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Harvey Endangered World's Most Important Chemical · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. In
• 0:32
  Speaker 1: the wake of Hurricane Harvey, we've talked a lot about
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  Speaker 1: gasoline prices spiking, crude values falling. But there's another chemical
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  Speaker 1: that is big produced, big production in Texas, and uh
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  Speaker 1: it possibly could be more important. I'm talking about ethylene,
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  Speaker 1: and I want to bring in Jack Caskey, who highlighted
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  Speaker 1: this in a recent Bloomberg News story. He's our chemical
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  Speaker 1: company's reporter and he is based in Houston. Also, I
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  Speaker 1: want to bring in Jason Minor, senior global chemical analyst
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  Speaker 1: for Bloomberg Intelligence based in Princeton, New Jersey. Jack, let's
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  Speaker 1: start with you. Can you give us a sense of
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  Speaker 1: the importance of this chemical that you highlighted, ethylene, and
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  Speaker 1: why the production of this chemical in Texas could be
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  Speaker 1: a bigger impact on what we consume every day than
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  Speaker 1: even gas prices. Yeah, lista UM ethylene is the world
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  Speaker 1: most produced petrochemical. Uh. It's in everything. It's in plastics
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  Speaker 1: or food packaging, your toys, it's entires and diapers and
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  Speaker 1: pretty much anything I thinks they don't even think about.
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  Speaker 1: You know, rubber, Uh contains athletes anthetic rubber. UM. The
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  Speaker 1: list is hundreds, if not thousands of products long. Uh,
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  Speaker 1: it's converted into you know, vinyls um. It's it's likely
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  Speaker 1: said plastics. I'm not going to go to the whole list,
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  Speaker 1: but it is the core of the petrochemical industry. Right.
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  Speaker 1: If it's the core of the petro chemical industry, Jason,
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  Speaker 1: I would like you to come in and comment on this.
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  Speaker 1: How long, what kind of time frame, and what are
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  Speaker 1: some of the specific challenges that are going to be
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  Speaker 1: faced by the industry to get it up and running. Yeah,
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  Speaker 1: they're there. Thanks. There's a couple of effects here actually
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  Speaker 1: UM two waves perhaps so in the near term. The
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  Speaker 1: estimates range between sort of forty and six of golf
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  Speaker 1: ethylene being down. That's maybe a fifth the u S
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  Speaker 1: maybe a fifth of the world's athlete supply. So the
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  Speaker 1: numbers sound big, of course, depends how long the adages
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  Speaker 1: are and remember, um, we haven't starved this industry for Capex,
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  Speaker 1: There's been a lot of spending which is operating in
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  Speaker 1: our favor. The second wave that might be more impactful
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  Speaker 1: is logistics. Um, we did have a massive wave, so
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  Speaker 1: ethylene first and biggest step it turns into plastic polyethylene.
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  Speaker 1: That's that's where it becomes kind of the face of
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  Speaker 1: petro chemicals. We use it every day. We had a
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  Speaker 1: massive wave of expansion in the US coming in plastic
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  Speaker 1: this year, and with that sort of coming over the
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  Speaker 1: next twenty four months, you know, it's it's as much
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  Speaker 1: as a quarter of additional capacity if those plants get
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  Speaker 1: back online fast. The next wave would be that that
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  Speaker 1: those pellets create sort of a local glut. They need
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  Speaker 1: to be exported. And clearly if you look at on
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  Speaker 1: the terminal, we have a nice map, real time map
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  Speaker 1: of the ships in the gulf. There it's a big
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  Speaker 1: parking lot, a lot of ships waiting, and the rail
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  Speaker 1: washouts could be pretty significant as well. Jason, I'd love
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  Speaker 1: to get your sense of why so much of the
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  Speaker 1: production of ethylene is based in Texas. Energy energy, energy,
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  Speaker 1: back to oil and then more recently shale gas and
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  Speaker 1: and uh the wave of expansion. Really, the US because
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  Speaker 1: of gale gas, has become the world's plastic and ethylene hub.
