38:00,920
Speaker 7: to issue these catastrophe bonds that have been around in

730
00:38:00,920 --> 00:38:04,560
Speaker 7: the West. But there is a problem the way the

731
00:38:04,600 --> 00:38:07,200
Speaker 7: bond is structured. In the West, the ways developed seems

732
00:38:07,200 --> 00:38:11,440
Speaker 7: to work quite well, but in a developing country because

733
00:38:12,040 --> 00:38:15,960
Speaker 7: they don't have an insurance market. You can't actually calculate

734
00:38:16,000 --> 00:38:21,120
Speaker 7: the total claims on an insured basis, so they've come

735
00:38:21,200 --> 00:38:25,439
Speaker 7: up with a different way of structuring the bond. It's

736
00:38:25,480 --> 00:38:29,319
Speaker 7: called a parametric approach. Basically, for a hurricane, it would

737
00:38:29,360 --> 00:38:32,920
Speaker 7: simply be if the pressure of the hurricane hits a

738
00:38:32,960 --> 00:38:36,680
Speaker 7: certain threshold, which indicates wind speed, then the bond will

739
00:38:36,680 --> 00:38:40,160
Speaker 7: pay out. But if it misses, you get nothing. Even

740
00:38:40,160 --> 00:38:43,480
Speaker 7: if you missed by the tiniest fractions, the rules say

741
00:38:43,680 --> 00:38:46,080
Speaker 7: you will get zero, and that's sort of what happened

742
00:38:46,120 --> 00:38:46,680
Speaker 7: with Jamaica.

743
00:38:47,480 --> 00:38:50,040
Speaker 6: It would seem like if you believe in climate change,

744
00:38:50,040 --> 00:38:52,120
Speaker 6: and if you believe that weathers can become more and

745
00:38:52,160 --> 00:38:55,600
Speaker 6: more unstable, it might be really hard to price the

746
00:38:55,719 --> 00:38:57,319
Speaker 6: risk out here because it seems like the risk would

747
00:38:57,320 --> 00:39:00,640
Speaker 6: always be going up of more and more again unstable

748
00:39:00,680 --> 00:39:03,640
Speaker 6: weather and catastrophes. Here, how does the market account for that?

749
00:39:04,960 --> 00:39:08,120
Speaker 7: You've been pointed a problem. So when someone's trying to

750
00:39:08,160 --> 00:39:12,120
Speaker 7: calculate the risk of these kind of weather related catastrophe bonds,

751
00:39:12,560 --> 00:39:17,799
Speaker 7: all you have really is historical data. So for hurricanes,

752
00:39:17,840 --> 00:39:19,799
Speaker 7: you have one hundred and fifty hundred and seventy years,

753
00:39:19,800 --> 00:39:22,919
Speaker 7: a pretty robust data going back and you can make

754
00:39:22,960 --> 00:39:29,880
Speaker 7: a good estimate, but unfortunately the calculation has been muddied

755
00:39:29,920 --> 00:39:33,120
Speaker 7: now with climate change, and these forecasts are of course

756
00:39:33,200 --> 00:39:36,400
Speaker 7: forecasts is something that hasn't happened yet that will project

757
00:39:36,440 --> 00:39:38,200
Speaker 7: it to happen, but you just don't know how it

758
00:39:38,320 --> 00:39:41,960
Speaker 7: might unfold, depending on, you know, how the world reacts

759
00:39:42,000 --> 00:39:46,280
Speaker 7: to increased CO two E missions. So the whole question

760
00:39:46,440 --> 00:39:49,840
Speaker 7: is how do you incorporate the climate effect into this

761
00:39:50,040 --> 00:39:55,240
Speaker 7: historical data and provide a really reliable metric for someone

762
00:39:55,640 --> 00:40:00,000
Speaker 7: to make a financial bet on. And it's the uncertain

763
00:40:00,120 --> 00:40:03,040
Speaker 7: and of well, to some extent the models that are

764
00:40:03,120 --> 00:40:06,640
Speaker 7: used there by no means perfect, but also this extra

765
00:40:06,800 --> 00:40:09,080
Speaker 7: new element that we've seen in the last few decades

766
00:40:09,400 --> 00:40:10,560
Speaker 7: of climate change.

