WEBVTT - TCW's Rivelle: Cautious on EM Debt This Late In Cycle 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg PENL Podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Wicks. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:24.680 at Bloomberg dot com. Often people say that high yield 0:00:24.680 --> 0:00:28.160 bonds are a leading indicator. They tend to show weakness 0:00:28.520 --> 0:00:32.760 before US equities. If that is still true, there is 0:00:32.920 --> 0:00:36.000 no sign of weakness US hiled bonds of returned nearly 0:00:36.120 --> 0:00:41.479 seven percent in less than three months, of our markets 0:00:41.520 --> 0:00:44.519 overly complacent or they signaling that the good times can 0:00:44.600 --> 0:00:47.080 last a bit longer. Joining us here in our Bloomberg 0:00:47.120 --> 0:00:50.520 Interactive Broker Studios, Tad Ravel, chief investment Officer for fixed 0:00:50.560 --> 0:00:54.840 income at TCW, helping to oversee a hundred billion dollars 0:00:55.360 --> 0:00:58.800 under management normally based in Los Angeles. But you're grace 0:00:58.840 --> 0:01:00.880 in our presence here. Thank you, So, Tad, what do 0:01:00.920 --> 0:01:03.120 you think I mean that this uh six point seven 0:01:03.120 --> 0:01:06.520 percent gain dramatic and indicating that there is not any 0:01:06.560 --> 0:01:09.840 concern about it turning the credit cycle, Well, the headline 0:01:09.880 --> 0:01:12.640 is very impressive, but actually when you look underneath the hood, 0:01:12.720 --> 0:01:15.320 you actually see something a little bit different. In particular, 0:01:15.640 --> 0:01:18.080 you will notice that the triple C category, so the 0:01:18.120 --> 0:01:22.480 lowest tier of junkraded issuers out there, actually hasn't participated. 0:01:22.640 --> 0:01:24.960 So the spreads of triple cs are still I think 0:01:25.000 --> 0:01:28.480 about eight hundred and fifty plus basis points over treasuries 0:01:28.520 --> 0:01:32.280 plus or minus. So that's indicative that the fear level 0:01:32.319 --> 0:01:34.880 that investors experience in the fourth quarter of last year 0:01:35.040 --> 0:01:38.200 hasn't actually been completely dissipated. Must much of the rally 0:01:38.240 --> 0:01:41.880 actually has been The investors are in fact more discriminating 0:01:42.280 --> 0:01:45.759 in the current quarter than we've seen them in periods 0:01:45.959 --> 0:01:49.040 that were similar in terms of high returns, like two 0:01:49.080 --> 0:01:51.920 thousand seventeen, for instance. So it tad given where we 0:01:51.960 --> 0:01:56.080 are in terms of the economic cycle, the credit cycle, Um, 0:01:56.120 --> 0:01:58.160 where are you on the risk curve here? Where do 0:01:58.160 --> 0:02:01.120 you think investors should be going in terms of return? Here? 0:02:01.120 --> 0:02:03.000 How much riot should they be taking? I think you're 0:02:03.000 --> 0:02:05.600 supposed to be defensive, You're supposed to be highgrading your 0:02:05.640 --> 0:02:08.520 your bond portfolio. You're supposed to be focusing on a 0:02:08.600 --> 0:02:12.520 combination of traditional risk off instruments. That would be things 0:02:12.560 --> 0:02:15.480 like agency mortgages with some treasuries built into it, and 0:02:15.520 --> 0:02:18.480 then allocations to what we describe as bendable assets, so 0:02:18.800 --> 0:02:22.600 that would include Triple A rated commercial mortgage backed securities, 0:02:22.680 --> 0:02:26.640 Triple A rated asset backed securities, and UM investment grade credit. 0:02:26.680 --> 0:02:29.760 Provided that you've done your your credit homework properly and 0:02:29.800 --> 0:02:33.640 are properly thinking through and controlling for the for the 0:02:33.680 --> 0:02:36.360 fallen angel risk, what you're not supposed to be doing 0:02:36.760 --> 0:02:40.240 is adopting what we would describe as an early cycle strategy. 