Speaker 1: This is Bloomberg business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim stinebec from Bloomberg Radio.
Speaker 1: It's two day policy meeting, as you know, kicking off today.
Speaker 1: It's the first of the new year, and we will
Speaker 1: hear from J. Powell tomorrow in that press conference. Policymakers
Speaker 1: widely expected to raise rates by a quarter percentage point,
Speaker 1: slowing from December's fifty basis point increase after four straight
Speaker 1: seventy basis point moves. But the big question is what
Speaker 1: words do they take out of that statement and what
Speaker 1: comes after this move. Well, to help us see into
Speaker 1: the crystal ball, look into the future, very please step
Speaker 1: back with Dr Stephen Skanky, chief economic advisor at kiel Point.
Speaker 1: He's a member, a former member of the U. S.
Speaker 1: Treasury and White House National Security Council staff member. He's
Speaker 1: based in Washington, d C. Joining us today from there
Speaker 1: via zoom. Dr Skanky, good to have you with us,
Speaker 1: How are you great? Thanks and it's great to be
Speaker 1: with you. Tim and Carol. There's always a fun time,
Speaker 1: and especially coming into this meeting today and tomorrow, there's
Speaker 1: there's so much good news for the Fed to be
Speaker 1: taking in UH. Their their conversations are likely to be
Speaker 1: a whole lot different than they were six weeks or
Speaker 1: twelve weeks ago. There is so much good news, but
Speaker 1: there's also some concerning news that could lead to UH
Speaker 1: potentially rates staying higher for longer. And I point specifically
Speaker 1: to the jobs market and what we see with just
Speaker 1: an incredibly resilient jobs market. It's really good, make no
Speaker 1: mistake for for for Americans. UH. It's not so good
Speaker 1: for the Federal Reserve because they're concerned about a wage
Speaker 1: price spiral. Well that's certainly on their their list of concerns.
Speaker 1: We did get some good news just the sporting with
Speaker 1: the Employment cost Index coming down again one percent for
Speaker 1: the fourth quarter, annualizes at four percent. Obviously it's not
Speaker 1: where the Fed wants it to be, but it but
Speaker 1: it dropped from an annual rate annualized rate of four
Speaker 1: point eight to UH to four percent. We do expect
Speaker 1: that the employment gains number coming out on Friday will
Speaker 1: also be helpful, not negative, but but down for where
Speaker 1: it was even just in December. So I want to
Speaker 1: go right to what I think is there could be
Speaker 1: a really important issue and if you think about it,
Speaker 1: um and in one of our I think it was
Speaker 1: maybe our one of our newsletters that was out this morning,
Speaker 1: I can't remember which one, but it talked about made
Speaker 1: in China inflation. And this speaks to our Bloomberg big take,
Speaker 1: which we'll get to a little bit later on. But
Speaker 1: back in September, then fed here Johnny Ellen mold the
Speaker 1: feds first interest rate hike in almost a decade. China's
Speaker 1: economic and market wobbles were among the reasons she ended
Speaker 1: up staying her hand. How does China, Steve complicate the
Speaker 1: situation for j Well, China is really come on back,
Speaker 1: come back online, and far more quickly, I think than
Speaker 1: anyone expected. They they ended their their COVID restraints, They're
Speaker 1: putting monetary and fiscal stimulus into it. They're standing behind
Speaker 1: their real estate sector, and so production in shadow will
Speaker 1: be helpful. Uh not that has been a big negative
Speaker 1: for inflation, but it certainly will be helpful and it
Speaker 1: will be what helps, uh the global economy be less
Speaker 1: likely to fall into recession. Probably the problem or the
Speaker 1: biggest challenge for the FED from China's increased activity is
Speaker 1: that it's going to be increasing its demand for for
Speaker 1: energy and that will just put upward pressure on energy prices. Uh.
Speaker 1: And so we're well, that's been a positive for inflation
Speaker 1: coming down. Uh, that positive impact is going to go away. Yeah,
Speaker 1: I was just looking through our story because I think,
Speaker 1: you know, concerns about Chinese inflation essentially what it could
Speaker 1: do in terms of kicking up inflation and the drag
Speaker 1: on the global economy. I think it's something like a
Speaker 1: one percentage point difference. I mean, do we need to
Speaker 1: be worried that it is going to make Ultimately the
Speaker 1: FED say, you know what, we don't quite know how
Speaker 1: the China factor and it's reopening how much pick up
Speaker 1: and momentum we will see in how much draw down
Speaker 1: on global commodities and pressure on those prices that they
Speaker 1: might just stay higher for longer. Well, it certainly is
Speaker 1: going to be on their mind, and that certainly can
Speaker 1: be a factor in their decision to stay higher for longer.
Speaker 1: But in some respects time is really on their side.
Speaker 1: The core PC inflation to flator that came out last
Speaker 1: week very good news for the Fed. It's annuallyzed over
Speaker 1: the last three months at the two point nine percent.
