Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leie. We bring
Speaker 1: you insight from the best and economics, finance, investment and
Speaker 1: international relations. Find Bloomberg Surveillance and Apple Podcast SoundCloud, Bloomberg
Speaker 1: dot Com and of course on the Bloomberg Terminal. Now
Speaker 1: an important update our John Farrell in conversation with the
Speaker 1: leader of General Motors. Let's listen. Are he pleased to
Speaker 1: say that joining us now is the GM chief Mary Barra. Mary,
Speaker 1: fantastic to catch up with you. I want to whip
Speaker 1: through the south Side research off the back of these numbers, Dan,
Speaker 1: i've's wet bush by laying major groundwork for a game
Speaker 1: changing EV strategy city a positive outcome. It increases our
Speaker 1: conviction by Jeffries and Philippe Hut is a little bit
Speaker 1: more balanced on this. He seems surprised by the volume
Speaker 1: guide two to three times bigger than what they've heard
Speaker 1: coming into this. Where's that coming from? Mary? Where are
Speaker 1: you getting that visibility from? Well, as we look at
Speaker 1: the year, we've been working closely with the semiconductor manufacturers.
Speaker 1: Are tier ones to make sure that we you know,
Speaker 1: have the best possible forecast for what we're gonna be
Speaker 1: able to build this year. Recall, last year we were
Speaker 1: hit a bit hard with some of the COVID impacts
Speaker 1: in Malaysia. So that's where we see, um, you know,
Speaker 1: the opportunity to see on a global basis, you know,
Speaker 1: greater than increase from a production perspective, and that is
Speaker 1: assuming that we're not going to have any you know,
Speaker 1: dramatic changes from a COVID or a supply chain perfect perspective.
Speaker 1: But we feel very confident. And also what's exciting is
Speaker 1: we know there is strong demand for our vehicles. So
Speaker 1: I'm very h I think twenty two has the opportunity
Speaker 1: to be a very good year. I want to hit
Speaker 1: that to mind story in just a moment. Clearly there's
Speaker 1: a balance a play through last year, and you're now
Speaker 1: that balance with a stalk performance. We saw a balance
Speaker 1: between the chip access and pushing it towards the high
Speaker 1: price vehicles. Now it's almost the opposite, and I think
Speaker 1: there's some disappointment around that. Mary that you get the
Speaker 1: better access, you get the better volume, but the average
Speaker 1: price comes down. How do you balance that? How do
Speaker 1: you optimize the balance there for twenty two. Well, you
Speaker 1: know again this we had record performance this year and
Speaker 1: again hats off to the GM team with all the
Speaker 1: work that they did, the challenges that they overcame. And
Speaker 1: as we get into next year, you know, not only
Speaker 1: are we going to be selling across many more segments.
Speaker 1: Last year in twenty one, we focused on our most
Speaker 1: in demand and capacity constrained vehicles. So as we open
Speaker 1: it up to you know, other allocation to chips, to
Speaker 1: other products. Uh. You know, it is a different from
Speaker 1: a profitability perspective, and we also are investing in growth
Speaker 1: and so you know, we're investing for the future. We
Speaker 1: know there's a huge opportunity not only from an EV
Speaker 1: perspective UH and a V perspective with crews, but also
Speaker 1: across the board from a software perspective, whether it's ICE
Speaker 1: or E V s H. We see an opportunity to
Speaker 1: really grow from a from a services and subscriptions perspective. Mary,
Speaker 1: you've gotta help me with the numbers what it comes
Speaker 1: to capex and investment. The numbers we've seen in this
Speaker 1: industry just huge. The team here at Bloombergh came out
Speaker 1: with the story FOD yesterday, throwing another twenty billion at
Speaker 1: this transition. You said, quote, we're going to be increasing
Speaker 1: spending that much is clear. Is the answer always going
Speaker 1: to be more? When you're asked how much you need
Speaker 1: to throw at this story, Mary, Well, you know we've
Speaker 1: already announced between twenty and twenty five that we're going
Speaker 1: to invest thirty five billion dollars and we've been investing.
Speaker 1: That big announcement yes or last week in Michigan seven
Speaker 1: billion dollars for conversion of a plant to build trucks
Speaker 1: EV trucks as well as our third battery plant. We're
Speaker 1: pulling ahead our fourth battery plant will be making that
Speaker 1: announcement in the first half of this year, as well
Speaker 1: as an additional EV truck plan. So we're seeing the
Speaker 1: demand for our products and we're seeing customers willingness to
Speaker 1: adapt VS. That's what's calling causing us to pull ahead.
