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Speaker 2: You're listening to Bloomberg Intelligence. Alex Steel here Paul Sweeney
Speaker 2: recover all the industries and all the analysis from our
Speaker 2: fabulous Bloomberg Intelligence arm of analysts two thousand companies, one
Speaker 2: hundred and thirty industries all around the world. And for
Speaker 2: that we're going to focus on Paramount for a moment.
Speaker 2: That stock US down about four and a half percent.
Speaker 2: The news is that they're letting go of hundreds of
Speaker 2: employees just after an amazing number of people watch the
Speaker 2: Super Bowl on all different platforms. There's only one person
Speaker 2: that you go to for this analysis. Keith ar Monganathan,
Speaker 2: Bloomberg Intelligence analyst on US Media gets too. You have
Speaker 2: the layoffs and then you also wind up having this
Speaker 2: amazing streaming number. Walkers through your take.
Speaker 3: Yeah, I mean this is really more of course, they
Speaker 3: did have a great Super Bowl, Alex, but I think
Speaker 3: this is really more about the future outlook for the company,
Speaker 3: and that is super super bleak. Yes, it was a
Speaker 3: great night for TV advertising. We think they've gotten seven
Speaker 3: hundred million dollars in roughly about four hours. But then
Speaker 3: it's more about the spectcular challenges. I mean, throughout twenty
Speaker 3: twenty three we've seen TV advertising decline by low double digits.
Speaker 3: It was down almost thirteen percent in the latest quarter
Speaker 3: that they reported, and it's not going to get too
Speaker 3: much better. And it's not just the challenges on the
Speaker 3: TV side of the equation for them. It's also about
Speaker 3: their streaming business. And they've made good strides absolutely in
Speaker 3: terms of you know, streaming subscribers, and again I anticipate
Speaker 3: that they're going to have some good streaming numbers to
Speaker 3: report thanks to the Super Bowl. But it is burning
Speaker 3: a lot of money. Almost one point seven billion dollars
Speaker 3: is what they will report in losses for twenty twenty
Speaker 3: four and for twenty twenty three, and before that they
Speaker 3: lost about one point eight billion, So it's just been
Speaker 3: a continuous drain on the company.
Speaker 4: So Githa, the stock is down over the trailing twelve
Speaker 4: months about forty percent here, and I know there's a
Speaker 4: lot of talk around, perhaps the controlling shareholder, Sherry Redstone,
Speaker 4: will consider selling all a part of the company. What's
Speaker 4: the latest on that?
Speaker 3: So the latest actually in that saga, and this has
Speaker 3: now been an ongoing drama for many months now, Paul,
Speaker 3: the latest is that Byron Allen actually came up with
Speaker 3: a bid for all of the company, not just for
Speaker 3: the controlling stake held through National Amusements. And he actually
Speaker 3: put up a pretty good bid. You know, it was
Speaker 3: fourteen billion dollars in terms of equity, so thirty billion
Speaker 3: dollars enterprise value. We think it was a pretty fair bid.
Speaker 3: The problem is, you know, Byron Allen, I don't think
Speaker 3: anybody is taking him too seriously. He's you know, had
Speaker 3: this track of kind of coming up with these empty bids.
Speaker 3: So while it is a number, again we've not really
Speaker 3: seen a whole lot of action that we would have expected.
Speaker 2: So this is a totally unfair question to Paul. Let's
Speaker 2: pretend you're still an m and a banker here, investment banker.
Speaker 2: What would you be talking to paramount about.
Speaker 4: I would I would say, I think the best buyer here,
Speaker 4: there's a strategic buyer, maybe Warner Brothers Discovery, but both
Speaker 4: of those companies as githa wall and those balance sheets
Speaker 4: are not great. I think I would be shopping into
Speaker 4: a private equity because they're still good for free cash
Speaker 4: flows here and let them deal with it. So gethe
Speaker 4: what is what is the sense here as to I
Speaker 4: think about Paramount, I think about Warner Brothers Discovery. I
Speaker 4: don't know. I mean, what do we what is happens
Speaker 4: to these companies because it just feels like against some
Speaker 4: of the big tech companies, Uh, you know, they're just
Speaker 4: not big enough here, and you know against Netflix are
Speaker 4: just not big enough. What did they do?
Speaker 2: So?
Speaker 3: I think Warner Brothers Discovery actually had a pretty interesting
Speaker 3: move last week, Paul, which was they banded together with ESPN,
Speaker 3: Disney and Fox to kind of create this sports super
Speaker 3: app which will launch in the fall. And that's one
Speaker 3: way for them to kind of protect at least some
Speaker 3: part of their linear revenue stream, because I mean, they've
Speaker 3: kind of everybody's seeing the writing on the wall here.
