Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 1: This is a joy.
Speaker 2: Because this is the person to lean forward to on
Speaker 2: small banks and the Federal Reserve System of America. Elizabeth
Speaker 2: Duke is a former governor. She is a former chair
Speaker 2: Wells Fargo, and far more importantly, in the middle Ladies
Speaker 2: was at the Bank of Tidewater. We welcome the gentle
Speaker 2: lady from the Bank of Tidewater as well. Betsy, you lived,
Speaker 2: you live the eighties banking crisis. Is there an analog here?
Speaker 2: Is there a similarity to what you and Isaac and
Speaker 2: McTeer went through.
Speaker 3: So I think the situation with the banks today is
Speaker 3: much more similar to the savings and loan crisis than
Speaker 3: it is to what happened in two thousand and eight.
Speaker 3: So I think that's a good analogy. But I don't
Speaker 3: see it getting nearly that bad. The savings and loan
Speaker 3: industry got caught flat footed because prior to that, deposit
Speaker 3: rates had been capped, so and their business model was
Speaker 3: to make long term mortgage loans. So when the cap
Speaker 3: came off of interest rates and vulkars started raising rates,
Speaker 3: the savings and loans ended up upside down. Those that
Speaker 3: so some of them had an earnings problem. Others decided
Speaker 3: they would solve the earnings problem by going out and
Speaker 3: loading up on high interest rate commercial real estate mortgages,
Speaker 3: and they ended up with a credit problem. I just
Speaker 3: don't think it's that widespread in the banking industry today.
Speaker 4: So Bett, did you agree with what we heard from
Speaker 4: Richard Kaplan that this is just the beginning and that
Speaker 4: there is going to be significantly more distressed or do
Speaker 4: you think that it's more nuanced than that.
Speaker 3: I think it's much calmer than that.
Speaker 5: Actually.
Speaker 3: I think what happened with Silicon Valley and with Signature
Speaker 3: is that the FDIC and the regulators got caught flat footed.
Speaker 3: They just weren't expecting it, but they have recovered. I
Speaker 3: think really well, if you look at First Republic over
Speaker 3: this weekend, that except for the size that was business
Speaker 3: as normal for the FDIC.
Speaker 4: At this point, Betsy, do you think that the risk
Speaker 4: for the FED is not moving enough, not hiking enough,
Speaker 4: or perhaps discounting some of the weakness That could just
Speaker 4: be the beginning of what we will continue to see
Speaker 4: with the lag effects taking hold.
Speaker 3: So I think, first of all, I think the FED
Speaker 3: has a better sense of what's going on within the
Speaker 3: banking industry, so they have a better sense of how
Speaker 3: many potential concerns there are out there. But the bigger
Speaker 3: issue for the FED has been convincing markets that they're
Speaker 3: serious about inflation, that for and a half percent inflation
Speaker 3: is not acceptable, And so I think the Fed has
Speaker 3: to be careful not to signal any any movement toward
Speaker 3: this this ray cut that the markets are expecting that
Speaker 3: the Fed continues to say they don't see.
Speaker 6: Betsy, always wonderful to hear from you, particularly given your
Speaker 6: experience of the Federal Reserve. Next week, we've all been
Speaker 6: waiting for this release of the Senior Loan Officer Opinion Survey. Betsy,
Speaker 6: when you're on the FED, do you have advanced information
Speaker 6: of what is in that report? Will they know basically
Speaker 6: what's going to be released next week when they meet today.
Speaker 3: I don't if it's a week from today, I don't
Speaker 3: think they'll have it today. But the sluice is a
Speaker 3: very very soft data point. It sort of tells you,
Speaker 3: you know, directional, but it doesn't give you any hint
Speaker 3: on magnitude. So I think it will give them some information,
Speaker 3: but I'm not sure that will be enough information. I've
Speaker 3: seen any clear signal yet that of credit is doing
Speaker 3: any of the Fed's work for it.
Speaker 6: What would you look for that signal? Then, Betsy, start.
Speaker 3: To look for it in consumer credit tightening up possibly,
Speaker 3: and particularly some of these lenders to consumer credits, so
Speaker 3: the FinTechs or the non bank mortgage companies. If you
Speaker 3: start seeing stress in those companies, that's where I'd looked
Speaker 3: for it.
