WEBVTT - GM Sees Higher Profits Ahead as 2023’s Problems Recede 0:00:01.360 --> 0:00:05.680 This is Bloomberg Business Wait inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business finance and tech news. The Bloomberg Business Week 0:00:13.720 --> 0:00:18.640 Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:19.720 --> 0:00:21.479 We're all kind of keeping a watch on GM today. 0:00:21.560 --> 0:00:23.680 Yeah, shares are certainly revving up right now. This is 0:00:23.720 --> 0:00:26.800 the carmaker sees higher profits ahead this year on improved sales, 0:00:27.120 --> 0:00:30.479 thanks largely to a belief that its biggest problems in 0:00:30.520 --> 0:00:34.120 twenty twenty three are in the rear view mirror. I 0:00:34.159 --> 0:00:36.760 mean that was a big deal with the striker last year. 0:00:36.840 --> 0:00:38.440 Yeah, it was a lot of things, certainly, you know, 0:00:39.040 --> 0:00:41.960 chipping away at them. So the automaker plans to reintroduce 0:00:42.040 --> 0:00:44.760 gas electric hybrid models, which the company sells and other 0:00:44.800 --> 0:00:47.880 markets currently. They're also staying, though very committed to wrapping 0:00:47.920 --> 0:00:51.240 up production of battery only vehicles. GM CEO Mary Barrow 0:00:51.320 --> 0:00:54.400 remains committed to an all electric vehicle lineup by twenty 0:00:54.440 --> 0:00:55.000 thirty five. 0:00:56.680 --> 0:00:59.280 We're going to be building many more ultium based evs 0:00:59.320 --> 0:01:02.160 we had to construct with modules we have addressed that 0:01:02.200 --> 0:01:04.720 were on track for the first month and by the 0:01:04.760 --> 0:01:07.240 middle of the year that should be well behind us. 0:01:07.280 --> 0:01:10.000 So that's going to allow us to build many more 0:01:10.280 --> 0:01:14.479 of the existing vehicles like the Cadillac Lyric and the 0:01:14.680 --> 0:01:18.120 GMC Hummer EV, the Silverado EV work. 0:01:17.959 --> 0:01:18.479 Truck, etc. 0:01:19.720 --> 0:01:23.320 That was GM CEO Mary Bara, who said once again 0:01:23.360 --> 0:01:25.520 that she remains committed to an all electric vehicle lineup 0:01:25.520 --> 0:01:28.839 by twenty thirty five, but they are reintroducing gas electric 0:01:28.920 --> 0:01:31.640 hybrid models. With more on GM, Let's bring in our 0:01:31.720 --> 0:01:34.720 Detroit bureau chief where we find Bloomberg News Detroit bureau 0:01:34.800 --> 0:01:38.520 chief David Welch joining us on zoom David, good to 0:01:38.600 --> 0:01:41.160 have you back with us. Let's talk a little bit 0:01:41.200 --> 0:01:43.600 about the stock move today. I mean, what is it 0:01:43.640 --> 0:01:47.080 about the results specifically you think that are driving investors 0:01:47.080 --> 0:01:47.960 to send shares higher? 0:01:48.920 --> 0:01:51.960 And actually speaking, they beat everywhere they could, right, So, 0:01:52.000 --> 0:01:55.680 the fourth quarter was a bit better than expected, always 0:01:55.720 --> 0:01:58.200 a good thing to do. And for the year they 0:01:58.200 --> 0:02:01.880 were as well, and then for twenty twenty four also 0:02:01.920 --> 0:02:04.800 better than analysts were expecting. And then you look at 0:02:04.840 --> 0:02:07.440 what goes into that kind of there were three big 0:02:07.480 --> 0:02:09.600 things that really hurt profits last year. One was how 0:02:09.680 --> 0:02:12.920 much they spent on Cruise, which is their robotaxi company. 0:02:13.240 --> 0:02:16.720 They grounded the fleet because of regulatory problems after an 0:02:16.800 --> 0:02:21.440 accident they had hitting a pedestrian and a crosswalk. So 0:02:21.440 --> 0:02:23.600 they're going to reduce spending on crews by a billion 0:02:23.639 --> 0:02:27.800 dollars while still developing the technology. Investors place almost no 0:02:27.919 --> 0:02:31.160 value on autonomous vehicles right now, so if GM spends less, 0:02:31.200 --> 0:02:34.640 they like that. Another big item, one point seven billion. 