Speaker 1: You know we're we're going to continue to do that,
Speaker 1: and you know we've got the capability to do that,
Speaker 1: and you'll just see our number grow as we continue
Speaker 1: to invest in e v a V capability. Right at
Speaker 1: the end of the cool yesterday you talked about the
Speaker 1: dividend murray, where is it? When does this dividend come back?
Speaker 1: What you need to achieve to bring them back into apply? Well,
Speaker 1: you know, we've had a capital allocation framework for the
Speaker 1: last several years where first we invest in opportunities to
Speaker 1: generate a return on invested capital of greater than as
Speaker 1: well as have an investment grade balance sheet, and then
Speaker 1: return the rest to shareholders. And that's what we plan
Speaker 1: to do. But with all the opportunities we see in
Speaker 1: front of us to accelerate on EVS, accelerate a VIS,
Speaker 1: and accelerate the software defined vehicle, we want to make
Speaker 1: sure we have maximum flexibility and that's why we're not
Speaker 1: reinstating the dividends as we currently assess the situation. Uh,
Speaker 1: you know, there's still are other mechanisms to return value
Speaker 1: to shareholders, but we want to have the flexibility to
Speaker 1: really support our growth. Do you think bipacks make most sense?
Speaker 1: Is that what you're trying to say that? Well, again,
Speaker 1: you know, I think the first there's three pillars of
Speaker 1: our capital allocation framework to me, Uh, making sure we're
Speaker 1: investing in creating value and growth think is the best
Speaker 1: thing we can do for our shareholders. But if you
Speaker 1: know we at the end we have excess capital. We
Speaker 1: are going to use one of the mechanisms to be
Speaker 1: able to return that to our shareholders. You've mentioned demand
Speaker 1: a few times. Let's go through the numbers. The numbers
Speaker 1: are staggering. You've talked about this pent up demanding the
Speaker 1: American market of several million vehicles on the e V side.
Speaker 1: I was looking through the orders the reservations. Fifty nine
Speaker 1: thousand hummery vs dred and ten thousand Electric Chevy Silveradoes.
Speaker 1: I'm sure that if you open the books again for
Speaker 1: some of these names, they'll go again. They'll go again. Mary,
Speaker 1: have you ever seen demand this great in this country
Speaker 1: for this transition? You know, I just am really encouraged
Speaker 1: by how much interest there are in evs. I really
Speaker 1: last year we started to see a tipping point, and
Speaker 1: that's why last year we really end in. In twenty
Speaker 1: we started accelerating our push to e vs. And you know,
Speaker 1: we're uniquely positioned from a traditional o EM because we
Speaker 1: have the ultim platform that we started working on several
Speaker 1: years ago. We launched the first vehicles off of it,
Speaker 1: share with the Hummer, and so that's enabling us to
Speaker 1: move quickly. But also have scale from a battery perspective,
Speaker 1: that will I think give us a really efficient um
Speaker 1: margin as we make these transitions. So I'm very enthused
Speaker 1: with the interest in EVS the reservations, as you say,
Speaker 1: and I also think it goes to the fact that
Speaker 1: our products are ev products off of ultium offer a
Speaker 1: lot of advantages from a range from a performance, uh,
Speaker 1: you know, flexibility. So, uh, this transformation is pretty exciting.
Speaker 1: I can tell you're excited about it. I can tell
Speaker 1: you're excited about the margins. I can tell you're excited
Speaker 1: about it. Debob, here's the delicate question. Why does this
Speaker 1: industry then need credits, need tax credits? Well, as you
Speaker 1: look at EVS, we do need to get in uh
Speaker 1: customers into electric vehicles. We've seen that, Uh, the incentives
Speaker 1: do help drive ev adaption. And remember we have aggressive
Speaker 1: goals from a country from frankly, a country perspective and
Speaker 1: a global perspective from what we need to do for
Speaker 1: the environment. So we think that will help, especially as
Speaker 1: all companies work to get battery costs down. I don't
Speaker 1: think it's for everything, but I think right now to
Speaker 1: get where we need to go from a market perspective
Speaker 1: from a climate change, it's appropriate to do. What we're
Speaker 1: asking is is let's make it a level playing field.
