Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahmas. Each day we
Speaker 1: bring you the most noteworthy and useful interviews for you
Speaker 1: and your money, whether at the grocery store or the
Speaker 1: trading floor. Find a Bloomberg Penl podcast on Apple podcast
Speaker 1: or wherever you listen to podcasts, as well as at
Speaker 1: Bloomberg dot com. Argentina had an election with a surprise
Speaker 1: outcome that is sending the assets tumbling to pay so
Speaker 1: currently the weakest on record record versus the dollar. You
Speaker 1: have a hundred year bonds also absolutely falling out of bed.
Speaker 1: Joining us now Damien sass Our, chief Emerging markets credit
Speaker 1: strategist for Bloomberg Intelligence and Damien, how big of a
Speaker 1: potential negative is this for the Argentina economy and frankly
Speaker 1: for its access to international markets at this point? Well,
Speaker 1: I'll start with the ladder there um, because that's an
Speaker 1: easy one. This is bad from an external perspective. I mean,
Speaker 1: if you're an investor that technical view, yeah, I mean
Speaker 1: if you're a dollar investor and you're looking at the
Speaker 1: prince this morning, I mean in just about every um
Speaker 1: dollar denominated a d R that's attached to you know,
Speaker 1: an Argentina a st B at YPF or POMP or
Speaker 1: even the global x ms C I E t F,
Speaker 1: which is the largest DTF that focuses on Argentine equities.
Speaker 1: They're all off today, which is in line with with
Speaker 1: the dollar RG cross rate, which is now at sixty,
Speaker 1: which is yes, quite high and quite painful for a
Speaker 1: lot of investors who have who have investments. They're just
Speaker 1: taking a step back. I mean, what happened overnight. We
Speaker 1: saw that the Argentine primaries UM basically handed a much
Speaker 1: bigger victory to Fernandez, who is um as Kirshner, the
Speaker 1: former president, as his running mate, and um you know,
Speaker 1: the market's perception of that is quite negative, you know,
Speaker 1: to return to currency and capital controls. I mean, Fernandez
Speaker 1: is already on the tape is saying he might not
Speaker 1: pay uh interest on all the leak te bows that
Speaker 1: offer creditors now own. And so look, as the fifth
Speaker 1: largest issuer of UM of US dollar denominated sovereign debt,
Speaker 1: Argentine is a pretty big position and a lot of
Speaker 1: emerging market investor portfolios, and so there's some pain here
Speaker 1: and I'm sure we're going to be seeing that before
Speaker 1: the end of today. I wonder what the application is
Speaker 1: for companies in Argentina that have borrowed debt externally, because
Speaker 1: the depreciation in the PASO is killer for them. I
Speaker 1: think it's a great point. I mean, SMP actually just
Speaker 1: came out last week on the tape and said they
Speaker 1: don't see real refight pressure on those uh issuers and
Speaker 1: of of externally denominat external debt. Okay, wait and slow downs.
Speaker 1: In other words, these companies that have borrowed money in
Speaker 1: dollars or euros, they've pushed out the maturity so far
Speaker 1: that they won't have to necessarily refinance or pay it
Speaker 1: back any time in the near future, so that relieves
Speaker 1: some of the pressure. Not the near future. One was
Speaker 1: the years, so they bought themselves about a year and
Speaker 1: a half to two years, let's call it, according to
Speaker 1: S ANDPS calculations. So it's still the net in the
Speaker 1: next week. Yeah, right, exactly. So it's not that far out,
Speaker 1: is the point. And you know, look, I mean you've
Speaker 1: got a car account deficit that's narrowed, albeit on the
Speaker 1: back of r g PA so weakness, so it's four
Speaker 1: point six percent of GDP. This is an economy now
Speaker 1: in the longest recession and at least fifteen years. We're
Speaker 1: hoping to get a positive print for the second corner.
Speaker 1: We very well made yet that. But I mean, my goodness,
Speaker 1: in the first quarter GDP was off five point eight
Speaker 1: percent year over year, and consensus is calling for negative
Speaker 1: one point four for this full year. So things are
Speaker 1: bad on the ground in Argentina. And look, I mean,
Speaker 1: despite the fact that they had an absolutely wonderful harvest,
Speaker 1: certainly relative to last year. Just for full disclosure, Argentina
Speaker 1: is a very big exporter of soybeans and agricultural products globally,
Speaker 1: and so one would have thought that might have been
Speaker 1: a bullish uh you know, would have been good for
Speaker 1: the economy. But my goodness, things are really, really really
Speaker 1: bad today. And um, you know, if this um, if
Speaker 1: this is any indication of how the elections go on
Speaker 1: the October UM. Yeah, returned to the Pernis Kushner ways
Speaker 1: would not be good from the perspective of an off
Speaker 1: shore investor. So aside from Argentina, which is defaulted on
Speaker 1: its debt what five times in the past hundred years,
Speaker 1: serial defaulter, yes, serial defaulter. Yet they still were able
Speaker 1: to borrow money for a hundred years and the people
Speaker 1: who bought that debt really regretting it today with those
Speaker 1: prices on those bonds in free fall. Aside from our Argentina,
Speaker 1: how idiots and credit I know Jonathan Farroll hates his word,
Speaker 1: but how specific to Argentina are these issues versus endemic
Speaker 1: within the emerging market space? Yeah? So, I mean I think,
Speaker 1: you know, I mean, to that point, we have to
Speaker 1: take a step back because it's all about us China.
Speaker 1: And you know, if you just look at some of
Speaker 1: the data that came out of China overnight. I mean
Speaker 1: they released their total social financing data, which is all
Speaker 1: about credit extension that they kind of injected into their economy,
Speaker 1: and it was bad. I mean, given the word of
Speaker 1: the day, by the way, bad, it was bad. I mean,
Speaker 1: we basically were expecting something on the order of one
Speaker 1: point six trillion of credit being extended I'm talking in
Speaker 1: you on terms into the local China economy. It was
Speaker 1: only one trillion un which is way less than expected
Speaker 1: and certainly less than the two point three trillion we
Speaker 1: saw in June. And really what this is is new
Speaker 1: loans are down, tighter, property market financing. You know, as
Speaker 1: we know in China, the real estate markets a very
Speaker 1: big portion of about economy. And with credit growth weak,
Speaker 1: especially in light of US trade for US China trade
Speaker 1: friction escalating, it's just not gonna It just means that
Speaker 1: things are gonna get much worse. Oh and by the way,
Speaker 1: the protests in Hong Kong, and we see I P
Speaker 1: and retail sales coming on Wednesday, which is also expected
Speaker 1: to be weak. It's just not gonna be a good
Speaker 1: week for emerging markets. So Jamian, here's the weird thing.
Speaker 1: All that sounds so bad. I'm looking at the ms
Speaker 1: c I Emerging Markets f X index. It's the lowest
Speaker 1: levels of the year, all really bad. I'm looking at
Speaker 1: emerging markets funds not doing badly. They're not seeing big withdrawals,
Speaker 1: and emerging markets debt is actually outperforming US credit. So
Speaker 1: what gives? Okay, So, well, you know E M dollar
Speaker 1: debt tends to be driven by the U. S. Treasury
Speaker 1: market effectively, and spreads within the U S. Treasury market,
Speaker 1: all of which yields have been coming down. Spreads are
Speaker 1: still tight around the year, or maybe they're about break
Speaker 1: even but all of that has been fueling the roughly
Speaker 1: double digit gains we've seen an e M dollar debt. Know, hey,
Speaker 1: by the way, you make a really good point, because
Speaker 1: I just looked at the constituent breakdown in e M
Speaker 1: B which is the largest um um emerging market dollar
Speaker 1: bond e t F. It's the largest e M e
Speaker 1: t F you know, in existence, and Argentine is really
Speaker 1: only a small portion of that, despite the fact that
Speaker 1: it's five five percent of most benchmark industry, it's only
Speaker 1: two percent of that e t F. So you know,
Speaker 1: by hook or by crook, you know, maybe that's got
Speaker 1: a little bit of a positive overlay too. But yeah, no,
Speaker 1: I M. Dollward jets done well, will continue to do
Speaker 1: well so long as US treasure yields are declining and
Speaker 1: spreads remain benign, if that's if that's true. So yeah,
Speaker 1: that's kind of what we're looking at. I mean, you know,
Speaker 1: I mean, look, Mexico, Russia, Brazil, it's all been doing
Speaker 1: pretty well. Yeah, the emerging market conundrum, lots of bad
Speaker 1: news you can hook into, and yet and yet the
Speaker 1: FED keeps cutting rates and that's typically a technical positive.
