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The Fed, Supply Chain, Porsche, And Ukraine (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg markets podcast. I'm Paul Sweeney. Alongside
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Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOS, market pros and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg markets podcast
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Speaker 1: on Apple podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg Dot com slash podcast. Our Jersey chief US
0:22
Speaker 1: interest rate strategies for Bloomberg intelligencies at our Princeton, New
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Speaker 1: Jersey office. I read this is your Federal Reserve. Anything
0:28
Speaker 1: goes wrong tomorrow, I'm blaming you. But I guess the
0:30
Speaker 1: big issue is they've been a table cloth that you're
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Speaker 1: wearing exactly. They've got a tough road to Hoe. They
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Speaker 1: gotta keep us out of recession while reigning in inflation.
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Speaker 1: How do they do that? Yeah, I'm not sure that
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Speaker 1: they can, and in fact, you know, our view has
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Speaker 1: always been that they have to slow the economy enough
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Speaker 1: in order to get inflation down. And the big thing
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Speaker 1: right now that that's likely to keep inflation afloat is
0:55
Speaker 1: is the wage picture. And when you look at aggregate
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Speaker 1: Labor income, it's growing at nine percent year on year,
1:01
Speaker 1: even though overall inflation is slowing. That's basically staying, staying steady.
1:07
Speaker 1: So you can wind up in a situation where inflation
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Speaker 1: is a bit more persistent than that the Fed really wants.
1:12
Speaker 1: So Um. So I do think that they're going to
1:15
Speaker 1: have to high right. I mean if we can get
1:17
Speaker 1: everything else to slow down and just wages rise, well, yeah,
1:22
Speaker 1: real income growth would be phenomenal, but the problem is
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Speaker 1: that the is that real income growth is likely to
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Speaker 1: mean that core inflation prices remained very sticky. Um and so.
1:32
Speaker 1: So one of the so so, one of the big
1:34
Speaker 1: challenges for the Fed is going to be how do
1:37
Speaker 1: you know, how do you thread that needle? Right, and
1:40
Speaker 1: and and they haven't been able to do that five
1:42
Speaker 1: of the last six times that they've had hiking cycles,
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Speaker 1: and the one time that they kind of did thread
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Speaker 1: that needle in the early nineties, you had a very
1:49
Speaker 1: significant mid cycle slowdown that felt very much like a recession. Um,
1:53
Speaker 1: the only reason why you didn't hit a recession is
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Speaker 1: because you only got like a one and a half
1:57
Speaker 1: percent increase in the unemployment rate. You didn't get a
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Speaker 1: two percent increase. Right. Well, I mean the market doesn't
2:02
Speaker 1: seem look people don't really think that the Fed can
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Speaker 1: thread that needle. When when we have guests on here
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Speaker 1: they say the Fed made a huge polymist policy mistake
2:12
Speaker 1: last year and they're making a huge one again. This
2:14
Speaker 1: seems to be now consensus. They're gonna tighten so much
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Speaker 1: that they drive us into a recession and we get
2:21
Speaker 1: like Danny Blanche flower style unemployment that's worse than inflation. Well,
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Speaker 1: I don't think you see. See. I guess the issue
2:29
Speaker 1: is is what is a soft landing? To me, a
2:31
Speaker 1: soft landing might be a mild recession. Right. So if
2:34
Speaker 1: we get a recession that's, you know, somewhat similar to say,
2:37
Speaker 1: the early two thousands, Um, I don't think that that's
2:41
Speaker 1: necessarily the worst case scenario for for the economy. And
2:45
Speaker 1: if it's, if it's short end uh and mild, that
2:49
Speaker 1: that's actually a win for the Fed, right, because the
2:51
Speaker 1: Federal Reserve, remember that they have two mandates and right
2:53
Speaker 1: now they're not fulfilling one of their mandates by any
2:56
Speaker 1: stretch of the imagination. Right. So, Um, you can't say
2:59
Speaker 1: that they're fulfilling their stable price mandate at the moment.
3:02
Speaker 1: And you know, they only have one real tool in
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Speaker 1: order to fight that. So they're going to use it
3:06
Speaker 1: in the the only way that they can, and that's
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Speaker 1: the hike interest rates and Um. Now I actually think
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Speaker 1: that that after this particular meeting they're going to be
3:14
Speaker 1: within a hundred basis points of being done. I mean
3:16
Speaker 1: our our view is uh here at Plumberg intelligence, that
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Speaker 1: they're gonna hike to around four and a half percent.
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Speaker 1: The markets currently priced for that. Um. You know, we
3:24
Speaker 1: might overshoot that a little bit in terms of pricing,
3:26
Speaker 1: but but I think ultimately they'll go to four and
3:28
Speaker 1: a half percent, they stay there for six months to
3:30
Speaker 1: a year Um and then wait to see what happens
3:33
Speaker 1: in the economy and as long as the economy doesn't
3:36
Speaker 1: completely fall out of bed and as long as Um
3:39
Speaker 1: as inflation continues to come down, then then they're going
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Speaker 1: to call that a win. And four and a half percent,
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Speaker 1: by long term historical standards, is usually around around way
3:47
Speaker 1: you'd expect the high to be. I'm not talking about
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Speaker 1: the night. People are much more worried about it now,
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Speaker 1: even people who have lived through those, from Barry Stern
3:56
Speaker 1: Lick to Um Ray dalio. UH, the alarm has been sounded.
