Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moven news.
Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. Let's head down to Washington, DC. Nathan Dean. It's his task to follow and analyze all the shenanigans coming from our good friends in the halls of Congress. He's a senior analysts for US government for Bloomberg Intelligence. So, Nathan,
you're joining us by zoom We appreciate that. My question is is this government going to be able to fund itself or we're going to get a shutdown at the end of this month. Can you give us a timeline and kind of where we are here?
Yeah, so you know, the government's only back for you know, eight to ten days, you know, working days until this deadline of September thirtieth. And like you said, you know, we it's highly likely that we're going to end up with a government shutdown. Now, whether this is a thirty day shutdown. Look, under President Trump's administration probably not be the case.
You know.
The Speaker McCarthy says that he wants to kick the can to early December to give more time over negotiations. But the note that we just put out on the terminal this morning essentially states that if you do have a shutdown, both markets and defense contractors shouldn't be all that concerned. You know, during that thirty days shutdown under President Trump, the markets didn't react all that well in
the first couple of days. But then once realized, once people realize the economic you know, impact isn't all that great, markets pretty much just moved beyond. Same thing with defense contractors. If you're Boeing or you know, raytheon and so forth like that, you know your contracts are already funded in.
They're funded in on a long term basis. So the real big impact for a government shutdown, if it lasts more than a week or two, is that folks like me in Washington, DC can't take their kids to the zoo.
Well what about federal employees? Will they still get paychecks every two weeks or however that works. I mean, if you work at the euro of Labor, and statistics putting together the CPI, for example, are you still going to get paid?
So what they do is they deem employees to be essential and non essential. If you're an essential play it's about fifteen percent of the US workforce.
Obviously, that's right, people.
Only fifteen percent of the people that we employ are essential. Everybody else we could do without exactly.
So.
But you know, what's what's happened in the past is when the shutdown is over, the Congress will actually pass a resolution or pass a bill that provides retroactive back pay. So if you're shut down for a couple of weeks, obviously that's not going to be good if you're living paycheck to paycheck, but you will get that pay back.
That is not the case for smaller contractors.
So if you work for a contracting agency and your agency, you know, decides to shut down all of a sudden, you're not going to get that pay back unless the contractor and self pays you back.
You're not going to get any recourse from the government.
You know.
I should also note that, you know, even though I took light of the situation with the Zoo, certain things like economic releases BLS, you know, so forth like that those eventually could be delayed, which and then also could cause some you know, can fusion and disruption to the traders that are relying on that information.
Well, what about these things you guys, don't Washington DC called continuing resolutions or cr can't we use one of those thing that jigs?
Yeah?
Absolutely, And that's what I think is gonna happen here. You know, the Approachriate appropriations process is a twelve bill process, and they've only got an agreement on one. They have to pass eleven essentially in the next month. So what they're gonna do is they're gonna hit this continuing resolution.
The challenge is is that Speaker McCarthy has had several people in the House Freedom Caucus just say, look, I'm not gonna vote for any continuing resolution unless you do fund the FBI or you you know, implement any of these policies. That has no chance whatsoever with President Biden in the Senate under Democratic control. So what's gonna happen here is Speaker McCarthy's in a hard place. He's got to figure out a way to pass up continuing resolution
probably to early December, maybe next year. But probably early December using Democratic support, and that's just something that he's not gonna be able to get to until the last moment. So you're looking at either a shutdown will occur, you know, I'm guessing less than five days, but you know, negotiations are gonna go way up to the high wire and you're gonna see constant headlines over the next two to three weeks of shutdown inncs, shutdown angst, and more shutdown ancs.
It's just kooky to me how much the far right and the far left have in common. You know, the lefties wanted to defund the police and now the Freedom Caucus wants to defund the FBI exactly. I mean, do we not need law enforcement in this country?
I thought the FBI were the good guys, all right? What else besides the shutdown is Congress focused on here we go. They're gonna actually work for a solid eight days. Good for them, But what else do they have to get done here?
So you know, you're gonna see a lot of negotiations or at least you know, we've heard the House Financial Services Chairman Patrick man Henry say that he wants to try and schedule a vote on crypto legislation, I'm not sure, and many of that's gonna get there in September. I mean, you have to reauthorize the FAA. The Farm Bill expiration is also in September thirtieth, So for the rest of the month, you're gonna see a lot of people try.
Things, but it's going to be focused on this government shutdown.
Now.
One thing that came out last week that was interesting is that Bloomberg News reported that the Department of Health and Human Services is going to recommend changing marijuana from Schedule one to Schedule three.
We are good, you know.
That is a big deal for the marijuana industry, and so we're gonna be looking to see what steps come from the DEEA. They are the ones that are gonna have to make this decision, and really we're looking to see if they get this done in twenty twenty four or is this going to be a multi year process. That's really key for the marijuana stocks.
Schedule one drugs include like heroin and Fenton myl and that's where marijuana is, and that's that's where they have had weed for decades now, you know, because you know Item nine, all right, So that's something that's probably not gonna happen salt, any any movement on salt at all. Nathan, I got to always ask ask you the state and local tax deduction question.
Yeah, you know, I hit my phone always before these hits to see what's gonna happen with the salt folks around town.
