WEBVTT - Tesla May Have Much Less Cash Than Reported: Johnson (Podcast) 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul swing 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 --> 0:00:22.520 at Bloomberg dot com. Well, Tesla reporter results last night. 0:00:22.560 --> 0:00:25.279 I think they're probably best characterized as a mixed bag, 0:00:25.440 --> 0:00:27.560 but there was drama on the conference call, as are 0:00:27.600 --> 0:00:29.840 typically as with Tesla when it was announced that the 0:00:29.880 --> 0:00:33.760 CFO surprisingly is going to depart. The company of stockers 0:00:33.760 --> 0:00:36.800 down about one percent this morning and trading joining us 0:00:36.800 --> 0:00:38.519 a kind of dig through what's going on with Tesla 0:00:38.600 --> 0:00:42.400 is Gordon Johnson. Gordon is a managing director research channels 0:00:42.440 --> 0:00:46.040 covering alternative energy, metals and mining and equipment from Vertical Group. 0:00:46.400 --> 0:00:49.000 He joins us in our Bloomberg Interactive Broker Studios here 0:00:49.080 --> 0:00:51.600 in New York. Gordon, thanks for joining us. Let me 0:00:51.640 --> 0:00:54.240 just start with the c f O news. It just 0:00:54.280 --> 0:00:57.400 seems like I just remember him coming back for a 0:00:57.480 --> 0:01:00.800 second stint. The CFO and now he's leaving. What's going on? Right? 0:01:00.880 --> 0:01:03.760 So I think that when you combine with the CFO leaving, 0:01:03.760 --> 0:01:07.440 which was unexpected um, you've had four vice presidents of 0:01:07.480 --> 0:01:11.600 finance leave since seventeen. You have the chief accounting officer 0:01:11.760 --> 0:01:14.920 at Tessa leave um with just a month on the 0:01:15.000 --> 0:01:18.119 job unexpectedly um. And now you have the CFO leaving 0:01:18.440 --> 0:01:22.479 and effectively the new CFO was just promoted to vice 0:01:22.520 --> 0:01:26.560 president in December and has no specific accounting experience. I 0:01:26.560 --> 0:01:30.200 think this is a huge loss of institutional knowledge UM 0:01:30.240 --> 0:01:34.119 and a concern again given the finance departures we've seen 0:01:34.120 --> 0:01:37.399 at Tesla more recently. So Gordon, you're you're a longtime 0:01:37.400 --> 0:01:41.000 Tesla beer right and you are you maintain a seventy 0:01:41.040 --> 0:01:44.000 two dollar pre share price target, which is a huge 0:01:44.040 --> 0:01:46.440 decline from where we are today, and you said you 0:01:46.440 --> 0:01:50.040 would be aggressively adding to any Tesla short positions here. Correct, 0:01:50.320 --> 0:01:52.400 bondom markets don't agree with you because the bonds are 0:01:52.400 --> 0:01:55.040 actually going up and usually the bottom markets is a 0:01:55.080 --> 0:01:57.600 smart money. Why are they wrong? Right? So? I think 0:01:57.600 --> 0:02:00.280 the reason they're wrong is because Tesla reported a hash 0:02:00.280 --> 0:02:03.440 balance of three point seven billion. However, if you look 0:02:03.440 --> 0:02:06.000 at their interest income in the quarter, and divided by 0:02:06.040 --> 0:02:09.320 that cash balance, you get an annualized return of roughly 0:02:09.480 --> 0:02:12.720 eight or point eight percent, whereas in the in the 0:02:12.760 --> 0:02:15.960 fourth quarter, the three year Treasury bill returned two point 0:02:16.040 --> 0:02:19.560 six percent. So, either they're the most inefficient managers of 0:02:19.560 --> 0:02:21.880 cash we've ever seen, which I think is highly unlikely. 0:02:22.080 --> 0:02:25.240 Are their cash balance is significantly less than what they're reporting. 0:02:25.440 --> 0:02:27.720 So I think that's why the bond investors are reacting 0:02:28.080 --> 0:02:31.160 um uh positively, but we're still quite concerned they're not 0:02:31.200 --> 0:02:33.440 going to be able to pay off that that convertible 0:02:33.600 --> 0:02:35.639 uh in March. Okay, hold on a second. So you're 0:02:35.680 --> 0:02:38.240 saying that they're they're massaging the numbers. Is that the idea. 0:02:38.480 --> 0:02:40.280 I don't want to say they're pressaging the numbers, but 0:02:40.320 --> 0:02:43.359 I think what they do is they delay paying their 0:02:43.400 --> 0:02:46.640 suppliers until days after the quarter to allow them to 0:02:46.800 --> 0:02:49.359 report a cash balance UM at the end of the 0:02:49.400 --> 0:02:52.000 quarter that is much higher than the average cash balance. 