Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, sun Cloud, Bloomberg dot
Speaker 1: Com and of course on the Bloomberg Terminal. Joining us now,
Speaker 1: James Stravitas. Of course, his book, My Book of the Summer,
Speaker 1: A summer ago on China two thousand thirty four. We
Speaker 1: read a book on the Black Sea. Admiral Stevidis, of
Speaker 1: course writing for Bloomberg Opinion. You see him often with
Speaker 1: NBC and of course the former Supreme Allied Commander of NATO,
Speaker 1: Admiral Stavidis. Thank you so much for joining us this morning.
Speaker 1: Always a pleasure, Tom and Paul. I want to talk
Speaker 1: about the Black Sea, about how narrow the strait is
Speaker 1: through Istam Bowl, about a need to build a NATO
Speaker 1: presence in Romania to the west of Crimea, and specifically
Speaker 1: the different timelines of the US NATO and a bridge
Speaker 1: to Crimea called the Crimean Bridge down by the Russians.
Speaker 1: It just seems to me the Black Sea is so important.
Speaker 1: Do we need to show the flag now in the
Speaker 1: Black Sea. Oh absolutely, Tom, And you know good news.
Speaker 1: We have four of our absolute top end Aurly Birke
Speaker 1: class Egist destroyers that are stationed homeported in Rhoda, Spain.
Speaker 1: That's the opposite end of the Mediterranean. But that's the
Speaker 1: beauty of a navy. So yeah, but it's a doable commute.
Speaker 1: And my understanding is, um, those plans are in place
Speaker 1: to flush them to the eastern Mediterranean, and perhaps more significantly, Tom,
Speaker 1: for more of that same class of high end missile
Speaker 1: defense destroyers are underway from Norfolk going to back up
Speaker 1: the four destroyers and rode to Spain. That's a pretty
Speaker 1: considerable flotilla. And yes, we are to be moving some
Speaker 1: of those ships into the Black Sea. Admiral, as you
Speaker 1: step back and look at this thing holistically, what do
Speaker 1: you think, based upon your experience at NATO, what do
Speaker 1: you think Mr Putin's is really looking for here? It
Speaker 1: just seems oddly out of time and place to be
Speaker 1: massing troops and tanks on an eastern European border. Um.
Speaker 1: I think Putin's after three things. One is he loves
Speaker 1: being the center of attention, and he is playing to
Speaker 1: his population. He's playing to the nations around the Periphry
Speaker 1: of Russia, so he likes being the center of attention,
Speaker 1: even in the middle of the Olympics. For example, Number two,
Speaker 1: he wants to crack the suberenity of Ukraine. He knows
Speaker 1: he will never be able to completely dominate it, pull
Speaker 1: it back to the Soviet Union, that's what he wants.
Speaker 1: He knows that's not going to happen. But by annexing
Speaker 1: the Crimea, creating this land bridge, Tom talked about a
Speaker 1: moment ago he has the ability to um effectively take
Speaker 1: their sub reignity away. And third, and finally, he wants
Speaker 1: to divide US. He wants to divide NATO. He would
Speaker 1: love to see the Germans, for example, not stand quite
Speaker 1: strongly with US. I think they will, But he wants
Speaker 1: to divide the NATO alliance. So those are his three objects.
Speaker 1: General Austin of course, with his effort in Germany early
Speaker 1: in his career, and then the Central Command of course,
Speaker 1: with a real understanding of Putin as the Eurasian dominant leader.