Speaker 1: It's not a two percent, but it's it's come down
Speaker 1: significantly from where it was. The tightening and higher interest
Speaker 1: rates are slowing economic growth, the job vacancy gap, all
Speaker 1: all that a plush and so so that the Fed
Speaker 1: is uh I think likely to increase twenty five basis
Speaker 1: points tomorrow. Most believe that it will do another twenty
Speaker 1: five basis points in mid March. UH, and before it
Speaker 1: has to do anything after that, it will have a
Speaker 1: whole lot of information and many believe the consensus of
Speaker 1: economists is that will continue to see inflation fall really
Speaker 1: back to where the FED wants it to be, notwithstanding
Speaker 1: the negative influence that higher energy prices I mean as
Speaker 1: a result of China coming back online so strongly, could
Speaker 1: also have Okay, so that's a wild card at this point.
Speaker 1: That's something that we need to keep in mind. And remember,
Speaker 1: you know, oil supply is not something that the FED
Speaker 1: can control. Oil demand the FED can control, I guess
Speaker 1: to a certain extent when it comes to raising rates
Speaker 1: and tamping down demand. Uh dr Skanky, I want to
Speaker 1: go back to your point about higher for longer. When
Speaker 1: do you think, how how long do you think the
Speaker 1: Fed will keep rates this high? I think they'll keep
Speaker 1: them this high at least through the end of June. Uh.
Speaker 1: Their rhetoric tomorrow is is going to be very much
Speaker 1: on track with their their higher for longer. That's surprising
Speaker 1: to hear only to June, though, because in December the
Speaker 1: Fed said they had no plans to cut this year. Well,
Speaker 1: that's right, and this is part of their forward guidance.
Speaker 1: They're there, They're they're sound being very hawkish on purpose,
Speaker 1: notwithstanding what they're seeing internally with the slowing of the
Speaker 1: economy and some of the other achievements that that are
Speaker 1: coming forth. But rather than having to raise interest rates
Speaker 1: further and to push the economy either into a recession
Speaker 1: or deeper into a recession, they're they're trying to to
Speaker 1: strip out some of the euphoria, enthusiasm, exuberants. They look
Speaker 1: at the SNP up six percent for the year. How
Speaker 1: how how is that not a frustration to them, and
Speaker 1: they're trying to use their rhetoric, their forward guidance to
Speaker 1: tamp that out. But they're also looking at a very
Speaker 1: much a weekending economy, and many now believe many many
Speaker 1: who who thought that it it certainly could just bounce
Speaker 1: around flat and then maybe tip into a recession in
Speaker 1: second or third quarter, are now seen that perhaps even
Speaker 1: in the first quarter, we're going to end up with
Speaker 1: negative really economic growth. So, you know, it's an interesting time.
Speaker 1: And Steve, yesterday we were talking with our Steve Matthews
Speaker 1: and our team UM about a story about how Feed
Speaker 1: is going to clash with Wall Street once again, because
Speaker 1: you've got traders expecting a peak policy rate of around
Speaker 1: four nine percent by May in June, falling to below
Speaker 1: four and a half percent by the December meeting, further
Speaker 1: cuts indicated during However, the latest you know dot plot
Speaker 1: from uh the Central Bank forecast showed seventeen of nineteen
Speaker 1: officials projecting rates about five this year, two of them
Speaker 1: above five and a half percent. It's a bit of
Speaker 1: a gap, a bit of a disconnect. Um, let's play
Speaker 1: the arbitrage there. But it's just interesting to see that gap.
Speaker 1: I mean, obviously, the Fed's going to do what it's
Speaker 1: got to do, but who usually has it right? Is it?
Speaker 1: Are you know traders right about this that that's a
Speaker 1: very good question, and to be honest, it's absolutely fascinating
Speaker 1: when you look at the dot plot and you really
Speaker 1: have yourself do they believe what they're saying or is
Speaker 1: this part of the hawk ish message they want to
Speaker 1: send to to tamp out this enthusiasm. They're very frustrated
Speaker 1: with easy and financial markets. They're they're trying to ring
Speaker 1: out inflation and financial markets. Wall Street are are acting
Speaker 1: as though that job has already finished. In the second
Speaker 1: half of the year, interest rates are going to decline
Speaker 1: and we'll we'll be back to a the old game.
Speaker 1: It will be the Fed pivot. The Fed absolutely does
Speaker 1: not want the market to believe that that's right. Reservations
Speaker 1: are up at the pivot pivot. You know, bistro investors
Speaker 1: are buying into it. They are So what could what
Speaker 1: could j Powell say tomorrow? What what could the Fed
Speaker 1: communicate tomorrow to really hammer home that this is not
Speaker 1: what they want to see? Well, they are going to
Speaker 1: they are going to say they haven't seen anything that
Speaker 1: tells them they can stop raising interest rates. They're going
Speaker 1: to talk about higher ongoing increases, plural in rates U
Speaker 1: it will be required, and the rate rates will remain
Speaker 1: at higher levels for some time. Um and uh. He
Speaker 1: won't he won't let anyone press him to to say
Speaker 1: what that exactly means. But higher rates, higher levels for
Speaker 1: some time, and that they're oh uh and it's it
Speaker 1: really is amazing to watch it. Their hope is that
Speaker 1: at some point markets will will take a step back
Speaker 1: and uh stop this, uh, this this frenzy, and belief
Speaker 1: that the pivot has already happened, and that the FET
Speaker 1: is happy where inflation is. It's not happy where inflation is,
Speaker 1: and it will continue to operate until it gets it down.
