The Deal Room: The PGA-LIV Merger Explained & Saudi Arabia's Oil Market Gamble

Hello and welcome back to The Trading Floor, the Friday podcast where we wrap up all things global markets. But as you can see, I'm joined by Stephen. How's it going, Stephen?

I'm pretty well, I'm pretty well, thank you. Uh, fresh off the back of my Succession podcast. Have you watched the final episode yet?

I have not, but I did listen to your podcast and you did very, very well, I must say. Not to give it away at the end of the latest series. So I feel like I've still got a surprise on the horizon here. Um, so yeah, I thought you did an excellent job though. And I was saying, in fact, to my wife after I listened to it, I was like, look, to be fair, I mean, I used— my focus at school was playing sport and let's face it, hanging out with my mates and having fun. Um, there was an odd couple of teachers that perhaps because of their personality or charisma, you were engaged, but the content really bored me generally. So I was really disconnected from it and I just thought, why don't they teach like what you did, which is take a popular culture's kind of theme of the moment that everyone's absorbed in and then use that as a narrative to teach concepts. Like surely young people respond to that better. I mean, I would.

I totally agree. Although if I was to play 4 seasons of Succession in lieu of teaching economics or business studies, I think I'd probably get fired, uh, for a number of reasons. But no, I totally take a point.

Yeah, I mean, I think that would be awesome. So yeah, I thought that was a great episode. And if you haven't listened to it, just jump onto the channel. If you go back the prior episode, so we do one. If you haven't caught them yet, Stephen does a more banking-related one midweek, and then we do more markets one on Friday. But with that, look, let's cover some of the major topics here to give you a quick primer. We've got the PGA Tour has agreed to merge with Saudi-backed rival LIV Golf, and I've seen all kinds of tweets and, uh, Rory McIlroy swear words doing the, doing the rounds on Twitter. So quite keen to get a bit of a backstory on this as well as talk about the merger in details because I know that's your kind of area, and then perhaps talk about a villain or two, uh, just to add some spice to the story. And then we'll kind of pivot over to one of the major market themes of the week, which was in the oil market, where Saudi Energy Minister delivered a Saudi lollipop, which when you read that headline you're like, what is that? So we'll explain, but we'll go a little bit deeper and explain a little bit behind what is OPEC, what is their objectives, what are Saudi trying to achieve, and any questions that might come off the back of that. And then if time, bit of a quickfire round. We've obviously had the Vision Pro come out from Apple, Nvidia slightly coming off the boil, but what next? Maybe a little update there. And the Eurozone has obviously moved into recession, so who's laughing now, Europe? Some UK Brexiteers might say, um, But yeah, kick us off then with this PGA Tour, LIV Golf situation. What's the story here?