Speaker 1: Betsy.
Speaker 2: There's a bank out there called the Bailey Building and
Speaker 2: Loan and it was something you and I studied carefully.
Speaker 2: I think you were at Old Dominion when you studied
Speaker 2: the Bailey Building and Loan from It's a Wonderful Life.
Speaker 1: They didn't have cell phone, Betsy, yourself, No, well, yeah,
Speaker 1: that's true. I'm talking about myself.
Speaker 2: But the answer, Governor's the basic idea here is they
Speaker 2: didn't have cell phones in their hand. How does the
Speaker 2: behavior of the Bank of Tide Waters of twenty twenty
Speaker 2: three change given the digital media you didn't have to
Speaker 2: live with that.
Speaker 3: The panic is still the same thing. And if you
Speaker 3: go back to the savings and loan crisis, before one
Speaker 3: of those institutions closed, it was pretty well telegraphed that
Speaker 3: that was an institution that was in trouble. We took
Speaker 3: over some branches from a failed thrift, and it was
Speaker 3: remarkable to me that some of the uninsured deposits had
Speaker 3: actually stayed, even though it was pretty obvious for years
Speaker 3: that the institution was in trouble. So the smaller banks,
Speaker 3: their deposits are really pretty sticky. And what's happened as
Speaker 3: the FED expanded its balance sheet overall, bank deposits grew enormously,
Speaker 3: grew much faster than loan demand, and so banks were
Speaker 3: stuck trying to balance excess deposits. What you're seeing now.
Speaker 3: A lot of what you're seeing now is the natural flow,
Speaker 3: although it's happening quickly back from bank deposits into money
Speaker 3: market funds and that sort of thing.
Speaker 2: Ben see what of our themes on the show today
Speaker 2: led by John Ferrell, the gentleman from Britain who was
Speaker 2: stunned at the political.
Speaker 1: Input and not stunned in the federal reserve system.
Speaker 6: Not stunned, don't mischaracterize excuse, We're not stunned. I think
Speaker 6: it's irresponsible.
Speaker 2: Okay, well, let's talk about the irresponsibility here in green Span.
Speaker 2: We are looking at which SANDWICHI who was eating on
Speaker 2: FED Day. Now we've got politicians of both persuasions weighing in,
Speaker 2: should they now?
Speaker 3: The FED has always been just absolutely resolutely non political,
Speaker 3: but the political forces are always out there with opinions
Speaker 3: on what the FED should do, whether it be in
Speaker 3: supervision or regulation or monetary policy. I think the political
Speaker 3: environment has more to do with the regulatory and supervisory
Speaker 3: policy and how they react than it does monetary policy.
Speaker 3: I've never seen any in my experience with the FED,
Speaker 3: any reaction to political pressure on the monetary policy side.
Speaker 6: Bessie Tug, thank you. It's going to catch up with
Speaker 6: you as always. Let's do this again.
Speaker 1: Right now.
Speaker 2: Bruce Casman joins us with JP Morgan, the chief econdoms.
Speaker 1: Bruce, I want to go larger with you right now, as.
Speaker 2: Your mandate of your wonderful Weekly Prospects. On Friday, the
Speaker 2: IMF stunned with a five year view of tepid global growth.
Speaker 2: The fact is, moments ago, West Texas Intermedia, the banner
Speaker 2: I have is sixty nine point six to zero, and
Speaker 2: right now we're already at sixty nine point five seven.
Speaker 1: Is oil?
Speaker 2: One of the one metrics leading us to a global slowdown?
Speaker 1: Is the IMF called for.
Speaker 7: I don't think right now oil, given everything that's happening geopolitically,
Speaker 7: given how the market is segmented, I don't think it's
Speaker 7: telling you very much about growth directly.
Speaker 5: I'll put more weight on.
Speaker 7: What we're seeing in terms of the survey data, the
Speaker 7: high frequency indicators. It's telling us that the US is
Speaker 7: pretty sluggish here and is probably lagging the rest of
Speaker 7: the world. But global growth is actually picking up as
Speaker 7: we move through the first quarter and into the second,
Speaker 7: with China and Western Europe doing quite well.
Speaker 3: Well.
Speaker 5: Versus is critical.
Speaker 2: I'm going to rip up the scripture that Lisa and
Speaker 2: John Kerry the weight on the FED and all that's
Speaker 2: going on today, reaffirmed the JP Morgan call on China
Speaker 2: twelve months forward.
Speaker 1: There's some doubt about the Chinese economic expansion. Do you agree?
Speaker 7: Well, I think there's plenty of doubt about where China
Speaker 7: is going to be over the medium term, but I
Speaker 7: don't think there should be much doubt about the fact
Speaker 7: that this is an economy, that it's reopening, that it's
Speaker 7: got very depressed levels of activity, and that it's got
Speaker 7: policy makers which I wouldn't call supportive, but they're definitely
Speaker 7: moving away from what had been quite restrictive policies last year.
Speaker 7: I think we're going to see about six and a
Speaker 7: half percent China GDP growth this year. At some point
Speaker 7: that's going to fade, but I don't think it's going
Speaker 7: to fade till some time later this year, and we
Speaker 7: still have quite a few months here of China strength
Speaker 7: ahead of us.
Speaker 6: Bruce, let's get back to the topic and the Federal
Speaker 6: Reserve a little bit later. The language and their statement
Speaker 6: from their last meeting, the committee anticipates that some additional
Speaker 6: policy firming maybe appropriate. We're going to get that additional
Speaker 6: policy firming today. How do you expect the language it's
Speaker 6: going to change? If you expect it to change at
Speaker 6: all in this statement, I.
Speaker 7: Think it's going to change to be more equivocal. Instead
Speaker 7: of talking about some additional policy firming, I think they'll
Speaker 7: talk about any additional firming will be dependent upon, and
Speaker 7: then talk about both the economic conditions as well as
Speaker 7: its assessment of financial conditions. So it's going to be
Speaker 7: an equivocal hawkish bias. It's not going to point directly
Speaker 7: to tightening. It's going to keep the conversation though on
Speaker 7: the possibility of tightening.
Speaker 4: Do we have a sense of the balance of risks
Speaker 4: right now, Bruce, in terms of inflation reaccelerating versus a
Speaker 4: financial market crash or just an economic crash with like
Speaker 4: effects just starting in the regional banks being the opening salvo.
Speaker 7: So, as you noted, there's a lot of risk here.
Speaker 7: There's inflation which is still elevated and is showing quite
Speaker 7: a bit of persistence. There is stress in the financial system.
Speaker 7: And I think we should put also in the mix
Speaker 7: is that everything that we see is telling us that
Speaker 7: we have a pretty underlying strong private sector here. This
Speaker 7: is not a private sector which is fragile, and the
Speaker 7: way these things interact is going to be very.
Speaker 5: Interesting to see.
Speaker 7: From our own point of view, we think the economy
Speaker 7: is less likely to slide into recession. In the near term,
Speaker 7: we think inflation is not going to come down, and
Speaker 7: we think the FEDE is going to pause in the
Speaker 7: face of these uncertainties, and how that plays out six
Speaker 7: months from now becomes really an interesting story. We do
Speaker 7: think the credit drag will be material and start to build,
Speaker 7: but we don't think inflation is going to come down
Speaker 7: by itself. So the case for FEDE easing here anytime
Speaker 7: in the near term, I think is not that strong.
Speaker 4: But put aside the easing for a second, even just
Speaker 4: staying with rates above five percent, there is a question
Speaker 4: at a time when you see the job openings come
Speaker 4: down at a record pace, when you see this idea
Speaker 4: of smaller banks that are facing an existential threat, as
Speaker 4: people try to game out what that credit stress will
Speaker 4: look like, how do you get the sense that inflation
Speaker 4: is still the pre eminent concern.
Speaker 7: Well, obviously it's not a preeminent concern that the FED
Speaker 7: is going to be pausing with run rates on inflation
Speaker 7: well above four percent. So I think what you're seeing
Speaker 7: from a FED and what you'll see today is a
Speaker 7: FED that is worried about inflation, but is balancing it
Speaker 7: against the backdrop of concerns about financial stability, as well as,
Speaker 7: of course the idea that it's moved a lot very
Speaker 7: fast and it may be desirable to take a pause.
Speaker 7: This is not a FED that is focused entirely on inflation.
Speaker 2: Far from it, perst I see compare and contrast to
Speaker 2: two thousand and eight. Last night I saw an inflation
Speaker 2: adjusted bar chart of the Washington Mutual and Company dibaccle
Speaker 2: of two thousand and eight inflation adjusted out to the
Speaker 2: number of banks we've seen recently that are troubled as well.
Speaker 2: When does the FED blink? I mean, how far does
Speaker 2: that barchart have to grow up for twenty twenty three before?
Speaker 2: When the facts change I change at the FED.
Speaker 7: Well, let's just say, first of all, the FED has blinked.
Speaker 7: Powell at his Congression testimony talked about raising the terminal
Speaker 7: rates significantly. They didn't do that.
Speaker 5: They're now moving towards a pause.
Speaker 7: I think we've gotten a shift of about fifty basis
Speaker 7: points from the FED in terms of guidance here, which
Speaker 7: isn't based on what we're seeing in the economic data.
Speaker 7: So I think the FED has shifted. I think to
Speaker 7: get the FED to think about easing in an environment
Speaker 7: where inflation is as strong. We need to see growth
Speaker 7: break or we need to see a generalized financial crisis
Speaker 7: take place, neither of which do we think is going
Speaker 7: to happen anytime soon.
Speaker 2: I'll take your point verus on a generalized financial crisis
Speaker 2: and we don't see that. But to go back to
Speaker 2: Maynard Kanes, when the facts change, the FED will change.
Speaker 1: How close are we to.
Speaker 2: That, given FDIC, given Senator Warren and all the other
Speaker 2: distractions of today. There's a point here where Vice Chairman
Speaker 2: bar says to Chairman Powell, we've got.
Speaker 7: A problem, right, and I think we're seeing the FED
Speaker 7: operate on its liquidity facilities. I think we're seeing the
Speaker 7: FED move to a pause an environment which they otherwise wouldn't.
Speaker 7: The question you're asking is is the FED going to
Speaker 7: preemptively ease without the economy having shown that damage. I
Speaker 7: would also just note here that in terms of the
Speaker 7: way financial markets are functioning more broadly, they're still functioning
Speaker 7: quite healthy. There's a lot of credit being issued in
Speaker 7: the market, there's a lot of private funds of equity.
Speaker 7: We're not seeing spillovers to the dollar and the rest
Speaker 7: of the world. I think we have a significant risk here,
Speaker 7: and I don't want to ignore that risk, but I
Speaker 7: think you're in a need to see that risk realized
Speaker 7: in a far more tangible way before you get to
Speaker 7: talk about the FED actually easing here. Of course, if
Speaker 7: the economy breaks and we're sitting here on Friday with
Speaker 7: a negative payroll report will change the conversation. But I
Speaker 7: don't think that's the I don't think that's the likely
Speaker 7: path we're going to see in the economic data.
Speaker 6: Hi, Bryce credit cans Shall we quote it? Said Chris Casman.
Speaker 1: Right now?
Speaker 2: And this is a joy David Chevarini who's been doing
Speaker 2: bank analysis and he's one of the few people out
Speaker 2: there at webbush who's not only looked at bank analysis,
Speaker 2: brought it over to the new technology of bank analysis,
Speaker 2: quite expert to talk about these names, particularly on the
Speaker 2: West coast, new to so many of us on the
Speaker 2: East coast. David, welcome to the show. And my answer
Speaker 2: here is I love in your research note you talk
Speaker 2: about rebounding deposits. Do you have deposit dynamic visibility on
Speaker 2: these smaller banks?
Speaker 1: Do you know what's going on or is it a mystery?
Speaker 8: Yeah, so it's a little bit of a rebound from
Speaker 8: the standpoint of a lot of depositors that were spooked
Speaker 8: in early March have come back to a few of
Speaker 8: these banks, and Western Alliance is the one that has
Speaker 8: seen the biggest rebound of deposits post quoter end, where
Speaker 8: they had seen six billion of deposits outflow, and then
Speaker 8: they've since rebounded by about two billion, so a third
Speaker 8: of those deposits have come back, and I think it's
Speaker 8: a bit of handholding of their customer base to bring
Speaker 8: them back in. And then the other thing that they've
Speaker 8: done is that they've increased the amount of insured deposits
Speaker 8: on their balance sheet and they're using a service called
Speaker 8: insured cash Sweep deposits. So basically it's a way it's
Speaker 8: a network of banks that basically can swap deposits to
Speaker 8: increase the level of insurance within their interestity.