But this is laying the work.
Look, the salt deduction is going to expire when the Trump tax cuts expire. That's not going to be that's actually coming up fairly soon. But this is one of those situations where you have lawmakers from New New York and New Jersey going out there and saying, look, we're going to fight tooth and nail to try and get salt back. I mean they're even saying we would just
love to take a pinch of salt. But ultimately what's gonna happen here is if you're going to you know, the salt deduction brought a lot of money back to the government, or getting rid of the salt deduction brought a lot of money back to the government.
That is money that can be used elsewhere.
And there are a lot of lawmakers like, ooh, we like this New York New Jersey money.
We can use this for something else.
So we're just I think the New York and New Jersey lawmakers, the Salt Caucus, if you will, are just planting the seeds so that when these negotiations come back closer to the expiration date, you know, they can fight tooth and nail at that point to get some relief back to the you know, the the homeowners of the New York City area.
Is this is this yet another issue on which AOC and Marjorie Taylor Green or in agreement.
You know, this is going to be one of those issues where it's essentially New York, New Jersey, California, and Illinois against the world against everybody.
All right, all right, I understand we've got some generals and some admirals that need to be approved for senior leadership positions. I thought this stuff just gets done like rubber stamp. What's going on?
So this is coming out of Alabama. This is Senator Tubberville, you know, coach, you know, of Auburn. He's actually holding up these promotions in response to a federal policy related to abortion. And this is a classic standoff between the White House and one senator. And so you know, we've seen statements from Bloomberg News, you know, their interviews with other Republican senators. They wish that Senator Tuberville wasn't doing this. But this is just a standoff that's going to continue.
And you know, we've seen other statements from both the Department of Defense and so forth that you know, American security could be harmed.
But I don't think we've seen any end in sight.
Both sides are pretty ducked in and so this is just one of those is where I'm not exactly sure if there's a resolution anytime soon.
I mean, poor Nathan Dean's got to analyze and focus on Congress like for a living.
Yeah, that is, and a lot of other stuff, right, I mean, the Washington DC. The weed decision doesn't come from Congress. That's first gonna come from. Who's the weed decision come from? If they push it back to schedule three d DA?
Right, the DA? Yeah, all right, he's got.
To watch all those agencies. He's gotta be careful.
You know, the FBI might be defunded, yep, exactly.
Who knows? All right, Nathan, it's your you got to deal with this stuff. We appreciate it. You're demand Nathan Dean, senior policy analysts. He covers all the US government stuff for Bloomberg Intelligence. He is our go to person for all you know, kind of how the sausage is made down there.
With you're listening to the team.
Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
Let's talk global economics year. We're gonna got it from China, might head over to Europe. Who knows where else?
Will go?
Eddie vnderwaldt you can go anywhere. He is a deputy Managing Deputy Managing editor of Market's Live team from Bloomberg News. I want to as him about bitcoin first.
So Eddie is an expert on crypto as well. And Eddie, you know, I was off last week, but I still read the news and I thought it was so exciting for crypto when we found the Grayscale SEC decision overturned by an appeals court. So I thought, man, this is great news. Bitcoin spot, bitcoin ETFs are happening. I'm sure that the underlying ASCID is surgeon. I come back in this morning to see it under twenty six thousand.
What gives Bigcore.
Really is struggling, And it's really fascinating to see this happen, right because not only did you have that, you're also coming towards the harving of supply next year. Every four years or so, they have the amount of output in the amount of coin. And if you see that, you also see an ETF launch bringing in more retail investors, making it easier for people to invest. Bitcoin really should be garnering some momentum going into next year, but it
just isn't. And I think part of the reason is that we are seeing higher real interest rates, right, We are seeing interest rates pushing higher, and therefore, you know, people probably don't have as much speculative money lying around yet are there speculative assets like you know, your your bids on Nvidia and so on are really doing well. So maybe it's a case of not so much that you know that that people don't have the money, but but perhaps a little bit more that they that the
AI story has taken the shine off of cryptocurrencies. I think AI is the new shiny thing, and that's where investor money is going.
That's interesting take and thought about that, but that probably makes a lot of sense. All right, Eddie, let's I want to just go to China here. How concerned are you? How concerned should the global economy be about just it seems like day after day, you know, kind of disappointing economic data coming out of China, weakening data coming out of China. How do you put that in prospective?
Wait?
I thought they were finally giving a stimulus, were now stick giving money to parents of kids and kids of parents?
Yep?
Yeah, And look it's it's been this machine gun of stimulus literally the way you know, day after day you're coming in and you're hearing more and more more stimulus coming towards the Chinese economy. And yet today when the moment we got in a little bit of bad data, we got that pm I numbers showing that the services sector is slowing down, which we would think would be something that would would lead to further stimulus in China.
What do we see We see the market actually reacting, you know, to the downside and saying, well, this is bad news in China? Is everything that is bad?
Now?
You ask how, you know, how does it play for the world economy. It's bad for the world economy. It says something bad about the world economy. It says that we are not buying Chinese stuff and we're not exporting it elsewhere. But it is very bad for Europe, right because it's it's you know, and I think that's why we saw Mercedes Benz perhaps you know, reacting to the downside today, even though they've got this fairly positive story vis A Vitesla. And the reason is that a lot
of their cars go to China. A lot of the high end equipment that's manufactured manufactured in Germany, and a lot of the French luxury goods go to China. So if they are not spending, if their services sectors lows down, that's real trouble for Europe.
