WEBVTT - UAW, ECB, DHL, and Tor Hagen 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moven news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.360 --> 0:00:20.520 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:21.079 --> 0:00:22.639 All Right, the big thing for me, I think this 0:00:22.720 --> 0:00:24.000 is this weekly. I mean, there's a lot of ego 0:00:24.079 --> 0:00:25.959 data coming down, But are we going to have a 0:00:26.000 --> 0:00:28.040 strike in the auto industry? I mean, it kind of 0:00:28.080 --> 0:00:29.040 feels like it and. 0:00:29.640 --> 0:00:32.000 That could push, by the way, not only the state 0:00:32.040 --> 0:00:35.239 of Michigan into a recession, but if it goes on 0:00:35.360 --> 0:00:38.479 for a long time, it could be bad for the 0:00:38.520 --> 0:00:42.279 growth trajectory of the US economy and for the inflation 0:00:42.440 --> 0:00:43.200 underlying inflation. 0:00:43.360 --> 0:00:45.440 Yep, it's big, So hopefully they can get something done. 0:00:45.479 --> 0:00:48.320 Joe Levington joins us here. He's a director credit research 0:00:48.320 --> 0:00:50.599 for Bloomberg Intelligence. In his day job, he covers kind 0:00:50.600 --> 0:00:53.199 of the industrial companies, including the auto companies. Joins us 0:00:53.200 --> 0:00:56.400 here in our Bloomberg Interactive Brokers studio. So, Joe, what's 0:00:56.400 --> 0:00:58.600 your sense here. You know these companies for a long time. 0:00:59.160 --> 0:01:01.120 Does this feel like they're going to go on strike? 0:01:01.200 --> 0:01:03.640 The union will go on strike Thursday at midnight. 0:01:03.880 --> 0:01:05.759 Yeah, no, definitely, Paul, it does feel like a strike 0:01:05.840 --> 0:01:09.399 is coming. You know, even when you see Bloomberg reporting 0:01:09.440 --> 0:01:14.039 that the UAW has offered some concessions, going from forty 0:01:14.080 --> 0:01:17.000 percent growth to thirty six percent growth, is still a 0:01:17.120 --> 0:01:19.800 huge difference between the fourteen and a half percent that 0:01:20.319 --> 0:01:21.720 the auto companies seem to be giving. 0:01:21.720 --> 0:01:23.800 So let's look at the let's get the hard numbers 0:01:23.800 --> 0:01:26.440 behind that. This is what they want in terms of 0:01:26.480 --> 0:01:31.720 an increase for salary and benefits Rachel, So what does 0:01:31.760 --> 0:01:34.920 it boil down to in terms of the cost for 0:01:34.959 --> 0:01:37.679 the automakers to get an hour of work from a 0:01:37.760 --> 0:01:38.319 union member. 0:01:38.440 --> 0:01:39.520 Yeah, no, you're totally right. 0:01:39.720 --> 0:01:41.399 The way that I've looked at it is really in 0:01:41.520 --> 0:01:43.840 terms of EBIT for twenty twenty four, in terms of 0:01:43.840 --> 0:01:48.240 profitability for in the best case scenario, at twenty percent, 0:01:48.320 --> 0:01:51.560 you'd have something like Stilantis being about two percent impacted, 0:01:51.560 --> 0:01:54.000 So really not that much before you consider some of 0:01:54.040 --> 0:01:54.880 the things that they could do. 0:01:55.280 --> 0:01:56.160 For Ford, which. 0:01:55.960 --> 0:01:58.280 Has a bigger unionized auto group, it could be as 0:01:58.320 --> 0:02:01.200 much as ten percent of twenty twenty five or EBIT. Now, 0:02:01.200 --> 0:02:03.080 I do think there are ways that they can offset it, 0:02:03.600 --> 0:02:05.920 And going to your point about inflation price is the 0:02:06.000 --> 0:02:08.680 number one tool that they have to use is to 0:02:08.680 --> 0:02:11.440 increase prices and pass it on to consumers. Of course, 0:02:11.639 --> 0:02:14.080 that leads to different challenges and different. 0:02:13.800 --> 0:02:18.000 Ways, also done numerous times over the past couple of years. 0:02:18.160 --> 0:02:19.000 That's exactly right. 0:02:19.000 --> 0:02:23.480 When I priced my Dodge Challenger RT scat pack. 0:02:23.360 --> 0:02:25.760 Wide body, which is still not in delivery, which. 0:02:25.560 --> 0:02:28.679 Still has not been delivered, and I hear, by the 0:02:28.720 --> 0:02:30.880 way from inside the company they're like, yeah, you know what, 0:02:30.960 --> 0:02:33.480 I think it's going to be delivered September fifteenth, and 0:02:33.520 --> 0:02:36.680 now that's just three days away, and I've gotten bup 0:02:36.720 --> 0:02:40.840 kissed in terms of anyway. The bottom line is when 0:02:40.880 --> 0:02:43.720 I ordered it in you know, a year ago, it's 0:02:43.960 --> 0:02:46.560 the price has already been increased like two or three times, 0:02:46.600 --> 0:02:49.840 and I'm wondering, do I have to then pay that price? 0:02:50.080 --> 0:02:51.639 But when they finally deliver. 0:02:51.440 --> 0:02:54.320 It, I don't know that works. No, In fact, you 0:02:54.360 --> 0:02:55.280 don't have to pay that price. 0:02:55.320 --> 0:02:57.360 But that's where some of the EV companies are getting 0:02:57.400 --> 0:03:01.480 hit materially, like a riythean or a Lucid, which made 0:03:01.480 --> 0:03:04.240 deals two or three years ago, and now they're, you know, 0:03:04.280 --> 0:03:06.919 like offering these cars up at thirty percent less than 0:03:06.919 --> 0:03:09.600 worth the prices today and they're taking that loss and 0:03:09.600 --> 0:03:13.160 gross profit and really killing their liquidity. So to your point, 0:03:13.400 --> 0:03:14.840 you won't have to get hit with that, Matt, but 0:03:14.880 --> 0:03:15.560 you did have to wait. 0:03:15.600 --> 0:03:17.840 And I bet you the dealer is gonna try. I'll 0:03:17.840 --> 0:03:18.760 bet the dealer tries. 0:03:19.000 --> 0:03:20.160 But you're savvy, old of guy. 0:03:20.160 --> 0:03:22.080 You're not well now because Joel told me that, you know, 0:03:22.760 --> 0:03:25.000 I would say, I have documentation, I know the only 0:03:25.080 --> 0:03:25.800 day I ordered. 0:03:25.919 --> 0:03:29.080 I know the owner of Stillantis, the CEO of Stalantis. 0:03:29.560 --> 0:03:32.160 All right, So it doesn't help A dealer does not care. 0:03:32.400 --> 0:03:32.920 That doesn't care. 0:03:33.080 --> 0:03:36.120 Okay, I've interviewed Carlos Tavaris. That doesn't help me when 0:03:36.160 --> 0:03:37.120 I go into the dealership. 0:03:37.240 --> 0:03:37.560 All right. 0:03:37.600 --> 0:03:42.560 So Joel, if you're these big auto companies, you don't 0:03:42.560 --> 0:03:44.680 want to go on strike, but you feel like you 0:03:44.720 --> 0:03:47.720 can't pay thirty or forty percent increase in So where 0:03:47.720 --> 0:03:48.800 do you think this shakes out? 0:03:49.120 --> 0:03:52.040 I mean, yeah, I think you probably get to a 0:03:52.080 --> 0:03:55.640 midpoint of maybe about twenty five percent over four years Now, 0:03:55.760 --> 0:03:58.000 the offsets to that is, you know, if you increase 0:03:58.040 --> 0:04:02.800 pricing one percent, that a huge chunk of that increase away, 0:04:03.080 --> 0:04:05.000 And then you start thinking about costs and where you 0:04:05.000 --> 0:04:07.520 can do that. One of the things I always think 0:04:07.560 --> 0:04:12.200 about is bringing in products that you have gotten from supplier, 0:04:12.280 --> 0:04:15.560 so insourcing some componentry. If you do that, that means 0:04:16.080 --> 0:04:18.960 you might be saving money. That might be a pressure 0:04:19.040 --> 0:04:21.640 point for a lot of the auto suppliers and how 0:04:21.640 --> 0:04:24.160 they're gonna get hit. Obviously, if you're going for pricing, 0:04:24.520 --> 0:04:28.159 that's positive for the dealers and what that means for them, well. 0:04:28.040 --> 0:04:32.279 If they can move the metal. Because consider that these 0:04:32.360 --> 0:04:37.120 increases are only gonna hit GM, Forward and Stilantis. So 0:04:37.440 --> 0:04:41.400 if you're cross shopping, say the new newest GM electric 0:04:41.520 --> 0:04:44.600 vehicle on a Tesla, and Tesla has to pay its 0:04:44.640 --> 0:04:48.040 employees like a third of what GM pays their employees, 0:04:48.839 --> 0:04:51.800 you're gonna find a better price over at elon Musk's company. 0:04:51.920 --> 0:04:53.159 I think you're totally right, Matt. 0:04:53.360 --> 0:04:55.440 I Also, I wrote about this a couple of weeks ago, 0:04:55.480 --> 0:04:59.760 how Tesla might actually be the biggest winner. Now, I'm sure, folks, 0:04:59.839 --> 0:05:03.839 is Tesla's plants see a let's say twenty five percent increase, 0:05:03.880 --> 0:05:06.599 and they're gonna be asking for something too, But my 0:05:06.640 --> 0:05:09.880 guess is it's incremental or modest relative to what the 0:05:09.960 --> 0:05:12.560 UAW is gonna get. So on a relative basis, Tesla's 0:05:12.560 --> 0:05:14.599 gonna win on that. And as you've seen, what they've 0:05:14.640 --> 0:05:17.839 done this year is they've used that price to cut 0:05:18.000 --> 0:05:21.120 their prices or take a relative price cut and draw 0:05:21.279 --> 0:05:23.800 demand off of it, which I think means that Tesla 0:05:23.880 --> 0:05:25.800 will be, you know, like the eventual winner out of 0:05:25.839 --> 0:05:28.640 the out of this game with the auto companies. 0:05:28.240 --> 0:05:31.640 And the others who produce here that don't have union labor, right, 0:05:31.720 --> 0:05:35.360 which is like a ton of Asian and European automakers. 0:05:35.400 --> 0:05:38.040 So like the BMW plants in Tennessee or wherever they 0:05:38.040 --> 0:05:40.479 put them South Carolina, South Carolina are they're not unionized. 0:05:40.600 --> 0:05:42.719 They're not And so you know, like there is going 0:05:42.800 --> 0:05:44.720 to be a relative trade here in terms of how 0:05:44.760 --> 0:05:46.520 much you can go. And it's one of the reasons 0:05:46.560 --> 0:05:48.599 why the auto companies are pushing back so hard because 0:05:48.680 --> 0:05:50.360 they play in a global market space. 0:05:51.040 --> 0:05:52.680 I don't know, so all right, from that, you've got 0:05:52.680 --> 0:05:54.240 to decide as a worker, Paul, do you want to 0:05:54.279 --> 0:05:56.719 live in Spartanburg. Do you want to live in Austin? 0:05:57.160 --> 0:05:58.360 Do you want to live in Motown? 0:06:00.160 --> 0:06:00.640 Spartan Burs? 0:06:00.680 --> 0:06:01.320 Looking pretty good? 0:06:01.440 --> 0:06:01.680 Yeah? 0:06:02.680 --> 0:06:03.000 All right. 0:06:03.040 --> 0:06:05.320 So from the balance sheet perspective, jol, do any of 0:06:05.320 --> 0:06:08.360 these Ford GM stialantas do they have a balance sheet 0:06:08.360 --> 0:06:12.480 that you're nervous about should a long strike take place. 0:06:12.680 --> 0:06:14.839 Well, the thing that I look at the most, and 0:06:14.880 --> 0:06:16.720 this is really a Ford and GM issue more than 0:06:16.720 --> 0:06:19.719 a Stalantis issue, is that the way that they get 0:06:19.760 --> 0:06:21.880 paid is that they get paid when they sell the 0:06:21.880 --> 0:06:24.440 car to the dealer, right, but they don't pay their 0:06:24.480 --> 0:06:27.760 suppliers until your typical forty five or sixty days afterwards. 0:06:28.080 --> 0:06:30.159 What that means is that they have a huge amount 0:06:30.200 --> 0:06:32.880 of payables that are lined up and very little receivables. 0:06:33.200 --> 0:06:36.000 When you have a stoppage of work, there's no receivable 0:06:36.040 --> 0:06:38.320 of money coming in, but there's a huge amount of 0:06:38.360 --> 0:06:40.719 payables to the tune of maybe like five billion dollars 0:06:40.760 --> 0:06:42.919 a quarter. So you have to have massive amounts of 0:06:42.960 --> 0:06:46.440 liquidity to handle kind of such a situation, which is 0:06:46.480 --> 0:06:48.360 really what Ford and GM have. I think Ford has 0:06:48.400 --> 0:06:50.479 something like fifty billion of liquidity available. 0:06:50.880 --> 0:06:52.320 GM has about forty five billion. 0:06:52.320 --> 0:06:55.360 Dollars of liquidity available, so they can handle a near 0:06:55.480 --> 0:06:56.799 term impact, but it has. 0:06:56.640 --> 0:06:57.560 A huge. 0:06:58.880 --> 0:07:01.039 View in terms of free cap flow for a year, 0:07:01.720 --> 0:07:03.719 in terms of the liquidity on their balance sheet. 0:07:04.200 --> 0:07:06.159 They got a lot of leverage here. I'm looking at GM. 0:07:06.200 --> 0:07:08.080 I mean they got to that the IBATA. I mean 0:07:08.080 --> 0:07:09.400 that's there's a lot. 0:07:09.240 --> 0:07:11.360 There there there is, But keep in mind that that 0:07:11.480 --> 0:07:12.800 includes the finance company. 0:07:12.800 --> 0:07:13.920 When you start that out. 0:07:14.200 --> 0:07:17.360 If the leverage at GM and Ford is actually relatively modest, 0:07:17.760 --> 0:07:20.400 maybe more like one to one and a half turnska, 0:07:20.880 --> 0:07:23.800 it's really that they have finance companies, which is kind 0:07:23.800 --> 0:07:26.400 of hard to see, uh sometimes just because it's blended 0:07:26.440 --> 0:07:28.600 all together under their under their primary. 0:07:28.240 --> 0:07:31.000 Now, I will say everyone we talked to from we 0:07:31.040 --> 0:07:35.160 talked to Seth Harris yesterday Northeastern, who used to be 0:07:35.240 --> 0:07:38.880 an advisor to President Biden and deputy director of the 0:07:38.920 --> 0:07:42.200 White House's National Economic Council, and Cloudy Assam, she of 0:07:42.240 --> 0:07:45.200 the SOM rule. They all say, look, the union took 0:07:46.000 --> 0:07:48.600 bad deals for the workers at the end of the 0:07:48.640 --> 0:07:53.520 financial crisis, and the carmakers have raked it in since then. 0:07:53.640 --> 0:07:56.320 Surely they've been setting aside billions because they knew these 0:07:56.360 --> 0:07:58.560 negotiations were coming right surely. 0:08:00.640 --> 0:08:03.600 But you're right. I mean they kind of they got 0:08:03.600 --> 0:08:05.360 a certain deal to certain pay increases, and then this 0:08:05.440 --> 0:08:08.520 inflation came along, which nobody saw, and then boom, and 0:08:08.560 --> 0:08:09.840 now they feel like they need to get back. It's 0:08:09.840 --> 0:08:13.000 gonna be interesting, it feels, it feels contentious. Hopefully they 0:08:13.000 --> 0:08:15.920 can get something done by midnight Thursday night. 0:08:15.960 --> 0:08:18.320 Especially if they haven't produced my challenger I know, I mean, 0:08:18.520 --> 0:08:20.120 I need them to make that instead it here. 0:08:20.280 --> 0:08:21.800 It'll be the priority of the Nego. 0:08:21.840 --> 0:08:23.200 She's the whole thing. We got to get that thing 0:08:23.240 --> 0:08:26.280 off the line. Joe Levington, he's director of Credit Research 0:08:26.280 --> 0:08:30.720 for Bloomberg Intelligence, senior auto and industrial credit analyst as well, 0:08:30.760 --> 0:08:33.199 so we appreciate getting some of his thoughts here. Again, 0:08:33.240 --> 0:08:37.120 Big big issues for the auto manufacturers coming up, big labor, 0:08:37.120 --> 0:08:39.559 big auto. We've got strikes seemingly in a number of 0:08:39.600 --> 0:08:41.160 industries across this country. 0:08:42.600 --> 0:08:46.000 You're listening to the Team Ken's are Live program Bloomberg 0:08:46.080 --> 0:08:49.480 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:08:49.520 --> 0:08:52.679 the iHeartRadio app, and the Bloomberg Business App, or listen 0:08:52.720 --> 0:08:54.840 on demand wherever you get your podcasts. 0:08:57.080 --> 0:09:00.000 Monica Defend joins us. She's a head and chief strategy 0:09:00.160 --> 0:09:03.640 just at a Munday Institute that's Europe's largest asset manager. 0:09:03.679 --> 0:09:06.160 She joined us here in Bloomberg Interactive Brokers studio. I 0:09:06.520 --> 0:09:08.800 love to have her in studio here. So Monica talked 0:09:08.800 --> 0:09:11.520 to us about kind of the European economy. I know 0:09:11.559 --> 0:09:13.320 we can't talk about it as a whole because you 0:09:13.360 --> 0:09:16.560 have so many different countries. But my concern, I think 0:09:17.000 --> 0:09:21.160 my understanding is if Germany is in trouble, Europe's in trouble, 0:09:21.200 --> 0:09:24.160 talk to us about how you guys view the European economies. 0:09:24.679 --> 0:09:28.079 Well, short term, we are really relying on Americans taking 0:09:28.080 --> 0:09:31.160 over and during the summer, so probably we can have 0:09:31.200 --> 0:09:36.560 some lift on the quarterly GDP sequencing. But as you 0:09:36.600 --> 0:09:41.840 were rightly pointing out, on an aggregate, europe euraline is 0:09:41.880 --> 0:09:46.160 not doing bad. If you look at at the Commission 0:09:46.200 --> 0:09:50.760 at you Commission projection released yesterday, there is no recession 0:09:51.280 --> 0:09:54.240 but latisha growth. It is true that if you open 0:09:54.280 --> 0:09:58.000 the box, there are different countries within the same region. 0:09:58.040 --> 0:10:03.680 With Germany that is running into our session for different reasons. 0:10:03.679 --> 0:10:08.040 It's started with a manufacturing sector paint at all of 0:10:08.160 --> 0:10:12.760 the industrial policy and of an economy centered on energy dependence, 0:10:12.840 --> 0:10:16.600 but now it's moving into the service sector. Industrial data 0:10:17.080 --> 0:10:20.320 and that's production data were soft last week. But it 0:10:20.360 --> 0:10:23.680 goes without saying that if Germany is in trouble, this 0:10:23.880 --> 0:10:28.640 is going to be difficult for the entire region. Ivy 0:10:28.679 --> 0:10:32.120 said that we have some other countries, France, for example, 0:10:32.520 --> 0:10:37.280 where we see the political willingness to continue to run 0:10:37.320 --> 0:10:41.559 physical support for the country, and France is an important economy. 0:10:42.640 --> 0:10:47.760 Spain again has been supported by subsidies on the energy 0:10:47.800 --> 0:10:51.880 sector and this has been supporting consumption. It is going 0:10:51.920 --> 0:10:55.120 to fade away, and but at least Italy, where again 0:10:55.200 --> 0:10:58.240 the construction boomb is over. So it is true that 0:10:58.320 --> 0:11:02.840 on aggregate the situation is manageable. Probably at country level 0:11:02.920 --> 0:11:06.200 there are several issues that needs to be tackled. 0:11:05.960 --> 0:11:09.720 But not a super attractive place to invest right. I mean, 0:11:10.679 --> 0:11:14.440 Germany's manufacturing sector is going to be hit hard by 0:11:14.840 --> 0:11:19.520 problems in China, failures there and threats from companies like Tesla, 0:11:19.559 --> 0:11:23.720 who seem to be able to do Volkswagen's work far better. 0:11:24.880 --> 0:11:29.400 You know, the French have luxury goods that again won't 0:11:29.400 --> 0:11:33.439 be purchased by rich Chinese people anytime soon. The Italians 0:11:33.480 --> 0:11:37.160 have democratic disaster, you know, like a constant for the 0:11:37.200 --> 0:11:41.280 last what fifty sixty seventy years, and the Spanish are 0:11:41.360 --> 0:11:43.640 just supported by the rest of the continent. Plus Britain 0:11:43.640 --> 0:11:46.439 shoots itself in the foot any chance it gets. I mean, 0:11:46.760 --> 0:11:48.920 where would you invest if you wanted to go to Europe? 0:11:49.240 --> 0:11:53.000 Well, nice to see these from American perspective, it is 0:11:53.040 --> 0:11:53.640 not that bad. 0:11:54.120 --> 0:11:55.400 You are are European. 0:11:55.440 --> 0:11:59.360 But Evan said that first of all, in engaging the 0:11:59.360 --> 0:12:03.280 green transition bottom up level, there are some nice evidence. 0:12:03.760 --> 0:12:09.200 It is true that China slow down is not that 0:12:09.800 --> 0:12:12.240 it is negative for for the region, but we need 0:12:12.240 --> 0:12:16.679 to resize starting from Germany, the dependence UH to uh 0:12:16.880 --> 0:12:19.840 TO to China when it goes to to Treda and 0:12:19.920 --> 0:12:23.319 exportation because a lot is done within the region starting 0:12:23.360 --> 0:12:27.960 from uh from Germany, which is an important an important 0:12:27.960 --> 0:12:32.280 take if you ask me. Long term, probably as Europeans 0:12:32.400 --> 0:12:37.000 we should think more on an industrial and on our 0:12:37.120 --> 0:12:40.880 industrial policy. But this is what we are discussing. When 0:12:40.920 --> 0:12:44.680 it goes to EarthCare, when it goes to pharma, it's 0:12:44.720 --> 0:12:48.640 going beyond the semiconductor story. And I think we are 0:12:48.960 --> 0:12:51.120 moving slowly, but we're active on that front. 0:12:51.720 --> 0:12:54.280 So at the MOUNDI were you guys in terms of 0:12:54.320 --> 0:12:57.319 your asset allocation these days and maybe maybe how it's 0:12:57.400 --> 0:12:58.640 changed over the last several years. 0:12:59.120 --> 0:13:03.360 Well, it has been given the macro uncertainty and uncertainty 0:13:03.480 --> 0:13:07.800 on the monetary policy framework, it has been difficult really 0:13:07.920 --> 0:13:11.560 to pencil midium to long term strategy. We've been quite 0:13:11.600 --> 0:13:16.040 a jilt, for example on the durrection positioning with a 0:13:16.120 --> 0:13:21.160 preference for US longer and that you neutral position. But 0:13:21.400 --> 0:13:27.840 again it has been the time for agile, tactical relative positioning. 0:13:28.040 --> 0:13:32.280 When it goes to the risk asset, we've been progressively 0:13:32.360 --> 0:13:36.400 reducing the exposure to to credit it notably the. 0:13:36.400 --> 0:13:41.080 High healed So reducing exposure to high credit is that 0:13:40.720 --> 0:13:43.640 that you guys are just generally more conservative on your 0:13:43.679 --> 0:13:46.000 economic outlook and industry policies. 0:13:46.280 --> 0:13:51.400 It was also going into the US, I have to say, 0:13:51.480 --> 0:13:54.400 so it's really when you need to balance the risk 0:13:55.480 --> 0:14:00.000 return opportunity. Probably repositioning on govin and equity on the 0:14:00.120 --> 0:14:07.040 traditional was for US more appealing equity wise, while maintaining 0:14:07.400 --> 0:14:12.960 cocial stunts. We do like the US value and on 0:14:13.040 --> 0:14:17.800 the emerging market we have been repositioning moving to neutral 0:14:17.960 --> 0:14:22.640 into Chinese equity, but be more active in the emerging 0:14:22.720 --> 0:14:29.320 market region, notably Brazil, India, for example, Indonesia. So these 0:14:29.360 --> 0:14:33.640 are all countries that for different reasons, are getting track. 0:14:34.440 --> 0:14:38.440 But you are looking in the US value. Are you 0:14:38.520 --> 0:14:41.440 concerned that we do eventually have a recession here? The 0:14:41.480 --> 0:14:43.920 consumers looking pretty stretched. We're going to get some data 0:14:43.960 --> 0:14:47.520 I know out on Thursday retail spending, and it looks 0:14:48.200 --> 0:14:50.480 much worse than the last month's data we got. We're 0:14:50.480 --> 0:14:52.920 going to get inflation data out tomorrow that looks worse 0:14:53.000 --> 0:14:55.600 than last month's data that we got. Is the situation 0:14:55.680 --> 0:14:56.360 you're getting worse. 0:14:56.720 --> 0:14:59.720 So when it goes to the recession call, we do 0:14:59.800 --> 0:15:03.600 belie if there will be a shallow session, this will materialize, 0:15:04.480 --> 0:15:07.080 likely in the first half of twenty twenty four. For 0:15:07.120 --> 0:15:11.280 the reason you were mentioning the labor market is eventually cooling, 0:15:11.440 --> 0:15:17.520 Excess savings have been reducing remarkably over time, and probably 0:15:17.560 --> 0:15:24.200 also the physcal diviidenomics and impulse to the investments business investments, 0:15:24.760 --> 0:15:29.120 I won't be there for longer. When it goes to 0:15:29.280 --> 0:15:34.880 CPI inflation, we think it is normalizing, it will normalize. 0:15:34.880 --> 0:15:41.000 It probably not in a linear way energy prices. Recent 0:15:41.200 --> 0:15:48.000 prints on oil will have a positive contribution to headline 0:15:48.080 --> 0:15:50.640 and the core will prove to be sticky. But as 0:15:50.640 --> 0:15:55.200 I was saying, overall, we expect this nonlinear and volatile 0:15:55.240 --> 0:16:00.040 and probably less rapid than expected downward driven inflation to 0:16:00.040 --> 0:16:02.680 to continue. And this ands with the cold that we 0:16:02.680 --> 0:16:05.520 were making on the Fed where we expect them to 0:16:05.720 --> 0:16:07.720 orkish post posts. 0:16:07.760 --> 0:16:10.160 I'm down with that, all right. So you spend half 0:16:10.200 --> 0:16:13.440 your time in Paris, half your time in Milan area? 0:16:13.760 --> 0:16:16.480 How was like Como this summer? I have yet to 0:16:16.520 --> 0:16:18.360 go too, but it's. 0:16:18.160 --> 0:16:19.600 On my bull. You mean you yet to go to 0:16:19.680 --> 0:16:20.360 Lake Como ever? 0:16:20.520 --> 0:16:20.760 Ever? 0:16:20.800 --> 0:16:22.640 And I pend up on land like a dozen times. 0:16:23.240 --> 0:16:26.160 Why would you spend so much time in boring Milan 0:16:26.280 --> 0:16:29.000 and get up to lake where the money is. 0:16:29.000 --> 0:16:30.480 That's where the money managers are, all right? 0:16:31.000 --> 0:16:36.240 So I was in Internobio early in September where all 0:16:36.640 --> 0:16:41.440 we are having these think tank meeting and the people 0:16:41.480 --> 0:16:43.960 out there were saying, we have been taken over by Americans, 0:16:44.400 --> 0:16:45.760 and we do think. 0:16:46.160 --> 0:16:49.520 George Clooney, George, you must be happy to. 0:16:49.480 --> 0:16:52.120 Have us, you know, honestly, being an Italian, I don't 0:16:52.120 --> 0:16:53.960 know why you guys are going to the Lake of 0:16:54.000 --> 0:16:57.440 Como and not to the seaside in Sicilia. Probably is 0:16:57.440 --> 0:17:01.240 the weather, but definitely there there are a lot of tourists. 0:17:01.240 --> 0:17:05.000 We are really seeing this renaissance in Milan itself. 0:17:05.320 --> 0:17:05.720 Nice. 0:17:06.119 --> 0:17:07.159 I love them a lot. 0:17:06.760 --> 0:17:09.720 It's great, I love but they're taking down I spent 0:17:10.240 --> 0:17:10.880 in Sicily. 0:17:11.040 --> 0:17:11.200 I know. 0:17:11.240 --> 0:17:14.560 I've been in Bari, been in Venice a number of times. 0:17:14.840 --> 0:17:17.640 I've been in Florence. I got I got done cycling 0:17:17.640 --> 0:17:20.960 trips around the country. I've done cooking trips in the country. 0:17:21.160 --> 0:17:22.000 I've been to the horse. 0:17:22.240 --> 0:17:24.240 I had to work. I had to work for a living. 0:17:24.280 --> 0:17:26.560 Monica Defen thanks for joining us. She's head and chief 0:17:26.560 --> 0:17:28.240 strategists at a Mundi Institute. 0:17:28.440 --> 0:17:31.520 You're listening to the tape Can's are Live program Bloomberg 0:17:31.600 --> 0:17:35.199 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:17:35.240 --> 0:17:38.440 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:17:38.520 --> 0:17:41.320 You can also listen live on Amazon Alexa from our 0:17:41.359 --> 0:17:45.760 flagship New York station Just Say Alexa playing Bloomberg eleven thirty. 0:17:47.320 --> 0:17:49.320 All right, we had an M and a trade in 0:17:49.480 --> 0:17:53.280 like I don't know the packaging industry. Smurfit Kappa Group. 0:17:53.720 --> 0:17:55.800 It's Irish. It doesn't sound it, but it's Irish. I 0:17:55.800 --> 0:17:58.479 agreed to acquire west Rock, an eleven point two billion 0:17:58.480 --> 0:18:03.080 dollar deal that creates a package industry powerhouse domiciled in 0:18:03.200 --> 0:18:05.399 my home land of Ireland. Pretty cool stuff. And we 0:18:05.440 --> 0:18:07.280 actually have an analyst who knows this business. Believe it 0:18:07.359 --> 0:18:09.520 or not. Richard Burke joins us. He's a senior Aronalds. 0:18:09.560 --> 0:18:12.520 The Bloomberg Intelligence covered all the basic materials. I want 0:18:12.520 --> 0:18:14.080 to talk about this deal. I want to talk to you 0:18:14.040 --> 0:18:16.200 about the potential auto strike, what that means for steal. 0:18:16.280 --> 0:18:18.399 Lots of stuff to talk to you about today, Richard, 0:18:18.440 --> 0:18:20.520 what's going on here with this deal. It's a big deal. 0:18:20.600 --> 0:18:24.280 I guess we need more heft in the packaging industry. 0:18:24.800 --> 0:18:26.600 Well, what it is is, if you look at the 0:18:26.600 --> 0:18:31.400 two players. West Rock is undergoing what they call strategic transformation. 0:18:31.520 --> 0:18:37.080 They're trying to, you know, boost their margins versus their peers, 0:18:37.119 --> 0:18:40.679 their trail. They trail their margin, their margins trail their peers. 0:18:41.000 --> 0:18:44.600 They undertook a transformation program and it may be going 0:18:44.640 --> 0:18:48.480 a little bit slower than they want to. Smurf Kappa 0:18:48.600 --> 0:18:52.280 doesn't have a presence in the US. This gives them 0:18:52.280 --> 0:18:55.760 a large presence in the US. Smurf Kappa's margins are 0:18:55.800 --> 0:18:59.720 about three hundred basis points higher than West Rocks. So 0:19:00.240 --> 0:19:04.200 and they undertook their journey about seven years ago. They 0:19:04.520 --> 0:19:08.399 started a capital improvement program and now they're at the 0:19:08.520 --> 0:19:11.960 end of it. And you know, from what the executives 0:19:12.000 --> 0:19:15.040 laid out on this morning's call was, you know, we 0:19:15.240 --> 0:19:18.040 think we can help west Rock on their journey and 0:19:18.600 --> 0:19:24.760 combine the company companies going forward and boost west Rock's margins, 0:19:24.800 --> 0:19:28.520 bring them more in line to what where what Smurfit 0:19:28.560 --> 0:19:29.280 Kampa is. 0:19:30.040 --> 0:19:32.800 One of these companies I never heard of before West Rock. 0:19:33.359 --> 0:19:36.480 The other one I never knew what they did, Smurfed Kappa. 0:19:36.880 --> 0:19:39.800 Now they're going to have a combined annual revenue of 0:19:39.840 --> 0:19:42.640 thirty four billion dollars. What do they make? 0:19:42.920 --> 0:19:47.040 They make basically pretty much predominantly just cardboard boxes. 0:19:47.160 --> 0:19:49.320 See I told you it's a cardboard box company. 0:19:49.320 --> 0:19:52.200 I mean yeah, but like so iPhone. 0:19:51.720 --> 0:19:55.600 Boxes, uh, you know, the Gamut, the Gammon boxes, the 0:19:55.680 --> 0:19:56.840 Gamut from you know. 0:19:56.840 --> 0:19:59.640 The regular U haul boxes like U haul the Gamut. 0:19:59.640 --> 0:20:03.119 They go all the way across the universe to the 0:20:03.240 --> 0:20:06.919 cardboard box that Amazon puts on your well, probably the 0:20:07.000 --> 0:20:09.879 three cardboard boxes the Amazon puts on your doorsteps, the 0:20:09.880 --> 0:20:12.840 big one to protect everything, and then the smaller ones 0:20:12.880 --> 0:20:15.720 in and they also make all the way down to 0:20:15.840 --> 0:20:20.400 those very more brand where retailers are trying to get 0:20:20.400 --> 0:20:23.879 more brand experience. The other big thing that's driving this 0:20:24.280 --> 0:20:28.159 is especially more so in Europe, is the way away 0:20:28.280 --> 0:20:31.960 from plastic packaging. So, for example, one of the big 0:20:32.000 --> 0:20:37.200 products that West Rocks just really introduced was a thing 0:20:37.200 --> 0:20:38.840 to do way remember when you used to buy a 0:20:38.880 --> 0:20:41.919