Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Ferreroll and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best an economics, geopolitics, finance and investment.
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Speaker 2: Jending and Manuel, chief equity and contsative strategist over at
Speaker 2: ever Court, Jennian fantastic, catch up with you, sir. Good morning.
Speaker 3: Oh it's great to be here.
Speaker 2: Let's talk about that pullback in this secuity market. Is
Speaker 2: it time to buy?
Speaker 4: It is?
Speaker 3: So you hit on two very important themes just now.
Speaker 3: The first the concept of a bit of tension. Okay,
Speaker 3: the wall of worry that was almost non existent in
Speaker 3: July as Ai was leading us to the new world
Speaker 3: and then suddenly started getting rebuilt at the top is
Speaker 3: now fully rebuilt. And how do we know that because basically,
Speaker 3: if you look at the market yesterday, there was a
Speaker 3: very very noticeable change when the UAW came out and
Speaker 3: lowered their offer, making the bid offer spread twenty one
Speaker 3: to thirty as opposed to that original forty. And that's
Speaker 3: when bond yields turned lower, and that's when stocks turn higher,
Speaker 3: and we think there's a lot more to go of
Speaker 3: that type of action in the force.
Speaker 2: So they say, equity col you'll make it is essentially
Speaker 2: a bond market coll correct.
Speaker 3: How can it be otherwise When you look at the
Speaker 3: action in the last year and a half, the two
Speaker 3: are positively correlated. It's a new world.
Speaker 1: I want to talk and I'm fired up this morning
Speaker 1: because I got great and worthies running around the world
Speaker 1: spout in economics and it just drives me absolutely nuts.
Speaker 1: Let's get back to common sense. You work for the
Speaker 1: most famous market economist in the world, Edward S. Hymen
Speaker 1: invented the game. I want to get from Ed Hyman
Speaker 1: to Julian Emmanuel. What is that linkage across the high
Speaker 1: and predicted disinflation?
Speaker 3: So Ed's call again disinflation. It has been very consistent.
Speaker 3: And what's interesting about the current environment is it's very
Speaker 3: rare that you see oil prices ratcheting higher the way
Speaker 3: they have, whereas copper prices have been going lower. That
Speaker 3: tells you that what's going on is more geopolitical than
Speaker 3: an entrenched inflation psychology that's going to continue to unwind,
Speaker 3: likely a slowdown. But the commonality here is when you
Speaker 3: look long term, the reason the market is likely on
Speaker 3: better footing in the fourth quarter is because earnings are
Speaker 3: going to continue to grow next year.
Speaker 1: Tell me about the character of nominal GDP the animal
Speaker 1: spirit hymen. He's looking at freight cars, he's looking at
Speaker 1: pickup trucks. He knows what Taylor Swifts going to drink
Speaker 1: at the football game this weekend. AD's omniscient. Okay, take
Speaker 1: his research and bring it over to nominal GDP into
Speaker 1: the top lying revenue growth the general enthusiastic.
Speaker 3: Well, the first thing you got to say is it's
Speaker 3: interesting because now there's a reason to watch the Jets
Speaker 3: game live for maybe the first time in years, because
Speaker 3: Taylor Swift may or may not be there. Look, the
Speaker 3: fact is is that again, part of why this environment
Speaker 3: has been so difficult is because the economy is so
Speaker 3: incredibly diverse. And actually, when you look at at AD
Speaker 3: and OSCAR surveys, what we've seen was the trucking survey
Speaker 3: telling us that we should have been in a recession
Speaker 3: for the last nine months. But because the manufacturing side
Speaker 3: is so much smaller than the services side, and the
Speaker 3: airline survey has been on fire literally for years. We
Speaker 3: all know how difficult going through airports are, and we
Speaker 3: all know how much prices have gone up. Is that
Speaker 3: the economy again, this diversity is likely going to get
Speaker 3: us through so that even if we get a downturn,
Speaker 3: it's mild.
Speaker 5: I never took you for a swift, ye, I just
Speaker 5: am throwing that out. There wasn't really on my radar.
Speaker 5: What are you buying then? Because if there is this
Speaker 5: bifurcation in the markets between different industries that are going
Speaker 5: through recessions at different times, what's going to lead the
Speaker 5: drive back to forty four to fifty by year end?
Speaker 3: So we think you need to be really thematic and
Speaker 3: really focused here. The energy story is absolutely going to
Speaker 3: continue to play out again, this is geopolitics more than anything.
Speaker 3: But geopolitics is going to keep the oil price elevated
Speaker 3: we think certainly until next November. So it again the
Speaker 3: only sector that basically is pricing in a recession healthcare,
Speaker 3: which is actually immune to geopolitics and interest rate girations.
Speaker 3: Very good secular story and what we like again, the
Speaker 3: generative AI. It's not just the arms merchants, know, the
Speaker 3: stocks that we thought that armed the Internet in the nineties,
Speaker 3: It's not just those, but it's the companies that have
Speaker 3: been front foot forward in terms of implementingative AI. And
Speaker 3: we're going to be paying very close attention to Earning's
Speaker 3: conference calls in the month of October to see who's
Speaker 3: doing what and to see what kind of ideas they
Speaker 3: have in terms of implementation. Those stocks will outperform long term.
Speaker 5: Right now, as you take a look at the idea
Speaker 5: of more volatility heading into a really potentially fraud election cycle,
Speaker 5: how much does that actually make you favor bonds because
Speaker 5: typically you have to adjust for a higher risk premium
Speaker 5: in the more volatile instruments. Are bonds less volatile than
Speaker 5: stocks in this kind of environment.
Speaker 3: Well, they certainly haven't been for most of the last
Speaker 3: year and a half. But again, look, we know the
Speaker 3: FED is likely about the pause. Maybe there's one more
Speaker 3: high left and that QT will continue to run in
Speaker 3: the background, so we don't really have to worry about
Speaker 3: what the messaging is there. But it comes back to
Speaker 3: this whole idea that when you look at the energy complex.
Speaker 3: It is sort of off by itself, and so therefore
Speaker 3: the case for bonds becomes a little bit more interesting
Speaker 3: to us.
Speaker 2: Two of the most powerful quotes in the past week
Speaker 2: come out of Bank of America. The CEO, the CFO
Speaker 2: needs to be talked about way more, Brian more and
Speaker 2: hat we won't have a recession. The CFO, it's difficult
Speaker 2: to see a recession when the consumers spending four percent
Speaker 2: more year of a year. Can you identify any evidence
Speaker 2: of a slowdown that's going to lead to a recession
Speaker 2: anytime soon.
Speaker 3: Well, you actually did see the consumption number ease a
Speaker 3: little bit yesterday. But frankly, when we look at again,
Speaker 3: the weekly jobless claims number is the thing that we're
Speaker 3: focused on, and it is very strong. But here's the
Speaker 3: thing we know there are some of these things building
Speaker 3: in the background that have traditionally seventy years been pretty
Speaker 3: good indicators of recession. L EI's loan officers survey, the
Speaker 3: yield curve, etc. It doesn't mean that the recession is
Speaker 3: eliminated in our you, this is a case of the
Speaker 3: economic cycle because of all the money we threw out
Speaker 3: being elongated.
Speaker 1: The value to growth ratio is there a record, essentially
Speaker 1: a record low values never underperform growth like it has recently.
Speaker 1: Do you just stay with growth or do you buy
Speaker 1: the value trip?
Speaker 4: Now?
Speaker 3: I think you have to again be very very targeted
Speaker 3: because if you think about it.
Speaker 1: Well targeted, what freak help me out here? Free?
Speaker 3: Well, it's a different story right now. There's evaluation edge
Speaker 3: in areas like energy, which you're throwing off ridiculous amounts,
Speaker 3: I mean insane amounts of free cash low and healthcare,
Speaker 3: which you know, despite regulation, continues to be a one
Speaker 3: way ticket because of the demographic tailwinds. And again, anything
Speaker 3: that is associated with generative AI is likely to be
Speaker 3: a company that's also throwing off good free cash flow.
Speaker 2: How you got into the jet sky this weekend?
Speaker 3: No, my Minnesota vikings have made a misery of professional Have.
Speaker 2: We confound whether the Titus Swift is attending set game?
Speaker 1: Take a clerk to Scarlett Fool last night, Celerity loads,
Speaker 1: let's need surveillance and Foo was working the phones all
Speaker 1: day with Taylor's people. They have led the way to
Speaker 1: this higher rate regime that we are living. Veronica Clark
Speaker 1: with Andrew hollend Horse leads from City Group, what are
Speaker 1: you writing this week in Verona, cut to the chase.
Speaker 1: We need a surveillance out front. Look, what are you
Speaker 1: going to publish for Monday?
Speaker 6: Yeah, I mean we've had a lot of data. Of
Speaker 6: course this week.
Speaker 7: We had GDP revisions yesterday, all the spending and inflation
Speaker 7: data today. Overall, it doesn't really change the picture that much.
Speaker 7: I mean, growth seems pretty resilient. Yeah, we've had some
Speaker 7: slowing and inflation, but we did get revisions higher, We're
Speaker 7: coming from a higher rate.
Speaker 6: There's really not that much to change.
Speaker 7: A pretty solid growth backdrop, inflation that's still high, you know,
Speaker 7: really not much to change. The message from the Fed,
Speaker 7: which we heard last Wednesday is higher for longer, and
Speaker 7: so I think that's that's the outlook, Veronica.
Speaker 5: When you take a look at credit card spending, a
Speaker 5: number of people are saying anecdotally you are seeing a
Speaker 5: significant decrease in activity, that people are being a little
Speaker 5: bit more frugal and a little bit more discretionary with
Speaker 5: their income. How much do you reject that in your
Speaker 5: thesis that you're seeing almost a reacceleration in certain areas
Speaker 5: that could fuel inflation.
Speaker 6: Yeah, we've absolutely seen that in goods spending.
Speaker 7: You know, a lot of the story of the last
Speaker 7: couple of years has been people were shifting spending away
Speaker 7: from goods and back towards services, you know, as things
Speaker 7: were reopening. But the last couple of months, you know,
Speaker 7: we've absolutely seen retail sales spending you know that's on
Speaker 7: goods tick up.
Speaker 6: We've seen strong durable goods orders.
Speaker 7: So it's not you know, entirely that the people are
Speaker 7: shifting their slowing spending. It's maybe that things are shifting
Speaker 7: relative to the patterns of the last year. You know,
Speaker 7: growth is not just supported by services consumption anymore. It's
Speaker 7: really much more broad than that. You know, it's good spending,
Speaker 7: its investment and those types of components.
Speaker 5: So if you take a step back, you listen to
Speaker 5: all these people saying that consumers are slowing but not
Speaker 5: that much, and that you are seeing the economy slow
Speaker 5: but not that much, and you're going to get this disinflation.
Speaker 5: It's going to lead to a perfect soft landing. What's
Speaker 5: your main pushback about why inflation is going to remain
Speaker 5: sticky and why this is going to become a persistent
Speaker 5: problem that the Fed's going to have to address more aggressively.
Speaker 6: Yeah, absolutely.
Speaker 7: I mean it really does come down to you know,
Speaker 7: when we're doing inflation forecast, we're looking at the different
Speaker 7: components and the drivers of it, and a lot of
Speaker 7: different components like what I mentioned in goods.
Speaker 6: You know, those prices are kind of tacking up again.
Speaker 7: You know, we've that's been a lot of the disinflation
Speaker 7: of the last year, you know, from supply chains correcting
Speaker 7: and commodity prices falling. Well, those stories have kind of
Speaker 7: reached an end, and commodity prices are rising again. And
Speaker 7: you know, if we look at the current disinflation, you
Speaker 7: know what we expect to see in the next couple
Speaker 7: of months. A lot of that will come from components
Speaker 7: like shelter inflation, and that's just reflecting that home prices
Speaker 7: fell in twenty twenty two. Rents have slowed, but the
Speaker 7: last four months of home price data, you know, we've
Speaker 7: seen those prices rising again. So there's a lot of
Speaker 7: reasons to believe that, you know, we're not slowing enough.
Speaker 7: If we're not, you know, in a scenario that looks
Speaker 7: like a recession, well then you just get some inflation
Speaker 7: coming right back and you're just stably at something like
Speaker 7: three to four percent.
Speaker 5: When you talk about market action and at what point
Speaker 5: the FED is actually transmitting their policy through the long
Speaker 5: end of the yield curve? Veronica, how much has the
Speaker 5: yield move higher that we've seen the highest levels going
Speaker 5: back to two thousand and seven created a greater pressure
Speaker 5: that could actually knock inflation down more versus actually being
Speaker 5: sustainable and something that we see over a longer period
Speaker 5: of time.
Speaker 7: Yeah, I mean the moves of course and longer ideals
Speaker 7: that we've had in the last couple of weeks are
Speaker 7: tightening financial conditions, you know, that will help slow things down.
Speaker 7: You know, we do still have a recession in our
Speaker 7: base case for next year because of this tightening of
Speaker 7: financial conditions. And yeah, the transmission of higher rates really
Speaker 7: didn't you flow through with the normal four to six
Speaker 7: quarter lag that we were expecting. And maybe that's because
Speaker 7: you know, you know, corporations have turned out their debts.
Speaker 7: You know, people are just not as sensitive to high rates.
Speaker 7: But that doesn't mean that they won't be as those
Speaker 7: kinds of factors fade. So I think you can still
Speaker 7: expect some some slowing at some.
Speaker 6: Point from from higher rates.
Speaker 7: But the FED Zone forecast, you know kind of incorporated
Speaker 7: that higher for longer narrative, but you really didn't see
Speaker 7: it in their growth forecast. You know, the FED is
Speaker 7: still very much on this, you know, ideal soft landing
Speaker 7: kind of path.
Speaker 1: To be clear, veron a cut which measurement of disinflation
Speaker 1: do you and Andrew use? Are you wedded like I
Speaker 1: am to three months annualized because it was beaten into
Speaker 1: me as a young child, or do you use another
Speaker 1: measurement here of the gradient of disinflation?
Speaker 7: Yeah, I think something like a three month, three month
Speaker 7: annualized is a good way to look at the current trend.
Speaker 7: You know, obviously there's been a lot of focus the
Speaker 7: last year or so on on the core non shelter services.
Speaker 7: You know, those are the services like recreation or transportation,
Speaker 7: you that are tied really to tight labor markets and
Speaker 7: strong wage growth.
Speaker 6: So we look at all of those measures.
Speaker 7: But in the end, you know, the you know, the
Speaker 7: most important measure is the one that the FED will
Speaker 7: be targeting, and that's total PC inflation. And of course
Speaker 7: they'll look at core inflation and all of those components
Speaker 7: do matter, you know, the path for goods, prices or
Speaker 7: shelter it all does matter.
Speaker 6: It all is measuring you know what people are spending.
Speaker 1: Veronica, thank you so much. Veronica Clark with City Group
Speaker 1: joining us now to save the show. Alan Ruskin, Chief
Speaker 1: International Strategists, do you bank, joint your bank? And we're
Speaker 1: thrilled he could join us this morning because he has
Speaker 1: an incredible note out on American exceptionalism. Ala. I just
Speaker 1: love what you say about the good and the bad
Speaker 1: of where we are within this market oil. There's a
Speaker 1: whole feeling on a Friday. Wait, we're American, will persevere,
Speaker 1: will get through this? Describe how America is different given
Speaker 1: the bond instability we see.
Speaker 8: Tom, Look, I think there's plenty of good. A lot
Speaker 8: of it relates to longer term growth factors. The US
Speaker 8: is very competitive in an array of different industries, new
Speaker 8: and old. The geopolitics, I think is very helpful as
Speaker 8: well in the defense industry, in semiconductors as just two industries.
Speaker 8: But on the negative side and perhaps not focused on
Speaker 8: all that much until very recently, has been what's been
Speaker 8: going on the public sector deficit and a cyclically adjusted
Speaker 8: general government deficit of minus six percent of minus seven percent,
Speaker 8: as far as the eye can see, would not be
Speaker 8: seen as sustainable for any country.
Speaker 4: Other than perhaps the the United States.
Speaker 1: With a Putin invasion. David Falkartzlando was out front on this. Now,
Speaker 1: we had in America what Olivier Blanchard calls the Biden stimulus,
Speaker 1: a series of stimuli, and folks, we know we got
Speaker 1: to the last one and the way we went, we
Speaker 1: don't have that crutch anymore on Roscin. How are we
Speaker 1: going to get the fiscal support that your colleague David
Speaker 1: Falkartzlando talks about.
Speaker 8: Well, hopefully we won't need the fiscal support to the
Speaker 8: extent that what you're seeing on the public sector side
Speaker 8: does have a mirror image on the private sector side.
Speaker 8: So the deficit on the public sector side is offset
Speaker 8: to a large extent by the surplus on the private
Speaker 8: sector side.
Speaker 6: And that's why the current.
Speaker 8: Account, which usually is the sort of thing that's flashing red,
Speaker 8: particularly for foreign exchange guys, that has not been flashing
Speaker 8: red at this point in time. To me, the problem
Speaker 8: that you're seeing right now is more about the financing
Speaker 8: of the public sector deficit. And you're seeing that, you know,
Speaker 8: sort of disconcerted movement in the bond market, I think
Speaker 8: is reflective of that. The fact that the Fed's doing
Speaker 8: qt the fact that China and Japan are not necessary
Speaker 8: buying all the onus and burden is falling on the
Speaker 8: household sector, which normally, you know, in directly only holds
Speaker 8: about ten percent of outstanding treasuries. That is a unique
Speaker 8: set of circumstances, and I think it's draining liquidity from
Speaker 8: the banking sector as the household sector shifts from deposits
Speaker 8: into treasuries, and it's exacerbating the banking sector problem.
Speaker 2: And I wanted to bring up something Steve Major mentioned
Speaker 2: over HSBC that I think contributes to this conversation, and
Speaker 2: he made the point that what's important here is not
Speaker 2: just the deficit. It's the deficit at a time where
Speaker 2: we have an expansion and not a contraction in the
Speaker 2: US economy. How vital is that point?
Speaker 8: Allan, Yeah, And I think that's exactly why we sort
Speaker 8: of cyclically adjust these things, so we kind of like,
Speaker 8: you know, you know, you might have somewhat better public
Speaker 8: sector data right now, but when you cyclically adjust that,
Speaker 8: you allow for measures like output gaps, et cetera, you
Speaker 8: get a better sense of the trend. And the trend
Speaker 8: is very poor.
Speaker 4: Really.
Speaker 8: I think that's you know, that's that's the key point.
Speaker 8: You know, I think most estimates suggests the general government
Speaker 8: deficit of sixty seven percent, but those numbers that I
Speaker 8: just mentioned are reasonable.
Speaker 5: Is there any chance, Allen, then you could see some
Speaker 5: sort of weakening cycle in the dollar following the incredible
Speaker 5: strength that we've seen over the past few months, simply
Speaker 5: because the backdrop is deteriorating and some data is coming
Speaker 5: out better than expected from the likes of Europe and
Speaker 5: even China on the peripheries.
Speaker 8: Yeah, I think you know, what you're seeing on this side,
Speaker 8: at least from the financing side, is initially whilst fine
Speaker 8: hills are backing up, it's actually you know, quite positive
Speaker 8: for the dollar. It can be very positive for the
Speaker 8: dollar versus em and commodity currencies. I think, you know,
Speaker 8: when you get too much of a good sort of
Speaker 8: good thing, at least in foreign exchange terms, and you know,
Speaker 8: bond hills back up more than the Fed would wind,
Speaker 8: you could get into a situation where the Feds are
Speaker 8: sent actually lost ConTroll of the back end of the curve,
Speaker 8: and the economy is slowing, and then they have to
Speaker 8: cut rates much more aggressively at the front end, and
Speaker 8: when you reach any of that sort of points where
Speaker 8: the yield curve is starting to steepen sharply, you know,
Speaker 8: and it's a front end that's leading the steepening, that
Speaker 8: would be a major dollar negative. I think that's a
Speaker 8: story that could be around for the second half of
Speaker 8: twenty twenty four. It's not a story for the end
Speaker 8: of twenty twenty three.
Speaker 5: Alan just to sort of build on that, are you
Speaker 5: saying that right now it seems like the FED is
Speaker 5: losing control over the long end of the yield curve,
Speaker 5: that what we're seeing seems a little unmoored and not
Speaker 5: good for the FED officials that are watching it.
Speaker 8: Not yet, I would say, and you're seeing this in
Speaker 8: terms of FED officials are not really talking about excessive
Speaker 8: financial conditions tightening. I think at this point in time
Speaker 8: they recognize that perhaps it wasn't sufficient tightening from financial
Speaker 8: conditions led not least by a very well behaved bond market.
Speaker 8: But I think we're seeing the beginnings of an unraveler,
Speaker 8: and we watched we have to watch this very very
Speaker 8: closely because the financing element is truly in a unique
Speaker 8: phase in terms of this dependence on the household sector.
Speaker 2: And I'm really wanted a word on the BOJ and
Speaker 2: what's happened in the JGB market the BOJ stepping in.
Speaker 2: Do you get the impression that the Japanese authorities are
Speaker 2: more concerned about the bond market move than maybe they
Speaker 2: are the feign exchange move.
Speaker 8: I think they're sort of straddling a fine line here.
Speaker 8: I don't think they want, you know, Dolly yen much
Speaker 8: above one fifty or above one fifty at all. There's
Speaker 8: I don't think it's a firm line in the sand.
Speaker 8: I think they've used the bond market. They've effectively allowed
Speaker 8: the JGB heels in the tenure sector to drift up
Speaker 8: to protect the one fifty level of late. So it
Speaker 8: might look like a contradiction right now in terms of
Speaker 8: intervening of the bond market, but I think the tendency
Speaker 8: over time will be for that tenure heel to drift up.
Speaker 8: It's just going to have to drift up slowly, I think,
Speaker 8: in terms of you know what the BOJ is signaling.
Speaker 2: And thank you sir for the update this morning, and
Speaker 2: great on the BLCHI yesterday as well. Enjoyed that rate
Speaker 2: And I'm Ruskin at deoutsche Bank.
Speaker 1: I'm joining us now Patrick Anderson of Michigan, Founder, chief
Speaker 1: executive officer Anderson Economic Group. But far more than that,
Speaker 1: arguably the greatest student of how Detroit became Detroit, what
Speaker 1: Detroit is now, and maybe the hope in prayer of
Speaker 1: what Detroit will become. Patrick, thanks so much for joining. Again,
Speaker 1: we're talking before the segment here on the chaos of
Speaker 1: the industry, Like GM can't build a muscle car, so
Speaker 1: they had to go to Holden of Australia to build
Speaker 1: the Pontiac GA because they didn't have the knowledge to
Speaker 1: do it in Detroit. How chaotic right now are the
Speaker 1: manufacturing processes of these auto companies who are being very
Speaker 1: silent within this strike.
Speaker 9: They were well running right before the strike and in
Speaker 9: fact you what you saw with Detroit was low inventories.
Speaker 9: As you mentioned, they were highly profitable. The only chaotic
Speaker 9: portion was the big investment in evs, where both Ford
Speaker 9: to General Motors were losing two or three or four
Speaker 9: billion per year, which works out in some cases to
Speaker 9: fifty thousand dollars a copy for an electric vehicle. That
Speaker 9: was really the only difficulty going on in Detroit before
Speaker 9: the strike.
Speaker 1: If they are profitable, why can't they give some of
Speaker 1: that to their valued labor?
Speaker 4: They absolutely can.
Speaker 9: And if you look at the Anderson Economic Group preview
Speaker 9: of this, we said that these autoworkers, like everyone else,
Speaker 9: were suffering from inflation.
Speaker 4: They didn't create the inflation.
Speaker 9: You have to expect that they're going to get wage increases,
Speaker 9: and in fact, that's what the automakers have offered. The
Speaker 9: sticking point, and I wouldn't call it just at point,
Speaker 9: because it's more than a point, is that the UAW
Speaker 9: demands now are for far more than wage increases. They
Speaker 9: include things that represent actually bankruptcy risk for the automakers,
Speaker 9: such as a return to the notorious Jobs Bank and
Speaker 9: having a defined benefit pension, which were two of the
Speaker 9: things that led to GM and Chrysler's bankruptcy a decade ago.
Speaker 5: In the meantime, what is the ripple effect of what
Speaker 5: we've seen from the strikes? I know your organization and
Speaker 5: you've been doing incredible work trying to quantify it.
Speaker 6: Where are we.
Speaker 9: First week cost was one point six billion dollars and
Speaker 9: those are one point six hard numbers lost, most of
Speaker 9: which was wages, and a fraction of that was the automakers.
Speaker 9: A lot of it were UAW and a lot of
Speaker 9: it were non UAW suppliers. The second week estimate, we're
Speaker 9: going to have that on Monday, but I can tell
Speaker 9: you it's going to be bigger than one point six billion,
Speaker 9: because strikes become more expensive over time, not less expensive.
Speaker 4: And in particular, what happened in the first week is you.
Speaker 9: Can expect some inventory to basically just be sopped up,
Speaker 9: and pretty much everyone in the industry, dealers, suppliers, manufacturers
Speaker 9: anticipated some kind of strike for at least one automaker.
Speaker 4: So they were ready for a few days. Were they
Speaker 4: ready for two weeks, three weeks? Were they ready for
Speaker 4: Sean Fain?
Speaker 9: The answer to that is no, they were not ready
Speaker 9: for the kind of disciplined, focused strategy that the UAW
Speaker 9: president has brought forward. That's not to say that demands
Speaker 9: are reasonable, but clearly the leader of this is not
Speaker 9: the Big Three, it's the president of the UAW.
Speaker 5: They do have inventory still, and so there is a
Speaker 5: question about whether this will actually lead to higher priced cars.
Speaker 5: Do you have a sense of how quickly the inventory
Speaker 5: is coming down at what point this does raise costs
Speaker 5: in the near term? On auto purchases.
Speaker 9: I don't have a question about that anymore. We pointed
Speaker 9: out before the strike that the inventory in the industry
Speaker 9: was about a quarter this time what it was in
Speaker 9: twenty nineteen, so inventory is much smaller, and in fact,
Speaker 9: which you've got is higher prices already. So if anything,
Speaker 9: prices had moderated a little bit before the strike. And
Speaker 9: here the UAW strategy, which is surprising, but again Sean
Speaker 9: Fain and the UAW are really leading setting.
Speaker 4: The terms of this include hitting.
Speaker 9: Parts facilities and strategically picking assembly plants, so they are
Speaker 9: starting to affect prices. I think this is something to
Speaker 9: look for in week three. And one of the things
Speaker 9: to look is what is going to be announced today.
Speaker 9: Are we going to stay with the plants that we
Speaker 9: have assembly plants you mentioned earlier, the F one fifty
Speaker 9: Right now, Ford's assembly hasn't been hit very much. We
Speaker 9: estimate that we lost twenty five one thousand production units
Speaker 9: in the first ten days, almost all of which were
Speaker 9: profitable vehicles that would have been sold. So they've lost
Speaker 9: a lot of production already and they're going to lose more.
Speaker 1: Patrick, we don't have time for a Patrick Anderson forty
Speaker 1: five minute dissertation on where American auto manufacturing's heading. But
Speaker 1: in the time we have, we're moving to things that
Speaker 1: have fewer parts, evy vehicles that are simpler made on
Speaker 1: a unit basis, on some form of Anderson productivity basis.
Speaker 1: Does everybody understand there's just going to be fewer warm
Speaker 1: bodies making these things.
Speaker 9: This is a subtext of this particular bargaining session.
Speaker 4: It's the wild card out there.
Speaker 9: Until just recently, it wasn't even mentioned except kind of
Speaker 9: in hush tones and in the second or third ten
Speaker 9: minute session of an investor call.
Speaker 4: But a big issue.
Speaker 9: In this is are we going to continuous taxpayers to
Speaker 9: subsidize plants that are producing vehicles that require fewer labor
Speaker 9: hours at wages that are less in plants that are
Speaker 9: in many cases joint ventures with Chinese companies or self
Speaker 9: green companies or other companies, and actually substitute that for
Speaker 9: profitable vehicles that consumers want. That's something we outlined before
Speaker 9: the strike is a serious issue, and that is at
Speaker 9: this point completely unresolved.
Speaker 2: Have you got an answer to that? What is your
Speaker 2: base case at the moment? Patrick? If you just had
Speaker 2: to take a guess, what would it be?
Speaker 4: I don't know what is going to happen.
Speaker 9: And the fact that President Biden came to the assembly
Speaker 9: line and said, yeah, well they should get at least
Speaker 9: a forty percent increase, and then said nothing about whether
Speaker 9: we were going to continuous taxpayers to subsidize the battery
Speaker 9: plants and actually pay for the conversion. And that's actually
Speaker 9: the word that the Department of Energy uses. We pay
Speaker 9: for conversion of plants that are making vehicles that are
Speaker 9: now being sold profitably to electric vehicles that are growing,
Speaker 9: but growing very slowly.
Speaker 4: There's not a base case out here that works.
Speaker 2: I'm being sold to a high end consumer as well
Speaker 2: currently pantry. Does that complicate the effort?
Speaker 4: Absolutely.
Speaker 9: I've got a battery electric vehicle out in my garage,
Speaker 9: but fortunately I have another car I can drive. And
Speaker 9: the fact is that seventy two percent, according to our
Speaker 9: Anderson Economic Group.
Speaker 4: Assessment, of these electric vehicles are luxury cars, which is
Speaker 4: perfectly fine.
Speaker 9: But when you have government policy and taxpayer money and
Speaker 9: contracts and internal subsidies and regulations that are pushing for
Speaker 9: forty or fifty or sixty percent of the vehicles to
Speaker 9: be those that are primarily favored by wealthier people in
Speaker 9: metropolitan areas. We have a serious problem, both as an
Speaker 9: end and as a society, and that is an unresolved
Speaker 9: issue for which there is no base case for success.
Speaker 2: Patrick, it was woner Folcus to get your insight. Thank you,
Speaker 2: sir Patrick Anderson of Anderson Economic Crep.
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