Speaker 1: I want to go back to how we're gonna say
Speaker 1: face here, admiralism. I'm sure you've studied at work college
Speaker 1: is George Anderson, chief of Naval Operations Cuba missile crisis,
Speaker 1: said to President Kennedy, Mr President, the Navy will not
Speaker 1: let you down. How does the Secretary of Defense not
Speaker 1: let down? Mr? Biden? In the Allies? He will do
Speaker 1: two fundamental things. One and I see Lloyd Austin, who
Speaker 1: I know extremely well. He's a contemporary of mine west
Speaker 1: Point Grad. We won't hold that against him, but I
Speaker 1: know General indeed, as Secretary Austin, he's doing it today
Speaker 1: in Brussels. He is being a strong, forceful voice for
Speaker 1: Alliance unity at number two. On the war fighting side
Speaker 1: of this thing. We're not going to send troops into Ukraine,
Speaker 1: nor should we. But we ought to be flooding the
Speaker 1: zone with our military, armament, intelligence and cyber and the
Speaker 1: Secretary of Defense is doing that as well. Your wonderful
Speaker 1: book two thousand thirty four is about three parties trying
Speaker 1: to save face. The Cuban missile crisis was to get
Speaker 1: an exit for Kristcheff to save face. How do we
Speaker 1: assist this interesting guy from Moscow to save face? Well,
Speaker 1: he is in every sense a character out of a
Speaker 1: Dustoyevsky novel. You can stop reading CIA reports if you
Speaker 1: want to understand Putin and read Russian literature, which is
Speaker 1: to say, he has a very dark side. And Tom,
Speaker 1: you're on the right note. We need to provide a
Speaker 1: climb down for him if we want to avoid a
Speaker 1: massive war, a scaled war in southeastern Europe. So here's
Speaker 1: what I would do. Go to him at the table
Speaker 1: and say, let's talk about conventional forces, rebalancing them on
Speaker 1: both sides of the border. Let us put missile defense
Speaker 1: on the table. That's something that we have pushed. He
Speaker 1: would like us to reduce our commitment there. I think
Speaker 1: we can talk about that. And third, and finally, let's
Speaker 1: have a conversation about intermediate cruise missiles, intermediate range cruise missiles,
Speaker 1: which both nations have walked away from an I n
Speaker 1: F treaty point being that's all very technical sounding, Tom
Speaker 1: and Paul, But Um, these are things that he understand
Speaker 1: as we understand they They create points of negotiations. So
Speaker 1: we can, as Churchill said, um, talk talk talk, not
Speaker 1: war war war. I think that's where we want to
Speaker 1: land here, right and Tom, we have some headlines acrossing
Speaker 1: the Bloomberg terminal, Biden says, President Biden says probability of
Speaker 1: invasion is quote very high. Biden says he has no
Speaker 1: plans to call Putin Admiral. Just wondering here. Um, you
Speaker 1: know you mentioned one of the key strategic aims of
Speaker 1: Putin is to test NATO. It appears to me, and
Speaker 1: again I'm of an age when I remember when NATO
Speaker 1: was a real thing, when you were commanding it. It
Speaker 1: seems like NATO's standing pretty strong, pretty united right here.
Speaker 1: What is your take. I'm very proud of the Alliance
Speaker 1: at this moment, and I think the Secretary General, who's
Speaker 1: a tough minded former Prime Minister of Norway, he sounds
Speaker 1: like a Viking. He's a serious guy, and with Lloyd
Speaker 1: Austin standing next to him, the Alliance is hanging together.
Speaker 1: Let's be candid here. Watched Germany because Germany's economy is
Speaker 1: so intertwined because of the potential of nord Stream to complications.
Speaker 1: But so far, the brand new Chancellor of Germany, Chancellor Schultz,
Speaker 1: is holding strong with the Biden team and with the Alliance.
Speaker 1: If you're just joining us, James trevidis with this this morning.
Speaker 1: We extend our conversation here on Bloomberg Radio across America.
Speaker 1: We do with futures a negative thirty, the vix point
Speaker 1: seven four and headlines continuing to come out. Secretary B.
Speaker 1: Lincoln scheduled to speak at the United Nations. Here somewhere
Speaker 1: in the vicinity of the ten o'clock, our emeral stevinus, I,
Speaker 1: I want to go back to the to do here,
Speaker 1: and I take it off of Anglo Miracle two thousand
Speaker 1: and fourteen, the time of crimea, the time where dreams
Speaker 1: were shattered in the western central Europe over how we
Speaker 1: would deal with Russia. And she was heated in comments
Speaker 1: and said, forget about the nineteenth century, the twentieth century,
Speaker 1: World War two A we must look forward. What are
Speaker 1: we looking forward to? Now? First, let's pause and just
Speaker 1: say Angela Merkel is a remarkable leader of Germany, four
Speaker 1: time Chancellor of Germany, and as steered detonation through some
Speaker 1: very complicated times and grew up herself in East Germany
Speaker 1: with a Russian boot on her throat, so she knows
Speaker 1: what she's talking about here. What we look forward to,
Speaker 1: tom is all the things we've commented on this morning,
Speaker 1: which is keeping the democracies aligned. And here I don't
Speaker 1: mean just NATO, adding to that NATO mix of thirty
Speaker 1: democracies focusing on Australia, on Japan, on South Korea, on India.
