WEBVTT - Surveillance: GM Results with Barra 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Leie. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance and Apple Podcast SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.560 dot Com and of course on the Bloomberg Terminal. Now 0:00:29.600 --> 0:00:33.800 an important update our John Farrell in conversation with the 0:00:33.920 --> 0:00:37.440 leader of General Motors. Let's listen. Are he pleased to 0:00:37.440 --> 0:00:40.440 say that joining us now is the GM chief Mary Barra. Mary, 0:00:40.440 --> 0:00:42.640 fantastic to catch up with you. I want to whip 0:00:42.640 --> 0:00:45.199 through the south Side research off the back of these numbers, Dan, 0:00:45.280 --> 0:00:48.480 i've's wet bush by laying major groundwork for a game 0:00:48.560 --> 0:00:52.440 changing EV strategy city a positive outcome. It increases our 0:00:52.479 --> 0:00:56.840 conviction by Jeffries and Philippe Hut is a little bit 0:00:56.840 --> 0:00:59.600 more balanced on this. He seems surprised by the volume 0:00:59.640 --> 0:01:02.680 guide two to three times bigger than what they've heard 0:01:02.720 --> 0:01:04.640 coming into this. Where's that coming from? Mary? Where are 0:01:04.640 --> 0:01:08.480 you getting that visibility from? Well, as we look at 0:01:08.480 --> 0:01:12.560 the year, we've been working closely with the semiconductor manufacturers. 0:01:12.560 --> 0:01:14.480 Are tier ones to make sure that we you know, 0:01:14.560 --> 0:01:16.960 have the best possible forecast for what we're gonna be 0:01:17.000 --> 0:01:19.000 able to build this year. Recall, last year we were 0:01:19.080 --> 0:01:21.560 hit a bit hard with some of the COVID impacts 0:01:21.560 --> 0:01:24.120 in Malaysia. So that's where we see, um, you know, 0:01:24.160 --> 0:01:26.840 the opportunity to see on a global basis, you know, 0:01:27.760 --> 0:01:32.720 greater than increase from a production perspective, and that is 0:01:32.760 --> 0:01:34.480 assuming that we're not going to have any you know, 0:01:34.600 --> 0:01:38.360 dramatic changes from a COVID or a supply chain perfect perspective. 0:01:38.520 --> 0:01:41.640 But we feel very confident. And also what's exciting is 0:01:41.959 --> 0:01:44.399 we know there is strong demand for our vehicles. So 0:01:44.880 --> 0:01:47.160 I'm very h I think twenty two has the opportunity 0:01:47.160 --> 0:01:48.400 to be a very good year. I want to hit 0:01:48.440 --> 0:01:50.080 that to mind story in just a moment. Clearly there's 0:01:50.080 --> 0:01:51.800 a balance a play through last year, and you're now 0:01:51.920 --> 0:01:54.400 that balance with a stalk performance. We saw a balance 0:01:54.480 --> 0:01:57.800 between the chip access and pushing it towards the high 0:01:57.800 --> 0:02:00.280 price vehicles. Now it's almost the opposite, and I think 0:02:00.280 --> 0:02:02.560 there's some disappointment around that. Mary that you get the 0:02:02.600 --> 0:02:05.680 better access, you get the better volume, but the average 0:02:05.680 --> 0:02:08.360 price comes down. How do you balance that? How do 0:02:08.400 --> 0:02:12.520 you optimize the balance there for twenty two. Well, you 0:02:12.520 --> 0:02:14.680 know again this we had record performance this year and 0:02:14.680 --> 0:02:16.959 again hats off to the GM team with all the 0:02:17.000 --> 0:02:19.560 work that they did, the challenges that they overcame. And 0:02:19.560 --> 0:02:21.360 as we get into next year, you know, not only 0:02:21.360 --> 0:02:24.000 are we going to be selling across many more segments. 