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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa brown Witz Jaily. We bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple, podcast, SoundCloud, Bloomberg

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Speaker 1: dot Com, and of course on the Bloomberg Terminal. Just

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Speaker 1: got the right guests right now, with the right questions,

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Speaker 1: we could really spend a good amount of time on

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Speaker 1: wage dynamics and labor dynamics in America with Thomas Porcelli,

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Speaker 1: RBC Capital Markets Chief US Economists, and he joins us

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Speaker 1: on radio and television this morning. Tom Porcelli, I'm gonna

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Speaker 1: cut to the chase of the asymmetry of any labor report,

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Speaker 1: and it's one part about well people maybe not getting

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Speaker 1: job growth as much or losing jobs faster. There's two

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Speaker 1: dynamics always in a labor re porn. Is this economy

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Speaker 1: about the inability to form jobs? No? I think yes,

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Speaker 1: there's a that is a challenge. I think we know

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Speaker 1: that we can see that in the job openings data.

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Speaker 1: I mean, you know, we have a staggering amount of

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Speaker 1: job openings. Um you know, sort of roughly equal to

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Speaker 1: the number of of unemployed, and we just can't find

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Speaker 1: those matches. So yeah, I do. I think that there's

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Speaker 1: some element of of truth to that. Look, I know,

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Speaker 1: people are you know, my my inbox is already filling

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Speaker 1: up with Hey, you know, what does this mean for

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Speaker 1: the recovery and etcetera. It's one it's it's it's one

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Speaker 1: report that missed the mark. Um, you know, and it's

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Speaker 1: a report that hasn't done a really good job of

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Speaker 1: telling us what it's going to happen with private NFP,

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Speaker 1: which we'll get on Friday. I mean, yeah, it did

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Speaker 1: a great job last month. Um, you know, the numbers

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Speaker 1: were nearly on top of one another. But you know,

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Speaker 1: other than that, the misses have been staggering, right. I

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Speaker 1: mean it's missed by between four and five undred thousands.

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Speaker 1: So I wouldn't take much much away from this report

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Speaker 1: is related to this coming Friday. I mean, we're still

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Speaker 1: looking for seven hundred thousand private jobs. That feels like

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Speaker 1: a pretty good estimate. In fact, if anything, there's a

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Speaker 1: really favorable seasonal factor in in play for this coming month,

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Speaker 1: So I think we feel comfortable about this. I think

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Speaker 1: part of the challenge though, is you know, fed govinor

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Speaker 1: Waller put put I think really put a sort of

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Speaker 1: a bulls eye on on this report, you know, in

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Speaker 1: his speech the other day. Um, So I think, you know,

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Speaker 1: maybe expectations are going to be very elevated with with

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Speaker 1: regard to this report, but I think it'll probably want

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Speaker 1: coming out and at a minimum meeting expectations. And Tom Purcella.

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Speaker 1: A single sense this morning for me was Paul Donovan,

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Speaker 1: always brilliant over at UBS and Paul Donovan said, Wait,

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Speaker 1: are we counting jobs correctly in the modern economy? Are

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Speaker 1: we counting digital jobs, TikTok jobs and all the rest

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Speaker 1: of it? Do you actually believe the data? Now? Are

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Speaker 1: we in some new paradigm? Yeah, I think that it's

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Speaker 1: a I think it's a thing for all of us

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Speaker 1: to sort of really dig into. I don't think there's

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Speaker 1: any question about that. Um. But I think the problem

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Speaker 1: is this, Um, you know, if if we are in

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Speaker 1: the midst of a shifting paradigm, uh, you know, the

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Speaker 1: reality is people are going to be very slow to

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Speaker 1: sort of wake up to the reality of the new paradigm,

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Speaker 1: which means that you're left with having to deal with

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Speaker 1: you know, sort of all of the data that we

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Speaker 1: have been using prior, um, you know, as it relates

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Speaker 1: to FED policy. You know, I would love for them

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Speaker 1: to sort of drill in and and sort of understand,

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Speaker 1: you know, different labor dynamics beyond us, you know, the

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Speaker 1: payroll report and what some alternative data are telling us.

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Speaker 1: But that's not something that's gonna happen on the fly,

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Speaker 1: particularly not right now. So for the FED as relates

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Speaker 1: to the sort of the fate of policy, it's going

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Speaker 1: to be entirely about what happens with these payroll reports. Um,

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Speaker 1: you know, even if you know sort of behind the scenes, uh,

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Speaker 1: there are actually uh you know, the the labor backdrop

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Speaker 1: is showing more strength. That's not gonna equate for for

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Speaker 1: this FED with regard to what their decision to taper

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Speaker 1: or the decision of hyprates now the gate they FED

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Speaker 1: speak Vice Chair Clarida A. Tenniston, what kind of a

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Speaker 1: provice she you're looking for? Yeah, I look, you know,

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Speaker 1: we we we like uh Clarida a lot in terms

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Speaker 1: of you know, sort of being a guide post for

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Speaker 1: what the conversation that's happening with within the FED. I mean,

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Speaker 1: I think again, I think while I really gave us

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Speaker 1: a good sense for that the other day. Um. And

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Speaker 1: and in fairness, you know, to be totally fair to

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Speaker 1: all of these FED officials, I mean they all speak

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Speaker 1: with such regularity now, I think we get a really

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Speaker 1: good sense for what's happening behind the scenes as relates

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Speaker 1: to these conversations. So you know, Clarida has has done

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Speaker 1: I think the dutiful thing um in his time as

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Speaker 1: vice chair, which is to say, you know, more or

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Speaker 1: less representing what the chair um uh is saying and thinking. UM.

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Speaker 1: So you know, does he break new ground here today? Frankly,

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Speaker 1: I would love for him to break new ground. I

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Speaker 1: would love for him to be more aligned with what

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Speaker 1: Whilla was saying earlier in the week, because I think

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Speaker 1: that is I think directionally, I think that is where

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Speaker 1: we're going. I think Pale is probably gonna be the

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Speaker 1: one that's late to the party on that. And in fairness,

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Speaker 1: and I've said this to you all before, I think

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Speaker 1: he probably has to be a little bit late to

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Speaker 1: to to the party. I don't I don't think anyone

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Speaker 1: wants him, you know, basing what is going to happen

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Speaker 1: on policy, on what his forecast is I think that

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Speaker 1: they want him to sort of, you know, just hit

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Speaker 1: it down the middle, um, as as much as he

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Speaker 1: can every time. But again, as I think it relates

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Speaker 1: to sort of the changing and the weaving dynamics of

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Speaker 1: the economy. UM, I think that the other officials, including Clarida,

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Speaker 1: think that they're usually better at giving us a sort

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Speaker 1: of a sense for what they're thinking about these changing

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Speaker 1: and weaving dynamics. So I'm looking forward to his speech.

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Speaker 1: But it again, UM, I have to say, like, my

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Speaker 1: my new favorite FED official is Governor Waller. Just to

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Speaker 1: move things along, I'm not surprised, Tom. Some people might

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Speaker 1: say that Chairman Pounds merely reflecting what the vice chair

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Speaker 1: is thinking. But we'll leave that for another day. Let's

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Speaker 1: talk about the sacencing you're looking for. We've had two

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Speaker 1: outlacker calls on this program in the last couple of days.

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Speaker 1: We've had one who thinks we can get a June

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Speaker 1: right hike June of next year, and another from the ticks.

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Speaker 1: Is you said no rate heights through the whole of

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Speaker 1: this presidential administration, Tom, what are you looking for the

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Speaker 1: kind of sequencing your base case at the moment. Yeah,

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Speaker 1: So our our base cases that they tee up tapering. Uh,

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Speaker 1: perhaps as early as the November meeting. Again, I would

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Speaker 1: love for September to be right, I don't think I

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Speaker 1: think that's way too early. So we think that it

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Speaker 1: could happen as early as November. But again I have

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Speaker 1: to be frank, where's November December. That's a that's a

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Speaker 1: distinction without a difference in my humble opinion. Um. But again,

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Speaker 1: so it's November December they teed up. They start either

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Speaker 1: in sort of December or in January. Uh, and then

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Speaker 1: they tied up by the middle of the year, and

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Speaker 1: then shortly thereafter they're raising rate. So we have one

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Speaker 1: hight built in for next year. But again, Jonathan, I

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Speaker 1: think you're asking the right question. I mean, let's let's

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Speaker 1: let's all be clear on this. I think it's a

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Speaker 1: really important point. If you think about this, this new

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Speaker 1: flexible average inflation targeting framework, you can easily make the

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Speaker 1: case that maybe fate has the f a I T

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Speaker 1: has been has been achieved already, and and and Loretta

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Speaker 1: Mester has has effectively said that idea. We agree with

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Speaker 1: her on that, and then think about next year, think

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Speaker 1: about the FETs forecast for the unemployment rate next year's

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Speaker 1: three point eight percent. Um. I know people think that

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Speaker 1: I'm like this big, you know, economic bull out there. Um, okay,

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Speaker 1: but the bull is then aligned with the FED because

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Speaker 1: that's pretty much my forecast, I mean, at three point

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Speaker 1: five percent on the unemployment rate by the end of

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Speaker 1: next year. Yet, are you gonna tell me that three

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Speaker 1: and a half percent, which is three point percent using

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Speaker 1: FENS number, which is below their long ERWN estimate of

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Speaker 1: funds and fate having been achieved, equates to no hikes

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Speaker 1: in twenty two. I mean that that that is inconsistent. Um,

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Speaker 1: And so I think people are looking for catalyst to

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Speaker 1: get the market to move. I'll give you a catalyst

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Speaker 1: that I think could be very interesting. Um. I don't

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Speaker 1: think it's econ data. I don't think I think even

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Speaker 1: if Perils blows it that, I don't think that's what's

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Speaker 1: gonna do it. I think the September Peril I think

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Speaker 1: the September FMC meeting I think could be very interesting.

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Speaker 1: As I think everyone you shase there's seven FEDE officials

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Speaker 1: looking for a hiking twenty two, it only takes two

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Speaker 1: more officials moving off to zero lower bound to get

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Speaker 1: that medium to move. I wouldn't be the least bit

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Speaker 1: surprised if something like that happens. In fact, I would

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Speaker 1: say that that's the area that's right for continued movement

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Speaker 1: within the within the step in general. That's such a

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Speaker 1: good point, such a good final point, Tompo Selli of

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Speaker 1: OURBC Tom great catch ups as always. Tobias Lefkovitch joins

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Speaker 1: US now from City, the chief US equity strategist, and

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Speaker 1: Tobias is looking for four thousand year end on the

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Speaker 1: SMP five hundred all time highs. Did a close yesterday

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Speaker 1: to Bias. Walk me through the work that you and

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Speaker 1: a team Robert Buckland over in Europe is doing with

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Speaker 1: his team over at City and why you're just a

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Speaker 1: little bit more cautious on US equities together. Sure, so

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Speaker 1: let's start with the you know, the discussion you guys

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Speaker 1: are having before about the modern market. Monules have had

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Speaker 1: enormous impact on how you think about cyclicles versus growth

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Speaker 1: versus you know, defenses versus growth versus value. And this

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Speaker 1: has been what's really changed in the past three months

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Speaker 1: as you've seen the bond you'll do it now again.

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Speaker 1: There's been a lot of discussion around what the impact is,

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Speaker 1: source and etcetera of the FED has been but keep

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Speaker 1: in mind central banks globally have been keeping sup frustrates

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Speaker 1: since really two thousand and eight, and what that suggests

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Speaker 1: that they don't have confidence in kind of long term, sustainable,

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Speaker 1: durable growth. So as a result, risk premiums are higher,

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Speaker 1: which something people don't talk about when they talk about

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Speaker 1: negative fields for example, UM. And it is important evaluation

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Speaker 1: markets in an environment today, and I think it's like

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Speaker 1: a really critical thing to understand. In two thousand eight,

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Speaker 1: in our last recession, was comprised of in terms of

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Speaker 1: market cap, weight was comprised of deep cyclical industrial materials, energy,

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Speaker 1: and was secular growth including I T including media entertainment,

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Speaker 1: UM including digital retailing if you don't think of it

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Speaker 1: that way, and healthcare, which is growing as simply because

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Speaker 1: of demographics today that numbers like fifty five versus fifteen

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Speaker 1: in favor of growth. So the US is a heavy

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Speaker 1: growth market. And if you believe bond yields are going

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Speaker 1: to edge higher, then growth socks are going to take

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Speaker 1: a little bit on the chin. And that's why you'd

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Speaker 1: probably want to be in more value orging terriers, which

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Speaker 1: is what Robbed Bupplin, our global chief clistrategist, was suggesting

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Speaker 1: with his note. One last point to Bosmi, who is

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Speaker 1: our great strategist, looking at that two percent number, really

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Speaker 1: pointed out very significantly that because tax collections really stepped

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Speaker 1: up meaningfully in June. Remember we distorted the timeframe for

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Speaker 1: collecting it. Instead of April fifteen, who was June sixteenth.

