WEBVTT - Markets, 5G, And Supply Chain Bottlenecks 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.640 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.680 at Bloomberg dot com slash podcast. I want to talk 0:00:22.680 --> 0:00:25.360 about banks here. We've got banks earnings are gonna be 0:00:25.440 --> 0:00:27.920 kicking off this earning season in a few days, and 0:00:28.240 --> 0:00:31.760 can be really interested to hear what these banks CEOs 0:00:31.840 --> 0:00:34.560 talk about or how they phrase their business outlook in 0:00:34.680 --> 0:00:37.320 term of a rising interest rate environment. Dave Ellison, he's 0:00:37.320 --> 0:00:39.840 a portfolio manager at the Hennessey Large and Small Cap 0:00:40.159 --> 0:00:42.440 Financial Funds Day, thanks so much for joining us here. 0:00:42.800 --> 0:00:45.840 We got that inflation print today kind of in line 0:00:45.840 --> 0:00:48.880 with expectations. We have rates rising both on the short 0:00:48.960 --> 0:00:51.360 end and a little bit now even on the longer end. 0:00:52.159 --> 0:00:55.280 How do you expect the banks to kind of talk 0:00:55.360 --> 0:00:57.840 about their business, you know, when we get these earnings 0:00:57.880 --> 0:01:01.360 calls over the next week or two. Well, I think 0:01:01.400 --> 0:01:05.400 the anyway, good morning, But to everyone, I think when 0:01:05.400 --> 0:01:07.960 it comes to the banks, I mean, they're you know, 0:01:08.000 --> 0:01:11.319 not much different happened in the fourth quarter that happened 0:01:11.319 --> 0:01:14.600 in the third quarter or the second quarter. So the 0:01:14.720 --> 0:01:16.800 erneys are gonna be good. Credit is going to be fine. 0:01:16.959 --> 0:01:19.840 I think the story is going to be that loan 0:01:19.920 --> 0:01:23.399 demand is getting better and that's going to drive I 0:01:23.440 --> 0:01:26.119 think the narrative for you know, the rest of the year. 0:01:26.560 --> 0:01:30.759 Rates are a factor, but you know again, they FED 0:01:30.840 --> 0:01:33.800 hasn't moved rate yet, and rates take a while to 0:01:33.880 --> 0:01:37.200 bleed into the margins or the erne's of these companies, 0:01:37.200 --> 0:01:39.759 So the impact of a rise in rates this year 0:01:39.840 --> 0:01:43.480 really won't impact us until the fourth quarter of next 0:01:43.560 --> 0:01:45.200 year or beyond. And I don't think they're going to 0:01:45.280 --> 0:01:48.279 go up enough to really make a difference to the 0:01:48.320 --> 0:01:52.640 demand for credit. So, uh, you know, the most important 0:01:52.640 --> 0:01:55.360 thing here is loan growth. And if the FED is 0:01:55.400 --> 0:01:57.960 going to back off growing their balance sheet and actually 0:01:58.000 --> 0:02:01.480 shrink it, then the bands have an opportunity to fill 0:02:01.520 --> 0:02:04.160 in that hole at the bank that the FED has 0:02:04.200 --> 0:02:07.320 been filling for many years now by providing all of 0:02:07.320 --> 0:02:11.240 this credit and liquidity and start to use their excess liquidity, 0:02:11.280 --> 0:02:15.360 which will drive earnings higher. Will they make any money 0:02:15.400 --> 0:02:18.160 on that? I mean, if there's no net interest margin 0:02:18.240 --> 0:02:22.160 out there, what's the point. Well, I think it's you know, 0:02:22.280 --> 0:02:24.760 there is a decent margin out there now. You know, 0:02:24.800 --> 0:02:26.920 they're not lending at the ten year rate. You know, 0:02:27.040 --> 0:02:28.960 most loans are going on at two and a half 0:02:29.000 --> 0:02:32.720 to three and a half percent. Yeah, the cost of 0:02:32.760 --> 0:02:37.000 funds is not you know, at forty or fifty basis points, 0:02:37.000 --> 0:02:40.720 it's more like zero or close to it. So, um, 0:02:40.760 --> 0:02:43.400 so you can make you know that the profitability of 0:02:43.400 --> 0:02:47.119 the industry is very good here. It's not bad by 0:02:47.160 --> 0:02:49.520 any means that. Having been in this business since the 0:02:49.560 --> 0:02:52.320 early eighties, believe me, things are