0:02:52.080 --> 0:02:54.760 And you can see this in Q three, Q two, 0:02:54.840 --> 0:02:58.160 Q one UM and and it hasn't always been the case. 0:02:58.200 --> 0:03:01.240 So um Again, Either they're the worst managers of cash, 0:03:01.320 --> 0:03:04.040 worse than you know, a retail investor who could just 0:03:04.080 --> 0:03:06.280 park their money in three month treasury bills or their 0:03:06.280 --> 0:03:08.680 cash balance is significantly less than what they're reporting. We 0:03:08.680 --> 0:03:10.560 think it's the latter that sounds a little bit like 0:03:10.600 --> 0:03:13.320 massaging in the numbers to me, UM, I think, let's 0:03:13.400 --> 0:03:16.880 let's move. So how about the underlying fundamentals? Um, is 0:03:17.200 --> 0:03:19.880 you know what did you see in the quarter last night? Uh? 0:03:20.080 --> 0:03:22.560 To give you a sense that you know, they are 0:03:22.720 --> 0:03:25.080 remain challenged to meet some of their either the product 0:03:25.360 --> 0:03:28.600 production goals and or profit goals. Right, So keep in mind, 0:03:28.639 --> 0:03:31.520 we just updated our bottom up model and we projected 0:03:31.520 --> 0:03:34.320 a gap EPs number of seventy nine. Since they came 0:03:34.360 --> 0:03:36.200 in at seventy eight, the street was out of over 0:03:36.240 --> 0:03:39.720 a dollar. Think about this. Tesla built three years of 0:03:39.840 --> 0:03:43.400 backlog via the Model three, and like the Sports Illustrated 0:03:43.440 --> 0:03:45.480 article said today, it was a bait and switch strategy. 0:03:45.480 --> 0:03:46.880 They said it was gonna be twenty seven and a 0:03:46.920 --> 0:03:50.000 half thousand dollars be fully autonomous. I mean you could 0:03:50.000 --> 0:03:51.760 literally crawl on the back, sleep and drive coast to 0:03:51.800 --> 0:03:54.240 coast and you're gonna have free supercharging. None of that's true. 0:03:54.240 --> 0:03:57.400 The car costs fifty five thousand dollars out the gate um. Clearly, 0:03:57.400 --> 0:03:59.600 I don't think anybody in their right mind is going 0:03:59.680 --> 0:04:03.040 to allow Tesla to drive them around without paying attention. 0:04:03.200 --> 0:04:06.120 There's been fifty two deaths reported either associated indirectly or 0:04:06.160 --> 0:04:09.320 directly with Tesla, and clearly the supercharging costs money. So 0:04:09.360 --> 0:04:11.080 what they did in Q three is they took that 0:04:11.360 --> 0:04:14.480 huge mode of backlog and basically in Q three and 0:04:14.520 --> 0:04:18.280 four sold cars to the best part of that backlog, 0:04:18.320 --> 0:04:20.120 i e. The guys who are willing to pay the most. 0:04:20.560 --> 0:04:23.039 So if you look to what they're guiding for next year, 0:04:23.080 --> 0:04:25.320 for this year rather twenty nineteen, they're saying three hundred 0:04:25.320 --> 0:04:28.560 and sixty to four hundred thousand cars sold. If you 0:04:28.560 --> 0:04:31.760 look at their Q four deliveries, multiply that by four 0:04:32.160 --> 0:04:34.120 and use the low end of that guidance, they're actually 0:04:34.120 --> 0:04:38.200 guiding cells unit cells down in twenty nineteen, despite the 0:04:38.200 --> 0:04:39.960 fact that on Q four numbers they're trading out a 0:04:40.040 --> 0:04:43.160 ninety times forward e PE multiple when other car companies 0:04:43.160 --> 0:04:45.600 traded six to five six, five to six times. We 0:04:45.839 --> 0:04:49.120 think there's big risk in the in in the stock. Certainly, 0:04:49.160 --> 0:04:51.040 I think most would agree with you that there's big 0:04:51.120 --> 0:04:52.760 risk in the stock, just based on how much. It's 0:04:52.760 --> 0:04:55.679 been swinging around. But Gordon, I'm wondering, let's say Tesla 0:04:55.880 --> 0:04:59.720 is able to pay off its convertible bond. Uh is 