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Speaker 1: The treasury was flush with cash going into July and

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Speaker 1: only issued billion dollars worth of bonds eighty billion loans

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Speaker 1: just picked up by the Fed. So you left fourteen

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Speaker 1: billion of new issues for the rest of the world.

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Speaker 1: That's going to have impact on that one yield, and

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Speaker 1: it's another one of those distortions that are sitting in

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Speaker 1: market on a nominal tenure yield. You guys are looking

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Speaker 1: for that move back towards two. So Tobias for an

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Speaker 1: international story, you understand from Robert Buckland Japan UK deep value,

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Speaker 1: I've got all that from a US perspective to bus

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Speaker 1: can you just want me through the sector preference right

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Speaker 1: now for you and the team. So we're a little

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Speaker 1: bit mixed on that. We We do like capital goods,

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Speaker 1: We do like consumer discretionary, but very specifically within retailing

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Speaker 1: consumer services. We're not chasing consumer durables in the power,

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Speaker 1: We're not chasing autos. I think those are probably not

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Speaker 1: interesting to us. And then and then we like financials.

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Speaker 1: We like banks, we like insurance, more neutral underspie financials

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Speaker 1: today UM, and those are excuse me, those are more

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Speaker 1: value cyclical oriented groups. So from that perspective, UM, we

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Speaker 1: are there. We're not totally out of growth. We're not

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Speaker 1: saying run like hell because tach hardware equipment. We're still

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Speaker 1: in overweight on UM. We do have a down grade

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Speaker 1: watch there, but we're still in overweight because we think

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Speaker 1: it's part of the capital spending cycle. These glide pests

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Speaker 1: to bias to the city group outcome. Can they be

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Speaker 1: affected with stability or do you see significant volatility where

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Speaker 1: along the path we enjoy VIX thirty or even worser?

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Speaker 1: Is that a word worser? UM, let's see UM, but

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Speaker 1: let's let's kind of go through this process. I'm not

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Speaker 1: actually worried if the VIX is at thirty, and I'm

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Speaker 1: not actually worried of the vixes of fifteen. Where I

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Speaker 1: get very worried is between twenty and thirty, because that

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Speaker 1: tends to be the problem area for the market historically.

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Speaker 1: Um you have about if the vix was at fifteen

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Speaker 1: or thirty five, you both in both instances, you have

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Speaker 1: about an eighty eight percent probability that the markets will

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Speaker 1: be higher twelve months later. So it's not those edges,

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Speaker 1: it's it's crossing over in that range that you need

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Speaker 1: to be a little bit more worried. And I do

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Speaker 1: think you have some potential for volatility. There are four

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Speaker 1: catalysts that are disconcerting, if you like, for us that

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Speaker 1: possibly could all coalesce around September. Tapering, inflation being a

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Speaker 1: little bit more persistent, Profit margin pressures because costs go

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Speaker 1: up because the supply change challenges for example, and you

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Speaker 1: can't is easily make it up on pricing. And then

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Speaker 1: lastly is something nobody's talking about, which is taxation. We're

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Speaker 1: going to see corporate taxes going up and it's going

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Speaker 1: to pack estimates for the street, and that has been

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Speaker 1: the real driver for the market has been really strong earnings.

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Speaker 1: Problem is the guidance isn't that good anymore. Revision transferred

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Speaker 1: historic peaks and it is unlikely to be you know,

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Speaker 1: continuing to rise at this pace, and that will worry

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Speaker 1: some people, especially when centiment is so bullish. Haarp panicy

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Speaker 1: for he's been in for it for a while. Um.

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Speaker 1: The complacency out there when we talk to investors, you know,

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Speaker 1: on a qualitative basis, is very palpable. There's a lot

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Speaker 1: of potential headwinds, and yet it doesn't seem to be

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Speaker 1: coming together in some sort of big swoon as a

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Speaker 1: lot of fun managers would like to see so they

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Speaker 1: can go ahead and buy that dip. And I do

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Speaker 1: wonder whether this just means we've brought forward so many

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Speaker 1: of the returns and that going forward over the next

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Speaker 1: five to ten years, returns on the headline SMP five

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Speaker 1: hundred are going to be pretty muted. What's your expectation there?

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Speaker 1: It's a really good questionally. So one of these we've

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Speaker 1: been showing people is that if you look at the

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Speaker 1: household sectors, equity exposure as a percent of their financial

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Speaker 1: assets is around or so right now. That's a fifty

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Speaker 1: year high. And if you go back in time and

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Speaker 1: you look at heavy exposure, you've actually done exactly what

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Speaker 1: you just suggested is brought forward a lot of the return.

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Speaker 1: If you look at that today, it's talking about kind

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Speaker 1: of a zero percent return compounded annually over the next

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Speaker 1: ten years. And that shouldn't shock people when they hear that,

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Speaker 1: because remember when you hit your highs and two thousand,

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Speaker 1: you didn't get back to that level until two thousand seven.

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Speaker 1: So we do have periods, and I'm relatively certain about

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Speaker 1: this that over the next ten years we will have

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Speaker 1: a recession. And when that happens, earnings often dropped and

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Speaker 1: so to market. So to say, over the next ten

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Speaker 1: years you might not get any returning equities on the s.

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Speaker 1: Isn't that crazy even though it sounds crazy, um, but

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Speaker 1: it means that you probably have to be much more

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Speaker 1: of an active investor than passive. Vehicles may become less

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Speaker 1: interesting to investors over the next decade. We had a

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Speaker 1: recession over the last decade. It lasted a couple of weeks.

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Speaker 1: It's unbelievable of us going to catch up sets of

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Speaker 1: us Leftovich City chief US sequity strategist right now our

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Speaker 1: Jersey where this is Bloomberg Intelligence of the bun where

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Speaker 1: I could Eira, we really wanted to do a one

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Speaker 1: hour interview where you will compress it right down. What

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Speaker 1: matters to you in this new low yield environment. Well, well, really, realistically,

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Speaker 1: the only thing that matters is the outlook for COVID

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Speaker 1: and the effect that it's going to have on the economy.