really good right now. 0:02:53.160 --> 0:02:56.160 Uh JP Morgan's making a billion dollars a month after 0:02:56.320 --> 0:02:59.160 tax I think they're doing fine. The issue is how 0:02:59.200 --> 0:03:00.840 do they grow that and how do they get their 0:03:00.880 --> 0:03:05.120 multiple up? And actually, you know, for people that invest 0:03:05.200 --> 0:03:07.360 in these names, you know what makes them go hired 0:03:07.360 --> 0:03:10.400 and it's going to be long growth and so yeah, 0:03:10.680 --> 0:03:12.040 that's kind of where I wanted to go to. I mean, 0:03:12.080 --> 0:03:14.720 if I have a rising interest rate in environment, steepening 0:03:14.840 --> 0:03:19.399 yielder presumably um as we go through the year here, um, 0:03:19.440 --> 0:03:21.240 do I want to own the big money center banks 0:03:21.240 --> 0:03:24.160 and JP Morgan's, the b of A's the cities or 0:03:24.560 --> 0:03:28.600 or maybe the regionals. How how do you think about that? Well, 0:03:28.680 --> 0:03:32.040 I I think you know. My view is the bigger 0:03:32.040 --> 0:03:35.720 banks are the place to be in general because they 0:03:35.720 --> 0:03:38.720 have the profits, they have the in a sense, the 0:03:38.760 --> 0:03:43.200 Fang network effect, and they can make investments in technology 0:03:43.320 --> 0:03:47.360 and stay ahead of this sort of PayPal square or 0:03:47.400 --> 0:03:51.960 now Block, you know, movement against them in terms of 0:03:52.000 --> 0:03:55.600 taking share. So I you know, I favor the bigger 0:03:55.640 --> 0:03:58.760 banks because I think they have the opportunity to to 0:03:58.920 --> 0:04:03.520 grow loans, to the investments, to stay relevant against this 0:04:03.760 --> 0:04:07.080 massive move of tech names trying to get into this 0:04:07.200 --> 0:04:10.120 business and and take away the low hanging sort of 0:04:10.200 --> 0:04:14.720 high profitable fruit that's out there. Do you I mean, 0:04:15.120 --> 0:04:18.200 if they go out there and buy the technology that 0:04:18.279 --> 0:04:21.640 they can't build or don't want to embark on, do 0:04:21.720 --> 0:04:24.520 you then try and pick those names before they get 0:04:24.920 --> 0:04:29.360 um taken up by the banks. I don't think that's 0:04:29.480 --> 0:04:32.080 gonna happen as much. I think a lot of the companies. Again, 0:04:32.120 --> 0:04:35.200 what I'm hearing from the bigger banks is they're going 0:04:35.279 --> 0:04:38.360 to build it in house. Uh. They have the ability 0:04:38.440 --> 0:04:41.400 to hire the people, they have the money, and uh, 0:04:41.720 --> 0:04:43.880 you know, I think they have Again, they have the 0:04:43.920 --> 0:04:46.719 network effect to test it and see what works. So 0:04:47.360 --> 0:04:49.839 I think this idea that Bank America or JP Morgan 0:04:49.920 --> 0:04:52.280 is going to buy PayPal, and somebody's going to buy Block, 0:04:52.400 --> 0:04:54.920 and somebody's going to buy a firm, and somebody's going 0:04:54.960 --> 0:04:58.240 to buy whatever other you know, I just don't think 0:04:58.279 --> 0:05:01.760 that's going to happen. The value ations are too high 0:05:01.839 --> 0:05:05.799 and and the regulatory structure just doesn't allow these guys 0:05:05.839 --> 0:05:08.640 to do that anymore. So again, it's going to be 0:05:08.720 --> 0:05:13.680 a build, make it work for themselves, retain customers, build 0:05:13.680 --> 0:05:16.520 a good mobile platform, make it better, make it better 0:05:16.560 --> 0:05:20.359 than Square, PayPal or some of these other guys, and 0:05:20.360 --> 0:05:22.919 and just you know, go for it and try to 0:05:22.960 --> 0:05:25.040 get the customers back. And I think they have the 0:05:25.080 --> 0:05:29.479 ability to do that. So Dave, on the bigger banks, 0:05:29.520 --> 0:05:33.039 do you prefer the ones that have a big capital 0:05:33.080 --> 0:05:38.359 market slash investment banking franchise like a JP Morgan um 0:05:38.520 --> 0:05:43.359 or maybe more of a retail commercial corporate bank presence 0:05:43.360 --> 0:05:47.000 like a