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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.

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Speaker 2: Join us each day for insight from the best an economics, geopolitics,

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Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 2: Spotify and anywhere you get your podcasts, and always on

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Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app.

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Speaker 1: This is a joy.

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Speaker 2: Because this is the person to lean forward to on

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Speaker 2: small banks and the Federal Reserve System of America. Elizabeth

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Speaker 2: Duke is a former governor. She is a former chair

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Speaker 2: Wells Fargo, and far more importantly, in the middle Ladies

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Speaker 2: was at the Bank of Tidewater. We welcome the gentle

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Speaker 2: lady from the Bank of Tidewater as well. Betsy, you lived,

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Speaker 2: you live the eighties banking crisis. Is there an analog here?

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Speaker 2: Is there a similarity to what you and Isaac and

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Speaker 2: McTeer went through.

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Speaker 3: So I think the situation with the banks today is

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Speaker 3: much more similar to the savings and loan crisis than

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Speaker 3: it is to what happened in two thousand and eight.

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Speaker 3: So I think that's a good analogy. But I don't

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Speaker 3: see it getting nearly that bad. The savings and loan

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Speaker 3: industry got caught flat footed because prior to that, deposit

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Speaker 3: rates had been capped, so and their business model was

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Speaker 3: to make long term mortgage loans. So when the cap

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Speaker 3: came off of interest rates and vulkars started raising rates,

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Speaker 3: the savings and loans ended up upside down. Those that

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Speaker 3: so some of them had an earnings problem. Others decided

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Speaker 3: they would solve the earnings problem by going out and

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Speaker 3: loading up on high interest rate commercial real estate mortgages,

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Speaker 3: and they ended up with a credit problem. I just

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Speaker 3: don't think it's that widespread in the banking industry today.

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Speaker 4: So Bett, did you agree with what we heard from

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Speaker 4: Richard Kaplan that this is just the beginning and that

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Speaker 4: there is going to be significantly more distressed or do

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Speaker 4: you think that it's more nuanced than that.

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Speaker 3: I think it's much calmer than that.

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Speaker 5: Actually.

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Speaker 3: I think what happened with Silicon Valley and with Signature

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Speaker 3: is that the FDIC and the regulators got caught flat footed.

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Speaker 3: They just weren't expecting it, but they have recovered. I

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Speaker 3: think really well, if you look at First Republic over

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Speaker 3: this weekend, that except for the size that was business

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Speaker 3: as normal for the FDIC.

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Speaker 4: At this point, Betsy, do you think that the risk

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Speaker 4: for the FED is not moving enough, not hiking enough,

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Speaker 4: or perhaps discounting some of the weakness That could just

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Speaker 4: be the beginning of what we will continue to see

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Speaker 4: with the lag effects taking hold.

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Speaker 3: So I think, first of all, I think the FED

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Speaker 3: has a better sense of what's going on within the

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Speaker 3: banking industry, so they have a better sense of how

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Speaker 3: many potential concerns there are out there. But the bigger

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Speaker 3: issue for the FED has been convincing markets that they're

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Speaker 3: serious about inflation, that for and a half percent inflation

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Speaker 3: is not acceptable, And so I think the Fed has

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Speaker 3: to be careful not to signal any any movement toward

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Speaker 3: this this ray cut that the markets are expecting that

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Speaker 3: the Fed continues to say they don't see.

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Speaker 6: Betsy, always wonderful to hear from you, particularly given your

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Speaker 6: experience of the Federal Reserve. Next week, we've all been

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Speaker 6: waiting for this release of the Senior Loan Officer Opinion Survey. Betsy,

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Speaker 6: when you're on the FED, do you have advanced information

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Speaker 6: of what is in that report? Will they know basically

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Speaker 6: what's going to be released next week when they meet today.

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Speaker 3: I don't if it's a week from today, I don't

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Speaker 3: think they'll have it today. But the sluice is a

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Speaker 3: very very soft data point. It sort of tells you,

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Speaker 3: you know, directional, but it doesn't give you any hint

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Speaker 3: on magnitude. So I think it will give them some information,

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Speaker 3: but I'm not sure that will be enough information. I've

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Speaker 3: seen any clear signal yet that of credit is doing

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Speaker 3: any of the Fed's work for it.

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Speaker 6: What would you look for that signal? Then, Betsy, start.

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Speaker 3: To look for it in consumer credit tightening up possibly,

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Speaker 3: and particularly some of these lenders to consumer credits, so

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Speaker 3: the FinTechs or the non bank mortgage companies. If you

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Speaker 3: start seeing stress in those companies, that's where I'd looked

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Speaker 3: for it.

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Speaker 1: Betsy.

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Speaker 2: There's a bank out there called the Bailey Building and

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Speaker 2: Loan and it was something you and I studied carefully.

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Speaker 2: I think you were at Old Dominion when you studied

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Speaker 2: the Bailey Building and Loan from It's a Wonderful Life.

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Speaker 1: They didn't have cell phone, Betsy, yourself, No, well, yeah,

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Speaker 1: that's true. I'm talking about myself.

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Speaker 2: But the answer, Governor's the basic idea here is they

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Speaker 2: didn't have cell phones in their hand. How does the

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Speaker 2: behavior of the Bank of Tide Waters of twenty twenty

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Speaker 2: three change given the digital media you didn't have to

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Speaker 2: live with that.

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Speaker 3: The panic is still the same thing. And if you

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Speaker 3: go back to the savings and loan crisis, before one

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Speaker 3: of those institutions closed, it was pretty well telegraphed that

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Speaker 3: that was an institution that was in trouble. We took

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Speaker 3: over some branches from a failed thrift, and it was

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Speaker 3: remarkable to me that some of the uninsured deposits had

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Speaker 3: actually stayed, even though it was pretty obvious for years

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Speaker 3: that the institution was in trouble. So the smaller banks,

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Speaker 3: their deposits are really pretty sticky. And what's happened as

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Speaker 3: the FED expanded its balance sheet overall, bank deposits grew enormously,

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Speaker 3: grew much faster than loan demand, and so banks were

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Speaker 3: stuck trying to balance excess deposits. What you're seeing now.

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Speaker 3: A lot of what you're seeing now is the natural flow,

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Speaker 3: although it's happening quickly back from bank deposits into money

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Speaker 3: market funds and that sort of thing.

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Speaker 2: Ben see what of our themes on the show today

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Speaker 2: led by John Ferrell, the gentleman from Britain who was

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Speaker 2: stunned at the political.

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Speaker 1: Input and not stunned in the federal reserve system.

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Speaker 6: Not stunned, don't mischaracterize excuse, We're not stunned. I think

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Speaker 6: it's irresponsible.

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Speaker 2: Okay, well, let's talk about the irresponsibility here in green Span.

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Speaker 2: We are looking at which SANDWICHI who was eating on

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Speaker 2: FED Day. Now we've got politicians of both persuasions weighing in,

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Speaker 2: should they now?

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Speaker 3: The FED has always been just absolutely resolutely non political,

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Speaker 3: but the political forces are always out there with opinions

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Speaker 3: on what the FED should do, whether it be in

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Speaker 3: supervision or regulation or monetary policy. I think the political

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Speaker 3: environment has more to do with the regulatory and supervisory

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Speaker 3: policy and how they react than it does monetary policy.

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Speaker 3: I've never seen any in my experience with the FED,

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Speaker 3: any reaction to political pressure on the monetary policy side.

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Speaker 6: Bessie Tug, thank you. It's going to catch up with

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Speaker 6: you as always. Let's do this again.

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Speaker 1: Right now.

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Speaker 2: Bruce Casman joins us with JP Morgan, the chief econdoms.

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Speaker 1: Bruce, I want to go larger with you right now, as.

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Speaker 2: Your mandate of your wonderful Weekly Prospects. On Friday, the

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Speaker 2: IMF stunned with a five year view of tepid global growth.

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Speaker 2: The fact is, moments ago, West Texas Intermedia, the banner

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Speaker 2: I have is sixty nine point six to zero, and

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Speaker 2: right now we're already at sixty nine point five seven.

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Speaker 1: Is oil?

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Speaker 2: One of the one metrics leading us to a global slowdown?

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Speaker 1: Is the IMF called for.

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Speaker 7: I don't think right now oil, given everything that's happening geopolitically,

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Speaker 7: given how the market is segmented, I don't think it's

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Speaker 7: telling you very much about growth directly.

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Speaker 5: I'll put more weight on.

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Speaker 7: What we're seeing in terms of the survey data, the

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Speaker 7: high frequency indicators. It's telling us that the US is

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Speaker 7: pretty sluggish here and is probably lagging the rest of

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Speaker 7: the world. But global growth is actually picking up as

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Speaker 7: we move through the first quarter and into the second,

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Speaker 7: with China and Western Europe doing quite well.

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Speaker 3: Well.

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Speaker 5: Versus is critical.

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Speaker 2: I'm going to rip up the scripture that Lisa and

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Speaker 2: John Kerry the weight on the FED and all that's

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Speaker 2: going on today, reaffirmed the JP Morgan call on China

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Speaker 2: twelve months forward.

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Speaker 1: There's some doubt about the Chinese economic expansion. Do you agree?

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Speaker 7: Well, I think there's plenty of doubt about where China

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Speaker 7: is going to be over the medium term, but I

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Speaker 7: don't think there should be much doubt about the fact

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Speaker 7: that this is an economy, that it's reopening, that it's

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Speaker 7: got very depressed levels of activity, and that it's got

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Speaker 7: policy makers which I wouldn't call supportive, but they're definitely

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Speaker 7: moving away from what had been quite restrictive policies last year.

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Speaker 7: I think we're going to see about six and a

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Speaker 7: half percent China GDP growth this year. At some point

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Speaker 7: that's going to fade, but I don't think it's going

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Speaker 7: to fade till some time later this year, and we

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Speaker 7: still have quite a few months here of China strength

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Speaker 7: ahead of us.

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Speaker 6: Bruce, let's get back to the topic and the Federal

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Speaker 6: Reserve a little bit later. The language and their statement

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Speaker 6: from their last meeting, the committee anticipates that some additional

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Speaker 6: policy firming maybe appropriate. We're going to get that additional

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Speaker 6: policy firming today. How do you expect the language it's

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Speaker 6: going to change? If you expect it to change at

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Speaker 6: all in this statement, I.

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Speaker 7: Think it's going to change to be more equivocal. Instead

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Speaker 7: of talking about some additional policy firming, I think they'll

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Speaker 7: talk about any additional firming will be dependent upon, and

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Speaker 7: then talk about both the economic conditions as well as

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Speaker 7: its assessment of financial conditions. So it's going to be

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Speaker 7: an equivocal hawkish bias. It's not going to point directly

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Speaker 7: to tightening. It's going to keep the conversation though on

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Speaker 7: the possibility of tightening.

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Speaker 4: Do we have a sense of the balance of risks

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Speaker 4: right now, Bruce, in terms of inflation reaccelerating versus a

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Speaker 4: financial market crash or just an economic crash with like

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Speaker 4: effects just starting in the regional banks being the opening salvo.

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Speaker 7: So, as you noted, there's a lot of risk here.

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Speaker 7: There's inflation which is still elevated and is showing quite

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Speaker 7: a bit of persistence. There is stress in the financial system.

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Speaker 7: And I think we should put also in the mix

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Speaker 7: is that everything that we see is telling us that

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Speaker 7: we have a pretty underlying strong private sector here. This

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Speaker 7: is not a private sector which is fragile, and the

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Speaker 7: way these things interact is going to be very.

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Speaker 5: Interesting to see.

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Speaker 7: From our own point of view, we think the economy

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Speaker 7: is less likely to slide into recession. In the near term,

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Speaker 7: we think inflation is not going to come down, and

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Speaker 7: we think the FEDE is going to pause in the

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Speaker 7: face of these uncertainties, and how that plays out six

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Speaker 7: months from now becomes really an interesting story. We do

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Speaker 7: think the credit drag will be material and start to build,

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Speaker 7: but we don't think inflation is going to come down

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Speaker 7: by itself. So the case for FEDE easing here anytime

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Speaker 7: in the near term, I think is not that strong.

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Speaker 4: But put aside the easing for a second, even just

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Speaker 4: staying with rates above five percent, there is a question

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Speaker 4: at a time when you see the job openings come

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Speaker 4: down at a record pace, when you see this idea

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Speaker 4: of smaller banks that are facing an existential threat, as

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Speaker 4: people try to game out what that credit stress will

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Speaker 4: look like, how do you get the sense that inflation

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Speaker 4: is still the pre eminent concern.

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Speaker 7: Well, obviously it's not a preeminent concern that the FED

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Speaker 7: is going to be pausing with run rates on inflation

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Speaker 7: well above four percent. So I think what you're seeing

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Speaker 7: from a FED and what you'll see today is a

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Speaker 7: FED that is worried about inflation, but is balancing it

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Speaker 7: against the backdrop of concerns about financial stability, as well as,

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Speaker 7: of course the idea that it's moved a lot very

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Speaker 7: fast and it may be desirable to take a pause.

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Speaker 7: This is not a FED that is focused entirely on inflation.

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Speaker 2: Far from it, perst I see compare and contrast to

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Speaker 2: two thousand and eight. Last night I saw an inflation

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Speaker 2: adjusted bar chart of the Washington Mutual and Company dibaccle

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Speaker 2: of two thousand and eight inflation adjusted out to the

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Speaker 2: number of banks we've seen recently that are troubled as well.

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Speaker 2: When does the FED blink? I mean, how far does

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Speaker 2: that barchart have to grow up for twenty twenty three before?

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Speaker 2: When the facts change I change at the FED.

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Speaker 7: Well, let's just say, first of all, the FED has blinked.

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Speaker 7: Powell at his Congression testimony talked about raising the terminal

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Speaker 7: rates significantly. They didn't do that.

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Speaker 5: They're now moving towards a pause.

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Speaker 7: I think we've gotten a shift of about fifty basis

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Speaker 7: points from the FED in terms of guidance here, which

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Speaker 7: isn't based on what we're seeing in the economic data.

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Speaker 7: So I think the FED has shifted. I think to

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Speaker 7: get the FED to think about easing in an environment

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Speaker 7: where inflation is as strong. We need to see growth

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Speaker 7: break or we need to see a generalized financial crisis

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Speaker 7: take place, neither of which do we think is going

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Speaker 7: to happen anytime soon.

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Speaker 2: I'll take your point verus on a generalized financial crisis

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Speaker 2: and we don't see that. But to go back to

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Speaker 2: Maynard Kanes, when the facts change, the FED will change.

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Speaker 1: How close are we to.

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Speaker 2: That, given FDIC, given Senator Warren and all the other

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Speaker 2: distractions of today. There's a point here where Vice Chairman

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Speaker 2: bar says to Chairman Powell, we've got.

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Speaker 7: A problem, right, and I think we're seeing the FED

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Speaker 7: operate on its liquidity facilities. I think we're seeing the

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Speaker 7: FED move to a pause an environment which they otherwise wouldn't.

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Speaker 7: The question you're asking is is the FED going to

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Speaker 7: preemptively ease without the economy having shown that damage. I

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Speaker 7: would also just note here that in terms of the

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Speaker 7: way financial markets are functioning more broadly, they're still functioning

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Speaker 7: quite healthy. There's a lot of credit being issued in

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Speaker 7: the market, there's a lot of private funds of equity.

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Speaker 7: We're not seeing spillovers to the dollar and the rest

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Speaker 7: of the world. I think we have a significant risk here,

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Speaker 7: and I don't want to ignore that risk, but I

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Speaker 7: think you're in a need to see that risk realized

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Speaker 7: in a far more tangible way before you get to

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Speaker 7: talk about the FED actually easing here. Of course, if

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Speaker 7: the economy breaks and we're sitting here on Friday with

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Speaker 7: a negative payroll report will change the conversation. But I

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Speaker 7: don't think that's the I don't think that's the likely

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Speaker 7: path we're going to see in the economic data.

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Speaker 6: Hi, Bryce credit cans Shall we quote it? Said Chris Casman.

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Speaker 1: Right now?

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Speaker 2: And this is a joy David Chevarini who's been doing

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Speaker 2: bank analysis and he's one of the few people out

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Speaker 2: there at webbush who's not only looked at bank analysis,

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Speaker 2: brought it over to the new technology of bank analysis,

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Speaker 2: quite expert to talk about these names, particularly on the

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Speaker 2: West coast, new to so many of us on the

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Speaker 2: East coast. David, welcome to the show. And my answer

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Speaker 2: here is I love in your research note you talk

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Speaker 2: about rebounding deposits. Do you have deposit dynamic visibility on

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Speaker 2: these smaller banks?

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Speaker 1: Do you know what's going on or is it a mystery?

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Speaker 8: Yeah, so it's a little bit of a rebound from

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Speaker 8: the standpoint of a lot of depositors that were spooked

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Speaker 8: in early March have come back to a few of

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Speaker 8: these banks, and Western Alliance is the one that has

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Speaker 8: seen the biggest rebound of deposits post quoter end, where

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Speaker 8: they had seen six billion of deposits outflow, and then

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Speaker 8: they've since rebounded by about two billion, so a third

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Speaker 8: of those deposits have come back, and I think it's

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Speaker 8: a bit of handholding of their customer base to bring

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Speaker 8: them back in. And then the other thing that they've

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Speaker 8: done is that they've increased the amount of insured deposits

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Speaker 8: on their balance sheet and they're using a service called

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Speaker 8: insured cash Sweep deposits. So basically it's a way it's

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Speaker 8: a network of banks that basically can swap deposits to

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Speaker 8: increase the level of insurance within their interestity.

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Speaker 2: Interesting, David, I look at this and the zeitgeist this

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Speaker 2: morning is clearly to the shorts. It's like George Soros

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Speaker 2: and Drunken Miller nineteen ninety two with a Bank of England.

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Speaker 2: The shorts are jumping from bank to bank to bank

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Speaker 2: and all of your experience, is there a way that

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Speaker 2: management can adapt to push against short selling within their institution.

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Speaker 8: Yeah, there's not much you can do other than execute

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Speaker 8: on your business plan, because it seems as if, you know,

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Speaker 8: one approach would be okay, put out more information, put

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Speaker 8: out more data to try and ease concerns. But many

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Speaker 8: times that backfires, and we saw that happen, you know,

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Speaker 8: just last March, because then investors start to think if

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Speaker 8: a bank management is coming out to defend their numbers,

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Speaker 8: then investors may think that there is an underlying problem.

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Speaker 8: So I would say, you know, management teams ought to

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Speaker 8: just execute on the business strategy, talk to their depositors,

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Speaker 8: keep them calm, and then let the numbers play themselves

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Speaker 8: out later on, and then take initiative like Western Alliance

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Speaker 8: has done, like PacWest has done, to increase the level

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Speaker 8: of insured deposits within the banks to lend some stability

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Speaker 8: to the whole platform.

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Speaker 4: But David, this is no longer a crisis of confidence

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Speaker 4: with respect to whether you're going to get your money back.

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Speaker 4: It's also just people moving their money to places that

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Speaker 4: yield more the where they can get more return, and

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Speaker 4: we can see that from some of these banks that

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Speaker 4: have to offer significantly higher rates and say the JP

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Speaker 4: Mortgans of the world in order to get people into

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Speaker 4: their CDs. Does this create an existential crisis for banks

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Speaker 4: that now are facing an incredible disadvantage in terms of

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Speaker 4: funding costs and landing capabilities.

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Speaker 8: Yeah, I would agree with that, And our overarching kind

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Speaker 8: of theme for the group is caution. We did a

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Speaker 8: bulk downgrade in June of twenty twenty two for exactly

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Speaker 8: the reasons that you just brought up, and so we

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Speaker 8: are expecting that interest margin pressure to continue to weigh

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Speaker 8: on the group.

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Speaker 3: Now.

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Speaker 8: We did see this stability and the immediate aftermath of

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Speaker 8: SVB going down signature bank going down, but I think

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Speaker 8: the narrative is going to shift back to what you

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Speaker 8: just mentioned about funding pressures as well as credit quality,

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Speaker 8: because we are seeing that the FED is likely to

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Speaker 8: have another height today and that's ultimately going to result

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Speaker 8: in a slowing economy and rising credit costs. So we

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Speaker 8: do remain cautious overall for the group. We do highlight

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Speaker 8: a few names that we that we like on a

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Speaker 8: relative basis, but unfortunately, we do think that the group

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Speaker 8: is going to be under some pressure over the next

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Speaker 8: twelve to eighteen months.

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Speaker 4: We heard from fallas former FED president of the Dallas

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Speaker 4: Fudger Reserve Kaplan overnight, and he was talking about how

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Speaker 4: he expects this to become a really significant problem for

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Speaker 4: the regional banks. How much are you expecting an SNL

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Speaker 4: like consolidation in this system, regardless of whether it's systemic

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Speaker 4: or not, just that we're going to see tie ups

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Speaker 4: unlike what we've seen in forty years.

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Speaker 8: I don't think it'll be as bad as the SNL crisis,

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Speaker 8: but I do expect consolidation to occur. And I think

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Speaker 8: that the FED would react much more quickly if things

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Speaker 8: did start to get so extreme that it could start

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Speaker 8: looking like an SMNL crisis. And what I mean by

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Speaker 8: that is the FED would probably look to pivot quickly

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Speaker 8: and kind of cast aside their inflation target and really

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Speaker 8: bring down rates to stem it. There is potential if

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Speaker 8: the FED did not pivot, there is potential to see,

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Speaker 8: you know, a crisis truly developed.

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Speaker 4: Hold on a second, that's significance. You're saying that if

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Speaker 4: we see more banks go out of business, that this

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Speaker 4: Federal Reserve will just do a one to eighty and

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Speaker 4: start cutting rates, regardless of whether inflations actually come down.

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Speaker 8: I would think so you know, my base case is

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Speaker 8: that we've seen all of the banks that are going

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Speaker 8: to go under have gone under. But if by chance,

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Speaker 8: we do start to see a domino effect start to

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Speaker 8: occur and instead of four banks going under, we have

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Speaker 8: you know, ten banks going under, and I think the

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Speaker 8: FED would have no choice but two but to pivot.

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Speaker 2: John from work emails in David and he says, ask

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Speaker 2: him what your single best buy is? I mean, come on,

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Speaker 2: this is the ultimate straw hats and winters. What's a

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Speaker 2: Chevalini single best buy in this banking disaster?

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Speaker 1: Yeah.

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Speaker 8: So one bank that got a sweetheart deal through this crisis,

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Speaker 8: New York Community Bank. You know, they acquire certain assets

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00:20:01,119 --> 00:20:05,040
Speaker 8: and deposits from Signature Bank, and that puts them in

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00:20:05,160 --> 00:20:09,200
Speaker 8: really good position to grow their balance sheet, to really

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Speaker 8: cross sell into that deposit base and really generate good

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Speaker 8: earning seccretion. We're expecting twenty percent secretion from that, and

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Speaker 8: tangible book value accretion.

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Speaker 5: Was a bit better.

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Speaker 8: So New York Community Bank is one that we put

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Speaker 8: on the best ideas less recently.

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Speaker 2: David Shevarini with us with Webbush joining us now on

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Speaker 2: oil and rita'son co founder director or research and energy aspects.

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Speaker 2: I get the girl slowdown story or Marita, I want

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Speaker 2: to go to a British phrase elasticity, which I can't stand.

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Speaker 2: Americans are like, say what, And the answer is, I'm

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Speaker 2: going to use responsiveness. What is the responsiveness of oil

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Speaker 2: to a China slowdown? I mean, in a global slowdown?

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Speaker 2: A stag part of this debate, what is the responsiveness

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Speaker 2: of oil demand?

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Speaker 9: And I mean, obviously tom oil demand is driven by

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Speaker 9: economic growth, So in China in particular has been the

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Speaker 9: biggest driver of oil demand this year so far, and

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Speaker 9: it's expected to remain the case next to her as the

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Speaker 9: economy is still opening. I do think a lot of

404
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Speaker 9: the China slow down fears are a little overblown because

405
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Speaker 9: a slowdown has been mostly in the manufacturing side, which

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Speaker 9: is due to the fact that the US and Europe

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Speaker 9: are simply not consuming and buying enough goods. The consumer

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Speaker 9: side in China remains extremely strong because of the reopening,

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Speaker 9: and I'm not actually very worried about that, and all

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Speaker 9: of you continues to remain very very strong on because

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Speaker 9: of that. The problem really is in the West, right,

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Speaker 9: you have monetary policy, which is pretty much, if I

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Speaker 9: may say, so at odds with fiscal policy. Fiscal policy

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Speaker 9: across US and Europe is inflationary. A lot of the

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Speaker 9: greed policies that are being enacted by the governments are

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Speaker 9: actually pumping even more money into the economy, and we

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Speaker 9: have central banks that have mandates to get inflation down

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Speaker 9: regardless of structural supply side issues, and that's what's creating

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Speaker 9: an enormous amount of uncertainty. Oil demand right now isn't weak,

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Speaker 9: even in the US and Europe, where we've already forecast declining,

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Speaker 9: you're on your demand growth. Demand's actually coming in better

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Speaker 9: than we've been expecting. This is about the fear of

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Speaker 9: what could happen to oil demand in the future.

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Speaker 4: Amrita, Can you speak to Christian Malex point the fact

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Speaker 4: that right now we're seeing people price in our session

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Speaker 4: into oil prices, at least in the West, at a

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Speaker 4: time when there are also is tightening credit conditions, which

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Speaker 4: is going to lead to a lack of investment, which

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Speaker 4: will cause oil prices to go much higher later on,

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Speaker 4: even if they go much lower in the short term.

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Speaker 4: Do you agree with that kind of outlook.

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Speaker 5: Absolutely.