0:04:59.760 --> 0:05:01.960 your pieces wrong? I mean, is that is that going 0:05:02.040 --> 0:05:05.599 to be enough of prolonging any sort of liquidity event 0:05:05.920 --> 0:05:09.000 that Tesla can keep on going trying to make it work. No, 0:05:09.080 --> 0:05:11.200 I mean everybody says if they're able to raise debt, 0:05:11.279 --> 0:05:13.360 you know that's gonna be great for the stock. Look, 0:05:13.440 --> 0:05:16.919 they burn a lot of money. Um keep in mind 0:05:17.440 --> 0:05:20.400 in in in the fourth quarter they had huge demand 0:05:20.400 --> 0:05:22.640 pool in the United States because their tax credit got 0:05:22.680 --> 0:05:26.360 cut in half one one nineteen in in in the Netherlands, right, 0:05:26.520 --> 0:05:29.240 European cells of Tesla and ten were up six percent 0:05:29.640 --> 0:05:31.960 if you assume that that's because Netherlands cells were up 0:05:32.000 --> 0:05:34.640 a hundred and fifty eight percent. Germany was down forty, 0:05:34.760 --> 0:05:37.640 Spain was down like roughly twenty, the UK was down 0:05:37.760 --> 0:05:40.279 roughly thirty. The point is the Netherlands had a big 0:05:40.400 --> 0:05:43.560 tax in centive for for Tesla cars that got cut 0:05:43.920 --> 0:05:46.280 January one. We think Netherlands cells are gonna be down 0:05:46.360 --> 0:05:49.360 eight percent in Q one. So the point is they've 0:05:49.400 --> 0:05:52.440 had a big benefit in Q four that benefit is 0:05:52.480 --> 0:05:55.120 over UM. I think they're guiding to huge decline. We 0:05:55.160 --> 0:05:57.320 think the street numbers for Q one on revenue are 0:05:57.400 --> 0:05:59.920 roughly one point five billion too high given Tesla's guide 0:05:59.920 --> 0:06:02.440 and UM and you have real competition coming in in 0:06:02.480 --> 0:06:04.640 the back half this year. So I think they go 0:06:04.680 --> 0:06:07.000 back into losing money in Q one. I think basically 0:06:07.080 --> 0:06:09.880 that's there, that's effectively their guidance. I think they lose 0:06:09.960 --> 0:06:11.560 more money in Q two and more money in Q 0:06:11.680 --> 0:06:14.400 three and four. UM. So if you give a company 0:06:14.440 --> 0:06:17.320 money who just perpetually burns cash, is that a good thing? 0:06:17.360 --> 0:06:19.440 I don't think so. So. I I just think their 0:06:19.440 --> 0:06:22.000 business model was floor I think Elon Musk's tried to 0:06:22.400 --> 0:06:24.800 change the way you manufacture cars from the car companies 0:06:24.800 --> 0:06:27.000 that have done it before. It hasn't worked, and I 0:06:27.040 --> 0:06:28.520 think the costs are too high. I think they're gonna 0:06:28.560 --> 0:06:30.720 burn a lot of money this year. Gordon Johnson, thank 0:06:30.720 --> 0:06:33.320 you so much for being with us. Gordon Johnson, Managing 0:06:33.320 --> 0:06:37.279 director focused on Alternative Energy, Metals and Mining and Equipment 0:06:37.600 --> 0:06:40.599 UH spaces for the Vertical Group in New York, joining 0:06:40.640 --> 0:06:57.000 us here in our eleven three oh studios. Well, we 0:06:57.040 --> 0:06:59.080 are right in the midst of tech earnings. We had 0:06:59.120 --> 0:07:01.599 Facebook last night, the blowout quarter, that stock is up, 0:07:02.760 --> 0:07:05.960 Microsoft that generally inline quarter stocks off a little bit today, 0:07:06.000 --> 0:07:08.520 and of course after the close tonight, we have Amazon. 0:07:08.640 --> 0:07:11.360 So to help us kind of way through all things tech, 0:07:11.440 --> 0:07:14.400 we have David Garrity joining us. David's the chief market 0:07:14.440 --> 0:07:16.520 strategist at laid Law and Company. He joins us in 0:07:16.520 --> 0:07:18.960 our Bloomberg eleven three oh studios. David, thank you for 0:07:19.080 --> 0:07:22.920 joining us. Let's start with Facebook. Wow, what a quarter, 0:07:23.000 --> 0:07:26.000 I think. Uh, I guess it's just people saying, I 0:07:26.040 --> 0:07:27.960 guess this thing is not going to be rolled over 0:07:27.960 --> 0:07:30.200 by the regulators. Well, one would argue that there are 0:07:30.200 --> 0:07:32.760 signs of life in terms of Facebook, and