Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: All right, a lot of economic data to digest this
Speaker 1: week on the inflation front, and you know we've got
Speaker 1: the CPI yesterday, PPI today. My guest to take away
Speaker 1: for a lot of folks is pretty darn good as
Speaker 1: it relates to the Federal Reserve. But let's talk to
Speaker 1: somebody who does this stuff for living. Jennifer Lee, Senior
Speaker 1: economists and Managing director at BMO Capital Markets. Jennifer, again,
Speaker 1: a lot of inflation data this week, what is your takeaway?
Speaker 3: First of all, good morning, and thanks for having me on.
Speaker 4: My takeaway is that finally, finally, finally, all of these
Speaker 4: Fed rate hips are making an impact on inflation, bringing
Speaker 4: it down to that what I used to think was
Speaker 4: the elusive two percent target is finally starting to happen.
Speaker 4: By down a two year low for the headline PPI
Speaker 4: we saw this morning. I was just like glancing at
Speaker 4: some of the details, but looks pretty good.
Speaker 3: Only up a.
Speaker 4: Tenth for both the headline and the core and down
Speaker 4: to I think it was like three year lows or
Speaker 4: something for the year of your basis. So again, all
Speaker 4: those FED rate hikes are starting to kick in, and
Speaker 4: we're finally starting to see the fruits of their labor.
Speaker 5: We're finally starting to see it, but we are still
Speaker 5: not at that two percent number. What do you think
Speaker 5: might be the catalyst to finally get us down to
Speaker 5: the FEDS desired inflation rate.
Speaker 4: I think you will have to take well, first of all,
Speaker 4: just in terms of our FED rate outlook. I mean,
Speaker 4: we're still looking for that FED rate hike next or
Speaker 4: in two weeks, I guess on July twenty sixth. You know,
Speaker 4: even though we're seeing this, you know, promising inflation data,
Speaker 4: the fact that we just are still arising, running pretty hot.
Speaker 4: Job demand is still pretty strong, Housing is still has
Speaker 4: already found a footing.
Speaker 3: Business investment is decent.
Speaker 4: Consumer spend took the leave of breather last month, and
Speaker 4: but the month before that they're reading hot as well.
Speaker 4: All that sort of sets the stage I think for
Speaker 4: another rate hike in July, and this slower inflation data
Speaker 4: I think gives them the door to or gives them
Speaker 4: the leewage to sort of talk about moderating the pace
Speaker 4: of rate hikes, needing more time to assess that economic
Speaker 4: landscape that they've been talking about lately, and this will
Speaker 4: do it. And of course, but keeping rates at these
Speaker 4: restrictive levels will help bring down that level back down
Speaker 4: to our inflation back down to two percent eventually. But
Speaker 4: you know, definitely not a rate cut story just yet, all.
Speaker 1: Right, So that's kind of where I think the market's
Speaker 1: probably trying to go. I think the market is probably discounting,
Speaker 1: you know, a July rate hike and then you know,
Speaker 1: a pause again.
Speaker 6: The question then.
Speaker 1: Becomes how long is that pause? And is that a
Speaker 1: twenty twenty four event that we might stay at these
Speaker 1: levels of rates.
Speaker 4: So our again first official pecast is just one more
Speaker 4: rate hike and that will be it again base case,
Speaker 4: but then staying at these levels, and so I don't
Speaker 4: think rate cuts are going to be a story until
Speaker 4: probably mid twenty twenty four. We used to talk about,
Speaker 4: you know, early twenty twenty four for rate cuts. But
Speaker 4: now we're thinking a little bit later, and that's because
Speaker 4: we're also shifting our call for that elusive slow down again.
Speaker 3: So now we're looking for more softer growth.
Speaker 4: In around Q four Q one now, so around that
Speaker 4: trend of the year, as opposed to Q three and
Speaker 4: Q four.
Speaker 3: So you just can't argue with the data.
Speaker 4: It's been very resilient overall, you know, it's again difficult.
Speaker 3: To argue with it. So we're pushing out that that
Speaker 3: slow down a little bit by quarter.
Speaker 5: Yeah, and another thing that you note is that the
Speaker 5: greenback is struggling a little bit following some of this
Speaker 5: economic softness, hitting a fourteen month low. I believe to
Speaker 5: what extent is dollar weakness part of your calculation for
Speaker 5: what our economy is going to look like in the
Speaker 5: second half of the year.
Speaker 4: The US dollar has been or had been running super
Speaker 4: strong up until you know, yesterday, and so we're finally
Speaker 4: going to see that dollar week to start kicking in,
Speaker 4: and we're seeing it. And it's also helping because a
Speaker 4: lot of the other central banks are not yet ready
Speaker 4: to hit the pause button just yet, you know, aside
Speaker 4: from the bank handa, you know, I think we're they're
Speaker 4: probably that's probably it for the Bank Canada for the
Speaker 4: for the rest of this year. RBA looks like they're
Speaker 4: almost done. But you've got the ECB in the Bank
Speaker 4: of England or is still going whole hog on that
Speaker 4: rate tightening front, so that's also going to boost there.
Speaker 4: That's so that's also helping their their currencies the same
Speaker 4: time with the flip with the flip side of the
Speaker 4: weaker greenback.
Speaker 1: So can we take the recession talk off the table
Speaker 1: right now?
Speaker 3: Official recession? Yeah, it's possible.
Speaker 4: I mean, we've always been in that soft, soft landing,
Speaker 4: mild recession, moderate recession camp, but.
Speaker 3: We were never in that hard landing camp.
Speaker 4: And now I means it is quite possible that we
Speaker 4: will see and some people always say, what the heck
Speaker 4: does that mean?
Speaker 3: But you know, no landing. At the very beginning, I
Speaker 3: used to say landing.
Speaker 4: Soft landing, no landing, And it's possible that we could
Speaker 4: start seeing things glide and you know, like nothing is impossible,
Speaker 4: but this is kind of looking more possible. But at
Speaker 4: the same time, the longer they able rates up in
Speaker 4: the in that restricted territory in order to get CPI
Speaker 4: back down to two percent, we will probably need to
Speaker 4: have that breaking in the economy.
Speaker 5: Well, there's the recession for all of us, and then
Speaker 5: there's the markets, right, and they don't always agree. Do
Speaker 5: you envision us seeing a little bit more of a
Speaker 5: risk on trade in the second half of the year
Speaker 5: after the Fed does potentially start to tone down and
Speaker 5: soften the rate height cycle that we're seeing.
Speaker 3: We could see that's a good question.
Speaker 4: So we could see risk on because of the fact
Speaker 4: that the Fed is going to stop start talking about
Speaker 4: leaving rates as is more firmly as opposed to talking
Speaker 4: about needing more time. But at the same time, why
Speaker 4: are they talking about needing more to aura staying on
Speaker 4: hold is because the economy is finally starting to slow
Speaker 4: and again this is when you're going to start to
Speaker 4: see softer data. We're starting to talk about the debt
Speaker 4: recession again, or at least that soft landing coming into
Speaker 4: play in the fourth quarter or so.
Speaker 3: So it's it's gonna be a little a little bit
Speaker 3: of mix.
Speaker 4: I don't know which one is going to oweigh the other,
Speaker 4: because again, yes, it's good news for the markets that
Speaker 4: the Fed's not going to keep tightening, but at least
Speaker 4: at the same time, it's bad news because that means
Speaker 4: the economy is slowing and it's not needed anymore.
Speaker 1: So I guess one of the issues for a lot
Speaker 1: of investors is just kind of you know, we think
Speaker 1: beyond twenty four, I mean, yeah, beyond twenty three into
Speaker 1: twenty four to twenty five, what kind of economic growth
Speaker 1: do you think is reasonable for an economy that has
Speaker 1: dealt with this much inflation?
Speaker 4: So we're probably going to see at least some sub
Speaker 4: below average at least for a little while. So we
Speaker 4: you know, for this year, we have about one point
Speaker 4: seven percent growth, and that was a little bit higher
Speaker 4: than we had originally because of this delayed slow down.
Speaker 4: But for next year, we've got I think it's a
Speaker 4: half percent growth, which is obviously very sluggish. And then
Speaker 4: for the year after we're going to start seeing some
Speaker 4: improvement as the rate cuts start kicking in. But again,
Speaker 4: I think we're probably going to see some sub average
Speaker 4: growth at least over the next few years.