I will say Ola Hellenius is now a little bit more. He's not as bullish on China as he wants. They have a great story, the CEO of Mercedes Benz on the terminal, even though they have you know, a concept car that has long range. Any takeaways I mean you well, my takeaway is that GM already has that kind of range, you know, the Cadillac Escalade IQ or the Silverado ev they already have.
Four h fifteen miles of range.
It's great to see it in a smaller package. And I think it's cool that Mercedes is doing it, but they're not as bullish on as they once were. Also, the pm I data on China, this is backwards. If they come out on Sunday or Monday and say, hey, we're going to give money to everybody with kids under three and everybody with parents over three, you know, and we're going to cut the foreign reserve requirements at banks from six percent to four percent. So that's all spec
this will stimulut of going forward. Why do we care so much about the backward looking data release?
Yeah?
Absolutely? And and you know, so the PMI number being focused on the services sector, which is more important for the Chinese economy than the manufacturing, is because they want to put it away a little bit towards the services sector, right, So I think as long as we that should be a net positive because it should mean that they are more likely to deliver even more stimulus if more.
Is needed down the road.
Right, it shows that this this hurts the part of the the part of the economy that they're most concerned about is under pressure, and as long as that's the case, you know, stimulus will keep coming.
But I think that.
Drap the machine gun, eddie and grab a bazooka.
You know, right, absolutely, But but but this, And you know what, if they did bring the bazuka, if they did say, hey, here's this massive stimulus package, all of these things that we've talked about over the last few weeks and they delivered all of that in one day, the markets would have said wow, shock and awe, and would have responded accordingly. But because it's a kind of drip feed, it just doesn't have that momentous feel to it.
But I do think that this is more of what we're seeing today is more about reading what the market sentiment on China is than about what the outlook is, because I don't think the outlook has changed today. What you're saying is true, right, The PMI data is slightly more backward looking than the than than the fresh stimulus. But we are we asked, we are seeing something about the market wants to be negative because the market doesn't buy the China story.
At the moment.
Well, I mean, one of the things that I think we're trying to get a grip of is how bad is the real estate issue and the financing and of the real estate economy and China? How bad is it? How bad could it get?
Yeah?
And it is really bad? Right, And I think most of the stimulus has been targeted at that sector. Now, we had a Country Garden, which is one of their big property developers, who was very much distressed and still owes something like one hundred and eighty seven billion dollars
worth of outstanding bonds. Now they met payment on a part two of their outstanding bonds today, but still you know, several billion are coming due in the next few months, and it's unclear whether they'll be able to meet most or any of that. The market currently pricing their bonds at something like, you know, nine cents to the dollar or fourteen cents of the dollar, depending, But you know, so this is but the authorities have targeted a lot
of stimulus at that sector. What is interesting that they've done of late is that they pivoted also to things like the stock market. Right, So clearly stimulating the stock market by removing some of the costs and some of the taxes a social with that, and if you see the authorities really targeting the stock market. It tells you
something about what they want to do to sentiment. It tells you something that they you know, when they're targeting the building sector, that tells you something about what they want to do to the economy when they when they're targeting the stock market, it tells you that they really worried about sentiment too.
Hey, Eddie, you know everybody, I know, it seems like with a notable excession of John Tucker vacationed in Europe this summer, what's the economy like in Europe these days?
Yeah, it's mixed, right, I mean, Europe is slowing down, no doubt. Europe is struggling.
At the moment.
We're seeing our manufacturing you know, deep below below fifty and on the PMIS, and we're seeing now with the latest revisions that we got in today, numbers in Europe have all been below fifty. Europe has really been struggling and it just hasn't been able to get gain that traction. Now, the situation in Europe is a little bit a little bit different from the from the from the US. Whereas the FED has a dual mandate growth and and inflation,
in Europe, the central banks are supposed to be. The ECB is supposed to be focused on inflation, and that means that that that that you know, they're probably putting more pressure on the economy than they would have otherwise. Now, whether they will keep that line if they, you know, coming to see real trouble, real structural trouble.
In the Eurozone.
None of that we're seeing yet. But if that's the case, I think, I think the ECB will will start to rethink their policy despite inflation.
Right, I don't know. I mean all those us I mean vacation dollars being spent in.
The y Well, hotel prices are very high. You know, restaurants have been able to get a high ticket price.
All right, I stayed on the Jersey shore. Did just find Eddie vanderwallt wut Managing Editor of Markets Life Team at Bloomberg News. Next so much.
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In September's we head towards the end of the year. Part of that is the IPO space, and there is one of note that recently hit the tape. ARM is coming up with a big IPO, so let's get the latest on that. Bailey Lipschal Tease covers all the markets, including IPOs and spin offs and all that kind of fun stuff, and for a time they're even SPACs. He does that stuff for Bloomberg News. I'm psyched about this conversation. I know, well, I've got a lot of questions heare me.
First of all, ARM, what is ARM? And tell us about the deal.
ARM is a chip designer, so they essentially sell chip blueprints to customers like Nvidia, AMD, Apple, you name it, Samsung. So when they sell a chip, they pay a royalty fee to ARMS. So ARM they can just pulls together those royalties. It'll be it's expected to be, based on the term they laid out this morning, the largest IPO on a US exchange since Rivian in late twenty twenty one, so large than ken View, which was the consumer health spinoff split off from J and J earlier this year,
which raised about four point four billion dollars. So ARM expected now to raise his up to four point eight seven billion, But we know, uh, that'll probably get higher, just based on how most of these ipeos go.
Right, you got to add in the green shoe eventually. I don't even know where I say that.
You know, we have to. We didn't.
We weren't used to be able to write that. Oh really it was too jargoning.
Anyway, it doesn't matter. I've been hearing a lot of people today say ARM wanted to raise more. Now Arm's gonna raise this And the fact is, I imagine ARM isn't gonna be getting any of this money, right.
ARM doesn't care. ARM is just a pawn for soft Bank. Is that right? That's one way to put it.
ARM is any is any are any of these proceeds gonna be invested by ARM?
No, it is.
Soft Bank is selling about a ten percent.
None of the shares are primary shares, they are secondary shares.
Is kind of so and and and and soft Bank recently bought twenty five per percent of ARM from the Vision Funds, which Sauce Bank owns. So soft Bank, at a higher valuation, took out a quarter of this company from a fund that it owns why.
The view from the street and the view from soft Bank is that they wanted to have this all under one umbrella. When you look at the terms laid out in the filing as it detailed, that sixteen billion dollar deal buying back that twenty five percent stake held by its Vision fund was part of a bigger switch up, so not really clear kind of what was real.
Well, they were like, we'd like to hold this all under one asset that we own rather than spread out, and we're gonna punish ourselves by paying a price much higher than it's worth. I don't buy that, Bailey. Are there other people who have stakes in the Vision Fund? Because it sounds to me like soft Bank is trying to pacify some of these other shareholders that have been walloped by huge losses.
Yeah, that's the way that you could. The Cynic or the Matt Miller view is that you're basically satisfying those LPs. Okay, because it's just never explained, right.
We always say, oh, SoftBank bought twenty five percent of ARM from its own Vision fund, and then we move on and the rest of the story and never say why, which is like what I will say that My favorite thing on social media was the spider Man meme where was pointing at each other and it was kind of like arm Vision Fund one and Masa Son basically like where this money is moving from one fund to the
other fund to satisfy the underlying investors. But nonetheless it still will be a massive IPO key for the overall IPO sentiment, all things aside, which I know there are a number of skeptics as it relates to SoftBank, given the history of investing Big Road, the Big Wave with Ali Baba, but had more underwhelming IPOs, the likes of Uber obviously we work as one that comes to mind, and a number of other investments that went public Viaspac that I wrote about quite.
A bit when the well and not just soft Bank.
I mean you said yourself, this is the first IPOs and Drivian how'd that go for investors?
So, I mean it's from the office question, No exactly Rivian. Rivian looked quite a bit like Vinfest where just pulling up the chart on the old terminal priced at where did the price at? I mean, was trading up got up to?
Right now?
It's at twenty three bucks?
All right?
All right?
So here we are with arm Every underwriter based on Wall Street is on this deal.
What's that?
What's up with that?
Pretty much everyone except for Morgan stands okay?
Which liable exception.
A notable exception. It's interesting, a lot of that being kind of the view in my colleague game you will report on this. The view kind of is that if you've done business with soft Bank in the past, whether it was related to loans or other kind of your basis,
you're getting cut in on the deal. So when you look at those big four banks that are leading the IPO, you've got Goldman, JP, Morgan, Barclays, and Mazoo home Zoo obviously a little bit surprising, but based in Asia relationship with soft Bank, that's all kind of where the comes.
So let's look at ARMED company and the fundamentals of the company.
It's not growing, no, it's actually slowing. It is more and we wrote about it in.
A few weeks.
Chip company aren't chips and AI kind of the thing.
This year, but they're so heavily based in smartphones, so smartphone sales have been weaked.
So this is not an AI play.
They're pitching it as an AI play, but it's still a question of how that fits in and what kind of premium will be baked in. Analysts from New Street kind of laid out their expectations that this thing could be worth, you know, eighty two billion dollars in three years, which is quite the pie and the sky view. But when you look at kind of as you mentioned, the
underlying growth has slowed. It's pretty much flat year over year based on their last annual sales, pointing to the global semiconductor kind of glut that we've been working through. They are exposed us to smartphones and home devices and not quite yet really penetrating that AI.
So the pitch when they go on the road, the pitches we're a chip company for the phones, but we are going to be an AI chip company in the future and that's what you should be buying today exactly.
And they're pitching it as we're getting into data centers, which we know with Nvidia has been so lucrative and is where a lot of that money comes from. So that's kind of the view of yes, we've done smartphones, but this is where it.
Was not a clean deal. I mean, they got to do some heavy lifting here, which it just feels like cause I got slow in growth. I've got to buy off on this leap towards AI, which I don't really have much in the in the numbers right now, you know, I can't really look at the as Matt was pointing out, the soft Bank valuation, because that's probably not a good comp even though it just happened. So there's some headlines it just happened.