0:02:24.320 --> 0:02:26.640 Last year in twenty one, we focused on our most 0:02:26.680 --> 0:02:30.320 in demand and capacity constrained vehicles. So as we open 0:02:30.400 --> 0:02:33.600 it up to you know, other allocation to chips, to 0:02:33.680 --> 0:02:36.200 other products. Uh. You know, it is a different from 0:02:36.440 --> 0:02:40.320 a profitability perspective, and we also are investing in growth 0:02:40.480 --> 0:02:42.840 and so you know, we're investing for the future. We 0:02:42.840 --> 0:02:45.240 know there's a huge opportunity not only from an EV 0:02:45.440 --> 0:02:48.640 perspective UH and a V perspective with crews, but also 0:02:48.880 --> 0:02:51.880 across the board from a software perspective, whether it's ICE 0:02:52.120 --> 0:02:54.600 or E V s H. We see an opportunity to 0:02:54.639 --> 0:02:58.480 really grow from a from a services and subscriptions perspective. Mary, 0:02:58.480 --> 0:03:00.200 you've gotta help me with the numbers what it comes 0:03:00.200 --> 0:03:02.280 to capex and investment. The numbers we've seen in this 0:03:02.320 --> 0:03:05.000 industry just huge. The team here at Bloombergh came out 0:03:05.000 --> 0:03:07.960 with the story FOD yesterday, throwing another twenty billion at 0:03:07.960 --> 0:03:10.720 this transition. You said, quote, we're going to be increasing 0:03:10.760 --> 0:03:12.960 spending that much is clear. Is the answer always going 0:03:13.000 --> 0:03:15.000 to be more? When you're asked how much you need 0:03:15.040 --> 0:03:18.000 to throw at this story, Mary, Well, you know we've 0:03:18.040 --> 0:03:20.400 already announced between twenty and twenty five that we're going 0:03:20.440 --> 0:03:23.280 to invest thirty five billion dollars and we've been investing. 0:03:23.320 --> 0:03:26.919 That big announcement yes or last week in Michigan seven 0:03:26.919 --> 0:03:30.560 billion dollars for conversion of a plant to build trucks 0:03:31.040 --> 0:03:34.440 EV trucks as well as our third battery plant. We're 0:03:34.440 --> 0:03:37.360 pulling ahead our fourth battery plant will be making that 0:03:37.400 --> 0:03:40.280 announcement in the first half of this year, as well 0:03:40.320 --> 0:03:44.320 as an additional EV truck plan. So we're seeing the 0:03:44.360 --> 0:03:47.040 demand for our products and we're seeing customers willingness to 0:03:47.040 --> 0:03:50.000 adapt VS. That's what's calling causing us to pull ahead. 0:03:50.200 --> 0:03:52.240 You know we're we're going to continue to do that, 0:03:52.400 --> 0:03:55.240 and you know we've got the capability to do that, 0:03:55.640 --> 0:03:58.200 and you'll just see our number grow as we continue 0:03:58.240 --> 0:04:01.400 to invest in e v a V capability. Right at 0:04:01.400 --> 0:04:03.640 the end of the cool yesterday you talked about the 0:04:03.680 --> 0:04:07.040 dividend murray, where is it? When does this dividend come back? 0:04:07.080 --> 0:04:11.160 What you need to achieve to bring them back into apply? Well, 0:04:11.160 --> 0:04:13.360 you know, we've had a capital allocation framework for the 0:04:13.480 --> 0:04:16.200 last several years where first we invest in opportunities to 0:04:16.240 --> 0:04:19.840 generate a return on invested capital of greater than as 0:04:19.880 --> 0:04:22.280 well as have an investment grade balance sheet, and then 0:04:22.320 --> 0:04:24.479 return the rest to shareholders. And that's what we plan 0:04:24.600 --> 0:04:26.960 to do. But with all the opportunities we see in 0:04:27.000 --> 0:04:30.000 front of us to accelerate on EVS, accelerate a VIS, 0:04:30.240 --> 0:04:33.560 and accelerate the software defined vehicle, we want to make 0:04:33.600 --> 0:04:36.160 sure we have maximum flexibility and that's why we're not 0:04:36.240 --> 0:04:40.840 reinstating the dividends as we currently assess the situation. Uh, 0:04:40.880 --> 0:04:44.080 you know, there's still are other mechanisms to return value 0:04:44.120 --> 0:04:46.560 to shareholders, but we want to have the flexibility to 0:04:46.640 --> 0:04:49.520 really support our growth. Do you think bipacks make most sense? 