Speaker 5: And where do you think that that sub average growth
Speaker 5: is going to be the most prevalent in the coming years.
Speaker 3: In terms of where? By by country or.
Speaker 7: Yeah, yeah, like in terms of demo and geographic.
Speaker 4: So I think the US will probably be just again
Speaker 4: because America is you know, it's still going to be
Speaker 4: the strongest with all the different positive fundamental factors behind it.
Speaker 4: I think the US will still emerge, probably stronger than
Speaker 4: emerge at a faster pace. I guess from this recept
Speaker 4: from the slowdown than everyone else. The areas where I'm
Speaker 4: going to be a little bit more worried will be
Speaker 4: Europe and the UK, only because you know, they've already
Speaker 4: had the other issues you know that are not related
Speaker 4: to pandemic, you know, like Brexit for example. At the
Speaker 4: same time, you also have higher inflation and higher interest
Speaker 4: rates staying longer higher for longer there, and they're again
Speaker 4: they're still going a whole hog on tightening front. I
Speaker 4: think the ACB minutes today we're alluding to the fact
Speaker 4: that you know, there are more governing Council members from
Speaker 4: the ACV are thinking about September. I think it's a
Speaker 4: bit early, but you know that's something that you know,
Speaker 4: it's becoming more of a reality, possibly in the next
Speaker 4: in the next little while.
Speaker 1: Jennifer, you also got another initial job as claims number
Speaker 1: today came in better than expected, uh and showing a
Speaker 1: decline from from from last week. Again, just another data
Speaker 1: point on what is kind of a very solid labor market.
Speaker 1: What do you make of this labor market? Is this
Speaker 1: surprised you at all?
Speaker 6: The strength.
Speaker 3: Broadly?
Speaker 4: No, And then I mean it's still strong. At the
Speaker 4: same time, it is starting to soften, you know that.
Speaker 4: You know, two hundred thousand, nine thousand increases that we
Speaker 4: saw on perros was still below expected. But like I
Speaker 4: said before, any during any other given year, it's still
Speaker 4: a very solid number. But I think there are still
Speaker 4: some other issues that are coming in play, like again demographics,
Speaker 4: people retire, changing retirement patterns, people retiring earlier, people having
Speaker 4: the fewer kids, you know, so all and of course
Speaker 4: the aging of the of the of the global population.
Speaker 4: All that feeds into tighter lot but labor markets. So
Speaker 4: this is an issue I think that's going to be
Speaker 4: playing on for some time. It's not going to be
Speaker 4: like what we saw earlier, like half a year ago,
Speaker 4: but at the same time, it's not going to be.
Speaker 3: As loose, I guess, as you know, one would expect.
Speaker 3: It was interesting. I was looking at the NFI the
Speaker 3: survey earlier this week.
Speaker 4: I was looking at like over the past decades, Like
Speaker 4: you know, the they were talking about the single biggest
Speaker 4: problem that you're reporting. So over the last decade, I
Speaker 4: think the inflation. Of course it was like up and down,
Speaker 4: but overall it was still pretty modest, being the inflation
Speaker 4: being the number one problem, but.
Speaker 3: Labor market labor quality was like still owned around the.
Speaker 1: Yeah, Jennif're gonna have to wrap it up right there
Speaker 1: just because of the time, but appreciate getting your thoughts.
Speaker 1: Jennifer Lee, Senior economist at BMO Capital Markets.
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Speaker 6: Tech Talk Today a good one.
Speaker 1: We have folks at Huawei Technologies Steve Geisler, US Chief
Speaker 1: Intellectual Property Council and Andy Perty, Huawei USA Chief Security Officer.
Speaker 1: They joined us for a roundtable in Huawei's twenty twenty
Speaker 1: three Innovation and IP form at its Chinese headquarters today. Steve,
Speaker 1: before we get to kind of what you guys are
Speaker 1: doing at your forum today in Shenzhen, China. Talk to
Speaker 1: Steve what it's like at your company dealing with sanctions,
Speaker 1: just particularly the US. How has that impacted your business?
Speaker 9: So my business, I'm a lawyer within the Huawei corporate family,
Speaker 9: so for me personally, it means more work.
Speaker 10: It does.
Speaker 9: However, me as an American, I have to always be
Speaker 9: mindful of the export control and the distanctions laws. Because
Speaker 9: I work in intellectual property. That does, of course put
Speaker 9: some constraints on me. But by and large, my day
Speaker 9: to day job deals with patents which are publicly known.
Speaker 9: Of course, the word patent means open, so I deal
Speaker 9: with technologies once they've already become public, and I deal
Speaker 9: a lot with licensing with other companies, and so my
Speaker 9: day to day job is not impacted nearly as much
Speaker 9: as if I were, say an engineer working within the
Speaker 9: Huawei corporate family.
Speaker 5: Okay, well, because you're a lawyer, I know that you
Speaker 5: are not going to answer this question, Steven, but just
Speaker 5: to throw it to you, what does Huawe's return to
Speaker 5: the five G phone market look like? And what does
Speaker 5: the smartphone business continue to look like for Huawei given
Speaker 5: these sanctions?
Speaker 9: I will definitely give you the lawyerly answer, but the
Speaker 9: correct answer. My job really is not to predict it.
Speaker 9: It's just to prepare. So if Huawei were to return
Speaker 9: to the five G phone market, I need to make
Speaker 9: sure that we have the licenses in place, such as
Speaker 9: the five G Standard Essential Path licenses with our licensing
Speaker 9: partners to make sure that we would allow for that.
Speaker 9: Quawei previously did have five five G phones, so we
Speaker 9: have most of those patents patent license agreements already in place.
Speaker 9: So I my part, my role in terms of preparation
Speaker 9: for such a contingency is already underway. But in terms
Speaker 9: of predicting and in the sales visibility of our product mix,
Speaker 9: people like Andy certainly can can address that.
Speaker 11: But for me, I prepare.
Speaker 3: I don't predict, all right, so let me job.
Speaker 6: So Andy, let's let's let's bring you in here.
Speaker 1: Andy Purtty, chief Security Officer or Huawei Technologies in the US.
Speaker 1: Talk to us about what you guys are doing, uh
Speaker 1: with this innovation in ip form in Shenzen today. What
Speaker 1: are some of the big products and services you guys
Speaker 1: are talking about here.
Speaker 12: Yeah, this is a part of our bigger effort that
Speaker 12: you touched only with Steve A moment ago. Given the
Speaker 12: situation that we face in the United States and around
Speaker 12: the world, we've been trying to and we've been successful
Speaker 12: at adjusting our business strategy and changing our portfolios with
Speaker 12: a huge historic investment in R and B over twenty
Speaker 12: five percent of our global revenues, so that we can
Speaker 12: customize our products for our carriers, our enterprises, and our consumers.
Speaker 12: But the three key things of technology that we are
Speaker 12: embracing that are part of that are digitalization, intelligence, and
Speaker 12: carbon neutrality. So our focus company has been on connectivity,
Speaker 12: computing devices, intelligent auto solutions, and digitalization of power. And
Speaker 12: you can see that in the example we talk about AI,
Speaker 12: the pengu Ai three dot zero that we're going to
Speaker 12: be talking about in this conference, which is heavily focused
Speaker 12: on weather and the Nature magazine has just issued a
Speaker 12: major article about weather prediction. It's very exciting about how
Speaker 12: AI is making going to make every industry more productive
Speaker 12: and efficient and it's going to reshape all industries with
Speaker 12: a focus is really on industry industry AI.
Speaker 6: So Andy just.
Speaker 1: From the technology standpoint, the commercial standpoint, what are your
Speaker 1: leaders in China telling you about, you know, kind of
Speaker 1: their strategy for dealing with the West, whether as customers,
Speaker 1: as supply chain, what scenario you're operating under, like how
Speaker 1: you create a three to five year business plan.
Speaker 12: Well, as I said, we have, we're leveraging the convergence
Speaker 12: of technologies five G, cloud, censor technology, AI, catalyzing the
Speaker 12: digitalization of industries that we've been working on, and actually
Speaker 12: moving toward five point five G, which is some of
Speaker 12: the other things we're going to be talking about today.
Speaker 12: So we're heavily investing in what we can do in
Speaker 12: terms of develop technologies to help the telecom carriers raise
Speaker 12: their capabilities to supply five G and hopefully five point
Speaker 12: five G, and to help the customers and industry spectors
Speaker 12: around the world, such as you can see the benefits
Speaker 12: the Panglo three dot ZHO.