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  Speaker 1: I mean, we're at a moment where since two thousand,
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  Speaker 1: about a hundred and seventy nine billion of capex new
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  Speaker 1: projects have been announced and it's all driven by our
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  Speaker 1: very low cost position. And that's because of shale gas. So, uh,
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  Speaker 1: the supplies right there, and then you can ship, of
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  Speaker 1: course in good times from there quite effectively the rest
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  Speaker 1: of the world jack the companies that are specifically involved.
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  Speaker 1: We've seen pictures of the Archema plant and so on
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  Speaker 1: owned by out non US uh enterprises. What what kind
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  Speaker 1: of sort of new manufacturing or news you know, equipment
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  Speaker 1: is going to be necessary because I mean, if the
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  Speaker 1: motors of the electric motors are out, aren't they going
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  Speaker 1: to require rewiring? Yeah, that can happen. I mean it's
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  Speaker 1: really not going to be clear until they get in
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  Speaker 1: there and trying start these plants up what the problems
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  Speaker 1: are at any Yeah, electoral problems historically have been at
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  Speaker 1: the laid plants startups for months in past storms. You know,
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  Speaker 1: not commonly, but it does happen. Um. But yeah, water
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  Speaker 1: who knows where the water gets when it's a flood situation. So, um,
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  Speaker 1: there's I mean, and it's contaminated water. Correct, Well, brackish
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  Speaker 1: water is corrosive if it's uh you know if on
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  Speaker 1: these plants around the coast, so the water would be brackish.
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  Speaker 1: I don't know that it's contaminated. It just has salt
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  Speaker 1: in it, which is not good for metal. Jason, I'd
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  Speaker 1: love to get your sense and whether there's a precedent
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  Speaker 1: for this type of disruption in the ethylene production industry,
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  Speaker 1: going back to Trina Rita were really the the big
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  Speaker 1: precedent and um, you go back to two thousand and five.
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  Speaker 1: Now what's interesting is these companies and let's remember doubt
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  Speaker 1: you pot merged today, so what I'm about to say
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  Speaker 1: is even more true. But these are behemoth companies with
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  Speaker 1: a lot of diversification. Um, when you go back to
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  Speaker 1: the third quarterb oh five, um, Dow Chemical had only
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  Speaker 1: a two negative impact on their volumes from the Katrina
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  Speaker 1: and Arina Rita hurricanes. That just speaks to how hugely
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  Speaker 1: diversity these companies are. But that's really the precedent. Um,
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  Speaker 1: and again it kind of mutes what from an investor's perspective,
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  Speaker 1: you might see uh, some of the company impacts, although
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  Speaker 1: perhaps in chlor al kali maybe at old and UH
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  Speaker 1: and maybe some of the industrial gases for the rebuilding
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  Speaker 1: into thousand eighteen, the welding gases will see a little
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  Speaker 1: bit of improvement in earnings from this. I want to
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  Speaker 1: thank you both very much. Sorry, go ahead, Jack, you
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  Speaker 1: got a final comment. Yeah, I was just going to
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  Speaker 1: add that. Um. Some analyst Jeffreys in particular, is out
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  Speaker 1: with a note this overnight saying, you know, it could
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  Speaker 1: be until November until the petro chemical industry is you know,
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  Speaker 1: reaches the pre hurricane level. So that's two months from now,
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  Speaker 1: so that we could of course, nobody really knows, but
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  Speaker 1: it could be a month long process. Here. Thanks very
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  Speaker 1: much for joining us, gentlemen. Jason Miner, senior chemical global
• 6:42
  Speaker 1: chemicals analysts for Bloomberg Intelligence, and A Jackkaski here is
• 6:46
  Speaker 1: our chemical companies reporter for Bloomberg News. They're both reporting
• 6:50
  Speaker 1: from Houston. So it turns out pim fox that algorithms
• 7:06
  Speaker 1: get bored sometimes, uh, And it seems like perhaps in
• 7:09
  Speaker 1: this market where trading volumes are just sagging away, even
• 7:14
  Speaker 1: those computerized systems just can't seem to get their mojo back.
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  Speaker 1: Matt Mainlee joins US now. He's managing director and equity
• 7:20
  Speaker 1: strategist at Miller, tay Back and Company. He is uh
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  Speaker 1: speaking with us uh after writing a note earlier today
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  Speaker 1: in which you say it's going to be a very
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  Speaker 1: boring day in front of the long weekend. Um, you're right,
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  Speaker 1: But I think that this is important because it's been
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  Speaker 1: boring for a while and there have been these lulls
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  Speaker 1: and the market has sort of either drifted along or
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  Speaker 1: gone up. What do you see in your models that
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  Speaker 1: is going to break this this sort of uh, this
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  Speaker 1: sort of trend and push it in one direction or another. Well,
• 7:51
  Speaker 1: it's well, one thing is we we do have to
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  Speaker 1: get past the kind of the late August adul drums
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  Speaker 1: that we get every year, whether the Algals long before
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  Speaker 1: the Apple were involved the markets that it's going to
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  Speaker 1: be listless, uh, you know, late late in August. Uh.
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  Speaker 1: So that's gonna be one thing. But more importantly, we're
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  Speaker 1: gonna have to see what's gonna I think people you know,
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  Speaker 1: there's gonna be a lot of focus. Of course, what's
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  Speaker 1: gonna happen in Washington with the UH dead ceiling and
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  Speaker 1: things like that. But we also have, of course, what
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  Speaker 1: is the FED going to do on the UH, on
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  Speaker 1: on drinking their balance sheet? And will that have an impact?
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  Speaker 1: Because a lot of people are saying it's definitely gonna
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  Speaker 1: do this, or it's definitely gonna do that, But we
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  Speaker 1: but the most people and the smartest people. I think
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  Speaker 1: you're saying, we don't really know what's gonna what had
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  Speaker 1: happened with that. I think a lot of people are
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  Speaker 1: sitting on our hands because of that. UM. That's an
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  Speaker 1: interesting take, Matt, because when do you think that we're
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  Speaker 1: actually going to get a sense of what the effect
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  Speaker 1: will be? Because even if the FED announces some plan
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  Speaker 1: and say September, which is the absolute earliest, and it's
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  Speaker 1: more likely October, uh, we are going to see the
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  Speaker 1: real impact for a while. Right, Well, yes, I mean
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  Speaker 1: they can they We expect that they will tell us
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  Speaker 1: when they're going to start doing. Some people say they
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  Speaker 1: could start doing as early September, but I agree it's
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  Speaker 1: something that that is probably gonna be October at the earliest. UM.
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  Speaker 1: But there will be less liquidity in the system and
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  Speaker 1: UH by definition, and people a little worried about that.
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  Speaker 1: Now they're gonna go gradually, so that should be positive.
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  Speaker 1: And I do think that the you know that the
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  Speaker 1: market has uh, they've kind of signaled, and some of
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  Speaker 1: these other global central bankers have been saying that if
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  Speaker 1: things get majorlygue disrupted, though, they can step back on
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  Speaker 1: the accelerator. But it's still it's been a key driver
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  Speaker 1: to the markets in the last eight years. Not the
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  Speaker 1: only driver, Bunny and stretch of the imagination. But with
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  Speaker 1: with with liquidity going to be less plentiful, people are
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  Speaker 1: worried about Matt. You're joining us from Boston, home to
• 9:39
  Speaker 1: Bloomberg one six one Boston, Newburyport, as well as thirteen
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  Speaker 1: thirty metro Western and the South Shore. And I want
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  Speaker 1: trick thoughts on the biotech industry, which has a great
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  Speaker 1: presence in the area. Bluebird Bio for example, these stocks,
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  Speaker 1: you know, you look at them every day. We're Bio
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  Speaker 1: up another four and a half percent, Biogen moves higher,
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  Speaker 1: Vertex Pharmaceuticals. What is the biotech industry tell you about
• 10:02
  Speaker 1: the market, Well, it's it's it's certainly a bullish, uh
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  Speaker 1: bullish move in this group. I mean, we turned a
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  Speaker 1: positive on the group back in the in the spring,
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  Speaker 1: back in March, uh, and it kind of moved sideways
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  Speaker 1: for a while, but it broke out very nicely. And
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  Speaker 1: on a technical basis, it's had this great move. Uh.