Speaker 1: We were a first mover, we're already out of today's credits,
Speaker 1: and we're saying let's uncap them so customers can truly
Speaker 1: buy what they want. When you say make it a
Speaker 1: level playing field, what do you make of the extra
Speaker 1: credits going if this was implemented and pushed through from
Speaker 1: the White House, what would you make of the extra
Speaker 1: credits going to companies that are selling cars made with
Speaker 1: domestic union labor. Does that sound like a fair playing
Speaker 1: field to you? Well, you know again, everybody, every workforce
Speaker 1: has the right to unionize, so it's a choice that
Speaker 1: they're making. We're General Motors were you know, represented in
Speaker 1: the United States by the UAW and unions around the world.
Speaker 1: We've done a lot of great work together. So um,
Speaker 1: you know again, every company can make their choice and
Speaker 1: the workforce can as well. Well. The White House has
Speaker 1: got to make a choice too, and you support it.
Speaker 1: I want to go through these credits. They're pushing for
Speaker 1: a four thousand, five d dollar additional credit of vehicles
Speaker 1: that are made using domestic union labor. You get an
Speaker 1: additional five dollars for manufacturers that use domestically produced batteries.
Speaker 1: And Mary, one thing that I've been confused by is
Speaker 1: why the push here. You've just gone through the demand story.
Speaker 1: It sounds fantastic, you're excited about it. I see the
Speaker 1: same thing at Ford, and I see a demand problem here.
Speaker 1: I see an infrastructure problem which the government could be focusing. Gone, Mary,
Speaker 1: why do you think we should be focusing at all
Speaker 1: on tax credits? You sat in the White House in
Speaker 1: the last couple of weeks and you supported that. You said,
Speaker 1: getting strong demand is very important. But we have that demand.
Speaker 1: So Mary, again, why should we be focusing on that
Speaker 1: in any way, shape or form. Right, Well, I think
Speaker 1: what we're looking for is we have strong demand. But
Speaker 1: you know, when you look at how many EV sales
Speaker 1: there are today, we're in this single digits. We need
Speaker 1: to buy end a decade to get to UH and
Speaker 1: so that's where you've really got to have the right portfolio.
Speaker 1: That's what we're working on. But you've also got to
Speaker 1: move the customer and get their interest and so to
Speaker 1: get to the levels of adaptation. We're just in the
Speaker 1: early phases right now, and I think that's important. Also,
Speaker 1: infrastructure EV charging infrastructure is very very important, and the
Speaker 1: bipartisan bill that was passed for infrastructure, I think is
Speaker 1: going to move the infrastructure along along with what startup
Speaker 1: companies are doing. We're investing about a quarter of a
Speaker 1: billion dollars in charging again to make sure that there
Speaker 1: any customer, even customers that only own one vehicle, know
Speaker 1: that they can count on their electric vehicle for their
Speaker 1: daily drive. Mary, as you know little mention of the
Speaker 1: Bowl Ev in your letter, some people have been raised
Speaker 1: to a question as to whether that whole project gets
Speaker 1: can as you read, so your plants around the country,
Speaker 1: Maria committed to that. Why does that still makes sense?
Speaker 1: I'm sorry, could you really I couldn't hear your question. Sure,
Speaker 1: just on the Chevy boat, just on the boat itself.
Speaker 1: There's been some problems there, as you know, some people
Speaker 1: have raised the question as to whether you should just
Speaker 1: ditch the whole project and focus on what you've been
Speaker 1: doing subsequently, which seems to be attracting massive demand. Why
Speaker 1: does that push there's still makes sense? Well, first of all,
Speaker 1: it's a great product. I was most recently driving a
Speaker 1: Chevrolet Bold Ev and it's just a peppy vehicle fund
Speaker 1: to drive. You know, our customers that have bought Bold
Speaker 1: evs or evs are some of the most satisfied CUSS
Speaker 1: summers in industry, not just with the GM product, so
Speaker 1: it's a great product. We had a very specific issue
Speaker 1: with lg Are, our manufacturer, the batteries. We have worked
Speaker 1: with them. That's been corrected and we're seeing uh, you know,
Speaker 1: strong interests and so that the Chevrolet Bolt, EVY and
Speaker 1: eu V will be a very important part of our
Speaker 1: near term, near term for future for evis. You've got
Speaker 1: an ev market share goal for this year? Mary? What
Speaker 1: is it again? I'm sorry you're coming in muffled. I'm
Speaker 1: so sorry. That's okay. I'm happy to repeat myself. Don't worry.