Speaker 5: So, given that, I'm curious if this kind of overall
Speaker 5: push into IP licensing, does that mean that your focus
Speaker 5: is more on back end technology versus more consumer facing products.
Speaker 12: Steve, you may want to touch on this also, but no,
Speaker 12: it's the smartphone issue has been what was dramatically affected
Speaker 12: the ability of American companies to sell the nonsensitive five
Speaker 12: G five G chips for our phones. So everything else
Speaker 12: we've been emphasizing with the digitalization, and we've been able
Speaker 12: to our enterprise business by thirty percent in twenty twenty two.
Speaker 12: Using the themes of digitalization and digital transformation. We've leveled
Speaker 12: off that drop in our consumer business and we expect
Speaker 12: our carrier business to meet expectations.
Speaker 1: Steve, you have any thoughts there as to kind of
Speaker 1: how you guys are navigating some of the from a
Speaker 1: patent perspective.
Speaker 9: Yeah, so, as any said, so, the IP actually is
Speaker 9: somewhat detached, and that's not completely detachedble we typically are
Speaker 9: going to be patenting the same technologies that would be
Speaker 9: in our product mix. However, just because we don't sell
Speaker 9: a product in the United States does not mean we're
Speaker 9: not going to get a US patent.
Speaker 10: So, for instance, as of the end of.
Speaker 9: Last year, we had one hundred and twenty thousand patents
Speaker 9: globally that were active, including about twenty two thousand active
Speaker 9: US patents. We had about forty thousand Chinese and European
Speaker 9: patents each at the.
Speaker 10: End of last year.
Speaker 9: But in terms of the patenting, we just for instance,
Speaker 9: Wi Fi six, which is the new version of Wi
Speaker 9: Fi that is now being commercialized that's out on the market.
Speaker 9: Quawei has about twenty percent nineteen to twenty percent of
Speaker 9: the standard essential patents that would be used when someone
Speaker 9: is making, using, or selling a Wi Fi six enabled product.
Speaker 9: So that is the type of R and D that
Speaker 9: as And said, we actually have increased R and D
Speaker 9: funding up to twenty three billion US dollars last year alone,
Speaker 9: and so Bawa has no choice but to continue to
Speaker 9: innovate and still has product sales. However, those products sales geographically,
Speaker 9: the footprint has changed since five years ago, and also
Speaker 9: the product mix. There's a different focus for sure within
Speaker 9: various industries.
Speaker 5: Andy, in our final minute with you here, given what
Speaker 5: Stephen was just talking about with ideation and R and D,
Speaker 5: what do your plans look like for five G chip
Speaker 5: procurement domestically in China.
Speaker 11: Well, we have.
Speaker 12: Been continuing to emphasize the diversification our portfolio of our
Speaker 12: supply chain so that we can meet the needs of
Speaker 12: our customers. I don't have any comment yet on the
Speaker 12: explosion of news stories on what we're talked about, but
Speaker 12: we are proceeding on the assumption that we have certain
Speaker 12: limitations and we're going to continue to grow our businesses
Speaker 12: in other areas such as small finding, smart roots, smartboards,
Speaker 12: electric power railway and moving into five point five, which
Speaker 12: is very exciting. Frankly, you know, when you talk about
Speaker 12: the one piece of the technology innovation our leaders of
Speaker 12: Ken who are vice chairman, is estimated we look at
Speaker 12: AID ninety eight percent of all AI is going to
Speaker 12: be industry and some agriculture, and only two percent is consumer.
Speaker 12: And the focus recently has been on consumer, the generated AI,
Speaker 12: but it's going to be much more important than that
Speaker 12: to the world.
Speaker 6: All right, Andy, thank you so much for joining us.
Speaker 1: Andy Purty, chief security officer for Huawei Technologies in Steve Geisler,
Speaker 1: US chief Intellectual Property Council, and I know both of
Speaker 1: these gentlemen got their law degrees from the University of Virginia.
Speaker 6: So wahu wa.
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Speaker 6: We're welcoming Randy swimmer into the studio as well. Always
Speaker 6: left chatting with Randy.
Speaker 1: He's co head of senior Lending and he's a senior
Speaker 1: managing director Churchill Asset Management. Randy, one of the many
Speaker 1: reasons we love speaking to you because you're an expert
Speaker 1: in this private credit business out there, which has been
Speaker 1: such a hot market getting lots of capital and has
Speaker 1: really become a big part of the capital market. It's
Speaker 1: really passed since the Great Financial Crisis. How is your
Speaker 1: business today in what appears to be a market that
Speaker 1: is seeing inflation moderate maybe taking the recession story off
Speaker 1: the table a little bit.
Speaker 6: How's that?
Speaker 1: How are you seeing that in your business of directly lending?
Speaker 14: Yeah, first of all, thanks again for having me on.
Speaker 14: So I did some homework just for you, Paul. So
Speaker 14: looked for the first half numbers for our business to
Speaker 14: sort of get a sense for how we're doing. Turns out,
Speaker 14: and we have a senior debt business and a junior
Speaker 14: capital business all with you know, under the Churchill banner.
Speaker 14: We did one hundred and seventy five deals in the
Speaker 14: first half of the year. Okay, five billion dollars across
Speaker 14: those two platforms.
Speaker 6: Right, So, I was like whoa, that's your firm, by
Speaker 6: the way.
Speaker 14: So we're like total committed capital of about forty six billion,
Speaker 14: and then you throw our Arkmont sister company in Europe,
Speaker 14: they're another twenty twenty five billion, so you know. But
Speaker 14: the thing that surprised me a little bit is that
Speaker 14: despite a lot of the softness in M and A
Speaker 14: that we saw on the first half, what's driving our
Speaker 14: deal flow is the kind of migration from public credit
Speaker 14: to private credit because the banks have been a bit
Speaker 14: offline with some of the liquid loans. They don't have
Speaker 14: clearing price, they don't have COLO formation, a lot of
Speaker 14: the cache is coming out of retail funds not going in,
Speaker 14: and so they're a bit offline, and so a lot
Speaker 14: of that activity has come to the direct lender, so
Speaker 14: that's helping us. And then we have the scale we
Speaker 14: can commit you know, four or five hundred million dollars
Speaker 14: per deal and get stuff done. So those combinations of
Speaker 14: things makes it right now pretty attractive.
Speaker 15: So so back when the FED was a zero in
Speaker 15: the ten year, wasn't even at two percent, the demand
Speaker 15: for private credit from investors was very high because a huge,
Speaker 15: huge premium with not a whole lot more risk for
Speaker 15: better returns. Now that you get five percent plus on
Speaker 15: corporates and unis are not that far behind, how does
Speaker 15: that affect your investor base? What are they looking at
Speaker 15: in the world of private credit as a as an
Speaker 15: asset class.
Speaker 14: So Barry, that's exactly the question that comes up at
Speaker 14: these investor meetings, and the answer is that the opportunity
Speaker 14: in private debt is not necessarily a timing thing, because
Speaker 14: to your point, it was very attractive two years ago.
Speaker 14: It's more attractive from a pure yield perspective today relative
Speaker 14: still relative to corporates. The question is how long will
Speaker 14: that attractive corporate and high yield bond trade last. If
Speaker 14: what Paul says, it's true, and we're starting to see
Speaker 14: a little softening in the numbers which we saw today,
Speaker 14: and it looks like the FED might you know, maybe
Speaker 14: they raised once, maybe they you know, maybe once and done.
Speaker 14: Then at some point rates are going to start to
Speaker 14: come down. What's going to happen for investors who are
Speaker 14: looking for long term income streams is they're going to
Speaker 14: see those corporate bond rates start to come back down again,
Speaker 14: and eventually whether it goes back down to where bonds
Speaker 14: were kind of three to four percent the way they
Speaker 14: were two years ago or something in between where they
Speaker 14: are now. It's going to come down. Whereas the illiquidity
Speaker 14: premium that investors in private debt get has been the
Speaker 14: same throughout that period, roughly three hundred basis points. So
Speaker 14: whatever liquid is getting, we're getting three percent more.
