WEBVTT - GE's Danaher Deal Doesn't Solve Its Problem With Growth 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.959 Podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:23.520 at Bloomberg dot com. Well, it is merger Monday, General Electric. 0:00:23.560 --> 0:00:25.840 The stock is up nine percent after bereing to sell 0:00:25.840 --> 0:00:28.440 It's a bio farma business to Donna Her Donna. He 0:00:28.560 --> 0:00:30.840 is actually up a percent for total consideration of twenty 0:00:30.880 --> 0:00:34.080 one point four billion dollars, providing a major boost for 0:00:34.080 --> 0:00:37.400 the trouble conglomerates. Turnaround. To help us kind of dig 0:00:37.440 --> 0:00:40.720 into the details of this transaction motivations on both sides 0:00:40.800 --> 0:00:44.360 is Brook Sutherland. Brook is a deals and industrial columnist 0:00:44.360 --> 0:00:46.839 for Bloomberg Opinion. She joined us here in our Bloomberg 0:00:46.880 --> 0:00:50.080 Interactive Brooker Studio. So, Brooke, is this just part of 0:00:50.159 --> 0:00:53.159 g s plan to just trim down and focus on 0:00:53.159 --> 0:00:55.520 that balance sheet? It really is. I mean, this deal 0:00:55.680 --> 0:00:58.240 is all about the balance sheet. I mean, I think 0:00:58.400 --> 0:01:00.720 Larry Cole. The first sentence of his quote, and the 0:01:00.720 --> 0:01:02.880 statement was about, you know how this would allow the 0:01:02.880 --> 0:01:06.520 company to reduce leverage, uh twenty, you know, one billion 0:01:06.520 --> 0:01:08.680 dollars coming in the door in cash and then about 0:01:08.680 --> 0:01:11.960 four hundred million of pensions being transferred with this asset, 0:01:12.520 --> 0:01:14.600 which is a big deal given g has a very 0:01:14.640 --> 0:01:17.959 significant unfunded pension balance. Um. You know. But what I 0:01:18.000 --> 0:01:22.080 think is interesting about this is sort of the counter 0:01:22.120 --> 0:01:25.520 balance was what John Flannery promised to do when he 0:01:25.560 --> 0:01:28.040 was running the company. So his plan for the healthcare 0:01:28.080 --> 0:01:32.640 business was to spin off to shareholders and sell via 0:01:32.760 --> 0:01:35.440 an I p O. And the reason why he did 0:01:35.480 --> 0:01:36.959 that and why he did a lot of the things 0:01:36.959 --> 0:01:39.280 that he did, is he was trying to balance the 0:01:39.360 --> 0:01:42.920 need to pay down debt with you know, a desire 0:01:43.040 --> 0:01:45.600 to sort of give something to equity holders, give them 0:01:45.640 --> 0:01:48.520 a chance to participate in the upside opportunities for some 0:01:48.600 --> 0:01:50.960 of these ge businesses. And I think what you've seen 0:01:51.040 --> 0:01:54.320 Larry Colp do time and time again is say, forget 0:01:54.360 --> 0:01:56.600 all of that. We need all the cash we can get, 0:01:56.640 --> 0:01:58.640 and we're going to structure these deals in a way 0:01:58.680 --> 0:02:01.520 that optimizes the amount of cash coming in the door. 0:02:01.640 --> 0:02:04.920 The incredible irony of that is that the shares are 0:02:05.040 --> 0:02:08.240 rallying the most is two thousand nine, So shareholders are 0:02:08.280 --> 0:02:12.320 liking what they see, regardless of any longer term better 0:02:12.320 --> 0:02:14.960 potential from keeping the business on hit right. Well, so 0:02:15.000 --> 0:02:17.840 I think that, um, for the time being, the interests 0:02:17.840 --> 0:02:21.320 of bond holders and shareholders are aligned because obviously the 0:02:21.360 --> 0:02:23.760 balance sheet is the biggest overhang on the stock right now, 0:02:23.800 --> 0:02:27.160 it's the biggest factor driving the stock, and so to 0:02:27.240 --> 0:02:29.919 be able to mitigate that, and this Life Sciences deal 0:02:29.960 --> 0:02:32.000 goes a very long way to doing that, is a 0:02:32.080 --> 0:02:33.800 huge step forward. But I would point out the shares 0:02:33.840 --> 0:02:35.639 are rallying, but they're back to about where they were 0:02:35.639 --> 0:02:39.160 in October. So, yes, your interests