Speaker 1: Damian SASA are Chief Emerging Markets Credit Strategies for Bloomberg Intelligence,
Speaker 1: joining us here in our interactive broker studios. Behind the
Speaker 1: wall of worry that we have today in markets is
Speaker 1: what is happening between the US and China, and just
Speaker 1: not only what is happening between them when it comes
Speaker 1: to trade, but what is happening in each of the
Speaker 1: economy is when it comes to growth. We're so lucky
Speaker 1: to have Leland Miller here with us who tracks all
Speaker 1: of the economic data coming out of China. He's a
Speaker 1: chief executive officer of China beige Book International. Joining us
Speaker 1: here in our interactive broker Studios. Leland, it really struck
Speaker 1: me that there was data showing slowing credit growth UH
Speaker 1: for the month of June overnight. This was interesting because
Speaker 1: it doesn't necessarily stem from a crackdown on leverage ratios.
Speaker 1: Does this indicate a slowdown in growth to you? Not yet,
Speaker 1: So there's a lot to be figured out over the
Speaker 1: next several weeks. The first thing to know is that
Speaker 1: the first quarter, our first month out of every quarter,
Speaker 1: we typically see less lending, So you get the narrative
Speaker 1: things are slowing down. The end of the quarter, they
Speaker 1: pump more stuff in, so we'll have to see this
Speaker 1: over the course of several months. But the second thing
Speaker 1: is you've got these new tariffs hanging over, uh, hanging
Speaker 1: over the Chinese economy. But you've also ut the party's
Speaker 1: seventih anniversary in the PRC seventith anniversary in October, so
Speaker 1: the Chinese are gonna want to boost the economy for that.
Speaker 1: So a lot of this is timing. When are they
Speaker 1: going to start pumping things in When do they want
Speaker 1: to improve uh, the optics around the economy. So I
Speaker 1: think it's too early to say that things are slowing
Speaker 1: down quite yet. Okay, so right now, where are we
Speaker 1: when it comes to the trade war and the ammunition
Speaker 1: that both sides have to deploy? Well, this this was
Speaker 1: really interesting what happened in August because you know, as
Speaker 1: we've said for a long time, when you leave Osaka
Speaker 1: and you basically say we are have a deadline at
Speaker 1: the end of the year, so six months and of
Speaker 1: the year you don't even announce. If you imply that
Speaker 1: you're not doing anything until the end of the year,
Speaker 1: it's very hard to get the parties focused on doing
Speaker 1: anything substitutive. The Chinese don't want to talk about the text.
Speaker 1: They want to talk about how to get to November
Speaker 1: when they can restart discussions. So all the discussion lately
Speaker 1: had been over Huawei on the U S side and
Speaker 1: agricultural buys on the Chinese side. And the Chinese got
Speaker 1: through the last media and thought they had done promised
Speaker 1: just enough to get what they wanted and have sort
Speaker 1: of a smooth fall. And the President didn't like that,
Speaker 1: and he ratchet up tensions. And then the Chinese did
Speaker 1: what they did with the yuan, which was overdue but
Speaker 1: seen as a poke in the eye. And now we're
Speaker 1: at this position where we could see anything. We could
Speaker 1: see this coming week. We could see tensions relaxed because
Speaker 1: of the Huawei General License is extended, or some sort
Speaker 1: of concessions are done in Huawei, or we could see
Speaker 1: the exact opposite. The President does nothing in Huawei. You
Speaker 1: see tariffs go up to ten percent or even September one,
Speaker 1: and this thing's um, you know, breaking down quite quickly.
