Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg
Speaker 1: dot com, and of course on the Bloomberg terminal. Belisa
Speaker 1: bramw it's Mr Cooperman. I believe as a caution on
Speaker 1: the market out one year, state the case as you
Speaker 1: see it. Well, the idea is where else are you
Speaker 1: going to go? Are you going to go into bonds?
Speaker 1: You're going to go into anything else. You're not going
Speaker 1: to see a massive crash necessarily in stocks. At the
Speaker 1: same time you're getting inflation, you're getting these cost pressures
Speaker 1: that we heard out from General Motors. I will just
Speaker 1: say that he himself in a recent interview so that
Speaker 1: he did get a new car among others, although he
Speaker 1: treated it at two thousand and two Lexis for a Hyundai.
Speaker 1: So Leonne Cooperman, I'm sure I can talk all of that.
Speaker 1: The supplied to me. We's got a twelve car garage,
Speaker 1: so we know that's I look at the debate here
Speaker 1: that we've got here on the equity markets right now,
Speaker 1: and it's what everybody's looking at. And I think we
Speaker 1: forget John, it's expecting out six months, nine months, a
Speaker 1: year out. What does twenty two look like? A deceleration?
Speaker 1: How big is that deceleration? We're still working our way
Speaker 1: through so many huge distortions. And the analogy that I've
Speaker 1: used right now for the American economy, and others have
Speaker 1: shared that view too, is that it's like holding a
Speaker 1: beach ball beneath the surface. This was a mandated recession.
Speaker 1: Now the policy has changed. The beach ball is searching
Speaker 1: to the surface again and going even higher. We've got
Speaker 1: to work out what it looks like in twenty three
Speaker 1: is a return to trend growth? And what is normal
Speaker 1: actually look like? You how many people come on the show,
Speaker 1: on other shows on networks like this and talk about
Speaker 1: the return to normal? What is normal? Oh? That's true?
Speaker 1: And that well, that's better said than when I said,
Speaker 1: John about February pre pandemic. Was that normal? And we
Speaker 1: really don't know in the hindsight of this natural disaster, John,
Speaker 1: Let's start with the oil. Seven many dollars a barrel.
Speaker 1: Good morning, Brent, flying year today and over the last
Speaker 1: twelve months to create doing okay, right now, it's w
Speaker 1: T I sixty six handle Bongio tie by a couple
Speaker 1: of basis points. Tom want You're a dollar once Swenzi muted,
Speaker 1: price action unchanged on the day, and futures bounced back
Speaker 1: about full tents on the SMP up six tenths on
Speaker 1: the NASTAG one hundred. Very good. Now, just get right
Speaker 1: to it, because I know you're widely anticipate this. Leon
Speaker 1: Cooperman joins us with decades of experience on Wall Street
Speaker 1: and the guys and his building of a certain wing
Speaker 1: of golden sex ages ago, someone that people hang on
Speaker 1: every word. Leon Cooperman with Omega and their family office
Speaker 1: chairman and CEO, Leah Cooperman, we want to talk about
Speaker 1: the markets front and center. But I've got to ask
Speaker 1: you once and for all, as we have seen time
Speaker 1: after time after time, the hiding of leverage on Wall
Speaker 1: Street to get to some form of point of greed,
Speaker 1: and it always ends ugly and shakes market confidence. His
Speaker 1: arcer ghosts and all that that secret leverage that no
Speaker 1: one knew was there. Is it harmed permanently our market confidence?
Speaker 1: I think it's permanent. Everything is cyclical, you know. Uh,
Speaker 1: it's just the evidents of greed basically. I mean the
Speaker 1: fact that after long term capital the industry would get
Speaker 1: into this kind of predicament again. I don't know what
Speaker 1: I would say so quickly, but get into the same
Speaker 1: predicament again. It's kind of surprising. And I guess they
Speaker 1: wanted to make a margin on what they lent this fellow.
Speaker 1: And uh, you know, I was saying that the more
Speaker 1: things change and more than remain the same. Late John,
Speaker 1: Hey got to catch up as always going to see
Speaker 1: you again. What do you make of the increased demands
Speaker 1: for transparency disclosures of the hedge fund community and maybe
Speaker 1: even family offices as well off the back of that incidents.
Speaker 1: I don't get the idea of the family office, you know.
Speaker 1: I can tell everybody. I'm like Hyman Roth and Godfather too.
Speaker 1: I've only seen a hundred times. I never get tired
Speaker 1: of it. Is a scene at the airport where right
Speaker 1: before they shoot him in Ruth he said, I'm a
Speaker 1: retired executive living on a pension, and I think of myself,
Speaker 1: I'm a retired money manager living on investment income. The
Speaker 1: bad news I no longer have this giant income I
Speaker 1: used to have when I ran a hedge fund. The
Speaker 1: good news, I have no pressure. I run my own money,
Speaker 1: So why they have the right to regulate me, uh
Speaker 1: is beyond my wildest dreams. But look, we're in a
Speaker 1: very strange environment. A lot of crazy things are going on.
Speaker 1: I think the market structure has been destroyed by a
Speaker 1: number of moves made by government, and we'll have to
Speaker 1: just work our salves through it. In terms of the market,
Speaker 1: you know, I describe myself as a reasonably fully invested bear.
Speaker 1: The fully invested part is all cyclical, you know, given
Speaker 1: all those decades of experience that Tom attributed to me,
Speaker 1: I've said that, you know, bear markets don't come about
Speaker 1: because of maculate conception. They come about because of certain
Speaker 1: fundamental factors accelerating inflation. We don't have that hotstyle FED
Speaker 1: and we don't have that. In fact, I'd say the
Speaker 1: FED is too accommodative. Um, you know, it comes about
Speaker 1: because we are the market smells an oncoming recession. The
Speaker 1: factors we're coming out of recession, corporate propers a terrific
Speaker 1: you know, and so uh, the normal conditions that cause
Speaker 1: the bare market are not present, and I uh. The
Speaker 1: other one I would mention is, you know, a significant
Speaker 1: geopolitical event which you can forecast, but we have plenty
Speaker 1: to worry about China, Ran Taiwan, etcetera. But and I
Speaker 1: think the biggest plus out there is the fetest creative environment,
Speaker 1: where is there's an absence of alternatives. You know, you've
Speaker 1: you reference this when you were chatting before, but essentially
Speaker 1: there's an absence of alternatives. And what's happening is everybody's
Speaker 1: being pushed out in the risk curve. The investor that
Speaker 1: used to buy tea bills, he concluded or she concluded,
Speaker 1: I can't survive on zero, so I'm gonna take duration
Speaker 1: and inflation risk and I'll buy tea bonds. The team
Speaker 1: bond buyers that I can't get by on one point
Speaker 1: six percent, so I'm gonna buy industrial credits. The industrial
Speaker 1: credit buyers says, I can't get buy in three percent.
Speaker 1: I'm gonna buy high yield. The high yield buyer there's
Speaker 1: no the thing as yield anymore, but the high yield
Speaker 1: biases I can't get buying five or six percent. I'm
Speaker 1: gonna buy structure credit, cellos and stuff. Like that, which
Speaker 1: tend to have a higher yield is their moort opaque
Speaker 1: and the and then the bond guy who buys cello
Speaker 1: or a lady basically says, well, I'll tell you what
Speaker 1: the markets are hid my money and equities, and the
Speaker 1: equity person is I'm gonna put two percent in bitcoin.
Speaker 1: So everybody, everybody has been moving on the risk curve.
Speaker 1: That will change. I have to say, well, I'm reasonably
Speaker 1: heavily invested. I'm having a very good year that I
Speaker 1: I am more focused on the longer term issues. Since
Speaker 1: I'm running my own money, I don't compete against the
Speaker 1: SMP five hundred. I'm an absolute return guy. But it
Speaker 1: seems to me if you step back and think about
Speaker 1: what's going on, it's very very clear we are barring
Speaker 1: from the future. We are barring from the future. If
Speaker 1: you had a hundred economists on your show and you
Speaker 1: asked him what is the potential real growth of the U.
