Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,
Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. Edward Heiman
Speaker 1: joins us today. He is vice chairman at evercoreps ISSI
Speaker 1: were thrilled that he will have an extended conversation with us,
Speaker 1: and yes, we'll get to the China call here in
Speaker 1: a bit. Edheiman, thank you so much for your generous
Speaker 1: time this morning. You say inflation is slowing significantly. David
Speaker 1: Rosenberg you knew him at Mary Lynch says inflation is
Speaker 1: slowing significantly. It's on the good side. Do you see
Speaker 1: service sector inflation slowing? Yes? I do. So. There's a
Speaker 1: Thomas It's great to be on your program. It's it's
Speaker 1: a trip program released in John. I tell you guys,
Speaker 1: it's just wonderful. But there's a PMI for services and
Speaker 1: it's dropped twenty points from seventy five to fifty five.
Speaker 1: And there are plenty of services that I think are slowing,
Speaker 1: particularly the financial services area, insurance, etc. But that's the key,
Speaker 1: is to get the measure that PAL watches to slow down.
Speaker 1: One of the big services is rents, and I'm convinced
Speaker 1: they're going to slow dramatically and maybe even go negative.
Speaker 1: For the shelter CPI. There are half a dozen measures
Speaker 1: of rents, surveys of rents, and they've all slowed significantly,
Speaker 1: if not declined, over the past nine months, and they
Speaker 1: leave the shelter CPI by about eight months. So I'm
Speaker 1: a couple of months late now on this showing up,
Speaker 1: but I think the shelter is gonna slow. And then
Speaker 1: before if you ask it, wagers are gonna slow. If
Speaker 1: if Mackenzie is laying off people, what can you say, Well,
Speaker 1: can we make news here today as ever core SI
Speaker 1: laying off people, I mean you know they may lay
Speaker 1: off me. If inflation does this slowly, that's uh, well,
Speaker 1: we've heard this in C. J. Lawrence and Julian Emmanuel
Speaker 1: be very careful here with a tough guy and Iyman
Speaker 1: and I want to cut to the chase, which is
Speaker 1: the heritage is what you've done since C. J. Lawrence.
Speaker 1: I mean it goes back to Wayne Angel. It's about
Speaker 1: monitoring M two. Is you know M two is in disrepute.
Speaker 1: Let's say over the last decade, why are you following
Speaker 1: M two and it's collapse so carefully in your research?
Speaker 1: Note So, I've met Milton Friedman when I was twenty
Speaker 1: three years old, and in the seventies he was became
Speaker 1: a rock star, and every time you had about of
Speaker 1: inflation money growth accelerated ten to fifteen percent, and so
Speaker 1: it was an easy connection in that regard. Then getting
Speaker 1: to today, bank deposits, which are eighty five percent of
Speaker 1: the mice supply, are a practical way to track it
Speaker 1: every week, and they have declined significantly. They're down about
Speaker 1: two percent now and they've declined one hundred billion in
Speaker 1: the past two weeks. This is going back to the
Speaker 1: nineteen thirties to have a situation like this. Now, we
Speaker 1: found over a decade that the mice supply might not
Speaker 1: have much of an impact if it's in a normal range,
Speaker 1: say five to ten percent. I think Margaret Thatcher found
Speaker 1: that out when she was trying to gear Monterrey Paul,
Speaker 1: I'll see with Freeman off of swings and the money supply.
Speaker 1: But last year the money supply increased almost thirty percent.
Speaker 1: The year before that, government outlays increased fifty percent, and
Speaker 1: the Fed monetized it. And now MP two last week
Speaker 1: was minus three percent, which is a ominous or significant climb,
Speaker 1: and it leads by one and two years. So you
Speaker 1: can't see it on the program you have this this morning,
Speaker 1: but it's it's coming, and I think it shows up
Speaker 1: in some of the slowdown of inflation readings we're seeing now,
Speaker 1: like container freight rates, well, natural game. This really speaks
Speaker 1: to long and variable lags. Ed this discussion around the
Speaker 1: tightening and the removal of accommodation and how long it's
Speaker 1: going to take before we start seeing it the data,
Speaker 1: and as you say, you and many others have been
Speaker 1: surprised that we are not seeing it more and that
Speaker 1: you're even seeing a re excel leration in certain inflationary
Speaker 1: reads in specific segments of the economy. What does long
Speaker 1: and variable lags look like in twenty twenty three, in
Speaker 1: an era of so many cross currents of different trends
Speaker 1: one in two years, That's that was the standard. We
Speaker 1: do a lot of standard for Milton Friedman, We've done
Speaker 1: a lot of econometric work on global short rates. They
Speaker 1: lead by one in two years, and if you'll hang
Speaker 1: on for a second. In nineteen twenty three, nineteen twenty three,
Speaker 1: John Maynard Kane sort of paper that said the mine
Speaker 1: supply leads by sixteen months. So I've not been I've
Speaker 1: been surprised, but i haven't been fighting the idea of
Speaker 1: the economy is strong now because a year ago FED
Speaker 1: funds were zero zero, QWE was in place, and the
Speaker 1: mince supply was around Yeah, you know, those are all
Speaker 1: out totally different, and so that will show up more
Speaker 1: towards the end of this year and on end of
Speaker 1: twenty twenty four. I think until we see the long
Speaker 1: and variable lags actually play out. People are talking about
Speaker 1: a no landing scenario that we possibly could avoid any
Speaker 1: kind of recession or downturn or even a significant slowdown
Speaker 1: and end up reaccelerating into a new bull market. Do
Speaker 1: you push back against that and say, look, in a year,
Speaker 1: two years, we're going to see some sort of downturn.
Speaker 1: And the longer that you have faith in this no
Speaker 1: landing scenario, the more potentially fraught. It could be on
Speaker 1: the no landing card. I mentioned long and variable lags,
Speaker 1: and they're pretty painful. Reinhart Rogue a piece in early
Speaker 1: two thousand and nine criticizing people that had moved to
Speaker 1: the view that we would have no recession, that the
Speaker 1: housing weakness would be contained and it's different time became
Speaker 1: very popular, and that's what's going to happen. That's what's
Speaker 1: happening now and will continue to happen. But I think,
Speaker 1: judging by it, will end up creating a re section
Speaker 1: for the end of this year or into twenty four.
Speaker 1: But it's going to be pretty painful. And the no
Speaker 1: landing story, I think he's looking at things right now,
Speaker 1: right now doing great well, you know with that hymen folks,
Speaker 1: and we welcome all of you on radio and television
Speaker 1: generous to be with us for this half hour. I
Speaker 1: do want to point out that there's a full econometric
Speaker 1: display in his research note, including in our square to
Speaker 1: sixty eight percent on what short rates are going to
Speaker 1: be doing. But to get out front, folks, we protect
Speaker 1: the copyright of all of our guests. Go to evercres
Speaker 1: Is side to get the ed Hyman Jack Rippi and
Speaker 1: the rest of them. Religion if you will, and Hyman,
Speaker 1: I want you to speak to those younger. They didn't
Speaker 1: read you at C. J. Lawrence. They barely know your
Speaker 1: research note over core Issi. They've never faced this rate structure,
Speaker 1: this return to a real rate. There's a whole feeling
Speaker 1: life can't go on. Explain how life goes on if
Speaker 1: we come back to a legitimate interest rate regime. It
Speaker 1: seems to me, Tom that we're already getting into an
Speaker 1: environment where life goes on because the economy is doing
Speaker 1: so well right now. I know their lags involved, but
Speaker 1: the stock market, you know, is pretty contemporaneous, and they
Speaker 1: know that rates are high, and so I think we're
Speaker 1: getting there. But it's a learning process. The FIT, I think,
Speaker 1: is doing a pretty good job of communicating what their
Speaker 1: plans are. If I was them, I would pause and
Speaker 1: see what they've gotten done so far, and then is
Speaker 1: that they need to keep going They can. It turns
Speaker 1: out they should continue to pause or cut race, and
Speaker 1: they can do through that. I would pause, given how
Speaker 1: much water's under the bridge, and iiman as we speak
Speaker 1: to you, it is images of the President of the
Speaker 1: United States meeting with a Bucharest nine. Of course, this
Speaker 1: historic moment for Eastern Europe after the President's trip to
Speaker 1: Ukraine him and I say this with immense respect, and
Speaker 1: you remember the politics that we've all faced. How do
Speaker 1: you overlay the politics of the nation into what has
Speaker 1: been a multiple decade Himan optimism. How do you take
Speaker 1: the challenges of the time of Jimmy Carter, fold them
Speaker 1: over to the time of Joe Biden and overlay them
Speaker 1: on a belief in the American economy. That's too much
Speaker 1: for this morning, But you know, I have a deep
Speaker 1: respect for democracy, and I'm a conservative, but I see
Speaker 1: a benefit in the back and forth that we have
Speaker 1: going on right now. I think it's too extreme, but
Speaker 1: it plays a role in our system, and so at
Speaker 1: the moment, I don't see it being a terrible impediment.
Speaker 1: Pal is doing what he's doing. I don't know if
Speaker 1: you have seen it, but the federal outlays are scheduled
Speaker 1: to decline about five percent this year in twenty twenty three.
Speaker 1: Now that's they went up twenty twenty nine. Does not
Speaker 1: celebrate too too much, but it is a crazy world.
Speaker 1: The parts that I find most troubling and I'm sure
Speaker 1: you do too. Is the war situation and also the
Speaker 1: situation in China, which I'm constructive on, but they definitely
Speaker 1: they have a more problematic situation politically than we do.
Speaker 1: Did you stop traffic here the last time you're on
Speaker 1: with an optimism on the China reopening, I believe you'd
Speaker 1: have adjusted real GDP. Where's your number right now on
Speaker 1: a China reopening? Is it still near six percent? We
Speaker 1: have six at the end of the end of the year.
Speaker 1: It's a complicated situation, actually a little more complicated than
Speaker 1: I expected, but we still think it's going to be
Speaker 1: very strong. They're opening up, and I've learned either the
Speaker 1: hardware the easy way. That makes a very big difference.
Speaker 1: When we had the pandemic collapse and China did. I
Speaker 1: learned from China because their GDP was minus fifty and
Speaker 1: so I was estimating minus fifty for the US, which
Speaker 1: wasn't too far off. And then we had a big
Speaker 1: rebound and GDP was something like thirty and that same
Speaker 1: China and in the US, and so they have that
Speaker 1: dynamic coming on now they reopened and it seems to
Speaker 1: be pretty successful. They've gotten through the pandemic and a
Speaker 1: very big percentage of people, very big percentage of people
Speaker 1: have had the virus, and so that they have a
Speaker 1: current immunity going on. Plus stimulus YEA working through the system. Well,
Speaker 1: how much will that actually trickle into the rest of
Speaker 1: the global economy given the increasing isolation of China, both
Speaker 1: deliberately for a more focus on nationalism versus also an
Speaker 1: isolation with respect to the fissures that we hear right
Speaker 1: now with China in Russia, Lisa, I think they'll I
Speaker 1: think they'll export, you know, once they get the factories going.
Speaker 1: I think they'll be an increased source of exports. Just
Speaker 1: recently they became the biggest exporter of vehicles, and so
Speaker 1: I think they'll do that. And I think they're going
Speaker 1: to push up commodity prices like copper, but then come
Speaker 1: in and push down finished good prices. I will say
Speaker 1: that I'm watching most closely the price of oil and
Speaker 1: that is my north star as to how China is
Speaker 1: progressing right now, and all prices which I look at
Speaker 1: Bloomberg frankly, all of the dime they're pretty quiet right now,
Speaker 1: around seventy five dollars for West Texas, and so that
Speaker 1: tells me that China hasn't gotten ripping ahead yet. I
Speaker 1: think that's coming. All prices will go up. This is
Speaker 1: incredibly important because a lot of people have come on
Speaker 1: this program at and said that the oil is incredibly
Speaker 1: muddied in terms of the price signal, given the fact
Speaker 1: that people are changing to renewables, given the fact that
Speaker 1: China has increased domestic production of wind of soul, of
Speaker 1: even using coal, or exporting or importing some of the
Speaker 1: materials from Australia. Are you saying that that's not true
Speaker 1: that oil is the cleanest read on what's happening with China.
Speaker 1: I think that's a fair point. I think it's an
Speaker 1: excellent point. And on the price of oil, it's just
Speaker 1: to pick one commodity price. If things like what you're
Speaker 1: mentioning are true for a number of commodity prices, it
Speaker 1: could feed into my wrong view that inflation is going
Speaker 1: to be less than what people expect. Not to mention
Speaker 1: the fact that the money supply is contracted, but I
Speaker 1: think some of these technological advances that you mentioned, could
Speaker 1: you know, put dour pressure on some commodities. Now a
Speaker 1: money like copper is right in the middle of the
Speaker 1: technology advances. You need to copper wires to make the
Speaker 1: technologies work. But some other commodities, I mean watching natural
Speaker 1: gas and you can see making new lows, both in
Speaker 1: Europe and in the US, and you can see when
Speaker 1: that happens. It really helps economic activity on a current basis, right,
Speaker 1: particularly Europe. But I think it's also working a little
Speaker 1: bit here. I mean, I understand that you know, once
Speaker 1: a week, maybe once a quarter, you read Julian Emmanuel's
Speaker 1: work at evercore is SI. But let's dovetail the stock market,
Speaker 1: the equity market, and ownership of American equities into your economics.
Speaker 1: With all of this said, are we at a point
Speaker 1: of nineteen seventy five or maybe the great bull market
Speaker 1: of nineteen eighty two, where corporations like they did then,
Speaker 1: will adapt and adjust and prosper well. First, we have
Speaker 1: an open office architecture. I learned this from Michael Bloomberg.
Speaker 1: This is when you were on Park Avenue, and so
Speaker 1: we have. And so I am cursed with the fact
Speaker 1: that Julian sits right next to me, So I have
Speaker 1: to put one up with the guy all the time.
Speaker 1: But he is he is terrific and thinks the world
Speaker 1: of all three of you. But on the current picture,
Speaker 1: my view is that inflation is the key. The FED
Speaker 1: is going to keep tightening until either the economy slows
Speaker 1: or inflation slows significantly. And I think the inflation is
Speaker 1: slowing more than the FED things. And a year ago,
Speaker 1: if I may say, I was pretty agitated that transitory
Speaker 1: was the wrong idea. Inflation was going up everywhere, every
Speaker 1: place I looked at was going up, and the FED
Speaker 1: kept saying transitory and they kept rate to zero. And
Speaker 1: now I see inflation coming down in most places. Unfortunately,
Speaker 1: it's not coming down in the most visible places that
Speaker 1: the FED looks at, like the consumer Price Index or
Speaker 1: the PC. But as a student of this, I see
Speaker 1: it coming down in so many places underneath the surface,
Speaker 1: in the real world, if you will, and I think
Speaker 1: inflation is going to keep coming down, I think it
Speaker 1: could undershoot the FIDS target two. Ed Hyman, thank you
Speaker 1: so much for this half hour. Generous of you to
Speaker 1: be with us. Edward Hyman is ever court I side.
Speaker 1: Let's talk about how stale these FED minutes A So
Speaker 1: that FED meeting was at the start of February. Since then,
Speaker 1: when chem and Pou said the disinflationary process has started.
Speaker 1: We've had payrolls at five hundred and seventeen thousand, unemployment
Speaker 1: at three point four percent, big jump in the ICEM
Speaker 1: Service s Index for the month of January. CPI not
Speaker 1: dropping as quickly as people hoped for. PPI delivering an
Speaker 1: upside surprise retail sales with a three hand tool. And
Speaker 1: then we've got a first look at February with a
Speaker 1: PMI yesterday improven as well. Jeff you joins us right
Speaker 1: now of Bmy Melon and Jeff, I guess I'm going
Speaker 1: to lead with a question I've already answered, just how
Speaker 1: stared at these minutes they applied sale not just in
Speaker 1: domestic sense, but in the international sense as well. Look
Speaker 1: at what's going on globally. Your services m I wrong
Speaker 1: in the UK, in the Eurozone went forth for Jeremy
Speaker 1: Hunt deer chancefer that. So are we going to look
Speaker 1: at fistal similars in our Europe? And that's one trade
Speaker 1: side which the US is it's supposed to what'sover in China.
Speaker 1: So now not just a mestic side. Are strong for
Speaker 1: the US economy, You're looking at an external lift as well.
Speaker 1: So going back to the point made earlier, so higher
Speaker 1: rates the price of the great wi have to be
Speaker 1: a price. Why isn't it something to sell rate? And
Speaker 1: Jeff you I look at this in your student of
Speaker 1: history and this as well OMG rates. Higher inflation, if
Speaker 1: not higher, at least inflation or disinflation sustain. And the
Speaker 1: basic simplistic thought is the world will come to an
Speaker 1: end as we know it. There will not be revenues,
Speaker 1: there will not be earnings. Life won't go on, And
Speaker 1: yet history says the complete opposite. How do we come
Speaker 1: people down that life will go on? Well, well, I
Speaker 1: think they're going to need to look at the margins.
Speaker 1: They're going to have to look at earnings. So maybe
Speaker 1: a couple of weeks ago the spot by Dob Losses
Speaker 1: and the tech sector thists talk about a margin recession
Speaker 1: a bit more so on the top line. But again
Speaker 1: let's just look at what under line demanders. Look at
Speaker 1: the at receipts in the UK and Europe, they are rising.
Speaker 1: People are spending on the continent normally where people are savers,
Speaker 1: they are starting to spend a Seeing that energy bills
Speaker 1: starting to come down, they saved for very high energy
Speaker 1: bills in an oil above a hundred, but now it's
Speaker 1: not come to that, so maybe they can use in
Speaker 1: their purse springs again. So let's look at earnings upside
Speaker 1: surprises that will probably calm people down. Jeff. If you
Speaker 1: take the j unfair of view of the world and
Speaker 1: you create your ear a head outlook on March thirty first,
Speaker 1: how would you reshape it right now? Based on what
Speaker 1: people were going into the year of feeling that there
Speaker 1: could be some sort of softness the first half, then
Speaker 1: a real strength in the back half. Now people have
Speaker 1: adjusted to real weakness in the first real strength in
Speaker 1: the first half, and weakness in the second half. Where
Speaker 1: do you land? So I would still land on no recession,
Speaker 1: and we were skepticaled that there was going to be
Speaker 1: a chance of a heavy recession in the first place,
Speaker 1: and certainly at a higher level for longer. It's probably
Speaker 1: not in the camp of Oh, let's think about above
Speaker 1: six percent or something wild along those lines. Is trend
Speaker 1: growth in the US or globally higher than where we
Speaker 1: were fifteen to twenty years ago. Absolutely not. So no
Speaker 1: gravity will come to play a role at some point,
Speaker 1: but we have to land in a place where it's
Speaker 1: real rates or longer and asset allocation we'll have to
Speaker 1: follow when I'm following right now. Also cash on the sidelines,
Speaker 1: money has to be put at work. Where is it
Speaker 1: going to go? I still don't think it's going to
Speaker 1: be in the dollar, because most people own that already.
Speaker 1: Will Jeff, let's put it all together. I said the Barclays.
Speaker 1: It's said the higher yield, higher rates at a price
Speaker 1: to pay for better growth. And you said, why is
Speaker 1: that a price? That's something we should celebrate any you
Speaker 1: celebrate it. Well if you have an Europe for example,
Speaker 1: if you look at pace like Switzerland right, which has
Speaker 1: struggled with unlow rates for a long time, and we
Speaker 1: discussed this a couple of months ago, you know, suddenly
Speaker 1: the financial services industry there will be able to offer
Speaker 1: yields and to actually keep money on shore as well.
Speaker 1: So this is going to change the flow dynamic whereby
Speaker 1: everyone blindly chasing yield, sometimes not of the dubious credit quality.
Speaker 1: I might add, you can now look for the better
Speaker 1: gems out there, stay onshore in particularly savings heavy's economies,
Speaker 1: and then domestic productivity, because higher yield means there are
Speaker 1: rather higher returns domestically to generate that as well. So
Speaker 1: I would see this as a good thing, but as allocation,
Speaker 1: they need to just go with an you play book.
Speaker 1: I'm a simple man. Does that mean by banks? Well,
Speaker 1: if we look at our high folcus flows financials both
Speaker 1: in emerging markets and developed markets, financials the most sold
Speaker 1: sector globally, full stop, right, And that's what's telling me
Speaker 1: is we have high front end yields, high funding costs,
Speaker 1: but there's no loan demand out there. That's the missing link, right,
Speaker 1: go back to Tom Leis to talk about the velocity
Speaker 1: of money that has not picked up because people are
Speaker 1: still scared. But if we see a consumer demand and
Speaker 1: further analyte industrial demand out there, then banks can start
Speaker 1: to lend. There will be a margin, but that is
Speaker 1: where the opportunity is going to be given the amount
Speaker 1: of setting we've seen. Hey, Jeff, this was fun. As always.
Speaker 1: It's going to hatch up, Jeff. You there a senior
Speaker 1: amount strategist over at bmy melon driving forward right now
Speaker 1: and this is a joy. Emrida send all of these
Speaker 1: strategists fools take a different view. And what I love
Speaker 1: about Amrita send half of maybe Jeff Curry and as
Speaker 1: microeconomics at Chicago. She really looks at the dynamics of
Speaker 1: supply and demand. Co founder and head of research in
Speaker 1: Energy Aspects in London and reader as simple as I can,
Speaker 1: and I don't need a central theorem lesson, but what's
Speaker 1: a correlation of your world right now to the stack
Speaker 1: in bond upset we're living, how does crude correlate? Great question, Tom,
Speaker 1: and as always, thank you for having me. Always a pleasure.
Speaker 1: I mean, look, I think part of the problem is
Speaker 1: crude oil specific fundamentals are not particularly strong. We've built
Speaker 1: a ton of infantries, We've had bad weather, we've obviously
Speaker 1: had we do have right now a lot of refinery maintenance.
Speaker 1: And that's why right now crude is pretty much at
Speaker 1: the mercy off exactly like you're saying, the bonds and
Speaker 1: the equity markets, and this is why the six sessions
Speaker 1: we've seen that's been trending lower. And this is something
Speaker 1: we call for just recently as well, that crude is
Speaker 1: probably going to be at the mercy off macro headlines
Speaker 1: and by the way, now even good news is bad news.
Speaker 1: You would think, oh, strong labor market in the US
Speaker 1: is actually really bullish for gasoline demand. But guess what, No,
Speaker 1: now the fears that means effects going to raise interest rates?
Speaker 1: What does it mean for the future of the US economy.
Speaker 1: So it is very, very problematic for crude until fundamentals
Speaker 1: pick up. Well, when the fundamentals pick up, we do
Speaker 1: have China reopening. What is your ex excess on the
Speaker 1: China reopening? Are you waiting for May or are you
Speaker 1: waiting for May of twenty twenty four. No, I'd say
Speaker 1: May of this year. We've got a million barrels per
Speaker 1: day baked into our numbers of Chinese demand growth. I
Speaker 1: think the problem, of course, is that China again just
Speaker 1: coming out of the lunar New York holidays, that it
Speaker 1: too has maintenance. Look, we are hearing right now of
Speaker 1: potentially very low Chinese product exports coming out in March.
Speaker 1: We need to confirm that it's still very early stages.
Speaker 1: Will be the very first sign that he has domestic
Speaker 1: demand is strong. It will take a little bit of
Speaker 1: time for this to percolate through. I would say right
Speaker 1: now the oil price is actually focusing and factoring in
Speaker 1: a Western recession, and it really hasn't factored in the
Speaker 1: China reopening. Well, how much. Does this really factor in
Speaker 1: the fact that any kind of China increase in usage
Speaker 1: will be funneled into some of the renewables, into a
Speaker 1: lot of domestic production, whether it's wind or solar. This
Speaker 1: is what we were talking about with at Morris. That
Speaker 1: kind of substitution for whatever reason, is diminishing the demand
Speaker 1: even in a stronger economic profile. Absolutely the case of
Speaker 1: the longer term right but right now we've got more
Speaker 1: than a billion people who have been locked up for
Speaker 1: three years, and we are already seeing it in the
Speaker 1: jet fuel numbers. Just China's reopening a loan can lead
Speaker 1: to four hundred thousand barrels per day of additional jet
Speaker 1: fuel demand. There is no renewables to replace that, right
Speaker 1: so there is an enormous amount of bent up demand.
Speaker 1: We've seen this in the West, and I don't want
Speaker 1: to complicate the story. The renewable story is absolutely there
Speaker 1: for the long term. Ev sales in China are skyrocketing.
Speaker 1: We have that in the numbers, but that doesn't take
Speaker 1: away from the fact that gasoline and jet which is
Speaker 1: basically used for mobility, we are already seeing very very
Speaker 1: strong demand. People are going to fly and you are
Speaker 1: going to see some very strong demand numbers out of
Speaker 1: the region. So good news, bad news, it doesn't really
Speaker 1: matter what it is. But the macro has been an
Speaker 1: oil prices lower. That seems to be sort of the
Speaker 1: trend regardless. What's going to shift that you get prices
Speaker 1: above a hundred dollars a barrel like you expect, I
Speaker 1: think it we have to wait really towards kind of
Speaker 1: second quarter, end of second quarter and into the second
Speaker 1: half of the year, and for me, the fundamentals really
Speaker 1: have to tighten up. The stocks we've built will need
Speaker 1: to be drawn down, which we are expecting counter seasonally
Speaker 1: from the second quarter of this year, not before that,
Speaker 1: I think right now. And we've got a big gathering
Speaker 1: in London next week all the traders and you know,
Speaker 1: producers and consumers are coming in for a week. I
Speaker 1: think you're going to get a lot of kind of
Speaker 1: talk around this as well. So i'd say after that,
Speaker 1: like you were really into Q two Armada, we really,
Speaker 1: the three of us, really look forward to seeing you
Speaker 1: there on an all Hydrocarbon week for Bloomberg. Our nice
Speaker 1: surveillance around the list. Is it it is done? Deal? Yeah? Absolutely?
Speaker 1: You know you can't get a drink at the Oil
Speaker 1: week in London, unless it has an umbrella in it,
Speaker 1: it's just the same as comper week or whatever it's code.
Speaker 1: It's like copper week, but they're spread out alame week.
Speaker 1: You're gonna get to this quote from Morgan Stanley morning.
Speaker 1: So they cut their forecasts for crude for four q
Speaker 1: and twenty twenty four, so about ninety five dollars a
Speaker 1: barrel from one ten And this was the quote amirator
Speaker 1: from them. The new estimates reflect stronger demand but also
Speaker 1: higher Russian supply. Now there might be some people who
Speaker 1: aren't in this commodity market who would turn around and say, well,
Speaker 1: Russian supply, why is that affected the market? What is
Speaker 1: that all about? Look, we've also raised our Russia supply
Speaker 1: numbers because Russia is being able to place more barrels
Speaker 1: than we had initially expected. Again par four kind of
Speaker 1: doing forecasts in an extremely uncertain world. That's absolutely fine. However,
Speaker 1: I go back to Chinese demand growing by a million
Speaker 1: barrels per day an SPR. We do not have a
Speaker 1: million barrels per day of SPR hitting the market. That's
Speaker 1: a two million barrels per day swing. So even if
Speaker 1: we assume Russian production is flatier on her. I we
Speaker 1: don't lose any Russian production. We will lose somebody. Just
Speaker 1: assume we don't. It is still a much tighter market
Speaker 1: just from China and spr a loan. That's the crude call.
Speaker 1: I just got a message from a Bloomberg subscriber and
Speaker 1: it just says, forget w Ti Nardi. Just wow. Yeah,
Speaker 1: can we talk about natural gas just briefly, I'm RACI.
Speaker 1: What's behind that move? Weather? I mean, like you said
Speaker 1: you needed a meteorogis in terms of we need weather forecasters.
Speaker 1: But look, Europe got very lucky, and of course in
Speaker 1: the US as well. Just how warm it's been Jan Feb.
Speaker 1: And even our March forecasts have again raised just the
Speaker 1: amount of natural gas we are backing out as a result.
Speaker 1: We think natural gas prices will have to fall to
Speaker 1: about a dollar seventy five before you're actually kicking shot
Speaker 1: into the quest. So still a little bit more to go.
Speaker 1: But yeah, it has just been brutally warm. What a
Speaker 1: change a natural gas falling below two for the first
Speaker 1: time since twenty twenty, and I'm ratus looking for a
Speaker 1: further move lower and rata. This was great thank you.
Speaker 1: I'm going to send their energy aspects. Thank you for Americans.
Speaker 1: This is important because Alancia now is our new renaissance.
Speaker 1: It's Stilantis and the leadership there is Carlos Tavarrus and
Speaker 1: as John Farroll grew up rooting for ac Milan and
Speaker 1: owning a Lancia Alanci Delka, this is the design and
Speaker 1: character that makes a pulse. Coach. Carlos Tavarus joins us
Speaker 1: now chief executive officer. It's Stilantis, and thank you so
Speaker 1: much to inviting us at BIRIN for the Formula one.
Speaker 1: We really really appreciate it. I got to drive the
Speaker 1: forward conversation off of earnings and the good news of
Speaker 1: your company today, which is you're looking for a warm spot.
Speaker 1: In two twenty six you had a joint agreement with
Speaker 1: the Swiss. They're moving on to Audie Fine. And the
Speaker 1: great mystery in Formula one is what Carlos Tavarus is
Speaker 1: going to do to get into the new age of
Speaker 1: Formula one? Can you advance that story this morning? Sir?
Speaker 1: What have you learned in the cast last couple of
Speaker 1: weeks what your ALFA Romeo team will do well? First
Speaker 1: of all, I would like to remind you that we
Speaker 1: have fourteen brands. Of course, all from MEO is very
Speaker 1: warm to our hearts, fantastic brand, equity, fantastic history. As
Speaker 1: you know, our more sports programs are focused on the
Speaker 1: twenty four hours off Loma right now with a hybrid
Speaker 1: technology and the Pussua brand, and also on the single
Speaker 1: seater electric races with the d S automobile and Mazzati
Speaker 1: is now a contender of the World EV single seaters
Speaker 1: and that's where we are putting the focus. Fromeo will
Speaker 1: come later. FROMO will have a certainly a more sports
Speaker 1: program at one point in time, and we still have
Speaker 1: time to discuss this as we are still in from
Speaker 1: the one for for some time. And then we will
Speaker 1: invade the program or all from me. But it's too
Speaker 1: soon to unveil that and apologize for that. Okay, well
Speaker 1: we can do it later in the interview. Carlos help
Speaker 1: us here with how you bring the romance in your
Speaker 1: success of the since twenty fourteen. How do you bring
Speaker 1: that over the EV. How do you bring Alpha Romeo
Speaker 1: and all you've done there over to electric vehicles. Well
Speaker 1: that's very simple, actually, you just have to drive the cars.
Speaker 1: If you drive the cars, if you experience the takeoff
Speaker 1: acceleration of an EV, if you experience the smooth ride
Speaker 1: and the improvement on the noise and vibration, if you
Speaker 1: experience the very low height of the center of gravity.
Speaker 1: To put it simply, an IV car is a better car.
Speaker 1: So it's a better car. You can easily bring it
Speaker 1: to Alfromeal with the extended technology to ensure that the
Speaker 1: customer drive is even more exciting and pleasant. This is
Speaker 1: exactly what we are doing, is extended sportiness for the
Speaker 1: Alfromeal brand, with better acceleration, with better drive, with a
Speaker 1: suicer right. And by the way, this is exactly what
Speaker 1: we do with the muscle American cars. With Dodge, we
Speaker 1: bring more muscle, we bring more burnouts and more donnets
Speaker 1: with the actually just about a car, right, Lisa, What's
Speaker 1: so good about this is you can drive down Central
Speaker 1: Park West and second gear and an EV Alpha and
Speaker 1: the noise you can make with that it'll be just killer. Ye. Well,
Speaker 1: I'm not an expert in the fake noises that you
Speaker 1: can create in your silent evs, but I do want
Speaker 1: to talk about the RAM and Dodge brands because we're
Speaker 1: talking about the US, and we're talking a lot, just
Speaker 1: generally about margin pressure, and yet you recorded some of
Speaker 1: your biggest margins ever with the sale of these types
Speaker 1: of vehicles in the US, and I'm wondering how long
Speaker 1: that can last, given that they're starting to be some
Speaker 1: pricing pressure on the margins. You are right to ask
Speaker 1: that question. In fact, first of all, we should just
Speaker 1: recognize that the employees of talent is starting in North America.
Speaker 1: I've done a stellar job in twenty twenty two basing
Speaker 1: all the external headwinds that they had to face. Now
Speaker 1: to your question, in the near future, it's going to
Speaker 1: be an exciting period where everybody is going to try
Speaker 1: to hold on to a significant pricing power despite the
Speaker 1: rebalancing between supply and demand, which is of course ongoing
Speaker 1: and already there. So that's rebalancing on supply and demand
Speaker 1: will put pressure on the pricing. But on the other side,
Speaker 1: because of the interest rates, we see some cooling in
Speaker 1: the economy that you will bring more cost reduction on
Speaker 1: some of the raw materials, eventually starting with steel, which
Speaker 1: means from one side, pricing power is going to be
Speaker 1: under pressure. But you have the technology, you have the
Speaker 1: appeal of the products you have, the new models that
Speaker 1: are coming in and from the other side, you need
Speaker 1: to run fast in reducing the cost at a faster
Speaker 1: pace than the erosion of pricing power going to be
Speaker 1: the name of the game for the next year, and
Speaker 1: we are in the race. We are in that race,
Speaker 1: and I think that we'll see within one year who
Speaker 1: is going to be the winner of that race. But
Speaker 1: that's exactly how things and fault in front of us
Speaker 1: for the next quarters account asses that main job counts.
Speaker 1: At this stage, the picture is about how do you
Speaker 1: absolve the cost of electrification. You see, you can see
Speaker 1: in many places of the world that the customer has
Speaker 1: not yet totally recognized that evs are a better car.
Speaker 1: And we see that when they are subsidies to erase
Speaker 1: the cost of electrification, then the customers buy evs. As
Speaker 1: soon as you remove the subsidies, and you have this
Speaker 1: example in Germany, you have this example in Italy, then
Speaker 1: the consumers stop buying evs because they are not affordable enough.
Speaker 1: So the challenge for the industry in the next three
Speaker 1: to four years is to absolve the additional cost of electrification,
Speaker 1: to protect affordability and make sure that middle classes can
Speaker 1: buy pure revs at an affordable price, which means that
Speaker 1: the transformation of the industry is just starting. In fact,
Speaker 1: we are live now transforming our company in a way
Speaker 1: that needs to be reasonably be deep because new technologies
Speaker 1: are in software platforms, many electric components, autonomous vehicles. All
Speaker 1: of this costs a lot of money. And at the
Speaker 1: same time you need to bring affordability to the middle classes,
Speaker 1: which means that if we do not do our homeworks
Speaker 1: in terms of productivity, then in that case you will
Speaker 1: not be able to compete because some of the new
Speaker 1: entrants will show you that your cost competitiveness will not
Speaker 1: be enough. So do we need to make sure that
Speaker 1: we protect our companies by doing more cost competitive views.
Speaker 1: I would say, of course yes. I would like to
Speaker 1: remind you that stendent is as a break even point,
Speaker 1: which is the benchmark of the industry. As our break
Speaker 1: even point is at forty percent of revenues. Forty get
Speaker 1: taken down the clock a little bit longer with a
Speaker 1: very long winded answer, So I can I ask it
Speaker 1: again with forty seconds left? Does that mean job cuts?
Speaker 1: It means that we are not excluding anything from the
Speaker 1: task of absorbing the cost of electrification. Okay, Carlos, thanks
Speaker 1: for a time today. I just want to enjoyed that conversations.
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