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Just men sitting in for Alex Steele here today. I'm pol swhen you're live here on a Bloomberg Interactive Brokers Studio. Earnings Day, Big Earning, State's Big earnings week actually coming up a lot of tech names. We'll keep an eye on that. The story of the morning is, I think kind of just from the earning's perspective, is Ben McDonald's. It's been in the news a lot recently with Coli breakout, cole Ye break up. Anyway, Stock put out some numbers today.
I thought they were okay, but some international weakness. Same store sales still negative. That's a challenge for them. They try to build traffic there. Again, this quarter does not include some of the concerns that they've seen over recent weeks. Michael Halen joins US senior restaurant in food service analysts
for Bloomberg Intelligence. Hey Mike, what did you make from McDonald's in the latest quarter, and then like, maybe more importantly, what is management saying about kind of what they expect their fourth quarter traffic.
To look like.
Yeah, Unfortunately, they didn't give us too much information about
the fourth quarter. I'd say the biggest takeaway from this call and the reason why the stock is up right now, although it's you know, not knocking to cover off the ball, is the fact that they their initiatives, including the five dollar value meal Buntdill, the five dollars meal deal I should say, the Chicken Big Mac, and some of the other initiatives better operations, had actually led to a mid single digit same store sales increase and positive traffic for
the first three weeks of October, and so the streets kind of taken that as a positive. Right now, in terms of the fourth quarter, it was, you know, they
didn't give us much information. We did get a nice report from Bloomberg second measured Data yesterday that showed Seamstar sales were down nine percent last week, so that basically wiped out the mid signal digit gain and they're probably a little bit from like flat to upp modestly here in October, right And so yeah, it's it was kind of a good news bad news last couple of days for McDonald's.
Well, John, you were asking, what is a five dollars meal deal include? It includes a micdouble or a McChicken sandwich, small fries, four piece chicken, McNuggets, and a small soft drink that's.
Solid for five dollars.
So that's what I missed. The proper dollar menu, Yes they were, but I was always a big fan of that in college. But I would point out, like in twenty fifteen, you saw other companies like Chipotle that were hit by E. Coli outbreaks and unfortunately at that time, chapotely had to temporary close a number of restaurants on the West Coast. What do you think we can glean from other instances when this has happened in the restaurant industry and how quickly this could be cleared up?
Yeah, well we think this is very different than Chipotle. So a big part of it is just the operational differences. You know, McDonald's is a clothes kitchen. You know, it turned out to be the slivered onions, and so it was one item it wasn't you know, beef patties spread across many different products. Right, it was just the onions served in the quarter pounders with cheese. So we think this outbreak will be smaller than we saw with a lot of other chains. Chipotle was also unique. Chipotle same
star sales dropped for five straight quarters. They were down twenty percent that first year. But you know, their food is out in the open, right, it's behind a sneeze guard, but you know it can get you know, contaminated by multiple different employees, even some of the customers potentially, right. So it's a much harder operation to get right at Chipotle, And for some of those reasons, we think it's gonna be a lot shorter, and it's gonna be a lot shallower,
you know. That being said, I think fourth quarter same store sales are definitely going to take a hit. I think people are going to be turned off from McDonald's. I think it will probably spread a little bit into the first quarter next year. But McDonald's is working hard to get those same US same store sales kind of back on the right trunk. You know, it's gonna be
about value. There's gonna be more, you know, the five dollars meal deal is going to go through your end and expect to see more of those type promotions next year. They're gonna roll out in everyday Value menu in the first quarter. That's should should help boost results next year. You know, better operations, more chicken sales like the Chicken Big Mac, more digital sales, and they even hinted at
some fourth quarter food innovation coming out. So they're working hard to try to try to course correct here.
Something with McDonald's I always like to keep an eye on for a telltale sign of consumer confidence is the French fry indicator because you can tell if how French fries are done and how the number of people or fries can indicate sort of sentiment, what do you think with sort of the latest earnings and what you can glean from that and what that really means when it comes to what consumer confidence can tell us when the French freredicator.
Well, listen, I'm not looking at the French fry indicator to be honest, you know, but but you know what we're seeing and what we think will continue to see is low income consumers struggling. And so McDonald's that their strong result in the first three weeks of October. A lot of that was driven by being able to track low income consumers in with a very strong price point. And you know, but inflation continues to hurt these low
income consumers. Right we see this ke shaped economy where low income consumers are really pulling back on their restaurants spending. But right now, asset prices are near you know, a lot of them are near all time high. Stock the US stock markets near an all time high, Gold and silver have been ripping higher, bitcoins approaching another all time high. Home prices have held in throughout the higher rates and
everything else in our near all time highs. And so we think, you know, upper middle income, middle income, high higher income consumers are all doing well and spending, and you know, our chains are trying to attract those customers.
So, Mike, you, in your research coverage universe, what's kind of the best name or two or three that kind of standout as or sector in a restaurant business that you like better than others?
Yeah?
Yeah, Well, I think past Casual is kind of outperformed a bit that some of the names we cover anyway, not that the entire industry, but Wingstop has done a great job attracting both younger and higher income consumers into their brand and they're absolutely knocking to cover off the ball. You know, Chipotle has done a great job with their digital sales and strategic part pricing and they're continuing to
draw consumers that see value on the plate there. And then Texas Roadhouse is another one that's absolutely crushed it.
You know, we're not super.
High on casual dining, but they've been a machine man. They're they're driving people into the restaurant with a lot of value on that plate, right, and a very good experience. And that's another one that's that's killing it. I think there's Seams sourch sales are actually even better than Chipotle's over the last five years, trailing.
So okay, all.
Right, Mike.
Always good to catch up with you and get the latest on the restaurant biz. And McDonald's here today with their earnings stock trading a little bit higher. Here McMichael Halem. He's a senior restaurant and food service analysts for Bloomberg Intelligence.
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Jess meant sitting in for Alex Steele on Paul Sweeney. We are live here on Bloomberg Interactive Brokers Studio, streaming live on YouTube as well. So go check us out there. Big Tech Earnings it starts today after the close with your friends at Google, and then we're gonna hear from you know, Meta and everybody else along the line, Apple and Amazon and all that kind of good good stuff. So when you want to talk tech company, you want to talk tech earnings, you need to talk to Gene Monster,
managing partner and co founder at Loop Ventures. I think one of the more tenured reasonable voices on all things technology. Gene, thanks so much for joining us here. Let's start with Google. We're gonna hear from them after the close. Year This stacks ABO up a little over twenty percent, but it just feels like there's some concerns around Google in their core search business, perhaps under some type of threat from AI. How do you position the Google story here and what will you be looking for?
Paul, you nailed it. I mean that is what I would identify as the pressure point, the single piece that matters the most. This is more important than the Google Cloud number. A lot of investors are going to be focusing on the Google Cloud, but keep in mind clouds call it twelve percent of revenue. Search is just over fifty and cloud is not in front of some existential threat related to AI. And so the quick backstory is that Google Search in the March quarter was up fourteen
percent year of year. It was up fourteen percent in the June quarter, so showed some surprising strength quarter to quarter. There the streets looking for plus twelve. But this is where the plot thickens is that in the September quarter, this will be the first full quarter where AI overviews powered Google Search in the US. They launched in May, so it got a partial quarter in the June quarter,
but we're going to see the first full quarter. And then they launched another one hundred countries in the month of October, so that's going to impact the December results.
But the reason why this search number is so important is that if in fact the US search business holds together for the first full quarter, that would be the most I think substantial data point that Google investors can have to feel comfortable about how this transition over the next one two five years is going to go for Google, that they're not going to lose share to the likes of Open Ai, and so I'm really focused on that number.
Just one other kind of the inside baseball here. Google doesn't break out US search revenue, so we're not going to get really a clean look at that number. It's just a global number. They do break out Google revenue in the US. It was up eighteen percent in the Just Reporter quarter. It's expected to be up twelve percent
in the September quarter. So if they do better than that twelve I think it's going to be a good view of AI overviews and keep Google investors confident that this company can navigate this seismic change.
Of course, as you know, Gene, we're going to have meta platforms after the bell on Wednesday, And when you look here to date for Meta up about sixty six percent compared to about twenty percent roughly for Google. What are you watching when it comes to meta and the AI story.
I mean, then the bars much higher the plus twenty four the streets looking for I think eighteen percent growth for this quarter or twenty two I should say it peaked at twenty four percent. Growth is at twenty two percent. I mean, it really comes down to their advertising growth and ultimately if they can continue to keep that going, you know, as impacting all their business. Another important factor
is their daily active users three point three billion. I mean, this remarkable number, up six percent year of a year, is up seven percent in the previous quarter. They just keep cranking, and I think it's testimony to how addictive Metas products are just really incredible.
And the stock market agrees with the genius stocks up. You know, it's been one of the best performers of kind of the big tech.
It games, particularly twenty four percent YEP over the past three months, NAZEKX up seven Paul, Yeah, and it's just continued to power forward. And I just I would stress that point that the bar is high from Meta going into this earnings UH trades at twenty four times. But this is just an overall revenue growth story. And Zuckerberg has kind of made the case to investors more recently at their dev day that you know, they're just going to be AI across all of their.
Products and gene There was a time not too far ago long ago when people are worre concerned about the spending at Meta, particularly on the metaverse, what's the thinking now about how management's thinking about that.
Well, they've gotten to pass because the growth is accelerated essentially to a kind of had bottom that right around twelve percent and then accelerated up to twenty four percent over the past year and a half. And so that kind of, as I think, kept investors in a comfortable place. But the spending on reality labs, this is the group that's predominantly working on some form of AI glasses, something
that's more like the ray bands that they have. They're very different than Apple's Vision Pro, but the spending on that group continues to be aggressive, and specifically is that they're expected to lose about twenty billion dollars this year. I mean to put that into perspective is that on a similar type of initiative for Vision Pro, Apple will spend about two billion dollars in development a year. And so we're talking about kind of a ten x magnitude
of investment that they're making. And the answer question, Paul, is that investors are giving Meta a pass right now. I see their aggressive spending in reality labs as a win win for Meta long term. If in fact these wearables do take off with their oryan project in the next few years, then you're going to see some revenue growth and that would be viewed as a positive. And if they don't, if this doesn't take off, they're going to cut spending and that should be good for earnings.
And so, in kind of a strange twist of events, this Reality Labs is actually setting up to be a positive for the stock in the next couple of years when it comes.
To people talking about the AI potential slowdown in growth. But of course there are all those base effects right when it comes to big tech, because in twenty twenty two, obviously there was such a low bar. We were in a bear market. Earnings projections were a lot lower than obviously last year. Once in Nvidia had that gangbuster revenue forecast last May in twenty twenty three, obviously the base
effects were a lot more dramatic. So when you're looking at the kind of year over year growth, the numbers around twenty percent for the BAG seven obviously not quite as high as the average more than thirty percent growth in twenty three, But what do you make of that when you see more of the growth stocks and in the projections for their profit growth coming more in line with the rest of the S and P five hundred next year.
I think investors are missing this. I think that this may be kind of an uncomfortable I believe this is going to be an uncomfortable truth around AI, and what it means for big tech is that this is going to be more significant than what I think. Investors believe.
It's going to grow faster for longer, and I think what you just described agree with all those facts, and ultimately there's this sense for investors that were just one quarter away from some sort of data point that's going to show that AIS the substance is not going to reach the hype, and I suspect that, well, we may get occasional data points that are to kind of the barish case of AI. The overwhelming body of evidence we're going to see in the quarters ahead are going to
suggest that this trend is unstoppable. And that's some pretty high bars I like to be measured in my expectations, but I do believe that these companies, most of them, are going to see growth higher than what investors think. I'm already tuned into the twenty twenty six growth numbers. Most of them for these big companies are kind of in the low teens range, and I suspect that the growth will be mid to high teens.
Gene, thanks so much for joining us. Really appreciate getting a few minutes of your time. As always, Gene Mounster. He's a managing partner. He's a co founder at Loop Ventures based in Minneapolis.
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Custumer competence data came out one away point seven. The consensus was ninety nine point five prior period was revised up to ninety nine point two. So a big, big jump here relative to expectations in the last period. Let's break it down. Jess re checking with Dana Peterson, chief economists at the Conference Board. Dana put this number into context for us. It seems certainly really good relative to what the market was expecting.
Yes, definitely, consumers were on the whole pretty happy in October certainly they think the present situation is better. And also expectations and notably expectations for jobs were positive for the first time in almost a year and a half. So there's really good news out there.
So what do you think this means as far as the direction of the economy here, Well, the.
US economy has been doing quite well, and indeed consumers have been driving it. We saw on the tracking data from retail sales and also from the BEA that consumers are buying goods, they're buying services. That's certainly supporting growth, and we're seeing that finally show up in confidence. Indeed, consumers were getting a little bit worried about the labor market over the summer, but then we had those blockbuster payrolls numbers. Most consumers are seeing their incomes rise because
wages are elevated. Most consumers are working. We are seeing a little bit of layoffs here and there, but again, the predominant sense among consumers, at least for this month, is that they're okay.
How much data do you think is impacted at all by the Fed cutting rates? Does that come into your calculation here?
Absolutely? We have one question where we ask about interest rate expectations, and that measure actually ticked up. And we do have items where consumers said that they're not as convinced that rates are going to come off. But then we did see some who were saying, look, the Fed has cut interest rates. We're seeing a little bit of
improvement in that. So certainly we're going to need more interest rate cuts before consumers pretty come out, probably come out strongly and say yes, we're confident in this rate cutting cycle. But consumers are starting to get out there and buy big ticket items because they're cheaper, not so much because interest rates are lower, but as streets ball, we think they'll buy more cars and furniture, things that they need to finance.
All right, some pretty solid numbers also know the Conference Board Expectations data point came in at eighty nine point one. That's versus revised eighty two point eight from last month. So also in terms of expectations, better than expected. Dana Peterson, thanks so much for joining us. Dana Peterson a chief economist at the Conference Board.
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Jess Meant and sitting in for Alex Steel today, I'm Paul Scoeneyer live here in our bloomergen Director Broker Studio. We're streaming live on YouTube as well. YouTube dot com head there, search Bloomberg Podcast or Bloomberg Live Radio. That's where you'll find us. Speaking of YouTube, what would you
like to hear on Bloomberg Radio? Help make shows like ours even better by taking our Bloomberg audience, Sir, visit YouTube dot com slash Bloomberg Podcasts and click the link in our profile or community sector to take the survey, which is host to buy our partners over at material Fill it out now at YouTube dot com slash Bloomberg Podcast. Our next guest. This is how it's gonna work post.
I'm gonna ask a question and I'm gonna turn off my Mike and John and I are going to sit here and listen and try to get a little bit smarter and take notes and take notes. Neil Grossman. He's a co founder and former CIO of K n G Capital joints us here in our Bloomberg Interactive Broker studio. We're in a suit today. Can remember last time I saw you in a suit?
Neil.
We got a lot of economic data, we got right smack in the middle of earnings. All that's important. But I think since we have you here, I would just love to get your opinions about how you think the markets are digesting a big, pretty big election next Tuesday. Are you when you talk to clients, are you saying, hey, if Trump wins, think this, if Harris wins, think that, how are you kind of positioning all that?
Well? I think there's two levels to this. But by the way, thank you very much for having me. It's a pleasure as always. At least as a start, both of the platforms seemed to be talking about spending a lot of money. So the first question is what's the impact of that on the economy, on the FED? And then you can try and maybe zero in on what
the theoretical differences are between the two. Look, if you look at the economy and where we are and where we've been, I would look at the July September FED meetings and just scratch my head we had functionally two fairly when one fairly weak and one moderate job number job numbers that propelled the FED to what looked to me like they were panicking. And it turned out, of course, with the revision, that that really wasn't the case. So I think where we find ourselves right now is a couple
of things. One, the labor market is fine. There are going to be some real unusual impacts over the next number two because of the Boeing strike and the hurricanes, which really affected a pretty significant part of the population. And I don't know how to read the employment numbers now, but I will tell you this. You know, I think you know my daughter lives in Saint Pete. If you go down to Saint Petersburg and you drive, and the miles and the miles and the miles of people's lives
have been destroyed but have to be rebuilt. There is an enormous amount of money that is going to be put to work in this economy. Forget the fact that we're running eight or nine percent, you know, deficits, which
is historically staggering. The biggest question you might ask yourself is can they actually address the deficits without having a significant economic impact, because to go from a deficit growth rate of eight or nine to back to traditional three percent probably will be a very difficult task.
I've heard candidates promising the world, and I don't know how they're going to fund it. Liz Trust kind of ran into the same problem. Where are the bond vigilantes and all this? You're starting to see it a bit. Look the yield curve. I mean, I think the last time we were on we were talking about yield curve structure and it steepened a lot. Yeah, and I suspect that the long, long, this is one of the problems with the FED did. I mean, there was absolute panic
in the way they did things. And I mean this concept of recalibration to me, it's an awful, laughable world word. It's going to be recalibration is going to become the new transitory.
You know. The bottom line is they don't really know what a neutral rate is, and they certainly don't know what a neutral rate is when we're spending money fiscally like its rain. So if they really wanted to try and ease in and understand the impact, this would have been a very slow, elongated process. Watching in the meantime, what happened They not only cut fifty, but they've sort of promised that they think you're going to be another
two hundred points in short order. And the first thing that happened, of course, is the yield curves started to steepen like this note tomorrow if you really want to look at things. To me, you know, we've the FED focuses on short rates, but at the end of the day, long term interest rates are an indicator and a measure of what you should be expecting for long term growth and how you manage, you know, the investment and capital
allocation decisions. And I don't see any reason to think that if they keep cutting with liquidity or already its just beyond imagination. Stocks at all time highs, very high deficits.