Speaker 3: We're seeing cord cutting, We're seeing about ten percent of
Speaker 3: the subscriber based get eroded year after year. We've already
Speaker 3: lost thirty million subscribers. So that's one good way for
Speaker 3: them I think to kind of control their destiny a
Speaker 3: little bit in terms of distribution. Again, remember Paramount is
Speaker 3: not part of that bundle, so that again is a
Speaker 3: little bit of you know, a strike against them. But
Speaker 3: you know, you bring up a good point. I think
Speaker 3: at the end of the day, we are going to
Speaker 3: have to see consolidation. Of course, as you just pointed out,
Speaker 3: there were rumors of actually Warner Brothers, Discovery being interested
Speaker 3: in Paramount, but you're right, the market did not cheer
Speaker 3: for that. That would be about more than you know,
Speaker 3: fifty or sixty billion dollars I think in debt or
Speaker 3: those combined companies. So yeah, it is it is definitely
Speaker 3: going to be challenging, but I think consolidation is definitely
Speaker 3: on the cards.
Speaker 2: Okay, So then how does that happen? Because if like
Speaker 2: three wrongs don't make a right, and you're not gonna
Speaker 2: put all the media companies together because it's going to
Speaker 2: create more problems. So is it private equity like to
Speaker 2: split up different areas of media within the company.
Speaker 3: Yeah, I think Paramount I think one of the things
Speaker 3: has been, you know, to sell it for parts. Right,
Speaker 3: there are some parts of the company, the TV networks
Speaker 3: that could be very very attractive to private equity, as
Speaker 3: you just pointed out, because of the cash flows. Right,
Speaker 3: it's still a business. It used to throw out about
Speaker 3: six billion dollars in ebit dah, but it will still
Speaker 3: throw out about four and a half to almost close
Speaker 3: to four point eight billion dollars in ebit DA. So again,
Speaker 3: cash highly cash generative. Of course, the future you know
Speaker 3: flows don't look so great. But then there have been
Speaker 3: a lot of uh, there has been a lot of
Speaker 3: interest in the studio part of the business, right, whether
Speaker 3: that's you know, David Ellison with his guy Dance Media,
Speaker 3: maybe somebody else, maybe even an Apple. We haven't necessarily
Speaker 3: seen any of those, you know, bids kind of come
Speaker 3: to fruition, but there definitely will be a lot of interest.
Speaker 3: But I think the one thing that we kind of
Speaker 3: have to wait to get some clarity on is definitely
Speaker 3: the regulatory environment. We've seen big tech kind of really
Speaker 3: shy away from anything too splashy, but who knows, maybe
Speaker 3: when the government changes, all of that will change as well.
Speaker 4: You know, Githa, when these networks bid and pay billions
Speaker 4: of dollars for sports rights, and even if you know,
Speaker 4: you put up that seven hundred million dollars of ad
Speaker 4: revenue that you reference. You know, it's tough to make
Speaker 4: a profit on that kind of business. So what the
Speaker 4: networks have always said is, yes, but we promote other
Speaker 4: shows on our networks, and that value is really worth
Speaker 4: paying these big rights fees. But if you're promoting all
Speaker 4: these shows on the CBS network that nobody's watching because
Speaker 4: of cord cutting, how valuable is that? I mean, I
Speaker 4: thought about that they were promoting all their shows that
Speaker 4: I don't think anybody's watching because they've already cut the cord.
Speaker 3: Yeah, you're absolutely right for them, though. The one that
Speaker 3: Paramount has done really kind of well, and I don't
Speaker 3: know whether this is a plus or a minus, but
Speaker 3: it definitely helps them at least shore up. I think
Speaker 3: the total value of their assets is they've actually all
Speaker 3: of their sports properties, including the NFL. They've actually kind
Speaker 3: of leaked it outside the muddle, so they were showing
Speaker 3: it on Paramount Plus day one, and they did the
Speaker 3: same thing with the Super Bowl as well. So I
Speaker 3: think even if they're you know, even if you have
Speaker 3: cord cutters, they could make the argument that yes, you know,
Speaker 3: people can potentially sign up for that service. We saw,
Speaker 3: of course Peacock do that with that Wildcat NFL game. Again,
Speaker 3: what they know that they're losing subscribers on the PayTV bundle,
Speaker 3: so they're trying to They're trying their best, I don't
Speaker 3: know how successfully to kind of make it up on
Speaker 3: the streaming side, but you're right, I mean it is
Speaker 3: kind of the lose lose.
Speaker 2: But you know, for me, I have become addicted to Survivor.
Speaker 2: I've never seen it, and when I had a concussion,
Speaker 2: that was the show that I decided that I was
Speaker 2: going to watch. And now I'm paying like twenty five
Speaker 2: bucks a season to watch it on iTunes and I'm like,
Speaker 2: this is getting ridiculous. That's what they gotta do. I
Speaker 2: got to get people like me to then go pay
Speaker 2: for the streaming service because I'm like, wait a minute,
Speaker 2: it's spen one hundred dollars on four seasons.