are aligned at a 0:02:39.200 --> 0:02:41.040 certain point, but that only lasts for so long and 0:02:41.040 --> 0:02:43.400 as you start thinking about what does the g E 0:02:43.480 --> 0:02:47.040 of the future look like. So they're keeping the core 0:02:47.120 --> 0:02:50.520 healthcare business in the fold right now, they say, you know, 0:02:50.520 --> 0:02:52.440 they're going to look at other options for that. They're 0:02:52.480 --> 0:02:54.840 not going to do the I p O right away. UM. 0:02:54.880 --> 0:02:57.200 I think part of that is the fact that they 0:02:57.240 --> 0:03:00.320 need the cash flow from that healthcare business to set 0:03:00.320 --> 0:03:02.239 the challenges that they have in the power unit in 0:03:02.320 --> 0:03:05.240 G Capital. Healthcare is one of the best cash generating 0:03:05.240 --> 0:03:07.960 assets that G has, and especially as you look at 0:03:08.200 --> 0:03:11.040 the possibility of a recession in one that's going to 0:03:11.160 --> 0:03:14.480 hit the aviation business really hard. So I think just 0:03:14.639 --> 0:03:16.760 given all of those factors, it makes sense to keep 0:03:16.800 --> 0:03:19.799 Healthcare in the fold. But eventually, you know, all signs 0:03:19.800 --> 0:03:23.640 are pointing to that eventually being separate. And clearly this 0:03:23.720 --> 0:03:25.760 is a company with a lot of challenges, and I 0:03:25.840 --> 0:03:27.840 just you know, as you sort of take a step 0:03:27.840 --> 0:03:29.760 back and say where do we go from here? Once 0:03:29.800 --> 0:03:31.359 you play this card and you bring the cash in 0:03:31.400 --> 0:03:34.080 the door, that sort of solves your balance sheet issues 0:03:34.120 --> 0:03:36.160 in the near tour, but you still have to figure out, 0:03:36.440 --> 0:03:38.440 you know, how does this company grow? How do we 0:03:38.480 --> 0:03:40.840 deal with all of the problems that we have. So 0:03:40.960 --> 0:03:43.800 for Donna her the stock is up eight or nine 0:03:43.800 --> 0:03:46.880 percent today, which is unusual for an acquirer, particular cash acquirer. 0:03:47.080 --> 0:03:48.680 So what's going on here? Did they get a great 0:03:48.720 --> 0:03:51.040 deal or there's a huge synergies what's driving the upside 0:03:51.040 --> 0:03:53.040 for Donner? Right? I mean, this is a great deal 0:03:53.040 --> 0:03:55.080 for Dannahr. I think you know, this is a business 0:03:55.080 --> 0:03:59.520 that they know well they've been increasingly pivoting into life sciences. 0:03:59.560 --> 0:04:02.600 I think it's, you know, a more attractive multiple than 0:04:02.640 --> 0:04:04.800 what they've paid for some of their past deals, which 0:04:04.840 --> 0:04:07.200 have been on the price yeer side. Obviously in the 0:04:07.240 --> 0:04:13.080 healthcare spaces, they sort of transition away from their industrial past. Um. Yeah, 0:04:13.120 --> 0:04:14.960 I mean, I just think this is a really slam 0:04:15.040 --> 0:04:17.120 dunk deal for Dana Her. And what the company is 0:04:17.160 --> 0:04:20.760 really known for is buying businesses, bringing them in and 0:04:20.800 --> 0:04:24.719 then applying the Dana Her business system to those businesses 0:04:24.760 --> 0:04:28.240 and really improving their profitability. I think clearly what we've 0:04:28.279 --> 0:04:30.520 discovered through this whole ge process is that some of 0:04:30.520 --> 0:04:33.600 these assets are not always managed to their greatest potential. 0:04:33.600 --> 0:04:35.560 And you have to wonder, you know, some of these 0:04:35.560 --> 0:04:38.080 life sciences business at a time when you have so 0:04:38.200 --> 0:04:40.719 many cash calls at the company where they investing to 0:04:40.760 --> 0:04:43.080 the extent that they needed to. Uh. I think there's 0:04:43.120 --> 0:04:45.040 just a lot of opportunity for Dana Her to do 0:04:45.080 --> 0:04:49.719 more with this business. Brook Sutherland are ge correspondent joining 0:04:49.800 --> 0:04:52.440 us here in our eleven three or studios. Brook Sutherland 0:04:52.520 --> 0:04:55.520 is really a Blomberg opinion columnist UH, and she covers 0:04:55.520 --> 0:04:59.120 industrial companies, among many other things here at Bloomberg. We 0:04:59.200 --> 0:05:01.760 thank you for being with us. Really interesting day for 0:05:01.880 --> 0:05:21.000 General Electric. Well. Today President Donald Trump raised the prospect 0:05:21.000 --> 0:05:22.800 that he could sign a new trade deal with the 0:05:22.920 --> 0:05:26.960 Chinese counterpart, gene Ping, as both sides express optimism that 0:05:27.080 --> 0:05:30.000 substantial progress is being made towards ending the trade war 0:05:30.480 --> 0:05:33.520 between the world's two biggest economies. To help us dig 0:05:33.560 --> 0:05:36.799 into that, we bring on Leland. Melvin Leland is CEO 0:05:36.920 --> 0:05:39.599 of the China based book Internaction. I'm sorry, Leland, Millard, 0:05:39.920 --> 0:05:42.560 he's with us in our Bloomberg Interactive Broker studio here 0:05:42.560 --> 0:05:45.039 in New York. So Leland, thanks for being with us. Um, 0:05:45.080 --> 0:05:48.400 what is your sense as to what will actually get 0:05:48.440 --> 0:05:51.560 done between China and the US? Will it be anything material? 0:05:51.600 --> 0:05:54.479 In your opinion? Now, I think that we were set 0:05:54.560 --> 0:05:57.240 up from the very beginning to have a very limited deal. 0:05:57.560 --> 0:06:00.120 It was very clear that the President wanted movement on 0:06:00.160 --> 0:06:02.640 the trade deficit. He wanted to announce a lot of 0:06:02.760 --> 0:06:06.320 big imports, maybe some long term contracts, so it's sounded 0:06:06.320 --> 0:06:09.080 good to the farming base. Uh And and he wanted 0:06:09.120 --> 0:06:13.280 to push on intellectual property uh so, theft and coercion. 0:06:13.760 --> 0:06:15.440 Uh And I think that we'll get we'll get stuff 0:06:15.440 --> 0:06:16.680 on that, We'll get a little bit of stuff on 0:06:16.720 --> 0:06:19.800 market access. In general, this is not something that is 0:06:19.800 --> 0:06:22.000 a broad deal. It's not what they originally sold it 0:06:22.000 --> 0:06:24.400 to be, and it's there's gonna be no structural reform whatsoever. 0:06:25.320 --> 0:06:28.280 Is China in a better negotiating position right now, given 0:06:28.320 --> 0:06:30.720 the fact that they're allowing leverage to creep back up 0:06:31.200 --> 0:06:34.560 UH and potentially juice their economy? You know, I think 0:06:34.600 --> 0:06:36.160 the problem is that people haven't been able to get 0:06:36.320 --> 0:06:38.840 a good UH reading on the Chinese economy for a 0:06:38.880 --> 0:06:40.919 few months. The Chinese economy is not not not in 0:06:40.960 --> 0:06:42.640 great shape right now, So I don't think that they've 0:06:42.720 --> 0:06:46.200 materially improved in the last month or two in terms 0:06:46.200 --> 0:06:51.560 of just letting the credit flow um. Now, overall, they 0:06:51.640 --> 0:06:53.760 want to get this trade stuff out of the way 0:06:53.880 --> 0:06:56.359 so they can batten down the hatches and really focus 0:06:56.400 --> 0:06:58.520 on improving their domestic economy. I don't think that the 0:06:58.560 --> 0:07:00.360 pushed out of the way so that they can get 0:07:00.360 --> 0:07:03.640 down to business domestically. So, Lena, why is it so 0:07:03.680 --> 0:07:06.320 hard to really get some of these big issues on 0:07:06.400 --> 0:07:08.720 the table and to start knocking them off one by one? 0:07:08.760 --> 0:07:11.080 Maybe seems not just the Trump administration, but we've seen 0:07:11.440 --> 0:07:14.120 through history. What is what what are really the tough 0:07:14.160 --> 0:07:17.640 things and why is China playing so uh such such hardball? 