767
00:40:11,320 --> 00:40:13,080
Speaker 3: So you guys, as I mentioned in the beginning, this

768
00:40:13,120 --> 00:40:15,000
Speaker 3: is part three of a series that you guys have

769
00:40:15,120 --> 00:40:18,319
Speaker 3: done into how climate change is making the planet uninsurable.

770
00:40:18,640 --> 00:40:20,200
Speaker 4: What is your key takeaway here?

771
00:40:22,080 --> 00:40:25,160
Speaker 7: I think one of the main takeaways would be that

772
00:40:25,480 --> 00:40:30,560
Speaker 7: it is very hard to accurately model the risk of

773
00:40:30,600 --> 00:40:34,480
Speaker 7: climate change, and of course their attempts being made to

774
00:40:34,520 --> 00:40:39,719
Speaker 7: refine it constantly, But if you're trying to ensure a

775
00:40:39,800 --> 00:40:42,880
Speaker 7: large proportion of the world that is not insured, in

776
00:40:42,920 --> 00:40:46,040
Speaker 7: the developing world, also parts of Europe. I mean, there's

777
00:40:46,040 --> 00:40:48,440
Speaker 7: a huge insurance protection gap in Europe, and even in

778
00:40:48,480 --> 00:40:52,280
Speaker 7: the US, for example, in Florida, you know, insurance companies

779
00:40:52,280 --> 00:40:55,440
Speaker 7: are moved out. They're not providing insurance in California for

780
00:40:55,480 --> 00:40:58,319
Speaker 7: earthquake risks and wildfi they're moving out. So the main

781
00:40:58,320 --> 00:41:03,279
Speaker 7: takeaway is that it's become a more difficult problem. It's

782
00:41:03,360 --> 00:41:06,680
Speaker 7: becoming a more unensurable planet because of climate risk.

783
00:41:09,040 --> 00:41:11,600
Speaker 6: All right, gauth Tom, thank you so much. We appreciate that.

784
00:41:11,640 --> 00:41:15,040
Speaker 6: Got Tom and Nike Eesg editor for Bloomberg News, joining

785
00:41:15,080 --> 00:41:18,239
Speaker 6: us on zoom from London. You can read gaut Tom's

786
00:41:18,239 --> 00:41:21,000
Speaker 6: story and more from Bloomberg The Big Take on the

787
00:41:21,040 --> 00:41:25,359
Speaker 6: Bloomberg Terminal and at Bloomberg dot com Slash Big Take.

788
00:41:25,840 --> 00:41:28,320
Speaker 6: Some good stuff there, some great reporting, some great graphics.

789
00:41:28,360 --> 00:41:30,759
Speaker 6: I always like the graphics folks do some great jobs

790
00:41:30,760 --> 00:41:34,920
Speaker 6: to bring the stories to life there as well. Illustrations

791
00:41:34,920 --> 00:41:37,640
Speaker 6: for this story by John Prevenure for Bloomberg Green like

792
00:41:37,640 --> 00:41:40,080
Speaker 6: to call him out, So yeah, I would think, boy,

793
00:41:40,080 --> 00:41:42,279
Speaker 6: if I'm trying to structure a bond, I'm like, I

794
00:41:42,280 --> 00:41:44,040
Speaker 6: don't know how what the risk is this thing?

795
00:41:44,080 --> 00:41:46,359
Speaker 11: It just seems like it's getting worse and worse every year.

796
00:41:46,520 --> 00:41:48,880
Speaker 3: Well here's my question then too, is that say you're

797
00:41:48,920 --> 00:41:51,160
Speaker 3: able to finally figure out the correct structure, right, then

798
00:41:51,200 --> 00:41:53,680
Speaker 3: the weather changes again yep, So then how do you

799
00:41:53,760 --> 00:41:54,600
Speaker 3: manage that part?

800
00:41:54,719 --> 00:41:54,919
Speaker 5: Right?