Speaker 1: Over time, we need to create a mass, a critical
Speaker 1: mass of democracies who can stand against these authoritarians. And
Speaker 1: I'll conclude here Tom by saying what we ought to
Speaker 1: be worrying about in this moment is that convert urgents
Speaker 1: of Russian and Chinese and are drawing closer together. This
Speaker 1: is so important. As we talked to Angela Stent the
Speaker 1: other day on Bloomberg, surveillance of a return almost to
Speaker 1: a Yalta structure, which is where China stepped in for
Speaker 1: so many decades as part of the debate, and that
Speaker 1: redounds Paul and particularly in terms of Travitis's navy of
Speaker 1: Black Sea and Ukraine over to the foremost straight. Yeah,
Speaker 1: I don't know. I'd love to get your views here,
Speaker 1: just on the China angle. Here. If I'm president, she
Speaker 1: I've got the Olympics. I want the world's attention on me.
Speaker 1: How do you think China is thinking about what's going
Speaker 1: on in Europe? Does it have you know, skin in
Speaker 1: the game, or is it just gonna stay outside? It
Speaker 1: will stay outside, and President G is undoubtedly grumpy about
Speaker 1: what is occurring in terms of the spotlight swinging almost
Speaker 1: inexorably back to Vladimir Putin. But President G had his
Speaker 1: eyes not on the Olympics. His eyes are on the
Speaker 1: twentie Party Congress late this year, when he will bring
Speaker 1: forward his candidacy for a third five year term as
Speaker 1: the leader of China. So he wants a year of
Speaker 1: living quietly ahead. He's going to get it. I've got
Speaker 1: to go back, Admiral, to soldiers and sailors at risk.
Speaker 1: The Black Sea is so contained anyway, I would suggest
Speaker 1: most of our listeners have this understanding. There's a narrow
Speaker 1: straight office table. It's romantic, as I'll get out. Paul
Speaker 1: and from Russia would love Sean Connery, right, you know,
Speaker 1: but that's not the reality. What is the reality, Admiral,
Speaker 1: of the constraint of an eighteen mile straight The reality
Speaker 1: is a number of international treaties and conventions that limit
Speaker 1: the size and tonnage of worships that can pass through it.
Speaker 1: It is also your point, Tom, highly constrained water space.
Speaker 1: And when you what American destroyers, Romanian frigates, Bulgarian mind
Speaker 1: sweepers operating alongside Russian destroyers Ukrainian patrol boats. It is
Speaker 1: a tight little space in there. And here's what I
Speaker 1: worry about. The captains of those ships are young men
Speaker 1: and women. They're people in their thirties. I was thirty
Speaker 1: six years old when I took command of an Harleyburg
Speaker 1: class destroy These are young people, and their crews are
Speaker 1: even younger, and so the possibility of a discalculation in
Speaker 1: this sight water space is significant. We ought to worry
Speaker 1: about that, must We just thank you so much, of course,
Speaker 1: the book two thousand and thirty four, and we thank
Speaker 1: them for perspective. Today, let's get to it on radio
Speaker 1: and television. We monitor the headlines, particularly from Moscow, eight
Speaker 1: hours in advance. Let's call it four am. I believe
Speaker 1: it is four am in a four pm rather in Moscow,
Speaker 1: long agoing far away. As I talked to David Rubinstein yesterday,
Speaker 1: there was a small matter of Cuba and a missile crisis.
Speaker 1: I remember clearly as a child my father saying years
Speaker 1: on that they hid the newspapers from us. Michael Holland
Speaker 1: was colding court on the football field hit St. Edwards
Speaker 1: in Cleveland during the Cuban missile crisis. Michael, one question
Speaker 1: on the geo politics of the moment and our combined history.
Speaker 1: Do you push it aside when you have money at risk?
Speaker 1: Absolutely not, Tom. I think that all of the things
Speaker 1: that you've been reporting this morning are part of the
Speaker 1: UH battle for investment survival. There's a a recurrence of
Speaker 1: things that are going on right now, including the comments
Speaker 1: about Saudi Arabian where they are and what was going
Speaker 1: on back then we had the Arab oil embargo Saudi Arabia.