Speaker 1: Do you have an e V market share goal for
Speaker 1: this year? And if so, what is it? You know,
Speaker 1: we're working between twenty two and twenty four as we
Speaker 1: accelerate vehicles to sell uh four hundred thousand um or
Speaker 1: planned to build and sell four hundred thousand vehicles by
Speaker 1: the end of three sou and that's just going to
Speaker 1: ramp up from there. So we're very very optimistic about
Speaker 1: the strength of our products and as we build them.
Speaker 1: Uh again, we're seeing with the reservations they're sold. So
Speaker 1: that's our goal for the three time frame. The puny
Speaker 1: question for may have also taken the ham of the
Speaker 1: Business round Table in America. So for you personally, what
Speaker 1: are the big goals there for you? Well, again, I
Speaker 1: think business when we look at the transformation um that's
Speaker 1: happening in almost every industry, I think business working together
Speaker 1: and also being a partner to move the country forward
Speaker 1: is very important. So I'm very proud of my b
Speaker 1: r T role and representing companies as we look to
Speaker 1: to move to the future and you know, really create
Speaker 1: a stronger country. So uh, really important opportunity and the
Speaker 1: work that beer T does is so important. So I'm
Speaker 1: honored to be able to have the opportunity to lead them,
Speaker 1: and we honored to have you with us this morning.
Speaker 1: Thank you for being with us, looking forward to catching
Speaker 1: up through the year ahead. The General Motors Chair and
Speaker 1: CEO Mary Barra right now with the Cruel Institute, a
Speaker 1: global chief economist and that's an app phrase from Megan
Speaker 1: Green with terrific transatlantic academic. We're Megan, thank you so
Speaker 1: much for joining this morning. How do you do a
Speaker 1: three months moving average on something as emotional is the
Speaker 1: American labor economy, do you single point at Friday grim
Speaker 1: number or do you smooth it out to a moving average?
Speaker 1: I think you have to smooth it out. And also
Speaker 1: it's it's not like bad numbers on Friday will be
Speaker 1: a surprise to anyone. It's been very well telegraphed by
Speaker 1: the White House, the Labor Secretary, that FED um the
Speaker 1: numbers should look pretty disappointing relative to what we've become
Speaker 1: accustomed to. But I've never ascribed too much meaning to
Speaker 1: any single data point, whether it's the jobs data or
Speaker 1: any other. And we know that our labor market is healing.
Speaker 1: The questions, as you guys pointed out, is really where
Speaker 1: did all the workers go? Uh? And are they ever
Speaker 1: coming back? I think that's what the FED really needs
Speaker 1: to know to be able to gauge exactly how tight
Speaker 1: the labor market really is and therefore how they should
Speaker 1: be setting uh their rate path going forward. Megan, A
Speaker 1: hallmark of your work is to wait of the data.
Speaker 1: What do you make of the present rate height? Guessing
Speaker 1: parlor game? Is there any value to it? Are you
Speaker 1: are you saying to yourself. I gotta wait for pictures
Speaker 1: and catchers to see what the red sox will do,
Speaker 1: and also to see what the rate structure will be, yeah,
Speaker 1: more the latter. To be honest, Tom, I think that
Speaker 1: in six to nine months we're going to be having
Speaker 1: a very different conversation around inflation and demand. Demand will
Speaker 1: be weakening over the course of this year. I think
Speaker 1: supply chain constraints should start to ease over the course
Speaker 1: of this year, and the supply of labor should also
Speaker 1: start to ease as the virus abates. Now that's assuming
Speaker 1: there aren't more variants, and certainly not more deadly variants.
Speaker 1: But as we move through this omicron weave, I think
Speaker 1: that a lot of workers will jump back into the workforce.
Speaker 1: Those who are staying home either because they're sick or
Speaker 1: they're taking care of someone who's sick, those who haven't
Speaker 1: gone back into employment from retirement because of concerns of
Speaker 1: being sick, and those who have had a financial cushion
Speaker 1: uh and so have stayed out of the labor market
Speaker 1: but or have burned through them. We'll have to jump
Speaker 1: into the labor market as well, and I think that
Speaker 1: will take a lot of upper pressure off of wages
Speaker 1: and therefore off inflation too. So you know, it just
Speaker 1: seems like a competition to see who can get more
Speaker 1: hawkish about the FITS path going forward. At the moment,
Speaker 1: I think that conversation should change towards the second half
Speaker 1: of this year. This does feel, though, again like a
Speaker 1: pivot point, and I talk about not just whether people
Speaker 1: come back to jobs, but which jobs they come back to.
