Bloomberg Surveillance TV: February 5, 2025

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and am Marie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the

It's good to see you. Good to see you.

Let's start with the tariffs and the price of all of this uncertainty. Does it raise the hurdle for rain cuts at the Federal Reserve.

It's certainly going to affect the data, and it does raise the hurdle. But I think you gotta be honest about how very little is priced in. We've got forty five basis points priced in between now and the end of the year. In terms of cuts, I think there's not that much that can happen in the labor market, and we can talk about that more. Inflation seems to

There's some debate about what the tariffs could mean for growth and for inflation. Leasha and I've been talking about this through the week. We had a bit of a stress test on Monday Monic so we had the prospect of twenty five percent tariffs on to the biggest trading partners of America and we saw a yields drop initially at the long end on a ten year did during the team ten county signal from them? What did that tell you about where the market was focused in?

Right?

Well, you have the twist flattening, right, so you had the front end go a little bit higher. The idea there is that to your point, the FED wouldn't be able to cut, but remember it was just a handful of basis points back end yields did go lower, and the idea there was the probability of recession had increased. Teriffs are deaf and lead growth reducing. But again we're talking in general terms of what tariffs do right now. They aren't in place, and so I think we need

From the corporate executives, the CFOs you talk to who are looking to finance themselves, how do they take a breather at a time where they have to come up with plans? How long can they take a breather. Do you get a sense that this is filtering into the decisions of when to start raising money in twenty twenty five or how they can really plan ahead.

Well, luckily we don't have a wall of maturity, right. That's always been the biggest fear on debt since the financial crisis. Is there a wall of maturity where these companies have to act, and they have to act now they've done a really good job. I think this is kind of the PTSD of the financial crisis, to never put yourself in a position that you are forced to come to market at a specific time or else. So I think companies have set themselves up in a really

As an investor, does that bird on the shoulder prompt you to say, maybe there's a little bit too priced perfection type of valuation in the credit market, especially if long term yields are falling for the wrong reasons, the idea of reduced long term growth propositions.

So we think from the spread perspective, what's happening in credit markets that spreads are supported, and why they're supported is because the economy is really strong, and we saw that when we got our finalized print on GDP for the last quarter. We're seeing in the terms of consumption numbers, we are not seeing a dip tremendously in confidence right now with everything going on. In particular, we think the US economy is really strong, and it's really strong relative

Why did you think the sell off induration was of it done in December? Why did you think that backup in yields was of it done out of interest?

It was overdone to us because it started to knock on the door of really significant real yields. We lived for a really long time, remember ZERP and zero interest rate. In that whole world, there really wasn't real yields in the curve.

What happened in.

December in that backup and part of unwinding of a prior trade, was that we started to get real yield put into the curve. And we talked to a ton of clients daily, particularly pensions, and they're thirsting for real yield. And so when real yield's out there, this is a great opportunity. And we know that the idea of switching also from equities to fixed income really makes sense and they'd be happy about this.

It's so interesting.

It's not just about this moy becoming self limit because it could damage growth. There's just a wall of money out there looking for that number.

Yeah.

I think that's true.

And again we all stare at these I feel like we're on money market Watch. We're staring at how many assets are in money markets and when they are actually going to move. I think we're really at a time where it's starting to make sense and unlocking real yield is really convincing.

Lindsay always smartys a Clinic, appreciate your time. Thank you, Lindsay Rosena There of gold with sancx aass and management. The Federal Reserve Bank of President of Richmond. President Tom Barkin joins us now for more alongside Bloomberg's Michael McKee, President Parking.

Good to see you, sir, to can't shut once again, happy to be back with you.

The first question we asked Fed officials these days is did you include possible tariff changes in your round? Loook, so let's start that.

Did you well, so.

You're talking about forecasts we did in December?

Yeah, that seems like a long time ago. Now it doesn't a lifetime ago.

Yeah, No, So I think right now, if you look forward, you have to say tariffs are coming or here are going to be here. It's just incredibly hard to know exactly what it's going to be. So I think the concept of tariffs, sure, but the reality of what specific tariffs and what specific countries at what Pacific percent and what Pacific goods we don't know.

The market seems to believe that on the margins, this just means the Fed is going to take its time, that you're going to take your time and assess all the data, including all the tariff announcements, and that you're not going to be in any rush and potentially may not cut it all this year. Do you agree that on the margins, the tariffs and the potential rammifications, the uncertainty would delay you from cutting rates.

Well, what I'm hearing from everyone I talk to is just elevated policy uncertainty. And you mentioned tariffs, but deregulation, where is it going to hit, where's the tax plan going to come out, What's going to happen in net migration, energy policy, geopolitics. I think there's just a lot of uncertainty in the air, and it's very hard to know what's happening with growth and employment, what's happening with inflation until you get a little more clarity on all of these uncertainties.

So what are companies telling you they're going to do now?

Is everybody just sitting on their hands?

What does this imply for the uncertainty imply for the economy.

So I think it's really interesting to look at these optimism indices. And if you go back to November and December, the Richmond Fed and the Lanta Fed and Duke do a survey of CFOs, what you saw was total optimism on the economy went up significantly, new administration, climate for business whatever. Optimism about your own company pretty much flatlined. And I think that's because people are dealing with this uncertainty. We think this will be good, but I don't know

Well, what's your kind of baseline for how you're going to judge the economy? Given all of the uncertainty, You go into March nineteenth and you have to make a decision one way or the other.

The default, I guess would be to do nothing.

But where do you think the economy is going to end up over the next six months while this cloud.

Is over us?

Well, the case for weight and see is in fact that you want to wait and see. I mean, I start with a baseline economy that's the data has been pretty favorable. I mean, we had a pretty good growth in the fourth quarter, a consumer spendings healthy, inflation, especially the last two months has come down, and I expect the twelve month numbers to come down nicely over the next couple months as we lap last year's elevated first quarter numbers. Job market seems to have stabilized, So I

It could take us down.

We'll just have to say, do you still see the FED cutting at some point this year?

I mean, that's certainly the lean, but we'll see what happens.

Could the FED can potentially see anything that could cause you to contemplate hiking rates.

Well, I never take anything off the table, and so if you never take anything off the table, you can't take anything off the table. So I'm not able to do that. But you'd have to see an economy overheating. And I don't see any signs of an economy overheating. I see inflation coming down, not going up. I see the job stabilizing. But we got the jold steady yesterday.

Let me go back to the base case idea.

At this point, do you think that interest rates are suitable for this economy? For a while, the FED was saying we need to cut because we're still tight. But if you can't. Is that okay? Are you looking for data that will tell you to cut or are you looking for data that will tell you to hold well.

So I supported the recalibration we did obviously in the fall, and that's because with inflation in the twos and unemployment weakening at the time, the one number that seemed out of range was having the FED funds rate at five point three. So we've brought down one hundred basis point sets at four point three. I still think that's moderately restrictive, but we'll learn as we go, and if what happens is the economy comes back strong, you have to ask

But to go back to a very old FED term, what would your bias be towards cutting.

My bias is to see what happens and then react appropriately. As I said, I think if you look at the last SEP, there's a leaning there, you know, toward cutting. But let's see what happens.

That suggests you might be equally as open to hiking. Is that a case?

That's another good way to ask the exact same question. So I go, I think the lean is toward d better.

Let's see what.

Happens so you would be open to doing so.

As I said earlier, I don't.

Want to make that headline this morning, but I just want to understand how open minded you are.

Oh, I'm open.

I'm always open minded on what happens with the data. If you see an economy that overheats, you'd have to respond to it. I don't see an economy yet close to overheating.

There was some questions about whether we are accommodative right now restrictive? Can I just finish that the Federal Reserve chat shake down. I'm sure you watched the news conference set that you were restrictive, then said financial conditions were accommodative.