0:02:40.480 --> 0:02:44.000 An early cycle strategy would be where you're essentially dipping 0:02:44.040 --> 0:02:47.880 into and making significant allocations two things like high yield, 0:02:47.919 --> 0:02:50.720 emerging markets down the capital structure, taking on a lot 0:02:50.760 --> 0:02:53.639 of financial or operating leverage. You shouldn't be doing that, 0:02:53.880 --> 0:02:56.640 So emerging markets you're not. You're not a fan. Well, 0:02:57.080 --> 0:03:01.359 the the the emerging mark at asset class has many, 0:03:01.400 --> 0:03:04.400 many opportunities in it, obviously, but I think that as 0:03:04.440 --> 0:03:07.200 a as a general statement, it has many of the 0:03:07.280 --> 0:03:10.720 features that are similar to high yield. At the end 0:03:10.720 --> 0:03:14.799 of a cycle, you tend to experience significant downside volatility 0:03:14.880 --> 0:03:19.040 when there is a contraction and credited leveraging environment. So 0:03:19.080 --> 0:03:23.639 how far away are we from a contraction or downturning credit? Well, 0:03:23.680 --> 0:03:25.920 it looks like we were heading there actually just a 0:03:25.960 --> 0:03:29.640 couple of months ago, and then UH Chairman Powell decided that, um, 0:03:29.880 --> 0:03:32.200 we were getting there too fast, and so he decided 0:03:32.440 --> 0:03:34.240 to do something about it. And of course that's the 0:03:34.240 --> 0:03:38.200 whole genesis behind the most recent FED flip flop and 0:03:38.560 --> 0:03:42.200 movement to being patient. So here's the question of the 0:03:42.240 --> 0:03:44.680 day and the question of the cycle, which is can 0:03:44.680 --> 0:03:47.720 the FED ultimately direct the movement of the clouds? Um? 0:03:47.760 --> 0:03:51.280 Are they that skilled and that powerful that they can 0:03:51.280 --> 0:03:54.160 delay the end of the cycle forever um or have 0:03:54.240 --> 0:03:56.800 they simply delayed it for for now? I think we're 0:03:56.840 --> 0:03:58.920 in the camp that says they've delayed it for now. 0:03:59.120 --> 0:04:03.040 And when when does the market essentially decide to in 0:04:03.080 --> 0:04:06.240 effect veto the Fed's decision? Well? Who can say? So 0:04:06.560 --> 0:04:08.680 you talked about the FED flip flopping, and obviously today 0:04:08.680 --> 0:04:11.440 we're going to hear from FED Chairman Pal this afternoon. 0:04:12.200 --> 0:04:14.720 What do you expect to hear that maybe the markets 0:04:15.000 --> 0:04:18.480 not discounting today? Do you expect anything unusual coming out 0:04:18.480 --> 0:04:22.160 of the FED today absolutely not, I think I think 0:04:23.320 --> 0:04:27.800 I think that the bravado with which the FED spoke 0:04:27.839 --> 0:04:30.520 of five months ago right, It was only I think 0:04:30.520 --> 0:04:34.680 in September where Powell said something to the effect we 0:04:34.760 --> 0:04:37.800 are a long way from being being neutral, and we 0:04:37.920 --> 0:04:40.760 got lots of rate rises. We're gonna shrink that balance sheet. 0:04:41.000 --> 0:04:47.120 Look how quickly or how easily a whiff of cold 0:04:47.320 --> 0:04:50.719 winter risk blowing into the markets change the Fed's mind. 0:04:51.080 --> 0:04:53.480 I think that they are going to be very careful 0:04:53.760 --> 0:04:56.719 and measured in what they say today to keep investors 0:04:56.720 --> 0:04:58.520 on the on what day would view as the straight 0:04:58.560 --> 0:05:00.919 and narrow before we let you go. I want to 0:05:00.920 --> 0:05:03.320 get in the weeds a little bit with respect to 0:05:03.720 --> 0:05:06.200 energy high yield bonds because I think that there has 0:05:06.240 --> 0:05:10.000 been a really notable underperformance in this space and there 0:05:10.000 --> 0:05:12.880 have been some huge potholes. I was looking yesterday for example, 0:05:13.200 --> 0:05:16.200 ep Energy, which has more than four billion dollars of 0:05:16.240 --> 0:05:20.840 debt bonds falling forty cents in two days after disappointing earnings. 0:05:21.080 --> 0:05:22.840 Do you think that there are more bankruptcies to come 0:05:22.880 --> 0:05:26.200 in the show patch? Yes, is the short answer, And 0:05:26.640 --> 0:05:30.480 I think that I think that your example is an 0:05:30.520 --> 0:05:34.159 excellent one I think in terms of illustrating the asymmetry 0:05:34.240 --> 0:05:37.040 with which investors are approaching the market, which is that 0:05:37.360 --> 0:05:39.640 all you saw, as far as I know, was a 0:05:39.680 --> 0:05:42.720 disappointing earnings number coming out of the company, and that 0:05:42.800 --> 0:05:46.560 was enough basically to utterly reprice the capital structure of 0:05:46.600 --> 0:05:50.440 the business. So the complacency with which we saw investors 0:05:50.440 --> 0:05:53.279 operate a couple of years ago doesn't really seem to 0:05:53.279 --> 0:05:56.240 be enforced any longer. So ted us or any just 0:05:56.600 --> 0:05:59.799 ten seconds, any area that you're just avoiding, like the plague. 0:06:00.640 --> 0:06:04.320 Uh well, yes, there there are areas to to avoid, 0:06:04.360 --> 0:06:06.279 like to play, but they tend to be they I 0:06:06.279 --> 0:06:08.360 don't want to give you a broad brush stroke. There 0:06:08.400 --> 0:06:12.400 are there are specific areas and subsectors that you should 0:06:12.440 --> 0:06:15.960 be very careful and thoughtful about. Okay, but you're generally 0:06:16.040 --> 0:06:18.600 risk off. That's kind on taking away from from TAT. TAT, 0:06:18.600 --> 0:06:21.400 thank thank you very much. Thank you. Cautious, cautious, It's 0:06:21.400 --> 0:06:24.320 a better way. Tad Ravel, Chief Investment Officer for Fixing 0:06:24.400 --> 0:06:27.240 Comfort t c W. Joining us in our Bloomberg Interactive 0:06:27.240 --> 0:06:46.680 Broker's studio, we thought it'd be very interesting to get 0:06:46.720 --> 0:06:50.080 a sense of what local and regional banks, how they 0:06:50.080 --> 0:06:53.080 are dealing with the current interest rate, of environment, and 0:06:53.120 --> 0:06:56.240 how their customers are reacting. So we're very fortunate today 0:06:56.320 --> 0:06:58.719 to have Frank Sorrentino join us in our Bloomberg eleven 0:06:58.920 --> 0:07:02.359 three oh studios. Frank's chairman and chief executive officer of 0:07:02.440 --> 0:07:04.920 connect One Bank, which trades on the nastack unto the 0:07:04.960 --> 0:07:08.039 symbol c n O B. Frank, thanks very much for 0:07:08.160 --> 0:07:10.720 joining us. Um. I know you have your finger on 0:07:10.760 --> 0:07:12.800 the pulse of kind of where rates are going. That's 0:07:12.840 --> 0:07:15.160 your business. What do you expect to hear from the 0:07:15.200 --> 0:07:17.840 FED today? Well, thanks for having me again, But I 0:07:17.880 --> 0:07:20.600 don't think anyone's expecting any big surprise today. I think 0:07:20.600 --> 0:07:24.000 the FED has done a great job of telegraphing what's 0:07:24.040 --> 0:07:27.400 happening here over the last thirty or sixty days. Uh, 0:07:27.480 --> 0:07:30.080 it's pretty it's pretty clear to me that the FED 0:07:30.200 --> 0:07:32.560 is on pause for right now and and looking for 0:07:32.640 --> 0:07:35.680 some additional information. All right. I want some additional information 0:07:35.680 --> 0:07:37.880 about the housing market in particular, and I know that 0:07:37.920 --> 0:07:41.840 you have quite a long history of expertise in this area. 0:07:41.880 --> 0:07:44.560 You used to actually be a home builder, right, that 0:07:44.680 --> 0:07:47.280 is correct? So what are you seeing right now? I'm 0:07:47.320 --> 0:07:49.480 really having a hard time getting a read on the 0:07:49.560 --> 0:07:52.520 US housing market, whether it's slowing down or whether there 0:07:52.600 --> 0:07:54.920 was just a pause when mortgage rades rose and that 0:07:55.120 --> 0:07:57.720 it's now picking back up. You know, I'll tell you 0:07:57.760 --> 0:08:00.120 I I from what we see from our client Bay Ace, 0:08:00.200 --> 0:08:03.720 and it's really dependent on specific market areas, but certainly 0:08:03.720 --> 0:08:06.280 in the market that connect One represents in the New 0:08:06.360 --> 0:08:10.480 York metro market, we've never really fully recovered from the recession, 0:08:10.560 --> 0:08:15.720 and there's still a lack of available brand new housing 0:08:15.800 --> 0:08:19.800 that's I think is required, and so at various price 0:08:19.880 --> 0:08:23.160 points there is you would you wouldn't believe tremendous demand 0:08:23.280 --> 0:08:26.720 for for that product, and with mortgage rates still close 0:08:26.800 --> 0:08:30.160 to four percent, it's a very compelling time to purchase 0:08:30.200 --> 0:08:34.360 a home. Um, builders just can't find enough property, can't 0:08:34.360 --> 0:08:37.160 put up the product fast enough in certain markets. Now. 0:08:37.360 --> 0:08:39.520 Of course, we keep reading the headlines about some of 0:08:39.559 --> 0:08:42.080 the very very high end real estate that's lagging on 0:08:42.120 --> 0:08:44.480 the marketplace today, but that's not really indicative of what's 0:08:44.480 --> 0:08:47.320 going on across the rest of the country. So, Frank, 0:08:47.400 --> 0:08:50.319 your your your your bank, your institution is a Metro 0:08:50.480 --> 0:08:56.000 New York institution. UM, what are your local, regional, midsize 0:08:56.280 --> 0:09:00.640 customers telling you about just the overall economic community there 0:09:00.720 --> 0:09:04.000 there their willingness to invest in their in their companies. Look, 0:09:04.040 --> 0:09:06.880 people were very nervous as we came into the beginning 0:09:06.920 --> 0:09:09.920 of the year, thought that, uh, the interest rate cycle 0:09:10.000 --> 0:09:11.880 was going to be a runaway train. Rates We're gonna 0:09:11.880 --> 0:09:14.319 go higher, and people started thinking very very hard about 0:09:14.600 --> 0:09:16.800 some of the transactions that they may have been contemplating, 0:09:16.800 --> 0:09:18.520 whether they were going to buy something, invest in their 0:09:18.559 --> 0:09:22.040 companies and additional staff, whatever, I think. But as the 0:09:22.120 --> 0:09:24.560 as the year has unfolded and we're starting to see 0:09:24.600 --> 0:09:26.960 that the Fed has backed up a little bit, and 0:09:27.000 --> 0:09:30.199 we believe now that we're more in a more neutral 0:09:30.320 --> 0:09:34.079 environment relative to interest rates. Our clients are actually bullish 0:09:34.120 --> 0:09:36.600 about where things are today. And you know, this whole 0:09:36.640 --> 0:09:39.080 notion of of climbing a wall a worry, in my opinion, 0:09:39.120 --> 0:09:41.360 is a really good thing. It's making people be very 0:09:41.360 --> 0:09:44.199 thoughtful about every decision that they make. But at the 0:09:44.320 --> 0:09:48.439 end of the day, acquisitions are happening, investment is happening, 0:09:48.559 --> 0:09:51.360 Hiring is happening. The biggest complaint where we're hearing about 0:09:51.440 --> 0:09:55.280 is the availability of qualified staff today. That is hindering 0:09:55.320 --> 0:09:59.240 certain people's growth plans. So so pretty bullish is what 0:09:59.320 --> 0:10:01.880 our clients are are reporting to us, notwithstanding what we're 0:10:01.920 --> 0:10:03.640 reading in the news right or what we're reading in 0:10:03.640 --> 0:10:07.199 the newspaper. So, Frank, you talked about consolidation. There has 0:10:07.240 --> 0:10:10.000 been consolidation in a number of different sectors, including in 0:10:10.000 --> 0:10:12.840 the banking sector. And I know JP Morgan CEO Jamie 0:10:12.920 --> 0:10:15.680 Diamond came out and said he expected quite a bit 0:10:15.720 --> 0:10:19.679 more Bank of America reiterating that from your perspective, connect 0:10:19.679 --> 0:10:24.040 one has about six billion dollars in assets twenty nine locations. 0:10:24.280 --> 0:10:27.560 Are you seeing opportunities for acquisitions or do you think 0:10:27.559 --> 0:10:30.640 that there will be sort of ongoing consolidation that will 0:10:30.640 --> 0:10:33.679 affect you. So, as you know, we've taken advantage of 0:10:33.720 --> 0:10:37.920 the merger and acquisition marketplace. We did a large merger 0:10:38.040 --> 0:10:40.240 of equals back in two thousand fourteen, and we just 0:10:40.280 --> 0:10:42.439 completed a merger at the at the beginning of this year, 0:10:42.520 --> 0:10:46.360 starting on January two, which increased our size. And and yes, 0:10:46.400 --> 0:10:50.400 there is I believe a build up in in the 0:10:50.440 --> 0:10:54.960 desire for smaller banks to want to get together, uh 0:10:55.000 --> 0:10:57.480 in order to share the expense base that's required to 0:10:57.520 --> 0:11:00.560 run a financial institution today. And when we look at 0:11:00.679 --> 0:11:02.679 what the marketplace looks like today. You know, as I 0:11:02.720 --> 0:11:05.640 said before, twenty years ago there were some twenty thousand banks. 0:11:05.640 --> 0:11:08.560 There's five thousand banks today. I think we're headed very rapidly, too, 0:11:08.600 --> 0:11:12.560 closer to three. So, Frank, the news that Amazon was 0:11:12.720 --> 0:11:15.959 coming to Queens and then not coming to Queens As 0:11:15.960 --> 0:11:19.400 a New York metro lender, what do you take away 0:11:19.400 --> 0:11:21.760 from that as a as it relates to is New 0:11:21.840 --> 0:11:24.640 York open for business? So look, I think New York 0:11:24.760 --> 0:11:27.600 is definitely open for business. I'm not sure. I don't 0:11:27.600 --> 0:11:30.040 want to get into the political discourse about what may 0:11:30.120 --> 0:11:32.160 or may not have happened or what was or wasn't said. 0:11:32.200 --> 0:11:35.320 But at the end of the day, um, every major 0:11:35.400 --> 0:11:38.200 company is investing here in New York. And whether it 0:11:38.320 --> 0:11:42.120 is Amazon, and notwithstanding what you know the the HQ 0:11:42.320 --> 0:11:45.960 two conversation, but they're investing in New York. Google's investing 0:11:45.960 --> 0:11:48.760 in New York, Facebook, all the technology companies, all the 0:11:48.800 --> 0:11:54.080 financial institutions. Uh, there is a tremendous amount of investment 0:11:54.200 --> 0:11:57.559 coming into this area. We're feeling it, we're seeing it, 0:11:58.080 --> 0:12:00.680 and uh, I think it's a big positive for New York, 0:12:00.720 --> 0:12:03.200 and I would say today New York is definitely still 0:12:03.200 --> 0:12:06.960 open for business. Just lastly here, I'm curious about consumer 0:12:07.000 --> 0:12:10.880 confidence because this has sort of been an ongoing strength 0:12:11.320 --> 0:12:14.360 of of the market that consumers just continue to be confident. 0:12:14.400 --> 0:12:17.679 Are you seeing any potential headwinds to that at this point? 0:12:17.960 --> 0:12:20.040 You know? Again, I think this wall of worry concept 0:12:20.160 --> 0:12:22.440 is is something that keeps coming up. And when rates 0:12:22.480 --> 0:12:25.400 started to run up quickly at the end of last 0:12:25.480 --> 0:12:27.839 year or by the end of last year, I think 0:12:27.880 --> 0:12:30.840 that really put a little ding in consumer confidence and 0:12:30.880 --> 0:12:33.600 what was coming down the pike, uh, you know later on. 0:12:33.920 --> 0:12:35.640 I think as we stand here today, though, I think 0:12:35.640 --> 0:12:38.040 the consumer feels pretty good and is out there spending. 0:12:39.000 --> 0:12:41.240 Frank Sorrentino, thank you so much for being with us. 0:12:41.360 --> 0:12:45.160 Always wonderful having you on. Frank Sorrentino is chairman and 0:12:45.200 --> 0:12:49.160 chief executive officer of Connect One Bank based in Englewood Cliffs, 0:12:49.280 --> 0:12:51.720 New Jersey. He is joining us here today in our 0:12:51.760 --> 0:12:56.440 Bloomberg Bloomberg Interactive Broker studios in New York. Let's give 0:12:56.480 --> 0:12:59.079 you a sense of what is happening in markets ahead 0:12:59.080 --> 0:13:02.560 of that FED meeting. The answer nothing, not very much 0:13:02.600 --> 0:13:04.880 at all. The markets are pretty much flat say that 0:13:05.040 --> 0:13:06.800 for quite some time, haven't we And and then this 0:13:06.880 --> 0:13:08.960 is sort of to me one of the big question 0:13:09.000 --> 0:13:12.240 marks in markets today, which is, uh, there has been 0:13:12.320 --> 0:13:15.240 such a reduction in volatility at this point that a 0:13:15.240 --> 0:13:18.240 growing number of analysts are saying that it does sort 0:13:18.240 --> 0:13:22.839 of foretell some kind of broader whiplash akin to Taper 0:13:22.920 --> 0:13:25.840 tantrum when we saw volatility shrink to the same kinds 0:13:25.840 --> 0:13:43.560 of degree. Well, there certainly is a lot of news 0:13:43.600 --> 0:13:46.440 out of the auto industry today, including a bmwes profit 0:13:46.480 --> 0:13:49.440 warning which knock that stock down five and also news 0:13:49.440 --> 0:13:51.720 that a Ford Motor company where the company plans to 0:13:51.920 --> 0:13:55.320 spend about nine million dollars and higher about nine workers 0:13:55.320 --> 0:13:58.840 to build electric and self driving vehicles in Michigan while 0:13:58.880 --> 0:14:02.400 moving production of a small commercial van to Mexico from Europe. 0:14:02.800 --> 0:14:04.880 I mus stick through those issues, we bring in and 0:14:04.920 --> 0:14:07.880 welcome David Welch. David is the Detroit bureau chief for 0:14:07.920 --> 0:14:11.360 Bloomberg News, joining us from the Detroit bureau. David, Welcome. 0:14:11.559 --> 0:14:14.560 Let's start with that Ford news. How big of a 0:14:14.679 --> 0:14:17.120 news item is that for Ford? How much teer is this? 0:14:18.160 --> 0:14:21.200 Because this is pretty big because all we've heard about 0:14:21.280 --> 0:14:24.560 recently from the car companies is cutting jobs, cutting back. 0:14:25.560 --> 0:14:28.640 Even the BMW news you mentioned is sort of kicking 0:14:28.640 --> 0:14:31.040 off a big austerity program for them to get their 0:14:31.040 --> 0:14:34.720 profits in line. Everybody's just cutting jobs out, whether it 0:14:34.720 --> 0:14:39.000 be white Cower engineers or blue cour assemblers, uh, in 0:14:39.040 --> 0:14:42.720 the areas where they make conventional gasoline powered cars. Um. 0:14:43.600 --> 0:14:45.440 So you've got a couple of things going on with Ford. 0:14:45.480 --> 0:14:47.560 Not only is it interesting that the writing jobs, it's 0:14:47.600 --> 0:14:50.960 quite a few of them, a lot uh. Last week, 0:14:51.000 --> 0:14:53.120 Gentle Motors said they're going to hire a thousand people 0:14:53.160 --> 0:14:57.080 at its Cruise Automation subsidiary that makes self driving software 0:14:57.080 --> 0:15:00.000 and technology. So Okay, the bottom line here is if 0:15:00.080 --> 0:15:02.840 you make electric cars, if you make self driving cars, 0:15:03.360 --> 0:15:05.280 that's a good place to be. If you're an engineer 0:15:05.320 --> 0:15:08.840 who releases brake calipers, or you're an assembler of gasoling 0:15:08.880 --> 0:15:12.560 power sudans is you're in trouble. And and that's what's 0:15:12.560 --> 0:15:15.680 really going on. But what Ford is saying hiring nine 0:15:16.080 --> 0:15:18.600 people for an under used plan near Detroit to make 0:15:18.600 --> 0:15:21.360 electric cars, that's a lot of people, said, tells us 0:15:21.360 --> 0:15:23.360 they're going to be making a lot of evs. It 0:15:23.440 --> 0:15:27.080 also tells us that Ford is making quite an interesting 0:15:27.520 --> 0:15:31.440 public relations moves announcing this the same day that President 0:15:31.480 --> 0:15:35.040 Trump visits an Ohio tank plant after a sharp criticism 0:15:35.040 --> 0:15:37.920 of General Motors. How much is this sort of politically 0:15:38.040 --> 0:15:41.920 motivated as far as the timing goes, I would say 0:15:42.080 --> 0:15:46.480 the timing of the announcement absolutely. Now for GM, all 0:15:46.520 --> 0:15:48.800 the car makers, they don't just flick a switch on 0:15:48.880 --> 0:15:50.680 and say we're going to add jobs or do something 0:15:50.800 --> 0:15:53.000 at a plant overnight. So this has been planned for 0:15:53.040 --> 0:15:55.320 some time because they had to engineer the vehicles. But 0:15:56.840 --> 0:16:00.360 on the eve of or i should say, them warning 0:16:00.400 --> 0:16:03.680 of an evening rally President Trump is having after he 0:16:03.760 --> 0:16:08.000 spent the weekend bashing General Motors overcutting jobs in Ohio. Yeah, 0:16:08.040 --> 0:16:10.440 you know, this is Ford's way of kind of sticking 0:16:10.680 --> 0:16:14.200 uh sticking it in, uh the knife into their crosstown rifle. 0:16:14.240 --> 0:16:18.000 I think, and also look early in Trump's presidency, he 0:16:18.120 --> 0:16:21.920 really was beating up Forward for not producing enough in 0:16:21.920 --> 0:16:24.240 the US, and GM kind of got a free pass 0:16:24.280 --> 0:16:27.040 for a while, even though GM has more factories and 0:16:26.840 --> 0:16:30.320 and makes more vehicles in Mexico than Ford does. Now 0:16:30.360 --> 0:16:33.600 that that Ford is h is kind of you know, 0:16:34.120 --> 0:16:36.600 in good stead with the president over adding jobs, why 0:16:36.600 --> 0:16:39.720 not make hay out of it, especially when GM's the 0:16:39.720 --> 0:16:43.560 one getting the beating these days. But from a corporate perspective, 0:16:43.840 --> 0:16:46.640 is Ford doing the right thing? Ford chairs down two 0:16:46.640 --> 0:16:49.760 point two percent right now, I'm wondering. This comes after 0:16:49.840 --> 0:16:53.160 BMW issued a profit warning saying that earnings will fault 0:16:53.160 --> 0:16:56.400 well below last year's level, siting, among other things, the 0:16:56.480 --> 0:16:59.200 cost of making electrical vehicles. I mean, how much is 0:16:59.240 --> 0:17:02.760 it not paying off yet? This is the problem that 0:17:02.800 --> 0:17:06.399 car companies have is you have to make electric cars 0:17:06.440 --> 0:17:10.199 because Tesla is driving this whole thing where governments and 0:17:10.280 --> 0:17:14.600 increasingly consumers want evs. Now where they're going to write. 0:17:14.640 --> 0:17:17.400 Not every consumer does, but that's where the market is going, 0:17:17.400 --> 0:17:21.200 whether it's from a regulatory standpoint or eventually, uh from 0:17:21.200 --> 0:17:23.879 a consumer standpoint. Problems winner consumer is really going to 0:17:23.920 --> 0:17:25.280 be buying a lot of these? And when will these 0:17:25.280 --> 0:17:28.639 cars make money? GM says that it's next round of 0:17:28.760 --> 0:17:31.520 evs will make money starting in about They say they'll 0:17:31.560 --> 0:17:34.159 be profitable. Will they be as profitable as the current vehicles? 0:17:34.240 --> 0:17:37.400 Investors are dubious? So in the cvous investments, they know 0:17:37.720 --> 0:17:40.240 that the car companies have to do this, but that 0:17:40.280 --> 0:17:42.920 doesn't really help them. It doesn't help investors because they're 0:17:43.200 --> 0:17:45.320 they're worried they can make any money on these vehicles, 0:17:45.359 --> 0:17:47.200 and if they do, it'll be lower margins, So why 0:17:47.240 --> 0:17:50.080 should they put their money elsewhere? Very easy for investors 0:17:50.080 --> 0:17:52.200 to say, hey, you know what, let's let these guys 0:17:52.200 --> 0:17:55.160 start making evs and see if it hurts or doesn't hurt, 0:17:55.200 --> 0:17:57.040 or even helps the bottom line. We'll put our money 0:17:57.119 --> 0:17:59.359 somewhere else while that whole thing is playing out this 0:17:59.600 --> 0:18:02.600 interim period here when everybody is investing in self driving 0:18:02.600 --> 0:18:06.440 cars or electric cars waiting for those businesses to pay off. 0:18:07.200 --> 0:18:10.600 It's gonna be tough for them to deal with investors 0:18:11.440 --> 0:18:13.560 in this time because it's a lot of money being spent. 0:18:13.600 --> 0:18:16.040 You're not going to see return on maybe for several years, 0:18:16.080 --> 0:18:18.480 maybe for a decade for some of this stuff. So, David, 0:18:18.520 --> 0:18:22.080 where is Ford Motor Company relative to its peers in 0:18:22.160 --> 0:18:25.280 terms of its electric and self driving vehicles from a 0:18:25.320 --> 0:18:28.160 competitive perspective? To look at what's on the market now, 0:18:28.240 --> 0:18:31.760 they really they have more hybrids than they have pe evs. 0:18:32.359 --> 0:18:37.360 It's really Tesla, General Motors, Oh Nissan to a certain degree, 0:18:37.640 --> 0:18:39.480 they have an EV out there. It's it's not a 0:18:39.520 --> 0:18:41.479 great one in terms of battery range, but they've been 0:18:41.480 --> 0:18:43.760 in that business for quite a while. Those are the 0:18:43.760 --> 0:18:46.240 three main players. The German carmakers are coming out with 0:18:46.280 --> 0:18:48.720 a lot of electric vehicles in the next year or two. 0:18:48.760 --> 0:18:51.440 So you're going to see a wave from the what's 0:18:51.440 --> 0:18:55.760 called the Porsche of Volkswagen uh combine, you'll see how 0:18:55.840 --> 0:18:59.000 these Volkswagen's Porsche evs coming out there. They're already taking 0:18:59.119 --> 0:19:02.280 orders I think on the por should taken EV so 0:19:02.800 --> 0:19:06.200 uh words, kind of trailing behind those players right there. 