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  Speaker 1: It made a double bottom in two thousand and sixteen,
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  Speaker 1: and then this year, after a little bit of rally,
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  Speaker 1: it's sold back off but held its two under day
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  Speaker 1: moving average, and since then it's been making It's made
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  Speaker 1: three higher high sense then, so it's very very bullish
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  Speaker 1: on a technical basis. And one of the things though,
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  Speaker 1: and I think it's gonna be very important because some
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  Speaker 1: of the innovations there on the fundamental side, things look
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  Speaker 1: very very good. But people a little bit worried. Geez,
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  Speaker 1: will we get a repeat of what happened in two
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  Speaker 1: thousand and fifteen when the group has been rolling very
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  Speaker 1: very strongly, Hillary Clinton came out and made comments about
• 10:47
  Speaker 1: drug prices and the group basically crashed if it felt
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  Speaker 1: three the differences. There's a much different set up this time.
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  Speaker 1: In two thousand and fifteen, the group had rallied eighty
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  Speaker 1: percent over the previous fifteen months and wildly outperformed the SMP,
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  Speaker 1: which is only up about seventeen percent. Over that time frame.
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  Speaker 1: So what it is that gave so many people a
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  Speaker 1: huge amount of conference confidence to add leverage to their
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  Speaker 1: to their positions. So when the group rolled over, Uh,
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  Speaker 1: it became much worse than otherwise there should have have
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  Speaker 1: because the fundamentals hadn't really changed, but people had to
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  Speaker 1: unwind their leverage. There was forced selling, you know, margin
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  Speaker 1: calls and things like that. Right now, this rally has
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  Speaker 1: been very good, but it hasn't been anything more than
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  Speaker 1: the the SMP has been. It's had percent rally along
• 11:30
  Speaker 1: with a percent rally and the SMP, so we don't
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  Speaker 1: shouldn't have the same kind of leverage. So there's no
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  Speaker 1: guarantee the stock of the group can't go down, especially
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  Speaker 1: if the broader market corrects. But we don't have that
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  Speaker 1: leverage in there, So I don't I strongly believe that
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  Speaker 1: people don't have to worry about the same kind of
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  Speaker 1: disaster taking place at this time around. Uh, if the
• 11:49
  Speaker 1: market sells off a little bit that took place at
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  Speaker 1: night and in two thousand fifteen, Matt, what a specific
• 11:54
  Speaker 1: sector do you think is most at risk of a
• 11:56
  Speaker 1: sell off? Well, I mean, you know, it's funny because
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  Speaker 1: the one thing that the people keep pointing to is
• 12:03
  Speaker 1: in the energy stocks and and and how oil could
• 12:06
  Speaker 1: dip back down and it took forty two and tests
• 12:08
  Speaker 1: forty two again or even drop into the thirties. But
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  Speaker 1: that group is, you know, it is pretty washed out
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  Speaker 1: and and and so I would not look for that group.