What's the story? This is an absolutely brilliant story. One of the stories that you can't really write it. And I'm actually quite looking forward to the retrospective documentary on what happened behind closed doors, 'cause this is a really good one. It's a story that is about monopolies, backroom deals, sportswashing, and staggering amounts of hypocrisy. So it's got it all. So let's start right at the beginning. And if anyone— no, I don't assume that all of our listeners play golf or watch golf, so we can kind of give you a little bit of background. So there are two— historically, there are two major golf leagues, golf tournaments in the world, the PGA Tour, which is based in America, stands for the Professional Golfers Association. That word association is quite important. It's a not-for-profit entity managing these series of tournaments that take place across the year across America. And there's also the European Tour, which is called the DP World Tour now, which is kind of the same but in Europe. Player-led, player-supported organizations that go around competing for big prize money, big television rights, relatively old-school feel to the tournaments, quite stodgy, quite golfy, maybe we could call it. And it's basically had, the PGA Tour and the European Tour basically had a monopoly. And we'll use maybe those words, that word in air quotes for now, a monopoly over golf, professional golf. If you want to watch professional golf, you have two choices, European Tour, PGA Tour. If you want to play professional golf, you have two choices. So it's a pretty closed market until towards the end of 2021, early 2022, the Saudis got involved. So we all know a little bit about the backstory of Saudi Arabia and their Vision 2030 to diversify away from their reliance on oil, which is going to segue beautifully into the OPEC conversation. And a lot of their plans revolve around investing in cultural institutions that will bring value both monetary and reputationally to their country and stop them being so reliant, reliant on oil. So they are, they've been pretty systematic in acquiring pretty significant sporting franchises. So for example, they've got a Formula 1 race in Saudi Arabia now. The Saudi Arabian Public Investment Fund, the PIF, the sovereign wealth fund, bought Newcastle United last year. They own 5 of the Saudi Arabian soccer teams, which now, uh, have paid Ronaldo hundreds of millions and Benzema hundreds of millions to come and join. So they're going through this campaign of what some people call sportswashing, distracting from human rights and focusing on sport. So they decided to get into golf about a year and a half ago by starting this Rebel Tour. The LIV Tour, where they courted some of the world's biggest golfers— Phil Mickelson, Dustin Johnson, etc.— to move away from the PGA Tour, the kind of heartland of golf, and join them on this rebel tour, which is a bit flashier, a bit more, a bit more fun maybe. You know, they spray champagne at the end of the tournaments. It was all not quite golf, you You know, um, and it was massively acrimonious, a big dividing line for us, the sport of golf. A lot of the superstars went to join this league, got paid hundreds of millions of dollars to do it, and then the PGA started suing them for saying, look, you've broken your contract, you've gone and joined this rebel league, you can't pay— play for the PGA Tour anymore because you've given up your right to play, etc. The LIV tournament sued them back saying, well, actually, this person's a free agent. They should be able to play on multiple tours at the same time. Lots of antitrust lawsuits were getting filed. LIV saying that the PGA Tour was actually a monopoly and they shouldn't be able to wield their monopoly power. All of this stuff was going on in the background and it was basically a bit of a Bit of a mess in the world of golf. Upstart league, established, right, kind of snooty Professional Golfers Association. Fast forward to Tuesday of this week. These two organizations have been at loggerheads. They hate each other. The players on each tour hate each other. It's got really quite nasty wars of words and things like that. But then on Tuesday, the shock was that these two tours announced a merger, a merger between two great enemies in this sport. It is absolutely— it took the whole sport, uh, you know, it shocked the whole sport. It was a really, really, you know, shocking, shocking thing to, to, to do.

So So is it— is this just— surely it's just money. It's like, how do you resolve differences? Throw enough money at it, people accept it. Is that what's happened here, or is there something I'm missing?

Yeah, there's definitely a big money element to it. I think both organizations realized that the litigation that they were throwing at each other was probably going to be damaging on both sides. The PGA Tour, very, very high levels of reputation, a lot of history, but relative to the PIF, the Saudi Public Investment Fund, they don't have particularly deep pockets. So this is the Saudis saying, look, we've got unlimited money basically. We can continue to throw unlimited money at LIV, this breakaway tour. But what we could also do by By the way, is we can team up with you guys. So the structure or the background is so fascinating. So the CEO of the PGA Tour, this guy Jay Monahan, which we'll talk about a little bit later, he has been meeting with the Saudis and two other independent directors of the PGA Tour in private in Venice. They had a meeting in Venice. They had two meetings. It's amazing. They had two meetings on the golf course with the Saudis in London, as you do, meeting this, this guy, Yasir Al-Rumayyan, who you might have heard of. He's the governor of the Saudi Public Investment Fund. He's got the world's best CV. He's on the board of Uber, Saudi Aramco, SoftBank, He's the chairman of Newcastle and is now the chair of this new entity. But anyway, it took 7 weeks of private discussions between 4 people no one else knew to announce this shock merger. And the thing was, the Professional Golfers Association, which is made up of thousands of professional golfers, the very elite ones being the likes of Rory McIlroy, they basically found out on Twitter. They found out by text that the hated organization was going to be merging with them, you know, and this has all happened behind closed doors. Absolutely staggering.

So can, can the players go on strike now then? And then if you have no players, you have no tour, regardless of what the banner is over the top of the tour.

This, I mean, this is, this is, this is where it all gets quite interesting, quite relevant for kind of, um, for understanding of antitrust and monopolies and things like that. They can go on strike, but they don't have an alternative. The only, you know, so this merger, just a little bit of a structure. So what's going to happen, this agreement in principle, the specifics haven't been fleshed out. What's going to happen is there's going to be a new entity, for-profit entity, sitting on top —of the PGA Tour, the European Tour, and the LIV Tour. They're all going to be operating underneath this new entity where the Saudi Public Investment Fund are investing $3 billion, a minimum of $3 billion, and have exclusive rights to invest more. Right. So it's basically going to be the Saudi holding company above these other 3 companies. Now, if I'm an individual, maybe if I'm Rory McIlroy, I could go on strike, but what could I do? The only option I have to make money in the profession that I've got is in this environment. So if that's not a monopoly, I don't know what is. I'm fascinated to see what's going to happen with the Department of Justice and antitrust legislation and things like that.