The soft Bank valuation was for like sixty four billion, right yep, And they're going to come to market at what kind of valuation.
Fifty four and a half right now as the current high end.
Yeah, that's that's crazy.
Well, the other risk that a lot of investors have pointed out is China. They generate about a quarter of their revenue from China through a ARM called ARM Technology, which isn't actually controlled by ARM or soft Bank, so it's kind of this standalone subsidiary with arms shareh So there is kind of a bit of a headwind not only with pitching that future vision, but also exposure to.
All Right, so what's the timing of this thing is There're gonna be a traditional road show and September thirteenth, right, road shows kicked off, Okay.
So we're gonna see about a week long road show pricing expected post So.
They're not doing any virtual stuff. They're going the rubber Chicken in New York and London and so on.
So what we're hearing, we're hearing there hitting the road, no more, no more zoom calls. So interesting to me.
The more interesting IPO talk is around a Ramco, even though it kind of comes and goes. They could do not an IPO, but they could raise I guess in the secondary another fifty billion dollars.
Wait, So a Ramco's talking about doing more stock.
Well, I saw a story in the Journal, sorry Bailly, a couple of days ago that said A Ramco may come back to market now. To be fair, they in the Journal, I think, cited another story from Bloomberg back in March. Well bred story comes and goes, but it could be a massive.
Capital race with brinkrud at ninety bucks a bottle I issue more stock, wouldn't you?
They really want to.
But the thing is they can't do it on other exchanges because they don't want that regulations.
They have to do it in riod.
Yeah, that's definitely an interesting, interesting company and kind of that the prospects of raising cash. Obviously there is kind of the push. Broadly speaking, for Saudi you're able to diversify, and that's why we've seen.
All big numbers that would be the biggest amount of money ever raised selling shares, right, I mean stock is the biggest IPO is like ant Group or something, right, Yeah, like thirty four billion.
Yeah, all right, we got so, we got so from your perspective, we've got ARM. How's the rest of the calendar look In the next four or five six weeks.
We've got Instacart. Expectations will be bubbling. They filed their S one a few days after ARM, as did Clavio, which is another tech company. So these are two real tests of what IPO demand will look like. When I talk to a lot of investors in bankers, they kind of see ARM as a one off, just given it's a big company, it's profitable, it's was public at one song, whereas now you have Instacart hasn't been public, was really expected to go during the pandemic, but has taken quite
some time. In Claviyow, which is another one which will be closely watched just to see how investors are valuing some of these technology companies, especially those that are primarily owned by venture capitalists, again as opposed to SoftBank, take private, bring back public.
Yep, all right, lots of stuff. Bailly, thanks so much.
Just stop it in.
Billy Lipsholt season markets reporter for Bloomberg News, bringing us the latest on the deal calendar. One of the notable names is a Ramca is arm arm so that that chip maker, so be inchating to see how that plays in this market.
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All right, we were talking about oil again, Brent. I'll just quote the Brent stuff, ninety one dollars per barrel. It's up two and a quarter percent. I don't know what's going on. I guess it's supply and demand. But let's bring on Fernando Valley. He knows what's going on because we pay him to know what's going on. He is the energy analyst for Bloomberg Intelligence. Fernando, is it just the SADIS and OPEC buddies talking tough. Is is that what's driving this crewe to oil higher.
Well, it's been a little bit of a better demand improvement, and then people like you, Paul, who think we're going to have a soft lending and lower interest rates creating some momentum behind oil, which frankly, I think is a little misplaced considering that the Chinese real estate market continues to deteriorate. And I'm with Matt, I think that the higher interest rates are here to stack.
The Chinese did start a little bit of stimulus, a little bit more, I.
Should say, right with.
Foreign reserves cut at their banks, and they're giving money to people to pay for their kids and for their parents. And it's been this, as Eddie Vanderwold said, kind of a drip drip drip of stimulus. But is this part of part of the run up in the oil price? People think China's going to come back?
Absolutely China. I mean China has come back, and in a lot of ways. If you look at just their imports, they are much stronger than they were during the COVID zero policy in twenty twenty two. But even then, we're seeing some declines in the US inventories and global inventories, but we're not seeing the pace of demand that you would expect in an oil bull market, especially in the
Western hemisphere. And then you know, we can talk about how higher rates are going to affect investments elsewhere, and then the employment picture. All of those will be the ultimate determinant of oil for the remainder of the year, and we see cracks in that window.
But I think in the short term it's.
Been as you mentioned this, Muli, the supply cuts, Saudi extending supply cuts to September, and then some positive momentum on the US inventory sign.
So, Fernando, how about our buddies in the fracking space. How come they're not out there drilling or fracking whatever they do to If I if I saw Wtech Crudel with eighty bucks eighty seven dollars a bottle, I'd be pumping more out.
Well, I think it's one thing you mentioned interest rates.
Yes, you're higher, so your cost to drill is significantly higher, especially for the private players. Data availability is much smaller as well. And then we've talked about this, but the efficiency and shale has really peaked. You know, our colleagues at Bloomberg, and you have just put out a report with the productivity per well and they're down versus twenty twenty two levels.