Speaker 5: Certainly a great promo Survivor by more people with concussions, yes.
Speaker 2: Exactly, but I mean I'm also like, wow, that's really
Speaker 2: expensive to that is to put out there. Keitha. So
Speaker 2: what's next? Like, what are you watching pre Paramount? Now?
Speaker 3: For Paramount, it's definitely. It is an M and a place.
Speaker 3: Something has to happen. It has to happen fast. Bob Backish,
Speaker 3: the CEO, has pretty much said it. He you know,
Speaker 3: he said he's evaluating Byron Allen's proposal. Again, not sure
Speaker 3: whether that will necessarily pan out, but somebody has to
Speaker 3: come up with something and it has to happen.
Speaker 4: Quickly, all right, Keitha, thanks so much for joining us.
Speaker 4: As always, Keitha wrong and nothing. She is the media
Speaker 4: analyst Bloomberg Intelligence. Yeah, I don't know. I don't know
Speaker 4: what you do with media in general. I mean because
Speaker 4: I just don't with the cord cutting and the switch
Speaker 4: to streaming, I don't know where the profits are going,
Speaker 4: and I don't know what multiple to put on whatever
Speaker 4: profits the companies tell me they're going to have.
Speaker 2: When you're taking I mean, I'll look at somebody like us, right,
Speaker 2: I mean you started in a different world. But for me,
Speaker 2: like I'm an unair talent person, like this is where
Speaker 2: I have grown up over the last you know, twenty years.
Speaker 2: What do you do if there's like a next phase,
Speaker 2: like where do you where is the media need going.
Speaker 4: To be podcasts?
Speaker 3: Right?
Speaker 2: But at some point Armies, You laugh, because then we're
Speaker 2: going to get saturated, right then, like all the money's
Speaker 2: going to go into one thing and the pendulum switches back. However,
Speaker 2: I have been hearing about the death of linear TV
Speaker 2: for twenty years. Yes, so, and it's still kicking in
Speaker 2: some form of another.
Speaker 4: It is still it's still kicking. And we saw if
Speaker 4: you want to get a big, big, big audience, partner
Speaker 4: up with the NFL and do the Super Bowl thing
Speaker 4: one hundred and twenty five million viewers.
Speaker 2: If you're an advertiser, I'm probably not.
Speaker 6: You're probably not.
Speaker 4: But if you're an advertiser, you're like, there is no
Speaker 4: other place, full stop, where I can get that kind
Speaker 4: of reach, And seven million dollars at the end to
Speaker 4: day doesn't seem like such a bad deal in the
Speaker 4: world where everybody's audience delivery has been deluded.
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Speaker 7: The Echo news of the day.
Speaker 4: CPI came in a little bit hotter than expected. We've
Speaker 4: got yields higher, the ten year treasures up about nine
Speaker 4: basis points four point two seven percent, the short ends
Speaker 4: up twelve basis points four point five nine percent. iRED
Speaker 4: Jersey joins us. Thankfully he is safe at his home office.
Speaker 4: He didn't trick that three minute drive to the Princeton office.
Speaker 4: So I were glad that you're working from home and
Speaker 4: you're safe and out there shoveling. What did you make
Speaker 4: of the CPI print, and more importantly, what do you
Speaker 4: think your friends at the Federal Reserve are going to say?
Speaker 7: A couple of things. First, let me say my school district,
Speaker 7: my daughter school district, does have a snow day today,
Speaker 7: so they are not learning online. Second, the hill in
Speaker 7: front of my house, I saw three cars slide down
Speaker 7: it because there's a sheet of ice under the snow. So,
Speaker 7: believe me, I'm glad I didn't go into the office
Speaker 7: today just because of the treachery of getting there. Yeah,
Speaker 7: today's CPI report obviously was stronger than expected, and in particular,
Speaker 7: and I think this is something we've been harping on
Speaker 7: for a little while. It's that the services component, so
Speaker 7: that what they call super core inflation, so services excluding
Speaker 7: housing services grew at over six percent on a year
Speaker 7: on year basis, and that's, you know, that's really the
Speaker 7: component that is really driving the fact that inflation is
Speaker 7: finding it very difficult to come down as quickly as
Speaker 7: I think some people had hoped. And you know, we've
Speaker 7: priced out basically not quite a whole nother cut, but
Speaker 7: we've priced out a large portion of another cut this year,
Speaker 7: and we're getting now toward the idea that maybe the
Speaker 7: FED is actually only going to cut three times this year,
Speaker 7: which is what they've been saying. There's still a lot
Speaker 7: of people and I was talking to some investors this
Speaker 7: morning who are thinking, well, why is the FED going
Speaker 7: to cut at all? If inflation keeps coming in like this?
Speaker 7: And I think that that's a reasonable question to be asking,
Speaker 7: is you know, is the Fed ever going to cut now?