one has 0:07:32.800 --> 0:07:34.880 to bear in mind also looking at the fourth quarter, 0:07:35.480 --> 0:07:38.360 like other online internet companies, there is a bump in 0:07:38.480 --> 0:07:41.400 the calendar year end um, and certainly they saw that, 0:07:41.520 --> 0:07:44.120 but clearly against the negative news slow scene over the 0:07:44.160 --> 0:07:47.040 course of two thousand and eighteen. Um, you know, there 0:07:47.040 --> 0:07:49.400 are signs that people now think that there's alive and 0:07:49.440 --> 0:07:52.480 well and all clear can be found on Facebook. But 0:07:52.520 --> 0:07:55.320 one has to consider the news that came out just 0:07:55.520 --> 0:07:58.520 recently within the last day or so that Apple had 0:07:58.560 --> 0:08:02.760 decided to basically remove Facebook from the Apple App Store, 0:08:03.080 --> 0:08:05.920 which brings up the basic point that while people may 0:08:05.920 --> 0:08:09.440 be concerned about public sector regulators, when it comes down 0:08:09.480 --> 0:08:12.679 to looking at the structure of the technology industry where 0:08:12.680 --> 0:08:16.360 you have companies like Facebook who depend upon others operating 0:08:16.400 --> 0:08:19.960 system platforms, whether it's Android from Google or whether it's 0:08:20.000 --> 0:08:23.280 iOS from Apple, Facebook really is in a world that 0:08:23.360 --> 0:08:28.480 other people ship set the conditions for and from that standpoint, Facebook, 0:08:28.480 --> 0:08:30.080 for lack of a better term, has to depend on 0:08:30.120 --> 0:08:32.520 the kindness of strangers. Okay, can you just give us 0:08:32.520 --> 0:08:34.880 a sense of how important this really is. I mean, 0:08:34.920 --> 0:08:37.720 if Apple removes Facebook from its app store, can people 0:08:37.800 --> 0:08:43.160 not buy or not download the Facebook app on their iPhones? 0:08:43.600 --> 0:08:45.200 Is that what this is basically saying. Or they just 0:08:45.200 --> 0:08:46.959 have to work a little harder to do so. People 0:08:47.000 --> 0:08:48.920 can still work a little bit harder go through their 0:08:48.960 --> 0:08:51.720 web browsers. But the issue is if there are things 0:08:51.760 --> 0:08:55.080 that are made more difficult for consumers over time, it 0:08:55.160 --> 0:08:58.920 certainly serves to dampen adoption in that regard, and I 0:08:58.920 --> 0:09:01.080 would argue that if we start looking at what Apple 0:09:01.080 --> 0:09:04.320 has been saying in terms of the company's policy towards 0:09:04.400 --> 0:09:08.199 upholding individuals rights to data privacy is that the reason 0:09:08.200 --> 0:09:10.960 why they did this, certainly because what was happening in 0:09:11.000 --> 0:09:15.160 the case of Facebook is that they were essentially misusing 0:09:15.280 --> 0:09:18.440 the app store platform to go out and to pay 0:09:19.000 --> 0:09:23.439 um Facebook subscribers or Facebook users, uh, you know, twenty 0:09:23.480 --> 0:09:26.240 dollars to basically take down all of their data. And 0:09:26.240 --> 0:09:28.440 this was not something that Apple had been made aware 0:09:28.480 --> 0:09:31.240 of when this was being put up on the Apple 0:09:31.320 --> 0:09:33.640 App Store. And again I would just go back and 0:09:33.679 --> 0:09:36.440 say that, you know, Tim cook out of the technology 0:09:36.480 --> 0:09:39.920 sector c e O S has been fairly straightforward and 0:09:39.920 --> 0:09:43.439 and an upright in regarding data privacy as being an 0:09:43.440 --> 0:09:47.240 individual right. And certainly the company in its actions Apple 0:09:47.640 --> 0:09:49.880 is showing that they're going to be taking Facebook on 0:09:50.240 --> 0:09:53.160 in because you know, Jeff Zuckerberg on the earnings call 0:09:53.240 --> 0:09:55.760 last night seemed to suggest that after a year of 0:09:55.800 --> 0:09:58.360 hard work at the company and investment in personnel to 0:09:58.640 --> 0:10:02.040 monitor content and privacy see and investments in technology, that 0:10:02.120 --> 0:10:04.600 the company had in his mind, kind of turned the 0:10:04.720 --> 0:10:07.440 corner