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Speaker 1: Four and a half percent, dallio says, would knock the
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Speaker 1: equity market down another but the but the slock market
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Speaker 1: is not the economy. Right there there are two different
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Speaker 1: things and you know, so you're talking about evaluation issue.
4:14
Speaker 1: You're talking about, you know, multiples and in equity markets
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Speaker 1: and as opposed to the the overall Um, the the
4:20
Speaker 1: overall economic backdrop. And when you when you look at
4:23
Speaker 1: right now, like like the the challenge that small businesses,
4:26
Speaker 1: for example, are having, which is a huge part of
4:28
Speaker 1: the of of the U S economy, especially when it
4:30
Speaker 1: comes to jobs. It's more than half of the jobs
4:32
Speaker 1: in the country. Um, you know, they can't find employees,
4:35
Speaker 1: right and and so so. So one of the ironies
4:38
Speaker 1: is is that they have to pay more or they
4:40
Speaker 1: have to work more hours themselves, and and so. So
4:42
Speaker 1: that's one of the reasons why the aggregate Labor income
4:45
Speaker 1: continues to climb because, um, because the people who are
4:48
Speaker 1: working are making a lot more money, right. So, so,
4:51
Speaker 1: so there's there's a strange balancing act and we in
4:54
Speaker 1: the markets look more at the markets, I think, a
4:58
Speaker 1: lot of times, and we do at the over all
5:00
Speaker 1: broad aggregate economy, which is really what the Federal Reserve
5:03
Speaker 1: cares about the Federal Reserve, could care less if the
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Speaker 1: stock market, if the SMB five hundreds of four thousand
5:08
Speaker 1: or three thousand. What they care about is do people
5:10
Speaker 1: have jobs and is inflation stable? Right and and the
5:14
Speaker 1: stock market is only one indicator of how part of
5:16
Speaker 1: that is going. Everybody has jobs, all right, hey, IIRA.
5:20
Speaker 1: Everybody's into college at NFL football right now. Thirty seconds.
5:23
Speaker 1: What's the soccer match? I gotta need to focus on
5:25
Speaker 1: the next few days. Oh Uh yeah, we have Champions
5:28
Speaker 1: League coming up, so it's gonna be it's gonna be
5:30
Speaker 1: a lot of those, those matches and obviously the because
5:34
Speaker 1: of the Queen's because of the queen's funeral, the Premier
5:37
Speaker 1: League matches are all going to have to be rescheduled
5:38
Speaker 1: in this already very tight, Weird World Cup year. So Um,
5:43
Speaker 1: you know, I'm gonna be looking out for that draw,
5:45
Speaker 1: like like when are the all these matches going to
5:46
Speaker 1: be rescheduled for good stuff? See, you gotta get to it, man,
5:49
Speaker 1: you gotta get your your soccer report, and we get
5:52
Speaker 1: that from Ira Jersey. That's kind of his main GID
5:55
Speaker 1: GIG side hustle. He's chief US interest rate strategist for
5:58
Speaker 1: Bloomberg Intelligence. He's just doing that decades on Wall Street,
6:02
Speaker 1: but he's also a owner of a minor league soccer
6:05
Speaker 1: club Rayale Central New Jersey. Go figure, or something like that.
6:12
Speaker 1: Let's get right to our next guest, Daniel Demartino, booth,
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Speaker 1: CEO and chief strategist at Quill Intelligence. She was a
6:18
Speaker 1: former advisor to fell a Reserve Bank of Dallas as well. Danielle,
6:22
Speaker 1: thanks for so much for being in our studio today.
6:24
Speaker 1: It's always great to have you in here. Just it
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Speaker 1: just seems like everybody's just the base cases. The feds behind.
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Speaker 1: They're gonna overdo it, they're gonna push this into recession.
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Speaker 1: Is that what's going to happen? Well, I think that's
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Speaker 1: a given. I mean I think. I think that is
6:38
Speaker 1: I think it's a given. Man. All right, go ahead
6:41
Speaker 1: and yeah, I mean look, you your third quarter GDP
6:44
Speaker 1: estimates of somewhere around a half a percent third quarter.
6:47
Speaker 1: That means that you're likely going to get, the time
6:50
Speaker 1: the September data percolate through the data, you're going to
6:52
Speaker 1: get a third negative print in a row. And I
6:55
Speaker 1: really don't think what we're gonna beat is three quarters
6:57
Speaker 1: in a row then of a negative print, and even
7:01
Speaker 1: if unemployment is still less than four percent Um, the
7:06
Speaker 1: NBR is going to have to say, okay, it's a recession. Well,
7:09
Speaker 1: INDUSTA production started to tick down and you know, at
7:12
Speaker 1: the end of the day, when you start to hear
7:14
Speaker 1: the magnitude of the Fedex and the Ford announcements, you're like, okay,
7:18
Speaker 1: I don't think they're messing around. So and you know
7:20
Speaker 1: everybody's trying to, as gently as possible, say cost cuts,
7:24
Speaker 1: you know, except for the six of CEOS who are like, well,
7:27
Speaker 1: welcome the resignations. If people just want to work from home,
7:29
Speaker 1: bring it on. So they're not being shy anymore. So
7:32
Speaker 1: what if the Fed's got an ulterior motive? Well, okay,
7:36
Speaker 1: what is that? You don't think they're just trying to
7:38
Speaker 1: fight inflation? Or do you not even think that's their
7:41
Speaker 1: main goal now? And I don't, because we all, I
7:44
Speaker 1: think people tend to forget that j Powell's and not
7:46
Speaker 1: a PhD in economics. He's a lawyer. He looks at
7:48
Speaker 1: both sides of every single story. He can read real
7:51
Speaker 1: time data. He understands what Zelos saying. He understands that
7:55
Speaker 1: if you plot forward new car inventories, their growth rate,
7:59
Speaker 1: that they're gonna becoming down in twelve months. He sees
8:02
Speaker 1: that homes under construction are at the highest since, God knows,
8:05
Speaker 1: one of the seventies. He understands all the real time
8:07
Speaker 1: data because he was he was always a practical guy,
8:09
Speaker 1: he was always a banker. So you know he he
8:12
Speaker 1: sees what's happening. So but he and yet he's pushing
8:15
Speaker 1: forward based on the red herring of super lagged data. Why?