Why is that, Well, it's.
A combination of a drilled some of your best acredge b. You are not making the same advances if you go back just you know, over ten years, we've been drilling longer and longer wells. We've been increasing how many fracts stages as we call them, are placed in each well, and we kind of peaked because we've realized that the cost benefit of adding more going longer is not worth the price anymore.
We kind of hit that sweet spot and then we're drilling out.
We're going to further and further out regions that don't have the same positive geology as the core of the place.
By the way, in terms of the spr which we ran down, I guess to save Americans from higher gas prices, maybe to win the midterm elections, whatever, are we gonna build that back up because it seems like we certainly missed the chance in terms of price.
Well, there could be more chances. One thing that's certainly in oil is the cyclicality, So there will be chances, but we don't really need to consuming. We are, you know, thirteen million barrels a day of oil output. Our neighbors to North and Canada four million barrels. That all gives you a significant cushion that when we started growing the SPR to the levels that they were now, we didn't have the US was not the biggest oil producer in the world. When we built the SPR to those levels.
They're also commercial inventory, so we have available crew to Still, the bigger concern is really some regions like the Northeast and their lack of diesel inventory, rather than crude itself.
All right, does it surprise you or is it surprising to the market that OPEC plus, I guess has this level of impact on the market. I kind of there's a time when I thought OPEQ would maybe I had lost some of its power. OPEC plus I don't.
Think that they are having that big impact.
I think it's really China right now and the expectations of a soft landing that are driving. Of course they can in a market that is so teetering on supply in balances, cutting as much supply as they have will have a significant impact, but over the long term they can't fight the FED. They don't have the balance sheet and they don't have the unity required for them to fight the FED. If rates remain higher for a long period and drives lower investment.
All right, If I'm an investor here, I kind of thought that the energy game was played out. I had my run in twenty twenty one, twenty two, kind of thought the game was played out. But no, the stocture rolling here. How do I play it? Do I just go out and buy Exxon Mobile or what are you know? Energy investors that you talked to, how are they playing this? Did this run up here?
Well, that's one way there.
You can also look at oil services because as we said that we are a bit more bearish in the short term because of the demand picture, but in the long term this underinvestment and the high rates are leading to further on their investment. You can't find that more areas will become commercial. So oil services and exploration might start coming back in twenty twenty four to twenty twenty five, And it might even be as your earlier conversations on Man United, it might be why the glaziers are waiting
till twenty twenty five. If oil prices get to one hundred. Maybe the Saudi's will give him a better offer.
Yeah, it's a good point, Yep, Saudi's are everywhere these days.
Mo money.
Also, they lost in my arsenal this weekend, so that's probably why they're down.
That's right. Wait, what's arsenal?
Is that?
Are you a gunner?
Yes?
Yes, okay, see look at you.
Well I've been listening to surveillance, so you know, I'm learning more and more about British soccer from Tom Keane.
All right, so what's what's kind of the bear case here? Because I know if I talked to Mike mcgloon, your your colleague of Bloomberg Intelligence, he follows all commodities, including oil. He's bearish on oil. He thinks we go to fifty. What is the fundamental bear case for global energy?
I think the fundament case is bearish for the global economy. And that's Mike's point, is that the Chinese real estate market could collapse and that would drag along a lot of different industries, from petrochemicals to oil. I still think that at the end of the day, the oil chain looks very attractive in a long term basis, But I agree with Mike the short term, demand will be the biggest driver. And you know, you just can't raise rates as quickly and as sharply as we did without an
impact on consumption. And we're starting to see that. You know, it's just a matter of how if China gets the soft landing, that's the biggest variables. Not even the US is because we're already not having that grade of a soft landing. As far as gasoline consumption, diesel consumption, those numbers are already kind of dismal.
Wow, yeah, all right, not for us, like for you and me and Tucker right right, we're still buying as much gas as we can.
Yep, regular unleaded. That's a role for an end of value, you guys a little bit more. Yeah, all right, Fernando, we appreciate it for an end of all. Senior analyst covers all the energy space for Bloomberg Intelligence.
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Now we've been promising to talk to you about more about cars. Nice all, but from chips perspective. Nicole Dougal joins US senior VP and General manager for Automotive over at Qualcomm, and Nicole, thanks so much for your time. I'm guessing that Qualcom is one of the biggest automotive chip suppliers in the world.
Lay out the market for us.
You know, the card is going through a tremendous amount of disruption. It is becoming a software defined platform.
And a big shift that is happening in.
In the car, especially as it become electric, is the entire electrical architecture of the vehicle is changing. Bigger chips, more complicated chips, all software driven, and that has created a significant opportunity for us to be able to bring our technology, our differentiation.
Into the space.
I've been going to go ahead and Nicole.
We are an autonomous driving we are driving the cockpit of the vehicle.
We connect the car to the cloud. Big opportunity.
So I was just saying to Matt, you know, I've been going to the Consumer Electronics show for about thirty years and it's really not even that anymore. It's basically an auto show in Vegas in Vegas with some electronics around it. That's really the auto industry is really take it over and it shows how technology is coming into
the automobile. So, Nicole, from your perspective, from the Chips perspective, is the industry capable to meet the demand that this industry, that auto industry is going to really drive over the next five to ten years.