Yeah, you mentioned the, the number of $3 billion there, and I couldn't help in my head go, okay, so Saudi Aramco clocked a $161 billion profit. This isn't revenue, it's a profit. $3 billion sounds like an absolute steal to penetrate quite a cultural iconic American kind of, um, body or institute, if you like. What point do politicians get involved into this and start putting their nose in? Because the Saudis have got a bit of a crown jewel there, surely, from, uh, penetrating the US in a different type of way.

Yeah, it's, it's— well, again, it's, it's a really, really interesting question. You're absolutely right that the money, the $3 billion, is, is spare change, uh, for, for the Saudis at the moment. Uh, and just to give you another outrageous statistic, Tiger Woods, the most famous golfer of all time, he didn't join LIV back when the Rebel Tour was starting last year, but he did get offered $800 million to join. He turned it down. Oh, so now he's, you know, and McIlroy got offered $500 million, and they're both, you know, they must be fuming that they took the moral high ground by not joining this other tour. And now they're all merged together.

This is America. Can they not sue— what was it, Moynihan— to— misled, right? They're misinformed to make that appropriate decision at that time.

Yeah, this is, you know, this is, this is going to be a legal, uh, bloodbath. Yeah, there are so many grounds for so many different stakeholders to sue. And you're absolutely right, you know, this isn't just the Saudis buying an individual team within a league structure domiciled in a particular country. Imagine the Saudis trying to buy the Premier League. That would not— well, never say never, but I don't think that would happen. I think that would get blocked. And you would expect there to be some significant pushback on a political stage to say this is not something that can happen. This is one of our cultural institutions and we will not sell it. But let's see, as you said, you know, as you said, money talks. Um, and you know, the US is the home of money talking, so there's going to be updates and updates to come on this, but it's pretty live and it's pretty raw news.

Yeah, it's funny you should say that, and that does lead us nicely into the OPEC side because of the Saudi link. But not only that, You know, before I even dive into what's going on with OPEC and Saudi, um, you know, whenever oil prices— which typically, let's say they're trading at $70 a barrel at the moment, that tends to be a kind of, um, if we look at the last decade, an average price, let's say, given the peaks and troughs that we have. But it's interesting where you have a historical, uh, sectarian division of the Islamic faith that's personified in Saudi Arabia and Iran, let's say. However, if the price of oil trades as it has done in recent history, down sub-$30, the two countries then get along and make decisions together. It's funny how in the end money really does make the world go round when the pressure points are on, despite your stances and however strong they might be, your I guess the human— as humans, in the end, we have these existential threats to our well-being, our ability to live, and then we have to make decisions at that point. But I'm not saying that— I'm not saying the PGA Live golf situation is quite on that level, but it's not quite existential.

But, but you make, you make a very good point, and I think, you know, this, this rep— this, this merger is representative very clearly of the power of money over the nice warm feeling of sentiment and culture and things like that. But I guess the other thing that it says, and maybe we can kind of segue now into the OPEC story, is the power of oil. You know, we like to think about a net-zero future and lots of solar panels and wind farms and things like that, but oil is still pretty all-important when it comes to the global economy. And, and one section of that is this organization called OPEC. So should we, should we cover that for a bit?