0:02:34.639 --> 0:02:38.240 That hurt earnings because GM is making battery sales for 0:02:38.320 --> 0:02:41.919 its evs and they're doing so at low run rates 0:02:41.919 --> 0:02:45.800 that are not profitable at all, and because of some 0:02:45.840 --> 0:02:49.160 accounting rules, they basically they take a charge for that 0:02:49.200 --> 0:02:50.959 and they expect that to be much less this year. 0:02:51.000 --> 0:02:53.560 So one point seven billion losing from the EV program. 0:02:53.880 --> 0:02:56.920 They'll lose some probably in twenty twenty four, but not 0:02:56.960 --> 0:02:59.560 as much. So investors like that. And then there was 0:02:59.600 --> 0:03:01.679 a strike. They have took one point one billion out 0:03:01.680 --> 0:03:03.320 of profits and they're not going to have another strike 0:03:03.360 --> 0:03:05.679 again because they've got a labor contract. So you add 0:03:05.680 --> 0:03:07.920 all those things back in there and the profits this 0:03:08.040 --> 0:03:12.200 year they're talking about twelve billion at least in earnings 0:03:12.200 --> 0:03:16.120 before interest in taxes, and maybe as much as fourteen billion, 0:03:16.280 --> 0:03:19.079 that gets up close to record profits of twenty twenty two. 0:03:19.440 --> 0:03:22.560 So all this says profits are going to grow versus 0:03:22.560 --> 0:03:25.120 twenty twenty three, getting back to the really good times 0:03:25.160 --> 0:03:28.080 they had two years ago, and they're spending less on 0:03:28.120 --> 0:03:30.880 some of these trouble spots. And also they say they're 0:03:30.880 --> 0:03:33.160 going to start getting evs produced, which has been a 0:03:33.160 --> 0:03:36.240 big problem for them. So some momentum. 0:03:36.360 --> 0:03:38.280 David, I love this line in your story. While it 0:03:38.320 --> 0:03:41.160 struggles to build electric vehicles that are a keystone of 0:03:41.200 --> 0:03:44.440 Mary Barr's long term growth plan, and it's cruise REBOTAXI 0:03:44.520 --> 0:03:47.920 unit is on full reboot, GM's core business and making 0:03:47.960 --> 0:03:50.680 gasoline powered trucks and SUVs thrown off a lot of cash, 0:03:50.800 --> 0:03:54.000 all right, So there are the contrasting sides of General Motors. 0:03:54.240 --> 0:03:57.680 Which side should investors focus on at this point? 0:03:57.920 --> 0:03:59.920 Right now? I think they're looking at the internal combustion 0:04:00.120 --> 0:04:02.080 side of the business, which is throwing off a lot 0:04:02.080 --> 0:04:07.240 of cash, because look, it's the cash generation power of 0:04:07.240 --> 0:04:11.080 that business that allow GM to raise the dividend and 0:04:11.200 --> 0:04:14.400 buy back ten billion dollars in shares. So right now, 0:04:14.400 --> 0:04:17.760 even though GM, you listen to Mary Borrow today, still 0:04:17.800 --> 0:04:20.720 positioning the company as one with a technology story, one 0:04:20.760 --> 0:04:23.320 with a growth story going forward for the next five 0:04:23.400 --> 0:04:27.080 or ten years with these electric vehicles with crews. Investors 0:04:27.080 --> 0:04:29.480 are focusing less on that because they see GM as 0:04:29.640 --> 0:04:32.960 a company that's returning cash, and if the forecast says 0:04:33.440 --> 0:04:36.160 they're going to do well enough to continue to do that, 0:04:36.200 --> 0:04:37.760 then investors are going to buy in. 0:04:38.040 --> 0:04:39.840 I mean, David, this seems to be the theme of 0:04:39.880 --> 0:04:43.080 twenty twenty four, which is stepping back from the idea 0:04:43.200 --> 0:04:47.600 of everyone switching to evs quickly, which people really got 0:04:47.640 --> 0:04:49.839 wrong over the last couple of years, and many companies 0:04:49.880 --> 0:04:52.480 really got wrong, and saying that the transition is going 0:04:52.520 --> 0:04:54.200 to be a lot longer. I mean, look what's happening 0:04:54.200 --> 0:04:57.359 with Ford, Look what's happening with Tesla. Does it seem 0:04:57.400 --> 0:05:01.640 to you that the company is indeed not putting these 0:05:01.680 --> 0:05:04.599 