0:07:17.720 --> 0:07:20.280 Because these are not preferences. So we talk about structural reform, 0:07:20.280 --> 0:07:22.960 we're not talking about preferences that the leadership has. We're 0:07:23.000 --> 0:07:26.280 talking about the absolute foundation of the way the Chinese 0:07:26.320 --> 0:07:30.080 economy runs. So when you're talking about favoring state companies 0:07:30.080 --> 0:07:33.760 which stayed on enterprises, when you're talking about subsidies and 0:07:33.760 --> 0:07:36.400 and repressing households in order to boost the state, and 0:07:36.440 --> 0:07:39.200 you're talking about non tariff bearriers, this is the way 0:07:39.240 --> 0:07:41.720 that the Chinese economy is able to run. It's a 0:07:41.880 --> 0:07:44.520 very different than the market economy. It's not a commercial 0:07:44.520 --> 0:07:47.320 financial system. This is the way the Chinese economy is 0:07:47.400 --> 0:07:49.640 run and one of the ways that the Chinese Communist 0:07:49.680 --> 0:07:52.600 Party is able to maintain control of the country. So 0:07:52.640 --> 0:07:55.040 the idea that they're simply going to say, okay, well, 0:07:55.080 --> 0:07:56.760 you know, it's it's about time that we got with 0:07:56.800 --> 0:07:59.520 the program and became a market economy, and we we 0:07:59.520 --> 0:08:01.880 we ran our economy the same way the US. That 0:08:01.960 --> 0:08:03.880 was never going to happen, and it certainly was never 0:08:03.880 --> 0:08:07.360 going to happen after a ninety negotiation where very little 0:08:07.400 --> 0:08:11.600 pain was threatened. All right, just taking a step back, 0:08:11.640 --> 0:08:14.440 you nailed it when you just said back last year. 0:08:14.800 --> 0:08:17.120 There's going to be a deal. President Trump wants a deal. 0:08:17.160 --> 0:08:19.160 It's going to be a narrowly crafted deal. This is 0:08:19.200 --> 0:08:21.320 not going to deal with the thorn near issues. Both 0:08:21.320 --> 0:08:23.560 sides can declare some sort of victory and move on. 0:08:23.680 --> 0:08:27.560 Nothing really will change. Lightheiser, however, wants something different, and 0:08:27.720 --> 0:08:31.080 he and President Trump are increasingly, at least appeared to 0:08:31.120 --> 0:08:35.200 be increasingly pitted against each other. How will that tension 0:08:35.679 --> 0:08:39.320 factor into these negotiations. Well, I think the first and foremost, 0:08:39.600 --> 0:08:42.000 Robert Leightheiser is a is a good soldier, So he 0:08:42.120 --> 0:08:44.000 is he knows he's not the president. He's doing what 0:08:44.040 --> 0:08:47.200 the president wants. At the same time, he entered this 0:08:47.280 --> 0:08:49.880 administration to get something done, and that was he saw 0:08:49.880 --> 0:08:52.360 an inequity in the relationship and he wanted to be 0:08:52.440 --> 0:08:55.040 one of the guys who helped make it right. And 0:08:55.080 --> 0:08:57.280 I think this is very frustrating for him and quite frankly, 0:08:57.320 --> 0:09:00.559 a lot of people in this administration who thought that 0:09:00.600 --> 0:09:02.560 they were on the verge of summoning up leverage that 0:09:02.600 --> 0:09:04.640 no one had been willing to do for many, many 0:09:04.720 --> 0:09:08.520 years ever, truly uh, and and to push something on 0:09:08.640 --> 0:09:10.680 China that would really make a difference to to to 0:09:10.880 --> 0:09:14.600 change the basically the ground floor of the relationship. And 0:09:14.640 --> 0:09:16.680 then as we get to a deadline, everyone sort of 0:09:16.679 --> 0:09:19.160 loses their nerves. So this has to be extremely frustrating 0:09:19.160 --> 0:09:21.800 for Lightheiser. So I'm just trying to understand this because 0:09:21.840 --> 0:09:23.640 if if they were thinking that there was more on 0:09:23.640 --> 0:09:26.480 the table then say, uh, something having to do the 0:09:26.480 --> 0:09:30.480 trade deficit, then was President Trump ever trying to do that? 0:09:30.520 --> 0:09:32.200 I mean, is is that could that be back on 0:09:32.240 --> 0:09:34.280 the table? I don't think it was ever on the 0:09:34.280 --> 0:09:36.880 table when we when we spoke to two administration officials 0:09:36.880 --> 0:09:38.560 of this, it was very clear that there were there 0:09:38.600 --> 0:09:41.559 were priorities, most of them were political priorities involving the 0:09:41.600 --> 0:09:46.080 trade deficit. Intellectual property, to their credit, was a major 0:09:46.160 --> 0:09:48.680 issue that they wanted to to make progress on theft 0:09:48.679 --> 0:09:51.000 and coercion of intellectual properties a major issue, and I 0:09:51.040 --> 0:09:54.240 think that we will see UH some some major announcements 0:09:54.240 --> 0:09:56.480 on that now. The key, of course, is not whether 0:09:56.480 --> 0:09:59.040 the Chinese make announcements on on IP theft and then 0:09:59.160 --> 0:10:02.920 create a regimed protect intellectual property. It's whether they're actually 0:10:02.960 --> 0:10:04.920 enforce it. And this is something that light Higher himself 0:10:04.920 --> 0:10:07.120 has been saying over and over. If the Chinese can 0:10:07.120 --> 0:10:10.040 simply flip a switch the next time that there's a 0:10:10.080 --> 0:10:13.440 problem in the relationship and all this beautiful enforcement, all 0:10:13.480 --> 0:10:15.720 this these i P laws and i P courts and 0:10:15.720 --> 0:10:18.560 everything else that they've promised to do just suddenly go away, 0:10:18.960 --> 0:10:21.720 then what has this entire process been. And that's why 0:10:21.760 --> 0:10:23.560 there has been so much of a push by some 0:10:23.920 --> 0:10:27.040 people for structural reform, because the opposite of structural reform 0:10:27.280 --> 0:10:30.560 is transitory transitory reform, which will just go away as 0:10:30.600 --> 0:10:32.560 soon as the relationship changes. And I think that's what 0:10:32.600 --> 0:10:35.280 people are fearing we're walking into. So is that fear 0:10:35.320 --> 0:10:37.400 crystallized in the sense that maybe we just have one 0:10:37.400 --> 0:10:39.480 bite at the apple here and we've if we lose 0:10:39.520 --> 0:10:41.880 this opportunity now, or if we do pass on the 0:10:41.880 --> 0:10:44.480 big structural issues, that we may not be able to 0:10:44.480 --> 0:10:46.520 revisit them for some period of time. Yeah, I mean 0:10:46.559 --> 0:10:48.600 that's the fear. So, so we don't know how many 0:10:48.880 --> 0:10:51.080 bites the apple will get, but we do know that 0:10:51.800 --> 0:10:55.200 an enormous amount of leverage was summoned in order to 0:10:55.240 --> 0:10:57.560 push the Chinese into this negotiation, And is that that 0:10:57.640 --> 0:11:00.160 leverage the tariffs per se? It was the tariffs, It 0:11:00.200 --> 0:11:02.280 was threatening some other things, but yeah, principally the tariffs. 0:11:02.360 --> 0:11:05.640 And you can agree or not, but but this summon leverage, 0:11:05.640 --> 0:11:07.600 it's very hard to summon, and the Chinese aren't going 0:11:07.640 --> 0:11:09.360 to be as open to doing this a year from 0:11:09.400 --> 0:11:11.360 now or three years from now. So maybe this is 0:11:11.360 --> 0:11:13.800 the last by the apple. But either way, every year 0:11:13.840 --> 0:11:16.400 that goes by, the Chinese getting crementally stronger and more 0:11:16.440 --> 0:11:18.680 able to to push back on this and are now 0:11:18.720 --> 0:11:22.320 more knowledgeable. I'm more in recognition of the fact that 0:11:22.400 --> 0:11:25.920 this unequal trade relationship has caused the US to have 0:11:25.960 --> 0:11:28.080 more leverage, and so they're doing things to alter the 0:11:28.080 --> 0:11:31.559 relationship as well. Meanwhile, a lot of people are wagering 0:11:31.720 --> 0:11:36.280 that China will succeed in keeping up its economy and 0:11:36.400 --> 0:11:40.640 keeping its growth great high by engaging and more stimulus, 0:11:40.679 --> 0:11:43.160 which has already begun to do. Do you think that 0:11:43.200 --> 0:11:46.760 the market is mistaken with their optimism around that? Uh? 0:11:46.760 --> 0:11:48.719 In terms of medium and long term I think they are. 0:11:48.880 --> 0:11:50.839 And and there's there's you know, we we have flash 0:11:50.960 --> 0:11:52.440 data coming out this week, so we're gonna have a 0:11:52.440 --> 0:11:55.280 new reading of the economy later this week and the 0:11:55.280 --> 0:11:57.760 first one in twenty nineteen that actually shows what's happening. 0:11:57.760 --> 0:12:00.079 But I think if you look at the ryh is 0:12:00.080 --> 0:12:02.920 in line, then there's something that people aren't paying enough 0:12:02.960 --> 0:12:06.679 attention to, and that is the Chinese economy is going 0:12:06.720 --> 0:12:10.400 to slow no matter what happens. Best case scenario, worst 0:12:10.440 --> 0:12:14.200 case scenario, the Chinese economy, because of slowing returns on 0:12:14.240 --> 0:12:16.800 investment and debt accumulation, is going to slow quite dramatically 0:12:16.800 --> 0:12:20.120 over the coming years. So the Chinese have to build 0:12:20.160 --> 0:12:23.080 this into their narrative. Why is their economy slowing down? Well, 0:12:23.120 --> 0:12:26.960 they just have a beautiful excuse. Now, Donald Trump launched 0:12:26.960 --> 0:12:29.800 a trade war, the world is being mean. So President 0:12:29.880 --> 0:12:32.560 she and and and and the rulers in Beijing are 0:12:32.640 --> 0:12:34.800 able to look at this and say, you know, we 0:12:34.920 --> 0:12:37.959 have an excuse now for why our economy slowing. They 0:12:38.040 --> 0:12:39.760 might run with this, So you may be looking at 0:12:39.800 --> 0:12:41.960 a different paradigm then you've looked in different years. They 0:12:42.000 --> 0:12:44.120 may be willing to accept slower growth because they can 0:12:44.160 --> 0:12:46.920 blame it on somebody else. At this point, that's fascinating. 0:12:46.960 --> 0:12:50.720 From a political standpoint, China may allow its economy to 0:12:50.760 --> 0:12:54.080 slow even more, especially if President Trump continues to ramp 0:12:54.120 --> 0:12:56.320 up pressure. Leland Miller, thank you so much for being 0:12:56.320 --> 0:12:58.920 with us. Leland Miller is chief executive officer of China 0:12:58.960 --> 0:13:01.360 Beije Book International in New York, joining us here in 0:13:01.400 --> 0:13:20.559 our Bloomberger Active Proper Studios. Right now we are looking 0:13:20.640 --> 0:13:23.600 at oil prices that are sharply lower. So they're taking 0:13:23.600 --> 0:13:26.360 a queue from President Trump's twitter feed with the biggest 0:13:26.360 --> 0:13:29.760 decline in w t I that is traded on the 0:13:29.840 --> 0:13:32.720 nimax in a number of months. Joining us down to 0:13:32.760 --> 0:13:35.600 talk about this, uh is John killed off? Actually I'll 0:13:35.640 --> 0:13:39.120 give you exact date since December. Joining us now, John 0:13:39.200 --> 0:13:42.320 killed a founding partner at again at Capital John. I 0:13:42.440 --> 0:13:45.480 was actually really surprised that the oil markets responded so 0:13:45.559 --> 0:13:49.760 much to President Trump's tweet, because honestly, hasn't OPEC lost 0:13:49.800 --> 0:13:53.319 a lot of the control over this. Well, if everybody 0:13:53.360 --> 0:13:55.280 heard the way you read the tweet just now would 0:13:55.400 --> 0:13:57.440 be I think we beat you off more. Lisa, Just 0:13:57.440 --> 0:14:02.160 just for the record, thank you. I think the emotion 0:14:02.200 --> 0:14:04.280 you brought to that, the emotion you brought to that 0:14:04.320 --> 0:14:07.760 was terrific. Um. No, the uh, I mean the the 0:14:08.440 --> 0:14:11.400 initial reaction to it was actually fairly muted, but it 0:14:11.480 --> 0:14:14.720 really started to pick up steam. Um. I think when 0:14:14.840 --> 0:14:17.400 when you sort of thought it threw from a market 0:14:17.440 --> 0:14:21.200 perspective in that a, the Saudis have a track record 0:14:21.360 --> 0:14:25.320 of placating President Trump and responding to him when he 0:14:25.360 --> 0:14:27.880 makes these demands. That's what got the market into trouble 0:14:27.920 --> 0:14:30.200 at the latter part of last year to the downside 0:14:30.520 --> 0:14:33.560 in a big way. And too um. There has been 0:14:33.600 --> 0:14:36.400 some speculation about what the state of affairs will be 0:14:36.440 --> 0:14:39.920 surrounding the waivers that had been granted to various countries 0:14:39.920 --> 0:14:43.160 and companies to continue to buy Iranian oil. Um, you 0:14:43.200 --> 0:14:45.240 know late last year as well, which is also part 0:14:45.240 --> 0:14:47.680 of that that sell off, that dynamic. Um. You have 0:14:47.760 --> 0:14:50.840 to believe that those waivers are probably going to get 0:14:50.880 --> 0:14:54.360 renewed to a great degree, given President Trump's concern about 0:14:54.360 --> 0:14:58.680 where oil prices are presently. So um, as you sort 0:14:58.760 --> 0:15:01.760 of got over the uh, the shock value of him 0:15:01.840 --> 0:15:05.600 weighing in yet again on the oil market. Um Uh, 0:15:05.840 --> 0:15:09.920 it was you know, a pretty bearish tweet, so so John, 0:15:10.400 --> 0:15:12.760 prior to today's market action that you know, oil had 0:15:12.760 --> 0:15:16.360 been grinding higher every day up about off it's December 0:15:16.400 --> 0:15:19.720 low and WEXT test West Texas intermediate crude. What was 0:15:19.760 --> 0:15:24.480 the bull case for driving oil higher? Well, a couple 0:15:24.520 --> 0:15:27.480 of things. I mean, there's obviously a lot of irritants 0:15:27.480 --> 0:15:29.320 in the market. I mean that the Venice, the tragic 0:15:29.320 --> 0:15:31.640 men as well in situation. We had elections over the 0:15:31.680 --> 0:15:34.840 weekend in Nigeria that could have could have devolved again 0:15:34.960 --> 0:15:38.160 and not some of their oil offline. That still may happen, 0:15:38.240 --> 0:15:42.320 and we're watching it Libya too. But really the Saudis 0:15:42.360 --> 0:15:44.520 have really put their shoulder to the wheel in terms 0:15:44.560 --> 0:15:48.360 of cutting their output, cutting their exports. Uh. And they 0:15:48.360 --> 0:15:51.120 also had a problem with one of their large offshore 0:15:51.200 --> 0:15:54.960 fields of power cable got cut somehow and um that 0:15:55.000 --> 0:15:57.400 had knocked a good deal of their production offline. So 0:15:57.680 --> 0:15:59.480 a lot of things were adding up here to tighten 0:15:59.560 --> 0:16:02.520 the market, um you know, particularly as it relates to 0:16:02.560 --> 0:16:05.040 the type of crude oil at that Venezuela has pretty 0:16:05.080 --> 0:16:08.520 much ceased putting on the market um so. And and 0:16:08.520 --> 0:16:13.240 and really the the renewed prospects for for for the 0:16:13.320 --> 0:16:15.440 for the U S. China trade talks that have you know, 0:16:15.520 --> 0:16:18.040 got the stock market to where it is also fed 0:16:18.080 --> 0:16:20.760 into the to the oil story. So right now I'm 0:16:20.760 --> 0:16:23.760 looking at w t I fifty five dollars and thirty 0:16:23.800 --> 0:16:27.240 six cents a barrel, looking at Brent UH sixty four 0:16:27.240 --> 0:16:31.120 dollars and ninety cents. What's the sweet spot for US 0:16:31.200 --> 0:16:35.800 shell producers to continue to produce, be profitable, UH, and 0:16:35.880 --> 0:16:40.400 yet still have demand where it is right now, closer 0:16:40.440 --> 0:16:43.440 to closer to sixty dollars a barrel plus is really 0:16:43.480 --> 0:16:46.360 ideal with w t I or with Brent. Oh yes, 0:16:46.400 --> 0:16:48.640 I'm sorry for w t I. UH. That would be 0:16:48.680 --> 0:16:51.920 a Brent price of about seventy dollars. I mean, President 0:16:51.960 --> 0:16:54.360 Trump cur only did the US oil industry no favors 0:16:54.360 --> 0:16:56.800 this morning with that tweet. And you know it's kind 0:16:56.800 --> 0:16:58.640 of curious because I know he wants us to be 0:16:58.760 --> 0:17:02.880 energy dominant. Um, this doesn't help that. And you know 0:17:02.960 --> 0:17:05.480 we've spoken before. You know, these oil prices w t 0:17:05.560 --> 0:17:09.040 I O prices fifty and below. You can talk about 0:17:09.080 --> 0:17:12.159 how they've worked. The shall players have worked break evens 0:17:12.200 --> 0:17:15.560 down to thirty a barrel, but the aill in costs 0:17:16.200 --> 0:17:19.120 UH below fifty bucks for w t I. They are 0:17:19.560 --> 0:17:23.359 feeling it. And we did see um recounts come down. 0:17:23.440 --> 0:17:25.800 We did see drilling activity come down in response to 0:17:25.840 --> 0:17:28.520 the