on what was a very difficult time for the 0:10:07.480 --> 0:10:10.440 company um and that they've gotten to handle on it 0:10:10.559 --> 0:10:12.640 and they're ready to move forward and go back to 0:10:12.679 --> 0:10:14.920 being the innovative and focus on the business. Do you 0:10:14.960 --> 0:10:18.319 think the company has turned the corner from that regulatory 0:10:18.360 --> 0:10:21.200 overhang type of perspective. Well, I mean, those are wonderful 0:10:21.240 --> 0:10:24.720 comments that go into an earnings conference called script But 0:10:24.920 --> 0:10:28.000 when we start coming up against factors and it's here 0:10:28.080 --> 0:10:30.040 really more in the case of Apple. Not to sort 0:10:30.080 --> 0:10:32.320 of focus in too hard on this, but dealing with 0:10:32.360 --> 0:10:36.000 public sector regulators is one thing. Obviously it takes time 0:10:36.000 --> 0:10:38.040 for them to act. That can be slow. But when 0:10:38.080 --> 0:10:40.480 you have a private sector partner, and I don't know 0:10:40.520 --> 0:10:42.280 to what extent you can really can say Apple is 0:10:42.320 --> 0:10:44.800 a partner, it just happens to be that Facebook is 0:10:44.880 --> 0:10:48.199 operating off of an iOS platform in part to get 0:10:48.240 --> 0:10:50.880 to the subscriber base that Apple has. If a private 0:10:50.880 --> 0:10:54.840 sector company decides to act and clearly act quickly, this 0:10:54.880 --> 0:10:57.040 can be something that I think has far more negative 0:10:57.280 --> 0:11:00.520 impact potentially going down the road the necessar early something 0:11:00.520 --> 0:11:02.440 that might come out of the public sector. But don't 0:11:02.440 --> 0:11:04.959 diminish the fact that the public sector itself may be 0:11:05.080 --> 0:11:09.600 poised from the regulatory standpoint to impose significant finds relative 0:11:09.600 --> 0:11:12.719 to Facebook. All right, so, David, it sounds like you 0:11:12.960 --> 0:11:16.000 have a lot of barishness around the edges about Facebook, 0:11:16.000 --> 0:11:18.240 and yet this is not reflected at all in the 0:11:18.240 --> 0:11:21.559 shares today. Shares of Facebook are up, they're surging, They're 0:11:21.640 --> 0:11:27.360 up at the biggest one day gains in January. So 0:11:27.679 --> 0:11:30.280 do you think that the shares should be much lower 0:11:30.320 --> 0:11:32.959 than where they are today or do you think that 0:11:33.160 --> 0:11:35.839 these are all just potential headwinds that investors need to 0:11:35.880 --> 0:11:38.960 be thinking about, even as UH they go full speed 0:11:39.000 --> 0:11:41.320 into Facebook shares. And clearly, if you look back over 0:11:41.360 --> 0:11:43.440 the last two months, with the market having sold off 0:11:43.480 --> 0:11:47.240 going into Christmas, Facebook down a dollars was probably a 0:11:47.280 --> 0:11:49.600 bye going into the earnings, I would say that what 0:11:49.640 --> 0:11:52.439 we're seeing here with Facebook as a relief rally, if 0:11:52.440 --> 0:11:53.800 we go back and look at the high on the 0:11:53.800 --> 0:11:56.520 stock up of over to twenty back in July, UM, 0:11:56.559 --> 0:11:58.400 I would say that that's probably a level we're still 0:11:58.440 --> 0:12:00.880 not going to get back to. You know, clearly this 0:12:00.960 --> 0:12:03.800 is a trade UH. And from that standpoint, I see 0:12:03.920 --> 0:12:06.560 Facebook is still being in a situation where they don't 0:12:06.559 --> 0:12:09.800 really control their own destiny given the operations and how 0:12:09.800 --> 0:12:13.520 they're structured depending upon these other technology platforms. I mean, 0:12:13.600 --> 0:12:16.120 just to raise an issue and segue over towards Amazon. 