1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance podcast name Tom Keene. Along 2 00:00:09,200 --> 00:00:12,720 Speaker 1: with the Jonathan Ferrill and Lisa are Brownwitz Jaylie, we 3 00:00:12,840 --> 00:00:16,760 Speaker 1: bring you insight from the best an economics, finance, investment 4 00:00:17,079 --> 00:00:22,440 Speaker 1: and international relations. Fine Bloomberg Surveillance, an Apple podcast, SoundCloud, 5 00:00:22,800 --> 00:00:29,520 Speaker 1: Bloomberg dot Com, and of course I'm the Bloomberg terminal. Jeff, 6 00:00:29,560 --> 00:00:32,000 Speaker 1: you joined us now seeing a strategist at B and 7 00:00:32,080 --> 00:00:34,120 Speaker 1: Y Melon no secret that one of my favorite foreign 8 00:00:34,159 --> 00:00:36,680 Speaker 1: exchange guests for the best part of a decade plus 9 00:00:36,680 --> 00:00:39,800 Speaker 1: in London is Jeff. Jeff is great to see you. Likewise, 10 00:00:39,840 --> 00:00:41,960 Speaker 1: pleasures be here. The title of your out looks Stepping 11 00:00:42,000 --> 00:00:44,440 Speaker 1: Back from the Brink, is that what we're doing. We 12 00:00:44,479 --> 00:00:46,440 Speaker 1: are stepping back from the brink. And as you mentioned, 13 00:00:46,760 --> 00:00:49,879 Speaker 1: it's it's amazing that would fall it where not falling, 14 00:00:50,000 --> 00:00:52,080 Speaker 1: and I'm stepping back. And given the amount of tightening 15 00:00:52,280 --> 00:00:55,600 Speaker 1: that's gone through and heading into next year, the general 16 00:00:55,680 --> 00:00:58,960 Speaker 1: viewers of probably every reason to be slightly hopeful as well, 17 00:00:59,040 --> 00:01:01,440 Speaker 1: especially with the China News coming through five hundred basis 18 00:01:01,480 --> 00:01:04,319 Speaker 1: points of tightening within a year. What is it nine 19 00:01:04,400 --> 00:01:07,440 Speaker 1: months worth of ten eleven? Whatever it is, Jeff, that 20 00:01:07,480 --> 00:01:09,880 Speaker 1: hasn't hit yet. What's the price we've got to pay 21 00:01:09,920 --> 00:01:12,520 Speaker 1: for that? But it's five points of tightening against how 22 00:01:12,600 --> 00:01:15,080 Speaker 1: much in leverage? Right? How much in terms of shadow leverage? 23 00:01:15,080 --> 00:01:16,920 Speaker 1: Where was the financial system in two thousand and two 24 00:01:16,959 --> 00:01:19,399 Speaker 1: thousand and nine? Where's the financial system now? And one 25 00:01:19,480 --> 00:01:23,360 Speaker 1: keyword here regulation? Where was regulation or where should it 26 00:01:23,440 --> 00:01:26,479 Speaker 1: have been heading into the GFC and whereas it now? 27 00:01:26,560 --> 00:01:28,800 Speaker 1: So I think now those are the things which on 28 00:01:28,840 --> 00:01:31,800 Speaker 1: the upside you could say it inhibited any potential rallies. 29 00:01:32,000 --> 00:01:33,960 Speaker 1: To the downside, it actually prevents things. Do you think 30 00:01:34,000 --> 00:01:36,280 Speaker 1: the price we pay for this then is just down 31 00:01:36,360 --> 00:01:39,240 Speaker 1: draft in the SMP five hundred, we've had five hundred 32 00:01:39,240 --> 00:01:42,000 Speaker 1: basis points of tiening, they've leried on QT on top 33 00:01:42,040 --> 00:01:44,120 Speaker 1: of that, and we walk away. Now on the contrary, 34 00:01:44,160 --> 00:01:45,720 Speaker 1: the price we pay for this is going to be 35 00:01:45,760 --> 00:01:48,520 Speaker 1: in a sustained and structural inflation. A lot of things, 36 00:01:48,720 --> 00:01:50,800 Speaker 1: those returns, you know, the easy money, you know, the 37 00:01:50,840 --> 00:01:54,880 Speaker 1: low risk premier uh, the great moderation which enabled all 38 00:01:54,920 --> 00:01:57,040 Speaker 1: of that we've had in twenty years now, that isn't 39 00:01:57,040 --> 00:01:59,360 Speaker 1: coming back anytime soon. So what does it mean to 40 00:01:59,360 --> 00:02:01,600 Speaker 1: step back the brink? Then? Because it doesn't sound like 41 00:02:01,640 --> 00:02:04,720 Speaker 1: we're going to some lovely place. Well even so, you know, 42 00:02:04,760 --> 00:02:06,760 Speaker 1: if you look at you know where we are. You know, 43 00:02:06,760 --> 00:02:09,440 Speaker 1: for the US economy of the Eurozone economy next year 44 00:02:09,960 --> 00:02:12,760 Speaker 1: is still a chance of recession, absolutely right, but probably 45 00:02:12,960 --> 00:02:16,400 Speaker 1: best in a mild one, both in the U S 46 00:02:16,400 --> 00:02:18,520 Speaker 1: and the Eurozone of course, and how the award develops 47 00:02:18,480 --> 00:02:21,200 Speaker 1: is going to calibrate that to um. In China, clearly 48 00:02:21,240 --> 00:02:23,320 Speaker 1: there's going to be a growth push. But just going 49 00:02:23,360 --> 00:02:26,880 Speaker 1: back to the inflation view, the stagflation problems that we've 50 00:02:26,919 --> 00:02:28,880 Speaker 1: seen this year, they're not going to go away anytime soon, 51 00:02:28,960 --> 00:02:30,720 Speaker 1: and there's going to be a nasty inflation sting in 52 00:02:30,760 --> 00:02:33,080 Speaker 1: the tell Whichina is reopening. Well, Jeff, this is to 53 00:02:33,120 --> 00:02:36,200 Speaker 1: me a really interesting question because people talk about recession 54 00:02:36,200 --> 00:02:39,600 Speaker 1: as though that's a negative case for the economy, but 55 00:02:39,680 --> 00:02:42,440 Speaker 1: how much is that Actually the best case scenario is 56 00:02:42,440 --> 00:02:45,920 Speaker 1: if we get a recession sooner that actually accelerates this 57 00:02:45,960 --> 00:02:49,520 Speaker 1: process of disinflation and gets us to the end quicker. 58 00:02:49,880 --> 00:02:51,720 Speaker 1: So for center backs, and I think the ECB is 59 00:02:51,720 --> 00:02:54,440 Speaker 1: a good example of this. You know, they present a 60 00:02:54,560 --> 00:02:58,000 Speaker 1: headline scenario baseline scenario than an alternative and scenario, right, 61 00:02:58,280 --> 00:03:00,560 Speaker 1: depending on the wall. So from their point of view, 62 00:03:01,040 --> 00:03:05,600 Speaker 1: they looked at an alternative scenario where you in in 63 00:03:06,040 --> 00:03:08,480 Speaker 1: June and March. You know, they're looking at growth contraction 64 00:03:08,520 --> 00:03:10,520 Speaker 1: of two percent or the headline. Okay, that's sure, we're 65 00:03:10,520 --> 00:03:12,240 Speaker 1: going to drive down growth, but no, it's not. That's 66 00:03:12,360 --> 00:03:15,080 Speaker 1: very stagflationary, right, So you've got to calibrate this very 67 00:03:15,160 --> 00:03:18,079 Speaker 1: very carefully. They certainly want moderation. That's what the BOE 68 00:03:18,280 --> 00:03:22,040 Speaker 1: you know, has signaled no two years of household income contraction. Sure, friends, 69 00:03:22,200 --> 00:03:24,639 Speaker 1: you know Backham John are telling you know the situation 70 00:03:24,639 --> 00:03:27,840 Speaker 1: of the housing market now the life So Governor Bailey 71 00:03:27,880 --> 00:03:30,040 Speaker 1: and the MPC they thought that was necessary, but not 72 00:03:30,080 --> 00:03:32,600 Speaker 1: too much. So there's a delicate range there and we 73 00:03:32,639 --> 00:03:34,120 Speaker 1: think we're going to be in the okay side of that. Right, 74 00:03:34,200 --> 00:03:37,000 Speaker 1: So next week be away, ECB, feder Reserve, CPI one 75 00:03:37,040 --> 00:03:38,560 Speaker 1: more event you've got to look at. Now, Sam bank 76 00:03:38,600 --> 00:03:41,760 Speaker 1: Man Freed, it's willing to testify on the thirteenth. He's 77 00:03:41,760 --> 00:03:43,920 Speaker 1: come out with a couple of tweets months ago. I'll 78 00:03:43,920 --> 00:03:45,800 Speaker 1: share some of them with you. I still do not 79 00:03:45,920 --> 00:03:48,880 Speaker 1: have access to much of my data, professional or personal. 