on the back burner, but tamping back investment in a 0:05:04.600 --> 0:05:05.880 way that other companies are too. 0:05:06.680 --> 0:05:09.200 Well, With GM, a lot of the investment in that 0:05:09.279 --> 0:05:11.360 EV program has already been made. You look at the 0:05:11.440 --> 0:05:14.080 vehicles that they're bringing out this year and the ones 0:05:14.120 --> 0:05:16.679 where they're trying to ramp up production. It's the Cadillac 0:05:16.839 --> 0:05:20.640 lyric it's the Chevy Silverado EV, the Chevy Blazer SUV, 0:05:20.760 --> 0:05:23.120 and the small Chevy Equinox Compact. They still have the 0:05:23.160 --> 0:05:25.360 Hummer that they're wrapping up. They're already spent the money 0:05:25.360 --> 0:05:28.719 developing those, so that's money spent. Where they're saving money 0:05:28.800 --> 0:05:32.520 is delaying programs like the Chevy Silverado EV. There's a 0:05:32.560 --> 0:05:35.000 plant in suburban Detroit that's going to wrap up production 0:05:35.080 --> 0:05:37.760 of that. They're delaying that by a year. So they 0:05:37.800 --> 0:05:41.080 have delayed some of the investment and that does save 0:05:41.080 --> 0:05:44.840 them some cash this year, but it's not a huge amount. 0:05:45.040 --> 0:05:47.599 I think. Really the EV story is there's still growth 0:05:47.600 --> 0:05:49.680 out there. It's just not what everybody thought it was. 0:05:50.000 --> 0:05:52.000 So everyone is in to watch and see mode with that. 0:05:52.240 --> 0:05:54.840 But they're pulling back some investment and that allows them 0:05:54.880 --> 0:05:57.880 to maybe return money to shareholders. Maybe we're freshing up 0:05:57.920 --> 0:05:59.920 some of the internal combustion vehicles that are making some 0:06:00.080 --> 0:06:00.840 more money for them. 0:06:00.839 --> 0:06:02.880 All right, So maybe, you know, pulling off a little 0:06:02.880 --> 0:06:04.840 bit of the evs, but still, you know, that's part 0:06:04.880 --> 0:06:08.520 of their core mission longer term and focusing on kind 0:06:08.520 --> 0:06:10.760 of what consumers want today. Isn't that what GM and 0:06:10.800 --> 0:06:13.280 Mary Barr should be doing as the head of a 0:06:13.320 --> 0:06:16.320 company and just kind of adjusting to the environment, maybe 0:06:16.400 --> 0:06:19.320 keeping those long term goals in place. David, how do 0:06:19.360 --> 0:06:21.960 you see it as somebody who follows this industry? Is 0:06:21.960 --> 0:06:24.160 this herd just kind of managing for where we are 0:06:24.200 --> 0:06:25.880 today in this auto cycle. 0:06:26.520 --> 0:06:28.840 Yeah, and it's absolutely what they should be doing, because 0:06:29.080 --> 0:06:31.920 you can't go and just keep building factories to make 0:06:32.440 --> 0:06:35.360 EV batteries or add more EV production if the buyers 0:06:35.360 --> 0:06:38.359 aren't there. So I think the real story will be 0:06:38.400 --> 0:06:40.360 over the course of twenty twenty four and twenty twenty 0:06:40.440 --> 0:06:42.559 five when you see some of their evs come out, 0:06:42.600 --> 0:06:46.599 like the Chevy Blazer, Chevy Equinox, and the Silverado pickup 0:06:46.640 --> 0:06:48.800 which will compete with the F one fifty Lightning. How 0:06:48.800 --> 0:06:50.840 many of those do they sell? How quickly can they 0:06:50.839 --> 0:06:53.360 get production ramped up? And if the volumes are there, 0:06:53.360 --> 0:06:55.840 if consumers really want them, they can continue to add production. 0:06:56.000 --> 0:06:58.640 If not, then they won't, and then they've got other 0:06:58.680 --> 0:07:01.760 decisions to make, like, for example, bringing out a new 0:07:01.800 --> 0:07:05.479 Chevy Equinox I'm talking about the gasoline powered version next month. 0:07:05.760 --> 0:07:09.039 And do they continue to freshen some of these vehicles 0:07:09.040 --> 0:07:10.640 that they thought may have gone away in the middle 0:07:10.680 --> 0:07:13.800 of next decade. My bet is that they absolutely will, 0:07:14.080 --> 0:07:15.960 because it is going to take a lot longer than 0:07:15.960 --> 0:07:18.560 everyone thought to do this. There's another wildcard here, which 0:07:18.600 --> 0:07:21.760 is that the federal tax credit, the seventy five hundred dollars. 