801
00:41:55,000 --> 00:41:57,600
Speaker 3: So, just because you might have you know, huge windstorms

802
00:41:57,600 --> 00:41:59,000
Speaker 3: in one area, now, are you going to have them

803
00:41:59,000 --> 00:42:02,000
Speaker 3: in fifteen years to have solar issues or is it

804
00:42:02,040 --> 00:42:03,759
Speaker 3: going to be floods? It's something different than how do

805
00:42:03,800 --> 00:42:04,360
Speaker 3: you manage that?

806
00:42:04,480 --> 00:42:04,680
Speaker 8: Yeah?

807
00:42:04,719 --> 00:42:06,360
Speaker 6: And if I'm on an investor in these bonds, I'm like,

808
00:42:06,600 --> 00:42:08,760
Speaker 6: you better pay me a huge way.

809
00:42:08,600 --> 00:42:09,560
Speaker 4: Which they do to be fair.

810
00:42:09,640 --> 00:42:09,799
Speaker 5: Yea.

811
00:42:10,120 --> 00:42:15,439
Speaker 1: So yeah, you're listening to the Bloomberg Intelligence Podcast. Catch

812
00:42:15,520 --> 00:42:17,879
Speaker 1: us live weekdays at ten am Eastern on.

813
00:42:17,920 --> 00:42:21,359
Speaker 2: Applecar Play and Android Auto with the Bloomberg Business App.

814
00:42:21,440 --> 00:42:24,319
Speaker 1: You can also listen live on Amazon Alexa from our

815
00:42:24,320 --> 00:42:28,560
Speaker 1: flagship New York station. Just say Alexa play Bloomberg eleven.

816
00:42:28,440 --> 00:42:32,160
Speaker 3: Thirty, Alex stil Falls, We need John Tecker.

817
00:42:32,200 --> 00:42:33,640
Speaker 4: This is Bloomberg Intelligence Radio.

818
00:42:33,800 --> 00:42:36,080
Speaker 3: We bring you all the top news and business, economics

819
00:42:36,080 --> 00:42:38,440
Speaker 3: and finance through a lens of our Bloomberg Intelligence Folks.

820
00:42:38,440 --> 00:42:41,600
Speaker 3: And every week around this time we tap our amazing

821
00:42:41,640 --> 00:42:45,000
Speaker 3: resource over at Bloomberg bn EF previously known as Bloomberg

822
00:42:45,080 --> 00:42:48,759
Speaker 3: New Energy Finance BINF basically tracks everything that you need

823
00:42:48,800 --> 00:42:53,319
Speaker 3: to know from commodities, power, transport, industry, buildings, ag as

824
00:42:53,360 --> 00:42:57,720
Speaker 3: well as how to finance the energy transition. And joining

825
00:42:57,800 --> 00:43:00,920
Speaker 3: us now is Kyle Harrison, head of Sustainability Research at

826
00:43:00,920 --> 00:43:04,200
Speaker 3: Bloomberg bn EF. He joins US now, So let's take

827
00:43:04,239 --> 00:43:07,759
Speaker 3: a look at corporations and how many and what kind

828
00:43:07,760 --> 00:43:11,320
Speaker 3: of corporations have signed green PPA is known as power

829
00:43:11,320 --> 00:43:14,480
Speaker 3: purchase agreements, which is basically like they're getting their electricity

830
00:43:14,520 --> 00:43:17,480
Speaker 3: and power and stuff through green things exactly.

831
00:43:17,520 --> 00:43:21,520
Speaker 11: So they're locking into long term contracts for typically solar windpower,

832
00:43:21,560 --> 00:43:23,799
Speaker 11: but we're now seeing them expand into other forms of

833
00:43:23,880 --> 00:43:28,719
Speaker 11: low carbon technology for example like nuclear, like hydro and geothermal.

834
00:43:30,320 --> 00:43:32,960
Speaker 11: Big technology companies have really led in this space. So

835
00:43:33,040 --> 00:43:38,040
Speaker 11: it's the companies like Amazon, Meta, Google, Microsoft, they're signing

836
00:43:38,080 --> 00:43:40,200
Speaker 11: the most deals at a large scale. But we're seeing

837
00:43:40,200 --> 00:43:42,880
Speaker 11: a lot of heavy emitting, hard to abate sectors getting

838
00:43:42,880 --> 00:43:46,759
Speaker 11: into this space now. So materials companies, industrials, oil and

839
00:43:46,800 --> 00:43:49,719
Speaker 11: gas companies, they're starting to break into new markets where

840
00:43:49,760 --> 00:43:52,160
Speaker 11: big tech maybe doesn't have as big of a footprint,

841
00:43:52,239 --> 00:43:54,919
Speaker 11: and they're starting to sign these long term, large scale

842
00:43:54,960 --> 00:43:55,840
Speaker 11: clean energy deals.

843
00:43:56,280 --> 00:43:59,359
Speaker 6: Where are the clean energy deals happening? Is it here

844
00:43:59,360 --> 00:44:01,359
Speaker 6: in the US? Is it in Europe? Where are these

845
00:44:01,360 --> 00:44:02,360
Speaker 6: things mostly happening?

846
00:44:02,600 --> 00:44:05,759
Speaker 11: Historically was the US, So between twenty fifteen and twenty

847
00:44:05,800 --> 00:44:09,439
Speaker 11: twenty two, around two thirds of all these corporate clean

848
00:44:09,520 --> 00:44:11,960
Speaker 11: energy power purchase agreements were signed in the United States.

849
00:44:12,520 --> 00:44:14,880
Speaker 11: In twenty twenty three, that number drop to around forty

850
00:44:14,880 --> 00:44:18,680
Speaker 11: five percent. So corporations are increasingly spreading out and signing

851
00:44:18,719 --> 00:44:22,480
Speaker 11: deals in Europe, in Latin America and Southeast Asia for example.

852
00:44:22,800 --> 00:44:25,080
Speaker 11: In Asia in particular, you have a lot of demand

853
00:44:25,120 --> 00:44:27,880
Speaker 11: for electricity from corporations and you have a huge supply

854
00:44:27,960 --> 00:44:30,799
Speaker 11: chain footprint, and historically those companies haven't been able to

855
00:44:31,040 --> 00:44:33,840
Speaker 11: buy clean energy. But through a lot of policy lobbying

856
00:44:33,920 --> 00:44:35,680
Speaker 11: and a lot of work on the ground with regulators,

857
00:44:36,000 --> 00:44:38,920
Speaker 11: you now have opportunities to buy clean energy in Japan,

858
00:44:39,160 --> 00:44:41,879
Speaker 11: South Korea, Vietnam's and new market So there's a lot

859
00:44:41,920 --> 00:44:43,120
Speaker 11: of new, exciting expansion.

860
00:44:43,800 --> 00:44:45,680
Speaker 3: What's the price for these things and how do they

861
00:44:45,719 --> 00:44:47,160
Speaker 3: compare to traditional energy?

862
00:44:47,640 --> 00:44:49,680
Speaker 11: So that's big been one of the biggest drivers in

863
00:44:49,719 --> 00:44:52,719
Speaker 11: the growth of this market. Right So through September of

864
00:44:52,760 --> 00:44:56,200
Speaker 11: this year, companies have announced over thirty one gigawatts of

865
00:44:56,320 --> 00:44:59,479
Speaker 11: clean energy through corporate power purchase agreements. That's the size

866
00:44:59,480 --> 00:45:02,400
Speaker 11: of a small in a given year, and we're on

867
00:45:02,480 --> 00:45:04,480
Speaker 11: record pace. And the biggest reason for that is that

868
00:45:04,600 --> 00:45:07,440
Speaker 11: solarned wind on a new build basis are now cheaper

869
00:45:07,440 --> 00:45:10,040
Speaker 11: than colon gas in many markets around the world. So

870
00:45:10,160 --> 00:45:12,680
Speaker 11: as a corporate buyer, I can undercut those prices for

871
00:45:12,760 --> 00:45:15,040
Speaker 11: power that I might be paying, for example, from a

872
00:45:15,120 --> 00:45:17,640
Speaker 11: utility or from the grid by locking into a long

873
00:45:17,719 --> 00:45:20,280
Speaker 11: term fixed contract for renewables.

874
00:45:19,960 --> 00:45:23,040
Speaker 6: And for renewables. Is this is the adoption of renewables

875
00:45:23,120 --> 00:45:25,280
Speaker 6: or the growth of the renewables market. Is that driven

876
00:45:25,719 --> 00:45:30,120
Speaker 6: by the market or by regulations governments saying you gotta

877
00:45:30,200 --> 00:45:32,000
Speaker 6: do this? What do we learn?