Speaker 1: In the middle of that, prices went up dramatically. I
Speaker 1: think the concern that a number of people have recently voiced,
Speaker 1: smart people like Charlie munger Uh are echoing the problems
Speaker 1: that inflation, which many people who are listening to this
Speaker 1: call right now have never experienced. Back in the nineteen fifties,
Speaker 1: it was one of the worst things that happened to
Speaker 1: our country because the most vulnerable and the least able
Speaker 1: to cope with inflation are those who are hurt the
Speaker 1: most by inflation. If we get it again, it's going
Speaker 1: to be very ugly. Part of the problem is people
Speaker 1: haven't experienced it, so people are easily into denial. I
Speaker 1: believe the Fed Minutes had a two point six percent
Speaker 1: forecast for inflation several quarters out. I hope they're right, Michael.
Speaker 1: Let's talk about the fancy land of the FED forecast,
Speaker 1: not my words, the words of the former New York
Speaker 1: FED president built out the least come on this. Probably
Speaker 1: I'm called the fancy land the dot ploto just north
Speaker 1: at two percent we're trying to work out, Michael, not
Speaker 1: the stand of the journey. Most people assume that March
Speaker 1: the pace of the Germany and the destination. How far
Speaker 1: do you think this fe is going to have to
Speaker 1: push it? Um, My guests and I have great humility
Speaker 1: when it comes to predicting, Jonathan, as you know, my
Speaker 1: guess is that it's going to be much more than
Speaker 1: anyone in February of two thousand twenty two believes. Right now,
Speaker 1: I think that we we've listened this morning and previously
Speaker 1: to all of the supply problems, supply chain problems, energy problems.
Speaker 1: Labor is actually the largest component of the concern that
Speaker 1: hyper inflation is caused by. So I think that the
Speaker 1: fact we don't have a lot of people who are
Speaker 1: looking for jobs right now, we have a scarcity of
Speaker 1: labor bespeaks higher inflation. Wage price spiral is a phrase
Speaker 1: that we used to hear years ago. So this is
Speaker 1: an important point, Michael, because if the feed is forced
Speaker 1: to move well more than the market is currently expecting,
Speaker 1: are you basically saying there is no way for the
Speaker 1: Fed to adequately address the inflationary pressures without causing a recession? Uh? Lisa,
Speaker 1: In a word, yes, Paul Volker came into his position
Speaker 1: to try to cure the ugly ugliness of inflation he got.
Speaker 1: He started in August nineteen seventy nine. I wrote it down. Um,
Speaker 1: inflation peaked in nineteen at four percent. Long treasuries went
Speaker 1: to fourteen fifteen percent in nineteen one. Um, the we
Speaker 1: had ten years of I can't believe I'm saying all
Speaker 1: these negative things, but I'm just repeating history here. Um.
Speaker 1: It's these things are possible because they're possible for people
Speaker 1: who are serious about their own investments. Battle for investments.
Speaker 1: Your volva will requires to say it's possible. So what
Speaker 1: would you do if if if you had some certainty
Speaker 1: that it might happen? So what would you do? What
Speaker 1: would you What are you doing if you're if you're
Speaker 1: seeing this as a likely possibility. Well, one of the things, Lisa,
Speaker 1: people will will throw up the you know stocks are
Speaker 1: an inflation headge Well, that's true if you have moderate inflation.
Speaker 1: When you have a seriously large inflation, which we may
Speaker 1: or may not have, again, humility rules my comments. Um,
Speaker 1: I believe that you have a situation where all markets,
Speaker 1: the tradeable markets are affected negatively. You say, well, what
Speaker 1: about gold. Take a look at the history of gold,
Speaker 1: what about real estate? Take a look at the history
Speaker 1: of real estate in these periods. When you go back
Speaker 1: to the nineteen seventies and nineteen eighties and you read
Speaker 1: the history, you say, all markets are affected. It's only
Speaker 1: a question of where do you lose the least money.
Speaker 1: One of the things that the people listening to this
Speaker 1: forecast or lack of forecast, I should say, would would
Speaker 1: be wise to think about, is that even though you
Speaker 1: lose money holding cash, um, you lose less than if
Speaker 1: you own long treasuries. Because when you own long treasuries
Speaker 1: and rates go from where they are now to where
Speaker 1: they were the years ago in hyper inflation, you lose
Speaker 1: a ton of money. And you're supposed to be safe
Speaker 1: in the bond. So bones are a bad place to be.
Speaker 1: Stocks are are less bad. Michael. We appreciate your time.
Speaker 1: You are a true market historian, and I always learned
Speaker 1: something speaking to you, Michael Holland that of Holland and Company.