0:07:22.640 --> 0:07:26.080 Not as many vehicles qualify for that, but more vehicles 0:07:26.120 --> 0:07:28.720 will qualify for it, and that's just starting and it's 0:07:28.720 --> 0:07:30.560 a new way of distributing the incentive. You get it 0:07:30.600 --> 0:07:32.640 at the dealership instead of having to file for it 0:07:32.680 --> 0:07:35.040 in new taxes. So that's real money in the showroom 0:07:35.040 --> 0:07:37.360 for EV buyers. That could have an impact. We're just 0:07:37.360 --> 0:07:39.600 not seeing it quite yet, and you know, we need 0:07:39.600 --> 0:07:41.680 to see how that plays out this year and whether 0:07:41.760 --> 0:07:43.720 or not it really gins up some demand and makes 0:07:43.720 --> 0:07:46.360 everybody think that, okay, you know, maybe there still is 0:07:46.400 --> 0:07:49.400 a lot of growth from the tax benefits to be had. 0:07:49.760 --> 0:07:51.960 You mentioned Cruz. I want to go back to Cruz, 0:07:52.080 --> 0:07:56.360 the autonomous driving platform four GM. What is the future 0:07:56.400 --> 0:07:59.280 of Cruise, especially in the wake of the incident that 0:07:59.320 --> 0:08:01.440 I had earlier in the past few months. 0:08:02.280 --> 0:08:04.200 This is a really tough one. So look, this year, 0:08:04.360 --> 0:08:07.680 had all that not happened and they not had some 0:08:07.800 --> 0:08:11.680 of these technological problems and even worse regulatory problems. They 0:08:11.680 --> 0:08:13.880 were going to try to deploy a robotaxi service in 0:08:13.880 --> 0:08:17.440 twelve cities. That's probably not going to happen. They've grounded 0:08:17.480 --> 0:08:19.040 all of that and they laid off all the people 0:08:19.040 --> 0:08:21.800 who are doing the development work. I think kind of 0:08:21.800 --> 0:08:24.160 near term, they'll probably go back to one city if 0:08:24.160 --> 0:08:26.760 that works well, maybe two, and they will slowly ramp 0:08:26.800 --> 0:08:31.160 up the robotaxi business very slowly. I think the second 0:08:31.200 --> 0:08:33.320 thing they'll probably do is really continue to develop that 0:08:33.400 --> 0:08:36.840 because GM does see a real future in selling personally 0:08:36.880 --> 0:08:39.960 owned self driving vehicles, and consumers do like these things, 0:08:40.000 --> 0:08:43.120 like GM supercrews test to autopilot where they can drive 0:08:43.120 --> 0:08:45.000 hands free on the road, and they would probably like 0:08:45.040 --> 0:08:48.200 a vehicle that completely drives itself a lot too, and 0:08:48.200 --> 0:08:50.520 they probably pay good money for it. But that's a 0:08:50.559 --> 0:08:53.920 ways way. But GM will keep developing that technology for 0:08:53.960 --> 0:08:56.600 that reason, and they'll kind of see how robotaxi goes, 0:08:56.640 --> 0:08:58.360 if consumers want it, and if they can make money 0:08:58.360 --> 0:08:59.079 off of the business. 0:08:59.240 --> 0:09:02.440 Hey, real quickly before we go thirty seconds here, I'm David. 0:09:02.800 --> 0:09:05.360 Same thing. Some of the issues that GM is seeing 0:09:05.360 --> 0:09:07.359 here in the US same thing in terms of overseas 0:09:07.400 --> 0:09:08.440 or is there any distinction? 0:09:08.559 --> 0:09:12.320 Just quickly, In China, EV sales continue to grow fast 0:09:12.320 --> 0:09:15.800 because the government practically mandates similar thing. In Europe, you're 0:09:15.840 --> 0:09:18.320 seeing better growth theory. The US is the laggered when 0:09:18.360 --> 0:09:20.760 it comes to consumers not buying evs. 0:09:21.240 --> 0:09:24.360 All right, So appreciate you weigh in on General Motors, David, 0:09:24.400 --> 0:09:26.720 Thank you so much. To Troit Bureau is where we 0:09:26.800 --> 0:09:30.360 find our own Detroit Bureau Chief David Welt on this 0:09:30.520 --> 0:09:33.120 Tuesday joining us on zoom. Shares of General Motors tim 0:09:33.400 --> 0:09:35.160 still up about eight and a half percent, up ten 0:09:35.200 --> 0:09:37.360 percent at their highs today, but still holding on to 0:09:37.400 --> 0:09:38.160 most of their games. 