Speaker 7: I think that they probably will cut at least one
Speaker 7: time before midyear, because if they don't, it'll be politically
Speaker 7: difficult for them to cut in say September, right during
Speaker 7: the election cycle, just because you know, they don't want
Speaker 7: to be seen as being political. And I think that
Speaker 7: they want to get at least one out of the way.
Speaker 7: That way they can say, well, you know, if we
Speaker 7: cut again, it's not it's not something that they haven't
Speaker 7: done already.
Speaker 2: So last week I was on TV and I brought
Speaker 2: up the risk of inflation reaccelerating, and I was almost
Speaker 2: kind of laughed off set a little bit by the guest,
Speaker 2: how much do we have to worry about a reacceleration?
Speaker 2: There is no hedging against, say, another hike, like there
Speaker 2: is no hedging against a reacceleration necessarily, do we need
Speaker 2: to start?
Speaker 7: Yeah, that's that's an interesting point. So I think there's
Speaker 7: a couple of things. One is, when you look at
Speaker 7: the composition of inflation, it's not that inflation has reaccelerated.
Speaker 7: I think you know, some people have said that to me.
Speaker 7: It's just that they didn't come down as the market expected.
Speaker 7: It's basically flat month on month more or less. The
Speaker 7: The issue I think with a the potential of another
Speaker 7: high is that you'd really need to see a meaningful
Speaker 7: acceleration in goods prices, and goods prices continue to fall
Speaker 7: at least very slightly. So the question is if we
Speaker 7: do see like supply chain issues or something like that
Speaker 7: that forces goods prices to increase another you know, even
Speaker 7: if it's just a little bit, like another percent or
Speaker 7: something like that, that will increase all of all of
Speaker 7: CPI a little bit, and that would, you know, certainly
Speaker 7: keep the Fed on the sidelines, you know, whether or
Speaker 7: not they hike. I think you need to see a
Speaker 7: string of that kind of reacceleration. And it seemed that
Speaker 7: that would be the trend in order for the Fed
Speaker 7: to hike again. But again, like we have to first
Speaker 7: price out all the cuts that are still being priced.
Speaker 7: Keep in mind, we're still pricing for the Federal Reserve
Speaker 7: to cut interest rates two hundred basis points over the
Speaker 7: next year and a half. So let we have to
Speaker 7: price that out first before we start talking about talking
Speaker 7: about the market pricing and heights.
Speaker 4: So we talk to traders here, Ira, what are they
Speaker 4: doing here? I mean it looks like they're I mean
Speaker 4: today yields are up twelve basis points on a two
Speaker 4: year Are people trading off of the are they investing
Speaker 4: off of this number? What do they trade off of
Speaker 4: this number?
Speaker 7: Well, so, investors in aggregate, it seemed to have been
Speaker 7: more or less flat to slightly underweight duration. So that
Speaker 7: means that they're basically short interest rate risk, which which
Speaker 7: means that they did pretty well today right with ten
Speaker 7: years yields up about nine basis points right now. The
Speaker 7: people had gotten long interest rates and then they started
Speaker 7: to cut those when we got under four percent. So
Speaker 7: I think things are a little bit more balanced now.
Speaker 7: I haven't talked to a lot of like traders, like
Speaker 7: high frequency traders, but the investors that I've talked to
Speaker 7: over the last couple of days certainly are you know
Speaker 7: a little bit, but they're looking for an entry point
Speaker 7: to get long rates at least a little bit. You know,
Speaker 7: they didn't like rates at three eighty, you know, well
Speaker 7: they like rates at two and at four and a quarter.
Speaker 7: Not sure, but there certainly is some appetite for people
Speaker 7: maybe to you know, shorts to cover and to get
Speaker 7: flat duration for example, and that could be coming. And
Speaker 7: there definitely is demand. You look at the auction last
Speaker 7: week and you know, you guys have been really in
Speaker 7: front of the coverage on some of the auctions. On
Speaker 7: the treasury auctions, they were really good. So there is
Speaker 7: primary demand. Right investors still want to be owned treasuries.
Speaker 7: The question is you know, how much do they want
Speaker 7: to own visa VI. The the amount of supply coming
Speaker 7: out outstanding, and it seems, you know, at least today,
Speaker 7: you know, everyone was surprised by this last thing that
Speaker 7: I have to say, most of this move, or at
Speaker 7: least half of the move in in treasuries today comes
Speaker 7: from inflation break evens. So this is the first time
Speaker 7: in the last six months or so that we've really
Speaker 7: seen inflation expectations move up significantly higher than they were,
Speaker 7: so that that's something to keep an eye on today too.