Speaker 1: Thank you, sir. I've stated their data dependent. I believe
Speaker 1: that's what Kathleen Bustan has written. She's chief US financial
Speaker 1: economist at Oxford Economics. Kathy, I look at the data,
Speaker 1: and I even look at the tertiary data Empire this Philadelphia,
Speaker 1: that seven other industries. You know, I don't know what
Speaker 1: does the tertiary and secondary data say about the growth
Speaker 1: first derivative in America? Well, hi time, happy to be
Speaker 1: with you. Um So, I think, on one hand, we
Speaker 1: are seeing some impact from Omicron, but but overall it's
Speaker 1: it's rather limited when we look at the tertiary or
Speaker 1: the you know, the headline data. Uh and I say
Speaker 1: that particularly retail. So UM this week really surprised to
Speaker 1: the upside that the increase was more than almost more
Speaker 1: than double the consensus expectations, and and the core number,
Speaker 1: which feeds into consumer spending is part of GDP, was
Speaker 1: quite strong. So bottom line, UM, we thought that GDP
Speaker 1: would be about flat for the first quarter, largely due
Speaker 1: to O macron maybe even could turn negative, and now
Speaker 1: it looks to be solidly positive, probably somewhere between one
Speaker 1: to two UM. And then that means that going into
Speaker 1: Q two, things health conditions look better, um, the economy
Speaker 1: should get back onto a more robust path. So I think,
Speaker 1: net net, we're looking at it still an economy that's
Speaker 1: really quite healthy and demand is really strong. Kathy, let's
Speaker 1: dig into that a little bit, because actually, if you
Speaker 1: look at the Atlanta Now GDP NOW index, you actually
Speaker 1: see the expectations for Q one GDP skyrocketing after yesterday
Speaker 1: or after the retail sales number that we got yesterday.
Speaker 1: What in that gave you that kind of confidence? Considering
Speaker 1: the fact that a lot of people pointed to the
Speaker 1: inflation adjustments and other adjustments around the edges that would
Speaker 1: leave it with a pretty tepid type of feel. Yeah,
Speaker 1: I mean no doubt that the nominal number is much
Speaker 1: greater than, you know, faster than than the real But
Speaker 1: even when we adjust for inflation, which surprised the upside
Speaker 1: in January, you're still very strong momentum, you know, coming
Speaker 1: into the start of the year for the consumer. I
Speaker 1: remember that that was way down by Omicron we start
Speaker 1: service you know, UM portion of retail sales was quite weak,
Speaker 1: so we do think services are going to be weak
Speaker 1: as part of consumer spending. But the adorables and non
Speaker 1: durable goods orders were very strong in purchases. And so
Speaker 1: as we rotate UM back to in person services UM
Speaker 1: as things you know, health conditions to get better, that
Speaker 1: should only support consumer spending for the rest of the year. Cathy,
Speaker 1: we of course done expected to get a foreign policy
Speaker 1: crystal ball and tell us what's going to happen with Ukraine.
Speaker 1: I do wonder though, whether you've developed a fuller understanding
Speaker 1: of what it would mean various scenarios, what they would
Speaker 1: mean for the Federal Reserve and mark. It does complicate
Speaker 1: things when things are already quite complicated. UM. You know,
Speaker 1: one hand, we worry about the the impact on inflation,
Speaker 1: oil prices UM, you know, surging higher UM. That's going
Speaker 1: to affect headline UM and and cordate inflation pressures are
Speaker 1: still quite high UM. And then the uncertainty factor, right,
Speaker 1: how does that affect asset markets and financial conditions overall?
Speaker 1: And what's the feedback through Europe and the trade channel?
Speaker 1: Things like that. Um, it's not the direct impact, of
Speaker 1: course for us, but to see uncertainty, how do you
Speaker 1: monitor the Wall Street and Kathy, your whole career has
Speaker 1: been away from this, which I give you great credibility
Speaker 1: on the pace of rate hikes, the parlor game of
Speaker 1: gues estimating out within a green span measured mode, where
Speaker 1: we're going, what's the level of certitude of that belief
Speaker 1: or the probability of that outcome? Much less than in
Speaker 1: the past, although you know there's always great uncertainty when
Speaker 1: you're forecasting, um, the rate path. Um. You know, I
Speaker 1: think at this point what the fit reserve is trying
Speaker 1: to grapple with is how quickly to get back to neutral?
Speaker 1: And do they even need to go restrictive? And what
Speaker 1: is neutral? Um? You know, there's probably a range of
Speaker 1: the fit reserved think it's around two and a half percent, right,
Speaker 1: but there's a range around that we would say somewhere
Speaker 1: around two. It's probably somewhere between you know, one and
Speaker 1: a half to maybe slightly over two. How quickly do
Speaker 1: they need to get back to that? And how much
Speaker 1: can the financial conditions and the economy handle that? Right?
Speaker 1: I would say from my perspective. Tom, I was a
Speaker 1: little weary about this parlor game of five, six, seven
Speaker 1: rate hikes, but um, I'm also quite interested with how
Speaker 1: well the financial markets have handled pricing in you know,
Speaker 1: six or seven rate hikes. So we actually just um
Speaker 1: decided that that seven is probably a good enough estimate
Speaker 1: for for this year. And we're actually in the fifty
Speaker 1: basis camp for more. Yeah, so we we we just shifted.
Speaker 1: It's you know, we we looked at the inflation numbers
Speaker 1: and the January numbers really just um, we're far faster
Speaker 1: than we thought. So now you're peaking inflation faster. We
Speaker 1: still think it's going to decelerate through the rest of
Speaker 1: the year, but the peak is higher. And when we
Speaker 1: go through our estimates, we get inflation prror inflation above
Speaker 1: three percent, and we think that's unacceptably high for the Fed.
Speaker 1: So we have to hear from power, right, we have
Speaker 1: to hear from power. We have to hear from Brainerd
Speaker 1: and Williams. We have it, and that's really going to
Speaker 1: be the key. Are they leading towards fifty or I
Speaker 1: would just add one other thing that in our analysis, right,
Speaker 1: we think that starting with fifty and then pulling back
Speaker 1: to more traditional twenty five basic point increments is easier
Speaker 1: for the markets to handle than starting with and say, oh,
Speaker 1: now we need to go fifty. That could be more destabilizing. Kathy,
Speaker 1: You're not alone. You've got company, and thank you for
Speaker 1: ring the lead. That's our fault for not teasing with
Speaker 1: that and not starting with that. Let's finish on this, Kathy.
Speaker 1: I've heard repeatedly over the last couple of days that
Speaker 1: if they don't deliver what you're talking about, it would
Speaker 1: amount to an easing of financial conditions. Do you believe so?
Speaker 1: And how much of a problem would that be? Well,
Speaker 1: I think it could, um, you know, disappoint the markets
Speaker 1: that thinking that the feed is not really worried about
Speaker 1: their credibility and really fighting inflation as much as they should,
Speaker 1: so it could backfire would be adverse for the for
Speaker 1: market reaction, um in that sense. And it's it's a
Speaker 1: little hard to say whether financial conditions were necessarily easy,
Speaker 1: but they wouldn't be going necessarily in a way that
Speaker 1: the markets would feel comfortable, and I think that we
Speaker 1: would problem. Listen, they've got the markets thinking fifty, fifty
Speaker 1: and fifty basis points when we'll take it at this point.
Speaker 1: Kathy awesome, as always, it's good to catch up with you,
Speaker 1: Kathy Boss. It's there of Oxford Economics market if joint
Speaker 1: is now scenic level, Mattrice straight, do you want to
Speaker 1: talk about Selene a little bit later? Marvin g Political
Speaker 1: tensions once again waking up, trying to process, trying to
Speaker 1: digest various headlines. How do you think cold of this
Speaker 1: influences a particular Central Bank decision that takes place on
Speaker 1: much six state? Yeah, I mean, from from defense perspective,
Speaker 1: I don't think it's gonna affect it at all. I mean,
Speaker 1: certainly a war is um an altering event, particularly if
Speaker 1: it's a significant one. But with the tensions that have
Speaker 1: been around, um, I think the feed has made it
Speaker 1: clear that they're playing catch up, and you know, march
Speaker 1: marches are given in you know, we debate whether it's
Speaker 1: twenty five or fifty, and whether May and June are
Speaker 1: are are equally live at those levels. Do you believe, Marvin,
Speaker 1: the corporations domestically and frankly globally can adapt to what
Speaker 1: they've been given. Yeah, yeah, I I do. I mean
Speaker 1: they have u from a financial engineering perspective. They've been
Speaker 1: very quick to embrace and ultimately reshape their balance sheets
Speaker 1: in a way UM that buys them flexibility. UM. And
Speaker 1: you know, these are port or for profit organizations that
Speaker 1: have been nimble UM to change to rapidly changing conditions,
Speaker 1: both from a global perspective as well as just from
Speaker 1: the mobility perspective UM. And you've seen that they've been
Speaker 1: able to to to navigate it. So I I do
Speaker 1: believe that that's one of the strengths in the equity markets. Well.
Speaker 1: Of course, a lot of people have been making this
Speaker 1: in for a while, even when this wasn't the case,
Speaker 1: and you do wonder how much it's gotten ahead of things,
Speaker 1: especially as you've seen the biggest inflows into equity funds
Speaker 1: versus bond funds so far this court going back to
Speaker 1: two thousand thirteen. Can that continue, especially when you see
Speaker 1: the likes of roadblocks and some of these other pandemic
Speaker 1: aerostocks absolutely get pummeled and returned to pre pandemic normalcy. Yeah, yeah,
Speaker 1: I mean it's it's it's this often UM described aspect
Speaker 1: of asset management and in equity management, that you're looking
Speaker 1: for the winners, and it's a stock pickers market. I
Speaker 1: would argue that that's always the market. UM. You know,
Speaker 1: that's that's what professionals get ultimately paid for. I mean,
Speaker 1: we're seeing demand for treasuries. UM. The fact that we've
Speaker 1: repriced as munch as we have and still have a
Speaker 1: two percent ten year UM and unfortunately to a certain
Speaker 1: to be flattening the curve UM shows that that there
Speaker 1: is a fixed income component component associated with that. UM.
Speaker 1: I do think, I do think equity markets still have
Speaker 1: a bit of a cat curtsy. It might not necessarily
Speaker 1: be US and US growth stocks the way it had
Speaker 1: been for the last two to five years. UM. There's
Speaker 1: there's potential diversification looking for value outside, particularly geographically. But
Speaker 1: but equity still do have a cat curtsy in this
Speaker 1: In this discussion, Marvin, are you actually advising people to
Speaker 1: buy a longer dated bonds right now in the US?
Speaker 1: I mean, I I actually do. I actually do like
Speaker 1: treasuries in here. UM. I think you see from a
Speaker 1: geo political perspective just how demand for that security is
Speaker 1: from from a hedging perspective as well as as well
Speaker 1: as our long term view that we're not going to
Speaker 1: see yields get back to the pre pandemic neutral rate levels.
Speaker 1: I think we're dealing with the different type of environment
Speaker 1: that way moving love. I'm gonna leave it that say
Speaker 1: thank you for catching out with this man that of
Speaker 1: stay straight. Right now, we're gonna do something domestic and
Speaker 1: we are gonna look at something really interesting, because I
Speaker 1: was floored when he became the chief executive officer of Automation.
Speaker 1: Of course, automation hugely visible within the distribution and sale
Speaker 1: of automobiles and trucks in America. And Michael Manly is
Speaker 1: not just another CEO. This is someone steeped in the
Speaker 1: FIA religion, the Chrysler religion. I think, you know, you
Speaker 1: would even understand, Mike Manly that in my childhood it
Speaker 1: was a Renault, not Renault. I mean, I go back
Speaker 1: that far enough. Just simply let us start away from
Speaker 1: earning with how you survive this year? Use cars? Wow,
Speaker 1: new cars not? How's the year been? Well? I think
Speaker 1: I think if you've really identified it. On the one hand,
Speaker 1: we've had significant demand, as you know, and we've been
Speaker 1: able to fulfill that on the used car side and
Speaker 1: on the new car side. It's basically working as closely
Speaker 1: as we can with the O E M S to
Speaker 1: try and predict what we're actually going to receive in
Speaker 1: the month, and most of it when it hits the
Speaker 1: ground is sold, so that's kind of in and out,
Speaker 1: and the most important thing is to keep our customers
Speaker 1: informed about when their vehicles are arriving. Frankly, my autoguy,
Speaker 1: Lisa Bramos, here's fourteen questions. Let me slip one in here.
Speaker 1: Are we going to buy electric cars? Is there a
Speaker 1: real belief here that whether they're a Portia or whatever
Speaker 1: or not something in the middle or the great desire
Speaker 1: of a cheap electric car, is America going to buy them?
