1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,640 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day 4 00:00:18,760 --> 00:00:22,320 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,320 Speaker 2: Terminal and the Bloomberg Business app. We're stock centering lower 10 00:00:37,360 --> 00:00:39,639 Speaker 2: with the slower earnings on Deck. Drew Madison met Life, 11 00:00:39,680 --> 00:00:42,519 Speaker 2: writing in the absence of government data, the only information 12 00:00:42,640 --> 00:00:46,720 Speaker 2: we have earnings mediocre. Nominal growth expectations are out of 13 00:00:46,760 --> 00:00:50,279 Speaker 2: sync with earnings expectations. Drew joins us now for more, 14 00:00:50,360 --> 00:00:52,600 Speaker 2: Drew good Mornick. Does something have to give? 15 00:00:53,080 --> 00:00:56,320 Speaker 3: Something does have to give? Now what that's going to be? 16 00:00:56,920 --> 00:00:58,800 Speaker 3: I'm going to guess it's going to be markets, because 17 00:00:58,840 --> 00:01:00,920 Speaker 3: it's easier for markets to give than is for the 18 00:01:00,960 --> 00:01:04,120 Speaker 3: economy to give. And if the economy gives, it's probably 19 00:01:04,120 --> 00:01:07,399 Speaker 3: not giving. An unexpected acceleration and activity. 20 00:01:07,640 --> 00:01:09,720 Speaker 2: This is just one contradiction. There are many more. We 21 00:01:09,800 --> 00:01:12,959 Speaker 2: talked about lots of them. Employments dropped away, retail sales 22 00:01:12,959 --> 00:01:15,240 Speaker 2: that's been really robust. People are still talking about a 23 00:01:15,280 --> 00:01:19,759 Speaker 2: so called K shaped economy. Upper income okay, lower income struggling. 24 00:01:20,040 --> 00:01:21,920 Speaker 2: Is one catching down to the other or the other 25 00:01:21,959 --> 00:01:23,280 Speaker 2: going to catch up to the top. 26 00:01:23,560 --> 00:01:26,039 Speaker 3: Well, just because someone's spending when they have money doesn't 27 00:01:26,040 --> 00:01:28,360 Speaker 3: mean that they're doing fine. It doesn't mean that they 28 00:01:28,480 --> 00:01:31,280 Speaker 3: feel like things are going to continue to be good. 29 00:01:31,520 --> 00:01:34,360 Speaker 3: And when you look at the details of how income 30 00:01:34,480 --> 00:01:38,000 Speaker 3: expectations are changing, particularly real income expectations, so accounting for 31 00:01:38,040 --> 00:01:40,920 Speaker 3: the inflation component which you see, is actually that the 32 00:01:41,040 --> 00:01:43,000 Speaker 3: upper income is beginning to feel a lot of pressure. 33 00:01:43,560 --> 00:01:45,319 Speaker 3: I don't know whether it's what they're buying is just 34 00:01:45,360 --> 00:01:49,040 Speaker 3: going up in price more aggressively, or whether they are 35 00:01:49,120 --> 00:01:50,960 Speaker 3: beginning to worry about their jobs a little bit more. 36 00:01:51,000 --> 00:01:52,600 Speaker 3: I suspect it's a combination of both. 37 00:01:52,840 --> 00:01:54,200 Speaker 4: Where are you seeing this in particular? 38 00:01:54,320 --> 00:01:56,400 Speaker 1: And I see this as we were looking at airline earnings, 39 00:01:56,400 --> 00:01:58,600 Speaker 1: for example, and a lot of people are shelling out 40 00:01:58,640 --> 00:01:59,760 Speaker 1: for those premium cabins. 41 00:02:00,680 --> 00:02:03,240 Speaker 3: They show out for the premium cabins, but those premium 42 00:02:03,240 --> 00:02:08,200 Speaker 3: cabins cost more, and so they're actually seeing their lifestyle 43 00:02:08,320 --> 00:02:13,600 Speaker 3: requires a much more expensive payment structure now, and so 44 00:02:13,639 --> 00:02:15,440 Speaker 3: then they have to give in other areas. And so 45 00:02:15,480 --> 00:02:17,760 Speaker 3: what we're actually seeing is when you look at spending, 46 00:02:17,760 --> 00:02:22,080 Speaker 3: for example, goods versus services, people are beginning to actually 47 00:02:22,080 --> 00:02:24,640 Speaker 3: cut back on spending on services. And those are the 48 00:02:24,680 --> 00:02:27,840 Speaker 3: things that you never cut back on. And so typically, 49 00:02:28,120 --> 00:02:30,320 Speaker 3: if you're not buying a cup of coffee in the morning, 50 00:02:30,320 --> 00:02:31,519 Speaker 3: you're not going to go out and buy a car 51 00:02:31,520 --> 00:02:33,760 Speaker 3: in the afternoon. It just takes a little while for 52 00:02:33,800 --> 00:02:35,960 Speaker 3: that to catch up across the income spectrum. And what 53 00:02:36,000 --> 00:02:38,440 Speaker 3: we're beginning to see now is that upper income tier 54 00:02:38,639 --> 00:02:41,880 Speaker 3: is beginning to feel pressure. They can still keep spending, 55 00:02:41,880 --> 00:02:44,760 Speaker 3: but the pressure builds, and it means probably that you'll 56 00:02:44,800 --> 00:02:47,120 Speaker 3: see the savings rate begin to decline, even though it 57 00:02:47,120 --> 00:02:49,880 Speaker 3: probably should be rising based on where interest rates are. 58 00:02:49,919 --> 00:02:51,639 Speaker 1: And maybe we'll get a holistic look at this when 59 00:02:51,680 --> 00:02:53,679 Speaker 1: we get retail sales. Oh wait, we don't have any 60 00:02:53,760 --> 00:02:56,160 Speaker 1: data coming out of the government. There is this feeling 61 00:02:56,240 --> 00:02:58,400 Speaker 1: right now you need to parse through the earnings to 62 00:02:58,400 --> 00:03:01,240 Speaker 1: get a better sense of it. Has there been anything 63 00:03:01,240 --> 00:03:04,440 Speaker 1: in the earning so far that has ratified the view 64 00:03:04,520 --> 00:03:06,880 Speaker 1: you have, or are there a couple of earnings reports 65 00:03:06,919 --> 00:03:09,640 Speaker 1: that you're really keyed into to give you the ultimate 66 00:03:09,680 --> 00:03:12,560 Speaker 1: sense of whether this really is the reality, this weakening 67 00:03:12,720 --> 00:03:15,080 Speaker 1: in even the upper echelons of income owners. 68 00:03:15,120 --> 00:03:18,160 Speaker 3: I mean to be frank, no, but I mean that's why, 69 00:03:18,280 --> 00:03:20,040 Speaker 3: you know, That's why I get to do what I do, 70 00:03:20,200 --> 00:03:22,280 Speaker 3: is because I have to make decisions based on kind 71 00:03:22,280 --> 00:03:24,840 Speaker 3: of the limited amount of information that I have. What 72 00:03:25,400 --> 00:03:28,000 Speaker 3: we are paying very close attention to our Federal Reserve surveys, 73 00:03:28,240 --> 00:03:29,799 Speaker 3: you have to pay attention to the page book, You 74 00:03:29,880 --> 00:03:31,880 Speaker 3: have to pay attention to the earnings reports. But even 75 00:03:31,919 --> 00:03:34,880 Speaker 3: the earnings reports can see people transitting from one, you know, 76 00:03:34,960 --> 00:03:37,560 Speaker 3: one kind of product to another, right from beef to 77 00:03:37,640 --> 00:03:41,320 Speaker 3: chicken or from you know, who knows what people like anymore. 