Speaker 1: What about on the Chinese side, aside from the yuan
Speaker 1: peg And it's not necessarily a depreciation as much as
Speaker 1: allowing the currency to weaken perhaps to its market it's
Speaker 1: actual market weight Aside from that, are you expecting China
Speaker 1: to go after US companies that are doing business in China?
Speaker 1: Not yet. Uh, it doesn't mean that they're not being
Speaker 1: uh messed with on the margins. But right now, I
Speaker 1: think that China's goal is to just stop the nightmare
Speaker 1: scenario from occurring. So they don't want tariffs on all
Speaker 1: their goods. They don't want Trump to come even harder
Speaker 1: at Huawei and the other tech companies, some of whom
Speaker 1: are on lists that have not been announced yet and
Speaker 1: would be if things really broke down. Uh. She is
Speaker 1: obviously very happy the President. Trump hasn't said much about
Speaker 1: Hong Kong to the extent he said anything, it's almost
Speaker 1: been encouraging. You've got South China. See, you've got Taiwan
Speaker 1: arms sales. So things aren't good right now, but the
Speaker 1: Chinese are very motivated not to let them fall apart. Meanwhile,
Speaker 1: I was reading an article over the weekend that I
Speaker 1: thought was really interesting about Jiji and Ping's challenge right now,
Speaker 1: and that he faces this really difficult move in trying
Speaker 1: to take this very quickly growing economy and shift it
Speaker 1: to a more middle class, lower growth, but more stable
Speaker 1: developed market of sorts, and I'm wondering where it is
Speaker 1: on that progression, how far along has it gotten, and
Speaker 1: sort of whether you view this as sort of the
Speaker 1: albatross that Jim Pig needs to cross. Well, he has
Speaker 1: a lot of he has a he has a lot
Speaker 1: of challenges coming up. I'm not sure which one I
Speaker 1: would take, you know, the I think that if you
Speaker 1: if we take it back up to fet what what
Speaker 1: we're seeing since was a lot of progress on certain things,
Speaker 1: like they cracked down on shadow finance. They didn't do
Speaker 1: as much on leveraging as they claimed, but they did
Speaker 1: a little bit. There was some restructuring about to go on,
Speaker 1: and then they saw the Trump trade war hit in
Speaker 1: twenty eighteen, and everything they started they began to reverse.
Speaker 1: And now it's totally reversed. So this hasn't hit official
Speaker 1: day yet, so it's not believed by a lot of people.
Speaker 1: But we saw a major resurgence in shadow banking in
Speaker 1: the second quarter, so it's back. You know, they said
Speaker 1: that they were going to deal with it. No that
Speaker 1: got scared about what was happening in the trade war,
Speaker 1: and they brought shadow banking back. You're not seeing restructuring,
Speaker 1: and I seeing reform. We're not seeing evidence of rebalancing
Speaker 1: in our numbers, and so I think what the Chinese
Speaker 1: have done once again is reverted to the short term
Speaker 1: to deal with their short term problems and said, you know,
Speaker 1: we're gonna kick the can down road, as everyone seems
Speaker 1: to do these days, and deal with the problems next
Speaker 1: year or the year after that. So what's the consequence
Speaker 1: of that, Well, what it means is they can they
Speaker 1: can defy expectations of a more dramatic slowdown in the
Speaker 1: short term by by using their various levers to boost growth,
Speaker 1: but it means the medium term and the long term
Speaker 1: are gonna be much more difficult. The Chinese have an
Speaker 1: advantage in that they have a non commercial financial system.
Speaker 1: It's one of the reasons things that haven't fallen apart
Speaker 1: the way they did in the US with Lehman and
Speaker 1: and and in Europe as well. Chinese can just swish
Speaker 1: huge amounts of capital from one side of the systems
Speaker 1: the other, plugging holes, fixing problems. But that means they're
Speaker 1: essentially chasing good money after bad and it's gonna hit,
Speaker 1: it's gonna stagnate the economy over time. It's gonna it's
Speaker 1: gonna hit their return on investment because they're constantly pumping
Speaker 1: new money into bad projects, so it'll have a long
Speaker 1: term hit when and a long term slowdown is basically
Speaker 1: in the cards. So just to sort of put a
Speaker 1: bow on all of this, this is a really important point.
Speaker 1: If China has demonstrated it is willing to sacrifice the
Speaker 1: longer term for the short term boost that it can
Speaker 1: get by reversing some of the de leveraging, etcetera measures
Speaker 1: from earlier, then how is the trade war pressuring them?
Speaker 1: Because they're showing that they are willing to use this
Speaker 1: ammunition now regardless of the longer term consequences. I think
Speaker 1: that's the problem if you're in the White House. The
Speaker 1: Chinese have the ability because they don't have to worry
Speaker 1: about the politics the way that a democracy would, and
Speaker 1: they don't have to worry about a Congress that doesn't
Speaker 1: like certain things. They are just going to fix problems
Speaker 1: that clear the way for the party in the short term.
Speaker 1: That's what they've always done and that's what they'll continue
Speaker 1: to do. And so the difficulty in causing problems for
Speaker 1: China is that they always have a quicker response mechanism
Speaker 1: and a more effective one because they don't have to
Speaker 1: answer to anyone. Real quick, here, what year will the
Speaker 1: slow down in China be felt? The slowdown that will
Speaker 1: necessarily come despite the stimulus that the PBOC is willing
Speaker 1: to put in. Look, I would think that within five
Speaker 1: years you're gonna start seeing much slower growth, the questions
Speaker 1: of the Chinese gonna admit it. I mean, if you
Speaker 1: you're already seeing slower growth and people were predicting a
Speaker 1: few years ago, it just hasn't been enough to to
Speaker 1: really shake the shape markets. I think over the next
Speaker 1: five years, you're gonna start seeing a more precipitous decline
Speaker 1: that they're not gonna be able to do much about.
Speaker 1: Leland Miller so wonderful to get your perspective. As always,
Speaker 1: thank you for being here. Uh And honestly, Leland, you
Speaker 1: guys have data that is really spectacular because it shows
Speaker 1: what's actually going on, and there's so much question around
Speaker 1: the credibility of the official data. To get other measures
Speaker 1: to get a sense of what's going on on the
Speaker 1: ground is really important. Leland Miller is chief executive officer
Speaker 1: of China beige Book International, weighing in on both sides here.
Speaker 1: Jeffrey Epstein, the financier who was accused of sex trafficking,
Speaker 1: was found dead in his jail cell over the weekend. Now,
Speaker 1: there are many questions around the circumstances of his death.
Speaker 1: It has been established as a suicide. Questions though about
Speaker 1: how he was surveiled by the jail staff. Joining us
Speaker 1: now is Chris Dolmets. He's a Bloomberg legal reporter joining
Speaker 1: us from the courthouse. Chris, We're now getting word from
Speaker 1: Attorney General Bill Barr that there were some serious irregularities
Speaker 1: with the manner in which Jeffrey Epstein was held. Can
Speaker 1: you elaborate, Do we know anything more? No, that's just
Speaker 1: recently come out. He's he said, you know, they're serious
Speaker 1: regularities over the weekend. He has vowed to investigate, get
Speaker 1: to the bottom of what happened. Um. You know, it's
Speaker 1: a pretty secure facility and a lot of people are
Speaker 1: asking questions as to how this could happen, um in
Speaker 1: a federal prison that's held you know el Chapo for
Speaker 1: for example. So what is the concern here, Because if
Speaker 1: I understand correctly, it has been established as a suicide,
Speaker 1: even though there have been a number of conspiracy theories
Speaker 1: that it was murder. I mean, has it been established
Speaker 1: a suicide? So? UM, you know, the only thing we've
Speaker 1: been told, um by the Bureau Prisons that he was
Speaker 1: found unresponsive, jail staff tried to revive him, someone emergency
Speaker 1: medical personnel, and that he was pronounced dead UM at
Speaker 1: the hospital. UM, ABC and others you know reported that
Speaker 1: he that he hung himself, and there has been an
Speaker 1: autopsy performed. That medical examiner verified that, but hasn't officially
Speaker 1: determined the cause of debt. UM. There has been a
Speaker 1: city official that told the New York Times that UM,
Speaker 1: that the medical examiner is pretty confident that it is suicide, UM,
Speaker 1: but needs you know, to complete the autopsy to make
Speaker 1: that determination. So what's the key question here when it
Speaker 1: comes to the serious irregularities that Attorney General bar was
Speaker 1: talking about. Well, there's you know, there's questions about um,
Speaker 1: you know, staff overtime, whether staff were overworked, UM, you know,
Speaker 1: what the conditions that the prison were like. UM, whether
Speaker 1: or not he was on a suicide watch. We've been
Speaker 1: told that he was not, even though he was recently
Speaker 1: on one after previous attempts apparently to kill himself. UM,
Speaker 1: so some of the you know, the investigation is going
Speaker 1: to revolve around that who was watching him, um when
Speaker 1: they were supposed to um be checking on him. Uh,
Speaker 1: what was in his cell, how he was able to
Speaker 1: get something that allowed him to hang himself. UM, it's
Speaker 1: going to be a pretty comprehensive investigation, and that's kind
Speaker 1: of launched every time there is a suicide in a
Speaker 1: federal prison. Chris, I'm wondering what his death means for
Speaker 1: the prosecution and for the investigation into the nature of
Speaker 1: some of the crimes, which included trafficking young girls who
Speaker 1: were under the legal age of consent. Sure, that's so
Speaker 1: this ends the criminal prosecution as because he's dead, the
Speaker 1: case just ends, and that kind of ends the attempts
Speaker 1: by prosecutors to kind of seize his assets, um to
Speaker 1: compensate his victims through criminal proceedings. But that doesn't mean
Speaker 1: that they can't go um in civil proceedings to seize
Speaker 1: individual assets, including his mansion, UM, his playing other things
Speaker 1: to attempt to compensate victims. Obviously, there's going to be
Speaker 1: a pretty complicated um state scenario that comes out after
Speaker 1: his autopsy has finished, and UM, you know, we we
Speaker 1: don't know whether he has a will. You know, we
Speaker 1: we would assume with somebody with his number of assets
Speaker 1: would have a will. Um. So it's a question of
Speaker 1: who would the executor would be, where it might be filed.
Speaker 1: I mean, he has homes in New York, in the
Speaker 1: Virgin Islands, in New Mexico. Uh So any of those
Speaker 1: places are potential for him to have his will filed
Speaker 1: and as a state divvied up there though certainly states
Speaker 1: and you know, we'll want to get a piece of
Speaker 1: the tax bill. So there's a question about the assets.
Speaker 1: There's also a question about the tentacles of this case
Speaker 1: that had ensnared at least in the court documents, very
Speaker 1: high profile individuals who are friends with him, from the
Speaker 1: political to the legal to the business world. What is
Speaker 1: going on with that? I mean, are those kinds of
Speaker 1: reaches of the investigation going to be shot at this
Speaker 1: point or going to be ongoing? No, so, other prosecutors
Speaker 1: have told me that the prosecutors here in Manhattan will
Speaker 1: almost certainly continue their investigation with the evidence they've gathered. Obviously,
Speaker 1: there's a conspiracy count here which implicates other people, um,
Speaker 1: and there should certainly could be other charges brought against
Speaker 1: UM other members of that conspiracy. UM, we wouldn't doubt
Speaker 1: that they were. That they're indeed doing that right now.
