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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. At

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Speaker 1: a time when the stock market seems to be making

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Speaker 1: new highs every day, eking out a little bit more

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Speaker 1: in terms of gains without going crazy, a lot of

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Speaker 1: investors are seeing stocks is a good place to be

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Speaker 1: over the next three years. Among those Hugh Johnson, Chairman

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Speaker 1: and Chief investment Officer at Hugh Johnson Advisers, which overseas

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Speaker 1: more than a billion dollars and is based in Albany,

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Speaker 1: New York. Hugh, thank you so much for joining us.

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Speaker 1: First of all, I just want to get your main

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Speaker 1: points that you laid out when you came up with

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Speaker 1: forecasts for this year, next year, and the year after.

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Speaker 1: The main thing is is earnings. You know, I think

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Speaker 1: everybody that talks to me has the same question, and

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Speaker 1: that is, how can you make the case for stocks

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Speaker 1: having done what they've done, and even going even higher

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Speaker 1: given all the problems in Washington, some of the international

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Speaker 1: geopolitical concerns, concerns about getting healthcare through concerns about the

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Speaker 1: tax tax cut, the Trump tax cut. How can you

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Speaker 1: make the case for higher pricedents. Well, the answer to

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Speaker 1: that question is this is all about earnings, and in

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Speaker 1: a cold hearted way, we're looking at very positive growth

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Speaker 1: and earnings both for two thousand and eighteen and two

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Speaker 1: thousand and nineteen. And if you crunch the numbers, taking

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Speaker 1: any consideration the earnings that I think lie ahead, you

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Speaker 1: can make the case for higher stock prices four and

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Speaker 1: a half percent between now in the end of two

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Speaker 1: thousand and eighteen, and maybe as much as eleven percent

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Speaker 1: ten point eight percent between now and the end of

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Speaker 1: two thousand nineteen. So higher stock prices, and that might

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Speaker 1: even be helped a little bit if we get a

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Speaker 1: Trump tax cut, a lot, but some. So it's really

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Speaker 1: all about earnings. You. I wonder if we could take

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Speaker 1: a look from the investor perspective, because let's say you're

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Speaker 1: already long stocks, or you have a portfolio that that

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Speaker 1: favorite stocks. If you were to get out, if you

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Speaker 1: were to sell, chances are you might have a gain,

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Speaker 1: you'd have to pay the tax on it, and then

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Speaker 1: you'd be faced with the question, what do you do

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Speaker 1: with the cash? Correct, You certainly would be faced to that,

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Speaker 1: and it would be not an easy not an easy challenge,

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Speaker 1: to be honest with you. I mean, you know that

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Speaker 1: interest rates are very low. You know that if you

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Speaker 1: take that cash and you invested in the bond market

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Speaker 1: at a time when the fellow reserve is uh interesting,

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Speaker 1: increasing interest rates not only one more time perhaps in

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Speaker 1: two seventeen, but three times in two thousand eighteen, you're

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Speaker 1: likely to suffer a loss on that fixte income portfolio.

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Speaker 1: So it's it's really a challenge, I mean a big challenge.

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Speaker 1: I think the returns from the fixed income markets for

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Speaker 1: two thousand eighteen two thousand nineteen are going to be

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Speaker 1: close to zero. You'll get some money from the coupon,

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Speaker 1: you'll lose money on the principle of the fixed income.

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Speaker 1: So it is a challenge for sure. You know, I'm

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Speaker 1: struck by the fact that your forecasts for next year

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Speaker 1: in the year after don't include any sort of downturn.

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Speaker 1: You see wages increasing, albeit not a lot, but steadily, uh,

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Speaker 1: and you see just a general kind of continuation of

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Speaker 1: what we've been seeing over the past year. I'm wondering

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Speaker 1: what could make you change your mind, and why are

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Speaker 1: you so confident that we won't see some sort of

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Speaker 1: economic downturn where you're you never you never releast, you

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Speaker 1: never that confident. I say these things, I forecast these things,

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Speaker 1: you know, quite frankly, with my fingers tightly crossed. And

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Speaker 1: you know, I assume you know we're at a low

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Speaker 1: level of interest rates. Yes, the Federals there's gonna be

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Speaker 1: raising interest rates. Yes, interest rates are going to be

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Speaker 1: going higher. But I don't think we're at a level

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Speaker 1: right now that really threatens the economic expansion. So making

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Speaker 1: the forecast that the economy is going to continue to

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Speaker 1: span through two eighteen nineteen is a little bit easier.