80 00:03:49,160 --> 00:03:50,560 Speaker 1: So there is a limit to what I will be 81 00:03:50,640 --> 00:03:52,480 Speaker 1: able to say, and I won't be as helpful as 82 00:03:52,520 --> 00:03:54,640 Speaker 1: i'd like, but as the committee still thinks it would 83 00:03:54,680 --> 00:03:57,200 Speaker 1: be useful, I am willing to testify on the thirteenth. 84 00:03:57,520 --> 00:03:59,120 Speaker 1: At least. She goes on to say, I will try 85 00:03:59,160 --> 00:04:01,360 Speaker 1: to be helpful during the hearing and to shed what 86 00:04:01,560 --> 00:04:04,160 Speaker 1: light I can on the following f t x US 87 00:04:04,280 --> 00:04:08,280 Speaker 1: is solvency and American customers pathways that could return value 88 00:04:08,360 --> 00:04:11,200 Speaker 1: to use as internationally what I think led to the 89 00:04:11,240 --> 00:04:14,520 Speaker 1: crash and my own failings. And he rounds things out 90 00:04:14,520 --> 00:04:16,840 Speaker 1: by saying the following I had thought of myself as 91 00:04:16,839 --> 00:04:20,760 Speaker 1: a model CEO who wouldn't become lazy or disconnected, which 92 00:04:20,800 --> 00:04:23,240 Speaker 1: made it that much more destructive when I did. I'm sorry. 93 00:04:23,560 --> 00:04:26,120 Speaker 1: Hopefully people can learn from the difference between who I 94 00:04:26,240 --> 00:04:29,799 Speaker 1: was and who I could have been, whatever that means. 95 00:04:29,960 --> 00:04:33,120 Speaker 1: So we're looking ahead to next week. To me, and 96 00:04:33,160 --> 00:04:36,440 Speaker 1: this is my layman's interpretation, trying to paint this as 97 00:04:36,480 --> 00:04:40,520 Speaker 1: incompetence or a failure in terms of what he came 98 00:04:40,560 --> 00:04:43,560 Speaker 1: through on, rather than some sort of malfeasance. I'm curious 99 00:04:43,600 --> 00:04:46,400 Speaker 1: about what kind of legal input he's gotten, given that 100 00:04:46,440 --> 00:04:47,960 Speaker 1: he's been talking a lot more than they would like. 101 00:04:48,279 --> 00:04:50,160 Speaker 1: You're not alone, Shiney bast is going to join us 102 00:04:50,160 --> 00:04:51,880 Speaker 1: little bit later this morning, looking forward to that, and 103 00:04:52,000 --> 00:04:53,080 Speaker 1: Marie is going to be with us here in the 104 00:04:53,080 --> 00:04:54,600 Speaker 1: studio in New York to break down what you can 105 00:04:54,640 --> 00:04:56,280 Speaker 1: look forward to next week. Jeff, I want to come 106 00:04:56,279 --> 00:04:58,280 Speaker 1: to you. We started this conversation talking about a lack 107 00:04:58,320 --> 00:05:02,040 Speaker 1: of leverage. Maybe at lack of leverage in the traditional places. 108 00:05:02,640 --> 00:05:04,839 Speaker 1: Is the leverage ou swhere that maybe we can't see 109 00:05:05,320 --> 00:05:07,880 Speaker 1: in the way that we can and say, public markets 110 00:05:07,880 --> 00:05:10,560 Speaker 1: and equities, household banage, she's corporate bannag, she's that kind 111 00:05:10,560 --> 00:05:12,800 Speaker 1: of thing. And also private markets as well. If I 112 00:05:12,800 --> 00:05:16,919 Speaker 1: think about the asallocation views over the last few years 113 00:05:17,400 --> 00:05:19,320 Speaker 1: with my previous and the hats on for example, the 114 00:05:19,760 --> 00:05:24,240 Speaker 1: increased watings and private equity into alternatives with that maturity 115 00:05:24,320 --> 00:05:26,400 Speaker 1: premium right now where you lock things in for ten 116 00:05:26,440 --> 00:05:31,360 Speaker 1: to thirteen years or beyond and then clip that longevity coupon. 117 00:05:31,440 --> 00:05:33,040 Speaker 1: You know when rates are very very low, you know 118 00:05:33,120 --> 00:05:36,200 Speaker 1: that still may come to the four you know BIS 119 00:05:36,279 --> 00:05:38,960 Speaker 1: talking about shadow lending, etcetera, etcetera. So yeah, that pitfalls 120 00:05:38,960 --> 00:05:41,960 Speaker 1: out there still. Effects strategists have been coming on and 121 00:05:41,960 --> 00:05:44,760 Speaker 1: talking about the housing market as underpinning a lot of 122 00:05:44,800 --> 00:05:47,320 Speaker 1: their cars. Which housing markets are most vulnerable? Are you 123 00:05:47,360 --> 00:05:50,960 Speaker 1: as well? So yes, Nordics and the Enterpollion's right, So 124 00:05:51,000 --> 00:05:52,840 Speaker 1: if you look at Australia, you know right now, if 125 00:05:52,880 --> 00:05:56,560 Speaker 1: you compare Australia to New Zealand, New Zealand's basically saying, yes, 126 00:05:56,600 --> 00:05:58,360 Speaker 1: we have a housing market issue as well, but the 127 00:05:58,440 --> 00:06:01,440 Speaker 1: labor market is so tight, income growth is so strong 128 00:06:01,480 --> 00:06:03,040 Speaker 1: that they're not worried about it. They're probably the only 129 00:06:03,040 --> 00:06:04,680 Speaker 1: G ten central banks that can hype more than their 130 00:06:04,720 --> 00:06:06,880 Speaker 1: their five and a half, and I wouldn't rule out six, 131 00:06:07,040 --> 00:06:08,960 Speaker 1: whereas the ib A saying and they might be wrong 132 00:06:08,960 --> 00:06:12,200 Speaker 1: on this given the China situation, but income growth is slowing, 133 00:06:12,440 --> 00:06:15,200 Speaker 1: job markets is slowing, so that means wage growth can't 134 00:06:15,200 --> 00:06:18,000 Speaker 1: offset high mortgage rates UK. You know, that's a well 135 00:06:18,080 --> 00:06:21,719 Speaker 1: known story. Sweden is going to be interesting because finding 136 00:06:21,960 --> 00:06:24,520 Speaker 1: ing there's the governor is leaving the overlap with greenspan 137 00:06:24,600 --> 00:06:26,240 Speaker 1: for a month, right, that's how long he's been around 138 00:06:26,320 --> 00:06:30,880 Speaker 1: US government. It is, But the new governor is was 139 00:06:31,600 --> 00:06:34,680 Speaker 1: is current head of the Swedish Financial Services Authority knows 140 00:06:34,680 --> 00:06:36,400 Speaker 1: you know, where the issues are in the housing market, 141 00:06:36,640 --> 00:06:39,320 Speaker 1: so the risks but also the reforms needed. So you know, 142 00:06:39,400 --> 00:06:41,640 