Speaker 1: So this could definitely ensnare other people UM as it
Speaker 1: moves forward, UM, which will probably take a little while
Speaker 1: as they go through the evidence. So is there any
Speaker 1: concerned Chris about finding all of Jeffrey Epstein's assets considering
Speaker 1: the rather secretive nature in which they were all kept.
Speaker 1: I'd say there's definitely a concern through that. I mean,
Speaker 1: even the prosecutors have been unable to determine exactly where
Speaker 1: all his assets are, and UM says they've been secured
Speaker 1: away in trust, and you know that there's several layers
Speaker 1: of secrecy that have to be gone through before we
Speaker 1: can they can determine exactly what he has. Crystal Match,
Speaker 1: thank you so much much for being with us. He's
Speaker 1: a Bloomberg legal reporter joining us from the courthouse. The
Speaker 1: latest being Attorney General William Barr coming out and saying
Speaker 1: that the prison where Jeffrey Epstein died has quote serious irregularities.
Speaker 1: He vowed to pursue justice for the financiers victims. As
Speaker 1: Chris was talking about, there is some question about seizing
Speaker 1: the assets of Jeffrey Epstein and doling out the proceeds
Speaker 1: to the victims, as might have happened under a successful prosecution,
Speaker 1: But now that he's dead, raises some questions about whether
Speaker 1: they can do that. Time to get us check on
Speaker 1: what's going on with the price of oil, where it's headed,
Speaker 1: and what it means for Saudi Arabia in particular. Joining
Speaker 1: us now, Dr ellen Wald, president of Transversal Consulting and
Speaker 1: a Bloomberg opinion contributor, Ellen thank you so much for
Speaker 1: being with us. I want to start with Saudia. Amco
Speaker 1: Is reported its earnings and there were a couple of
Speaker 1: surprises there. Yes they did. They indicated a twelve drop
Speaker 1: in revenues because of the decline in oil prices. But
Speaker 1: was that what really caught your eye? Uh? No, I
Speaker 1: think that the drop in revenue and in profit was expected. Uh.
Speaker 1: And it's really not that bad, considering that oil prices
Speaker 1: have been lower and also that a ram coast producing
Speaker 1: less oil as a result of its agreements with OPEC.
Speaker 1: But it's really interesting in Uh. The numbers that the
Speaker 1: company did release are the dividends that it's giving to
Speaker 1: the Saudi government. So even though revenue and net profit
Speaker 1: is down, the dividends were really up. Uh and a
Speaker 1: ram coast seems to divide this into two different kinds,
Speaker 1: ordinary dividends and special dividends. And ordinary dividends were about
Speaker 1: the same, but special dividends group by fourteen billion dollars.
Speaker 1: And this is really an area that investors need to
Speaker 1: keep an eye on, particularly if they're interested in uh
Speaker 1: an a Ramco I e O, which is still forthcoming,
Speaker 1: but it could be an area of concern. So just
Speaker 1: to sort of flesh that out a little bit, because
Speaker 1: I thought this was really interesting, and you pointed it
Speaker 1: out in a note where you were talking about how
Speaker 1: people are concerned. There is discretion at Saudi Aramco about
Speaker 1: how much of their profits they give to the Saudi
Speaker 1: Arabian government, and this becomes a problem for people who
Speaker 1: might want to invest in the equity of this company
Speaker 1: because they don't know how much they will be left with.
Speaker 1: What does it indicate to you that that special dividend
Speaker 1: increased at a time of declining profits and revenue. What
Speaker 1: does it indicate about Saudi Aramco and the message they're
Speaker 1: setting to shareholders or potential shareholders. To me, it indicates
Speaker 1: that the government is still Saudi government says it wants
Speaker 1: to wean itself off of oil revenue, of off of
Speaker 1: its dependency on oil, and that's a very very good
Speaker 1: goal for them to have, but it's still not there,
Speaker 1: and in fact it's actually needing more and more. UH
Speaker 1: they've really still find their relationship in terms of income
Speaker 1: taxes and exactly how much they're going to be reimbursing
Speaker 1: a ramco for the cost of fuel. But they still
Speaker 1: have to really flesh out this dividend relationship because it
Speaker 1: does mean that in the end, despite all of the
Speaker 1: safeguards and the procedures that they've put it put in place,
Speaker 1: it doesn't mean that in the end the government is
Speaker 1: still still really holding the purse strings for a Ramco
Speaker 1: and if it needs more money for whatever it is
Speaker 1: that it's doing that year, it's going to take it
Speaker 1: in a dividend. So the other interesting aspect of the
Speaker 1: Saudi Aramco earnings was their announcement that they're planning by
Speaker 1: a stake and they're finding a chemicals business of India's
Speaker 1: Reliance Industries, which is UH chemicals business. It's not an
Speaker 1: oil and gas business, and this is I assume, a
Speaker 1: way for them to continue to diversify away from away
Speaker 1: from crude. Correct. Yes, it's definitely part of their long
Speaker 1: running strategy to increase their downstream capabilities to diversify away
Speaker 1: from just upstream and crude productions. But there's there's something
Speaker 1: very interesting here, which is that when a RAMCO goes
Speaker 1: in to a foreign market, particularly in Asian market. UH
Speaker 1: China and South Korea are really good examples of this,
Speaker 1: but India, I think it's going to be one not
Speaker 1: it doesn't just invest in chemicals or refinery business, but
Speaker 1: it also secures an outlet for its own crude. And
Speaker 1: what was kind of hidden in this deal, which by
Speaker 1: the way, is still in its very early stages, is
Speaker 1: the fact that Reliance agrees that it's going to double
Speaker 1: its crude imports from a Ramco to bring that up
Speaker 1: to I think five hundred thousand barrels per day. So
Speaker 1: a RAMCO is not just investing in a company that
Speaker 1: it thinks will do well, it's also securing an outlet
Speaker 1: for its crude. I want to broaden out just a
Speaker 1: little bit. The price of oil has been whipped around
Speaker 1: in part due to Saudi Arabia or Saudi Arabia's attempts
Speaker 1: to do whatever it can to support prices, or least
Speaker 1: that's what they were. They were making noise about what
Speaker 1: can Saudi Arabia do at this point further and what
Speaker 1: are they likely to do to keep prices from going
Speaker 1: down further? You know, this is the big question that's
Speaker 1: on everyone who follows the market's mind because prices have
Speaker 1: really seemed to be disconnected from supply and demand, or
Speaker 1: particularly from supply, and there's really this focus on, uh,
Speaker 1: the future of demand, so this focus on what demand
Speaker 1: could be in the future based on forecasts about the economy.
Speaker 1: And so Saudi Arabia is looking at this and they're saying,
Speaker 1: the price of oil is going down, down, down, and
Speaker 1: going all over the place. But there's no indication from
Speaker 1: a supply perspective or even really from a current demand
Speaker 1: perspective that this should be happening. So they admit this
Speaker 1: and then they say, well, we're going to do what
Speaker 1: we can. They had planned to increase production in September,
Speaker 1: they've decided they're not going to do They're going to
Speaker 1: hold off on that production increase, and but really, what
Speaker 1: more can they do? It's a big question, and some
Speaker 1: people are saying, well, OPEC is a whole quick cut
Speaker 1: production by a million barrels a day, and that might
Speaker 1: lift prices a bit. But when prices are so disconnected
Speaker 1: from supply, it's really unclear that there's anything they can
Speaker 1: do short of just writing it out. Dr ellen Wald,
Speaker 1: thank you so much. It's always a pleasure speaking with you.
Speaker 1: Dr ellen Wald is a Bloomberg Opinion contributor. She's president
Speaker 1: of Transversal Consulting. You can read her columns on the
Speaker 1: Bloomberg at O P I n go or Bloomberg dot
Speaker 1: com slash Opinion on the internets if you will see
Speaker 1: the really interesting perspective. She's also, by the way, a
Speaker 1: nonresident Senior Fellow at the Atlantic Council's Global Energy Center.
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