Can you square that circle so well?

So?

I do think we're somewhat restrictive. I don't think we're hugely restrictive. We're a lot less restrictive obviously than we were, you know, six months ago. But we'll see as we go. And like I said, if inflation continues to come down, that would be a positive sign. If the economy continues to you know, perform at a decent but not overheated level, that's a sign. But if you start seeing an economy you know, heat up, yeah, then you'd have to ask yourself those questions.

President Barkin, appreciate your time.

As always said, thank you the Federal Reserve Bank of Richmond, President Tom Barkin. DAT send to the earnings and focus on Disney. The company's first quarter earnings topping estimates, fueled by success in its movie studios and streaming business. The stock is positive and joining us Now's the Disney CFO Hugh Johnston, Welcome back to the program sir. We'll talk about how solid these numbers aren't just the moment. There's one headline the least from me. We're talking about a

What's going on there?

Good morning, Jonathan, No, I don't think so at all. Actually, that's really sort of more seasonal decline than anything else. A year over year will will certainly be up, so certainly not concerned from that perspective. More broadly, the streaming business is doing extremely well. This is a business we invested pretty heavily in a couple of years ago, and what you're seeing now is the benefit of those investments. Our expectation is will continue to grow, subs, will improve margins.

Our entertainment business.

We wanted to inside out to Deadpool all terrific hits, and on the TV side, the combination of Abbot, elementary Showgun and high potential causing viewership to grow we're seeing higher engagement, we're seeing churn ultimately coming down over the course of this year. So we feel like the streaming business is going to be one of the big drivers for our company going forward.

You know how much I love Showgun and Least so I can say love Moana two as well. So the content sled is looking pretty good so far. I did want to talk about the cost issue though, and clearly not an issue from you, so I appreciate the explanation. Conversation we've had over the last few days or so is if we get tariffs, can companies pass on the costs?

How are you thinking about things?

Yeah, right, right now, based on what's been proposed, and obviously this is a rapidly evolving environment, so we're going to react as we learn things.

The impact would be a material to us.

So from that perspective, really, the Walt Disney Company will be fine based on what's on the table right now.

At the same time, there's a question about the American brand at a time or when they are increasing tensions between the US and China, the US and Europe. Given the fact that the experiences side of your business has been such a driver of growth for you, are you concerned Have you seen any pullback in attendance in some of the areas like Shanghai, like France, like Paris that could potentially have some feelings around the negotiations.

Now, broadly speaking, the international parks business did very well. Profitability was up twenty eight percent for the quarter. Attendance broadly speaking, was up, So from that perspective, we certainly feel good. Disneyland Paris actually had a terrific quarter, so feeling positive in that regard.

Candidly, in many.

Ways, what the Walt Disney Company represents is an opportunity to get away from all of the things that are happening in the world right Our job is to basically bring families joy, bring them together, give them smiles. So I think in many ways we're not a part of that conversation at the same.

Time, and it's sort of pulling together the idea of experiences and the smiles and the streaming business, the idea that how much are people willing to pay for this? John was alluding to that with Terras, But just more broadly, how much are you seeing consumers push back against some of the price increases, whether it's at the parks or whether it's at the streaming services, just simply because of how much prices have already gone up.

Yeah, We're not to be perfectly candid, and I think it's always important to remember from a consumer perspective, price is what you pay and value is what you get, and if you deliver sufficient value to the consumer, they are willing to pay the price. And I you see that going on broadly with companies these days. Companies that deliver a lot of value they're pricing is being accepted

You speak of the streaming business, Can we talk about Hulu just a little bit more. Where are we with the negotiations with Comcast? And we mightkee any progress.

We're still in the process and I probably won't kind of go any further than that. I'd expect we'll get some resolutions sometimes.

What's holding things up, Hugh? What are the sticking points?