Speaker 1: that's where things can really come off. What does Canada 143 00:06:41,640 --> 00:06:44,479 Speaker 1: fit in? So you know Canada as well. So when 144 00:06:44,520 --> 00:06:47,440 Speaker 1: you are seeing a mortgage roads already seeing the BOC, 145 00:06:47,600 --> 00:06:49,360 Speaker 1: you know, start to shift to the softer side. We 146 00:06:49,760 --> 00:06:53,159 Speaker 1: saw initially in a Canada being like a high beta proxy, 147 00:06:53,240 --> 00:06:55,400 Speaker 1: you know, to the US. Whatever the Fed's going to do, 148 00:06:55,600 --> 00:06:57,599 Speaker 1: Canada and Mexico you know, will follow as well. But 149 00:06:57,640 --> 00:07:00,160 Speaker 1: now we're clearly seeing that divergence UM and and off 150 00:07:00,200 --> 00:07:03,159 Speaker 1: flow monitor and flotos for example, seeing clients diverge as well, 151 00:07:03,200 --> 00:07:05,000 Speaker 1: and they're not owning the cab right now. Jeff, this 152 00:07:05,080 --> 00:07:07,080 Speaker 1: was great. It always says, it's great to have you 153 00:07:07,120 --> 00:07:09,840 Speaker 1: with the same in New York, Jeff. You b Y 154 00:07:09,920 --> 00:07:23,320 Speaker 1: Melon joining us now as somebody who has been absolutely 155 00:07:23,360 --> 00:07:25,640 Speaker 1: amazing on all things having to do with the US 156 00:07:25,680 --> 00:07:28,360 Speaker 1: economy from her experience at Bank of America now at 157 00:07:28,480 --> 00:07:32,240 Speaker 1: MasterCard Economics Institute where she's chief US economist. Michelle Meyer 158 00:07:32,320 --> 00:07:34,680 Speaker 1: joining us here in studio. Michelle, fabulous to have you 159 00:07:34,760 --> 00:07:37,200 Speaker 1: with us. What's your take on these numbers? Well, I 160 00:07:37,200 --> 00:07:40,760 Speaker 1: think it says Mike summarized clearly there's still producer price 161 00:07:40,800 --> 00:07:45,040 Speaker 1: inflation pressures, but you're seeing it different by category. So 162 00:07:45,080 --> 00:07:47,640 Speaker 1: there's some relief in terms of some of the commodity 163 00:07:47,720 --> 00:07:50,080 Speaker 1: price pressure that was a big part of the story 164 00:07:50,160 --> 00:07:53,200 Speaker 1: earlier in the year. But there's still that lingering pressure 165 00:07:53,240 --> 00:07:55,480 Speaker 1: that's happening more on the services side, and that's something 166 00:07:55,520 --> 00:07:57,960 Speaker 1: that's very very clear on the consumer side too. We'll 167 00:07:57,960 --> 00:08:01,120 Speaker 1: presumably see that to some extent. It's CPI next week. 168 00:08:01,160 --> 00:08:04,800 Speaker 1: This differential between core goods inflation, which is coming down 169 00:08:04,840 --> 00:08:08,400 Speaker 1: in part because those producer prices are also coming down, um, 170 00:08:08,400 --> 00:08:11,800 Speaker 1: but services inflation, which remains a lot stickier. Does this 171 00:08:11,920 --> 00:08:14,000 Speaker 1: data point to a recession in the US in the 172 00:08:14,000 --> 00:08:16,400 Speaker 1: first half next year. I don't think so. I mean, 173 00:08:16,440 --> 00:08:18,640 Speaker 1: one of the things that we've been pretty clear on 174 00:08:18,800 --> 00:08:22,120 Speaker 1: is that we don't think a recession is inevitable by 175 00:08:22,120 --> 00:08:24,480 Speaker 1: any means. I mean, I think, you know, looking at 176 00:08:24,600 --> 00:08:27,240 Speaker 1: the data that we are examining on a regular basis, 177 00:08:27,280 --> 00:08:31,560 Speaker 1: and consumer has purchasing power. They've had purchasing power throughout 178 00:08:31,720 --> 00:08:35,440 Speaker 1: the year, and I think people underestimated the resolve of 179 00:08:35,480 --> 00:08:38,880 Speaker 1: the US consumer to spend, the desire to spend, and 180 00:08:38,920 --> 00:08:42,280 Speaker 1: the ability to spend and that's still here. Okay, so 181 00:08:42,320 --> 00:08:44,880 Speaker 1: you moved to the suburbs. You understand this. Everybody drives 182 00:08:44,920 --> 00:08:46,360 Speaker 1: around and when you have to fill up your car 183 00:08:46,400 --> 00:08:48,960 Speaker 1: and you actually get a lower price, you generally have 184 00:08:49,080 --> 00:08:51,280 Speaker 1: more money in your in your account. So how much 185 00:08:51,679 --> 00:08:55,160 Speaker 1: is the decline in gasoline prices perversely going to fuel 186 00:08:55,320 --> 00:08:58,360 Speaker 1: ongoing inflation for longer than people previously expected. Well, I 187 00:08:58,440 --> 00:08:59,960 Speaker 1: might not be the best person to answer that because 188 00:09:00,000 --> 00:09:05,120 Speaker 1: we moved electric, but sorry, car in general, that's exactly right, 189 00:09:05,200 --> 00:09:08,080 Speaker 1: which is that you know, it's something that's tangible, and 190 00:09:08,120 --> 00:09:11,120 Speaker 1: it's not just gasoline, it's also food as well. That's 191 00:09:11,120 --> 00:09:13,360 Speaker 1: a big part of this story, which is you walk 192 00:09:13,400 --> 00:09:15,319 Speaker 1: into a grocery store, you buy, you know, kind of 193 00:09:15,360 --> 00:09:18,120 Speaker 1: the same type of items every week, and you see 194 00:09:18,160 --> 00:09:21,320 Speaker 1: those price differentials. So there's still those dynamics, these kind 195 00:09:21,320 --> 00:09:23,000 Speaker 1: of cross currents. On the one hand, quite a lot 196 00:09:23,000 --> 00:09:25,520 Speaker 1: of nice relief from lower gas prices. On the other hand, 197 00:09:25,559 --> 00:09:30,920 Speaker 1: food price inflation remains high and problematic. Interestingly enough, we 198 00:09:31,000 --> 00:09:33,920 Speaker 1: do have a number here. Gasoline Price Index fell six 199 00:09:34,760 --> 00:09:38,760 Speaker 1: in the PPI in November, so a significant decline there, which, 200 00:09:38,800 --> 00:09:41,080 Speaker 1: of course the Biden administration has been waving like a 201 00:09:41,120 --> 00:09:45,880 Speaker 1: flag recently to get people to figure that out. But uh, 202 00:09:46,120 --> 00:09:50,280 Speaker 1: final demand goods thirty eight point one in the index 203 00:09:50,320 --> 00:09:54,160 Speaker 1: for fresh and dry vegetables, So food prices are still 204 00:09:54,200 --> 00:09:56,080 Speaker 1: going up. Yeah, people can feel that when they go 205 00:09:56,120 --> 00:09:59,280 Speaker 1: to the grocery stores and it's definitely impeding pricing power there. 