8:20
Speaker 1: Unless he's got another plan. What's the other plan do
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Speaker 1: you think? I think he wants to break the back
8:24
Speaker 1: of the Fed put and I think he wants to
8:26
Speaker 1: change the name of the ECOS building to the Powell building. Okay,
8:29
Speaker 1: explain what you kind of mean about that. So in
8:31
Speaker 1: the aftermath of the protection black Monday of seven, you know,
8:35
Speaker 1: Greenspan lead information to fixed income trading desks all across
8:38
Speaker 1: Wall Street prior to the Fed injecting liquidity into the markets.
8:41
Speaker 1: The birth of the Fed put October seven. Who in
8:46
Speaker 1: the world is a big there you got October. So
8:52
Speaker 1: you need to be a huge, your constitution has to
8:55
Speaker 1: be huge to break investors psyche. After that, why would
8:59
Speaker 1: you want to do that? Well, I think. I think
9:03
Speaker 1: if you look at Fat Powell and you look at
9:05
Speaker 1: his net worth north of a million dollars, why would
9:08
Speaker 1: you want to do that? You don't need the pension.
9:10
Speaker 1: Unless he wants to have monetary policy be independent and
9:13
Speaker 1: not have the tail wag the dog. It's a I
9:19
Speaker 1: don't think he's not there. I don't think he do
9:24
Speaker 1: you really think he's enjoying himself? No, I mean, I
9:26
Speaker 1: think it's great if, if that's the case, that's that's
9:29
Speaker 1: restoring my hope and humanity. If he's not, he's watching
9:34
Speaker 1: a controlled demolition. He's watching one company after another go
9:38
Speaker 1: bankrupt and so far there's nothing systemic that's been unleashed.
9:42
Speaker 1: If he can manage to do this and break the
9:45
Speaker 1: mindset until the job do you want? Until the job
9:48
Speaker 1: is done, means that means I'M gonna keep it up
9:51
Speaker 1: there for a long time. I'M gonna WE'RE gonna get
9:54
Speaker 1: up to four or four and a half and then
9:55
Speaker 1: I'm gonna keep it there as long as I can.
9:58
Speaker 1: I can't believe the Biden Administration will let him do that. Um,
10:01
Speaker 1: he has veto power. There's he's in for four years. Right.
10:05
Speaker 1: If trump couldn't fire him for cause nose. What will
10:11
Speaker 1: you be looking for in his language tomorrow, in his
10:13
Speaker 1: response to questions that may have those ulterior motive type resilience,
10:19
Speaker 1: I think. I always think about the stories of Paul
10:22
Speaker 1: Volker and how, you know, there was tractors in Washington
10:26
Speaker 1: D C causing traffigy. People are throwing bricks through the window,
10:29
Speaker 1: you know, mailing him nasty things, the man of the
10:32
Speaker 1: many death threats. We forget that. We've got him up
10:35
Speaker 1: on this huge pedestal and yet at the time he
10:37
Speaker 1: was vilified. But can Powell sustain that kind of if
10:42
Speaker 1: we get a recession that's deep or long, if we
10:45
Speaker 1: get unemployment? That's high deference to the building that I'm in.
10:49
Speaker 1: Think about how the media's narrative shift at last week.
10:52
Speaker 1: Is he going to hurt the rest of the world?
10:55
Speaker 1: All of a sudden he went from this guy can't
10:57
Speaker 1: fight inflation out of a bag to he's the bad guy,
11:00
Speaker 1: he's gonna hurt us. So when the narrative changes in
11:04
Speaker 1: the media, watch out. But one way or another he's
11:07
Speaker 1: going to be the fall guy and he's not stupid
11:09
Speaker 1: enough to know he's not going to be the fall
11:11
Speaker 1: guy to not know he's going to be the fall guy.
11:14
Speaker 1: He knows he's gonna be the fall guy. Went one
11:15
Speaker 1: way or another. But why not accomplish something really important
11:18
Speaker 1: along the way and get central clearing? This is the
11:20
Speaker 1: best hit we've done all day. Look, SEC gainsler. Gainsler said, look,
11:24
Speaker 1: they also want central clearing of treasuries. Bring it on, Powell,
11:27
Speaker 1: just do it. Um, fascinating take uh. I really think
11:32
Speaker 1: I'm speechless. Yeah, what are we doing? I mean, I
11:34
Speaker 1: think tomorrow. I mean, I was going to ask you
11:36
Speaker 1: stupid questions about what is three fifty nine mean on treasuries?
11:39
Speaker 1: Or do you care about the inversion of the day?
11:41
Speaker 1: I think the I find it to be very quaint
11:45
Speaker 1: that the sales sides like, once the two s tends
11:47
Speaker 1: hits negative forty eight basis points, we recommend you sell,
11:50
Speaker 1: I mean take take your money off the table. And
11:52
Speaker 1: I'm like, what if it's forty eight basis points next
11:54
Speaker 1: year at this time? By the way, I uh now
11:56
Speaker 1: you kind of have answered this in a sense, but
11:59
Speaker 1: we have a listener writing in asking do you think
12:02
Speaker 1: the Fed really reads any of the fixed income strategists
12:04
Speaker 1: out there, or do they just rely on their internal
12:07
Speaker 1: fed color. No, somebody who found at the industrials group
12:10
Speaker 1: at the Carlisle and understands private equity and hand hangs
12:12
Speaker 1: that with Hedge Fund guys. I don't. I don't think
12:13
Speaker 1: he reads all that research. I'm kidding. Very past great stuff.
12:18
Speaker 1: Daniel Demartino, booth uh, CEO and chief trategist at Quill Intelligence,
12:22
Speaker 1: joining us live here and our Bloomberg Interactive Broker Studio
12:28
Speaker 1: U s steal. Yeah, x is the ticker you put
12:31
Speaker 1: into your Bloomberg terminal. You pop it in there and
12:33
Speaker 1: that's what you get. Rich Fruoff, chief strategy and Sustainability
12:36
Speaker 1: Officer for U Steal, is in our Bloomberg interactive broker studio.
12:40
Speaker 1: This is so cool. Matt and I. We want to
12:42
Speaker 1: talk more company stuff and it doesn't get more company
12:45
Speaker 1: stuff than U s steal. And here's a little tidbit
12:48
Speaker 1: for you. The only company in the US that minds,
12:50
Speaker 1: melts and manufactures steal, and now they're making the commitment
12:54
Speaker 1: to sustainability. Rich, thanks so much for coming into our
12:56
Speaker 1: studio here. Is that in the US or worldwide? Enterprise wide, worldwide.
13:01
Speaker 1: So we've got a presence in Slovakia but then of
13:03
Speaker 1: course a lot here in the US are sustainability commitment
13:06
Speaker 1: is across the enterprise. But even our slore doesn't do
13:08
Speaker 1: all of that entire vertical I you know, I think
13:11
Speaker 1: they are. Let's be fair, they're a good company. They're
13:13
Speaker 1: very committed to sustainability, but we feel like we've got
13:17
Speaker 1: a best in class program how do you smelt steel,
13:21
Speaker 1: or whatever the verb is. How do you make steel
13:23
Speaker 1: in a sustainability? I think of Pittsburgh and the smokestacks
13:26
Speaker 1: and all that kind of stuff, allantown, Allentown, absolutely close
13:30
Speaker 1: to here. How do you from a technological perspect of,
13:33
Speaker 1: what changes are you making? How do you do that? Yeah,
13:35
Speaker 1: absolutely so. First of all, you know I have this
13:36
Speaker 1: kind of strange title, right, sustainability and strategy. That's purposeful.
13:40
Speaker 1: So sustainability for us it's not a bolt on, it's
13:43
Speaker 1: not an add on, it's core to the strategy. So
13:45
Speaker 1: when you're asking about steel making technologies, there's really two
13:48
Speaker 1: basic ways to make steel, as you said, there's the
13:50
Speaker 1: old kind of blast furnace. Your mind iron ore. You
13:54
Speaker 1: put it into a blast furnace, you use cold. It's
13:56
Speaker 1: turned into coke, very c o two intensive right then.
14:00
Speaker 1: You can also now, because of the presence of scrap steel,
14:03
Speaker 1: old cars, old washing machines, old bridges. You cut that up,
14:07
Speaker 1: you put it into what's called an electric arc furnace.
14:09
Speaker 1: It's about sevent less greenhouse gas emissions when you recycle
14:14
Speaker 1: that steel. You put that scrap in the electric arc furnace,
14:16
Speaker 1: you blast it with electricity, if your electricity is coming
14:19
Speaker 1: from renewables or nuclear, very low carbon intensity, you're recycling
14:23
Speaker 1: the steel, the beauty of steel. It's the most recycled
14:27
Speaker 1: product on earth and every time you recycle it it
14:30
Speaker 1: doesn't lose any of its performance characteristics. So we have
14:34
Speaker 1: embarked in what we call best for all we are strategy.