We're still at relatively low rates of unemployment. A lot of the wage settlements have been very large, by the way, I mean the last one, which is and we have not seen most of the government workers union workers ask can you imagine I mean, I think there are twenty five million people employed by governments in this country, which is about one in six. Can you imagine if these if those union workers are going to insist in the same nature of wage agreements going forward. I mean, this can't be.
Handled so, but I mean in terms of the deficits in the national debt. I started working on Wall Street in June of nineteen eighty six. It was an issue. Then it's still an issue.
Debt clock, Yes, it is.
And do you know what do you know what the unfunded liabilities are? Stud of three hundred trillion, which is I mean that's dwarfs all the problems. Yes, and part of that is Look, social Security is going to run out of money trust fund and then that will go on to the budget as well.
So there.
Look, I don't know if there's time left to solve the problems or not. I think I don't think history teaches you that you can avoid reality. And our deficits relative to the nation's capacity are are certainly put causing the seams or may cause the seams to burst. And you know, the sooner you deal with a problem, the less you usually have to do to solve it, and the easier the transit.
But there's just no political there's never ever ever been in political will to do well.
How do you, Paul, how do you? How do you look? I think something on the order of sixty five percent of the of the working populations pays no net taxes.
And since they pay no net taxes.
Yes, when you look at all the benefits and add it all together, how do you tell people? And I have this discussion with a lot of people. I mean, how do you tell them that they can't they're going to lose something. That's a very difficult thing to start with. And then you end up with these discussions about well, you're social Security and Medicare Medicaid need to be cut and they said, well I paid for this, said, well, you really didn't pay for it when you look at
the projections. The problem is you're relying on the future to continue to pay for your problem. And I don't know the answer to this. I think we've missed opportunity after opportunity to address it.
And you know, and again, as john said, I don't hear either candidate talking about that.
Nobody can directly even their problem. What's his name? McCarthy and Mike Johnson, both of them, when asked every time they sit down to negotiate, the first thing they say, or entitlements are sacricient, they won't be touched that's functionally I think. I think the actual number is we historically take in eighteen percent of GDP and traditionally spend twenty one percent. And by the way, that eighteen percent is
consistent across almost every tax regimen we've ever seen. But if you went back twenty years ago, one third of government spending of that eighteen percent was entitlements. We're beginning to push. I think we're very close to where almost every dollar coming into the government is going out in
the form of entitlements, and we're not. You know, so the extra eight or nine percent or above that or you know, actually, I guess it's about nine percent of incremental spending is all deficit funded, and it's going to get to be it's going to be a very painful.
There was a time where you had bipartisan kind of consensus, like a committee Simpson bulls the balls, But I suspect that environment is long gone though.
What was Phil Graham's partner's name, and the same thing, Graham.
Graham, the same thing, you know.
That's the way. I mean, it's sort of kick it down and put it to it some sort of you know, under the counter committee and hopefully you listen.
But again it doesn't.
It doesn't.
Given that dire what do you do in the financing world? What do you do in the economic the investing world? How do you think about it?
Field curve number one. I believe if the FED is going to continue easing, the long end of the Yeld curve is going to be under pressure. How high it goes, that's up to that will be a function of inflation. I do think you're going to start to see inflation in ways you don't want to want to. For example, again the Southeastern issue, used cart prices are already being pushed very high down there, cost of construction materials going high, Probably labor calls are going up in those ways. So
some of the broader pictures. That's not the whole United States, obviously, but there is likely to be cost of housing, by the way. So I think that there is a lot of risks that you are going to see higher inflation numbers over the next six to eighteen months just from that. Now, was that going to be from a two and a quarter in two and a half or is it going
to be from a three or is it two? I don't know, but I suspect that the progress towards lower inflation is going to find itself struggling for the moment.
So what does the Fed do November seventh, here, two days after the election. We probably won't know, you know, who's the one.
I suspect they have more room to say, look things of the data since we talked about this has been well above expectations. We'll see what the employment problem is. The employment data could be really weak, and so they could take say, look that number is really bad, or they could say that number is sort of distorted by
factors beyond our control. My suspicion is as supposed to say that unless you see an inflation rate drop to two percent or below, and that includes a core rate which is still above three, that say, drops the two six all of a sudden. I think they're supposed to say, we need to you know, we've already had a significant impact, and other things being equal, we have time to take
our take our time. I don't know if they feel that they can do that, because I think there are things like stock markets that they worry about more than other things.