Speaker 1: But it's almost as though it doesn't matter so much
Speaker 1: anymore how much the FET increases rates or or or
Speaker 1: how long they keep them at higher levels. Inflation seems
Speaker 1: to be in the process of being wrung out as
Speaker 1: the economy cools the the employment sector is working itself out,
Speaker 1: Eddie goal gets back to some form of equilibrium. Right.
Speaker 1: Doesn't want to get fooled about. They want to see
Speaker 1: it happen, So they're not a trust that it will
Speaker 1: happen on its own. All right, We've got to run,
Speaker 1: Steve good to check in with you. Be wells. Dr
Speaker 1: Steve Skanky, chief Economic advisor at Kiel Point, former U
Speaker 1: s Treasury and White House National Security Council staff member
Speaker 1: showing us to be a zoom from Washington, d C.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live week days from two to five v m s
Speaker 1: during Listen on Bloomberg dot com, the I Heart Radio app,
Speaker 1: and the Bloomberg Business App, or watch us live on YouTube.
Speaker 1: Remember how we were all on a buying spree during
Speaker 1: the pandemic, Well, are you still waiting for your couch?
Speaker 1: Just a few things? Well, the same goes for those
Speaker 1: of the shipping industry who are looking to invest. Record
Speaker 1: profits made during the pandemic contain annial lines man, They
Speaker 1: went on a buying bins. Well, now all those new
Speaker 1: vessels will start arriving, and they've got to be named,
Speaker 1: just as the global economy is slowing. This story in
Speaker 1: the upcoming new issue of Bloomberg Business Week, on news
Speaker 1: stands later this week, already online at Bloomberg dot com
Speaker 1: and on the Bloomberg terminal. With more We've got Bloomberg
Speaker 1: Business Week editor Joel Webber and Bloomberg News Trades are
Speaker 1: Brendan Murray, who joins us on the phone in London.
Speaker 1: Joel's here in our interactive broker's studio. So Joel, how
Speaker 1: do you name a ship? Well, you you go, you
Speaker 1: go to the Midwest and you sort of like throw
Speaker 1: it darted a map and sometimes it lands on a
Speaker 1: on a place called may View, Missouri. Um, so Brendan,
Speaker 1: why why is Maresk who makes a lot of big vessels,
Speaker 1: some of them uh bordering on fours even Uh, and
Speaker 1: these are the style of both cargo vessels that that
Speaker 1: him alluded to that are going to be hopefully coming
Speaker 1: to mark coming to oceans near you. And nothing alleviate uh,
Speaker 1: but not too many problems, too many? But but why
Speaker 1: did Mayor's you know, Copenhagen based company go to Mayview,
Speaker 1: Missouri to name one of its ships, which that name
Speaker 1: will be the may View marisk That's right. So, so
Speaker 1: marisk Is is a hundred and twenty year old company
Speaker 1: and they and they're very proud of their history. A
Speaker 1: guy named Arnold Peter Mueller married a woman whose family
Speaker 1: was from the tiny town of Mayview, Missouri. This was
Speaker 1: about fifty miles east of Kansas City. Uh. You, I
Speaker 1: tried to find a stoplight using Google Earth and I
Speaker 1: couldn't find one. Um, that's not to say it's the
Speaker 1: folks that aren't proud of it. And I'm told there's
Speaker 1: even a plaque commemorating the fact that they've gotten one
Speaker 1: of the world's biggest ships named after the town. Okay,
Speaker 1: so there you know names aside um, and maybe we
Speaker 1: can spend a little bit more time with that yet.
Speaker 1: But Marisk isn't even the biggest buyer, right, Like who
Speaker 1: are you know? NSC is one name that's come up
Speaker 1: uh in some Bloomberg business we we week stories lately. Uh.
Speaker 1: It also happens to be a big buyer of ships,
Speaker 1: that's right. So so that this industry is the container
Speaker 1: shipping industry made record profits over the past two years,
Speaker 1: basically because we all bought things for our backyards or
Speaker 1: our home offices. Now that is starting to cool off,
Speaker 1: but in the meantime, they've all uh these and there
Speaker 1: is dominated by about ten companies, of half in Europe,
Speaker 1: Path and Asia. Um MSc, as you mentioned, is the
Speaker 1: biggest one. It's a sort of uh fairly low key
Speaker 1: company based in Switzerland owned by an Italian billionaire. Uh
Speaker 1: that and they are going full They're they're putting all
Speaker 1: their cards in the ocean freight. Uh game Uh and
Speaker 1: they are. They have something like a hundred and thirty
Speaker 1: ships on order now at about hundred and fifty to
Speaker 1: two hundred million dollars per ship. Somebody do the master
Speaker 1: me on that. But it's you know, it's a couple
Speaker 1: of a couple of billion dollars worth of ships they
Speaker 1: have on order. Um. So yeah. But but Marisk, on
Speaker 1: the other hand, is wants to be more of a
Speaker 1: door to door kind of end to end logistics providers.