Speaker 15: We've been discussing the window that has been opening up
Speaker 15: to extenduration lock in higher rates after the better part
Speaker 15: of a decade of you know, bonds not really generating
Speaker 15: a lot. Suddenly, whether it's private credit or corporates vis
Speaker 15: this whole asset class has become a whole lot more attractive.
Speaker 15: But who knows how long that window is going to
Speaker 15: be open.
Speaker 14: For correct And so the thing about private debt is
Speaker 14: that you can trace the higher yields and better structures
Speaker 14: and all the things that you know back for decades.
Speaker 14: So the opportunity really isn't a timing issue. It's more
Speaker 14: of a strategic issue. You decide that you are going
Speaker 14: to have some part of your portfolio always in private debt.
Speaker 14: And so what we're seeing now with our investors and
Speaker 14: increasing number of them are saying, you know, I want five, ten, fifteen, percent,
Speaker 14: whatever that number is always in my overall portfolio. I
Speaker 14: have room for fixed income, I've got room for public equities,
Speaker 14: I've got room for real estate, but I really want
Speaker 14: some core assets in private debt.
Speaker 5: But does that allocation start to change as people maybe
Speaker 5: get a little bit of FOMO for things like an
Speaker 5: AI rally for example.
Speaker 14: Well, what's happening in the public market is that things
Speaker 14: will come and go depending on where the current trade is.
Speaker 14: To your point, and we saw obviously rally and technology
Speaker 14: stocks and so forth. But what happens is depending on
Speaker 14: what's going on with the rest of the economic climate,
Speaker 14: some of those opportunities tend to fade. We certainly saw
Speaker 14: that with crypto. We've seen that, you know in other areas,
Speaker 14: the Spack rally for example, that we were talking about
Speaker 14: here in the studios a year or two ago. And
Speaker 14: the thing that investors really want to focus on now
Speaker 14: is stability. Okay, so yield is great, but stability of
Speaker 14: income is even more important to them, and so going
Speaker 14: into it with an manager that has a track record
Speaker 14: to deliver these stable, higher returns is probably foremost in
Speaker 14: their minds.
Speaker 1: Right now, what sectors do you guys like these days
Speaker 1: he did a Conjigian transactions in the first six months,
Speaker 1: or some sectors you're you really like here, or some
Speaker 1: of you're invoiding.
Speaker 14: I know you're gonna ask this question, and so I
Speaker 14: went back and that by far and away, it's business
Speaker 14: services because things that companies like landscaping companies. I like
Speaker 14: to use this because regardless of whether building is occupied
Speaker 14: or not, you still have to modilawn, plow the snow,
Speaker 14: had you trim the hedges, and so landscaping escaping companies
Speaker 14: because they have to be there. Twenty four to seven
Speaker 14: alarm companies, same thing. Security businesses, anything where you have
Speaker 14: consistent cash flow and growth over a long period of time.
Speaker 14: Those are the kinds of companies we like. Healthcare, technology, software,
Speaker 14: logistics businesses, anything that requires moving boxes around. Right now,
Speaker 14: I mean, I don't know about you, but my family's
Speaker 14: ordering more boxes, delivering to the front door, and all
Speaker 14: the support, the back office, the middle office related to
Speaker 14: those kinds of businesses are doing well right now.
Speaker 15: Really quite interesting. You know, last year, before we really
Speaker 15: had a firm grasp of exactly how fast and far
Speaker 15: CPI would would fall, a lot of people piled into
Speaker 15: private debt, especially with a lot of younger companies. You
Speaker 15: guys have been around for a long time. I'm wondering
Speaker 15: how you look at the competition in the space and
Speaker 15: how many people kind of top ticked the market last year.
Speaker 14: Yeah, So one of the questions from a credit perspective is,
Speaker 14: you know, did you go in with companies that are
Speaker 14: now hurting as a result of some of the dynamics
Speaker 14: inflation wise you've talked about. And the advantage that we
Speaker 14: have is that we are we invest only with private
Speaker 14: equity backed companies, and so the amount of cash equity
Speaker 14: that they're putting into these businesses is like sixty five
Speaker 14: percent of the total capital structure, which is a record high.
Speaker 14: The other thing is, you know, they have their own
Speaker 14: money at stake. They're helping us to find the best companies,
Speaker 14: and even in that universe, we're still just kind of
Speaker 14: picking the best of the best. So we see a
Speaker 14: thousand deals a year and we do sixty and so
Speaker 14: from that perspective, what we're looking for is to sift
Speaker 14: through the ones that don't have that long track record,
Speaker 14: sift through the ones that are not cyclical, that don't
Speaker 14: have customer concentration. We just turned a deal down this morning.
Speaker 14: Because the business has only been around for five years
Speaker 14: and had customer concentration with three main customers. If you
Speaker 14: lose any one of those three, you're in trouble. So
Speaker 14: our job is to really pick winners.
Speaker 6: I understand your tennis fan.
Speaker 14: Yeah, going to Wimbledon this weekend, are you what are
Speaker 14: you gonna What are you gonna say?
Speaker 6: Women's finals, women's finals, Yes, sir, all right.
Speaker 1: We had one of the semifinals that just got done earlier,
Speaker 1: so we have one finalist in there.
Speaker 6: It's funny. That should be great. That's have you been
Speaker 6: there before.
Speaker 14: I've known this my first time.
Speaker 6: It's awesome. You're gonna love it.
Speaker 14: I'm not playing, but I launch all right, very good.
Speaker 1: H Randy schwimmert cohed of Senior Lendy and he's just
Speaker 1: senior managing director Churchill Asset Management.
Speaker 8: You're listening to the team Can's are live program Bloomberg
Speaker 8: Markets weekdays at ten am Eastern.
Speaker 13: On Bloomberg dot com, the iHeart Radio.
Speaker 8: And the Bloomberg Business app, or listen on demand wherever
Speaker 8: you get your podcast.
Speaker 5: We are really excited about our next guest here because
Speaker 5: we've got Laura Mody coming on. She is the CEO
Speaker 5: and co founder of Bobby. This is an infinite formula company.
Speaker 5: It's organic. They've got some big name investors on the
Speaker 5: list here with Gwyneth Paltrow at twenty two million dollars,
Speaker 5: and we're excited to talk with them, Paul and Barry,
Speaker 5: because they've got some big news for us, this company
Speaker 5: acquiring Nature's One. We don't have the exact details in
Speaker 5: terms of the finances here, but it was a seventy
Speaker 5: million dollar Series C round of funding to acquire Nature's One,
Speaker 5: and this is part of their overall strategy to kind
Speaker 5: of diversify their holdings here.
Speaker 7: So I think we have Bobby.
Speaker 5: We've got Bobby CEO on the phone here, Laura Mody.
Speaker 5: Thank you so much for joining us, Laura, as I
Speaker 5: was just explaining this acquisition of Nature's One.
Speaker 7: How does that acquisition.
Speaker 5: Factor into your our strategic push to increase domestic access
Speaker 5: to infant formula here in the US.
Speaker 16: Yeah, Hi, lovely to be back with you guys again. Look,
Speaker 16: this acquisition is so much greater than Bobby and Nature's One.
Speaker 16: The significance of our two companies coming together is the
Speaker 16: biggest diversification move in the history of USNS and formula
Speaker 16: and after last year's shortage, this is what the industry needs.
Speaker 16: We need more competition, we need more options, and this
Speaker 16: allows us to be able to serve more of the
Speaker 16: market over the coming years.
Speaker 6: So what does Nature's want do?
Speaker 1: So talk to us about this distract what this company
Speaker 1: does and kind of how it dovestail dovetails in with
Speaker 1: kind of your business at Bobby and the baby formula
Speaker 1: delivery business.
Speaker 16: Yeah, so nature is One is actually you know, pioneers
Speaker 16: in the world of organic impurity. They've been around for
Speaker 16: the last twenty six years. They've spent the majority of
Speaker 16: their time and focused on the popular formula. I would
Speaker 16: actually refer to their founder and CEO really as the
Speaker 16: godfather of formula here in the US, an organic formula.
Speaker 16: He had the foresight back in two twenty and nineteen
Speaker 16: to build a state of the art infant formula facility
Speaker 16: in Ohio, and he had no idea what would come
Speaker 16: in twenty twenty two when we were hit with the
Speaker 16: national infant formula shortage. But in twenty twenty two, at
Speaker 16: the end of last year, it got completed and he
Speaker 16: became the first new infant formula facility to be built
Speaker 16: in forty years from the ground up.
Speaker 11: In the US.
Speaker 15: Laura Barry Riddholts here, So it sounds like putting together
Speaker 15: a couple of these parts. You're going for scale so
Speaker 15: that if there is any sort of disruption in the future,
Speaker 15: you'll be able to meet consumer demand. How large do
Speaker 15: you have to be to avoid the sort of problems
Speaker 15: that we saw during the pandemic and the lockdowns.
Speaker 10: Question.
Speaker 16: This is not just about and building one facility and
Speaker 16: calling it a day. We need to build redundancy. This
Speaker 16: industry needs resiliency so that we don't go through this again.
Speaker 16: So today we've been using a contract manufacturer to make
Speaker 16: our product, and we're going to keep doing that. We're
Speaker 16: going to double down with them. We're going to stay
Speaker 16: with them longer while we also build the resiliency to
Speaker 16: get our own facility up and running to also produce
Speaker 16: more products. The downside of last year was that there
Speaker 16: was few facilities making too few products. So when one
Speaker 16: of those facilities is no longer able to produce product,
Speaker 16: we're going to be experiencing a shortage. Now, I will
Speaker 16: admit that Bobby is not going to be the cure
Speaker 16: solution to ensure that we avoid this. But I'm going
Speaker 16: to do my damn best to make sure the Bobby's
Speaker 16: never in the center of another shortage again.
Speaker 1: And as many of our listeners know, we started speaking
Speaker 1: with Laura back in the pandem again when this shortage
Speaker 1: came to the fore and we needed to get real
Speaker 1: smart on the baby formula business real quick, and Laura
Speaker 1: was kind enough to speak with this several times during
Speaker 1: that process. So it's great to see Laura and Bobby
Speaker 1: continue to grow here. So Laar, give us the lay
Speaker 1: of the land today. How have things changed in the
Speaker 1: greater you know, baby formula business as it relates to logistics.
Speaker 1: Are we in a better place today than we were
Speaker 1: you know, a year ago, two years ago?
Speaker 16: Well, i'd like to say chester yesterday's acquisition, we are.
Speaker 16: The shortage itself is beginning to subside, which means shells
Speaker 16: are getting stocked and there's access to more formula, but
Speaker 16: it's spotty, and it's spotty because consumer buying behavior has
Speaker 16: also changed, so there may be some shelves that remain
Speaker 16: out of stock while others are plentiful. What we need
Speaker 16: to do is we need to adjust to this changing
Speaker 16: landscape and consumer behavior, which includes what are the products
Speaker 16: that they need now and where do they need them?
Speaker 16: That I would say is we're still somewhat in a crisis.
Speaker 16: From that respect. The other thing that hasn't changed is
Speaker 16: we're still putting out products from the same few facilities.
Speaker 16: We are not in a position of the country where
Speaker 16: we can turn around and confidently say that it's another
Speaker 16: bacteria hits the facility that we wouldn't be in this again.
Speaker 16: I actually think we are truly one bacteria away from
Speaker 16: having another shortage like last year, and the only way
Speaker 16: to get out of that is through the incentives and
Speaker 16: investment made in further domestic manufacturing.
Speaker 5: In our final couple of minutes with you, Laura, I
Speaker 5: want to switch gears a little bit because I'm so
Speaker 5: interested in your history and your previous life before Bobby,
Speaker 5: when you were working at Google, and you've talked about
Speaker 5: day trading as an important part of your time there
Speaker 5: that helped you to buy your first home, and that's
Speaker 5: why it was so important to you to kind of
Speaker 5: open up investment into Bobby for women in particular, talk
Speaker 5: to me about the other ways that being a trader
Speaker 5: yourself has impacted the way that you run the business.
Speaker 16: Great question. Did not see that coming here.
Speaker 5: I'm a big fan of the Cut because I used
Speaker 5: to work there, so that's where I'm getting that.
Speaker 16: I love it. Look, my passion is really in women
Speaker 16: having financial independence, and I think in a lot of ways,
Speaker 16: whether it's trading or just understanding the financial system, women
Speaker 16: are often left in the dark and behind. It can
Speaker 16: be sometimes seen as an old boys club, whether it's
Speaker 16: from the nomenclature to just the tools that exist. So
Speaker 16: one of my deep passions is making sure that we're
Speaker 16: in we are growing a business to allow women to
Speaker 16: become financially savvy, and you see that in many of
Speaker 16: our practices today. One of those is that I think
Speaker 16: it was in our fundraise for our series day we
Speaker 16: opened up a small portion of the round to allow
Speaker 16: our own customers moms to invest in the business. And
Speaker 16: instead of how having a minimum dollar to be able
Speaker 16: to put in, we actually created a cap that allowed
Speaker 16: several hundred moms to be able to invest in business.
Speaker 1: Yep, that's a fat, I mean fascinating story all around here.
Speaker 1: We're glad we get to stay in touch with you,
Speaker 1: Lara and keep us up today. What's happening in your
Speaker 1: business and your industry? Law Mody, CEO and co founder
Speaker 1: of Bobby.
Speaker 8: You're listening to the tape. Can's our live program Bloomberg
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 8: tune in app, Bloomberg dot Com, and.
Speaker 13: The Bloomberg Business App.
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Speaker 6: We'd be streaming on that thing called YouTube.
Speaker 1: Just go to YouTube and search Bloomberg Global News and
Speaker 1: that's you get the video feed there all right. The
Speaker 1: absolute top media analyst on Wall Street in my opinion,
Speaker 1: and it's an informed opinion. Michael nathan SI, founding partner
Speaker 1: and senior Research Channels at Moffat Nathanson joins us via zoom. Michael,
Speaker 1: thanks so much for taking the time. I got to
Speaker 1: start with Disney. You know, back in the day, I
Speaker 1: told a professor Buddy Mine and Harvard Business School, I
Speaker 1: got a case study for you how to really do
Speaker 1: an effective UH succession planning? And that was Bob Ayger
Speaker 1: the Walt Disney Company. I'm thinking the Tom Staggs Jay
Speaker 1: Russolo set up that nice race.
Speaker 6: We thought everybody on the street was happy with it.
Speaker 6: We thought, boy, these are two good people.
Speaker 1: And then it didn't work out, and Bob kept extending
Speaker 1: and extending, and all the executives left and here we
Speaker 1: are again. So what do you make of what's going
Speaker 1: on at Disney?
Speaker 11: Yeah, thanks Paul, pretty nice, nice comments. That really means
Speaker 11: a lot, So thank you for that. There's a lot
Speaker 11: to unpack here, right, So start with where you began,
Speaker 11: which is believe or not. There's there's not a bench
Speaker 11: yes year that's ready to take over leadership. I think
Speaker 11: part of it is that the company is in such
Speaker 11: different businesses in different birth life cycles. Right. So Parks,
Speaker 11: the guys you mentioned stagger In Resulo you know Staggers
Speaker 11: a CFO. Rosulo was the head of Parks. Parks has
Speaker 11: a different type of business model than Media. Now streaming
Speaker 11: is their their big bet is. Streaming is a completely
Speaker 11: different business model. So it's such a broad set of assets,
Speaker 11: and you need someone who's who has got creative sensibilities
Speaker 11: or trustworthiness. It's it's a hard job. But to your
Speaker 11: first point, yeah, it's kind of amazing that this lead
Speaker 11: into it. There hasn't been a bench of emerging candidates
Speaker 11: besides Bob Kaipik in hindsight, was the wrong person. We
Speaker 11: thought that almost right away. So that continues, right the
Speaker 11: hunt for the next executive continues. We've got more time
Speaker 11: on his hands. But that's just part of the story,
Speaker 11: I think.
Speaker 1: And so, Michael, the bigger issue, well not the big issue,
Speaker 1: but the operating issue for Bob Byger and the management
Speaker 1: team is, boy, how do you manage this transition from
Speaker 1: the traditional business where you had cable companies and salt companies,
Speaker 1: you know, giving you a steady profit, to now the
Speaker 1: streaming business where the economics are really uncertain. Let's start
Speaker 1: with ESPN. What would you recommend to Bob Eyer on
Speaker 1: the board that they do with ESPN?