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Speaker 1: And I think that that's really what's been driving the

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Speaker 1: market for the last couple of months, the delta variant,

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Speaker 1: how pervasive it's been in other parts of the world,

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Speaker 1: and then now it's feeding into uh, the US psyche

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Speaker 1: a little bit here um fears about lockdowns and and

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Speaker 1: that's really what's going on with the with the bond

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Speaker 1: market right now. You know, I'm sympathetic to that Morgan

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Speaker 1: Stanley call that you mentioned about yields being hired by

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Speaker 1: year end, and I do hope that that's going to

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Speaker 1: be the case. But this is all about fear right now,

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Speaker 1: and the bond market is benefiting from flight to quality.

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Speaker 1: That was a city group called John Why don't you

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Speaker 1: pick it up and frame it around that the magnitude

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Speaker 1: of that city group called Stanley looking for move back

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Speaker 1: towards six days? Are you looking for a move back

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Speaker 1: to two? I do want to the degree to which

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Speaker 1: there is some asymmetric risk around where real yields are

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Speaker 1: right now negative one twent one this morning, Gyra. Do

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Speaker 1: you speak to anyone that thinks they can go much

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Speaker 1: lower than this? Yeah, so so everyone that I talked

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Speaker 1: to him on the institutional side doesn't like it. But

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Speaker 1: I think that there's two big factors that continue to

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Speaker 1: push real yields lower and lower. One of those is

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Speaker 1: you look at flows into tipsy tfs and mutual funds,

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Speaker 1: and they're just insatiable. There's a lot of people who

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Speaker 1: want inflation protection. They're worried that inflation is going to

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Speaker 1: be higher, maybe there's going to be more supply chain disruptions,

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Speaker 1: and you're going to see CPI prints that are a

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Speaker 1: bit higher than what we've had in the recent paths,

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Speaker 1: or at least that they will persist longer even if

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Speaker 1: they don't go much higher from here um. And the

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Speaker 1: second is the Federal Reserve still is buying a lot

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Speaker 1: of the tips market. Remember they're there. They only own

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Speaker 1: seven percent of the tips market in February. Now they

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Speaker 1: own almost so you know, they they've significantly increased their ownership.

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Speaker 1: So liquidity in that market wasn't like it was a

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Speaker 1: nominal treasuries in the first place. And then you add

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Speaker 1: to that these flows into from retail investors into e

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Speaker 1: t f s and and UH and mutual funds, and

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Speaker 1: suddenly you have a recipe for lower and lower real yields.

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Speaker 1: So you know, I think that there's a big risk

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Speaker 1: to really yields where if really yields do back up

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Speaker 1: fifty seventy basis points, there's going to be a lot

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Speaker 1: of negatives on people's statements and maybe they'll rethink those investments,

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Speaker 1: which could push real yields even higher. But we're not

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Speaker 1: there yet because, like I mentioned, fear is still gripping

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Speaker 1: these marks worried about the opposite. I think this is

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Speaker 1: so important, together with the fact that the Federal Reserve

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Speaker 1: ohone is almost a third of this market now, people

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Speaker 1: buying tips with conviction or as insurance, because if you

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Speaker 1: don't own insurance for inflation in the year ahead, haven't

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Speaker 1: you got a degree of career risk? Isn't that in

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Speaker 1: the mix of thing now for pms? I think here's

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Speaker 1: part of part of the issue is that you there's

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Speaker 1: other ways to take inflation risk. That the problem I

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Speaker 1: have with owning tips outright, and most of these mutual

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Speaker 1: funds take a lot of interest rate exposure and a

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Speaker 1: lot of interest rate risk where let's say that inflation

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Speaker 1: does go up to five or six percent and stays

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Speaker 1: there persistently, you're not likely to see, really ye'll stay

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Speaker 1: where they are. Those are likely to rise up from

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Speaker 1: negative and twenty basis points to maybe negative fifty or zero,

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Speaker 1: and if that happens, you wind up actually losing three

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Speaker 1: or four percent on a mark to market basis. So

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Speaker 1: it really depends on who you are. Like tips are

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Speaker 1: a great investment and a great inflation hedge if you

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Speaker 1: hold the individual bonds and you hold them to maturity.

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Speaker 1: But owning mutual funds and other other rappers like that

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Speaker 1: mean that you're you're always taking interest rate risk that

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Speaker 1: maybe you don't really want to be taking. Um. So,

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Speaker 1: so I really worry that there's a lot of people

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Speaker 1: buying these products that don't really understand the underlying risks

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Speaker 1: that that are inherent in that market. I or, just

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Speaker 1: to put a bowl of this idea of ownership of

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Speaker 1: the TIPS market by the Federal Reserve, has a TIPS

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Speaker 1: market ever been more divorced from giving a true indication

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Speaker 1: of inflation expectation that it is right now? Well, that's

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Speaker 1: a good question, because you know, at two point three percent,

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Speaker 1: which is where ten year tips or pricing inflation at

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Speaker 1: the moment, it's not obvious that that that's going to

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Speaker 1: be wrong. So I think that the inflation component may

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Speaker 1: be actually um, suggesting that that the market is going

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Speaker 1: to be right and you're gonna have two wish plus

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Speaker 1: or minus twenty five basis points of inflation um. The

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Speaker 1: The question is, is really yields being so low keeping

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Speaker 1: nominal yields lower than they should be. You know, you

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Speaker 1: look at a lot of our fair value models based

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Speaker 1: on where fundamentals are, and we are twenty five to

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Speaker 1: forty five basis points too low on on actual yield,

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Speaker 1: So closer to one fifty seems to be a more

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Speaker 1: fair value. But I think it's these flight to quality

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Speaker 1: and some of these technical aspects of the of the

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Speaker 1: both the tips market and the nominal market that's keeping

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Speaker 1: yields as low as they are now, and those can

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Speaker 1: take a long time to go away. So this isn't

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Speaker 1: something that necessarily gonna snap back in the next two

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Speaker 1: or three weeks. Over the course of three or four months,

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Speaker 1: potentially we can get back into that range which is

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Speaker 1: much closer to our estimation. Of fair value for the market.

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Speaker 1: All right, right to have you on Tommy Conversation of

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Speaker 1: flint bag in saligence. Thank you sir. Right now, David

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Speaker 1: Weston knows Lyric is spelled with a queue. That's an

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Speaker 1: electronic vehicle that General Motors will give us here in

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Speaker 1: a month or so. And David Weston the three hundred

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Speaker 1: mile range that gets you halfway to Detroit. I've driven

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Speaker 1: that drive, Mary times. Thanks so much time and leave

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Speaker 1: it to you to really know how Lyric has spelled.

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Speaker 1: Good for you. You You know who's gonna be happy about that,

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Speaker 1: Mary Barr. She is the chair and and CEO of

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Speaker 1: General Motives and she joins us now live from her

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Speaker 1: headquarters in Detroit. Mary, thank you so much for being

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Speaker 1: back with us. I know you're gonna say, and you're

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Speaker 1: gonna be right that the second quarter is just one

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Speaker 1: piece of a longer arc for GM. But to take

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Speaker 1: that one piece, you did very well on revenues, better

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Speaker 1: than people expected. You set a new record on ibada.

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Speaker 1: You fell short of what people expected on earnest per share.

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Speaker 1: How much of that was because of the one billion

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Speaker 1: dollars in costs on a recall? Well, certainly that's going

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Speaker 1: to have an impact. But again, we're always going to

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Speaker 1: do the right thing for our customers. We prioritize their safety,

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Speaker 1: and so it was the right thing to do. Uh.

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Speaker 1: You know, we've learned from it. We know it's a

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Speaker 1: very unique, uh situation when two manufacturing defects that are

429
00:21:18,720 --> 00:21:22,040
Speaker 1: quite rare happening in the same cell that that causes

430
00:21:22,080 --> 00:21:24,400
Speaker 1: the potential for a fire. So we're going to address

431
00:21:24,400 --> 00:21:27,439
Speaker 1: it and we'll move forward. I think it's also important

432
00:21:27,440 --> 00:21:29,359
Speaker 1: to note when we look at our Ultiam platform, that

433
00:21:29,480 --> 00:21:32,520
Speaker 1: is a whole new battery system and that's what underpins

434
00:21:32,560 --> 00:21:35,080
Speaker 1: the Hummer EV that will be out yet this year

435
00:21:35,240 --> 00:21:38,560
Speaker 1: the break break drop products and then of course next

436
00:21:38,680 --> 00:21:40,280
Speaker 1: year with the lyric. Well, that's what I was going

437
00:21:40,359 --> 00:21:41,919
Speaker 1: to ask about, how do you make sure that this

438
00:21:41,960 --> 00:21:45,840
Speaker 1: doesn't happen. You're making a substantial, substantial investment in electric vehicles,

439
00:21:46,000 --> 00:21:48,240
Speaker 1: you've actually advanced the time that you're gonna invest some

440
00:21:48,320 --> 00:21:51,080
Speaker 1: of that money dollars as I recall, how do you

441
00:21:51,119 --> 00:21:54,639
Speaker 1: make sure you don't have this problem again? Well, of course,

442
00:21:54,880 --> 00:21:56,600
Speaker 1: any time you know we have an issue, we have

443
00:21:56,640 --> 00:22:00,240
Speaker 1: an outstanding engineering team and they look to make sure

444
00:22:00,240 --> 00:22:02,959
Speaker 1: we never repeat that issue, But I also think it's

445
00:22:03,000 --> 00:22:06,560
Speaker 1: important to note that as we go forward, we've announced

446
00:22:06,560 --> 00:22:10,240
Speaker 1: four battery cell plants. Those will be joint ventures. GM

447
00:22:10,280 --> 00:22:13,800
Speaker 1: brings our manufacturing expertise in our quality processes, and I

448
00:22:13,840 --> 00:22:16,400
Speaker 1: think that should give people great assurance as well. There's

449
00:22:16,440 --> 00:22:19,200
Speaker 1: another head wind that you've been facing in that semiconductors,

450
00:22:19,240 --> 00:22:21,600
Speaker 1: as all the auto industry has been facing. Give us

451
00:22:21,680 --> 00:22:24,560
Speaker 1: enough to how many fewer particularly trucks are you gonna

452
00:22:24,600 --> 00:22:27,520
Speaker 1: make in the third quarter than you otherwise would because

453
00:22:27,520 --> 00:22:31,080
Speaker 1: of the shortage of semiconductors, Well, I would say, you know,

454
00:22:31,119 --> 00:22:35,359
Speaker 1: we we UH increased our guidance um for the full year,

455
00:22:35,440 --> 00:22:37,480
Speaker 1: So I think that shows our confidence that we're going

456
00:22:37,520 --> 00:22:40,600
Speaker 1: to continue to perform on top of an exceptionally strong

457
00:22:40,840 --> 00:22:44,200
Speaker 1: H one. But we're gonna world be very fluid right now.

458
00:22:44,240 --> 00:22:46,800
Speaker 1: We work UH and it's on a daily for the

459
00:22:46,840 --> 00:22:49,520
Speaker 1: team that's working on it, but weekly from a leadership team,

460
00:22:49,760 --> 00:22:52,840
Speaker 1: we're looking and making sure we understand the semiconductor situation,

461
00:22:52,960 --> 00:22:56,640
Speaker 1: and we're allocating chips to our highest demand to take

462
00:22:56,680 --> 00:22:59,560
Speaker 1: care of our customers and also the vehicles that are

463
00:22:59,600 --> 00:23:02,440
Speaker 1: in plan that our capacity constrained, and that is especially

464
00:23:02,520 --> 00:23:04,919
Speaker 1: our full size trucks and suv so you'll see us

465
00:23:04,960 --> 00:23:07,320
Speaker 1: continue to do that. You know, there is a lot

466
00:23:07,359 --> 00:23:10,880
Speaker 1: of growing uncertainty because of the delta variant. We've seen

467
00:23:10,920 --> 00:23:13,800
Speaker 1: an impact in Malaysia, UH, and we've mapped it out

468
00:23:13,840 --> 00:23:16,280
Speaker 1: by in detail, and so you know, we're working to

469
00:23:16,320 --> 00:23:19,840
Speaker 1: share our safety protocols because we have the experience to

470
00:23:19,880 --> 00:23:22,879
Speaker 1: say when people follow those protocols, they can be in

471
00:23:23,400 --> 00:23:26,920
Speaker 1: their their manufacturing operations or whether it's design or R

472
00:23:26,960 --> 00:23:29,000
Speaker 1: and D, they can do that safely. So we're going

473
00:23:29,040 --> 00:23:31,520
Speaker 1: to continue to share that work with our tier ones

474
00:23:31,920 --> 00:23:33,879
Speaker 1: and all the way down to UM you know, our

475
00:23:33,920 --> 00:23:37,159
Speaker 1: tier fours, to make sure they have that benefit, and

476
00:23:37,200 --> 00:23:40,000
Speaker 1: then we'll just keep maximizing production. So, Mary, I'm glad

477
00:23:40,040 --> 00:23:42,200
Speaker 1: you brought up the delta variant because we're all trying

478
00:23:42,240 --> 00:23:44,800
Speaker 1: to come to terms with a very uncertain development. Here.

479
00:23:44,960 --> 00:23:46,600
Speaker 1: Give us a sense of what you think it might

480
00:23:46,680 --> 00:23:48,960
Speaker 1: mean for general motors. You just mentioned some of conductors

481
00:23:49,000 --> 00:23:53,840
Speaker 1: more more broadly in your manufacturing. Well, we did announced

482
00:23:53,880 --> 00:23:56,720
Speaker 1: to our teams yesterday and it started today that we're

483
00:23:56,760 --> 00:24:00,920
Speaker 1: reinstituting the mandatory mass policy at all of our fights UH,

484
00:24:01,240 --> 00:24:03,359
Speaker 1: because we know when people wear masks and follow the

485
00:24:03,720 --> 00:24:08,760
Speaker 1: appropriate social distancing and the and the sanitizing recommendations, people

486
00:24:08,800 --> 00:24:10,760
Speaker 1: can be safe at work. And so I think we're

487
00:24:10,760 --> 00:24:12,879
Speaker 1: in a very different position than we were over a

488
00:24:12,960 --> 00:24:15,399
Speaker 1: year ago, when really we weren't sure we know the

489
00:24:15,440 --> 00:24:18,399
Speaker 1: protocols work. So we're going to be applying those and

490
00:24:18,920 --> 00:24:22,880
Speaker 1: again as as we all leverage all the learnings we've

491
00:24:22,920 --> 00:24:24,879
Speaker 1: had over the last fifteen months, I think that's going

492
00:24:24,920 --> 00:24:26,880
Speaker 1: to put us in a better position for H two.

493
00:24:27,080 --> 00:24:29,400
Speaker 1: But we are monitoring carefully and you know the team

494
00:24:29,440 --> 00:24:32,679
Speaker 1: will continue to adjust. So, Mary, we're talking about some

495
00:24:32,720 --> 00:24:35,560
Speaker 1: headwinds that you've been facing. What about some possible tail winds,

496
00:24:35,560 --> 00:24:38,360
Speaker 1: particularly respect to pricing, because there's something of a shortage

497
00:24:38,359 --> 00:24:40,800
Speaker 1: of vehicles for all sorts of reasons, prices seem to

498
00:24:40,840 --> 00:24:45,400
Speaker 1: be pretty robust. How much is that lifting your profitability? Well,

499
00:24:45,440 --> 00:24:48,240
Speaker 1: clearly the strong pricing environment and in the strong demand

500
00:24:48,520 --> 00:24:52,760
Speaker 1: um is something that is really supporting our strong earnings.

501
00:24:52,880 --> 00:24:54,400
Speaker 1: But I would also say when you look at General

502
00:24:54,480 --> 00:24:57,760
Speaker 1: Motors specifically, we have an incredibly strong product portfolio that

503
00:24:57,800 --> 00:25:01,719
Speaker 1: we're offering. The customers are responding, and we're also working

504
00:25:01,760 --> 00:25:04,639
Speaker 1: to be more efficient with with inventory. We've given our

505
00:25:04,680 --> 00:25:07,640
Speaker 1: dealers tools that they can see what's coming. There's many

506
00:25:07,640 --> 00:25:11,480
Speaker 1: times a truck arrives at a dealer and most of

507
00:25:11,480 --> 00:25:14,080
Speaker 1: the vehicles on the on the truck are already sold.

508
00:25:14,400 --> 00:25:17,200
Speaker 1: We're also helping them order the most popular are the

509
00:25:17,600 --> 00:25:21,680
Speaker 1: best configured vehicles for their era. Using data analytics, that's

510
00:25:21,720 --> 00:25:24,240
Speaker 1: allowing us to move vehicles faster. So, you know, I

511
00:25:24,280 --> 00:25:27,560
Speaker 1: think because of our portfolio, even though it will come

512
00:25:27,560 --> 00:25:30,440
Speaker 1: a point when we have more availability that they'll see

513
00:25:30,480 --> 00:25:33,000
Speaker 1: some moderation in price. I still think we have a

514
00:25:33,040 --> 00:25:36,159
Speaker 1: strong pricing opportunity. And of course we're going to be

515
00:25:36,160 --> 00:25:38,200
Speaker 1: more efficient with all the lessons we've learned in this

516
00:25:38,440 --> 00:25:41,199
Speaker 1: last six months. And finally, mara I mentioned the substantial

517
00:25:41,200 --> 00:25:44,119
Speaker 1: investment General Matters is making electric vehicles. What visibility do

518
00:25:44,119 --> 00:25:46,359
Speaker 1: you have into the demand for those vehicles. I know

519
00:25:46,440 --> 00:25:48,879
Speaker 1: you're gonna start taking some orders fill Lyric in September,

520
00:25:49,000 --> 00:25:50,720
Speaker 1: but do you know that there will be the demand there?

521
00:25:50,760 --> 00:25:53,920
Speaker 1: I know you're going to have the supply. Well, we

522
00:25:54,080 --> 00:25:56,280
Speaker 1: you know, we do a lot of customer research, and

523
00:25:56,560 --> 00:25:59,080
Speaker 1: customers are telling us if it's a beautifully styled vehicle

524
00:25:59,200 --> 00:26:02,960
Speaker 1: with about three miles of range, uh, it's affordable and

525
00:26:03,000 --> 00:26:06,159
Speaker 1: then there's a robust charging infrastructure. They're very interested in

526
00:26:06,240 --> 00:26:08,919
Speaker 1: owning an electric vehicle. So that's why we're working on

527
00:26:09,119 --> 00:26:12,480
Speaker 1: the ecosystem to make sure as customers buy an electric vehicle,

528
00:26:12,880 --> 00:26:16,439
Speaker 1: it's a it's a you know, outstanding customer experience, and

529
00:26:16,480 --> 00:26:18,080
Speaker 1: that's I think what we're going to need to do

530
00:26:18,160 --> 00:26:20,720
Speaker 1: to drive e V adoption. But I'm confident that we will.

531
00:26:21,040 --> 00:26:23,320
Speaker 1: And then when I look at our products that are

532
00:26:23,359 --> 00:26:25,800
Speaker 1: are coming out, the vehicles, we haven't shared many of them,

533
00:26:25,800 --> 00:26:28,399
Speaker 1: but you know, when you look at the strong demand

534
00:26:28,440 --> 00:26:30,920
Speaker 1: for the hummery V and the strong interest in the

535
00:26:31,000 --> 00:26:34,640
Speaker 1: lyric that will begin to take orders next month, I

536
00:26:34,760 --> 00:26:39,200
Speaker 1: feel very confident that we're going to see strong EV adoption. Okay, Mary,

537
00:26:39,200 --> 00:26:40,879
Speaker 1: thank you so much for your time on a very

538
00:26:40,880 --> 00:26:43,160
Speaker 1: busy day of here. That's Mary bar she's a chairman

539
00:26:43,200 --> 00:26:47,800
Speaker 1: and president and CEO of General Motors. Tom David Weston,

540
00:26:47,840 --> 00:26:56,720
Speaker 1: thank you so much, greatly appreciated. Right now joining us,

541
00:26:56,800 --> 00:27:00,119
Speaker 1: David Rubinstein most appeared to hear conversations, of course us

542
00:27:00,160 --> 00:27:03,439
Speaker 1: with Carlisle's chairman and co founder and this year, uh,

543
00:27:03,520 --> 00:27:07,560
Speaker 1: this week, I should say Mr Rubinstein UH speaks to

544
00:27:07,560 --> 00:27:12,920
Speaker 1: the gentleman from Duke uh Mr Kopinski of McDonald's David,

545
00:27:12,960 --> 00:27:15,320
Speaker 1: I look at the challenge here and for me, McDonald's

546
00:27:15,320 --> 00:27:18,680
Speaker 1: is fascinating because there's two hundred thousand employees, but it's

547
00:27:18,760 --> 00:27:21,320
Speaker 1: well in excess of one point nine million when you

548
00:27:21,400 --> 00:27:25,119
Speaker 1: add in the franchises. Is well, what is his approach

549
00:27:25,240 --> 00:27:29,240
Speaker 1: to two million bodies? Well, it's a lot of people

550
00:27:29,400 --> 00:27:32,760
Speaker 1: to manage. But their system has been largely a franchise system.

551
00:27:32,800 --> 00:27:35,280
Speaker 1: They owned about ten percent in the United States of

552
00:27:35,359 --> 00:27:37,560
Speaker 1: the McDonald's. They want to be an owner, so they

553
00:27:37,760 --> 00:27:39,640
Speaker 1: actually know what it's like to own, and they can

554
00:27:39,680 --> 00:27:42,520
Speaker 1: give directions based on having been an owner. But most

555
00:27:42,600 --> 00:27:47,800
Speaker 1: of the employees that McDonald's actually are franchise ease employees. Well,

556
00:27:47,840 --> 00:27:51,720
Speaker 1: the franchise and employees. But he has a challenge in

557
00:27:51,800 --> 00:27:54,640
Speaker 1: this pandemic. Did you speak to him in your peer

558
00:27:54,680 --> 00:27:58,000
Speaker 1: to peer conversation about what do you actually do? Is

559
00:27:58,000 --> 00:28:00,920
Speaker 1: he going to give out a thousand cheeseburger for everybody

560
00:28:00,920 --> 00:28:05,360
Speaker 1: who gets vaccinated? Well, they are doing things like that.

561
00:28:05,400 --> 00:28:08,720
Speaker 1: They are not from vaccination. They're trying to get Their

562
00:28:08,720 --> 00:28:11,560
Speaker 1: biggest focus right now has been trying to get employees

563
00:28:11,720 --> 00:28:15,840
Speaker 1: uh to staff the operations because it's harder to get employees.

564
00:28:15,880 --> 00:28:18,960
Speaker 1: Employees left after during the COVID period of times. So

565
00:28:19,000 --> 00:28:21,240
Speaker 1: now they're they're going sending people to come back. They're

566
00:28:21,240 --> 00:28:23,760
Speaker 1: giving fifty dollars for an interview, and if you're at

567
00:28:23,800 --> 00:28:25,520
Speaker 1: the company for more than ninety days, I think they

568
00:28:25,560 --> 00:28:28,679
Speaker 1: give you an iPhone, David. This raises issues for existing

569
00:28:28,680 --> 00:28:31,520
Speaker 1: employee employees as well because they probably want an iPhone

570
00:28:31,560 --> 00:28:34,160
Speaker 1: and extra fifty dollars as well. And across the board

571
00:28:34,200 --> 00:28:37,560
Speaker 1: you're seeing wages increases. Today's CVS raised it's minimum wage

572
00:28:37,800 --> 00:28:40,520
Speaker 1: to fifteen dollars an hour. This of course comes in

573
00:28:40,560 --> 00:28:44,000
Speaker 1: the heels of Amazon and Walmart. How much pressure is

574
00:28:44,040 --> 00:28:46,320
Speaker 1: there to pay more? In other words, do we have

575
00:28:46,360 --> 00:28:48,640
Speaker 1: a sense of where the cap is of how much

576
00:28:48,720 --> 00:28:52,840
Speaker 1: higher these uh, these salaries can go. Well, remember the

577
00:28:52,920 --> 00:28:55,680
Speaker 1: legislation that was considered in Congress that did not pass,

578
00:28:56,040 --> 00:28:59,160
Speaker 1: would raise the minimum wage over five years to fifteen dollars.

579
00:28:59,520 --> 00:29:02,960
Speaker 1: McDonald now beginning wage minimum wage that they start people

580
00:29:02,960 --> 00:29:06,400
Speaker 1: at eleven dollars the legal minimum wage of seven fifty.

581
00:29:06,600 --> 00:29:09,040
Speaker 1: So McDonald's is well above the legal minimum, but they're

582
00:29:09,080 --> 00:29:11,960
Speaker 1: not quite yet at fifteen though. I suspect that the

583
00:29:11,960 --> 00:29:14,040
Speaker 1: pressure of such that they probably will have to increase

584
00:29:14,560 --> 00:29:16,840
Speaker 1: a bit because it's hard to get employees. Young people

585
00:29:16,840 --> 00:29:19,040
Speaker 1: have many different things they can do now, and it's

586
00:29:19,040 --> 00:29:21,200
Speaker 1: tough to get people to work at these jobs sometimes

587
00:29:21,240 --> 00:29:23,960
Speaker 1: in the beginning at the entry level. David, is this

588
00:29:24,040 --> 00:29:26,600
Speaker 1: the key issue, just getting the salaries, getting the pay

589
00:29:26,800 --> 00:29:29,000
Speaker 1: high enough to get people into the workforce, or is

590
00:29:29,040 --> 00:29:31,880
Speaker 1: there something else that's creating this friction that's kept the

591
00:29:32,600 --> 00:29:36,479
Speaker 1: great deal of people still on the sidelines. Well, some

592
00:29:36,520 --> 00:29:40,640
Speaker 1: people are afraid of of working in environments where they

593
00:29:40,720 --> 00:29:43,560
Speaker 1: might not steal. Everybody that they're working with is vaccinated,

594
00:29:43,600 --> 00:29:45,680
Speaker 1: so you don't know if everybody coming to McDonald's is

595
00:29:45,760 --> 00:29:48,560
Speaker 1: vaccinated for sure. Um So there are lots of issues,

596
00:29:48,560 --> 00:29:50,800
Speaker 1: but I do think it's largely the case that people

597
00:29:50,800 --> 00:29:53,160
Speaker 1: have been off of the workforce in some cases for

598
00:29:53,640 --> 00:29:55,640
Speaker 1: you know, eighteen months, and now getting them to come

599
00:29:55,640 --> 00:29:58,440
Speaker 1: back it's not easy. The salary is higher than the

600
00:29:58,480 --> 00:30:00,720
Speaker 1: minimum wage, but not as high as some people. You

601
00:30:00,840 --> 00:30:03,960
Speaker 1: just suggested that CBS is increasing to fifteen dollars, so

602
00:30:04,360 --> 00:30:06,239
Speaker 1: I suspect they probably will have to do more than

603
00:30:06,280 --> 00:30:08,800
Speaker 1: they've already done. Remember, they don't control all the way

604
00:30:08,920 --> 00:30:13,560
Speaker 1: just because only ten percent employees are there. Franchisees are

605
00:30:13,560 --> 00:30:16,800
Speaker 1: the franchise You do take direction from the headquarters. And

606
00:30:16,840 --> 00:30:20,160
Speaker 1: the principal issue that they're facing as well is is

607
00:30:20,200 --> 00:30:23,600
Speaker 1: how do you get people back into the to McDonald's. Uh.

608
00:30:23,680 --> 00:30:25,520
Speaker 1: They've found that they needed to have a lot more

609
00:30:25,800 --> 00:30:28,800
Speaker 1: drive by or drive in, a lot more digital. It

610
00:30:28,920 --> 00:30:30,800
Speaker 1: used to be that you went to Mcdonald'sho eight they're

611
00:30:31,400 --> 00:30:33,920
Speaker 1: called dine in, but now a large part most of

612
00:30:33,920 --> 00:30:36,360
Speaker 1: their serales sales are really coming by drive in or

613
00:30:36,440 --> 00:30:40,440
Speaker 1: drive by and then digital where you're ordering or delivery. Um,

614
00:30:40,480 --> 00:30:42,320
Speaker 1: so it's much it's much different than it was just

615
00:30:42,360 --> 00:30:45,120
Speaker 1: a few years ago. David, whether it's your conversation with

616
00:30:45,200 --> 00:30:49,080
Speaker 1: Jeff Bezo so here with a gentleman from McDonald's, it's

617
00:30:49,120 --> 00:30:56,720
Speaker 1: about scale, David Rubinstein on scale, Is it overrated? Overplayed? No?

618
00:30:57,040 --> 00:30:59,920
Speaker 1: Scale is very important, obviously building a global business. Whine

619
00:31:00,040 --> 00:31:02,880
Speaker 1: McDonald's has been so successful is it is bigger than

620
00:31:02,920 --> 00:31:05,600
Speaker 1: everybody else and they can afford to make changes and

621
00:31:05,640 --> 00:31:07,680
Speaker 1: then they can move it out across the country and

622
00:31:07,680 --> 00:31:10,400
Speaker 1: around the world. The reason that McDonald's has done so

623
00:31:10,440 --> 00:31:13,640
Speaker 1: well is that they everything is the same around the world.

624
00:31:13,640 --> 00:31:15,640
Speaker 1: So when you go to McDonald's in Paris, where the

625
00:31:15,640 --> 00:31:17,640
Speaker 1: biggest McDonald's in the world is in the Shampton Loose.

626
00:31:17,960 --> 00:31:19,520
Speaker 1: Where you go anywhere in the world, you're gonna get

627
00:31:19,600 --> 00:31:22,800
Speaker 1: largely the same tasting product and people like that consistency,

628
00:31:22,840 --> 00:31:24,960
Speaker 1: and that's why they've done so well. I did not

629
00:31:25,160 --> 00:31:28,680
Speaker 1: know that the biggest McDonald's in the world was in Paris. David,

630
00:31:28,760 --> 00:31:32,000
Speaker 1: thank you for that. Okay, it's in the shamp Lose.

631
00:31:32,440 --> 00:31:34,840
Speaker 1: There we go. I'll make a visit. David Rubinstein, host

632
00:31:34,920 --> 00:31:38,479
Speaker 1: of Peer to Peer Conversations and Carlos Group, co chairman

633
00:31:38,720 --> 00:31:42,520
Speaker 1: and co found it. This is the Bloomberg Surveillance Podcast.

634
00:31:42,800 --> 00:31:46,160
Speaker 1: Thanks for listening. Join us live weekdays from seven to

635
00:31:46,280 --> 00:31:50,280
Speaker 1: ten am Eastern on Bloomberg Radio and on Bloomberg Television

636
00:31:50,680 --> 00:31:54,680
Speaker 1: each day from six to nine am for insight from

637
00:31:54,720 --> 00:31:59,240
Speaker 1: the best in economics, finance, investment, and international relations. And

638
00:31:59,360 --> 00:32:04,480
Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg

639
00:32:04,560 --> 00:32:07,840
Speaker 1: dot com, and of course on the terminal. I'm Tom

640
00:32:07,960 --> 00:32:10,240
Speaker 1: keene In. This is Bloomberg