Absolutely.
I think, you know, the the pandemic definitely highlighted gap in the resilience of the supply chain, but I think every automaker and their suppliers.
Have understood how to go deal with that.
We now have direct relationships with pretty much all of our major automotive customers, and you know, supply chain is a very complex part of the automaker's overall business, so a deep understanding of that part of the.
Business is needed.
It has actually allowed us to build very intimate, very approximate relationship with our automaker customers.
So talk to us about the products that you make, what they actually enable in a vehicle. You know, I've been seeing I go to all the auto shows r I did before I moved back here. To the US and I have been seeing Qualcomm at every one What do you make possible that we enjoy doing in cars?
So we've been connecting the car to the cloud for over twenty years.
That's been our core business, you know, wireless communications, and we entered the telematics market back.
In two thousand and two.
Most cars that are connected to the cloud today use a lot of Fi wireless technology. We have everything from five G Wi Fi navigation systems, powerline communication, Bluetooth. We entered the in car experience market.
As we like to call it, which is the cockpit, which is the in car.
Navigation, and this is a big business that has grown over the last decade or so. That's about creating an experience for the consumer that is owned by the automaker. So automakers are always looking to find a way to connect to their consumers, to be able to find differentiators that pull the consumers in. As cars have gone electric, you know, you can see all of the new vehicles being launched. There is a complete change in terms of how the in car experiences evolved.
Ray at I here in Munich, we announced a partnership.
We have cars now with BMW that are running our technologies for both the cockpit and connectivity.
Same with Mercedes.
Their latest E class is running our cockpit technology and chips. So this is a trend that has started to really take off globally. In a market like China, we are one of the largest suppliers of cockpit chips just because of the pace at which we can move the technology. And then we entered the air ass business driver assistance and automated driving about five years ago. We announced a partnership with the BMW theres a few years ago we were going.
To go commercial with them in twenty five.
So the amount of silicon and semiconductor tech that is going into vehicles that is really expanding, and we are the partner part of all of that growth.
All Right, You have to ask you about, just because it seems like we have to everywhere artificial intelligence AI. How does that kind of weave into your business and the products you're providing to the auto industry.
You know, AI is very much part of everything that we do in driver assistance.
That is underlying technology.
But the big opportunity that we are seeing as generative AI starts to become very relevant is how cockpits become more intelligent. Something that we are showing here at the show is how is an automaker as they make their enterprise much more intelligent. How do they define products that are natively intelligent? For example, if you were to design the next generation cockpit, would you be able to bring the user manual, which is typically something that you have
as a physical copy in your vehicle. Can they just be downloaded into the vehicle. Is that something that the user can interact with. We started to have those conversations really fascinating how many different things an automaker can actually do.
If they're able to go embrace AI across the board.
The consumer experience inside the car is extremely different as you think about AI, because the car is used not just going not just to go from A to B, but also the experience that the.
Consumer wants within the vehicle.
What are they trying to do, What is the context around which they're trying to do that specific thing.
You have camera input, you have voice input that it can provide with the vehicle.
That lends to the possible to create a wide variety of experiences.
And the silicon that we put into.
Vehicles is already defined to actually have enough AI capability that customers can just start to go build on top of that and k and these experiences.
So who are your competitors and where do you stand in this market? I mean, there are a lot of other uses for chips besides connecting to the cloud and talking on your phone and watching TV. I think of you know, throttle by wire, electronic steering, all the advanced driving assistance systems.
Do you do that stuff as well?
There is a wide variety of opportunity inside the automotive space, and we compete across, you know, So our primary focus areas are connectivity, cockpit system and driver assistant systems. That's where we see more most of our competitors. Outside of that, we are not participating in the powertrain space or in you know, the domain controller space today. So our focus area are basically those three areas that I described.
How about you know, driverless driving? I mean, yeah, I was gonna ask the same thing.
When are we going to Actually I know that in San Francisco right there are you know, autonomous vehicles operating as like.
Ubers or whatever.
But when are we going to start seeing this everywhere? Is it like ten years out or is it like two years out to look.
The technology around robot taxis I think is well prog and waymore and crews have had this deployed for many years in San Francisco and also in many other parts of the world.
I think it's really a combination of the business case and I think it's.
A conversation around societal adoption off of rover taxi. I think, you know, this is something that is definitely going to take a little bit of time. There is a cultural adjustment that people have to get used to. Cities have to be able to understand what it means for robotaxi, something that is driverless to apply in terms of the utility value, in terms of the benefit, there are certainly many use cases where I could see a robotaxi making a huge difference in terms of its mass deployment in
all of our cities. I think it is going to be a slower journey because there is really going to be a question of consumer adoption, city adoption.
How do you get the.
Changes that you have to make to infrastructure, changes that you have to make to regulation to be able to make this technology takeaway. But the great thing is that the underlying technology is actually quite mature, and now it is at a stage where as you start to go deploy it, you have to be able to figure out what the kings are and keep controlling so that journey is started, and I think the pace will vary depending upon which part of the world you're in.
All Right, fascinating stuff, Nicole, Thank you so much for joining us. Nicole DeGale, Senior VP and general manager in the automotive business for all Calm the chip Maker.
