Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg with
Speaker 1: Chapman pow Back in a spotlight late today when he
Speaker 1: speaks at the Economic Club of Washington, d C. With
Speaker 1: more and more Fed officials expressing a willingness to do
Speaker 1: nothing until the uncertainty clears. It's been a major topic
Speaker 1: in this market over the last week or so. Mark
Speaker 1: Keisel dropping by our studio here in New York, Pimco
Speaker 1: c IO of Credit Good monitor. Mark, Good morning, So
Speaker 1: let's talk about your big theme for the year ahead,
Speaker 1: the global economy sinking lower. Let's stop by having a
Speaker 1: discussion about how policy MICA is world wanted and to
Speaker 1: respond to that. So, I think we're setting up for
Speaker 1: growth to slow. Um. We benefited significantly from the tax
Speaker 1: cuts in two thousand and eighteen US growth three real GDP.
Speaker 1: We think growth gonna slow to two to two and
Speaker 1: a half percent. It could be even be slower than that.
Speaker 1: With the U S. China trade uncertainty. But I think
Speaker 1: this is gonna allow the FED to to take a
Speaker 1: step back and go more data dependent going forward this year.
Speaker 1: So the date to dependence of the FED says they
Speaker 1: are and a market right now and market participants that says, no,
Speaker 1: it's not about the data. It's about a market. It's
Speaker 1: in a market dependent FED or a data dependent FED.
Speaker 1: I think what the markets are sensing is a lot
Speaker 1: of what you said uncertainty. The global economy actually, we
Speaker 1: think is slowing at a slower rate than most people suspect,
Speaker 1: particularly China. Earnings expectations are too high. Earnings growth is slowing,
Speaker 1: and this uncertainty with the U S. China trade is
Speaker 1: a big deal. It's starting to impact confidence. So I
Speaker 1: think the leading indicators out there suggests that growth isn't
Speaker 1: will infect slow and and that, combined with the fact
Speaker 1: that inflation is low under the fed's target, inflationary expectations
Speaker 1: have come down. This allows the FED to take a
Speaker 1: step back and wait, there's a big difference between recession
Speaker 1: risk and moving back towards what we did consider trend
Speaker 1: growth on the ten months ago mook. That's a good point.
Speaker 1: I think the markets have in some cases, like oil
Speaker 1: and perhaps even equities and bonds, overestimated the likelihood of recession.
Speaker 1: If you look out over the next year, we think
Speaker 1: the chances of recession or maybe fifty. Yet the markets,
Speaker 1: you look at oil prices pricing in a much higher
Speaker 1: chance of recession. Bond market rally recently has been pretty significant,
Speaker 1: So we would not chase bonds here. Uh and in fact,
Speaker 1: we we actually think oil and owning some energy makes sense.
Speaker 1: If you look at the bond market, now, are you
Speaker 1: clipping a coupon or you can? You actually, how do
Speaker 1: you clip a coupon with the yields where they are? Right? Well,
Speaker 1: I think you want to own given what how flat
Speaker 1: the yield curve is, and we were talking about this earlier,
Speaker 1: you're better off at the front end of the yield curve.
Speaker 1: Odds are the Fed will still raise rates and therefore
Speaker 1: we will start to get some some risk premium priced
Speaker 1: into the longer end. So all things equal, if you're
Speaker 1: gonna own bonds, stay stay off front end. Okay, that's
Speaker 1: that's some streets. You see that jargon there, that's West
Speaker 1: Coast jargon. Is that premium and all that it's part
Speaker 1: of the real yield what you can see on yes, Mark,
Speaker 1: if you can come okay, so all the more reasons, Mark,
Speaker 1: thank you for joining us. Have an extra cross song, um. Mark.
Speaker 1: If if I look at bonds and I look at
Speaker 1: the coupon and I want to clip it, I'm just
Speaker 1: a small little guy. What maturity do I look at?
Speaker 1: Is it? Don't tell me it's a T bill. Nobody's
Speaker 1: gonna be able to eat on a T bill, sir.
Speaker 1: And and most people when they refer to bonds are
Speaker 1: talking about ten thirty year bonds. Today the tenure U
Speaker 1: S Treasury who seventy the long bound at three UM.
Speaker 1: There are times when you want to hold more cash.
Speaker 1: If you look at last year cash outperform most asset classes,
Speaker 1: now is actually not a bad time to be sitting
Speaker 1: in more cash, wait four yields to go up and
Speaker 1: and then deploy more money into bands. So I'm really
Speaker 1: interested to see what you think is going to happen
Speaker 1: at the long end, because over the last week we've
Speaker 1: had a massive improvement in risk appetite, and all we've
Speaker 1: seen happen with the treasury curve is money come out
Speaker 1: of short term dead instruments as risk aversion fates. What
Speaker 1: I don't see is real curve stepening. I don't see
Speaker 1: a treasury curve that captures a fundamentally positive story about
Speaker 1: the economy in America. In flact, I think the treasury
Speaker 1: curve is flatter now than it was on Friday, and
Speaker 1: that kind of tells you where we're at in the
Speaker 1: treasury market. When am I going to start to see
Speaker 1: the back end pick up to reflect an economy that
Speaker 1: you say isn't as bad as people think it is.
Speaker 1: So I think if we do get a trade deal
Speaker 1: with China, I think that will start to get the
Speaker 1: economy going again, and you'll start to see that your
Speaker 1: curve steepen. Um. These yields are very low right now, uh,
Speaker 1: and so as long as we do not have a recession,
Speaker 1: if we grow it too and two and a half percent,
Speaker 1: we think that tenure is probably gonna go back up
Speaker 1: to three percent. So you've got more I think yield
Speaker 1: upside right now given the base case scenario where growth
Speaker 1: UH growth goes to two two and a half. So
Speaker 1: just think about your strategy. The year progresses, you sank
Speaker 1: sitting cash and his yield to pick up at the
Speaker 1: longer end at duration as the year progresses, It's not
Speaker 1: the strategy for you, guys. We we like bonds longer term.
Speaker 1: So we are still of the view that rates are
Speaker 1: not going to break out on the on the upside
Speaker 1: because inflation globally will still stay relatively low. At the
Speaker 1: same time, we think the market has near term brought
Speaker 1: yields down too low. Can I get a question in here?
Speaker 1: Even though the real yield the party, there's other things
Speaker 1: besides full faith and credit. Where's the opportunity in better quality,
Speaker 1: high yield and actually quality corporate paper. So overall we're
Speaker 1: favoring securitized products, non agencies, which which are linked more
Speaker 1: to the housing market. We still have a constructive view
Speaker 1: on the consumer and housing, so we're going all Jenny
Speaker 1: May like we did thirty years ago. We like we
Speaker 1: like non agencies, We like agency mortgages. Within corporates, we
Speaker 1: want to stay high quality and investment grade. But what
Speaker 1: the couple areas we like We like bank and financials,
Speaker 1: we like reats, We like the consumer, and we like energy.
Speaker 1: We think energy has has interesting self corrected too low.
Speaker 1: We would own pipelines here. Okay, what kind of yield
Speaker 1: do you get on a debt instrument in the pipeline
Speaker 1: and the beleaguered American energy So you can basically get
Speaker 1: five percent on very high quality pipelines. Companies that are
Speaker 1: are generating free cash flow of five six percent annually
Speaker 1: benefiting from the sale revolution. The United States is the
Speaker 1: biggest producer of energy now in the world. It's a
Speaker 1: huge deal. But hey, what you're playing is the volume
Speaker 1: story of oil in America, not the price exactly. And
Speaker 1: midstream is the best sector and energy right now because
Speaker 1: as SENTE is benefiting from increased volume growth throughout the
Speaker 1: shell regions. So does this mean that after the real
Speaker 1: old sponsored by Pimco, the barrel is that where this
Speaker 1: is you can drop buy for that program? Can I
Speaker 1: get the final question in on leverage lounge place MARP
Speaker 1: because there's been a massive discussion about it and a
Speaker 1: huge turnaround and then a huge turnaround again. Where is
Speaker 1: Pimco as a shop on leverage lines at the moment?