78 00:03:41,440 --> 00:03:44,080 Speaker 3: I don't understand actually what people I am not the 79 00:03:44,120 --> 00:03:46,960 Speaker 3: average consumer, and I am readily willing to admit it. 80 00:03:48,240 --> 00:03:52,280 Speaker 3: And my tastes are not everyone's tastes. So it's hard 81 00:03:52,280 --> 00:03:55,760 Speaker 3: to kind of figure out which direction everyone's heading. But 82 00:03:55,880 --> 00:03:58,360 Speaker 3: I do know that people are shifting from what they're 83 00:03:58,480 --> 00:04:00,320 Speaker 3: used to doing, and when people are ship thing from 84 00:04:00,360 --> 00:04:02,720 Speaker 3: what they're used to doing that's happening because of a reason, 85 00:04:03,200 --> 00:04:06,480 Speaker 3: and that reason typically isn't good. People are creatures of habit. 86 00:04:06,560 --> 00:04:08,040 Speaker 3: They like to do what they did yesterday. 87 00:04:08,240 --> 00:04:10,480 Speaker 5: If the high end consumers under pressure, what kind of 88 00:04:10,480 --> 00:04:13,440 Speaker 5: economy are you describing, Because everyone continuously says we're in 89 00:04:13,520 --> 00:04:15,960 Speaker 5: a K shaped economy. What you're describing does not sound 90 00:04:16,000 --> 00:04:17,160 Speaker 5: like a K shaped economy. 91 00:04:17,320 --> 00:04:20,440 Speaker 3: So when you do economics for long enough, which you 92 00:04:20,520 --> 00:04:23,080 Speaker 3: realize is the top ten percent spends no matter what, 93 00:04:23,600 --> 00:04:26,920 Speaker 3: the bottom ten percent spends no matter what, and there's 94 00:04:27,360 --> 00:04:29,159 Speaker 3: the cohort in the middle is actually the one that 95 00:04:29,200 --> 00:04:32,120 Speaker 3: moves around their spending because they've got some saving, some 96 00:04:32,160 --> 00:04:36,279 Speaker 3: potential for savings. And so you really have to watch 97 00:04:36,360 --> 00:04:39,560 Speaker 3: the movement into and out of the savings rate and 98 00:04:39,600 --> 00:04:41,920 Speaker 3: whether or not people are feeling like they can spend 99 00:04:41,960 --> 00:04:44,880 Speaker 3: money now. It gets complicated when inflation is present because 100 00:04:44,960 --> 00:04:48,200 Speaker 3: oftentimes the way people make up for the increase in prices, 101 00:04:48,200 --> 00:04:51,760 Speaker 3: at least initially is by cutting back on their savings, right, 102 00:04:51,839 --> 00:04:53,920 Speaker 3: even if they're feeling a lot of pressure or worries 103 00:04:53,920 --> 00:04:56,680 Speaker 3: about their job. And so things begin to break down. 104 00:04:56,760 --> 00:04:59,600 Speaker 3: Those relationships begin to break down, and so you know, 105 00:04:59,680 --> 00:05:02,960 Speaker 3: all the people using AI to model the economy right now, 106 00:05:03,400 --> 00:05:06,360 Speaker 3: you know, it's a big new thing. Those models are 107 00:05:06,400 --> 00:05:09,000 Speaker 3: incredibly complicated, and what you're going to see is that 108 00:05:09,080 --> 00:05:13,600 Speaker 3: the coefficients on the front of each of each variable 109 00:05:13,640 --> 00:05:15,600 Speaker 3: that you can use are probably shifting around, and they 110 00:05:15,640 --> 00:05:17,920 Speaker 3: might be canceling each other out, and so your whole 111 00:05:17,920 --> 00:05:20,279 Speaker 3: model might be breaking down. And you're probably not going 112 00:05:20,360 --> 00:05:22,440 Speaker 3: to recognize that if you're using models that are to 113 00:05:22,560 --> 00:05:26,800 Speaker 3: advance rather than looking at individual components of what's happening 114 00:05:27,240 --> 00:05:31,400 Speaker 3: and the relationships between, for example, savings and interest rates. 115 00:05:31,480 --> 00:05:33,400 Speaker 5: What are you most looking at this week next week 116 00:05:33,440 --> 00:05:35,840 Speaker 5: when it comes to earning season to really understand how 117 00:05:35,920 --> 00:05:38,080 Speaker 5: much that high end consumer is underpression. 118 00:05:38,560 --> 00:05:41,080 Speaker 3: Well, as I said, it's difficult for us to kind 119 00:05:41,080 --> 00:05:43,000 Speaker 3: of look at an individual company and figure out what's 120 00:05:43,040 --> 00:05:45,960 Speaker 3: going on. Upper income consumers are going to continue to 121 00:05:46,000 --> 00:05:48,039 Speaker 3: spend on things like airfare. They're going to continue to 122 00:05:48,040 --> 00:05:50,880 Speaker 3: go on vacation. The question is are they going on 123 00:05:50,960 --> 00:05:55,400 Speaker 3: vacation and instead of going to Europe, they're going to California, 124 00:05:55,640 --> 00:05:59,040 Speaker 3: or instead of going you know, they're taking the slightly 125 00:05:59,200 --> 00:06:02,720 Speaker 3: less expensive option. There are doubts. You know, everyone's got 126 00:06:02,760 --> 00:06:05,440 Speaker 3: a lifestyle and certain things are downgrades for certain people, 127 00:06:05,480 --> 00:06:08,040 Speaker 3: and it's easy for us to all kind of laugh 128 00:06:08,080 --> 00:06:10,480 Speaker 3: about it, But for these people, it's actually a serious 129 00:06:10,560 --> 00:06:13,280 Speaker 3: change in their lifestyle and it affects their perception of 130 00:06:13,320 --> 00:06:15,760 Speaker 3: what it means to be rich. For example, what's it 131 00:06:15,839 --> 00:06:17,440 Speaker 3: mean to be rich when you actually have to think 132 00:06:17,440 --> 00:06:18,320 Speaker 3: about the airfare? 133 00:06:18,880 --> 00:06:19,120 Speaker 6: Right? 134 00:06:19,200 --> 00:06:21,159 Speaker 3: These are people who are not used to thinking about 135 00:06:21,240 --> 00:06:23,240 Speaker 3: how much they spend on airfare. They're not used to 136 00:06:23,279 --> 00:06:26,080 Speaker 3: thinking about, gee, you know, like I really like that hotel. 137 00:06:26,120 --> 00:06:27,840 Speaker 3: It's in the center of the city, and it's my 138 00:06:27,960 --> 00:06:30,960 Speaker 3: favorite hotel, because they have a favorite hotel in Europe, right, 139 00:06:31,200 --> 00:06:33,320 Speaker 3: and now they're thinking, well, I can't afford my favorite 140 00:06:33,320 --> 00:06:37,240 Speaker 3: hotel in Europe. I have to downgrade it. Actually, it 141 00:06:37,279 --> 00:06:39,359 Speaker 3: comes with us as social costs. You don't have to 142 00:06:39,400 --> 00:06:41,920 Speaker 3: cry for these people. Their lives are still really good 143 00:06:41,960 --> 00:06:44,920 Speaker 3: and probably better than a lot of people's. But you know, 144 00:06:45,000 --> 00:06:46,719 Speaker 3: it doesn't mean that they feel as good as they 145 00:06:46,800 --> 00:06:47,080 Speaker 3: used to. 146 00:06:47,720 --> 00:06:49,160 Speaker 7: Banks not failing as good as they used to. 147 00:06:49,200 --> 00:06:51,400 Speaker 2: Often last week, let's talk about the financial with sion 148 00:06:51,680 --> 00:06:54,200 Speaker 2: in the pre market is up by two point five percent. 