Speaker 11: Yeah, so Paul started ESPN and is right. You know
Speaker 11: when you covered the stock way back when it was
Speaker 11: it was a driver of free cash flow and the
Speaker 11: driver profitability ESPN and you'll laugh if and to us
Speaker 11: a it's really unclear how ESPN could work on a
Speaker 11: standalone basis as a drifting consumer service. Right, the price
Speaker 11: point has to be quite high, the will be more
Speaker 11: seasonal than it is now. We think the best idea
Speaker 11: is to either create a sports only bundle with other
Speaker 11: sports led programmers, or put sport into the Disney plus
Speaker 11: Food bundle. Right, so you either have to go all
Speaker 11: in on sports or use sports strategically. It's unclear at
Speaker 11: this point what Disney wants to do. I think they
Speaker 11: really want to maintain an ESPN brand as a standalone
Speaker 11: APT we think, but even today when Baba's was talking
Speaker 11: about it, it's unclear what the path looks like going forward.
Speaker 11: We studied ESPN for a long time, you know, we
Speaker 11: used to be more sanguine about the future of ESPN,
Speaker 11: but cork cutting has gotten so bad and a cost
Speaker 11: of sports keeps rising that it's not an easy, clear
Speaker 11: answer that you you know, for your question. Our best
Speaker 11: bet is to try to keep the bundle alive by
Speaker 11: shrinking it down to sports only. When hit the bundle,
Speaker 11: what remains the PATV bundle, So shrinking down to sports only.
Speaker 1: So when you talk to institutional investors, Michael just about
Speaker 1: you know, the big media companies, how confident are you
Speaker 1: that they can make this transition broadly speaking, the industry
Speaker 1: to a streaming economic model. Because if I'm an investor,
Speaker 1: I'm like, I just don't know, and as a result,
Speaker 1: I'm not going to invest.
Speaker 11: Yeah for people, So if you're head our work, we
Speaker 11: had a Noe doubt today where my partner Robert Fishman
Speaker 11: covers a lot of media names equated today's linear TV
Speaker 11: to radio and exactly. And it feels like that, right, Paul,
Speaker 11: where the uncerting, the uncerting index is so high for
Speaker 11: the future and the pivot here seems so complicated that
Speaker 11: we're finding just a lack of interest even for Disney. Right,
Speaker 11: So we upgraded Disney when Box came back in ninety,
Speaker 11: Bucks stock went to one twenty. That's our price targets
Speaker 11: back to ninety again. But even Disney has lost kind
Speaker 11: of the goodwill of the instrutional investors that are out there, Right,
Speaker 11: So there's just a lack of interest here, like radio,
Speaker 11: which is a sad commentary. But a lot of this,
Speaker 11: Paul and I've talked over the many years, has been
Speaker 11: self inflicted. Right, didn't have to be this bad. They
Speaker 11: licensed their content to Netflix. They then all pivoted hard
Speaker 11: to streaming without much thought about profitability, and they've killed
Speaker 11: the golden goose. Right, It's really sad, like, there'll be
Speaker 11: a textbook written about how this was. You know, a
Speaker 11: lot of this was self inflicted in terms of the
Speaker 11: wounds in the industry.
Speaker 1: I think in your next life you can write that
Speaker 1: book in your spare time. Michael, Hey, let's talk about
Speaker 1: a name that just jumps out of a lot of investors,
Speaker 1: maybe of some interest, Paramount. What does this company do?
Speaker 1: What does Sherry Redstone really want to do with this company?
Speaker 1: Because you know, we kind of thought that they didn't
Speaker 1: have this scale before. Nothing's changed, maybe even it's become
Speaker 1: more pronounced that risk.
Speaker 11: No, so we and Robert has a we have a
Speaker 11: sell on Paramount. You may be shot to know or
Speaker 11: not know that they generate no pre cash flow and
Speaker 11: they're highly leveraged. And the bullet caase is simply that
Speaker 11: someone is going to buy them. Yeah, you Warren Buffett's
Speaker 11: an investor, and like that's hoss. Like if that's what
Speaker 11: you have as a bullet case, and then we're worried
Speaker 11: about it. We think just they're over leveraged to cable networks,
Speaker 11: the lack of profitability and streaming.
Speaker 15: It's just a.
Speaker 11: Tough hand they have. And I think, you know, they
Speaker 11: just got to give them a quarter, and I think
Speaker 11: if you moved to like this arms dealer or you
Speaker 11: start selling your content, I'm not sure there's a there there.
Speaker 11: At the end of the day, eventually you're seeing Netflix, Amazon,
Speaker 11: Apple make their own content. So maybe they'll buy the
Speaker 11: mission impossible. Maybe they'll buy, you know, the top gun
Speaker 11: from you, but they won't license all your content because
Speaker 11: they don't have to anymore. I think you picked that one,
Speaker 11: and that's a tough handpong. We're quite negative on the
Speaker 11: outcome there.
Speaker 5: Hey, Michael, this is Madison a question about this, and
Speaker 5: it's funny.
Speaker 7: I was talking to my friends last.
Speaker 5: Night who all really hate the paramount app so not
Speaker 5: a great sign for them. But when you look at
Speaker 5: a Netflix in particular, they've really gone all in on
Speaker 5: creating this really cheap reality TV content that can.
Speaker 7: Air for them and does really, really well.
Speaker 5: Disney doesn't really have an option for that necessarily.
Speaker 7: Do you see Disney.
Speaker 5: Going into a cheaper content creation strategy in order to
Speaker 5: compete with the likes Netflix.
Speaker 11: It's funny. We've studied that question by looking at Netflix.
Speaker 11: Netflix the viewership that eight and ten percent of the
Speaker 11: viewership would be unscripted reality every every month, every quarter,
Speaker 11: eight ten percent. It's not a big number, but to
Speaker 11: your point, the stuff they have probably out punches, you
Speaker 11: know what the costs are making it. Disney has National
Speaker 11: Disney Plus, is that Geo Whoo has The Bachelor. Our
Speaker 11: vision is that at some point Disney Plus and Who
Speaker 11: will get combined. Now Geo really hasn't sparked. It looks
Speaker 11: like the same level of engagement that Netflix's reality shows have.
Speaker 11: But we think that at some point when they combined
Speaker 11: Disney Plus and Whulu to your comment, didn't have to
Speaker 11: lean more into unscripted reality. You know, again the Bachelor,
Speaker 11: it's made by warners, but it's it's a good observation.
Speaker 11: The opposite side, Warner Brothers has now Max has great
Speaker 11: HBO stuff and now all the Discovery content. They probably
Speaker 11: have almost too much reality programming there. So as I
Speaker 11: think Netflix has figured out the perfect blend, I think
Speaker 11: to your point, others will have to follow that blend.
Speaker 1: And if there isn't enough headwinds for just strategically for
Speaker 1: the industry, now they've got, you know, potentially a pair
Speaker 1: of strikes, one from the writers and now potentially one
Speaker 1: from the actors. Boy, how big of a problem is
Speaker 1: this for the industry? Michael, do you think these things
Speaker 1: get resolved.
Speaker 11: I think it's a huge problem. I think it's happening
Speaker 11: at a time of great difficulties for the industry, a
Speaker 11: kind of structural change. The directors have settled, the writers
Speaker 11: have not, and the actress likely will go on strike.
Speaker 11: I think it's gonna be really damaging. And the problem,
Speaker 11: I think is that the sides are so far apart,
Speaker 11: given that the writers are still in strike and the
Speaker 11: economicy industry is we've just talked about it really really challenging.
Speaker 11: So I think there needs to be some realization that
Speaker 11: the music common ground here, something has to give. I
Speaker 11: worry that this goes on through the summer is going
Speaker 11: to really affect the fourth quarter and all the new
Speaker 11: programming for broadcasts and some of the broadcast networks that
Speaker 11: we cover will be in a really bad position. And
Speaker 11: it's also going to hurt streaming companies that are looking
Speaker 11: for new, fresh content by the first half of next year.
Speaker 11: But it has real implications here. But it doesn't seem
Speaker 11: to us to be settling anytime. In the fact, feels
Speaker 11: like it could drag on Paul, which is not It's
Speaker 11: not a good outcome for anybody.
Speaker 1: Hey, Michael, just lastly, love to just get your your
Speaker 1: top pick here. What are you guys in your team
Speaker 1: kind of out there with your clients.
