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Speaker 1: Search Bloomberg Glovel News. The next half hour focusing on
Speaker 1: US automakers. First Up, we want to take a look
Speaker 1: at Ford Shairs, tumbling today the most in seven months,
Speaker 1: at news after the closed yesterday that inflation is pushing
Speaker 1: supplier costs a billion dollars higher than expected in the
Speaker 1: current quarter. Really joining the chorus of major corporations warning
Speaker 1: about challenges rippling through the economy. We're kind of starting
Speaker 1: to hear the same story. The twelve point four percent
Speaker 1: to the downside. The lowest were biggest one day drop,
Speaker 1: I should say, in seven months. Let's get into it
Speaker 1: with Keith non, auto reporter for Bloomberg News. He joins
Speaker 1: us this afternoon on the phone. Hey, Keith, good to
Speaker 1: have you with us. Um, give us an idea of
Speaker 1: why this Cott investor so off guard here. I mean,
Speaker 1: what change for Ford that caused the company to come
Speaker 1: out and say inflation is costing us a billion dollars
Speaker 1: more than we expected. Yeah, I mean there's really two
Speaker 1: aspects of this. There's the inflation piece that's driving costs up,
Speaker 1: but they also have thousands and thousands is very profitable
Speaker 1: suvs and pickup trucks that they're stacking up unfinished because
Speaker 1: they still can't get the parts they need, things like semiconductors.
Speaker 1: So investors had sort of felt like the supply shortage
Speaker 1: issue was over and we've moved on and this is
Speaker 1: a big proof point that that's still a problem. And
Speaker 1: then you can't finish your cars for lack of parts,
Speaker 1: then you can't book those sales and make those profits. So,
Speaker 1: as a result, you know Ford's third quarter, Um, you
Speaker 1: know income there's going to be less than half what
Speaker 1: it was in the second quarter. It's really a big
Speaker 1: bite and that and that took investors by surprise. So
Speaker 1: it's not a demand falling story. It's just a case
Speaker 1: of we don't have all the things we need to
Speaker 1: finish up the trucks and Suvs and get them out
Speaker 1: there right and GM faced a similar situation earlier this year.
Speaker 1: I mean, you can catch up and we'll finish those
Speaker 1: trucks and they expect the fourth quarter to be stronger.
Speaker 1: So they didn't change their guidance for the full year.
Speaker 1: But you know, when you have such a significant profit
Speaker 1: warning for the third quarter, it's just it's unexpected and
Speaker 1: investors don't like those downside sourprieties and, as I said,
Speaker 1: it underscores the negatives in this cyclical industry and investors
Speaker 1: are always wary about those, those issues inflation, demand, supply
Speaker 1: and and if those start rearing your head, they just
Speaker 1: fell off. Hey Keith Um, we had Mario Cordero, the
Speaker 1: executive director at the Port of Port of Long Beach,
Speaker 1: on yesterday. He talked to us about how, at least
Speaker 1: done from his perspective, things seem to be easing a
Speaker 1: little bit. He gave the example of what eleven or
Speaker 1: twelve ships off the coast instead of more than a
Speaker 1: hundred that we saw last in January. Um, what do investors, though,
Speaker 1: when it comes to autos and sort of the higher
Speaker 1: tech components that these autos are waiting for, need to
Speaker 1: understand about where we are in the supply chain? Because
Speaker 1: we have heard, you know, whether it's like Susquehanna or
Speaker 1: you know more about chip lead times coming down a
Speaker 1: little bit. They are absolutely coming down and and that
Speaker 1: situation is improving, but it's not fixed yet. And there's
Speaker 1: another wrinkle to it. You know, the automakers are making
Speaker 1: this transition to electric vehicles. Well, electric vehicles require more chips,
Speaker 1: they're more high tech, they're more electronic, and so, you know,
Speaker 1: to finish an electric vehicle takes more chips than it
Speaker 1: does to finish an internal combustion engine vehicle. So even
Speaker 1: as as some of the shortages begin to ease on
Speaker 1: some of my conductors, and they're not gone, but they've
Speaker 1: begun to improve, you know, you have the vehicles that
Speaker 1: demand more of them. so that creates a new bottom
Speaker 1: and and that's and that's going to be around for
Speaker 1: a while. Hey, Um Keith, I do wonder that these
Speaker 1: SUVs and trucks that they can't Ford, can't finish up
Speaker 1: and get them off the assembly lining out to h customers.
Speaker 1: Is there the chance, because they don't have the components
Speaker 1: they need to finish them up, that by the time
Speaker 1: they are done, that demand will have fallen? Or these
Speaker 1: cars that are already sold? You know, they feel like
Speaker 1: pent up demand from the pandemic still is there. Um,
Speaker 1: they the supply of cars on dealer lot is still
Speaker 1: very scamp. So they really are selling these things as
Speaker 1: soon as they come off the delivery to us. Um,
Speaker 1: you know, will that continue forever? Hard to know, but
Speaker 1: the fact you still are not back up the full
Speaker 1: capacity and they still have a lot of demand for
Speaker 1: the products. So they feel like as soon as they
Speaker 1: finish these things up and believe or not, they roll
Speaker 1: them off in the assembly line and they parked them
Speaker 1: and parking lots waiting to put these chips in. So
Speaker 1: that's that's the situation. But once they can chip them
Speaker 1: up to the dealers, they're confident they have buyers waiting. Yeah,
Speaker 1: I mean my dad's one of those buyers. His Mackie
Speaker 1: that he's been you know, he's ordered for more than
Speaker 1: a year ago, Keith, he got an email a few
Speaker 1: weeks ago. It actually went into production yesterday and I emailed,
Speaker 1: I texted him, I said happy, you know, Macki Production Day,
Speaker 1: and he said we'll see. When, when it actually arrives?
Speaker 1: And what do you think? Is he going to get
Speaker 1: it in the next two weeks or is it gonna
Speaker 1: sit there and wait for a chip? Yeah, I um
Speaker 1: you know, I wouldn't take the over under on that one. Okay,
Speaker 1: I think it could be a while, and that's the
Speaker 1: people are waiting, you know, literally for a year to
Speaker 1: get some of these high demands. You know, electric vehicles,
Speaker 1: the Ford Um F one, gift through lightning, the electric
Speaker 1: pick up truck, had two hundred thousand orders before it
Speaker 1: even rolled the first one off the assembly line. So
Speaker 1: you know on the waiting lists are fast. Great demand,
Speaker 1: good problem to have, but you want to and get
Speaker 1: them in to the hands of customers. Keith non, thank
Speaker 1: you so much. Busy Guy Finding time for us. Bloomberg
Speaker 1: News Auto reporter Keith Nton on the road doing another story.
Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg radio to leaders from
Speaker 1: around the world to sending a midtime Manhattan this week
Speaker 1: for the seventy seven session of the UN General Assembly.
Speaker 1: First Day of the High Level General Debate is today us.
Speaker 1: President Joe by now dresses the Assembly tomorrow and we
Speaker 1: certainly have a lot of presents there. Yeah, we've got
Speaker 1: including a Marie hordern. She's Wahington correspondent for Bloomberg News.
Speaker 1: She's up in New York for this. She's live from
Speaker 1: the U N here in New York City. Follow her
Speaker 1: on twitter at Anne Marie emery. Good to have you
Speaker 1: with us this afternoon. It's been a really long day
Speaker 1: for you, so we appreciate you taking the time here. Um,
Speaker 1: what do we need to know? What does our audience
Speaker 1: need to know about what's happened thus far? And then
Speaker 1: what happens when the action goes you know, kicks off
Speaker 1: tomorrow too. Yeah, well, we all know the UN General Assembly,
Speaker 1: the UN in general, really suffers from not being able
Speaker 1: to have jurisdiction over things like a war Ukraine. Russia
Speaker 1: is on the Security Council. They've used the veto card
Speaker 1: more than any other member, we should note, followed just
Speaker 1: under the United States. But really what this is going
Speaker 1: to be facilitating is a number of bilateral meetings on
Speaker 1: the side where leaders can come together, and the two
Speaker 1: big topics right now are obviously Ukraine, especially as we
Speaker 1: might hear from President Vladimir Putin this evening, as he
Speaker 1: is talking about referendums in four regions of Ukraine that
Speaker 1: he will then absorb into the country. These are sham referendums,
Speaker 1: sham votes. And then, of course, the energy crisis. Europe
Speaker 1: is about to enter a very bleak and dark winter
Speaker 1: and with Putin playing politics with natural gas and also
Speaker 1: Europe really cutting off their access or allowing countries to
Speaker 1: access exports from Russia of oil, this winter is going
Speaker 1: to be incredibly challenging. So it's almost a meeting to
Speaker 1: talk about the future of Ukraine and what was going
Speaker 1: on on the ground right down that country, as well
Speaker 1: as an oil and gas sum it well, when it
Speaker 1: comes to Russia and the intentions with Ukraine, you earlier
Speaker 1: and we cut up with the native secretary general, Yain Staltenberg,
Speaker 1: from the UN Rose Garden. Let's listen to what he
Speaker 1: had to say to you. Such sham votes, referendums do
Speaker 1: not have any legitimacy and therefore they don't change the
Speaker 1: nature of the conflict. This remains a war of aggression
Speaker 1: by rusha against the independent sovereign nation in Europe, Ukraine.
Speaker 1: Uh and UH. This will only uh further uh worsen
Speaker 1: the situation and therefore we need to provide more support
Speaker 1: to Ukraine. Very difficult situation. And talking about support, Native
Speaker 1: Secretary General Yan Stealtenberg, I mean and Marie, and your
Speaker 1: conversations you're having, you will have, I mean, what stood
Speaker 1: that for you in that conversation specifically? Well, he's in
Speaker 1: line with I also quickly spoke to two Ukrainian officials
Speaker 1: after this news came out, and they were not surprised,
Speaker 1: because Putin has done this before in Crimea and most
Speaker 1: notably in on top of that, one Ukrainian official said
Speaker 1: to me, well, if I declare myself a prince, so
Speaker 1: what the world is going to recognize me as a prince?
Speaker 1: What they are saying is this is not change the
Speaker 1: actualities on the ground and what they are the Ukrainians
Speaker 1: are here asking for is more weapons. What you hear
Speaker 1: from NATO Secretary General Yan Stoltenberg is that he wants
Speaker 1: to keep this unity within Europe, even though he's very
Speaker 1: well aware of how difficult, especially for our Europe and
Speaker 1: the Western allies. It is going to be this winter.
Speaker 1: He wants to keep this unity and he says that
Speaker 1: they will sustain the weapons and ammunition until the war
Speaker 1: is over, but obviously there's no timeline on that. The
Speaker 1: concerns is that, of course, with Putin, annexing basically uh
Speaker 1: these regions, the Don Bass, as well as Hassan and
Speaker 1: also Zebarigia, would mean that he would use that and
Speaker 1: say to his people I have now a success, after
Speaker 1: we saw that counter offensive from Ukraine. On top of that,
Speaker 1: he would consider the Kremlin as well would consider this
Speaker 1: their legal territory, meaning there are many individuals who are
Speaker 1: concerned about Putin escalating this into the nuclear territory or
Speaker 1: the chemical weapons territory. What is the discussion about how
Speaker 1: to prevent that from happening, not just in the United States,
Speaker 1: but from from world leaders who are here as part
Speaker 1: of the UN General Assembly? They say, and that you
Speaker 1: saw the president say on sixty minutes, there would be quote,
Speaker 1: consequences uh and, but they will not tell you what
Speaker 1: those consequences would be. But I think what they were
Speaker 1: trying to make sure that they also use this too
Speaker 1: when they talk to their partners and their allies, as
Speaker 1: this is the reason why we also need to stick together,
Speaker 1: because for them, they feel as though, especially in Europe,
Speaker 1: on their doorstep. This isn't just a war in Ukraine.
Speaker 1: This isn't just the war in eastern and South Ukraine.
Speaker 1: This could potentially inflict all of us and already is
Speaker 1: changing the landscape of Europe. And really, do you want
Speaker 1: to Asque? It's always key when we've got someone on
Speaker 1: the ground there. What is kind of the scene? The
Speaker 1: mood at the U N? I'm thinking this is it's
Speaker 1: been very different the U N after two years of
Speaker 1: the pandemic. It's much more normal, I guess you could say,
Speaker 1: although we are living in certainly very unusual times. Um
Speaker 1: set the scene for us well. The topics are depressing, right.
Speaker 1: We're talking about a war, we're talking about energy crisis,
Speaker 1: we're talking about food security. I was at a panel
Speaker 1: discussion on the sidelines of the U N Talking About
Speaker 1: Food Security in Latin America, which most countries import all
Speaker 1: these fertilizers. They are dealing with almost deathly inflation in
Speaker 1: Latin America and the Caribbean. But when you talk about
Speaker 1: the fact that all these leaders and their teams are
Speaker 1: able to gather together, as we have really not been
Speaker 1: able to do in terms of massive und gatherings because
Speaker 1: of Covid. It's quite jovial on the sidelines. You see
Speaker 1: individuals being able to come out of their security details
Speaker 1: that have a conversation with journalists or meeting each other.
Speaker 1: So in that sense, uh, there is this expectation that
Speaker 1: they can get some work done on the sidelines of
Speaker 1: this meeting because it is in person and usually things
Speaker 1: get done a lot quicker than Hey Andrie, just in
Speaker 1: the thirty seconds that we have left with you, you've
Speaker 1: got a lot of big interviews coming up. Um, you've
Speaker 1: got another one coming up later today on BTV. Who
Speaker 1: are you talking to? So I'M gonna be sitting down
Speaker 1: with a Foreign Minnesota of cutter, and really at a
Speaker 1: critical moment because we have sholtz of Germany, the German chancellor,
Speaker 1: heading over to Joha this weekend and we know that
Speaker 1: he is trying to secure LN G deals. Again. This
Speaker 1: UN General Assembly is basically coming down to an oil
Speaker 1: and gas conference, because you have European officials trying to
Speaker 1: secure supplies before they go into the den of winter.
Speaker 1: So that'll be one of the main topics we discussed
Speaker 1: and to sit down. All Right, busy day. You're on
Speaker 1: it for us. We appreciate it our own and Marie horden,
Speaker 1: she covers the White House and so much more. She's
Speaker 1: joining us from outside the U. N. This is bluebird.
Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg radio. Well, we
Speaker 1: mentioned the Ford News. Uh, and even though we're watching
Speaker 1: that in the Ford stock falling off among our most
Speaker 1: right on the Bloomberg today's one on General Motors and
Speaker 1: how GM wants to be the tortoise, not the hair,
Speaker 1: when it comes to the great ev race. Yeah, this
Speaker 1: excerpt is in the upcoming issue of Business Week magazine.
Speaker 1: You can read it now that it's on the Bloomberg
Speaker 1: Terminal and at Bloomberg Dot Com. Slash Business Week. It's
Speaker 1: adapted from David Welch's new book charging ahead. GM, Mary
Speaker 1: Barra and the reinvention of an American icon. David Welch's
Speaker 1: Detroit Bureau chief for Bloomberg News. He joins us on
Speaker 1: the phone from Detroit. Also with us, as Joel Weber,
Speaker 1: the editor of Bloomberg Business Week. He's with us in
Speaker 1: the Bloomberg Interactive Broker Studio. Joel. When you think about evs,
Speaker 1: we of course think of Tesla, but increasingly we're talking
Speaker 1: about a company like Ford, with the Maki and the
Speaker 1: F one, fifty lightning. Where does GM fall into this? Well,
Speaker 1: they were really right like that. What's interesting by this
Speaker 1: I mean they weren't as early as Tesla, but but
Speaker 1: GM was out early. Mary Borrow, like really was forward
Speaker 1: and telling everyone that GM was going to be big
Speaker 1: on big on EVs. And yet here we are and
Speaker 1: it's like wait, where is GM exactly? And and you
Speaker 1: know what was interesting when David and I started talking
Speaker 1: about his book was sort of that this was actually
Speaker 1: the plan. Like that. Mary borrow said, WE'RE gonna go,
Speaker 1: we're gonna be a little bit slow, but it's all
Speaker 1: going to be worth it. Um So, so, David. What's
Speaker 1: the rational there? GM at its heart is a really
Speaker 1: pragmatic company and one thing people forget about Mary Barrow,
Speaker 1: because they see her as the first email CEO, is
Speaker 1: she's an engineer and her her sidekick, Mark Royce, is
Speaker 1: also an engineer. So for the first time since the sixties.
Speaker 1: The company is run by engineers. They don't go for buzz.
Speaker 1: They don't try to jam a battery in an existing
Speaker 1: vehicle to get on the cover of business week, although
Speaker 1: lightning cover was really, really well done by Kelly. They
Speaker 1: you know, they decide, okay, we're gonna build a battery
Speaker 1: pack that can host everything from a little Chevy Equinox
Speaker 1: and actually even smaller. They're working on subcompacts for global
Speaker 1: markets all the way up to this huge nine thousand
Speaker 1: pound Hummer and everything in between. And they're gonna build
Speaker 1: their battery plants. So, other than Tesla, GM has the
Speaker 1: only battery plant making battery packs and sells. It's in Radstown, Ohio.
Speaker 1: It's going right now. The second one is going to
Speaker 1: open in Spring Hill, Tennessee, near the old Saturn plant,
Speaker 1: next year. Again an engineering mindset. Get your building blocks
Speaker 1: in place, get your plants up, then you spawn this
Speaker 1: huge family of evs and and and that's really where
Speaker 1: they are. One could fault them for relying on the
Speaker 1: Chevy bold, which has been around since two sixteen. It's
Speaker 1: a compact car. Americans Hay compax. I think they rode
Speaker 1: that a little too long before coming up with something else.
Speaker 1: But in a way this really was the plant. So
Speaker 1: it's you know, and just respond to your Zinger. Their
Speaker 1: easy data to to poke fun at at my forward
Speaker 1: cover with Ford tumbling up. Yeah, but but you know,
Speaker 1: the the great thing about Um, what your story really
Speaker 1: injes on, is this ultium, which is the battery platform.
Speaker 1: So what did? What did GM UH? What is Gim
Speaker 1: hoping to accomplish there? And and you know, we'll talk
Speaker 1: a little bit more about where they've been with the vault,
Speaker 1: but like where does it? Where does this potentially allow
Speaker 1: them to go? So right now they've got too luxury
Speaker 1: electric vehicles in production. They've got the Big Hummer and
Speaker 1: they've got a cadillac lyric and this is sort of historic.
Speaker 1: GM goes back to Alfred's phone. Start off with your
Speaker 1: coolest stuff in your luxury brands and then's slowly got
Speaker 1: down on the scale. And next year they'll have chevy
Speaker 1: silverado pickup, which a year behind, but we'll compete with
Speaker 1: the defince. Then they have a Chevy Blazer midsize, I
Speaker 1: should be family car for a lot of people. Not
Speaker 1: Super Cheap but pretty cheap. It's dollars which these days.
Speaker 1: This about what a new car cost. Then, about this
Speaker 1: time next year, the Chevy Equinox, the equinox, now that
Speaker 1: no one buys families and dams anymore, the equinox is
Speaker 1: really Chevy's family car. And they're going to start this
Speaker 1: thing at thirty thousand which, other than the bolt, which
Speaker 1: again compact car Americans still like complex, will be the
Speaker 1: cheapest on the market. And it really to me that
Speaker 1: is it's two things. It's really the fruit of this
Speaker 1: whole all team thing. They believe they've got the scale
Speaker 1: and the platform where they can democratize electric vehicles by
Speaker 1: bringing mass market family car to people who don't have
Speaker 1: three other four expensive vehicles in their garage. And the
Speaker 1: other thing is it really is a litmus test or
Speaker 1: how ready Middle America is to go with battery powered
Speaker 1: vehicles and charge up. And but to me it's what
Speaker 1: really alteam is all about, is if they can sell
Speaker 1: evs to everybody. Um, the secret sauce. Seems to be
Speaker 1: this alterum about it, and you write that it's really
Speaker 1: about changing the way cars are made. So what's different?
Speaker 1: What's different in the process old teams? Basically it's a
Speaker 1: battery pack that makes up the floor of the vehicle
Speaker 1: and then you you you know this is way over
Speaker 1: simplification of the guys and the factories and you're not
Speaker 1: doing that because I'm a girl, are you? I am
Speaker 1: the daughter of an engineer. So you can you can
Speaker 1: go with it from doing it because simply board Um,
Speaker 1: but you're basically bolting whatever vehicle it is on top
Speaker 1: of that skateboard kind of platform. It's not quite a skateboard,
Speaker 1: but close enough, so you can and it's also sort
Speaker 1: of a Lego set. So if you need to build
Speaker 1: it longer or wider or shorter or whatever, you can
Speaker 1: do that. The other thing they can do, and this
Speaker 1: is what they've done with the Hummer, you can actually
Speaker 1: stack them on top of each other. So if you
Speaker 1: have a big, heavy vehicle that has a thousand horse power,
Speaker 1: which the Hummer does, so you need a lot of
Speaker 1: power on board. If you just add more battery, which
Speaker 1: we have, more electricity by stacking these cells on top
Speaker 1: of each other, she can have a big and wide
Speaker 1: and you can stack them up for more energy. Either's
Speaker 1: just it really is kind of like a Lego. Said,
Speaker 1: you know, they're not the only ones. Are gonna do this.
Speaker 1: Volkswagen is starting something very similar right about now. But
Speaker 1: everybody else in the industry, Tesla, is kind of going
Speaker 1: where GM and Volkswagen are headed to get a lot
Speaker 1: of vehicles out quickly and both, and you look at
Speaker 1: a GM and volkswagon are the two who have earmarked
Speaker 1: billions of dollars and many, many vehicles coming. At least
Speaker 1: they the two did it first. Before it has caught up.
Speaker 1: Others are planning on it. But in terms of well,
Speaker 1: what this really is? This is commercializing electrical the battery
Speaker 1: itself doesn't have any special chemistry or special sauce. It's
Speaker 1: a commercialization and an industrial plan and you know, it's interesting. Um,
Speaker 1: you know, in addition to these for the sport news
Speaker 1: that my colleagues broke, our colleagues broke today, we also
Speaker 1: had this hurts news that hurts is going to get
Speaker 1: into this so so clearly to have this scale and
Speaker 1: bring the cost down. Um, uh, you know, hurts is
Speaker 1: liking what they see out of GM. But so how
Speaker 1: does how does that kind of fit into Bara's master
Speaker 1: plan here? So GM's plan is to sell a million
Speaker 1: evs in the US and I think really the only
Speaker 1: one who would be probably doing that by then. The
Speaker 1: Tesla and some manalist a GM could be ahead by
Speaker 1: then and could save the dog plate whatever its all forecasting.
Speaker 1: But it gives them, it gives gm a lot of
Speaker 1: different vehicles and a lot of potential, a lot of
Speaker 1: production in there for potential sales line. So hurts likes
Speaker 1: what they see because they're saying they're gonna buy vehicles
Speaker 1: from five different GM brands. So you would cadillac, Chevroy,
Speaker 1: G M C and also bright drop, which is GM's
Speaker 1: commercial band business. That X has already ordered some some
Speaker 1: electric bands from this bright drop unit that that GM
Speaker 1: has going. And and so clearly hurts seas enough that
Speaker 1: GM has got enough production in their plan where over
Speaker 1: the next five years they can buy a hundred and
Speaker 1: seventy five thousand E V s off. Then they pledged
Speaker 1: by a hundred thousand, a hundred thousands from Tesla. So
Speaker 1: they're they're gonna buy more from GM. So so the
Speaker 1: production is going to be there. All right. Well, all
Speaker 1: and so much more in a new book by our
Speaker 1: own David Well, she's Detroit Bureau chief Bloomberg News on
Speaker 1: the phone from Detroit. His book charging ahead. G M
Speaker 1: Mary Barra and the reinvestion, reinvention of an American icon.
Speaker 1: It's also in the new issue of business week coming
Speaker 1: out our thanks to Joe Webber, editor of the magazine.
Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg radio. We've said this
Speaker 1: a lot and yet it really feels like it's ringing
Speaker 1: true when it comes to tomorrow's fo MC decision. It
Speaker 1: is a big one in terms of tone, sentiment and outlook.
Speaker 1: So we've got the perfect guest to get to about it. Yeah,
Speaker 1: I've been looking forward to chatting with Stephen Skanky all week.
Speaker 1: He's chief economic advisor at Keel Point. He's also former
Speaker 1: US Treasury and White House National Security Council staff member.
Speaker 1: He joins us on the phone from Washington. D C.
Speaker 1: Dr Skanky, Stephen, how are you? I'm great, Jim. Thanks.
Speaker 1: So it's great to be with you and Carol. Yeah,
Speaker 1: one of you know, one thing that we we love
Speaker 1: is having you join us ahead of these fed meetings.
Speaker 1: So Carol mentioned that tomorrow's is especially big. Um, we
Speaker 1: understand whether it's gonna be seventy basis points, but, but
Speaker 1: what else are you looking for in terms of commentary
Speaker 1: from the Fed Chair? Well, what's really going to be
Speaker 1: telling tomorrow is is there summary of economic projections which
Speaker 1: comes out? The last one was in in June. Before
Speaker 1: that it was march, and you know, What's interesting is
Speaker 1: is the big changes from March to June and uh,
Speaker 1: it will be really interesting to see whether there's big
Speaker 1: changes from the June summary of economic projections to September.
Speaker 1: How often do they change? And I mean how reliable
Speaker 1: are they in terms of really figuring out what is
Speaker 1: the trajectory? And, Steve, I asked that because you know
Speaker 1: are Lisa bramwentz early in surveillance. I was listening in
Speaker 1: this morning and she's like kind of hate the dot
Speaker 1: plot because it can change so quickly depending on the
Speaker 1: economic data points. The Fed can change it up. So
Speaker 1: I'm just wondering, you know, how much real visibility that
Speaker 1: we can rely on will we get with the projections?
Speaker 1: Are With the Fed Commentary? Well, Carol, it comes out
Speaker 1: every three months and it's a reflection of what the
Speaker 1: members of the F O m c are seeing, uh,
Speaker 1: in the data that they're looking at. So the regional
Speaker 1: bank presidents are part of it. There, there chinnas would
Speaker 1: going on in their regions, and then, of course, the governors,
Speaker 1: and it can change, but it's a reflection of what
Speaker 1: they're thinking, and that's what they're thinking. That tells us
Speaker 1: a lot about what they're going to be doing next.
Speaker 1: How else can we get an idea into what they're thinking,
Speaker 1: apart from the dot plot, is Carol calls it. The
Speaker 1: scatter plot. Is What you calling? Yeah, well, the scatter plot,
Speaker 1: but I mean what is there a question, and just
Speaker 1: building on what Tim saying, Steve, is there a question
Speaker 1: that you think is crucial be asked two or of
Speaker 1: j Powell that will give us some idea about what
Speaker 1: comes next? Yes, the question is how satisfied are there
Speaker 1: with the outlook for inflation? Uh, and it would be
Speaker 1: nice to know whether he thinks that what they're doing
Speaker 1: with the feds fund trade is Rus Making a difference.
Speaker 1: You know, this is this inflation situation is different than
Speaker 1: what we've had before. It's not so much excess demand,
Speaker 1: although there is some of that, but the big issue
Speaker 1: with is getting supply up again. Uh and and the
Speaker 1: UH failure of folks to come back into the labor market.
Speaker 1: But we did see a little bit more coming back
Speaker 1: in in August, and just production has been been problematic,
Speaker 1: and so raising interest rates will help a little bit,
Speaker 1: but it also has the negative side effect of making
Speaker 1: it more expensive. Is more expensive for businesses to get
Speaker 1: production and service up. Yeah, and you know, look what
Speaker 1: it's done to the housing market already, because that's been
Speaker 1: that's been you know, something that's happening with the yield
Speaker 1: on the tenure moving higher. Mortgage rates six percent now,
Speaker 1: Steve Hey um, I'm wondering how long it takes for
Speaker 1: what the Fed does to actually show up in in
Speaker 1: the economy past what we've spoken about, and in a
Speaker 1: way that will actually you know, we talk about the
Speaker 1: strength of labor market over and over again and as
Speaker 1: much as the fedher doesn't want to say it that
Speaker 1: he wants, you know, people more people to you know,
Speaker 1: essentially be out of work. He wants it to weaken.
Speaker 1: How long does that take? When do we start to
Speaker 1: see that in the labor market? Well, it uh the
Speaker 1: lag time. It could be a little bit funny. It's
Speaker 1: anywhere from six months to eighteen months. And what's different
Speaker 1: right now is that there is so much liquidity in
Speaker 1: the system you know, the Fed's balance sheet is uh
Speaker 1: is almost nine trillion dollars. Fourteen years ago it was
Speaker 1: eight dft billion, uh and UH. So with all of
Speaker 1: that liquidity in the system, raising the Fed funds rate
Speaker 1: uh and UH. And even if they're trying to raise
Speaker 1: other rates, it doesn't have so much of an impact
Speaker 1: as it would before. Certainly in an adversion of the
Speaker 1: yeld curve will make a difference because banks will flow
Speaker 1: down their lending, but it's a little bit hard for
Speaker 1: some of their traditional policy tools to be effective. So,
Speaker 1: in terms of the conversation that the F O M
Speaker 1: C is having, they kicked off that two day meeting today.
Speaker 1: What do you think is top of mine right now?
Speaker 1: Is it just the I don't and I don't mean
Speaker 1: to be a little by saying just the inflation numbers,
Speaker 1: but is that what it's all about? Ultimately, it is Carola,
Speaker 1: you know you. You remember the whose Song Song won't
Speaker 1: get fooled again. Um J Powell got got fooled by
Speaker 1: inflation after his speech at Jackson Hole last year where
Speaker 1: there was a little bit of a head fache on
Speaker 1: inflation and the Fed didn't really step up some things
Speaker 1: so much and you know really, even back in March
Speaker 1: of this year, after summary of economic projections, they were
Speaker 1: talking about the Fed funds rate rate reaching one point
Speaker 1: nine percent this year, by the end of this year.
Speaker 1: And then, of course, in June they had raised that
Speaker 1: to three point and now it looks like it's more
Speaker 1: likely to be about four and a half percent by
Speaker 1: the top, by the time they get to the end
Speaker 1: of the year. They don't want to be pooled again.
Speaker 1: And Uh, add the rhetoric. Reflection. Well, the bondmark is
Speaker 1: certainly telling you are telling us what it thinks when
Speaker 1: it comes to fed policy, because we've seen, you know,
Speaker 1: a lot of treasury yields along the curve, just moving
Speaker 1: to multi year highs Steve Skankee, Doctor Steve Skankey, chief
Speaker 1: economic advisor of a killed point, former U s treasury
Speaker 1: and White House National Security Council staff member, joining us
Speaker 1: once again on the phone from Washington, D c. At
Speaker 1: Fed decision to PM Wall Street time on Wednesday tomorrow,
Speaker 1: right here on Bloomberg. I'm Rom a journal now, but
Speaker 1: you let me drive. Oh No, no, no no, no, please,
Speaker 1: I'll do the bls. I want to drive. It's a
Speaker 1: good question. This is good drive to the clothes bird radio.
Speaker 1: All right, everybody, just about ten minutes left in today's
Speaker 1: trading session, about ten and a half. Bouncing around, man
Speaker 1: in a big way. We're off our highs and lows,
Speaker 1: but we've seen some buying come back into the market
Speaker 1: in the last couple of hours. Of course, by this
Speaker 1: time tomorrow we will know the latest fed decision and
Speaker 1: Fed thinking about the outlook. Yeah, it's funny, carrol. Today
Speaker 1: is not like hurry up in a wait when it
Speaker 1: comes to the market. It's not funny. This is serious
Speaker 1: stuff talk, I know, but I'm just saying it's like,
Speaker 1: you know, funny in that interesting way. I want to
Speaker 1: clarify for everyone listening. Brent shooty is with us. He's
Speaker 1: chief investment officer at northwestern mutual wealth management. He joined
Speaker 1: us on the phone from Milwaukee. Brent, great to have
Speaker 1: you with us. It's a really interesting seeing, you know,
Speaker 1: in the equity trade today. It's not at all investors
Speaker 1: kind of sitting back and waiting for what j Powell
Speaker 1: is going to do. It sort of seems like they've
Speaker 1: decided what he's gonna do. Yeah, I mean I think
Speaker 1: you've seen some more a negative sentiment come on the
Speaker 1: market in the past few days after the heightened CPI report.
Speaker 1: I guess it's kind of moral back and forth, at
Speaker 1: least today, and I think there are some people like
Speaker 1: me who are thinking the said may decide to start
Speaker 1: saying the word. But so, Jerome Pale, hopefully we'll talk
Speaker 1: about all the things about inflation being high and apologize
Speaker 1: that and saying he wants to fight that in the future.
Speaker 1: But I think he needs to acknowledge that, despite that
Speaker 1: backward looking CPI number, that more forward indicators are pointing
Speaker 1: to lower inflation and that they will be coming uh
Speaker 1: down the road. It's just how much patience does he
Speaker 1: actually have until he gets those? So you know, Brent,
Speaker 1: you've been investing for about a couple of decades or
Speaker 1: so on and watching these financial markets and and different cycles,
Speaker 1: and you think about what you have seen in that period,
Speaker 1: from the tech bubble, the run up the bubble, the
Speaker 1: financial crisis, real estate meltdown and then the pandemic and
Speaker 1: kind of here where we are today. How do you
Speaker 1: really figure out what this market cycle is? Are Are
Speaker 1: we just kind of learning as we go? I think
Speaker 1: that's w more unique than any other one. I've never
Speaker 1: seen a shot down the economy, open it back up,
Speaker 1: have good spending surge and one year on a real basis.
Speaker 1: So think about that good spending up in one year,
Speaker 1: in one month. How that's stressed the supply chains and
Speaker 1: then caused the goods inflation. Uh. And so I've seen
Speaker 1: some really odd things this time that I think make
Speaker 1: it a bit different and a bit difficult to figure
Speaker 1: out where we are in the business cycle. I think
Speaker 1: the key things that I see the Fed talks about
Speaker 1: slowing demand and I hear people talking about demand still
Speaker 1: holding up. I think people need to wake up that
Speaker 1: we're on our possibly third straight negative quarter of GDP.
Speaker 1: Overall consumption is growing at a two percent year over
Speaker 1: your pace. So it has slowed dramatically, especially on the
Speaker 1: good side. Leading Economic Indicators will be out tomorrow. They're
Speaker 1: going to be negative on a year of your basis.
Speaker 1: There's been a few times they've been negative when we
Speaker 1: haven't had a recession, but they're pointing that way. The
Speaker 1: housing markets gone from boom to bust and you're seeing
Speaker 1: inventories rebuilt, and so if you put these things together
Speaker 1: in mosaic, it's logical to believe that inflation is set
Speaker 1: to fall. The one thing that is probably still sticking
Speaker 1: out is that labor market, which is key to decide
Speaker 1: where you're in the cycle, and that depends on if
Speaker 1: people come back or not Um, and so that's where
Speaker 1: it really the rubber meets the road. So when does
Speaker 1: inflation start to fall? Well, I think it's already started
Speaker 1: to fall, but I think it's certainly a back and
Speaker 1: forth and the and then you have to pick your
Speaker 1: inflation number. Is it the eight point three percent headline CPI,
Speaker 1: or is the four point six percent core pc? That's
Speaker 1: where there's a huge difference right now and I'm sure
Speaker 1: you have people come on your show with a different
Speaker 1: with an outlook, and they kind of based their outlook
Speaker 1: based upon what number they see. Look, inflation, I think,
Speaker 1: is set to fall. It's hard to imagine it holding
Speaker 1: up even though the labor market is doing well. You
Speaker 1: want to know in the University of Michigan what consumers
Speaker 1: said they expect her wages to be in the next year?
Speaker 1: One seven gain. And so I don't see evidence that
Speaker 1: inflation isn't better in the economy. I don't see evidence
Speaker 1: that Um, the spending splurs that we have is set
Speaker 1: to continue, and so I think inflation will come down.
Speaker 1: It's just how, how quickly does it come down? And
Speaker 1: the set is so afraid, so afraid of the ghosts
Speaker 1: of the nineteen seventies, that they lose their credibility and
Speaker 1: that's why they're talking tough. But I think they need
Speaker 1: to back away now because they're starting to cause real
Speaker 1: economic damage. Uh, and I think inflation set to lower
Speaker 1: even without causing any more damage. Yeah, it's interesting. I
Speaker 1: mean it's just inflation has been so sticky for so
Speaker 1: much longer than everybody anticipated that. Um, you can understand
Speaker 1: maybe the nervousness among the Fed withdrawing quickly. So do
Speaker 1: you think then, the Fed move tomorrow should be it
Speaker 1: for a while or done with this cycle? No, I
Speaker 1: think what the market would look for, and what I
Speaker 1: look for, is that the the extraordinary high hikes that
Speaker 1: that seventy five basis point ones, the feds a trial
Speaker 1: balloon about Um, considering not having more of those in
Speaker 1: the future and see what happens to inflation expectations which,
Speaker 1: by the way, across the bond market, across the consumers,
Speaker 1: are not elevated. In many cases they're back to where
Speaker 1: they were in two dozen fourteen, which is right before
Speaker 1: we had that period of time where we're worried about deflation,
Speaker 1: and so I'm not for sure they're done. We'll see. Um,
Speaker 1: I think it depends on how inflation comes down. And
Speaker 1: then that's where I think when people say it's sticky,
Speaker 1: it's sticky because the housing number is calculated on a lag.
Speaker 1: The said can keep tightening all they want, they can
Speaker 1: destroy the housing market and it won't show up in
Speaker 1: the data probably for another six months to a year. Okay,
Speaker 1: so how much more do you want to do? That's
Speaker 1: a good point, because we keep questioning some of some
Speaker 1: of the housing statistics. Um, anyway, Tim I know you've
Speaker 1: got a good question. Yeah, I want to ask a
Speaker 1: little bit about cash and I'm wondering if, if we
Speaker 1: can consider cash in a portfolio, te bills, for example,
Speaker 1: really be considering its own asset class at this point
Speaker 1: because rates are so high. Yeah, I think so, and
Speaker 1: I think I think that the important message here is that,
Speaker 1: and what I hear when I talk to retail clients
Speaker 1: and retail investors is that people don't want to own
Speaker 1: bonds any longer. Across the curve. I think the really
Speaker 1: interesting thing is that you've repriced the bond market, which
Speaker 1: is why the stock market has repriced, because those two
Speaker 1: are connected. The girl stocks repriced the most and to me,
Speaker 1: bonds now actually provide once again, a hedge against an
Speaker 1: adverse outcome like a like a recession, and so, you know,
Speaker 1: I just think people should be not focused on what
Speaker 1: happened in the past and the reality of the bond
Speaker 1: markets down this year, but focus more on the future.
Speaker 1: H and at three and a half percent of the
Speaker 1: tenure treasury there's at least real yield. Or is it
Speaker 1: really yield? I don't know how you say it. I'm
Speaker 1: depending upon what you think inflation is going to be.
Speaker 1: And so I would advise people to think of cash,
Speaker 1: to think of bonds again as something that can hedge
Speaker 1: against adverse impacts. All right, if you want to be
Speaker 1: in the equity market, my understanding is you want to
Speaker 1: own things that are cheaper. So you're looking at value
Speaker 1: in small cap in particular. Yeah, and I mean that's
Speaker 1: where I've you know, if we've said consistently for the
Speaker 1: past year, year and a half, that you wanted to
Speaker 1: first head yourself by owning commodity so I was the
Speaker 1: person looking for inflation. We actually owned tips, Um, those
Speaker 1: that we have recommended getting rid of, but we still
Speaker 1: own commodities. We owned gold because we didn't think bonds provided,
Speaker 1: in many cases, an outcome, a great hedge. Um. We
Speaker 1: want to be in things that are cheaper. I mean
Speaker 1: those tend to do better when rates are higher and
Speaker 1: they're they're quite a bit of protection against following earnings expectations, um,
Speaker 1: and that's where I do think. You know, people are
Speaker 1: worried that's coming. It might be, it probably is, but
Speaker 1: if you have cheaper stocks, allus being equal, you have
Speaker 1: a margin of safety. All right. Thank you so much, Brent.
Speaker 1: I really appreciate it. Brent shooty. He is chief investment
Speaker 1: officer over at northwestern mutual wealth management, joining us on
Speaker 1: the phone from Milwaukee. Thanks for listening to Bloomberg Business Week.
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