WEBVTT - Peter Kenny Says Underperforming Sectors Will Catch Up to Tech 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:31.880 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Well, 0:00:31.880 --> 0:00:35.000 this week, the European Central Bank will be meeting to discuss, 0:00:35.040 --> 0:00:39.080 among other things, how to start pairing back it's stimulus. 0:00:39.320 --> 0:00:41.240 I want to bring in Simon Ballard, a global credit 0:00:41.240 --> 0:00:45.360 strategist here at Bloomberg. He is based in London, and Simon, 0:00:45.400 --> 0:00:47.720 I really want to talk to you about the apparent 0:00:47.800 --> 0:00:50.920 debate that's heating up at the e c B, which 0:00:51.080 --> 0:00:54.880 is do they have to wind down their purchases first 0:00:55.240 --> 0:00:57.720 under the quantitative easing program that they have going on 0:00:57.840 --> 0:01:00.960 right now or can they start by using interest rates 0:01:01.320 --> 0:01:05.320 from the negative deposit rate area that it is in now. 0:01:05.600 --> 0:01:07.920 I feel like this is this is crucial and has 0:01:08.120 --> 0:01:12.120 the potential to really shake markets. Can you give us 0:01:12.160 --> 0:01:14.679 a sense of what the debate is? No, absolutely so, 0:01:14.800 --> 0:01:16.440 And I think you know the key point here is, 0:01:16.520 --> 0:01:20.080 well you know, they're looking towards the normalization of policy 0:01:20.160 --> 0:01:22.560 over time. I think there's a very different and a 0:01:22.640 --> 0:01:26.800 very distinct definition to be made between normalization of policy 0:01:27.080 --> 0:01:29.959 and raising interest rates. Um. And I think the rhetoric, 0:01:30.040 --> 0:01:32.360 the statement, the language that comes from the ECB over 0:01:32.400 --> 0:01:34.240 the course of the coming months is going to be 0:01:34.240 --> 0:01:38.360 how they approach withdrawing in terms of their their their stimulus. 0:01:38.560 --> 0:01:41.640 As we've seen with the CBS Corporate Sector Purchase Program data. 0:01:41.640 --> 0:01:44.880 The latest numbers came out this afternoon, delayed because of 0:01:44.880 --> 0:01:47.320 the holiday in Europe yesterday. As at the end of 0:01:47.400 --> 0:01:50.160 last week, they own just over ninety billion dollars now 0:01:50.360 --> 0:01:53.440 of corporate bonds, so they're continuing to buy, they're continuing 0:01:53.440 --> 0:01:58.680 to stimulate the credit markets. UM. So that's almost a 0:01:58.720 --> 0:02:03.880 hundred billion dollars of corporate bonds in the past year. Absolutely, 0:02:03.880 --> 0:02:07.040 that's corporate bonds plus all the all the agency debt 0:02:07.040 --> 0:02:08.639 that they've been buying as well. So that is purely 0:02:08.680 --> 0:02:10.160 just the corporate bonds that they've been trying to sort 0:02:10.200 --> 0:02:13.800 of reflate the you know, the corporate sector with should 0:02:13.800 --> 0:02:15.639 I say so, Yeah, the language going forward is gonna 0:02:15.639 --> 0:02:18.120 be very key to how they sort of address moving 0:02:18.160 --> 0:02:21.440 towards that tightening bus um. But while the you know, 0:02:21.480 --> 0:02:24.680 the Federal Reserve is expected to increase again next next month, 0:02:24.840 --> 0:02:27.200 this month, um and then possibly again before the end 0:02:27.200 --> 0:02:28.720 of the year, I think you know it's gonna be 0:02:28.720 --> 0:02:31.160 about the the the CBS language rather than the actions 0:02:31.200 --> 0:02:34.080 in terms of interest rates. Simon, Yes, that the Federal 0:02:34.120 --> 0:02:37.360 Reserve meeting, I guess the thirteenth and the fourteenth of June. 0:02:38.200 --> 0:02:43.000 But I'm wondering has the investment community in Europe been 0:02:43.040 --> 0:02:46.960 satisfied with the purchase program of the European Central Bank? 0:02:47.040 --> 0:02:49.680 Inasmuch as if there's always a bid, you're always going 0:02:49.720 --> 0:02:53.200 to find something to sell the central bank. What happens 0:02:53.200 --> 0:02:56.639 when the central bank stops buying whatever it is you're selling, Well, 0:02:56.680 --> 0:02:59.120 there in lies the there in lies the long term problem, 0:02:59.120 --> 0:03:00.960 Pim And you know you've hit the nail exactly on 0:03:01.000 --> 0:03:02.680 the head. Is the Is the market happy with what 0:03:02.720 --> 0:03:04.720 the ECB is doing? It depends which side of the 0:03:04.720 --> 0:03:06.320 trade you're looking at. If you're looking at it from 0:03:06.320 --> 0:03:10.240 an investor's perspective wanting to buy reasonably placed, high yielding 0:03:10.240 --> 0:03:12.320 assets for your portfolio, then no, you're not going to 0:03:12.400 --> 0:03:14.839 be happy. Because we've seen the compression of spreads, we've 0:03:14.840 --> 0:03:17.720 seen the erosion of yield through the crowding out effect 0:03:17.760 --> 0:03:20.200 of central banks, not just the ECB, the Bank of England, 0:03:20.240 --> 0:03:23.480 the Federal Reserved through their commentative policies as well. But 0:03:23.560 --> 0:03:26.360 the stimulation has brought down yields and returns for to 0:03:26.480 --> 0:03:29.880 the investor. Alternatively, for those guys that have been along 0:03:29.960 --> 0:03:32.600 their portfolio over the last several years, they've just watched 0:03:32.639 --> 0:03:35.080 valuations go through the go through the roof as spreads 0:03:35.080 --> 0:03:38.760 of compressed and and and quality curves are flattened, as 0:03:38.840 --> 0:03:41.240 investors have been as we say, crowded out into high 0:03:41.320 --> 0:03:44.720 into the high yielding space, taken all riskier assets. So, simon, 0:03:44.760 --> 0:03:47.520 I'm looking at a ten year German yield of about 0:03:47.560 --> 0:03:50.040 a quarter of a percentage point. This is nothing for 0:03:50.160 --> 0:03:54.160 ten years. Basically, you are giving Germany free money for 0:03:54.240 --> 0:03:56.720 ten years to do whatever they want. That is how 0:03:57.240 --> 0:04:00.400 desirous people are of this debt. People do not seemed 0:04:00.440 --> 0:04:02.440 to be expecting that the ECB will come up with 0:04:02.480 --> 0:04:05.720 any planned to extricate itself from the simulus program that 0:04:05.760 --> 0:04:08.840 they have in place any time soon. So is this 0:04:09.080 --> 0:04:11.960 just an intellectual argument as far as how they might 0:04:12.000 --> 0:04:15.600 approach uh, some kind of withdrawal from the stimulus, or 0:04:15.680 --> 0:04:17.800 is there actually going to be a timetable put in 0:04:17.839 --> 0:04:20.120 place as well? Well, I think, you know, again, we'll 0:04:20.160 --> 0:04:21.800 look for the language from the c B, as we 0:04:21.839 --> 0:04:23.960 do from the Federal Reserve in time in terms of 0:04:24.000 --> 0:04:27.560 their proposed or they're intended time frame. But it's the 0:04:27.560 --> 0:04:31.279 pace at which that withdrawal happens that could potentially spook 0:04:31.320 --> 0:04:34.279 the markets, could scare investors away from the from the 0:04:34.520 --> 0:04:36.600 from the higher yielding assets that they've been crowded out 0:04:36.600 --> 0:04:39.160 into over the course of the over the course of 0:04:39.240 --> 0:04:41.640 the last couple of years. Um, you know, we have 0:04:41.680 --> 0:04:43.719 a quarter of percent on the ten year Bund. That 0:04:43.839 --> 0:04:46.320 is a lot better than the negative yielding front end 0:04:46.320 --> 0:04:48.000 of the German curve, which has been negative out to 0:04:48.080 --> 0:04:51.280 eight nine years in recent months. And again that really 0:04:51.320 --> 0:04:54.200 reflects the the underlying uncertainty of the investor base. If 0:04:54.200 --> 0:04:56.520 you wish wanting to be in these assets which are 0:04:56.520 --> 0:04:58.839 being bought by the central banks, but at the same 0:04:58.880 --> 0:05:01.120 time still wanting to hold old Treasury, still wanted to 0:05:01.120 --> 0:05:04.520 hold German government bonds against the backdrop of an uncertain 0:05:04.600 --> 0:05:07.800 macro environment, so they need that haven cover versus the 0:05:07.880 --> 0:05:10.520 yield and the riskier assets that they're holding on the 0:05:10.520 --> 0:05:13.080 other side of the hands. Simon, is it worthy asking 0:05:13.160 --> 0:05:16.839 what lessons the European Central Bank, the Bank of Japan 0:05:16.880 --> 0:05:19.080 and the Bank of England, what lessons they have learned, 0:05:19.080 --> 0:05:23.520 if anything, from the federal reserves efforts with quantitative easing. Well, 0:05:23.560 --> 0:05:25.880 I think you know, the lesson they're learning is the 0:05:25.880 --> 0:05:29.720 the sceptibility of the market to react negatively and positively 0:05:30.160 --> 0:05:34.240 to to to incorrectly timed you know, headlines and statements, 0:05:34.520 --> 0:05:35.880 and I think you know, as we go through the 0:05:35.880 --> 0:05:38.840 process of normalization in the US, you know, the impact 0:05:38.920 --> 0:05:40.640 that this could have on the back end of the 0:05:40.920 --> 0:05:44.440 quality curve, on the high yielding assets within Europe could 0:05:44.480 --> 0:05:46.200 be It could be quite severe as we as we 0:05:46.240 --> 0:05:48.000 pull away the you know, the purse strings and the 0:05:48.000 --> 0:05:52.000 support mechanism, then you know, looking at how we know, 0:05:52.000 --> 0:05:54.000 how we found how we finance some of these weaker 0:05:54.000 --> 0:05:56.039 corporates that people have been buying into for the for 0:05:56.120 --> 0:05:59.239 the incremental yield could could be could be very difficult. 0:05:59.400 --> 0:06:03.000 So sim and given this backdrop of seemingly endless central 0:06:03.040 --> 0:06:07.120 bank money, can anything shake it up? Like for example, say, 0:06:07.160 --> 0:06:10.000 the UK election that's happening this week, that could potentially 0:06:10.080 --> 0:06:14.800 pose somewhat of a surprising element to the markets should 0:06:15.320 --> 0:06:18.320 Prime Minister Theresa May not win re election. Do you 0:06:18.320 --> 0:06:20.760 think that this could actually shake things? I think more 0:06:20.800 --> 0:06:23.559 importantly it would be Prime Minister Corbin that would shake 0:06:23.600 --> 0:06:25.520 things if we did get the surprise, And as the 0:06:25.520 --> 0:06:27.400 polls have been moving over the last couple of weeks 0:06:27.400 --> 0:06:29.640 from a from a twenty basis point lead for the 0:06:29.680 --> 0:06:32.440 Conservatives over the Labor Party down to some polls would 0:06:32.480 --> 0:06:34.680 now suggest sort of just a one basis point to 0:06:35.200 --> 0:06:39.880 lead between them. The implications of a labor socialist government 0:06:39.880 --> 0:06:43.160 coming into the UK with their tax policies and their 0:06:43.240 --> 0:06:45.960 their thoughts on sort of trying to reflate and nationalize 0:06:45.960 --> 0:06:48.320 the economy I think could be a big trigger for 0:06:48.600 --> 0:06:52.159 for for an unwind of risk appetite in Europe. But 0:06:52.240 --> 0:06:54.200 we're certainly starting within the UK, but that would feed 0:06:54.279 --> 0:06:56.920 very quickly across Europe as the as questions around Brexit 0:06:56.960 --> 0:07:00.000 and more sort of the global recovery come into questions. 0:07:00.240 --> 0:07:02.040 I want to thank you very much for joining us 0:07:02.040 --> 0:07:05.240 Simon Ballard as our global credit strategist for Bloomberg. He 0:07:05.360 --> 0:07:20.240 is based in London. The yield curve is contracting. We 0:07:20.280 --> 0:07:23.239 have seen a steady decline in the gap between thirty 0:07:23.320 --> 0:07:26.680 year and two year treasury yields. Now it's down to 0:07:27.440 --> 0:07:32.400 fifty one basis points. That's basically lowest levels since September. 0:07:32.560 --> 0:07:34.320 This is at a time when the U S economy 0:07:34.360 --> 0:07:37.880 is supposedly growing. We're supposedly having a good time, a 0:07:38.000 --> 0:07:41.520 good uh sort of head. We got a good you 0:07:41.560 --> 0:07:43.480 know what we got today? We've got a good rallying bonds. 0:07:43.520 --> 0:07:45.040 If you take a little at the long bond, it 0:07:45.160 --> 0:07:48.320 is up twenty three thirty seconds. It is now yielding 0:07:48.360 --> 0:07:51.640 two point eight percent. And as you said, contrast that 0:07:51.800 --> 0:07:55.640 with the tenure right, take a look two point one 0:07:55.800 --> 0:07:59.160 three Well, basically, basically the rallying bonds means that people 0:07:59.320 --> 0:08:01.920 typically are irish. Peter Kenny is here with us to help, 0:08:01.920 --> 0:08:04.160 but makes sense of what is going on. Senior market 0:08:04.200 --> 0:08:08.280 strategist with Global Markets Advisory Group, and Peter, you serve 0:08:08.320 --> 0:08:09.760 on a lot of corporate boards. You've been in this 0:08:09.800 --> 0:08:14.200 market for decades. Try to help us understand the mixed 0:08:14.280 --> 0:08:18.400 signals is the yield curve telling us that if the 0:08:18.440 --> 0:08:23.000 Fed continues on its path of more aggressively raising rates 0:08:23.000 --> 0:08:26.600 this year, that it is making a policy mistake. We're 0:08:26.640 --> 0:08:30.440 at a pivot point here in this narrative where we're 0:08:30.480 --> 0:08:34.800 seeing compression and yields. UH. That compression yields is dramatic, 0:08:34.960 --> 0:08:37.360 and as you pointed out, we haven't seen yields aliis 0:08:37.400 --> 0:08:41.880 in September, so well before the presidential election. That's telling 0:08:41.960 --> 0:08:43.920 us there's a lot of risk off in terms of 0:08:43.960 --> 0:08:48.000 the global investor mindset. There is tremendous compression, and that 0:08:48.120 --> 0:08:52.440 compression is in the face of the FED projecting three 0:08:52.480 --> 0:08:54.920 more rate moves this year, which I don't think it's 0:08:54.920 --> 0:08:57.280 going to be the case. We may see June, but 0:08:57.440 --> 0:09:00.640 after June it's fairly pretty much off the table anything 0:09:00.679 --> 0:09:02.720 from that point on. And the reason why I say 0:09:02.760 --> 0:09:05.320 that is because even though we're seeing equities that at 0:09:05.400 --> 0:09:08.000 or near all time high high, as we're seeing economic 0:09:08.040 --> 0:09:11.520 data this underwhelming. Last month's employment report was a classic 0:09:11.600 --> 0:09:14.360 example of that. Not only did we get a miss 0:09:14.400 --> 0:09:17.680 of meaningful size, we saw revisions that were significant for 0:09:17.760 --> 0:09:21.600 previous two months, and we saw nothing inside that way 0:09:21.640 --> 0:09:23.760 a report that spoke to any sort of robust growth, 0:09:24.240 --> 0:09:27.560 wage inflation, average week labor force participation. None of that 0:09:27.679 --> 0:09:31.720 data spoke to any sort of robust growth. So I 0:09:31.760 --> 0:09:34.040 think that as much as the FED wants to project 0:09:34.160 --> 0:09:37.240 higher rates and wants the markets to believe that our 0:09:37.320 --> 0:09:40.120 rates are going to move higher, markets are towing the Fed. 0:09:40.880 --> 0:09:44.400 We don't think so. And since the bond market leads 0:09:44.440 --> 0:09:47.480 the equity market, I think it spells potential headwinds for 0:09:47.480 --> 0:09:49.640 the equity market as well. So what are you telling 0:09:49.679 --> 0:09:51.800 your investors? I mean, if you're taking a look right 0:09:51.840 --> 0:09:53.880 now at the thirty year as I said, two point 0:09:53.920 --> 0:09:57.040 eight percent for a thirty year, I don't get it. 0:09:57.640 --> 0:10:01.400 One year is one point one percent. I mean, how 0:10:01.400 --> 0:10:03.720 do you make sense of this? Well, it's telling us 0:10:03.760 --> 0:10:05.719 two things. First of all, it's telling us that the 0:10:06.200 --> 0:10:07.959 market does not believe that the FED is going to 0:10:08.080 --> 0:10:10.080 raise rates three times this year from here at the 0:10:10.120 --> 0:10:11.520 end of the year. So does that mean that if 0:10:11.559 --> 0:10:15.720 they do, then we've got a real problem? Uh? Him. 0:10:15.720 --> 0:10:17.840 I don't think it's going to get there. I don't 0:10:17.880 --> 0:10:20.400 think it's going to get there because it's just the 0:10:20.400 --> 0:10:24.000 flattening of the curve is indicating that the Fed. I 0:10:24.040 --> 0:10:26.559 don't want to say can't, but I just think it 0:10:26.600 --> 0:10:30.959 would be very unwise unless we see something in Q 0:10:31.200 --> 0:10:33.880 two that speaks to something that we didn't see in 0:10:33.960 --> 0:10:38.120 Q one, which I would argue, we're not seeing I 0:10:38.120 --> 0:10:40.480 don't I just don't see it yet. Okay, well, here 0:10:40.559 --> 0:10:42.960 can you can you solve this paradox for me because 0:10:43.200 --> 0:10:45.679 a lot of people have said something is a miss. 0:10:45.720 --> 0:10:48.880 You have bond yields going down, typically as barrish, You've 0:10:48.880 --> 0:10:51.520 got stock prices going up. You have a yield curve flattening, 0:10:51.520 --> 0:10:55.040 which typically means slower growth. The head stocks to not care. 0:10:55.640 --> 0:10:58.080 Other people say, no, this all works out just fine 0:10:58.400 --> 0:11:02.600 because it's a Goldilaw scenario. The Fed will keep rates low. 0:11:02.679 --> 0:11:04.760 You're going to have growth kind of chuggle on good 0:11:04.840 --> 0:11:07.240 job openings from the Jolt report today. Where do you 0:11:07.280 --> 0:11:10.720 stand on this? Okay, So, if you look at the 0:11:10.720 --> 0:11:15.760 equity markets versus versus the debt markets, the equity markets 0:11:15.800 --> 0:11:19.400 are at or in your all time highs. However, keep 0:11:19.400 --> 0:11:21.920 in mind that they're trading at a pe that is 0:11:22.120 --> 0:11:26.160 well above a historical standard. Um. The Dow Jones is 0:11:26.160 --> 0:11:29.480 trading at a pe currently of eighteen sixty one UH, 0:11:29.520 --> 0:11:33.600 the SMP trading at at a pe of a nineteen 0:11:34.240 --> 0:11:37.480 thirty four, the nastac is off the charts. Of course, 0:11:38.160 --> 0:11:40.760 much of this move higher in prices that we've seen 0:11:40.800 --> 0:11:44.520 in equities was largely predicated upon the Trump bump, which 0:11:44.559 --> 0:11:47.720 we've seen largely wash away in the debt markets. However, 0:11:47.760 --> 0:11:52.720 in the equity markets were still seeing these elevated, elevated evaluations, 0:11:53.360 --> 0:11:55.520 and I think that that is largely due to the 0:11:55.600 --> 0:11:58.760 large cap tech space. So if you look at retail, 0:11:58.920 --> 0:12:02.640 the retail sector, the energy sector, the financial sector, these 0:12:02.679 --> 0:12:05.559 are large sectors of the spid. All of them are 0:12:05.600 --> 0:12:10.079 down meaningfully. Yeah, but I mean, in fairness, you could 0:12:10.120 --> 0:12:12.679 say that they all have some idiosyncratic issues. Right. Energy 0:12:12.679 --> 0:12:14.560 prices have come down quite a bit, the retail sect 0:12:14.720 --> 0:12:17.400 sector is being decimated by all sorts of trends. Uh. 0:12:17.440 --> 0:12:20.079 And then that you have financials, which are directly affected 0:12:20.080 --> 0:12:23.440 by the yield curve. Yes, but they may have idiosyncratic 0:12:23.559 --> 0:12:27.720 issues that are very vertical specific, but they still have 0:12:27.840 --> 0:12:30.360 to participate in any meaningful move higher in the market, 0:12:30.559 --> 0:12:33.320 and they're not going to well. I'm just looking for example, 0:12:33.400 --> 0:12:36.080 Exxon Mobile. The shares of Exxon Mobile down ten and 0:12:36.120 --> 0:12:39.080 a half percent so far this year, perfectly shares of 0:12:39.160 --> 0:12:42.200 Macy's a down thirty seven percent so far this year. 0:12:42.520 --> 0:12:45.880 But guess what if you'd like to buy shares in Tesla, 0:12:46.480 --> 0:12:50.640 which has got a market value I believe greater than forward. Uh, 0:12:50.840 --> 0:12:52.679 you're buying into a stock that is up more than 0:12:52.720 --> 0:12:56.520 sixty so far this year. Yes, So it's very much 0:12:57.000 --> 0:13:01.120 a question of software. Test was really it's a manufacturing company, 0:13:01.120 --> 0:13:04.120 but it's really a software company. Software companies stand to 0:13:04.200 --> 0:13:06.280 gain the most from this move higher that we've seen 0:13:06.280 --> 0:13:08.600 over the last three or four months because of some 0:13:08.640 --> 0:13:11.680 accounting changes that are coming into play in July, which 0:13:11.720 --> 0:13:14.800 will force them to recognize software revenues in a way 0:13:14.840 --> 0:13:17.200 that has never been recognized before. It was just gonna 0:13:17.240 --> 0:13:19.280 help earnings. It's going to help their revenue numbers. It's 0:13:19.280 --> 0:13:22.680 going to help their PE salesforce, dot com up so 0:13:23.480 --> 0:13:26.760 coac case. Well, so, do you think that overall there's 0:13:27.080 --> 0:13:32.000 enough headwind, enough of a headwind to cause a market 0:13:32.040 --> 0:13:35.280 correction or is there so much bifurcation that it's going 0:13:35.320 --> 0:13:39.000 to kind of just study itself exactly so the latter, 0:13:39.920 --> 0:13:43.360 and I think that there is enough bifurcation, there's enough 0:13:43.840 --> 0:13:47.160 dissimilarity within the market for there to be a bit 0:13:47.160 --> 0:13:49.960 of A four for equities. So let's say we see 0:13:50.000 --> 0:13:53.440 the SMP five pull in over the next month and 0:13:53.480 --> 0:13:57.320 a half to two months, maybe five point five. Let's 0:13:57.320 --> 0:14:00.760 say it settles in and find support of that would 0:14:00.800 --> 0:14:04.000 be meaningful and very really, very very positive because we 0:14:04.080 --> 0:14:06.560 give the sectors of the market that have underperformed an 0:14:06.559 --> 0:14:10.880 opportunity to catch up. You're you're assuming that there's some 0:14:11.040 --> 0:14:14.599 rational thought process behind this, right, I mean it's a 0:14:14.640 --> 0:14:16.719 little hard to to do that. You know, when you're 0:14:16.720 --> 0:14:18.559 looking at let's say a company like Tesla and this 0:14:18.640 --> 0:14:23.760 knock is up sixt and you know it is still on, 0:14:23.920 --> 0:14:26.800 you know, it is still a hope story there. It 0:14:26.880 --> 0:14:29.400 definitely is very much a hope story, and it's extremely 0:14:29.440 --> 0:14:33.880 elevated in terms of its valuations. It's it's in that space, 0:14:34.120 --> 0:14:36.480 and it's that's that's part of the DNA of that company, 0:14:36.480 --> 0:14:39.400 and it's got sales. Well, there's the other companies, software 0:14:39.400 --> 0:14:41.840 companies that are in that space that get that merit, 0:14:41.920 --> 0:14:44.960 that valuation. Thanks very much for being with us as always. 0:14:45.000 --> 0:14:48.760 Peter Kennedy, Senior market strategist at Global Market Advisory and 0:14:48.880 --> 0:15:02.320 independent market strategist for Kenny and Co. Well, there's been 0:15:02.360 --> 0:15:06.800 a ton of speculation about the slowdown in vehicle sales 0:15:06.840 --> 0:15:09.440 in the US and what this means for automakers. So 0:15:09.520 --> 0:15:12.840 luckily we have someone to really help us understand just 0:15:12.920 --> 0:15:15.680 how big of a slowdown this really is going to be. 0:15:15.920 --> 0:15:19.160 Mark Lenieve is vice president of US Marketing, Sales and 0:15:19.240 --> 0:15:22.160 Service for Ford Motor Company, and he joins us by 0:15:22.240 --> 0:15:25.240 phone from Dearborn, Michigan. Mark, thank you so much for 0:15:25.320 --> 0:15:30.040 joining us. Uh. Ford actually had a monthly victory over 0:15:30.120 --> 0:15:33.880 General Motors last month with respect to sales. You came 0:15:33.880 --> 0:15:36.560 out with sales numbers that were ahead of GMS and 0:15:36.640 --> 0:15:39.560 better than expected. That's the good news. The bad news 0:15:39.720 --> 0:15:41.440 was it seems like there was quite a bit of 0:15:41.440 --> 0:15:44.800 support that Ford received from some of the fleet sales 0:15:44.960 --> 0:15:50.680 and still saw materials slowdown in sales by retailers. How 0:15:50.680 --> 0:15:52.960 concerned are you about this and have we already seen 0:15:53.160 --> 0:15:56.840 the worst of the sales declines? Well, first of all, 0:15:56.880 --> 0:15:59.400 I appreciate being on with you guys, and um, you know, 0:15:59.440 --> 0:16:02.840 the the year so far as been really interesting from 0:16:03.040 --> 0:16:05.680 a vehicle sales standpoint, where it's portant to remember that 0:16:05.760 --> 0:16:08.680 we're operating in a in an industry believe is going 0:16:08.720 --> 0:16:11.360 to be seventeen point five seventeen point six million units 0:16:11.360 --> 0:16:14.440 for the year. That's that's an historically high number, you know, 0:16:14.520 --> 0:16:17.000 going back you know, twenty thirty years and some of 0:16:17.000 --> 0:16:20.040 the heydays of the early early part of the two thousand. 0:16:20.080 --> 0:16:23.520 So we have leveled off plateau as we uh as 0:16:23.520 --> 0:16:26.840 we say back here in Dearborn from last year's record level, 0:16:26.880 --> 0:16:30.080 but it's still a very healthy pace. Retail is relatively 0:16:30.120 --> 0:16:34.240 flat with a year ago. Our fleet business overall fleet 0:16:34.240 --> 0:16:37.080 business and industry about the same and and Fords tract 0:16:37.120 --> 0:16:39.680 and right with those numbers, albeit at a much higher 0:16:39.720 --> 0:16:42.800 transaction pricing due to sell on a very rich mix 0:16:42.840 --> 0:16:46.400 of of our new pickup, van and suv lineup. Mark, 0:16:46.400 --> 0:16:49.800 could you speak a little bit about the company's efforts 0:16:49.920 --> 0:16:55.160 to create a core of electric or hybrid vehicles and 0:16:55.200 --> 0:16:57.720 why that is so important for the future of the 0:16:57.720 --> 0:17:00.720 company if you look to the future and some of 0:17:00.760 --> 0:17:04.320 the obviously regulatory standards that we're gonna have to meet 0:17:04.320 --> 0:17:08.639 as well as meeting as meeting customer customer expectations. Um, 0:17:09.359 --> 0:17:14.720 we're putting electrified uh technology, what be it's mild hybrids 0:17:14.720 --> 0:17:17.080 all the way to full plug in electrics across much 0:17:17.080 --> 0:17:19.680 of our lineup. We don't feel like the business should 0:17:19.680 --> 0:17:22.160 be such a it's just small specialized vehicles that carry 0:17:22.200 --> 0:17:26.080 this technology. So we're looking at technology broadly across our car, 0:17:26.600 --> 0:17:29.960 SUV and even truck and van lineups, and and we 0:17:30.000 --> 0:17:31.560 want to have to man sure that the consumers have 0:17:31.680 --> 0:17:34.600 choice where they can they can make economic decisions based 0:17:34.640 --> 0:17:38.080 on vehicle usage or using the car for just you know, 0:17:38.160 --> 0:17:41.239 for work or for or for just leisure activity, and 0:17:41.280 --> 0:17:43.639 they can make a logical decision and have a lot 0:17:43.640 --> 0:17:46.240 of choice that they want to full plug in versus 0:17:46.400 --> 0:17:48.960 a mould hybrid or eco boost engines that also get 0:17:49.000 --> 0:17:52.159 great fuel economy. You know, Mark, you're talking about the 0:17:52.320 --> 0:17:55.200 volume of sales, and then hinted at the price point 0:17:55.240 --> 0:17:58.360 and that basically prices are going up. That consumers are 0:17:58.359 --> 0:18:01.479 buying more expensive cars even and trucks, so even if 0:18:01.480 --> 0:18:05.919 they're buying fewer of them, the actual revenues are are bigger. 0:18:06.400 --> 0:18:10.439 I'm wondering how long you see prices rising to the 0:18:10.480 --> 0:18:13.400 degree that they have, given the fact that we are 0:18:13.440 --> 0:18:17.840 seeing deterioration in auto loans, in the quality uh in 0:18:17.920 --> 0:18:21.600 a consumers appetite to incur more debt, and the lending 0:18:21.640 --> 0:18:24.000 standards on behalf of big banks, from JP Morgan to 0:18:24.040 --> 0:18:27.280 City Group. Well, the trend that we're seeing in pricing, 0:18:27.280 --> 0:18:30.200 which is large largely driven by what we call segmentation, 0:18:30.200 --> 0:18:34.280 which is people moving from passenger cars into utilities and trucks, 0:18:34.280 --> 0:18:37.160 has really been going there's steadily since two thousand nine, 0:18:37.200 --> 0:18:39.720 really coming out of the out of the big recession. 0:18:39.760 --> 0:18:41.560 So we've seen your on your increased not only in 0:18:41.680 --> 0:18:44.960 unit volume, but almost all the industry growth in that 0:18:45.000 --> 0:18:47.280 window has been in the suv and truck lineup, and 0:18:47.560 --> 0:18:50.639 within those numbers. Within SUVs and trucks, customers are electing 0:18:50.680 --> 0:18:55.760 for electing and choosing much higher trim levels, higher technology packages. 0:18:56.520 --> 0:18:59.000 The vehicles themselves are getting more expensive as as we 0:18:59.040 --> 0:19:03.679 add we I meant technology, safety equipment to the vehicles. 0:19:03.760 --> 0:19:06.520 So in some in some regards it's tended to defy 0:19:06.600 --> 0:19:10.800 gravity um in terms of prices. The price increases that 0:19:11.000 --> 0:19:15.480 we've seen facilitated by incentives and cheap credit. Yeah, but 0:19:15.520 --> 0:19:18.280 as a percent of as a percent of selling price, 0:19:18.320 --> 0:19:20.920 incentives are really relatively stable over the last seven or 0:19:20.920 --> 0:19:24.359 eight years because because you're spending somewhat higher per union 0:19:24.359 --> 0:19:27.639 incentive spent against you know, a much higher selling price 0:19:27.960 --> 0:19:30.240 now credit has entered into it. Over the last seven years, 0:19:30.600 --> 0:19:33.720 nominal interest rates have gone down. Fuel you know, fuel 0:19:33.720 --> 0:19:36.720 which goes into the average consumers cost of vehicle usage 0:19:36.720 --> 0:19:39.680 in the months, has come down in and payment terms 0:19:39.680 --> 0:19:42.120 have extended out, although not much more so than we've 0:19:42.119 --> 0:19:45.639 seen over twenty twenty. Your trend line and leasing is 0:19:45.680 --> 0:19:48.040 relatively stable to where it was six seven, eight years 0:19:48.040 --> 0:19:50.280 ago as a percent of the overall market. So it's 0:19:50.320 --> 0:19:53.280 something that we keep an eye on, but it's it's 0:19:53.280 --> 0:19:55.720 certainly not what we would consider any kind of an 0:19:55.720 --> 0:19:59.520 alarming factor at this time. Inventory levels speak to those 0:19:59.640 --> 0:20:03.720 that are on lots all across the United States, when 0:20:03.840 --> 0:20:06.239 does that back up make it more difficult for you 0:20:06.280 --> 0:20:09.720 to get the next year's model out to those dealers. 0:20:10.440 --> 0:20:14.000 You've got some spot accesses and a couple you know, 0:20:14.200 --> 0:20:16.400 you can look across a competitive landscape on a couple 0:20:16.440 --> 0:20:18.840 of segments from a couple of competitors. But at Ford, 0:20:18.920 --> 0:20:22.119 we feel we're in ideal position. Sitting at roughly seventy 0:20:22.160 --> 0:20:24.840 days heating in an important summer selling season. The industry 0:20:24.920 --> 0:20:27.600 is in in relatively good shape. You can point to, 0:20:28.040 --> 0:20:30.439 you know, a given competitor in a in a in 0:20:30.480 --> 0:20:33.680 a segment or two that would be considered somewhat high. 0:20:33.720 --> 0:20:35.919 Many have reasons for doing it. They might have planned 0:20:36.200 --> 0:20:39.040 downtime for plant changeovers and things of that sort. But 0:20:39.880 --> 0:20:43.000 overall the industry is not what I would call stock affected. 0:20:43.000 --> 0:20:46.840 Where that's been where you've got an unmanageable level of 0:20:46.840 --> 0:20:49.120 stock in the industry. I want to thank you very 0:20:49.200 --> 0:20:52.480 much for joining us today. Mark le Nave is the 0:20:52.560 --> 0:20:55.520 vice president of Marketing and sales and Service at the 0:20:55.600 --> 0:21:11.200 Ford Motor Company, joining us from bint in Michigan. We're 0:21:11.200 --> 0:21:14.040 gonna take a look now at labor, but not just 0:21:14.200 --> 0:21:16.399 any labor, people who want to come to work in 0:21:16.440 --> 0:21:19.480 the United States on H one B visas. And here 0:21:19.520 --> 0:21:22.479 to tell us more is Caitlin Webber, government analyst Global 0:21:22.520 --> 0:21:26.639 trade policy for Bloomberg Intelligence, joining us from Washington. Caitlin, 0:21:26.760 --> 0:21:29.399 a pleasure to have you with us. UM. I was 0:21:29.440 --> 0:21:33.680 looking at the number of applicants for these eighty five 0:21:33.880 --> 0:21:38.320 thousand UH spots that are available for the H one 0:21:38.359 --> 0:21:42.800 B visa program, and last year right two hundred and 0:21:42.880 --> 0:21:47.800