Speaker 2: So that explains and obviously also the short end is
Speaker 2: getting hit too. But I gotta say, when the numbers
Speaker 2: came out, I was like, okay, let's look at this
Speaker 2: twenty basis point move. Twenty five basis point move we're
Speaker 2: going to see and it's only twelve. I feel like
Speaker 2: this feels orderly to some extent. And is that because
Speaker 2: of those buyers that you're talking about or is it
Speaker 2: a position thing?
Speaker 7: Well, keeping mind, Alex, you know, we've priced out thirty
Speaker 7: six bass points of cuts just in the last week,
Speaker 7: so we had been selling off going into today's number,
Speaker 7: So I think part of it was people, you know, again,
Speaker 7: position squaring people getting you know, flatter the market, so
Speaker 7: you know you didn't need to see a necessarily a
Speaker 7: twenty basis point self. Really yields are probably you know,
Speaker 7: reasonably close to fair value right here. So when I
Speaker 7: say really yields, I mean the yields on tips on
Speaker 7: treasury inflation protected securities. And I've been saying, and Paul,
Speaker 7: I know I've mentioned this to you a number of
Speaker 7: times over the past couple of months. Is I think
Speaker 7: that inflation expectations, so inflation break evens, are habitually a
Speaker 7: bit too low, and I think that those do need
Speaker 7: to kind of recalibrate to the idea that hey, maybe
Speaker 7: we'll have three percent inflation for a long period of
Speaker 7: time instead of inflation continuing to come down toward two
Speaker 7: percent like the market's currently pricing.
Speaker 8: Yep, very good.
Speaker 4: We've heard that from you before. We appreciate getting your
Speaker 4: thoughts here today, iRED Jersey Gus interest Rate Strategises Forloomberg
Speaker 4: Intelligence giving us some thoughts on the CPI data.
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Speaker 4: Market selling off today. CPI print came in a little
Speaker 4: bit hotter than expected. So if you were in the
Speaker 4: camp saying I think the Fed's going to cut sooner
Speaker 4: rather than later, probably today's not your day.
Speaker 1: Here.
Speaker 4: Let's check in with somebody who does this stuff for
Speaker 4: delivering Jeffrey Cleveland. He's a chief economist that Payden and Regal,
Speaker 4: joining us on zoom from Los Angeles. So, Jeff, you know,
Speaker 4: is this a bumping a road for the dubbish FED
Speaker 4: folks or is this something more on the inflation front.
Speaker 5: I think it's probably something more. I mean, this is
Speaker 5: pretty disappointing if you thought the FED wasn't cut in
Speaker 5: March or or even may really disrupts the trend. So
Speaker 5: whether you look at core CPI up point four percent
Speaker 5: months a month, or you know, as the policy makers
Speaker 5: have counseled us, we've been looking at core services X shelter.
Speaker 5: You know that was up point nine percent month to
Speaker 5: month in January, the highest print in over two years.
Speaker 5: So that's there's some inflation pressure still in the economy.
Speaker 5: So I think this really should dampen expectations for cuts.
Speaker 2: Jeffrey. Maybe what we're learning though, is that inflation is
Speaker 2: just lumpy, that it's it's just gonna be hard. It's
Speaker 2: not gonna be a straight line down for disinflation, but
Speaker 2: it'll be sort of a volatile, evolving target. How is
Speaker 2: an economist? Do you just kind of factor that in?
Speaker 5: Yeah, So, I mean it's possible that January has has
Speaker 5: some noise. I think we saw that to pre two
Speaker 5: thousand and eight. If you go back to that era,
Speaker 5: you would often see januaries where you'd see some price increase.
Speaker 5: So maybe that's what we saw also last January January
Speaker 5: of twenty three. So it's I don't want to over
Speaker 5: overweight or over index to this particular number. So I
Speaker 5: think that's important to keep in touch, you know, in mind,
Speaker 5: it's possible by the time we get to summer that
Speaker 5: core CPI will you know, have cooled off a bit.
Speaker 5: And but I guess at that point you're still gonna
Speaker 5: have three percent plus year on year core CPI. So
Speaker 5: maybe something like three point four or three point five
Speaker 5: Is that enough or is that cool enough to justify
Speaker 5: rate cuts? I don't know that's gonna be a tough question.
Speaker 5: So I think that months and month you could be lumpy,
Speaker 5: you can have noise, but it's a question of Okay,
Speaker 5: where are we going to be by mid year? Even
Speaker 5: in the best case scenario, seems like we're three percent
Speaker 5: plus on core CPI at mid year. Jeffy, what do
Speaker 5: you guys at ping for rate cuts?
Speaker 2: Yeah?
Speaker 4: Hey, y, go ahead, Jeffrey, just want to what you
Speaker 4: guys are thinking about in terms of kind of GDP
Speaker 4: for the US and twenty twenty four here, I mean,
Speaker 4: how measured is it going to be.
Speaker 5: Well, we're pretty bullish, actually, I think, but compared to
Speaker 5: the Bloomberg consensus right now, we have a two percent
Speaker 5: GDP growth for twenty twenty four. I think the Bloomberg
Speaker 5: consensus last time I looked was closer to one one
Speaker 5: point one percent. So that is powered primarily by the consumer.
Speaker 5: So we're still pretty upbeat at paid in about the
Speaker 5: health of the consumer, the strength of the labor market,
Speaker 5: the growth and consumer income has been.
Speaker 7: Really, really key.
Speaker 5: I think that's why a lot of forecasters maybe were
Speaker 5: too barish in the last twelve eighteen months. They're just
Speaker 5: not seen the consumer income growth was continuing, so pretty
Speaker 5: upbeat on the growth prospects for the US economy at least.
Speaker 2: What I love when we were just talking about inflation, though,
Speaker 2: is that you sound like you're trying to work it
Speaker 2: out just like we are. And I think if that
Speaker 2: says a lot about how hard it is to probably
Speaker 2: be an economist right now because something just don't make
Speaker 2: consistent sense. So how do you then model out if
Speaker 2: you taken to the growth that Paul was talking about
Speaker 2: in the inflation confusion, when the FED cuts and what
Speaker 2: that cutting cycle looks like, and if it's a normalization
Speaker 2: versus oh gosh, growth is terrible, it's a recession. We
Speaker 2: have to cut now. Yeah, it's not.
Speaker 5: It's not that difficult. I mean, so we look at
Speaker 5: what the market is pricing, and if you go back
Speaker 5: a few weeks months, the market we thought had too
Speaker 5: many rate cuts priced in. Why did we think that, well,
Speaker 5: because we thought growth would come in better then the
Speaker 5: market had anticipated. We thought you could have some you know,
Speaker 5: lumpy inflation as we've seen this morning, So we had
Speaker 5: we had fewer rate cuts penciled in. And what we
Speaker 5: found over the years is, you know, this happens from
Speaker 5: time to time, but the bomb market just gets ahead
Speaker 5: of itself where has too many cuts priced in, and
Speaker 5: then we can take advantage of that in portfolios by
Speaker 5: positioning a little bit more conservatively, so we weren't adding
Speaker 5: to duration and expecting that rates we're going.
Speaker 3: To rally here.
Speaker 5: So that's it' That's kind of the how we process
Speaker 5: this information.
Speaker 4: Jeffy, how you feel about to the labor market here?
Speaker 4: That's been one strong part of this economy from the
Speaker 4: get go.
Speaker 1: Here.
Speaker 4: Is it still a strong as it seems?
Speaker 5: Yeah? In fact, it looks like it's picked up in
Speaker 5: the last three months. If you look at the three
Speaker 5: month moving average of non farm payroll growth, it says
Speaker 5: of January two hundred and eighty nine thousand. I mean,
Speaker 5: that's excellent, Paul. I mean the way to think about
Speaker 5: that for me is just we need about one hundred
Speaker 5: and five thousand jobs every month to keep the unemployment
Speaker 5: rate at where it is. So if you're growing at
Speaker 5: two hundred and eighty nine thousand, that's a pretty good
Speaker 5: labor market. That's pretty strong labor market. So think things
Speaker 5: look solid. We're looking at real time looking for signs
Speaker 5: of layoffs. I mean, we're seeing it anecdotally talking to
Speaker 5: clients in tech. We're seeing it there, but we're not
Speaker 5: seeing broad based layoffs at least not yet. So the
Speaker 5: labor market looks solid in my view.
Speaker 2: Solid labor market gross, okay, inflational, lumpy, sticky, sticky, but
Speaker 2: it's all right. Is the FED fueling this? Like, is
Speaker 2: the FED cutting cycle that we're anticipating in the looser
Speaker 2: financial conditions that have already happened, Is that fueling any
Speaker 2: of this?
Speaker 6: Well?
Speaker 5: I think the FED has been pretty clear, like, hey,
Speaker 5: we we think if things progress, if we continue to
Speaker 5: see broad based inflation, uh, you know, on target month
Speaker 5: to month inflation, we could later this year we could
Speaker 5: reduce our policy rate. That's what they're saying. The bond
Speaker 5: market is the problem. It gets ahead of itself. Said,
Speaker 5: oh yeah, I mean they're they're going to be cutting
Speaker 5: six or seven times. That was the probably the easing
Speaker 5: of financial conditions. I go to really blame the FED
Speaker 5: for that. When I listened to cher Pale, when I
Speaker 5: listened to Christopher Waller, I think I feared a really
Speaker 5: measured story, which is, hey, this is not a slam dunk.
Speaker 5: It's we're not declaring victory. We'll see how things progress
Speaker 5: over the next few months. It was the bond market,
Speaker 5: it was bond trader.
Speaker 2: I blamed bomb, it's our Jerseys ball.
Speaker 5: Someone else I know, I don't even I don't want
Speaker 5: to name particular names.