Speaker 1: S economy over time? The answer would be centered around
Speaker 1: two percent real and that you get there because one
Speaker 1: percent productivity growth, half one percent a a force growth
Speaker 1: that determines real growth. That's two percent. You speak to
Speaker 1: a bear, they'll say one and a half percent. You
Speaker 1: speak to a boat, they might say two and a percent,
Speaker 1: but the response is sent around two percent. This year,
Speaker 1: the economy in real terms, are gonna grow three to
Speaker 1: four times potential, Yet we're persistent in trying to hold
Speaker 1: interest rates in zero. Makes no sense to me. I
Speaker 1: understand that. I'll explain why in a second. Secondly, prior
Speaker 1: to the one point nine trillion package, prior to the
Speaker 1: two trillion dollar package, prior to less ten days four
Speaker 1: trillion dollars of infrastructure spending, we've already injected into the
Speaker 1: economy a trillion dollars more of transfer payments than income
Speaker 1: that was lost. So what's really going on is very simple.
Speaker 1: Prior to the virus hitting, we had about a five
Speaker 1: and a a half million people unemployed. That balloon to twenty
Speaker 1: three million people. It's now down to about nine and
Speaker 1: a half million people, and monetary and fiscal policy to
Speaker 1: be conducted the manner to get the unemployed back down
Speaker 1: to the five and a half million pre COVID, and
Speaker 1: they're less concerned about the long term issues with damage
Speaker 1: they might be created. So that's one thing I think
Speaker 1: we're buying from the future. That's number one it's very clear.
Speaker 1: You know, the debt that we're racking up will have
Speaker 1: to be paid. And unless you're into m M T,
Speaker 1: which I'm not, Uh, this is going to create a
Speaker 1: long term issue. Second point I would make is there's
Speaker 1: a shift taking place to the left of government. The
Speaker 1: people in charge now are going to go for higher taxes.
Speaker 1: We're gonna have higher inflation, higher interest rates, which I
Speaker 1: think will be a straining influence on multiples. Okay, I
Speaker 1: think inflation is will be worse than Mr Powell. Secretary
Speaker 1: Powell is assuming every company I talked to in every
Speaker 1: business I came back to New Jersey from Florida. I'm
Speaker 1: a Florida resident. I came back in New Jersey. Uh,
Speaker 1: And I had the lunch the other day at the
Speaker 1: local place called the Milburne Dinner. I asked the owner,
Speaker 1: how's businesses coming back? But I can't find labor. I can't. Finally,
Speaker 1: we're saying that again and again. We sit in the earnings,
Speaker 1: you're hearing the reports, you're hearing the coals too. So
Speaker 1: you invested there. Let's take this conversation a little bit further.
Speaker 1: Why fully invested if you've just gone through all the
Speaker 1: issues you've just gone through well, because you know, uh,
Speaker 1: the near term outlook, the conditions that would lead to
Speaker 1: a mid decline. Like I said, you know it's accelerating inflation.
Speaker 1: We don't have that. You know, most importantly, we have
Speaker 1: a hostile FED. When you go into a beer market,
Speaker 1: we have a fedness extremely friendly. They tell you they're
Speaker 1: gonna keep interest raised low, not only this year, but
Speaker 1: we're gonna keep below next year. I'm assuming, I'm assuming
Speaker 1: they're gonna be surprised by inflation has been more intractable,
Speaker 1: and the market is canna be surprised if the Fed
Speaker 1: will raise rates sometime in twenty two, will be forced
Speaker 1: by inflation. So that's my view, the cyclical versus secular
Speaker 1: outlook the long term ballot. Let me explain. I got
Speaker 1: my NBA from Columbia Business School in January thirty one,
Speaker 1: sixty seven. I was broke at a loan, had a
Speaker 1: six month old child is now approaching fifty five. Okay,
Speaker 1: I had no money in the bank and I couldn't
Speaker 1: afford a vacation, so I went to work the next day.
Speaker 1: I started my career at Goldman on February first, sixty seven.
Speaker 1: The dad was roughly a thousand. Fourteen years later it
Speaker 1: was roughly a thousand, So I I think we borrowed
Speaker 1: for the future. I expect very little action from the SMP.
Speaker 1: Everything I look at would suggests to me caution intermediate
Speaker 1: to longer term would be the rule of the day.
Speaker 1: But leon, how do you remain cautious if it's not
Speaker 1: bonds right, if cash perhaps is losing value because of inflation,
Speaker 1: if equities perhaps have borrowed from the future, Are you
Speaker 1: going more into bitcoin? No? I don't know the only
Speaker 1: bitcoin I owned. Let me just say this on n
Speaker 1: f T bitcoin stuff like that you talked to somebody else,
Speaker 1: because I tell people that I turned seventy eight a
Speaker 1: week ago, and basically I'm too old. I don't understand
Speaker 1: that stuff. It's crazy to me. It makes no sense.
Speaker 1: I own a little bit of goal, but compared to
Speaker 1: my net worth, I owned very little. Basically, I'm basically
Speaker 1: a stock you know, a meat and potatoes guy. I'm
Speaker 1: a stock guy. Stocks make more sense than anything else
Speaker 1: because of FED policy. But when the FED policy changes,
Speaker 1: I think the market is going to have a response
Speaker 1: to that. So when you say though that you've got
Speaker 1: your eye on the exit. What is your eye? How
Speaker 1: are you going to exit? What does that mean? Does
Speaker 1: it mean more cash? Yeah? I would say, Look in
Speaker 1: the bear market, the winner is he who loses least winds.
Speaker 1: So you know, when the market goes down, I'm gonna
Speaker 1: lose money. I'll be worthless. I understand that every asset
Speaker 1: has been inflated by monetary policy, every asset, whether it's
Speaker 1: real estate, et cetera. You know, stocks, bonds, for sure.
Speaker 1: I think the bubble is not so much the stock market.
Speaker 1: The bubble, I think is the bondom market. And I
Speaker 1: would say this event it turns out to be wrong.
Speaker 1: You know, I've had a negative of bonds for for
Speaker 1: quite a long time. If the view turns out to
Speaker 1: be wrong and interest rates belong where they are, you
Speaker 1: don't make double digit returns in the stock market. I
Speaker 1: believe in the capital market line where you're earning a
Speaker 1: bond has relevancy for what you should earn the stock market.
Speaker 1: So bonds belong to one a half percent, you probably
Speaker 1: earned four or five percent a year in the stock market.
Speaker 1: But what I'm looking at for the exit or traditional things,
Speaker 1: I'm looking for change and fed speak. I'm looking for
Speaker 1: change in the posture of the Fed. I'm looking for uh, inflation,
Speaker 1: I'm looking at gold I'm looking at the overall economic activity.
Speaker 1: Let me say this, if I had to give you
Speaker 1: a list of positive and negatives, I'm more impressed by
Speaker 1: the negatives. Long ago at Golden Secs Asset Management, Leon
Speaker 1: Cooperman sat there and said, you've gotta be kidding me.
Speaker 1: We don't own enough Apple. Leon Cooperman, I want you
Speaker 1: to talk about what Michael Mobison, one of the great
Speaker 1: thinkers on Wall Street, a credit Sueez and leg Mason,
Speaker 1: has always said, is we're gonna see this massive concentration
Speaker 1: of digital success stories. Can I be overweighted Apple or Amazon?
Speaker 1: Are they so much the fabric of this nation that
Speaker 1: you've got to own them? Well? I own them. Uh.