Wacovia. Well, I think you can own and 0:05:47.040 --> 0:05:50.839 I own all of those names. Uh, for that reason, 0:05:50.880 --> 0:05:53.880 I think I think the most interesting story now or 0:05:53.920 --> 0:05:56.960 the two most interesting stories are Bank America in terms 0:05:56.960 --> 0:06:00.680 of their ability to you know, play the retail benefits 0:06:00.720 --> 0:06:03.080 of the growth in loans, and then of course have 0:06:03.200 --> 0:06:07.800 some exposure to the very profitable capital markets business now. 0:06:07.839 --> 0:06:10.159 But I think the other one is City Corps. Everybody's 0:06:10.200 --> 0:06:14.080 talking about Wells Fargo now, and everybody loves well Fargo, 0:06:14.200 --> 0:06:17.720 but I think City Corps is in a significant transition. 0:06:18.600 --> 0:06:22.000 That is, you know again, they made that sale yesterday. 0:06:22.600 --> 0:06:24.960 The stock is very cheap, They've got tons of capital, 0:06:25.040 --> 0:06:28.440 they're very profitable, and I think the question is what 0:06:28.600 --> 0:06:30.320 is that company going to look like in a couple 0:06:30.320 --> 0:06:34.279 of years, And I suspect it's, you know, it's it's 0:06:33.800 --> 0:06:36.680 the company will look better and the stock will be 0:06:37.000 --> 0:06:39.880 appreciably higher than it is now relative to book value 0:06:39.880 --> 0:06:42.320 and earnings. Dave, great to get your picks and your 0:06:42.360 --> 0:06:44.440 take on the industry. Thanks so much for joining us. 0:06:44.480 --> 0:06:47.480 Dave Ellison there um from Hennessy Large and Small Cat 0:06:47.600 --> 0:06:54.640 Financial Funds. Let's bring an Alex jail Off right now, 0:06:54.680 --> 0:06:58.599 co head of investment Strategies at Bernstein Private Wealth Management, 0:06:58.600 --> 0:07:00.440 and I got a lot of talk about with you. Alex. 0:07:00.480 --> 0:07:03.440 First off, I was pretty excited about. Bernstein is one 0:07:03.480 --> 0:07:07.320 of the banks that's overweight UM energy stocks and they're 0:07:07.320 --> 0:07:11.160 just trading at a huge discount, especially the European energy 0:07:11.200 --> 0:07:15.000 producers trading at I think a discount to the stock 0:07:15.080 --> 0:07:19.120 six hundred and forward earnings are so much higher UM 0:07:19.120 --> 0:07:23.480 than the benchmark index. Do you like oil producers too? Well, 0:07:23.520 --> 0:07:24.760 first of all, let me just go back to the 0:07:24.760 --> 0:07:28.720 beer conversation. I will see your Pilsner in Prague and 0:07:28.760 --> 0:07:30.800 I will raise you a Guinness in Dublin, which I 0:07:30.800 --> 0:07:33.640 I still think is the just the number one beer experience. 0:07:33.680 --> 0:07:37.320 I mean, I love, I do love Guinness, especially the 0:07:37.400 --> 0:07:40.360 extra cold, which I think is four degrees colder than 0:07:40.400 --> 0:07:42.520 the typical task. And it is different in Dublin than 0:07:42.520 --> 0:07:45.920 and it's different, it's a million times. Look, it's a 0:07:45.920 --> 0:07:47.880 good segue to talk about what's going on in Europe, 0:07:47.920 --> 0:07:50.720 and you mentioned energy producers. If you want to find 0:07:50.760 --> 0:07:53.920 the intersection of what's cheap today, and look, you have 0:07:54.000 --> 0:07:58.280 to look hard to find anything that has a reasonable valuation. 0:07:59.000 --> 0:08:03.760 Europe is exceptionally attractive today on a valuation basis, and 0:08:03.800 --> 0:08:06.200 there's a dynamic that's going on within Europe that we 0:08:06.280 --> 0:08:09.520 think is very interesting it's around dividends. There's been a 0:08:09.560 --> 0:08:11.800 lot of dividend cuts that have occurred in the midst 0:08:11.800 --> 0:08:14.280 of the pandemic, and our view is in the first 0:08:14.360 --> 0:08:17.560 quarter and second quarter of twenty two, you get reinstatement 0:08:18.320 --> 0:08:20.240 and you get a pickup in dividends. So some of 0:08:20.280 --> 0:08:24.000 the energy story revolves around dividends. But I would say, 0:08:24.120 --> 0:08:28.280 