206 00:09:59,320 --> 00:10:01,439 Speaker 1: But all of the is really confusing. It's a muddle, 207 00:10:01,480 --> 00:10:03,640 Speaker 1: and that's the reason why people believe in this recession, 208 00:10:04,160 --> 00:10:07,400 Speaker 1: and yet it doesn't seem to be feeding into this data. 209 00:10:07,800 --> 00:10:11,520 Speaker 1: Do you buy into this massive disinflationary kind of feel 210 00:10:11,920 --> 00:10:14,440 Speaker 1: that people are basically pricing into the dip and rip 211 00:10:14,480 --> 00:10:16,920 Speaker 1: scenario that John was talking about. So one thing that 212 00:10:16,960 --> 00:10:19,640 Speaker 1: we've seen in our data is that in this holiday 213 00:10:19,640 --> 00:10:23,680 Speaker 1: shopping season, consumers are more promotional based than we've seen 214 00:10:24,080 --> 00:10:26,920 Speaker 1: certainly in the last two holiday season. So when we 215 00:10:26,960 --> 00:10:29,320 Speaker 1: look at our daily data, we saw you know a 216 00:10:29,320 --> 00:10:31,840 Speaker 1: bit of us softening at the end of October early November, 217 00:10:31,880 --> 00:10:33,960 Speaker 1: and then this big surge of activity into the Black 218 00:10:34,000 --> 00:10:36,679 Speaker 1: Friday perry, particularly for things like apperil, which was really 219 00:10:36,679 --> 00:10:40,120 Speaker 1: really strong. So I think consumers are being targeted there 220 00:10:40,120 --> 00:10:43,080 Speaker 1: being you know, cognizant of how they're spending where they're 221 00:10:43,080 --> 00:10:47,160 Speaker 1: spending what they're spending on UM, and relative inflation is 222 00:10:47,160 --> 00:10:49,920 Speaker 1: playing a role, relative interest rates are playing a role. 223 00:10:50,240 --> 00:10:53,000 Speaker 1: So there's, you know, a consumer that's aware of these 224 00:10:53,080 --> 00:10:55,440 Speaker 1: headwinds that they've been facing throughout the year, and they're 225 00:10:55,480 --> 00:10:58,800 Speaker 1: navigating it um But I think they've navigated a whole 226 00:10:58,840 --> 00:11:01,360 Speaker 1: lot better than people had and them credit for. Right now, 227 00:11:01,400 --> 00:11:04,600 Speaker 1: we're looking at a potential for the FED getting a 228 00:11:04,640 --> 00:11:07,680 Speaker 1: soft landing. Just like they said, what does that mean 229 00:11:07,760 --> 00:11:10,520 Speaker 1: in terms of how high rates should go, Well, it 230 00:11:10,520 --> 00:11:12,880 Speaker 1: seems very clear they're not done hiking UM. So in 231 00:11:12,920 --> 00:11:15,840 Speaker 1: the upcoming meeting next week, the expectations for another fifty 232 00:11:15,840 --> 00:11:18,679 Speaker 1: basis point have hikes, which makes sense. That is a 233 00:11:18,760 --> 00:11:22,080 Speaker 1: slowdown in the cadence of hikes. So they're clearly starting 234 00:11:22,120 --> 00:11:24,920 Speaker 1: to see some signs that their monetary policy hikes, that 235 00:11:24,920 --> 00:11:27,760 Speaker 1: it's transmitting into the economy. It's making a difference obviously 236 00:11:27,760 --> 00:11:29,720 Speaker 1: in the housing market, it is in some of the 237 00:11:29,720 --> 00:11:33,240 Speaker 1: good sectors. You're obvious you're seeing those those those ramifications 238 00:11:33,280 --> 00:11:36,080 Speaker 1: as well. But I think that the next step after 239 00:11:36,120 --> 00:11:38,640 Speaker 1: this will be that the FED continues to move up, 240 00:11:38,679 --> 00:11:41,400 Speaker 1: but they do so a little bit slower. They're trying 241 00:11:41,440 --> 00:11:45,240 Speaker 1: to monitor how the economy is reacting to those hikes, 242 00:11:45,280 --> 00:11:47,760 Speaker 1: and they are seeing dynamics in the inflation data that 243 00:11:47,800 --> 00:11:51,120 Speaker 1: also is presumably encouraging, right, the fact that core goods 244 00:11:51,160 --> 00:11:53,240 Speaker 1: is coming down. We'll see what o we are does 245 00:11:53,280 --> 00:11:55,679 Speaker 1: next week. That's going to be really important as well. Meanwhile, 246 00:11:55,679 --> 00:11:58,640 Speaker 1: people are still poising in rate cuts, Mike, well, some 247 00:11:58,679 --> 00:12:01,040 Speaker 1: people in the markets are, but interesting, Bloomberg has just 248 00:12:01,080 --> 00:12:04,680 Speaker 1: done a survey of economists and the majority of economists 249 00:12:04,679 --> 00:12:06,640 Speaker 1: think that the FED will now go to five percent, 250 00:12:07,000 --> 00:12:09,440 Speaker 1: but they also think that the FED will keep it 251 00:12:09,520 --> 00:12:12,319 Speaker 1: at five percent for the entire year, which is a 252 00:12:12,360 --> 00:12:15,040 Speaker 1: little bit different than what you're getting in the futures market. 253 00:12:15,160 --> 00:12:17,360 Speaker 1: So we'll see if those two converge, you know, and 254 00:12:17,360 --> 00:12:19,320 Speaker 1: then a lot of people think that whatever the Fed 255 00:12:19,360 --> 00:12:20,719 Speaker 1: does is going to be enough to bring us back 256 00:12:20,760 --> 00:12:23,920 Speaker 1: down to where we were before. Do you buy that? Yeah? 257 00:12:24,040 --> 00:12:25,720 Speaker 1: So you know, one of the things that we we 258 00:12:25,800 --> 00:12:29,679 Speaker 1: just published our economic piece um this week, and one 259 00:12:29,679 --> 00:12:32,079 Speaker 1: of the themes there is this idea of a rebalancing 260 00:12:32,240 --> 00:12:35,520 Speaker 1: or normalization. So part of what's happening still in the 261 00:12:35,559 --> 00:12:38,200 Speaker 1: economy next year, which the FED is trying to engineer, 262 00:12:38,720 --> 00:12:41,319 Speaker 1: is a normalization of parts of the economy that we're 263 00:12:41,320 --> 00:12:44,120 Speaker 1: in an excess. So think about the labor market. Um, 264 00:12:44,280 --> 00:12:46,480 Speaker 1: should you have all these job openings relative to the 265 00:12:46,520 --> 00:12:49,760 Speaker 1: number of unemployed. No, they want to cool that down, 266 00:12:49,760 --> 00:12:52,720 Speaker 1: they want to normalize it. Um. Some parts of the 267 00:12:52,760 --> 00:12:54,719 Speaker 1: economy they need to do more than normalizing, which is 268 00:12:54,760 --> 00:12:57,000 Speaker 1: housing where you've had a lot of accesses bill that 269 00:12:57,000 --> 00:12:58,920 Speaker 1: they want to try to correct for and prevent a 270 00:12:58,960 --> 00:13:01,960 Speaker 1: bigger shock into the future. So I think it's this 271 00:13:02,240 --> 00:13:07,520 Speaker 1: rebalancing that's been you know, kind of desired throughout two 272 00:13:07,840 --> 00:13:09,920 Speaker 1: which is what the FED was, you know, trying to 273 00:13:09,960 --> 00:13:12,880 Speaker 1: achieve with higher interest rates, andree is going to be 274 00:13:12,920 --> 00:13:15,120 Speaker 1: a story of those outcomes in our In our view, 275 00:13:15,320 --> 00:13:17,280 Speaker 1: what's the outcome in housing? I know you've been terrific 276 00:13:17,320 --> 00:13:19,280 Speaker 1: on this for years. Do you think that we're in 277 00:13:19,400 --> 00:13:22,880 Speaker 1: for a pretty protracted and deep downturn in terms of prices. 278 00:13:23,400 --> 00:13:26,160 Speaker 1: I think housing is in for some real challenges ahead. 