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Speaker 1: The second thing is, I don't expect that we're going

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Speaker 1: to have a move towards uh fiscal restraint. If anything,

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Speaker 1: we're gonna have a move towards an easier fiscal policy,

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Speaker 1: more generous fiscal policy in the form of tax cuts

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Speaker 1: and spending increases. So it'd be really from the policy

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Speaker 1: point of view, you'd say, gee, it's just it's just

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Speaker 1: too early to say this, this thing is going to end. Uh,

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Speaker 1: it looks like it's going to go further. But but

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Speaker 1: talk to me at the end of well, at the

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Speaker 1: middle of two thousand nineteen, when we have interest rate

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Speaker 1: higher and we start to get much more nervous about

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Speaker 1: federal budget deficits, and I think those are in the

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Speaker 1: cars when we start to get that nervous, and then

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Speaker 1: we're gonna move a shift in the in the different direction,

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Speaker 1: and then you're gonna start to see it show up

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Speaker 1: in the markets, and things are going to get a

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Speaker 1: lot more a lot more dicey, and prospects for a

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Speaker 1: turn down in the stock market and the economy will

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Speaker 1: start to get certainly higher, if not real high. Alright,

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Speaker 1: so he let's say your forecast is accurate, and things

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Speaker 1: will kind of grind a law a little bit higher

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Speaker 1: all the time over the next two and a half years.

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Speaker 1: I'm wondering what's the best way for investors to allocate

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Speaker 1: to markets. Is it by you know, passive funds that

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Speaker 1: look to broad state look to capture gains and broad

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Speaker 1: swaths of UH specific stock markets. Is it active managers?

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Speaker 1: What are you advising clients? What's your approach that is

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Speaker 1: a really great question, because you and I both know

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Speaker 1: that that the passive investing has worked a lot better

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Speaker 1: than active investing up until really this year, and this

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Speaker 1: year we're starting to see a little bit of a

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Speaker 1: shift and active managers have been doing a lot better.

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Speaker 1: Whether you lose exchange traded funds for passive investing or

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Speaker 1: you start to look at active managers, I'm not sure

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Speaker 1: how what the outcome is going to be. The Only

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Speaker 1: thing I can say with a lot of confidences, especially

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Speaker 1: given my forecast, is that you need to have a

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Speaker 1: meaningful allocation, whether it's passive or active, meaningful allocation to equities,

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Speaker 1: in other words, don't go in the bunkers right now.

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Speaker 1: For example, if your target of fifty equities and you've

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Speaker 1: got a range of say thirty to sixt of toleration range,

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Speaker 1: you might be up and around and I wouldn't change

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Speaker 1: that whether it's active or passive. But your question, should

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Speaker 1: it be active, should it be passive? Great question. We're

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Speaker 1: all grappling with that question, and we're starting to see

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Speaker 1: active managers outperform indexes or passive management. You have you

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Speaker 1: ever had a customer or a client who pulled their

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Speaker 1: account because the performance was let's say, two hundred basis

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Speaker 1: points less than some benchmark. Does that really happen on

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Speaker 1: a regular basis, Well, we've been lucky, we've been fortunate.

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Speaker 1: We don't take of the levels of risk that they're

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Speaker 1: going to give us that two hundred basis points below benchmark.

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Speaker 1: If we did, I wouldn't be at all surprised if

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Speaker 1: if investors did pull their poll stakes and and go

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Speaker 1: to another another manager, because that's not what we promised them.

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Speaker 1: We've promised them that we're going to be a roughly

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Speaker 1: fifty basis points below fifty basis points above. We've had

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Speaker 1: really good luck or fortune because we picked some really

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Speaker 1: good stocks in the last couple of years, so we've

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Speaker 1: been well above benchmark. I don't think we're for any

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Speaker 1: long extended period of time, we'll be honestly going to

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Speaker 1: depart very significantly from benchmark, and that means no downside

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Speaker 1: and therefore no loss of customers on Our customers are

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Speaker 1: quite frankly like us, are kind of risk averse. They

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Speaker 1: really want you to do okay in an up market,

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Speaker 1: but what they want more than anything is is really

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Speaker 1: to preserve capital in the down market, because that's the

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Speaker 1: secret long term performance. You real quick, how are you

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Speaker 1: creating that insurance building it into the portfolio. You do

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Speaker 1: it in a lot of different ways. There's a meaningful,

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Speaker 1: you know, balanced portfolio. The second thing is you reduced

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Speaker 1: risk by having high quality names in the portfolio. But

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Speaker 1: much more importantly is to have a relative balance among

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Speaker 1: things in the portfolio, so you don't make a significant

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Speaker 1: bet when it comes to sector allocation. Sector allocation, you

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Speaker 1: can certainly be overweight technology, maybe a little bit underweight analogy,

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Speaker 1: but you have to have us. You have to have

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Speaker 1: allocation to all my view, all eleven sectors in the market.