And they kind of it's almost like they did set the expectations for it.
But that's the problem.
They shouldn't be setting an expect when they tell you the data dependent, I guess that's you can laugh about it. But when they tell you the data the dependent and the data is up in opposition to what they thought it was going to be, that they're supposed to, you know, take a step back and try and understand what they were doing. So I don't know what they do, but I suspect given all the current data that nine months from now, whatever you thought there, we're going to be
in the absence of a significant change. They're going to be harder than what you thought at the front end, and they're going to be harder than what your thought at the back end.
All right, Neil, great stuff, as always Neil Grossman. He's the co founder and he's a former CIO of k n G Capital. Coming into our Bloomberg Interactive Brokers studio. Just give us some thoughts here as we parse out this market.
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Let's look at crude oil here. We've had a kind of a de risking of crude oil in the last week or so, I guess on the backs of Israel's retaliation against around was a little bit less than expected, maybe dialing down the tensions a little bit there. But whenever we talk about global oil, we want to talk to Ellen Wald. She's a president of Transversal Consulting. Ellen, what do you make of kind of what's happening the
global crude oil prices here? Is it's simply kind of taking maybe a little bit of that geopolitical risk out of the price of oil.
Yeah, that's what I think we're seeing. At least yesterday was quite the day for de risking. I think it's Israel really made a very concerted effort to let people believe that they were about to attack Iran's oil production and export infrastructure, and it seemed that the market was really taken with this, and there was definitely.
A lot of talk about, you.
Know, Israel potentially doing this and the effect it might have on the market. And so I think that now that that risk seems to have passed or at least been postponed for a while. We're seeing oil prices really come down as a result.
I do think that that fear was totally misplaced.
I think Israel cultivated an image that it was going to do this, even though the likelihood that they would do that was actually quite small. Also for people who didn't actually think that that this was going to happen, there was definitely the possibility to kind of ride this in in an interesting way. But now that we're past this you know, kind of hump at least right now, Uh, there's more of an opportunity for the supply and demand issues to you know, to come to the forefront.
And I think that's what we're seeing in oil prices now.
I'm glad you brought up supply because walk us through how oil traders are really split right now and whether OPEC will hike supply in December.
Yeah, this is I think the really big issue that you know, oil traders are looking at now because OPEK has already you know, pushed its plans off once they made they set up this, this whole plan for these very gradual increases, they set it up, they announced it.
They've given the market ample time to get.
Used to this, and yet we're still seeing it being pushed off and pushed off. Initially, OPEC's forecasters had a much much more optimistic picture for what demand was going to look like this year. I think then other people did and they've really had to trim that forecast for for demand growth back. And so as a result, the group has pushed off its planned to increase production and
to implement this kind of gradual plan. They already pushed it off, but they're set to start doing this December January, and so, you know, the big question is now that demand is looking pretty weak. You know, we're still waiting to see what's.
Going on with China.
Is the group going to you know, make another another push it off again? And I think that's a really big question. There definitely seems to be a split. I think OPEK itself doesn't know. They did recently issue a revision, a downward revision in their forecast, which could be an indication that they're setting things up for another uh, you know, another uh to push it off again when they meet in December, but you know, no one really knows.
So Ellen, you mentioned China, What is the feeling about demand coming out of China here, it's I guess in the margin it's been weaker than expected. Is that something that the market things could go into next year.
I think it is at this point.
It's very interesting because there's definitely a lot of skepticism about demand.
At China where it's going.
What this stimulus plan that they've been talking about, is that really going to actually result in higher demand? Is that really going to provide the kind of economic stimulus that is needed to really, you know, push oil demand higher. I think that there's a lot of skepticism about that. What's interesting, though, is that the CEO of a Ramco recently spoken he's much more optimistic about demand from China.
I think that that may impart come from.
The fact that he's very much focused on crude oil products and petrochemicals as opposed to just straight crude oil demand.
The market has been very focused on.
The diesel the distillate demand in China, which has been rather rather disappointing, whereas I think he's much more focused on the petrochemical demand, which he sees as growing as opposed to just straight crude oil. Which is why there's kind of disconnect between what a Ramco sees for China and maybe what other forecasters are are looking at for China.
As you know, especially when it comes to looking what oil could mean for the trajectory of the global economy. I mean, just looking right now, the Atlanta fed GP model just got updated. It's actually for the third quarter to two point eight percent, revised slightly lower from three point three percent recently as well, but still nonetheless it's been trending higher over the past month as we get
more of the third quarter data coming in here. But when it comes to OPEC and if whether or not they push again off those plan increases, what do you think that could translate when we're looking kind of more globally and especially US economic growth.
Yeah, I think.
It's it's really a big question right now. You know, I don't think that you can't say, you know, it's not bad economic growth. We're not you know, we're not in a depression. We're not we're not seeing things go backwards. But it's just not the kind of growth numbers that we were expecting, or they that a lot of people were expecting to happen. I do think, you know, growth is cyclical, you know, there are these cycles and you know, it's not like this is, you know, kind of the
end or anything like that. There's still a lot of opportunity for growth out there. I do think it, you know, depends on where you're looking, what indicators are looking at. Different sectors, you know, are experiencing different different issues right now. When it comes to crude oil, I do think that we are seeing a big shift to increased petrochemical production and and so there's a lot.
More crew that's going to that, and also.
A lot more natural gas feedstuck that's going to that as opposed to just straight crude for transportation fuels. And so I do think that that we're seeing this as a shift and a change in the market, and so we need to maybe look at the numbers a little bit differently than how we were looking at them previously.
Ellen, how's the US or the North American oil producer behaving these days, mournering? Are they are they supportive of the market or are they, you know, drill baby, Drill's what's going on with the North American supply source.
That's a really good question, especially because there's a lot of speculation about kind of the fracking industry starting to fall off, the production is gonna you know, start to decline or at least a second grow. We're really at a high point right now. I mean we're we're having massive amounts of production. The US is the largest producer in the world. You know, the question is can it go higher or should it go higher?
And I think that US crew.
To oil producers are at a very different position now than they were two years ago, three years ago, five years ago, certainly, And so there's a lot less emphasis on you know, we need to drill, baby drill.
We don't need to drill, baby drill.
We've got much more complicated production techniques that can get a lot more out of every well. So there isn't a need to necessarily drill new wells all the time in order to produce those barrels. And I think that because of the map amount of consolidation that we've seen,
they can be a lot more strategic about it. And so, no, that doesn't mean the US oil entry is abst to follow a cliff, but it does mean that they are making more strategic decisions about production and how production is going to come online, when it's going to come online, whether it's worthwhile and that can maybe look like fewer wells being drilled, but it doesn't necessarily mean that, you know, we're about to hit a cliff and production's going to necessarily decline.
Hail.
Whenever you're talking with oil traders, what are some of the key sort of technical levels they're looking at, whether it's a WTI or brint well.
I think that there's a lot of discussion about, you know, okay, what's the point that wt t I has to hit when it's going down in order for the US to start buying barrels to refill the SPR, because that has definitely resulted in some you know, increasing in the price today. Just today the US said, oh we'd like to you know, we're thinking about buying some more oil for the SPR, and the prices go up.
So there's there's.
Certain it's there. I do think also that there's this indicator for Opek. You know, Opek wants you know, ex price per barrel and they're going to do whatever they have to do.
To get it.
I think that that's that's not necessarily the case.
I do think that Opek and certainly Saudi Arabia would love to keep Brent around eighty dollars a barrel.
But I do think they realized that they may not get that, and they're willing to work with, you know, within the confines of what they can. But there's certainly this idea that they'd like it to be a bit higher. They'd like it to be more closer to eighty than seventy.
Ellen, thank you so much for joining us. Really appreciate it, Ellen Waller. She is the president of Transversal Consulting and a Senior Fellow at the Atlanta Council. Joining us via zoom talking about global oil.
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This is a story I've been wanting to read for the longest time. In chess. Men's here sitting in fra Alex Steel and Paul Sweeney, Triple A bonds go bust and revealed depths of US office market crash. This is exactly what I've been waiting for.
We're all about the office.
Yeah, and I just looked down Third Avenue and I say empty, empty, empty, half empty. Somebody owns the mortgages on those things. Yeah, it's gonna have to come home to roost at some point. Carmen Arroyo and her team at Bloomberg News. She's a credit reporter for Bloomberg News. They have this story out here today, Karmer, what are you finding on some of these bonds that were triple A rated, which means I don't have any real risk here?
What's happening to some of these real estate backed bonds that were triple A rated?
Sure? So in May we saw the first triple A bond commercial mortgage, triple A bond being hit backed by a single office property, and then we started like digging into basically the data to see what other buildings could get hit. And the results there's a few a ton of Like the office properties across across the US have been distressed for years. It just takes a long time for that to reach bond holders, and now it's starting to get there. So we kind of like analyze the data.
We saw at least like twelve other buildings are said to have some type of loss some will be at the TRIPLEA level, some will be just the investment grade portion. There's definitely a lot of more pain to come.
Which regions across the US are most vulnerable.
It's all over, It's all over the US. Actually we saw there's buildings in New York, of course, Chicago, La San Francisco, but there's also buildings in Kansas City. Like it's it's kind of everywhere.
But if I'm holding a triple A bond, I expect to get paid back here. So what's happening to these bonds? Are they coming up for maturity and then the owner has to refinance the bond or house this soft playing out?
Sure, so every triple A bone holder thinks they're going to get paid back. Actually that's why you buy it. But they, like a lot of these buildings have not been receiving interest on the bonds for a while, and the minute like the presoul's drop and kind of like the owners of the buildings get rid of them or like sell them. The losses are realized, and the gist of it is that the buildings are worth like a fraction of what they were worth like a few years ago.
So there's just not enough money to pay back everyone, not even the Triple A holders, and that that's the whole issue, Like the real estate is just not worth it.
When you're speaking to triple A bondholders, what are they telling you as far as why they might still be holding onto that and what's the risk reward.
I A lot of the Triple A bondholders will get some money back, like the lower trenches won't. And I'm not sure if there's some market for that type of like those type of bonds at the bit they may want them.
And I'm looking at I mean, you have a big take story, which means it has great graphics in addition to being well reported, well sourced. Some of these buildings, I mean New York Chicago, Las, I mean five fifty five West fitth Street, seven twenty five South Figaroa. I know that building. But these things are being valued at significant discounts, right, and some not even covering the amount of the outstanding loan. So that's where the that's where the problems come in.
Yeah, that's the problem. And it's also like a lot of those buildings depend on one single tenant. So the minute that tenant's like, look my lease is up, I'm leaving. I want a newer office. This building is really old. The bond's just shoppen price because that's where they're getting the income.
I think anytime it comes to anything revolving around real estate, as we know very well, people want to harken back to the global financial crisis in two thousand and eight. But this is a very different situation, especially coming out of the pandemic, and talk to us more about how this is a very small subset of the bond market when you're looking at this.
Yes, definitely, like there's definitely some type of eco to the like similar to the financial crisis in the sense that like you don't really see losses on the principal level and triple A bonds like that hasn't happened since oaight. But again, like it's just a few bonds with the commercial mortgage backed securities market.
Right, So when you're speaking with your sources, I mean, what are the risks of other broader ripple effects or any sort of other red flags potentially brewing. And then maybe the off side of that where there's more optimism of what could happen.
Yeah, I think like the risk is mainly for any building that's old like and that the tenants are walking, there's going to be issues. But if any new building that, like you know, has a great reputation has a lot of tenants, like there's that market is kind of booming like right now in new issue markets, like buyers are like just gobbling up the dead like, So it really depends on the building.
I used to work in one of those buildings in the Garments Center.
Really and talk about old. The elevators would break down at least once a week, and the elevator, the shaft, the gears were all made out of wood.
Did you ever get stuck in one?
Oh?
Yeah, all the how long were you?
Oh?
I don't remember. Ago Fly had some beers with us.
So find back in the day karma. Is there any sense from your reporting that the office real estate market is at or near bottom or is anybody calling that or too?
Yeah, a lot of people are calling that. Like when we start to see the office buildings get sold, that's that's where we've reached the bottom and then everything is going to go up.
Is there a time period timeline as far as how long that could take.
Yeah, it could take a long time because the leases are so long that tenants may be locked in for like years, but most people are saying it's between now in the next few months.
Wow.
Interesting because you know there's some iconic buildings here in your thing. I mean, six hundred California Street in San Francisco, fifteen hundred Market Street, market in Fifteenth Street in Philly. These are some big ones. The Aon Center, which was the former Sears Tower in Chicago. Look at it, I mean, basically half of it's underwater, so crazy, crazy stuff there. We knew it was coming, but you just somebody's gonna
have to pay, unfortunately. Carmen Arroyal credit reporter for Bloomberg News, joining us here on a Bloomberg interactive broker studio. You can read story and more stories from Bloomberg on at the Bloomberg Terminal and at Bloomberg dot com slash Big Take again. The Big Take stories come out every day from Bloomberg News. They're deep dive stories into really compelling stories, deeply sourced, deeply researched, great graphics, and we just love highlighting them whenever we can.
It's a great read.
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