sell off again late last year. That culminated in 0:17:28.560 --> 0:17:31.800 the in the December low um and they're only starting 0:17:31.800 --> 0:17:34.600 to come back now. So uh, we're starting to get 0:17:34.600 --> 0:17:36.439 into the red zone. Are ready for them with prices 0:17:36.480 --> 0:17:39.040 even here at fifty five. So, John, whenever we have 0:17:39.119 --> 0:17:41.199 you on we're talking global oil, I can't help but 0:17:41.760 --> 0:17:44.400 always raise a question of Russia. What is Russia doing 0:17:44.440 --> 0:17:46.440 in the market place in terms of supply right now? 0:17:46.440 --> 0:17:51.080 How disruptive are they VVSA, the OPEC. Well, you know 0:17:51.119 --> 0:17:54.479 they leadership talks a good game. You know, President putin 0:17:54.760 --> 0:17:57.640 their energy minister Novak. You know that they they'll sit there, 0:17:57.640 --> 0:17:59.879 it'll sign everything and and and you know, hug this 0:18:00.000 --> 0:18:02.320 Autias and say we're with you. And then the numbers 0:18:02.359 --> 0:18:04.680 just don't pan out in terms of production because their 0:18:04.720 --> 0:18:08.119 companies don't want to be part of these production cutbacks. 0:18:08.440 --> 0:18:10.800 You know, they see shale as a threat. They want 0:18:10.840 --> 0:18:13.840 markets here. They actually operate in a much more commercially 0:18:14.480 --> 0:18:17.800 appropriate way than sort of cartel ish, so they don't 0:18:17.840 --> 0:18:20.480 particularly care for these these antics and see themselves being 0:18:20.520 --> 0:18:23.600 set up ultimately for failure. As the US production now 0:18:23.720 --> 0:18:26.119 goes over twelve million barrels a day. They're seeing this 0:18:26.240 --> 0:18:29.560 so um, they're not actually being as that helpful to 0:18:29.600 --> 0:18:31.960 the Satties, and the Saddies have remarked about this. So 0:18:32.240 --> 0:18:34.520 I'm not sure how much longer the little coalition they've 0:18:34.560 --> 0:18:37.720 strung together holes and that's going to be another negative 0:18:37.720 --> 0:18:41.480 for prices, I think ultimately, John this the tweet from 0:18:41.480 --> 0:18:45.480 President Trump raises a question what price of oil does 0:18:45.520 --> 0:18:48.680 he want? Because we're still way below where we saw 0:18:48.680 --> 0:18:52.120 it at its peak back in two thousand fourteen. What's 0:18:52.119 --> 0:18:54.880 he looking for? If I had a guess, he wants 0:18:54.920 --> 0:18:57.000 to see w T I below fifty dollars of barrel, 0:18:57.040 --> 0:19:00.880 down around forty five, which would translate into about two 0:19:00.960 --> 0:19:02.680 dollars a gallon or so at the pump of the 0:19:02.720 --> 0:19:05.240 gas a lead pump. I think he's very uh A 0:19:05.320 --> 0:19:08.359 sensitive to that if he could deliver I think on 0:19:08.440 --> 0:19:11.840 that um and and he's right too, because when prices 0:19:11.840 --> 0:19:14.120 get north much north to stay to fifty or start 0:19:14.119 --> 0:19:15.960 to reproach that three dollar a gallon, will you start 0:19:15.960 --> 0:19:19.320 to see hits to consumer confidence uh and other um, 0:19:19.520 --> 0:19:22.640 you know, measures of of just confidence in the economy generally. 0:19:23.080 --> 0:19:26.360 Uh so we're obviously on re election watching a big way, 0:19:26.400 --> 0:19:28.119 and I think he wants to see a four handle. 0:19:28.800 --> 0:19:30.280 So John, if you take a look at the global 0:19:30.320 --> 0:19:33.000 supply demand out there, is there a model out there 0:19:33.000 --> 0:19:35.840 that gets you to that fore handle? Yeah? Pretty easy, 0:19:36.040 --> 0:19:40.240 Pretty easily. Actually, I was very distrustful of this, of 0:19:40.359 --> 0:19:42.760 this reality. Now, I didn't see President Trump's tweet coming 0:19:42.800 --> 0:19:45.840 into to be a factor. But um, you know, as 0:19:45.840 --> 0:19:48.720 we start to get into the latter part of the 0:19:48.720 --> 0:19:51.560 winter early spring, there's a lot of refinery maintenance that 0:19:51.640 --> 0:19:53.639