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Speaker 1: You can't can significantly overweight small cap stucks. Have a

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Speaker 1: meaningful allocation to large, mid, and small, but not so

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Speaker 1: significantly different from the benchmark. In other words, don't take

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Speaker 1: a lot of sector or capitalization risk. That's just simply

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Speaker 1: a mistake, Thank you very much. Hugh Johnson, Chairman, chief

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Speaker 1: investment Officer, Hugh Johnson Advisors. Well, let's say get more

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Speaker 1: information about a group of companies that will be reporting

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Speaker 1: their results. We're gonna get Eli, Lily and Biogen they'll

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Speaker 1: come out with their results tomorrow. Plus we've got am

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Speaker 1: Jen and Gilliad Sciences. This week, Bristol Myers, Squib, Murky, LII,

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Speaker 1: Lily and for that we've got Sam Fizzelli. He's the

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Speaker 1: director of research for Bloomberg Intelligence in London. Knows weything

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Speaker 1: about these companies. Sam, thank you very much for spending

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Speaker 1: time with us. Where do you want Where do you

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Speaker 1: want to begin? What's the most important results or what

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Speaker 1: should we be looking for this week? Because we've got

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Speaker 1: a variety of companies, right, I'm going to begin with

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Speaker 1: just talking about the large farmer companies because that's where

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Speaker 1: I spend most of my time looking at things I

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Speaker 1: want to do. Glaxo Smith Klein, we can, but you

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Speaker 1: have to admit that I think the star of the

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Speaker 1: show this week and frankly for the third quarter will

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Speaker 1: be Eli Lily. Okay, so that's tomorrow. That's tomorrow. They've

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Speaker 1: got some decent sales growth expected about six percent. But

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Speaker 1: really what's going on in Lily is not only you're

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Speaker 1: getting new drugs and some existing key drugs such as

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Speaker 1: Trilicity and Jardians driving the top line and they're both

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Speaker 1: for diabetes and we know what a big problem that is,

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Speaker 1: but it's really the margin story and Lily that's quite

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Speaker 1: attractive and exciting and in that the company is working

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Speaker 1: has got a long way to come and meet and

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Speaker 1: beginning where near some of the others others peers obviously

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Speaker 1: other other peers, therefore giving it an opportunity to give

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Speaker 1: us almost three times its sales growth in EPs growth

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Speaker 1: expectations for this quarter. So that that's really what's driving

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Speaker 1: the excitement on that one. Can you give us a

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Speaker 1: sense of what's driving that? Is that that they can

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Speaker 1: price their drugs at a higher spot is because they're

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Speaker 1: cutting staff. I mean, where are the where are the

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Speaker 1: margins coming from? Well, I mean again, Lily has been

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Speaker 1: one of those companies that, putting beer aside, has been

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Speaker 1: at the low end of operating margins among all of

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Speaker 1: its what we call the thirteen large farmer peers if

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Speaker 1: you still want to call beer a large beyer a

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Speaker 1: large farmer company. So there's a lot of room for

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Speaker 1: for the performance there, and a lot of it that

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Speaker 1: comes from basically a lot um operational leverage that they're

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Speaker 1: getting and also more consolidating its sales and and and

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Speaker 1: different aspects of their business, which the new CEO is

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Speaker 1: particularly focused on in terms of delivering, although it has

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Speaker 1: been a target for the past couple of years at

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Speaker 1: least to get that margin the one they look at,

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Speaker 1: which is R and D plus scn A expenses as

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Speaker 1: a percentage of sales to below and they're doing a

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Speaker 1: pretty good job of getting that. So it's not just

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Speaker 1: about drug pricing. In fact, if I may, Lily has

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Speaker 1: been one of those that's not been uh particularly aggressive

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Speaker 1: in its price rises, especially in the insulin area where

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Speaker 1: there's been a lot of attention recently diabetes, where if

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Speaker 1: you look at the net price of the insulin products

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Speaker 1: on the market, they've been flat for past three four

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Speaker 1: five years, so no real net increasing prices. It's volume

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Speaker 1: that's driving that well. And I just want to get

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Speaker 1: your thoughts and if you can look just a one

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Speaker 1: more about ELI Lily having to do with patent litigation

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Speaker 1: and patent interpretation, how's that can affect the company? Well,

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Speaker 1: I mean, you know, they have they're they're affected by

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Speaker 1: patent experience that they're like everybody else. They haven't anything

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Speaker 1: particularly um different to trying to protect their patents. And

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Speaker 1: they've got one that's coming up with a Limita, which

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Speaker 1: is a cancer drug a billion I have two billion

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Speaker 1: dollars of sales in total and that is going through

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Speaker 1: the motions. It was challenged by IPRs and it's one

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Speaker 1: some of those who has been challenged in the UK

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Speaker 1: and it won those So but eventually the molecule will

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Speaker 1: go off patterns and there's nothing you can do about that.

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Speaker 1: You're you know, this is a formulation pattern that they've

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Speaker 1: been protecting and it seems to have the test of

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Speaker 1: time so far, but eventually it will come. Other than that,

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Speaker 1: there's nothing really in there that they're not doing any

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Speaker 1: special moves or if if you're referring to, for instance,

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Speaker 1: doing a deal with whether they with a tribe or

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Speaker 1: anything like that, nothing like, nothing like that has happened there.

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Speaker 1: I'd love to just get a quick overview of what

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Speaker 1: to expect from Mark because it seems like they have

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Speaker 1: a less rosy expectation with respect to margins and how

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Speaker 1: much their sales could right right right, Yeah, So America

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Speaker 1: is in a very cut throat business at the moment,

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Speaker 1: in the cop throat business of emmano oncology in cancer

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Speaker 1: trying to get and it's working immune system, the patient's

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Speaker 1: immune system to attack their own cancer. So they are

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Speaker 1: they lead along with Bristol Myers, who had the first

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Speaker 1: drug on the market in this mechanism, in this in

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Speaker 1: this arena called the year Boy a few years back.

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Speaker 1: But basically it's so cutthro So you've got Astroseneca, Rush,

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Speaker 1: Bristol Myers and Mark all competing to get the biggest,

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Speaker 1: broadest indications and the largest number of combinations worked out

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Speaker 1: for treating cancer, which costs money and it needs marketing.

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Speaker 1: So what Mark has been very open with is we

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Speaker 1: are getting some sales potentially in the system. I mean,

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Speaker 1: the sales are expected to be about flat in three

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Speaker 1: Q versus last year because they've got generic expiries, but

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Speaker 1: don't expect margin evolution there. Because we've a twine, we're

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Speaker 1: going to have to invest in the business. W'd be

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Speaker 1: pretty open about this, which of course is a bit

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Speaker 1: tough when you really only have one drug that's growing,

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Speaker 1: We're gonna have to leave it there, unfortunately. Thank you

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Speaker 1: so much for joining us, Sam Fazzelli, director of research

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Speaker 1: for Bloomberg Intelligence, coming to us from London. Well, Haliburton

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Speaker 1: reported earnings this morning, Schlumberge last week, and here to

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Speaker 1: tell us what the highlights are. Liam Denning Bloomberg Gatflight

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Speaker 1: columnists covering energy. So what stood out from you with

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Speaker 1: respect to Haliburton's earnings. It shares are down slightly, although

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Speaker 1: not as down as schlumber Jay's. Yes, So the biggest

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Speaker 1: thing here is just the different messages coming out of

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Speaker 1: these two companies. So um, the key differences between Schlumberjo

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Speaker 1: and haliber and his halib And is much more North

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Speaker 1: America focused, like six revenue slamba, it's round a third.

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Speaker 1: So Haliburton whenever there's a big uptick in US activity,

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Speaker 1: particularly in the shale basins, Haliburton is the usual beneficiary.

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Speaker 1: And so when Slumberge reported on Friday, North America was

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Speaker 1: kind of the only bright spot in their earnings, which

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Speaker 1: made it very likely that Haliburton was going to step

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Speaker 1: up and beat earnings. And and that's exactly what it

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Speaker 1: did on on Monday morning. Well, I just just explained

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Speaker 1: why North America is doing so much better than everywhere

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Speaker 1: else for them. So a big reason is it's really

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Speaker 1: a timing thing, and it's this is actually kind of

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Speaker 1: the crux of the difference between the two companies, and

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Speaker 1: it kind of reflects a big difference in the global

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Speaker 1: or market what we're seeing at the moment is in

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Speaker 1: the old days, what would happen is the all price

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Speaker 1: would collapse and then everyone would stop investing, and then

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Speaker 1: the all price would rise, But then it would take

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Speaker 1: several years for everyone to you know, find new wells

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Speaker 1: of fine new prospects, drill wells, bring the oil into production,

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Speaker 1: and so you have a fairly long cycle. What shale

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Speaker 1: has done is it's kind of short cirkuted that what

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Speaker 1: happens is the old price has come down, but then

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Speaker 1: as soon as the old price gets back above fifty

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Speaker 1: bucks or so, and particularly a year out, which is

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Speaker 1: when MP companies are hedging their future production, they all

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Speaker 1: kind of get back to work, which then caps the rally.

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Speaker 1: And so that's a big difference we've seen in schlimber

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Speaker 1: Jan Haliburton's outlook. Schlimberja is saying things are slowing down

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Speaker 1: in North America. All prices are gonna rise. We're going

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Speaker 1: to see a big uptick in international drilling coming through.

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Speaker 1: Haliburton less certain about that, all right, Leo, let me

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Speaker 1: just go to a couple of sort of points here,

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Speaker 1: right because a crude or right now trading on the

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Speaker 1: NIMEX seventy six cents for a barrel. That's West Texas.

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Speaker 1: Let's go through margins when it comes to Haliburton, good margins, right,

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Speaker 1: they have very good margins. They kind of took a

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Speaker 1: hit earlier this year. You may remember they issued a

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Speaker 1: profit warning the first quarter and that, But wasn't that

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Speaker 1: to take some some of their capacity out of the

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Speaker 1: market and to then prepare air for what they thought

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Speaker 1: was going to and has happened, which is this extensive tracking. Yeah,

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Speaker 1: and they were actually talking. What they did was actually

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Speaker 1: they put more capacity into the market, so they had

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Speaker 1: to take a big post up front to redeploy that stuff.

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Speaker 1: And it's it's paid off because there their incremental margins

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Speaker 1: since then have been have been up quite sharply. What

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Speaker 1: about efficiency gains, because they're pointing to the fact, and

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Speaker 1: you've written about this that it's that they are focused

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Speaker 1: on the fact that it's going to cost a lot

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Speaker 1: less money in the future to get whatever you want

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Speaker 1: out of the ground, whether it's the shale oil or

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Speaker 1: regular oil. That's right. One of the one of the

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Speaker 1: points actually made on the coolest morning was they said,

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Speaker 1: look you look at the rig count. It's it's way

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Speaker 1: down on what it was. But the fact is people

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Speaker 1: are drilling alonger wells. They said, actually foot for foot,

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Speaker 1: we're actually drilling as much this year as we did

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Speaker 1: when all was at a hundred bucks. So maybe you

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Speaker 1: can get rid of the Baker hughes like weakly, you know, up, down, sideways,

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Speaker 1: you know which way it moves. Because tech this is

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Speaker 1: as much a technology story. Well yeah, makesure week, But

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Speaker 1: I mean is this true though that? I mean it

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Speaker 1: really there has become a technology story when you're talking

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Speaker 1: about energy markets. Absolutely. I mean this has been a

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Speaker 1: theme for at least the past year. You know, Halibut

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Speaker 1: and struck, this alliance with Microsoft. We're seeing these kind

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Speaker 1: of alliances being struggled over the sector. So there was

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Speaker 1: sort of an implication there when you're talking about how

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Speaker 1: Schlumberge seems confident that prices are going to rise and

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Speaker 1: Haliburton seems less sure of that. It's part of that,

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Speaker 1: first of all, that Schlumberja needs prices to rise in

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Speaker 1: order to hit its projections, and how high does it

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Speaker 1: have to see prices rise? And what's Haliburton seeing as

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Speaker 1: far as a projected crude value in the future. Well,

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Speaker 1: let's Let's let's note first that they're both talking their

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Speaker 1: own book, right, so of course, but this is important

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Speaker 1: to see how they're talking there. I would say it's

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Speaker 1: less it's less a price level, and it's more to

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Speaker 1: do with something that Haliburton raised on the call, which

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Speaker 1: I think was very interesting. So if you go back

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Speaker 1: to that point I made about the short cycle kind

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Speaker 1: of nature of shale, with shale drillers, all they need

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Speaker 1: to see is the al price to get appreciably above

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Speaker 1: fifty bucks a barrel over the next twelve months for

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Speaker 1: an international project. And this is the point Haliberta made.

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Speaker 1: If you're going to drill a deep water field somewhere

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Speaker 1: in Africa, you not only need to see that price

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Speaker 1: rise above fifty bucks or whatever level it is that

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Speaker 1: you need for the next twelve months, you've got to

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Speaker 1: think it's going to hold that for at least three

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Speaker 1: to four years, because otherwise, why would you drill a

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Speaker 1: well that isn't going to start producing the two to

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Speaker 1: three four years. And I think that's the key challenge. Well,

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Speaker 1: that's also the challenge for investors, right because of whether

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Speaker 1: your long term depends how much money you're going to

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Speaker 1: put in the ground to get out what's going to

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Speaker 1: pay you back? Right, And that's why we've seen, particularly

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Speaker 1: with the international companies. You know, even though this is

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Speaker 1: apparently a historic opportunity to invest well, prices of rigs

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Speaker 1: and that sort of thing are low. You'll notice all