So like you said, not everyone plays golf, not everyone knows who OPEC is. So let me start from the, the bottom and we'll, we'll move from there. So give a good foundation. So the Organization of Petroleum Exporting countries. Now you'll hear about this a lot, and I think if you're— to give this context, if you're a student and you're looking to work in a global markets division, whether it's a role in sales or trading or research, you know, this is fundamentally, as Stephen, you were kind of saying, pretty critical because the overall decisions that a central bank makes that dictates the direction of economy will impact consumption, which then means that supply needs to move and it starts to explain then the ramifications, how all of this is kind of correlated, connected, and OPEC are very integral to this. So the long story short being an economy is growing, higher productivity, more demand for these oil products, and then the opposite could be right now we're kind of heading to recession, demand starts to reduce, and therefore supply starts to tighten. So that kind of is the picture. But OPEC, so I, I took this from the OPEC website because it's like, it's interesting the way they phrase it, of course, as of what their organization is and what their intentions are. And then we can talk about what actually they do in reality, which is a little bit different than how they're referred to. So their job is to coordinate, unify the petroleum policies of its member countries, and ensure the stabilization of oil markets. So you rightly said, oil is integral to pretty much everything. You know, the new Apple Pro Vision, right? These machines that make these hardware components, they need manufacturing facilities which require power. And not at least at this point is those manufacturing plants powered by solar and clean energy, it's fossil fuels. So that requiring then the oil component. So they ensure stabilization of oil markets to ensure and secure an efficient economic and regular supply of petroleum to a couple of major people, consumers. So the us, when we're filling our cars up, stuff like that, when we need it, we've got it, and it's at a reasonable and controlled price. Very much unlike what we have had through the energy crisis, obviously, in recent years, which is these queues and so on. They want to offset that by having ability to move supply, to, to move price, then a steady um, income to producers, so in order that they continue to reinvest and keep things efficient so that the consumer demand can be met, and so on and so forth. And then a fair— they, they term it a fair return on capital for those investing in the petroleum industry, which I thought was quite funny when I read it. Fair return. What was that number, $160 billion? $161 billion, which was a record-breaking year, of course, financial year just gone, obviously because of the Russian-Ukraine crisis. But what does that all translate to? And, and often how they're referred to when you read media is the cartel.

Yeah, from what I understand, cartels are illegal in most industries. So why is this one allowed?

Well, if you're an American politician and you're trying to pursue a piece of legitimate legislation called NOPEC, which does exist, they would say this is a cartel for exactly the reason you described. They have an inappropriate control and that can then— they have no oversight, so they can make decisions as they see fit, which as we've just described, really is the catalyst for so much that controls what happens on planet Earth, essentially. So is that right? That someone like Saudi Arabia, who are the kind of de facto kingpin of that group given the volume that they produce, um, should they have that power? So yeah, it's a, it's a cartel, but as ever, cartels are being attacked by regulators and, and so forth.

And what— so, so let's talk kind of, uh, percentages or talk numbers. How, how much of the world's oil supply roughly Does OPEC control? Are there any other big players that are not involved in OPEC? Obviously the US, but yeah, what's going on there?

Yeah, yeah. So that, that kind of starts to then lean into a bit of the backstory. So for many, many years, and you know, we go to universities, encounter students all the time, and I always ask them this question. I say, who produces the most crude oil in the world? Um, and inevitably I'll give them like a multiple choice. And I will put in there Saudi Arabia, I'll put Russia, USA, Iran or Iraq or someone like that, all big producers. Every university I've been to from Oxford to Harvard to Nottingham Trent to Southampton, they always say Saudi Arabia. Okay. You know, which is a, a slightly separate point where, you know, you can't make assumptions with these markets. You know, you've gotta, you've gotta know these facts to determine what's important and what's not. But the point being is they're kind of right. Saudi were, I mean, OPEC was founded in 1960. There were 5 countries. They were all predominantly really Middle Eastern, Iran, Iraq, Kuwait, Saudi Arabia. They are really the foundational members. And by definition, they're the largest within the group. The other 5th member was Venezuela, but they're very small. Um, there's definitely a balance of power there. So to give you a bit of context on size, someone like Saudi traditionally would be producing something like 10 million barrels per day. So I always think of it, if you think of an oil drum in your mind's eye, 10 million of those puppies get made every day, um, from Saudi Arabia. But if you think about someone like Equatorial Guinea, who's like the 13th member that rounds off OPEC, they produce about 250,000. So really, they're of no consequence to the global output in that scale or in the decision-making process. So you can imagine a 13-country roundtable. Saudi— guess who sat next to Saudi? Well, there's Mr. Iraq and, you know, Mr. Iran, and they're making really the decisions on behalf of everyone else. Um, but that's quite problematic because you're starting to get a little bit of a fractured group where particularly African nations which many perceive in time have the greatest upside growth potential, they will then start to have more influence and control countries like Nigeria, for example, who are one of the biggest. And does that start to then water down someone like Saudi's ability to have even control on their own group? Rightly, like you said, so OPEC really account for the majority of global world oil supply. However, the tide has changed because through change, this was actually coming on the back end of the Obama administration. There was a law change in America, which meant that the US could then sell, produce and sell oil abroad as well as for their own internal consumption. So that means then if I'm a, if I'm ExxonMobil, Chevron, I can go gangbusters, right? Let's just produce as much as possible because not only can I service America, I can now sell this stuff elsewhere. Now throw in then the transition of government to Donald Trump and kind of deregulating the market, doesn't really care about the environment. Let's just give exploration licensing. Let's make America great again. And America soon displaced Saudi Arabia as the number one dominating global oil crude supplier. And then the other third party in all of this much to the headache of Saudi Arabia, of course, in recent years, is Russia. And the Russia is kind of like a neat setup where Russia really dominate the flow of oil to Europe through the natural passage of geographically where it sits, whereas America can service the, that side of the Atlantic. Um, so for the Middle East, yeah, it's, they've been under pressure on many different fronts.