Speaker 8: No, I'm kidding.
Speaker 6: I'm all right.
Speaker 2: Great stuff. Really appreciate it. Thank you very much. Jeffrey
Speaker 2: clevel and a chief economist over at Paydon and Regal.
Speaker 2: Thank you very much.
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Speaker 2: Because it's me. Now, I'm gonna make Paul talk about
Speaker 2: natural gas. Yes, So, Williams is one of the largest
Speaker 2: natural gas pipeline movers. While oil and natural gas, it's
Speaker 2: a midstream company that means the pipes, that moves the stuff.
Speaker 2: It's one of the biggest in the entire country. Alan
Speaker 2: Armstrong is president and CEO. Williams reports tomorrow. So we're
Speaker 2: not going to ask about earnings, but we can go Macro.
Speaker 2: With the stock up about eight and a half percent
Speaker 2: over the last year. Alan, you're in d C. What
Speaker 2: are you doing in DC?
Speaker 8: Yeah, Alex, good morning and great to speak with you.
Speaker 8: As always, we are in d C because we have
Speaker 8: a combination of both our analyst day that we'll do
Speaker 8: tomorrow as well as today we're doing a clean energy expo,
Speaker 8: and we've got a collection of regulators, legislators here with us,
Speaker 8: as well as a lot of the startups that are
Speaker 8: in the technology business associated with reducing emissions in and
Speaker 8: around our business, and so we're really trying to demonstrate
Speaker 8: all that we are accomplishing in terms of reducing reducing
Speaker 8: emissions around our business and kind of the power of
Speaker 8: natural gas in its ability to reduce emissions around the world.
Speaker 8: So it's a great opportunity to bring and.
Speaker 6: We've got parties from both sides of the aisle here
Speaker 6: with us, and a lot of the regulators and agencies
Speaker 6: that we engage with on the energy front as well
Speaker 6: with us.
Speaker 2: So, Alan, I know from just going back and forth
Speaker 2: with your company that this was on the schedule before
Speaker 2: the Biden administration put a moratorium on LERG XP words
Speaker 2: to non FTA countries in terms of new approval for projects.
Speaker 2: How does this playing into the conversation? They say it's
Speaker 2: an environmental impact, right, you're exactly talking about the environmental impact.
Speaker 2: What's the convo?
Speaker 8: Yeah, you know, we are certainly trying to draw awareness
Speaker 8: of all that the US has to offer. I think
Speaker 8: a lot of people forget that the number one reason
Speaker 8: that we were able to meet our Paris climate accord
Speaker 8: here in the US was on the backs of natural gas,
Speaker 8: and we want to bring awareness to that. But we
Speaker 8: also want to show, you know, one of the things
Speaker 8: that we hear from what I would say is the
Speaker 8: serious environmental opposition is to concern around fugitive methane emissions,
Speaker 8: and that goes for L and G as well. And
Speaker 8: you know, really it's not that difficult to reduce fugitive
Speaker 8: methane emissions from our industry, and we're doing that with
Speaker 8: some great new technologies as well. So it's really a
Speaker 8: combination those things. But but ll G really is such
Speaker 8: a powerful tool that the US really needs to unleash.
Speaker 8: I think we see it as a very unfortunate political
Speaker 8: move that really does stand in the way of progress
Speaker 8: of the US being a bigger and bigger player in
Speaker 8: helping reduce submissions around the world. Hopefully that's all it
Speaker 8: is as a political move. But it's difficult to convince
Speaker 8: our customers around the world and consumers around the world
Speaker 8: to make long term obligations to LNG. You can't. You
Speaker 8: don't just decide one year to use LNG. In the
Speaker 8: next year to go back to cole. You have to
Speaker 8: make big long term obligations on the capital side to
Speaker 8: use LNG. And so it is pretty damning when our
Speaker 8: administration makes it unclear about whether or not we really
Speaker 8: are serious about continuing to provide our allies with natural
Speaker 8: gas around the world.
Speaker 4: So Alan, unlike Alex, I am not an expert on energy,
Speaker 4: but my lay person understanding is, you know, natural gas
Speaker 4: versus coal versus burning oil, that's a pretty good trade anywhere.
Speaker 4: So what is the I guess the opposition. What are
Speaker 4: some of the key arguments for the opposition to l G.
Speaker 8: Yeah, you know, the two primary arguments have been out
Speaker 8: there is one is fugitive methane emissions and the second
Speaker 8: is what people perceive to be stranded assets. Assuming that
Speaker 8: down the road we come up with lower costs, better
Speaker 8: technologies as a way to replace spinning reserve power generation
Speaker 8: capacity around the world and things like steel making, fertilizer,
Speaker 8: all the things that we use natural gas for. So
Speaker 8: to the degree that we come up with a better solution,
Speaker 8: people are concerned in the wow, why are we spending
Speaker 8: all this capital on this now when we're going to
Speaker 8: come up with better technology. Here's the struggle with that
Speaker 8: second argument. In twenty two and again in twenty three,
Speaker 8: we hit record levels of coal consumption around the world.