Speaker 1: They're not cheap stocks, but they're not expensive stocks. Nothing
Speaker 1: is expensive if interest rates that stay here. I went
Speaker 1: back by the way and I look at the nifty
Speaker 1: fifty nineteen seventy two. In nineteen seventy two, when JP
Speaker 1: morgan Us Trust was ruling the roost, they had the
Speaker 1: philosophy only the right stock at any price. They don't
Speaker 1: care what evaluation they've paid as long as they were
Speaker 1: world class growth companies. Avon sixty five times earnings, Polaroid
Speaker 1: ninety times earnings, SiZ Roebucks thirty five times earnings, so
Speaker 1: and so forth. The Tenua US government in nineteen seventy
Speaker 1: two or six and a half percent, the Tenua governors
Speaker 1: now one sixty Google thirty three times earnings is not
Speaker 1: an expensive stock. This is but the card of the matter,
Speaker 1: Leon Cooperman, and you are what I would call intellectually
Speaker 1: extremely constructive in your caution. You know that the financial
Speaker 1: media is overwhelmed by the gloom crew every Friday to
Speaker 1: come out the world's coming to an end. And to
Speaker 1: their point, they're trying to avoid a polaroid or an
Speaker 1: Eastman Kodak. How do you sidestep the polaroids that won't
Speaker 1: make it? Well, that's the function of your discipline and
Speaker 1: your approach. I look at the stock market. I see
Speaker 1: three stock market. I don't see one stock market. The
Speaker 1: first stock market I see is the Fang market. And uh,
Speaker 1: you know, the market has been extraordinarily disciplined, I might add.
Speaker 1: You know, for somebody that's cautious like I am, I
Speaker 1: have to say I'm impressed by the market action. Who's
Speaker 1: the big correction has come in the so called fangs
Speaker 1: that have no earnings, very little in the way of revenues,
Speaker 1: and they have their long on promise things like Amazon, Facebook, Microsoft, Google.
Speaker 1: They've held in very well. And then that expensive against
Speaker 1: interest rates. Okay, the secondary so they're nifty fifty today,
Speaker 1: there'll be a high failure rate, Like there was a
Speaker 1: high failure rate in nineteen seventy two. But what ended
Speaker 1: in fifty fifty nineteen seventy two was a tenfold increase
Speaker 1: in the price of oil led to a global recession.
Speaker 1: You know, we need a recession or we need to
Speaker 1: change and FED policy to change the attitude. Until we
Speaker 1: have that, the market will play. Well. That's not gonna
Speaker 1: happen for a number of years. Maybe we're talking about
Speaker 1: an interest I don't know. I don't know what's gonna happen. Uh,
Speaker 1: that's what the FED tells you. But I think that
Speaker 1: Mr Powell, I think he's doing a disservice frankly when
Speaker 1: he says the market is not expensive because of your
Speaker 1: interest rates are If interest rates are, we belong where
Speaker 1: they are. You don't make big returns in the stock market.
Speaker 1: You basically, you know, the world's turned upside down. Okay,
Speaker 1: So what I was saying before. The long term issues
Speaker 1: to me are number one, we're clearly barring from the
Speaker 1: future the economy growing. Six, Real interest rates shouldn't be
Speaker 1: where they are, and we should not be injecting so
Speaker 1: much fiscal stimuluts into the economy. Whe the economy is
Speaker 1: growing off the charts. Okay. Secondly, we have a government
Speaker 1: charge and I voted for Mr Buy because I thought
Speaker 1: we need to change. Uh, you know, I voted. My
Speaker 1: value is not my pocket book. But the truth is,
Speaker 1: if you look over the next twelve months, we have
Speaker 1: more inflation, higher interest rates, you know, and higher taxes.
Speaker 1: Not particularly bullish. Third, poem makers do we have a
Speaker 1: massive growth in debt. This nation was found in two
Speaker 1: five years ago. We had no national debt. Three years
Speaker 1: ago we had twenty trillion dollars and national debt and
Speaker 1: that's going up at the rate of like three trillion
Speaker 1: dollars a year, and that that has to be serviced,
Speaker 1: and it's going to reduce the long term growth potentially.
Speaker 1: Suddenly I hear all these concerns and you're going through
Speaker 1: them point by point, and I think it resonates with
Speaker 1: a lot of our audience. But this falls into the
Speaker 1: should shouldn't debate a lot of the time. This is
Speaker 1: what they should do, it's what they shouldn't do. It's
Speaker 1: what they've done. And we've got to accept that, nat Lee.
Speaker 1: And you've gotta put money to work, as you always do.
Speaker 1: So the question I've got for you, it's one, are
Speaker 1: the signposts you're looking for ultimately to get you to
Speaker 1: d risk if you're fully invested now and here's a
Speaker 1: whole long list of things you worried about. What are
Speaker 1: the signposts you're actually looking for to materialize that actually
Speaker 1: leads you to d risk to take some money off
Speaker 1: the table. I I'm listening to FED speak. Uh you
Speaker 1: know see how they when they change, you start to change.
Speaker 1: I look at the stock market, and the stock marks
Speaker 1: a high quality, leading indicator. You know, there's no indication.
Speaker 1: I mean, the market has been very disciplined in its action.
Speaker 1: I'm looking at the price of gold, which has been
Speaker 1: undermined by bitcoin. I'm looking at inflation. I'm looking at
Speaker 1: economic growth. Lean you mentioned earlier, you're looking at the
Speaker 1: Apple is one of the stocks you own. Cast writes
Speaker 1: in he's listening down in Florida. Good morning, Mr Cass,
Speaker 1: and he wants to talk about the post pandemic softness
Speaker 1: that we will see an Apple in Amazon and the others.
Speaker 1: Are you adjusting for an Apple that stumbles after the
Speaker 1: pandemics over, I have no credentials in Apple. I sold
Speaker 1: Apple much lower. I had a nice profit. I got
Speaker 1: out much too early. I do own uh you know, Microsoft.
Speaker 1: I do own Google. I do own some Facebook, I
Speaker 1: do own some Amazon. But I would say this another
Speaker 1: point on the cautious side for my days back as
Speaker 1: a strategist at Goldman, I recall that the stock market
Speaker 1: normally peaks in line with the peak rate of change
Speaker 1: in corporate profits. That's the second quarter. In the June
Speaker 1: profits this quarter will be up fifty. For the third
Speaker 1: quarter and fourth quarre will be up much less. They'll
Speaker 1: be up up much less. So I'm watching a lot
Speaker 1: of a host of indicators as to when they get out,
Speaker 1: and I'm prepared to lose money because frankly, in bear markets,
Speaker 1: the winner is he will lose his lease. I'm not
Speaker 1: a big short seller. I believe in the long term
Speaker 1: outlook for what I own. I own a theene at
Speaker 1: seven point six times earnings. I owned Signal twelve and
Speaker 1: a half times earnings. I owned Mr Cooper at five
Speaker 1: times earnings. I own Google nine times earnings. So bad.
Speaker 1: I own Navigant four and a half times earnings. You know,
Speaker 1: I'm a great believe in the capitalistic system. You know,
Speaker 1: when companies earn access returns, it attracts capacity and capital
Speaker 1: and kills returns. The energy industry is the best example.
Speaker 1: I came in to this year overweighted energy and everybody
Speaker 1: hated it was three percent the SMP. You've crushed it,
Speaker 1: and you absolutely crushed it leon when it came to
Speaker 1: energy stocks, just real quick here there. You're talking about
Speaker 1: the fundamentals, and yet today we see that a downside
Speaker 1: surprise was met with buying action. Has a dovish fed
Speaker 1: become more important to stock valuations than fundamental growth in
Speaker 1: the economy. I think that the market structure has been destroyed.
Speaker 1: And I say that for a few reasons. When I
Speaker 1: came to Wall Street fifty odd years ago, the commissions
Speaker 1: with fifty cents of share and the vocal rule didn't exist.
Speaker 1: So the Bob Monutions of the world, the Stanley Shop
Speaker 1: corns of the world made markets. They carried inventory, they
Speaker 1: took risk. You can't do that in the more business
Speaker 1: commissions any zero and there's no vigorous and there's no
Speaker 1: there's no reward for risk taking. So the brokerage industry
Speaker 1: don't stabilize anymore. Secondly, eight percent of the vibe used
Speaker 1: to be done in the New York Stock Exchange of
Speaker 1: the volume today has done off board and dock polls.
Speaker 1: So the special as system doesn't stabilize. And Thirdly, for
Speaker 1: some unexplained reason, and I've written to the SEC, they
Speaker 1: ignored me, and like my wife basically really I told them,
Speaker 1: you know, in ninety eight they enacted the uptick rule
Speaker 1: to deal with abuses of the twenty nine. It have
Speaker 1: worked effectively for seventy years. Then in two thousand and
Speaker 1: seven they elimited the uptick rule, and they gave rise
Speaker 1: to a lot of these quantitative trading systems which know
Speaker 1: nothing about value. They know everything about price. So they
Speaker 1: buy strength, they sell weakness. And when this market has
Speaker 1: a reason to go down right now, it does not
Speaker 1: have a good reason to go down. When this market
Speaker 1: has a reason to go down, to go down so
Speaker 1: fast your head's gonna spend and then you're gonna be
Speaker 1: on the following daily so we can talk about it.
Speaker 1: I knew there was a reason that you and Sam
Speaker 1: King got on, so wow, you have that incoming. Your
Speaker 1: wifs ignore each other. Amazing. Why don't you have Cooperman's.
Speaker 1: But you know checkbook? I mean, that's what I'm something
Speaker 1: of Romega. It is the General Motors company. It has
Speaker 1: been around since nineteen o eight through various and sundry
Speaker 1: iterations and has been reinvigorated with Mary Barr. She's chairman
Speaker 1: and chief executive officer of General Motors. Here's our David Weston.
Speaker 1: Thank you very much, so Mary Bar, it's a good
Speaker 1: day for you, a good day for Will Durant to
Speaker 1: start in General Motors all those many years ago. So
Speaker 1: looking at the numbers, one of the first things I
Speaker 1: look at is the top line, the revenue, and then
Speaker 1: the profitability. The profitability. You did so much better than
Speaker 1: anybody expected. You actually almost put a shame to analysts.
Speaker 1: At the same time, it wasn't because of increased revenue.
Speaker 1: So my real question is how did you do that?
Speaker 1: How did you get so much more money in profit
Speaker 1: out of relatively flat revenue? Well, I think it's a
Speaker 1: it's a number of issues. First, um, strong demand for
Speaker 1: our full size trucks and SUVs. I mean the Chevrolet Silverada,
Speaker 1: the GMC Sierra on the Escalade, the Tahoe, et cetera.
Speaker 1: There is exceptionally strong demand for those products, and so
Speaker 1: I think that's what's driving a very high average transaction prices.
Speaker 1: Because the demand is so high, we've been able to
Speaker 1: continue to be very disciplined on incentives. And then our
Speaker 1: financing unit, GM Financial has done an excellent job of
Speaker 1: taking advantage of higher use care prices and just a
Speaker 1: very strong market. We're also seeing recovery UH and and
Speaker 1: you know, returned to strong sales in China, so across
Speaker 1: the board they contributed to the strong numbers. So you
Speaker 1: surprise perhaps some people are saying, not only will we
Speaker 1: stick with our guidance going forward for the rest of
Speaker 1: the year, but if anything, we think it's gonna towards
Speaker 1: the upper end of that guidance. At the same time,
Speaker 1: you have the problem with chips. We talked about at
Speaker 1: last quarter or something like one point five to two
Speaker 1: billion dollars being left on the table as it were.
Speaker 1: I think that number still holds good and yet you're
Speaker 1: doing much better than some people across the street at
Speaker 1: Ford for that matter, via christ or Peugeot. Why Well, again,
Speaker 1: there's not a lot of transparency between the different automakers
Speaker 1: of what's happening. We're focused on GM and I think
Speaker 1: what's been incredible is the work that we're doing with
Speaker 1: our purchasing group, our engineering group, are manufacturing group in
Speaker 1: sales and marketing and working with suppliers. You know, we've
Speaker 1: been working to build strong relationship with our suppliers for many,
Speaker 1: many years now, and there's just a team that is
Speaker 1: looking understanding what chips are we going to have access to,
Speaker 1: how do we allocate those to our highest demand and
Speaker 1: and products that we have limited or no ability to
Speaker 1: recover because there's just such strong demand. We run those
Speaker 1: manufacturing operations around the clock and they're they're just being
Speaker 1: creative and doing what engineers do of problem solving and
Speaker 1: and in some cases re engineering to get the chips
Speaker 1: to the right products and to just um find every
Speaker 1: opportunity we can to build a car, trucker crossover and
Speaker 1: get it to the customer. So it's a mixed question,
Speaker 1: not just of the vehicles you sell, but also where
Speaker 1: you direct your chips. It sounds like you want to
Speaker 1: direct it to the ones that really are the most important.
Speaker 1: Are you getting more chips? Do you think than you
Speaker 1: would have expected, because if you're purchasing department, well, again,
Speaker 1: there's not a lot of transparent to say more than
Speaker 1: you know, we were very clear last year of what
Speaker 1: we thought the demand was going to be this year
Speaker 1: and the chips that we had ordered, and so you know,
Speaker 1: we're continuing to work with the supply base on that
Speaker 1: and again, but it's I think it's looking for every
Speaker 1: opportunity and managing it centrally and also working hand in
Speaker 1: hand with our j V and China, so across the
Speaker 1: board we are just really being I think the team
Speaker 1: is being really scrappy and finding ways that we can
Speaker 1: build the vehicles, not only full size trucks and SUVs,
Speaker 1: but also our electric vehicle programs. And I think it's
Speaker 1: important to note that even with the challenges of the
Speaker 1: semiconductors UH shortage, there is no impact on our electric vehicles,
Speaker 1: on our autonomous vehicles and the growth initiatives that we've
Speaker 1: been talking about this first quarter. That was one of
Speaker 1: the questions I had both for the Hummer that's coming
Speaker 1: out later this year and then the Lyric we're just
Speaker 1: coming at and sometimes the first happen next year. Is
Speaker 1: there going to be any delay because of the chip problem?
Speaker 1: Absolutely not, And I can tell you those vehicle programs
Speaker 1: are on track, and uh, I'm really excited to have
Speaker 1: customers get in those vehicles and drive them because I
Speaker 1: think they're going to be amazed. We understand the one
Speaker 1: point five to two billion dollar number that was put
Speaker 1: up before, but can you give us some sense those
Speaker 1: those who donors the supply chain, If you had a
Speaker 1: hundred percent of the chips you needed, what percentage you
Speaker 1: getting now? Are you running at? You know? Uh, It's
Speaker 1: it's a very dynamic situation, and so uh you know again,
Speaker 1: I think it's every chip we have access to, we're
Speaker 1: making sure it gets into the vehicles where we have
Speaker 1: really strong customer demand. But it's something that changes every day, David,
Speaker 1: So I'm not going to put a number on it.
Speaker 1: This problem isn't going away in the sense that as
Speaker 1: you go forward, you're gonna make more and more cars,
Speaker 1: they're gonna require more and more chips. What is the
Speaker 1: longer term solution to this so we don't have this
Speaker 1: sort of problem you have this year. Well, I think
Speaker 1: we are going to see recovery. We think Q two
Speaker 1: will be the weakest for the year. We'll see some recovery,
Speaker 1: recovery in Q three, Q four UH, And we're working
Speaker 1: on a lot of long term strategies. I don't have
Speaker 1: anything to share right now, but there's a you know,
Speaker 1: a whole um menu of things that we're working on,
Speaker 1: processes that we're changing, um. So more to come later
Speaker 1: in the year of how we'll make sure we're never
Speaker 1: in this situation again. But believe me, we have a
Speaker 1: dedicated team working on that as well. When it comes
Speaker 1: to batteries, you've sort of vertically integrated, as it were,
Speaker 1: where the joint venture where you're making your own batteries.