Speaker 1: I've seen a number of surveys showing that people in
Speaker 1: manufacturing jobs are looking for office jobs, are looking to
Speaker 1: get retrained, want that flexibility to work from home. You've
Speaker 1: seen a complete sea change in terms of healthcare and education.
Speaker 1: How much will that increase wages in those less love
Speaker 1: professions now that really got hit the hardest and more
Speaker 1: at the forefront of the pandemic. Yeah, I think you're right.
Speaker 1: People don't want hourly services jobs, their low wage, low
Speaker 1: hour jobs. People I think have been holding out based
Speaker 1: on the financial cushion they have received from stimulus measures
Speaker 1: and to avoid going back into them. But it's some
Speaker 1: point there's going to have to be some capitulation, and
Speaker 1: so I do think those jobs will be filled again. Also,
Speaker 1: something worth mentioning is that immigration is massively down over
Speaker 1: the past two years, and it was a lot of
Speaker 1: foreign born workers who were also filling those jobs. Going forward,
Speaker 1: that should abate now that we don't have the same
Speaker 1: kind of travel restrictions that we had before. Biden's proposed
Speaker 1: some easing of immigration restrictions, and so those hourly services
Speaker 1: jobs should see some wage games. It's the worker bees,
Speaker 1: the non supervisory workers who are actually seeing the greatest
Speaker 1: wage games right now, and that should spread into uh,
Speaker 1: you know, leisure restaurants and bars as well well. Meggan,
Speaker 1: That's what I was gonna gonna say, you are, We're
Speaker 1: going to see outsized increases in some of these areas
Speaker 1: where people have to be enticed back away from the
Speaker 1: cushion that they're depleting in order to not have to
Speaker 1: go to work there. So I think wages have already
Speaker 1: risen quite a lot, and so as low income households
Speaker 1: in particular burn through their financial cushion the fastest, as
Speaker 1: that cushion evaporates, I think the wage gains that we've
Speaker 1: seen will entice them back into the labor force. So
Speaker 1: I think that the supply side issue will probably a bit.
Speaker 1: I mean, the best cure for high wages is high
Speaker 1: wages because people get pulled back into the labor force,
Speaker 1: and particularly once this wave starts to abate, it already
Speaker 1: has to some degree. I think we'll see the labor
Speaker 1: supply shortages as well. Megan, can you just help me
Speaker 1: in understanding how some of the data on Friday will
Speaker 1: be put together, how it has been put together the
Speaker 1: perfect guests to do this. Just got this note from
Speaker 1: Cantile Economics. It's going to share it with our audience
Speaker 1: just quickly. Because the ADP figures count everybody on payroll
Speaker 1: as employed, regardless of whether they worked or not, they
Speaker 1: do not capture the full hit from the omicron related
Speaker 1: search and absentee is UM. They go on to say,
Speaker 1: with an estimated five million Americans isolating mid month, we
Speaker 1: suspect close to half a million of those won't have
Speaker 1: been paid at all during the survey period, which wasn't
Speaker 1: captured in the ADP figures, but will show up in
Speaker 1: non farm payrolls. Megan, can you just explain the technical
Speaker 1: situation around how this data is put together and how
Speaker 1: it might show up on for day. Yeah, so that's
Speaker 1: right there. ADP is often not a great indicator of
Speaker 1: how the nonfarm payrolls will go though the direction of
Speaker 1: travel seems to be correct or similar in both these cases.
Speaker 1: Assuming that we get a disappointing headline figure for tomorrow,
Speaker 1: but it is down to classifications and so a number
Speaker 1: of people weren't able to go to work either because
Speaker 1: they had symptoms of omicron or they had omicron, and
Speaker 1: they won't have received a paycheck, and so that doesn't
Speaker 1: show up in the ADP data, which is only people
Speaker 1: who are receiving paychecks, but that will show up in
Speaker 1: the non farm payrolls data. Megan, I want to go
Speaker 1: the Transatlantic Act with you, and right now what we're
Speaker 1: seeing is maybe a yield structure in America that migrates
Speaker 1: higher and a europe yield structure which some would say
Speaker 1: stays where it is, maybe even with negative interest rates.
Speaker 1: What is the outcome for our viewers and listeners of
Speaker 1: such a spread, a difference in yield across the pond. Well,
Speaker 1: we're seeing monetary policy divergence, which should put yields up
Speaker 1: in the US, particularly at the short end um. Whereas
Speaker 1: the ECB, you know, investors have started to price in
Speaker 1: hikes for this year, but at a much more gradual
Speaker 1: rate than what we're seeing in the US. And that
Speaker 1: means that you know, you'll still be facing negative yields
Speaker 1: in Europe, whereas there will be much more positive yields now.
Speaker 1: I don't think the long end will go up significantly
Speaker 1: in the US. I've been asked why would anyone by
Speaker 1: a tenure government bond with a two yield um, And
Speaker 1: it's because you could go elsewhere Europe, Japan and it
Speaker 1: will be negative. So you know, the US Treasury ends
Speaker 1: up being a cleanert shirt in the dirty laundry basket
Speaker 1: like green waterful as all whites with your experience sound
Speaker 1: of Europe too. At the Crawl Institute and the Harvard
Speaker 1: Kennedy School, Evan Brown joined US now multi Asset Strategy
Speaker 1: has an ups asset management. I want to ask you
Speaker 1: that question, Evan, don't worry I'm gonna wash you about
Speaker 1: the note that you wrote with Luke. What I thought
Speaker 1: was fantastic. What we've seen is evaluation centric adjustment. You
Speaker 1: don't think it's a growth scare. How do you draw
Speaker 1: a distinction between the two, Evan, Well, I mean a
Speaker 1: lot of it is just looking at prices cross asset
Speaker 1: and if it was really a growth scare. You'd expect
Speaker 1: to see were widening in credit, which we just have
Speaker 1: not gotten. You wouldn't expect to see e M outperforming,
Speaker 1: which is what we've gotten. So we look cross asset
Speaker 1: oil to holding up really well and uh, and so
Speaker 1: we don't see it in price. But also it just
Speaker 1: doesn't really make a lot of sense economically when you
Speaker 1: have income growth almost double what it was last cycle.
Speaker 1: So it's still strong economy, still strong nominal GDP. And
Speaker 1: as Powell said last week, we're in a different cycle
Speaker 1: than the last one. Well, let's sit on the valuation
Speaker 1: scare for a minute, Evan, How do we determine what
Speaker 1: the scare should be in terms of what real rates
Speaker 1: are going to be with a FED action and and
Speaker 1: sort of how do you game that out with respect
Speaker 1: to what's already happened in markets? Yeah, so I think, uh,
Speaker 1: I think the first of all, the point is that
Speaker 1: the FED wanted this right. They want a tightening of
Speaker 1: financial conditions in their view, is a way that's going
Speaker 1: to cool inflation down the road and extend the cycle. Now,
Speaker 1: you know, it's up to them to decide how much
Speaker 1: we you know, we saw quite a hawkish FED. But
Speaker 1: then now you're seeing a parade of FED speakers this
Speaker 1: week saying, hey, we're not going to do fifty basis
Speaker 1: points at the next FED meeting in March. So um,
Speaker 1: you know, it's a it's a dance between the FED
Speaker 1: and markets. I think the frothier areas of the market
Speaker 1: will continue to have headwinds, you know, unprofitable tech, these
Speaker 1: kind of things. But the more cyclical areas of the market,
Speaker 1: I think we're unfairly punished in UH in this more
Speaker 1: recent sell up, and those are going to be the
Speaker 1: big gainers over the coming weeks and months. Kevan, what
Speaker 1: do your analysts say about the ability of corporations to
Speaker 1: adapt to sustain margin? The first thing I did yesterday
Speaker 1: with Google is go to look at the margin. Then
Speaker 1: it was a fractional lift off the parlor game of
Speaker 1: guessing margin. But what you know, sector to sector, the
Speaker 1: two analysts you've got it ubs, what do they say
Speaker 1: about the ability to sustain margin? I mean, margins are
Speaker 1: fine in the data. We don't quite have what we've
Speaker 1: seen over the over the last couple of years, but
Speaker 1: so there's some moderation there. But overall, the message that
Speaker 1: we're getting from corporates, is is really strong pricing power. Uh.
Speaker 1: And so we just look at the data and yes,
Speaker 1: the analysts internally and we just even with higher wages,
Speaker 1: we see that higher pricing power. So it just does
Speaker 1: not appear to be a major concern at this point. Evan,
Speaker 1: where are you in the team on the rest of
Speaker 1: the world at the moment. Big surprise for some people
Speaker 1: through the first month of the year was the relative
Speaker 1: at performance of site emerging markets. It's not something you
Speaker 1: think can persist. I think it can. Actually we have
Speaker 1: the difference between this year and last year. Is China's easy, right,
Speaker 1: We're not going to see the boom and credit growth
Speaker 1: that we got the previous cycle, those boom bus periods,
Speaker 1: but they've put a floor on GDP growth and that
Speaker 1: has implications for the rest of the world. So emerging
Speaker 1: markets I think can have a better year. We think
Speaker 1: the dollar is kind of weekends from here at least
Speaker 1: stops strengthening. Uh. Europe, I think we'll look back on
Speaker 1: two and say this was Europe's year. It's not just
Speaker 1: the solid global growth outlook, but got all the green spending,
Speaker 1: You've got more political cohesion. Certainly than we saw last
Speaker 1: highcle and you've got really strong balance sheets and you've
Speaker 1: got inflation right and that should put upward pressure on
Speaker 1: on yield um and higher yields is good for financials.
Speaker 1: So so I we really like the rest of the world,
Speaker 1: and we think the rest of the world will will
Speaker 1: outperform the US for the first time in a while
Speaker 1: this UH, this year high year. It's haven't helped out
Speaker 1: the US banks in a big white yea today, Evan,
Speaker 1: do you have more confidence they will in say, you're
Speaker 1: relative to what we've seen in the US. Well, I
Speaker 1: think there's a bigger valuation just count and UH in
Speaker 1: European banks not I think I know and UH and
Speaker 1: and also you know you have more room. I think
Speaker 1: the boon yield at zero percent that is extraordinarily low.
Speaker 1: We all we all know the presence of the central
Speaker 1: bank there and and down beat whether down beat whether
Speaker 1: Europe and and UH Europe can sustain growth and inflation
Speaker 1: over the over the medium term. But the valuation story
Speaker 1: is there, there's a lot more room and UH in
Speaker 1: boone yields to to reprice, which should help European banks
Speaker 1: and UH and you know, it's a really it's a
Speaker 1: really positive story. We're seeing it in the earnings as well. Evan,
Speaker 1: Thank you, buddy, send down best to the team until too,
Speaker 1: He's going to catch right now. And a broader conversation
Speaker 1: with Michael Nathanson. You've seen him quoted everywhere. Is he
Speaker 1: deservedly should be since is a senior research analyst at Moffatt,
Speaker 1: Nathanson barely describes the fact he owns a phrase, content
Speaker 1: is king. Michael, I want to go to Apple developing
Speaker 1: five fifty thousand, almost ten football fields of square feet
Speaker 1: in Culver City out by Irvine. You know there this
Speaker 1: gigantic plant, our Google, our Apple. Are they gonna take
Speaker 1: over everything? Um? It depends on which business we're talking about, Tom,
Speaker 1: I would say Apple and video probably not Google and
Speaker 1: advertising probably yes. Um, but Apple doesn't need to dominate video.
Speaker 1: They've done great on their own. But you know, the
Speaker 1: Google print to me is just it's mind blowingly good
Speaker 1: when you think about how large that company is and
Speaker 1: how fast they're growing. We have heard from day one
Speaker 1: day Google went public that there was a constraint on search.
Speaker 1: Everyone including me, has been wrong. What's your terminal? What's
Speaker 1: the X axis of your terminal value. When you look
Speaker 1: at search, do you go out five years or fifteen years? Yeah, Tom,
Speaker 1: that's a that's the point, right that everyone fades growth
Speaker 1: on search to like mid single digits, we go out
Speaker 1: fifteen years on it. Because what is happening, Because big
Speaker 1: picture search is getting more valuable in the world as
Speaker 1: many of us stopped watching linear TV, as Apple has
Speaker 1: put up blockers on you know, for privacy, searches goes
Speaker 1: up in value because we're giving people intention right when
Speaker 1: when you when you search, you're telling people what you
Speaker 1: want to see, and that is a perfect lead for advertiser.
Speaker 1: So that's been our thesis that people underestimate search and
Speaker 1: just a long cycle of growth here. And that's that's
Speaker 1: the essence of the call on Google better than you think, Michael.
Speaker 1: Do you think that this reduces the emphasis on diversification
Speaker 1: that a lot of people are looking for with the
Speaker 1: cloud with YouTube, which actually disappointed you know, It's funny
Speaker 1: because list, when we look at the stock, you don't
Speaker 1: need divertification for the stock to work. We just look
Speaker 1: at the core ad business. But I think in Google's world,
Speaker 1: they have so much talent in terms of technology talent,
Speaker 1: they have, so they have an incredible advantage of machine learning.
Speaker 1: They'd be foolish not to take that and lean into
Speaker 1: other businesses. So, um, we're not giving them a lot
Speaker 1: of credit for Google Cloud or other beds. But YouTube
Speaker 1: in our world, you know, is really underappreciated asset. Again,
Speaker 1: going back to the big picture, it's rising in value,
Speaker 1: so we don't underestimate YouTube. So YouTube and search alone
Speaker 1: gives upside for the stock without the other thing is
Speaker 1: really kicking in, Michael, how much is Google and anomaly
Speaker 1: and sort of an idiosyncratic story of incredible strength and
Speaker 1: dominance versus a representation of an economy that's really recovering
Speaker 1: with advertising spending going up so much, even without travel
Speaker 1: picking back up to pre pandemic levels. Yeah, that's that's
Speaker 1: a great question. I think it is idiostocratic because of
Speaker 1: searches value in the world and YouTube. When we wrap
Speaker 1: up earning season for media and you know and other
Speaker 1: small small add companies will not grow nearly this fast
Speaker 1: and they'll have problems with structural headwinds here and Google
Speaker 1: has a tailwind that is, you need to Google, Michael,
Speaker 1: what are you doing, Craig think you yesterday of a
Speaker 1: t n T doing a ballet from fifteen billions spent
Speaker 1: on dividends to a model nine billion. Oh no, we're
Speaker 1: not going to do that. We're gonna do eight billion.
Speaker 1: I believe the stock was down six percent, don't you know.
Speaker 1: I believe that was the number. What does it say
Speaker 1: about escapades in entertainment? Right, Well, Craig is here, he
Speaker 1: would take a bow because of the past five years
Speaker 1: he's been saying t T can't sustain the dividend. It
Speaker 1: says that, um, the cost of competing and streaming is
Speaker 1: incredibly high. That's been our call on streaming, and you know,
Speaker 1: and it says in the telecom world the cost to
Speaker 1: compete there is and probably high too because all the
Speaker 1: promotional activities being done because the five G build out. Um,
Speaker 1: you know, these businesses are a lot more challenging than
Speaker 1: I think the market thinks. And again it's easy when
Speaker 1: you look at Google to say that's where you want
Speaker 1: to be. You know, we're we're relatively negative on streaming.
Speaker 1: We're they're pivoting out away from and telecom as well
Speaker 1: in terms of mobile telecom. Michael, just a final question
Speaker 1: from me. I think it's important not to let moments
Speaker 1: like this slip or slide. This is a one point
Speaker 1: a trillly in dollar name moving ten percent. Michael, what
Speaker 1: do you make of that? Multi trillon dollar names moving
Speaker 1: this much? These are huge amounts of money. Well, Jonathan,
Speaker 1: they grew their revenue, they grew their top linet. Just
Speaker 1: search has been around for twenty years, right, Search grew
Speaker 1: faster than YouTube this quarter. Um and again, if you
Speaker 1: stop back and think about what we learned this pandemic,
Speaker 1: this is about digital transformations and Google has the best
Speaker 1: position in advertising because of what advertisers need to do.
Speaker 1: They need to pivot to search and need pivot to YouTube.
Speaker 1: And even though this has been around forever, the transformation
Speaker 1: of the pandemic has accelerated budgets. And I agree. When
Speaker 1: I first started covering, I'm like, this cannot be as
Speaker 1: good as it looks. And now six years later, they
Speaker 1: keep going. They really do just phenomenal. Michael. We appreciate
Speaker 1: you support on this program and your contribution this morning,
Speaker 1: as always said, thank you, Mite, Michael Nathan said of
Speaker 1: Moffatt Nisenson. This is the Bloomberg Surveillance Podcast. Thanks for listening.
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