279 00:13:26,280 --> 00:13:29,359 Speaker 1: I do, because when you look at how much affordability 280 00:13:29,400 --> 00:13:32,640 Speaker 1: has changed, it's it's huge. It's been a big, big 281 00:13:32,679 --> 00:13:36,600 Speaker 1: shock because home prices ran well above income for a 282 00:13:36,679 --> 00:13:40,560 Speaker 1: period of time, which was facilitated by these extraordinarily low 283 00:13:40,679 --> 00:13:44,400 Speaker 1: rates for the extended period presumably too long um and 284 00:13:44,400 --> 00:13:46,760 Speaker 1: that created this big imbalance. So we're already seeing home 285 00:13:46,800 --> 00:13:50,079 Speaker 1: sales fall sharply. Home prices are starting to fall in 286 00:13:50,120 --> 00:13:52,000 Speaker 1: a month a month basis, and it's particularly in some 287 00:13:52,080 --> 00:13:55,120 Speaker 1: areas like San Francisco. It's fast. So I think there's 288 00:13:55,160 --> 00:13:56,800 Speaker 1: more to come and just quickly here. Is it going 289 00:13:56,840 --> 00:13:58,760 Speaker 1: to be comparable to two in terms of the scope 290 00:13:58,760 --> 00:14:01,079 Speaker 1: of the declines. I don't think it will because you 291 00:14:01,120 --> 00:14:03,400 Speaker 1: won't have the degree of ario, so you won't have 292 00:14:03,480 --> 00:14:07,080 Speaker 1: that force selling which creates a heavy price discounting. Michelle Meyer, 293 00:14:07,120 --> 00:14:08,800 Speaker 1: thank you so much for being here, and have a 294 00:14:08,800 --> 00:14:13,559 Speaker 1: wonderful holiday season. Michelle Meyer of the MasterCard Economics Institute. 295 00:14:14,000 --> 00:14:20,280 Speaker 1: Always great to get that insight. Looking ahead to next week, 296 00:14:20,320 --> 00:14:23,880 Speaker 1: it's Cathy Jones, Chief Fixed Incomes Strategistic swab Canthy. Let's 297 00:14:23,880 --> 00:14:26,080 Speaker 1: start with the Federal Reserve. It seems to me that 298 00:14:26,080 --> 00:14:28,720 Speaker 1: at the moment we're focused on the way the chairman 299 00:14:28,760 --> 00:14:33,080 Speaker 1: frames risk management, whether there is a focus on overtightening 300 00:14:33,200 --> 00:14:36,840 Speaker 1: or UNDERTIGHTENINGE. What do you think the biggest risk is 301 00:14:36,880 --> 00:14:41,800 Speaker 1: for this Federal Reserve. I think the biggest risk is 302 00:14:41,840 --> 00:14:45,240 Speaker 1: if they under tighten because they've sent such a strong 303 00:14:45,400 --> 00:14:49,280 Speaker 1: message about needing to get inflation down before they make 304 00:14:49,360 --> 00:14:52,600 Speaker 1: any other changes that that's the number one priority. I 305 00:14:52,640 --> 00:14:55,640 Speaker 1: think they have to continue to send that message. The 306 00:14:55,760 --> 00:14:58,880 Speaker 1: risk is though, that they probably will overtighten, and you know, 307 00:14:58,880 --> 00:15:01,160 Speaker 1: we'll get a recession and things will break down. But 308 00:15:01,240 --> 00:15:04,280 Speaker 1: I don't think that they can afford to not continue 309 00:15:04,320 --> 00:15:07,440 Speaker 1: to send that message. Kathy, how does that inform your 310 00:15:07,520 --> 00:15:09,760 Speaker 1: view of whether to go along some of these longer 311 00:15:09,840 --> 00:15:14,120 Speaker 1: duration bonds ten year, thirty year notes versus perhaps pair back, 312 00:15:14,520 --> 00:15:19,320 Speaker 1: especially after the enthusiasm we've seen of late. Yeah, you know, Lisa, 313 00:15:19,360 --> 00:15:22,320 Speaker 1: we were pretty enthusiastic a while back about where when 314 00:15:22,880 --> 00:15:26,360 Speaker 1: your tenure yields hit four percent clause, they're pretty enthusiastic 315 00:15:26,400 --> 00:15:30,680 Speaker 1: about extending duration. We still like extending duration on rallies 316 00:15:31,120 --> 00:15:35,720 Speaker 1: are increases in yield going forward, but I think we're 317 00:15:35,720 --> 00:15:37,440 Speaker 1: going to have to have a rough ride here over 318 00:15:37,480 --> 00:15:39,920 Speaker 1: the near term because so much good news has been 319 00:15:39,960 --> 00:15:42,720 Speaker 1: priced into the market. But our long term view is 320 00:15:42,760 --> 00:15:45,480 Speaker 1: that the tenure yields can follow as far as three 321 00:15:45,560 --> 00:15:49,360 Speaker 1: percent this coming year, So we will use those that 322 00:15:49,600 --> 00:15:52,560 Speaker 1: moves up and yield to extenduration. Cathy, you said that 323 00:15:52,600 --> 00:15:56,440 Speaker 1: the biggest risk is under tightening, not overtightening. How much 324 00:15:56,480 --> 00:15:59,000 Speaker 1: do you get pushed back? Is this basically not the 325 00:15:59,080 --> 00:16:03,240 Speaker 1: consensus anymore? Are as people believe in this disinflationary story 326 00:16:03,280 --> 00:16:07,680 Speaker 1: that will pick up steam throughout three Well, we're in 327 00:16:07,680 --> 00:16:10,960 Speaker 1: the disinflation can um. I think the problem is that 328 00:16:11,120 --> 00:16:14,320 Speaker 1: because of the legs that are involved, it will take 329 00:16:14,360 --> 00:16:17,160 Speaker 1: time to feat its way through and the market. When 330 00:16:17,160 --> 00:16:19,160 Speaker 1: I look at the shorter end of the market, it's 331 00:16:19,160 --> 00:16:22,840 Speaker 1: already discounted a re rated what the feed's going to do. 332 00:16:23,520 --> 00:16:27,120 Speaker 1: And given that financial conditions haven't tightened or as much 333 00:16:27,200 --> 00:16:30,680 Speaker 1: or they've loosened over the last couple of months. Um, 334 00:16:30,720 --> 00:16:33,640 Speaker 1: I think that the risk is that the Fed has 335 00:16:33,680 --> 00:16:37,280 Speaker 1: to push back against that, and if they don't overtighten, 336 00:16:38,080 --> 00:16:40,520 Speaker 1: then we're going to see inflation kind of bounce back 337 00:16:40,560 --> 00:16:42,480 Speaker 1: again at the end of next year. So, Kathy, can 338 00:16:42,480 --> 00:16:44,240 Speaker 1: we put some numbers on this? The Federal Reserve in 339 00:16:44,240 --> 00:16:47,600 Speaker 1: their last projections from September they get updated next week. 340 00:16:47,640 --> 00:16:50,240 Speaker 1: Of course, have p C a co PC at three 341 00:16:50,240 --> 00:16:52,680 Speaker 1: point one at the end of twenty three, two point 342 00:16:52,720 --> 00:16:56,160 Speaker 1: three at twenty four as party, because I think twenty 343 00:16:56,200 --> 00:16:59,120 Speaker 1: three is hard enough. Where are you for three? There? 344 00:16:59,160 --> 00:17:02,800 Speaker 1: At three point one? Yeah, I think we can get 345 00:17:02,840 --> 00:17:06,320 Speaker 1: close to the three and a half area. UM. It 346 00:17:06,440 --> 00:17:09,560 Speaker 1: depends really on wage growth and how quickly that starts 347 00:17:09,600 --> 00:17:13,240 Speaker 1: to decline. They're starting to see some hints that it's declining, 348 00:17:13,320 --> 00:17:16,159 Speaker 1: but not as much as anticipated I think at this 349 00:17:16,240 --> 00:17:19,040 Speaker 1: stage of the cycle. So we'll probably have to push 350 00:17:19,080 --> 00:17:20,719 Speaker 1: that out and say about three and a half at 351 00:17:20,720 --> 00:17:22,480 Speaker 1: the end of next year. So just to be super clear, 352 00:17:22,520 --> 00:17:24,119 Speaker 1: that glide path to three and a half, does that 353 00:17:24,160 --> 00:17:29,240 Speaker 1: include a recession to get there? Probably? Yeah? Yeah, Well, 354 00:17:29,359 --> 00:17:31,760 Speaker 1: we think risk of recession is very high. You know 355 00:17:31,840 --> 00:17:36,119 Speaker 1: the indicators from the inverted yield curve to um, you 356 00:17:36,160 --> 00:17:38,719 Speaker 1: know the leading indicators. I mean, I could go a 357 00:17:38,720 --> 00:17:42,880 Speaker 1: long list. Here are things that are rolling over housing, etcetera. 