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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leie. We bring

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Speaker 1: you insight from the best and economics, finance, investment and

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Speaker 1: international relations. Find Bloomberg Surveillance and Apple Podcast SoundCloud, Bloomberg

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Speaker 1: dot Com and of course on the Bloomberg Terminal. Now

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Speaker 1: an important update our John Farrell in conversation with the

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Speaker 1: leader of General Motors. Let's listen. Are he pleased to

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Speaker 1: say that joining us now is the GM chief Mary Barra. Mary,

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Speaker 1: fantastic to catch up with you. I want to whip

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Speaker 1: through the south Side research off the back of these numbers, Dan,

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Speaker 1: i've's wet bush by laying major groundwork for a game

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Speaker 1: changing EV strategy city a positive outcome. It increases our

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Speaker 1: conviction by Jeffries and Philippe Hut is a little bit

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Speaker 1: more balanced on this. He seems surprised by the volume

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Speaker 1: guide two to three times bigger than what they've heard

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Speaker 1: coming into this. Where's that coming from? Mary? Where are

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Speaker 1: you getting that visibility from? Well, as we look at

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Speaker 1: the year, we've been working closely with the semiconductor manufacturers.

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Speaker 1: Are tier ones to make sure that we you know,

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Speaker 1: have the best possible forecast for what we're gonna be

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Speaker 1: able to build this year. Recall, last year we were

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Speaker 1: hit a bit hard with some of the COVID impacts

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Speaker 1: in Malaysia. So that's where we see, um, you know,

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Speaker 1: the opportunity to see on a global basis, you know,

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Speaker 1: greater than increase from a production perspective, and that is

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Speaker 1: assuming that we're not going to have any you know,

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Speaker 1: dramatic changes from a COVID or a supply chain perfect perspective.

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Speaker 1: But we feel very confident. And also what's exciting is

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Speaker 1: we know there is strong demand for our vehicles. So

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Speaker 1: I'm very h I think twenty two has the opportunity

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Speaker 1: to be a very good year. I want to hit

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Speaker 1: that to mind story in just a moment. Clearly there's

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Speaker 1: a balance a play through last year, and you're now

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Speaker 1: that balance with a stalk performance. We saw a balance

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Speaker 1: between the chip access and pushing it towards the high

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Speaker 1: price vehicles. Now it's almost the opposite, and I think

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Speaker 1: there's some disappointment around that. Mary that you get the

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Speaker 1: better access, you get the better volume, but the average

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Speaker 1: price comes down. How do you balance that? How do

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Speaker 1: you optimize the balance there for twenty two. Well, you

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Speaker 1: know again this we had record performance this year and

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Speaker 1: again hats off to the GM team with all the

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Speaker 1: work that they did, the challenges that they overcame. And

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Speaker 1: as we get into next year, you know, not only

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Speaker 1: are we going to be selling across many more segments.

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Speaker 1: Last year in twenty one, we focused on our most

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Speaker 1: in demand and capacity constrained vehicles. So as we open

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Speaker 1: it up to you know, other allocation to chips, to

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Speaker 1: other products. Uh. You know, it is a different from

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Speaker 1: a profitability perspective, and we also are investing in growth

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Speaker 1: and so you know, we're investing for the future. We

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Speaker 1: know there's a huge opportunity not only from an EV

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Speaker 1: perspective UH and a V perspective with crews, but also

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Speaker 1: across the board from a software perspective, whether it's ICE

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Speaker 1: or E V s H. We see an opportunity to

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Speaker 1: really grow from a from a services and subscriptions perspective. Mary,

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Speaker 1: you've gotta help me with the numbers what it comes

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Speaker 1: to capex and investment. The numbers we've seen in this

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Speaker 1: industry just huge. The team here at Bloombergh came out

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Speaker 1: with the story FOD yesterday, throwing another twenty billion at

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Speaker 1: this transition. You said, quote, we're going to be increasing

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Speaker 1: spending that much is clear. Is the answer always going

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Speaker 1: to be more? When you're asked how much you need

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Speaker 1: to throw at this story, Mary, Well, you know we've

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Speaker 1: already announced between twenty and twenty five that we're going

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Speaker 1: to invest thirty five billion dollars and we've been investing.

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Speaker 1: That big announcement yes or last week in Michigan seven

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Speaker 1: billion dollars for conversion of a plant to build trucks

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Speaker 1: EV trucks as well as our third battery plant. We're

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Speaker 1: pulling ahead our fourth battery plant will be making that

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Speaker 1: announcement in the first half of this year, as well

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Speaker 1: as an additional EV truck plan. So we're seeing the

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Speaker 1: demand for our products and we're seeing customers willingness to

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Speaker 1: adapt VS. That's what's calling causing us to pull ahead.

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Speaker 1: You know we're we're going to continue to do that,

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Speaker 1: and you know we've got the capability to do that,

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Speaker 1: and you'll just see our number grow as we continue

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Speaker 1: to invest in e v a V capability. Right at

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Speaker 1: the end of the cool yesterday you talked about the

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Speaker 1: dividend murray, where is it? When does this dividend come back?

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Speaker 1: What you need to achieve to bring them back into apply? Well,

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Speaker 1: you know, we've had a capital allocation framework for the

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Speaker 1: last several years where first we invest in opportunities to

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Speaker 1: generate a return on invested capital of greater than as

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Speaker 1: well as have an investment grade balance sheet, and then

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Speaker 1: return the rest to shareholders. And that's what we plan

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Speaker 1: to do. But with all the opportunities we see in

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Speaker 1: front of us to accelerate on EVS, accelerate a VIS,

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Speaker 1: and accelerate the software defined vehicle, we want to make

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Speaker 1: sure we have maximum flexibility and that's why we're not

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Speaker 1: reinstating the dividends as we currently assess the situation. Uh,

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Speaker 1: you know, there's still are other mechanisms to return value

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Speaker 1: to shareholders, but we want to have the flexibility to

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Speaker 1: really support our growth. Do you think bipacks make most sense?

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Speaker 1: Is that what you're trying to say that? Well, again,

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Speaker 1: you know, I think the first there's three pillars of

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Speaker 1: our capital allocation framework to me, Uh, making sure we're

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Speaker 1: investing in creating value and growth think is the best

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Speaker 1: thing we can do for our shareholders. But if you

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Speaker 1: know we at the end we have excess capital. We

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Speaker 1: are going to use one of the mechanisms to be

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Speaker 1: able to return that to our shareholders. You've mentioned demand

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Speaker 1: a few times. Let's go through the numbers. The numbers

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Speaker 1: are staggering. You've talked about this pent up demanding the

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Speaker 1: American market of several million vehicles on the e V side.

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Speaker 1: I was looking through the orders the reservations. Fifty nine

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Speaker 1: thousand hummery vs dred and ten thousand Electric Chevy Silveradoes.

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Speaker 1: I'm sure that if you open the books again for

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Speaker 1: some of these names, they'll go again. They'll go again. Mary,

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Speaker 1: have you ever seen demand this great in this country

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Speaker 1: for this transition? You know, I just am really encouraged

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Speaker 1: by how much interest there are in evs. I really

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Speaker 1: last year we started to see a tipping point, and

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Speaker 1: that's why last year we really end in. In twenty

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Speaker 1: we started accelerating our push to e vs. And you know,

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Speaker 1: we're uniquely positioned from a traditional o EM because we

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Speaker 1: have the ultim platform that we started working on several

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Speaker 1: years ago. We launched the first vehicles off of it,

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Speaker 1: share with the Hummer, and so that's enabling us to

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Speaker 1: move quickly. But also have scale from a battery perspective,

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Speaker 1: that will I think give us a really efficient um

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Speaker 1: margin as we make these transitions. So I'm very enthused

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Speaker 1: with the interest in EVS the reservations, as you say,

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Speaker 1: and I also think it goes to the fact that

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Speaker 1: our products are ev products off of ultium offer a

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Speaker 1: lot of advantages from a range from a performance, uh,

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Speaker 1: you know, flexibility. So, uh, this transformation is pretty exciting.

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Speaker 1: I can tell you're excited about it. I can tell

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Speaker 1: you're excited about the margins. I can tell you're excited

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Speaker 1: about it. Debob, here's the delicate question. Why does this

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Speaker 1: industry then need credits, need tax credits? Well, as you

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Speaker 1: look at EVS, we do need to get in uh

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Speaker 1: customers into electric vehicles. We've seen that, Uh, the incentives

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Speaker 1: do help drive ev adaption. And remember we have aggressive

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Speaker 1: goals from a country from frankly, a country perspective and

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Speaker 1: a global perspective from what we need to do for

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Speaker 1: the environment. So we think that will help, especially as

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Speaker 1: all companies work to get battery costs down. I don't

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Speaker 1: think it's for everything, but I think right now to

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Speaker 1: get where we need to go from a market perspective

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Speaker 1: from a climate change, it's appropriate to do. What we're

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Speaker 1: asking is is let's make it a level playing field.

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Speaker 1: We were a first mover, we're already out of today's credits,

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Speaker 1: and we're saying let's uncap them so customers can truly

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Speaker 1: buy what they want. When you say make it a

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Speaker 1: level playing field, what do you make of the extra

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Speaker 1: credits going if this was implemented and pushed through from

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Speaker 1: the White House, what would you make of the extra

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Speaker 1: credits going to companies that are selling cars made with

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Speaker 1: domestic union labor. Does that sound like a fair playing

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Speaker 1: field to you? Well, you know again, everybody, every workforce

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Speaker 1: has the right to unionize, so it's a choice that

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Speaker 1: they're making. We're General Motors were you know, represented in

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Speaker 1: the United States by the UAW and unions around the world.

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Speaker 1: We've done a lot of great work together. So um,

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Speaker 1: you know again, every company can make their choice and

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Speaker 1: the workforce can as well. Well. The White House has

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Speaker 1: got to make a choice too, and you support it.

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Speaker 1: I want to go through these credits. They're pushing for

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Speaker 1: a four thousand, five d dollar additional credit of vehicles

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Speaker 1: that are made using domestic union labor. You get an

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Speaker 1: additional five dollars for manufacturers that use domestically produced batteries.

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Speaker 1: And Mary, one thing that I've been confused by is

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Speaker 1: why the push here. You've just gone through the demand story.

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Speaker 1: It sounds fantastic, you're excited about it. I see the

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Speaker 1: same thing at Ford, and I see a demand problem here.

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Speaker 1: I see an infrastructure problem which the government could be focusing. Gone, Mary,

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Speaker 1: why do you think we should be focusing at all

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Speaker 1: on tax credits? You sat in the White House in

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Speaker 1: the last couple of weeks and you supported that. You said,

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Speaker 1: getting strong demand is very important. But we have that demand.

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Speaker 1: So Mary, again, why should we be focusing on that

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Speaker 1: in any way, shape or form. Right, Well, I think

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Speaker 1: what we're looking for is we have strong demand. But

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Speaker 1: you know, when you look at how many EV sales

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Speaker 1: there are today, we're in this single digits. We need

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Speaker 1: to buy end a decade to get to UH and

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Speaker 1: so that's where you've really got to have the right portfolio.

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Speaker 1: That's what we're working on. But you've also got to

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Speaker 1: move the customer and get their interest and so to

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Speaker 1: get to the levels of adaptation. We're just in the

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Speaker 1: early phases right now, and I think that's important. Also,

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Speaker 1: infrastructure EV charging infrastructure is very very important, and the

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Speaker 1: bipartisan bill that was passed for infrastructure, I think is

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Speaker 1: going to move the infrastructure along along with what startup

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Speaker 1: companies are doing. We're investing about a quarter of a

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Speaker 1: billion dollars in charging again to make sure that there

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Speaker 1: any customer, even customers that only own one vehicle, know

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Speaker 1: that they can count on their electric vehicle for their

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Speaker 1: daily drive. Mary, as you know little mention of the

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Speaker 1: Bowl Ev in your letter, some people have been raised

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Speaker 1: to a question as to whether that whole project gets

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Speaker 1: can as you read, so your plants around the country,

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Speaker 1: Maria committed to that. Why does that still makes sense?

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Speaker 1: I'm sorry, could you really I couldn't hear your question. Sure,

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Speaker 1: just on the Chevy boat, just on the boat itself.

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Speaker 1: There's been some problems there, as you know, some people

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Speaker 1: have raised the question as to whether you should just

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Speaker 1: ditch the whole project and focus on what you've been

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Speaker 1: doing subsequently, which seems to be attracting massive demand. Why

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Speaker 1: does that push there's still makes sense? Well, first of all,

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Speaker 1: it's a great product. I was most recently driving a

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Speaker 1: Chevrolet Bold Ev and it's just a peppy vehicle fund

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Speaker 1: to drive. You know, our customers that have bought Bold

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Speaker 1: evs or evs are some of the most satisfied CUSS

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Speaker 1: summers in industry, not just with the GM product, so

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Speaker 1: it's a great product. We had a very specific issue

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Speaker 1: with lg Are, our manufacturer, the batteries. We have worked

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Speaker 1: with them. That's been corrected and we're seeing uh, you know,

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Speaker 1: strong interests and so that the Chevrolet Bolt, EVY and

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Speaker 1: eu V will be a very important part of our

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Speaker 1: near term, near term for future for evis. You've got

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Speaker 1: an ev market share goal for this year? Mary? What

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Speaker 1: is it again? I'm sorry you're coming in muffled. I'm

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Speaker 1: so sorry. That's okay. I'm happy to repeat myself. Don't worry.

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Speaker 1: Do you have an e V market share goal for

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Speaker 1: this year? And if so, what is it? You know,

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Speaker 1: we're working between twenty two and twenty four as we

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Speaker 1: accelerate vehicles to sell uh four hundred thousand um or

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Speaker 1: planned to build and sell four hundred thousand vehicles by

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Speaker 1: the end of three sou and that's just going to

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Speaker 1: ramp up from there. So we're very very optimistic about

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Speaker 1: the strength of our products and as we build them.

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Speaker 1: Uh again, we're seeing with the reservations they're sold. So

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Speaker 1: that's our goal for the three time frame. The puny

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Speaker 1: question for may have also taken the ham of the

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Speaker 1: Business round Table in America. So for you personally, what

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Speaker 1: are the big goals there for you? Well, again, I

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Speaker 1: think business when we look at the transformation um that's

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Speaker 1: happening in almost every industry, I think business working together

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Speaker 1: and also being a partner to move the country forward

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Speaker 1: is very important. So I'm very proud of my b

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Speaker 1: r T role and representing companies as we look to

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Speaker 1: to move to the future and you know, really create

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Speaker 1: a stronger country. So uh, really important opportunity and the

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Speaker 1: work that beer T does is so important. So I'm

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Speaker 1: honored to be able to have the opportunity to lead them,

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Speaker 1: and we honored to have you with us this morning.

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Speaker 1: Thank you for being with us, looking forward to catching

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Speaker 1: up through the year ahead. The General Motors Chair and

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Speaker 1: CEO Mary Barra right now with the Cruel Institute, a

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Speaker 1: global chief economist and that's an app phrase from Megan

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Speaker 1: Green with terrific transatlantic academic. We're Megan, thank you so

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Speaker 1: much for joining this morning. How do you do a

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Speaker 1: three months moving average on something as emotional is the

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Speaker 1: American labor economy, do you single point at Friday grim

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Speaker 1: number or do you smooth it out to a moving average?

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Speaker 1: I think you have to smooth it out. And also

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Speaker 1: it's it's not like bad numbers on Friday will be

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Speaker 1: a surprise to anyone. It's been very well telegraphed by

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Speaker 1: the White House, the Labor Secretary, that FED um the

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Speaker 1: numbers should look pretty disappointing relative to what we've become

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Speaker 1: accustomed to. But I've never ascribed too much meaning to

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Speaker 1: any single data point, whether it's the jobs data or

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Speaker 1: any other. And we know that our labor market is healing.

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Speaker 1: The questions, as you guys pointed out, is really where

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Speaker 1: did all the workers go? Uh? And are they ever

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Speaker 1: coming back? I think that's what the FED really needs

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Speaker 1: to know to be able to gauge exactly how tight

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Speaker 1: the labor market really is and therefore how they should

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Speaker 1: be setting uh their rate path going forward. Megan, A

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Speaker 1: hallmark of your work is to wait of the data.

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Speaker 1: What do you make of the present rate height? Guessing

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Speaker 1: parlor game? Is there any value to it? Are you

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Speaker 1: are you saying to yourself. I gotta wait for pictures

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Speaker 1: and catchers to see what the red sox will do,

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Speaker 1: and also to see what the rate structure will be, yeah,

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Speaker 1: more the latter. To be honest, Tom, I think that

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Speaker 1: in six to nine months we're going to be having

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Speaker 1: a very different conversation around inflation and demand. Demand will

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Speaker 1: be weakening over the course of this year. I think

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Speaker 1: supply chain constraints should start to ease over the course

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Speaker 1: of this year, and the supply of labor should also

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Speaker 1: start to ease as the virus abates. Now that's assuming

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Speaker 1: there aren't more variants, and certainly not more deadly variants.

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Speaker 1: But as we move through this omicron weave, I think

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Speaker 1: that a lot of workers will jump back into the workforce.

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Speaker 1: Those who are staying home either because they're sick or

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Speaker 1: they're taking care of someone who's sick, those who haven't

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Speaker 1: gone back into employment from retirement because of concerns of

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Speaker 1: being sick, and those who have had a financial cushion

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Speaker 1: uh and so have stayed out of the labor market

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Speaker 1: but or have burned through them. We'll have to jump

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Speaker 1: into the labor market as well, and I think that

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Speaker 1: will take a lot of upper pressure off of wages

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Speaker 1: and therefore off inflation too. So you know, it just

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Speaker 1: seems like a competition to see who can get more

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Speaker 1: hawkish about the FITS path going forward. At the moment,

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Speaker 1: I think that conversation should change towards the second half

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Speaker 1: of this year. This does feel, though, again like a

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Speaker 1: pivot point, and I talk about not just whether people

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Speaker 1: come back to jobs, but which jobs they come back to.

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Speaker 1: I've seen a number of surveys showing that people in

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Speaker 1: manufacturing jobs are looking for office jobs, are looking to

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Speaker 1: get retrained, want that flexibility to work from home. You've

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Speaker 1: seen a complete sea change in terms of healthcare and education.

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Speaker 1: How much will that increase wages in those less love

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Speaker 1: professions now that really got hit the hardest and more

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Speaker 1: at the forefront of the pandemic. Yeah, I think you're right.

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Speaker 1: People don't want hourly services jobs, their low wage, low

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Speaker 1: hour jobs. People I think have been holding out based

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Speaker 1: on the financial cushion they have received from stimulus measures

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Speaker 1: and to avoid going back into them. But it's some

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Speaker 1: point there's going to have to be some capitulation, and

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Speaker 1: so I do think those jobs will be filled again. Also,

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Speaker 1: something worth mentioning is that immigration is massively down over

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Speaker 1: the past two years, and it was a lot of

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Speaker 1: foreign born workers who were also filling those jobs. Going forward,

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Speaker 1: that should abate now that we don't have the same

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Speaker 1: kind of travel restrictions that we had before. Biden's proposed

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Speaker 1: some easing of immigration restrictions, and so those hourly services

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Speaker 1: jobs should see some wage games. It's the worker bees,

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Speaker 1: the non supervisory workers who are actually seeing the greatest

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Speaker 1: wage games right now, and that should spread into uh,

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Speaker 1: you know, leisure restaurants and bars as well well. Meggan,

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Speaker 1: That's what I was gonna gonna say, you are, We're

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Speaker 1: going to see outsized increases in some of these areas

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Speaker 1: where people have to be enticed back away from the

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Speaker 1: cushion that they're depleting in order to not have to

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Speaker 1: go to work there. So I think wages have already

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Speaker 1: risen quite a lot, and so as low income households

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Speaker 1: in particular burn through their financial cushion the fastest, as

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Speaker 1: that cushion evaporates, I think the wage gains that we've

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Speaker 1: seen will entice them back into the labor force. So

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Speaker 1: I think that the supply side issue will probably a bit.

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Speaker 1: I mean, the best cure for high wages is high

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Speaker 1: wages because people get pulled back into the labor force,

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Speaker 1: and particularly once this wave starts to abate, it already

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Speaker 1: has to some degree. I think we'll see the labor

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Speaker 1: supply shortages as well. Megan, can you just help me

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Speaker 1: in understanding how some of the data on Friday will

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Speaker 1: be put together, how it has been put together the

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Speaker 1: perfect guests to do this. Just got this note from

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Speaker 1: Cantile Economics. It's going to share it with our audience

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Speaker 1: just quickly. Because the ADP figures count everybody on payroll

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Speaker 1: as employed, regardless of whether they worked or not, they

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Speaker 1: do not capture the full hit from the omicron related

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Speaker 1: search and absentee is UM. They go on to say,

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Speaker 1: with an estimated five million Americans isolating mid month, we

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Speaker 1: suspect close to half a million of those won't have

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Speaker 1: been paid at all during the survey period, which wasn't

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Speaker 1: captured in the ADP figures, but will show up in

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Speaker 1: non farm payrolls. Megan, can you just explain the technical

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Speaker 1: situation around how this data is put together and how

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Speaker 1: it might show up on for day. Yeah, so that's

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Speaker 1: right there. ADP is often not a great indicator of

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Speaker 1: how the nonfarm payrolls will go though the direction of

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Speaker 1: travel seems to be correct or similar in both these cases.

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Speaker 1: Assuming that we get a disappointing headline figure for tomorrow,

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Speaker 1: but it is down to classifications and so a number

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Speaker 1: of people weren't able to go to work either because

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Speaker 1: they had symptoms of omicron or they had omicron, and

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Speaker 1: they won't have received a paycheck, and so that doesn't

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Speaker 1: show up in the ADP data, which is only people

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Speaker 1: who are receiving paychecks, but that will show up in

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Speaker 1: the non farm payrolls data. Megan, I want to go

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Speaker 1: the Transatlantic Act with you, and right now what we're

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Speaker 1: seeing is maybe a yield structure in America that migrates

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Speaker 1: higher and a europe yield structure which some would say

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Speaker 1: stays where it is, maybe even with negative interest rates.

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Speaker 1: What is the outcome for our viewers and listeners of

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Speaker 1: such a spread, a difference in yield across the pond. Well,

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Speaker 1: we're seeing monetary policy divergence, which should put yields up

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Speaker 1: in the US, particularly at the short end um. Whereas

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Speaker 1: the ECB, you know, investors have started to price in

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Speaker 1: hikes for this year, but at a much more gradual

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Speaker 1: rate than what we're seeing in the US. And that

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Speaker 1: means that you know, you'll still be facing negative yields

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Speaker 1: in Europe, whereas there will be much more positive yields now.

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Speaker 1: I don't think the long end will go up significantly

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Speaker 1: in the US. I've been asked why would anyone by

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Speaker 1: a tenure government bond with a two yield um, And

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Speaker 1: it's because you could go elsewhere Europe, Japan and it

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Speaker 1: will be negative. So you know, the US Treasury ends

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Speaker 1: up being a cleanert shirt in the dirty laundry basket

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Speaker 1: like green waterful as all whites with your experience sound

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Speaker 1: of Europe too. At the Crawl Institute and the Harvard

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Speaker 1: Kennedy School, Evan Brown joined US now multi Asset Strategy

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Speaker 1: has an ups asset management. I want to ask you

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Speaker 1: that question, Evan, don't worry I'm gonna wash you about

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Speaker 1: the note that you wrote with Luke. What I thought

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Speaker 1: was fantastic. What we've seen is evaluation centric adjustment. You

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Speaker 1: don't think it's a growth scare. How do you draw

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Speaker 1: a distinction between the two, Evan, Well, I mean a

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Speaker 1: lot of it is just looking at prices cross asset

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Speaker 1: and if it was really a growth scare. You'd expect

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Speaker 1: to see were widening in credit, which we just have

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Speaker 1: not gotten. You wouldn't expect to see e M outperforming,

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Speaker 1: which is what we've gotten. So we look cross asset

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Speaker 1: oil to holding up really well and uh, and so

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Speaker 1: we don't see it in price. But also it just

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Speaker 1: doesn't really make a lot of sense economically when you

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Speaker 1: have income growth almost double what it was last cycle.

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Speaker 1: So it's still strong economy, still strong nominal GDP. And

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Speaker 1: as Powell said last week, we're in a different cycle

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Speaker 1: than the last one. Well, let's sit on the valuation

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Speaker 1: scare for a minute, Evan, How do we determine what

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Speaker 1: the scare should be in terms of what real rates

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Speaker 1: are going to be with a FED action and and

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Speaker 1: sort of how do you game that out with respect

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Speaker 1: to what's already happened in markets? Yeah, so I think, uh,

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Speaker 1: I think the first of all, the point is that

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Speaker 1: the FED wanted this right. They want a tightening of

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Speaker 1: financial conditions in their view, is a way that's going

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Speaker 1: to cool inflation down the road and extend the cycle. Now,

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Speaker 1: you know, it's up to them to decide how much

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Speaker 1: we you know, we saw quite a hawkish FED. But

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Speaker 1: then now you're seeing a parade of FED speakers this

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Speaker 1: week saying, hey, we're not going to do fifty basis

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Speaker 1: points at the next FED meeting in March. So um,

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Speaker 1: you know, it's a it's a dance between the FED

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Speaker 1: and markets. I think the frothier areas of the market

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Speaker 1: will continue to have headwinds, you know, unprofitable tech, these

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Speaker 1: kind of things. But the more cyclical areas of the market,

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Speaker 1: I think we're unfairly punished in UH in this more

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Speaker 1: recent sell up, and those are going to be the

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Speaker 1: big gainers over the coming weeks and months. Kevan, what

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Speaker 1: do your analysts say about the ability of corporations to

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Speaker 1: adapt to sustain margin? The first thing I did yesterday

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Speaker 1: with Google is go to look at the margin. Then

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Speaker 1: it was a fractional lift off the parlor game of

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Speaker 1: guessing margin. But what you know, sector to sector, the

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Speaker 1: two analysts you've got it ubs, what do they say

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Speaker 1: about the ability to sustain margin? I mean, margins are

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Speaker 1: fine in the data. We don't quite have what we've

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Speaker 1: seen over the over the last couple of years, but

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Speaker 1: so there's some moderation there. But overall, the message that

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Speaker 1: we're getting from corporates, is is really strong pricing power. Uh.

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Speaker 1: And so we just look at the data and yes,

430
00:21:33,160 --> 00:21:37,159
Speaker 1: the analysts internally and we just even with higher wages,

431
00:21:37,200 --> 00:21:38,920
Speaker 1: we see that higher pricing power. So it just does

432
00:21:38,960 --> 00:21:41,240
Speaker 1: not appear to be a major concern at this point. Evan,

433
00:21:41,240 --> 00:21:42,439
Speaker 1: where are you in the team on the rest of

434
00:21:42,440 --> 00:21:44,440
Speaker 1: the world at the moment. Big surprise for some people

435
00:21:44,480 --> 00:21:46,080
Speaker 1: through the first month of the year was the relative

436
00:21:46,119 --> 00:21:48,960
Speaker 1: at performance of site emerging markets. It's not something you

437
00:21:49,000 --> 00:21:53,560
Speaker 1: think can persist. I think it can. Actually we have

438
00:21:53,680 --> 00:21:57,199
Speaker 1: the difference between this year and last year. Is China's easy, right,

439
00:21:57,760 --> 00:21:59,560
Speaker 1: We're not going to see the boom and credit growth

440
00:21:59,560 --> 00:22:01,880
Speaker 1: that we got the previous cycle, those boom bus periods,

441
00:22:01,920 --> 00:22:05,439
Speaker 1: but they've put a floor on GDP growth and that

442
00:22:05,480 --> 00:22:08,959
Speaker 1: has implications for the rest of the world. So emerging

443
00:22:09,000 --> 00:22:10,840
Speaker 1: markets I think can have a better year. We think

444
00:22:10,840 --> 00:22:13,760
Speaker 1: the dollar is kind of weekends from here at least

445
00:22:13,760 --> 00:22:17,159
Speaker 1: stops strengthening. Uh. Europe, I think we'll look back on

446
00:22:17,240 --> 00:22:20,760
Speaker 1: two and say this was Europe's year. It's not just

447
00:22:20,840 --> 00:22:24,719
Speaker 1: the solid global growth outlook, but got all the green spending,

448
00:22:24,760 --> 00:22:28,800
Speaker 1: You've got more political cohesion. Certainly than we saw last

449
00:22:28,840 --> 00:22:32,360
Speaker 1: highcle and you've got really strong balance sheets and you've

450
00:22:32,400 --> 00:22:35,119
Speaker 1: got inflation right and that should put upward pressure on

451
00:22:35,119 --> 00:22:38,480
Speaker 1: on yield um and higher yields is good for financials.

452
00:22:38,520 --> 00:22:41,040
Speaker 1: So so I we really like the rest of the world,

453
00:22:41,040 --> 00:22:42,480
Speaker 1: and we think the rest of the world will will

454
00:22:42,480 --> 00:22:45,560
Speaker 1: outperform the US for the first time in a while

455
00:22:46,040 --> 00:22:48,520
Speaker 1: this UH, this year high year. It's haven't helped out

456
00:22:48,560 --> 00:22:51,119
Speaker 1: the US banks in a big white yea today, Evan,

457
00:22:51,640 --> 00:22:54,240
Speaker 1: do you have more confidence they will in say, you're

458
00:22:54,440 --> 00:22:58,240
Speaker 1: relative to what we've seen in the US. Well, I

459
00:22:58,240 --> 00:23:01,159
Speaker 1: think there's a bigger valuation just count and UH in

460
00:23:01,240 --> 00:23:04,680
Speaker 1: European banks not I think I know and UH and

461
00:23:04,680 --> 00:23:06,960
Speaker 1: and also you know you have more room. I think

462
00:23:07,040 --> 00:23:11,480
Speaker 1: the boon yield at zero percent that is extraordinarily low.

463
00:23:11,520 --> 00:23:13,399
Speaker 1: We all we all know the presence of the central

464
00:23:13,440 --> 00:23:16,720
Speaker 1: bank there and and down beat whether down beat whether

465
00:23:16,840 --> 00:23:21,240
Speaker 1: Europe and and UH Europe can sustain growth and inflation

466
00:23:21,359 --> 00:23:24,639
Speaker 1: over the over the medium term. But the valuation story

467
00:23:24,720 --> 00:23:26,919
Speaker 1: is there, there's a lot more room and UH in

468
00:23:26,920 --> 00:23:30,600
Speaker 1: boone yields to to reprice, which should help European banks

469
00:23:31,040 --> 00:23:33,000
Speaker 1: and UH and you know, it's a really it's a

470
00:23:33,000 --> 00:23:35,520
Speaker 1: really positive story. We're seeing it in the earnings as well. Evan,

471
00:23:35,560 --> 00:23:37,639
Speaker 1: Thank you, buddy, send down best to the team until too,

472
00:23:37,640 --> 00:23:47,560
Speaker 1: He's going to catch right now. And a broader conversation

473
00:23:47,640 --> 00:23:51,040
Speaker 1: with Michael Nathanson. You've seen him quoted everywhere. Is he

474
00:23:51,080 --> 00:23:55,119
Speaker 1: deservedly should be since is a senior research analyst at Moffatt,

475
00:23:55,200 --> 00:23:59,280
Speaker 1: Nathanson barely describes the fact he owns a phrase, content

476
00:23:59,520 --> 00:24:03,080
Speaker 1: is king. Michael, I want to go to Apple developing

477
00:24:03,119 --> 00:24:08,760
Speaker 1: five fifty thousand, almost ten football fields of square feet

478
00:24:08,960 --> 00:24:12,199
Speaker 1: in Culver City out by Irvine. You know there this

479
00:24:12,320 --> 00:24:16,639
Speaker 1: gigantic plant, our Google, our Apple. Are they gonna take

480
00:24:16,720 --> 00:24:22,640
Speaker 1: over everything? Um? It depends on which business we're talking about, Tom,

481
00:24:22,680 --> 00:24:26,720
Speaker 1: I would say Apple and video probably not Google and

482
00:24:26,760 --> 00:24:31,960
Speaker 1: advertising probably yes. Um, but Apple doesn't need to dominate video.

483
00:24:32,000 --> 00:24:34,199
Speaker 1: They've done great on their own. But you know, the

484
00:24:34,280 --> 00:24:37,240
Speaker 1: Google print to me is just it's mind blowingly good

485
00:24:37,359 --> 00:24:39,560
Speaker 1: when you think about how large that company is and

486
00:24:39,560 --> 00:24:42,440
Speaker 1: how fast they're growing. We have heard from day one

487
00:24:42,880 --> 00:24:45,760
Speaker 1: day Google went public that there was a constraint on search.

488
00:24:45,920 --> 00:24:50,240
Speaker 1: Everyone including me, has been wrong. What's your terminal? What's

489
00:24:50,280 --> 00:24:53,760
Speaker 1: the X axis of your terminal value. When you look

490
00:24:53,800 --> 00:24:59,400
Speaker 1: at search, do you go out five years or fifteen years? Yeah, Tom,

491
00:24:59,440 --> 00:25:03,520
Speaker 1: that's a that's the point, right that everyone fades growth

492
00:25:03,800 --> 00:25:06,360
Speaker 1: on search to like mid single digits, we go out

493
00:25:06,600 --> 00:25:09,640
Speaker 1: fifteen years on it. Because what is happening, Because big

494
00:25:09,680 --> 00:25:13,160
Speaker 1: picture search is getting more valuable in the world as

495
00:25:13,760 --> 00:25:17,240
Speaker 1: many of us stopped watching linear TV, as Apple has

496
00:25:17,280 --> 00:25:21,040
Speaker 1: put up blockers on you know, for privacy, searches goes

497
00:25:21,119 --> 00:25:24,200
Speaker 1: up in value because we're giving people intention right when

498
00:25:24,280 --> 00:25:26,479
Speaker 1: when you when you search, you're telling people what you

499
00:25:26,520 --> 00:25:29,639
Speaker 1: want to see, and that is a perfect lead for advertiser.

500
00:25:29,720 --> 00:25:33,919
Speaker 1: So that's been our thesis that people underestimate search and

501
00:25:34,119 --> 00:25:37,680
Speaker 1: just a long cycle of growth here. And that's that's

502
00:25:37,680 --> 00:25:41,560
Speaker 1: the essence of the call on Google better than you think, Michael.

503
00:25:41,560 --> 00:25:44,399
Speaker 1: Do you think that this reduces the emphasis on diversification

504
00:25:44,440 --> 00:25:45,960
Speaker 1: that a lot of people are looking for with the

505
00:25:46,000 --> 00:25:51,479
Speaker 1: cloud with YouTube, which actually disappointed you know, It's funny

506
00:25:51,560 --> 00:25:54,120
Speaker 1: because list, when we look at the stock, you don't

507
00:25:54,200 --> 00:25:56,560
Speaker 1: need divertification for the stock to work. We just look

508
00:25:56,600 --> 00:26:01,639
Speaker 1: at the core ad business. But I think in Google's world,

509
00:26:01,920 --> 00:26:04,560
Speaker 1: they have so much talent in terms of technology talent,

510
00:26:04,960 --> 00:26:08,399
Speaker 1: they have, so they have an incredible advantage of machine learning.

511
00:26:09,000 --> 00:26:11,639
Speaker 1: They'd be foolish not to take that and lean into

512
00:26:11,680 --> 00:26:14,240
Speaker 1: other businesses. So, um, we're not giving them a lot

513
00:26:14,280 --> 00:26:18,040
Speaker 1: of credit for Google Cloud or other beds. But YouTube

514
00:26:18,040 --> 00:26:22,000
Speaker 1: in our world, you know, is really underappreciated asset. Again,

515
00:26:22,080 --> 00:26:24,800
Speaker 1: going back to the big picture, it's rising in value,

516
00:26:24,880 --> 00:26:28,240
Speaker 1: so we don't underestimate YouTube. So YouTube and search alone

517
00:26:28,480 --> 00:26:31,200
Speaker 1: gives upside for the stock without the other thing is

518
00:26:31,240 --> 00:26:33,600
Speaker 1: really kicking in, Michael, how much is Google and anomaly

519
00:26:33,640 --> 00:26:36,199
Speaker 1: and sort of an idiosyncratic story of incredible strength and

520
00:26:36,240 --> 00:26:40,560
Speaker 1: dominance versus a representation of an economy that's really recovering

521
00:26:40,800 --> 00:26:44,080
Speaker 1: with advertising spending going up so much, even without travel

522
00:26:44,080 --> 00:26:48,040
Speaker 1: picking back up to pre pandemic levels. Yeah, that's that's

523
00:26:48,040 --> 00:26:51,600
Speaker 1: a great question. I think it is idiostocratic because of

524
00:26:51,680 --> 00:26:55,000
Speaker 1: searches value in the world and YouTube. When we wrap

525
00:26:55,080 --> 00:26:58,040
Speaker 1: up earning season for media and you know and other

526
00:26:58,080 --> 00:27:00,680
Speaker 1: small small add companies will not grow nearly this fast

527
00:27:00,680 --> 00:27:04,080
Speaker 1: and they'll have problems with structural headwinds here and Google

528
00:27:04,080 --> 00:27:06,760
Speaker 1: has a tailwind that is, you need to Google, Michael,

529
00:27:06,760 --> 00:27:09,399
Speaker 1: what are you doing, Craig think you yesterday of a

530
00:27:09,600 --> 00:27:12,760
Speaker 1: t n T doing a ballet from fifteen billions spent

531
00:27:12,880 --> 00:27:16,840
Speaker 1: on dividends to a model nine billion. Oh no, we're

532
00:27:16,840 --> 00:27:18,680
Speaker 1: not going to do that. We're gonna do eight billion.

533
00:27:18,720 --> 00:27:21,280
Speaker 1: I believe the stock was down six percent, don't you know.

534
00:27:21,280 --> 00:27:24,480
Speaker 1: I believe that was the number. What does it say

535
00:27:24,560 --> 00:27:30,240
Speaker 1: about escapades in entertainment? Right, Well, Craig is here, he

536
00:27:30,280 --> 00:27:33,000
Speaker 1: would take a bow because of the past five years

537
00:27:33,000 --> 00:27:36,919
Speaker 1: he's been saying t T can't sustain the dividend. It

538
00:27:37,080 --> 00:27:40,920
Speaker 1: says that, um, the cost of competing and streaming is

539
00:27:40,960 --> 00:27:43,920
Speaker 1: incredibly high. That's been our call on streaming, and you know,

540
00:27:44,440 --> 00:27:47,399
Speaker 1: and it says in the telecom world the cost to

541
00:27:47,400 --> 00:27:49,600
Speaker 1: compete there is and probably high too because all the

542
00:27:49,600 --> 00:27:53,560
Speaker 1: promotional activities being done because the five G build out. Um,

543
00:27:53,600 --> 00:27:56,119
Speaker 1: you know, these businesses are a lot more challenging than

544
00:27:56,200 --> 00:27:58,560
Speaker 1: I think the market thinks. And again it's easy when

545
00:27:58,560 --> 00:28:00,200
Speaker 1: you look at Google to say that's where you want

546
00:28:00,200 --> 00:28:03,440
Speaker 1: to be. You know, we're we're relatively negative on streaming.

547
00:28:03,440 --> 00:28:06,840
Speaker 1: We're they're pivoting out away from and telecom as well

548
00:28:06,840 --> 00:28:09,399
Speaker 1: in terms of mobile telecom. Michael, just a final question

549
00:28:09,440 --> 00:28:11,480
Speaker 1: from me. I think it's important not to let moments

550
00:28:11,480 --> 00:28:14,840
Speaker 1: like this slip or slide. This is a one point

551
00:28:14,840 --> 00:28:17,760
Speaker 1: a trillly in dollar name moving ten percent. Michael, what

552
00:28:17,800 --> 00:28:20,720
Speaker 1: do you make of that? Multi trillon dollar names moving

553
00:28:21,320 --> 00:28:26,040
Speaker 1: this much? These are huge amounts of money. Well, Jonathan,

554
00:28:26,400 --> 00:28:29,439
Speaker 1: they grew their revenue, they grew their top linet. Just

555
00:28:30,880 --> 00:28:34,000
Speaker 1: search has been around for twenty years, right, Search grew

556
00:28:34,080 --> 00:28:37,040
Speaker 1: faster than YouTube this quarter. Um and again, if you

557
00:28:37,080 --> 00:28:39,680
Speaker 1: stop back and think about what we learned this pandemic,

558
00:28:40,400 --> 00:28:43,960
Speaker 1: this is about digital transformations and Google has the best

559
00:28:43,960 --> 00:28:48,360
Speaker 1: position in advertising because of what advertisers need to do.

560
00:28:48,400 --> 00:28:51,520
Speaker 1: They need to pivot to search and need pivot to YouTube.

561
00:28:51,560 --> 00:28:54,120
Speaker 1: And even though this has been around forever, the transformation

562
00:28:54,160 --> 00:28:57,360
Speaker 1: of the pandemic has accelerated budgets. And I agree. When

563
00:28:57,360 --> 00:28:59,080
Speaker 1: I first started covering, I'm like, this cannot be as

564
00:28:59,080 --> 00:29:02,640
Speaker 1: good as it looks. And now six years later, they

565
00:29:02,760 --> 00:29:06,240
Speaker 1: keep going. They really do just phenomenal. Michael. We appreciate

566
00:29:06,280 --> 00:29:08,520
Speaker 1: you support on this program and your contribution this morning,

567
00:29:08,520 --> 00:29:10,880
Speaker 1: as always said, thank you, Mite, Michael Nathan said of

568
00:29:11,000 --> 00:29:15,800
Speaker 1: Moffatt Nisenson. This is the Bloomberg Surveillance Podcast. Thanks for listening.

569
00:29:16,160 --> 00:29:19,480
Speaker 1: Join us live weekdays from seven to ten am Eastern

570
00:29:19,720 --> 00:29:23,760
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from

571
00:29:23,840 --> 00:29:29,080
Speaker 1: six to nine am for insight from the best in economics, finance, investment,

572
00:29:29,240 --> 00:29:34,240
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

573
00:29:34,360 --> 00:29:38,160
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on

574
00:29:38,280 --> 00:29:42,400
Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg