WEBVTT - Bloomberg Surveillance: Mary Barra's Buyback Plan 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Ferrell and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.840 the Bloomberg Terminal, and the Bloomberg Business app. John Ferrell 0:00:30.920 --> 0:00:31.920 with Mary Burrow, I. 0:00:31.840 --> 0:00:33.640 Want to go through some of the numbers for our audience. 0:00:33.920 --> 0:00:37.000 Divid end up thirty three percent, biggest ever buyback plan 0:00:37.360 --> 0:00:40.040 ten billion dollars, forty billion dollar name yesterday. Just some 0:00:40.120 --> 0:00:44.120 context perspective there that is massive inquiring minds. Mary will 0:00:44.159 --> 0:00:47.479 want to know why have you decided to deliver a 0:00:47.600 --> 0:00:50.600 ten billion dollar buy back shortly after you've signed a 0:00:50.680 --> 0:00:53.960 labor contract that adds nine point three billion to expenses 0:00:54.440 --> 0:00:55.560 over its term. 0:00:56.240 --> 0:00:58.520 Well, as we looked at what was happening from a 0:00:58.600 --> 0:01:02.160 labor perspective, we had built and really the labor environment 0:01:02.280 --> 0:01:05.720 going into our negotiations, we had put conservative estimates into 0:01:05.760 --> 0:01:08.040 our plan. So although it was a little higher than 0:01:08.080 --> 0:01:11.000 what we expected, we believe that we have and our 0:01:11.000 --> 0:01:14.080 guidance for next year, we've already said that we'll be 0:01:14.120 --> 0:01:17.600 able to offset that completely with the plan that we 0:01:17.680 --> 0:01:20.360 already had of a two billion dollar cost out perspective. 0:01:20.800 --> 0:01:24.120 So we did the right thing to recognize our manufacturing 0:01:24.120 --> 0:01:26.319 team members who have done a great job and continue 0:01:26.360 --> 0:01:30.440 to build vehicles safely with high quality. And we also 0:01:30.480 --> 0:01:32.200 thought that we've got to look and make sure that 0:01:32.280 --> 0:01:34.880 we're balanced across all of our stakeholders, and our owners 0:01:34.920 --> 0:01:36.840 are very important. So we think this was a very 0:01:36.920 --> 0:01:40.080 balanced response when we look at what was done from 0:01:40.080 --> 0:01:42.280 a labor perspective and what we're doing as part of 0:01:42.280 --> 0:01:44.560 our capital allocation framework for our owners. 0:01:44.640 --> 0:01:46.919 Well, let's get into that. So shareholders are super happy. 0:01:46.959 --> 0:01:49.160 The name is up by almost eleven percent so far 0:01:49.240 --> 0:01:52.840 this morning. I wonder if you aw Wiz Mary, they 0:01:52.840 --> 0:01:55.760 didn't get the forty percent they wanted. They got twenty 0:01:55.760 --> 0:01:58.960 five plus cost of living adjustments and other things as well. 0:01:59.240 --> 0:02:01.080 Is the old things of this morning not something that 0:02:01.120 --> 0:02:01.720 concerns you. 0:02:02.280 --> 0:02:04.200 When I look at it, I think it's balanced. Again, 0:02:04.840 --> 0:02:08.120 we have very well compensated and you know, when you 0:02:08.160 --> 0:02:11.280 look at the suite of benefits that our represented team 0:02:11.320 --> 0:02:14.800 members have it's a very very appropriate package and frankly 0:02:14.919 --> 0:02:18.480 leading from an industry perspective broader than just the auto industry. 0:02:18.560 --> 0:02:21.200 So I think we did the right thing to recognize 0:02:21.200 --> 0:02:24.440 and reward the hard work of our manufacturing team members 0:02:24.680 --> 0:02:27.240 across the board. But also one of the things our 0:02:27.240 --> 0:02:31.360 manufacturing team members very much value is job security. And 0:02:31.440 --> 0:02:33.239 to have job security, you have to have a strong 0:02:33.280 --> 0:02:35.560 company and you have to look at all of your stakeholders. 0:02:35.800 --> 0:02:39.000 So what we did from a share buyback perspective for 0:02:39.120 --> 0:02:41.440 our owners is I think a very balanced response. 0:02:41.560 --> 0:02:43.320 As you know, this move this morning not just about 0:02:43.320 --> 0:02:46.520 the capital return program, also about cost cuts. We know 0:02:46.560 --> 0:02:49.760 you're looking to fully offset that labor contract the additional 0:02:49.760 --> 0:02:52.880 costs from it. Have you identified where you will cut 0:02:53.000 --> 0:02:53.960 where you need to cut? 0:02:54.480 --> 0:02:56.800 Yes, a lot of this was already underway. At the 0:02:56.800 --> 0:02:59.280 beginning of this year calendar year twenty twenty three, we 0:02:59.280 --> 0:03:03.280 announced it too, billion dollar cost reduction structural cost reduction 0:03:03.440 --> 0:03:05.400 between twenty three and the end of twenty four. 0:03:05.680 --> 0:03:06.679 That's well underway. 0:03:06.720 --> 0:03:09.200 As I said, we also comprehended that we would have 0:03:09.880 --> 0:03:12.600 increases in our labor cost as we looked at what 0:03:12.639 --> 0:03:17.680 the environment was and also wanting to reward our manufacturing employees. 0:03:17.720 --> 0:03:20.760 So you know there's work going across many aspects of 0:03:20.800 --> 0:03:23.639 the business and including making our products more efficient while 0:03:23.639 --> 0:03:27.000 still having the features, the functionality and beautiful designs that 0:03:27.000 --> 0:03:30.079 our customers want. So there's been a concentrated effort at 0:03:30.080 --> 0:03:33.800 the company to lower our fixed costs while enabling wonderful 0:03:33.800 --> 0:03:37.080 products and rewarding the team that is helping us deliver them. 0:03:37.200 --> 0:03:39.560 Clearly, these are additional costs. Are they forcing a change 0:03:39.560 --> 0:03:41.520 in execution or a change in strategy? 0:03:42.080 --> 0:03:45.440 Definitely not a change in strategy. Our strategy is clear. 0:03:45.560 --> 0:03:49.080 It's really based on four pillars of executing our strong 0:03:49.120 --> 0:03:52.720 internal combustion engine program vehicles, and we see we're performing 0:03:52.840 --> 0:03:54.880 very well in the market and we see that we're 0:03:54.880 --> 0:03:57.080 below the average incentives. I think that speaks to the 0:03:57.080 --> 0:04:01.280 strength of our internal combustion engine products. From an EVY perspective, 0:04:01.840 --> 0:04:04.200 we have confidence in the portfolio we have. We're a 0:04:04.240 --> 0:04:07.200 bit disappointed this year that we were constrained by the 0:04:07.280 --> 0:04:10.480 automation to build modules. So this is not something that 0:04:10.600 --> 0:04:14.080 is fundamentally an issue with Altium. It was more manufacturing 0:04:14.160 --> 0:04:16.640 automation issue that we're working and we'll be out of 0:04:16.680 --> 0:04:19.280 it by middle of next year and making improvement every 0:04:19.360 --> 0:04:21.159 quarter from that perspective. 0:04:21.200 --> 0:04:23.040 Also software and this year. 0:04:23.760 --> 0:04:27.119 Earlier this year, Mike Abbott joined our team who brings 0:04:27.200 --> 0:04:30.280 tremendous software expertise and he's built a very strong team 0:04:30.520 --> 0:04:32.120 that we'll share more about when we get to our 0:04:32.160 --> 0:04:35.400 investor day in March of next year. And then autonomy 0:04:35.520 --> 0:04:38.360 and when you look at autonomous vehicles and the importance 0:04:38.400 --> 0:04:41.920 of this technology and the talent that we have at Cruise. 0:04:42.480 --> 0:04:46.840 We are doing an independent review from an incident perspective 0:04:46.839 --> 0:04:49.760 but also overall from a safety perspective, and that will 0:04:49.760 --> 0:04:51.800 guide our path forward there. But we have a very 0:04:51.800 --> 0:04:54.839 capable team there. So the four pillars of our strategy 0:04:54.880 --> 0:04:58.200 have not changed at all. What has changed is our tactics, 0:04:58.360 --> 0:05:00.799 and our tactics are changing because of the world is changing. 0:05:01.000 --> 0:05:05.599 We never thought that the EV adoption would necessarily be 0:05:05.640 --> 0:05:08.360 a straight line. We've seen this in other markets, we're 0:05:08.400 --> 0:05:10.039 seeing it now in the US. But I think the 0:05:10.080 --> 0:05:12.560 thing that everybody has to remember, if the growth is slowing, 0:05:12.640 --> 0:05:15.720 it is still growing. And we think as we get 0:05:15.760 --> 0:05:19.039 more of the EV products we have this year into next, 0:05:19.240 --> 0:05:22.080 we think we're going to see is strong adoption for 0:05:22.160 --> 0:05:25.840 our products, and as the charging infrastructure continues to be 0:05:25.880 --> 0:05:28.600 more robust, we think that's going to drive adoption as 0:05:28.640 --> 0:05:31.200 well as having affordable evs. And that's where when you 0:05:31.200 --> 0:05:34.400 look at the Chevrolet Equinox as well as the Blazer 0:05:34.680 --> 0:05:36.920 and the Bolt that's coming, we're going to be having 0:05:37.160 --> 0:05:40.279 products in that range of affordable vehicles. 0:05:40.279 --> 0:05:42.440 That is going to be very important from EV adoption. 0:05:42.600 --> 0:05:44.680 Two things to unpack there. One is robot taxis. The 0:05:44.720 --> 0:05:46.839 other is EV. So let's deal with robot taxis. First, 0:05:47.320 --> 0:05:51.560 your counting expenses on crews substantially, just how committed are 0:05:51.640 --> 0:05:53.480 you there? I remember only a number of years ago 0:05:53.480 --> 0:05:55.800 we were talking about bringing in fifty billion in revenue 0:05:55.839 --> 0:05:58.359 by twenty thirty, and I get it. Married We'll understand 0:05:58.440 --> 0:06:00.600 that new tech is tough to develop, its to deploy. 0:06:00.880 --> 0:06:02.760 I think we're seeing that across a range of issues. 0:06:02.800 --> 0:06:05.000 But when do you know if it's the right time 0:06:05.040 --> 0:06:07.080 just to walk away from this well, I. 0:06:07.000 --> 0:06:09.320 Think the first of all, when you look at the 0:06:09.320 --> 0:06:11.240 progress that the Cruise team has made over the eight 0:06:11.400 --> 0:06:14.840 last eight years when General Motors acquired crews, I think 0:06:14.880 --> 0:06:18.839 it's substantial and we've already demonstrated that the cruise vehicle 0:06:18.880 --> 0:06:22.479 can perform at a level that's safer than a human driver. 0:06:22.800 --> 0:06:26.080 Let's not forget over forty thousand people on average lose 0:06:26.120 --> 0:06:30.080 their lives in traffic accidents in the US alone, and 0:06:30.200 --> 0:06:32.600 ninety percent of them are caused by human error. What 0:06:32.640 --> 0:06:35.680 we have learned with this incident is it's got to 0:06:35.680 --> 0:06:38.520 be significantly better than a human driver to drive adoption, 0:06:38.720 --> 0:06:40.359 and we have to do a much better job of 0:06:40.400 --> 0:06:43.279 working with the regulators. That's something that GM has a 0:06:43.360 --> 0:06:46.840 long reputation of working and being transparent with regulators at 0:06:46.880 --> 0:06:49.560 the local, state, and federal level. So I think as 0:06:49.600 --> 0:06:51.719 we do that and get the results of the independent 0:06:52.200 --> 0:06:54.960 review we're doing, that will guide us on our path forward. 0:06:54.960 --> 0:06:57.159 From an AV perspective. 0:06:57.000 --> 0:06:59.480 I'm always interested in how we know when we're wrong 0:06:59.560 --> 0:07:01.280 an exit size I think everyone has to go through, 0:07:01.320 --> 0:07:04.320 including myself married. But on this topic of EV's the 0:07:04.440 --> 0:07:07.440 slow down, what's behind it and why aren't we just 0:07:07.520 --> 0:07:11.160 learning that American consumers just don't want these cars? 0:07:11.760 --> 0:07:13.960 Well, I don't think it's that American consumers just don't 0:07:13.960 --> 0:07:16.960 want these cars. I think there still is limited availability 0:07:17.000 --> 0:07:19.520 when you look at the choice that customers had today, 0:07:19.520 --> 0:07:22.680 from an internal combustion vehicle perspective, I think a lot 0:07:22.680 --> 0:07:24.040 of the evs that are out. 0:07:23.880 --> 0:07:25.400 Right now are more expensive. 0:07:25.400 --> 0:07:26.880 You've got to look at where the sweet spot of 0:07:26.880 --> 0:07:28.880 the market is, and when you really want to win 0:07:28.920 --> 0:07:31.240 an EV's you've got to make sure that you are 0:07:31.320 --> 0:07:33.920 meeting the customer who only owns one vehicle. That's the 0:07:33.960 --> 0:07:36.960 bulk of people who buy vehicles today, new vehicles. They 0:07:37.000 --> 0:07:38.680 only own one vehicle or if they have two in 0:07:38.720 --> 0:07:43.040 their family. They're needed every day to earning their livelihoods. 0:07:43.280 --> 0:07:45.200 So we've got to get affordable. There's got to be 0:07:45.240 --> 0:07:48.800 a robust charging infrastructure. So again, the growth hasn't gone 0:07:48.840 --> 0:07:51.800 in reverse. It's slowing. I think we never expected. We 0:07:51.800 --> 0:07:54.200 thought it would be have some bumps along the way. 0:07:54.440 --> 0:07:55.760 I think that's what we're. 0:07:55.640 --> 0:07:56.440 Seeing right now. 0:07:56.600 --> 0:07:59.440 But I think when we have evs that are affordable, 0:07:59.760 --> 0:08:03.200 when people realize how much fun they are to drive 0:08:03.400 --> 0:08:06.400 and the performance and they're not giving anything up, and 0:08:06.440 --> 0:08:09.120 then that all important charging infrastructure, I think you know 0:08:09.120 --> 0:08:11.520 we're going to see them start to grow at a 0:08:11.560 --> 0:08:14.120 more rapid break again. And that's something that we'll continue 0:08:14.200 --> 0:08:16.400 to watch. And that's why we've changed some of our 0:08:16.440 --> 0:08:18.880 tactics to be responsive to where the customer is. 0:08:19.080 --> 0:08:21.240 You've been super generous with your time. Marriage. Just want 0:08:21.240 --> 0:08:24.360 to fit in one further question. Right now, you're a 0:08:24.400 --> 0:08:26.360 forty three billion dollar name. It's a big move this 0:08:26.440 --> 0:08:30.400 morning by ten percent. The forward multiple we're talking about 0:08:30.400 --> 0:08:33.200 four times expected earnings a little more than that after 0:08:33.200 --> 0:08:35.840 today's move. The stock has been dead money for the 0:08:35.840 --> 0:08:38.240 best part of a decade. You've been doing this a 0:08:38.240 --> 0:08:41.120 long time. I know you're super close with investors. What 0:08:41.280 --> 0:08:43.320 is it that you think is in this plan, this 0:08:43.440 --> 0:08:46.120 strategy that you have and a strategy that you've suggested 0:08:46.120 --> 0:08:48.760 this morning hasn't changed that's going to turn this around. 0:08:49.120 --> 0:08:52.360 Well, I think demonstrating our commitment to all of our 0:08:52.400 --> 0:08:54.840 stakeholders and the I think when you look at a 0:08:54.880 --> 0:08:59.360 ten billion dollar accelerated buyback program, it should signal because 0:08:59.559 --> 0:09:02.240 it means we have confidence in the cash generation ability 0:09:02.280 --> 0:09:05.160 of this company. We have confidence in our strategy across 0:09:05.200 --> 0:09:07.520 the four pillars that I covered. Yes, we had some 0:09:07.679 --> 0:09:10.800 challenges that this year with our ultim based evs that 0:09:10.840 --> 0:09:14.320 I think gabe investors some concern, But we're demonstrating the 0:09:14.320 --> 0:09:17.359 confidence that we and the board have that we're executing 0:09:17.360 --> 0:09:20.000 the strategy, and we're going to see growth, strong cash 0:09:20.000 --> 0:09:21.240 flow and strong margins. 0:09:21.440 --> 0:09:22.600 That's what we're going to deliver. 0:09:22.800 --> 0:09:25.920 That's captured in today's move nine percent. Mary, appreciate your 0:09:25.920 --> 0:09:27.600 time ready tell you thanks for catching up with us, 0:09:27.640 --> 0:09:33.480 Mary Parda of GM too. 0:09:33.520 --> 0:09:37.360 Wiseman joins us right now. Global Efects interest rate strategist 0:09:37.400 --> 0:09:40.000 much more than that at Macquarie, with lots and lots 0:09:40.040 --> 0:09:43.760 of experience on this. I love the first sentence of 0:09:43.800 --> 0:09:47.600 your note. Don't believe the hype You've been skeptical. Are 0:09:47.640 --> 0:09:50.520 you combining and dovetailing in with your low rate call 0:09:50.760 --> 0:09:52.520 a true slowdown in the economy? 0:09:52.640 --> 0:09:57.240 Yes? Absolutely. I think the narrative these days from Wall 0:09:57.240 --> 0:09:58.760 Street that I've seen in the last few weeks is 0:09:58.800 --> 0:10:00.760 that the reason the ten year field has been coming 0:10:00.760 --> 0:10:03.080 down is because we're in a disinflationary phase here in 0:10:03.080 --> 0:10:04.920 the economy, and there's going to be more disinflation to 0:10:04.920 --> 0:10:06.800 come in the US. I agree with that we are 0:10:06.840 --> 0:10:08.720 going to see disinflation in the US. It's going to 0:10:08.720 --> 0:10:10.520 come in rants, it's going to come in those eras 0:10:10.520 --> 0:10:13.800 of the CPI that are linked to consumer discretionary spending. 0:10:14.040 --> 0:10:15.840 But let's Also keep in mind one of the reasons 0:10:15.840 --> 0:10:17.920 we're going to see this disinflation is because the consumer 0:10:18.000 --> 0:10:21.599 is slowing. And there you have the don't believe the 0:10:21.960 --> 0:10:24.679 hype story, right, I don't believe the story is about 0:10:24.679 --> 0:10:30.400 record breaking Black Thursdays, by Friday sales and Cyber Monday sales. 0:10:31.280 --> 0:10:33.400 I think what I think these sales were on the 0:10:33.440 --> 0:10:35.920 back of heavy discounting. If you look at what some 0:10:35.960 --> 0:10:39.520 of these corporate execs had said prior to the start 0:10:39.559 --> 0:10:42.000 of the holiday spending season, they talked about having to 0:10:42.040 --> 0:10:45.199 cut prices. We'll all Marty even talked about deflation. So 0:10:45.520 --> 0:10:47.920 this is this is about disinflation. But let's keep in 0:10:48.000 --> 0:10:49.760 mind where this this inflation is going to come from. 0:10:49.800 --> 0:10:51.840 It's going to come from a weakening and pricing power 0:10:53.120 --> 0:10:56.360 at the consumer product and services level. It's going to 0:10:56.400 --> 0:10:59.880 be driven by slow down in agurate demand in the US. 0:11:00.240 --> 0:11:03.320 Also about how they're pank for this stuff Binapailita. You 0:11:03.320 --> 0:11:04.840 look at some of the numbers just booming. What do 0:11:04.840 --> 0:11:05.520 you take away from that? 0:11:05.640 --> 0:11:08.240 So my takeaway is from a macroeconomic perspective, what it 0:11:08.320 --> 0:11:11.000 does is it shifts spending to the early part of 0:11:11.040 --> 0:11:14.600 the season because normally you would have to save up 0:11:14.640 --> 0:11:17.679 a few more shekels as you approach your deadline on 0:11:17.760 --> 0:11:21.199 December twenty fifth to get those purchases done with by now, 0:11:21.480 --> 0:11:23.040 pay later. You don't need to do that, so it 0:11:23.080 --> 0:11:25.640 allows you to spend earlier, especially if you don't have 0:11:25.720 --> 0:11:28.839 access to revolving credit or credit cards. So I think 0:11:28.880 --> 0:11:30.640 that's another reason why we might have seen the so 0:11:31.160 --> 0:11:36.600 called record breaking days on last Friday and Monday. But again, 0:11:37.240 --> 0:11:39.360 if that's if it's the case that spending was only 0:11:39.679 --> 0:11:42.160 pulled forward, it doesn't mean that in aggregate for the 0:11:42.160 --> 0:11:43.960 whole of the season we're going to get that much 0:11:44.480 --> 0:11:45.679 that much hype. 0:11:46.559 --> 0:11:50.000 So far, people have viewed weaker US data as a positive. 0:11:50.200 --> 0:11:52.560 It's both been for a bond rally and a stock rally, 0:11:52.600 --> 0:11:54.120 And you're saying that we could see that bond rally 0:11:54.120 --> 0:11:57.480 continue quite significantly going forward. Will there be a diversion 0:11:57.559 --> 0:12:00.560 so in terms of risk asseesis or have to be 0:12:00.880 --> 0:12:03.280 to fuel a bond rally that goes much deeper than 0:12:03.320 --> 0:12:04.040 where we are now. 0:12:04.120 --> 0:12:07.920 Absolutely, to let the bond rally extend to say where 0:12:07.960 --> 0:12:09.880 the ten yure yield gets the three percent, I do 0:12:09.880 --> 0:12:12.600 think it has to be associated with a sell off 0:12:12.679 --> 0:12:14.720 at risk assets. I don't think you know, to get 0:12:14.760 --> 0:12:18.000 that kind of forceful move early in the bond market, 0:12:18.040 --> 0:12:20.920 you need to have some sort of dislocation in risk ASTs, 0:12:20.920 --> 0:12:24.319 some sort of drop in stocks, but over time, not necessarily. 0:12:24.400 --> 0:12:26.160 I think we can see a situation where, if this 0:12:26.240 --> 0:12:29.440 inflation continues slowly, you get the bond deal going down 0:12:29.440 --> 0:12:31.880 to where it was, let's say in the spring. Three 0:12:31.920 --> 0:12:35.160 and a half percent is not inconceivable without a stock 0:12:35.280 --> 0:12:40.160 market drop as long as it happens slowly and steadily. 0:12:40.280 --> 0:12:43.520 But well, corporations adapt. If I go back to bear Stearns, 0:12:43.520 --> 0:12:47.439 where you're held court, you had an entire security analysis 0:12:47.480 --> 0:12:51.440 team looking at these slowdowns, I don't buy the gloom. 0:12:51.480 --> 0:12:54.880 And the corporations, like General Motors, will adapt. 0:12:55.920 --> 0:12:59.599 I'm not sure what they're going to adapt to. Technological 0:12:59.640 --> 0:13:03.480 progress and changes. They can adapt to. Government policies that 0:13:04.040 --> 0:13:07.960 spur more investment in electric vehicles and clean energy technologies 0:13:07.960 --> 0:13:10.000 they can adapt to. But what do you do when 0:13:10.160 --> 0:13:13.480 you have excess inventory as the auto dealers do? 0:13:13.640 --> 0:13:13.840 Now? 0:13:13.960 --> 0:13:17.560 What do you do when the banks and the finance 0:13:17.600 --> 0:13:20.200 companies are cutting off credit to auto buyers? 0:13:20.640 --> 0:13:21.040 What do you do? 0:13:21.120 --> 0:13:24.120 Then you're not in control of that situation. You're in 0:13:24.160 --> 0:13:26.520 control of what's happening on your factory floor, You're in 0:13:26.520 --> 0:13:28.960 control of promotions, and maybe the way you adapt is 0:13:28.960 --> 0:13:31.480 by cutting prices. Let's face it, that's a way of 0:13:31.520 --> 0:13:34.800 adapting to to hold on to market share in the 0:13:34.840 --> 0:13:38.040 face of excess inventories, in the face of consumers slowing 0:13:38.040 --> 0:13:39.920 their demand. So yeah, they can adapt, but it's not 0:13:39.960 --> 0:13:42.880 necessarily in a way that is going to make their 0:13:42.880 --> 0:13:44.360 stock prices shoot up. 0:13:44.600 --> 0:13:47.400 You've identified a series of places in this economy where 0:13:47.400 --> 0:13:50.480 we could see lower prices retail, Walmart, talked about the 0:13:50.520 --> 0:13:53.480 auto makers, We're talking about GM, maybe lower prices, going 0:13:53.559 --> 0:13:55.520 to see that come through the pipeline soon. What's the 0:13:55.520 --> 0:13:57.720 biggest threat that still lingers for you? The biggest threat 0:13:57.760 --> 0:14:01.040 to that view that this disinflation continue through next year. 0:14:00.880 --> 0:14:05.679 It's supply shocks. I think the lesson of twenty twenty 0:14:05.760 --> 0:14:08.280 twenty two and early twenty twenty three was that we 0:14:08.360 --> 0:14:10.640 cannot control what happens in the rest of the world, 0:14:10.960 --> 0:14:13.599 especially as it pertains to the supply of oil, the 0:14:13.640 --> 0:14:16.600 supply of natural gas. So from my perspective, if we 0:14:16.640 --> 0:14:19.360 get another shock in that market, and by the way, 0:14:19.400 --> 0:14:21.880 it doesn't have to be because of a war, although 0:14:21.920 --> 0:14:23.920 in the past two years that has been the case. 0:14:24.320 --> 0:14:27.960 It could be simply that OPEC plus decides to curtail 0:14:28.320 --> 0:14:30.680 supply and we get a brand going back up to 0:14:30.720 --> 0:14:33.360 the low nineties as a result of that. Again, it's 0:14:33.360 --> 0:14:35.400 a question of how much they curtail supply by, but 0:14:35.480 --> 0:14:38.400 that's the biggest risk right now. The good news is 0:14:38.400 --> 0:14:40.920 that gasoline prices in the US have been falling for 0:14:41.400 --> 0:14:44.480 six weeks straight, I think, and steadily. I think that's 0:14:44.480 --> 0:14:46.800 going to show up in the CPI by the time 0:14:46.880 --> 0:14:49.200 we rolled around to seeing the November numbers and the 0:14:49.200 --> 0:14:52.240 December numbers. But the real reason that the CPI is 0:14:52.240 --> 0:14:55.760 going to still see disinflation is because rents rents in 0:14:55.840 --> 0:14:57.960 the new tenant market and the new lease market are 0:14:57.960 --> 0:14:59.360 coming down. That's going to put a lot of pressu 0:14:59.400 --> 0:15:02.200 ultimately on the yellows as measures of rents of primary residences. 0:15:02.320 --> 0:15:04.480 We're going to get that disinflation over the next few months. 0:15:04.680 --> 0:15:07.240 This is exactly what nil Data of Renaisance Macro is 0:15:07.280 --> 0:15:10.720 talking about tom the disinflation that's in the pipeline for 0:15:10.800 --> 0:15:13.440 rents for used cars, which is why based on what 0:15:13.480 --> 0:15:16.280 Walla said yesterday, it's not that much of an if 0:15:16.880 --> 0:15:18.640 for the likes of Terry, for the likes of Nil Duta, 0:15:18.640 --> 0:15:19.960 which is why they think you're going to get this 0:15:20.000 --> 0:15:22.360 conversation early next year about which you said interest rates. 0:15:22.480 --> 0:15:24.680 Yeah, there's no question there's a school of thought out 0:15:24.720 --> 0:15:26.680 there that this is not if. It's just simply when 0:15:26.760 --> 0:15:29.320 in the path to it. But I would dovetail it 0:15:29.400 --> 0:15:32.960 back to the labor economy, which we've barely touched on today, 0:15:32.960 --> 0:15:35.640 and we've got claims coming up here Thursday. And then 0:15:35.680 --> 0:15:38.240 you mentioned the late jobs report for November. I believe 0:15:38.240 --> 0:15:41.320 it's December eighth. But the basic idea here, John is 0:15:41.440 --> 0:15:44.440 when does a labor economy finally go? If you get 0:15:44.480 --> 0:15:47.440 a labor economy to go, you get there instantly. 0:15:47.960 --> 0:15:50.320 Claims two O nine, keep going back to two nine 0:15:50.320 --> 0:15:53.720 claims to eighty one economy in so many different ways 0:15:54.080 --> 0:15:56.080 over the last eighteen months or so. Terry, it's going 0:15:56.120 --> 0:15:58.680 to see it, Terry wi there at Macquarie. 0:16:07.960 --> 0:16:12.320 Longer going far away. There was KKR nineteen seventy six 0:16:12.360 --> 0:16:15.480 with history made in a style and a method. At 0:16:15.560 --> 0:16:20.320 KKR it was original. Shanale Basset gets an update from 0:16:20.360 --> 0:16:23.520 their co CEO Shanale, Good morning, Thank you, Tom. 0:16:23.560 --> 0:16:26.040 I'm standing by with the co CEO of KKR, Scott 0:16:26.120 --> 0:16:27.880 not All, and it is a really big day for 0:16:28.000 --> 0:16:31.040 KKR because they are doing this. They're buying the rest 0:16:31.080 --> 0:16:33.720 of Global Atlantic, a big insurance company that they don't 0:16:33.880 --> 0:16:36.920 already own. That is an all cash, two point seven 0:16:37.040 --> 0:16:40.120 billion dollar deal. But you're also creating a new unit 0:16:40.440 --> 0:16:44.480 at KKR that houses a core private equity business. If 0:16:44.520 --> 0:16:47.720 you had to give the market one way to understand 0:16:47.760 --> 0:16:49.720 what you're trying to do over there, what is it? 0:16:50.720 --> 0:16:52.440 First of all, Shanali, great to be with you, Thanks 0:16:52.480 --> 0:16:55.160 for having me. Really, what we're trying to do today 0:16:55.320 --> 0:16:57.640 is lay out the big three growth engines we have 0:16:57.720 --> 0:17:00.120 as a firm. So you're right, we are buying the 0:17:00.680 --> 0:17:04.199 minority stake in Global Atlantic we don't already own. We 0:17:04.200 --> 0:17:06.160 already owned sixty three percent of the companies, so we're 0:17:06.160 --> 0:17:09.640 buying the other thirty seven percent. Global Atlantic has been 0:17:09.720 --> 0:17:12.840 a great partnership for us. This is a transaction we 0:17:12.840 --> 0:17:15.359 did in twenty twenty one. The company is more than 0:17:15.400 --> 0:17:17.760 doubled since we announced the original deal in July of 0:17:17.800 --> 0:17:20.399 twenty twenty and it's been highly recurring a lot of 0:17:20.440 --> 0:17:24.000 growth earnings for KKR, so that's part one. We are 0:17:24.000 --> 0:17:27.720 also modifying our compensation ratios so our asset management business 0:17:27.760 --> 0:17:28.679 continues to scale. 0:17:29.080 --> 0:17:31.400 Our run rate management fees have doubled over the last 0:17:31.440 --> 0:17:32.000 three years. 0:17:32.400 --> 0:17:35.240 So the second thing we're doing is reducing the compensation 0:17:35.359 --> 0:17:39.080 ratioon fees, making an offsetting increase on kerry, and that 0:17:39.119 --> 0:17:41.600 will allow us to create more fee related earnings for 0:17:41.640 --> 0:17:42.160 our shareholder. 0:17:42.200 --> 0:17:43.800 You're changing the way you pay people. 0:17:43.560 --> 0:17:46.880 In effect, not the aggregate amount of compensation, but we're 0:17:46.920 --> 0:17:49.800 providing more of the fee related earnings to our shareholders, 0:17:50.400 --> 0:17:52.600 a little bit more carry to our people. 0:17:53.240 --> 0:17:54.760 The net of that is about. 0:17:54.440 --> 0:17:57.960 Neutral, but it will mean more of few related earnings overall. 0:17:58.240 --> 0:17:59.960 And then the third thing we're doing to your point, 0:18:00.080 --> 0:18:03.160 and this is relatively new for us, is we're creating 0:18:03.280 --> 0:18:05.000 a new segment for the firm. 0:18:05.080 --> 0:18:06.680 So we've historically reported. 0:18:06.320 --> 0:18:09.280 As asset management and insurance. We are adding a new 0:18:09.320 --> 0:18:12.720 segment called Strategic Holdings. And what we will include in 0:18:12.760 --> 0:18:15.800 there are the dividends that we're receiving and will begin 0:18:15.840 --> 0:18:19.800 to receive in greater magnitude from our core private equity portfolio, 0:18:20.040 --> 0:18:24.560 which is a portfolio of great diversified recession resistant companies 0:18:24.560 --> 0:18:26.679 that we've been building up over the last several years. 0:18:26.960 --> 0:18:30.600 KKR, Apollo, Brookfield, they're all buying insurance companies. All of 0:18:30.640 --> 0:18:34.040 you are diversifying in pretty meaningful ways if you think 0:18:34.080 --> 0:18:36.760 about it. It's made private equity, by the dollars, by 0:18:36.800 --> 0:18:39.800 the assets under management, a smaller part of all of 0:18:39.800 --> 0:18:42.119 your businesses. What does this mean for the future of 0:18:42.160 --> 0:18:42.880 private equity? 0:18:43.640 --> 0:18:46.200 Private equity is still a growth business for us. We 0:18:46.280 --> 0:18:48.919 expect to continue to grow that part of KKR for 0:18:48.960 --> 0:18:51.840 a long time, both with respect to the flagship strategies, 0:18:52.080 --> 0:18:54.480 but also we've created a number of different growth strategies. 0:18:54.600 --> 0:18:57.520 The core private equity business is part of private equity 0:18:57.600 --> 0:18:59.560 that's now a thirty billion dollar franchise for us. 0:19:00.280 --> 0:19:02.359 So this isn't about an ore. This is about an 0:19:02.400 --> 0:19:05.399 and we see an ability to grow PE and. 0:19:05.400 --> 0:19:08.720 All the other parts of KKR, and we've diversified meaningfully 0:19:08.760 --> 0:19:10.879 over the course of the last ten to fifteen years. 0:19:10.960 --> 0:19:12.760