0:12:16.520 --> 0:12:20.079 If we start looking at Amazon having gone through and 0:12:20.120 --> 0:12:23.440 looked at various sectors to go into to basically take 0:12:23.480 --> 0:12:27.720 on advertising, advertising revenues for Amazon is a growth area. 0:12:28.040 --> 0:12:32.280 And if Amazon has far better access to an insight 0:12:32.400 --> 0:12:36.319 into what consumers are actually doing, Amazon can sort of say, look, 0:12:36.800 --> 0:12:40.360 we respect people's privacy in terms of their data. We're 0:12:40.400 --> 0:12:43.680 not out basically stepping on all sorts of people's toes 0:12:43.760 --> 0:12:46.040 to get to that data. We can get through it 0:12:46.080 --> 0:12:49.040 with far less complication. They can go in and say, 0:12:49.160 --> 0:12:52.520 will provide you with the targeting that Facebook provides. I 0:12:52.600 --> 0:12:55.000 guess what, We'll do it at a better price. So 0:12:55.080 --> 0:12:58.040 you I'm glad you brought up Amazon. Of course, they 0:12:58.080 --> 0:13:01.320 report earnings after the close tonight. One of the issues 0:13:01.320 --> 0:13:03.679 in the digital advertising space, one of the concerns I 0:13:03.720 --> 0:13:06.200 think for Madison Avenue and from big advertisers is that 0:13:06.320 --> 0:13:10.360 it's effectively a Dwopoli between Google and Facebook, and they've 0:13:10.360 --> 0:13:12.960 been dying for a third party, whether it's Snapchat or 0:13:13.200 --> 0:13:16.640 Twitter or whatever. And but now it appears that Amazon 0:13:16.920 --> 0:13:19.640 is really starting to focus on the advertising side of 0:13:19.679 --> 0:13:22.520 the business um and they're actually putting up a huge 0:13:22.520 --> 0:13:25.360 growth rates and ad spending. Do you think that Amazon 0:13:25.480 --> 0:13:29.280 can in effect become that third major platform for advertisers 0:13:29.280 --> 0:13:32.040 in the digital space. I would say that Amazon, you know, 0:13:32.160 --> 0:13:36.320 has the potential to displace Facebook in terms of the 0:13:36.360 --> 0:13:40.000 significant role to be played in the online advertising market. 0:13:40.240 --> 0:13:42.480 And if I were a Facebook investor, I would certainly 0:13:42.520 --> 0:13:45.760 be concerned about that. You know, Amazon clearly has a 0:13:45.840 --> 0:13:50.720 number of different channels for growth beyond their traditional retail, 0:13:50.720 --> 0:13:52.480 which clearly is going to benefit from the r end 0:13:52.520 --> 0:13:55.679 holiday shopping season. And certainly, if we look at cloud computing, 0:13:55.679 --> 0:13:59.160 Amazon web services the number one leading platform add on 0:13:59.400 --> 0:14:03.640 advertising relative to this, and certainly the prospects for Amazon 0:14:03.679 --> 0:14:06.840 I would say as an investment certainly superior, I would 0:14:06.840 --> 0:14:09.280 say on a relative basis to likes of a Facebook. 0:14:10.120 --> 0:14:12.520 So just real quick on Amazon, what do you think 0:14:12.600 --> 0:14:15.000 is going to be the biggest surprise today? I think 0:14:15.040 --> 0:14:17.280 the biggest surprise may be very well continue to be 0:14:17.400 --> 0:14:19.000 sort of the growth that we've been seeing in terms 0:14:19.000 --> 0:14:21.040 of cloud services. I think the numbers we had out 0:14:21.040 --> 0:14:24.680 of Microsoft last night were very favorable in that regard, 0:14:24.880 --> 0:14:28.360 and this is certainly a transition that continues on a 0:14:28.440 --> 0:14:31.240 secular basis. You know, granted some of the impact we 0:14:31.280 --> 0:14:33.400 saw with regards to Microsoft, as there might have been 0:14:33.400 --> 0:14:35.600 some slowing in terms of some of the data server 0:14:35.960 --> 0:14:39.840 activities things that had impacted Intel previously. But obviously, you know, 0:14:39.880 --> 0:14:43.080 Amazon is not exposed to that. David Garritty, always wonderful 0:14:43.080 --> 0:14:44.680 having you. Thank you so much for being with us. 0:14:44.800 --> 0:14:48.040 Thank you, David Garretty, of course, joining us here in 0:14:48.120 --> 0:14:51.000 our Bloomberg eleven three oh studio's chief market strategist for 0:14:51.080 --> 0:14:55.680 laid Law and Company in New York. Facebook shares up 0:14:56.040 --> 0:14:59.520 thirteen percent on the heels of that revenue beat and 0:14:59.600 --> 0:15:02.960 frank earnings per share beat all around, giving people a 0:15:03.040 --> 0:15:22.880 sense of relief. As David said, there is a big 0:15:23.000 --> 0:15:25.600 question