Okay, that makes total sense. That was really, really interesting background. I remember, I remember a few years ago, maybe during the pandemic, where price of oil was negative, I think. I don't know if I'm getting that wrong. Yeah. And then, and then maybe this time last year it was at $125 a barrel. Okay, so that's quite a big swing. Now you mentioned earlier on that it's just above $70 a barrel. What, what's good, you know, what influences these prices and how has it affected what's happened this week?

Yeah, so this, I'd say the price activity you've described there from going from $125 to $70. So why did we go to $125? There was an unexpected— and I, I say this from an unexpected, from a timing point of view— I think the Russian incursion into Ukraine was going to happen, just given the growth of NATO and the encroachment from the west to east on the border of Russia. So I think most people— and Russia has exhibited this type of behavior before to shore up its geographic borders, its transportation kind of routes, its passage of crude. It's very important to their economy, obviously, selling this stuff. Um, so it was the timing that was unforeseen, and obviously it came at the worst possible moment for global markets because we just had COVID. And so as you said, prices got decimated. OPEC took absolutely dramatic action to slice production to stabilize and push prices back up. Um, and then to compound the issue, you started to see then, uh, this, this invasion, which then put disruptions on supply, and we topped out at, yeah, $125, that kind of area. We're now down at $70. So we're now on the back end of this. Um, and just kind of digest those numbers for a moment. If you're Saudi Arabia, your price is halved. So as we've just said, you've come off the back of this record-breaking state-backed Saudi Aramco mammoth year of profits, but the price has just halved. So your profits are going to halve essentially. Now, why does this happen? Well, we're in a period now of growth is slowing. And to keep this super straightforward, growth is slowing because we've had a pretty unprecedented period of the, the speed of which inflation has risen due to COVID. And as I said, compounded by the energy crisis. So interest rates have gone up, but at a very sharp rate. And as a consequence, the tightening of those conditions starts to then weigh on growth. And given the cost of living crisis that compounds this, you start to see then people's confidence starts to fall, their ability to spend, and we start to see job cuts when, as we've seen in lots of different sectors. So all of this means that demand fades, and it's not like you're just in the Saudi Aramco facility turning dials and all of a sudden oil prices just start moving. Uh, it's not quite as responsive or quick as that. So the economy is slowing, prices have drifted lower and lower and lower, and what OPEC have tried to do is try to intervene, essentially. And the backdrop of this is we've had some Chinese data this week, or from a trade perspective. Now, even if you don't trade Chinese products, you look at China in the— through the lens of it being the world's second largest economy. It is by far the biggest consumer of multiple different commodity products. And if they slow, the demand impact that that can have on these commodity products is quite severe. And the problem with that is that Chinese exports fell for the first time in 3 months in May. And so it's kind of giving more weight to the economist view that the post-COVID reopening of China has not been quite as powerful or sustained as many might have hoped. And then you throw in Europe this week and the Eurozone's now in a technical recession. So yeah, oil's moving lower and they've got to do something about it, is the long story short.

Yeah, what I love about this story is, is just how closely it maps into studying economics at school or at university. It's very much the power of supply and demand and macroeconomic factors, and we've got growth rates and inflation and interest rates and things like that. But one thing that we don't talk about, um, in our economics textbooks is lollipops. So tell me what a lollipop is in this context and what's happened this week. Yeah, yeah.