0:04:49.600 --> 0:04:52.440 Is that what you're trying to say that? Well, again, 0:04:52.480 --> 0:04:54.440 you know, I think the first there's three pillars of 0:04:54.440 --> 0:04:57.480 our capital allocation framework to me, Uh, making sure we're 0:04:57.520 --> 0:05:00.560 investing in creating value and growth think is the best 0:05:00.600 --> 0:05:02.680 thing we can do for our shareholders. But if you 0:05:02.720 --> 0:05:05.320 know we at the end we have excess capital. We 0:05:05.360 --> 0:05:07.800 are going to use one of the mechanisms to be 0:05:07.839 --> 0:05:10.159 able to return that to our shareholders. You've mentioned demand 0:05:10.160 --> 0:05:12.320 a few times. Let's go through the numbers. The numbers 0:05:12.320 --> 0:05:14.960 are staggering. You've talked about this pent up demanding the 0:05:14.960 --> 0:05:17.679 American market of several million vehicles on the e V side. 0:05:17.680 --> 0:05:20.360 I was looking through the orders the reservations. Fifty nine 0:05:20.400 --> 0:05:24.440 thousand hummery vs dred and ten thousand Electric Chevy Silveradoes. 0:05:24.480 --> 0:05:25.919 I'm sure that if you open the books again for 0:05:25.920 --> 0:05:29.000 some of these names, they'll go again. They'll go again. Mary, 0:05:29.040 --> 0:05:33.120 have you ever seen demand this great in this country 0:05:33.160 --> 0:05:38.960 for this transition? You know, I just am really encouraged 0:05:39.000 --> 0:05:42.120 by how much interest there are in evs. I really 0:05:42.200 --> 0:05:44.440 last year we started to see a tipping point, and 0:05:44.480 --> 0:05:47.360 that's why last year we really end in. In twenty 0:05:47.440 --> 0:05:50.719 we started accelerating our push to e vs. And you know, 0:05:50.760 --> 0:05:53.800 we're uniquely positioned from a traditional o EM because we 0:05:53.880 --> 0:05:57.080 have the ultim platform that we started working on several 0:05:57.160 --> 0:05:59.800 years ago. We launched the first vehicles off of it, 0:06:00.080 --> 0:06:03.080 share with the Hummer, and so that's enabling us to 0:06:03.120 --> 0:06:06.200 move quickly. But also have scale from a battery perspective, 0:06:06.440 --> 0:06:09.280 that will I think give us a really efficient um 0:06:10.120 --> 0:06:13.799 margin as we make these transitions. So I'm very enthused 0:06:13.839 --> 0:06:16.560 with the interest in EVS the reservations, as you say, 0:06:16.560 --> 0:06:17.960 and I also think it goes to the fact that 0:06:18.000 --> 0:06:21.120 our products are ev products off of ultium offer a 0:06:21.160 --> 0:06:23.960 lot of advantages from a range from a performance, uh, 0:06:24.080 --> 0:06:29.719 you know, flexibility. So, uh, this transformation is pretty exciting. 0:06:29.839 --> 0:06:31.960 I can tell you're excited about it. I can tell 0:06:32.000 --> 0:06:34.200 you're excited about the margins. I can tell you're excited 0:06:34.200 --> 0:06:37.160 about it. Debob, here's the delicate question. Why does this 0:06:37.240 --> 0:06:42.919 industry then need credits, need tax credits? Well, as you 0:06:42.960 --> 0:06:45.800 look at EVS, we do need to get in uh 0:06:45.920 --> 0:06:50.280 customers into electric vehicles. We've seen that, Uh, the incentives 0:06:50.320 --> 0:06:53.680 do help drive ev adaption. And remember we have aggressive 0:06:53.720 --> 0:06:56.680 goals from a country from frankly, a country perspective and 0:06:56.720 --> 0:06:59.080 a global perspective from what we need to do for 0:06:59.160 --> 0:07:02.120 the environment. So we think that will help, especially as 0:07:02.240 --> 0:07:04.640 all companies work to get battery costs down. I don't 0:07:04.640 --> 0:07:06.560 think it's for everything, but I think right now to 0:07:06.600 --> 0:07:08.760 get where we need to go from a market perspective 0:07:08.800 --> 0:07:11.720 from a climate change, it's appropriate to do. What we're 0:07:11.760 --> 0:07:14.360 asking is is let's make it a level playing field. 0:07:14.360 --> 0:07:16.880 We were a first mover, we're already out of today's credits, 0:07:17.080 --> 0:07:20.200 and we're saying let's uncap them so customers can truly 0:07:20.240 --> 0:07:21.960 buy what they want. When you say make it a 0:07:22.040 --> 0:07:24.400 level playing field, what do you make of the extra 0:07:24.440 --> 0:07:27.120 credits going if this was implemented and pushed through from 0:07:27.280 --> 0:07:29.120 the White House, what would you make of the extra 0:07:29.160 --> 0:07:32.000 credits going to companies that are selling cars made with 0:07:32.080 --> 0:07:35.080 domestic union labor. Does that sound like a fair playing 0:07:35.080 --> 0:07:38.800 field to you? Well, you know again, everybody, every workforce 0:07:38.840 --> 0:07:41.520 has the right to unionize, so it's a choice that 0:07:41.560 --> 0:07:45.280 they're making. We're General Motors were you know, represented in 0:07:45.280 --> 0:07:47.880 the United States by the UAW and unions around the world. 