358 00:17:43,320 --> 00:17:45,480 Speaker 1: We do think a recession is pretty high risk. So 359 00:17:45,480 --> 00:17:47,840 Speaker 1: it's important because I'm really interested in how you interpret 360 00:17:47,920 --> 00:17:50,600 Speaker 1: their reaction function. If if they're gliding part fist down 361 00:17:50,640 --> 00:17:52,399 Speaker 1: to three point one and you think three and a 362 00:17:52,440 --> 00:17:54,960 Speaker 1: half year and next year you've got a recession in 363 00:17:55,000 --> 00:17:57,800 Speaker 1: the mix as well, are they cutting in twenty three? 364 00:17:57,800 --> 00:18:01,560 Speaker 1: In that world? I think they could at the end 365 00:18:01,600 --> 00:18:04,320 Speaker 1: of next year. I think it's reasonable that if we 366 00:18:04,400 --> 00:18:08,679 Speaker 1: are in a you know, distinctly clear recession and inflation 367 00:18:08,880 --> 00:18:11,359 Speaker 1: is pretty close to three and a half four pc, 368 00:18:11,720 --> 00:18:14,160 Speaker 1: they could at the end of next year. But again, 369 00:18:14,280 --> 00:18:17,600 Speaker 1: I think the playbook here is the Volker FED. You know, 370 00:18:17,640 --> 00:18:20,600 Speaker 1: we've heard this over and over again that Paul doesn't 371 00:18:20,640 --> 00:18:23,800 Speaker 1: want to be the Arthur Burns of his generation. He 372 00:18:23,920 --> 00:18:26,639 Speaker 1: wants to be the Volker of his generation. So I 373 00:18:26,680 --> 00:18:29,240 Speaker 1: think that they'll try to manage it to avoid a 374 00:18:29,320 --> 00:18:32,600 Speaker 1: deep recession. But I think if the choice is recession 375 00:18:32,720 --> 00:18:37,119 Speaker 1: versus inflation, the choice will be recession. When when history 376 00:18:37,119 --> 00:18:39,640 Speaker 1: books look back, Kathy, do you think that they will 377 00:18:39,680 --> 00:18:42,720 Speaker 1: agree with Harvard University professor Jeremy Stein, formerly on the 378 00:18:42,720 --> 00:18:46,080 Speaker 1: Federal Reserve, who says that it is astonishing that we 379 00:18:46,160 --> 00:18:48,720 Speaker 1: haven't seen a financial system blow up. That if you 380 00:18:48,720 --> 00:18:50,240 Speaker 1: had said a couple of years ago that you would 381 00:18:50,240 --> 00:18:53,040 Speaker 1: have had consecutive seventy five basis point rate hikes, you 382 00:18:53,080 --> 00:18:54,960 Speaker 1: would have said it would have been financial armageddon. The 383 00:18:55,000 --> 00:18:57,880 Speaker 1: fact that we haven't is testimony to what the FED 384 00:18:57,960 --> 00:19:03,080 Speaker 1: has done. Can we actually say at already, well maybe 385 00:19:03,080 --> 00:19:04,919 Speaker 1: a little too soon to say we won't have some 386 00:19:05,000 --> 00:19:07,320 Speaker 1: blow up somewhere, but I would say that that, you know, 387 00:19:07,400 --> 00:19:10,119 Speaker 1: the strength of the banking sector is really what's helped 388 00:19:10,160 --> 00:19:12,159 Speaker 1: us out this time, and that's an outdoor of all 389 00:19:12,200 --> 00:19:15,880 Speaker 1: the regulations from the Great Financial Crisis, where we look 390 00:19:16,000 --> 00:19:19,359 Speaker 1: for potential problems in the private markets. And you know, 391 00:19:19,480 --> 00:19:22,879 Speaker 1: we've talked about this for months now, because of the 392 00:19:22,920 --> 00:19:26,600 Speaker 1: build up of debt in the private credit area, that's 393 00:19:26,680 --> 00:19:29,359 Speaker 1: where we would look for problems, so more simply because 394 00:19:29,400 --> 00:19:31,720 Speaker 1: there's black and well quitted, a huge amount of leverage, 395 00:19:31,720 --> 00:19:35,480 Speaker 1: and that's where the deterioration of lending standards really took place. 396 00:19:36,119 --> 00:19:38,479 Speaker 1: Cathy Jones greed to catch up as always of cha 397 00:19:38,600 --> 00:19:51,439 Speaker 1: Swab looking ahead to next week. Matt Miller joins us 398 00:19:51,440 --> 00:19:53,159 Speaker 1: in the studio. This is cool, Matt. We've got a 399 00:19:53,200 --> 00:19:54,960 Speaker 1: couple of things to do. Need to work out what 400 00:19:55,000 --> 00:19:57,320 Speaker 1: on earth is going on in Germany. Winters arrived, I'm 401 00:19:57,320 --> 00:19:59,560 Speaker 1: told by Maria today. O need to work out what's 402 00:19:59,600 --> 00:20:01,760 Speaker 1: going on to China as well, with the lightest news 403 00:20:01,800 --> 00:20:05,280 Speaker 1: out of the Shanghai factory in Tesla. Yeah. Absolutely, And 404 00:20:05,320 --> 00:20:07,160 Speaker 1: I think it's also interesting to look at the tug 405 00:20:07,160 --> 00:20:10,119 Speaker 1: of war between the possibility of reopening in China driving 406 00:20:10,160 --> 00:20:14,520 Speaker 1: demand up globally, uh, and higher rates around the world 407 00:20:14,560 --> 00:20:16,639 Speaker 1: causing a recession that drives it down. We've seen that 408 00:20:16,720 --> 00:20:20,359 Speaker 1: play in oil and I'm uh. We have the honor 409 00:20:20,680 --> 00:20:23,240 Speaker 1: of welcoming all Loucillennius in the studio, the CEO of 410 00:20:23,240 --> 00:20:25,199 Speaker 1: Mercedes Benz. I want to get you to weigh on 411 00:20:25,359 --> 00:20:27,760 Speaker 1: in on this because it's hugely important for your business 412 00:20:27,760 --> 00:20:30,760 Speaker 1: as well. Um. If they reopen, more drivers are out 413 00:20:30,800 --> 00:20:33,719 Speaker 1: on the roads in China and that's a big growth 414 00:20:33,760 --> 00:20:37,159 Speaker 1: area for your business. Is that good, um? And is 415 00:20:37,200 --> 00:20:40,880 Speaker 1: that good for Mercedes or are you more concerned about 416 00:20:40,960 --> 00:20:44,399 Speaker 1: rates rising around the world causing recessions everywhere? Good morning, 417 00:20:44,440 --> 00:20:46,960 Speaker 1: great to be with you this morning. You said it. 418 00:20:47,200 --> 00:20:49,440 Speaker 1: China is the biggest car market in the world. In fact, 419 00:20:49,480 --> 00:20:51,800 Speaker 1: if you look at the size of the Chinese market, 420 00:20:51,920 --> 00:20:54,399 Speaker 1: it's actually bigger than if you put the United States 421 00:20:54,480 --> 00:20:57,159 Speaker 1: and EU together. So what happens in China matters for 422 00:20:57,200 --> 00:20:59,520 Speaker 1: the auto industry and of course matters for Mercedes Spens. 423 00:21:00,440 --> 00:21:03,439 Speaker 1: We have now come through a period here in the 424 00:21:03,480 --> 00:21:07,160 Speaker 1: fourth quarter where we have had some lockdowns in some places, 425 00:21:07,200 --> 00:21:11,560 Speaker 1: actually extensive lockdowns, which shuts down dealers and frankly speaking, 426 00:21:11,600 --> 00:21:13,159 Speaker 1: if you're if you're at home, you're not going to 427 00:21:13,240 --> 00:21:15,240 Speaker 1: go to dealer and buy a car. But at the 428 00:21:15,280 --> 00:21:18,760 Speaker 1: same time, the central government has now clearly communicated that 429 00:21:18,840 --> 00:21:22,000 Speaker 1: they want to ease up the situation. So what's going 430 00:21:22,040 --> 00:21:23,800 Speaker 1: to happen. Are we going to see a stop and 431 00:21:23,840 --> 00:21:26,200 Speaker 1: go or are we going to see a gradual easing. 432 00:21:26,240 --> 00:21:30,000 Speaker 1: It's it's difficult to say, but how that play out 433 00:21:30,160 --> 00:21:34,080 Speaker 1: will definitely define what the biggest market for US is 434 00:21:34,119 --> 00:21:38,040 Speaker 1: going to do. But hiding beneath that has been generally 435 00:21:38,640 --> 00:21:41,119 Speaker 1: a little bit weaker Chinese economy than we have been 436 00:21:41,200 --> 00:21:45,080 Speaker 1: used to for the last years or decades, and I 437 00:21:45,119 --> 00:21:47,720 Speaker 1: can now see that the central government is trying to 438 00:21:47,760 --> 00:21:50,520 Speaker 1: put some some stimulus into that and see if they 439 00:21:50,520 --> 00:21:54,720 Speaker 1: can restart the economy together with opening up so glass 440 00:21:54,760 --> 00:21:58,479 Speaker 1: half full twenty three could get maybe better. You know, 441 00:21:59,320 --> 00:22:02,560 Speaker 1: the other thing about your company is that you're really 442 00:22:02,600 --> 00:22:04,760 Speaker 1: working on a strategy. You go back to a Mercedes 443 00:22:04,800 --> 00:22:08,320 Speaker 1: Bends of the past, where you make the luxury car 444 00:22:08,440 --> 00:22:11,720 Speaker 1: that everybody wants, and you're focused on those higher margin 445 00:22:11,760 --> 00:22:15,600 Speaker 1: products rather than trying to be everything to everyone. Right, um, 446 00:22:15,640 --> 00:22:20,000 Speaker 1: that coincides with pricing power. That's tremendous um and a 447 00:22:20,080 --> 00:22:23,679 Speaker 1: lack of inventory around the world. So the supply side 448 00:22:23,720 --> 00:22:27,040 Speaker 1: has really been tighter because of supply chains. Can you 449 00:22:27,119 --> 00:22:29,280 Speaker 1: keep that pricing power if we go into a session 450 00:22:29,440 --> 00:22:31,720 Speaker 1: when all the chips come flooding back onto the market 451 00:22:31,720 --> 00:22:33,800 Speaker 1: and everybody can sell as many cars as they want, 452 00:22:33,960 --> 00:22:35,760 Speaker 1: can you can you keep from going back to the 453 00:22:35,800 --> 00:22:38,359 Speaker 1: rebates and the full lots that we used to see 454 00:22:38,920 --> 00:22:41,320 Speaker 1: or Sadespence has always been a cumbination between on the 455 00:22:41,359 --> 00:22:43,679 Speaker 1: on the one hand, innovation and technology, but on the 456 00:22:43,680 --> 00:22:47,040 Speaker 1: other hand, luxury something special. When you get a Mercedes, 457 00:22:47,080 --> 00:22:50,080 Speaker 1: it's almost like you reward yourself. And even before we 458 00:22:50,119 --> 00:22:55,600 Speaker 1: got into this situation with chip shortages artificially keeping supply down, 459 00:22:55,760 --> 00:22:59,760 Speaker 1: we had already pivoted our strategy towards being let's say 460 00:22:59,760 --> 00:23:03,160 Speaker 1: more thoughtful and go to market, uh, look at building 461 00:23:03,200 --> 00:23:07,960 Speaker 1: stronger contribution margins, watching our pricing powers. You know, don't 462 00:23:08,000 --> 00:23:10,359 Speaker 1: you fleet deals that don't make sense. So that that 463 00:23:10,520 --> 00:23:14,360 Speaker 1: was something that we had started before this chip crisis. 464 00:23:14,720 --> 00:23:17,359 Speaker 1: Now it goes without saying that if you have higher demand, 465 00:23:17,359 --> 00:23:19,080 Speaker 1: as has been the case for the last couple of years, 466 00:23:19,119 --> 00:23:22,360 Speaker 1: and you're held back by supply, that provides for very 467 00:23:22,440 --> 00:23:25,520 Speaker 1: very very strong pricing if we now get into situation 468 00:23:25,600 --> 00:23:28,560 Speaker 1: next year where the economy cools down and we get 469 00:23:28,560 --> 00:23:32,080 Speaker 1: back into an equilibrium. So it's demand that controls the 470 00:23:33,600 --> 00:23:37,760 Speaker 1: sales volume as opposed to the chip supply. Yes, of course, 471 00:23:37,800 --> 00:23:39,800 Speaker 1: we've got to stay disciplined, there's no doubt about it. 472 00:23:39,840 --> 00:23:41,960 Speaker 1: We have done a lot of work on our break 473 00:23:42,000 --> 00:23:43,720 Speaker 1: even point to make sure that we can lower the 474 00:23:43,760 --> 00:23:46,080 Speaker 1: break even point in our plans so we're not forced 475 00:23:46,440 --> 00:23:49,639 Speaker 1: to keep the plant running at a certain number. So 476 00:23:49,680 --> 00:23:53,000 Speaker 1: we'll see what happens, but in general it is our 477 00:23:53,000 --> 00:23:55,920 Speaker 1: target to to stay discipline. Do you mentioned your plants? 478 00:23:56,000 --> 00:23:59,920 Speaker 1: And we've been hearing this morning about winter has come 479 00:24:00,240 --> 00:24:04,400 Speaker 1: in Germany. Obviously the gas issue is a difficult one 480 00:24:04,440 --> 00:24:08,480 Speaker 1: for factory um for factories. You can't run a paint 481 00:24:08,480 --> 00:24:11,760 Speaker 1: shop right without gas, you can't run your line without gas. 482 00:24:12,040 --> 00:24:13,800 Speaker 1: What will you do if it comes down to rationing 483 00:24:14,480 --> 00:24:18,720 Speaker 1: well after an unusually warm fall. Indeed, it's now getting colder. 484 00:24:19,440 --> 00:24:21,960 Speaker 1: But the task force to deal with this really started 485 00:24:22,000 --> 00:24:25,280 Speaker 1: on February in Germany. We had we had a scenario 486 00:24:25,359 --> 00:24:27,840 Speaker 1: already at Mercedes Spence what if what if we get 487 00:24:27,880 --> 00:24:31,360 Speaker 1: cut off and we have been working on on optionality 488 00:24:31,359 --> 00:24:35,000 Speaker 1: and resilience. So if we look at before the war started, 489 00:24:35,240 --> 00:24:39,479 Speaker 1: if our gas usage was index hundred, we can go 490 00:24:39,560 --> 00:24:43,760 Speaker 1: now to an index fifties, So reduction of while maintaining 491 00:24:43,800 --> 00:24:46,560 Speaker 1: production for Mercedes Spence. How do we do that? Yes, 492 00:24:46,600 --> 00:24:49,840 Speaker 1: efficiency is part of the equation. Yes, the government has 493 00:24:50,040 --> 00:24:53,760 Speaker 1: suggested that in all buildings temperatures are lowered. We do 494 00:24:53,840 --> 00:24:58,040 Speaker 1: that as well where a sweater, So efficiencies has been 495 00:24:58,160 --> 00:25:01,960 Speaker 1: one part of the answer wwitching to electricity away from gas, 496 00:25:02,000 --> 00:25:04,560 Speaker 1: but also in some cases switching from gas to oil 497 00:25:04,600 --> 00:25:09,960 Speaker 1: and oil is available. So there's been quite significant resilience 498 00:25:09,960 --> 00:25:13,960 Speaker 1: package in our company but in Germany in general. So 499 00:25:14,480 --> 00:25:18,359 Speaker 1: I think we're we are quite strong compared to where 500 00:25:18,359 --> 00:25:20,760 Speaker 1: we were nine or ten months ago to go through 501 00:25:20,800 --> 00:25:23,560 Speaker 1: this winter. But we're not out of the woods. So 502 00:25:24,280 --> 00:25:27,560 Speaker 1: people have to work on efficiency, not just companies, private 503 00:25:27,560 --> 00:25:30,000 Speaker 1: citizens as well. We are in America. So let's talk 504 00:25:30,000 --> 00:25:32,880 Speaker 1: about the Inflation Reduction Act just briefly. It's been criticized 505 00:25:32,920 --> 00:25:36,080 Speaker 1: by European leaders for us to see, I was Mercedes, 506 00:25:36,280 --> 00:25:37,920 Speaker 1: do you criticize it as well? As it's a good 507 00:25:37,920 --> 00:25:41,800 Speaker 1: thing or a bad thing for messides The underlying idea 508 00:25:42,040 --> 00:25:46,920 Speaker 1: to support and accelerate decarbonization. I'm all for that. In fact, 509 00:25:46,960 --> 00:25:49,560 Speaker 1: it is Mercedes strategy to go all in on electric. 510 00:25:50,160 --> 00:25:52,080 Speaker 1: We're going to put the company in a position by 511 00:25:52,119 --> 00:25:55,160 Speaker 1: the end of this decade to have an all electric 512 00:25:55,240 --> 00:25:58,200 Speaker 1: lineup and be able to serve markets that are ready 513 00:25:58,240 --> 00:26:03,720 Speaker 1: fully electric. So any policy that supports that to start 514 00:26:03,720 --> 00:26:06,560 Speaker 1: with is a good thing. Now there's another side of 515 00:26:06,560 --> 00:26:09,760 Speaker 1: the coin here. We shouldn't do that while at the 516 00:26:09,840 --> 00:26:13,560 Speaker 1: same time up end free trade. So one has to 517 00:26:13,560 --> 00:26:16,840 Speaker 1: be mindful that over the last thirty years of globalization, 518 00:26:16,960 --> 00:26:19,200 Speaker 1: why have been we've been able to grow economy is 519 00:26:19,280 --> 00:26:21,760 Speaker 1: as strong as strongly as we have It's been w 520 00:26:22,000 --> 00:26:24,520 Speaker 1: t O driven free trade. So if we take a 521 00:26:24,560 --> 00:26:28,240 Speaker 1: step back on that and we create barriers again, that 522 00:26:28,280 --> 00:26:31,399 Speaker 1: would be a bad thing. And uh And in that case, 523 00:26:32,000 --> 00:26:34,800 Speaker 1: I'm hopeful that between the EU and the United States, 524 00:26:35,160 --> 00:26:39,120 Speaker 1: waste can be found to uphold free trade but at 525 00:26:39,119 --> 00:26:42,440 Speaker 1: the same time accelerate towards the carbon free And that's 526 00:26:42,440 --> 00:26:44,800 Speaker 1: the hope. You're not a policy make you receive have 527 00:26:44,840 --> 00:26:46,480 Speaker 1: you got to put more money to work here in America, 528 00:26:46,520 --> 00:26:49,560 Speaker 1: investment here, and produce more here. Because of this even 529 00:26:49,640 --> 00:26:52,800 Speaker 1: before the Inflation Reduction Act, we had started that. We 530 00:26:52,840 --> 00:26:55,400 Speaker 1: call it region for region strategy. So of course our 531 00:26:55,440 --> 00:26:59,520 Speaker 1: three biggest economic or markets are the three big economic 532 00:26:59,560 --> 00:27:03,359 Speaker 1: regions with Europe, United States, and China, so our vehicle 533 00:27:03,440 --> 00:27:07,560 Speaker 1: production in general, but also the battery supply chain. And 534 00:27:07,560 --> 00:27:09,600 Speaker 1: we have put a billion dollars into our plant in 535 00:27:09,640 --> 00:27:12,359 Speaker 1: Alabama and built the brand new battery factory that I 536 00:27:12,400 --> 00:27:15,560 Speaker 1: opened myself earlier this year in fact, so we had 537 00:27:15,600 --> 00:27:20,320 Speaker 1: started that already. So can we expect more? That is happening. 538 00:27:20,800 --> 00:27:23,000 Speaker 1: But what you can do, especially if you're a premium 539 00:27:23,040 --> 00:27:26,320 Speaker 1: luxury manufacturer, is you can't divide every single model into 540 00:27:26,359 --> 00:27:29,640 Speaker 1: three pieces and make it in every region. It economically 541 00:27:29,680 --> 00:27:33,399 Speaker 1: doesn't make sense. So we also rely on on the 542 00:27:33,440 --> 00:27:36,840 Speaker 1: ability to export, and we will see how that plays out. 543 00:27:36,880 --> 00:27:39,880 Speaker 1: You know one thing that Americans have imported Formula one. 544 00:27:39,960 --> 00:27:43,480 Speaker 1: We've got that Miami, Anally, Vegas, Austin. You must be 545 00:27:43,520 --> 00:27:45,920 Speaker 1: happy about that. How cool is that the Formula one 546 00:27:46,000 --> 00:27:49,560 Speaker 1: is finally broken this country. A Formula one has grown 547 00:27:49,680 --> 00:27:53,200 Speaker 1: tremendously over the last year. So I think uh Liberty, 548 00:27:53,240 --> 00:27:56,040 Speaker 1: who owns Formula one management, has done a tremendous job 549 00:27:56,080 --> 00:27:58,640 Speaker 1: and We have helped them doing that by providing a 550 00:27:58,720 --> 00:28:03,879 Speaker 1: very exciting show. United States. Is Mercedes good at ye? 551 00:28:04,040 --> 00:28:08,160 Speaker 1: And you are you trolling? Well? We can next year. 552 00:28:08,320 --> 00:28:11,119 Speaker 1: We want we want one race. So there was redemption 553 00:28:11,480 --> 00:28:14,520 Speaker 1: about us seeing any sport. There's always next. You've got 554 00:28:14,520 --> 00:28:17,080 Speaker 1: to give Louis Abetta cow come on, it was upset 555 00:28:17,160 --> 00:28:20,000 Speaker 1: this year. That is our job. That is our job, 556 00:28:20,040 --> 00:28:22,119 Speaker 1: and we're working on it. This is great. Thanks for 557 00:28:22,119 --> 00:28:25,600 Speaker 1: Fami with us. This is the Bloomberg Surveillance Podcast. Thanks 558 00:28:25,640 --> 00:28:28,960 Speaker 1: for listening. Join us live weekdays from seven to ten 559 00:28:29,040 --> 00:28:33,520 Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each 560 00:28:33,600 --> 00:28:37,359 Speaker 1: day from six to nine am for insight from the 561 00:28:37,359 --> 00:28:42,560 Speaker 1: best in economics, finance, investment, and international relations. And subscribe 562 00:28:42,600 --> 00:28:47,560 Speaker 1: to the Surveillance podcast on Apple, podcast, SoundCloud, Bloomberg dot com, 563 00:28:47,640 --> 00:28:50,880 Speaker 1: and of course on the terminal. I'm Tom Keene and 564 00:28:51,000 --> 00:28:52,840 Speaker 1: this is Bloomberg