Oh, it's I think just the usual people have different points of view on the value of the asset.

So nothing more than that.

There is a content question here, Hugh about what the driver of growth is going to be from a streaming perspective, whether it's instrumental and getting involved in some of the sports world, or whether you can kind of lean into existing brands, how you do content creation at a time when there is a lot of question around what exactly sells other than the legacy brands.

Yeah, I think when you look at the Walt Disney Company, in many ways, we're best positioned from the standpoint of streaming because we do generate so much of our own content relative to to some of our competitors.

In many ways. To think about.

Disney Plus is it really can be the portal into all things Disney and something you might want to have on twenty four hours a day, seven days a week, because if you want news, you'll be able to find it through Disney. Disney plus Hulu if you want sports, the ESPN tile just went on Disney Plus if you

If we were talking six months ago, we might have started the conversation on artificial intelligence and how much you were using that in your content creation at a time where that's increasingly something that's being done. How much have you explored that to lower cost, expedite the process of time to get some of the movies and videos online.

We've got a number of use cases really across the entire company, from the ability to create content, to the ability to manage the company more efficiently, to the ability to manage our guest experiences inside the parks and cruise business.

So we're in.

The early days of leveraging all that as our most companies, because we really are very much in the early days of artificial intelligence generally speaking. But we're experimenting a lot to try to understand where can actually best add value to the Walt Disney Company.

H do you see a shift in vibes in this country with the kind of content that people want of you is changing?

Not really, you know, it tends to be I think more more based on age demographics than anything else. But by and large, if you look at what we're able to deliver by virtue of the broad base of ip that we have, we have sort of the very traditional things from the original Walt Disney Company right through to things that come out of Marble, that come out of Pixar that are sort of very current and contemporary. So I don't see dramatic shifts going on by any stretch

And you've got to run.

We appreciate your time, as I always say, thank you be Disney CFO Hugh Johnston. We begin to sound with a look at the energy sector, President Donald Trump pledging to expand production and lower prices. With the threat of tariffs hanging overhead for the next thirty minutes, some places say it joining us now is the chefron Ceo might Worth. Mike, good morning, It's good to see you. I promised the first question earlier on this morning. I mentioned it on air.

It is?

It is wonderful entertainment. Really, Bob Thornton is an amazing actor, and it's drama, right, and then you need a little bit of a storyline, and so you know, there are certain aspects of it that are accurate and others that are probably just a touch exaggerated.

It sets up this conversation quite well. Think for one specific reason, I think there's been a vibe shift in this country, captured by the election in and in November, and also basically content that people are consuming right now, including Landmann and in Landman, you see a much more pragmatic approach to things like fossil fuels, oil and energy and the kind of work that your company does. Do you think we are seeing that more pragmatic approach the energy story now?

I think there's no question we're seeing that. I mean, you know, take a look at this administration that has come in and rather than criticizing and almost in some ways ostracized oil and gas, it's an It's an administration that has talked about American energy abundance and using that to the benefit of the American economy, the competitiveness of American business, and and but but not just oil and gas.

We definitely are hearing the shift in the conversation. We heard that at Davos. Even though you weren't there to you. I am curious about how much that translates into actual changes that you're making on the ground, with how much you're investing, how much you're planning to expand your footprint in the United States and elsewhere.

Yeah, we grew production last year seven percent globally, almost twenty percent here in the US, the largest production we've ever had in our history, largest cash distribution to our shareholders.

So we are growing.

We're also doing it in a more capital efficient way. So we've been focused on getting more bang for each dollar of capital. You guys are talking a lot about capital this morning, and in a capital intensive industry, we have to always look for ways to be as capital efficient as we can be, in as disciplined as we can be, and so we're able to bring new energy supplies to the market at a lower capital investment rate

Last year, you had a record production, even under an administration that had very different tone toward the oil and gas administration, the oil and grass industry, I just wonder how the vibe shift will change what your outlook is at a time when the rhetoric has shifted to the positive. But some of the proposals like tariffs might be headwinds in certain places.