more broadly, European dividend reinstatement and increase. That's that's a 0:08:28.360 --> 0:08:32.599 trade in itself. So Alex, just generally speaking geographically, you 0:08:32.800 --> 0:08:37.440 like Europe more so than the US, well more so 0:08:37.520 --> 0:08:40.000 than the US is is a little bit more than 0:08:40.040 --> 0:08:42.680 what I would say, because what the US is clearly 0:08:43.320 --> 0:08:47.920 the most powerful economy. UH. Even with the inflation readings 0:08:47.920 --> 0:08:51.920 that we've seen today, there is real strength. There's a 0:08:52.080 --> 0:08:55.960 strong view that will have good growth this year, higher 0:08:56.000 --> 0:08:58.240 growth in the first half than the second half, but 0:08:58.360 --> 0:09:02.360 good solid growth throughout the year UH, and that inflation 0:09:02.520 --> 0:09:07.120 as it comes down, that will allow consumers UH to 0:09:07.320 --> 0:09:10.880 continue to spend and companies to have expanded their margins 0:09:11.600 --> 0:09:14.480 over the period. So the US continues to be the 0:09:14.520 --> 0:09:16.720 market that we want to have the highest exposure to. 0:09:17.280 --> 0:09:21.880 But look, we continue to maintain Uh, a pretty meaningful 0:09:21.920 --> 0:09:26.240 exposure to foreign markets. And we are circling in pencil, 0:09:26.520 --> 0:09:29.599 but circling Europe as an opportunity for two and what 0:09:29.760 --> 0:09:32.480 what what let's get back to the US. I wonder 0:09:32.520 --> 0:09:37.199 what kind of industry groups you like here. Well, if 0:09:37.200 --> 0:09:39.560 you look at the backdrop, you've got to start with rates. 0:09:40.040 --> 0:09:44.120 And as rising rates is a big part of our forecast. 0:09:44.160 --> 0:09:47.640 Not not dramatically higher. This isn't gonna be uh, something 0:09:47.679 --> 0:09:50.760 that's going to overwhelm the market and the economy, but 0:09:50.920 --> 0:09:55.720 rising rates very strong indicator for banks. So financials have 0:09:55.800 --> 0:09:58.120 to be part of the program. If you think about 0:09:58.160 --> 0:10:01.560 the mid cycle recover bree that we're in from an 0:10:01.559 --> 0:10:06.160 economic perspective, cyclicals are interesting. Uh And and so there 0:10:06.160 --> 0:10:11.640 there's continues to be a favoritism around quality and earnings 0:10:11.720 --> 0:10:16.640 and cash flow generation with that cyclical tilt. But I'll 0:10:16.679 --> 0:10:19.800 tell you it's no longer this discussion of which one 0:10:19.880 --> 0:10:22.079 is going to win value or growth. I think that's 0:10:22.120 --> 0:10:25.880 an outdated notion. And in fact, we'd look at companies 0:10:25.920 --> 0:10:30.120 that generate reliable cash flows with great visibility into the 0:10:30.160 --> 0:10:33.360 next few quarters, if not the next few years. So 0:10:33.720 --> 0:10:36.240 it's it's a little bit of everything. It's a mixed bag. 0:10:36.280 --> 0:10:39.720 We we favor balance over trying to make a style call. 0:10:40.240 --> 0:10:43.160 But it's all coming back to cash flow, all right, Alex, 0:10:43.160 --> 0:10:44.719 thank you so much for joining us, too short of 0:10:44.720 --> 0:10:47.040 a visible. We'll touch based with you soon. Alex shall 0:10:47.040 --> 0:10:51.040 off Cohed Investment Strategies, Bernstein Private Wealth and Management likes 0:10:51.040 --> 0:10:54.600 his Guinness uh in Dublin, which is always makes him 0:10:54.600 --> 0:11:01.120 a friend of this show. All right, let's talk about 0:11:01.120 --> 0:11:04.360 five G. It's rolling out all things great. Everybody loves 0:11:04.400 --> 0:11:06.160 five gun. Be able to download a movie in like 0:11:06.280 --> 0:11:09.880 a nanosecond. But apparently there's some problem with airlines and 0:11:09.960 --> 0:11:13.040 planes and I know, the electronics and stuff like that. 0:11:13.120 --> 0:11:15.439 Let's bring it in an extra because I really don't 0:11:15.520 --> 0:11:18.800 understand that. Diana firtch got Wroth, adjunct professor at George 0:11:18.800 --> 0:11:22.800 Washington University, joins us um. Diana, thanks so much for 0:11:22.840 --> 0:11:25.520 taking the time. Can you explain the concerns that the 0:11:25.640 --> 0:11:31.160 airlines have about five G? Yes, yes I can. And 0:11:31.240 --> 0:11:33.360 before that, I just want to say the best way 0:11:33.400 --> 0:11:35.440 not to have your car stolen is to have a 0:11:35.480 --> 0:11:38.760 manual transmit. That's a great People can't buy them, most 0:11:38.760 --> 0:11:43.920 people can't drive them. So the concerns are with these 0:11:43.960 --> 0:11:49.880 devices called radio or radar altimeters, which are NAVIGA part 0:11:49.920 --> 0:11:53.480 of the navigation systems of planes, and the new five 0:11:53.679 --> 0:11:59.560 G deployment could interfere with these radio altimeters. So the 0:11:59.679 --> 0:12:03.360 f a A, which is devoted to keeping aircraft and 0:12:03.400 --> 0:12:07.880 passengers safe, wants to put in place safety measures such 0:12:07.920 --> 0:12:13.640 as not having higher antennas or higher power around certain airports. 0:12:14.200 --> 0:12:17.680 The problem is that while of companies such as A T, 0:12:17.720 --> 0:12:21.320 T Arrizon and T Mobile paid a collective ninety four 0:12:21.559 --> 0:12:26.400 billion dollars last year to roll out these high pot 0:12:26.520 --> 0:12:29.320 five G systems, and they do not want to be 0:12:29.440 --> 0:12:33.079 told that they should be dialing them back or lowering 0:12:33.120 --> 0:12:36.560 the power or not having them close to airports. So 0:12:36.720 --> 0:12:39.520 that's where the problem is. The f a A has 0:12:39.600 --> 0:12:44.240 convinced these wild of companies to delay rolling out five 0:12:44.320 --> 0:12:47.360 G for another couple of weeks, and then after that 0:12:47.480 --> 0:12:50.360 we will have to see what happens. I mean, isn't 0:12:50.360 --> 0:12:54.000 it kind of binary? Either it's dangerous or it's not. 0:12:54.280 --> 0:12:58.360 Either there's a possibility that it ruins the altimeter sensors 0:12:58.360 --> 0:13:01.760 and the plane crashes on land, or it doesn't, which 0:13:01.840 --> 0:13:08.200 is it? So it's not exactly. Bine, Well, I mean 0:13:08.240 --> 0:13:11.040 it is binary, but the problem is that under certain 0:13:11.120 --> 0:13:15.640 circumstances and in certain planes, it is dangerous, and in 0:13:15.720 --> 0:13:20.520 other circumstances it isn't. So it's not all radar altimeters 0:13:20.520 --> 0:13:23.920 that are affected. Some of them are more tied into 0:13:23.920 --> 0:13:26.880 the plane's navigation systems than others. And it's not a 0:13:26.920 --> 0:13:30.000 matter of old ones or new ones. Some of the 0:13:30.080 --> 0:13:33.040 older ones cause fewer problems than the new ones because 0:13:33.040 --> 0:13:37.520 the newer ones do automatic things such as affect the 0:13:37.559 --> 0:13:41.440 planes landing gear, for example. So how how is this 0:13:41.480 --> 0:13:44.959 going to play out here? Interesting and terrifying? It's interesting, terrifying, absolutely, 0:13:45.000 --> 0:13:48.000 because it kind of feels binary. But it is this 0:13:48.120 --> 0:13:51.400 something that the airlines can fix? Is this something that 0:13:51.480 --> 0:13:54.600 the telecom companies need to adjust? Do we have to 0:13:54.679 --> 0:14:02.640 work together? Is there? Uh? Well, this isn't going to 0:14:02.720 --> 0:14:07.120 be fixed right away because, as the manufacturers of Boeing 0:14:07.160 --> 0:14:10.280 and Airbus planes have said, you cannot just swap out 0:14:10.400 --> 0:14:13.839 one radar altimeter for another, like you can swap an 0:14:13.880 --> 0:14:16.680 easy pass out of your car and put another easy 0:14:16.720 --> 0:14:20.040 pass in it. These take time to take out. The 0:14:20.120 --> 0:14:24.120 f a A is committed to keeping passengers safe That 0:14:24.160 --> 0:14:27.680 means if they think that there is two high five 0:14:27.760 --> 0:14:32.720 G par at one airport, they will ask the plane 0:14:32.760 --> 0:14:37.360 to be diverted to another airport, or they might cancel 0:14:37.680 --> 0:14:41.520 that particular flight, which is going to wreck havoc with 0:14:41.920 --> 0:14:46.080 airline flights. We already have problems with not enough crews 0:14:46.120 --> 0:14:51.160 and existing delays. This is going to add more delays. Probably. 