Speaker 1: You're listening to the Bloomberg Opinion podcast count Us Saturdays
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Speaker 2: Welcome to Bloomberg Opinion I Amy Morris. This week we
Speaker 2: bid farewell to the last of the liberal fiscal conservatives.
Speaker 2: We also learn how standard legacy manufacturers can live in
Speaker 2: harmony with new technology like AI, and we take a
Speaker 2: look at how the fight against climate change has shifted
Speaker 2: and why the traditional climate champions are shifting their focus.
Speaker 2: But we begin with what some might call an inventory recession.
Speaker 2: Evercore chairman At Hyman tells Bloomberg News that the Fed
Speaker 2: should consider slowing down the interest rate hikes.
Speaker 3: At this point, the one more is baked in the cake.
Speaker 3: I think anything from now is a mistake. They're just
Speaker 3: creating a for a recession, or the more likelihood of
Speaker 3: a recession.
Speaker 2: But recession may be here for one industry already. It
Speaker 2: looks more and more like the materials and industrial world
Speaker 2: is either in or headed for some kind of slow down.
Speaker 2: And we welcome Bloomberg Opinion columnist Chris Bryant, he covers
Speaker 2: industrial companies in Europe. Chris, always a pleasure. Thank you
Speaker 2: for taking the time with us. The CEO of a
Speaker 2: chemical maker in Germany called the decline in sales volumes
Speaker 2: leman too, wow, what is going on?
Speaker 4: Well?
Speaker 5: I mean, Amy, I thought this was too irresistible to ignore.
Speaker 5: When these comments came a couple of weeks ago, it
Speaker 5: really sent a bit of a shop market around, a
Speaker 5: shock around the stock market because frankly, you know, comparisons
Speaker 5: to two thousand and eight really have people on edge.
Speaker 5: And you know, chemic pals is a very significant industry,
Speaker 5: is not one people like to think about very often
Speaker 5: because the products are quite complicated in the use k
Speaker 5: are so diverse. But that's exactly why it's an important
Speaker 5: indicator to keep an eye on. So when you have
Speaker 5: a chemical maker saying that the outlook you know, sales
Speaker 5: is like, you know, the worst he has seen since
Speaker 5: two thousand and eight, then really we need to sit
Speaker 5: up and listen. And what the ceover of Lanxes was
Speaker 5: basically saying is, yes, volumes are now declining at such
Speaker 5: a rapid pace and the prolonged nature of these sales
Speaker 5: declined as well. It's really stucking to worry him. And
Speaker 5: the SECTIM board.
Speaker 2: Never dawned on me before that this could be kind
Speaker 2: of a canary in the coal mine situation when it
Speaker 2: comes to watching the sales of chemicals. How does that
Speaker 2: chemical industry then help provide that signal for what is
Speaker 2: to come? Why monitor chemicals? Let's get deeper into that.
Speaker 5: Chemicals, of course, are very high up in value change.
Speaker 5: You know, basic peture chemical products that then get put
Speaker 5: into other products and before you know that product reaches
Speaker 5: the consumer, and therefore they're exposed to a very high
Speaker 5: number of markets, anything from say the construction industry through
Speaker 5: to consumer products. And therefore, you know, when chemical makers
Speaker 5: start to sound alarm about demand, that can be an
Speaker 5: indicator that you know, overall global demand is poor, but
Speaker 5: there's a particular thing that's going on in chemicals, and
Speaker 5: it also reflects on broader the broader economy, and it's
Speaker 5: this These chemical makers are talking a lot about de stocking,
Speaker 5: and this, of course is a result of the pandemic
Speaker 5: that we had. These supply chain difficulties and it forced
Speaker 5: a lot of businesses to order huge amounts of stock
Speaker 5: because they worried they were worried they wouldn't get any
Speaker 5: and so that what that's led to is businesses around
Speaker 5: the world are sitting on a lot of inventory.
Speaker 4: Therefore, when they start to worry that the economy is flowing.
Speaker 5: Naturally, the first thing they will do is say, well,
Speaker 5: we're not going to order any more just yet, because
Speaker 5: we've already got a lot and what we'd rather do
Speaker 5: is just run down those inventories and then we'll see
Speaker 5: later in the year whether we needed to order some more.
Speaker 5: And that's a normal thing in the economy. You get
Speaker 5: restocking phases and de stocking phases. What's strange, though, is
Speaker 5: that this de stocking phase has been going on for
Speaker 5: a while now. Chemical makers started talking about de stocking,
Speaker 5: you know, late last year, and they're still talking about
Speaker 5: it now, and they're saying it's going to continue for
Speaker 5: the rest of the year, which to me suggests that actually,
Speaker 5: really the problem is that the you know, underlying demand
Speaker 5: is not very good, and in fact we're seeing now
Speaker 5: you know, if you look at the manufacturing data, services
Speaker 5: remain very strong, but manufacturing is essentially already in session.
Speaker 2: Does this mean then that this particular faction would be
Speaker 2: different from just your plane old, run of the mill,
Speaker 2: everyday recession.