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  Speaker 1: The one group that that I do get a little
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  Speaker 1: bit worried about. Of course, as a technology sector, the
• 12:20
  Speaker 1: facts have just had this great amount of uh I'm sorry,
• 12:25
  Speaker 1: obviously the great run this year, but the stock semiconductor
• 12:29
  Speaker 1: endixes things stalling out a little bit lately, and that's
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  Speaker 1: been a great leadership group within the technology sector. So
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  Speaker 1: if we see a you know, a rolling over of
• 12:37
  Speaker 1: the tech stocks or the semiconductor stocks, uh, and then
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  Speaker 1: of course the thank stocks lose any kind of momentum
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  Speaker 1: again uh, that could lead to the kind of at
• 12:45
  Speaker 1: least minor unwinding of leverage that some people have added
• 12:47
  Speaker 1: to their portfolios recently. And again I'm not saying we'll
• 12:50
  Speaker 1: see a complete crash in the group like we saw
• 12:52
  Speaker 1: this in the biotechs a couple of years ago, but
• 12:54
  Speaker 1: it could, you know, could leave the group vulnerable. If so,
• 12:57
  Speaker 1: keep an eye on those semiconductor stocks more so than
• 12:59
  Speaker 1: the fang. As we move forward, Matt, we keep hearing
• 13:02
  Speaker 1: all about the valuation, in other words, how expensive stocks are,
• 13:07
  Speaker 1: at least on a relative basis. Does that make any
• 13:11
  Speaker 1: sense in a market like this, Well, on a long
• 13:15
  Speaker 1: term basis, you know, evaluations do matter. I mean, it's funny,
• 13:18
  Speaker 1: how uh you know? I guess my My key point
• 13:22
  Speaker 1: is that if you've you've got a lot in the
• 13:24
  Speaker 1: stock market, you've had a great run here, that's great.
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  Speaker 1: But the one thing is that people say they're afraid
• 13:28
  Speaker 1: they're gonna move miss the next move. I mean, there's
• 13:31
  Speaker 1: a lot of fear. And I can understand that with
• 13:33
  Speaker 1: institutional investors because they get measured on you know, every
• 13:36
  Speaker 1: quarter every year. But the individuals, it's like, hey, I've
• 13:39
  Speaker 1: had this great run since two thousand and nine, uh,
• 13:41
  Speaker 1: and do I really do I really have to worry
• 13:44
  Speaker 1: about missing the next five percent move? I guess. My
• 13:47
  Speaker 1: point is that on a long term basis, the market
• 13:49
  Speaker 1: should be fine, but most people do much better when
• 13:53
  Speaker 1: they're buying more when the market is inexpensive and cheap
• 13:57
  Speaker 1: and and oversold than they do when the market is
• 14:00
  Speaker 1: overbought and expensive, Like it is now. I mean there's
• 14:02
  Speaker 1: a reason that that the Warren Buffett has got his
• 14:05
  Speaker 1: biggest cast position ever he became a billionaire. But buying cheap,
• 14:09
  Speaker 1: I'm not saying it out of the stock market many
• 14:10
  Speaker 1: stretch of imagination, but you have a little bit. There's
• 14:13
  Speaker 1: nothing wrong with taking a few chips off the table,
• 14:15
  Speaker 1: so you have something if and when the market does correct, Matt,
• 14:18
  Speaker 1: real quick, the dollar. Do you think this is the
• 14:20
  Speaker 1: year's biggest pain trade, that we're going to see a
• 14:22
  Speaker 1: strengthening against all of the current short positions. The potential
• 14:27
  Speaker 1: is definitely there. We have with the d s I,
• 14:30
  Speaker 1: which is a daily sentiment index, with UH which is
• 14:33
  Speaker 1: a sentiment indicator that's very low only temper cent bulls.
• 14:37
  Speaker 1: And then plus, as you mentioned, the positioning everybody short.
• 14:40
  Speaker 1: The thing was just the zact opposite of what we
• 14:42
  Speaker 1: saw at the beginning of the year when everybody was long.