14:37
Speaker 1: We have been moving more and more towards this electric
14:40
Speaker 1: arc furnace uh process route to make steel, and so
14:44
Speaker 1: a couple of years ago we bought big river steel
14:47
Speaker 1: in Arkansas, cutting edge, lead certified, the only lead certified
14:51
Speaker 1: steel mill in the United States. Uh Got Daimler's global
14:55
Speaker 1: sustainable supplier of the year award last year and it
14:58
Speaker 1: became the first steel company steel a mill in North
15:01
Speaker 1: America to receive responsible steel certification. Responsible Steel is a
15:06
Speaker 1: kind of a global standard for responsible steelmaking with a
15:10
Speaker 1: focus on climate change. So, uh, there's a lot to
15:13
Speaker 1: do there. We launched last year as well a line,
15:17
Speaker 1: a brand. We call it verd x x for the
15:20
Speaker 1: word for green, X for our ticker symbol of low
15:23
Speaker 1: carbon intensity steels. And that's what the customers want, the
15:26
Speaker 1: automotive customers, they're increasingly looking for that. If you think
15:29
Speaker 1: about electric vehicles, you know, if you want to buy
15:30
Speaker 1: an electric vehicle, don't you want your steel? Uh, you
15:33
Speaker 1: want the whole thing to be sustainable, not just the
15:37
Speaker 1: fact that you're getting energy from electricity, hopefully solar generated
15:42
Speaker 1: or wind, but you want the building of the car
15:44
Speaker 1: as well to be sustainable. Is this how you want
15:47
Speaker 1: to separate yourself from the pack? Because if I throw
15:49
Speaker 1: up US steel on a chart with Alcoa and our
15:53
Speaker 1: slore or any of the big steelmakers, uh, the stock chart,
15:58
Speaker 1: they all look the same. You know, the relation is one.
16:00
Speaker 1: Pretty much. Yeah, so I think you know. When we
16:04
Speaker 1: think about it from a strategy perspective. By the way,
16:05
Speaker 1: I used to work at out Coha, so great company
16:08
Speaker 1: has had a commitment to sustainability. I'm just saying all
16:11
Speaker 1: the steel companies seem to follow the same stock price pattern. So, Um,
16:16
Speaker 1: it's hard to outperform or underperform all of them over
16:19
Speaker 1: a long period of time. They all run in the
16:21
Speaker 1: same basket. Well, you're exactly right. There is that sort
16:24
Speaker 1: of compression right, um. And so when I said, you know,
16:28
Speaker 1: our sustainability program and our strategy or Inter intertwined, what
16:32
Speaker 1: I really meant about that is certainly the customers want
16:35
Speaker 1: sustainable solutions, whether it's the automotive customers. So we see
16:38
Speaker 1: an ability there to differentiate ourselves commercially. But back to
16:43
Speaker 1: this move to electric arc furnaces. They are very efficient, Um,
16:48
Speaker 1: not just from a greenhouse gas perspective but from a
16:51
Speaker 1: cost perspective. They're very lean. And so big river steel,
16:54
Speaker 1: which we bought, we've doubled down this. Uh. This past
16:58
Speaker 1: spring we announced we're going to expand at big river,
17:00
Speaker 1: double the capacity to about six, two, six three million
17:03
Speaker 1: tons of steel making. It's very cost effective, Um, and
17:08
Speaker 1: so we see that as the path forward both to
17:11
Speaker 1: help us differentiate uh from a performance perspective, from a
17:15
Speaker 1: free cash flow generation perspective, from our peers, but also
17:19
Speaker 1: from a sustainability perspective. And you know, one of the
17:21
Speaker 1: things we're doing is investing in the products we see
17:25
Speaker 1: in the future. Um, I mentioned Verdex, but one of
17:28
Speaker 1: the other things we're doing, uh, if you think about
17:30
Speaker 1: electric vehicles, it's not just do you want to sell
17:33
Speaker 1: to your customer a low greenhouse gas car steel on
17:37
Speaker 1: the car. You actually need steel. Steals part of the
17:40
Speaker 1: solution because you need what's called non grain oriented electrical
17:44
Speaker 1: steel to make the motors that go into E v.
17:46
Speaker 1: So we're we've invested in a two hundred thousand tons
17:49
Speaker 1: non grain oriented electrical steel line should be coming online
17:52
Speaker 1: at big river sometime next year. So what percentage of
17:55
Speaker 1: your steel production today is, you know, the more sustain
18:00
Speaker 1: the one that you mentioned, your technology versus and maybe
18:02
Speaker 1: what are your goals? Maybe three to five years down
18:04
Speaker 1: the road? Yeah, so right now, I mean look, we're it. Uh.
18:07
Speaker 1: I would say we're moving toward half and half. We're
18:10
Speaker 1: not there yet in North America. Um, in terms of
18:13
Speaker 1: the balance between uh, the integrated and the UH mini mill,
18:19
Speaker 1: the electric arc furnace. I think longer term, we put
18:22
Speaker 1: out in our sustainability report we called our roadmap, you know,
18:27
Speaker 1: and as we think going longer term, you know, thirty
18:30
Speaker 1: years out we have a net zero target we set
18:33
Speaker 1: for and we see in the first ten years of
18:36
Speaker 1: that thirty year journey more electric arc furnaces. Right now
18:39
Speaker 1: in the United States about two thirds of steel production
18:42
Speaker 1: is through the electric arc furnace route. One third is
18:45
Speaker 1: through the blast furnace and interestingly, you know we think
18:47
Speaker 1: of Europe as the leader and sustainability. It's flipped there.
18:50
Speaker 1: Two thirds or blast furnaces, one third or electric arc versus.
18:53
Speaker 1: Sit in China a lot of blast furnaces. So we
18:56
Speaker 1: see that as a way to move forward, both from
18:59
Speaker 1: a strategy per active and also from a sustainability person
19:01
Speaker 1: we love to get your take on Um. The Ford
19:05
Speaker 1: announcement today, uh, was interesting because all of the Um
19:10
Speaker 1: cost problems that we may have thought were past us
19:14
Speaker 1: are clearly still front and center. Do you face the
19:16
Speaker 1: same kind of issues with raw materials costs inflation? Well,
19:21
Speaker 1: I think everybody. You know, I'm a child of the seventies,
19:24
Speaker 1: so you know the inflation. It's like a little bit
19:26
Speaker 1: of a Deja Vu again, but all over again, to
19:28
Speaker 1: quote Yogi Berra. But you know, Um our benefit, our
19:32
Speaker 1: advantage is we also meet mine iron or we're one
19:35
Speaker 1: of the largest iron ore miners in the United States.
19:38
Speaker 1: So we have this vertical into we have that. Absolutely
19:41
Speaker 1: it gives us, I think, a competitive advantage. That iron ore.
19:44
Speaker 1: We mind about twenty two million tons of iron ore
19:46
Speaker 1: in Minnesota. Coal costs have gone through the roof. And
19:49
Speaker 1: when you talk about Europe uh making it a blast furnace,
19:52
Speaker 1: I think, damn, that's gonna be expensive and Um, they
19:55
Speaker 1: don't really have any other ways of create creating electricity
19:57
Speaker 1: right now. Yeah, certainly Europe Challenge, for sure on the
20:00
Speaker 1: Electricity Front Um. And so that's uh, I think, you know,
20:04
Speaker 1: we're gonna have to see what the EU does in
20:05
Speaker 1: terms of policy actions there. Uh. You know, on the
20:09
Speaker 1: flip side, we do have a business that's we call
20:11
Speaker 1: it our tubular segment. It's in the oil country tubular goods,
20:14
Speaker 1: and with the need to move l en g to
20:17
Speaker 1: Europe and the increase in drilling here in the United States,
20:21
Speaker 1: that business is doing really well. All right, rich, great
20:23
Speaker 1: to have you in our studio here. Rich fruhoff. He
20:25
Speaker 1: is a chief strategy and sustainability officer for U s steel,
20:30
Speaker 1: and the ticker symbol again is X. to put in
20:32
Speaker 1: Giblmberg terminal. I want to get to one of the
20:39
Speaker 1: big stories we've been covering today and that is forward.
20:43
Speaker 1: The company's stock has been decimated in the market, down
20:46
Speaker 1: by ten percent, after saying the accurate. Yes, a lot
20:51
Speaker 1: of assesimated things. Reduced to ten percent of its former self.
20:57
Speaker 1: But decimated is actually reducing, to use it just as
21:01
Speaker 1: a just down big. True. Yes, okay, the way. It
21:04
Speaker 1: is down big because they said costs are going to
21:07
Speaker 1: be up by over a billion dollars in the quarter
21:11
Speaker 1: and that's gonna obviously Um put a real weight on margins.
21:15
Speaker 1: But their full year forecasts remains unchanged. David Welch joins us.
21:19
Speaker 1: He is our go to reporter out of the Detroit
21:23
Speaker 1: Bureau for all things automotive. David Um. UH, well, and
21:29
Speaker 1: Detroit Bureau chief, my producer reminds me. But yes, uh,
21:33
Speaker 1: he mainly keeps tabs on these carmakers for us. David Um,
21:37
Speaker 1: you know, this was a bit of surprise for me
21:39
Speaker 1: because I have been thinking maybe the supply chain problems,
21:44
Speaker 1: commodity inflation is in the rear view mirror. Um, what
21:47
Speaker 1: did you think? We've made the mistakes probably many times,
21:52
Speaker 1: and the car companies themselves have told us over the
21:54
Speaker 1: last two years, particularly in relation to semiconductor, said, Oh, yeah,
21:58
Speaker 1: second half of this year, it should get better, and
22:02
Speaker 1: I think they really do, uh, at times, believe that.
22:06
Speaker 1: And then something else happened. Um, you know in some
22:09
Speaker 1: of these cases that you know you could have pandemic
22:12
Speaker 1: shutdowns in Asia, that that caused supply chain problems in
22:15
Speaker 1: Jack up pricing for certain commodities. But this one feels
22:19
Speaker 1: different than the COVID and semiconductor related issues we've had.
22:22
Speaker 1: This seems more just general inflationary uh, and that's what
22:27
Speaker 1: the fettest fighting today. That's what I think many economies
22:29
Speaker 1: around the global fighting. Um, what is a little bit surprising,
22:34
Speaker 1: you know, go ahead now. Is it just wondering how
22:36
Speaker 1: much this is, you know, just pure inflation for some
22:40
Speaker 1: of their inputs, versus still some lingering supply chain issues
22:43
Speaker 1: that maybe pushing up, you know, the prices here? Did
22:47
Speaker 1: did the company delineate any of that? Not Really. The
22:51
Speaker 1: best we kind of have is that they did say
22:53
Speaker 1: it's inflation related. Okay, and then we've got analysts, Ryan
22:56
Speaker 1: Brinkman from JP Morgan, saying that higher and higher inflation
22:59
Speaker 1: related supplier costs seem to have a higher chance of occurring.
23:03
Speaker 1: Um as you know, as opposed to chip short just
23:06
Speaker 1: this doesn't seem tip related. This seems like general inflation
23:08
Speaker 1: out there. For the parts they buy. Fuel is still
23:11
Speaker 1: it's come down but it's still expensive and and and everything.
23:14
Speaker 1: They you know, all of those thirty thou parts have
23:16
Speaker 1: to be shipped someplace. Uh, you know, thirty parts to
23:19
Speaker 1: make one vehicle. So look, it's just general inflationary kind
23:24
Speaker 1: of stuff. And you know one thing, and that is
23:26
Speaker 1: the reason I was a little surprised that the car
23:27
Speaker 1: companies always tell us in inflationary periods like this, or
23:30
Speaker 1: if there's a certain commodity that that is on the rise,
23:34
Speaker 1: that they've got these long term contracts locked in that
23:37
Speaker 1: protect them for a significant period of time. But it
23:40
Speaker 1: sounds like either for some of these things they've either
23:42
Speaker 1: run out of that runway or they had to renegotiate
23:47
Speaker 1: contracts just to get stuff. I'm kind of speculating here,
23:50
Speaker 1: but that the net result is. You know, they're talking
23:52
Speaker 1: about a billion dollars more in cost and if you look,
23:55
Speaker 1: Ford stock is down nine percent, GM stock is downe
23:58
Speaker 1: on this five percent. GM is not issued a similar warning,
24:01
Speaker 1: but they buy a lot of the same things. So
24:03
Speaker 1: that Toyota, so does everybody else, so the next shoes
24:07
Speaker 1: they could drop could be similar issues at other car companies. Yeah,
24:11
Speaker 1: it'll be interesting. We'll be watching closely to see if
24:13
Speaker 1: we hear anything from the competitors. What do we know
24:16
Speaker 1: about specific models? I have a friend, a buddy of
24:19
Speaker 1: mine at a boulder who ordered a Bronco before my
24:23
Speaker 1: daughter was born two years ago and still hasn't gotten it.
24:27
Speaker 1: And you know, I'm starting to see more of them
24:29
Speaker 1: on the road. But I'm thinking this is such a
24:31
Speaker 1: slam dunk vehicle for Ford. If they could only make
24:34
Speaker 1: more of these so cool and doesn't cost so much Um,
24:39
Speaker 1: it just would be a huge seller. Are Those all
24:44
Speaker 1: sitting on the lots waiting for chips? In many cases
24:47
Speaker 1: you have that and that's really that's what Ford's talking
24:49
Speaker 1: about here, is that in the quarter uh, they see
24:53
Speaker 1: a lot of vehicles just sitting on lots waiting for chips.
24:56
Speaker 1: I'm a little surprised that someone's waiting two years on
24:58
Speaker 1: a vehicle. I've heard people waiting six or eight months,
25:00
Speaker 1: but not that long. So yeah, you do have a
25:04
Speaker 1: lot of vehicles sitting on lots. I drove by the
25:07
Speaker 1: General Motors Plant in Flint, Michigan a few weeks ago
25:11
Speaker 1: and you know, they make heavy duty pickup trucks out there,
25:13
Speaker 1: a big money maker in a in a very popular vehicle,
25:16
Speaker 1: and there there were a sea of trucks in the
25:18
Speaker 1: parking lot and those trucks are all waiting on chips
25:21
Speaker 1: or some module that contained a chip, and when Jim
25:24
Speaker 1: gets them in they'll pop it in and put it
25:26
Speaker 1: on the truck haller and send it off to some dealerships.
25:28
Speaker 1: But in the meantime they're gathering dust out in the
25:31
Speaker 1: yard and there's just a lot of that going on
25:33
Speaker 1: industry wide. I know how that feels. David is the
25:36
Speaker 1: waited on my Silverado actually felt like an eternity, but
25:39
Speaker 1: you're right, it wasn't more than six to eight months.
25:40
Speaker 1: It was seven. Hey, we got it now, David is
25:43
Speaker 1: it days of seventeen millions SAR others days over? Well,
25:48
Speaker 1: they're over for the foreseeable future because no one can
25:50
Speaker 1: build enough to, you know, to satisfy that kind of demand.
25:55
Speaker 1: But automotive pricing is still very high. There are still
25:58
Speaker 1: people waiting on vehicles, there are people not even shopping
26:00
Speaker 1: because they know they can't find what they want. So
26:02
Speaker 1: we'll have pent up demand for a while. The the
26:06
Speaker 1: so if they can build the vehicles, they can get
26:08
Speaker 1: to whatever, you know, whatever the million vehicles is for
26:12
Speaker 1: the year. That that uh that they can build because
26:15
Speaker 1: people will buy them. Um, the issue is getting back
26:19
Speaker 1: to seventeen million going forward. Does do these interest rate
26:23
Speaker 1: cuts and inflation and all the other economic cross winds,
26:27
Speaker 1: headwinds that are going on out there? Does that push
26:30
Speaker 1: some of these people who have been shopping, are waiting
26:32
Speaker 1: to the sidelines out of lack of consumer confidence, lack
26:36
Speaker 1: of a job? Right now, employment is great, everyone's working,
26:39
Speaker 1: who wants to have you know, who wants to work.
26:41
Speaker 1: So there's money being made out there and plenty of
26:44
Speaker 1: people can buy vehicles. But does that all cool off
26:46
Speaker 1: because of what the Fed may do today and has
26:48
Speaker 1: already done so? And that's the thing. First wave here
26:51
Speaker 1: is supply chain problem, semiconductors and inflation. Second wave is,
26:57
Speaker 1: even if, even if that gets back to normal, what
26:59
Speaker 1: happened Stud right, all right, David, great stuff as always,
27:03
Speaker 1: David Welch. He's the Detroit Bureau chief for Bloomberg News,
27:07
Speaker 1: covering all things autos. Again, Ford down about nine point
27:10
Speaker 1: five percent today on higher costs. It is a treat
27:17
Speaker 1: from Matt and I because we have barry ridholts. He
27:20
Speaker 1: is the ridhult's wealth management dude. He's got a masters
27:23
Speaker 1: in business. PODCAST was just rips and he's in studio
27:26
Speaker 1: for the next fifteen minutes with how good is that?