Speaker 1: So we we have been very cautious on credit risk overall.
Speaker 1: Um we have been for the most part avoiding a
Speaker 1: lot of these leverage loans. I will tell you towards
Speaker 1: the second and third and fourth week of December. Uh,
Speaker 1: these loans were liquidated. There was four selling, there were
Speaker 1: hedge fun on wines. We saw selling in Asia. That
Speaker 1: was the first time really where we started to step
Speaker 1: in and take the other side. Where we're buying. We're
Speaker 1: being very selective. We're buying in companies that are non cyclical.
Speaker 1: We're buying relatively unlovered credits. But we were literally getting
Speaker 1: at the end of the year six seven percent on
Speaker 1: some pretty decent credits. So there, you know. The strategy
Speaker 1: is to sit back, wait, there's gonna be more volatility,
Speaker 1: hold a lot of cash, and deploy that cash as
Speaker 1: you see bottom up opportunities which will will be coming.
Speaker 1: Mark Hazel, great to have Mark with us. It is
Speaker 1: Mark doesn't come enough. Anybody else joining next week, I
Speaker 1: don't know. I have credit. Seriously, thank you for your
Speaker 1: support of what we're doing here. Thank you. Thank you
Speaker 1: day as well, John Farrowe and Tim came a terrific
Speaker 1: news flow across economics. Of course, FED speak today Chairman
Speaker 1: Paul speaking with David Rubinstein, the Economic Club of New York.
Speaker 1: And two items this morning before we bring in hard
Speaker 1: bundles of UNI credit, and that is capital economics over
Speaker 1: in London severely marking down their EU outlook john to
Speaker 1: one percent like one point zero percent. And then we
Speaker 1: just heard Marquisol PIMCO, and within the wonderful jokes about
Speaker 1: their support of your product, the real yield is I'm sorry,
Speaker 1: he's got a pretty gloomy view on the American economy
Speaker 1: returning to try and growth and join a big distinction
Speaker 1: between that and recession red Where are we you know,
Speaker 1: with UniCredit, what have you done with your you are
Speaker 1: you marking down your g d P numbers for America? No?
Speaker 1: And I'm afraid we are even more gloomy than than
Speaker 1: pim kois because as you just said and heard so
Speaker 1: PIMPO expect to return towards potential. We think we go
Speaker 1: below potential in the second half of this year and
Speaker 1: even further down in so that we that we could
Speaker 1: see in a recession there. So that that is saying, wait,
Speaker 1: wait when you say we'll see a recession there? Are
Speaker 1: you talking NB er recession? Sure? What's the cantalyst for that?
Speaker 1: The catalyst is, well, I mean we have been hearing
Speaker 1: frequent enough that recoveries don't die of old age, most
Speaker 1: recently by Berninky on Friday but we gotta acknowledge that
Speaker 1: we are towards the later part of the cycle and
Speaker 1: we're seeing I think, closed output gaps. It's getting technical,
Speaker 1: but I know you like it here on this show.
Speaker 1: So we get seeing closed output gaps around the globe,
Speaker 1: we seem grows, slowing down, signs of fatigue in the
Speaker 1: global business cycle. The only economy, well, the only meaningful economy,
Speaker 1: if I could say so, um that has the coupled
Speaker 1: so far was the US. But that's easily explained by
Speaker 1: this huge stimulus program. So that is just mask the
Speaker 1: underlying slowdown that we are going to see here as well.
Speaker 1: Once the impact of a stimulus fates, grows, slows down,
Speaker 1: and that then exposes the underlying weaknesses. And we think
Speaker 1: this time the underlying weakness is in the corporate sector.
Speaker 1: We have too much that we have not good ratings.
Speaker 1: Now we have even lower oil prices, which is not
Speaker 1: good for investment spending. So the recession, we think will
Speaker 1: look similar to what we saw in two thousand one,
Speaker 1: not too bad in terms of real macro and it
Speaker 1: comes mostly from the investment side. Why can't productivity pick up?
Speaker 1: Why can't we have us apply side response in the
Speaker 1: way this administration thinks we will get one. I think
Speaker 1: we do probably see a bit of a pickup in
Speaker 1: productivity just because the supply of labor is being depleted.
Speaker 1: You know, we're going where we are closer to full
Speaker 1: employment and we need actually a pick up in productivity
Speaker 1: to sustain some some growth. But in in response to
Speaker 1: to what the administration has done, I don't think there
Speaker 1: is anything that translates from the lower taxes, less regulation
Speaker 1: to higher prouctivity because I don't think we have seen
Speaker 1: the investment that is the missing link there that would
Speaker 1: translate the politics to the real economy, and that hasn't
Speaker 1: been there. Well. Within capital deepening with the new technology,
Speaker 1: do we have any sense of what capital allocation is
Speaker 1: within our society? No, that is a tricky part. I
Speaker 1: know they have been We're focused on labor, but I'm sorry,
Speaker 1: the capital deployment is a mystery, isn't it? It is?
Speaker 1: It is um So, I mean, to some extent, we
Speaker 1: can offset part of the of the lack of availability
Speaker 1: of labor through artificial intelligence machines. So there's a prouctivity
Speaker 1: increase that we see. But of course you always look
Speaker 1: at growth rates, so you know where we want to
Speaker 1: see higher growth rates. That means that this substitution of
Speaker 1: labor by capital, if you want, is happening at an
Speaker 1: accelerating pace. Right, It's not enough if it continues to
Speaker 1: grow at the same pace because there is no pickup
Speaker 1: in the growth rate. The pick up in the growth
Speaker 1: rate only happens when we haven't we have a further acceleration,
Speaker 1: and I don't think this is going to happen. What
Speaker 1: are you looking for from the chairman like to tonight, Well,
Speaker 1: there's a lot of copy and paste, I think so.
Speaker 1: I mean the tone has been said. I think the
Speaker 1: tone has been said. At the December meeting, markets didn't
Speaker 1: understand what the Fat was telling them. I think it
Speaker 1: was very obvious at that point already that the Fat
Speaker 1: got rattled. Markets didn't hear exactly the words they wanted
Speaker 1: to hear. That they threw a tantrum, and then we
Speaker 1: had John Williams and then lastly the chair coming out
Speaker 1: and saying, all right, guys, we got it. We will
Speaker 1: be very careful and do everything you want. So given
Speaker 1: Shamman Pal a bit of a free pass. His perfor
Speaker 1: almost of the news conference was let's just say, disappointing
Speaker 1: relative to what he followed up with. It was totally
Speaker 1: inconsistent with what I saw in the minutes yesterday. Well,
Speaker 1: just in terms of the emphasis. The emphasis in the
Speaker 1: minutes is completely different to the emphasis that he delivered
Speaker 1: in the news conference in December. Well, I mean I
Speaker 1: wrote a flash after the FOMC statement and said basically
Speaker 1: exactly what was in the in the minutes, that the
Speaker 1: FAT confidence was rattled, and they have a look at it.
Speaker 1: I mean, they just changed a few words in the statement,
Speaker 1: they changed the dots, and from that on it was
Speaker 1: very obvious how they thought and what the debate was. Yeah, Powe,
Speaker 1: he said, well, our plan is our baseline is that.
Speaker 1: And the one thing that markets really hated was that
Speaker 1: he talked about the rundown of the balance sheet and
Speaker 1: he shouldn't have used the word autopilot or whatever when
Speaker 1: he didn't emphasize flexibility. But subsequently he has. But the
Speaker 1: FAT is always flexible, right, That's what I think. Richard
Speaker 1: Fisher said it a couple of days ago. When I
Speaker 1: don't know what the market has. That is normal fat communication,
Speaker 1: and the FAT always takes changing developments into acoun They
Speaker 1: always do that, and I think it's a bit almost
Speaker 1: a bit ery. Um if this goes out to people
Speaker 1: who would trust professionals in the sector, that professionals in
Speaker 1: the market do not know what FAT communication is, that
Speaker 1: they have a baseline, but they if if the circumstances change,
Speaker 1: the FAT changes, that then have to say, Um, if
Speaker 1: enough people don't understand, then the problem is with the messenger,
Speaker 1: not with the individuals receiving the message. There's a real
Speaker 1: question about chairman powers delivery over the last several months,
Speaker 1: never mind just the last month alone. I could continue
Speaker 1: this conversational day harm BANDHLTS joining us from ARNI Credit
Speaker 1: great to catch up with you and China and really
Speaker 1: the attendant not kind of effects to China and they're
Speaker 1: not kind of effects back to us. Miranda car joins
Speaker 1: now from High Time. Miranda, one of our themes this
Speaker 1: morning is a lot of fancy people we talked to
Speaker 1: marking down their economic growth estimates. We all understand that's
Speaker 1: got to affect China directly. Do you and your team
Speaker 1: have any gues estimate of china real GDP growth? Well,
Speaker 1: the real GDP growth is obviously slowed significantly in in
Speaker 1: Q four and particularly in December. UM, and hence why
Speaker 1: you've got all the You're we're not going to see
Speaker 1: UH the numbers come out next week. We're not going
Speaker 1: to see a real number reported. UM. But the but
Speaker 1: the real interesting thing about the UM the inflation numbers
Speaker 1: out today is you've got UM. The market is reading
Speaker 1: that as a big drag on sort of economic big
Speaker 1: sign of an economic slowdown UM, Whereas they're missing one
Speaker 1: key part of the equation UM, which is that UM,
Speaker 1: the a lot of the price falls were due to
Speaker 1: the capacity that they didn't shut all capacity over the
Speaker 1: winter season, which is something they normally do ever since
Speaker 1: two thousand and fifteen. So you've had price falls owing
Speaker 1: to the slowdown, but also due to the due to
Speaker 1: the lack of capacity closures. So it's not entirely reflective
Speaker 1: of a huge slump in in all of the upstream pricing.
Speaker 1: So you're saying the base effects of effectively been sort
Speaker 1: of distorted somewhat here. Miranda, Yeah, I mean, if you
Speaker 1: look at two thousands fifteen, when the last time you're
Speaker 1: facing really big global deflationary pressures from China, UM. What
Speaker 1: China came out was with the supply fat reform where
Speaker 1: they cut capacity and prices then shot up, and then
Speaker 1: suddenly there was there was no longer a deflationary There
Speaker 1: was inflation rethreat from China into two thousands and sixteen.
Speaker 1: Now this time we're facing the same issue deflation respect
Speaker 1: coming out into global markets UM and so the question
Speaker 1: is do they then start shutting capacity again. There's a
Speaker 1: lot less room to do that this time around UM
Speaker 1: and so the deflationary pressures could could become significant as
Speaker 1: we come into into each one. So what's your case
Speaker 1: right now, Miranda, Because it's pretty easy at the moment
Speaker 1: to paint a very barest picture of what is happening
Speaker 1: in terms of the deceleration of the Chinese economy. If
Speaker 1: you want to corporate, you can pick out Apple. If
Speaker 1: you want a data point, you can pick out many.
Speaker 1: You can pick out a p m I that came
Speaker 1: out over the last couple of weeks. You can pick
Speaker 1: out the latest PPI data as well, And for that matter,
Speaker 1: you can go on and on and on for China
Speaker 1: at the moment, including the auto sales picture we got
Speaker 1: painted early earlier this week. For us, what is your
Speaker 1: base case? Is it as bad as some of those
Speaker 1: data points tell US. It is UM. Some of those
Speaker 1: data points have other factors involved, but yes, China is
Speaker 1: facing a significant slow down as we come into come
Speaker 1: into January. But the key thing is the monetary shift
Speaker 1: has already happened. I mean, the monetary easing, sort of
Speaker 1: quite large scale Mountrey using already started in October and
Speaker 1: that's when you start seeing the sort of turnaround in
Speaker 1: China's economy. So you've had already several months and now
Speaker 1: they're talking about, you know, going back into sort of,
Speaker 1: if you like, some of the old school subsidies and
Speaker 1: tax cuts in order to try to stimulate the economy.
Speaker 1: So this means although so janj February is always tricky
Speaker 1: because it's a spring festival, it's really hard to get
Speaker 1: a good read across on the data UM. But as
Speaker 1: we come into Q two, a lot of the really
Speaker 1: sort of classic stimulus measures they're going to put, infrastructure investment,
Speaker 1: monetary easing, tax cuts, support for the auto market, support
Speaker 1: for consumer spending should start coming through and leveling things off, because,
Speaker 1: if you like, they've already taken the measures because they
Speaker 1: know how bad things are, Because things are, you know
Speaker 1: that across the board have been very very weak. One
Speaker 1: thing that I've struggled with them are Andrew is understanding
Speaker 1: what is sort of marginal and what is substantial. So
Speaker 1: we're looking at the latest Finance Ministry proposal for a
Speaker 1: a bigger budget deficit, but only incrementally. It doesn't seem
Speaker 1: to me that China is firing everything call guns blazing
Speaker 1: at this slow down just yet. What is the magnitude
Speaker 1: of the policy shift at the moment? Is it incremental
Speaker 1: or is it substantial enough? Well, the thing is that
Speaker 1: they've managed to create a special, a new class of
Speaker 1: debt which is going to fund a lot of the
Speaker 1: infrastructure projects. The fiscal deficit does not increase significantly, but
Speaker 1: what does increases. They have a new class of debt
Speaker 1: called special local government bonds. Now these don't sit on
Speaker 1: the fiscal balance sheet, they don't sit on the corporate
Speaker 1: balance sheet. It's almost like a new, a new debt
Speaker 1: class that China is invented um And we're going to
Speaker 1: see about two trillion of that um of the bonds
Speaker 1: issues to support infrastructure investment in two thousand and nineteen,
Speaker 1: up from about one point three trillion last year. So
Speaker 1: the debt comes in but not in the not the
Speaker 1: fiscal deficit still looks quite responsible. If we get IF
Speaker 1: IF if, if, if we get the capital economics Europe
Speaker 1: and one percent GDP growth sack Jen looking at America
Speaker 1: run rate of one point eight Pimco's two wish and
Speaker 1: even to the low side with China challenges. If the
Speaker 1: rest of the world slows down, what does China do? Yeah, well,
Speaker 1: I mean China is is flowing as well. The I
Speaker 1: mean we expect that the growth target under the Central
Speaker 1: Economic Work Conference in December that everyone now expects the
Speaker 1: growth target for this year to be lowered to six
Speaker 1: to six point five rather than trying to keep up
Speaker 1: at the six point five level full of last year. Now,
Speaker 1: obviously that's still a a sort of government target which
Speaker 1: is not a reflection of what's going on at the
Speaker 1: moment um. So you're likely to see a much um
Speaker 1: sharper slow down in in each one. But yeah, I mean,
Speaker 1: I think there's an exception expectation that China's growth will
Speaker 1: So the key question is obviously how much is the
Speaker 1: government can step into trying to you know, ease off
Speaker 1: some of the pain um and then you know, because
Speaker 1: because one of the question marks I think for this
Speaker 1: year is really how much they boost the property markets,
Speaker 1: because that, if you like, is the is a big
Speaker 1: swing factor. If we go into another um sort of
Speaker 1: real estate boom, then suddenly instead of looking at a
Speaker 1: at a sort of China slow down deflation, new picture,
Speaker 1: you look at another sort of real estate sort of boom,
Speaker 1: which is not maybe helpful in the short term, but
Speaker 1: obviously then just creates much bigger problems in the longer term.
Speaker 1: It's really interesting to me that we've just had a
Speaker 1: conversation of about six seven minutes on China and hardly
Speaker 1: ever at all touched on the trade discussion. Miranda. Some
Speaker 1: people assign a lot of importance to the trade negotiations
Speaker 1: as to what happens next with China and the Chinese economy,
Speaker 1: do you well, of course, yeah. I mean the stopping
Speaker 1: the escalation of the trade dispute and not taking all
Speaker 1: the production out of China and stopping the the export
Speaker 1: growth is a is a big factor that seems to
Speaker 1: be much more likely now the trade the escalation of
Speaker 1: the trade dispute seems to have stopped, but I think
Speaker 1: it's going to shift. It's going to shift them into
Speaker 1: much more targeted, much more so the US will target
Speaker 1: some of China's technologies or China's companies, and so there's
Speaker 1: going to be continued escalation, not in not in the
Speaker 1: trade in general, but you know there's still going to
Speaker 1: be conflict between the two sides. Randa Carr, thank you
Speaker 1: so much. A briefing on China this morning, with high
Speaker 1: tongue securities. Greatly appreciate that as well. We are advantaged
Speaker 1: in certain divisions to have outstanding ability. One of the
Speaker 1: heritage items for Bloomberg has been auto analysis. I think
Speaker 1: of Kevin Tynan and Bloomberg intelligence and over in the
Speaker 1: Bloomberg opinion aside for years at the Financial time. Christopher
Speaker 1: Bryant Chris Bryant joins us from Berlin this morning. I'm
Speaker 1: Ford and on a general auto industry as well, Chris,
Speaker 1: you have a stunning statistic from Credit Suites that eight
Speaker 1: percent of the bodies are going to go out the
Speaker 1: door in the coming years. Is that global? Does that
Speaker 1: include America as well? Well? I mean, Thomas, I think
Speaker 1: that was a European figure. But to be honest, the
Speaker 1: exact same trends are affecting American car industry to affect
Speaker 1: the European car industry clearly in Europe probably you could
Speaker 1: say moving faster towards an electric future due to the
Speaker 1: much stronger emission rules that we have here, and so
Speaker 1: they have been I think more reflection on the kind
Speaker 1: of job losses that we could see. But fundamentally, yes,
Speaker 1: electric vehicles are simpler to produce, a lot of the
Speaker 1: work can be outsourced too, so it is reasonable to
Speaker 1: assume that all the people are building combustion engines and
Speaker 1: related technology right now, we have to find something else
Speaker 1: to do in the future or lose their jobs. You
Speaker 1: use a beautiful British phrase, the pim fox, and I
Speaker 1: would never use leaden footed. Nah, they have been leaden footed.
Speaker 1: How leaden footed his American automobile manufacturers been in Europe? Well,
Speaker 1: I would grade them to be honest. I mean General
Speaker 1: Motors was criticized for taking a long time to pull
Speaker 1: out of Europe, but it did eventually pull the plug,
Speaker 1: sold the operations to Perjoy, and now it looks compared
Speaker 1: to Forward relatively fleet footed. Uh Ford is sort of
Speaker 1: taking a bit more time obviously with the new CEO
Speaker 1: wanted to think about how exactly the should be done,
Speaker 1: and clearly a very sensitive thing to do as well.
Speaker 1: If you're going to cut jobs in Europe, you're going
Speaker 1: to expect some political backlash and obviously pressure from the
Speaker 1: trade unions to Ford is not said how many jobs
Speaker 1: they planned to cut yet, but some bad news across
Speaker 1: the industry to day, with Jaggi landro Over saying as
Speaker 1: well that they would cut four and a half thousand jobs. Clearly,
Speaker 1: neither company can tolerate making losses. Lots of different factors
Speaker 1: putting pressure on their their cash at the moment, and
Speaker 1: they filled it enough enough, Chris, Where are the biggest
Speaker 1: losses going to come? Because we've noted in the past,
Speaker 1: like about six years ago, I think Ford closed three
Speaker 1: of their factories in Europe. Two of them were in
Speaker 1: the United Kingdom and one was in Belgium. Where do
Speaker 1: the cuts come now? Well, I mean it's been quite
Speaker 1: a piecemeal approach from Ford so far. I mean they
Speaker 1: have said they'll close a plant in Ford. They have
Speaker 1: said that there will be some jot losses in Germany,
Speaker 1: but no real detail today on on which plants could
Speaker 1: be affected. I mean, I think there is some nervousness
Speaker 1: around an engine plant in the UK. Clearly, the United
Speaker 1: Kingdom is much in focus. Brexit hasn't happened yet, but
Speaker 1: if it does, it's going to create huge problems for
Speaker 1: the car industry there. So that's clearly not helping sentiment
Speaker 1: towards the economy and and of course selling cars in
Speaker 1: the UK these days is tough and if you sell
Speaker 1: cars and pounds, by the time you convert the revenue
Speaker 1: into dollars, well you're not left with very much. So
Speaker 1: that hasn't created a very appetising picture for Ford in
Speaker 1: the UK, which used to be, you know, one of
Speaker 1: its stronger international operations. Right now, essentially Ford only makes
Speaker 1: money in the United States, so it's entire international operations
Speaker 1: are kind of in focus. China has been a disaster
Speaker 1: for the company over the last few months and obviously
Speaker 1: needs to be turned around too. Ford also has operations
Speaker 1: in Turkey. It's a joint venture. It makes those transit
Speaker 1: connect vans. How's the business outside of Europe for Ford
Speaker 1: in the region? Well, um, you know, Ford said today
Speaker 1: that commercial vehicles were a source of strength for the company,
Speaker 1: so I think that's one thing that they would trying
Speaker 1: to protect. I'm not sure on the details in Turkey,
Speaker 1: but you know, all its international operations are going to
Speaker 1: be put under the microscope in South America, very very
Speaker 1: difficult sales in China, you know, plunging. Same problem for
Speaker 1: Jaguar landro Over as well. By the way, uh they've
Speaker 1: exposed obviously to uh the shifting in taste away from
Speaker 1: saloon cars at Jaguar Cells towards SUVs uh. And so really,
Speaker 1: I mean the problems, the list of problems just keeps
Speaker 1: growing for both these companies. Well is it structural to
Speaker 1: adios mean, you know the team that we have a
Speaker 1: Bloomberg you know, I think about Jaguar this and for
Speaker 1: that and all that, But what's the total auto sales worldwide?
Speaker 1: And are those unit sales going to come down eight
Speaker 1: like the Credit Swiss statistic. Well, I'm not sure about
Speaker 1: unit sales, but simply put, it will just become simpler
Speaker 1: to produce cars in the future. So yes, they may
Speaker 1: they may well sell few of them if we're going
Speaker 1: to do more car sharing and right hailing. But the
Speaker 1: fundamental thing is the electric motor isn't very complicated to
Speaker 1: produce compared to a combustion engine, and in future, you know,
Speaker 1: it's much more straightforward for competitors to get the industry
Speaker 1: these days because you don't need the kind of expertise
Speaker 1: that you had in the past, or at least that
Speaker 1: etis is very different and batteries, for example, probably not
Speaker 1: going to be produced in Europe. They'll be produced by
Speaker 1: Asian manufacturers, maybe with some local production, but it won't
Speaker 1: be value value added from from the German manufacturers. Chris Brian,
Speaker 1: thank you so much from Berlin's Morning, an important essay
Speaker 1: in a quick essay in Bloomberg Opinion on GM versus
Speaker 1: Ford in Europe. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
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Speaker 1: Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.