0:07:48.360 --> 0:07:50.640 We've done a lot of great work together. So um, 0:07:50.680 --> 0:07:52.520 you know again, every company can make their choice and 0:07:52.720 --> 0:07:54.400 the workforce can as well. Well. The White House has 0:07:54.400 --> 0:07:55.960 got to make a choice too, and you support it. 0:07:56.120 --> 0:07:57.880 I want to go through these credits. They're pushing for 0:07:57.920 --> 0:08:00.560 a four thousand, five d dollar additional credit of vehicles 0:08:00.560 --> 0:08:02.960 that are made using domestic union labor. You get an 0:08:03.000 --> 0:08:06.520 additional five dollars for manufacturers that use domestically produced batteries. 0:08:06.560 --> 0:08:08.960 And Mary, one thing that I've been confused by is 0:08:09.200 --> 0:08:11.160 why the push here. You've just gone through the demand story. 0:08:11.160 --> 0:08:13.920 It sounds fantastic, you're excited about it. I see the 0:08:13.920 --> 0:08:16.320 same thing at Ford, and I see a demand problem here. 0:08:16.360 --> 0:08:19.640 I see an infrastructure problem which the government could be focusing. Gone, Mary, 0:08:19.680 --> 0:08:21.360 why do you think we should be focusing at all 0:08:21.360 --> 0:08:23.680 on tax credits? You sat in the White House in 0:08:23.720 --> 0:08:26.280 the last couple of weeks and you supported that. You said, 0:08:26.280 --> 0:08:29.280 getting strong demand is very important. But we have that demand. 0:08:29.320 --> 0:08:31.720 So Mary, again, why should we be focusing on that 0:08:31.800 --> 0:08:34.360 in any way, shape or form. Right, Well, I think 0:08:34.400 --> 0:08:36.240 what we're looking for is we have strong demand. But 0:08:36.280 --> 0:08:37.880 you know, when you look at how many EV sales 0:08:37.880 --> 0:08:40.160 there are today, we're in this single digits. We need 0:08:40.200 --> 0:08:43.920 to buy end a decade to get to UH and 0:08:44.000 --> 0:08:46.319 so that's where you've really got to have the right portfolio. 0:08:46.360 --> 0:08:48.240 That's what we're working on. But you've also got to 0:08:48.640 --> 0:08:51.320 move the customer and get their interest and so to 0:08:51.360 --> 0:08:53.280 get to the levels of adaptation. We're just in the 0:08:53.280 --> 0:08:56.160 early phases right now, and I think that's important. Also, 0:08:56.280 --> 0:09:00.160 infrastructure EV charging infrastructure is very very important, and the 0:09:00.200 --> 0:09:02.959 bipartisan bill that was passed for infrastructure, I think is 0:09:03.000 --> 0:09:05.880 going to move the infrastructure along along with what startup 0:09:05.880 --> 0:09:08.480 companies are doing. We're investing about a quarter of a 0:09:08.480 --> 0:09:12.559 billion dollars in charging again to make sure that there 0:09:12.600 --> 0:09:15.640 any customer, even customers that only own one vehicle, know 0:09:15.760 --> 0:09:17.800 that they can count on their electric vehicle for their 0:09:17.840 --> 0:09:20.280 daily drive. Mary, as you know little mention of the 0:09:20.320 --> 0:09:23.520 Bowl Ev in your letter, some people have been raised 0:09:23.520 --> 0:09:25.360 to a question as to whether that whole project gets 0:09:25.360 --> 0:09:28.040 can as you read, so your plants around the country, 0:09:28.160 --> 0:09:30.480 Maria committed to that. Why does that still makes sense? 0:09:31.920 --> 0:09:34.160 I'm sorry, could you really I couldn't hear your question. Sure, 0:09:34.280 --> 0:09:36.080 just on the Chevy boat, just on the boat itself. 