Speaker 6: Here in the US, gas is sorry.
Speaker 8: Coal is two point three times more CO two emissions.
Speaker 6: Than natural gas.
Speaker 8: But the first issue I mentioned was the fugitive methane
Speaker 8: emissions and the IEA. So this isn't This isn't the
Speaker 8: US government, This is the IEA. The International Energy Administration
Speaker 8: just came out with their Fugitive methane or their methane
Speaker 8: emissions report for twenty two. It takes a long time
Speaker 8: to compile all that information. But in twenty two, natural
Speaker 8: gas was only six percent of the total methane emissions
Speaker 8: throughout the world. Coal was seven percent, and oil was
Speaker 8: eight percent. So even when it is the product, we're
Speaker 8: moving primarily natural gas, methane is primarily natural gas. Even
Speaker 8: with that, we're still the lowest amongst the fossil fuels
Speaker 8: of fugitive methane emissions, and in total, only twenty one
Speaker 8: percent of the total methane emissions around the world are
Speaker 8: coming from fossil fuels, So we are doing a lot
Speaker 8: to reduce methane emissions. Great players like Schineer on the
Speaker 8: LNG front and like EQT on the natural gas production
Speaker 8: front are making huge strides in reducing emissions around fugitive
Speaker 8: methane emissions. So it's not rocket science. It's not that
Speaker 8: hard to reduce fugitive methane emissions, and we're taking it
Speaker 8: down very rapidly across the industry.
Speaker 2: So if I also just look at the idea and
Speaker 2: I realize your pipeline right, But just in terms of
Speaker 2: the export issue, it is hard to think about why
Speaker 2: would I approve a project now that will be there
Speaker 2: for decades when in theory, in decades we should be
Speaker 2: all using solar and wind. What's the argument against that?
Speaker 6: Yeah, great question.
Speaker 8: Aut Well, first of all, you know, we have to
Speaker 8: have backup to our renewable power. We don't have that today.
Speaker 8: The reserve capacity available from from wind is ten to
Speaker 8: thirty percent. In other words, you can only count on
Speaker 8: ten to thirty percent of that capacity. And as we
Speaker 8: all know, there are plenty of times obviously when the
Speaker 8: sun isn't shining, but there's also a lot of times
Speaker 8: when the wind isn't blowing, and there's longer periods of times.
Speaker 8: So we're talking about batteries today that are four hours,
Speaker 8: and frankly, we just don't have the materials to be
Speaker 8: able to even build out that. But four hours is
Speaker 8: not anything I think people want to depend on that
Speaker 8: the wind's going to start blowing again.
Speaker 2: And even for the next forty years, Ellen, like in
Speaker 2: forty years.
Speaker 8: Even listen, if we come up with a better solution, fantastic.
Speaker 8: These are commercial, These are commercial contracts that are being made.
Speaker 8: It's not like the government or the public is the
Speaker 8: one that is stranding the ass sets here. You know,
Speaker 8: these are private investments. They're not subsidized investments. And so
Speaker 8: if we're wrong about that and we come up with
Speaker 8: solutions that are affordable and cleaner than great, we'll move
Speaker 8: ahead to society and we'll move on. But to deny
Speaker 8: the ability to reduce emissions right here, right now, while
Speaker 8: we continue to grow coal use around the world, and
Speaker 8: the US is the is and can be the low
Speaker 8: cost exporter of natural gas around the world. Really just
Speaker 8: doesn't make any sense because it is right. Were continuing
Speaker 8: to grow missions around the world unfortunately. Yeah, and coal
Speaker 8: generation is one of the primary reasons. And so we're
Speaker 8: not against coming up. In fact, we're investing in all
Speaker 8: kinds of new technologies ourselves, but they're not there today
Speaker 8: at scale to reduce submissions the way that natural gas
Speaker 8: can reduce emissions.
Speaker 2: Alan, we really appreciate you taking the time. I know
Speaker 2: it's a really busy day for you. I think energy
Speaker 2: literacy is so important, So thank you so much. Alan Armstrong,
Speaker 2: President and CEO of Williams. Also will get you back
Speaker 2: after your earnings. And this is kind of the point, Paul,
Speaker 2: is that everyone can be right. I don't understand why
Speaker 2: this issue becomes so black and white sometimes because it's
Speaker 2: very difficult. This is gonna be very difficult. And you
Speaker 2: look at country like India, right, you're gonna put a
Speaker 2: bunch of solar panels, like, I mean, how are you
Speaker 2: going to power that country coal? Right? So what are
Speaker 2: different options aside from coal? Having that conversation is quite interesting.
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