• 14:44
  Speaker 1: Now everybody's short. I think the pain trade in the
• 14:46
  Speaker 1: last four months of the year could be to the
• 14:48
  Speaker 1: upside in the dollar. Thank you very much for being
• 14:50
  Speaker 1: with us, Matt Maine. He is managing director and equity
• 14:53
  Speaker 1: strategist for Miller tay Back, joining us from Boston. He's
• 14:57
  Speaker 1: on site at the Boston Convention and Exhibition Center. Can
• 15:12
  Speaker 1: President Trump get very rapid action from Congress on emergency
• 15:16
  Speaker 1: funding for Texas? Here to tell us more is our
• 15:19
  Speaker 1: senior White House correspondent, Margaret Talive. She joins us from Washington,
• 15:23
  Speaker 1: and you can follow Margaret on Twitter at Margaret Tala.
• 15:27
  Speaker 1: That's t a l e V. Alright, Margaret, So what
• 15:30
  Speaker 1: are the chances that the build or when Congress comes back,
• 15:33
  Speaker 1: that we get a bill that includes all of this
• 15:35
  Speaker 1: emergency funding. I think the chances are very good. I mean,
• 15:39
  Speaker 1: with the caveats that anything can happen, and as we've
• 15:42
  Speaker 1: seen time and time again, unexpected drama has become injected
• 15:45
  Speaker 1: in some of these events. But look um, from the
• 15:47
  Speaker 1: White House's perspective, there is a real desire to not
• 15:51
  Speaker 1: have a debt limit crisis at the end of September,
• 15:54
  Speaker 1: to not have a debt limit crisis or a default
• 15:56
  Speaker 1: situation that can affect markets and blow up plans for
• 15:59
  Speaker 1: a x CUB plan. There is also this parallel request
• 16:03
  Speaker 1: to have a real debate over the government spending bill,
• 16:08
  Speaker 1: including yes, the wall, even if that fight gets deferred,
• 16:10
  Speaker 1: and yes, the possibility of a shutdown, even if it's
• 16:13
  Speaker 1: temporary shutdown that some fiscal conservatives want to be able
• 16:17
  Speaker 1: to decouple those events is something they'd like to do,
• 16:20
  Speaker 1: and everybody across the spectrum within the Republican Party as
• 16:25
  Speaker 1: well as Democrats, understands the need and wants to support
• 16:28
  Speaker 1: the need UH to cover you know, FEMA's bills in
• 16:31
  Speaker 1: the next few weeks. So the money doesn't right now
• 16:33
  Speaker 1: before the end of the fiscal year. So linking the
• 16:35
  Speaker 1: two UH in theory could be risky if it denied
• 16:39
  Speaker 1: UM the emergency money. But I think the calculation at
• 16:43
  Speaker 1: this point is going to be that this will be
• 16:45
  Speaker 1: an offer that the lawmakers can't refuse, and it gives
• 16:47
  Speaker 1: the ones who have constituencies that would be troubled by
• 16:51
  Speaker 1: the debt failing increased clean um some cover to do it.
• 16:54
  Speaker 1: So basically, this is shaming the more conservative side of
• 16:59
  Speaker 1: the GOP into passing a bill that they might otherwise
• 17:03
  Speaker 1: feel uncomfortable with because they can't go back to their
• 17:05
  Speaker 1: constituents and say, yeah, I voted against helping all those
• 17:08
  Speaker 1: people who are now homeless, those thousands and thousands of
• 17:10
  Speaker 1: people in shelters. Yeah, you could look at it a shamming.