0:09:36.120 --> 0:09:38.120 There's been some problems there, as you know, some people 0:09:38.120 --> 0:09:39.760 have raised the question as to whether you should just 0:09:39.840 --> 0:09:42.120 ditch the whole project and focus on what you've been 0:09:42.120 --> 0:09:45.320 doing subsequently, which seems to be attracting massive demand. Why 0:09:45.360 --> 0:09:48.560 does that push there's still makes sense? Well, first of all, 0:09:48.600 --> 0:09:51.079 it's a great product. I was most recently driving a 0:09:51.160 --> 0:09:54.840 Chevrolet Bold Ev and it's just a peppy vehicle fund 0:09:54.840 --> 0:09:57.640 to drive. You know, our customers that have bought Bold 0:09:57.640 --> 0:10:00.000 evs or evs are some of the most satisfied CUSS 0:10:00.000 --> 0:10:02.800 summers in industry, not just with the GM product, so 0:10:02.840 --> 0:10:05.400 it's a great product. We had a very specific issue 0:10:05.440 --> 0:10:09.440 with lg Are, our manufacturer, the batteries. We have worked 0:10:09.480 --> 0:10:12.160 with them. That's been corrected and we're seeing uh, you know, 0:10:12.240 --> 0:10:15.440 strong interests and so that the Chevrolet Bolt, EVY and 0:10:15.480 --> 0:10:17.560 eu V will be a very important part of our 0:10:17.640 --> 0:10:20.720 near term, near term for future for evis. You've got 0:10:20.760 --> 0:10:23.040 an ev market share goal for this year? Mary? What 0:10:23.120 --> 0:10:26.800 is it again? I'm sorry you're coming in muffled. I'm 0:10:26.840 --> 0:10:29.439 so sorry. That's okay. I'm happy to repeat myself. Don't worry. 0:10:29.679 --> 0:10:31.600 Do you have an e V market share goal for 0:10:31.600 --> 0:10:34.480 this year? And if so, what is it? You know, 0:10:34.520 --> 0:10:37.000 we're working between twenty two and twenty four as we 0:10:37.040 --> 0:10:41.439 accelerate vehicles to sell uh four hundred thousand um or 0:10:41.559 --> 0:10:43.880 planned to build and sell four hundred thousand vehicles by 0:10:43.920 --> 0:10:46.839 the end of three sou and that's just going to 0:10:47.000 --> 0:10:50.800 ramp up from there. So we're very very optimistic about 0:10:50.960 --> 0:10:53.040 the strength of our products and as we build them. 0:10:53.400 --> 0:10:56.040 Uh again, we're seeing with the reservations they're sold. So 0:10:56.480 --> 0:10:59.600 that's our goal for the three time frame. The puny 0:10:59.640 --> 0:11:01.240 question for may have also taken the ham of the 0:11:01.240 --> 0:11:04.680 Business round Table in America. So for you personally, what 0:11:04.720 --> 0:11:08.240 are the big goals there for you? Well, again, I 0:11:08.280 --> 0:11:11.440 think business when we look at the transformation um that's 0:11:11.440 --> 0:11:15.600 happening in almost every industry, I think business working together 0:11:15.640 --> 0:11:19.280 and also being a partner to move the country forward 0:11:19.440 --> 0:11:21.120 is very important. So I'm very proud of my b 0:11:21.280 --> 0:11:25.800 r T role and representing companies as we look to 0:11:25.800 --> 0:11:28.520 to move to the future and you know, really create 0:11:28.960 --> 0:11:33.680 a stronger country. So uh, really important opportunity and the 0:11:33.679 --> 0:11:35.520 work that beer T does is so important. So I'm 0:11:35.559 --> 0:11:37.800 honored to be able to have the opportunity to lead them, 0:11:37.880 --> 0:11:39.360 and we honored to have you with us this morning. 0:11:39.400 --> 0:11:41.079 Thank you for being with us, looking forward to catching 0:11:41.160 --> 0:11:43.520 up through the year ahead. The General Motors Chair and 0:11:43.679 --> 0:11:54.160 CEO Mary Barra right now with the Cruel Institute, a 0:11:54.200 --> 0:11:57.000 global chief economist and that's an app phrase from Megan 0:11:57.040 --> 0:12:00.800 Green with terrific transatlantic academic. We're Megan, thank you so 0:12:00.920 --> 0:12:03.520 much for joining this morning. How do you do a 0:12:03.600 --> 0:12:07.080 three months moving average on something as emotional is the 0:12:07.120 --> 0:12:11.520 American labor economy, do you single point at Friday grim 0:12:11.600 --> 0:12:14.480 number or do you smooth it out to a moving average? 