Speaker 1: So they only have, you know, a couple of dozen
Speaker 1: ships on order compared to probably ten times the amount
Speaker 1: that are that are ten times more that MSc has.
Speaker 1: I gotta say, I keep thinking of a conversation Tim
Speaker 1: and I had recently with Mario Cordero, executive director at
Speaker 1: the Court of Long Beach, who talked about shipping containers
Speaker 1: being canceled. You know, very different from what we saw
Speaker 1: in the pandemic. There's no backup, prices are coming down.
Speaker 1: It's a very different environment. Are these guys do they
Speaker 1: make some wrong bets? Well, they don't. They don't bet
Speaker 1: on you know, a couple of hundred million dollars on
Speaker 1: a container ship on what's happening over the next twelve
Speaker 1: to eighteen months. These are these are investments of you know,
Speaker 1: years sometimes, but this is a very cyclical business. It
Speaker 1: rises and falls with the with the economic tides. And
Speaker 1: we are you know, the the the economy, the global
Speaker 1: economy it softening, and all these ships are going to
Speaker 1: hit the market just exactly the time when they don't
Speaker 1: need them. Container ships are kind of like hotels, and
Speaker 1: if they're not filled, uh, they're not making money. And
Speaker 1: if they're not making money, then the price comes down,
Speaker 1: so that benefits consumers. You know, we're we're gonna we're
Speaker 1: gonna see UH and and companies like Walmart and akia
Speaker 1: that that use a lot of shipping services, you know,
Speaker 1: they're going to see their rates come down and probably
Speaker 1: stay down. As our Bloomberg Intelligence UH logistics analysts said,
Speaker 1: we're going to see low ocean freight rates. So well
Speaker 1: into it time to talk about the names again, because
Speaker 1: you can talk about the names again. Why not talk
Speaker 1: about the names again? Um, Britan, I'm curious, since um
Speaker 1: you did some dogged reporting here, what did you learn
Speaker 1: about names that was you know, as somebody who follows
Speaker 1: this stuff so closely, you know, what was the big
Speaker 1: reveal for you? And in the naming of how we
Speaker 1: get these uh, you know vessels that sometimes become iconic
Speaker 1: and pop culture in the case of like saying the
Speaker 1: ever given right, so the so well if you bring
Speaker 1: up the ever Given so Evergreen Marine is the Taiwanese company.
Speaker 1: And they like consistency. They like putting ever in front
Speaker 1: of the name of their ships. So they've got dozens
Speaker 1: and dozens of ships. That's the ever Early I think
Speaker 1: there was one the ever uh superb exactly just any
Speaker 1: any any noun, you know, fill in the blank and
Speaker 1: put ever in front of it, and that's how they
Speaker 1: named their ships. Um other companies that you know, it's
Speaker 1: it's it's some some uh source of corporate pride. I
Speaker 1: mean the MSc said that they named Mayor's after uh
Speaker 1: family members of employees. So maybe it's you know, kind
Speaker 1: of a motivational thing. You know, you have a good
Speaker 1: year and you know, you get a ship named after
Speaker 1: your kid or something friended. I mean, you've done so
Speaker 1: much reporting on this. Have any companies come to you
Speaker 1: and said, we want to name this one after the
Speaker 1: trades are at Bloomberg? Well, you know I did lobby
Speaker 1: for that with with marrisk and they and the and
Speaker 1: the and the public relations guy who I talked to said,
Speaker 1: you've got to get in mine behind me because I
Speaker 1: won't say his name, but he he's you know, kind
Speaker 1: of quietly wants one named after him. Ever, Brendon has
Speaker 1: a kind of nice thing to it. Don't get stuck.
Speaker 1: I agree, exactly. Well, there's nine hundred ships coming over
Speaker 1: the next three or four years, and so you know
Speaker 1: you've got to figure one of those, you know, uh
Speaker 1: could uh you know, could be named after one of us.
Speaker 1: Maybe we didn't come back to may View, Missouri. Why
Speaker 1: maybe so maybe you stuck out to me because I'm
Speaker 1: well number one, because I'm from St. Louis, and I
Speaker 1: wanted to know how did this tiny little town literally,
Speaker 1: like I said, no spent you know, there any stoplights?
Speaker 1: And fairly it's not even a suburb of Kansas City.
Speaker 1: It's kind of just just an old farming community that
Speaker 1: has basically had two or three hundred residents for for
Speaker 1: as long as I could see the census day to
Speaker 1: go back, uh and and it was it meant something
Speaker 1: to the history of the company. I spoke to the
Speaker 1: historian mcmay's cousin in house historian, and he said that
Speaker 1: the that the that there and there are uh family members,
Speaker 1: you know, descendants of the founder who still work for
Speaker 1: the company. And that's just been the tradition. If they
Speaker 1: try to, uh, you know, keep that, keep that tradition going.
Speaker 1: Arnold Peter Mueller was married in may View. Go ahead,
Speaker 1: go figure. Ever Murray works too, it does Ever Webber,
Speaker 1: why not. I'll take that all right. Joel and Brendan,
Speaker 1: thank you. You're listening to the Bloomberg Business Week Podcast.
Speaker 1: Catch us live week days from two to five p
Speaker 1: m s during Listen on Bloomberg dot com, the I
Speaker 1: Heart Radio app, and the Bloomberg Business app, or watch
Speaker 1: us live on YouTube. It is time for plugged in
Speaker 1: your weekly look at e VS. And I gotta say
Speaker 1: tim lot's happening in the world always when it comes
Speaker 1: to electric vehicles, GM investing six fifty million developing the
Speaker 1: largest U S lithium deposit. And that's really a move
Speaker 1: to ramp up its efforts to secure supplies of the
Speaker 1: key metal used in electric vehicle batters. I mean, it
Speaker 1: is all about getting those raw materials and components in
Speaker 1: order to be able to meet demand and speaking of
Speaker 1: demand and e vs GM CEO Mary Bara dismissing concerns
Speaker 1: about those price cuts after Tesla and Ford cut their
Speaker 1: EV sticker prices. Look at shares of GM today up
Speaker 1: significantly after reporting results. Let's break it all down with
Speaker 1: Bloomberg Technology co host ed Ludlow, who's in the Bloomberg
Speaker 1: nine sixties studio in San Francisco, And I want to
Speaker 1: start with um the six fifty million dollar investment that
Speaker 1: GM is going to make the largest U S lithium deposit.
Speaker 1: So it's a big headline. It is. It is a
Speaker 1: big headline, But take us into the details of the
Speaker 1: just a headline? Is that what you say? What's the
Speaker 1: story behind the story here? I mean the devil's in
Speaker 1: the detail. This is for lithium supply starting from so
Speaker 1: a few years away from now. But you know it's
Speaker 1: all part of the widest story about concern for all
Speaker 1: of these players. Test being the pure play market incumbent
Speaker 1: GM and four being the legacy US names transitioning to
Speaker 1: e V making sure that they have access in their
Speaker 1: supply chains to the raw materials for battery cells right
Speaker 1: as they ramp up the volume of evs they produce,
Speaker 1: they need more battery cells and therefore they need more
Speaker 1: access to the metals that go into them. And you know,
Speaker 1: in this case it's lithium. It's a partnership with Lithium
Speaker 1: America's Corps. It's about a mine in Nevada, specifically the
Speaker 1: factor past mine UM. And you know, I think that
Speaker 1: you know it meets GM's ambition, right because this is
Speaker 1: a company that you know is aiming to build a
Speaker 1: millionaivs a year eventually and they need to make sure
Speaker 1: they've got the raw materials to do that. Um, do
Speaker 1: we have enough lithium to do what we need to
Speaker 1: do to turn over everybody to trick question that is
Speaker 1: a trick question is what the conversation do you have
Speaker 1: around this? Well? Do you know why it's a trick question,
Speaker 1: And it's because it's not about necessarily how much lithium
Speaker 1: we have available to us, but also where it's coming from.
Speaker 1: Because remember the whole point of the Inflation Reduction Act,
Speaker 1: which provides for a federal credit, a consumer incentive. Being
Speaker 1: eligible for that incentive long term is dependent on where
Speaker 1: you source your raw materials on in lithium's case, in particular,
Speaker 1: China is such a massive player, and the whole point
Speaker 1: of the I r A is to make America's supply
Speaker 1: chain more competitive. So it's not just about how much
Speaker 1: lithium there is on the planet, it's about where it's
Speaker 1: coming from and making the US more competitive. And again,
Speaker 1: this announcement that GM made Tuesday is for a mine
Speaker 1: in Nevada, so that would very much mean that any
Speaker 1: battery packs with lithium from that mine were eligible going
Speaker 1: forward for the IRA credit. But also brings us back
Speaker 1: to the question about making different batteries or batteries that
Speaker 1: are that have different materials in them add and are
Speaker 1: you betting on a component that's guaranteed to be used
Speaker 1: for the next X number of years? Yeah, I mean
Speaker 1: you have to look at the word that Tesla has
Speaker 1: done right around changing the cell chemistry. Um Lithium is
Speaker 1: one metal that is prominent in lithian ion batteries, right,
Speaker 1: but also cobalt and nickel are important. You can use
Speaker 1: different cell compositions, and cell chemistry is to boost the
Speaker 1: proportion of one to the other. The end goal is
Speaker 1: to make sure that the battery or sell therefore pack
Speaker 1: has the greatest energy density how much energy can you
Speaker 1: squeeze into that little cylinder and into that battery pack.
Speaker 1: That is the equation from an economics perspective of what
Speaker 1: they're trying to achieve, how expensively or cheaply. Conversing you
Speaker 1: source your metals has a direct impact on that. So, UM,
Speaker 1: I just feel like, you know, it's interesting and I
Speaker 1: was looking to put together some gainers for when we
Speaker 1: do our cross platform. You know, market closed here today,
Speaker 1: and it's interesting. You've got Tesla continuing, you know, to
Speaker 1: move higher this year again rallying rythan UM I believe
Speaker 1: was also among the top gainers in the NAZAC one.
Speaker 1: I just want to do allow check here. You know,
Speaker 1: we're seeing a lot of momentum into that space. UM.
Speaker 1: We know that there's a bit of a pricing were
Speaker 1: going on on the GM saying and Mary bar saying,
Speaker 1: we don't necessarily need to to play in that price war.
Speaker 1: So what are the bigger, broader trends that are going
Speaker 1: on here when it comes to the space. I mean,
Speaker 1: I would love to tell you that the market dynamics
Speaker 1: driving the market is about kind of the love back
Speaker 1: in love with evs. You have to remember these are
Speaker 1: also some of the most downtrodden stocks there are out there.
Speaker 1: Riving and Lucid the two worst performers on the NASDAC
Speaker 1: one in two Tesla had its worst year I think
Speaker 1: on record. I was just checking my Bloomberg terminal in
Speaker 1: two right sixty decline and so you see a lot
Speaker 1: of participants in the market look at how valuations have
Speaker 1: come down and say, yeah, now's a good time to buy.
Speaker 1: The other side of the coin is that test zonings
Speaker 1: were great. You know, they showed that using the level
Speaker 1: of price cuts does induce demand. And Elon must talked
Speaker 1: about in the first early weeks of January of this year,
Speaker 1: the demand for their vehicles was twice what they're able
Speaker 1: to produce in that snapshot moment. So there is excitement
Speaker 1: about what's possible, but still nervousness broadly about demand tapering
Speaker 1: off this year. Were you surprised ed to hear GM
Speaker 1: CEO Mary Burrow dismissed concerns about price cuts give Tesla
Speaker 1: and Ford seemed to be in this the beginnings of
Speaker 1: a price war. Yes, I mean the general consensus across
Speaker 1: sell side analysts at least was that Tesla cutting its
Speaker 1: prices in the words of RBC would have a cascading effect,
Speaker 1: so you know Ford went next. There was suspicion actually
Speaker 1: that we'll see the European automakers follow suit. GM's currently
Speaker 1: bucking that trend. It's interesting because they had earnings right,
Speaker 1: and the numbers were very strong, particularly how bullish. Their
Speaker 1: outlook for earnings this year would be the e BIT forecast,
Speaker 1: in particular earnings per share of six to seven dollars
Speaker 1: for the full year. But you have to remember that
Speaker 1: that is held up on a pillar of sustained demand
Speaker 1: for their expensive gas vehicles while they transition to electric vehicles.
Speaker 1: The price cut comments were interesting though they're basically seem
Speaker 1: to be saying, we're not going to adjust the prices
Speaker 1: of our electric vehicles for now. But remember GM has
Speaker 1: done what many automakers do, first come to market with
Speaker 1: a very expensive e V and their models that are
Speaker 1: more mass market, more affordable, those are still a little
Speaker 1: way away from mass production. So that's part of the
Speaker 1: equation too. Do we ever think about that in terms
Speaker 1: of the raw materials that we're going or that are
Speaker 1: needed in order to make all of these electric vehicles.
Speaker 1: I mean, I know the discussion has been out there.
Speaker 1: But I wonder if there's more momentum that we're just
Speaker 1: kind of trading a fixed commodity with limitations on the
Speaker 1: amount that are out there, meaning fossil fuels, just for
Speaker 1: another basket of raw materials that are fixed as well.
Speaker 1: I appreciate the debate. I mean, at the end of
Speaker 1: the day, the fundamentally, what you have is a lot
Speaker 1: of demand, which is in the form of many automakers
Speaker 1: with plans to ramp their output of electric vehicles, trying
Speaker 1: to latch onto what is a relatively finite, immediately available
Speaker 1: source of supply, you know. And it's no surprise that
Speaker 1: we saw GM make this announcement on lithium with Lithium
Speaker 1: America's on Tuesday. Tesla has done very similar things in
Speaker 1: invertically integrating its supply chain right and in other words,
Speaker 1: cut out the middleman, go direct to the source and
Speaker 1: use that to make yourselves. The thing is that those
Speaker 1: legacy also makers GM and for their future proofing right,
Speaker 1: so GM forecast making four hundred thousand vs from the
Speaker 1: start of last year through to the middle of next year.
Speaker 1: Long term, their aim is to reach millions of units,
Speaker 1: but they're not quite there yet. Ford is ramping up
Speaker 1: the Marquee production from around seventy eight thousand units last
Speaker 1: year to a hundred and thirty thousand this year, but
Speaker 1: long term its ambitions are much greater, and it's that
Speaker 1: long term that they're trying to secure that supply for
Speaker 1: At the moment. As we spoke about yesterday, though, one
Speaker 1: of the challenges here is the margins on evs. For
Speaker 1: margins on internal combustion engine vehicles. I mean, look no
Speaker 1: further than GM's results for just how you know much
Speaker 1: big or margins are when it comes to those old
Speaker 1: school gas guzzlers. Um, just in thirty seconds because I
Speaker 1: want to talk about some other stuff here. What's to
Speaker 1: watch for with that? Yeah, I mean, ultimately, if you
Speaker 1: build vehicles at greater volumes, you can buffer the margins,
Speaker 1: and if you cut prices, that's clearly a headwind to margins,
Speaker 1: and Forward are trying to get that equation right. The
Speaker 1: Marquees unprofitable, but what they're saying is as we grow
Speaker 1: our footprint and produce greater volumes each year, there is
Speaker 1: some protection to margins that comes with that. I remember
Speaker 1: back in two thousand nineteen very quick Jim Hackett, former CEO.
Speaker 1: The day they unveiled the Marquis A Driss Elbert was there.
Speaker 1: It was weird. He promised it would be profitable from
Speaker 1: unit one, but then the world changed, you know, inflation,
Speaker 1: rising commodities costs. Okay, this is what I wanted to
Speaker 1: talk to you about. It's a hard pivot. It's Palanteer
Speaker 1: Technology is Tomorrow, You've got a big interview with Alex Carpets,
Speaker 1: CEO and co founder. Thirty seconds. What's on your agenda? Yeah, look,
Speaker 1: I'm getting a rare invite down to one of their
Speaker 1: facilities in Palo Alto. He's in town. Remember this is
Speaker 1: a company that pivoted and moved from California to Colorado.
Speaker 1: And we're going to catch up. And you can catch
Speaker 1: the interview on Bloomberg Technology on Wednesday, two pm Pacific,
Speaker 1: five pm Eastern. That's a great interview. Looking forward to it, Ed, Uh,
Speaker 1: and really appreciate you weighing in as you always do
Speaker 1: for us when it comes to the e V space,
Speaker 1: because it's kind of fast and furious sometimes. Ed Ludlow,
Speaker 1: co host of Bloomberg Technology at Bloomberg News, really wide
Speaker 1: ranging conversation. I do think about these raw materials and
Speaker 1: precious materials, if you will. Uh, and the access to them,
Speaker 1: and you know, it's kind of another race. Yeah. I
Speaker 1: think about a lot about how the technology has changed
Speaker 1: in just a few years for batteries, for batteries, Yeah, yeah, exactly.
Speaker 1: You're listening to the Bloomberg Business Week Podcast. Catch us
Speaker 1: live week days from two to five pm Eastern on
Speaker 1: Bloomberg Radio, the Bloomberg Business App, and YouTube. You can
Speaker 1: also listen live on Amazon Alexa from our flagship New
Speaker 1: York station Just Say Alexa playing Bloomberg eleven thirty bloom
Speaker 1: The Journal. Yeah, but you let me drive? Oh no,
Speaker 1: no, no no, no, all right, please, I'll do vel. I
Speaker 1: want to drive. It's a good question. This is the
Speaker 1: Drive to the Clothes on Bluebird Radio. All right, everybody,
Speaker 1: just about seventeen minutes left in today's trading session. We've got,
Speaker 1: as you heard from Chile, Charlie, a rally underway. We've
Speaker 1: seen yields back off a bit. This lesson twenty four
Speaker 1: hours away from the first FED decision of the new year,
Speaker 1: and coming up with a good guest to talk about
Speaker 1: what's going on in the trade here. Yeah, very pleased
Speaker 1: to have with us. This afternoon. Larry Patkowski, managing partner
Speaker 1: and portfolio manager at good Haven Capital Management, joining us
Speaker 1: on the phone from Millbourne, New Jersey. Good to have
Speaker 1: you with us, Larry. Uh So, here we are at
Speaker 1: the end of the best January in years. We're seeing
Speaker 1: a rally just as the FED kicks off it's two
Speaker 1: day policy meeting with the SPU by a full percentage point.
Speaker 1: Uh Does the FED rate on the frade tomorrow? Uh? Tim.
Speaker 1: It's nice to be here, hello, Carroll. Tim. I appreciate
Speaker 1: you starting with an easy question, Okay, And it's an
Speaker 1: easy question because I don't know. It is not the
Speaker 1: type of thing that we try and make short term
Speaker 1: predictions about. And and my I don't know is not
Speaker 1: a flippant or dismissive. I don't know. It's a respectful
Speaker 1: and humble I don't know, because I do know. I
Speaker 1: believe where a good Haven our circle of confidence as
Speaker 1: investors ends, and we try very hard to develop a
Speaker 1: varying perception about the handful of companies we have an
Speaker 1: investment in, and we try and make those investments where
Speaker 1: we think we have marginal safety. But I don't think
Speaker 1: we have, uh, the ability to have a varying perception
Speaker 1: about short term moves and Fed policy, interest rates and
Speaker 1: the g d P. So, uh, we understand what everybody
Speaker 1: seems to be kind of expecting, you know, ah, you know,
Speaker 1: a quarter of a point and uh, the beginning of
Speaker 1: some slow down in this. And we don't have a
Speaker 1: very different view. And again we're not dismissive. I guess
Speaker 1: for me, it's more about commentary and less about a
Speaker 1: singular move tomorrow. It's it's more about what A Powell
Speaker 1: says about holding rates higher for longer and what he
Speaker 1: says about financial conditions. Our view about the recent environment
Speaker 1: is the following. I am not as young as I look.
Speaker 1: We're sound. I have seen periods. I have seen periods
Speaker 1: where there have been existential risks to the financial system
Speaker 1: and to the economy. I've been saying for the last
Speaker 1: there's In other words, you understand that a zero interest
Speaker 1: rate environment is abnormal, not normal. How you make a
Speaker 1: great point. And a few years ago we did say, like, look,
Speaker 1: interest rates will go higher at some point, and we
Speaker 1: try to add something to the portfolio that we thought
Speaker 1: would benefit from somewhat higher rates, as some financial companies
Speaker 1: that could use more interest income, whether it be proper
Speaker 1: and casualty insurance companies or some aspects of the commercial
Speaker 1: banking sector. But I don't think what we've been experiencing recently,
Speaker 1: which is much higher interest rates and a slower economy,
Speaker 1: is an existential economic risk compared to some things I
Speaker 1: have seen in my career. So we've been doing what
Speaker 1: we normally do. We get up earlier, go to sleep later,
Speaker 1: and keep looking for a handful of companies that we
Speaker 1: think can do fine even in an imperfect economy. And
Speaker 1: we've been fortunate enough, you know, to be able to
Speaker 1: find something well. And I'm looking at your fund, the
Speaker 1: Good Haven Fund UH year to day up more than
Speaker 1: seven percent, putting it in the ninety third percentile according
Speaker 1: to Bloomberg data. Longer term three years on average annually
Speaker 1: again more than eleven putting it in a ninety percentile.
Speaker 1: So you're making some good bets. UM a listener and
Speaker 1: viewer a business week writing in and saying what went
Speaker 1: into the decision to invest more in larger cap stocks
Speaker 1: as opposed to small to mid cap stocks. UH. First
Speaker 1: of all, Carol, thank you for noticing we have been
Speaker 1: working quite hard, you know, to continue to drive long
Speaker 1: term returns, you know, like that for us and our
Speaker 1: fellow shareholders, so thank you. We have a mix of
Speaker 1: larger companies, some of them are that our household names.
Speaker 1: We have a mix of some mid sized companies, and
Speaker 1: we have some real below the radar screen companies. We
Speaker 1: are not you know, uh, myself uh and also ARTI
Speaker 1: quack here who works with me. We are not waking
Speaker 1: up every day saying, boy, we want to look for
Speaker 1: another company of a certain size or you know, we're
Speaker 1: looking for the best bargains in companies. We feel that
Speaker 1: we understand where they are going, We understand management teams.
Speaker 1: We think we have an edge and understanding the business
Speaker 1: and where we're buying with a marginal stafty that we
Speaker 1: can find and you know, one should find great things infrequently.
Speaker 1: But we've been fortunate to have been i think positioned
Speaker 1: reasonably well as the statistics you've called out have demonstrated
Speaker 1: what what's been a newby as of late and not
Speaker 1: necessarily a whole new position or adding to a position. Well.
Speaker 1: We had kept our eye on for some years k
Speaker 1: k R. In our minds, the movement of capital to
Speaker 1: the alternative asset managers over the last bunch of years
Speaker 1: was a very interesting trend, and it was not a
Speaker 1: trend we thought we was stopping any time soon. As
Speaker 1: a matter of fact, very recently, I think New York
Speaker 1: has upped the percentage that they're going to going to
Speaker 1: commit to alternatives from we ended up first. We we
Speaker 1: looked at KKR and we admired what they had built.
Speaker 1: Distributable learnings had gone from like a buck sixties six
Speaker 1: and seventeen to recently like four and a half bucks
Speaker 1: a share that's buck sixty six per shared to four
Speaker 1: and a half a share over the last trailing twelve months.
Speaker 1: And we bought some at the peak of the covid
Speaker 1: UH in the spring of when you know, the world
Speaker 1: was going through a very difficult period. But we have
Speaker 1: added to it in two kind of around these prices.
Speaker 1: What I think has been interesting lately is some of
Speaker 1: the cloud from some of the issues surrounding UH, you know,
Speaker 1: the black Stone b read, I think has given perhaps
Speaker 1: an opportunity to look at the whole sector. And KKR
Speaker 1: is the only one we own, and we think it's
Speaker 1: well managed. We think we understand where the business is going.
Speaker 1: We think earnings management says they think earnings can be
Speaker 1: seven bucks within a couple of years, and we think
Speaker 1: that's intriguing. Yeah, rallied big time higher one down about
Speaker 1: thirty almost thirty eight percent last year, but we're seeing
Speaker 1: money move into KKR certainly this year. It's already up
Speaker 1: almost here in Larry Pittkowski, thank you so much, Managing partner,
Speaker 1: portfolio manager, Goodhaven Capital Management, joining us on the phone
Speaker 1: from Milburgh, New Jersey. This is the Bloomberg Business Week podcast,
Speaker 1: available on Apple, Spotify, and anywhere else you get your podcast.
Speaker 1: Listen live each weekday starting at two pm Eastern on
Speaker 1: Bloomberg dot com, the I Heart Radio app, tune In,
Speaker 1: and the Bloomberg Business App. You can also watch us
Speaker 1: live every weekday on YouTube and always on the Bloomberg terminal.