Speaker 2: Interesting, David, I look at this and the zeitgeist this
Speaker 2: morning is clearly to the shorts. It's like George Soros
Speaker 2: and Drunken Miller nineteen ninety two with a Bank of England.
Speaker 2: The shorts are jumping from bank to bank to bank
Speaker 2: and all of your experience, is there a way that
Speaker 2: management can adapt to push against short selling within their institution.
Speaker 8: Yeah, there's not much you can do other than execute
Speaker 8: on your business plan, because it seems as if, you know,
Speaker 8: one approach would be okay, put out more information, put
Speaker 8: out more data to try and ease concerns. But many
Speaker 8: times that backfires, and we saw that happen, you know,
Speaker 8: just last March, because then investors start to think if
Speaker 8: a bank management is coming out to defend their numbers,
Speaker 8: then investors may think that there is an underlying problem.
Speaker 8: So I would say, you know, management teams ought to
Speaker 8: just execute on the business strategy, talk to their depositors,
Speaker 8: keep them calm, and then let the numbers play themselves
Speaker 8: out later on, and then take initiative like Western Alliance
Speaker 8: has done, like PacWest has done, to increase the level
Speaker 8: of insured deposits within the banks to lend some stability
Speaker 8: to the whole platform.
Speaker 4: But David, this is no longer a crisis of confidence
Speaker 4: with respect to whether you're going to get your money back.
Speaker 4: It's also just people moving their money to places that
Speaker 4: yield more the where they can get more return, and
Speaker 4: we can see that from some of these banks that
Speaker 4: have to offer significantly higher rates and say the JP
Speaker 4: Mortgans of the world in order to get people into
Speaker 4: their CDs. Does this create an existential crisis for banks
Speaker 4: that now are facing an incredible disadvantage in terms of
Speaker 4: funding costs and landing capabilities.
Speaker 8: Yeah, I would agree with that, And our overarching kind
Speaker 8: of theme for the group is caution. We did a
Speaker 8: bulk downgrade in June of twenty twenty two for exactly
Speaker 8: the reasons that you just brought up, and so we
Speaker 8: are expecting that interest margin pressure to continue to weigh
Speaker 8: on the group.
Speaker 3: Now.
Speaker 8: We did see this stability and the immediate aftermath of
Speaker 8: SVB going down signature bank going down, but I think
Speaker 8: the narrative is going to shift back to what you
Speaker 8: just mentioned about funding pressures as well as credit quality,
Speaker 8: because we are seeing that the FED is likely to
Speaker 8: have another height today and that's ultimately going to result
Speaker 8: in a slowing economy and rising credit costs. So we
Speaker 8: do remain cautious overall for the group. We do highlight
Speaker 8: a few names that we that we like on a
Speaker 8: relative basis, but unfortunately, we do think that the group
Speaker 8: is going to be under some pressure over the next
Speaker 8: twelve to eighteen months.
Speaker 4: We heard from fallas former FED president of the Dallas
Speaker 4: Fudger Reserve Kaplan overnight, and he was talking about how
Speaker 4: he expects this to become a really significant problem for
Speaker 4: the regional banks. How much are you expecting an SNL
Speaker 4: like consolidation in this system, regardless of whether it's systemic
Speaker 4: or not, just that we're going to see tie ups
Speaker 4: unlike what we've seen in forty years.
Speaker 8: I don't think it'll be as bad as the SNL crisis,
Speaker 8: but I do expect consolidation to occur. And I think
Speaker 8: that the FED would react much more quickly if things
Speaker 8: did start to get so extreme that it could start
Speaker 8: looking like an SMNL crisis. And what I mean by
Speaker 8: that is the FED would probably look to pivot quickly
Speaker 8: and kind of cast aside their inflation target and really
Speaker 8: bring down rates to stem it. There is potential if
Speaker 8: the FED did not pivot, there is potential to see,
Speaker 8: you know, a crisis truly developed.
Speaker 4: Hold on a second, that's significance. You're saying that if
Speaker 4: we see more banks go out of business, that this
Speaker 4: Federal Reserve will just do a one to eighty and
Speaker 4: start cutting rates, regardless of whether inflations actually come down.
Speaker 8: I would think so you know, my base case is
Speaker 8: that we've seen all of the banks that are going
Speaker 8: to go under have gone under. But if by chance,
Speaker 8: we do start to see a domino effect start to
Speaker 8: occur and instead of four banks going under, we have
Speaker 8: you know, ten banks going under, and I think the
Speaker 8: FED would have no choice but two but to pivot.
Speaker 2: John from work emails in David and he says, ask
Speaker 2: him what your single best buy is? I mean, come on,
Speaker 2: this is the ultimate straw hats and winters. What's a
Speaker 2: Chevalini single best buy in this banking disaster?
Speaker 1: Yeah.
Speaker 8: So one bank that got a sweetheart deal through this crisis,
Speaker 8: New York Community Bank. You know, they acquire certain assets
Speaker 8: and deposits from Signature Bank, and that puts them in
Speaker 8: really good position to grow their balance sheet, to really
Speaker 8: cross sell into that deposit base and really generate good
Speaker 8: earning seccretion. We're expecting twenty percent secretion from that, and
Speaker 8: tangible book value accretion.
Speaker 5: Was a bit better.
Speaker 8: So New York Community Bank is one that we put
Speaker 8: on the best ideas less recently.
Speaker 2: David Shevarini with us with Webbush joining us now on
Speaker 2: oil and rita'son co founder director or research and energy aspects.
Speaker 2: I get the girl slowdown story or Marita, I want
Speaker 2: to go to a British phrase elasticity, which I can't stand.
Speaker 2: Americans are like, say what, And the answer is, I'm
Speaker 2: going to use responsiveness. What is the responsiveness of oil
Speaker 2: to a China slowdown? I mean, in a global slowdown?
Speaker 2: A stag part of this debate, what is the responsiveness
Speaker 2: of oil demand?
Speaker 9: And I mean, obviously tom oil demand is driven by
Speaker 9: economic growth, So in China in particular has been the
Speaker 9: biggest driver of oil demand this year so far, and
Speaker 9: it's expected to remain the case next to her as the
Speaker 9: economy is still opening. I do think a lot of
Speaker 9: the China slow down fears are a little overblown because
Speaker 9: a slowdown has been mostly in the manufacturing side, which
Speaker 9: is due to the fact that the US and Europe
Speaker 9: are simply not consuming and buying enough goods. The consumer
Speaker 9: side in China remains extremely strong because of the reopening,
Speaker 9: and I'm not actually very worried about that, and all
Speaker 9: of you continues to remain very very strong on because
Speaker 9: of that. The problem really is in the West, right,
Speaker 9: you have monetary policy, which is pretty much, if I
Speaker 9: may say, so at odds with fiscal policy. Fiscal policy
Speaker 9: across US and Europe is inflationary. A lot of the
Speaker 9: greed policies that are being enacted by the governments are
Speaker 9: actually pumping even more money into the economy, and we
Speaker 9: have central banks that have mandates to get inflation down
Speaker 9: regardless of structural supply side issues, and that's what's creating
Speaker 9: an enormous amount of uncertainty. Oil demand right now isn't weak,
Speaker 9: even in the US and Europe, where we've already forecast declining,
Speaker 9: you're on your demand growth. Demand's actually coming in better
Speaker 9: than we've been expecting. This is about the fear of
Speaker 9: what could happen to oil demand in the future.
Speaker 4: Amrita, Can you speak to Christian Malex point the fact
Speaker 4: that right now we're seeing people price in our session
Speaker 4: into oil prices, at least in the West, at a
Speaker 4: time when there are also is tightening credit conditions, which
Speaker 4: is going to lead to a lack of investment, which
Speaker 4: will cause oil prices to go much higher later on,
Speaker 4: even if they go much lower in the short term.
Speaker 4: Do you agree with that kind of outlook.
Speaker 5: Absolutely.
Speaker 9: I think we've been saying this even before Christian has
Speaker 9: been saying this that we have a structural supply side
Speaker 9: problem in this market, particularly between twenty twenty three and
Speaker 9: twenty twenty six. You know, we've we first highlighted that
Speaker 9: back in twenty eighteen, twenty nineteen, because beyond Opek and
Speaker 9: that to very few open countries, nobody else has been
Speaker 9: investing and the lower prices go. Right now, we've already
Speaker 9: seen shale pulled back, and a tighter credit means that
Speaker 9: they will not be growing much anyways. You are actually
Speaker 9: going to see a much much bigger supply side problem,
Speaker 9: which is which goes beyond twenty twenty five. I think
Speaker 9: that's the real challenge outside of Saudi Arabia, UAE, a
Speaker 9: little bit of you know, other GCC countries, who else
Speaker 9: is even investing in oil?
Speaker 4: How local prices go before that path? And I ask
Speaker 4: pers at a time when we see oil prices being
Speaker 4: one of the disinflationary drivers at least so far this year,
Speaker 4: if they've become an inflationary driver back in twenty twenty three,
Speaker 4: twenty twenty four to twenty twenty five, this could create
Speaker 4: an issue. So how far down could they go before
Speaker 4: popping up?
Speaker 9: I mean, I think in the short term, with all
Speaker 9: the issues around or the uncertainties around the US debt ceiling,
Speaker 9: do you think we could see a six handle both
Speaker 9: for TI and for Brent. Of course, if genuine supply
Speaker 9: demount fundamentals were to weaken, and that's the dichotomy we
Speaker 9: have right now. Physical fundamentals are actually strengthening as we speak.
Speaker 9: We've been seeing counter seasonal draws globally, but particularly in
Speaker 9: the US since March so and OPEC cuts haven't even
Speaker 9: taken place. So if we do get a deterioration and
Speaker 9: supply demand fundamentals, OPEC will step in again. But right now, no,
Speaker 9: because the cuts have to materialize. We need to see
Speaker 9: the tightening. What we are seeing in aill prices is
Speaker 9: just the fear of the uncertainty and pretty much, if
Speaker 9: I may say, being driven by central bankers and their policies.
Speaker 6: I'm ready to thank you as always, I'm ready to
Speaker 6: send their energy aspects joining us on a crude market.
Speaker 2: Now. Right now, we're going to dive into what's happening
Speaker 2: in that big part of the auto economy.
Speaker 1: Ford Motor.
Speaker 2: John Lawler is the chief for the Officer of Ford
Speaker 2: Motor and joins us this morning off of Verning's Dayan
Speaker 2: Reese Over at Bloomberg John their headline is Ford dips,
Speaker 2: his lack of outlook sparks concerns. Give us the immediate
Speaker 2: outlook for Dearborn right now. What do you see in
Speaker 2: the next ninety days.
Speaker 10: Well, you know, just looking at our Q one results,
Speaker 10: they were solid, good quarter, twenty percent top line growth,
Speaker 10: solid adjusted EBIT at three point four billion, and we
Speaker 10: held our guidance between nine and eleven billion dollars for
Speaker 10: the year from an adjusted EBIT standpoint. Look, I think
Speaker 10: all of us can agree that it's unclear how the
Speaker 10: macroeconomic environment is going to unfold through the year. There's
Speaker 10: lots of puts and takes that we're seeing as we
Speaker 10: work through the rest of the year. And so with
Speaker 10: a good, strong Q one, but a lot of road
Speaker 10: ahead of us this year, a lot of puts and
Speaker 10: takes on a microeconomic standpoint, traditionally what hits this industry.
Speaker 10: We held our guidance, so you know, we're comfortable with that.
Speaker 10: We think it's a appropriate at this point.
Speaker 2: It's extraordinary the auto business, how separate it is from
Speaker 2: say Apple Computer tomorrow with the twenty five multiple you
Speaker 2: guys are doing single digit multiples with a five percent yield.
Speaker 2: Is there any pressure on you as a CFO to
Speaker 2: adjust your auto company to a modern cash distribution that
Speaker 2: makes you more competitive within the markets.
Speaker 10: Look, there's a great opportunity for us with our FOURD
Speaker 10: plus strategy and where this industry is heading with connected vehicles,
Speaker 10: software and services on top of the traditional products that
Speaker 10: we've delivered from the automobile standpoint.
Speaker 5: So we see that as a positive.
Speaker 10: We know that in this industry what we need to
Speaker 10: do and our focus is on really strong capital allocation,
Speaker 10: making sure we're getting returns on that capital and quarter
Speaker 10: over quarter performance, and that's what we're focused on.
Speaker 3: John.
Speaker 5: It's going to change the multiple for us.
Speaker 4: How complicated is it for you that Elon Musk is
Speaker 4: cutting prices at a time when you're already losing three
Speaker 4: billion dollars a year on your EV effort.
Speaker 10: So I think you know you got to think about
Speaker 10: this is where you have pricing power and where there's competition.
Speaker 10: You can't paint the segment with a broad paint brush.
Speaker 10: Look on the Lightning incredible demand, Our order banks are
Speaker 10: off the charts. So from the F one fifty Lightning
Speaker 10: Electric vehicle. We have pricing power and that's maintaining our
Speaker 10: electric transit van. There's pricing power there that's maintaining. Where
Speaker 10: we're seeing competition is in the two road crossovers, and
Speaker 10: we've been consistent over the last few quarters that there
Speaker 10: is going to be competition there and that's going to
Speaker 10: cause some pricing pressure. It's natural, so you know, we
Speaker 10: deal with it and we're focused on cost reductions. We're
Speaker 10: focused on providing good value to those consumers, and we'll
Speaker 10: compete in that segment.
Speaker 4: How much is this competition and how much is just
Speaker 4: this lack of demand?
Speaker 10: Well, I think you're seeing as an industry standpoint, we've
Speaker 10: had an imbalance between supply and demand. Right we were
Speaker 10: constrained due to COVID and the issues with supply chains.
Speaker 10: You're starting to see that ease, so you're starting to
Speaker 10: see more supply come on online. Therefore, we're getting more
Speaker 10: into balance and you're seeing some pricing pressure on the
Speaker 10: top line.
Speaker 2: Provide me with the distinction not only within your good
Speaker 2: competitor in Detroit, but the distinction of your EV approach
Speaker 2: versus others worldwide. What is the Ford unique feature on
Speaker 2: electric vehicles?
Speaker 1: Five years out.
Speaker 10: Okay, So when you look at our approach to EV's,
Speaker 10: I think it's as good as anyone's and better than most.
Speaker 10: We were a first mover, we're in the marketplace, we're
Speaker 10: bringing customers into Ford. Ev Customers are not loyal at
Speaker 10: the first purchase, but once they purchase a brand, they're
Speaker 10: loyal to that brand. Sixty percent of those customers are
Speaker 10: new to Ford. And now we're on our second generation
Speaker 10: to design everything we've learned from our first generation. Much
Speaker 10: more competitive from a cost standpoint, much more focused on
Speaker 10: what the customers value. And I'm really excited about what
Speaker 10: I'm seeing in our second generation of EV's and in
Speaker 10: fact the start of our third generation of EV's. So
Speaker 10: I see us being very, very competitive as we move forward.
Speaker 4: As you try to be as efficient as possible. John,
Speaker 4: you've talked about cost cutting. How much does that include
Speaker 4: job cuts that hadn't already been announced.
Speaker 10: So, look, we can't just look at this as job cuts.
Speaker 10: We have to focus on and good companies focus on
Speaker 10: all cost areas, and we're going to do that.
Speaker 5: But in this transformation and.
Speaker 10: What we're seeing here in the industry, there's going to
Speaker 10: be parts of our business that need to upscale and grow,
Speaker 10: and there's parts that need to reduce and that's going
Speaker 10: to be part of our focus as we go forward.
Speaker 2: All right, we're looking for tickets John, John Ferrell, help
Speaker 2: me out here with John Lawler. I mean you're going
Speaker 2: to do a relationship with Red Bull and Formula one Racing.
Speaker 2: John Lawler, are you going to be in Miami for
Speaker 2: the Formula one? I believe it's this weekend and can
Speaker 2: we come along?
Speaker 5: Unfortunately I'm not, but if I were, I'd be happy
Speaker 5: to host you there.
Speaker 6: We are not going to be there, if you sure,
Speaker 6: if you can comby next time, John Lolli thought, thank you.
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