Speaker 1: America will buy electric cars, I have no doubt. The
Speaker 1: important question is over what time frame will they Will
Speaker 1: they cover the entire industry. I think what we're seeing
Speaker 1: is a big increase, but as you and I both know,
Speaker 1: that's a very specific demographic. There's buying them at this
Speaker 1: moment in time. And what we need to see happen
Speaker 1: if there's going to be mass adoption is two things. Frankly,
Speaker 1: need to have an infrastructure that people are very comfortable
Speaker 1: with it they can use on a daily basis, and
Speaker 1: we need to work with the O e m s
Speaker 1: to drive those prices down so they become much more
Speaker 1: affordable to the heart of the market, and when they
Speaker 1: when those two things happen, you're going to see adoption
Speaker 1: rates rise. But it's not going to be this year.
Speaker 1: One thing a lot of people are struggling with is
Speaker 1: how much is structural and how much it was cyclical.
Speaker 1: How much of the bump that you got and frankly
Speaker 1: all auto dealerships, god was because of the tight supplies
Speaker 1: driving people to no pun intended to buy more vehicles.
Speaker 1: How much of that will persist and give you that
Speaker 1: pricing power that's just been extraordinary. So you I'm going
Speaker 1: to turn to our fourth quarter results because I think
Speaker 1: if you look at those, you get a partial answer,
Speaker 1: and then then I'll expand that. One of the things
Speaker 1: that I think most organizations have done during the pandemic
Speaker 1: is really look at their cost base, and we have
Speaker 1: removed significant cost and that is absolutely structural, because what
Speaker 1: we've had to do is create efficiency in productivity in
Speaker 1: a different way, and we're very confident that that will
Speaker 1: survive beyond the pandemic. I think the increase that we've
Speaker 1: seen in terms of after sales revenue with more miles
Speaker 1: driven as we get out of the pandemic, that naturally,
Speaker 1: in my view, is going to continue as well use volume.
Speaker 1: Use volume has been good and will I think be sustained.
Speaker 1: So we come back to margin, and the big question
Speaker 1: is new vehicle margin. Who's notwithstanding the fact that new
Speaker 1: vehicle volume is down, it's been more than compensated for
Speaker 1: a big spike in margin. But when I stepped back,
Speaker 1: what we're doing is actually selling new vehicles around M
Speaker 1: S r P. I mean, that's what we were supposed
Speaker 1: to do. So what the pandemic actually did was press
Speaker 1: a reset button on the balance of infantry. Now the
Speaker 1: key question is are we going to take the lessons?
Speaker 1: Are we going to take the advantage of that reset
Speaker 1: button that's been rest and in conjunction with the O
Speaker 1: E M, just keep the balance. We need to maintain
Speaker 1: good new car pricing. I think you'll see some mitigation
Speaker 1: in terms of margin on new cars, but I really
Speaker 1: believe that lesson is now embedded and they will not
Speaker 1: return in my view back to the two thousand, two
Speaker 1: thousand seventeen margins. Just to be very clear, So the
Speaker 1: M S r P that's manufacturers suggested retail price, you
Speaker 1: think that we are going to head back to a
Speaker 1: level that is more in tandem with that suggested retail price.
Speaker 1: How do you then expect to sustain some of the momentum?
Speaker 1: And you talk about the efficiencies, but is there also
Speaker 1: an intention by dealerships to keep supplies tight, to have
Speaker 1: an order flow, to have something in order to continue
Speaker 1: maintaining margins to some degree. So when I talk about
Speaker 1: our volumes alternations volumes last year, only two of the
Speaker 1: vehicles we sold were above m SRP, So the vast
Speaker 1: majority of our of our new vehicle invoices were at
Speaker 1: or below MSRP. And that's been able to achieve that
Speaker 1: because of a better balance between supply and demand, and
Speaker 1: I think with additional inventory coming in with the demand
Speaker 1: that's there, we should be able to maintain that pricing
Speaker 1: position because we are talking about a reduction in the
Speaker 1: significant discounts that were required when all of the industry
Speaker 1: was sat on a multiple of stock that we have today.
Speaker 1: So there was a complete imbalance really between that supply
Speaker 1: and demand. So we've had this reset button now and
Speaker 1: inventory levels are low, in fact they're too low, so
Speaker 1: there's an opportunity I think to build inventory levels up
Speaker 1: not to where they were before, but continue to keep
Speaker 1: that balance between supply and demands so that we're selling
Speaker 1: at M s r P. Michael Manly, thank you so
Speaker 1: much for joining us. We need to move on to
Speaker 1: headlines at the moment, but the chief executive officer of
Speaker 1: our nation in the battles of this pandemic and moving
Speaker 1: units to America in trucks encourage. This is the Bloomberg
Speaker 1: Surveillance Podcast. Thanks for listening. Join us live week days
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Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg