A Collapsing Venezuela Could Jolt Oil Market, Denning Says

it is Liam Denning. He is our energy, mining and commodities calumnist for Bloomberg Gadfly. Liam, thank you very much for being here. Um, all right, we know Venezuela's economy is a mess. We know the politics is a mess. Uh. What is the likelihood that they will find a friendly nation, whether it be Russia or China or somebody to loan them more money, uh and perhaps help them stave off that day of reckoning? Um? Well defined friendly? I mean I think that non hostile, because I mean the United

States is even talking about more sanctions on Venezuela. Yeah, I think so. The situation right now is they've got declining all production Um. The economy is in a tailspin, and they've got at least five billion dollars or so of both sovereign debt and debt that resides at the state or company coming due by the end of the year. So one possible route for them is to get more money from China and Russia. My senses, China may be reluctant to put more into this, since it may be

just throwing, you know, good money after bad um. I think with Russia it's it's more interesting because as there are reports that the Russians are attempting to renegotiate some some clauses around collateral with existing I mean, right, the Russia isn't and they already have a stake in No, they lent money to collateral I beg your pardon, and it's collateralized with a roughly half steak in Sitgo, which

is the the Venezuelan refiner. Now, quite sensibly, they may be the Russians maybe trying to renegotiate that because it's it's unclear that if that ever came to pass, they could actually take possession of those assets. So Leon, let's zoom out a little bit, because Venezuela is a hotspot right now of difficulties on a number of levels, and it's sort of re introduces this idea of political risk in the oil market that really has been sort of absent.

And I'm wondering, let's say Venezuela does become the for us to big oil producer to withdraw from the market due to political risk or to pull back. Would that actually cause oil prices to rally? Would that be a positive factor or would that possibly be a negative with people wondering what will happen? Uh? I think, you know, if if there is some sort of general generalized collapse in Venezuela and it takes barrels off the market, that is generally going to be seen as bullish for prices.

I think the thing to watch out for though, is, you know, we have seen this happened before. I mean, you look at a country like Libya, where the country literally fell apart. It's being run by three different competing governments. Their production has actually been coming back recently to the extent that it's You've now got Opec and the countries that are trying to limit supply actually trying to nudge Libya towards limiting its output, which is kind of crazy

for a country that really needs the revenue. UM. I think what I take away from Venezuela is if we if we really step back and we look at what's happened in the last few years, UM, what people have been waiting for is some kind of big pullback in US shale are either money runs out, companies go bankrupt,

people get laid off, production goes down. Now, it did go down, but then it rebounded quite quickly, and I think if we're looking for barrels coming off the market, it's not going to be the more flexible UM companies that are operating in places like Texas, because you know, even if those companies go bankrupt, someone else just takes

over the assets and starts running it. I think it's much more likely that we see problems on the supply side in these economies which are very beholden to the old price, which haven't restructured, and where there's really very little flexibility on both the economic and the political side to deal with the pressure that they're under. Liam are really interesting point and one that I hadn't really thought about. Another word, stopped looking for shell producers to cut production.

It's really going to be some kind of crisis in one of these other producers, like a venezuela that's going to take barrels off the market. Liam Denning, Energy Mining and commodities columnist for Bloomberg Gadfly. His work is tremendous. Check it out bloomberg dot com, slash gadfly or on Bloomberg and I gadfly. Plastic surgery is a huge business, Phim. I didn't realize that Americans spent more than sixteen billion dollars on cosmetic plastic surgeries minimally invasive procedures last year.

It's the most on record. And give us a sense of how much uh this business is growing. I want to bring in Dr Stafford brumand he's a plastic surgeon at seven forty Park Plastic Surgery on the Upper East Side of New York City. And Dr Bruman, thank you so much for joining us. I'd love to get a sense from you in the growth of the industry in the past few years. What procedures have been the absolute

most popular? Well, there are a slew of procedures which people come in for from non invasive injectables and surgery. So in the injectables realm. It's grown a lot in our practice. It's grown almost year over year and keeps growing. Are you talking about fillers and botox? Fillers? Botox and fillers, and then the other ones are noninvasive treatments like skin tightening and fat freezing which is cool sculpt and all therapy.

So they can have treatments which are not surgical, uh, either injectables or superficial treatments that make them look better, and those have grown immensely. They're more popular. It delays plastic surgery, h surgery itself, but doesn't eliminate the need for surgery. Can you speak about some of the individual company ease that have maybe pioneered or producing new types of therapies or services that you didn't have let's say

five years ago. Well, Botox now is a brand name and everyone knows Botox and is really not afraid of it, and that's owned by Allergan, and Allergan I think was recently bought by activists. So it's a whole range of companies. But they have brought along Botox, which has many uses

as well as cosmetic uses. It's Botox cosmetica or cosmetic, but they also have cool sculpt which was fat freezing, which was a technology where you did not have to have surgery, just had a cooling device sort of strapped to you and that area lost the fat that it was treating. It froze it basically, And they just recently bought that as well. Uh So, and there are other companies that still have other botox or botulism talks and products, uh Like Valiant bought Medicis a while back, so there

are other companies that do that. There's another one traded Revance, which is a small company which has another uh Bauchlism talks and product. Is this like all the effect of Instagram and selfies where people an increasing number of people are obsessed with the way that they look, or is this uh simply the normalizing of an ongoing trend where people just want to look their best and if they can find a procedure to help them do that, they'll do that. I mean, how much excessive surgery did see?

It's really a matter of function of both. I think that uh, social media has propelled this to a new level. And I also think that people really are working harder and longer and want to be relevant and they have to look the part. So they come in seeing how they can still be relevant in the workforce. Uh, and so it's a matter, it really is. Bifurcates that way.

It's the young person coming in knowing that they've seen selfies and they are on social media and Facebook, and more middle aged or older group wanting to have plastic surgery to stay in the workforce. That's that's fascinating point. In other words, people who are older knowing that they might be replaced more quickly if they don't look young well, or they'll come in they say, you know what, I work with all these young people. I can't look like

someone's uncle or grandmother. I've got to look younger. So they want to do something that will transform them but not change them, so that they can be still relevant in the workforce. You notice he keeps looking at me whenever he says those yeah, I saw those eyes. Dr Broman, I'm when I ask you about the practice that you know you happen to be a plastic surgeon, but I mean you're a medical doctor, so you've got to practice. The software that you use, the management systems that you use. Uh.

That is big business. Athena Health, for example, one of the big software practice providers. Can you give us some insight into what has changed there? And this whole idea of trying to digitize people's medical records so it it becomes a more efficient service, because not all places are as efficient. To some the trend is to go to

electronic medical records. In plastic surgery practices, you don't necessarily have to do that because it's a smaller practice, but when you're affiliated with a hospital as we are at seven forty part plastic surgery, you can get the software UH and the electronic records through the hospital system, which is Mount Sinai Hospital, or you can get your own system, which is what we have. And they're smaller players in

that field. So it's not only in plastic surgeries at botox and fillers, but it's UH medical records, it's information technology, UH, it's devices. So there's a whole different slew of things to to look at in the medical space. But they're

smaller players. Ours as next Tech, which is a privately held company which is really on the forefront of dermatology and plastic surgery and ophthalmology, and that's the system we use and it's specialized, right I mean, that's what's so interesting is that the the market in a sense is fragmented because the software has been built for specific types

of practice. A specialties every specially has its own needs, and we have our needs where we need to show photographs and file photographs and uh interact with the hospital and keep our own records sort of in shape so

that our office can work more efficiently. You know, before the segment, we were talking about how in your view, sometimes your role is as much a physician and a surgeon as it is a psychiatrist or a psychologist and a therapist, and that when people come to you, it's really part of your job to let them know if you think that perhaps they ought to go a different route, if perhaps it's not a responsible surgery. Can you talk a little bit about that. A plastic surgery is a

two way street. So we have to listen to our patients to see what brings them in and what concerns them and what we can do to help them. But then we have to project and help them figure out what works and what we can do legitimately and rightly. So we've got to sort of figure out where they're coming from, whether it's the right indications, whether it's the right requirements, whether they're medically in the right place to have this sort of surgery, and then we have to

discuss with them the options. What's a bad reason to want to get There are many bad reasons and so each person has their own take on it. But whether it's a relationship issue, whether it is trying to look like someone that they shouldn't be trying to look like. Uh, there are a lot of reasons for it, or peer pressure. So there are some reasons not to do surgery. And we as a as a body, as plastic surgeons, are offering our services to help them. We're here to help people.

We want people happy. We're and then make people happy business. So if we can't do that and we think that their objectives are not legitimate it, then we'll tell them we talked to them. I want to thank you for talking with us. Dr Stafford Boumant is a plastic surgeon with seven forty park plastic surgery and very interesting, very

interesting conversation about the nature of plastic surgery. Well, we'll be looking forward to earnings from the Walt Disney Company plus Alphabet the parent company of Google, and here to help us understand what to look for is Paul Sweeney, US Director of Research and Senior Media Internet Analyst for Bloomberg Intelligence. He can be followed on Twitter at pt Sweeney. Alright,

pt Sweeney, this report today. I want to focus on the combination perhaps of Alphabet and Walt Disney because when I look at the dashboard, which I compliment you one on Bloomberg and Intelligence because it gives you every piece of data. As if I didn't know that Don Kirk was the big movie of the weekend, Uh, I find that it's Facebook and Alphabet those are the ones that are really competing for the ad dollars for companies such as the Walt Disney Company and ESPN. Is there an overlap?

Is there? Because it seems as though there's a bleed between one kind of company and another. Content is a very fuzzy thing. Now, yes, I think you know, we've seen something that we've been talking about in the t MT technology, media and telecom space for the last twenty years.

Is this convergence of technology and media and content and uh, and we're really really are seeing it really over the last five to six seven years really accelerate and so examples would be a traditional technology companies such as Google as actually, through their ownership of YouTube, one of the biggest television platforms in the business on a global basis, uh, and part of their you know, they're probably generating you know,

several billion dollars of advertising revenue on YouTube. So there's a classic example. And then another would be you know, a T and T, the largest telecommunications companies spending eighty five billion dollars to buy Time Warner to get those assets to put that content over their wireless network here. So we really are seeing the convergence here as consumers spend more and more of their time online, if you will,

on outside of the traditional media ecosystem. Yeah, Paul, you were saying before the segment that seventy percent of display ads. I just I can't believe the seventy percent of display ads are going to Google and Facebook, and that proportion has been going up, and that's been taking away from platforms such as Disneys and other more traditional media companies. I'm trying to understand how effective some of these ads are.

I mean, I think about, for example, the Google search ads and how often do people really click on them? How valuable is that to retailers and others that are doing the advertising. Well, what's interesting when you when if you went to the television up from presentations and may all the big broadcast networks, they would tell you that digital advertising is not nearly as effective as some people believe.

There is a lot of audience fraud. You can't even really measure accurately the audience that is seen your ad number one, number two, You don't know where your ad is actually being placed in many instances on the internet. Uh, and they're obviously those famous examples where an advertiser would have its message you know, next to some type of isis you know, video or certainly content that you don't want to be associated with. Whereas on a broadcasting cable

networks you know exactly where your ad will be. It is a advertiser safe environment. That being said, the dollars the numbers tell a different story. TV ad spending this year will be up probably low single digits, whereas digital advertising across the Internet will probably be up fifteen to seventeen percent. So advertisers continue to allocate more and more of their budgets to digital advertising platforms, and as you mentioned, um, it really is a d wopply for big brand advertisers.

If they want to allocate their dollars onto the Internet broadly defined, they really only have to two choices, and that is Facebook, UH and Google. So UM and everybody else is kind of fighting for the scraps, which are big scraps and they're growing, but Google and Facebook are

really the dominant players here. UM, and I think a lot of advertisers are saying, yes, we have issues about measurement, Yes we have issues about accountability and context, but at the end of the day, we know that our consumers are audiences are spending more line and more time online and therefore we need to be there as well talking about spending spending more money for live sports and when if you could talk to the issue of ESPN some comparisons to a year ago, so that we understand what's

going to happen this afternoon when they tell us about the operations of ESPN and so on. Yes, so the challenge UH for ESPN. In the space of probably two years to maybe three years, ESPN has gone from the crown jewel of the Walt Disney investment story UH to being really the big question mark. And that is because Uh, I'm very similar to what we're seeing across the entire television ecosystem. Even the mighty ESPN is losing subscribers to

chord cutting and chord shaving as people try to pair back. Uh, they're spending on the traditional pay TV packages. Even ESPN is filling it. So they have lost you know, several probably four to five million subscribers over the last four or five years um. And that is impacting their ability to charge for advertising and as well as it impacts their affiliate fees that they can charge to their distributors.

So they have revenue challenges at ESPN. And that's a problem because their costs, their costs are primarily programming, and those programming rights fees to the NFL into Major League Baseball, into the NBA, those are very big numbers. And that's right, isn't that right for the For the NBA. Uh, yeah, it was actually an additional for dollars above their last contracts, So they have billions of dollars of rights fees that are long term, multi year contracts that are fixed at

a time when their revenue is being pressured. That's the challenge for ESPN. Well, and it's not just ESPN for Disney, right, because we also have gotten news that thirty eight thou Florida union workers are looking for higher wages and are prepared to be pretty aggressive with that. How realistic is it that their wages could be increased enough to make

a material dent in disneys earnings and potentially hurt them. Yeah, that's it's gonna be an interesting question to see how they talk about it on the call coming up on their earnings. UM. That is the parks and resorts business has actually been a great story for the Walt Disney Company over the last four or five years. This is a business that, um, you know, is a minta high single digit revenue growth business, a low double digit profit growth business. So this is a business that they need

to really manage their costs well. Um So that and they're one of the largest costs obviously is their personnel costs. And to the extent that they have a material impact uh to the cost in Florida, which is their biggest market globally, that will have an impact marginally, I think on the profitability of that business. But I think investors still view that business is a very good business as

a business that is worthy of more investment. And in fact, we see the Walt Disney Company investing, you know, every year more and more in their parks and resorts businesses around the world, from Shanghai to Orlando to California, to additional cruise ships. Uh. So that's a business they like. That's a business. Actually, the Comcast, through its acquisition of Universal, uh, got all the parks and resorts from Universal. That's a business Comcast like. So the theme park business globally is

a very good business. And of course the Disney as a world leader, aren't they just about to celebrate something like their ten million visitor Torobabling park in China and uh, well, China, China. The first year they had I guess, I guess it was about ten million, and that was kind of their goal. And then now that now they're in year two. So Shanghai has generally been very successful for them, and in fact, they've announced additional expansion of Shanghai uh to fuel what

they believe will be future growths there. So I think that was a I think most investors view that is a very good investment. Thank you so much for joining us. Paul Sweeney, US Director of Research and senior Media and Internet analyst for Bloomberg Intelligence. He is now off to a trip to Disney World with his family while he checks out Disney earnings. We want to turn now to Ira Jersey, are interest rate strategist for Bloomberg Intelligence, to give us a little bit of a preview of this

week's f O m C meeting. Ira, what can we expect to learn? Hey, pim, UM, So the Federal Reserve is not going to hike this week. You know, the markets pricing for a zero percent chance of a hike this week, So that would certainly be the biggest shock to the market, and I think you'd wind up seeing to your notes sell off quite significantly if if they

were to do that. UM. But there is the possibility that they can announce runoff this week, which UM I think has caused some confusion and consternation around different market segments about you know, exactly what does that mean? What does it mean when the Federal Reserve starts to run

off um it's treasury and mortgage portfolio. So so they're expected to start allowing some of their treasury mortgage backed securities holdings to pay down starting as soon as what October or September even UM, and the biggest question, according to your latest research note is around mortgage backed securities, right, that's where people are sort of girding for the most potential volatility. Am I writing that? Yeah? I think that that's that's where the biggest risk comes is really what

what what comes from that? And the reason is because that can't be managed by the UM, by any bureaucracy. So when the treasury portfolio runs off, even though some months are going to run off significantly more treasuries than than mortgage backed securities UM, the Treasury Department can determine how that's going to come into the market. Is that going to come into the market with them issuing more ten year notes or thirty year thirty year bonds? The

answer is probably not. They'll end up issuing a lot more TEA bills and two year and three year Now it's a very short maturity, short duration, not a lot of market risk instruments, whereas mortgages that it will have to just be absorbed by the market based on how much UM, how much people actually refinance our houses and how much mortgage activity there is. So so so that's

something that's that can't be controlled as well. So that's one of the reasons why we think that there could be much more volatility and mortgage backed securities and say treasury treasury securities because of this. So, just to be clear of these mortgage backed securities are agency backed securities.

These are mortgages that are ensured by Fannie and Freddie and Emayn May I'm wondering, how much do you expect that mortgage rates could potentially increase if there is a lack of clarity around the runoff program, specifically with respect to mortag back securities. Well, so, I think the Fed's done a good job in preparing the market for how

runoff the pace of runoff. But but one of the interesting things is for mortgages, there's um the FED set that they're going to allow up to twenty billion dollars

a month of their mortgage securities roll off. Now what's interesting about that is that barely twenty billion dollars a months is running off today, So there'll be many months when um they run off everything out of their portfolio, and all of that winds up going back in to mortgage pools, so you wind up with with more mortgage backed security issuance it winds up affecting UM what rates are going to go out in the future. Now you know how much that that's that's going to increase mortgage rates.

Well back inn when the Fed allowed their mortgage backed security portfolio to run off, you saw a significant volatility. You saw swings of basis points within a few weeks

UH in UH in the market. So you know, it's hard to judge exactly what the impact could be the basis point per per dollar of runoff, but I think you could wind up seeing significant volatility and you know, twenty five basis point, thirty basis point increase in UM in more could spreads compared to treasuries could uh could potentially happen and that would obviously have an impact on the broader broader economy um irish. Should we rename it

the debt ceiling? Should it just be like the debt window because they always open it at the very last minute? You know that that's you know, yeah, that's the one thing that could probably uh, you know, stop the Federal Reserve from actually uh starting to run off of their portfolio. That they always wait till the last minute to raise the death ceiling. It's actually from a for a lot

of strategists. It gives us something to right about. But it's really quite um, it's really quite annoying because it's a man made problem, right. It's it's not something that is is societal. It's really Congress just not being willing to change the rules. So they so they only they can fund um. They can fund the government based on the budget that they've already passed. So so it's right now. Our expectation is early October is the time when they actually run out of money to uh uh both cash

and uh debt limit. Um. Soon after that they'll wind up running out of money in order to to actually refinance debt. So there are some there are some suggestions that some people in Congress want to do, like change the debt deailing and say hey, you're allowed to refinance stuff, you're just not allowed to issue new debt once you reach the limit. Something like that would certainly give the market some comfort. Um. You're starting to see actually the

market move a little bit. Um October te bills are trading cheap to other T bills because people are worried about you know, the missing a payment, even if it's for a day, it's just really annoying um to have to deal with that operational challenge. Hira, thank you so much for joining us ire A Jersey as interest rate strategist for Bloomberg Intelligence. Uh and I'm sure we'll be speaking with you in the upcoming days and weeks. I am very interested to see whether the Federal Reserve does

mention anything about this runoff program. If they don't, I am sure there will be questions about how serious they are about starting this runoff later this year, certainly in the earlier part September or October should be interesting. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.