Speaker 5: You know, you can slice up the global economy in
Speaker 5: different ways, and clearly right now consumers are continuing to
Speaker 5: spand on services. They want to travel, they want to
Speaker 5: go through events, they want to socialize.
Speaker 4: What they're not doing as much, though, is buying stuff.
Speaker 5: Everybody ordered everything they wanted during the early part of
Speaker 5: the pandemic. Homes are full now of all the things
Speaker 5: everybody ever dreamed of having. And of course, therefore you're
Speaker 5: seeing this slowdown down in the in the manufacturing part
Speaker 5: of the economy. And so while you know, the employment
Speaker 5: levels remain very good and people are spending, they're not
Speaker 5: spending on the kind of stuff that chemical products go into,
Speaker 5: and all they spending on the kind of things that
Speaker 5: you know, manufacturers are producing.
Speaker 4: And therefore you do have this kind of two speed.
Speaker 5: Economy at the moment where you know, if you look
Speaker 5: at the data purchasing managers, data manufacturing is a prolonged slump.
Speaker 4: Services remain to be buoyant. So you can have these
Speaker 4: two things going on at the same time.
Speaker 5: I guess the question is whether you know one is
Speaker 5: going to pull down the other eventually, And my feeling
Speaker 5: is that, yes, when the chemical makers are saying the
Speaker 5: things are as bad as they were in two thousand
Speaker 5: and eight, and it probably does mean some kind of
Speaker 5: recession is on the way.
Speaker 2: This is an indication not just that there is a
Speaker 2: slowdown in the careical industry, but because of that, it
Speaker 2: may hint that there is a slowdown in manufacturing as
Speaker 2: a whole. Fewer things are being made because there's less
Speaker 2: of a demand for those things. What kind of things, well, I.
Speaker 5: Think we're talking about, you know, durable goods essentially, so
Speaker 5: anything from a sort of watery machine in your home
Speaker 5: to you know, a barbecue for your for your deck outside,
Speaker 5: and those kind of consumer products we're talking about on
Speaker 5: that side. But you know, we're you know, this is
Speaker 5: a bit broader than just chemicals, of course. And you know,
Speaker 5: if you look at that site that the number of
Speaker 5: these examples and the piece of people have been talking
Speaker 5: for example, about a.
Speaker 4: Freight recession now for many months.
Speaker 5: And what that means is if you look at, you know,
Speaker 5: the volumes that the trucking companies are carrying, or the
Speaker 5: volume of containers imported into the United States, those numbers
Speaker 5: have been falling up the cliff and you know, trucking
Speaker 5: companies have been sound in the alarm about the recession
Speaker 5: for Wana, and the container company, the container shipping companies,
Speaker 5: you know, the rates that they're able to are really
Speaker 5: starting to slump. And I think that's the issue here too,
Speaker 5: is that for a long time, you know, a lot
Speaker 5: of these chemical makers and other companies, they were suffering
Speaker 5: weak volumes, but they were able to you know, sort
Speaker 5: of cover up for that with high pricing. Of course,
Speaker 5: we've seen companies across the economy being able to raise
Speaker 5: prices and that's supported corporate profits and indeed, some people
Speaker 5: are saying, you know, corporate profits are driving inflation. The
Speaker 5: problem is that if you start to get these very
Speaker 5: big volume declients, then the pricing patterns of these companies
Speaker 5: had is going to go away. And that's what we've
Speaker 5: seen now some of the chemical makerss you know, talking
Speaker 5: also about pricing pressure coming in. It's just something new,
Speaker 5: of course, because until now, you know, when we had
Speaker 5: the supply chain crisis, you know, they were not only
Speaker 5: able to book really strong orders because people were just
Speaker 5: trying to order whatever they could, they were also able
Speaker 5: to do so at very high prices.
Speaker 2: Is this yet another quirk from the pandemic. You mentioned
Speaker 2: the pandemic and the supply chain issue and how that
Speaker 2: sort of fell off a cliffs edge. I'm wondering how
Speaker 2: long this particular u faction has been coming.
Speaker 5: I think it has been coming while. And of course
Speaker 5: it's a staggered effect across the economy. So the first
Speaker 5: companies to warn about this the stock you phenomenon with
Speaker 5: you know, the big box retailers in the United States
Speaker 5: last year were forced to say, yeah that, well, now
Speaker 5: we've got too much stuff. People don't want to buy
Speaker 5: it anymore. But you know, there to be some notes
Speaker 5: out from analysts recently pointing to the fact that raised inventory.
Speaker 5: So we're talking about the supplies that stops are a
Speaker 5: problem sort of across many sectors in the economy, and
Speaker 5: so you could get that effect start to happen in
Speaker 5: other sectors going forward. And and why because you know, obviously,
Speaker 5: you know companies at the moment they are looking very
Speaker 5: carefully at their cash flow and they're seeing interest rates
Speaker 5: start to rise, perhaps their death costs go up, and
Speaker 5: therefore they need to save every penny they can. And
Speaker 5: one way you can do that, of course, is to
Speaker 5: optimize your working capital, which means you know, essentially but
Speaker 5: sit on less inventory because of course that you know,
Speaker 5: the more stock you're holding, the more cash is tied
Speaker 5: up in that in that stock. As you start to
Speaker 5: run down those paths, and of course you know that
Speaker 5: does put you know, pressure on the economy and it
Speaker 5: will tend.
Speaker 4: To show up in the g defeat.
Speaker 5: GDP figures that people report inventories are a key point
Speaker 5: of that. Who my expectation in the coming months is
Speaker 5: that would be negative.
Speaker 2: But for growth, where's the rebound?
Speaker 5: Then normally you would say that, you know, this is
Speaker 5: a natural cycle in the economy. You get you know,
Speaker 5: as I said, de stocking phases, restocking phases, and I
Speaker 5: hope is that as soon as eventually a company will
Speaker 5: simply run out of stock, need to order some more,
Speaker 5: and off you I'll go to the races again.
Speaker 4: As I said.
Speaker 5: The issue I think here is that this is becoming
Speaker 5: quite a prolonged thing, and of course there's no real
Speaker 5: what's the you know, what's going to be the driver
Speaker 5: of that new restocking phase. And you know, many of
Speaker 5: the companies are warned on profits. And I'm talking here
Speaker 5: not just about Europe and the United States to you know,
Speaker 5: talked about China.
Speaker 4: There was this hope that China was.
Speaker 5: Going to drive the rebound, and unfortunately that's not been
Speaker 5: the case normally in previous you know, down phases. You know,
Speaker 5: China has you know, sort of applied some kind of
Speaker 5: massive stimulus and not we've gone again and you know,
Speaker 5: had a decade or more an hour of China, the
Speaker 5: Chinese real estate boom and massive you know flows into
Speaker 5: that sector, and of course that's now all come to
Speaker 5: a bit of a holt and well, you know, China
Speaker 5: has rebounded as it's reopened its economy. You know, it's
Speaker 5: been very disappointing compared to what I think the global
Speaker 5: manufacturing sector had hoped. And while that you know, remains absolently,
Speaker 5: I think it's very difficult to see what the catalyst
Speaker 5: might be because clearly, you know, it's difficult to know
Speaker 5: what's going to provide that that turnaround that lifts the
Speaker 5: manufacturing sector out of the recession.
Speaker 4: It clearly seems to be in.
Speaker 2: Thank you so much, Chris Bryan, a Bloomberg opinion columnist
Speaker 2: who covers industrial companies in Europe, and coming up a
Speaker 2: farewell to Dick Ravitch. A New York legend who passed
Speaker 2: away last week at the age of eighty nine. He's
Speaker 2: known for saving both New York City and the Metro
Speaker 2: Transportation Authority from financial ruined back in the nineteen seventies.
Speaker 2: We're going to learn all about him. You're listening to
Speaker 2: Bloomberg Opinion.
Speaker 1: You're listening to the Bloomberg Opinion podcast. Catch hast Saturdays
Speaker 1: at one and seven pm Eastern on Bloomberg dot Com,
Speaker 1: the iHeartRadio app and the Bloomberg Business app, or listen
Speaker 1: on demand wherever you get your podcasts.
Speaker 2: You're listening to Bloomberg Opinion. I'm Amy Morris. There was
Speaker 2: a time when the UK was a climate champion, setting
Speaker 2: the pace for tackling the climate change crisis. Prime Minister
Speaker 2: Rishi Sudnak made a pledge to the twenty twenty two
Speaker 2: United Nations Climate Change Conference just last fall.
Speaker 6: Our part the UK, which was the first major economy
Speaker 6: in the world to legislate for that zero, will fulfill
Speaker 6: our ambitious commitment to reduce emissions by at least sixty
Speaker 6: eight percent by twenty thirty.
Speaker 2: But now they seem to be falling behind, putting Britain's
Speaker 2: global standing at risk as other nations move ahead with
Speaker 2: bold new climate policies. Bloomberg opinion columnist Laura Williams covers
Speaker 2: climate change and she joins me now to talk about this.
Speaker 2: How has the UK helped drive change?
Speaker 7: Yeah? So, you know, there are plenty of past successes
Speaker 7: to be proud of. The Climate Change Acts. In two
Speaker 7: thousand and eight was the first time a leadlely binding
Speaker 7: mistigations target had been set by a country, and in
Speaker 7: twenty nineteen we were the first country to you know,
Speaker 7: enshrine and net a zero emissions to moment in law
Speaker 7: as well. And you know, we've really kind of led
Speaker 7: the pack and inspired other countries to make these kinds
Speaker 7: of commitments. But unfortunately those you know, that kind of
Speaker 7: period of climate leadership seems to be over.
Speaker 2: So what happened? Why is the UK lagging behind other countries?
Speaker 8: Now?
Speaker 7: I would say that it comes down to, you know,
Speaker 7: a chape. We've had several changes in leadership and the
Speaker 7: current leadership is not for saying that climate change as
Speaker 7: a priority.
Speaker 2: When you refer to leadership, are you talking about the
Speaker 2: Prime Minister? Because it seemed to be a priority last
Speaker 2: fall when he was talking to cop twenty seven, or
Speaker 2: also known as the UN Climate Change Conference. Has something
Speaker 2: changed since last fall?
Speaker 7: Well, I suppose the cost of living crisis has you
Speaker 7: know made a big difference. We've got lots of other
Speaker 7: things to pay for in the Ukraine War as well,
Speaker 7: might have you know, sort of shifted priorities. But other
Speaker 7: countries have really used the war as a way to
Speaker 7: kind of spark bold commitments on climate. We have the
Speaker 7: Inflation Reduction Act in the US, and the EU also
Speaker 7: has you know, bid bold you know, agenda setting plans
Speaker 7: to make you know, climate change the heart of the economy,
Speaker 7: and the UK just hasn't really done that.
Speaker 2: Why is it important to be the leader on the surface?
Speaker 2: Would it matter as long as everybody does their part.
Speaker 2: Who is out front?
Speaker 7: Well, you know, of course, any reductions anywhere is a
Speaker 7: reduction in carbon emissions, and that's great, But the UK is,
Speaker 7: you know, we it's just it's sad that we've lost
Speaker 7: our place in the world and you know, we were
Speaker 7: a global leader and we're gonna miss out on opportunities
Speaker 7: if we're not getting in now, if we're if we're
Speaker 7: not you know, pushing ourselves out, there is a good
Speaker 7: place to invest we're going to lose that investment and
Speaker 7: we'll will fall behind and we'll lose you know, global influence.
Speaker 2: Oh, let's talk about that, the investment opportunities and how
Speaker 2: that could be lost if if they are no longer
Speaker 2: out in front or at least near the front of
Speaker 2: the pack on this give me it.
Speaker 7: For instance, you know, other countries are you know leading
Speaker 7: the pack on. So take for instance, the US and
Speaker 7: carbon removal. The US is pushing a lot of money
Speaker 7: into helping drive you know, these new technologies which will
Speaker 7: be important in you know, removing those last stubborn bits
Speaker 7: of you know CO two emissions from industries like aviation
Speaker 7: and industry, agriculture, things like that, And so the US
Speaker 7: is really making it lucrative to invest, is really helping
Speaker 7: startups develop and become trustworthy, reliable, you know sources of
Speaker 7: carbon removal. The UK is good on the you know,
Speaker 7: the science side. We have a lot of research and development.
Speaker 7: But you know, as same stand is not a good
Speaker 7: place to start a company like a carbon removal company,
Speaker 7: and you know, the America and the EU are kind
Speaker 7: of leading there.
Speaker 2: If it's not the UK, then Lara, who is it
Speaker 2: who's taking the lead now and tackling climate change, well.
Speaker 7: I think you know, the European Union and the US
Speaker 7: of you know, bold climate policies aimed at spur and
Speaker 7: green investment. I would say those they're the kind of
Speaker 7: leaders right now.
Speaker 2: We haven't really expressed what it means to be a leader,
Speaker 2: like how do you quantify that? What's the unit of
Speaker 2: measure that you use to say, Oh, these guys are
Speaker 2: out in front on this versus somebody who may be
Speaker 2: lagging behind or completely off the chart.
Speaker 7: So I'm thinking about and I think the you know,
Speaker 7: the Climate Change Committee, who published a report recently which said,
Speaker 7: you know, the UK was lagging behind, would look at
Speaker 7: policy implementation and so they're kind of moving forward with
Speaker 7: really interesting and bold commitments and policies where the UK isn't.
Speaker 7: For instance, you know, a place where the UK could
Speaker 7: lead but is choosing not to, is on the demand side.
Speaker 7: So that's kind of things that make up individuals, trab
Speaker 7: and footprints, you know, switching to from a gashob to
Speaker 7: an induction hob, find an electric car, installing a heat pump,
Speaker 7: and we're really really behind on all of these things.
Speaker 7: And part of the reason for that is that electricity
Speaker 7: has these green taxes which make them makes electricity as expensive,
Speaker 7: if not a little bit more expensive than gas. That
Speaker 7: to be easily ractified by just taking off those green
Speaker 7: taxes and putting them on gas to mate electricity cheaper.
Speaker 7: And so that would make it really really easy for
Speaker 7: people to mate these individual easy choices to you know,
Speaker 7: be more eco friendly in their daily lives. And that
Speaker 7: doesn't get us all the way to net zero, but
Speaker 7: it makes the job easier as we move forward, and
Speaker 7: that you know hasn't been on the agenda necessarily for
Speaker 7: the UK.