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Speaker 9: I think we've been saying this even before Christian has

434
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Speaker 9: been saying this that we have a structural supply side

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Speaker 9: problem in this market, particularly between twenty twenty three and

436
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Speaker 9: twenty twenty six. You know, we've we first highlighted that

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00:23:01,000 --> 00:23:04,240
Speaker 9: back in twenty eighteen, twenty nineteen, because beyond Opek and

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Speaker 9: that to very few open countries, nobody else has been

439
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Speaker 9: investing and the lower prices go. Right now, we've already

440
00:23:10,960 --> 00:23:13,520
Speaker 9: seen shale pulled back, and a tighter credit means that

441
00:23:13,560 --> 00:23:17,480
Speaker 9: they will not be growing much anyways. You are actually

442
00:23:17,520 --> 00:23:21,480
Speaker 9: going to see a much much bigger supply side problem,

443
00:23:22,040 --> 00:23:24,720
Speaker 9: which is which goes beyond twenty twenty five. I think

444
00:23:24,760 --> 00:23:28,119
Speaker 9: that's the real challenge outside of Saudi Arabia, UAE, a

445
00:23:28,119 --> 00:23:30,560
Speaker 9: little bit of you know, other GCC countries, who else

446
00:23:30,600 --> 00:23:31,760
Speaker 9: is even investing in oil?

447
00:23:32,200 --> 00:23:34,960
Speaker 4: How local prices go before that path? And I ask

448
00:23:35,000 --> 00:23:37,080
Speaker 4: pers at a time when we see oil prices being

449
00:23:37,080 --> 00:23:40,880
Speaker 4: one of the disinflationary drivers at least so far this year,

450
00:23:41,240 --> 00:23:44,080
Speaker 4: if they've become an inflationary driver back in twenty twenty three,

451
00:23:44,080 --> 00:23:46,640
Speaker 4: twenty twenty four to twenty twenty five, this could create

452
00:23:46,680 --> 00:23:49,240
Speaker 4: an issue. So how far down could they go before

453
00:23:49,280 --> 00:23:50,000
Speaker 4: popping up?

454
00:23:52,920 --> 00:23:54,640
Speaker 9: I mean, I think in the short term, with all

455
00:23:54,720 --> 00:23:58,919
Speaker 9: the issues around or the uncertainties around the US debt ceiling,

456
00:24:00,000 --> 00:24:01,760
Speaker 9: do you think we could see a six handle both

457
00:24:01,800 --> 00:24:06,280
Speaker 9: for TI and for Brent. Of course, if genuine supply

458
00:24:06,359 --> 00:24:09,439
Speaker 9: demount fundamentals were to weaken, and that's the dichotomy we

459
00:24:09,480 --> 00:24:13,040
Speaker 9: have right now. Physical fundamentals are actually strengthening as we speak.

460
00:24:13,080 --> 00:24:17,119
Speaker 9: We've been seeing counter seasonal draws globally, but particularly in

461
00:24:17,160 --> 00:24:19,760
Speaker 9: the US since March so and OPEC cuts haven't even

462
00:24:19,800 --> 00:24:22,320
Speaker 9: taken place. So if we do get a deterioration and

463
00:24:22,320 --> 00:24:25,960
Speaker 9: supply demand fundamentals, OPEC will step in again. But right now, no,

464
00:24:26,119 --> 00:24:28,440
Speaker 9: because the cuts have to materialize. We need to see

465
00:24:28,440 --> 00:24:30,800
Speaker 9: the tightening. What we are seeing in aill prices is

466
00:24:30,840 --> 00:24:33,879
Speaker 9: just the fear of the uncertainty and pretty much, if

467
00:24:33,880 --> 00:24:36,840
Speaker 9: I may say, being driven by central bankers and their policies.

468
00:24:37,040 --> 00:24:38,919
Speaker 6: I'm ready to thank you as always, I'm ready to

469
00:24:38,920 --> 00:24:41,520
Speaker 6: send their energy aspects joining us on a crude market.

470
00:24:51,560 --> 00:24:54,440
Speaker 2: Now. Right now, we're going to dive into what's happening

471
00:24:54,520 --> 00:24:56,600
Speaker 2: in that big part of the auto economy.

472
00:24:57,520 --> 00:24:58,359
Speaker 1: Ford Motor.

473
00:24:58,480 --> 00:25:01,160
Speaker 2: John Lawler is the chief for the Officer of Ford

474
00:25:01,160 --> 00:25:04,600
Speaker 2: Motor and joins us this morning off of Verning's Dayan

475
00:25:04,760 --> 00:25:07,760
Speaker 2: Reese Over at Bloomberg John their headline is Ford dips,

476
00:25:07,800 --> 00:25:12,960
Speaker 2: his lack of outlook sparks concerns. Give us the immediate

477
00:25:12,960 --> 00:25:15,320
Speaker 2: outlook for Dearborn right now. What do you see in

478
00:25:15,359 --> 00:25:16,679
Speaker 2: the next ninety days.

479
00:25:18,359 --> 00:25:21,160
Speaker 10: Well, you know, just looking at our Q one results,

480
00:25:21,280 --> 00:25:25,000
Speaker 10: they were solid, good quarter, twenty percent top line growth,

481
00:25:25,359 --> 00:25:28,480
Speaker 10: solid adjusted EBIT at three point four billion, and we

482
00:25:28,520 --> 00:25:31,119
Speaker 10: held our guidance between nine and eleven billion dollars for

483
00:25:31,240 --> 00:25:34,760
Speaker 10: the year from an adjusted EBIT standpoint. Look, I think

484
00:25:34,840 --> 00:25:37,919
Speaker 10: all of us can agree that it's unclear how the

485
00:25:37,960 --> 00:25:41,640
Speaker 10: macroeconomic environment is going to unfold through the year. There's

486
00:25:41,680 --> 00:25:44,080
Speaker 10: lots of puts and takes that we're seeing as we

487
00:25:44,119 --> 00:25:47,120
Speaker 10: work through the rest of the year. And so with

488
00:25:47,520 --> 00:25:50,359
Speaker 10: a good, strong Q one, but a lot of road

489
00:25:50,359 --> 00:25:52,480
Speaker 10: ahead of us this year, a lot of puts and

490
00:25:52,520 --> 00:25:56,120
Speaker 10: takes on a microeconomic standpoint, traditionally what hits this industry.

491
00:25:56,200 --> 00:25:59,439
Speaker 10: We held our guidance, so you know, we're comfortable with that.

492
00:25:59,520 --> 00:26:01,200
Speaker 10: We think it's a appropriate at this point.

493
00:26:01,440 --> 00:26:04,240
Speaker 2: It's extraordinary the auto business, how separate it is from

494
00:26:04,240 --> 00:26:07,280
Speaker 2: say Apple Computer tomorrow with the twenty five multiple you

495
00:26:07,320 --> 00:26:11,320
Speaker 2: guys are doing single digit multiples with a five percent yield.

496
00:26:11,560 --> 00:26:14,439
Speaker 2: Is there any pressure on you as a CFO to

497
00:26:14,640 --> 00:26:20,359
Speaker 2: adjust your auto company to a modern cash distribution that

498
00:26:20,560 --> 00:26:23,000
Speaker 2: makes you more competitive within the markets.

499
00:26:24,720 --> 00:26:28,040
Speaker 10: Look, there's a great opportunity for us with our FOURD

500
00:26:28,040 --> 00:26:33,000
Speaker 10: plus strategy and where this industry is heading with connected vehicles,

501
00:26:33,000 --> 00:26:36,040
Speaker 10: software and services on top of the traditional products that

502
00:26:36,080 --> 00:26:38,879
Speaker 10: we've delivered from the automobile standpoint.

503
00:26:39,160 --> 00:26:40,680
Speaker 5: So we see that as a positive.

504
00:26:41,520 --> 00:26:44,320
Speaker 10: We know that in this industry what we need to

505
00:26:44,359 --> 00:26:48,120
Speaker 10: do and our focus is on really strong capital allocation,

506
00:26:48,640 --> 00:26:51,440
Speaker 10: making sure we're getting returns on that capital and quarter

507
00:26:51,520 --> 00:26:53,720
Speaker 10: over quarter performance, and that's what we're focused on.

508
00:26:53,880 --> 00:26:54,080
Speaker 3: John.

509
00:26:54,400 --> 00:26:56,080
Speaker 5: It's going to change the multiple for us.

510
00:26:56,200 --> 00:26:58,639
Speaker 4: How complicated is it for you that Elon Musk is

511
00:26:58,680 --> 00:27:01,160
Speaker 4: cutting prices at a time when you're already losing three

512
00:27:01,200 --> 00:27:04,439
Speaker 4: billion dollars a year on your EV effort.

513
00:27:06,240 --> 00:27:08,560
Speaker 10: So I think you know you got to think about

514
00:27:08,560 --> 00:27:11,199
Speaker 10: this is where you have pricing power and where there's competition.

515
00:27:11,320 --> 00:27:14,119
Speaker 10: You can't paint the segment with a broad paint brush.

516
00:27:14,280 --> 00:27:17,720
Speaker 10: Look on the Lightning incredible demand, Our order banks are

517
00:27:18,320 --> 00:27:21,320
Speaker 10: off the charts. So from the F one fifty Lightning

518
00:27:21,400 --> 00:27:25,119
Speaker 10: Electric vehicle. We have pricing power and that's maintaining our

519
00:27:25,160 --> 00:27:28,840
Speaker 10: electric transit van. There's pricing power there that's maintaining. Where

520
00:27:28,840 --> 00:27:31,800
Speaker 10: we're seeing competition is in the two road crossovers, and

521
00:27:31,840 --> 00:27:35,239
Speaker 10: we've been consistent over the last few quarters that there

522
00:27:35,320 --> 00:27:37,840
Speaker 10: is going to be competition there and that's going to

523
00:27:37,880 --> 00:27:41,399
Speaker 10: cause some pricing pressure. It's natural, so you know, we

524
00:27:41,480 --> 00:27:43,800
Speaker 10: deal with it and we're focused on cost reductions. We're

525
00:27:43,840 --> 00:27:46,840
Speaker 10: focused on providing good value to those consumers, and we'll

526
00:27:46,880 --> 00:27:47,840
Speaker 10: compete in that segment.

527
00:27:47,960 --> 00:27:49,760
Speaker 4: How much is this competition and how much is just

528
00:27:49,800 --> 00:27:50,719
Speaker 4: this lack of demand?

529
00:27:52,680 --> 00:27:55,760
Speaker 10: Well, I think you're seeing as an industry standpoint, we've

530
00:27:55,800 --> 00:27:58,880
Speaker 10: had an imbalance between supply and demand. Right we were

531
00:27:58,880 --> 00:28:01,600
Speaker 10: constrained due to COVID and the issues with supply chains.

532
00:28:01,800 --> 00:28:04,480
Speaker 10: You're starting to see that ease, so you're starting to

533
00:28:04,480 --> 00:28:08,480
Speaker 10: see more supply come on online. Therefore, we're getting more

534
00:28:08,480 --> 00:28:10,840
Speaker 10: into balance and you're seeing some pricing pressure on the

535
00:28:10,840 --> 00:28:11,520
Speaker 10: top line.

536
00:28:11,800 --> 00:28:15,560
Speaker 2: Provide me with the distinction not only within your good

537
00:28:15,600 --> 00:28:20,360
Speaker 2: competitor in Detroit, but the distinction of your EV approach

538
00:28:21,080 --> 00:28:26,280
Speaker 2: versus others worldwide. What is the Ford unique feature on

539
00:28:26,400 --> 00:28:27,520
Speaker 2: electric vehicles?

540
00:28:27,800 --> 00:28:28,760
Speaker 1: Five years out.

541
00:28:30,119 --> 00:28:32,159
Speaker 10: Okay, So when you look at our approach to EV's,

542
00:28:32,400 --> 00:28:34,879
Speaker 10: I think it's as good as anyone's and better than most.

543
00:28:35,240 --> 00:28:37,640
Speaker 10: We were a first mover, we're in the marketplace, we're

544
00:28:37,680 --> 00:28:41,719
Speaker 10: bringing customers into Ford. Ev Customers are not loyal at

545
00:28:41,800 --> 00:28:44,320
Speaker 10: the first purchase, but once they purchase a brand, they're

546
00:28:44,320 --> 00:28:46,959
Speaker 10: loyal to that brand. Sixty percent of those customers are

547
00:28:47,000 --> 00:28:49,920
Speaker 10: new to Ford. And now we're on our second generation

548
00:28:50,000 --> 00:28:53,320
Speaker 10: to design everything we've learned from our first generation. Much

549
00:28:53,320 --> 00:28:56,240
Speaker 10: more competitive from a cost standpoint, much more focused on

550
00:28:56,280 --> 00:28:59,200
Speaker 10: what the customers value. And I'm really excited about what

551
00:28:59,240 --> 00:29:01,880
Speaker 10: I'm seeing in our second generation of EV's and in

552
00:29:01,920 --> 00:29:04,600
Speaker 10: fact the start of our third generation of EV's. So

553
00:29:04,640 --> 00:29:07,400
Speaker 10: I see us being very, very competitive as we move forward.

554
00:29:07,560 --> 00:29:09,280
Speaker 4: As you try to be as efficient as possible. John,

555
00:29:09,280 --> 00:29:11,600
Speaker 4: you've talked about cost cutting. How much does that include

556
00:29:11,680 --> 00:29:13,720
Speaker 4: job cuts that hadn't already been announced.

557
00:29:15,320 --> 00:29:19,000
Speaker 10: So, look, we can't just look at this as job cuts.

558
00:29:19,040 --> 00:29:21,440
Speaker 10: We have to focus on and good companies focus on

559
00:29:21,680 --> 00:29:23,479
Speaker 10: all cost areas, and we're going to do that.

560
00:29:23,880 --> 00:29:25,760
Speaker 5: But in this transformation and.

561
00:29:25,600 --> 00:29:28,160
Speaker 10: What we're seeing here in the industry, there's going to

562
00:29:28,160 --> 00:29:31,120
Speaker 10: be parts of our business that need to upscale and grow,

563
00:29:31,200 --> 00:29:34,040
Speaker 10: and there's parts that need to reduce and that's going

564
00:29:34,080 --> 00:29:35,880
Speaker 10: to be part of our focus as we go forward.

565
00:29:35,960 --> 00:29:38,320
Speaker 2: All right, we're looking for tickets John, John Ferrell, help

566
00:29:38,360 --> 00:29:40,600
Speaker 2: me out here with John Lawler. I mean you're going

567
00:29:40,680 --> 00:29:43,680
Speaker 2: to do a relationship with Red Bull and Formula one Racing.

568
00:29:43,760 --> 00:29:46,000
Speaker 2: John Lawler, are you going to be in Miami for

569
00:29:46,040 --> 00:29:48,640
Speaker 2: the Formula one? I believe it's this weekend and can

570
00:29:48,680 --> 00:29:49,320
Speaker 2: we come along?

571
00:29:50,680 --> 00:29:53,840
Speaker 5: Unfortunately I'm not, but if I were, I'd be happy

572
00:29:53,840 --> 00:29:54,560
Speaker 5: to host you there.

573
00:29:54,600 --> 00:29:56,440
Speaker 6: We are not going to be there, if you sure,

574
00:29:56,440 --> 00:29:59,320
Speaker 6: if you can comby next time, John Lolli thought, thank you.

575
00:30:00,000 --> 00:30:03,320
Speaker 2: All right to the Bloomberg Surveillance Podcast on Apple, Spotify

576
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577
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578
00:30:11,520 --> 00:30:14,080
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579
00:30:14,240 --> 00:30:15,680
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580
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581
00:30:20,160 --> 00:30:24,040
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582
00:30:24,240 --> 00:30:26,000
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