Yeah, so I think your point's a good one, Lisa.

Can you talk to us more about the permitting These are things we hear about all the time you're running a business, could you help us understand how much that has held back your business?

Oh, it slows things down. It's very difficult.

I mean the Keystone Pipeline is a good example that was well documented where a multi billion dollar investment that would have been good for Canada, would have been good for the United States, ultimately didn't happen because the permiting process can be hijacked by interests that are opposed to seeing investment in our economy. And so, look, everybody wants to see good protection of the environment and engagement of communities are impacted by projects. But we need lead agencies

This president clearly wants to change that.

Users phrases like drill, baby, drill, we're certainly drilling, not to thirteen million barers of all to day in this country, which is phenomenal. I often sit here, Lisa does too, and we'll say things like and we'll hear it from Amara as well once she's here. How realistic is it to get that number much higher than the thirteen million barers we're at right now. You'd know it better than we do. How realistic is it?

Well?

I think production in the US is going to grow again this year. We certainly see in our business. I said our permium production will be up ten percent. In the deep water golf of America, we're going to go from two hundred thousand barrels a day to three hundred thousand barrels a day by the end of twenty twenty six. So there is production growth coming, but it's really driven by economics, a long term view on supply demand, technology, and policy.

Just to jump in that last point, a long term view on policy. How difficult is it to make these investment decisions? We talk about this five shift now could change again.

For Ye, It's very difficult, John, And so one of the things our company was criticized for a few years ago is we weren't jumping into some of the renewables as fast as others because the policy was unclear, and so we were doing basic research. We were investing in pilot plants, but multi billion dollar investments that are very dependent upon policy that could change quickly are something you have to think about when you're looking to deliver strong

One test case for this is liquefied natural gas. US is a massive producer of it. You're one of the biggest producers of it. There was a ban on exporting to Europe at a time when Europe is really dependent on the US.

That has been lifted.

Now there's the potential of tariffs being placed on some of those exports. How much can you start to lean into exports versus not due to some of this confusion.

Yeah, you know, the tariff environment is obviously evolving here. On a day basis, energy is a globally traded commodity, and energy oil petroleum products for.

The most part.

Now Canadian oil is a little bit different because it's really dependent upon pipelines, but those products can go to different markets. We've seen sanctions reorient trade flows. Tariffs are another instruments that can change the economics for producers and for consumers, and what you'll typically see, whether it's energy or oil is flows will move to different markets as producers seek the highest price for their production and as consumers seek the lowest cost for what they're looking to buy.

I would say, speaking of sanctions, just briefly, you have a waiver to operate in Venezuela.

Is that the case we do? Rubio? Now?

Secuary Rubio said, maybe the US should reconsider that waiver. You in contact with them on that issue.

We're in contact with the current administration. We've been in contact with the first Trump administration and the Biden administration because the sanctions on Venezuela have been in place for years, and we work closely with the government to understand their objectives, to understand the limitations that are being placed through these licenses issued by OPHAK, and to stand full compliance with the laws.

Are you anticipate in any changes in the hill or too early to say either.

Recently was a trip down to Venezuela by a special envoy who brought back some Americans from Venezuela and arranged terms for I think Venezuelan and immigrants to go back to Venezuela that are that are here illegally, and that seems to be you know, the latest the general license that we operate was unchanged. It has been changed over the years in different ways, and that still could happen.

What would the ramifications be.

Well, under the initial Trump sanctions, Venezuelan oil was not allowed to come to the US. The Biden administration changed that. Gulf Coast refiners actually run a lot of the heavy grades that come from Venezuela. If you see sanctions on Canadian or tariffs on Canadian or Mexican oil, that may send some of that oil to other countries, and so

Mike, you're going to stick with us in place to say more on that conversation and more just the moment. My worth there the chefron CEO. This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, an gie politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Bus.

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