WEBVTT - It's All About Earnings, Hugh Johnson Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.239 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. At 0:00:32.240 --> 0:00:34.560 a time when the stock market seems to be making 0:00:34.840 --> 0:00:38.480 new highs every day, eking out a little bit more 0:00:38.520 --> 0:00:41.800 in terms of gains without going crazy, a lot of 0:00:41.840 --> 0:00:44.880 investors are seeing stocks is a good place to be 0:00:45.000 --> 0:00:48.520 over the next three years. Among those Hugh Johnson, Chairman 0:00:48.560 --> 0:00:52.159 and Chief investment Officer at Hugh Johnson Advisers, which overseas 0:00:52.159 --> 0:00:54.360 more than a billion dollars and is based in Albany, 0:00:54.520 --> 0:00:57.480 New York. Hugh, thank you so much for joining us. 0:00:57.960 --> 0:00:59.840 First of all, I just want to get your main 0:01:00.080 --> 0:01:02.960 points that you laid out when you came up with 0:01:03.240 --> 0:01:06.600 forecasts for this year, next year, and the year after. 0:01:07.760 --> 0:01:10.200 The main thing is is earnings. You know, I think 0:01:10.240 --> 0:01:13.360 everybody that talks to me has the same question, and 0:01:13.440 --> 0:01:16.040 that is, how can you make the case for stocks 0:01:16.080 --> 0:01:18.880 having done what they've done, and even going even higher 0:01:19.720 --> 0:01:22.479 given all the problems in Washington, some of the international 0:01:22.600 --> 0:01:27.120 geopolitical concerns, concerns about getting healthcare through concerns about the 0:01:27.160 --> 0:01:30.399 tax tax cut, the Trump tax cut. How can you 0:01:30.440 --> 0:01:32.399 make the case for higher pricedents. Well, the answer to 0:01:32.440 --> 0:01:36.120 that question is this is all about earnings, and in 0:01:36.160 --> 0:01:38.880 a cold hearted way, we're looking at very positive growth 0:01:38.880 --> 0:01:41.440 and earnings both for two thousand and eighteen and two 0:01:41.440 --> 0:01:44.480 thousand and nineteen. And if you crunch the numbers, taking 0:01:44.520 --> 0:01:47.560 any consideration the earnings that I think lie ahead, you 0:01:47.600 --> 0:01:49.920 can make the case for higher stock prices four and 0:01:49.920 --> 0:01:52.360 a half percent between now in the end of two 0:01:52.440 --> 0:01:54.680 thousand and eighteen, and maybe as much as eleven percent 0:01:54.760 --> 0:01:57.400 ten point eight percent between now and the end of 0:01:57.440 --> 0:02:01.000 two thousand nineteen. So higher stock prices, and that might 0:02:01.040 --> 0:02:03.400 even be helped a little bit if we get a 0:02:03.440 --> 0:02:06.480 Trump tax cut, a lot, but some. So it's really 0:02:06.600 --> 0:02:09.519 all about earnings. You. I wonder if we could take 0:02:09.520 --> 0:02:12.240 a look from the investor perspective, because let's say you're 0:02:12.240 --> 0:02:16.440 already long stocks, or you have a portfolio that that 0:02:16.480 --> 0:02:19.000 favorite stocks. If you were to get out, if you 0:02:19.000 --> 0:02:21.640 were to sell, chances are you might have a gain, 0:02:21.680 --> 0:02:23.240 you'd have to pay the tax on it, and then 0:02:23.280 --> 0:02:24.960 you'd be faced with the question, what do you do 0:02:25.040 --> 0:02:28.440 with the cash? Correct, You certainly would be faced to that, 0:02:28.520 --> 0:02:31.919 and it would be not an easy not an easy challenge, 0:02:31.919 --> 0:02:33.519 to be honest with you. I mean, you know that 0:02:33.600 --> 0:02:36.679 interest rates are very low. You know that if you 0:02:36.760 --> 0:02:38.800 take that cash and you invested in the bond market 0:02:38.800 --> 0:02:41.760 at a time when the fellow reserve is uh interesting, 0:02:41.880 --> 0:02:44.919 increasing interest rates not only one more time perhaps in 0:02:44.960 --> 0:02:48.639 two seventeen, but three times in two thousand eighteen, you're 0:02:48.680 --> 0:02:51.160 likely to suffer a loss on that fixte income portfolio. 0:02:51.200 --> 0:02:54.480 So it's it's really a challenge, I mean a big challenge. 0:02:54.520 --> 0:02:57.640 I think the returns from the fixed income markets for 0:02:57.720 --> 0:03:00.560 two thousand eighteen two thousand nineteen are going to be 0:03:00.600 --> 0:03:02.880 close to zero. You'll get some money from the coupon, 0:03:03.200 --> 0:03:06.640 you'll lose money on the principle of the fixed income. 0:03:06.720 --> 0:03:09.639 So it is a challenge for sure. You know, I'm 0:03:09.639 --> 0:03:14.000 struck by the fact that your forecasts for next year 0:03:14.000 --> 0:03:17.880 in the year after don't include any sort of downturn. 0:03:17.960 --> 0:03:23.000 You see wages increasing, albeit not a lot, but steadily, uh, 0:03:23.000 --> 0:03:25.560 and you see just a general kind of continuation of 0:03:25.560 --> 0:03:28.520 what we've been seeing over the past year. I'm wondering 0:03:28.760 --> 0:03:30.840 what could make you change your mind, and why are 0:03:30.840 --> 0:03:33.920 you so confident that we won't see some sort of 0:03:34.000 --> 0:03:37.200 economic downturn where you're you never you never releast, you 0:03:37.320 --> 0:03:40.720 never that confident. I say these things, I forecast these things, 0:03:41.480 --> 0:03:44.640 you know, quite frankly, with my fingers tightly crossed. And 0:03:44.720 --> 0:03:46.760 you know, I assume you know we're at a low 0:03:46.840 --> 0:03:49.120 level of interest rates. Yes, the Federals there's gonna be 0:03:49.160 --> 0:03:51.480 raising interest rates. Yes, interest rates are going to be 0:03:52.160 --> 0:03:54.120 going higher. But I don't think we're at a level 0:03:54.200 --> 0:03:57.280 right now that really threatens the economic expansion. So making 0:03:57.320 --> 0:03:59.880 the forecast that the economy is going to continue to 0:04:00.080 --> 0:04:03.280 span through two eighteen nineteen is a little bit easier. 0:04:03.320 --> 0:04:05.240 The second thing is, I don't expect that we're going 0:04:05.280 --> 0:04:08.520 to have a move towards uh fiscal restraint. If anything, 0:04:08.520 --> 0:04:11.240 we're gonna have a move towards an easier fiscal policy, 0:04:11.320 --> 0:04:14.200 more generous fiscal policy in the form of tax cuts 0:04:14.200 --> 0:04:17.560 and spending increases. So it'd be really from the policy 0:04:17.600 --> 0:04:20.359 point of view, you'd say, gee, it's just it's just 0:04:20.480 --> 0:04:23.479 too early to say this, this thing is going to end. Uh, 0:04:23.520 --> 0:04:25.440 it looks like it's going to go further. But but 0:04:25.600 --> 0:04:28.240 talk to me at the end of well, at the 0:04:28.279 --> 0:04:30.760 middle of two thousand nineteen, when we have interest rate 0:04:30.880 --> 0:04:33.320 higher and we start to get much more nervous about 0:04:33.720 --> 0:04:36.000 federal budget deficits, and I think those are in the 0:04:36.040 --> 0:04:38.560 cars when we start to get that nervous, and then 0:04:38.560 --> 0:04:41.080 we're gonna move a shift in the in the different direction, 0:04:41.160 --> 0:04:42.920 and then you're gonna start to see it show up 0:04:42.920 --> 0:04:45.160 in the markets, and things are going to get a 0:04:45.160 --> 0:04:48.359 lot more a lot more dicey, and prospects for a 0:04:48.400 --> 0:04:51.159 turn down in the stock market and the economy will 0:04:51.200 --> 0:04:55.000 start to get certainly higher, if not real high. Alright, 0:04:55.040 --> 0:04:58.920 so he let's say your forecast is accurate, and things 0:04:58.920 --> 0:05:00.960 will kind of grind a law a little bit higher 0:05:01.600 --> 0:05:04.279 all the time over the next two and a half years. 0:05:04.279 --> 0:05:08.960 I'm wondering what's the best way for investors to allocate 0:05:08.960 --> 0:05:12.279 to markets. Is it by you know, passive funds that 0:05:12.560 --> 0:05:15.520 look to broad state look to capture gains and broad 0:05:15.560 --> 0:05:19.760 swaths of UH specific stock markets. Is it active managers? 0:05:19.880 --> 0:05:23.320 What are you advising clients? What's your approach that is 0:05:23.360 --> 0:05:25.600 a really great question, because you and I both know 0:05:25.720 --> 0:05:29.520 that that the passive investing has worked a lot better 0:05:29.560 --> 0:05:33.320 than active investing up until really this year, and this 0:05:33.400 --> 0:05:35.080 year we're starting to see a little bit of a 0:05:35.120 --> 0:05:38.080 shift and active managers have been doing a lot better. 0:05:38.720 --> 0:05:42.159 Whether you lose exchange traded funds for passive investing or 0:05:42.200 --> 0:05:44.480 you start to look at active managers, I'm not sure 0:05:44.520 --> 0:05:47.160 how what the outcome is going to be. The Only 0:05:47.200 --> 0:05:49.760 thing I can say with a lot of confidences, especially 0:05:49.800 --> 0:05:52.800 given my forecast, is that you need to have a 0:05:52.839 --> 0:05:57.640 meaningful allocation, whether it's passive or active, meaningful allocation to equities, 0:05:57.640 --> 0:05:59.760 in other words, don't go in the bunkers right now. 0:06:00.240 --> 0:06:03.080 For example, if your target of fifty equities and you've 0:06:03.120 --> 0:06:08.080 got a range of say thirty to sixt of toleration range, 0:06:08.560 --> 0:06:11.200 you might be up and around and I wouldn't change 0:06:11.240 --> 0:06:14.280 that whether it's active or passive. But your question, should 0:06:14.320 --> 0:06:17.000 it be active, should it be passive? Great question. We're 0:06:17.000 --> 0:06:19.479 all grappling with that question, and we're starting to see 0:06:19.839 --> 0:06:24.840 active managers outperform indexes or passive management. You have you 0:06:24.880 --> 0:06:27.760 ever had a customer or a client who pulled their 0:06:27.800 --> 0:06:32.159 account because the performance was let's say, two hundred basis 0:06:32.200 --> 0:06:36.160 points less than some benchmark. Does that really happen on 0:06:36.200 --> 0:06:39.760 a regular basis, Well, we've been lucky, we've been fortunate. 0:06:39.800 --> 0:06:41.440 We don't take of the levels of risk that they're 0:06:41.440 --> 0:06:44.159 going to give us that two hundred basis points below benchmark. 0:06:44.760 --> 0:06:47.640 If we did, I wouldn't be at all surprised if 0:06:47.680 --> 0:06:51.360 if investors did pull their poll stakes and and go 0:06:51.440 --> 0:06:54.719 to another another manager, because that's not what we promised them. 0:06:55.040 --> 0:06:57.280 We've promised them that we're going to be a roughly 0:06:57.320 --> 0:07:01.040 fifty basis points below fifty basis points above. We've had 0:07:01.240 --> 0:07:03.839 really good luck or fortune because we picked some really 0:07:03.880 --> 0:07:05.800 good stocks in the last couple of years, so we've 0:07:05.839 --> 0:07:08.760 been well above benchmark. I don't think we're for any 0:07:08.800 --> 0:07:11.400 long extended period of time, we'll be honestly going to 0:07:11.520 --> 0:07:15.600 depart very significantly from benchmark, and that means no downside 0:07:15.600 --> 0:07:18.040 and therefore no loss of customers on Our customers are 0:07:18.080 --> 0:07:21.640 quite frankly like us, are kind of risk averse. They 0:07:21.720 --> 0:07:24.520 really want you to do okay in an up market, 0:07:24.840 --> 0:07:27.200 but what they want more than anything is is really 0:07:27.240 --> 0:07:29.920 to preserve capital in the down market, because that's the 0:07:30.040 --> 0:07:34.880 secret long term performance. You real quick, how are you 0:07:35.200 --> 0:07:38.840 creating that insurance building it into the portfolio. You do 0:07:38.880 --> 0:07:40.679 it in a lot of different ways. There's a meaningful, 0:07:40.960 --> 0:07:43.560 you know, balanced portfolio. The second thing is you reduced 0:07:43.640 --> 0:07:46.800 risk by having high quality names in the portfolio. But 0:07:46.880 --> 0:07:50.040 much more importantly is to have a relative balance among 0:07:50.200 --> 0:07:53.560 things in the portfolio, so you don't make a significant 0:07:53.600 --> 0:07:56.560 bet when it comes to sector allocation. Sector allocation, you 0:07:56.560 --> 0:08:00.680 can certainly be overweight technology, maybe a little bit underweight analogy, 0:08:00.840 --> 0:08:02.520 but you have to have us. You have to have 0:08:02.560 --> 0:08:06.400 allocation to all my view, all eleven sectors in the market. 