878
00:45:32,520 --> 00:45:35,520
Speaker 11: I mean to the last question, it's really primarily driven

879
00:45:35,520 --> 00:45:38,719
Speaker 11: by economics. But reliability is a huge factor here. So

880
00:45:38,840 --> 00:45:42,080
Speaker 11: big technology companies they're now going out, they're building these

881
00:45:42,160 --> 00:45:45,520
Speaker 11: data centers. You're seeing a big expansion in manufacturing capacity.

882
00:45:45,920 --> 00:45:48,040
Speaker 11: All of this requires the lights to be on twenty

883
00:45:48,080 --> 00:45:51,000
Speaker 11: four to seven, right, so you can't afford to have

884
00:45:51,040 --> 00:45:53,920
Speaker 11: a power outage or a grid failure. So locking into

885
00:45:54,000 --> 00:45:56,360
Speaker 11: one of these contracts for solarned wind that gives you

886
00:45:56,400 --> 00:45:59,400
Speaker 11: more reliability. And again that expansion into other forms of

887
00:45:59,400 --> 00:46:02,600
Speaker 11: what we would call zero carbon based load power that

888
00:46:02,600 --> 00:46:05,400
Speaker 11: could generate twenty four to seven, like nuclear and geothermal,

889
00:46:05,600 --> 00:46:08,520
Speaker 11: that also kind of emphasizes that reliability. So it's a

890
00:46:08,520 --> 00:46:10,400
Speaker 11: combo of that along with sustainability.

891
00:46:10,800 --> 00:46:13,319
Speaker 3: And how do you think that this sort of partnership

892
00:46:13,360 --> 00:46:15,480
Speaker 3: and evolution happens. It's still going to be these long

893
00:46:15,560 --> 00:46:17,520
Speaker 3: term power purchase agreements or is it going to be

894
00:46:17,560 --> 00:46:20,360
Speaker 3: like these hyperscalers And you know, maybe even like a

895
00:46:20,360 --> 00:46:23,120
Speaker 3: SMIT industry or the hard to abate industry just sets

896
00:46:23,200 --> 00:46:26,560
Speaker 3: up like their little small modular reactor right next to

897
00:46:26,600 --> 00:46:30,160
Speaker 3: their facility, or a wind farm right next to their facility.

898
00:46:30,200 --> 00:46:32,920
Speaker 3: I mean, I'm being hyperbole, but you get the idea.

899
00:46:33,120 --> 00:46:35,520
Speaker 3: Versus plugging into the grid for example, you.

900
00:46:35,480 --> 00:46:38,640
Speaker 11: Definitely need collaboration on the grid side, right and the

901
00:46:38,760 --> 00:46:41,440
Speaker 11: utility scale side of this market. Of course, there are

902
00:46:41,520 --> 00:46:45,080
Speaker 11: opportunities to build a solar project or a wind farm

903
00:46:45,120 --> 00:46:48,760
Speaker 11: on site and leverage energy storage to get that power directly,

904
00:46:49,080 --> 00:46:52,160
Speaker 11: but we need utilities, right, and we need grid planners

905
00:46:52,200 --> 00:46:55,120
Speaker 11: to start collaborating with these corporate buyers to ensure that

906
00:46:55,160 --> 00:46:57,640
Speaker 11: this grid scale up is done sustainably. If we start

907
00:46:57,680 --> 00:47:00,920
Speaker 11: to build all these hyperscaler data centers in for example,

908
00:47:01,160 --> 00:47:03,920
Speaker 11: example the Data Center corridor in the eastern US or

909
00:47:03,960 --> 00:47:07,399
Speaker 11: in Texas, you need to ensure that there's enough transmission

910
00:47:07,400 --> 00:47:09,960
Speaker 11: capacity to ensure that that power gets moved from A

911
00:47:10,040 --> 00:47:12,560
Speaker 11: to B right, So that starts to involve regulators, that

912
00:47:12,640 --> 00:47:15,279
Speaker 11: starts to involve utilities. So it really is kind of

913
00:47:15,280 --> 00:47:17,480
Speaker 11: an approach that everyone needs to be involved in for

914
00:47:17,520 --> 00:47:18,600
Speaker 11: this to be successful.