27:29
Speaker 1: I'm excited. All right, let's talk. Let's talk to our
27:32
Speaker 1: next guest about what's going on in the Ukraine. Let's
27:34
Speaker 1: do that. David's Ake and CEO and founder of key
27:36
Speaker 1: elements group, David, I guess just my first question here
27:39
Speaker 1: is this has been a disaster from day one. How
27:43
Speaker 1: much of a risk is this in Russia? To Mr Putin,
27:48
Speaker 1: thank you for having you here. Now that the best
27:51
Speaker 1: has settled a bit, we can begin to understand the
27:54
Speaker 1: events of the last weeks. In this decisive counters Ukrainian
27:58
Speaker 1: forces managed to day more territory then Russia has seised
28:02
Speaker 1: since April. The effect on morale that this victory has
28:07
Speaker 1: had cannot be overstated. Ukrainian forces liberated about seven percent
28:12
Speaker 1: of occupied territory in just one B um. Russia's desperation
28:18
Speaker 1: is now manifesting, and weapons purches from regimes like North
28:21
Speaker 1: Korea and they run, which are also signaling that Russian
28:25
Speaker 1: industry is struggling to keep up even the production of weapons.
28:29
Speaker 1: So straight answer to threat at home. Remember, Russia is
28:34
Speaker 1: a petrol of state run by counter and debt counter Intel.
28:37
Speaker 1: Palicebero all major decisions down by putting himself and three others,
28:43
Speaker 1: and they're under tremendous threats and pressure today and, as
28:48
Speaker 1: we noticed, parliament has passed the law introducing concept of
28:52
Speaker 1: mobilization and martial law. I want to bring it first.
28:55
Speaker 1: At first, I just wanted to explain the listeners why
28:57
Speaker 1: we're asking you about this, because you are an expert
29:00
Speaker 1: in crisis management. You advise politicians as well as multinational
29:06
Speaker 1: brands about how to deal with Um, such crises, and
29:11
Speaker 1: you know, surely Vladimir Putin seems like someone who needs
29:14
Speaker 1: some advice right now. What would you tell him? Um,
29:19
Speaker 1: unfortunately or unfortunately, he wouldn't listen to my advice because
29:24
Speaker 1: he's in uh, he's surrounded by UH counter and tea
29:29
Speaker 1: and uh their way of dealing with this is doubled down.
29:34
Speaker 1: My advice would be uh, find a way to communicate
29:37
Speaker 1: to Ukraine, leave the territory, go back to February, twenty
29:41
Speaker 1: three boarders, but they wouldn't listen. Um. So this is
29:44
Speaker 1: how they doubling down now and I would would expect
29:48
Speaker 1: that they will not listen to anybody at this stage yet.
29:53
Speaker 1: So let's talk a little bit about the endgame, it
29:55
Speaker 1: sounds like. Well, first, it's a too early to be
29:58
Speaker 1: discussing the endgame. In second what sort of options does
30:02
Speaker 1: Putin have, short of tactical nuclear weapons, to resolve this
30:07
Speaker 1: in a way that doesn't dramatically undercut his support at home? Look,
30:16
Speaker 1: Russian Army Modessani so far was brutality against innocent civilians. Um, UM,
30:26
Speaker 1: extra community to talk about potential attack, but if you
30:31
Speaker 1: remember the size of the table you can have when
30:35
Speaker 1: he meets somebody, he's not suicidal. So at the end
30:39
Speaker 1: of the day, Um, I don't see him moving into
30:42
Speaker 1: that direction. Beyond nuclear strikes, my main concern as the
30:46
Speaker 1: PARISIA nuclear power station. If you remember, this is one
30:51
Speaker 1: of the largest in Europe, and any and all military
30:54
Speaker 1: activity within striking distance of the plants it's a great
30:58
Speaker 1: risk to the entire European continent. And Russian forces played
31:02
Speaker 1: with fire around the area, and this is displaying total
31:06
Speaker 1: disregard for human life as the course. So I don't
31:10
Speaker 1: see him going that praising. He's not suicidal. But they
31:14
Speaker 1: see him doubling down and Um holding referendum uh in
31:20
Speaker 1: Thea Porigia, Herson done Gugans, and then saying to Ukrainians
31:25
Speaker 1: and Western partners, how about you guys having war now
31:30
Speaker 1: with Russian territory called Russian now? All right, I mean
31:33
Speaker 1: it's obviously difficult situation. We'll have to see how it
31:36
Speaker 1: plays out. Lots of twist and turns coming up. No
31:38
Speaker 1: doubt David's can CEO and founder's key elements group there.
31:44
Speaker 1: Thanks for listening to the Bloomberg markets podcast. You can
31:47
Speaker 1: subscribe and listen to interviews with apple podcasts or whatever
31:51
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on twitter
31:55
Speaker 1: at Matt Miller v Three on Falsewheney. I'm on twitter
31:59
Speaker 1: at PT Swe need before the podcast. You can always
32:01
Speaker 1: catch US worldwide at Bloomberg radio. m