0:08:06.480 --> 0:08:10.000 You can't can significantly overweight small cap stucks. Have a 0:08:10.040 --> 0:08:13.480 meaningful allocation to large, mid, and small, but not so 0:08:13.560 --> 0:08:16.440 significantly different from the benchmark. In other words, don't take 0:08:16.480 --> 0:08:20.280 a lot of sector or capitalization risk. That's just simply 0:08:20.320 --> 0:08:23.640 a mistake, Thank you very much. Hugh Johnson, Chairman, chief 0:08:23.680 --> 0:08:40.240 investment Officer, Hugh Johnson Advisors. Well, let's say get more 0:08:40.240 --> 0:08:43.439 information about a group of companies that will be reporting 0:08:43.480 --> 0:08:46.560 their results. We're gonna get Eli, Lily and Biogen they'll 0:08:46.559 --> 0:08:49.400 come out with their results tomorrow. Plus we've got am 0:08:49.480 --> 0:08:53.560 Jen and Gilliad Sciences. This week, Bristol Myers, Squib, Murky, LII, 0:08:53.640 --> 0:08:56.480 Lily and for that we've got Sam Fizzelli. He's the 0:08:56.520 --> 0:09:00.240 director of research for Bloomberg Intelligence in London. Knows weything 0:09:00.280 --> 0:09:02.800 about these companies. Sam, thank you very much for spending 0:09:02.840 --> 0:09:04.840 time with us. Where do you want Where do you 0:09:04.840 --> 0:09:07.839 want to begin? What's the most important results or what 0:09:07.880 --> 0:09:09.480 should we be looking for this week? Because we've got 0:09:09.520 --> 0:09:12.240 a variety of companies, right, I'm going to begin with 0:09:12.320 --> 0:09:14.800 just talking about the large farmer companies because that's where 0:09:14.920 --> 0:09:18.040 I spend most of my time looking at things I 0:09:18.120 --> 0:09:21.200 want to do. Glaxo Smith Klein, we can, but you 0:09:21.280 --> 0:09:23.560 have to admit that I think the star of the 0:09:23.559 --> 0:09:27.120 show this week and frankly for the third quarter will 0:09:27.160 --> 0:09:30.920 be Eli Lily. Okay, so that's tomorrow. That's tomorrow. They've 0:09:30.920 --> 0:09:35.160 got some decent sales growth expected about six percent. But 0:09:35.360 --> 0:09:37.520 really what's going on in Lily is not only you're 0:09:37.559 --> 0:09:41.320 getting new drugs and some existing key drugs such as 0:09:41.360 --> 0:09:44.480 Trilicity and Jardians driving the top line and they're both 0:09:44.520 --> 0:09:47.280 for diabetes and we know what a big problem that is, 0:09:48.080 --> 0:09:51.600 but it's really the margin story and Lily that's quite 0:09:51.600 --> 0:09:55.080 attractive and exciting and in that the company is working 0:09:55.600 --> 0:09:58.000 has got a long way to come and meet and 0:09:58.120 --> 0:10:01.600 beginning where near some of the others others peers obviously 0:10:01.880 --> 0:10:05.199 other other peers, therefore giving it an opportunity to give 0:10:05.320 --> 0:10:09.120 us almost three times its sales growth in EPs growth 0:10:09.160 --> 0:10:12.720 expectations for this quarter. So that that's really what's driving 0:10:12.800 --> 0:10:15.240 the excitement on that one. Can you give us a 0:10:15.280 --> 0:10:18.160 sense of what's driving that? Is that that they can 0:10:18.520 --> 0:10:21.880 price their drugs at a higher spot is because they're 0:10:21.920 --> 0:10:24.040 cutting staff. I mean, where are the where are the 0:10:24.120 --> 0:10:27.240 margins coming from? Well, I mean again, Lily has been 0:10:27.320 --> 0:10:31.360 one of those companies that, putting beer aside, has been 0:10:31.400 --> 0:10:34.600 at the low end of operating margins among all of 0:10:34.640 --> 0:10:37.560 its what we call the thirteen large farmer peers if 0:10:37.559 --> 0:10:40.040 you still want to call beer a large beyer a 0:10:40.120 --> 0:10:43.160 large farmer company. So there's a lot of room for 0:10:43.160 --> 0:10:45.280 for the performance there, and a lot of it that 0:10:45.400 --> 0:10:49.400 comes from basically a lot um operational leverage that they're 0:10:49.400 --> 0:10:54.520 getting and also more consolidating its sales and and and 0:10:54.840 --> 0:10:58.040 different aspects of their business, which the new CEO is 0:10:58.160 --> 0:11:01.160 particularly focused on in terms of delivering, although it has 0:11:01.200 --> 0:11:04.000 been a target for the past couple of years at 0:11:04.040 --> 0:11:07.040 least to get that margin the one they look at, 0:11:07.080 --> 0:11:11.280 which is R and D plus scn A expenses as 0:11:11.280 --> 0:11:15.000 a percentage of sales to below and they're doing a 0:11:15.000 --> 0:11:17.400 pretty good job of getting that. So it's not just 0:11:17.480 --> 0:11:20.640 about drug pricing. In fact, if I may, Lily has 0:11:20.679 --> 0:11:24.920 been one of those that's not been uh particularly aggressive 0:11:24.920 --> 0:11:28.360 in its price rises, especially in the insulin area where 0:11:28.400 --> 0:11:31.320 there's been a lot of attention recently diabetes, where if 0:11:31.360 --> 0:11:34.439 you look at the net price of the insulin products 0:11:34.480 --> 0:11:37.520 on the market, they've been flat for past three four 0:11:37.679 --> 0:11:41.040 five years, so no real net increasing prices. It's volume 0:11:41.080 --> 0:11:43.520 that's driving that well. And I just want to get 0:11:43.520 --> 0:11:45.439 your thoughts and if you can look just a one 0:11:45.440 --> 0:11:49.760 more about ELI Lily having to do with patent litigation 0:11:49.880 --> 0:11:54.440 and patent interpretation, how's that can affect the company? Well, 0:11:54.480 --> 0:11:57.240 I mean, you know, they have they're they're affected by 0:11:57.280 --> 0:12:00.480 patent experience that they're like everybody else. They haven't anything 0:12:00.600 --> 0:12:05.440 particularly um different to trying to protect their patents. And 0:12:05.480 --> 0:12:08.040 they've got one that's coming up with a Limita, which 0:12:08.080 --> 0:12:11.679 is a cancer drug a billion I have two billion 0:12:11.679 --> 0:12:15.360 dollars of sales in total and that is going through 0:12:15.400 --> 0:12:18.080 the motions. It was challenged by IPRs and it's one 0:12:18.720 --> 0:12:20.640 some of those who has been challenged in the UK 0:12:20.760 --> 0:12:24.480 and it won those So but eventually the molecule will 0:12:24.480 --> 0:12:26.400 go off patterns and there's nothing you can do about that. 0:12:26.440 --> 0:12:28.920 You're you know, this is a formulation pattern that they've 0:12:28.920 --> 0:12:31.920 been protecting and it seems to have the test of 0:12:31.960 --> 0:12:34.680 time so far, but eventually it will come. Other than that, 0:12:34.679 --> 0:12:37.000 there's nothing really in there that they're not doing any 0:12:37.600 --> 0:12:41.360 special moves or if if you're referring to, for instance, 0:12:42.000 --> 0:12:45.160 doing a deal with whether they with a tribe or 0:12:45.200 --> 0:12:47.920 anything like that, nothing like, nothing like that has happened there. 0:12:48.120 --> 0:12:50.320 I'd love to just get a quick overview of what 0:12:50.440 --> 0:12:53.920 to expect from Mark because it seems like they have 0:12:54.240 --> 0:12:58.839 a less rosy expectation with respect to margins and how 0:12:58.920 --> 0:13:02.600 much their sales could right right right, Yeah, So America 0:13:02.640 --> 0:13:04.760 is in a very cut throat business at the moment, 0:13:04.840 --> 0:13:07.680 in the cop throat business of emmano oncology in cancer 0:13:08.640 --> 0:13:12.280 trying to get and it's working immune system, the patient's 0:13:12.280 --> 0:13:15.280 immune system to attack their own cancer. So they are 0:13:15.480 --> 0:13:19.080 they lead along with Bristol Myers, who had the first 0:13:19.160 --> 0:13:23.880 drug on the market in this mechanism, in this in 0:13:23.920 --> 0:13:27.000 this arena called the year Boy a few years back. 0:13:27.520 --> 0:13:32.240 But basically it's so cutthro So you've got Astroseneca, Rush, 0:13:32.400 --> 0:13:36.800 Bristol Myers and Mark all competing to get the biggest, 0:13:36.960 --> 0:13:41.320 broadest indications and the largest number of combinations worked out 0:13:41.400 --> 0:13:45.080 for treating cancer, which costs money and it needs marketing. 0:13:45.160 --> 0:13:48.000 So what Mark has been very open with is we 0:13:48.040 --> 0:13:51.400 are getting some sales potentially in the system. I mean, 0:13:51.440 --> 0:13:53.839 the sales are expected to be about flat in three 0:13:53.920 --> 0:13:57.680 Q versus last year because they've got generic expiries, but 0:13:57.840 --> 0:14:00.719 don't expect margin evolution there. Because we've a twine, we're 0:14:00.760 --> 0:14:02.320 going to have to invest in the business. W'd be 0:14:02.320 --> 0:14:04.400 pretty open about this, which of course is a bit 0:14:04.440 --> 0:14:06.800 tough when you really only have one drug that's growing, 0:14:06.960 --> 0:14:08.480 We're gonna have to leave it there, unfortunately. Thank you 0:14:08.520 --> 0:14:10.840 so much for joining us, Sam Fazzelli, director of research 0:14:10.880 --> 0:14:28.320 for Bloomberg Intelligence, coming to us from London. Well, Haliburton 0:14:28.440 --> 0:14:32.360 reported earnings this morning, Schlumberge last week, and here to 0:14:32.560 --> 0:14:36.400 tell us what the highlights are. Liam Denning Bloomberg Gatflight 0:14:36.440 --> 0:14:40.120 columnists covering energy. So what stood out from you with 0:14:40.200 --> 0:14:43.680 respect to Haliburton's earnings. It shares are down slightly, although 0:14:43.720 --> 0:14:48.320 not as down as schlumber Jay's. Yes, So the biggest 0:14:48.320 --> 0:14:50.240 thing here is just the different messages coming out of 0:14:50.280 --> 0:14:54.320 these two companies. So um, the key differences between Schlumberjo 0:14:54.360 --> 0:14:56.440 and haliber and his halib And is much more North 0:14:56.480 --> 0:15:01.000 America focused, like six revenue slamba, it's round a third. 0:15:01.360 --> 0:15:05.000 So Haliburton whenever there's a big uptick in US activity, 0:15:05.040 --> 0:15:08.440 particularly in the shale basins, Haliburton is the usual beneficiary. 0:15:08.440 --> 0:15:12.440 And so when Slumberge reported on Friday, North America was 0:15:12.520 --> 0:15:14.720 kind of the only bright spot in their earnings, which 0:15:14.760 --> 0:15:16.840 made it very likely that Haliburton was going to step 0:15:16.960 --> 0:15:19.320 up and beat earnings. And and that's exactly what it 0:15:19.360 --> 0:15:22.800 did on on Monday morning. Well, I just just explained 0:15:22.840 --> 0:15:25.160 why North America is doing so much better than everywhere 0:15:25.200 --> 0:15:30.000 else for them. So a big reason is it's really 0:15:30.000 --> 0:15:32.120 a timing thing, and it's this is actually kind of 0:15:32.120 --> 0:15:34.800 the crux of the difference between the two companies, and 0:15:34.800 --> 0:15:37.160 it kind of reflects a big difference in the global 0:15:37.240 --> 0:15:40.400 or market what we're seeing at the moment is in 0:15:40.440 --> 0:15:42.640 the old days, what would happen is the all price 0:15:42.720 --> 0:15:47.200 would collapse and then everyone would stop investing, and then 0:15:47.240 --> 0:15:49.800 the all price would rise, But then it would take 0:15:49.840 --> 0:15:53.080 several years for everyone to you know, find new wells 0:15:53.400 --> 0:15:56.400 of fine new prospects, drill wells, bring the oil into production, 0:15:56.720 --> 0:15:58.760 and so you have a fairly long cycle. What shale 0:15:58.800 --> 0:16:01.200 has done is it's kind of short cirkuted that what 0:16:01.320 --> 0:16:04.680 happens is the old price has come down, but then 0:16:04.720 --> 0:16:07.200 as soon as the old price gets back above fifty 0:16:07.200 --> 0:16:10.560 bucks or so, and particularly a year out, which is 0:16:10.600 --> 0:16:13.720 when MP companies are hedging their future production, they all 0:16:13.800 --> 0:16:16.800 kind of get back to work, which then caps the rally. 0:16:17.240 --> 0:16:19.280 And so that's a big difference we've seen in schlimber 0:16:19.320 --> 0:16:22.560 Jan Haliburton's outlook. Schlimberja is saying things are slowing down 0:16:22.600 --> 0:16:25.480 in North America. All prices are gonna rise. We're going 0:16:25.560 --> 0:16:29.400 to see a big uptick in international drilling coming through. 0:16:29.720 --> 0:16:32.920 Haliburton less certain about that, all right, Leo, let me 0:16:33.000 --> 0:16:34.520 just go to a couple of sort of points here, 0:16:34.600 --> 0:16:36.520 right because a crude or right now trading on the 0:16:36.600 --> 0:16:41.320 NIMEX seventy six cents for a barrel. That's West Texas. 0:16:41.720 --> 0:16:45.280 Let's go through margins when it comes to Haliburton, good margins, right, 0:16:45.680 --> 0:16:48.400 they have very good margins. They kind of took a 0:16:48.520 --> 0:16:50.880 hit earlier this year. You may remember they issued a 0:16:50.920 --> 0:16:54.320 profit warning the first quarter and that, But wasn't that 0:16:54.440 --> 0:16:58.160 to take some some of their capacity out of the 0:16:58.280 --> 0:17:01.000 market and to then prepare air for what they thought 0:17:01.120 --> 0:17:04.800 was going to and has happened, which is this extensive tracking. Yeah, 0:17:04.800 --> 0:17:07.320 and they were actually talking. What they did was actually 0:17:07.320 --> 0:17:09.239 they put more capacity into the market, so they had 0:17:09.240 --> 0:17:12.080 to take a big post up front to redeploy that stuff. 0:17:12.119 --> 0:17:15.000 And it's it's paid off because there their incremental margins 0:17:15.119 --> 0:17:17.879 since then have been have been up quite sharply. What 0:17:17.960 --> 0:17:20.520 about efficiency gains, because they're pointing to the fact, and 0:17:20.560 --> 0:17:23.159 you've written about this that it's that they are focused 0:17:23.200 --> 0:17:24.600 on the fact that it's going to cost a lot 0:17:24.760 --> 0:17:27.320 less money in the future to get whatever you want 0:17:27.359 --> 0:17:29.560 out of the ground, whether it's the shale oil or 0:17:29.600 --> 0:17:31.560 regular oil. That's right. One of the one of the 0:17:31.560 --> 0:17:33.960 points actually made on the coolest morning was they said, 0:17:34.040 --> 0:17:36.880 look you look at the rig count. It's it's way 0:17:36.960 --> 0:17:40.359 down on what it was. But the fact is people 0:17:40.359 --> 0:17:43.240 are drilling alonger wells. They said, actually foot for foot, 0:17:44.200 --> 0:17:46.879 we're actually drilling as much this year as we did 0:17:47.880 --> 0:17:49.560 when all was at a hundred bucks. So maybe you 0:17:49.600 --> 0:17:53.280 can get rid of the Baker hughes like weakly, you know, up, down, sideways, 0:17:53.359 --> 0:17:55.399 you know which way it moves. Because tech this is 0:17:55.480 --> 0:18:00.680 as much a technology story. Well yeah, makesure week, But 0:18:00.800 --> 0:18:02.159 I mean is this true though that? I mean it 0:18:02.240 --> 0:18:04.520 really there has become a technology story when you're talking 0:18:04.520 --> 0:18:07.080 about energy markets. Absolutely. I mean this has been a 0:18:07.240 --> 0:18:10.160 theme for at least the past year. You know, Halibut 0:18:10.160 --> 0:18:12.800 and struck, this alliance with Microsoft. We're seeing these kind 0:18:12.800 --> 0:18:16.280 of alliances being struggled over the sector. So there was 0:18:16.320 --> 0:18:18.520 sort of an implication there when you're talking about how 0:18:18.560 --> 0:18:21.800 Schlumberge seems confident that prices are going to rise and 0:18:21.920 --> 0:18:25.760 Haliburton seems less sure of that. It's part of that, 0:18:26.000 --> 0:18:30.040 first of all, that Schlumberja needs prices to rise in 0:18:30.200 --> 0:18:32.280 order to hit its projections, and how high does it 0:18:32.359 --> 0:18:35.440 have to see prices rise? And what's Haliburton seeing as 0:18:35.520 --> 0:18:39.119 far as a projected crude value in the future. Well, 0:18:39.200 --> 0:18:42.119 let's Let's let's note first that they're both talking their 0:18:42.160 --> 0:18:44.800 own book, right, so of course, but this is important 0:18:44.800 --> 0:18:47.280 to see how they're talking there. I would say it's 0:18:47.359 --> 0:18:49.639 less it's less a price level, and it's more to 0:18:49.720 --> 0:18:51.720 do with something that Haliburton raised on the call, which 0:18:51.720 --> 0:18:54.120 I think was very interesting. So if you go back 0:18:54.160 --> 0:18:56.600 to that point I made about the short cycle kind 0:18:56.640 --> 0:19:00.359 of nature of shale, with shale drillers, all they need 0:19:00.480 --> 0:19:03.640 to see is the al price to get appreciably above 0:19:03.760 --> 0:19:08.040 fifty bucks a barrel over the next twelve months for 0:19:08.160 --> 0:19:10.760 an international project. And this is the point Haliberta made. 0:19:11.400 --> 0:19:13.760 If you're going to drill a deep water field somewhere 0:19:13.800 --> 0:19:15.800 in Africa, you not only need to see that price 0:19:16.000 --> 0:19:18.600 rise above fifty bucks or whatever level it is that 0:19:18.680 --> 0:19:20.960 you need for the next twelve months, you've got to 0:19:21.000 --> 0:19:23.240 think it's going to hold that for at least three 0:19:23.280 --> 0:19:26.560 to four years, because otherwise, why would you drill a 0:19:26.600 --> 0:19:28.840 well that isn't going to start producing the two to 0:19:28.960 --> 0:19:34.000 three four years. And I think that's the key challenge. Well, 0:19:34.040 --> 0:19:36.280 that's also the challenge for investors, right because of whether 0:19:36.320 --> 0:19:38.119 your long term depends how much money you're going to 0:19:38.200 --> 0:19:39.840 put in the ground to get out what's going to 0:19:39.920 --> 0:19:42.680 pay you back? Right, And that's why we've seen, particularly 0:19:42.720 --> 0:19:45.560 with the international companies. You know, even though this is 0:19:45.880 --> 0:19:49.760 apparently a historic opportunity to invest well, prices of rigs 0:19:50.000 --> 0:19:52.720 and that sort of thing are low. You'll notice all 0:19:52.720 --> 0:19:55.320 their investors are basically saying, pay us dividends because we 0:19:55.400 --> 0:19:57.560 don't want you putting it in the ground. Thanks very 0:19:57.640 --> 0:20:00.119 much for joining us and always appreciate your column. So 0:20:00.320 --> 0:20:03.000 he's our Gadfly columnist when it comes to energy, mining 0:20:03.119 --> 0:20:07.000 and commodities, Liam Denning, and you can follow him on 0:20:07.359 --> 0:20:22.480 Twitter at Liam Denning. It's time to pay up. Well, 0:20:22.640 --> 0:20:25.120 Friday is the time to pay up, and next week 0:20:25.200 --> 0:20:27.040 might be the time to pay up if you happen 0:20:27.119 --> 0:20:30.760 to be the Venezuelan nationally owned the oil company. Here 0:20:30.800 --> 0:20:33.800 to tell us more about the debt situation and Venezuela 0:20:33.960 --> 0:20:38.320 is Jamine Patel, our senior credit analyst for Bloomberg Intelligence, 0:20:38.680 --> 0:20:41.520 and Jamine, thanks very much for being with us. Appreciate it. 0:20:41.680 --> 0:20:44.240 Maybe just set out for people exactly how much does 0:20:44.280 --> 0:20:47.399 PETA vesa, oh will it be able to pay? And 0:20:47.480 --> 0:20:50.720 then maybe just describe the relationship that it has with 0:20:51.000 --> 0:20:53.720 ros Neft and how that might sort of play into 0:20:53.760 --> 0:20:56.600 all of this. Sure, First of all, thank you for 0:20:56.680 --> 0:21:00.520 having me um to to your first question, how much 0:21:00.520 --> 0:21:02.440 how much? Instead of oh, we really have to look 0:21:02.480 --> 0:21:06.720 at both Peta Vesta and and the Venezuela sovereign jet 0:21:07.800 --> 0:21:10.879 because you know, it's sort of hard to to differentiate 0:21:10.960 --> 0:21:13.960 between the two. The two are are really quite integrated. 0:21:14.560 --> 0:21:17.600 And to the extent that at investor doesn't have funds 0:21:17.640 --> 0:21:20.600 to make its bond payments, then um, I think you 0:21:20.680 --> 0:21:23.240 have to you have to turn to the sovereign. So 0:21:23.640 --> 0:21:25.840 the total they're if you're looking at the at the 0:21:25.920 --> 0:21:30.159 total bonds is about sixty seven billion, but you have 0:21:30.280 --> 0:21:34.760 to add to that somewhere around fifty billion of loans 0:21:34.880 --> 0:21:39.640 primarily from from China, Russia and UH, you know through 0:21:40.040 --> 0:21:43.560