915
00:47:18,719 --> 00:47:20,399
Speaker 6: You know where they do wind farms in a big

916
00:47:20,400 --> 00:47:24,799
Speaker 6: way Ireland, driving around tons of a lot of.

917
00:47:24,840 --> 00:47:27,400
Speaker 11: Data centers in Ireland as well, so it's extra important

918
00:47:27,400 --> 00:47:28,040
Speaker 11: there all right.

919
00:47:28,560 --> 00:47:30,960
Speaker 6: So yeah, so they were ever there. There's big ones

920
00:47:31,600 --> 00:47:35,160
Speaker 6: as well, and it's windy there, so it works being

921
00:47:35,160 --> 00:47:36,879
Speaker 6: an island and all talk to just about you mentioned

922
00:47:36,960 --> 00:47:41,200
Speaker 6: nuclear energy. What's the future of nuclear here in this country?

923
00:47:41,200 --> 00:47:43,399
Speaker 6: Can we build these little nuclear plants that can do

924
00:47:43,480 --> 00:47:44,839
Speaker 6: things and not pose a big risk.

925
00:47:45,320 --> 00:47:48,240
Speaker 11: So I, unfortunately I can't comment too much on nuclear.

926
00:47:48,280 --> 00:47:49,880
Speaker 11: If we have a nuclear guy, we do have a

927
00:47:49,960 --> 00:47:53,840
Speaker 11: nuclear guy I'll leave it to him. But what I

928
00:47:53,880 --> 00:47:57,680
Speaker 11: would say five people there, what I would say is right,

929
00:47:57,800 --> 00:48:00,000
Speaker 11: there was a lot of a lot of noise around

930
00:48:00,080 --> 00:48:03,239
Speaker 11: on this announcement from Microsoft around through Mile Island through

931
00:48:03,280 --> 00:48:05,400
Speaker 11: My Island is a name, Right, that's a project that

932
00:48:05,520 --> 00:48:08,040
Speaker 11: obviously evokes a lot of emotion. But we're going to

933
00:48:08,040 --> 00:48:10,359
Speaker 11: see a lot of corporations continue to look for those

934
00:48:10,440 --> 00:48:13,759
Speaker 11: deals with that zero carbon based low power. So we

935
00:48:13,800 --> 00:48:15,799
Speaker 11: wrote about this the other week. This won't be the

936
00:48:15,840 --> 00:48:18,200
Speaker 11: last nuclear deal from big tech, right, You'll see more

937
00:48:18,239 --> 00:48:21,520
Speaker 11: geothermal deals. So it's going to play a really important

938
00:48:21,560 --> 00:48:24,479
Speaker 11: role here as a reliable source of power that's also

939
00:48:24,520 --> 00:48:25,040
Speaker 11: low carbon.

940
00:48:25,280 --> 00:48:28,520
Speaker 3: What I think I understand though from that particular agreement

941
00:48:28,960 --> 00:48:32,560
Speaker 3: is that the three mile So Constellation Energy will revamp

942
00:48:32,640 --> 00:48:36,360
Speaker 3: its nuclear reactor and turn it online into the grid.

943
00:48:36,840 --> 00:48:41,200
Speaker 3: Then Microsoft will pay the difference to Constellation Energy from

944
00:48:41,520 --> 00:48:43,960
Speaker 3: what it would cost to get from the grid versus

945
00:48:43,960 --> 00:48:47,160
Speaker 3: this nuclear facility. So it's like done differently. It's not

946
00:48:47,200 --> 00:48:49,160
Speaker 3: like the nuclear is going to like plug right into

947
00:48:49,200 --> 00:48:50,480
Speaker 3: a Microsoft hyperscaler.

948
00:48:50,600 --> 00:48:52,479
Speaker 4: It's like they're still going to take from the grid.