0:12:15.640 --> 0:12:17.760 I think you have to smooth it out. And also 0:12:17.920 --> 0:12:21.040 it's it's not like bad numbers on Friday will be 0:12:21.080 --> 0:12:23.840 a surprise to anyone. It's been very well telegraphed by 0:12:23.880 --> 0:12:27.000 the White House, the Labor Secretary, that FED um the 0:12:27.080 --> 0:12:30.240 numbers should look pretty disappointing relative to what we've become 0:12:30.240 --> 0:12:33.480 accustomed to. But I've never ascribed too much meaning to 0:12:33.520 --> 0:12:36.160 any single data point, whether it's the jobs data or 0:12:36.200 --> 0:12:39.440 any other. And we know that our labor market is healing. 0:12:39.840 --> 0:12:42.800 The questions, as you guys pointed out, is really where 0:12:42.840 --> 0:12:45.800 did all the workers go? Uh? And are they ever 0:12:45.920 --> 0:12:48.240 coming back? I think that's what the FED really needs 0:12:48.280 --> 0:12:50.640 to know to be able to gauge exactly how tight 0:12:50.679 --> 0:12:53.760 the labor market really is and therefore how they should 0:12:53.800 --> 0:12:57.599 be setting uh their rate path going forward. Megan, A 0:12:57.720 --> 0:13:00.840 hallmark of your work is to wait of the data. 0:13:00.960 --> 0:13:04.199 What do you make of the present rate height? Guessing 0:13:04.440 --> 0:13:08.400 parlor game? Is there any value to it? Are you 0:13:08.440 --> 0:13:10.640 are you saying to yourself. I gotta wait for pictures 0:13:10.640 --> 0:13:12.920 and catchers to see what the red sox will do, 0:13:13.160 --> 0:13:16.880 and also to see what the rate structure will be, yeah, 0:13:17.040 --> 0:13:19.240 more the latter. To be honest, Tom, I think that 0:13:19.280 --> 0:13:21.120 in six to nine months we're going to be having 0:13:21.120 --> 0:13:25.040 a very different conversation around inflation and demand. Demand will 0:13:25.080 --> 0:13:27.360 be weakening over the course of this year. I think 0:13:27.400 --> 0:13:30.480 supply chain constraints should start to ease over the course 0:13:30.520 --> 0:13:33.400 of this year, and the supply of labor should also 0:13:33.440 --> 0:13:36.720 start to ease as the virus abates. Now that's assuming 0:13:36.760 --> 0:13:40.880 there aren't more variants, and certainly not more deadly variants. 0:13:40.880 --> 0:13:44.280 But as we move through this omicron weave, I think 0:13:44.320 --> 0:13:46.960 that a lot of workers will jump back into the workforce. 0:13:47.000 --> 0:13:49.120 Those who are staying home either because they're sick or 0:13:49.160 --> 0:13:52.040 they're taking care of someone who's sick, those who haven't 0:13:52.080 --> 0:13:55.040 gone back into employment from retirement because of concerns of 0:13:55.160 --> 0:13:58.240 being sick, and those who have had a financial cushion 0:13:58.800 --> 0:14:01.080 uh and so have stayed out of the labor market 0:14:01.120 --> 0:14:03.160 but or have burned through them. We'll have to jump 0:14:03.160 --> 0:14:04.959 into the labor market as well, and I think that 0:14:05.000 --> 0:14:07.120 will take a lot of upper pressure off of wages 0:14:07.559 --> 0:14:10.520 and therefore off inflation too. So you know, it just 0:14:10.559 --> 0:14:13.320 seems like a competition to see who can get more 0:14:13.360 --> 0:14:16.000 hawkish about the FITS path going forward. At the moment, 0:14:16.360 --> 0:14:18.960 I think that conversation should change towards the second half 0:14:18.960 --> 0:14:21.640 of this year. This does feel, though, again like a 0:14:21.640 --> 0:14:23.960 pivot point, and I talk about not just whether people 0:14:24.000 --> 0:14:26.280 come back to jobs, but which jobs they come back to. 0:14:26.680 --> 0:14:28.800 I've seen a number of surveys showing that people in 0:14:28.840 --> 0:14:31.760 manufacturing jobs are looking for office jobs, are looking to 0:14:31.760 --> 0:14:34.720 get retrained, want that flexibility to work from home. You've 0:14:34.760 --> 0:14:37.720 seen a complete sea change in terms of healthcare and education. 0:14:37.880 --> 0:14:41.040 How much will that increase wages in those less love 0:14:41.080 --> 0:14:43.760 professions now that really got hit the hardest and more 0:14:43.760 --> 0:14:47.000 at the forefront of the pandemic. Yeah, I think you're right. 