WEBVTT - The Fed, Supply Chain, Porsche, And Ukraine (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg markets podcast. I'm Paul Sweeney. Alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOS, market pros and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg markets podcast 0:00:15.600 --> 0:00:18.439 on Apple podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.000 at Bloomberg Dot com slash podcast. Our Jersey chief US 0:00:22.079 --> 0:00:25.079 interest rate strategies for Bloomberg intelligencies at our Princeton, New 0:00:25.160 --> 0:00:28.000 Jersey office. I read this is your Federal Reserve. Anything 0:00:28.080 --> 0:00:30.639 goes wrong tomorrow, I'm blaming you. But I guess the 0:00:30.640 --> 0:00:33.559 big issue is they've been a table cloth that you're 0:00:33.600 --> 0:00:36.879 wearing exactly. They've got a tough road to Hoe. They 0:00:36.960 --> 0:00:39.960 gotta keep us out of recession while reigning in inflation. 0:00:40.280 --> 0:00:43.400 How do they do that? Yeah, I'm not sure that 0:00:43.479 --> 0:00:45.400 they can, and in fact, you know, our view has 0:00:45.400 --> 0:00:48.320 always been that they have to slow the economy enough 0:00:48.400 --> 0:00:50.680 in order to get inflation down. And the big thing 0:00:51.240 --> 0:00:55.520 right now that that's likely to keep inflation afloat is 0:00:55.520 --> 0:00:58.520 is the wage picture. And when you look at aggregate 0:00:58.640 --> 0:01:01.720 Labor income, it's growing at nine percent year on year, 0:01:01.880 --> 0:01:06.959 even though overall inflation is slowing. That's basically staying, staying steady. 0:01:07.080 --> 0:01:10.080 So you can wind up in a situation where inflation 0:01:10.160 --> 0:01:12.720 is a bit more persistent than that the Fed really wants. 0:01:12.760 --> 0:01:15.080 So Um. So I do think that they're going to 0:01:15.200 --> 0:01:17.920 have to high right. I mean if we can get 0:01:17.959 --> 0:01:22.839 everything else to slow down and just wages rise, well, yeah, 0:01:22.840 --> 0:01:25.319 real income growth would be phenomenal, but the problem is 0:01:25.360 --> 0:01:27.640 that the is that real income growth is likely to 0:01:28.000 --> 0:01:32.800 mean that core inflation prices remained very sticky. Um and so. 0:01:32.800 --> 0:01:34.640 So one of the so so, one of the big 0:01:34.720 --> 0:01:37.800 challenges for the Fed is going to be how do 0:01:37.880 --> 0:01:40.240 you know, how do you thread that needle? Right, and 0:01:40.240 --> 0:01:42.000 and and they haven't been able to do that five 0:01:42.040 --> 0:01:44.240 of the last six times that they've had hiking cycles, 0:01:44.560 --> 0:01:46.720 and the one time that they kind of did thread 0:01:46.720 --> 0:01:49.800 that needle in the early nineties, you had a very 0:01:49.840 --> 0:01:53.200 significant mid cycle slowdown that felt very much like a recession. Um, 0:01:53.280 --> 0:01:55.800 the only reason why you didn't hit a recession is 0:01:55.840 --> 0:01:57.240 because you only got like a one and a half 0:01:57.240 --> 0:01:59.120 percent increase in the unemployment rate. You didn't get a 0:01:59.120 --> 0:02:02.200 two percent increase. Right. Well, I mean the market doesn't 0:02:02.200 --> 0:02:06.760 seem look people don't really think that the Fed can 0:02:06.800 --> 0:02:09.520 thread that needle. When when we have guests on here 0:02:09.560 --> 0:02:12.520 they say the Fed made a huge polymist policy mistake 0:02:12.600 --> 0:02:14.840 last year and they're making a huge one again. This 0:02:14.919 --> 0:02:18.560 seems to be now consensus. They're gonna tighten so much 0:02:18.600 --> 0:02:21.760 that they drive us into a recession and we get 0:02:21.800 --> 0:02:26.399 like Danny Blanche flower style unemployment that's worse than inflation. Well, 0:02:26.400 --> 0:02:29.239 I don't think you see. See. I guess the issue 0:02:29.360 --> 0:02:31.519 is is what is a soft landing? To me, a 0:02:31.600 --> 0:02:34.320 soft landing might be a mild recession. Right. So if 0:02:34.320 --> 0:02:37.640 we get a recession that's, you know, somewhat similar to