WEBVTT - Markets, Inflation, And Volkswagen (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.800 at Bloomberg dot com slash podcast Mixed tape out there is. 0:00:22.840 --> 0:00:25.000 Greg was just reporting we got the FED coming up. 0:00:25.160 --> 0:00:27.720 I think it's gonna be kind of important this Wednesday 0:00:28.120 --> 0:00:30.520 to hear we uh, you know, see where we're gonna 0:00:30.520 --> 0:00:32.760 get from our federal reserve. In the markets is certainly 0:00:33.000 --> 0:00:35.800 paying attention as they are to earnings as we get 0:00:35.800 --> 0:00:38.560 into the real meat of earning season this week. Rebecca Felton, 0:00:38.800 --> 0:00:42.680 senior market strategist for Riverfront Investment Group, Richmond, Virginia. She 0:00:42.880 --> 0:00:47.080 is a like myself, an alumnus. Are alumni alumni from 0:00:47.120 --> 0:00:49.360 the University of Richmond And Matt, do you know what 0:00:49.400 --> 0:00:55.080 the University of Richmond mascot is? Sorry, University of Richmond mascot. 0:00:55.560 --> 0:00:59.640 I don't know, like a like a uh Southern soldier 0:01:00.080 --> 0:01:03.200 spider a spider. Oh yeah, I should have known that, right, Rebecca, 0:01:04.640 --> 0:01:06.760 people out there, we don't have to share a mascot, 0:01:06.760 --> 0:01:10.760 do we, Rebecca, No, do not? All right, Rebecca, what 0:01:10.800 --> 0:01:14.600 are you telling your clients? Uh? You know, as we 0:01:14.680 --> 0:01:17.080 kind of get into this earning season, get its more 0:01:17.600 --> 0:01:19.480 color from the frontal reserve, what are you telling your 0:01:19.480 --> 0:01:21.039 clients about these markets? We've had a little bit of 0:01:21.040 --> 0:01:22.880 a lift off the bottom, but I'm not sure what 0:01:22.920 --> 0:01:25.920 to make of it. Well, thank you all so much 0:01:26.080 --> 0:01:28.280 for for having me this morning. We're a little more 0:01:28.319 --> 0:01:30.959 cautious than the last time that I spoke with you all. 0:01:31.040 --> 0:01:34.160 We've actually the only asset class that we are overweight 0:01:34.240 --> 0:01:36.800 right now in our balance strategies is cash because we 0:01:36.840 --> 0:01:40.000 are cautious. Um at this juncture, you know this, This 0:01:40.120 --> 0:01:42.400 is a busy week with the f o MC Durable 0:01:42.440 --> 0:01:45.440 Goods g d P and a hundred and seventy companies 0:01:45.520 --> 0:01:48.960 or so or reporting earnings. So there's a lot to digest, 0:01:49.240 --> 0:01:52.120 and we think it's going to be volatile and potentially 0:01:52.160 --> 0:01:57.640 to the downside. It's interesting. Um, So this meeting, we 0:01:58.040 --> 0:02:01.240 all expect seventy five, right, and the question is how 0:02:01.280 --> 0:02:04.400 far does the FED go and when, if at any point, 0:02:04.400 --> 0:02:07.720 do they turn around. I heard Stephen Englander on surveillance 0:02:07.720 --> 0:02:11.239 this morning, say he thinks three percent is going to 0:02:11.320 --> 0:02:13.400 be the terminal rate and then they'll hold for five 0:02:13.520 --> 0:02:17.320 or six quarters, which is an outlier forecast obviously, but um. 0:02:17.360 --> 0:02:20.120 We also quote Vince Reinhardt in our Bloomberg story he 0:02:20.200 --> 0:02:24.040 thinks the Fed's gonna go over five percent UM and 0:02:24.080 --> 0:02:27.400 then turn around at the end of what do you 0:02:27.400 --> 0:02:31.440 think and how important is that, Rebecca Well, I think 0:02:31.440 --> 0:02:34.960 those expectations are are very important as it relates to 0:02:35.280 --> 0:02:38.520 folks forward, you know, projections for what the market should 0:02:38.520 --> 0:02:41.120 be valued at. We believe that the Fed is going 0:02:41.160 --> 0:02:44.040 to keep their foot on the accelerator given what their 0:02:44.160 --> 0:02:47.680 inflation target is. UM. We know that they are looking 0:02:47.720 --> 0:02:50.360 for a number of four or better in terms of 0:02:50.360 --> 0:02:53.720 four or lower. And here our last uh you know, 0:02:53.760 --> 0:02:57.000 the last print was nine percent, So there's a long 0:02:57.000 --> 0:02:59.600 ways to go between nine and four, and we just 0:02:59.639 --> 0:03:04.560 don't season letting up on the tightening anytime soon. Rebecca. 0:03:04.600 --> 0:03:07.639 You mentioned that this is a busy, busy earnings week. 0:03:07.680 --> 0:03:10.360 We got some big tech companies as well as General 0:03:10.400 --> 0:03:14.440 motors tomorrow that Matt pays close attention to because he's 0:03:14.440 --> 0:03:18.440 still waiting for his Chevy, I don't pick up trust Silverado, 0:03:18.480 --> 0:03:22.280 Silverado pickup truck. Whatever. What are you looking for, Rebecca 0:03:22.360 --> 0:03:24.560 from earnings here? What do you and your team is 0:03:24.600 --> 0:03:29.839 really focusing on. Well, the headwinds that we are particularly 0:03:29.840 --> 0:03:32.400 looking at this week, you know, from big Tech with 0:03:32.840 --> 0:03:36.760 almost six of their revenues coming from overseas, we expect 0:03:36.760 --> 0:03:39.560 to hear a lot of worries about the strength of 0:03:39.600 --> 0:03:42.280 the dollar and how that's going to hit earnings. Uh, 0:03:42.320 --> 0:03:45.600 the inflationary pressures are still the big buzzwords. You're seeing 0:03:45.600 --> 0:03:49.520 more and more companies talk about layoffs, hiring freezes, were 0:03:49.560 --> 0:03:51.840 sending job offers. So there's a lot to be worried 0:03:51.880 --> 0:03:55.000 about in terms of what the tone is now. Earnings 0:03:55.160 --> 0:03:58.400 themselves have been coming in a little better than expected, 0:03:58.640 --> 0:04:01.200 but the energy sectors is the one that seems to 0:04:01.200 --> 0:04:04.560 be driving that poplin headline number for earnings growth year 0:04:04.600 --> 0:04:07.720 over year. You have about six sectors in the SMPS. 0:04:07.720 --> 0:04:11.080 There are forecasts to have lower year over year numbers 0:04:11.080 --> 0:04:14.320 than last So that is problematic when you think about 0:04:14.360 --> 0:04:18.039 the fact that net net earnings are still pretty much 0:04:18.040 --> 0:04:20.080 where they were at the beginning of the year, in 0:04:20.120 --> 0:04:23.640 that eight percent range for consensus and we think that 0:04:23.640 --> 0:04:26.440 that is vulnerable at this point. Yeah, too high. What 0:04:26.440 --> 0:04:29.200 what do you need to see to get less cautious, Rebecca, 0:04:29.240 --> 0:04:34.040 I mean in terms of earnings outlooks, in terms of valuations, 0:04:34.040 --> 0:04:35.960 in terms of the federal reserve. What what do you 0:04:36.000 --> 0:04:37.960 what kind of picture do you need to have before 0:04:38.000 --> 0:04:41.920 you can put more of that cash to use? Well, 0:04:42.080 --> 0:04:44.560 we need um. The one thing that we need to 0:04:44.600 --> 0:04:46.880 go down is inflation, right, But some of the other 0:04:46.960 --> 0:04:50.600 economic indicators that have been following we'd like to season stabilize. Right. 0:04:50.640 --> 0:04:54.039 You're seeing the housing numbers start to turn over, some 0:04:54.200 --> 0:04:57.080 of the most recent employment week to week numbers. Even 0:04:57.080 --> 0:04:59.880 though that unemployment rate has come down, we're seeing some 0:05:00.040 --> 0:05:04.039 of those unemployment numbers continuing to pick up. Um. So 0:05:04.120 --> 0:05:07.039 there's a lot that needs to stabilize to the good 0:05:07.080 --> 0:05:10.520 before we're going to get more more positive on our 0:05:10.520 --> 0:05:13.240 outlook for equities at this point. Hey, Rebecca, When you 0:05:13.279 --> 0:05:15.120 and I were in the Robin School of Business at 0:05:15.120 --> 0:05:17.760 the University of Richmond, doctor Earl did not teach us 0:05:17.839 --> 0:05:22.119 that bonds could have double digit declines in the first 0:05:22.160 --> 0:05:25.599 six months of a year. But here we are, is 0:05:25.640 --> 0:05:28.160 that time to just say I just gotta buy credit here, 0:05:28.200 --> 0:05:31.000 I gotta buy bonds. I gotta go along. Well, we 0:05:31.120 --> 0:05:35.120 have actually, for the first time in a while, increased 0:05:35.160 --> 0:05:38.479 our allocation two fixed income. We're more neutral there than 0:05:38.520 --> 0:05:42.680 we were um and we've kind of spread out the allocations. 0:05:42.680 --> 0:05:45.640 We've got some treasuries, We've obviously got some investment grade, 0:05:45.640 --> 0:05:48.320 but we've added back some high yield because we think 0:05:48.360 --> 0:05:50.599 that it sort of pays to wait here and we 0:05:50.640 --> 0:05:54.159 are not concerned at this juncture about you know, credit 0:05:54.240 --> 0:05:57.200 quality and that sort of thing in terms of defaults. 0:05:57.800 --> 0:06:00.240 So we we've added back and were neutral, and it 0:06:00.360 --> 0:06:02.200 is it is more tractive now than it's been in 0:06:02.279 --> 0:06:05.520 quite some time. All right, Rebecca, good stuff is always 0:06:05.880 --> 0:06:09.720 we always appreciate getting your perspective. Rebecca Felton, Senior market strategist. 0:06:10.200 --> 0:06:13.000 River Front Investment Group And what river does it front? 0:06:13.960 --> 0:06:17.279 The James River, The James River in Richmond, Virginia. And 0:06:17.279 --> 0:06:19.680 if you haven't been to Richmond, I have noted down. 0:06:19.680 --> 0:06:21.479 I would like to check that out. It's very cool, 0:06:21.560 --> 0:06:24.960 lots of history, lots of really nice I've never been 0:06:25.000 --> 0:06:28.359 to Richmond, I've never been to Charlotte, I've never Inville. 0:06:30.120 --> 0:06:32.200 I've never been to Chapel Hill. No, I'm just thinking 0:06:32.279 --> 0:06:35.880 of all these sort of southern supposedly beautiful places that 0:06:35.920 --> 0:06:38.120 I still have to check it. I've never been to Savannah, 0:06:38.160 --> 0:06:41.880 another good one, Charleston, all down there in our beautiful southeast. 0:06:41.920 --> 0:06:48.520 Ho was Rebecca Felton from river Front Investment Group. Al Right, 0:06:48.560 --> 0:06:51.840 I'm looking at i end go the index browser on 0:06:51.839 --> 0:06:56.040 the Bloomberg terminal. Total corporate bond returns year to date 0:06:56.160 --> 0:07:00.680 minus twelve percent, just extraord on the high yield side, 0:07:01.040 --> 0:07:03.920 uh minus ten and a half percent in the US 0:07:03.960 --> 0:07:05.560 corporate So a lot of work to be done there 0:07:05.560 --> 0:07:09.960 from our fixing. Wait wait, wait, global high yield. I'm 0:07:10.000 --> 0:07:14.160 looking I'm looking at US Okay, because I'm seeing bigger 0:07:14.200 --> 0:07:16.960 drops globally right alright. Bloomber of Markets today is brought 0:07:16.960 --> 0:07:19.080 to you by Commonwealth, supporting more than two thousand independent 0:07:19.080 --> 0:07:21.200 financial advisors with the solutions they need to grow with 0:07:21.280 --> 0:07:24.520 thriving business. Commonwealth Go where you grow. Visit Commonwealth dot 0:07:24.560 --> 0:07:27.960 com to learn more. So again, tough tough sledding year 0:07:28.040 --> 0:07:30.120 to date in the fixed income markets. What are those 0:07:30.160 --> 0:07:33.400 folks doing here? How are they positioning themselves for the 0:07:33.440 --> 0:07:36.200 second half? Stephen O Global head of fixed Income at 0:07:36.200 --> 0:07:40.360 Pinebridge Investment, joins us Steven. Have you ever seen the 0:07:40.440 --> 0:07:44.120 first six months of a year like we had this year. Well, 0:07:44.160 --> 0:07:46.880 it's certainly been in an extraordinary year, not only in 0:07:46.960 --> 0:07:50.720 fixed income, but I would say across all ethic class markets. 0:07:50.880 --> 0:07:53.680 Although in many respects I don't know that it was 0:07:53.760 --> 0:07:57.760 completely unanticipated, but I think the magnitude has been surprising 0:07:57.800 --> 0:08:03.240 to everyone. And what's you think people expected this um 0:08:03.360 --> 0:08:05.720 maybe got on the right side of the trade short 0:08:06.480 --> 0:08:09.360 I think I think they expected. Component was the fact 0:08:09.360 --> 0:08:12.720 that if you go back to prior several years post COVID, 0:08:12.840 --> 0:08:16.120 I even pre COVID, you know, asset prices from the 0:08:16.200 --> 0:08:20.840 risk asset standpoint have been buoyed by central bank liquidity 0:08:20.840 --> 0:08:25.440 injection into financial markets. And so you know, unlike traditional 0:08:25.520 --> 0:08:29.880 cycles where if the key driving impact of asset prices 0:08:30.560 --> 0:08:34.840 is to push by central banks globally to add liquidity 0:08:34.960 --> 0:08:38.960 into the system, at some point, if the conditions existed 0:08:39.040 --> 0:08:42.360 were by they would withdraw that liquidity. Then you had 0:08:42.400 --> 0:08:46.280 conditions set up entering this year whereby you would get 0:08:46.880 --> 0:08:49.760 both a sell off in risk assets as well as 0:08:49.760 --> 0:08:53.000 in risk free government bond assets overall, so you you 0:08:53.080 --> 0:08:56.440 had synchronized to the downside as a reversal from what 0:08:56.480 --> 0:08:59.880 we had seen, which was synchronized to the upside. All right, 0:09:00.040 --> 0:09:04.280 even we're gonna hear from our federal reserve this Tuesday. 0:09:04.600 --> 0:09:07.080 I'm sorry with this Wednesday, two pm Wall Street time, 0:09:07.080 --> 0:09:09.440 we'll get a press conference at two thirty. What do 0:09:09.440 --> 0:09:12.880 you expect to hear from your federal reserve? You know, 0:09:12.960 --> 0:09:16.120 the Fed is not going to make any surprises, and 0:09:16.160 --> 0:09:18.360 I think the market is not focused on what they're 0:09:18.360 --> 0:09:21.920 going to do with respect to rate hike. I think 0:09:21.920 --> 0:09:25.439 what the market is watching for is house or tone 0:09:25.480 --> 0:09:30.200 potentially shifting in terms of the level of aggressiveness going forward. 0:09:30.600 --> 0:09:33.120 Uh and in particularly whether there will be much in 0:09:33.120 --> 0:09:37.040 the way of acknowledgement of recent data indications that appeared 0:09:37.080 --> 0:09:41.200 to indicate that the impact of the rate hikes is 0:09:41.240 --> 0:09:44.960 starting to filter through into a demand withdrawal and the 0:09:45.120 --> 0:09:49.360 rising risk of a recessionary type of bus scenario which 0:09:49.360 --> 0:09:53.160 would pull back their pace of rate hikes overall. And 0:09:53.160 --> 0:09:55.360 and that's in part what's been driving the market to 0:09:55.480 --> 0:09:59.680 rally recently. It's sort of this adage that slightly bad 0:09:59.760 --> 0:10:02.199 news it's good news because that would result in the 0:10:02.320 --> 0:10:06.000 FED slowing down. So where do you see the FED 0:10:06.320 --> 0:10:10.480 um stopping and turning around? Because it seems like forecasts 0:10:10.480 --> 0:10:14.400 are all over the map. Although the shape that's generally 0:10:14.440 --> 0:10:18.720 expected is, you know, hitting the terminal rate at some 0:10:18.800 --> 0:10:20.800 point next year or at the end of this year 0:10:20.840 --> 0:10:26.200 and then coming down before you know, there's sort of 0:10:26.240 --> 0:10:28.560 the near term. What do we think is the FED 0:10:28.640 --> 0:10:30.560 is going to do in this cycle? And what do 0:10:30.559 --> 0:10:33.560 we think is the longer term policy path that may 0:10:33.640 --> 0:10:37.640 diverge from this cycle overall? And as you note that 0:10:37.720 --> 0:10:41.120 there is a quite a divergent set of predictions forward 0:10:41.160 --> 0:10:44.000 and I think you said that there's some strategies that 0:10:44.040 --> 0:10:48.480 are talking about four or five type of level policy rates. 0:10:49.120 --> 0:10:52.839 We think that is a such an incredibly unlikely scenario. 0:10:52.920 --> 0:10:55.520 And in fact, if that scenario played out, you know, 0:10:55.559 --> 0:10:57.720 I would say the tenure is going to trade below 0:10:57.800 --> 0:11:01.280 two percent because I think there would be an expectation 0:11:01.320 --> 0:11:04.000 of a very very hard landing, which we're not going 0:11:04.040 --> 0:11:07.280 to get to. Overall. You know, our base case expectation 0:11:07.559 --> 0:11:10.480 is that the FED is going to continue its path, 0:11:10.640 --> 0:11:15.120 but after this rate hike, they are going to flattle down, 0:11:15.880 --> 0:11:19.000 uh and toward a glide path towards somewhere in the 0:11:19.040 --> 0:11:23.280 low three percent type of level. But that's for this cycle. Uh, 0:11:23.440 --> 0:11:26.920 And I think longer term, the FED is not going 0:11:26.960 --> 0:11:30.480 to be maintaining a average new tol rate with a 0:11:30.559 --> 0:11:32.679 three handle on it. But we will be back into 0:11:32.679 --> 0:11:36.679 the tubes. I will say, I was quoting vent tryinhard earlier. 0:11:36.720 --> 0:11:39.120 He thinks that the FED is going to raise to 0:11:39.320 --> 0:11:44.680 five percent or higher and that unemployment UM could rise 0:11:44.720 --> 0:11:49.320 to six percent. So that's pretty worried s outlied to me. Yeah, 0:11:49.360 --> 0:11:51.800 but that's nice to note though. Stephen Oh, global head 0:11:51.800 --> 0:11:54.280 of fixed income at pine Bridge Investments joining us. We 0:11:54.320 --> 0:11:58.920 appreciate that um that is undergrad from Wharton. That's pretty good, 0:11:59.480 --> 0:12:01.679 NBA from Northwestern, everybody I know we got there in 0:12:01.679 --> 0:12:04.480 Bay for Northwestern's pretty darn smart. And Stevenough it kind 0:12:04.480 --> 0:12:10.800 of falls into a camp. Speaking of Volkswagen, this has 0:12:10.800 --> 0:12:13.640 been a story that has been blowing my mind all 0:12:13.720 --> 0:12:17.599 weekend long. Christoph ralpha Al joins us out of Frankfurt. 0:12:17.600 --> 0:12:20.920 He's the bureau chief UM for that office, and he's 0:12:20.960 --> 0:12:23.480 also my go to guy when it comes to Volkswagen 0:12:23.600 --> 0:12:25.680 anything I want to know, my go to guys, So 0:12:25.880 --> 0:12:29.000 he's your go to He's he's the top guy. Christoph 0:12:29.120 --> 0:12:32.400 is the man, Um christop When when I saw this news, 0:12:32.440 --> 0:12:35.559 I was on the subway heading heading downtown, and I 0:12:35.600 --> 0:12:39.320 almost fell off the bench. Um. I know that there's 0:12:39.360 --> 0:12:44.640 been a lot of uh friction between Die and the 0:12:44.679 --> 0:12:48.040 workers unions and the state of Saxony, but that seems 0:12:48.160 --> 0:12:51.000 like that's what that's what you're supposed to have in 0:12:51.080 --> 0:12:54.400 that job, right. Um. What I didn't know was that 0:12:54.440 --> 0:12:58.280 he was failing at execution in terms of delivering software 0:12:58.320 --> 0:13:02.720 for important new product like the Porsche mccan, the electric 0:13:02.800 --> 0:13:08.240 version of the mccan. Is that what finally drove them out? Yeah? Hi, Well, first, 0:13:08.280 --> 0:13:09.800 first of all, thanks so much for the very kind 0:13:09.800 --> 0:13:12.160 introduction that that's that's in crete, the kind of you 0:13:12.480 --> 0:13:15.680 you're You're totally right that that story did come on 0:13:16.160 --> 0:13:20.400 broke on Friday evening, pretty much out of the blue Friday, 0:13:20.440 --> 0:13:24.520 even in European time. We knew there have been quite 0:13:24.520 --> 0:13:27.079 a bit of friction about like how the how the 0:13:27.200 --> 0:13:29.960 the way how he runs the company. They have been 0:13:30.000 --> 0:13:34.520 facing software issues, uh for for for a number of 0:13:34.559 --> 0:13:37.280 months or already, but we weren't quite aware that the 0:13:37.520 --> 0:13:42.280 problems would create so much internal unease basically within the 0:13:42.280 --> 0:13:45.520 group that would that he would actually be pushed out, 0:13:45.559 --> 0:13:48.640 because that's essentially what happened. Basically, the keys takeholders decided 0:13:48.840 --> 0:13:50.840 we need a fresh start under a new leadership, and 0:13:50.880 --> 0:13:54.280 therefore Mr ds, who has been credited with Folkswagen strategic 0:13:54.320 --> 0:13:58.679 realignment towards electric mobility with effectively UH yeah outs it. 0:13:59.000 --> 0:14:01.320 So let's talk about what this means for the company, 0:14:01.400 --> 0:14:05.120 because you have over the past few years done such 0:14:05.160 --> 0:14:10.760 incredible reporting on what Herbert Deece was building. Their investments 0:14:11.240 --> 0:14:16.000 planned of more than ninety billion dollars to change this 0:14:16.080 --> 0:14:21.000 internal combustion car maker into an electric sort of software 0:14:21.040 --> 0:14:25.120 engine um and battery maker. Is that going to continue? 0:14:25.200 --> 0:14:28.680 Is that going to go forward? Or is his successor 0:14:29.000 --> 0:14:31.440 Oliver Bloomer, going to have to put together a whole 0:14:31.480 --> 0:14:34.720 new plan. No. I think we can definitely expect that 0:14:34.800 --> 0:14:40.320 the strategic direction will continue. The will basically stick to 0:14:40.360 --> 0:14:44.360 their goals to sell far more fully and partly electric 0:14:44.800 --> 0:14:49.080 vehicles in incoming years. They're building six battery cell factories 0:14:49.160 --> 0:14:52.640 in Europe alone, plus looking for a partner to build 0:14:52.640 --> 0:14:56.560 a bettery sell factory for the US factory UH in Chattanooga, 0:14:56.560 --> 0:15:00.720 Tennessee h and other projects in China. So it's it's 0:15:00.760 --> 0:15:04.200 basically a pretty wide range of different initiatives and investment programs. 0:15:04.280 --> 0:15:08.040 Those we can expect to remain unchanged. What will change, though, 0:15:08.400 --> 0:15:10.480 I think, is that there's going to be a much 0:15:10.480 --> 0:15:14.560 stronger focus and and and sort of like an improvement 0:15:14.600 --> 0:15:17.800 in terms of like tracking the operational progress of these 0:15:17.840 --> 0:15:21.480 individual efforts rather than saying we need to do this, 0:15:22.040 --> 0:15:25.840 we decide on like the strategic direction, but then sort 0:15:25.840 --> 0:15:27.680 of like not following up and making sure that these 0:15:28.160 --> 0:15:30.920 that these projects actually come to life on the assembly 0:15:31.040 --> 0:15:33.760 line or in the respect of factory. Is it basically 0:15:33.920 --> 0:15:37.200 I'm I'm assuming that some Porsche and Peach family members 0:15:37.640 --> 0:15:40.680 were like, damn it, he's not delivering the macan. All right, 0:15:40.760 --> 0:15:43.640 Let's take the CEO of Porsche, Oliver Bloomer, and put 0:15:43.680 --> 0:15:45.800 him in charge of the whole thing. Then he'll produce 0:15:45.840 --> 0:15:50.320 an electric Macon. Is that the idea? Yeah? The problem 0:15:50.360 --> 0:15:53.480 there was that basically under the new structure that these 0:15:53.680 --> 0:15:58.000 has initiated, Porsche was sort of dependent on a centralized 0:15:58.720 --> 0:16:03.360 initiative to the develop car software for all all different 0:16:03.360 --> 0:16:07.680 brands within Volkswagen Group, which included and still includes portion, 0:16:08.280 --> 0:16:10.920 and that I think was was one big point of 0:16:10.960 --> 0:16:14.520 criticism that to sort of like take the autonomy to 0:16:14.800 --> 0:16:18.400 develop their individual software away from the brands and expect 0:16:18.440 --> 0:16:22.760 that one unified division within the company can serve all 0:16:22.800 --> 0:16:26.080 the individual brands that did not work out. You mentioned 0:16:26.080 --> 0:16:29.280 the fully electric Macan which is being delayed. Audikaras are delayed. 0:16:29.280 --> 0:16:33.200 Folkswagon cars face delays and that's something that they can't 0:16:33.200 --> 0:16:36.000 afford going forward, and I think that's basically why they 0:16:36.160 --> 0:16:39.440 decided to make a change in the leadership position, Right Christoph, 0:16:39.480 --> 0:16:41.640 I'm reading some of the reports coming out of Wall 0:16:41.640 --> 0:16:44.200 Street on this news, Bernstein saying, and I think they're 0:16:44.240 --> 0:16:48.040 kind of mixed generally speaking, Bernstein saying, Volkswagen is making 0:16:48.040 --> 0:16:51.440 a bad governance situation even worse. What do they mean 0:16:51.440 --> 0:16:55.920 by that? Yeah, they as as you know, Volkswagen has 0:16:55.960 --> 0:16:59.960 been planning to do a an I p O apart 0:17:00.400 --> 0:17:04.320 listing of the Porsche sports car brand on the frankfort 0:17:04.320 --> 0:17:08.280 Stock Exchange in the fourth quarter this year. So the 0:17:08.400 --> 0:17:11.520 goal to go ahead with this plan was basically to 0:17:11.600 --> 0:17:17.080 give Porsche more autonomy within the Volkswagen group. Now that 0:17:16.880 --> 0:17:20.960 that's a slightly different or complicated narrative to deliver when 0:17:21.040 --> 0:17:23.840 in fact the guy who runs Porsche will going forward 0:17:23.920 --> 0:17:28.320 also run the mothership. Uh, that that's probably needs some 0:17:28.359 --> 0:17:30.600 more explaining to do so that all the analysts and 0:17:30.640 --> 0:17:33.600 investors actually get on board and at the moment, because 0:17:33.600 --> 0:17:35.480 I mean the development is still pretty fresh. It was 0:17:35.560 --> 0:17:39.280 decided on Friday. Took many people by surprise, including some 0:17:39.359 --> 0:17:42.000 of the Supervisor Revolt members. But that's definitely something that 0:17:42.040 --> 0:17:44.400 they need to iron out and and explain to external 0:17:44.400 --> 0:17:46.560 investors as well. Yeah, why would you want to buy 0:17:47.000 --> 0:17:49.679 Porsche shares if the guy is going to be distracted 0:17:49.720 --> 0:17:57.919 by also running Folkswagen, Bentley and Ducardi Gooda. Uh, you know, 0:17:58.080 --> 0:18:00.159 it goes on and on and on. Um and they 0:18:00.200 --> 0:18:02.800 have I thought we're a thousand employees. They have six 0:18:02.880 --> 0:18:06.080 hundred and sixty eight thousand people working there. Kristof, that's 0:18:06.119 --> 0:18:10.880 way too many. Can they reduce headcount? That has been 0:18:10.960 --> 0:18:13.720 a traditionally very difficult for a company like folks bark 0:18:13.720 --> 0:18:16.760 and they've actually added more headcount rather than cutting it down. 0:18:17.440 --> 0:18:22.040 They've done more sort of components and parts in house 0:18:22.080 --> 0:18:24.399 than some of the other car parts maker car makers 0:18:24.400 --> 0:18:27.160 who have like outsource some of the manufacturing two car 0:18:27.280 --> 0:18:30.120 parts suppliers. Folks One does a lot of a lot 0:18:30.160 --> 0:18:32.200 of things and a lot of operations in the house. 0:18:32.240 --> 0:18:35.120 But of course from a head compuspective, it's it's it's 0:18:35.119 --> 0:18:37.719 a very very big company and they will definitely need 0:18:37.760 --> 0:18:40.320 to streamline some of the operations, especially in the whole 0:18:40.320 --> 0:18:44.640 like combustion engine world. All right, Chris, thank you. You're 0:18:44.680 --> 0:18:47.399 the go to person on voltswanking socios Matt Miller and 0:18:47.440 --> 0:18:49.320 I thought he was the go to person, so you 0:18:49.400 --> 0:18:52.200 must really be the go to Personally appreciate gett your thoughts. 0:18:52.240 --> 0:19:00.320 Kristof Rovald Bureau chief frankfort and Munich bringing Annawa, chief 0:19:00.400 --> 0:19:03.640 US economists for Bloombrick Economics. And you've got an inflation 0:19:03.680 --> 0:19:05.840 call you guys at Bloombrick Economics. I'm gonna blame you 0:19:05.880 --> 0:19:09.320 as an entire group. Uh, you've got a high inflation outlook. 0:19:09.359 --> 0:19:13.679 Talk to us about how you're thinking about inflation, right, so, um, 0:19:13.840 --> 0:19:17.400 you know, And for for forecasts this year, we usually 0:19:17.480 --> 0:19:20.440 use a bottom up approach where we're looking at the 0:19:20.480 --> 0:19:24.840 price trajector of cars and uh clothes and housing rents 0:19:25.080 --> 0:19:27.959 um and using that approach, it will tell us that 0:19:28.560 --> 0:19:32.880 um inflation CPI headline will likely be hovering around eight 0:19:32.920 --> 0:19:39.040 percent or or slightly more than that until October this year. 0:19:39.600 --> 0:19:42.680 So UM, and then looking forward to next year, then 0:19:42.760 --> 0:19:46.160 it's harder for everybody, right, because it's hard to know 0:19:46.280 --> 0:19:49.040 what's gonna happen to oil price or even car prices 0:19:49.119 --> 0:19:52.360 next year. And then we use a model based based approach. 0:19:52.440 --> 0:19:55.960 Then UM. You know, one of the problems of inflation 0:19:56.040 --> 0:19:59.040 forecasting is that there's a lot of uncertainty over it, 0:19:59.280 --> 0:20:02.879 particular lea since the pandemic, and even the way that 0:20:02.920 --> 0:20:06.520 the Fed look Fed looks at it, they consider this 0:20:06.960 --> 0:20:10.200 risk to inflation. Right, So our model takes into account 0:20:10.240 --> 0:20:14.359 this uncertainty and this risk, and we forecast basically the 0:20:14.600 --> 0:20:19.280 entire distribution, like what is likely going to happen? Instead 0:20:19.320 --> 0:20:22.080 of asking what is the inflation rate going to be 0:20:22.160 --> 0:20:24.159 next year, we ask what is going to be the 0:20:24.280 --> 0:20:28.520 likely distribution of inflation rate next year? And using as 0:20:28.600 --> 0:20:32.120 input oil prices, on employment rate, federal funds rate, we 0:20:32.280 --> 0:20:36.119 forecast the distribution, and that is telling us that the 0:20:36.200 --> 0:20:39.880 chance of inflation falling below four percent is very very 0:20:39.920 --> 0:20:43.080 splint slim to minimal. Get the most importantly because I 0:20:43.119 --> 0:20:47.640 have a bet with Critty Gupta that last month's headline 0:20:47.680 --> 0:20:50.320 cp I print was the peak. Am I going to 0:20:50.400 --> 0:20:52.919 win that bet? Or will we see anything higher than 0:20:53.000 --> 0:20:56.600 nine point in the next couple of months? Well, you know, 0:20:56.680 --> 0:20:58.720 this is an interesting things. If you look at the 0:20:58.840 --> 0:21:02.320 mean forecast right now for headline CPI, it looks like 0:21:02.400 --> 0:21:05.400 that's the peak. You seem to have one. But if 0:21:05.440 --> 0:21:08.000 you look at the distribution of risk and think about 0:21:08.080 --> 0:21:11.560 the past year, we're half the surprises can to be, 0:21:11.920 --> 0:21:14.920 is it? So what we see is that the monthly 0:21:15.040 --> 0:21:18.160 inflation rate in the next two months has to be perfect, 0:21:18.320 --> 0:21:21.879 meaning that I cannot be lower than where the consensus 0:21:21.920 --> 0:21:25.080 is there cannot be more shocked supply shocks. If that's 0:21:25.119 --> 0:21:27.359 the case, then you you are winning the bet. But 0:21:27.440 --> 0:21:31.239 if not, we could easily see another peak around our 0:21:31.280 --> 0:21:35.159 August or September. What do you expect from the Federal 0:21:35.200 --> 0:21:40.359 Reserve this weekend? We expect seventy five fits. But um 0:21:40.520 --> 0:21:43.120 if again in the Fed has switched to a risk 0:21:43.240 --> 0:21:46.679 management way of looking at the world, and that's what 0:21:46.800 --> 0:21:50.679 our inflation model of you know, modeling the entire distribution 0:21:50.760 --> 0:21:54.240 of inflation, which suggests that yeah, it's likely that that 0:21:54.240 --> 0:21:58.120 that the peak has arrived. But you just given the 0:21:58.200 --> 0:22:00.800 kind of risk that and uncertain we have seen over 0:22:00.840 --> 0:22:03.919 the past years, just not wise to assume that that 0:22:04.000 --> 0:22:07.800 baseline would be the short thing. So will they give us? 0:22:07.920 --> 0:22:11.320 Will J. Powell give us any hint as to what's coming? 0:22:11.400 --> 0:22:15.040 I means is whatever he expects for this meeting, The 0:22:15.080 --> 0:22:18.520 important thing is what happens at the next meeting he 0:22:18.640 --> 0:22:20.960 will I think he will stay on the message, which 0:22:21.040 --> 0:22:25.679 is that the said will be data and data dependent. Um. 0:22:25.760 --> 0:22:29.520 And there seems to be some progress on inflation front. 0:22:29.640 --> 0:22:32.960 We are seeing commodity price coming down, but we cannot 0:22:33.000 --> 0:22:36.080 assume that that is for sure it's gonna happen, and 0:22:36.320 --> 0:22:40.000 that the FED will continue to tighten until he sees 0:22:40.320 --> 0:22:44.399 a string of inflation decelerating report. We do have at 0:22:44.440 --> 0:22:47.240 least two months though, are about two months until the 0:22:47.280 --> 0:22:52.040 meeting after right, because they skip August. The um that's intelligent, 0:22:52.080 --> 0:22:54.159 by the way, everyone in the world should be that civilized. 0:22:54.520 --> 0:22:57.440 And then they don't come back for a meeting until September. 0:22:57.520 --> 0:23:02.639 I think, Um, will they have a clearer picture? By 0:23:02.680 --> 0:23:04.920 the way, then then then they don't come back until November. 0:23:05.280 --> 0:23:07.480