0:09:38.200 --> 0:09:40.480 I mean, if there's one theme that sort of defines 0:09:40.640 --> 0:09:44.520 the transition from automakers from last year to this year, 0:09:44.640 --> 0:09:46.880 from late, you know, twenty twenty two to twenty twenty three, 0:09:46.880 --> 0:09:51.280 it's the EV transition is taking so much longer than 0:09:51.480 --> 0:09:52.880 pretty much everybody thought it would. 0:09:53.080 --> 0:09:53.280 Yeah. 0:09:53.320 --> 0:09:55.160 Well, I think there's a lot of enthusiasm. I think 0:09:55.160 --> 0:09:59.520 those government credits certainly help and prices coming down via Tesla. 0:09:59.640 --> 0:10:01.080 But I feel like there was a period where I 0:10:01.120 --> 0:10:04.000 just saw them everywhere. But it's interesting the numbers are 0:10:04.000 --> 0:10:04.839 telling a different story. 0:10:04.840 --> 0:10:05.520 They're expensive. 0:10:05.559 --> 0:10:07.840 They're expensive. That's definitely holding people back. 0:10:08.640 --> 0:10:12.160 You're listening to the Bloomberg Business Week podcast. Catch us 0:10:12.200 --> 0:10:15.439 live weekday afternoons from two to five pm Eastern Listen 0:10:15.480 --> 0:10:17.640 on Apple car Play and then brought auto with a 0:10:17.640 --> 0:10:21.319 Bloomberg Business app, or watch us live on YouTube. 0:10:22.120 --> 0:10:24.880 Speaking of that FED meeting, Bloomberg Economics, they've got their 0:10:24.960 --> 0:10:25.480 FED speak. 0:10:25.800 --> 0:10:27.000 That's really cool, right. 0:10:27.280 --> 0:10:30.839 They look at natural language or they've got i should 0:10:30.880 --> 0:10:33.679 say a natural language processing model. It is trained on 0:10:33.720 --> 0:10:36.600 more than sixty thousand FED headlines and it suggests that 0:10:36.640 --> 0:10:39.840 the first rate cut will come in May. That's later 0:10:39.920 --> 0:10:42.720 than markets bets of March, but earlier than the second 0:10:42.720 --> 0:10:44.600 half of twenty twenty four, which we've heard from by 0:10:44.960 --> 0:10:47.360 a lot of folks. Also as flagged in December Summary 0:10:47.400 --> 0:10:48.679 of Economic projections. 0:10:48.760 --> 0:10:50.800 All of this is top of mind is the FED 0:10:50.960 --> 0:10:53.120 kicked off a two day meeting with the first FED 0:10:53.120 --> 0:10:56.400 decision of the year expected tomorrow. So for our interview 0:10:56.440 --> 0:10:59.280 this afternoon, we bring in Brad Case, former economist at 0:10:59.320 --> 0:11:02.520 Fannie May and the Fed. Brad also chief economist at 0:11:02.600 --> 0:11:05.800 Middleburg Communities, which buys and builds rental housing in the 0:11:05.840 --> 0:11:08.280 southeastern and mid Atlantic US. Brad is here in the 0:11:08.320 --> 0:11:09.360 Bloomberg studio and. 0:11:09.360 --> 0:11:12.120 Then out there on Zoom from Cape Canaveral, Florida. Back 0:11:12.120 --> 0:11:16.000 with us is Steve Skanke, chief economic advisor at Keel Point. 0:11:16.080 --> 0:11:18.120 He is also a former US Treasury in White House 0:11:18.160 --> 0:11:21.439 National Security Council staff member. Brad and Steve welcome, Welcome 0:11:22.320 --> 0:11:25.760 the data buy and large continues to come in okay, 0:11:25.800 --> 0:11:29.280 if not better than okay, Consumers are still confident in spending. 0:11:29.640 --> 0:11:32.040 Brad to you first, is it crazy for many of 0:11:32.120 --> 0:11:35.280 us to continue to talk about a FED rate cut 0:11:35.520 --> 0:11:37.600 when you see things kind of humming along. 0:11:37.760 --> 0:11:39.599 Yes, I think it's pretty crazy to think about a 0:11:39.640 --> 0:11:43.559 RAID cut tomorrow. I think you're what you were saying about, 0:11:43.600 --> 0:11:46.120 maybe it's happening in May and not even March. I 0:11:46.160 --> 0:11:49.199 think that's pretty realistic. Look, the FED is looking for 0:11:50.040 --> 0:11:52.079 things to come into balance so that we don't have 0:11:52.520 --> 0:11:57.719 inflationary pressures pushing inflation back up. They want to make 0:11:57.720 --> 0:12:00.000 sure that it's dead for the time being. They don't 0:11:59.880 --> 0:12:01.920 want on a recession to kill it. They want a 0:12:01.920 --> 0:12:04.240 soft landing to kill it. They're they're close to that, 0:12:04.480 --> 0:12:05.800 but you know. 0:12:06.000 --> 0:12:07.600 They want a soft landing to kill it. 0:12:07.880 --> 0:12:10.600 They want a soft landing to mean that inflation is 0:12:10.640 --> 0:12:12.480 not going to come back, not going to come out 0:12:12.520 --> 0:12:14.760 of the grave. And they're pretty close to that, but 0:12:14.800 --> 0:12:17.400 they're not that the data continue to come in a 0:12:17.400 --> 0:12:18.360 little bit too strong. 0:12:18.480 --> 0:12:22.480 At what point, Brad, could the FED say mission accomplished. 0:12:22.480 --> 0:12:24.240 What does the FED need to see in terms of 0:12:24.360 --> 0:12:25.480 data in order to do that? 0:12:25.720 --> 0:12:29.840 Well, So, so we've just seen too much over demand 0:12:29.960 --> 0:12:32.679 throughout the economy. It's you know, it's strong wage growth, 0:12:32.679 --> 0:12:36.280 it's strong income growth that that drives strong consumption. It's 0:12:36.559 --> 0:12:39.640 a demand relative to supply in the labor markets. So 0:12:39.679 --> 0:12:42.200 they're just they just need balance, you know, sort of 0:12:42.200 --> 0:12:44.400 throughout the economy to make sure that they're not going 0:12:44.480 --> 0:12:49.000 to pull a pull a late seventies early eighties mistake. 0:12:49.120 --> 0:12:50.560 Hey, on the flip side of all of this, the 0:12:50.600 --> 0:12:52.640 concept of real rights, I'm kind of obsessed. I was 0:12:52.679 --> 0:12:56.760 bothering Mike McKee or Michael McKee in a big way today, 0:12:56.920 --> 0:12:59.800 which is when you're take into account inflation. So Steve 0:13:00.160 --> 0:13:02.000 bring you into this. Even though the Fed's main rate 0:13:02.000 --> 0:13:05.240 has stayed the same since last July, as inflation comes down, 0:13:05.280 --> 0:13:08.079 the real rate of inflation has actually gone up, continuing 0:13:08.120 --> 0:13:10.840 to put pressure on the US economy. How closely do 0:13:10.920 --> 0:13:13.200 you watch that as an indication of why and when 0:13:13.240 --> 0:13:15.960 the Fed will need to ultimately cut rates, and maybe 0:13:15.960 --> 0:13:18.400 while it could happen sooner rather than later. 0:13:19.640 --> 0:13:23.200 Well, it's an important rate and data point to watch, 0:13:23.280 --> 0:13:27.000 and it'll be interesting to see how attent of the 0:13:27.040 --> 0:13:30.280 FED is to that. With a run rate of core 0:13:30.360 --> 0:13:35.280 PCE inflation right now at about two percent, last six 0:13:35.320 --> 0:13:39.520 months annualizes at one point nine last three months annualizes 0:13:39.559 --> 0:13:42.400 at one and a half percent, the real rate of 0:13:42.400 --> 0:13:45.600 interest is in the neighborhood of three to three and 0:13:45.640 --> 0:13:49.840 a quarter percent, which is double or even triple what 0:13:49.920 --> 0:13:53.120 you would normally expect. And so the Fed is not 0:13:53.200 --> 0:13:57.080 unaware that this is a monetary constraint on the economy. 0:13:57.720 --> 0:14:01.679 And the question is, and they can to be confident 0:14:01.800 --> 0:14:06.360 that inflation is dead or is vanquished before they a 0:14:06.360 --> 0:14:09.400 lot up on the brakes and they're paying attention to that. 0:14:09.440 --> 0:14:11.319 Certainly we're paying attention to that too. 0:14:11.440 --> 0:14:13.360 Steve, I'm going to kind of send a similar question 0:14:13.400 --> 0:14:15.000 over to you. I mean, what would it take for 0:14:15.480 --> 0:14:18.760 the FED to say, for you to say that your 0:14:18.760 --> 0:14:21.800 confident inflation is back to two percent consistently, and we're 0:14:21.800 --> 0:14:23.680 not going to see a mistake of the seventies or eighties. 0:14:25.360 --> 0:14:28.720 Well, it's not just the seventies and eighties, tim The 0:14:28.760 --> 0:14:32.720 FED got burned in twenty twenty one with their declaration 0:14:32.800 --> 0:14:34.960 that it was transitory and it was going to be okay, 0:14:35.000 --> 0:14:39.440 and they got head faked, and along came inflation in 0:14:39.440 --> 0:14:43.280 a way that they had really not expected. They were embarrassed, 0:14:44.320 --> 0:14:47.560 and they don't want that to happen again. So I 0:14:47.560 --> 0:14:50.960 think it's fair to say that it's pretty much finished. 0:14:52.160 --> 0:14:54.720 The FED gets a pass on the January meeting, even 0:14:54.720 --> 0:14:58.760 though arguably they could or should start cutting now, but 0:14:58.800 --> 0:15:01.040 they don't have to do anything now, and as a result, 0:15:01.120 --> 0:15:07.280 they get to see January labor information productivity, we get 0:15:07.920 --> 0:15:11.920 to see all of the things that are coming next 0:15:11.960 --> 0:15:15.240 before they meet again in mid March, and that really 0:15:15.280 --> 0:15:20.720 ought to give them confidence that it's vanquished or not. 0:15:22.240 --> 0:15:25.120 And I think there's a big opportunity for them to 0:15:25.160 --> 0:15:29.720 start cutting in March, but the rhetoric tomorrow is going 0:15:29.800 --> 0:15:32.920 to be very much the forward guidance. We're not ready 0:15:32.960 --> 0:15:35.280 to do that yet. We want to see that it's finished, 0:15:35.480 --> 0:15:36.400 But what's the app start? 0:15:36.880 --> 0:15:38.440 Let me jump in for a moment, Steve, because one 0:15:38.440 --> 0:15:40.600 of the things I'm obsessed. My whole team knows this. 0:15:40.760 --> 0:15:43.600 I listen to surveillance this morning on radio and they 0:15:43.600 --> 0:15:46.720 head on Nadia Leavel, senior US equity strategist over at 0:15:46.800 --> 0:15:50.000 UBS Financial Services, and she talked about the nearly one 0:15:50.040 --> 0:15:53.040 trillion dollars that is still on consumers balance and she 0:15:53.160 --> 0:15:56.280 said everything is contingent in terms of the US economy 0:15:56.280 --> 0:15:59.120 and what consumers do and what she said, fair amount 0:15:59.160 --> 0:16:01.680 of that excess saving nearly one trillion with a fifty 0:16:01.720 --> 0:16:04.240 billion or so burn rate gives a healthy cushion for 0:16:04.320 --> 0:16:08.520 a year plus. That should provide momentum and support for earnings. 0:16:08.600 --> 0:16:11.200 So Brad come back in on this. How much the 0:16:11.200 --> 0:16:13.880 FED is watching the consumer the consumer balance sheet, even 0:16:13.920 --> 0:16:16.600 though we continually talk with folks who talk about stress 0:16:16.960 --> 0:16:19.320 on that balance sheet. Nonetheless, for her to come in 0:16:19.440 --> 0:16:21.560 and say that there's still room to spend, does the 0:16:21.560 --> 0:16:25.120 FED have to be careful about pulling off too quickly 0:16:25.440 --> 0:16:27.720 and for kind of consumers to be off and running again. 0:16:27.800 --> 0:16:32.360 Yeah, absolutely, I think she's exactly right. Consumer balance sheets. Yeah, 0:16:32.520 --> 0:16:36.800 we've heard about increases in delinquency rates, and that's all true, 0:16:36.840 --> 0:16:39.480 but the truth is that consumer balance sheets are still 0:16:39.480 --> 0:16:43.320 pretty strong, and so the FED will look for signs 0:16:43.360 --> 0:16:48.000 of signs that consumption has started to falter. The most 0:16:48.040 --> 0:16:51.040 likely thing that comes first is that employment growth starts 0:16:51.080 --> 0:16:54.320 to falter. So you look for early warnings. But really 0:16:55.840 --> 0:16:59.160 what determines whether they can really pull off on the 0:16:59.200 --> 0:17:06.240 brakes is when consumption stops become being so strong going 0:17:06.280 --> 0:17:09.320 forward and we're just not there yet. The consumer keeps 0:17:09.359 --> 0:17:10.280 on surprising us. 0:17:10.359 --> 0:17:13.960 Well, and let's bring Steve. Why how do you make 0:17:14.000 --> 0:17:17.879 sense of the strength and the consumer and when you 0:17:17.960 --> 0:17:20.439 might anticipate that that starts to slow down or do 0:17:20.520 --> 0:17:22.280 you at all? 0:17:22.440 --> 0:17:25.600 Well, I think it will slow down. We're we've been 0:17:25.640 --> 0:17:30.440 seeing average hourly earnings at four percent, which is above 0:17:30.480 --> 0:17:33.120 the rate of inflation. Some of that is catch up 0:17:33.200 --> 0:17:37.800 to what we've experienced in higher prices, even though the 0:17:37.880 --> 0:17:42.800 rate of inflation has come down significantly, But consumers are 0:17:42.800 --> 0:17:46.399 spending there, they're doing it on their credit cards. Delinquencies 0:17:46.440 --> 0:17:51.440 are increased. I think the exces savings on balance sheets 0:17:51.520 --> 0:17:55.119 is not so evenly distributed, so I don't know how 0:17:55.200 --> 0:17:57.560 much of that will continue to power it going forward. 0:17:57.720 --> 0:18:00.399 That's a good point, but for right now. And you know, 0:18:00.440 --> 0:18:05.919 we saw a consumer confidence of percent with the with 0:18:06.040 --> 0:18:11.240 the January numbers. That that tells us that consumers feel 0:18:11.359 --> 0:18:14.480 good about what's happening in the economy right now. 0:18:14.880 --> 0:18:17.359 Hey, Brad, you were an economist at Fanny May and 0:18:17.800 --> 0:18:19.520 at the FED. So I want to hear from you 0:18:19.560 --> 0:18:21.679 if there's anything out there in the environment that you 0:18:21.720 --> 0:18:24.320 see that concerns you that isn't getting a lot of 0:18:24.359 --> 0:18:25.200 attention right now. 0:18:25.400 --> 0:18:28.120 Well, I think you know what, Mostly what most concerns 0:18:28.119 --> 0:18:29.679 me are things that do get a lot of attention. 0:18:30.359 --> 0:18:32.720 You know, the stock market is certainly overvalued, and so 0:18:33.200 --> 0:18:35.399 don't I don't want to call, you know, a stock 0:18:35.440 --> 0:18:39.160 market decline, but that's maybe the biggest risk going forward. 0:18:39.600 --> 0:18:41.480 But the other big risk that gets a lot of 0:18:41.520 --> 0:18:43.920 attention is the fact that house prices are so high. 0:18:44.000 --> 0:18:47.040 So if consumers start to feel stretched in terms of 0:18:47.080 --> 0:18:49.040 their balance sheets, I think what you're going to see 0:18:49.160 --> 0:18:51.880 is that they're not going to be willing to buy 0:18:51.880 --> 0:18:53.960 a house at these astronomical prices. 0:18:54.320 --> 0:18:56.399 I mean, I don't see that ever shifting. I know 0:18:56.600 --> 0:18:58.399 that was a dangerous thing to say pre two thousand 0:18:58.440 --> 0:19:02.600 and eight exactly what would shift. The demographics show right 0:19:02.600 --> 0:19:05.119 now that there is a serious lack of housing. And 0:19:05.160 --> 0:19:07.840 this is something that Powell has talked about over the years. Right, 0:19:07.880 --> 0:19:09.359 this is not a new problem by any means. I 0:19:09.359 --> 0:19:10.560 don't see how it gets solved now. 0:19:10.640 --> 0:19:13.159 I you know, well, I think actually my company is 0:19:13.400 --> 0:19:16.280 trying to solve that with with build to rent communities. 0:19:16.320 --> 0:19:18.760 You know, because it has always been that if you 0:19:18.800 --> 0:19:21.880 wanted four walls, you had to buy them. We're providing 0:19:21.920 --> 0:19:25.679 a different product and that provides an outlet for some 0:19:25.720 --> 0:19:26.359 of that demand. 0:19:27.400 --> 0:19:30.040 Well, yeah, it's interesting. We did get a data point 0:19:30.080 --> 0:19:32.919 today that US home growth, US home price growth slowing 0:19:32.920 --> 0:19:34.680 as those high mortgage rates are squeezing. 0:19:34.720 --> 0:19:36.679 To me, look what we heard from the Worldpool CEO 0:19:36.760 --> 0:19:39.400