Speaker 1: Is there something like that perhaps that would make sense
Speaker 1: for GM. You know, I'm not going to take anything
Speaker 1: off the table. We're going to look at what what
Speaker 1: we can do to make sure that we have the
Speaker 1: right number of automotive grade chips UH and that we
Speaker 1: it it doesn't constrain our growth because we see huge
Speaker 1: opportunity not only with the product portfolio we have today,
Speaker 1: but with the strong electric vehicle products that we have coming.
Speaker 1: We hear some in Washington, both the Commerce Secretary and
Speaker 1: also I talked to one of your Michigan representatives, yes
Speaker 1: Or Hailey Stevens, who suggested perhaps there needs to be
Speaker 1: some co investment from the government as well as the
Speaker 1: private sector in chip production. Does that make sense for
Speaker 1: your point of view? I think making sure we have
Speaker 1: a secure supply chain um for the growth that I
Speaker 1: think going to see it. I think it's something that
Speaker 1: we all have to work together on, and we're having
Speaker 1: regular conversations with the administration and members of Congress to
Speaker 1: find the right solution, and we'll continue to do that.
Speaker 1: In your presentation today, General Motors really lays out a
Speaker 1: fairly robust program to really go to electric vehicles and
Speaker 1: to really deal with greenhouse gases over the longer term.
Speaker 1: You have very specific targets you're setting out there. How
Speaker 1: do you hope to achieve those? Well, I think it's
Speaker 1: making sure there's a whole ecosystem that when a customer
Speaker 1: looks at can I buy an electric vehicle, they say,
Speaker 1: I'm going to have a better experience when I buy
Speaker 1: an electric vehicle. It's going to be a beautiful vehicle.
Speaker 1: It's going to be in this segment that I want
Speaker 1: to purchase because we can't. You know, person if they
Speaker 1: want an suv or a crossover, they're not going to
Speaker 1: buy a sedan. It's got to meet them in the
Speaker 1: market where they want. But then it's also making sure
Speaker 1: there's a robust charging infrastructure, and we're working on that
Speaker 1: as well, and that will be not only what we're doing.
Speaker 1: For instance, we're putting charging in our workplaces, but also
Speaker 1: working with communities and then working with all the startups
Speaker 1: that are in this business connecting those We just made
Speaker 1: an announcement that we have now we're going to provide
Speaker 1: access to sixty chargers across across the country to really
Speaker 1: give confidence to customers as they buy an e V
Speaker 1: and if even if it's their only vehicle, that they're
Speaker 1: going to have a robust charging infrastructure. And I think
Speaker 1: all those things combine, you know, beautiful vehicles, meets their needs,
Speaker 1: the right range and then charging available, customers are going
Speaker 1: to move to e v s And importantly, I think
Speaker 1: for many investors people watch your company. I saw in
Speaker 1: your presentation you expect to have the same profit margins
Speaker 1: on e V s as you have on the so
Speaker 1: called i c E. Internal combustion engine vehicles. So as
Speaker 1: we move into the ultim platform and continue to take
Speaker 1: costs out of the battery that that is, that is
Speaker 1: our goal to to get there um and and have
Speaker 1: that break even and then move beyond. But you also
Speaker 1: have to understand there's a different cost of ownership and
Speaker 1: an electric vehicle versus versus an internal combustion engine vehicle
Speaker 1: from a you know gas uh, gas savings that you
Speaker 1: don't have to you know, fuel up. So we've got
Speaker 1: to look at the whole equation. But we're on that
Speaker 1: journey and I'm very pleased with the work that's going
Speaker 1: on with our battery technology to continue to take cost
Speaker 1: out and increase energy density. I'm sure you're looking at
Speaker 1: supply chains that go beyond just microchips at this point
Speaker 1: as you move into e v S. Where are there
Speaker 1: possible weak spots going forward and what are you doing
Speaker 1: to address those in terms of what you need the
Speaker 1: supplies you need in order to manufacture the vast number
Speaker 1: of electric vehicles you're anticipating. Well, you know, as we
Speaker 1: look at some of the key materials that need to
Speaker 1: go into vehicles, especially those that are quite expensive. We're
Speaker 1: looking at how do we reduce the need you know,
Speaker 1: in in each each vehicle, but then also working with
Speaker 1: trusted partners in the supply chain to make sure that
Speaker 1: we have a secure supply and that's going to allow
Speaker 1: us to grow. And so that's the work that we're
Speaker 1: a lot of it's done and a lot of it's
Speaker 1: underway right now. So Mary, as you look forward to
Speaker 1: I say, you've said you're maintaining your guidance. If anything,
Speaker 1: you'll be at the upper end. What are the vulnerabilities,
Speaker 1: what's the sensitivity on it that might actually have you
Speaker 1: all short? Well, uh, you know, with the insights that
Speaker 1: we have right now, we believe that that guidance is
Speaker 1: correct with where we think we're going to be from
Speaker 1: a semiconductor perspective. But I think, you know, one of
Speaker 1: the things that gives us a lot of comments is
Speaker 1: just the interest in our vehicles. The demand for our
Speaker 1: vehicles across the board, you know, whether it's a Chevy
Speaker 1: Trailblazer or a Silverado or an Escalade, you know, across
Speaker 1: our portfolio actually very strong midsized crossovers as well. So
Speaker 1: the strength of our product line UM, the services that
Speaker 1: we're providing. We continue to see growth with on stars.
Speaker 1: So there's a lot of moving pieces that give me
Speaker 1: a lot of confidence in our ability to hit that
Speaker 1: um what we've said from a guidance perspective, and we're
Speaker 1: gonna work it every day. And finally, Mary, do you
Speaker 1: have visibility to demand for your electric vehicles? I think
Speaker 1: the Lyric, the new electric suv you can order as
Speaker 1: of September. Do you have any sense whether people want
Speaker 1: the electric vehicles as oppose to your current vehicles. Well,
Speaker 1: we've seen, um, you know, we can see growing excuse me,
Speaker 1: growing demand for the for the bolt ev can't wait
Speaker 1: for to get the eu V, the bolt Evy into
Speaker 1: the hands of customers. Um. You know, we've sold out
Speaker 1: the Hummer um e V truck and had extremely strong
Speaker 1: demand um for quite some time for the Hummer Ev suv.
Speaker 1: So when we start selling the Lyric, which is one
Speaker 1: of the highest customer feedback vehicles we've had of the
Speaker 1: just the beauty of that vehicle when they actually get
Speaker 1: in to see it, I expect we're going to have
Speaker 1: a strong reaction in September as well. So I'm very
Speaker 1: um uh committed to the strength of our evs. Okay,
Speaker 1: thank you so much to Mary Barr. She is the
Speaker 1: chairman and CEO of General Motors. Please brands in for
Speaker 1: Pulse whena I'm Tom Keane. What we're gonna do here?
Speaker 1: This has been so anticipated and thank you folks for
Speaker 1: your support of having Doug casson. He's a sea breeze.
Speaker 1: We'd launch into a lot of baseball talk and all that,
Speaker 1: and we finally get to the equity markets today. I'm
Speaker 1: gonna ask one baseball question and that we're going to
Speaker 1: get to the equity markets because I know you anticipate
Speaker 1: Mr Cass's views there, particularly at this historic time for
Speaker 1: the markets. Doug cass worst hitting since nineteen game after
Speaker 1: game with two hits, three HiT's. Should they move the
Speaker 1: mound back of foot? That doesn't apply to the Yankees
Speaker 1: standing on the six and seven, six and seven in
Speaker 1: a row. I know, but you know there's a lot
Speaker 1: of minor league action going on here with real concern
Speaker 1: over the lack of hitting in the game. Pitching domon
Speaker 1: what was wrong When my cousin Sandy, I agree it's
Speaker 1: against Marish Allen in the Games of War two to
Speaker 1: one that it was beauty in that. The other thing
Speaker 1: is that it will help those that are concerned about
Speaker 1: long baseball games. You know. Yeah, So I'm with you.
Speaker 1: I'm with you, but I'm just I think a lot
Speaker 1: of people want to know what you think about this. Uh,
Speaker 1: it's a great season. I'm watching apomy. It's going to
Speaker 1: be a cold season for the Red Sox. Well there,
Speaker 1: you know, they dipped under six ball, but they're doing
Speaker 1: better leading in April, and as you well know, Doug,
Speaker 1: August is more important. Let's get to the equity markets.
Speaker 1: Douglas cast you've got some real caution out there. I
Speaker 1: know you did an apple trade here, you got out
Speaker 1: of it. I want to start first with a trading
Speaker 1: mentality out two weeks, three weeks. How do you apply
Speaker 1: capital right now? Okay? Um? Paul Krueg. Krugman tweeted this
Speaker 1: morning before seven o'clock, if it should happen to rain,
Speaker 1: we have umbrellas, he quoted yelling, and he went on
Speaker 1: to say the panic pundits say she's predicting a hurricane.
Speaker 1: The question I think a lot of investors are asking
Speaker 1: right now, as you just did with Lee Kuperman on
Speaker 1: TV earlier this morning, is whether we're in a market
Speaker 1: squall or market hurricane, or we at an important pivot
Speaker 1: point for the markets. Um, the FED to me is
Speaker 1: often wrong and ever in doubt. You just look at
Speaker 1: two thousand and eight as an example when the FED
Speaker 1: was obsessed over inflation even as the financial crisis deepened,
Speaker 1: and there are many other examples. Misques me. I'm taking
Speaker 1: out my Jerry for wind buttons ready to go on
Speaker 1: my shirt. Um. My best proxy for inflation is the
Speaker 1: Mannheim used car indicts index. It's up fifty year over year.
Speaker 1: There's no inventory, prices through the roof. We talked to
Speaker 1: every single company as I do, and Lee Kuperman does,
Speaker 1: their bottlenecks, supply issues, higher costs of broadcast, and the
Speaker 1: prices being accepted by consumers. UM. In the fact that
Speaker 1: Steve Matthews featuring that reporter he said, it's a huge deal.
Speaker 1: That's amazing. The question I think the question is, so
Speaker 1: are we undergoing a squal or a hurricane. Obviously a
Speaker 1: squall is less lethal, it's a sudden gust to win,
Speaker 1: it lasts only briefly. But the sustained winds of a hurricane,
Speaker 1: on the other hand, are devastating, and if you look
Speaker 1: at history, most market corrections are quick and squa as
Speaker 1: an eighteen in February of last year being the exception.
Speaker 1: And that helps to explain why I think most short
Speaker 1: sales of trades. Shorts may protect, but long generally generate well.
Speaker 1: Leon Cooperman's point was he was a fully invested bear
Speaker 1: that he saw all of the signs of a potential
Speaker 1: decline in markets. It might not happen now because just
Speaker 1: markets don't go down for no reason. What do you
Speaker 1: make of that? Are you also fully invested? The careful
Speaker 1: I listened very carefully to Pharaoh's interview of Lee. You
Speaker 1: know I'm a big fan. I worked for Lee for
Speaker 1: a number of years. Um Um. He said, there are
Speaker 1: as signposts to do risk. I'll tell you mine. Number
Speaker 1: one is the markets and difference to big beats TOI consensus.
Speaker 1: I'm thinking Amazon, Zoom and even Apple. Here a m
Speaker 1: D had multiple upgrades by the analytical community last week,
Speaker 1: um a big earnings beef and beat in. The stock
Speaker 1: is down twelve dollars and the fact that the market
Speaker 1: has begun to vault in despite the ten year hanging
Speaker 1: around one point six means that The market isn't newsy.
Speaker 1: It's not going lower because of higher rates. It just
Speaker 1: begun to weaken as demand seems to be stated. Remember
Speaker 1: David Temper famously said about a month ago that race
Speaker 1: would be contained and that in turn stocks would head higher.
Speaker 1: The opposite is current rates are being contained, but stocks
Speaker 1: are moving moving lower. The overall market is stalling, admittedly
Speaker 1: at higher levels despite strong real economic data. Markets are
Speaker 1: typically least are about rate of change. We are now
Speaker 1: likely seeing the great of change in profits and economic growth.
Speaker 1: It's something that Lee mentioned. Finally, this is really the
Speaker 1: most important thing to me. We have basically been in
Speaker 1: a modern monetary theory position. It's been in place by
Speaker 1: the FEDS. It's shows by their indifference towards recovery and
Speaker 1: improving high frequency economic data. Now we are getting into
Speaker 1: what I described as modern physical theory, and I think
Speaker 1: in the end, all violation of the fundamental laws of
Speaker 1: economic and financial common sense a paid for. But every
Speaker 1: both seems to think that he will unlow before the
Speaker 1: break and Tom it's easy enough to burst the bubble,
Speaker 1: but to incize the bubble with the needles so that
Speaker 1: it's subsides gradually is an operation of undebted Lisa, jump
Speaker 1: in here. You don't know who Jim Palmer is. No,
Speaker 1: I mean, I want to unpack a little bit of
Speaker 1: what you said. The idea of the logic of markets
Speaker 1: and modern fiscal theory is what you're saying, that you're
Speaker 1: getting defensive, that you're going to cash or or please
Speaker 1: insert what you're going to in order to be defensive
Speaker 1: ahead of a surgeon inflation that forces offense hand and
Speaker 1: forces valuations that we see in equities. Lisa, I'm starting
Speaker 1: up in about two weeks a new hedge fund, Sea
Speaker 1: Breeze Capital of Partners LP. I can't wait too short.
Speaker 1: You know. I don't know if you guys are a
Speaker 1: fan of the movie Caddy Shack, but there's there's a
Speaker 1: line when when Tye Webb is walking down with this
Speaker 1: caddy Danny Nowtan at Bushwood Country Club and he asked
Speaker 1: Danny whether he's in Russia. We're not in Russia, are
Speaker 1: we We may not be in Russia, but we soon
Speaker 1: might be in zimby way. Okay, there, come on, you mean, Doug,
Speaker 1: I get the idea of framing shorts and the you
Speaker 1: know what makes us go here? The bullbear argument as well,
Speaker 1: but when you mentioned above what you're talking about commodity
Speaker 1: dynamics and you're talking about dollar dynamics, are you are
Speaker 1: you seeing a big figure fragility the US dollar here?
Speaker 1: The dollar is going to get killed inflation? And give
Speaker 1: me a number, Steve Roach, Steve Roaches, do we're gonna
Speaker 1: get a return of the bond vigilantes? And I guess
Speaker 1: Tom one has to ask a fundamental question. If printing
Speaker 1: and spending money was so easy, Lisa, and without adverse
Speaker 1: economic and market ramifications, why hasn't the FED and the
Speaker 1: prior administration simply printed and spent through at the last century?
Speaker 1: Obvious there are adverse outcomes that come from undisciplined policy.
Speaker 1: Is there proof to right? And this is what I
Speaker 1: think a lot of people are watching as they're saying, Look,
Speaker 1: in two thousand and eight, we printed money and it
Speaker 1: had no consequence. It frankly filled a hole that would
Speaker 1: have otherwise been potentially deflationary. Why is this time different?
Speaker 1: It's different because we have twenty eight point five trillion
Speaker 1: dollars in debt um. Twenty years ago we had four
Speaker 1: point eight trillion. That means to me, Lisa um that
Speaker 1: what was a hundred basis point increase in interest rates,
Speaker 1: and as a consequence, debt service is now only twenty
Speaker 1: basis points. And the reality is that nobody knows when
Speaker 1: the twelve year bull market is going to end um.
Speaker 1: But I think that climbing valuations, rising tax as, higher rates,
Speaker 1: and increased inflation are bona fide. I've never heard that
Speaker 1: you you're you're a great optimist of America and the
Speaker 1: Los Angeles Dodgers. I've never heard you this negative. But
Speaker 1: what I want to say is, Doug, good luck with
Speaker 1: your hedge fund. And I just you know, I remember
Speaker 1: that time, Doug, where you were out in the course
Speaker 1: as you are done in Florida, and I heard you
Speaker 1: whisper a former greenskeeper about to become Yeah, dog gast,
Speaker 1: thank you so much. Sea Breeze Partners. He's starting a
Speaker 1: new headshow on the Long Short Caddyshack fund as well,
Speaker 1: more short than long. I think I've seen caddy Shack,
Speaker 1: I'll say fourteen times. Really, this is another side of you, Tom. Yeah.
Speaker 1: It's it's art, It's crafted every sentence. This is going
Speaker 1: to be an important conversation. David Rubinstein joins with Peer
Speaker 1: to Peer conversation conversations right now and with Carlo. What
Speaker 1: I love about Gina Romando David and just one of
Speaker 1: the great stories out there is her ability over years
Speaker 1: to just keep moving. Her father lost his job at Boulevard.
Speaker 1: I actually remember when Bovard Watch collapsed in Rhode Island,
Speaker 1: and she made good on it in venture capital and
Speaker 1: in politics. Yes, I mean, she has an incredible story.
Speaker 1: She uh came from a blue collar family. As you
Speaker 1: point out, her father lost her job. Nonetheless, she went
Speaker 1: to Harvard, was near the top of her class, Rhodes scholar,
Speaker 1: Yale Law School, venture capitalists back in Rhode Island, she
Speaker 1: did chose not to go to New York or Washington
Speaker 1: or l A. Went back to Rhode Island and really
Speaker 1: built a good business before she got into politics. Well,
Speaker 1: she got into politics and and you know got what
Speaker 1: I would suggest high marks in a challenging Rhode Island,
Speaker 1: and it is a Rhode Island that all agree hasn't
Speaker 1: worn out infrastructure. She's focused on that right now. That's
Speaker 1: correct infrastructure or something that Roode Island really needed. She
Speaker 1: helped reform that and also did a lot in the
Speaker 1: pension area. Elected governor twice and uh, interestingly, Um, she
Speaker 1: chose to come to Washington. She could have stayed as
Speaker 1: a Rhode Island governor, maybe run for president down the
Speaker 1: road herself, and she she could not. She could still
Speaker 1: do that, of course, down the road, but she wanted
Speaker 1: to come to Washington release help President Biden do the
Speaker 1: kind of things he's trying to do. So she is
Speaker 1: a point person on the infrastructure plan right now, appoint
Speaker 1: person with respect to infrastructure. Also a point person with
Speaker 1: respect to our policies with China, especially considering the record
Speaker 1: trade deficit that we just printed due to all of
Speaker 1: the imports from that nation. How does she talk about
Speaker 1: free markets but also having a national focus? Can you
Speaker 1: square these ideas well? The administration hasn't really changed a
Speaker 1: lot of the Trump trade policies yet, they haven't taken
Speaker 1: down the the tariffs with China or the tariffs with Europe. Um.
Speaker 1: They suspect that some things may get negotiated with Europe.
Speaker 1: She implied that, but she didn't say it would get
Speaker 1: done for certain. And maybe the tariffs will come down
Speaker 1: to some extent. We don't know for certain. But right
Speaker 1: now the administration is focused domestically on the infrastructure bill,
Speaker 1: and don't really focus right now on new trade agreements.
Speaker 1: And I don't think they really want the kind of
Speaker 1: trade agreements that President Trump negotiated or are tried to negotiate.
Speaker 1: But there's an idea here that perhaps it's behind Biden's
Speaker 1: proposals that the government can foster good spending that can
Speaker 1: generate corporate growth. How does she talk about that in
Speaker 1: terms of the commerce of the United States versus federally
Speaker 1: funded programs that are one and done well they use.
Speaker 1: Usually the Commerce Department is often taking CEOs overseas for
Speaker 1: trade missions to build plants and factories overseas. This administration
Speaker 1: is not as focused on that. They want to make
Speaker 1: certain that companies here are building more jobs here, and
Speaker 1: that's their focus. So I don't think she's going to
Speaker 1: lead a lot of trade missions. So she didn't say
Speaker 1: she wouldn't do that right now, though she wants to
Speaker 1: get the infrastructure build through and they recognize I'll have
Speaker 1: to compromise on some parts of it, for sure, David,
Speaker 1: you have a working number on your in your head
Speaker 1: what that compromises. I don't mean that you know the
Speaker 1: Washington parlor game, but does it come in does it
Speaker 1: ease act a little bit to get done or do
Speaker 1: you really see a much lesser statistic. Well, there are
Speaker 1: two different issues on the compromise. What's the size of
Speaker 1: the infrastructure bill going to be? And there're two different
Speaker 1: infrastructure bills, a traditional infrastructure and so called care infrastructure.
Speaker 1: I think the administration would like more than half of
Speaker 1: what they propose, so it's unclear exactly what the number
Speaker 1: will be. The Republicans seem to be at a little
Speaker 1: bit less than half. And then the other issue is
Speaker 1: the taxes, in corporate taxes and income personal income taxes.
Speaker 1: I think the administration made it clear they're prepared to
Speaker 1: compromise on taxes for sure, but they don't want to
Speaker 1: put a number out yet until they kind of know
Speaker 1: who they're negotiating with and what the other side really wants.
Speaker 1: I look, David at the compromise to come here an infrastructure,
Speaker 1: and it folds into capitalism in America. Should we have
Speaker 1: a more pure bill or is Gena Romando going to
Speaker 1: say we can do a more complex bill. Well, I
Speaker 1: think she's one of several players that are going to
Speaker 1: try to make a difference here. But I think right
Speaker 1: now this is something that's likely to go forward over
Speaker 1: the remainder of this year. I think the it's not
Speaker 1: going to get done that quickly. The infrastructure part is
Speaker 1: maybe easier. The harder part is the tax part. As
Speaker 1: you know, tax legislation usually takes a year or more
Speaker 1: to get through Congress, particularly when it's dealing with tax increases. UH.
Speaker 1: Senator Mansion has said that he could support a corporate
Speaker 1: tax rate about the President's proposed um, you know, a
Speaker 1: much higher rate, but I suspect some corporate tax rate
Speaker 1: between where it is now and will probably get done. Uh.
Speaker 1: In terms of individual tax rates, it's unclear, but I'd
Speaker 1: be surprised if there is no individual tax increase at all.
Speaker 1: I suspect will be some. David, as an investor, as
Speaker 1: the co founder and co chair of Carlisle, how much
Speaker 1: are you relying on some of this infrastructure to get done?
Speaker 1: How much would it getting done or not getting done
Speaker 1: change your outlook and the way that you invest. Of course,
Speaker 1: infrastructure is something that the country could benefit from, and
Speaker 1: the infrastructure the President is talking about would be good
Speaker 1: for the economy. There's no doubt it. We create jobs
Speaker 1: and there's no doubt it would help in many different areas.
Speaker 1: For example, telecommunications are infrastructure on cell phone towers is
Speaker 1: really um not exactly first world. It can be much better,
Speaker 1: as we all know when when trying to use cell
Speaker 1: phones in the the ball's dropped. There are many different
Speaker 1: things I think would help the economy, but it's hard
Speaker 1: as an investor to say, well, if this bill passes,
Speaker 1: the impact will be felt in two or three years,
Speaker 1: I'll make an investment right now take advantage of it.
Speaker 1: It's too unclear right now. Although there's a question about
Speaker 1: the optimism the balance of risks that if there isn't
Speaker 1: some sort of optimism about future growth, it's hard to
Speaker 1: invest in assets at these valuations. Leon Cooperman just said
Speaker 1: he was a fully invested bear and talking about how
Speaker 1: he can line up all of the arguments for why
Speaker 1: markets should go down, but they just aren't right now.
Speaker 1: What's your view on that. Are you a fully invested
Speaker 1: bear or are you looking out to some of these
Speaker 1: programs and saying it could change the trajectory of this recovery. Well,
Speaker 1: of course, the economy has been pretty good uh last
Speaker 1: couple of months because of the stimulus. It's like they
Speaker 1: continue to do pretty well for some time. Uh, the
Speaker 1: Secretary of Rate sort of walk back our comments on
Speaker 1: interest rate increases. So I suspect the markets will do
Speaker 1: well today as well, because there was some concerned yesterday
Speaker 1: about interest rate increases possibly coming along. But I'd say
Speaker 1: for the next year or so, maybe two years, hint.
Speaker 1: The economy is like to do quite well down the
Speaker 1: road two or three or four years from now. It's
Speaker 1: hard to predict. At some point things will slow down,
Speaker 1: but the stimulus are still working its way through the economy.
Speaker 1: But David, thank you so much. Really look forward to
Speaker 1: Secretary Mundo with David Rubinstein, of course peer to peer conversations.
Speaker 1: Now joining us for a four hour conversation is Michael Faroli.
Speaker 1: He's a JP Morrigan. He has a brilliant essay out
Speaker 1: with Team Kasman on Friday on goods and services and
Speaker 1: on this odd John economy. But Michael Faroli, I gotta
Speaker 1: rip up the script over what we saw you and
Speaker 1: I adore Benjamin Friedman of Harvard Economics. He's one of
Speaker 1: our most important thinkers. And I'm gonna go back to
Speaker 1: Benjamin Freedman The Moral Consequences of Growth, his classic book
Speaker 1: of twenty years ago, explain right now the moral consequences
Speaker 1: of debt is we wring our hands over something as
Speaker 1: strange is the debt ceiling. So I agree with where
Speaker 1: you were going in your previous conversation. It is kind
Speaker 1: of odd to be focusing on the debt ceiling at
Speaker 1: this time. You know, certainly over the last few years,
Speaker 1: we haven't worried that much about the deficit, and at
Speaker 1: this point, as you say, Congress selects revenues, a select spending,
Speaker 1: the debt ceiling should be a residual of that, and
Speaker 1: the fact that it's a a concern is a bit
Speaker 1: a bit unique to the US. My understanding is that
Speaker 1: this can be extended via reconciliation. So hopefully this shouldn't
Speaker 1: be too much of a headache for the market so
Speaker 1: or for the economy this year. But that's something we'll
Speaker 1: have to just wait and see. As far as I understand,
Speaker 1: looking at this Treasury refunding announcement, the auction science is
Speaker 1: the longer end left unchanged. You know, it's just a
Speaker 1: little bit higher off the back of this announcement by
Speaker 1: a couple of basis points or so. Michael, just going
Speaker 1: into the payrolls report, this Friday. How big are you
Speaker 1: looking for that number? In America? How big are you
Speaker 1: looking north of a million? And what are the risks
Speaker 1: around some of these companies just not being able to
Speaker 1: meet the demand by not being able to hide the people. Yeah,
Speaker 1: so we're right near consensus looking for a million. We
Speaker 1: think the risks are fairly balanced. Obviously, this morning's ADP
Speaker 1: numbers suggests there could be some downside, but as has
Speaker 1: been the case over the past twelve thirteen months, the
Speaker 1: range of uncertainty is obviously quite a bit larger than
Speaker 1: normal U There are some technical factors here in terms
Speaker 1: of how we seasonally adjust the numbers that could really
Speaker 1: skew things one way or the other. But either way
Speaker 1: it should be a pretty big number. But I would
Speaker 1: if we have a miss of a couple hundred thousand
Speaker 1: on either side of that, I wouldn't really change my
Speaker 1: thinking about the overall course of the recovery. So expect noise,
Speaker 1: but expected to be a pretty big number. Might do
Speaker 1: you think labor shortage translates into high wages in the
Speaker 1: next couple of months? It's going to be this composition
Speaker 1: where they should in the number of Friday. But beyond that,
Speaker 1: you think it does, yeah, and I think you're right
Speaker 1: to say the next couple of months. Right. So, when
Speaker 1: we think about some of the issues that are weighing
Speaker 1: on labor supply, one of them is working parents having
Speaker 1: to be at you know, having to be but liking
Speaker 1: to be at home in this kind of unusual schooling environment.
Speaker 1: We've had another maybe, and this is a little more controversial,
Speaker 1: that the uh, the unemployment insurance bonuses may have raised
Speaker 1: people's reservation wages and made them a little more picky
Speaker 1: and what jobs uh they accept. You know, both of
Speaker 1: those are temporary, so school schedules should come back to
Speaker 1: normal in September. That bonus payment ends in September. But
Speaker 1: in the next few months, I do think it may
Speaker 1: be uh, you know, a little bit tight and the
Speaker 1: labor supply front, and perhaps we saw a little evidence
Speaker 1: of that last Friday. We had a much fair bit
Speaker 1: strong and unexpected employment cost index, which was kind of ignored.
Speaker 1: But but that could be one of the you know,
Speaker 1: signs that we are facing some labor supply shortages. But
Speaker 1: I would think they're somewhat transitory nature and that they
Speaker 1: should we should loosen things up. I think as we
Speaker 1: get into the fall and winter. Won't make you think, Michael,
Speaker 1: that they're not transitory, that perhaps there is some credence
Speaker 1: to that idea that the benefits made people a bit
Speaker 1: more picky in terms of what they're willing to accept
Speaker 1: with respect to wages in addition to rising input costs,
Speaker 1: in addition to some of the constraints supply chain issues
Speaker 1: that have caused prices to go up just generally, right,
Speaker 1: So I think we want to distinguish wages and prices
Speaker 1: for wages, We're just gonna have to you know, if
Speaker 1: if those factors really do subside after September, then we
Speaker 1: can take stock of how data developments after September start
Speaker 1: to play out, and we're just gonna have to wait
Speaker 1: until then. I think on prices it's a little trickier.
Speaker 1: So certainly some of these bottlenecks are going to be
Speaker 1: putting off ward pressure on certain categories. Uh. You know,
Speaker 1: I think one area that might be useful. In the past,
Speaker 1: the FED has kind of drawn attention to things like
Speaker 1: the Dallas Fed trim mean and what measures like do
Speaker 1: was strip out extreme movements both to the upside and
Speaker 1: downside to get a better measure of the central tendency
Speaker 1: of inflation. Things like that may be worth looking at.
Speaker 1: I think over the next few months, Michael. Just to
Speaker 1: wrap up here, we got those ADP numbers. They came
Speaker 1: in disappointing, and you've got all these people coming out
Speaker 1: and saying, hey, they don't correlate with the monthly jobs
Speaker 1: report out of the government and be they're really noisy
Speaker 1: and messy, and their methodology doesn't capture people are getting
Speaker 1: rehired by the same company. What would you say in
Speaker 1: terms of the ADPs predictive ability, even in the best
Speaker 1: of times, it hasn't been great. Um. You know, over
Speaker 1: the past year you've had misses of over a million.
Speaker 1: Obviously we've had pretty big big swings over the past year. Uh,
Speaker 1: you know, I think but given the range of missus,
Speaker 1: what we saw this morning isn't that far from what
Speaker 1: I think we and the consensus are expecting for private
Speaker 1: perils on Friday. So I would say, you know, perhaps
Speaker 1: this takes out a little bit of risk of a
Speaker 1: really huge upside or downside surprise on Friday. Michael got
Speaker 1: to leave it. Mike, I've gotta say it's nice to
Speaker 1: see a full office. J I was just gonna say
Speaker 1: he's whipping him into order. There. It's bustling with the
Speaker 1: half of Mr the Diamond as well, Michael Ferratti. That
Speaker 1: thank you. This is the Bloomberg Surveillance Podcast. Thanks for listening.
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Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg