Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, 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
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Speaker 1: the Bloomberg Terminal and the Bloomberg Business App. Should we
Speaker 1: take this data? It's maybe the province of Ellen Zanner,
Speaker 1: but we'll take it on a more global scale with
Speaker 1: Seth Carpenter, Chief Global Economist, hit Morgan Stanley. Seth, I
Speaker 1: want you to fold and I know you're gonna read
Speaker 1: Ellen Zanner and their team here as they analyze e C. I,
Speaker 1: but I want you to fold it into the great
Speaker 1: China Call, which Morgan Stanley back to Steve Roaches, expert
Speaker 1: on is China a three percent story or is it
Speaker 1: a five percent story that could make things more complex
Speaker 1: for the chairman of the Photo Reserve. Wow, that is
Speaker 1: a fantastic, fantastic question. Clearly, the China reopening story is
Speaker 1: the big narrative going on right now in markets, and
Speaker 1: you know we've been bullish there. I think we're above
Speaker 1: consensus five and three quarters percent, maybe a bit more
Speaker 1: in terms of how much growth will get for for
Speaker 1: China this year. Very bullish for US. The reopening is
Speaker 1: UH is notable. I think though, when you talk about
Speaker 1: Billover's back to the US, when you think about what
Speaker 1: it does for Chair Powell, UH, they're probably a little
Speaker 1: bit less dramatic than you might otherwise think. Clearly a
Speaker 1: big story for people who are investing in China and
Speaker 1: the region, but the spell back to the US, you know,
Speaker 1: in terms of inflation isn't going to be quite so
Speaker 1: big right now. We import a lot of consumer goods
Speaker 1: from China, but we know that consumer goods prices have
Speaker 1: actually been falling for the past a couple of months
Speaker 1: as people have pulled back and redirected their spending. We
Speaker 1: also know that China had done a lot during COVID
Speaker 1: zero to shield some of that production for exports. So
Speaker 1: the first order impact on inflation for the US is
Speaker 1: actually gonna be a little bit muted. The surgeon demand
Speaker 1: there in China domest expending, especially domestic consumer spending on services,
Speaker 1: so the read through this time around the cycle a
Speaker 1: little bit less South. I want you to dovetail a
Speaker 1: Morgan Stanley stunning five point x percent China growth call
Speaker 1: with US disinflation you and I follow Edward S. Hyman
Speaker 1: of c J. Lawrence and Evercore. I s I and
Speaker 1: Ed Hyman's dovetailing a China call like you with substantial
Speaker 1: U S disinflation. Do you agree with that premise? I
Speaker 1: think substantial probably overstates it a little bit. We are
Speaker 1: optimistic about inflation coming down in the US. We have
Speaker 1: a getting to below three percent by the end of
Speaker 1: the year. And just a quick shout out, you mentioned
Speaker 1: Ellen's and are fantastic US economist. Robin Shing is our
Speaker 1: stupendous China economist and luckily they're both on the same
Speaker 1: page here. Um, the disinflationary push from goods inflation is
Speaker 1: clearly there in the data, and China is a part
Speaker 1: of that. But like I said before, the difference is
Speaker 1: going to be smaller than I think you might otherwise. Thank.
Speaker 1: It really is this retrenching, and we saw it for
Speaker 1: example in automobiles. First Tesla announced they were cutting prices
Speaker 1: Ribby and followed Ford announcer following it on electric vehicles,
Speaker 1: Adam Jonas our our autos analysts points out that in
Speaker 1: the current situation, electric vehicle prices tend to drive pricing
Speaker 1: for new cars. So a lot of the disinflation that's
Speaker 1: going on from goods was already they're already starting. China
Speaker 1: helps at the margin, but I don't think it's going
Speaker 1: to be the defining story of the disinflationary tread. What's
Speaker 1: the response set that perhaps people get over zealous by
Speaker 1: the decelerating inflation, the disinflation that we're seeing so far
Speaker 1: this year, take the FED off the table. The FED
Speaker 1: does pause with rate hikes, and then inflation stays sticky
Speaker 1: and they're forced to reignite and raise rates once again.
Speaker 1: I think that is a risk that a month or
Speaker 1: so ago was dramatically underappreciated. We've tried to flag that
Speaker 1: risk a few times uh in our in our pieces
Speaker 1: um and so yeah, the scenario you lay out, I
Speaker 1: think is a plausible one. It's not at all the
Speaker 1: highest probability event, but it's you know, the next couple
Speaker 1: of months are very benign, but then non farm perils
Speaker 1: go back up to two and inflation doesn't break through
Speaker 1: below three and a half percent. I think it's a risk.
Speaker 1: I'd say it's not a very very high risk, but
Speaker 1: it's one that investors have to keep in mind. And
Speaker 1: the only way we're going to oversure is monitoring the
Speaker 1: data in the meantime as we get the drip drip
Speaker 1: drip of the data, as you talk about, what are
Speaker 1: you looking at in terms of the components, the underlyings
Speaker 1: of some of the employment cost index, or what we
Speaker 1: get with payrolls on Friday to get a sense of
Speaker 1: how sticky this disinflation is. Yeah, I think I think
Speaker 1: all of those plus the CPI data our first order important,
Speaker 1: especially for the FED. So we've actually got a house
Speaker 1: view that's a little bit dubish relative to markets, like everybody,
Speaker 1: we expect twenty five basis point at this meeting, but
Speaker 1: after that we think they're going to be done at
Speaker 1: the FED. The only way that happens, but we think
Speaker 1: it is the path that will happen, is if we
Speaker 1: get farm perils coming down well below two hundred and
Speaker 1: looking like they're going to a hundred thousand, and in
Speaker 1: fact below a hundred thousand is I think we we
Speaker 1: described now is not in the textbooks are coming out
Speaker 1: of all the pandemic and supply side dynamics that maybe
Speaker 1: we're getting back to a more traditional monetary analysis and
Speaker 1: around that is not the question is Jerome Powell's central
Speaker 1: banker to the world, But more nuanced is in what
Speaker 1: way is the chairman of the Federal Reserve central banker
Speaker 1: to the world. Yeah, I mean a few things. It's
Speaker 1: clear that what the FED does matters, and it matters
Speaker 1: a lot for the global economy. Um. Interestingly enough, this
Speaker 1: cycle was a little bit different in a number of ways.
Speaker 1: If you think about some of the e M economies,
Speaker 1: especially in America, we saw, for example, this Brazilian central
Speaker 1: bank start to raise rates and anticipation of the fed's
Speaker 1: hiking cycle, they got out a little bit in front
Speaker 1: of it. Some of the other em central banks have
Speaker 1: been similarly defensive, and so there's actually been a little
Speaker 1: bit less of the negatives bill over to other economies
Speaker 1: than you might have expected in some preceding cycles. But
Speaker 1: there are no two ways about it. We saw the
Speaker 1: end for a while depreciate really aggressively. We saw the
Speaker 1: euro depreciate very aggressively. What the FED does has critical
Speaker 1: importance for the rest of the world. So let's talk
Speaker 1: about what you expect the FED to do. You said
Speaker 1: that you could see jobs go down to say sub
Speaker 1: a hundred thousand in the next couple of months, allowing
Speaker 1: the FED to pause with the raid hikes. What are
Speaker 1: you seeing in the fundamentals in the corporate earnings to
Speaker 1: give you a sense that we are going to see
Speaker 1: that massive and sudden drop off in job creation. Uh,
Speaker 1: excellent question. And first I want to preface it that
Speaker 1: even though we think this week's FED meeting is going
Speaker 1: to be the last rate hike, I don't see any
Speaker 1: way at all that share Powell and colleagues are going
Speaker 1: to indicate that it would be the last high. In fact,
Speaker 1: I suspect they believe it will not be the last hike,
Speaker 1: and it's going to take the data coming in as
Speaker 1: soft as we think that they will before the committee
Speaker 1: actually starts to change its mind. So the rhetoric I
Speaker 1: think stays on the hawkish side, which which is I
Speaker 1: think is similar to what Mike had said just before
Speaker 1: the segment um. So then what else is going on? Again?
Speaker 1: I don't think the slowdown that we're calling for in
Speaker 1: non farm perils is all that dramatic. The last print
Speaker 1: was two thirty or so it's been this consistent decline
Speaker 1: in non farm perils that we think continues and gets
Speaker 1: down to a really soft run. Ring Pal keeps talking
Speaker 1: about wanting the economy to grow below potential for a while,
Speaker 1: and that's what if we think it takes. So Thank
Speaker 1: you so much. Seth Carpenter is with Morgan Stanley. This
Speaker 1: is an important interview for Global Wall Street, arguably our
Speaker 1: most important interview of the day, because hey, he nailed
Speaker 1: it last time. He was on about the lift here
Speaker 1: a sense of optimism from Stewart Kaiser was City Group
Speaker 1: head of US equity trading, but far more than that,
Speaker 1: head of a derivative thought, what's a bet right now?
Speaker 1: In all the literature Steward Kaiser? It's okay? Kaiser was
Speaker 1: right six seven percent bounce up we go, But it's
Speaker 1: just short covering where people go, oops, I got it wrong.
Speaker 1: It springs up, but there's no umph to break out.
Speaker 1: What say you about the idea of there is umph
Speaker 1: to break out and move higher? I go more Tom
Speaker 1: and wait too much credit for thank you. Look, I
Speaker 1: think the year two so far, if I had described
Speaker 1: it would just be um, you know, events that didn't
Speaker 1: didn't play out essentially right, Like, you came to the
Speaker 1: year with very low expectations across the board from both
Speaker 1: macro results as well as single stock earnings and and frankly,
Speaker 1: that data just has been negative enough to justify the
Speaker 1: low positioning we had coming into the year. Um, So
Speaker 1: how do you keep moving higher? Um? I think you
Speaker 1: get a continuation on Thursday, in particular of large cap
Speaker 1: tech earnings coming through, and the FETE is hawkish, but
Speaker 1: they're sort of reiterating a message that the market has
Speaker 1: already kind of gotten comfortable with. And on Friday we
Speaker 1: don't get an average average healthily earnings number that scares us.
Speaker 1: And if those things happen, then I think the market
Speaker 1: can continue to move higher. But I still think you
Speaker 1: need to approach this very tactically, kind of like a
Speaker 1: month by month basis basis. This is not a hey,
Speaker 1: I can be long for this next three to six months.
Speaker 1: Silster in city groups securities analysts who talk talk to
Speaker 1: you all the time about their revenue dynamic. If we
Speaker 1: get the disinflation, the City Group and others are talking about,
Speaker 1: what does it due to the revenue line? Yeah, I mean, look,
Speaker 1: that's that's the issue. I think that's that's been a
Speaker 1: big challenge for the bear case that earnings were going
Speaker 1: to get revised aggressively lower. Is that you had positive
Speaker 1: revenue growth that kept earning is a little bit higher
Speaker 1: than expected. Um. Obviously, if revenue start to ease, then
Speaker 1: we're really focused, as least mentioned, on the margin story.
Speaker 1: And you know, so that that that's where the debate
Speaker 1: all kind of center, right. It won't be on top
Speaker 1: one EPs. It will be on the quality of those
Speaker 1: that EPs and whether investors are willing to pay a
Speaker 1: premium for quote unquote lower quality earning. So it is
Speaker 1: an issue, but frankly, I think that's an issue we'd
Speaker 1: like to have, um. You know, you know, relative to
Speaker 1: our expectations have been. We talk about recession as if
Speaker 1: it's an event. It's a process. And in that process
Speaker 1: you start to get companies defending margins and we start
Speaker 1: to see that ready at somebody's big tech firms. Is
Speaker 1: that bullish enough for you for somebody's names to have
Speaker 1: a juitable town went through the rest of the year,
Speaker 1: To see them defending marches, to see them kind of
Speaker 1: close in the way they are, I think it is,
Speaker 1: and I think investors have kind of rewarded that to
Speaker 1: some extent. I think people are willing to look through
Speaker 1: a quarter or two of pressure if you if a
Speaker 1: company can give them guidance that two to four quarters
Speaker 1: out the margins are going to kind of normalize a
Speaker 1: little bit and look all this again, I think is
Speaker 1: expectations driven. You had such low expectations for earnings and
Speaker 1: such a barrisfew on where they can get to. I
Speaker 1: think even you know, by hook or by crook, if
Speaker 1: if a company can produce the earnings, people are gonna
Speaker 1: generally respond positive to, at least tactically. I think, you know,
Speaker 1: now that we're back above four thousand on the SMP,
Speaker 1: the question to get a little bit harder, um, you know,
Speaker 1: related to that. But but yeah, I think if if
Speaker 1: companies can can show that they're making these cost cuts
Speaker 1: and that is going to have you know, a visibility
Speaker 1: into where margins are going to get over the next
Speaker 1: couple of quarters, I think I think companies, excuse me,
Speaker 1: I think investors will respond possible to. You know, the
Speaker 1: earnings haven't been great. People say that the resilience has
Speaker 1: been pretty widespread. Better than expected kinds of results they
Speaker 1: haven't been They've been worse than expected at a higher
Speaker 1: pace than at any time going back to two fourteen,
Speaker 1: with the exception of March of those three months. So
Speaker 1: at what point do we look at the earnings and
Speaker 1: start to see maybe big Tech is reckoning with some
Speaker 1: of the margin pressure, but the rest of the universe
Speaker 1: is facing it in a much more significant way that
Speaker 1: hasn't been fully priced in. Look, I mean, I would
Speaker 1: go back to I guess his price action on that.
Speaker 1: You know, coming into the week, we had about two
Speaker 1: hundred fifty large cap stocks we'd we'd been tracking those
Speaker 1: fell on earnings a hundred fifty rows on earnings. So
Speaker 1: even though the earnings haven't becoming a great you know,
Speaker 1: the price action I think is telling you that expectations
Speaker 1: were washed out enough where it didn't it didn't take
Speaker 1: much um you know. You know sometimes if a company
Speaker 1: cuts numbers down to where the bi side is, that
Speaker 1: stock is then quote unquote clean and people can kind
Speaker 1: of own it. So, yeah, I think expectations again, I
Speaker 1: hate to keep using that word, but I think that
Speaker 1: has a lot to do with it. Do you think
Speaker 1: that there's a clean read on tech because of how
Speaker 1: much bad news there has been priced in. But on
Speaker 1: the rest of the industrial complex it isn't so clean,
Speaker 1: with a lot of disappointments leading to some pretty big
Speaker 1: price action. Yeah. Look, I mean stock by stock, you know,
Speaker 1: we could you know, we could certainly find something in
Speaker 1: some ways it poised to do better because of how
Speaker 1: much pain was priced in and how much of a
Speaker 1: house cleaning there's been. That's our view, you know, Frankly,
Speaker 1: is that earlier last year it was it was a
Speaker 1: valuation story on tech, right, you know, the stocks are
Speaker 1: very expensive, rates and inflation were hired and you got
Speaker 1: that that huge valuation headwind. UM. Third quarter earnings were
Speaker 1: a little bit different, where companies started talking about cost cuts,
Speaker 1: pressure on earnings, things of that nature, and that's when
Speaker 1: I think expectations started to really ratchet lower for the
Speaker 1: tech space UM. And you know, our view coming into
Speaker 1: this quarter was was not to sarty that the results
Speaker 1: were going to be all that great. It's just that
Speaker 1: expectations were so low that it just put risk reward
Speaker 1: to the upside. Expectations were low, positioning were low, so
Speaker 1: in in that sort of combination, it doesn't take a
Speaker 1: whole lot to get the stocks moving higher. So again,
Speaker 1: this could be a quote unquote low quality rally, which
Speaker 1: which we think it's been. If you look at what's
Speaker 1: driven the rally, it hasn't been the best and the
Speaker 1: brightest um. But but we do think relative to expectations,
Speaker 1: you know that That's where we said again, I think
Speaker 1: you have to reevaluate that now that you enter February,
Speaker 1: because you're on a fourth thousand handle after a rally,
Speaker 1: that that's different than being a thirty, thirty and fifty
Speaker 1: coming into the earth. And we talk about this rally
Speaker 1: as if it's only been going on for a month.
Speaker 1: For the lacks of Caterpilly, it's been going on since
Speaker 1: the end of September. That stock is up by more
Speaker 1: than six since then. They've just delivered the first earning
Speaker 1: smiths since the pandemic back in I keep hearing everyone
Speaker 1: talk about how do I want to play the chine
Speaker 1: of reopening story, and I keep going back to this, Well,
Speaker 1: it's been playing game for three months in the minors.
Speaker 1: In Caterpillar abroad. You've seen that. You've seen that story
Speaker 1: in fact, for the banks of in Europe has been
Speaker 1: playing out since the summer. They have absolutely ripped. When
Speaker 1: you Hito, who say things like how do I play
Speaker 1: the China reopening story? What are you telling them? Well,
Speaker 1: I think you're right, it's got in stages. I think
Speaker 1: at the beginning a lot of people were using options
Speaker 1: to just get high pay out owning said let's say
Speaker 1: the Chinese index. Right then it became what you're describing
Speaker 1: as more of that infrastructure play. I think right now
Speaker 1: the question is how much how much of a consumer spending,
Speaker 1: you know, impulse can we get out of China as
Speaker 1: you fully reopened? And I think that started to focus
Speaker 1: people on things like, I don't know luxury brands. You
Speaker 1: know in Europe, I think you know, German equities have
Speaker 1: really benefited from this as well because they have a
Speaker 1: lot of export exposures. So there's still a group of
Speaker 1: the investment community I think that isn't really comfortable owning
Speaker 1: China equity directly at outright, just given some of the
Speaker 1: policy challenges. So what people are looking for is what
Speaker 1: is that that second order trade? And I think it
Speaker 1: was metals and minding and things like that, and then
Speaker 1: it involved just like a consumer spending or tourism story.
Speaker 1: So your mom will be over at Caterpillar, makes the
Speaker 1: mensus no words, and the near one hundred year history
Speaker 1: of Caterpillar. Last year was one of their best years ever.
Speaker 1: We have on radio and tv P both stratified by
Speaker 1: this eco fed debate, all the uncertainties, and they're not
Speaker 1: in the market. How do they participate in Stuart Kaiser's
Speaker 1: optimism so they can possibly enjoy Caterpillars near best year
Speaker 1: in a hundred years. Look, I think from from an
Speaker 1: owning stocks perspective out right, you know, as you know,
Speaker 1: we've been focused on more of these high quality stocks
Speaker 1: that you can kind of own through a recession. UM.
Speaker 1: So that's you know, high quality stocks that are buying
Speaker 1: back a lot of a lot of their shares um
Speaker 1: don't have as much you know, downside earnings risks. So
Speaker 1: we've been sort of pointing people in that direction, UM,
Speaker 1: and I think we're still of that view, Tom. It's
Speaker 1: it's most investors that I've spoken to, even though the
Speaker 1: markets rallied, and they haven't really changed their baseline core
Speaker 1: positioning or portfolio, which still remains pretty defensive. So what
Speaker 1: they've been doing in this rally is using ETFs or
Speaker 1: or options to just kind of add to their exposure
Speaker 1: around the edges. But I think if when you sit
Speaker 1: down with them, they're not saying, oh wow, we rallied
Speaker 1: for a month, my whole view has changed. It's more, Yeah,
Speaker 1: I'm still conservative. I still want to sit in this
Speaker 1: this portfolio. What I need to do is kind of
Speaker 1: risk manage around it. So I still think you're in
Speaker 1: this larger, larger cap, higher quality you know, share buy back,
Speaker 1: you know type story, and then you're just trying to
Speaker 1: adjust risk around the edges. And we haven't touched out.
Speaker 1: You also have a lot of folks that are saying,
Speaker 1: why don't need to be in equities? I can be
Speaker 1: in credit or I can be embossed. The second it
Speaker 1: wasn't a month ago. Definitely just came on the show
Speaker 1: and said, sit out the front half. It's going to
Speaker 1: be ugly. Still get his second half? Yeah, now, and
Speaker 1: in June this this line in the center. Then if
Speaker 1: it just starts running and now it's you missed it,
Speaker 1: sorry it's over, that could be actually nice too. It's
Speaker 1: good to see it. Thank you a City group. Right
Speaker 1: now we're gonna look at China. This is an important
Speaker 1: Leland are you guys done? Thank you? Leland Miller co
Speaker 1: founder and CEO of China base book with us right now.
Speaker 1: I'm truly excellent on the micro data of China. Leland,
Speaker 1: I'm confused. I've got Bloomberg Economics and a fabulous article
Speaker 1: out today, really Mustard. I'll get it out on Twitter
Speaker 1: and occur and shanks you. Joran von Roy who was
Speaker 1: just on the program. I put you to his name
Speaker 1: on the program as well, and tom Orlick and they're saying,
Speaker 1: forget about it. We're looking at three ish up to
Speaker 1: five ish g d P in China, and yet institutions
Speaker 1: have a much more cautious view on this noodling around
Speaker 1: three percent. Who's right, Well, I think this is one
Speaker 1: of the stories that's gonna have to play out during
Speaker 1: the year. The China recovery is set up to be
Speaker 1: a very nice cyclical bounce back. But this could be
Speaker 1: a cyclical bounce back of a quarter or two or
Speaker 1: it could be longer, depending on one whether consumers jump in,
Speaker 1: which is a huge if. And second huge if is
Speaker 1: if there's more policy support than or. I guess the
Speaker 1: policy port that people think. There's this assumption that the
Speaker 1: government is gonna jump in and start stimulating on top
Speaker 1: of what's already an organic recovery. You know, we're 're
Speaker 1: quite skeptical that, but we're watching the indicators and trying
Speaker 1: to see, you know, where where the government's head is
Speaker 1: on this. My experience, Leland is always centers around a
Speaker 1: bed all out of real estate. Let's call it healing
Speaker 1: real estate. Are they going to heal real estate with
Speaker 1: cash infusions from Beijing? They're not gonna heal real estate.
Speaker 1: But what they have been doing is calling the herd,
Speaker 1: and now they are going to ventilate the sector. So basically,
Speaker 1: what they've been trying to do is take out the
Speaker 1: weak firms without killing the healthy firms, diminish property as
Speaker 1: a growth driver for China going forward. They've been doing that,
Speaker 1: but now you've got the potential for contagion because the
Speaker 1: numbers are have been so unbelievably bad. Are December data
Speaker 1: are que for data, some of the worst property results
Speaker 1: we've ever seen. So they're stepping in the providing credit lines.
Speaker 1: They're they're they're you know, lowering mortgage rates. Uh, they
Speaker 1: want to make sure they give a little bit of
Speaker 1: to the sector. But this is very different from the
Speaker 1: game changer it's being made out to be. Across the
Speaker 1: street gonna be very cautious on what this actually means clan.
Speaker 1: Where is the money actually going where a consumers spending?
Speaker 1: Is it all domestic? Are more people getting on planes?
Speaker 1: Are you seeing those flows go into commodities to travel
Speaker 1: around or is it going into staples and just activities
Speaker 1: in the region. Well, it's too early to see the
Speaker 1: trends for the entire year because you had this first
Speaker 1: month skewed by cod COVID and skewed by the Lunar
Speaker 1: New Year holiday. You know, the this month, all the
Speaker 1: pops in the data were around where you'd expect, which
Speaker 1: is travel. You know, restaurants, hospitality, people were traveling again,
Speaker 1: people were moving around again, and so you saw a big,
Speaker 1: big pop in that data. Going forward, you know, the
Speaker 1: question is our consumer is going to come back. There's
Speaker 1: this a subject that Chinese consumers are going to revenge
Speaker 1: s bend. You know, they probably will a little bit,
Speaker 1: but the idea they're gonna go do this and drive
Speaker 1: a recovery for the entire year. We've never seen anything
Speaker 1: like that. So again we're gonna watch the data because
Speaker 1: this is not the type of thesis we've ever seen
Speaker 1: playoff before. Where's the data. What's it pointing toward in
Speaker 1: terms of fossil fuel combustion, the idea of crude and
Speaker 1: natural gas, and what's going on with the coal imports
Speaker 1: from Australia, some of the stockpiles, how depleted are they?
Speaker 1: How much is China going to have to import and forward?
Speaker 1: Well two was awful, So there's gonna be a lot
Speaker 1: of things going on, particularly on early in three, which
Speaker 1: you're going to lead to greater commodities demand. A lot
Speaker 1: of it has to do with how much policy support
Speaker 1: continues on through the year. Are we going to see
Speaker 1: them double down into some infrastructure and some other things,
Speaker 1: Because look, if you're talking about the consumer driving you know,
Speaker 1: the recovery this year, which again we're quite skeptical of.
Speaker 1: But if you are, then you're not leading to two
Speaker 1: huge tons of oil demand skyrocketing. You'll see it from
Speaker 1: a jet fuel if there's more travel. But you know,
Speaker 1: people are mixing their their investment thesis here because they're
Speaker 1: so bullish on the China recovery. But you know that
Speaker 1: doesn't necessarily mean there's gonna be a jump in oil
Speaker 1: demand throughout the year. So we have to be a
Speaker 1: little bit cautious on that. I'll make a joke of it, Leland,
Speaker 1: because that's what we do on a Tuesday before feed day.
Speaker 1: But the joke is just China do work from home.
Speaker 1: But really what it comes down to are they back
Speaker 1: to work? I mean, with the advent of co COVID,
Speaker 1: are people back to work in those manufacturing plants and
Speaker 1: all of the ancillary businesses to it. Are they back
Speaker 1: to work? And are they taken home a paycheck? Uh,
Speaker 1: they're not back to work yet because you know, the
Speaker 1: COVID situation still has a calm down. Maybe March they're
Speaker 1: back to work. Right now, they're traveling for they're either
Speaker 1: sick or they're they're traveling for Lunar New Year. So
Speaker 1: manufacturing hasn't you know, looked better. But we gotta keep
Speaker 1: in mind from a year ago level, it's way down.
Speaker 1: You can't see it when you look at the p
Speaker 1: m I because the p m I can't track data
Speaker 1: from year to year. But things have been up from
Speaker 1: the end of last year, but they're down on year.
Speaker 1: They're down from two years ago. So manufacturing is not
Speaker 1: seeing this this this you know, superstar recovery just because
Speaker 1: the p m I had an upside surprise, it's gonna
Speaker 1: be understand that manufacturing is not going to drive growth
Speaker 1: this year with a global economic recession potentially looming. You know,
Speaker 1: it just happens to be one good month in the
Speaker 1: data Leland. How much you watching what's happening in Washington
Speaker 1: and a sudden re reprising of some of the animosity
Speaker 1: that US politicians have towards China and the potential ban
Speaker 1: of exporting supplies to Huahwei. How much is that factoring
Speaker 1: into your outlook for China. Well, it's never gone away,
Speaker 1: you know. I think people make too much of these
Speaker 1: meetings when she and Biden, you know, shake hands, and
Speaker 1: you know, Tony Blanken and and and and Jenny Yelling
Speaker 1: are going over to China, and a lot of people
Speaker 1: read into this saying, oh, the relationship must be getting
Speaker 1: much better. Well, it's good that tensions are calmed down
Speaker 1: in a short term, you know, in a short period, uh,
Speaker 1: you know, during a short window. But but this does
Speaker 1: not mean we're not heading in one direction in terms
Speaker 1: of tighter export controls and and and more more more
Speaker 1: tense uh policy back and forth. So this really hasn't
Speaker 1: changed our outlook at all. I think people have to
Speaker 1: understand that the relationship is going to get more fraud
Speaker 1: over time, not less fraught. And this is just another
Speaker 1: head wing between for the economies of both countries. And
Speaker 1: then we've got a lot to talk about for the
Speaker 1: year ahead. That's for sure, little bit of that of
Speaker 1: the China base book. What we're gonna do right now
Speaker 1: is talk to a C class officer of a different cloth.
Speaker 1: He's out of Auburn and Vanderbilt, but very different. He's
Speaker 1: the only one in the automobile industry to try to
Speaker 1: go to a quieter industry. He was at Delta Airlines
Speaker 1: for years and the volatility of everything aviation. Paul Jacobson
Speaker 1: is the chief financial officer of General Motives, and Lisa
Speaker 1: is gonna grill him on her need for an electric car.
Speaker 1: You need a GM electric. I'll let someone else do
Speaker 1: the sales pitch for Paul. I am curious starting with
Speaker 1: the airline industry and the price wars of your are
Speaker 1: we entering into a new price war of the electric vehicle?
Speaker 1: Ilk Well, First of all, Lisa, Tom, thank you for
Speaker 1: having me on. And Tom, I wore my Auburn tie
Speaker 1: today just for you, but I just want to say
Speaker 1: thanks to the to the GM team for everything that
Speaker 1: they did, overcoming tremendous levels of adversity, huge inflation results
Speaker 1: over five billion dollars of inflation to deliver the results
Speaker 1: that we saw in two And you know, vehicle demand
Speaker 1: for our vehicles remains quite strong, for our evs and
Speaker 1: and for our ICE portfolio as well. So UM, you know,
Speaker 1: as we look at the business, UM competition is no
Speaker 1: no stranger to us. We We've been in the business
Speaker 1: for over a hundred years and I think the team
Speaker 1: is really really good at competing and where we see UM,
Speaker 1: consumer demand for our vehicles at our price points is
Speaker 1: really strong. We just need to make sure we get
Speaker 1: production up to be able to meet that demand. So
Speaker 1: are you're saying, basically you're not going to cut prices
Speaker 1: because you don't need two People still are really requiring
Speaker 1: your cars regardless of what the price is. Yeah. We
Speaker 1: we have waiting lists for for all of our vehicles
Speaker 1: as we roll out, and we expect production to ramp
Speaker 1: up pretty quickly as we get, especially into the back
Speaker 1: half of twenty three to meet our goal of delivering
Speaker 1: four hundred thousand evs by the first half of four
Speaker 1: and a million evs annually by we believe the demand
Speaker 1: is there and strong. So how does this really pair
Speaker 1: with the story that we're seeing out of auto sales
Speaker 1: with sagging sales one of the worst years last year
Speaker 1: going back in a number of decades as a whole,
Speaker 1: and people are talking about demand waning on the margins.
Speaker 1: Why is GM seeing such a different picture? Well, I
Speaker 1: think you know a couple of things. One, the quality
Speaker 1: of our launches and the new vehicles that we've brought
Speaker 1: to market UM are really being received well by our
Speaker 1: our consumers. I think are our engineering manufacturing teams partnered
Speaker 1: with our supply chain teams did a great job of
Speaker 1: increasing production last year by UH and UH, and we've
Speaker 1: been seeing vehicles move very very quickly once we get
Speaker 1: once we get them to dealers, we have seen some
Speaker 1: challenges in the outbound logistics, so this is after we
Speaker 1: finish a vehicle and getting it to the dealers. That's
Speaker 1: caused our inventories UH to increase a little bit. We're
Speaker 1: up to about fifty days of inventory. But if you
Speaker 1: look at the vehicles that are on the laws at dealers,
Speaker 1: there about a third of what they were in UH.
Speaker 1: Some of that is going to be I think permanent synergies.
Speaker 1: But some of that just speaks to how quickly vehicles
Speaker 1: are turning when they get delivered to dealerships, and that's
Speaker 1: a testament to the to the quality of the products
Speaker 1: we produce. Paul, the aviation business that you were part
Speaker 1: of had a big turnaround where they started to be
Speaker 1: responsible about free cash flow, responsible to shareholders. We lost
Speaker 1: the volatility, the huge volatility, the craziness of aviation pricing.
Speaker 1: The fact is the automaker's trade a single digit price
Speaker 1: to earning multiples. You can use every other metric you
Speaker 1: you have. Is there any pressure in the boardroom of
Speaker 1: GM to get a more persistent free cash flow that
Speaker 1: earns a higher pe multiple by the street. Well, thanks,
Speaker 1: thanks for thanks for that question, Tom, And you know,
Speaker 1: thanks for highlighting kind of some of the work that
Speaker 1: we had done back in the airline industry. And what
Speaker 1: I would tell you is we we we UM spent
Speaker 1: a lot of time with a board on freak out
Speaker 1: flow in particular. You know, cash from operations and the
Speaker 1: cash generation of the business is what's funding our journey,
Speaker 1: and we've been very clear about that. UM SO a
Speaker 1: strong ice portfolio and a strong vehicle portfolio through the
Speaker 1: transformation is critically important to us. And you know, there's
Speaker 1: probably there's a lot of things. I'm proud of the
Speaker 1: GM team for what they've done. But when you look
Speaker 1: at free cash flow generation on the backs of near
Speaker 1: record capital investment in two I think it speaks to
Speaker 1: the focus that we have ten and a half billion
Speaker 1: dollars last year. We think we're going to generate another
Speaker 1: five to seven billion dollars in free cash flow in
Speaker 1: three UM and that's with a couple of billion dollar
Speaker 1: increase in capital expenditures at eleven to thirty billion dollars
Speaker 1: this year. I don't want you to be Apple here
Speaker 1: reporting on Thursday, but are you at a point where
Speaker 1: you can take use of cash in reward shareholders to
Speaker 1: garner a higher price to earnings multiple versus the ancient
Speaker 1: back to Mr Sloan of piling it back into the
Speaker 1: business US. So there we have a very balanced and
Speaker 1: prescribed capital allocation process. Tom. So, you know, the first
Speaker 1: thing that we're doing is investing in the business, and
Speaker 1: we have a lot of transformation work to do. Is
Speaker 1: you can see from the capital that we've put in,
Speaker 1: but as we start ramping up e V volumes. As
Speaker 1: you start to see production of our ultium cells at
Speaker 1: Sell Plant one and then sell plants too in three
Speaker 1: coming online, you're starting to see the benefit of that,
Speaker 1: because I think we're going to be incredibly well positioned
Speaker 1: for the growth in the EV market. But once we've
Speaker 1: invested in the business, we also have to make sure
Speaker 1: we maintain a strong investment grade balance sheet. Uh. And
Speaker 1: you know, at the end of the year and even
Speaker 1: early this year, we've early redeemed some bonds um as
Speaker 1: with that cash flow to help strengthen the balance sheet
Speaker 1: and fortify that. And we also in the in the
Speaker 1: back half of the year returned two and a half
Speaker 1: billion dollars back to shareholders. I think it's important to
Speaker 1: strike that balance because you know, what we invest has
Speaker 1: to earn a return on invested capital, but our share
Speaker 1: holders and our and our bond holders have to see
Speaker 1: tangible results from that. And uh, you know, I hope
Speaker 1: to see more consistency in that across the board, Paul.
Speaker 1: Just to wrap up, we've been talking a lot about
Speaker 1: how the pressures between the fissure between the US and
Speaker 1: China are really creating some headaches in the c suite.
Speaker 1: From your perspective, are you looking to reduce GMS dependency
Speaker 1: both on infrastructure, on supply chains coming from China as
Speaker 1: well as sales into that nation. Well, you know, first
Speaker 1: of all, our our China team has done a remarkable job.
Speaker 1: They had a lot of challenges in two with the
Speaker 1: zero COVID policies, and we're obviously seeing you know, a
Speaker 1: lot of some COVID slowdowns in UH in late two
Speaker 1: and in THEE. But the team is really focused on that.
Speaker 1: We've got strong partnerships there. We've got strong GM vehicles
Speaker 1: UM coming to that market as well, and I think
Speaker 1: it will be an important piece of it. UM. That
Speaker 1: being said, you know, with the with the deal that
Speaker 1: we announced today with Lithium America US, and with work
Speaker 1: that we've done with controlled Thermal Resources and live in
Speaker 1: in the Lithium space and PASCO and others UH, you
Speaker 1: see a much more geographically diverse supply chain building for
Speaker 1: some of those battery raw materials and UH, and we're
Speaker 1: gonna we're gonna be able to take advantage of that.
Speaker 1: I think, because of our size and scale and our
Speaker 1: willingness to work creatively with our partners. Great to catch
Speaker 1: up stalks up this morning by full point enough to
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