0:19:06.280 --> 0:19:09.000 But the fact that they're they're going to be staffing 0:19:09.040 --> 0:19:11.439 this plant Uptotia, that they're they're going to be racing 0:19:11.440 --> 0:19:13.719 and catching up pretty quickly, broadening out a little bit 0:19:13.720 --> 0:19:17.360 beyond electric vehicles. I'm wondering BMW's profit warning comes. It's 0:19:17.359 --> 0:19:20.200 sort of a tenuous time for the auto industry at large. 0:19:20.480 --> 0:19:24.240 I'm wondering how concerning it is that they did say 0:19:24.240 --> 0:19:27.480 that earnings would fall so far below last year's level, 0:19:27.680 --> 0:19:31.120 at the same time as Nissan saying that it's it's 0:19:31.200 --> 0:19:33.879 not going to necessarily see as much of an expansion 0:19:34.240 --> 0:19:38.040 in China as it had previously thought, Yeah, there's a 0:19:38.440 --> 0:19:42.199 there's a kitchen sink aspect to what the BMW tourist. Right, 0:19:42.840 --> 0:19:44.879 everybody has to invest a lot of money in cars 0:19:45.040 --> 0:19:46.960 and in electric cars and our timmy right now, and 0:19:46.960 --> 0:19:49.959 it's costing them and in the netting of return. So 0:19:50.119 --> 0:19:52.439 we we we, you know, we talked about that and 0:19:52.480 --> 0:19:54.960 that that was a big piece of what BMW said 0:19:55.000 --> 0:19:58.160 this morning, that that those costs are are really hurting 0:19:58.160 --> 0:20:01.080 their bottom line. So it a pretty big deal from 0:20:01.080 --> 0:20:04.199 that perspective. Now, I think they're doing this at a 0:20:04.240 --> 0:20:06.840 time when they know the markets are getting soft. China 0:20:06.880 --> 0:20:09.280 took a step back last year and it's still kind 0:20:09.280 --> 0:20:12.760 of uneasy. The US still very strong levels historically, but 0:20:12.920 --> 0:20:15.800 still stepping backwards. And the other markets, the emerging markets 0:20:15.800 --> 0:20:20.240 where and sees growth, places like South America, Brazil, especially 0:20:20.680 --> 0:20:23.520 India and Russia. Just a lot of reasons that that 0:20:23.600 --> 0:20:26.560 things aren't growing. There are a lot of instability either 0:20:26.600 --> 0:20:29.600 with infrastructure in the case of India, politics with Russia. 0:20:29.920 --> 0:20:31.560 So no one's really seen a lot of growth in 0:20:31.560 --> 0:20:34.840 their car business right now. So if you're going to 0:20:34.880 --> 0:20:38.240 tell investors that EVS and a vis uh, you know, 0:20:38.280 --> 0:20:40.720 that's industry parents for Autno vehicles are going to cost 0:20:40.720 --> 0:20:42.199 you a lot of money. Hit the bottom line, you 0:20:42.280 --> 0:20:44.680 might as well do it. When the markets are wusy 0:20:44.680 --> 0:20:46.800 in the big places where you've been seeing some growth, 0:20:47.240 --> 0:20:49.399 kind of kitchen sink everything at once. Take the hit 0:20:49.480 --> 0:20:51.480 on your share price, take the head on your profits. 0:20:52.400 --> 0:20:55.920 Start leaning up. And then when things start to grow again, 0:20:56.200 --> 0:20:58.359 when the cycle turns back up, and you can start 0:20:58.400 --> 0:21:00.920 boasting about how your evs are on great and they're 0:21:00.960 --> 0:21:03.960 breaking even, are making money, and maybe you'll get some enthusiasm. 0:21:04.000 --> 0:21:06.120 But I get the sense of the car companies, they're 0:21:06.160 --> 0:21:08.879 just clouds all around them. The business isn't bad everyone. 0:21:09.080 --> 0:21:12.000 This isn't crazis time in terms of companies threatened with 0:21:12.040 --> 0:21:14.800 bankruptcy like we saw a decade ago. But it is 0:21:15.240 --> 0:21:18.760 crass time for investor interests. But it that way, and 0:21:18.760 --> 0:21:20.159 I think you're going to see the stacks take a 0:21:20.240 --> 0:21:22.680 beating for a while. David Welch, thank you so much 0:21:22.720 --> 0:21:24.840 for being with us. David Welch, Detroit bureau chief for 0:21:25.119 --> 0:21:40.480 Bloomberg News, coming to us from Detroit. Well, I think 0:21:40.480 --> 0:21:44.400