149 00:06:54,600 --> 00:06:57,080 Speaker 2: It was the focal point of a lot of people 150 00:06:57,160 --> 00:07:00,200 Speaker 2: last week coming out and basically revealing some losts is 151 00:07:00,240 --> 00:07:03,440 Speaker 2: tied to potential fraud. This isn't the first time we've 152 00:07:03,440 --> 00:07:05,479 Speaker 2: seen this kind of thing. We've seen some other credit 153 00:07:05,520 --> 00:07:07,520 Speaker 2: issues as well. You've got the credit issues on the 154 00:07:07,520 --> 00:07:10,000 Speaker 2: one side and then radly robust standings on the other side, 155 00:07:10,000 --> 00:07:12,720 Speaker 2: and we saw that from Zion overnight. How are you 156 00:07:13,160 --> 00:07:15,520 Speaker 2: and what is your perspective on what is happening right 157 00:07:15,560 --> 00:07:16,320 Speaker 2: now in this sector? 158 00:07:17,080 --> 00:07:21,320 Speaker 3: Well, so people are nervous. If you look at credit markets, 159 00:07:21,360 --> 00:07:24,040 Speaker 3: spreads are incredibly tight. So you're in this weird world 160 00:07:24,080 --> 00:07:27,200 Speaker 3: where all in yields are okay. Right, you can get 161 00:07:27,240 --> 00:07:29,880 Speaker 3: paid for is okay, but the actual premium you're getting 162 00:07:29,880 --> 00:07:32,400 Speaker 3: paid to take risk is actually maybe a little too low. 163 00:07:32,440 --> 00:07:35,080 Speaker 3: And so I think what you're seeing is just a 164 00:07:35,160 --> 00:07:39,600 Speaker 3: nervousness around the economy that we don't really understand that 165 00:07:39,760 --> 00:07:42,840 Speaker 3: everything's okay. We're waiting for that next shoe to drop. 166 00:07:42,920 --> 00:07:46,960 Speaker 3: Jamie Diamond, you know, put it famously. What he's really 167 00:07:47,000 --> 00:07:49,880 Speaker 3: expressing is not that he sees anything, but that he's 168 00:07:49,960 --> 00:07:51,920 Speaker 3: expecting something. It's kind of like you live in an 169 00:07:51,920 --> 00:07:55,520 Speaker 3: apartment in New York City and you might never see aproach, 170 00:07:55,720 --> 00:07:58,440 Speaker 3: but they're there. You know they're in the wall, you 171 00:07:58,560 --> 00:08:00,680 Speaker 3: know it, right, and so you don't food out. You 172 00:08:00,680 --> 00:08:02,160 Speaker 3: do a whole bunch of different things when you live 173 00:08:02,200 --> 00:08:03,680 Speaker 3: in New York. You know, there's things that you can 174 00:08:03,720 --> 00:08:05,680 Speaker 3: do in suburban New Jersey where I live that are 175 00:08:05,720 --> 00:08:08,280 Speaker 3: okay because you're not going to attract to animals act quickly. 176 00:08:09,000 --> 00:08:10,280 Speaker 3: But if you do it in New York City, you're 177 00:08:10,320 --> 00:08:13,120 Speaker 3: basically stunk. And I think the risk is is that 178 00:08:13,160 --> 00:08:17,800 Speaker 3: people are really focused on, you know, what they're not seeing, 179 00:08:18,040 --> 00:08:20,000 Speaker 3: And the fact of the matter is is with no 180 00:08:20,120 --> 00:08:24,240 Speaker 3: economic data and with you know, earnings kind of you know, 181 00:08:24,440 --> 00:08:27,920 Speaker 3: being okay for the most part, they're nervous that they're 182 00:08:27,960 --> 00:08:29,760 Speaker 3: missing something, but they don't know what they're missing. 183 00:08:29,800 --> 00:08:30,920 Speaker 7: It's actuary. Where are we? 184 00:08:31,080 --> 00:08:34,040 Speaker 2: Are we in a grand house on Murray Hill infested 185 00:08:34,080 --> 00:08:36,960 Speaker 2: we conchroaches? Are we in a nice Soho apartment? 186 00:08:37,200 --> 00:08:39,280 Speaker 3: What is this? We might be trading down from a 187 00:08:39,280 --> 00:08:41,560 Speaker 3: Soho apartment to something on the Upper East Side? 188 00:08:41,640 --> 00:08:43,920 Speaker 7: Okay, does that mean you're de risking? 189 00:08:45,240 --> 00:08:45,600 Speaker 4: We've been. 190 00:08:45,840 --> 00:08:47,679 Speaker 3: We've been de risked for a while now. I mean 191 00:08:47,720 --> 00:08:49,560 Speaker 3: to be honest with you. Since COVID, there have been 192 00:08:49,640 --> 00:08:51,760 Speaker 3: kind of you know, there's been kind of one risk 193 00:08:51,840 --> 00:08:55,040 Speaker 3: after another after another. Uh. And you know, to the 194 00:08:55,040 --> 00:08:56,720 Speaker 3: extent that we've been able to kind of go up 195 00:08:56,720 --> 00:08:58,640 Speaker 3: in credit, we've been going up in credit. I don't 196 00:08:58,679 --> 00:09:00,960 Speaker 3: think that's a surprise to anyone. And I think you 197 00:09:01,000 --> 00:09:04,840 Speaker 3: know everyone who's able to has been doing that. Or 198 00:09:04,880 --> 00:09:07,480 Speaker 3: you've been looking to things like privates where you're taking 199 00:09:07,520 --> 00:09:10,359 Speaker 3: maybe more liquidity risk which you can more easily define, 200 00:09:11,440 --> 00:09:14,600 Speaker 3: but getting less credit risk on most sides of it, 201 00:09:14,640 --> 00:09:16,360 Speaker 3: if you're doing your underwriting properly. 202 00:09:17,280 --> 00:09:20,800 Speaker 7: Stay with us. More Bloomberg surveillance coming up after this. 203 00:09:30,000 --> 00:09:32,720 Speaker 2: Let's turn back to warnings Chairs of General Motors jumping 204 00:09:33,000 --> 00:09:35,880 Speaker 2: after the company be earnings and race guidance. The GM 205 00:09:36,160 --> 00:09:39,000 Speaker 2: CFO Paul Jacobson joined us now for more all the 206 00:09:39,040 --> 00:09:41,000 Speaker 2: stock is up by more than nine percent. We'll spend 207 00:09:41,000 --> 00:09:43,120 Speaker 2: some time talking about the numbers, but I just wanted 208 00:09:43,160 --> 00:09:44,719 Speaker 2: to take a step back with you, just for a 209 00:09:44,760 --> 00:09:50,079 Speaker 2: brief moment. You've got real experience navigating volatile industries, experience 210 00:09:50,120 --> 00:09:53,520 Speaker 2: in the airline business, and experience in the automaker business too. 211 00:09:53,760 --> 00:09:56,840 Speaker 2: You took over a CFO in the pandemic. Can you 212 00:09:56,880 --> 00:09:59,760 Speaker 2: talk to us about this year, Paul? Just how agile 213 00:09:59,760 --> 00:10:01,640 Speaker 2: have you and the team needed to be and how 214 00:10:01,720 --> 00:10:03,200 Speaker 2: volatile have things been too? 215 00:10:04,280 --> 00:10:06,240 Speaker 6: Well, Jonathan, first of all, thank you very much for 216 00:10:06,280 --> 00:10:08,360 Speaker 6: having us. It's a great day to be a GM 217 00:10:08,440 --> 00:10:11,800 Speaker 6: and celebrate the success of all of our employees and 218 00:10:11,840 --> 00:10:15,480 Speaker 6: partners worldwide. So really appreciate you being here today, having 219 00:10:15,559 --> 00:10:18,080 Speaker 6: me today. So you know, at the end of the day, 220 00:10:18,160 --> 00:10:21,839 Speaker 6: it's just another change. I mean, since coming to GM 221 00:10:22,200 --> 00:10:25,600 Speaker 6: in twenty twenty, we've gone through COVID, we've gone through 222 00:10:25,679 --> 00:10:28,880 Speaker 6: chip shortage, we've gone through tariffs, we've gone through ev 223 00:10:29,040 --> 00:10:31,920 Speaker 6: pivots and so on. But what we've really tried to 224 00:10:32,000 --> 00:10:34,240 Speaker 6: do is create a model that is resilient. And when 225 00:10:34,280 --> 00:10:35,960 Speaker 6: you look at our balance sheet, you look at our 226 00:10:36,000 --> 00:10:39,600 Speaker 6: inventory discipline and the way we've gone to market, there's 227 00:10:39,640 --> 00:10:41,320 Speaker 6: a lot of things that have changed that allow us 228 00:10:41,360 --> 00:10:43,480 Speaker 6: to be able to react to the world around us faster, 229 00:10:44,160 --> 00:10:46,680 Speaker 6: and I think that's paid the way for us to 230 00:10:46,720 --> 00:10:49,080 Speaker 6: have another really strong year in the face of a 231 00:10:49,080 --> 00:10:50,480 Speaker 6: lot of macro changes. 232 00:10:50,280 --> 00:10:53,680 Speaker 2: Pulled in order to increase resilience and maybe agility, Do 233 00:10:53,720 --> 00:10:55,679 Speaker 2: you have to sacrifice long term planning? 234 00:10:56,080 --> 00:10:57,600 Speaker 7: Is that something that becomes harder? 235 00:10:59,000 --> 00:11:01,680 Speaker 6: Well, you know, I think what we've really done well 236 00:11:01,720 --> 00:11:03,760 Speaker 6: as a team, I think is we've kept focus on 237 00:11:03,800 --> 00:11:06,760 Speaker 6: that long term vision. So you know, for example, while 238 00:11:06,800 --> 00:11:10,080 Speaker 6: we've taken a charge on reducing some of our ev 239 00:11:10,240 --> 00:11:13,160 Speaker 6: capacity reflecting the demand that's out there, we still believe 240 00:11:13,200 --> 00:11:16,280 Speaker 6: that evs are the future and we think that there's 241 00:11:16,280 --> 00:11:18,520 Speaker 6: an opportunity for us to take a little bit of 242 00:11:18,600 --> 00:11:20,839 Speaker 6: a pause in demand growth that we've seen over the 243 00:11:20,920 --> 00:11:24,920 Speaker 6: last few years, structurally improve it, right size our capacity, 244 00:11:25,160 --> 00:11:27,040 Speaker 6: and make sure that we can be successful as more 245 00:11:27,080 --> 00:11:30,680 Speaker 6: and more customers adopted. So it's just an example of 246 00:11:30,720 --> 00:11:33,760 Speaker 6: how we make sure that we're managing the short tem 247 00:11:33,800 --> 00:11:36,040 Speaker 6: within the face of that longer term vision. 248 00:11:36,360 --> 00:11:38,320 Speaker 1: So what of the big steps Paul, that you've taken 249 00:11:38,440 --> 00:11:42,200 Speaker 1: in order to remain agile, particularly with supply chains and 250 00:11:42,240 --> 00:11:47,000 Speaker 1: removing any kind of direct input from China in particular, 251 00:11:47,120 --> 00:11:50,640 Speaker 1: how much have you rejiggered where you get your goods? 252 00:11:51,679 --> 00:11:54,440 Speaker 6: Well, I think we learned a lot in industry from 253 00:11:54,480 --> 00:11:58,160 Speaker 6: COVID and a focused supply chain that was really susceptible 254 00:11:58,200 --> 00:12:01,840 Speaker 6: to individualized shocks, and I think we've taken the effort 255 00:12:01,880 --> 00:12:05,080 Speaker 6: to try to make sure that we diversify our supply 256 00:12:05,160 --> 00:12:08,320 Speaker 6: chain base We've made a number of investments, for example, 257 00:12:08,440 --> 00:12:12,360 Speaker 6: in battery raw materials and other materials in the US, 258 00:12:12,840 --> 00:12:15,880 Speaker 6: in addition to the four billion dollars that we've announced 259 00:12:15,880 --> 00:12:19,400 Speaker 6: this year to increase our US manufacturing capacity. So I 260 00:12:19,480 --> 00:12:21,960 Speaker 6: think it's been a case of making sure that that's balanced. 261 00:12:21,960 --> 00:12:24,560 Speaker 6: And then when we went through the chip crisis of 262 00:12:24,679 --> 00:12:27,760 Speaker 6: twenty twenty one, there were some more challenges about making 263 00:12:27,760 --> 00:12:29,760 Speaker 6: sure that we expand the places where some of our 264 00:12:29,800 --> 00:12:32,840 Speaker 6: chips are fabricated and our supply base that we use. 265 00:12:33,000 --> 00:12:35,760 Speaker 6: So this has just been part of it. I think 266 00:12:35,760 --> 00:12:37,600 Speaker 6: we've learned a lot of lessons over the last five 267 00:12:37,640 --> 00:12:39,760 Speaker 6: years that have helped us and positioned us well to 268 00:12:39,800 --> 00:12:43,080 Speaker 6: be able to thrive in ever changing circumstances like we 269 00:12:43,160 --> 00:12:43,839 Speaker 6: see right now. 270 00:12:44,000 --> 00:12:45,920 Speaker 1: All this costs a lot of money, and I'm just 271 00:12:46,240 --> 00:12:47,240 Speaker 1: trying to get my head around. 272 00:12:47,240 --> 00:12:49,040 Speaker 4: We've all been trying to get our head around. 273 00:12:48,840 --> 00:12:51,360 Speaker 1: Where it comes from these extra costs in order to 274 00:12:51,480 --> 00:12:55,200 Speaker 1: rejigger supply chains to offset any kind of increased costs 275 00:12:55,200 --> 00:12:56,960 Speaker 1: that might come along the way. How much is coming 276 00:12:56,960 --> 00:13:01,600 Speaker 1: from whether it's freezing labor forces or trimming around the edges, 277 00:13:01,679 --> 00:13:05,240 Speaker 1: how much is coming from higher prices on consumer vehicles. 278 00:13:06,440 --> 00:13:09,240 Speaker 6: Well, I think if you look at what GM has done, 279 00:13:09,520 --> 00:13:13,640 Speaker 6: we've saved a lot of money by rationalizing our inventory balances. 280 00:13:13,679 --> 00:13:16,520 Speaker 6: So we used to keep probably about forty percent more 281 00:13:16,520 --> 00:13:20,920 Speaker 6: inventory on the ground at our dealerships around the country, 282 00:13:21,320 --> 00:13:24,160 Speaker 6: and we've cut that down. That frees up a lot 283 00:13:24,200 --> 00:13:26,720 Speaker 6: of working capital to be able to invest and redeploy 284 00:13:26,840 --> 00:13:29,440 Speaker 6: back into the business. But it also makes sure that 285 00:13:29,480 --> 00:13:34,319 Speaker 6: we can change much more quickly to changing demand around us. 286 00:13:34,400 --> 00:13:37,560 Speaker 6: So our pricing has been stabilized, and I think that's 287 00:13:37,600 --> 00:13:40,520 Speaker 6: given us a little bit more comfort to invest a 288 00:13:40,520 --> 00:13:43,079 Speaker 6: little bit more than what we have historically, but still 289 00:13:43,120 --> 00:13:46,600 Speaker 6: making sure that we're very disciplined with our capital allocation 290 00:13:46,760 --> 00:13:49,680 Speaker 6: because we still have opportunities to pay down debt and 291 00:13:49,720 --> 00:13:53,040 Speaker 6: also return capital to shareholders. So it's that balanced approach 292 00:13:53,320 --> 00:13:55,480 Speaker 6: that I think has really paved the way for our success. 293 00:13:55,920 --> 00:13:58,560 Speaker 5: Paul, you and your colleagues in the industry recently had 294 00:13:58,559 --> 00:14:00,880 Speaker 5: a big win in Washington, a little of reprieve when 295 00:14:00,880 --> 00:14:03,760 Speaker 5: it comes to the arrangement on the timeline for the 296 00:14:03,880 --> 00:14:07,920 Speaker 5: tariff costs for imported auto parts. What else are you 297 00:14:08,120 --> 00:14:11,000 Speaker 5: asking in terms of terrorfully from Washington? 298 00:14:12,520 --> 00:14:14,360 Speaker 6: Well, you know, I think I want to praise the 299 00:14:14,400 --> 00:14:18,559 Speaker 6: administration for really listening to the concerns of the industry 300 00:14:18,640 --> 00:14:21,560 Speaker 6: and making sure that they're helping us to be positioned 301 00:14:21,600 --> 00:14:24,520 Speaker 6: to be really successful as one of the largest US 302 00:14:24,640 --> 00:14:27,800 Speaker 6: industrial producers that are out there. And the announcements that 303 00:14:27,840 --> 00:14:31,720 Speaker 6: were made Friday essentially take what had already been done 304 00:14:31,760 --> 00:14:34,280 Speaker 6: by the administration in the spring and expands it a 305 00:14:34,320 --> 00:14:37,560 Speaker 6: little bit to be able to use those MSRP offsets 306 00:14:37,600 --> 00:14:40,640 Speaker 6: on a wider variety of parts that we're bringing into 307 00:14:40,680 --> 00:14:42,560 Speaker 6: the country. And as a result of that, we were 308 00:14:42,600 --> 00:14:45,680 Speaker 6: able to lower our total tariff forecast for the year 309 00:14:46,040 --> 00:14:49,440 Speaker 6: by about half a billion dollars from where we started 310 00:14:49,480 --> 00:14:52,560 Speaker 6: the year. And I think it's that proactive partnership in 311 00:14:52,640 --> 00:14:55,640 Speaker 6: terms of really making sure that we can remain competitive 312 00:14:56,280 --> 00:14:58,680 Speaker 6: and help to drive more investment into the US, which 313 00:14:58,680 --> 00:14:59,360 Speaker 6: we've done. 314 00:15:00,200 --> 00:15:02,760 Speaker 5: Do you expect more reprieves, especially as the US goes 315 00:15:02,800 --> 00:15:06,800 Speaker 5: into negotiations next year with Mexico and Canada. 316 00:15:06,880 --> 00:15:08,960 Speaker 6: Well, I think what we're looking for is a little 317 00:15:08,960 --> 00:15:10,960 Speaker 6: bit of stability. Obviously, this year has been a bit 318 00:15:11,000 --> 00:15:15,440 Speaker 6: of a transition year for US. The handshake deal that 319 00:15:15,480 --> 00:15:18,600 Speaker 6: we have with Korea. We're really eager to get that finalized. 320 00:15:19,320 --> 00:15:21,360 Speaker 6: We do have some production of some of our lower 321 00:15:21,360 --> 00:15:24,680 Speaker 6: cost models in Korea that help with some of the 322 00:15:24,680 --> 00:15:28,360 Speaker 6: affordability concerns of our consumers here in the US, but 323 00:15:28,440 --> 00:15:30,960 Speaker 6: also obviously Mexico and Canada are going to be really 324 00:15:31,000 --> 00:15:33,880 Speaker 6: important to us. But as we look at those deals 325 00:15:33,920 --> 00:15:36,880 Speaker 6: being finalized and we start to look into twenty twenty six, 326 00:15:37,200 --> 00:15:39,480 Speaker 6: we think that there's actually an opportunity for us to 327 00:15:39,520 --> 00:15:41,440 Speaker 6: do better in twenty twenty six and we've done in 328 00:15:41,480 --> 00:15:44,240 Speaker 6: twenty twenty five and start to work our way back 329 00:15:44,320 --> 00:15:46,840 Speaker 6: up to those eight to ten percent targeted margins that 330 00:15:46,880 --> 00:15:49,720 Speaker 6: we set for ourselves before the tariffs were put in place. 331 00:15:50,000 --> 00:15:51,880 Speaker 7: Well, just find me. Can we stay on Ja and 332 00:15:51,920 --> 00:15:52,760 Speaker 7: finish on China? 333 00:15:53,400 --> 00:15:53,560 Speaker 4: Pull? 334 00:15:53,600 --> 00:15:55,840 Speaker 2: For a long time we've said on this program, this 335 00:15:55,920 --> 00:15:59,280 Speaker 2: must be the most competitive market on the planet in 336 00:15:59,320 --> 00:16:02,200 Speaker 2: any industry. How difficult is it to operate in that 337 00:16:02,320 --> 00:16:04,760 Speaker 2: country right now? And how much hard is it going 338 00:16:04,800 --> 00:16:06,600 Speaker 2: to get in the future for you as sort of 339 00:16:06,600 --> 00:16:07,520 Speaker 2: make us like yourself. 340 00:16:08,720 --> 00:16:11,560 Speaker 6: You know, about a year ago, Jonathan, we undertook a 341 00:16:11,600 --> 00:16:15,440 Speaker 6: pretty ambitious restructuring program in China with the realization that 342 00:16:16,120 --> 00:16:18,040 Speaker 6: you know, we were probably not going to be as 343 00:16:18,040 --> 00:16:20,840 Speaker 6: big in China as we have been historically going forward 344 00:16:20,840 --> 00:16:23,640 Speaker 6: with the amount of just tremendous competition that's in the 345 00:16:23,640 --> 00:16:27,040 Speaker 6: country going forward. But you know, together with our partners, 346 00:16:27,520 --> 00:16:30,280 Speaker 6: we were able to restructure that business and we've been 347 00:16:30,320 --> 00:16:33,720 Speaker 6: profitable every quarter this year and look to be able 348 00:16:33,760 --> 00:16:36,920 Speaker 6: to sustain that. So it's really about making sure that 349 00:16:36,960 --> 00:16:39,360 Speaker 6: we're right size for where we are. We've got great 350 00:16:39,360 --> 00:16:42,080 Speaker 6: products over there, we've got a long legacy, and we've 351 00:16:42,080 --> 00:16:44,760 Speaker 6: got a good partnership that I think has really paved 352 00:16:44,800 --> 00:16:46,600 Speaker 6: the way. And with that work that the team did 353 00:16:46,640 --> 00:16:49,360 Speaker 6: in China, really proud of what they accomplished and think 354 00:16:49,400 --> 00:16:50,680 Speaker 6: we can be sustainable there. 355 00:16:50,920 --> 00:17:03,560 Speaker 2: Stay with us Multplomberg surveillance coming up after this, but 356 00:17:03,640 --> 00:17:06,480 Speaker 2: it's around a table. Monica Querra of Moreke and Stanley Monica, 357 00:17:06,520 --> 00:17:09,360 Speaker 2: good Mornic, good morning. China is flexed and is flexed, 358 00:17:09,359 --> 00:17:12,200 Speaker 2: and the whole world has listened and arguably maybe even 359 00:17:12,280 --> 00:17:15,480 Speaker 2: brought the likes of Australia and America closer together. Was 360 00:17:15,480 --> 00:17:18,280 Speaker 2: that a strategic mistake going to get to negotiations like 361 00:17:18,359 --> 00:17:18,840 Speaker 2: to this month. 362 00:17:19,160 --> 00:17:23,240 Speaker 8: I think what's interesting about this deal is that China's 363 00:17:23,320 --> 00:17:27,000 Speaker 8: response was actually constructive on paper, right. They were actually 364 00:17:27,040 --> 00:17:30,200 Speaker 8: positive saying, you know, yeah, the join the party on 365 00:17:30,200 --> 00:17:33,240 Speaker 8: on rare Earth. That was really surprising to me. That 366 00:17:33,320 --> 00:17:35,719 Speaker 8: tells me that they're not worried that takes. It's going 367 00:17:35,760 --> 00:17:38,000 Speaker 8: to take at least five to seven years, maybe longer 368 00:17:38,040 --> 00:17:40,480 Speaker 8: to have this whole initiative ramp up. A lot can 369 00:17:40,600 --> 00:17:43,439 Speaker 8: change in that time. Doesn't mean that this isn't going 370 00:17:43,480 --> 00:17:45,680 Speaker 8: to be a positive for the US. I think more, 371 00:17:45,920 --> 00:17:49,000 Speaker 8: you know, players at the table is ultimately long term 372 00:17:49,000 --> 00:17:52,360 Speaker 8: of benefit. But this isn't a zero, you know, end 373 00:17:52,400 --> 00:17:52,880 Speaker 8: game year. 374 00:17:53,240 --> 00:17:54,879 Speaker 5: So going into this meeting, it sounds like do you 375 00:17:54,920 --> 00:17:55,760 Speaker 5: think China has. 376 00:17:55,680 --> 00:18:00,280 Speaker 8: To leverage I would say that both parties right each 377 00:18:00,320 --> 00:18:03,520 Speaker 8: other when we're thinking about our combined economies. They don't 378 00:18:03,520 --> 00:18:06,480 Speaker 8: want to one hundred percent tariff on all of their goods. 379 00:18:06,840 --> 00:18:09,560 Speaker 8: That's an issue for them, but they don't really need 380 00:18:09,600 --> 00:18:12,240 Speaker 8: to worry about this move on rar Earth. I think 381 00:18:12,280 --> 00:18:14,800 Speaker 8: that they're going to be focusing on the other components. 382 00:18:15,200 --> 00:18:16,280 Speaker 4: China is still. 383 00:18:17,880 --> 00:18:21,600 Speaker 8: In charge of ninety percent or more right of that market, 384 00:18:21,960 --> 00:18:24,919 Speaker 8: so this isn't a now issue. It's going to make 385 00:18:24,960 --> 00:18:26,760 Speaker 8: them have to focus on all these other factors that 386 00:18:26,840 --> 00:18:29,320 Speaker 8: could impact their import export relationship. 387 00:18:29,440 --> 00:18:30,800 Speaker 4: To Jonathan's point, China. 388 00:18:30,640 --> 00:18:32,880 Speaker 5: Though, flexing its muscles on rare earths, is it giving 389 00:18:32,880 --> 00:18:36,840 Speaker 5: the Trump administration an excuse to continue making these deals 390 00:18:36,880 --> 00:18:39,840 Speaker 5: where they take outright equity stakes in mining companies. 391 00:18:41,000 --> 00:18:43,680 Speaker 8: I'm not going to speak to that right to that piece. 392 00:18:43,720 --> 00:18:45,560 Speaker 8: I think you know, we were all surprised by the 393 00:18:45,640 --> 00:18:49,000 Speaker 8: other outright stakes in US companies. Now, as far as 394 00:18:49,040 --> 00:18:53,119 Speaker 8: the mining company component, we're going to continue to see 395 00:18:53,240 --> 00:18:55,960 Speaker 8: foreign direct investment right directed out of the US in 396 00:18:56,080 --> 00:18:58,439 Speaker 8: order to make these deals happen. What's going to be 397 00:18:58,440 --> 00:19:02,760 Speaker 8: interesting is as we build out our relationship with Australia 398 00:19:03,040 --> 00:19:05,600 Speaker 8: and China, it's like, where do we land on that 399 00:19:05,720 --> 00:19:08,399 Speaker 8: on that final tariff number? And I think that again, 400 00:19:08,520 --> 00:19:10,560 Speaker 8: when we go back to actually the beginning of the year, 401 00:19:10,840 --> 00:19:13,000 Speaker 8: that you could see something that's in that thirty to 402 00:19:13,000 --> 00:19:13,920 Speaker 8: forty percent range. 403 00:19:13,920 --> 00:19:16,359 Speaker 4: If we're going to go back to those campaign promises. 404 00:19:16,000 --> 00:19:17,640 Speaker 5: Do you think that's where we end to China, say 405 00:19:17,640 --> 00:19:21,200 Speaker 5: twenty twenty six, we're kind of there now on some product, on. 406 00:19:21,200 --> 00:19:23,040 Speaker 8: Some products, I think you know, you could see an 407 00:19:23,040 --> 00:19:25,560 Speaker 8: increase on those Section three oh one tariffs. You could 408 00:19:25,600 --> 00:19:28,920 Speaker 8: see more on you know, Section two thirty two The 409 00:19:28,960 --> 00:19:31,879 Speaker 8: other piece here, right that we have to really appreciate 410 00:19:32,080 --> 00:19:35,040 Speaker 8: is the US's reliance on that tariff revenue from a 411 00:19:35,040 --> 00:19:38,639 Speaker 8: fiscal policy perspective, and the fact that we're in the 412 00:19:38,680 --> 00:19:41,880 Speaker 8: middle of trying to even determine if we can have 413 00:19:41,960 --> 00:19:45,040 Speaker 8: the IEPA tariffs in place, and once we get that, 414 00:19:45,240 --> 00:19:47,680 Speaker 8: it's going to be that patchwork on Section three oh one, 415 00:19:47,760 --> 00:19:50,399 Speaker 8: Section two thirty two and others to try to make 416 00:19:50,480 --> 00:19:52,800 Speaker 8: US hold from a fiscal policy perspective. So I would 417 00:19:52,840 --> 00:19:56,240 Speaker 8: say from China's lens, yes, maybe they have. They definitely 418 00:19:56,280 --> 00:20:00,360 Speaker 8: have the advantage on rare earth. Is there some at 419 00:20:00,400 --> 00:20:02,880 Speaker 8: stake for them big time right when we're thinking about 420 00:20:02,880 --> 00:20:04,880 Speaker 8: that relationship, But the US also has to think about 421 00:20:04,880 --> 00:20:07,560 Speaker 8: their fiscal policy future and trying to find that sweet spot. 422 00:20:07,800 --> 00:20:10,280 Speaker 1: So given that concern and that hang up and that 423 00:20:10,359 --> 00:20:13,760 Speaker 1: frankly support to the debt market, how much of a 424 00:20:13,840 --> 00:20:16,879 Speaker 1: risk case is it It's Supreme Court over rules the 425 00:20:16,920 --> 00:20:20,399 Speaker 1: tariffs that have been put on and forces the administration 426 00:20:20,480 --> 00:20:23,719 Speaker 1: to scramble and cobble together another sort of regime of 427 00:20:23,760 --> 00:20:25,600 Speaker 1: tariffs to plug that fiscal gap. 428 00:20:25,920 --> 00:20:27,280 Speaker 4: Well, they're already working on it. 429 00:20:27,359 --> 00:20:29,639 Speaker 8: So for example, Section two thirty two teriffs, you have 430 00:20:29,680 --> 00:20:32,320 Speaker 8: to have studies put in place. Those prior to the 431 00:20:32,320 --> 00:20:34,520 Speaker 8: shutdown were in the works, and so I think we 432 00:20:34,520 --> 00:20:37,320 Speaker 8: need to get through this shutdown period in order to 433 00:20:37,320 --> 00:20:39,639 Speaker 8: see some of those puzzle pieces come into play. I 434 00:20:39,720 --> 00:20:42,879 Speaker 8: think markets are right to assume that there will be 435 00:20:42,960 --> 00:20:45,080 Speaker 8: some terraff for revenue coming in at the end of 436 00:20:45,119 --> 00:20:48,040 Speaker 8: the day. It's just how much. And that's going to 437 00:20:48,040 --> 00:20:51,240 Speaker 8: be the big question. If you get a negative ruling, 438 00:20:51,280 --> 00:20:54,240 Speaker 8: there will likely be a market response, right, that's natural. 439 00:20:54,320 --> 00:20:57,320 Speaker 8: That's going to be a normal course of action, but 440 00:20:58,280 --> 00:21:01,040 Speaker 8: soon to be backfilled with all those other tariff pieces 441 00:21:01,040 --> 00:21:03,120 Speaker 8: that they've been working on heavily. 442 00:21:03,320 --> 00:21:06,199 Speaker 1: We got GM earnings earlier this morning, and it showed 443 00:21:06,200 --> 00:21:08,840 Speaker 1: that the tariff mitigation plans have been working and have 444 00:21:08,880 --> 00:21:12,320 Speaker 1: offset a great deal of any extra cost. In general, 445 00:21:12,359 --> 00:21:15,840 Speaker 1: earnings have been pretty positive across the board. Is the 446 00:21:15,920 --> 00:21:18,919 Speaker 1: takeaway that the tariffs are manageable and that frankly, companies 447 00:21:18,960 --> 00:21:21,679 Speaker 1: are adjusting and adapting, and it wasn't a big as big. 448 00:21:21,560 --> 00:21:21,960 Speaker 3: Of a hit. 449 00:21:22,320 --> 00:21:24,919 Speaker 1: Even if the tariffs go in and remain as such, 450 00:21:25,320 --> 00:21:27,200 Speaker 1: it's not as big of a hit for the underlying 451 00:21:27,200 --> 00:21:30,240 Speaker 1: profitability momentum of the United States is expected earlier this year. 452 00:21:30,840 --> 00:21:34,800 Speaker 8: I think that the full pull through right of impact 453 00:21:34,880 --> 00:21:38,080 Speaker 8: of tariffs hasn't been seen yet. So while I think 454 00:21:38,160 --> 00:21:41,880 Speaker 8: that the GM reporting is a positive sign that we're 455 00:21:41,920 --> 00:21:45,520 Speaker 8: finding a sweet spot here, one of the key things 456 00:21:45,560 --> 00:21:49,040 Speaker 8: we have to focus on is this patchwork component of 457 00:21:49,119 --> 00:21:51,320 Speaker 8: tariffs and what that's going to mean for the consumer 458 00:21:51,400 --> 00:21:53,159 Speaker 8: in other areas. So while they might have found that 459 00:21:53,160 --> 00:21:56,439 Speaker 8: sweet spot with GM and the auto industry, can they 460 00:21:56,480 --> 00:21:58,040 Speaker 8: do it across the board When we're thinking about all 461 00:21:58,119 --> 00:22:01,080 Speaker 8: goods and services that's to be seen, and you know, 462 00:22:01,119 --> 00:22:04,000 Speaker 8: we'll get more information in November. 463 00:22:04,080 --> 00:22:06,520 Speaker 2: What channel are you in a team focused on prices 464 00:22:06,960 --> 00:22:08,879 Speaker 2: or through the labor market cost cuts? 465 00:22:09,280 --> 00:22:12,040 Speaker 8: We're focusing on labor market right now, especially as it 466 00:22:12,080 --> 00:22:17,960 Speaker 8: relates to the shutdown, because this is a really interesting period. Typically, 467 00:22:18,000 --> 00:22:20,080 Speaker 8: when you have a shutdown, people get laid off and 468 00:22:20,080 --> 00:22:22,600 Speaker 8: then they get brought back, and so that furlough period 469 00:22:22,800 --> 00:22:25,560 Speaker 8: essentially get made a whole doesn't have a major. 470 00:22:25,320 --> 00:22:26,560 Speaker 4: Impact long term. 471 00:22:26,840 --> 00:22:29,720 Speaker 8: Now this is different because we don't know how many 472 00:22:29,760 --> 00:22:32,639 Speaker 8: employees are actually going to be brought back, and so 473 00:22:32,720 --> 00:22:35,720 Speaker 8: that could have an additional drag, especially when we're thinking 474 00:22:35,720 --> 00:22:37,800 Speaker 8: about those inflationary factors. 475 00:22:38,600 --> 00:22:39,240 Speaker 7: Stay with us. 476 00:22:39,560 --> 00:22:52,000 Speaker 2: More Bloomberg surveillance coming up after this trader is locking 477 00:22:52,040 --> 00:22:54,920 Speaker 2: in beds. The fat continues. It's easing cycle at next 478 00:22:54,920 --> 00:22:58,399 Speaker 2: week's rate decision. El Davis OFBIMO seeing an increasing chance 479 00:22:58,400 --> 00:23:01,240 Speaker 2: of a fifty basis point rac in December, saying the 480 00:23:01,280 --> 00:23:04,280 Speaker 2: opackness and lack of transparency in private credit could be 481 00:23:04,359 --> 00:23:07,440 Speaker 2: used to accelerate pieces. Oh, joined just now for more. 482 00:23:07,640 --> 00:23:09,760 Speaker 2: Welcome to the program, buddy, So let's skip off toe. 483 00:23:09,960 --> 00:23:12,640 Speaker 2: That's done, dusted. What's on the table for December? 484 00:23:13,760 --> 00:23:16,639 Speaker 9: Well, December, our base case is still twenty five basis points. 485 00:23:16,680 --> 00:23:19,520 Speaker 9: We just see the chance of a fifty has increased dramatically. 486 00:23:19,960 --> 00:23:23,560 Speaker 9: And the reason why it's increased dramatically is because we've 487 00:23:23,640 --> 00:23:26,879 Speaker 9: moved our possible terminal rate. We saw terminal around three percent, 488 00:23:27,000 --> 00:23:30,760 Speaker 9: slightly higher than the market, to two fifty. And the 489 00:23:30,800 --> 00:23:34,359 Speaker 9: reason why we see we've lowered it so dramatically is 490 00:23:34,400 --> 00:23:37,359 Speaker 9: because of you know, your tricolor, your true rant. Basically, 491 00:23:37,400 --> 00:23:41,879 Speaker 9: private credit in general, we believe that the private credit 492 00:23:41,960 --> 00:23:46,000 Speaker 9: where the opaqueness comes in from, and the ownership of it, 493 00:23:46,000 --> 00:23:48,960 Speaker 9: it's usually real money, pension plans and light so it's 494 00:23:48,960 --> 00:23:53,920 Speaker 9: going to be a slow, sleeping, seeping credit move wider 495 00:23:54,000 --> 00:23:58,119 Speaker 9: like things of wider. So it's binary whether they go fifty, 496 00:23:58,160 --> 00:24:00,240 Speaker 9: but we see an increasing chance of fifty. 497 00:24:00,640 --> 00:24:02,600 Speaker 2: Do you believe them based on the credit risk that 498 00:24:02,640 --> 00:24:05,040 Speaker 2: you describe. Do you think it could lead to a 499 00:24:05,080 --> 00:24:08,920 Speaker 2: broader tightening of financial conditions temporarily? 500 00:24:09,119 --> 00:24:11,879 Speaker 9: Yes, we do believe it can. We don't believe it's systemic. 501 00:24:11,920 --> 00:24:13,919 Speaker 9: And the reason why we don't believe it's systemic is, 502 00:24:13,960 --> 00:24:16,359 Speaker 9: as I said, most of the holders of private credit 503 00:24:16,840 --> 00:24:20,520 Speaker 9: are real money, so they could take the losses liabilities. 504 00:24:20,520 --> 00:24:22,560 Speaker 9: They still have the liabilities to deal with, so it 505 00:24:22,560 --> 00:24:25,560 Speaker 9: does have impact on the economy, but they could take 506 00:24:25,600 --> 00:24:29,200 Speaker 9: the losses. Having said that, why we see it as 507 00:24:29,200 --> 00:24:32,480 Speaker 9: a possible increasing chance of fifty is it basically took 508 00:24:32,520 --> 00:24:35,480 Speaker 9: the safety off the gun of fifty eases. And the 509 00:24:35,560 --> 00:24:39,359 Speaker 9: thing about fifties is central banks just don't do one 510 00:24:39,400 --> 00:24:43,240 Speaker 9: fifties Otherwise they wouldn't do it. So that's why we 511 00:24:43,680 --> 00:24:47,480 Speaker 9: lowered our expectation per terminal to two fifty by the 512 00:24:47,600 --> 00:24:48,800 Speaker 9: end of twenty twenty six. 513 00:24:49,280 --> 00:24:52,520 Speaker 1: So I hate talking about cockroaches this early in the morning, 514 00:24:52,760 --> 00:24:55,439 Speaker 1: but there is sort of this irony that the reason 515 00:24:55,520 --> 00:24:58,800 Speaker 1: why there are these fears of credit problems is because 516 00:24:58,960 --> 00:25:03,520 Speaker 1: of the prolific FED policy that has enabled this, and 517 00:25:03,520 --> 00:25:06,680 Speaker 1: the fact that monetary conditions used to be a lot 518 00:25:06,720 --> 00:25:10,360 Speaker 1: lower to allow a lot of credit creation that may 519 00:25:10,359 --> 00:25:13,399 Speaker 1: have overlooked a number of different underwriting standards. I'm just 520 00:25:13,480 --> 00:25:15,760 Speaker 1: wondering if there's a bit of moral hazard here, the 521 00:25:15,840 --> 00:25:19,040 Speaker 1: idea the economy isn't cracking and that the FED could 522 00:25:19,080 --> 00:25:23,760 Speaker 1: respond to concerns in credit that we're done in pretty 523 00:25:23,760 --> 00:25:25,159 Speaker 1: easy financing conditions. 524 00:25:26,600 --> 00:25:27,959 Speaker 3: Yeah, we believe. 525 00:25:28,720 --> 00:25:30,800 Speaker 9: I don't know if i'd use the word moral hazard, 526 00:25:30,840 --> 00:25:35,840 Speaker 9: but there's definitely inflation hazard risk because you know, it 527 00:25:35,880 --> 00:25:38,479 Speaker 9: has in our growth despite what's going on in credit. 528 00:25:38,520 --> 00:25:41,480 Speaker 9: Our growth expectations have not changed for twenty twenty six, 529 00:25:41,520 --> 00:25:44,040 Speaker 9: and it's because you know, big beautiful bill everything people 530 00:25:44,040 --> 00:25:46,439 Speaker 9: are hearing, and we think it's very supportive of growth 531 00:25:46,720 --> 00:25:48,639 Speaker 9: and growth will still be good. So then you're going 532 00:25:48,720 --> 00:25:52,880 Speaker 9: to be in a very easy financial conditions market and 533 00:25:52,920 --> 00:25:55,600 Speaker 9: we think there's a big risk for inflation, but the 534 00:25:55,600 --> 00:25:58,040 Speaker 9: market's not focused on that. We're not focused on that 535 00:25:58,160 --> 00:26:01,560 Speaker 9: right now. We think that's a late twenty twenty six story. 536 00:26:01,840 --> 00:26:04,359 Speaker 9: One of the interesting things about inflation though, we do 537 00:26:04,400 --> 00:26:06,159 Speaker 9: get a print Friday, and if we do get a 538 00:26:06,240 --> 00:26:10,320 Speaker 9: higher than expected print, the market, you know, credit will widen, 539 00:26:10,560 --> 00:26:13,880 Speaker 9: duration will go higher. We think that's temporary. We would 540 00:26:14,000 --> 00:26:16,760 Speaker 9: use that as an opportunity to go longer duration and 541 00:26:16,800 --> 00:26:19,520 Speaker 9: to go longer credit because we think the fifty base 542 00:26:19,640 --> 00:26:21,919 Speaker 9: point eases are very much on the table. 543 00:26:22,000 --> 00:26:24,760 Speaker 1: So if inflation is still a concern EARL, how do 544 00:26:24,800 --> 00:26:28,040 Speaker 1: you get conviction to go into long term rates on 545 00:26:28,160 --> 00:26:30,560 Speaker 1: FED cuts that affect the front end of the yield curve. 546 00:26:31,359 --> 00:26:33,680 Speaker 9: Yeah, it's very easy. As I said, you know, I've 547 00:26:33,680 --> 00:26:35,720 Speaker 9: been in this market for thirty years, and one of 548 00:26:35,760 --> 00:26:37,879 Speaker 9: the things what the market is, it only focuses on 549 00:26:37,880 --> 00:26:40,359 Speaker 9: one thing at a time, and right now inflation's not 550 00:26:40,400 --> 00:26:43,720 Speaker 9: the focus. So it's determining what is the catalyst to 551 00:26:43,720 --> 00:26:47,760 Speaker 9: get inflation back on the radar. And there's basically two catalysts. 552 00:26:47,760 --> 00:26:51,359 Speaker 9: One is employment, Employment starts improving. We don't expect to 553 00:26:51,359 --> 00:26:53,440 Speaker 9: see that until twenty twenty six, and you know there's 554 00:26:53,440 --> 00:26:57,199 Speaker 9: no data or Tier one data coming out unemployment. And 555 00:26:57,240 --> 00:27:00,720 Speaker 9: the second thing is geopolitical And what I mean geopolitical 556 00:27:00,880 --> 00:27:05,679 Speaker 9: is an oil price spike that will see coming and 557 00:27:05,760 --> 00:27:09,240 Speaker 9: we'll be able to adjust positions accordingly. And the reason 558 00:27:09,280 --> 00:27:11,919 Speaker 9: why I say we'll be able to adjust positions accordingly. 559 00:27:12,320 --> 00:27:14,879 Speaker 9: In a higher yield bear market, you don't get you 560 00:27:15,320 --> 00:27:17,560 Speaker 9: yields higher by two or three or four or five 561 00:27:17,600 --> 00:27:20,240 Speaker 9: basis points a day. You get yields hired by fifteen 562 00:27:20,320 --> 00:27:22,840 Speaker 9: or twenty. Once you start getting a sense of that 563 00:27:22,920 --> 00:27:25,760 Speaker 9: with a catalyst either being oil or employment, when that 564 00:27:25,840 --> 00:27:29,160 Speaker 9: starts coming out, that's when you adjust duration to reflect that. 565 00:27:29,640 --> 00:27:32,720 Speaker 9: Right now, it's an easing environment. There's no catalyst for 566 00:27:32,760 --> 00:27:35,520 Speaker 9: that to turn, and our terminal, as I said before, 567 00:27:35,560 --> 00:27:38,479 Speaker 9: has gone lower, which changes our view integration right now. 568 00:27:38,840 --> 00:27:41,399 Speaker 5: Oh well, the government shutdown force the market just to 569 00:27:41,480 --> 00:27:42,840 Speaker 5: focus on inflation. 570 00:27:43,119 --> 00:27:44,560 Speaker 4: That's the data we're going to get. 571 00:27:44,640 --> 00:27:47,360 Speaker 5: And what you hear from Washington is that they're expecting 572 00:27:47,359 --> 00:27:51,680 Speaker 5: a prolonged shutdown, even potentially having congressmen and women come 573 00:27:51,760 --> 00:27:55,240 Speaker 5: back to extend the date on the continuing Resolution because 574 00:27:55,359 --> 00:27:57,840 Speaker 5: they're hunkering down for a long shutdown. 575 00:27:58,600 --> 00:28:01,080 Speaker 9: Yeah, the market will focus on I think that's fair, 576 00:28:01,359 --> 00:28:04,240 Speaker 9: but it won't be persistently focused on that because you'll 577 00:28:04,280 --> 00:28:06,880 Speaker 9: get central bank speak once they're out of the blackout 578 00:28:06,920 --> 00:28:10,439 Speaker 9: period or at the FMC meeting, and you'll get you know, 579 00:28:11,440 --> 00:28:15,080 Speaker 9: people focusing back on employment, you know, and that's why 580 00:28:15,119 --> 00:28:17,600 Speaker 9: we see it as a buying opportunity because that focus 581 00:28:17,600 --> 00:28:22,040 Speaker 9: will be very short lived, very temporary. So so yes, 582 00:28:22,119 --> 00:28:24,400 Speaker 9: it we'll focus on inflation, but you know, everyone's made 583 00:28:24,440 --> 00:28:26,800 Speaker 9: clear that employment is the thing that the central bankers 584 00:28:26,840 --> 00:28:27,440 Speaker 9: are looking at. 585 00:28:27,520 --> 00:28:29,800 Speaker 7: Oh Davis, could I say one more thing? 586 00:28:29,960 --> 00:28:30,600 Speaker 3: It's one more. 587 00:28:30,520 --> 00:28:32,800 Speaker 7: Twenty seconds, so you can absolutely. 588 00:28:32,960 --> 00:28:33,920 Speaker 9: Gold blue Jay's goal. 589 00:28:36,480 --> 00:28:36,720 Speaker 8: NUS. 590 00:28:38,240 --> 00:28:41,800 Speaker 2: This is the Bloomberg Survandans podcast, bringing you the best 591 00:28:41,800 --> 00:28:45,120 Speaker 2: in markets, economics, angio politics. 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