0:14:51.160 --> 0:14:54.240 It has very high stand It has very high, very 0:14:54.320 --> 0:14:56.880 very high standards, and the FA is going to make 0:14:56.880 --> 0:15:00.520 sure that everyone is safe. Are they higher? Are they 0:15:00.600 --> 0:15:04.000 higher than French standards? I mean, how does this work 0:15:04.000 --> 0:15:09.040 in other countries? Well, five G is already being deployed 0:15:09.080 --> 0:15:12.240 in other countries, but the US air space is the 0:15:12.280 --> 0:15:15.480 most complex in the world, and the f A holds 0:15:15.600 --> 0:15:20.720 itself and our aviation sector to the highest safety standards. 0:15:20.800 --> 0:15:24.720 In other countries, five G has lower power levels, It 0:15:24.760 --> 0:15:30.120 has antenna's tilted downward to reduce potential interference to flights. 0:15:30.280 --> 0:15:33.920 It has different placement of antenna's relative to air fields, 0:15:34.040 --> 0:15:37.840 It has frequencies with a different proximity to frequencies used 0:15:37.840 --> 0:15:41.920 by aviation equipment. And what the f A wants to 0:15:42.000 --> 0:15:46.040 do is have mitigations on the five G spectrum rolled 0:15:46.040 --> 0:15:49.000 out here, similar to in other countries. For example, a 0:15:49.040 --> 0:15:52.720 month ago, Canada just put limits on its five G deployment. 0:15:52.720 --> 0:15:55.360 It said antenna's could not be pointed up, they have 0:15:55.480 --> 0:15:57.840 to be pointed down, and they could not be in 0:15:57.920 --> 0:16:01.760 certain waves of spectrum close to where the radar altimates are. 0:16:02.640 --> 0:16:04.600 This was not a problem I wasn't that aware of. 0:16:04.680 --> 0:16:07.120 But now I say, and now I gotta pay attention 0:16:07.360 --> 0:16:10.360 another problem out there. Great Diana Firsch got Wroth acting 0:16:10.480 --> 0:16:16.040 Professor George Washington University. She's been in government before that. Um. 0:16:16.120 --> 0:16:17.760 She was the chief of Staff at the Council of 0:16:17.800 --> 0:16:21.120 Economic Advisors at the White House, former Acting Assistant Secretary 0:16:21.160 --> 0:16:30.840 for Economic Policy Department. Let's bring in right now, Oscar 0:16:30.920 --> 0:16:33.880 de Bak. He is the CEO of d h l's 0:16:33.880 --> 0:16:39.480 supply chain. Uh and man, the supply chain is incredibly important. 0:16:39.480 --> 0:16:43.440 I don't think any of us realized until the pandemic 0:16:43.840 --> 0:16:47.440 how key it is. I mean, it affects everything in 0:16:47.560 --> 0:16:52.440 markets because this is what's behind inflation. And you know, 0:16:52.520 --> 0:16:56.000 most importantly, it affects my ability to buy the car 0:16:56.080 --> 0:16:58.640 that I want or the truck because they're just not 0:16:58.680 --> 0:17:01.360 in the lots right now. UM. D h L however, 0:17:01.440 --> 0:17:04.960 still gets you your stuff on time, which I know 0:17:05.080 --> 0:17:08.960 because I use it constantly for shipping. It must be 0:17:09.040 --> 0:17:12.960 hard Oscar. You know all these manufacturing companies are finding 0:17:12.960 --> 0:17:15.800 it so difficult to get pieces and parts around the world. 0:17:16.680 --> 0:17:18.919 How much has it affected your business? I mean, is 0:17:18.960 --> 0:17:23.840 there you know, an average delay for DHL package of 0:17:23.880 --> 0:17:26.840 a few hours compared to pre pandemic or is it 0:17:26.920 --> 0:17:31.520 unchanged now? I think I think the timings we is unchanged. 0:17:31.720 --> 0:17:34.199 We still are able to meet the timelines and to 0:17:34.280 --> 0:17:37.479 meet the But the thing is, obviously the availability of products, 0:17:37.520 --> 0:17:40.399 as as you already mentioned, can be an issue, and 0:17:41.200 --> 0:17:44.280 we can help our customers there by by managing their 0:17:44.320 --> 0:17:47.000 supply change looking at that time and make sure that 0:17:47.040 --> 0:17:48.879 the forecasting has done in such a way that we 0:17:49.640 --> 0:17:55.639 preepack earlier and and capacity earlier. Luckily, we can for 0:17:55.720 --> 0:17:59.960 our customers buy capacity easier and that helps a bit 0:18:00.000 --> 0:18:03.879 obviously in today's very complex supply, but it's got to 0:18:04.000 --> 0:18:06.480 cost a heck of a lot more. I moved to 0:18:06.600 --> 0:18:10.200 Germany in two thousand sixteen. I brought a poor show 0:18:10.200 --> 0:18:12.800 with me because it was pretty cheap. It was a 0:18:12.880 --> 0:18:16.200 few grand. Now, when I moved back to New York 0:18:16.359 --> 0:18:21.800 last week I had to sadly, heartbreakingly, tearfully leave my 0:18:21.880 --> 0:18:25.160 nine eleven behind because it just doesn't make any sense 0:18:25.280 --> 0:18:27.639 with the today's prices to ship it back. I might 0:18:27.640 --> 0:18:30.560 as well just sell it in Berlin. How much are 0:18:30.600 --> 0:18:34.600 you seeing in terms of price appreciation? Yeah, I know, 0:18:34.680 --> 0:18:36.280 you obviously see it. And I think you could probably 0:18:36.320 --> 0:18:38.440 sell the pores really well because of the scarcity of 0:18:38.520 --> 0:18:42.639 coarse in Germany. But but yeah, no, that is it. 0:18:42.720 --> 0:18:46.679 But you know, for effect, ocean freight prices depending on 0:18:46.680 --> 0:18:49.320 the faith but have gone up four times, are fraid 0:18:49.400 --> 0:18:52.280 and times. So it is. It is a situation that 0:18:52.520 --> 0:18:55.080 we have at the moment. We're not yet out of that. UM. 0:18:55.720 --> 0:18:58.720 I think that is something that gradually during the year 0:18:58.760 --> 0:19:02.119 will well, we'll start to happen. But it will require 0:19:02.800 --> 0:19:05.840 better planning, It will require a better use of data. 0:19:05.960 --> 0:19:08.360 I think it will also. We for instance, made made 0:19:08.359 --> 0:19:13.680 specific investments also in robotics, in data analytics, UM, because 0:19:13.960 --> 0:19:17.040 the availability of people is a topic as well, and 0:19:17.840 --> 0:19:20.920 so it's it's it's important that we made the investments 0:19:20.920 --> 0:19:23.600 ahead of girth and that helped us for instance, now 0:19:23.640 --> 0:19:26.280 in the in the last quarter in the US because 0:19:26.320 --> 0:19:28.560 of the two thousand robots that we had there to 0:19:28.600 --> 0:19:31.240 be able to actually still meet the demand in the 0:19:31.280 --> 0:19:36.400 in fulfillment operations UM and still be able to UH 0:19:37.080 --> 0:19:41.240 to attract people UM that we needed for those operations. Oscar, 0:19:41.320 --> 0:19:44.479 does this call into question that the supply chain challenges 0:19:44.520 --> 0:19:48.040 we have? Is this call intent question? Just in time 0:19:48.280 --> 0:19:51.639 inventory that seemed to be, you know, a basic tenant 0:19:51.640 --> 0:19:54.800 for much of the global trade over the last generation 0:19:54.960 --> 0:19:57.600 or two. Is that now called in the question given 0:19:57.600 --> 0:20:01.040 what we experienced over last year. Yeah, I would say so. 0:20:01.080 --> 0:20:05.080 I think just in time is getting reinvented. UM. I 0:20:05.119 --> 0:20:07.160 think what we've seen here is that just in time 0:20:07.160 --> 0:20:09.080 when went a little bit over the top, and then 0:20:09.720 --> 0:20:13.200 with the disruptions that we've had over over the past year, 0:20:13.240 --> 0:20:14.960 you can clearly see that it now takes a long 0:20:15.000 --> 0:20:18.800 time to resettle that. So the whole definition on how 0:20:18.880 --> 0:20:21.720 much talk you take you need to keep, how close 0:20:21.760 --> 0:20:23.359 to the customer you do, do you do you need 0:20:23.440 --> 0:20:26.040 to steer to keep the stalk, how well do you 0:20:26.080 --> 0:20:29.119 need to be able to forecast? That is at this 0:20:29.240 --> 0:20:33.080 moment as we speak, changing and only if we start 0:20:33.200 --> 0:20:36.520 to redefine just in time, then the ectual disruption of 0:20:36.520 --> 0:20:40.960 supply change will gradually stop. What are you seeing in 0:20:41.080 --> 0:20:44.760 terms of UH energy inputs? Paul and I are sitting here, 0:20:45.400 --> 0:20:50.119 you know, jaws a gape watching Brent crude and imax 0:20:50.280 --> 0:20:53.560 trade north of a D and I wonder how how 0:20:53.640 --> 0:21:01.320 much longer that holds on? So so it can be 0:21:01.400 --> 0:21:03.840 specific in the question. No, I mean we we've just 0:21:03.880 --> 0:21:07.439 seen a massive run up in oil costs, and you 0:21:07.440 --> 0:21:09.399 know this must be one of the biggest inputs when 0:21:09.440 --> 0:21:12.360 you're trying to figure out um your budget for the year. 0:21:13.119 --> 0:21:16.000 You've got your energy costs, you've got your labor um, 0:21:16.080 --> 0:21:20.080 you've got the equipment that you rent, the boats and absolutely, 0:21:20.560 --> 0:21:24.720 so what do you what do you think? So there's 0:21:24.760 --> 0:21:26.840 a clear there's a clear as as you as you know, 0:21:26.880 --> 0:21:29.159 there's a clear inflation, there's a clear coast increase that 0:21:29.280 --> 0:21:30.960 that is happening at the moment, and I don't I 0:21:30.960 --> 0:21:33.399 don't think it's going to go away. What is going 0:21:33.440 --> 0:21:36.720 to be important is UH is still in this case 0:21:36.760 --> 0:21:38.919 to help our customers to find ways on how we 0:21:38.920 --> 0:21:42.600 can optimize supply change. But but the extreme invasion, labor cost, 0:21:42.720 --> 0:21:46.160 energy cost, it is there as it's there to stay 0:21:46.200 --> 0:21:48.600 for for for the coming period, and we need to 0:21:48.600 --> 0:21:50.679 make sure that we find ways on how we be 0:21:50.760 --> 0:21:53.679 more efficient in the way the way we manage our subbrojects. 0:21:53.840 --> 0:21:57.720 What about labor cost oscar You know, um Jamie Diamond, 0:21:57.760 --> 0:22:00.639 the CEO of JP Morgan the other day and he 0:22:00.880 --> 0:22:05.359 has never seen such pressure upward pressure on wages. Are 0:22:05.359 --> 0:22:08.719 you seeing the same thing? Yeah, we do. We do 0:22:08.800 --> 0:22:12.680 see that because that um, labor be couse specifically in 0:22:12.680 --> 0:22:17.159 the US, specifically North America, and labor couse increase is 0:22:17.200 --> 0:22:19.680 substantial and it depends a little bit in which data 0:22:19.680 --> 0:22:22.400 and which which with scarcity there is, but it can 0:22:22.400 --> 0:22:25.080 we can go up to ten percent. So that is 0:22:25.080 --> 0:22:28.719 definitely there at the moment, and that is obviously driving 0:22:28.760 --> 0:22:31.240 part of the inflation um and that's not going to 0:22:31.320 --> 0:22:35.320 go away. UM. I actually think that this, as with 0:22:35.400 --> 0:22:37.040 many of the trends that we see at the moment, 0:22:37.080 --> 0:22:41.160 those trends actually started already pre Corona, but during the 0:22:41.200 --> 0:22:44.320 crisis that has actually accelerated it and now become even 0:22:44.359 --> 0:22:48.520 more visible. But the fact that there is less label 0:22:48.760 --> 0:22:51.800 labor available for for certain type of type of jobs 0:22:52.200 --> 0:22:55.040 was already a signal that was there before, that's still 0:22:55.040 --> 0:22:57.240 there today, and that drives actually the closed up and 0:22:57.280 --> 0:22:59.760 that's why it's important, like what we have been doing 0:23:00.240 --> 0:23:03.680 to make the investments in alternative ways in automation, in globotics, 0:23:04.960 --> 0:23:07.560 because we need to be innovative in the way we 0:23:07.640 --> 0:23:13.000 manage for install filming centers and by having for instance, 0:23:13.600 --> 0:23:18.000 for Kift truck unmant for Kift trucks, by having picking robots. 0:23:18.160 --> 0:23:21.840 Um then by having collaborative robotics meaning that people work 0:23:21.920 --> 0:23:24.959