So yeah, to build out a little bit of the numbers, 'cause these are good to know 'cause you asked about the kind of amounts of global supply. So OPEC+ has in place already, 'cause this isn't like a complete surprise, they've already been seeing the price move lower and lower over the past 12 months. So they have in place cuts of 3.66 million barrels per day, and that amounts in terms of global demand to about 3.6%, including the 2 million barrels per day agreed last year and the voluntary cuts. So Saudi already has done this in April. We're only at the beginning of June. We'll come back to this, but this does not bode well for Saudi Arabia. They've already tried the strategy. Oil prices went up for the period of a few days and then fell and have consistently fallen to the point they've needed to have action taken once again. So a couple of things that have happened from this decision this week actually happened on Sunday. Um, all of those cuts I just mentioned which are in place, they were valid to the end of this year. So strategically, as OPEC, you've got a couple of options here. The first one is we just extend the duration of the cuts that were existing or in place at the moment. So in effect then, you're taking out more barrels of oil out of the market over a longer period of time. So that's the first thing. Um, the April one obviously failed. So for Saudi, they've gone for what they call like a sweetener, which is a sweetener being we will opt ourselves. And the reason they do this is because they produce infinitely more than all the other OPEC members. They're the only one with spare capacity to do so. They're also slightly padded by this record-breaking year of profits as well. So they've gone for an extra 1 million cut in July for one month. And that's important as well, because as we'll kind of touch on later, the next logical option that they've got if prices keep falling is, well, this isn't for one month. This is till the end of the year, but then you're subtracting out, what, 6 million barrels of oil? If you start doing the maths, it's a lot of missed opportunity to sell and revenue there, which they won't want to go down.

It's really interesting because they're trying to control price by setting supply, and a million barrels of oil is a nice— a day is a nice, as they said, a nice lollipop, a nice sweetener. But it's not significant enough to guarantee that the price is propped up. So they've been, they've been losing money every day, right?

Yeah. So this is the sweet spot, and this is what they don't know. So that the read between the lines here from a market's perspective is that Saudi Arabia, the way it's perceived by oil traders, is they're trying to eliminate— they're trying to control speculators in the market. Because they're trying to drive the price down. It's almost like a classic strategy that we've seen over many, many years. I did the same, I must say. Don't tell anyone, but when oil got down to like $30, $40 not that long ago, what do I do? I jump on my, my stock pension fund and I start just loading up on energy companies because the idea being that the price can't remain that low. And you alluded to it um, earlier, and it's this Vision 2030, right? It's this necessity through the now new competition. So going back to the cartel analogy, let's say I used to be the biggest drug dealer in New York in the 1980s. Then all of a sudden, what, I'm the American— Italian-American in New York running the gangster mafia. Then the Russians move in, then the Ukrainians move in. Then the Chinese move in with their all-new drugs and all-new supply. And all of a sudden, what have I got to do? I've got to diversify. I've got to diversify my income flow, but I've got to finance my mafioso organization at the same time, which is expanding into these new areas which require capital. And so this is then when we talk about fiscal budgets in a more professional, non-drug sense. And a fiscal budget for Saudi the key figure that they need to hit in order to finance— I mean, we're talking about diversifying an economy. So aside from dropping $3 billion to buy, to buy PGA and LIV Golf combination, they're trying to develop public service sectors, health, education, infrastructure, recreation, tourism, all of this. And all of this requires as well a pretty monumental marketing budget to facilitate this kind of the way they're perceived internationally. So it's $80 is the key line in the sand that they must hit in order to finance. You know, a government is literally spending, tax, and you've basically got to balance the book. And for Saudi Arabia at the moment, we said oil's trading $71. All the time it's below $80, they are effectively out of the money. They're spending more than they're bringing in. They've just had a record-breaking year, which obviously helps, you know, juice the coffers a little bit. But the idea being here, and the risk now, is that as we've seen, prices initially jumped to 75 in reaction to this announcement. They stayed at 75 for— guess how long? 1 second. It printed 75 at the market reopen of the futures market for 1 second. and it has only gone down. Basically, it briefly dropped below 70. So this is the market telling OPEC this is not a satisfactory move and we're going to call your bluff. And that's not a good sign for Saudi Arabia having already failed in this exercise in April.

So, so just kind of bringing this into land, if, if the cartel is not the only show in town as we've discussed. Yeah. And there are, uh, fissures emerging within the cartel between various, uh, various countries. I mean, is OPEC even relevant anymore? Is it— has it got a future?

Yeah, a lot of people would already say no. I mean, even though it still exists, uh, in practice, they gather, uh, probably not. And actually, this is probably only going to get worse in terms of the harmony of the relationship even within OPEC. 'Cause if you think about the objectives of these different countries, it's almost like looking at the Eurozone and what decision did the ECB have to control someone like Greece or Ireland or Portugal, but then use the exact same policy to control someone like Germany. It's just someone's gotta lose here. And so in the, it's almost magnified in a situation where you have countries like Libya and Nigeria, very subject to civil wars and things of that nature. And so they are going to want to serve their best interest and their own needs. And more often than not, that is, that is counter to what the wishes of Saudi, whose power is already diminishing. And so, you know, this move by Saudi, I think, with the Gulf Connection, is, is just one of lots of different things we have and will continue to see as they try to, um, I guess try to reframe the international investment view about that as a place and a center for business, for tourism, and all these different factors. Um, but yeah, I mean, I, I had a little bit on numbers just to throw some, some cash at this as well, how much money they're potentially losing out on. So, um, The actual number that they're cutting, Saudi, is from 10 to 9. I mean, that's the way it's kind of referred to in most media outlets, but I think the number's a little bit more nuanced than just perfect round figures. So one analyst I was looking at, he was saying Saudi are producing at the moment around just shy of 10.5 million, and it's trading at $71. So if you actually break that down, they're making about 7— I mean, this is, this is a pretty incredible number anyway. They're making about $750 million a day, per day. Um, so if they were to cut then, um, even less than a million, down into around the 9.8, around that region, which I guess the analyst is looking at it in what's more reachable, more sooner, they would need the price of oil currently trading at $71 to go up to $75.50 to generate the same level of revenue that they've lost by not producing the same amount of oil. They need then, in fact, basically that oil have to go to $81 a barrel. That would then create them 50 million, 50, 5-0 million more per day. Now, if they can get oil up to $81, which is a dollar over their fiscal breakeven, they're basically banking $1.5 billion extra a month. The problem is the market's telling you you're going to have to do a heck of a lot more than cut a million if you want to get that price up, because at the moment the global macroeconomic situation is deteriorating. Things are actually probably on the demand side of the equation going to get worse, so they're going to have to make subsequent, uh, reactions on the supply side.

That's really interesting, and the fact that fact that it would be wonderful if you could control both supply and demand in a particular market. But if you can only control part of supply in a particular market and demand goes south, then you're probably on the losing end of a pretty significant trade.

Yeah. So not to open Pandora's box, but who does have money? So if I'm Saudi, I'm like, well, how do I get this money in? If I, what if I could just pump oil and the Western world is in demise? Well, there's one party that's always there willing to pick up the tab for everyone. If it's an Italian banking crisis, we'll pick up the tab. If there's a Russian war on Ukraine, we'll buy your oil. There's always Mr. China sat on the sidelines ready. And why do you think that recently in geopolitical gatherings you've seen Xi and Putin and the Saudi prince, MBS, all shaking hands all together. And all of this puts strains, of course, on the relationships that Saudi has with the US. So this is when the geopolitical, uh, stuff starts to come into this. I mean, that's a lot more long play, but it's definitely integral to understanding then the relationships and, and also the scenarios of what might play out in the, in the long run.

I'm going to close that Pandora's box because we could, we could talk about that for hours. But I just want to, I, I maybe, I just want to finish up. Usually we have peers on this podcast, and I listen to this podcast every week, and I hear peers' opinions on a lot of different things. I don't hear yours, and I know that, you know, people listen when you talk. So I'm going to do a little bit of a, a bit of a quickfire round. To get your thoughts on a few of the things that have happened over the last few weeks. They're too contrarian, Stephen.

They're too, they're too, um, out, out of line of consensus that people get nervous when I, uh, give my opinion.

Exactly. This is not investment advice. Um, so, so try to answer these as quickly as you can. All right, so firstly, I'm going to talk about Apple. Yeah. So do you think— quick fire round— do you think that the Apple Vision Pro Goggles will in the medium term, over the next 12 months, increase or decrease Apple share price?

I think Apple share price will go up, and I think that will have absolutely nothing to do with the Vision Pro. Nice.

Why? Very quickly.

I thought that was— I thought it was an absolute marketing triumph, product flop.

That's my summary. Does anyone want to wear them?

Of course not. I mean, you have to, you have to wear basically like a, a mobile phone-sized battery device strapped to your thigh with a, with a wire going into your headset, which only lasts for 2 hours, that cost more than what people were expecting. It has no, it is nothing other than a prototype device that I'm sure will be a game changer by finger in the air. 2030. You heard it here first.

Yes. Um, second question, uh, do you think Nvidia will be able to cross a trillion dollars, which it obviously has done, and importantly stay there because it's come off quite a bit?

100% yes, because your question had no duration on it. So will they cross a trillion? Absolutely. Um, will they recross a trillion, I guess, in the next 6 months? Um, if we were to be a little bit more specific, um, I think that they'll probably sit around the current valuation that they're at at this point in time. I think you've had the kind of gold rush, if you like, into AI. I think that— I think the dust will settle a little bit. What I'm particularly keen to hear next is kind of look at, look at Nvidia in two ways from my perspective. So not going into financial statements and things like that, but looking at it from a hardware perspective. I just want to know how much of the boom that's happened through things like Microsoft and big tech names, how much have they already exercised their orders, and therefore the biggest players of kind of the, the market's fairly saturated because when you're buying these like $10,000 a clip chips for your supercomputers, you know, I don't, I certainly don't have one underneath my table here. Um, so I'd like to think about that in terms of what's left of the market to capture with the current products that they have, and also what are the timings in their R&D of the next development, and then what does that unlock as future revenue over time. So I'd like to look at it from that perspective. And the second perspective I like to look at NVIDIA for a price point of view is we haven't had anything mentioned yet about legislation. I don't think it's a case of, um, legislation takes like a lifetime to come into play. That's not going to impede the progress of the share price. However, I want to hear as we go into the election cycle, which isn't really that far away now, over the next 24 months, and it will really start to ramp up in the next 12. How much do they talk about this stuff? How much is this market going to be— is there a vested political interest to look at this market and potentially regulate it? As to what degree? Because I think that will have a subsequently impact on the ability for the, the kind of the bubble factor that's priced into AI at the moment. Definitely AI is the future, but I think it's captured a premium in the, in the context of recent weeks and months.

That's really interesting. And maybe last question as we draw this into a close, and this is one that we actually, the students on our Summer Analyst Program have asked this week a couple of times, I think. It relates to the Eurozone going into recession. So why is the euro going up? Even though the Eurozone has just announced a technical recession. What is going on there? Very quickly.

Yeah, yeah, it's, um, it's a good question because the student— I said to the student, where did you read that headline? And they said the Daily Telegraph. And I said, well, you can take that Daily Telegraph and you can throw it in the bin because everything, everything that's on the Daily Telegraph is yesterday, if not last week or month's information. As far as markets are forward-looking, so long story short, The eurozone has moved into recession in the first quarter. It's basically grown— it's, it's shrunk 0.1%. However, we've known this, it's been telegraphed for a long time. Markets have already discounted that factor at the moment. The question here is then, at the moment, the ECB is still signaling the idea that they're going to hike, because even though top-line inflation has basically halved since its peak in October 2022, core inflation is still pretty much at its peak, and that's not budging particularly. It's just sat there. And so the ECB have to hike. Essentially, they are pretty slow out of the, out of the traps to start with, so they're playing a bit of catch-up. So yes, that's gonna— it's all, it's all priced in. It's not new news. Um, the ECB have given no comment as to change the perspective of how markets are leaning, which is they're going to hike rates again. So Euro up, um, and not down, essentially.

That's really helpful. Thank you so much. I think I'm going to take away Nvidia, it's going over a trillion. The Apple goggles, they're going to be a thing by 2030.

And buy the euro. Yeah, I'll give you one departing stat line. So I did— I had a look at some research and it was talking about how many iPhone users there are. So there's over a billion. Okay. Like there's a lot. And the estimates are at best case that by 2027, AR/VR is expected to surpass 100%. So when you talk about people get so excited because of this mass adoption argument. But even with the brightest minds running the most in-depth figures, you're only penetrating a fraction of the market. So for it to be a revolutionary game changer, it will, but not yet. I'm not getting my checkbook out. They're cool though. Like, I'm not going to deny it, but yeah. Cool. All right. Well, thank you, Stephen, for jumping in. I know it's not your usual slot, but I appreciate you doing a double tap this week. And definitely check out the Succession episode. 100% encourage you to, you know, it's like a 20-minute one, but it's super interesting because it's very relatable, of course. So when you're on your walk this weekend in the sunshine, maybe one for that situation. Thanks, Stephen. Thanks, everyone. Thanks, Ant.