0:14:47.000 --> 0:14:50.960 People don't want hourly services jobs, their low wage, low 0:14:51.000 --> 0:14:54.000 hour jobs. People I think have been holding out based 0:14:54.040 --> 0:14:57.040 on the financial cushion they have received from stimulus measures 0:14:57.320 --> 0:14:59.680 and to avoid going back into them. But it's some 0:15:00.000 --> 0:15:02.480 point there's going to have to be some capitulation, and 0:15:02.560 --> 0:15:05.360 so I do think those jobs will be filled again. Also, 0:15:05.480 --> 0:15:08.560 something worth mentioning is that immigration is massively down over 0:15:08.600 --> 0:15:10.160 the past two years, and it was a lot of 0:15:10.160 --> 0:15:13.920 foreign born workers who were also filling those jobs. Going forward, 0:15:14.000 --> 0:15:15.880 that should abate now that we don't have the same 0:15:15.960 --> 0:15:19.520 kind of travel restrictions that we had before. Biden's proposed 0:15:19.840 --> 0:15:23.560 some easing of immigration restrictions, and so those hourly services 0:15:23.640 --> 0:15:26.720 jobs should see some wage games. It's the worker bees, 0:15:26.760 --> 0:15:29.840 the non supervisory workers who are actually seeing the greatest 0:15:29.840 --> 0:15:33.400 wage games right now, and that should spread into uh, 0:15:33.600 --> 0:15:36.240 you know, leisure restaurants and bars as well well. Meggan, 0:15:36.280 --> 0:15:38.040 That's what I was gonna gonna say, you are, We're 0:15:38.040 --> 0:15:40.880 going to see outsized increases in some of these areas 0:15:41.200 --> 0:15:43.640 where people have to be enticed back away from the 0:15:43.680 --> 0:15:46.000 cushion that they're depleting in order to not have to 0:15:46.000 --> 0:15:49.520 go to work there. So I think wages have already 0:15:49.600 --> 0:15:53.000 risen quite a lot, and so as low income households 0:15:53.000 --> 0:15:56.680 in particular burn through their financial cushion the fastest, as 0:15:56.720 --> 0:15:59.480 that cushion evaporates, I think the wage gains that we've 0:15:59.480 --> 0:16:02.440 seen will entice them back into the labor force. So 0:16:02.680 --> 0:16:06.120 I think that the supply side issue will probably a bit. 0:16:06.200 --> 0:16:08.840 I mean, the best cure for high wages is high 0:16:08.880 --> 0:16:11.680 wages because people get pulled back into the labor force, 0:16:11.760 --> 0:16:15.680 and particularly once this wave starts to abate, it already 0:16:15.680 --> 0:16:18.280 has to some degree. I think we'll see the labor 0:16:18.320 --> 0:16:21.560 supply shortages as well. Megan, can you just help me 0:16:21.800 --> 0:16:23.840 in understanding how some of the data on Friday will 0:16:23.880 --> 0:16:25.800 be put together, how it has been put together the 0:16:25.800 --> 0:16:27.880 perfect guests to do this. Just got this note from 0:16:27.920 --> 0:16:29.760 Cantile Economics. It's going to share it with our audience 0:16:29.800 --> 0:16:32.960 just quickly. Because the ADP figures count everybody on payroll 0:16:33.000 --> 0:16:35.640 as employed, regardless of whether they worked or not, they 0:16:35.680 --> 0:16:37.960 do not capture the full hit from the omicron related 0:16:37.960 --> 0:16:40.200 search and absentee is UM. They go on to say, 0:16:40.360 --> 0:16:43.360 with an estimated five million Americans isolating mid month, we 0:16:43.400 --> 0:16:45.640 suspect close to half a million of those won't have 0:16:45.760 --> 0:16:50.080 been paid at all during the survey period, which wasn't 0:16:50.120 --> 0:16:53.280 captured in the ADP figures, but will show up in 0:16:53.360 --> 0:16:56.520 non farm payrolls. Megan, can you just explain the technical 0:16:56.880 --> 0:16:59.120 situation around how this data is put together and how 0:16:59.160 --> 0:17:02.320 it might show up on for day. Yeah, so that's 0:17:02.400 --> 0:17:05.560 right there. ADP is often not a great indicator of 0:17:05.600 --> 0:17:08.320 how the nonfarm payrolls will go though the direction of 0:17:08.359 --> 0:17:11.880 travel seems to be correct or similar in both these cases. 0:17:11.920 --> 0:17:15.920 Assuming that we get a disappointing headline figure for tomorrow, 0:17:15.960 --> 0:17:18.879 but it is down to classifications and so a number 0:17:18.880 --> 0:17:21.280 of people weren't able to go to work either because 0:17:21.280 --> 0:17:24.600 they had symptoms of omicron or they had omicron, and 0:17:24.640 --> 0:17:27.040 they won't have received a paycheck, and so that doesn't 0:17:27.080 --> 0:17:29.480 show up in the ADP data, which is only people 0:17:29.480 --> 0:17:32.000 who are receiving paychecks, but that will show up in 0:17:32.000 --> 0:17:34.280 the non farm payrolls data. Megan, I want to go 0:17:34.560 --> 0:17:37.280 the Transatlantic Act with you, and right now what we're 0:17:37.280 --> 0:17:40.520 seeing is maybe a yield structure in America that migrates 0:17:40.600 --> 0:17:44.200 higher and a europe yield structure which some would say 0:17:44.280 --> 0:17:46.920 stays where it is, maybe even with negative interest rates. 0:17:47.560 --> 0:17:50.440 What is the outcome for our viewers and listeners of 0:17:50.560 --> 0:17:55.520 such a spread, a difference in yield across the pond. Well, 0:17:55.520 --> 0:17:59.840 we're seeing monetary policy divergence, which should put yields up 0:18:00.000 --> 0:18:03.280 in the US, particularly at the short end um. Whereas 0:18:03.320 --> 0:18:06.720 the ECB, you know, investors have started to price in 0:18:06.880 --> 0:18:10.320 hikes for this year, but at a much more gradual 0:18:10.440 --> 0:18:12.720 rate than what we're seeing in the US. And that 0:18:12.760 --> 0:18:16.280 means that you know, you'll still be facing negative yields 0:18:16.320 --> 0:18:19.040 in Europe, whereas there will be much more positive yields now. 0:18:19.080 --> 0:18:21.399 I don't think the long end will go up significantly 0:18:21.400 --> 0:18:24.160 in the US. I've been asked why would anyone by 0:18:24.640 --> 0:18:28.439 a tenure government bond with a two yield um, And 0:18:28.440 --> 0:18:31.119 it's because you could go elsewhere Europe, Japan and it 0:18:31.160 --> 0:18:34.920 will be negative. So you know, the US Treasury ends 0:18:34.960 --> 0:18:37.920 up being a cleanert shirt in the dirty laundry basket 0:18:38.280 --> 0:18:40.800 like green waterful as all whites with your experience sound 0:18:40.800 --> 0:18:43.320 of Europe too. At the Crawl Institute and the Harvard 0:18:43.400 --> 0:18:53.520 Kennedy School, Evan Brown joined US now multi Asset Strategy 0:18:53.560 --> 0:18:56.399 has an ups asset management. I want to ask you 0:18:56.440 --> 0:18:58.920 that question, Evan, don't worry I'm gonna wash you about 0:18:58.960 --> 0:19:00.440 the note that you wrote with Luke. What I thought 0:19:00.480 --> 0:19:04.520 was fantastic. What we've seen is evaluation centric adjustment. You 0:19:04.560 --> 0:19:06.479 don't think it's a growth scare. How do you draw 0:19:06.480 --> 0:19:10.199 a distinction between the two, Evan, Well, I mean a 0:19:10.240 --> 0:19:13.560 lot of it is just looking at prices cross asset 0:19:13.720 --> 0:19:15.879 and if it was really a growth scare. You'd expect 0:19:15.880 --> 0:19:18.119 to see were widening in credit, which we just have 0:19:18.280 --> 0:19:22.480 not gotten. You wouldn't expect to see e M outperforming, 0:19:22.640 --> 0:19:25.920 which is what we've gotten. So we look cross asset 0:19:26.000 --> 0:19:29.119 oil to holding up really well and uh, and so 0:19:29.160 --> 0:19:30.639 we don't see it in price. But also it just 0:19:30.680 --> 0:19:33.480 doesn't really make a lot of sense economically when you 0:19:33.520 --> 0:19:37.679 have income growth almost double what it was last cycle. 0:19:38.240 --> 0:19:41.320 So it's still strong economy, still strong nominal GDP. And 0:19:41.400 --> 0:19:44.600 as Powell said last week, we're in a different cycle 0:19:44.680 --> 0:19:46.639 than the last one. Well, let's sit on the valuation 0:19:46.680 --> 0:19:49.080 scare for a minute, Evan, How do we determine what 0:19:49.200 --> 0:19:51.920 the scare should be in terms of what real rates 0:19:51.920 --> 0:19:54.520 are going to be with a FED action and and 0:19:54.560 --> 0:19:56.600 sort of how do you game that out with respect 0:19:56.720 --> 0:20:01.240