Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Lisa A.
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Speaker 3: Joining us right now is John Mclelthwaite, the Bloomberg News
Speaker 3: editor in chief, joining us from our London studio. John,
Speaker 3: thanks so much for taking the time this morning. Keeps
Speaker 3: the occasion of your discussion. Most recently, mister Kissinger, this
Speaker 3: boy so timely.
Speaker 4: That well, that was his one hundredth birthday. But I
Speaker 4: suppose I've interviewed him over the over the decades and
Speaker 4: different capacities, and I think the main thing about him
Speaker 4: being aged one hundred is that he had the ability
Speaker 4: to look back over that life and it does go
Speaker 4: right the way back. We have a actually other good
Speaker 4: column this morning by Andrew Kluth, who's from that one
Speaker 4: of my columns from Germany. He talks about Heinz Kissinger,
Speaker 4: as he was born and the world in which he arrived.
Speaker 4: You know, Kissinger was born very obviously back in nineteen
Speaker 4: twenty three, I think two years later Adolf Hitler came
Speaker 4: to his home time of Firth to denounce it as
Speaker 4: a kind of haven of sort of Jewish people. Basically,
Speaker 4: for the first sort of fourteen fifteen years of his
Speaker 4: life he was continually chased, harried and messed around before
Speaker 4: he escaped, first to London and then to New York.
Speaker 4: And I think that that sort of beginning, you know,
Speaker 4: he offers a perspective on the whole of recent history
Speaker 4: in a way that struck me that only weirdly, the
Speaker 4: queen in recent times has been similar to the extent
Speaker 4: of you know, Kissinger met everybody. He saw a vast
Speaker 4: amount of history in his life, ironic for somebody who
Speaker 4: began life as a history professor exactly.
Speaker 3: And you know, John, one of my earliest memories as
Speaker 3: a child is my father and my older brother arguing
Speaker 3: at the dinner table about Vietnam, about Henry Kissinger, about
Speaker 3: all of those things. He has served officially and unofficially
Speaker 3: twelve presidents, from President Kennedy the President Biden. Have we
Speaker 3: ever seen a diplomat with that range of experience, well, I.
Speaker 4: Think we have. And they were the ones that he studied.
Speaker 4: They it was people like Mesenik and Taryon and people
Speaker 4: like that. Those were his heroes who lived in a
Speaker 4: time of kind of warfare in Europe and it was
Speaker 4: about bringing the peace. That's how he first emerged as
Speaker 4: a kind of semi public figure, was writing about the
Speaker 4: Congress of Vienna and things like that. But those were
Speaker 4: people who came and went. Obviously it was a different time,
Speaker 4: there were fewer democratic governments, and it had a different,
Speaker 4: very different feeling, But those were the people. Those were
Speaker 4: the thoughts that he carried throughout his life, this idea
Speaker 4: that nation have kind of sets of interests and it's
Speaker 4: about paying attention to those interests, but at the same
Speaker 4: time trying to to try and bring some degree of
Speaker 4: kind of loftier aims to it, but never forgetting you
Speaker 4: know that the rail in rail politic was something that
Speaker 4: was very close to his heart.
Speaker 3: John. I think you know, for many folks around the world,
Speaker 3: not just in America, Henry Kissinger kind of represents the
Speaker 3: whole post World War two thinking about global diplomacy. Global
Speaker 3: I just just the way the East versus the West
Speaker 3: that's changed recently in the last four or five six years,
Speaker 3: where a lot of countries are seemingly more nationalistic.
Speaker 5: America first, for it.
Speaker 4: Yes, you just you heard him on that clip in
Speaker 4: America first, that was very un Kissinger. He didn't he
Speaker 4: didn't like that. He was acutely aware of America's set
Speaker 4: of interests, just as I think he would argue he
Speaker 4: was acutely aware of China's set of interests. But he
Speaker 4: thought that America should play a role that was bigger
Speaker 4: than that. And again that was partly because he I
Speaker 4: think he did not least as a refugee you came
Speaker 4: to America. He saw America something bigger than that. But
Speaker 4: also for political reasons. If you have a hegemon, you know,
Speaker 4: again controversial issue whether hegemons exist. But for time it
Speaker 4: was Britain, and he liked the way that the British
Speaker 4: politicians in the nineteenth century managed to keep the peace
Speaker 4: by balancing different people against each other. And he thought
Speaker 4: America should do the same, and that was its role.
Speaker 4: It had two roles. One was to promote American interest democracy,
Speaker 4: but the other was just to keep the peace. And
Speaker 4: so when it came to things like China and what
Speaker 4: was happening there, he was absolutely kind of clear that
Speaker 4: you couldn't just go to the Chinese and give them
Speaker 4: a lecture on human rights. And at this point plenty
Speaker 4: of people listening to this, so well, that was typical Kissinger.
Speaker 4: He never cared about those things. I think he did.
Speaker 4: I think he understood, perhaps farm Or with one more
Speaker 4: personal experience and most of his critics, just how horrific
Speaker 4: man could be. To man, you know, he is not
Speaker 4: just growing up in Nazi Germany as a twenty year old,
Speaker 4: he went back and visited a concentration camp. He saw
Speaker 4: a huge amount of sort of evil done to people
Speaker 4: in his youth, so he wasn't unaware of that side
Speaker 4: of things. His main thing was to try and project
Speaker 4: to kind of peace.
Speaker 1: John, we were speaking about this earlier on Bloomberg Television,
Speaker 1: and I have to say, I keep thinking in my
Speaker 1: head about the change of social media and the change
Speaker 1: of the way that information is transmitted, and how he
Speaker 1: viewed that as he did see the world and a
Speaker 1: sort of right and wrong and trying to push forward
Speaker 1: certain ideals, how he viewed that effort at a time
Speaker 1: where the mode of communication was very different.
Speaker 4: I think that's really at least I think that's a
Speaker 4: really good point. The answer is that kind of and
Speaker 4: it's not. You know, it's possible to admire Kissinger and
Speaker 4: be aware of his be aware of his faults, but
Speaker 4: the kind of paranoid, secretive side of Hendrick Kissinger, I mean,
Speaker 4: social media was a nightmare. He didn't like that, and
Speaker 4: he you know, and actually he would argue, look, he
Speaker 4: could not. It would have been far far more difficult
Speaker 4: to go reach out to China and bring them in
Speaker 4: from the cold in an era of social media. He
Speaker 4: you know, he went, he went to China on these
Speaker 4: secret missions he did, and because of that he was
Speaker 4: able to get Mao to effectively agree to come in.
Speaker 4: That changed the world history. Ditto the negotiations the Russians,
Speaker 4: Dito other things. His critics will immediately say, well, yes,
Speaker 4: and he also bombed Cambodia in the in the background,
Speaker 4: Well yes, that that would also be part of it.
Speaker 4: But his underlying, his underlying thing was to find different
Speaker 4: ways to bring people together. The interesting, one, very interesting
Speaker 4: thing from his perspective was he sometimes talked about the
Speaker 4: fact that leaders didn't get the same degree of kind
Speaker 4: of break that they once did. His last book, which
Speaker 4: was a portrait of six people who he admired, people
Speaker 4: Margaret Thatcher and Lee Kuan Knew and Richard Nixon, wasn't
Speaker 4: that great a one. But the stuff on Shelde Gaull particularly,
Speaker 4: I thought was an amazing piece of history. But what
Speaker 4: he what entreat him a bit was you know, you
Speaker 4: look at somebody like Winston church or you look at
Speaker 4: somebody like Kennedy, would they have survived in an era
Speaker 4: of as much intrusion from great journalists like all of us,
Speaker 4: or certainly the two of you would. Would they have survived?
Speaker 4: And that would in the era of gaffes and things?
Speaker 4: Would somebody like Churchill have continued? We don't know exactly,
Speaker 4: but he was. He was very acutely conscious of the
Speaker 4: need to have leaders who could sort of look more
Speaker 4: long term, who could sort of think about the underlying elements.
Speaker 3: Hey, John, do we know how mister Kishener felt about
Speaker 3: the relationship between the US and China? That's kind of
Speaker 3: I guess you've ad over the last three four or
Speaker 3: five six years. You know, if at the very least
Speaker 3: a technology called war, if not something a little bit more.
Speaker 4: Yeah, this is somewhat self referential, and I apologize to
Speaker 4: people for it, but that I used to do a
Speaker 4: regular interview with him at the New Economy Forum. And
Speaker 4: it began as we were in the foothills of a
Speaker 4: Cold War and the Cold War, and then we were
Speaker 4: on the edge of a precipice on the Cold War,
Speaker 4: and then we were near the Helm High Mountain passes.
Speaker 4: You know, it just generally got worse. I think right now,
Speaker 4: I think he was. He got gradually more and more
Speaker 4: pessimistic about it, I think, and I think with good reason,
Speaker 4: and what I think he despaired of a bit. On
Speaker 4: the American side, we see to spare to people who
Speaker 4: sort of understood China and were willing to look towards
Speaker 4: a sort of bigger goal. And so those people who
Speaker 4: criticized Henrik Gistjoe, you know, in some cases very obviously
Speaker 4: correctly for not doing as much about human rights as
Speaker 4: perhaps you could, they sometime, you know, hit the lessons
Speaker 4: of his life were that you had to talk, you
Speaker 4: have to get people to come together to do things.
Speaker 4: And you see what he managed to do in the
Speaker 4: Middle East, especially in the context of what's happening now,
Speaker 4: and you do get some sense of the importance of
Speaker 4: rail politic. One thing I said to Lisa earlier, which
Speaker 4: I think is probably true, is that you know, you
Speaker 4: look at American foreign policy, this arch rail politica. If
Speaker 4: he had been running American foreign policy over the past
Speaker 4: thirty years, do you think that America and the cause
Speaker 4: of diplomacy would be better or not? I think it
Speaker 4: probably would be better.
Speaker 3: Very good, John mccordthwaite, thank you so much for a
Speaker 3: couple of minutes of your time. We really appreciate John mccorthwaite.
Speaker 3: Bloomberg News editor in chief Hughes reporting to us from
Speaker 3: London on the passing of Henry Kissinger.
Speaker 1: Neil Dutta, head of economics at Renaissance Macro Research, joining
Speaker 1: us now fresh off his Thanksgiving holiday. Neil, does this
Speaker 1: data just sort of underscore this soft landing nirvana that
Speaker 1: you really pin pinned over the last few months.
Speaker 6: Well, thank you, Lisa, you're giving me too much credit.
Speaker 6: I think I pinned it over the last few weeks.
Speaker 6: But you know, I do think that the data is
Speaker 6: lining up and we're on a glide path now to
Speaker 6: a rate cut, probably by March. Frankly, if you look
Speaker 6: at core PC inflation since June, it's up just two
Speaker 6: point three percent at an annual rate.
Speaker 7: And there's a lot of disinflation in the pipeline as
Speaker 7: we know. We know that, you know, when we look at.
Speaker 6: Car prices at the wholesale level that's declining. We see
Speaker 6: that pretty much month in and month out. That's going
Speaker 6: to bleed into core consumer prices over the next few months.
Speaker 6: We know that rendeal inflation is moderating, that's going to
Speaker 6: also bleed into core inflation over the next few months.
Speaker 6: And the normalization of supply chain should take pressure off
Speaker 6: of prices for core consumer goods outside of cars. So
Speaker 6: I think it's highly likely that you know, core inflation
Speaker 6: is you know, running sub to and a half for
Speaker 6: probably you know, on a six month basis by the
Speaker 6: first quarter of next year. And you know, when you
Speaker 6: think about the FED is giving us the playbook, I mean,
Speaker 6: if we just want to read it, Waller basically told
Speaker 6: us this week that he's following sort of a standard
Speaker 6: Taylor rule type or framework, and if inflation slows, the
Speaker 6: FED will cut it.
Speaker 7: Really is that simple.
Speaker 6: I don't want to make a judgment about whether that's
Speaker 6: right or wrong, but that's what they're going to do.
Speaker 1: So I think, sorry Tony cut in here, but I'm
Speaker 1: just struck by what you were saying earlier in the year,
Speaker 1: when you were saying people have underestimated how much momentum
Speaker 1: there is in the economy and that come next year,
Speaker 1: we're going to be surprised by the stickiness of the inflation,
Speaker 1: the stickiness of just what we see in terms of growth.
Speaker 8: How do you pair that idea.
Speaker 1: And the fact that we continue to get better than
Speaker 1: expected economic data, how do you pair that with ongoing
Speaker 1: disinflation in tandem with what the FED was hoping for?
Speaker 1: And even then some well, I mean, the.
Speaker 6: Economy is whole up, but it's clear that there's more
Speaker 6: disinflation despite that growth. And you know, I think the
Speaker 6: FED is looking at what's happening with realized inflation, right,
Speaker 6: So the fact that actual inflation is moderating, that will
Speaker 6: pressure them to cut interest rates because they don't want
Speaker 6: to get real interest rates in their framework unduly high,
Speaker 6: too high. And so I think, really that's what it
Speaker 6: comes down to. And as I say, I mean, part
Speaker 6: of this job isn't so much what I think they
Speaker 6: should do. But what I think they will do and
Speaker 6: what they're telling us what they what they will do.
Speaker 6: If inflation continues to come in like it's been coming in,
Speaker 6: the FED is going to respond to that. I don't
Speaker 6: think it's a situation where they're cutting aggressively. I mean,
Speaker 6: I think part of the issue right now, Lisa is that,
Speaker 6: you know a lot of folks aren't used to the
Speaker 6: FED just surgically cutting interest rates.
Speaker 7: I mean, it's usually they do a lot or nothing
Speaker 7: at all.
Speaker 6: But I think what we're talking about for next year,
Speaker 6: for twenty twenty four is really a recalibration of monetary
Speaker 6: not unlike frankly, what we saw in nineteen ninety five,
Speaker 6: where the FED came off of air very very aggressive
Speaker 6: tightening and cut rates a few times, trying to just
Speaker 6: basically trying to.
Speaker 7: You know, fine tune.
Speaker 6: You know, their their monetary policy, which frankly, I think
Speaker 6: you know they can justify that based on the inflation
Speaker 6: data as it's going to come in.
Speaker 1: Well, I know that earlier in the year you were
Speaker 1: also talking about how inflation is going to be higher
Speaker 1: for a longer period of time. Do you still think that,
Speaker 1: I mean, I.
Speaker 6: Do, but the question is around the time horizon. I mean,
Speaker 6: I think that the economy is growing above trend. That's
Speaker 6: ultimately going to have some effects on prices. But I
Speaker 6: you know, there is a lot of disinflation in the
Speaker 6: process and in train, and the FED is going to
Speaker 6: respond to that.
Speaker 7: You Know, the issue, frankly.
Speaker 6: Is does the soft landing enthusiasm today does that reignite
Speaker 6: inflation later. I think that that's something that Feds should
Speaker 6: keep in the back of the of their mind. Frankly,
Speaker 6: that may be one reason, you know, kind of puts
Speaker 6: a ceiling on.
Speaker 7: How many cuts they can do.
Speaker 6: But I do think we have to get through this
Speaker 6: period of disinflation first, and I think the FED is
Speaker 6: going to react to that disinflation, which is why I
Speaker 6: think they'll cut interest rates and they'll probably front load
Speaker 6: the cuts and sort of get it out of the
Speaker 6: system quickly. Look, they're already telling you that they're going
Speaker 6: to cut rates. I mean, they were at.
Speaker 7: Four in June, as Mike.
Speaker 6: As Mike mentioned, they went to two in September, and
Speaker 6: they might they might signal that, you know, a pause
Speaker 6: in December and pencil in three three cuts for twenty
Speaker 6: twenty four. I mean, that doesn't tell you when they
Speaker 6: do it, and that's why I said I think given
Speaker 6: the glide path and inflation that we're likely to get,
Speaker 6: they probably do it sooner than later.
Speaker 1: Neil, I'm curious from your vantage point, a lot of
Speaker 1: people have been saying it's going to be the bond
Speaker 1: market's dream and that you're going to get an ongoing
Speaker 1: rally in bonds that that will tee off an equity
Speaker 1: market rally. Do you agree with that type of recipe
Speaker 1: or do you think that it's not so simple, especially
Speaker 1: if there is a longer term question embedded in bonds
Speaker 1: of what the new neutral rate is that actually solid
Speaker 1: inflation but not overly hot a bank that's a central
Speaker 1: bank that's surgically cutting that's really positive for risk, but
Speaker 1: not necessarily on the other side for bonds.
Speaker 7: Well, I mean, I think.
Speaker 6: It probably may weigh on longer term rates obviously, right,
Speaker 6: I mean, but that's I.
Speaker 7: Mean again for the stock market.
Speaker 6: I mean, it's it's ultimately an environment where companies can
Speaker 6: make money, which should continue to help, you know, stock
Speaker 6: prices go higher.
Speaker 1: Neil Dudda of Renaissance Macro, thank you so much for
Speaker 1: being with us.
Speaker 2: The latest from four this morning, a new range for
Speaker 2: twenty twenty three adjusted earnings before interest ten billion to
Speaker 2: ten point five billion, the previous range before suspending guidance
Speaker 2: eleven to twelve. We've got a lot to talk about.
Speaker 2: We can do that now with John Lord of four
Speaker 2: C five. Good morning, John, Good morning. Let's talk about it.
Speaker 2: Where is it? Where's my ten billion dollar buyback? Why
Speaker 2: a different approach from you and the team.
Speaker 9: Well, we have a great plan in our Ford plus plan,
Speaker 9: and we're focused on investing in growth and profitability and
Speaker 9: through that rewarding our shareholders with a higher price, plus
Speaker 9: also paying out forty to fifty percent of our free
Speaker 9: cash flow in dividends. And so we're investing in the business.
Speaker 9: We have three great segments that are growth segments, Ford
Speaker 9: Pro Our commercial business margins in the mid teens for us,
Speaker 9: that's very high in our industry. Profits are going to
Speaker 9: almost double this year, more than double this year, and
Speaker 9: we have a great opportunity with the mostes. We have
Speaker 9: to drive significant profitability.
Speaker 2: Costs to gun up as well. So let's talk about
Speaker 2: the labor contract nine hundred dollars to the cost of
Speaker 2: each car. Off the back of that UAW contract now
Speaker 2: just for our audience, because you're aware of these figures already, GM,
Speaker 2: who we spoke to yesterday are at five seventy five.
Speaker 2: I'm still trying to sit here and work out how
Speaker 2: do we get from five to seventy five GM and
Speaker 2: nine hundred dollars to the cost of each car forward?
Speaker 2: What is that about?
Speaker 9: Well, when you look at it, we're five hundred dollars
Speaker 9: to start in twenty twenty four, and that grows over
Speaker 9: time as wages increase. The biggest increase in this contract
Speaker 9: is gross wage increase. It's significant over twenty five percent.
Speaker 9: And then our footprint in the US is bigger than
Speaker 9: General Motors. But the rest of that, I'm not exactly
Speaker 9: sure why their number is that much lower than ours.
Speaker 9: That's something that would have unpacked with them. We know
Speaker 9: what we've done with this contract. We know what the
Speaker 9: start point is. It's sixty to seventy basis points on
Speaker 9: our income statement basis. And now what we need to
Speaker 9: do is we need to work on driving productivity and
Speaker 9: efficiencies and reducing the labor hours, the hours it takes
Speaker 9: to build a vehicle and reducing that cost. And that's
Speaker 9: what we're going to be focused on going forward.
Speaker 1: So it's going to be cost reductions rather than trying
Speaker 1: to raise prices for the end consumer.
Speaker 2: Is that right?
Speaker 9: Well, now you have to think about pricing differently in
Speaker 9: our industry because all segments aren't the same. There's different
Speaker 9: pricing power across the segments. That's why we feel that
Speaker 9: what we did in segmenting the business and having the
Speaker 9: transparency around that, it's important. If you look at the
Speaker 9: commercial business in pro we believe they're still pent up
Speaker 9: demand and pricing power there. However, in blue in the
Speaker 9: more of the retail consumer segment, you're going to see
Speaker 9: prices come down. We've been consistent talking about that. Back
Speaker 9: in thirteen thirteen point four percent of disposable income to
Speaker 9: buy a vehicle went up to fifteen point seven and
Speaker 9: twenty twenty two it's down to fourteen point five percent roughly.
Speaker 9: Now we see that coming back to thirteen point four
Speaker 9: percent as you move through twenty twenty four.
Speaker 1: Well, when you talk about lower price points, I think
Speaker 1: about some of the Chinese car manufacturers and the production
Speaker 1: much more cheaply of electric vehicles in particular, that are
Speaker 1: really making a competitive advantage. How do you compete with them,
Speaker 1: especially given the labor contracts and some of the other
Speaker 1: working operating costs that you're dealing with.
Speaker 9: Yeah, it's a good point, and that's something that we're
Speaker 9: very focused on. Again, the segmentation, each segment is different.
Speaker 9: We've seen prices come down now in the electric segment
Speaker 9: much quicker than we expected, and the reason for that
Speaker 9: is that we're moving out of the early adopters who
Speaker 9: are willing to pay for higher prices. Early majority customers aren't.
Speaker 9: They're not willing to pay that premium. So we're seeing
Speaker 9: those come down and we expect them to equalize with
Speaker 9: gas prices. So it's all going to be about cost
Speaker 9: in efficiency, capital efficiency, et cetera. We have to get
Speaker 9: more competitive on cost and that's what we're focused on
Speaker 9: in our second generation and third generation vehicles.
Speaker 2: What is handing with demand in the evase? What is
Speaker 2: hanpden mag is this real pushback that changes to approach.
Speaker 9: I think what it is is it's the adoption rate.
Speaker 9: It's that flatter than what we had expected. That increase
Speaker 9: isn't as great fifty percent up this year from sales standpoints,
Speaker 9: so they're coming. It's going to be part of the industry.
Speaker 9: Eventually we'll get to those higher growth rates. So we
Speaker 9: have to adjust our capital investment. We have to adjust
Speaker 9: our approach in the near turn.
Speaker 2: That sounds like a change in execution, no strategy.
Speaker 9: Absolutely, it is a change in execution.
Speaker 5: Not strategy.
Speaker 2: So let's talk about the numbers. You've pushed at twelve
Speaker 2: billion an EV related and vestments. Should we expect to
Speaker 2: say a little bit more of that going on?
Speaker 9: Depends on the customer and the adoption rate and how
Speaker 9: that pushes out. If the adoption rate starts to grow faster,
Speaker 9: we'll increase our capital investments.
Speaker 2: Let's get through the guide. I've got two points. Sure,
Speaker 2: I want to say if these is still up tonight,
Speaker 2: So you did expect half the sales to be electric
Speaker 2: vehicles by twenty thirty, still the case.
Speaker 9: Now we think it's going to be less than that.
Speaker 2: Given where how much slimmer by Johon.
Speaker 9: We haven't put a number on that yet. We're still
Speaker 9: looking at what that rate will be. I think we'll
Speaker 9: know more as we go through next year.
Speaker 2: Is it the same for margins on those evs as well?
Speaker 2: Do you have to reassess how big those margins will be?
Speaker 1: Yeah?
Speaker 9: I think as the industry adjusts, you have to look
Speaker 9: at that. But we're targeting. We've set up our business
Speaker 9: structure and we think the right target is around the
Speaker 9: eight percent or high single digits.
Speaker 1: You said that you're very focused on trying to be
Speaker 1: competitive in the ev spice on price. Is that when
Speaker 1: we asked about margin compression, you're basically saying, we're going
Speaker 1: to see as we go on what the competitive landscape
Speaker 1: looks like. But how do you plan to reduce costs?
Speaker 1: Is it going to be with job cuts? Is it
Speaker 1: going to be with more automation.
Speaker 9: So when yes, absolutely, automation that is going to be
Speaker 9: a key part of what we do. Now when you
Speaker 9: look at this contract, it's also important to understand for
Speaker 9: us where the battery plants are and the battery plants
Speaker 9: aren't part of the contract, and so that's important for
Speaker 9: vertical integration. And when you're talking about electric vehicles, battery
Speaker 9: and design is really important and the efficiency of that
Speaker 9: battery and getting the smallest battery possible in so that
Speaker 9: second generation design is going to be critical from a
Speaker 9: cost standpoint. And then overall for us as a company,
Speaker 9: we have work to do on our cost and quality,
Speaker 9: and we're focused on that. We've made significant progress over
Speaker 9: the last few years. We've restructured international operations, we moved
Speaker 9: out of autonomous vehicles and pulled capital investment out of that.
Speaker 9: Focused on L two. We have the best driving system
Speaker 9: out there and blue crews according to consumer reports. So
Speaker 9: we're making the adjustments as we go.
Speaker 1: When you talk about automation and you know there's a
Speaker 1: question around job cuts and how much this will reduce
Speaker 1: the overall number of workers who will have to be
Speaker 1: employed to make cars, is that what you foresee that
Speaker 1: there is going to be a fewer team of professionals
Speaker 1: that are creating vehicles in say five years, think today
Speaker 1: at the Ford plants.
Speaker 9: So in certain areas there may be in other areas
Speaker 9: we see growth. The key is driving efficiency and productivity.
Speaker 9: So more coming out per unit of labor doesn't necessarily
Speaker 9: mean you take the labor out that you get more productivity.
Speaker 9: That's what we need to drive towards.
Speaker 2: Let's finish on a dedicate question. I asked this question
Speaker 2: a lot, and I'd like to ask it directly.
Speaker 5: If you.
Speaker 2: Is a Ford F one fifty lightning truck which weighs
Speaker 2: about six pounds really good for the environment because I
Speaker 2: struggle with the association between these heavy electrified trucks and
Speaker 2: climate change. What is the relationship? Are we kind of
Speaker 2: kidding ourselves here?
Speaker 9: I don't think so. I think that there's two things
Speaker 9: about the electric truck. One, it's moving into electric is
Speaker 9: important for the overall environment, that's true. But number two,
Speaker 9: you also have to think about the consumer and what
Speaker 9: that truck can do. It fills a niche that hadn't
Speaker 9: been out there. There are certain individuals that just will
Speaker 9: not drive an internal combustion vehicle. They never had access
Speaker 9: to a vehicle and utility like a pickup truck. They
Speaker 9: now have that. Plus, for our commercial customers, it's a tool,
Speaker 9: it's a generator. They use it on the job site
Speaker 9: to power. Now you don't have gas generators sitting out there.
Speaker 9: It's electric. It's coming from the vehicle itself. So it
Speaker 9: is a good step forward in the environmental push in
Speaker 9: reducing the CO two footprint that comes.
Speaker 2: Sition will continue. It's going to hear from you, gra
Speaker 2: it's getting update and the numbers as wow. Thank you, John,
Speaker 2: I appreciate it.
Speaker 5: John.
Speaker 10: Load of that.
Speaker 2: The forward CFO Cassie Perrot joined us now fixed income
Speaker 2: portfolio manager at JP Morgan Asset Management. Causie, good morning
Speaker 2: to you.
Speaker 8: Good morning.
Speaker 2: The world's moving towards you lower bond yots, maybe a
Speaker 2: slow economy in our future. How are you thinking about
Speaker 2: fixed income now?
Speaker 8: So you're right, yields have moved lower.
Speaker 10: What we've had is the situation where the narrative can
Speaker 10: take you much further than what's actually happening in terms
Speaker 10: of reality. And so we looked at the move higher
Speaker 10: and yields in September and October getting to five percent
Speaker 10: on the tenure, and we dated. We did think that
Speaker 10: that was just a bit too far in terms of
Speaker 10: a move, and that we would look back and view
Speaker 10: this as honestly a great buying opportunity. We've had a
Speaker 10: positive view on fixed income this year. Yield to move
Speaker 10: back down and that's essentially brought us back to where
Speaker 10: we were before the September FMC meeting. So what I'm
Speaker 10: really focused on right now continues to be the inflation data.
Speaker 10: So the inflation data, you know, what do we benchmark
Speaker 10: ourselves against. It's coming down, it's still above the Fed's target.
Speaker 10: So you have people on both sides saying we haven't
Speaker 10: done enough, but maybe we have. I look at what
Speaker 10: they projected in September, and September was a fairly hawkish
Speaker 10: meeting for them. They were projecting inflation of three point
Speaker 10: seven percent on.
Speaker 8: Core PCEE today's number.
Speaker 10: If it comes in on consensus at eight point thirty,
Speaker 10: we'll be down to three and a half percent on
Speaker 10: the year over your rate, and we'll be down to
Speaker 10: two point six percent on the six month run rate.
Speaker 10: So bottom line, inflation is coming down faster than they expected.
Speaker 8: We think that the Fed's last rate hike was to lie.
Speaker 8: We've had that call for quite a while. Now we're
Speaker 8: sticking to that.
Speaker 10: Call, and that makes the moves for yields asymmetric. We
Speaker 10: can move a little bit higher here, for sure. I
Speaker 10: mean there's a lot of volatility on every given day.
Speaker 10: But on the other hand, we can move a lot
Speaker 10: lower if next year we're looking at rate cuts.
Speaker 1: You said the narrative can take you much further than
Speaker 1: the reality. Does that mean that we're in a trader's market?
Speaker 10: So I do think that the technicals and the positioning
Speaker 10: are very important.
Speaker 8: You need to understand not just what's going on, but
Speaker 8: what is.
Speaker 10: The sentiment around what's going on, And you had a
Speaker 10: couple things that were really fueling that that bearish sentiment
Speaker 10: in October. One of them was the fact that you
Speaker 10: had a blockbuster GDP report and there was uncertainty about
Speaker 10: what was going to come next. Right, we've now at
Speaker 10: least gotten to the point where we feel comfortable that
Speaker 10: we're not going to see another five point two percent
Speaker 10: on real GDP and nine percent on nominal GDP. Atlanta
Speaker 10: FED tracking has come out, we're normalizing back to around
Speaker 10: two percent, so we can feel comfortable with that. I
Speaker 10: think the other thing that you're not hearing any words
Speaker 10: about anymore is the deficit. Right, the auctions, at least,
Speaker 10: I know you love watching the auctions.
Speaker 8: They've been mixed, right, You've had some weak ones, you've
Speaker 8: had some poor ones.
Speaker 10: In fact, you had that five basis point tail on
Speaker 10: the thirty year auction on November ninth that ended up
Speaker 10: being a great entry point into the bond market. And
Speaker 10: so you know, sometimes the market fixates on something. Ultimately,
Speaker 10: we think it's going to be about the fundamentals. Again,
Speaker 10: what's our view on inflation, at what's our view on
Speaker 10: the FED. Ultimately, it's not about if people will buy treasuries.
Speaker 10: It's at what price do they think it's fair? And
Speaker 10: if inflation's coming down and the FED is done jump in,
Speaker 10: the price is fair.
Speaker 2: Why isn't the deficit part of the fundamentals?
Speaker 10: I mean, I think it is part of the fundamentals
Speaker 10: in terms of the growth and inflation outlook.
Speaker 8: But here's the thing.
Speaker 10: The deficit was wider than expected this year, but inflation
Speaker 10: came down. When you're a country that can print their
Speaker 10: own currency and they have their own reserve currency, it's.
Speaker 8: Not really about default risk. We're not worried about the
Speaker 8: treasury defaulting, right.
Speaker 10: The risk is inflation if you print too much money.
Speaker 8: We are not seeing inflation.
Speaker 10: That's because the increase in the deficit this year was
Speaker 10: because of two factors. One higher interest cost, but more importantly,
Speaker 10: lower tax revenue. We're not talking about fiscal stimulus here.
Speaker 10: We're talking about an economy that was normalizing revenues that
Speaker 10: were falling, and then a government that has to fund
Speaker 10: more because the FED stepping out of the way.
Speaker 1: It strikes me that you said that the moves now
Speaker 1: are asymmetric when it comes to the bond market. It
Speaker 1: makes sense to me on the short end, because if
Speaker 1: the FED is done raising rates, sure, I can imagine
Speaker 1: that that's the case for the long end though, So
Speaker 1: there just are so many variables, as John was mentioning earlier,
Speaker 1: whether it's the deficit or whether it's the fact that
Speaker 1: the FED cutting rates sooner leads to perhaps higher inflation
Speaker 1: over the longer period of time. How much less conviction
Speaker 1: do you have over your longer term bond yield call
Speaker 1: on the tenure.
Speaker 8: So there's multiple parts to that question.
Speaker 10: One the first thing that comes to mind is that
Speaker 10: we are moving into regime where we should be seeing
Speaker 10: the curve steepen. So the part of the curve that
Speaker 10: we should see the most rally, the most moved lower
Speaker 10: if the FED is cutting rates, is going to be
Speaker 10: that front end. So I would agree the asymmetry around
Speaker 10: yields is more compelling in the front end than that
Speaker 10: is in the long end. And I do think that structurally,
Speaker 10: longer term, we are exiting a period of financial repression,
Speaker 10: and so we are probably at a point and this
Speaker 10: is a good thing for bond investors. You know, we're
Speaker 10: not dealing with negative real yields anymore. We're not dealing
Speaker 10: with thirty percent of the global bond index having negative yields.
Speaker 10: This is ultimately a good thing higher real yields, but
Speaker 10: it does mean that we're not necessarily looking at fifty
Speaker 10: basis points on the tenure next time we're in a recession,
Speaker 10: which is what we saw during COVID.
Speaker 2: It's what LASA complained about it for ten years in
Speaker 2: every single column. Yes, the world of negative.
Speaker 1: Rates true one percent. I stand by it.
Speaker 2: I think everyone does. It was ridiculous. Honestly, what was
Speaker 2: absurd about that period is we all knew it was absurd.
Speaker 2: It was unlike one of those bubbles that people would
Speaker 2: come on and sort of like rationalize and justify. It's
Speaker 2: one of those things where we all knew it was absurd,
Speaker 2: but it was pinned their place there by policy. Policy
Speaker 2: was deliberately anchoring it, and that was what was totally
Speaker 2: absurd and original about that moment.
Speaker 1: The biggest surprise for me is that we heard all
Speaker 1: these people saying the world was going to fall when
Speaker 1: you didn't have zero rates, and the fact that it
Speaker 1: hasn't continues to be one of the biggest surprises that
Speaker 1: we haven't seen. The complete demolition of balance sheets that
Speaker 1: were really grown up, that were really raised in zero
Speaker 1: rate posts.
Speaker 2: How many people came on this show and said the
Speaker 2: long convaiable lacks would be thirty years lung. Hardly only
Speaker 2: one did, No one did, And now it's like, yeah,
Speaker 2: they're longer, much longer. Cassie got to see Cassie Barrett
Speaker 2: of JP Morgan Asset Management the news yesterday evening. I'm
Speaker 2: sure most of you are up to date foreign policy.
Speaker 2: Giant Secretary of State in the nineteen seventies, Henry Kissinger
Speaker 2: has died, aged one hundred and place to say, we
Speaker 2: can catch up with Norman raw, the former senior US
Speaker 2: intelligence official and non resident senior advisor at the Center
Speaker 2: for Strategic and International Studies. Norman, first of all, to you, sir,
Speaker 2: I know you knew Secretary Kissinger. Can you just help
Speaker 2: us understand how his approach to foreign policy changed everyone
Speaker 2: else's approach for the decades afterwards?
Speaker 5: Yes, good morning. Well.
Speaker 11: Henry Kissinger was a titanic if controversial figure who brought
Speaker 11: to his work a sense of the importance of a
Speaker 11: balance of power. He was a creature of a very
Speaker 11: interesting time. A Jew in Nazi Germany, a military intelligence
Speaker 11: officer in the Second World War, a scholar during the
Speaker 11: most dangerous days of the Cold War. His background in
Speaker 11: the Congress of the end of eighteen fifteen and that
Speaker 11: period gave him a sense of the importance of ensuring
Speaker 11: that key powers found war less palatable than engagement. And
Speaker 11: also he brought together a sense of the United States
Speaker 11: would triangulate, would be closer relations with key powers than
Speaker 11: they would with themselves, to enable that process to continue.
Speaker 11: Since that time, every Secretary of State has attempted to
Speaker 11: emulate doctor Kissinger's approach, but no one has achieved his
Speaker 11: extraordinary successes.
Speaker 1: Henry Kissinger was a highly polarizing person. A lot of
Speaker 1: people point to the fact that he kind of rejected
Speaker 1: idealism and really was a pragmatist and really talked about
Speaker 1: the goals that you ended up achieving rather than the
Speaker 1: methods of how to achieve them. Where does that play
Speaker 1: in the strategy of foreign policy today in America?
Speaker 11: Well, Henry Kissinger's quote on that issue, I think probably
Speaker 11: would be a country that seeks moral perfection and its
Speaker 11: foreign policy will achieve neither that perfection nor security. And
Speaker 11: I think we see a sense of this in the
Speaker 11: United States today in how it deals with the world.
Speaker 11: There are key core interests, there are lesser interests that
Speaker 11: can be discarded or at least put aside for the moment.
Speaker 11: And I think that's how the Biden administration is approaching
Speaker 11: the world, China, climate change, international institutions, avoiding conflicts which
Speaker 11: would disrupt the US economy.
Speaker 1: Do you think that society has shifted dramatically enough to
Speaker 1: not really go along as much with that type of
Speaker 1: ethos as it did in the nineteen seventies. I was
Speaker 1: going to say, you know, how much of social media
Speaker 1: changed the picture? How much has the immediate imagery? Is
Speaker 1: there some kind of shift in the population that makes
Speaker 1: that difficult.
Speaker 5: It's certainly a very different world.
Speaker 11: But I think we need to recall that nineteen sixty
Speaker 11: eight in the late sixties in general were an extraordinary
Speaker 11: time in the US and European society, with the protests
Speaker 11: against Vietnam, the protest against our US actions in Cambodia,
Speaker 11: the US actions in Chile. I mean, this was also
Speaker 11: a very polarizing figure and he was able to navigate
Speaker 11: through that period, which also included Watergate, to achieve the
Speaker 11: successes with the Soviet Union, China and the Arab peace
Speaker 11: disengagements which have lasted fifty years.
Speaker 2: We now need to talk about modern war and twenty
Speaker 2: twenty three normal let's talk about Israel and Hamas. Hostages
Speaker 2: have been released, two hundred trucks of value to going
Speaker 2: in every single day into Gaza. What's the argument against
Speaker 2: extending this ceasefire?
Speaker 11: Norman, Well, the argument against extending the ceasefire would be
Speaker 11: that allows for the survival of Hamas, an organization which
Speaker 11: continues to state that it is interested in the eradication
Speaker 11: of Israel and those who live there.
Speaker 5: So, if you believe the.
Speaker 11: Phrase never again is as a driver, you must eradicate
Speaker 11: Hamas only to move to a peace process that is legitimate.
Speaker 11: I mean, the idea of a two state solution is
Speaker 11: certainly everyone's goal, but no one is looking for the
Speaker 11: Palestinian state to be led by Hamas.
Speaker 5: So Hamas must be removed.
Speaker 11: From this equation if we are to move forward with
Speaker 11: peace and a lasting sense of security for the Israeli people.
Speaker 1: Norman, do have a sense of where Iran is in
Speaker 1: all of these negotiations. There was a report yesterday at
Speaker 1: Saudi Arabia is talking about maybe even giving aid to
Speaker 1: Iran if they would call back their proxy fighters, whether
Speaker 1: it was Hasblah or whether it was Hamas, to try
Speaker 1: to create more stability in the Middle East. Do you
Speaker 1: buy into any of these things getting traction well.
Speaker 11: Saudi Arabia, the Emirates, and other Gulf states have certainly
Speaker 11: attempted to achieve a detent with Iran, much as Kissinger
Speaker 11: looked at or to taunt with Russia and Destante in
Speaker 11: essence means you don't empower your adversary, but you create
Speaker 11: conditions by which the adversary is not interested in war
Speaker 11: with Saudi Arabia and the Emirates and others. There is
Speaker 11: the issue of US sanctions, so there is a limited
Speaker 11: amount of engagement in which they can they can put
Speaker 11: forward to Iran.
Speaker 5: Iran has multiple.
Speaker 11: Incentives to continue its current efforts in the region, but
Speaker 11: very few drivers for involvement in the conflict itself.
Speaker 5: And I think over time, what we're watching is that
Speaker 5: Iran is not a winner.
Speaker 11: In this conflict, that its allies have not been able
Speaker 11: to change the military balance, and it risks losing its
Speaker 11: primary Sunni proxy partner.
Speaker 2: Two words eradicate Hamas Norman. What does that mean? In practice?
Speaker 11: It means eradicating Hamas's senior leadership, the operational leadership. But
Speaker 11: it doesn't mean destroying thirty to forty thousand fighters, who,
Speaker 11: by the way, will remain heavily armed in the post
Speaker 11: conflict environment. And those fighters and their indoctrinated families and
Speaker 11: culture must be dealt with. Where to prevent the rise
Speaker 11: of a Haamas two point zero or an isis and
Speaker 11: in the Arab world and I've spoken with a number
Speaker 11: of senior artificials. They have a concern that this conflict
Speaker 11: could produce exactly that, not only in Gaza, but in
Speaker 11: places ranging from Southeast Asia to Subsai Heal Africa. So
Speaker 11: their comment is we've got to avoid this turning into
Speaker 11: another problem, just as Elpada turned into Isis Norman.
Speaker 1: You said that these fighters are still going to be
Speaker 1: there and heavily armed, that some of the sentiment and
Speaker 1: education has to be dealt with. What do you mean,
Speaker 1: how is that accomplished?
Speaker 5: Well, there is a track record for this.
Speaker 11: Saudi Arabia, the Emirates have actually an excellent record of
Speaker 11: de radicalization, and we've learned a lot from them as
Speaker 11: they've dealt with their own culture and the region as well.
Speaker 11: But This requires giving the Palestine people a sense of hope,
Speaker 11: a sense of security, and dealing with the witch's brew
Speaker 11: of multiple Palestinian splinter organizations, most of which are dedicated
Speaker 11: to violence and the destruction of Israel and the United States.
Speaker 2: With that, a mind morment just to find a question
Speaker 2: from us, how do you expect the knischa of this
Speaker 2: wall to develop to change in the coming weeks and months.
Speaker 11: This remains a likely long term conflict, although it will
Speaker 11: play out not necessarily in terms of a traditional war.
Speaker 11: There are so many factors in here that need to
Speaker 11: be put together. I think the United States will focus
Speaker 11: on hostages, hot return of hostages, preventing and expansion the conflict,
Speaker 11: laying the groundwork for the future. But beyond that, I
Speaker 11: think we're off the map and we should have a
Speaker 11: lot of patients and look for a lower intensity conflict
Speaker 11: that protects civilian lives while eradicating a terrorist organization.
Speaker 2: Norman, Thank you, sir, Field contribution always foundingable nomen roll
Speaker 2: there cs is.
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