say, 0:02:37.720 --> 0:02:41.040 the early two thousands, Um, I don't think that that's 0:02:41.160 --> 0:02:45.520 necessarily the worst case scenario for for the economy. And 0:02:45.560 --> 0:02:49.360 if it's, if it's short end uh and mild, that 0:02:49.360 --> 0:02:51.120 that's actually a win for the Fed, right, because the 0:02:51.320 --> 0:02:53.760 Federal Reserve, remember that they have two mandates and right 0:02:53.760 --> 0:02:56.079 now they're not fulfilling one of their mandates by any 0:02:56.080 --> 0:02:59.000 stretch of the imagination. Right. So, Um, you can't say 0:02:59.040 --> 0:03:01.799 that they're fulfilling their stable price mandate at the moment. 0:03:02.200 --> 0:03:04.480 And you know, they only have one real tool in 0:03:04.560 --> 0:03:06.440 order to fight that. So they're going to use it 0:03:06.480 --> 0:03:08.560 in the the only way that they can, and that's 0:03:08.560 --> 0:03:11.519 the hike interest rates and Um. Now I actually think 0:03:11.520 --> 0:03:14.840 that that after this particular meeting they're going to be 0:03:14.880 --> 0:03:16.720 within a hundred basis points of being done. I mean 0:03:16.760 --> 0:03:19.280 our our view is uh here at Plumberg intelligence, that 0:03:19.280 --> 0:03:21.040 they're gonna hike to around four and a half percent. 0:03:21.360 --> 0:03:24.080 The markets currently priced for that. Um. You know, we 0:03:24.160 --> 0:03:26.160 might overshoot that a little bit in terms of pricing, 0:03:26.160 --> 0:03:28.160 but but I think ultimately they'll go to four and 0:03:28.160 --> 0:03:30.760 a half percent, they stay there for six months to 0:03:30.800 --> 0:03:33.800 a year Um and then wait to see what happens 0:03:33.800 --> 0:03:36.320 in the economy and as long as the economy doesn't 0:03:36.360 --> 0:03:39.080 completely fall out of bed and as long as Um 0:03:39.280 --> 0:03:42.200 as inflation continues to come down, then then they're going 0:03:42.240 --> 0:03:44.240 to call that a win. And four and a half percent, 0:03:44.280 --> 0:03:47.880 by long term historical standards, is usually around around way 0:03:47.920 --> 0:03:49.640 you'd expect the high to be. I'm not talking about 0:03:49.680 --> 0:03:51.800 the night. People are much more worried about it now, 0:03:52.000 --> 0:03:56.080 even people who have lived through those, from Barry Stern 0:03:56.160 --> 0:04:02.120 Lick to Um Ray dalio. UH, the alarm has been sounded. 0:04:02.200 --> 0:04:04.640 Four and a half percent, dallio says, would knock the 0:04:04.640 --> 0:04:08.720 equity market down another but the but the slock market 0:04:08.800 --> 0:04:10.560 is not the economy. Right there there are two different 0:04:10.600 --> 0:04:13.680 things and you know, so you're talking about evaluation issue. 0:04:14.040 --> 0:04:16.839 You're talking about, you know, multiples and in equity markets 0:04:16.880 --> 0:04:20.719 and as opposed to the the overall Um, the the 0:04:20.760 --> 0:04:23.320 overall economic backdrop. And when you when you look at 0:04:23.400 --> 0:04:25.960 right now, like like the the challenge that small businesses, 0:04:26.000 --> 0:04:28.320 for example, are having, which is a huge part of 0:04:28.320 --> 0:04:30.680 the of of the U S economy, especially when it 0:04:30.680 --> 0:04:32.400 comes to jobs. It's more than half of the jobs 0:04:32.400 --> 0:04:35.480 in the country. Um, you know, they can't find employees, 0:04:35.640 --> 0:04:38.120 right and and so so. So one of the ironies 0:04:38.160 --> 0:04:40.000 is is that they have to pay more or they 0:04:40.000 --> 0:04:42.680 have to work more hours themselves, and and so. So 0:04:42.760 --> 0:04:45.080 that's one of the reasons why the aggregate Labor income 0:04:45.120 --> 0:04:48.160 continues to climb because, um, because the people who are 0:04:48.240 --> 0:04:50.960 working are making a lot more money, right. So, so, 0:04:51.160 --> 0:04:54.320 so there's there's a strange balancing act and we in 0:04:54.360 --> 0:04:58.200 the markets look more at the markets, I think, a 0:04:58.240 --> 0:05:00.240 lot of times, and we do at the over all 0:05:00.480 --> 0:05:03.839 broad aggregate economy, which is really what the Federal Reserve 0:05:03.920 --> 0:05:06.320 cares about the Federal Reserve, could care less if the 0:05:06.360 --> 0:05:08.839 stock market, if the SMB five hundreds of four thousand 0:05:08.880 --> 0:05:10.960 or three thousand. What they care about is do people 0:05:10.960 --> 0:05:13.880 have jobs and is inflation stable? Right and and the 0:05:14.120 --> 0:05:16.839 stock market is only one indicator of how part of 0:05:16.839 --> 0:05:19.840 that is going. Everybody has jobs, all right, hey, IIRA. 0:05:20.640 --> 0:05:23.440 Everybody's into college at NFL football right now. Thirty seconds. 0:05:23.440 --> 0:05:25.160 What's the soccer match? I gotta need to focus on 0:05:25.200 --> 0:05:28.440 the next few days. Oh Uh yeah, we have Champions 0:05:28.520 --> 0:05:30.360 League coming up, so it's gonna be it's gonna be 0:05:30.360 --> 0:05:33.960 a lot of those, those matches and obviously the because 0:05:34.000 --> 0:05:36.960 of the Queen's because of the queen's funeral, the Premier 0:05:37.000 --> 0:05:38.839 League matches are all going to have to be rescheduled 0:05:38.839 --> 0:05:43.200 in this already very tight, Weird World Cup year. So Um, 0:05:43.360 --> 0:05:45.000 you know, I'm gonna be looking out for that draw, 0:05:45.080 --> 0:05:46.800 like like when are the all these matches going to 0:05:46.839 --> 0:05:49.520 be rescheduled for good stuff? See, you gotta get to it, man, 0:05:49.560 --> 0:05:52.719 you gotta get your your soccer report, and we get 0:05:52.720 --> 0:05:55.200 that from Ira Jersey. That's kind of his main GID 0:05:55.560 --> 0:05:58.400 GIG side hustle. He's chief US interest rate strategist for 0:05:58.440 --> 0:06:02.320 Bloomberg Intelligence. He's just doing that decades on Wall Street, 0:06:02.320 --> 0:06:05.480 but he's also a owner of a minor league soccer 0:06:05.480 --> 0:06:08.960 club Rayale Central New Jersey. Go figure, or something like that. 0:06:12.240 --> 0:06:14.880 Let's get right to our next guest, Daniel Demartino, booth, 0:06:14.960 --> 0:06:18.279 CEO and chief strategist at Quill Intelligence. She was a 0:06:18.279 --> 0:06:22.200 former advisor to fell a Reserve Bank of Dallas as well. Danielle, 0:06:22.279 --> 0:06:24.000 thanks for so much for being in our studio today. 0:06:24.000 --> 0:06:26.919 It's always great to have you in here. Just it 0:06:26.960 --> 0:06:30.720 just seems like everybody's just the base cases. The feds behind. 0:06:30.800 --> 0:06:33.160 They're gonna overdo it, they're gonna push this into recession. 0:06:33.520 --> 0:06:36.080 Is that what's going to happen? Well, I think that's 0:06:36.120 --> 0:06:37.880 a given. I mean I think. I think that is 0:06:38.800 --> 0:06:41.720 I think it's a given. Man. All right, go ahead 0:06:41.760 --> 0:06:44.640 and yeah, I mean look, you your third quarter GDP 0:06:44.839 --> 0:06:47.839 estimates of somewhere around a half a percent third quarter. 0:06:47.880 --> 0:06:50.080 That means that you're likely going to get, the time 0:06:50.160 --> 0:06:52.400 the September data percolate through the data, you're going to 0:06:52.480 --> 0:06:54.720 get a third negative print in a row. And I 0:06:55.000 --> 0:06:57.799 really don't think what we're gonna beat is three quarters 0:06:57.800 --> 0:07:01.680 in a row then of a negative print, and even 0:07:01.839 --> 0:07:06.120 if unemployment is still less than four percent Um, the 0:07:06.240 --> 0:07:09.160 NBR is going to have to say, okay, it's a recession. Well, 0:07:09.160 --> 0:07:12.640 INDUSTA production started to tick down and you know, at 0:07:12.640 --> 0:07:14.360 the end of the day, when you start to hear 0:07:14.400 --> 0:07:18.160 the magnitude of the Fedex and the Ford announcements, you're like, okay, 0:07:18.160 --> 0:07:20.560 I don't think they're messing around. So and you know 0:07:20.720 --> 0:07:23.960 everybody's trying to, as gently as possible, say cost cuts, 0:07:24.240 --> 0:07:27.280 you know, except for the six of CEOS who are like, well, 0:07:27.320 --> 0:07:29.880 welcome the resignations. If people just want to work from home, 0:07:29.920 --> 0:07:32.680 bring it on. So they're not being shy anymore. So 0:07:32.800 --> 0:07:36.080 what if the Fed's got an ulterior motive? Well, okay, 0:07:36.120 --> 0:07:38.480 what is that? You don't think they're just trying to 0:07:38.520 --> 0:07:41.160 fight inflation? Or do you not even think that's their 0:07:41.160 --> 0:07:44.760 main goal now? And I don't, because we all, I 0:07:44.760 --> 0:07:46.600 think people tend to forget that j Powell's and not 0:07:46.680 --> 0:07:48.800 a PhD in economics. He's a lawyer. He looks at 0:07:48.840 --> 0:07:51.240 both sides of every single story. He can read real 0:07:51.320 --> 0:07:55.080 time data. He understands what Zelos saying. He understands that 0:07:55.120 --> 0:07:58.600 if you plot forward new car inventories, their growth rate, 0:07:59.120 --> 0:08:02.000 that they're gonna becoming down in twelve months. He sees 0:08:02.120 --> 0:08:05.160 that homes under construction are at the highest since, God knows, 0:08:05.160 --> 0:08:07.520 one of the seventies. He understands all the real time 0:08:07.640 --> 0:08:09.360 data because he was he was always a practical guy, 0:08:09.520 --> 0:08:12.640 he was always a banker. So you know he he 0:08:12.720 --> 0:08:15.080 sees what's happening. So but he and yet he's pushing 0:08:15.160 --> 0:08:19.920 forward based on the red herring of super lagged data. Why? 0:08:20.040 --> 0:08:23.000 Unless he's got another plan. What's the other plan do 0:08:23.000 --> 0:08:24.440 you think? I think he wants to break the back 0:08:24.480 --> 0:08:26.360 of the Fed put and I think he wants to 0:08:26.440 --> 0:08:29.520 change the name of the ECOS building to the Powell building. Okay, 0:08:29.520 --> 0:08:31.640 explain what you kind of mean about that. So in 0:08:31.680 --> 0:08:35.440 the aftermath of the protection black Monday of seven, you know, 0:08:35.920 --> 0:08:38.800 Greenspan lead information to fixed income trading desks all across 0:08:38.800 --> 0:08:41.480 Wall Street prior to the Fed injecting liquidity into the markets. 0:08:41.720 --> 0:08:46.280 The birth of the Fed put October seven. Who in 0:08:46.280 --> 0:08:52.040 the world is a big there you got October. So 0:08:52.640 --> 0:08:55.600 you need to be a huge, your constitution has to 0:08:55.600 --> 0:08:59.560 be huge to break investors psyche. After that, why would 0:08:59.559 --> 0:09:03.120 you want to do that? Well, I think. I think 0:09:03.320 --> 0:09:05.360 if you look at Fat Powell and you look at 0:09:05.360 --> 0:09:08.320 his net worth north of a million dollars, why would 0:09:08.360 --> 0:09:09.920 you want to do that? You don't need the pension. 0:09:10.280 --> 0:09:13.840 Unless he wants to have monetary policy be independent and 0:09:13.920 --> 0:09:19.360 not have the tail wag the dog. It's a I 0:09:19.440 --> 0:09:24.160 don't think he's not there. I don't think he do 0:09:24.200 --> 0:09:26.320 you really think he's enjoying himself? No, I mean, I 0:09:26.360 --> 0:09:29.360 think it's great if, if that's the case, that's that's 0:09:29.480 --> 0:09:33.960 restoring my hope and humanity. If he's not, he's watching 0:09:34.000 --> 0:09:38.200 a controlled demolition. He's watching one company after another go 0:09:38.360 --> 0:09:42.119 bankrupt and so far there's nothing systemic that's been unleashed. 0:09:42.760 --> 0:09:45.880 If he can manage to do this and break the 0:09:45.920 --> 0:09:48.880 mindset until the job do you want? Until the job 0:09:48.960 --> 0:09:51.120 is done, means that means I'M gonna keep it up 0:09:51.160 --> 0:09:54.000 there for a long time. I'M gonna WE'RE gonna get 0:09:54.040 --> 0:09:55.320 up to four or four and a half and then 0:09:55.320 --> 0:09:57.880 I'm gonna keep it there as long as I can. 0:09:58.080 --> 0:10:01.560 I can't believe the Biden Administration will let him do that. Um, 0:10:01.559 --> 0:10:04.840 he has veto power. There's he's in for four years. Right. 0:10:05.480 --> 0:10:11.079 If trump couldn't fire him for cause nose. What will 0:10:11.160 --> 0:10:13.600 you be looking for in his language tomorrow, in his 0:10:13.720 --> 0:10:18.160 response to questions that may have those ulterior motive type resilience, 0:10:19.920 --> 0:10:22.760 I think. I always think about the stories of Paul 0:10:22.840 --> 0:10:26.320 Volker and how, you know, there was tractors in Washington 0:10:26.400 --> 0:10:29.320 D C causing traffigy. People are throwing bricks through the window, 0:10:29.440 --> 0:10:32.520 you know, mailing him nasty things, the man of the 0:10:32.559 --> 0:10:35.000 many death threats. We forget that. We've got him up 0:10:35.000 --> 0:10:37.600 on this huge pedestal and yet at the time he 0:10:37.679 --> 0:10:42.520 was vilified. But can Powell sustain that kind of if 0:10:42.559 --> 0:10:45.360 we get a recession that's deep or long, if we 0:10:45.400 --> 0:10:48.760 get unemployment? That's high deference to the building that I'm in. 0:10:49.040 --> 0:10:52.480 Think about how the media's narrative shift at last week. 0:10:52.920 --> 0:10:54.800 Is he going to hurt the rest of the world? 0:10:55.760 --> 0:10:57.800 All of a sudden he went from this guy can't 0:10:57.840 --> 0:11:00.680 fight inflation out of a bag to he's the bad guy, 0:11:00.880 --> 0:11:04.240 he's gonna hurt us. So when the narrative changes in 0:11:04.280 --> 0:11:07.760 the media, watch out. But one way or another he's 0:11:07.800 --> 0:11:09.520 going to be the fall guy and he's not stupid 0:11:09.600 --> 0:11:11.040 enough to know he's not going to be the fall 0:11:11.080 --> 0:11:14.520 guy to not know he's going to be the fall guy. 0:11:14.559 --> 0:11:15.920 He knows he's gonna be the fall guy. Went one 0:11:15.920 --> 0:11:18.560 way or another. But why not accomplish something really important 0:11:18.600 --> 0:11:20.599 along the way and get central clearing? This is the 0:11:20.640 --> 0:11:24.160 best hit we've done all day. Look, SEC gainsler. Gainsler said, look, 0:11:24.240 --> 0:11:27.000 they also want central clearing of treasuries. Bring it on, Powell, 0:11:27.120 --> 0:11:31.839 just do it. Um, fascinating take uh. I really think 0:11:32.320 --> 0:11:34.400 I'm speechless. Yeah, what are we doing? I mean, I 0:11:34.440 --> 0:11:36.160 think tomorrow. I mean, I was going to ask you 0:11:36.200 --> 0:11:39.679 stupid questions about what is three fifty nine mean on treasuries? 0:11:39.960 --> 0:11:41.720 Or do you care about the inversion of the day? 0:11:41.800 --> 0:11:45.400 I think the I find it to be very quaint 0:11:45.440 --> 0:11:47.600 that the sales sides like, once the two s tends 0:11:47.679 --> 0:11:49.960 hits negative forty eight basis points, we recommend you sell, 0:11:50.520 --> 0:11:52.079 I mean take take your money off the table. And 0:11:52.080 --> 0:11:54.480 I'm like, what if it's forty eight basis points next 0:11:54.559 --> 0:11:56.800 year at this time? By the way, I uh now 0:11:56.960 --> 0:11:58.920 you kind of have answered this in a sense, but 0:11:59.040 --> 0:12:02.160 we have a listener writing in asking do you think 0:12:02.200 --> 0:12:04.720 the Fed really reads any of the fixed income strategists 0:12:04.720 --> 0:12:07.360 out there, or do they just rely on their internal 0:12:07.360 --> 0:12:10.199 fed color. No, somebody who found at the industrials group 0:12:10.240 --> 0:12:12.560 at the Carlisle and understands private equity and hand hangs 0:12:12.559 --> 0:12:13.880 that with Hedge Fund guys. I don't. I don't think 0:12:13.920 --> 0:12:18.240 he reads all that research. I'm kidding. Very past great stuff. 0:12:18.280 --> 0:12:22.200 Daniel Demartino, booth uh, CEO and chief trategist at Quill Intelligence, 0:12:22.280 --> 0:12:27.080 joining us live here and our Bloomberg Interactive Broker Studio 0:12:28.160 --> 0:12:31.520 U s steal. Yeah, x is the ticker you put 0:12:31.559 --> 0:12:33.920 into your Bloomberg terminal. You pop it in there and 0:12:33.960 --> 0:12:36.959 that's what you get. Rich Fruoff, chief strategy and Sustainability 0:12:36.960 --> 0:12:40.360 Officer for U Steal, is in our Bloomberg interactive broker studio. 0:12:40.720 --> 0:12:42.400 This is so cool. Matt and I. We want to 0:12:42.440 --> 0:12:45.240 talk more company stuff and it doesn't get more company 0:12:45.280 --> 0:12:48.000 stuff than U s steal. And here's a little tidbit 0:12:48.040 --> 0:12:49.960 for you. The only company in the US that minds, 0:12:50.360 --> 0:12:54.600 melts and manufactures steal, and now they're making the commitment 0:12:54.640 --> 0:12:56.760 to sustainability. Rich, thanks so much for coming into our 0:12:56.800 --> 0:13:01.319 studio here. Is that in the US or worldwide? Enterprise wide, worldwide. 0:13:01.320 --> 0:13:03.520 So we've got a presence in Slovakia but then of 0:13:03.559 --> 0:13:05.959 course a lot here in the US are sustainability commitment 0:13:06.040 --> 0:13:08.400 is across the enterprise. But even our slore doesn't do 0:13:08.480 --> 0:13:11.440 all of that entire vertical I you know, I think 0:13:11.480 --> 0:13:13.920 they are. Let's be fair, they're a good company. They're 0:13:13.960 --> 0:13:17.120 very committed to sustainability, but we feel like we've got 0:13:17.160 --> 0:13:21.480 a best in class program how do you smelt steel, 0:13:21.520 --> 0:13:23.320 or whatever the verb is. How do you make steel 0:13:23.720 --> 0:13:26.760 in a sustainability? I think of Pittsburgh and the smokestacks 0:13:26.760 --> 0:13:30.280 and all that kind of stuff, allantown, Allentown, absolutely close 0:13:30.320 --> 0:13:33.199 to here. How do you from a technological perspect of, 0:13:33.240 --> 0:13:35.200 what changes are you making? How do you do that? Yeah, 0:13:35.240 --> 0:13:36.880 absolutely so. First of all, you know I have this 0:13:36.960 --> 0:13:40.600 kind of strange title, right, sustainability and strategy. That's purposeful. 0:13:40.760 --> 0:13:43.400 So sustainability for us it's not a bolt on, it's 0:13:43.440 --> 0:13:45.520 not an add on, it's core to the strategy. So 0:13:45.559 --> 0:13:48.240 when you're asking about steel making technologies, there's really two 0:13:48.280 --> 0:13:50.599 basic ways to make steel, as you said, there's the 0:13:50.640 --> 0:13:54.440 old kind of blast furnace. Your mind iron ore. You 0:13:54.520 --> 0:13:56.840 put it into a blast furnace, you use cold. It's 0:13:56.840 --> 0:14:00.439 turned into coke, very c o two intensive right then. 0:14:00.520 --> 0:14:03.560 You can also now, because of the presence of scrap steel, 0:14:03.640 --> 0:14:07.280 old cars, old washing machines, old bridges. You cut that up, 0:14:07.520 --> 0:14:09.720 you put it into what's called an electric arc furnace. 0:14:09.960 --> 0:14:14.000 It's about sevent less greenhouse gas emissions when you recycle 0:14:14.080 --> 0:14:16.280 that steel. You put that scrap in the electric arc furnace, 0:14:16.280 --> 0:14:19.120 you blast it with electricity, if your electricity is coming 0:14:19.160 --> 0:14:23.880 from renewables or nuclear, very low carbon intensity, you're recycling 0:14:23.880 --> 0:14:27.280 the steel, the beauty of steel. It's the most recycled 0:14:27.600 --> 0:14:30.360 product on earth and every time you recycle it it 0:14:30.400 --> 0:14:33.840 doesn't lose any of its performance characteristics. So we have 0:14:34.040 --> 0:14:37.840 embarked in what we call best for all we are strategy. 0:14:37.920 --> 0:14:40.240 We have been moving more and more towards this electric 0:14:40.360 --> 0:14:43.720 arc furnace uh process route to make steel, and so 0:14:44.480 --> 0:14:46.760 a couple of years ago we bought big river steel 0:14:47.120 --> 0:14:51.160 in Arkansas, cutting edge, lead certified, the only lead certified 0:14:51.200 --> 0:14:55.040 steel mill in the United States. Uh Got Daimler's global 0:14:55.080 --> 0:14:58.080 sustainable supplier of the year award last year and it 0:14:58.120 --> 0:15:01.440 became the first steel company steel a mill in North 0:15:01.480 --> 0:15:05.960 America to receive responsible steel certification. Responsible Steel is a 0:15:06.040 --> 0:15:10.120 kind of a global standard for responsible steelmaking with a 0:15:10.120 --> 0:15:12.960 focus on climate change. So, uh, there's a lot to 0:15:13.000 --> 0:15:17.240 do there. We launched last year as well a line, 0:15:17.360 --> 0:15:20.320 a brand. We call it verd x x for the 0:15:20.360 --> 0:15:23.760 word for green, X for our ticker symbol of low 0:15:23.800 --> 0:15:26.240 carbon intensity steels. And that's what the customers want, the 0:15:26.240 --> 0:15:29.160 automotive customers, they're increasingly looking for that. If you think 0:15:29.200 --> 0:15:30.760 about electric vehicles, you know, if you want to buy 0:15:30.760 --> 0:15:33.720 an electric vehicle, don't you want your steel? Uh, you 0:15:33.760 --> 0:15:37.840 want the whole thing to be sustainable, not just the 0:15:37.840 --> 0:15:41.920 fact that you're getting energy from electricity, hopefully solar generated 0:15:42.000 --> 0:15:44.160 or wind, but you want the building of the car 0:15:44.200 --> 0:15:47.280 as well to be sustainable. Is this how you want 0:15:47.280 --> 0:15:49.800 to separate yourself from the pack? Because if I throw 0:15:49.880 --> 0:15:53.720 up US steel on a chart with Alcoa and our 0:15:53.760 --> 0:15:58.000 slore or any of the big steelmakers, uh, the stock chart, 0:15:58.200 --> 0:16:00.840 they all look the same. You know, the relation is one. 0:16:00.920 --> 0:16:04.040 Pretty much. Yeah, so I think you know. When we 0:16:04.080 --> 0:16:05.920 think about it from a strategy perspective. By the way, 0:16:05.920 --> 0:16:07.720 I used to work at out Coha, so great company 0:16:08.040 --> 0:16:11.200 has had a commitment to sustainability. I'm just saying all 0:16:11.200 --> 0:16:16.360 the steel companies seem to follow the same stock price pattern. So, Um, 0:16:16.400 --> 0:16:19.480 it's hard to outperform or underperform all of them over 0:16:19.520 --> 0:16:21.320 a long period of time. They all run in the 0:16:21.360 --> 0:16:24.520 same basket. Well, you're exactly right. There is that sort 0:16:24.520 --> 0:16:28.160 of compression right, um. And so when I said, you know, 0:16:28.280 --> 0:16:32.680 our sustainability program and our strategy or Inter intertwined, what 0:16:32.720 --> 0:16:35.080 I really meant about that is certainly the customers want 0:16:35.800 --> 0:16:38.600 sustainable solutions, whether it's the automotive customers. So we see 0:16:38.600 --> 0:16:42.960 an ability there to differentiate ourselves commercially. But back to 0:16:43.160 --> 0:16:48.320 this move to electric arc furnaces. They are very efficient, Um, 0:16:48.400 --> 0:16:51.680 not just from a greenhouse gas perspective but from a 0:16:51.720 --> 0:16:54.840 cost perspective. They're very lean. And so big river steel, 0:16:54.920 --> 0:16:58.120 which we bought, we've doubled down this. Uh. This past 0:16:58.160 --> 0:17:00.600 spring we announced we're going to expand at big river, 0:17:00.680 --> 0:17:03.560 double the capacity to about six, two, six three million 0:17:03.560 --> 0:17:08.359 tons of steel making. It's very cost effective, Um, and 0:17:08.440 --> 0:17:11.280 so we see that as the path forward both to 0:17:11.320 --> 0:17:15.240 help us differentiate uh from a performance perspective, from a 0:17:15.240 --> 0:17:19.359 free cash flow generation perspective, from our peers, but also 0:17:19.400 --> 0:17:21.840 from a sustainability perspective. And you know, one of the 0:17:21.840 --> 0:17:24.720 things we're doing is investing in the products we see 0:17:25.280 --> 0:17:28.080 in the future. Um, I mentioned Verdex, but one of 0:17:28.119 --> 0:17:30.480 the other things we're doing, uh, if you think about 0:17:30.520 --> 0:17:33.320 electric vehicles, it's not just do you want to sell 0:17:33.359 --> 0:17:37.679 to your customer a low greenhouse gas car steel on 0:17:37.720 --> 0:17:40.840 the car. You actually need steel. Steals part of the 0:17:40.880 --> 0:17:44.240 solution because you need what's called non grain oriented electrical 0:17:44.240 --> 0:17:46.440 steel to make the motors that go into E v. 0:17:46.640 --> 0:17:49.920 So we're we've invested in a two hundred thousand tons 0:17:49.960 --> 0:17:52.880 non grain oriented electrical steel line should be coming online 0:17:52.960 --> 0:17:55.879 at big river sometime next year. So what percentage of 0:17:55.920 --> 0:17:59.959 your steel production today is, you know, the more sustain 0:18:00.000 --> 0:18:02.720 the one that you mentioned, your technology versus and maybe 0:18:02.720 --> 0:18:04.679 what are your goals? Maybe three to five years down 0:18:04.720 --> 0:18:07.640 the road? Yeah, so right now, I mean look, we're it. Uh. 0:18:07.680 --> 0:18:10.000 I would say we're moving toward half and half. We're 0:18:10.040 --> 0:18:13.680 not there yet in North America. Um, in terms of 0:18:13.760 --> 0:18:19.520 the balance between uh, the integrated and the UH mini mill, 0:18:19.640 --> 0:18:22.280 the electric arc furnace. I think longer term, we put 0:18:22.280 --> 0:18:27.080 out in our sustainability report we called our roadmap, you know, 0:18:27.160 --> 0:18:30.440 and as we think going longer term, you know, thirty 0:18:30.480 --> 0:18:33.520 years out we have a net zero target we set 0:18:33.560 --> 0:18:36.520 for and we see in the first ten years of 0:18:36.520 --> 0:18:39.480 that thirty year journey more electric arc furnaces. Right now 0:18:39.480 --> 0:18:42.560 in the United States about two thirds of steel production 0:18:42.640 --> 0:18:45.320 is through the electric arc furnace route. One third is 0:18:45.359 --> 0:18:47.680 through the blast furnace and interestingly, you know we think 0:18:47.680 --> 0:18:50.040 of Europe as the leader and sustainability. It's flipped there. 0:18:50.440 --> 0:18:53.800 Two thirds or blast furnaces, one third or electric arc versus. 0:18:53.800 --> 0:18:56.439 Sit in China a lot of blast furnaces. So we 0:18:56.560 --> 0:18:59.119 see that as a way to move forward, both from 0:18:59.119 --> 0:19:01.920 a strategy per active and also from a sustainability person 0:19:01.960 --> 0:19:05.080 we love to get your take on Um. The Ford 0:19:05.119 --> 0:19:10.200 announcement today, uh, was interesting because all of the Um 0:19:10.400 --> 0:19:13.960 cost problems that we may have thought were past us 0:19:14.040 --> 0:19:16.600 are clearly still front and center. Do you face the 0:19:16.640 --> 0:19:21.880 same kind of issues with raw materials costs inflation? Well, 0:19:21.920 --> 0:19:24.280 I think everybody. You know, I'm a child of the seventies, 0:19:24.320 --> 0:19:26.080 so you know the inflation. It's like a little bit 0:19:26.119 --> 0:19:28.440 of a Deja Vu again, but all over again, to 0:19:28.520 --> 0:19:32.560 quote Yogi Berra. But you know, Um our benefit, our 0:19:32.680 --> 0:19:35.879 advantage is we also meet mine iron or we're one 0:19:35.880 --> 0:19:38.200 of the largest iron ore miners in the United States. 0:19:38.200 --> 0:19:41.320 So we have this vertical into we have that. Absolutely 0:19:41.440 --> 0:19:44.280 it gives us, I think, a competitive advantage. That iron ore. 0:19:44.920 --> 0:19:46.919 We mind about twenty two million tons of iron ore 0:19:46.960 --> 0:19:49.040 in Minnesota. Coal costs have gone through the roof. And 0:19:49.080 --> 0:19:52.280 when you talk about Europe uh making it a blast furnace, 0:19:52.320 --> 0:19:55.040 I think, damn, that's gonna be expensive and Um, they 0:19:55.040 --> 0:19:57.400 don't really have any other ways of create creating electricity 0:19:57.480 --> 0:20:00.560 right now. Yeah, certainly Europe Challenge, for sure on the 0:20:00.600 --> 0:20:03.960 Electricity Front Um. And so that's uh, I think, you know, 0:20:04.000 --> 0:20:05.560 we're gonna have to see what the EU does in 0:20:05.680 --> 0:20:09.159 terms of policy actions there. Uh. You know, on the 0:20:09.160 --> 0:20:11.919 flip side, we do have a business that's we call 0:20:11.960 --> 0:20:14.600 it our tubular segment. It's in the oil country tubular goods, 0:20:14.640 --> 0:20:17.080 and with the need to move l en g to 0:20:17.160 --> 0:20:21.320 Europe and the increase in drilling here in the United States, 0:20:21.320 --> 0:20:23.320 that business is doing really well. All right, rich, great 0:20:23.359 --> 0:20:25.720 to have you in our studio here. Rich fruhoff. He 0:20:25.840 --> 0:20:30.040