mark when it comes to Venezuela, and it's a 0:15:25.800 --> 0:15:29.320 huge oil reserves. When will it actually start to begin 0:15:29.440 --> 0:15:33.160 pumping those reserves out and putting them into circulation. Joining 0:15:33.200 --> 0:15:34.960 us down to talk about this and its effect on 0:15:35.000 --> 0:15:39.720 global oil prices is Dr ellen Wald, President of Transversal Consulting, 0:15:40.000 --> 0:15:42.880 also a nonresident Senior Fellow at the Atlantic Council's Global 0:15:43.000 --> 0:15:47.600 Energy Center and contributor to Bloomberg Opinion. Uh. Dr ellen Wall, 0:15:47.680 --> 0:15:49.800 thank you so much for being with us. So let's 0:15:49.800 --> 0:15:54.240 start with the effect that so far the political turmoil 0:15:54.240 --> 0:15:56.560 in Venezuela has had an oil markets. It's sent the 0:15:56.640 --> 0:16:00.120 price up. Does this make sense to you? It does 0:16:00.240 --> 0:16:03.560 make sense to me, because Venezuela's oil, even though right 0:16:03.600 --> 0:16:06.800 now Venezuela actually isn't producing all that much. I think 0:16:07.000 --> 0:16:09.720 it's numbers in December where something like one point one 0:16:09.800 --> 0:16:13.120 seven million barrels per day, which is very low for 0:16:13.200 --> 0:16:17.160 a country like Venezuela. But Venezuela produces a heavy sour 0:16:17.280 --> 0:16:20.560 crude type of crude oil that's very much in demand 0:16:20.800 --> 0:16:24.000 and is not really being produced as much. Right now, 0:16:24.040 --> 0:16:26.680 we get a lot of light crude coming from the 0:16:26.720 --> 0:16:29.960 United States, and the refineries are really looking for the 0:16:30.000 --> 0:16:33.840 type of oil Venezuela produces, and that's probably why we're 0:16:33.840 --> 0:16:39.200 seeing oil prices rise just somewhat right now. Well, Dr Wald, 0:16:39.400 --> 0:16:42.960 Venezuela has one of the largest reserves on the planet, 0:16:43.000 --> 0:16:46.720 within roughly three billion barrels. Can they even get it 0:16:46.720 --> 0:16:49.480 out of the ground, Well, that is the big question. 0:16:49.600 --> 0:16:53.680 And Venezuela's oil is actually much more difficult to extract 0:16:53.680 --> 0:16:56.800 than say, Saudi Arabia's oil. So even though Saudi Arabia 0:16:57.000 --> 0:17:00.080 doesn't have as quite as much oil as Venezuela. It 0:17:00.120 --> 0:17:03.360 produces a lot more. Their infrastructure is much better and 0:17:03.400 --> 0:17:07.840 it's much easier to extract. But Venezuela could be producing 0:17:07.920 --> 0:17:10.680 a lot more than it is. In fact, it's produced 0:17:10.720 --> 0:17:13.359 as much as over three million barrels per day, so 0:17:13.480 --> 0:17:16.280 it's really not living up to its potential. Now. The 0:17:16.400 --> 0:17:19.840 question is, right now, they're facing a lot of problems 0:17:19.840 --> 0:17:23.080 with their infrastructure. Uh. There, people are are starving and 0:17:23.160 --> 0:17:27.840 unable to work, and the company is essentially failing. So say, uh, 0:17:28.000 --> 0:17:30.480 we got rid of all the political trouble and they 0:17:30.560 --> 0:17:33.760 got a new government that was really willing to support 0:17:33.800 --> 0:17:36.320 the company in what it needs. Just how fast could 0:17:36.320 --> 0:17:39.439 they ramp up production? And that is the question. I 0:17:39.480 --> 0:17:42.480 think that they actually could do a lot to get 0:17:42.480 --> 0:17:46.200 that oil flowing very quickly. Perhaps not as much as 0:17:46.320 --> 0:17:48.960 as three million barrels a day, but they certainly could 0:17:49.040 --> 0:17:52.440 increase possibly almost to two and that would really help 0:17:52.480 --> 0:17:55.480 their economy get out of the terrible state it's in. 0:17:55.880 --> 0:17:58.840 So let's say there is resume change in the next 0:17:59.000 --> 0:18:02.360 couple of months. Let's say Huang Guido does take over 0:18:02.480 --> 0:18:06.119 Nicholas Maduro's force out of power. This is a huge conjecture. Obviously, 0:18:06.960 --> 0:18:11.480 let's just say that that happens. If Venezuela could get 0:18:11.520 --> 0:18:14.760 their oil production back online, how much would that flood 0:18:14.760 --> 0:18:16.680 the market? What would that do to the price of oil? 0:18:17.560 --> 0:18:20.639 I think it would definitely push prices down. Um, you know, 0:18:20.680 --> 0:18:23.280 there's still part of OPEC, there's still as far as 0:18:23.359 --> 0:18:25.000 we know, you know, OPEC doesn't seem to have any 0:18:25.000 --> 0:18:29.640 intention to get rid of its production uh cuts right now. 0:18:29.680 --> 0:18:32.840 But Venezuela is allowed to produce under that up to 0:18:33.080 --> 0:18:35.720 I think one point nine seven million barrels a day, 0:18:35.920 --> 0:18:39.360 and they really would do well to push themselves up 0:18:39.400 --> 0:18:42.680 to that limit if they can, as quickly as they can. 0:18:43.119 --> 0:18:45.720 So we definitely could see if if they did get 0:18:45.760 --> 0:18:48.520 that oil in the market, it would push prices down. So, 0:18:48.640 --> 0:18:52.240 Dr Wald, what role if any, do you think Russia 0:18:52.280 --> 0:18:56.560 and China are playing or can play in Venezuela. Um, 0:18:56.640 --> 0:18:59.280 whether it's on the political side or more about you know, 0:18:59.840 --> 0:19:03.280 they are interest in the oil reserves in Venezuela. What 0:19:03.359 --> 0:19:05.040 role do you think they are playing and maybe could 0:19:05.040 --> 0:19:08.240 play going forward? Well, this this is a big question, 0:19:08.320 --> 0:19:12.440 and particularly with regards to Russia, because Russia's loaned them, 0:19:13.040 --> 0:19:16.000 loan them money, and in fact, Ross snaffed the run 0:19:16.000 --> 0:19:19.679 of the Russian oil companies actually has a lean on 0:19:19.960 --> 0:19:23.480 SITCO for its loan. So basically, if if PDVSAY does 0:19:23.520 --> 0:19:26.520 not pay the interest on its loans to Russia, then 0:19:26.600 --> 0:19:29.960 Russia can actually take control of forty nine nine percent 0:19:30.480 --> 0:19:34.840 of the Citgo Refining Company in the United States. According 0:19:34.840 --> 0:19:37.119 to they hold that as collateral. Now, of course the 0:19:37.200 --> 0:19:40.080 question would be will the United States permit that. They 0:19:40.080 --> 0:19:43.040 do have measures they can take to say no, We're 0:19:43.040 --> 0:19:45.119 not going to allow that on national security grounds. But 0:19:45.200 --> 0:19:49.159 it really could uh bring this crisis almost into a 0:19:49.280 --> 0:19:54.000 US Russia issue as opposed to just of Venezuela Russia 0:19:54.080 --> 0:19:56.680 China issue. Now, China and Russia are definitely going to 0:19:56.760 --> 0:19:59.800 do all they can to support Venezuela. Uh, first, they 0:20:00.080 --> 0:20:03.679 their money. They've loaned Venezuela money. They want Venezuela to 0:20:03.680 --> 0:20:06.600 pay that interest. If a new government comes into power, 0:20:06.640 --> 0:20:09.960 that government could say, you know what, those loans were 0:20:09.960 --> 0:20:12.879 made under the Madurou government and that government was illegitimate 0:20:12.920 --> 0:20:14.800 and so we're not going to pay you. So they 0:20:14.840 --> 0:20:17.840 definitely have a vested interest in keeping the Madurou government 0:20:18.160 --> 0:20:21.080 in power. Okay, just real quick here. I'm glad that 0:20:21.160 --> 0:20:22.600 you went there because that was going to be my 0:20:22.640 --> 0:20:25.040 next question. Given the fact that China and Rush would 0:20:25.080 --> 0:20:28.800 like to see Nicholas Maduro remain in charge, how much 0:20:28.880 --> 0:20:31.040 does that make it unlikely that we do see a 0:20:31.119 --> 0:20:34.439 regime change. Well, I really think right now things are 0:20:34.520 --> 0:20:37.320 up in the air. It does seem unlikely given the 0:20:37.359 --> 0:20:39.920 fact that there have been attempts in the past and 0:20:40.000 --> 0:20:42.879 Maduro has uh you know, has rebuffed them. He does 0:20:42.920 --> 0:20:45.280 seem to have control over the army. And really, when 0:20:45.280 --> 0:20:48.320 it comes to regime change, when it comes to revolution 0:20:48.440 --> 0:20:51.879