Speaker 11: Okay, So in media all separate media and Internet, right,
Speaker 11: so we keep adding coverage, So Robbins Media World, our
Speaker 11: top picks would be Fox because Fox is just sports
Speaker 11: and news, and Disney for a larg term view that
Speaker 11: ninety bucks I share. You know, if Bob Ayer can
Speaker 11: be successful, you know, we think there's thirty dollars of upside,
Speaker 11: So Disney Fox top we have paramounts is short. In Internet,
Speaker 11: we keep pushing Meta has been a really great nice
Speaker 11: year for us and Alphabet because we think the AI
Speaker 11: fears the chat, GPT killing Google Search will overstated. So
Speaker 11: you know, we stay with those behemoth and you know
Speaker 11: that's been an easy call. And we think that there's
Speaker 11: this real dispersion of digital advertisements going to put up
Speaker 11: really nice growth and linear networks going to have a
Speaker 11: early heart iime growing Paul all our radio back when
Speaker 11: when you and I were young, we were younger men.
Speaker 1: That's right, exactly, all right, Michael, thanks for giving us
Speaker 1: a couple minutes of your time. We really appreciate it.
Speaker 1: Michael Nathanson again one of the the the top analysts
Speaker 1: covering the media space, or just in a Wall Street
Speaker 1: and General founding partner senior research analysts at Maffatt Nathanson.
Speaker 8: You're listening to the tape Can's are live program Bloomberg
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 8: tune in app, Bloomberg dot Com.
Speaker 13: And the Bloomberg Business App.
Speaker 8: You can also listen live on Amazon Alexa from our
Speaker 8: flagship New York's Just Say Alexa playing Bloomberg eleven thirty.
Speaker 1: We had some arnings today Pepsi. I'm a coke guy,
Speaker 1: but I'm just as happy drinking Pepsi. I'll be honest
Speaker 1: with you. I have no real loyalty Ken Shay. He
Speaker 1: does this stuff for a living. He follows all these
Speaker 1: consumer companies. He's a senior equity analyst to Bloomberg Intelligence. Ken,
Speaker 1: thanks so much for joining us here on zoom What
Speaker 1: did you learn from Pepsi today.
Speaker 17: Hi, Paul, Well, we learned again the power of Pepsi's brands.
Speaker 17: You know, I think everyone respects their brands and their
Speaker 17: ability to pass on price increases. But I think there
Speaker 17: may have been some underlying skepticism that it could continue
Speaker 17: for so long, and it has, and you know, the
Speaker 17: second half of the year, the company is mentioning that
Speaker 17: commodity costs may ease a little bit, it may not
Speaker 17: be as aggressive with pricing. I think that's giving people
Speaker 17: a little relief. You know, pricing has been in double
Speaker 17: digit for a while now with this company, but they're
Speaker 17: investing in the brands. So what we learned is that
Speaker 17: the company has really powerful brands. They're not afraid to
Speaker 17: invest in them and price accordingly.
Speaker 5: And to what extent do you see that price power,
Speaker 5: pricing power continuing through the second half of the year,
Speaker 5: because in the last earning cycle they were sort of
Speaker 5: like bragging about their ability to increase prices.
Speaker 7: Is that going to keep happening?
Speaker 17: You that's the million doile of the question. You know,
Speaker 17: I'd be reluctant to bet against them, though, you know,
Speaker 17: this earnings report was their eighteenth beat in a row.
Speaker 17: They have an ability better than their peers to manage
Speaker 17: their volume and pricing such that revenues keep coming in strong.
Speaker 17: They invest quite a bit. Their capecks is a little
Speaker 17: bit higher than their peers, but they invest or a manufacturer,
Speaker 17: they own their bottlers too, They invest in productivity. It's
Speaker 17: really showing in the bottom line. So if they can
Speaker 17: continue that top line strength and can continue to what
Speaker 17: they're doing in the second half, then we're looking at
Speaker 17: you know, another high single digit kind of EPs gain
Speaker 17: in the second half.
Speaker 1: Hey can this there's still any vestages left of that
Speaker 1: old Cold war of years gone past, and they still
Speaker 1: fight for market chair Coke and Pepsi or is it
Speaker 1: kind of fizzled out for lack of a or.
Speaker 17: Well, you know, they they don't speak about it that much,
Speaker 17: PepsiCo market share because they really are a full, you know,
Speaker 17: sweet portfolio beverage company, whether it's the Gator Raye sports
Speaker 17: drinks or now they're investing heavily in energy drinks. The
Speaker 17: juice is still tease now alcoholic beverage, you know, a
Speaker 17: venture with Bustin Beer. It's small, but they don't get
Speaker 17: caught up too much in the carbonate cola aisle share
Speaker 17: like co Cola is much more concentrated in as much.
Speaker 5: All right, we've got like twenty seconds left with you here.
Speaker 5: But in those final twenty seconds, I did want to
Speaker 5: ask you about.
Speaker 7: The downside of the dollar. Do you think Pepsi's incredibly
Speaker 7: excited about that? Or am I overblowing that.
Speaker 9: A little bit?
Speaker 17: No, you're not. I mean is it's been a Kurche's
Speaker 17: been a drag for the last all year two or so.
Speaker 17: You're still seeing a modest drag in the in the
Speaker 17: second half. They may be a little conservative given a
Speaker 17: dollar weakness of late, and we think there's still gonna
Speaker 17: be a slight drag, but we think it's a good
Speaker 17: thing for them.
Speaker 13: You know.
Speaker 17: All that's being equal, Let's drag it better, all.
Speaker 1: Right, Ken, thanks so much for joining us, Ken Shay,
Speaker 1: senior equity analysts. It covers all the consumer products companies,
Speaker 1: a lot of the beverage companies, to tobacco companies, the
Speaker 1: weed company, So he's got the whole portfolio there, and
Speaker 1: we appreciate getting a few minutes of his time there.
Speaker 8: You're listening to the tape Cat's are live program Bloomberg
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Speaker 1: Madison Mills, Paul Sweene Here in our Bloomberg Interactive Workers studio,
Speaker 1: a little bit of an M and A trade here
Speaker 1: today exce on to by Denbury for four point nine
Speaker 1: billion dollars in CO two pipeline push. Get the latest
Speaker 1: on this transaction. Kevin Crowley joins this senior US oil
Speaker 1: reporter for Bloomberg News.
Speaker 10: Kevin, are you based in?
Speaker 6: Are you in Houston?
Speaker 10: That's right?
Speaker 11: Yep?
Speaker 10: I mean Houston yet where Egxon is just relocated you.
Speaker 1: Okay, how hard is it going to be in Houston today?
Speaker 10: I think it's I think we're going to be a
Speaker 10: one hundred, but it feels like it's more than one
Speaker 10: hundred and ten or so. So we're staying firmly inside
Speaker 10: in the air conditioning.
Speaker 1: And judging by your accent, you're not a Houston native.
Speaker 1: I mean, you don't know you're genetically you're not made
Speaker 1: up for this weather, are you.
Speaker 10: That's that's right, that's right. Once it gets to about eighty,
Speaker 10: I start to start to melt.
Speaker 1: Ha hang out in the air conditioning there, talk to
Speaker 1: us about this Exon deal. What is Denbury and why
Speaker 1: is Exxon sholling out four point nine billion dollars?
Speaker 10: So it's a it's a really interesting deal. It's really
Speaker 10: it's really a low carbon play for for for Exxon,
Speaker 10: Denbury was is a what's called an enhanced oil recovery specialist.
Speaker 10: So they they move, they use carbon dioxide in old
Speaker 10: wells in order to produce more more oil. Now they
Speaker 10: have a key asset here, which is the which is
Speaker 10: a thirteen hundred one hundred mile pipeline network, which is
Speaker 10: the largest carbon dioxide pipeline network in the US. And
Speaker 10: Eggson really wants this pipeline network in order to boost
Speaker 10: its its carbon capture business. It's a really it's a
Speaker 10: really unique asset that Egxons saw as critical to its
Speaker 10: to its whole low carbon strategy, and that's why it's
Speaker 10: really paying this five billion dollars.
Speaker 6: What is a carbon dioxide pipeline? What is it?
Speaker 1: Transfers carbon dioxide? But from where to wear and for
Speaker 1: what reason?
Speaker 6: I don't understand?
Speaker 10: Right, that's right, trans right, it transports carbon dioxide. So
Speaker 10: so Denbury Denbury used to use carbon dioxide to push
Speaker 10: into old oil wells in order to extract crude. This
Speaker 10: is this is a very mature business. It's a very
Speaker 10: reliable business, but it's a very high cost business. And
Speaker 10: actually Denbury got Denbury went bankrupt in twenty twenty and
Speaker 10: so has been on the recovery track for the last
Speaker 10: three years.
Speaker 11: Now.
Speaker 10: With the world's focused now on carbon emissions and particularly
Speaker 10: the passing of the Inflation Reduction Act, these pipelines that
Speaker 10: move carbon dioxide are now being repurposed for carbon capture.
Speaker 10: So Egxon's plan here is to capture carbon emissions along
Speaker 10: the Gulf coasts, which is full of refineries, chemical plants,
Speaker 10: from the biggest concentration of industrial missions in the country.
Speaker 10: They want to capture those carbon emissions, move them along
Speaker 10: the Denbury pipelines and then bury them.
Speaker 6: In the ground, bury carbon dioxide.
Speaker 10: That's right, that's right. It's called carbon it's called carbon
Speaker 10: capture and sequestration. It's the sequestration part of it, which
Speaker 10: is which is where the magic happens really, whereas instead
Speaker 10: of emitting carbon dioxide into the air, you can capture
Speaker 10: it and you can bury it underground where they say
Speaker 10: it will stay forever. So it's it's it's a way
Speaker 10: of it's a way of being able to keep a
Speaker 10: refinery or chemical plant going, but without the without the emissions.
Speaker 7: Okay, so you mentioned the Inflation Reduction Act.
Speaker 5: How much of this acquisition is directly related to that legislation.
Speaker 10: Yes, it's absolutely critical. So I spoke. I spoke to
Speaker 10: the Eggson executive kind of leading this this morning, Dan Aman,
Speaker 10: who used to be at General Motors. He said, he
Speaker 10: said the the Inflation Reduction Act was it was a
Speaker 10: key catalyst. And without the Inflation Reduction Act, I think
Speaker 10: this deal would have been a bit more, a bit
Speaker 10: more challenged. And and what the what the Inflation Reduction
Speaker 10: Act is that does really is it provides tax credits
Speaker 10: for this whole process. I talked about capturing carbon and
Speaker 10: then burying it, and you know Eggson can do this.
Speaker 10: Eggxon think want to do this on a on a
Speaker 10: really large scale, and those tax credits will be really
Speaker 10: critical for Exon to really justify it to their shareholders
Speaker 10: as to as to why they're doing it and to
Speaker 10: ultimately make profits from this process.
Speaker 1: Kevin kind of help us understand the differences to the
Speaker 1: extent there are differences between how maybe some European energy
Speaker 1: companies like British Petroleum or Total view the transition to
Speaker 1: clean energy versus American energy companies like an Exxon Mobile.
Speaker 1: What are the differences in how they're pursuing it, how
Speaker 1: they view it?
Speaker 10: Right, So, there was there was a key split really
Speaker 10: around sort of four to five years ago where the
Speaker 10: European majors, particularly BP, SHELL Total to a lesser extent,
Speaker 10: decided that they were going they were going to go
Speaker 10: hard into renewable energy. They were not going to be
Speaker 10: oil and gas companies anymore, they were going to be
Speaker 10: energy companies, and they were going to really focus on
Speaker 10: things like winds, things like solar become big in power generation,
Speaker 10: whereas the US oil majors were very much slow to
Speaker 10: embrace like zero targets and things like that, and they
Speaker 10: they've decided to really stick much more closely to oil
Speaker 10: and gas, and their low carbon strategies were much more
Speaker 10: about things that they were specifically good at, and eggs
Speaker 10: on C's carbon capture is one of those things, which
Speaker 10: is which which it has unique capability in it. Now
Speaker 10: what's interesting now is we've seen this year in particular,
Speaker 10: the European majors have somewhat sort of pivoted their strategy
Speaker 10: to to come much more closely towards the towards the
Speaker 10: US players, because they found that investing in renewables was
Speaker 10: very very competitive, and that and that the returns were
Speaker 10: really not as good. Is in, there are plenty of
Speaker 10: people who can do wins, there are plenty of people
Speaker 10: who can do solar. There are plenty of existing power
Speaker 10: utilities all across the world. And BP and Shell really
Speaker 10: found that, you know, competing with those large established players
Speaker 10: and specialists in those areas was was not really a
Speaker 10: very high return business model. So they've decided to pivot
Speaker 10: bit more back to oil and gas and focus on
Speaker 10: the low carbon areas where they can add some unique value.
Speaker 10: That's certainly that's certainly Exon strategy.
Speaker 5: It sounds like a critical part of Exon's future proving
Speaker 5: strategy as well. But I'm curious, then, why are we
Speaker 5: seeing a little bit of negativity when it comes to
Speaker 5: the day's trade on the news the stock is down
Speaker 5: by just over two percent at the moment.
Speaker 10: Well, yeah, well they're paying they're paying all in stock,
Speaker 10: so they're playing five billion dollars in stock, So that's
Speaker 10: dilutive for the for the shares. So I think that's
Speaker 10: probably the technical reasons why Exton is trading is trading
Speaker 10: down today.
Speaker 11: Now.
Speaker 10: Exon's been buying back an enormous amount of stock of
Speaker 10: the next eighteen months now. They had a record record
Speaker 10: profits last year, so they're buying back a lot of stock.
Speaker 10: So this obviously dilutes that, that loutes that mechanism. So
Speaker 10: that's that's why eggsll is trading down today. It was
Speaker 10: interesting is Denbury is trading down and normally the acquired
Speaker 10: company would trade up. Some commentary in the in the
Speaker 10: markets that some aolysts think this is higgs on, this
Speaker 10: is paying is paying kind of a too lower price
Speaker 10: for Denbris. So that's that's that's certainly an interesting one
Speaker 10: to watch.
Speaker 1: All Right, So Kevin, you're an Englishman in Houston, but
Speaker 1: in Houston it's energy is business and job one. It's
Speaker 1: business number one. I got w T I crudal oil
Speaker 1: just under seventy six dollars a barrow here a little
Speaker 1: bit of a rally. What is it when you go
Speaker 1: to the local pub equivalent in Houston? What are the
Speaker 1: folks talking about in terms of where they think oil
Speaker 1: is going?
Speaker 6: In terms of the price.
Speaker 10: Everyone thinks it's going up. It's an oil town. It's
Speaker 10: always going up. We think it's going to the moon.
Speaker 10: One hundred dollars, one hundred dollars a barrel. It's it's
Speaker 10: it's just it's just a matter of time. So yeah,
Speaker 10: people people very very very very very very British as usual,
Speaker 10: and I think I think you kind of have to
Speaker 10: be to be in the oil business. It's a it's
Speaker 10: a tough it's a tough business, lots of lots of
Speaker 10: booms and busts. So it's certainly it's certainly the place
Speaker 10: for for optimists.
Speaker 1: How about nat gas, I mean natural gas has been
Speaker 1: a different story.
Speaker 6: What's the feeling about that?
Speaker 10: Yeah, Well, that gas is we've basically got too much
Speaker 10: of it. You know, there's huge amounts of gas comes
Speaker 10: out of comes out of the permium basin, which is
Speaker 10: primarily an oil basin, so natural gas is the essentially
Speaker 10: a byproduct. So so really people are really waiting for
Speaker 10: the liquefied natural gas export facilities along the Gulf coast
Speaker 10: to come online. We had a huge project stanctioned just
Speaker 10: last night actually, Brian Brownsville, South Texas, eighteen point four
Speaker 10: billion dollar project, massive, so that's that's gonna that's going
Speaker 10: to swallow up, so some of this excess gas and
Speaker 10: exports it around the world. There's been three other final
Speaker 10: investment decisions made, two other final investment decisions made on
Speaker 10: such similar facilities this year alone. And really the whole,
Speaker 10: the whole goal of this is to get sort of
Speaker 10: US gas on on the water around the world, you know,
Speaker 10: helping to replace Russian supplies, especially to Europe.
Speaker 1: All Right, great reporting as always, Kevin Crowley, Senior US
Speaker 1: oil reporter for Bloomberg News.
Speaker 6: Again an Englishman in Houston. Good luck with that.
Speaker 1: Before that he was in Johannesburg and then before that
Speaker 1: in London, so he's been all over the place for
Speaker 1: Bloomberg News.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 6: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
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