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Speaker 1: their investors are basically saying, pay us dividends because we

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Speaker 1: don't want you putting it in the ground. Thanks very

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Speaker 1: much for joining us and always appreciate your column. So

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Speaker 1: he's our Gadfly columnist when it comes to energy, mining

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Speaker 1: and commodities, Liam Denning, and you can follow him on

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Speaker 1: Twitter at Liam Denning. It's time to pay up. Well,

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Speaker 1: Friday is the time to pay up, and next week

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Speaker 1: might be the time to pay up if you happen

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Speaker 1: to be the Venezuelan nationally owned the oil company. Here

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Speaker 1: to tell us more about the debt situation and Venezuela

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Speaker 1: is Jamine Patel, our senior credit analyst for Bloomberg Intelligence,

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Speaker 1: and Jamine, thanks very much for being with us. Appreciate it.

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Speaker 1: Maybe just set out for people exactly how much does

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Speaker 1: PETA vesa, oh will it be able to pay? And

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Speaker 1: then maybe just describe the relationship that it has with

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Speaker 1: ros Neft and how that might sort of play into

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Speaker 1: all of this. Sure, First of all, thank you for

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Speaker 1: having me um to to your first question, how much

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Speaker 1: how much? Instead of oh, we really have to look

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Speaker 1: at both Peta Vesta and and the Venezuela sovereign jet

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Speaker 1: because you know, it's sort of hard to to differentiate

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Speaker 1: between the two. The two are are really quite integrated.

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Speaker 1: And to the extent that at investor doesn't have funds

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Speaker 1: to make its bond payments, then um, I think you

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Speaker 1: have to you have to turn to the sovereign. So

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Speaker 1: the total they're if you're looking at the at the

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Speaker 1: total bonds is about sixty seven billion, but you have

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Speaker 1: to add to that somewhere around fifty billion of loans

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Speaker 1: primarily from from China, Russia and UH, you know through

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Speaker 1: potentially through Rosneft as well, so that number could be

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Speaker 1: as highs undred and twenty billion. Now, what's coming to

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Speaker 1: do this week and next week is UH is an

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Speaker 1: amatizing amatization payment on a on a secured bond that's

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Speaker 1: about eighty four eight d forty million, and then there

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Speaker 1: is about one a little over a billion dollars on

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Speaker 1: a on a regular on secure bond coming due in

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Speaker 1: November the second. Yeah, but jaymen, let's just take a

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Speaker 1: step back for for a moment. So Venezuela is obviously

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Speaker 1: deeply troubled from a political point of view, and literally,

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Speaker 1: uh people are starving in the country, with an average

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Speaker 1: weight loss of I think twenty pounds in the past

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Speaker 1: year or two among the population. I mean, there's been

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Speaker 1: a huge shortage of food. There have been longlines for

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Speaker 1: the most basic supplies, a lot of tension rising, and

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Speaker 1: there is a question about whether a default on the

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Speaker 1: nation's sovereign debt would force the current leader, Maduro UH

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Speaker 1: to exit, right, I mean so, so the question is,

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Speaker 1: is Venezuela about default given that they have more than

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Speaker 1: two billion dollars coming due in the next two weeks

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Speaker 1: with limited resources to cover that. Well, Um, you know

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Speaker 1: that that that's the big question at this point, and

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Speaker 1: it really has come down to crunch times of these guys. Um,

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Speaker 1: it's entirely possible that they will make the payments. Um.

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Speaker 1: The history here has been every time a maturity has

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Speaker 1: come to you, they have somehow come up with the funds,

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Speaker 1: either by securing SITCO or borrowing from from outside sources. Uh.

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Speaker 1: To to to make the payments, cutting capex, cutting their

429
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Speaker 1: imports um in order to fill that cash flow gap.

430
00:23:25,920 --> 00:23:29,560
Speaker 1: So um, it appears that they are working on a

431
00:23:29,640 --> 00:23:32,760
Speaker 1: deal with Rosine to enter into either some mapter tales

432
00:23:32,880 --> 00:23:36,840
Speaker 1: or jvs which potentially will come up with enough consideration

433
00:23:36,920 --> 00:23:39,920
Speaker 1: to make these payments. Total payments are somewhere between three

434
00:23:39,960 --> 00:23:42,720
Speaker 1: and three and a half billion, because the two billion

435
00:23:42,920 --> 00:23:46,520
Speaker 1: or so and and some interest payments. Okay, that's a

436
00:23:47,000 --> 00:23:49,879
Speaker 1: two weeks about three and a half bills. Well, actually

437
00:23:49,960 --> 00:23:51,840
Speaker 1: over the next week or so, there's one on Friday,

438
00:23:51,840 --> 00:23:54,920
Speaker 1: and then there's one on November the TEWOD, so October

439
00:23:54,960 --> 00:23:59,119
Speaker 1: twenty seven and November the SEWOD, So they really cannot

440
00:23:59,160 --> 00:24:00,919
Speaker 1: afford it to fall. I mean, I think I think

441
00:24:00,960 --> 00:24:03,560
Speaker 1: a default would be would be almost unthinkable just given

442
00:24:04,160 --> 00:24:09,359
Speaker 1: uh that petty best accounts for something like their effects flows.

443
00:24:09,440 --> 00:24:12,399
Speaker 1: So if petty Vest were to stop functioning as it

444
00:24:12,480 --> 00:24:16,320
Speaker 1: does right now, which would potentially happen in default, I

445
00:24:16,440 --> 00:24:18,760
Speaker 1: think things would go from bad to verse for for

446
00:24:18,960 --> 00:24:22,119
Speaker 1: the people UH as as well as obviously the government.

447
00:24:22,200 --> 00:24:24,280
Speaker 1: So I think even the opposition really doesn't want to

448
00:24:24,520 --> 00:24:27,080
Speaker 1: want to see a default here. Jaman, how did they

449
00:24:27,119 --> 00:24:29,200
Speaker 1: sell the stuff to begin with. I mean, it's not

450
00:24:29,320 --> 00:24:34,680
Speaker 1: as if the situation in Venezuela is that new. No, No,

451
00:24:34,840 --> 00:24:37,520
Speaker 1: it isn't. It's it's it's been going on for a while.

452
00:24:37,680 --> 00:24:40,359
Speaker 1: But you know, when oil prices are at a hundred

453
00:24:40,840 --> 00:24:43,920
Speaker 1: dollars of barrel or higher, Uh, it's much easier to

454
00:24:44,400 --> 00:24:49,320
Speaker 1: manage your your your balances um at forty dollars forty

455
00:24:49,359 --> 00:24:52,800
Speaker 1: five dollars um, particularly when you don't have a rainy

456
00:24:52,880 --> 00:24:55,880
Speaker 1: day fund, when you haven't prepared for it, things urry

457
00:24:56,000 --> 00:25:00,200
Speaker 1: very quickly. Uh. Now, the government just to answer you

458
00:25:00,240 --> 00:25:02,639
Speaker 1: know earlier question if if there is a default, I

459
00:25:02,720 --> 00:25:06,800
Speaker 1: think I think there's a good chance that uh President

460
00:25:06,840 --> 00:25:10,080
Speaker 1: Muduro it would have to uh potentially leave this post,

461
00:25:10,119 --> 00:25:13,080
Speaker 1: potentially even leave the country. UM. So I think I

462
00:25:13,160 --> 00:25:15,480
Speaker 1: think they will do everything they can to to make

463
00:25:15,560 --> 00:25:18,280
Speaker 1: this particular payment. Uh and then don't forget there at

464
00:25:18,320 --> 00:25:21,639
Speaker 1: election coming due a presidential election in uh towards the

465
00:25:21,760 --> 00:25:24,600
Speaker 1: end of next year, November of next year, at which

466
00:25:24,680 --> 00:25:29,399
Speaker 1: point Venezuela has some some fairly heavy majorities coming to

467
00:25:29,440 --> 00:25:32,399
Speaker 1: you that they have to make. So can we just

468
00:25:32,480 --> 00:25:35,960
Speaker 1: get a sense of why Russia and China are continuing

469
00:25:36,040 --> 00:25:38,560
Speaker 1: to lend to Venezuela when Venezuela doesn't seem to be

470
00:25:38,640 --> 00:25:42,520
Speaker 1: getting more credit worthy uh and is igniting ire among

471
00:25:42,680 --> 00:25:47,200
Speaker 1: other big economies like the US. Well, I think I

472
00:25:47,320 --> 00:25:50,280
Speaker 1: think China to me seems to be pretty much maxed

473
00:25:50,280 --> 00:25:52,159
Speaker 1: out at this point. I don't think they're going to

474
00:25:52,240 --> 00:25:56,280
Speaker 1: be putting a lot more um uh in terms of

475
00:25:56,359 --> 00:26:00,640
Speaker 1: investment in the country. H. Russia has has a potentially

476
00:26:00,680 --> 00:26:04,120
Speaker 1: different agenda. Much of it may be political Venezuela's ties

477
00:26:04,160 --> 00:26:09,040
Speaker 1: to Cuba some of the other Caribbean nations UM. But

478
00:26:09,240 --> 00:26:11,280
Speaker 1: it's also a way for them to ensure that they