Speaker 2: I wonder if there is a psychological risk among countries
Speaker 2: when you see a leader like the UK start to
Speaker 2: sort of slip and fall behind. Does it have a
Speaker 2: residual effect? Is there a risk of their being sort
Speaker 2: of a domino effect? Where are the other countries, instead
Speaker 2: of stepping up and taking the lead, say oh, you know,
Speaker 2: maybe maybe we can just take a minute, you know,
Speaker 2: and not have to worry about this as much, and
Speaker 2: everyone starts to fall behind and become more laco daisical
Speaker 2: when it comes to this topic. Is that a risk?
Speaker 7: I think that's definitely a risk. And you know, once
Speaker 7: the UK was inspiring it was inspiring other countries, you know,
Speaker 7: to follow its lead, and it's looking increasingly and tredible.
Speaker 7: You know, when the UK is saying, oh, you should
Speaker 7: try and ditch coal, but then it opens, you know,
Speaker 7: decides to open a new coal mine in its own country,
Speaker 7: then you know we're not going to be taken seriously
Speaker 7: on the world stage. And it sends a message that
Speaker 7: you know, climate action isn't as important necessarily.
Speaker 8: As it once was.
Speaker 2: And to that end, we just got word this week
Speaker 2: that Monday, the third of July was the hottest day
Speaker 2: ever recorded on Earth. Now, I know that this is
Speaker 2: relatively new information, but you do cover climate and climate
Speaker 2: issues for bl Bloomberg. So how does that factor into
Speaker 2: any decisions that might be made on a local, state,
Speaker 2: or municipal or governmental level When you hear that sort
Speaker 2: of data that Monday was the hottest day ever recorded
Speaker 2: on Earth?
Speaker 7: Yeah, it's I mean, it's really drives at home that
Speaker 7: the fact that climate change is here and action needs
Speaker 7: to be made now. And I think you know, when
Speaker 7: you readet events like this, it really brings it home
Speaker 7: to people, and you know people are starting to care.
Speaker 7: You know, last year when we had the UK reached
Speaker 7: four ced degrees celsius and that has never been seen
Speaker 7: before and I think that was really a way up
Speaker 7: pool for people. And you know, people are now really
Speaker 7: quite concerned about climate change and they would like to
Speaker 7: see climate action and that's becoming important to them. And
Speaker 7: so the more we see these record breaking days, the
Speaker 7: more staid that you know, the general public are going
Speaker 7: to be quite rightfully so, because it is quite scary,
Speaker 7: and you know, the more that seeing the leaders tate
Speaker 7: time action will be important to them.
Speaker 2: Laura Williams is a Bloomberg Opinion columnist who covers climate
Speaker 2: change and coming up how legacy manufacturers can keep up
Speaker 2: in a world that seems dominated by new technology, especially AI,
Speaker 2: can old school industry survive? Don't forget. We're available as
Speaker 2: a podcast on Apple, Spotify or your favorite podcast platform.
Speaker 2: This is Bloomberg Opinion.
Speaker 1: You're listening to the Bloomberg Opinion podcast Contest Saturdays at
Speaker 1: one and seven pm Eastern on Bloomberg dot Com, the
Speaker 1: iHeartRadio app, and the Bloomberg Business App, or listen on
Speaker 1: demand wherever you get your podcasts.
Speaker 2: This is Bloomberg Opinion. I'm Amy Morris. Legacy manufacturers have
Speaker 2: been trying to rebrand themselves as technology companies for twenty
Speaker 2: years or more, but even their own investors don't see
Speaker 2: it that way. They associate them more instead with chunks
Speaker 2: of metal whose sales are dictated by economic twists and turns.
Speaker 2: Bloomberg opinion columnists Brooks Sutherland covers deals and industrial companies,
Speaker 2: and she's going to help clear this up for us,
Speaker 2: she joins us. Now, brook always a pleasure, Thank you
Speaker 2: for taking the time with us. Right now, there is
Speaker 2: this big boom in artificial intelligence. First things first, is
Speaker 2: this a bubble?
Speaker 8: Well, I will weave bet to the people who cover
Speaker 8: the technology companies very closely, but I do think you
Speaker 8: know what's interesting, Like you were saying that, we do
Speaker 8: see industrial companies tend to sort of attach themselves to
Speaker 8: whatever the technology trend of the moment is, and that
Speaker 8: is happening yet again with AI. But in this case,
Speaker 8: I think it actually does work because we're not trying
Speaker 8: to reposition these companies as sort of the next coming
Speaker 8: of AI, which is what we've seen in the past.
Speaker 8: She used to say that it could be a top
Speaker 8: ten sellar of software. It didn't exactly work out that way,
Speaker 8: but the reality is to make AI work, you need
Speaker 8: graphics processing units, which require significantly more power than the
Speaker 8: central processing unit that we use today, mostly in data centers.
Speaker 8: And when you have you know, chips that require a
Speaker 8: lot more power, you need to have more electrical equipment
Speaker 8: to make all of that work. And then when they
Speaker 8: require a lot more power, they also get hotter, and
Speaker 8: so you need air conditioners and other types of cooling
Speaker 8: equipment to keep them cool. And so this is really
Speaker 8: industrial companies Bread and Butter is selling electrical equipment and
Speaker 8: air conditioning equipment, and so I do think there's an
Speaker 8: opportunity here to sort of tap into that growth. And
Speaker 8: these companies have already been benefiting from the expansion of
Speaker 8: data centers, and this just gives another leg to that story.
Speaker 2: AI is often seen as a threat, but you're saying
Speaker 2: this could be more of an opportunity and less of
Speaker 2: a threat if these legacy manufacturers can maybe pivot. Is
Speaker 2: pivot too strong award?
Speaker 8: I don't even think they need to pivot, And I
Speaker 8: think that's what's interesting here is it's sort of a
Speaker 8: guaranteed continued relevancy for electrical equipment and different types of
Speaker 8: cooling technologies. Which to your point, is not what you
Speaker 8: can say for every industry. There's a lot of concern
Speaker 8: about AI, you know, blowing up entire sectors that are
Speaker 8: backbones of the economy today. But the reality is is
Speaker 8: for these systems to work, you need things like electrical
Speaker 8: equipment and air conditioners. And so I think that that
Speaker 8: continued relevancy is what's important here for the industrial company.
Speaker 2: Is that something investors need to also keep in mind
Speaker 2: when it comes to industry and how it can dovetail
Speaker 2: with AI.
Speaker 8: I think they already are. I mean, I think one
Speaker 8: of the things that was really interesting to me as
Speaker 8: I started looking into this is there's a company called
Speaker 8: Vertive Holdings which used to be part of Emerson and
Speaker 8: then was sold to private equity and then went public again,
Speaker 8: and it's stock on a percentage basis had climbed as
Speaker 8: much as Navidia's since that company. The chip maker had
Speaker 8: its blockbuster earnings report where it laid out very ambitious
Speaker 8: growth forecast for its chips the power AI and sort
Speaker 8: of got the market very excited about this, and you
Speaker 8: could see investors saying, Okay, well, if you know, the
Speaker 8: opportunity is so great for Navidia. Then it might also
Speaker 8: be really great for these industrial companies whose equipment will
Speaker 8: be needed to make this whole thing work as well.
Speaker 2: And in your column on the Bloomberg Terminal, you actually
Speaker 2: use those companies as an example.
Speaker 8: Vertive Eton is another big provider of data center equipment,
Speaker 8: and you also have Envent and so these companies have
Speaker 8: been bullied by enthusiasm around this idea of the electrification
Speaker 8: of everything as well, and so this would be sort
Speaker 8: of another leg to that journey. But it's an important
Speaker 8: one to keep in mind. And they don't you know,
Speaker 8: they're investing in new technologies to adapt to the specific
Speaker 8: needs of AI, but this is really in their core wheelhouse.
Speaker 8: This is what these companies do. They make electrical equipment,
Speaker 8: or you know, in the case of somebody like a
Speaker 8: train or a Johnson Controls, they make cooling equipment, cooling technologies.
Speaker 8: And so I think that's why this, you know, this
Speaker 8: technology narrative works better for industrial companies than some of
Speaker 8: the ones that have come in the past. You know,
Speaker 8: one of the analysts who covers the sector remembered in
Speaker 8: the dot com days, all these companies trying to pitch
Speaker 8: themselves as tech companies because they had managed to create
Speaker 8: a website. And you know, we had the software boom
Speaker 8: of the twenty fifteen twenty sixteen timeframe when all these
Speaker 8: companies were trying to say they were software companies with
Speaker 8: varying degrees of credibility. But you know, because this is
Speaker 8: what these companies do and have been doing for years
Speaker 8: and years and years, I think they're much better suited
Speaker 8: to adapt to the unique demands of AI. And the
Speaker 8: incumbents do have an advantage here.
Speaker 2: We are talking with Bloomberg opinion columnist Brooks Sutherland about
Speaker 2: how legacy manufacturers are navigating the AI boom, and you
Speaker 2: were just saying, Brooke, about how for years, way before AI,
Speaker 2: but for the past twenty years or more, legacy manufacturers
Speaker 2: have tried to remain relevant by rebranding themselves as tech companies.
Speaker 2: Your point is you don't have to do that. You
Speaker 2: just need to show that you're relevant to the tech
Speaker 2: company because they're going to need what.
Speaker 8: You've got right exactly. And I mean there's some question of, like,
Speaker 8: you know, does this mean that industrial companies are necessarily
Speaker 8: going to outperform the rest of the economy. Would they
Speaker 8: necessarily benefit more from AI than other companies. I don't
Speaker 8: know if I'm willing to go that far, but like
Speaker 8: I said, I think just continuing to be relevant and
Speaker 8: that your equipment will be needed to empower this AI wave,
Speaker 8: whatever it ends up ultimately looking like, is not the
Speaker 8: same for every industry, and there's lots of industries that
Speaker 8: will no longer exist in a world of AI, and
Speaker 8: we will continue to need electrical equipment and air conditioning.
Speaker 2: Did you find there's some skepticism about prospects for a
Speaker 2: type of spending extravaganza of sorts to support these data
Speaker 2: centers for AI?
Speaker 8: Sure? I mean, I think there's a healthy amount of
Speaker 8: skepticism on all of these kind of mega trends that
Speaker 8: industrial companies talk about. So it's not just AI spending,
Speaker 8: but also you know that electrification of everything, the reshoring trend,
Speaker 8: the extent to which that is or isn't happening, And
Speaker 8: we've seen companies dial back spending on data centers in
Speaker 8: the immediate term where they maybe got a little over extended,
Speaker 8: you know, specifically, uh Meta, the parent of Facebook, has
Speaker 8: talked about curbing its spending, but it's doing so because
Speaker 8: it wants to adjust how the design of its data
Speaker 8: centers to adapt for the potential of AI. But there
Speaker 8: is a question of you know, do a identify aident
Speaker 8: data centers because they're designed to be more efficient and
Speaker 8: more capable, do they ultimately need you know, more electrical
Speaker 8: equipment relative to older versions of data centers. And I
Speaker 8: think that's the question that we don't necessarily have the
Speaker 8: answer to just yet.
Speaker 4: Yeah.
Speaker 2: In fact, just to play off of that for a moment,
Speaker 2: if I could, I was kind of looking down the
Speaker 2: road then, not months, not years, but decades from now,
Speaker 2: depending on how AI develops and how technology develops, will
Speaker 2: there be a time when the classic legacy industrial type
Speaker 2: things are going to have to find a way to
Speaker 2: pivot to keep up with that technology, or will there
Speaker 2: always be that need for the big chunks of metal
Speaker 2: that we've been depending upon for the past one hundred years.
Speaker 8: Sure, I mean, I think there's a lot we still
Speaker 8: don't know about, you know, the ways that AI will
Speaker 8: change the world. But I do think you know that
Speaker 8: you still need you know, excavators to build buildings. I
Speaker 8: don't know if we can you know, train or there
Speaker 8: will be some sort of metal needed to do these
Speaker 8: things at some point in the time, can't just do
Speaker 8: it by brain power, Jesse. Yet I don't know the
Speaker 8: past in the car, So you know, there is, like
Speaker 8: I said, there's a continued relevance for a lot of
Speaker 8: these companies. They will certainly have to adapt. There are
Speaker 8: always trends out there that these companies need to adapt to,
Speaker 8: and some do it better than others, and which is
Speaker 8: always interesting to watch.
Speaker 2: Is there any risk that the manufacturers aren't going to
Speaker 2: be able to keep up with demand or the trends?
Speaker 2: Is there any risk that they're going to have to
Speaker 2: learn something new to be able to keep up with
Speaker 2: what's down the road.
Speaker 9: Sure?
Speaker 8: I mean, so you know, the electrical equipment companies already
Speaker 8: have very long backlogs they're chipping away with right now.
Speaker 8: So the idea is that this would be incremental to
Speaker 8: that demand. Now, they're struggling to meet the demand that
Speaker 8: they already have, and so there are some supply chain
Speaker 8: issues to be worked out there now in terms of adapting,
Speaker 8: I do think, you know, one of the bigger questions
Speaker 8: is will there be sort of small upstart companies that
Speaker 8: will come out with specifically, you know, the cooling technologies
Speaker 8: that are needed for AI enabling data centers. And I
Speaker 8: do think the incumbents do have an advantage here and
Speaker 8: they invest in technologies and will Typically this tends to
Speaker 8: be the company that the companies that like the large
Speaker 8: technology giants want to buy from. But there's always that
Speaker 8: possibility of an upstart coming in and the incombents will
Speaker 8: need to be, you know, on their toes and make
Speaker 8: sure they're investing in what they need to be for
Speaker 8: their technology to continue to stay relevant.
Speaker 2: It is going to be really interesting to watch how
Speaker 2: this all unfolds, and and the idea that there's room
Speaker 2: for both AI and the more traditional legacy manufacturers is comforting.
Speaker 2: Thank you Brookes so much for joining us. Thank you
Speaker 2: you're listening to Bloomberg Opinion. I'm Amy Morris. Dick Ravitch
Speaker 2: passed away last week at the age of eighty nine.
Speaker 2: He is seen as the last of the liberal fiscal conservatives,
Speaker 2: a former Lieutenant governor of New York known for being
Speaker 2: the guy behind the scenes to build bridges to solve problems,
Speaker 2: and was influential on a national level as well. We
Speaker 2: learn more now from Alison Shreiger ay Bloomberg Opinion colonist,
Speaker 2: you say in your column on the Bloomberg terminal that
Speaker 2: his passing is the end of an era.
Speaker 9: How so, Yeah, Well, I mean it used to be
Speaker 9: that maybe people were a little bit more to the
Speaker 9: center and on both sides and really believe that fiscal
Speaker 9: responsibility was a big part of good governance and that
Speaker 9: even if you wanted more progressive policies, you also needed
Speaker 9: sustainable ways to pay for them.
Speaker 2: So he was a liberal but still didn't necessarily see
Speaker 2: tax the rich as the answer to fixing the debt.
Speaker 9: Well, he definitely, i think, supported more progressive taxes, but
Speaker 9: he didn't think that was the all end all. And also,
Speaker 9: I mean it's worth noting that most of his work
Speaker 9: was on the state municipal level, and he definitely saw
Speaker 9: that if you tax the rich to high heaven, then
Speaker 9: eventually they might leave the state. So, you know, while
Speaker 9: there's definitely room for progressive taxes, I think he was
Speaker 9: wary the idea that this could solve all of our problems.
Speaker 2: What was his legacy in New York? You describe him
Speaker 2: as being somebody who could work behind the scenes to
Speaker 2: help bridge those opposing sides.
Speaker 9: Yeah, I mean, I think, you know, unless you were
Speaker 9: sort of really like in the know of these things.
Speaker 9: You didn't realize just quite how influential he was. I know,
Speaker 9: because we became friends in his last years because I'm
Speaker 9: incredibly passionate about public sector pension reform and he was too,
Speaker 9: because he saw this as another sort of unsustainable benefit.
Speaker 9: But the thing is you have to understand is he
Speaker 9: understood how important those pensions were to people, like I
Speaker 9: think people confuse and this is why I think is
Speaker 9: unusual about him, and it is sort of a big loss.
Speaker 9: Is to be concerned about how things are financed doesn't
Speaker 9: mean you don't think they should exist. It just means
Speaker 9: that they need to have a sustainable way of being
Speaker 9: financed so people can genuinely count on them. Because he
Speaker 9: was behind the scenes not only in New York state politics,
Speaker 9: but certainly in the Detroit bankruptcy, in the Puerto Rico bankruptcy,
Speaker 9: and he saw that when pensioners have their benefits cut,
Speaker 9: how financially devastating it is to them, and sort of
Speaker 9: fiscal proflicacy really puts you in that vulnerable position where
Speaker 9: that things can happen.
Speaker 2: What were his concerns about the stimulus and the money
Speaker 2: that was blowing actually to people during the pandemic.
Speaker 9: Well, I think he was very concerned that, you know,
Speaker 9: well states got all this sort of financial largest they
Speaker 9: also were spending more and eventually that money goes away,
Speaker 9: and then this could set them up to be very
Speaker 9: even more vulnerable in the future. I mean, we went
Speaker 9: into the pandemic, a lot of states and municipalities were
Speaker 9: in a very vulnerable position. They became flush with cash,
Speaker 9: and you know, they weren't necessarily not all. I mean
Speaker 9: it's hard to make There's a lot of states and cities,
Speaker 9: and some are better than others, but some sort of
Speaker 9: use that opportunity to spend more rather than sort of
Speaker 9: create more rainy day fi and be responsible. So now
Speaker 9: we might be coming out of that with them even
Speaker 9: being even more vulnerable.
Speaker 2: Did he have much of a nation wide influence In
Speaker 2: your column, you mentioned that he did have some influence nationally.
Speaker 9: Yeah, for sure. I mean in the time I met him,
Speaker 9: he would put together all these meetings and you would
Speaker 9: meet people from all over the country who are passionate
Speaker 9: about state municipal finances. And as he said, he was
Speaker 9: very involved in Puerto Rico and Detroit, and you know,
Speaker 9: talking to people in California about states and cities there
Speaker 9: that were having problems. So I mean, really he was
Speaker 9: the go to guy for state municipal finances all over
Speaker 9: the country.
Speaker 2: Is there anyone out there who shares this philosophy or
Speaker 2: who can follow in his footsteps?
Speaker 9: I honestly, I mean I certainly met a lot of
Speaker 9: people through him, but certainly not who have the charisma.
Speaker 9: I mean, everything as well, is so politicized now. The
Speaker 9: fact that he was just a true and true progressive
Speaker 9: and a Democrat but also really passionate about fiscal responsibility
Speaker 9: meant he really could build bridges because Republicans somewhat concerned
Speaker 9: about that too, although less so you know, people could
Speaker 9: really come together about these shared concerns. And now, I mean,
Speaker 9: it all seems like everything gets politicized on both sides,
Speaker 9: and it's hard to find people. As it said, it
Speaker 9: gets confused. If you get concerned about pensions or finance,
Speaker 9: people sort of just lump you and assuming that you
Speaker 9: don't want pensions at all. He had the credibility for
Speaker 9: both sides, and I honestly can't think of anyone who
Speaker 9: does today.
Speaker 2: Bloomberg opinion columnist Alison Schraeger covers economics for Bloomberg and
Speaker 2: that does it for this week's Bloomberg Opinion. We are
Speaker 2: produced by Eric mollow and you can find all of
Speaker 2: these columns on the Bloomberg Terminal. We're available as a
Speaker 2: podcast on Apple, Spotify, or your favorite podcast platform. Stay
Speaker 2: with us today's top stories and global business headlines just ahead.
Speaker 2: I'm Amy Morris, and this is Bloomberg.