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Well, if you're the big media companies out there in Hollywood, you've got a lot of big issues ahead of you, most notably the transition from the traditional distribution system of cable TV and satellites to now that this new technology called streaming, and that has a lot of long term challenges for the industry. More near term is you got some strikes on your hands.
You got your.
Writers striking, some actors striking, big, big challenge for Hollywood right now, Let's see kind of what the legal issues are and how they might be resolved. Katie Charleston joins us. She's a founder of Katie Charleston Law. Katie, thanks so much for joining us here. Can you just frame out what the big issues there are between the writers in the big then the studios absolutely thank you.
For having me. The main issues that we're looking at between the writers and the actors and the production companies are AI. For one, the writers and actors are concerned with the use of artificial intelligence, which could potentially replace them,
at least that's the fear. They are also concerned with residuals, which is a payment structure where typically they would receive residual payments every time a rerun was shown on broadcast television, which is different than what we have today in streaming. And the last main issue is that of compensation. They're looking for complete, a better and complete compensation package with higher salaries and health benefits included.
So I can see I can understand both sides here. I mean, certainly from the creator's perspective, the actors, the writers this AI risk is just really you could paint it as existential. Here be that as I made though, I would think this is something that smart lawyers like yourself could create some language to protect them, no matter how the technology.
Changes exactly, and that is really what should be happening. Artificial intelligence and its use in copying or duplicating the
likeness of an individual will generally not fly. State law prohibits using the likeness of someone without their permission in general, But there are contract provisions right Each one of these writers and actors are able to negotiate their contracts and make sure that terms are in the contract that protects them from the use of their voice or likeness without their consent.
Talk to us about copyright because I thought copyright is really for something to get copyright protection, I thought it has to be created by a human. Is that the case and how's AI fit into that?
That is correct, and in fact, there was a recent federal court ruling that upheld a copyright the Copyright Office registration rejection and a piece of art that was generated by AI.
And basically the general rule is that you can only get copyright registration if a work is created by a human and the production companies themselves are not going to want to use artificial intelligence like chat GPT or chasp dot AI or any of these other tools to basically replace the actors or writers themselves, because if there is not human authorship of these works, then the studios will not be able to make any money, right because they will not be able to get a copyright, which would
then allow them to protect any kind of duplication or derivatives of their works, which brings them profit.
So how about get the stuff that I mean writers and actors. They care about the compensation, of course, but they also care about awards, oscars and think things like that. Can artificial intelligence? You can't? You know, something written by AI is not eligible for any awards?
Is it not?
As of today? However, I suppose that could change in the future. But as of now, I mean, it is these actual writers and actors, the humans involved, that are nominated and given the awards.
So again, it just seems to this outsider that this is also something that can be negotiated. Why do you think we got to this point where a they went on strike on strike for such a getting to be a long period of time.
Now, well, there's some things that have happened over the last several months. I think that basically emotionally charged several groups of people. One being that there were some background actors that have come forward and said that they've been asked to be scanned completely so that they can be really duplicated and used without permission in perpetuity, meaning these actors, their identities will be used without any kind of compensation or terms involved. And so I think that's an emotion
charge trigger point. And I think, well, it's it's a real fear for these people. You can see the genuine nature of the fear. It's unlikely that that will ever be something that's upheld, especially without the consent of the individual.
And again it goes back to contract terms. But there there's also you know, these unions have tend to strike regularly over the years, and I think we're at a point where overall the nation's been touched by inflation, right, and these actors, group of actors that are sort of at the beginning stages of their career, really are being hit with the emotional charge and the lack of resources
and the inflation all at one time. And they are being brought together by a larger group of individuals who are more established in the industry, if you will, these big name actors that are out there that really they're sort of out of touch what compensation with what compensation should look like. And so when you have these two forces together, along with the emotional triggers, it really will create something like we're facing today with this strike.
Is there I mean, again, we're multiple weeks into the strike here. Is there any sense in Hollywood how long this will go when it can be resolved? Because now you're getting to the point where you know, shooting schedules are being materially adjusted here and it's real money for both sides.
Sure, I mean, it could go on for quite a while. Warner Brothers Discovery announced this morning that their outlook for profits for the year are down by a projected five hundred million based on the strikes, and that sort of would assume that they're predicting that this will go through the end of the year, so you know, this could continue on. Really the two sides need to come together and talk. There are viable and reasonable arguments on both
sides to be made. You've got these movie studios and production companies on one side, where you know, this is a business that's changing. It's an evolving industry where we're no longer looking at broadcast television where ads are generating these residual payments. We're looking at streaming services like Netflix and Hulu that allow subscription low payment subscription options without commercials, so they are not generating that ad revenue to pay
these residual payments. And you know that overall, the industry just needs to come up with a better type of contract and that could take a while to negotiate.
All right, we'll have to stay on top of this story again, major major news for the media companies and all the folks that work with them, all the stakeholders quite frankly involved in entertainment and content creation. Katie Charleston, she is the founder of Katie Charleston Law, getting us up to speed on some of the legal issues here. Again it's we saw as Katie was mentioning Warner Brothers, Discovery warns of five hundred million dollars hit to profit.
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