479
00:26:11,320 --> 00:26:15,359
Speaker 1: have a steady supply of oil UM going forward. Not

480
00:26:15,440 --> 00:26:18,720
Speaker 1: that Russia itself doesn't uh, it is not a heavy

481
00:26:18,800 --> 00:26:22,240
Speaker 1: oil producer, but uh, this this just gives them that

482
00:26:22,320 --> 00:26:24,480
Speaker 1: one additional avenue and and then a lot of it

483
00:26:24,600 --> 00:26:30,560
Speaker 1: is political as well, political influence, political economic ties. The

484
00:26:30,600 --> 00:26:32,800
Speaker 1: two countries have been tied for a long time. There

485
00:26:32,960 --> 00:26:38,720
Speaker 1: have been significant arms sales from from Venezuela to excuse me,

486
00:26:38,760 --> 00:26:41,720
Speaker 1: from Russia to Venezuela, So I think it will sort

487
00:26:41,760 --> 00:26:45,239
Speaker 1: of ties in with that. Just quickly, jamine if if

488
00:26:45,240 --> 00:26:48,000
Speaker 1: you got a call from an investor who recently had

489
00:26:48,040 --> 00:26:51,840
Speaker 1: purchased some of this Venezuelan Petave said that what would

490
00:26:51,840 --> 00:26:54,000
Speaker 1: you be explaining to them that they may they may

491
00:26:54,080 --> 00:26:56,080
Speaker 1: not know. I mean, they might know about the risks

492
00:26:56,200 --> 00:27:01,680
Speaker 1: of of repayment, but what about the potential for unexpected activity,

493
00:27:01,760 --> 00:27:06,840
Speaker 1: whether it's from Russia, China or indeed even the Venezuelan regime. Well,

494
00:27:06,920 --> 00:27:09,320
Speaker 1: I think you really have to differentiate between the long

495
00:27:09,440 --> 00:27:11,639
Speaker 1: term and the short term bond holders, the the the

496
00:27:11,720 --> 00:27:13,879
Speaker 1: immediate bonds that are coming to the ones that I

497
00:27:13,920 --> 00:27:17,240
Speaker 1: talked about on Friday and and next week. UM. You know,

498
00:27:17,320 --> 00:27:19,639
Speaker 1: at this point it really depends upon whether they this

499
00:27:19,760 --> 00:27:23,440
Speaker 1: Russian deal comes through. Um. And and that's not even

500
00:27:23,560 --> 00:27:26,960
Speaker 1: getting into the technical side of of of things, because

501
00:27:27,080 --> 00:27:29,359
Speaker 1: there is no great sperod on these payments. So if

502
00:27:29,400 --> 00:27:31,679
Speaker 1: they don't make them, the bond holes could there they

503
00:27:31,720 --> 00:27:36,320
Speaker 1: could call it default. UM. For the long term bondholders, UM,

504
00:27:36,560 --> 00:27:39,520
Speaker 1: it's it's you've got a country here which has got

505
00:27:40,480 --> 00:27:42,760
Speaker 1: in oil reserves, so it's not a solvency issue. It

506
00:27:42,840 --> 00:27:46,720
Speaker 1: really has a liquidity issue. UM. And if if there

507
00:27:46,840 --> 00:27:49,760
Speaker 1: is a regime change, and that's really what what the

508
00:27:50,000 --> 00:27:53,080
Speaker 1: bond holders will be looking for in the long run, UM,

509
00:27:53,560 --> 00:27:56,399
Speaker 1: then that would open up all sorts of avenues for

510
00:27:56,480 --> 00:27:59,920
Speaker 1: additional aid, because then they could reengage with the IMF,

511
00:28:00,000 --> 00:28:02,639
Speaker 1: big agreen age with the us UH. Some of the

512
00:28:02,760 --> 00:28:04,720
Speaker 1: sanctions we lifted and so on. We're gonna have to

513
00:28:04,800 --> 00:28:06,159
Speaker 1: leave it there. Thank you so much for joining us.

514
00:28:06,200 --> 00:28:10,600
Speaker 1: Jaman Patel, Senior credit strategist for Bloomberg Intelligence, talking about

515
00:28:10,920 --> 00:28:17,160
Speaker 1: Venezuela debt coming do. Thanks for listening to the Bloomberg

516
00:28:17,200 --> 00:28:19,840
Speaker 1: P and L podcast. You can subscribe and listen to

517
00:28:19,880 --> 00:28:24,399
Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.

518
00:28:24,840 --> 00:28:28,400
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm

519
00:28:28,440 --> 00:28:31,680
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.

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00:28:31,760 --> 00:28:34,359
Speaker 1: You can always catch us worldwide on Bloomberg Radio