949
00:48:52,520 --> 00:48:55,080
Speaker 3: So it's all these like weird agreements that that I

950
00:48:55,120 --> 00:48:56,880
Speaker 3: feel like you're going to have to tell you I

951
00:48:56,920 --> 00:49:02,399
Speaker 3: read a book called did you They're very excited about

952
00:49:02,400 --> 00:49:06,719
Speaker 3: reading the Grid and then newlicks Exactly do you want

953
00:49:06,760 --> 00:49:07,880
Speaker 3: to know anything?

954
00:49:07,920 --> 00:49:11,120
Speaker 4: They got it? What region is signing the most of

955
00:49:11,160 --> 00:49:13,200
Speaker 4: these clean PPAs right now?

956
00:49:13,200 --> 00:49:16,279
Speaker 11: It's Texas And it's based purely on economics. So in

957
00:49:16,680 --> 00:49:20,440
Speaker 11: for example, northern and western Texas, the price of power

958
00:49:20,480 --> 00:49:24,160
Speaker 11: for wind is incredibly cheap, and you have fantastic wind resources,

959
00:49:24,440 --> 00:49:25,920
Speaker 11: so you have a lot of companies going out and

960
00:49:25,960 --> 00:49:29,839
Speaker 11: signing deals there. But increasingly companies want to emphasize where

961
00:49:29,840 --> 00:49:32,600
Speaker 11: can they make the biggest impact by adding clean power?

962
00:49:32,840 --> 00:49:36,280
Speaker 11: If you already have all of this low carbon wind

963
00:49:36,320 --> 00:49:39,040
Speaker 11: and solar generating in Texas, are you really making that

964
00:49:39,120 --> 00:49:41,880
Speaker 11: much of a difference by adding another project there, for example,

965
00:49:41,960 --> 00:49:44,920
Speaker 11: compared to the eastern US, where you have more coal power,

966
00:49:45,120 --> 00:49:47,439
Speaker 11: right where you can have a bigger impact on decarbonizing

967
00:49:47,480 --> 00:49:49,799
Speaker 11: the grid. So what we're going to slowly start to

968
00:49:49,800 --> 00:49:52,919
Speaker 11: see is more corporations expand that footprint both to other

969
00:49:52,920 --> 00:49:55,680
Speaker 11: parts of the United States outside of Texas, but other

970
00:49:55,800 --> 00:49:57,120
Speaker 11: new regions in the world as well.

971
00:49:57,400 --> 00:49:59,640
Speaker 6: Coal in the US anymore, we still have.

972
00:49:59,640 --> 00:50:02,120
Speaker 11: Coal well, I mean I guess we can follow the

973
00:50:02,200 --> 00:50:04,359
Speaker 11: lead of the UK, right, which just retired it. Yeah,

974
00:50:04,400 --> 00:50:06,040
Speaker 11: that's final col project.

975
00:50:05,760 --> 00:50:06,960
Speaker 4: But they still have them right.

976
00:50:07,840 --> 00:50:11,880
Speaker 6: Uh Johnny in the boat.

977
00:50:11,760 --> 00:50:14,280
Speaker 4: I do have a bag of cold in the base. Yes,

978
00:50:15,040 --> 00:50:15,840
Speaker 4: John Tuckers.

979
00:50:15,560 --> 00:50:17,440
Speaker 3: Can't know what you're actually kidding.

980
00:50:18,520 --> 00:50:21,160
Speaker 4: Yeah, that's the thing. He's not all right. Thanks a lot.

981
00:50:21,200 --> 00:50:25,920
Speaker 3: We really appreciate Chyleer Caryl Harrison, the last holdout Bloomberg Vienni,

982
00:50:26,280 --> 00:50:29,240
Speaker 3: Head of Sustainability a research joining us on those trends

983
00:50:29,640 --> 00:50:31,000
Speaker 3: in sustainability.

984
00:50:31,200 --> 00:50:35,719
Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify,

985
00:50:35,920 --> 00:50:39,120
Speaker 1: and anywhere else you get your podcasts. Listen live each

986
00:50:39,160 --> 00:50:42,520
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com,

987
00:50:42,640 --> 00:50:46,040
Speaker 1: the iHeart Radio app, tune In, and the Bloomberg Business app.

988
00:50:46,160 --> 00:50:49,279
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989
00:50:49,360 --> 00:50:51,240
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