• 17:13
  Speaker 1: You could look at this as political cover. You also
• 17:15
  Speaker 1: could look at it as sort of a tacit. Uh
• 17:17
  Speaker 1: promised to let them have the fight over government spending,
• 17:21
  Speaker 1: just not to attach it to paying debts that are
• 17:24
  Speaker 1: already incurred. Margaret, You know, I was looking recently at
• 17:28
  Speaker 1: renderings of the border wall that the president has been
• 17:35
  Speaker 1: speaking about, and uh, this set aside the issue of
• 17:39
  Speaker 1: whether it's a good thing or bad thing for just
• 17:41
  Speaker 1: a moment. But it struck me that building a wall
• 17:44
  Speaker 1: might is it possible that we could build those kinds
• 17:47
  Speaker 1: of projects to prevent against future catastrophes or at least
• 17:51
  Speaker 1: mitigate against uh, this kind of catastrophic flooding. Oh, you
• 17:55
  Speaker 1: were talking about a two for that would be a
• 17:58
  Speaker 1: border wall construction and as an emergency management preventative tactics
• 18:03
  Speaker 1: gone into politics. Right, this is amazing Well, or at
• 18:06
  Speaker 1: least in other words, I mean to kind of shift
• 18:08
  Speaker 1: the well seriously, to shift the focus. I maybe because
• 18:11
  Speaker 1: I mean, we're facing the potential of another hurricane that
• 18:14
  Speaker 1: is forming in the Eastern Atlantic, and many experts say that,
• 18:18
  Speaker 1: you know, we should expect more types of this extreme weather.
• 18:22
  Speaker 1: Why not, uh, you know, why not shift the attention.
• 18:25
  Speaker 1: They all right, we're gonna build this, but first we're
• 18:26
  Speaker 1: gonna build you know, these systems and infrastructure to prevent
• 18:30
  Speaker 1: against future catastrophes. Okay, I'm going to tell you that
• 18:32
  Speaker 1: I have not heard any sort of extensive substance scientific
• 18:36
  Speaker 1: debate about this, but that if we hear that there's
• 18:38
  Speaker 1: funding for an Army Corps of Engineer study to figure
• 18:40
  Speaker 1: out overlays for a border wall and for flood management,
• 18:44
  Speaker 1: calling you, you're gonna get the credit for this one.
• 18:46
  Speaker 1: But but I will say that President Trump has looked,
• 18:49
  Speaker 1: of course and putting solar panels on his conception for
• 18:51
  Speaker 1: a wall, has looked at a number of different ways
• 18:53
  Speaker 1: to uh both sell it rhetorically and politically, and to
• 18:58
  Speaker 1: try to come up with funding macan isms that could
• 19:00
  Speaker 1: in theory work or at least keep the debate alive.
• 19:02
  Speaker 1: I would say nothing is off the table in this debate.
• 19:05
  Speaker 1: But for now, this administration has decided that the one
• 19:08
  Speaker 1: thing they'd like to take off the table is this
• 19:10
  Speaker 1: debate over the debt limit, over the debt ceiling. And
• 19:12
  Speaker 1: they think I think that they think, and we'll know,
• 19:15
  Speaker 1: uh perhaps later today that this that the coupling of
• 19:19
  Speaker 1: that with the emergency FEMA and s b A assistance,
• 19:22
  Speaker 1: at least just to patch through the fiscal year is uh,
• 19:25
  Speaker 1: maybe the smartest way to do it. Margaret, I'd love
• 19:27
  Speaker 1: to you to take a little bit bigger picture of
• 19:29
  Speaker 1: view on the GOP and the mood right now in
• 19:33
  Speaker 1: Washington and just get a sense of as we move
• 19:36
  Speaker 1: beyond the healthcare debate and towards something that is much
• 19:39
  Speaker 1: more comfortable for everybody within the g OP, which is
• 19:42
  Speaker 1: tax reform. Have have things gotten less acrimonious well over
• 19:47
  Speaker 1: the summer, No, they've gotten more acrimonious, and something that
• 19:51
  Speaker 1: that should be easier than healthcare, tax reform has complexities
• 19:55
  Speaker 1: of its own, which we're going to see emerge. That's
• 19:57
  Speaker 1: part of the reason why the Trump administration is looking
• 20:00
  Speaker 1: for ways again to at least take the death healing
• 20:03
  Speaker 1: fight out of the way and let this be a
• 20:05
  Speaker 1: fight over government spending. But look, the earlier plans for
• 20:09
  Speaker 1: broad stroke tax reform, you know, have shrunk in terms
• 20:14
  Speaker 1: of ambition, so that the must pass situation now really
• 20:17
  Speaker 1: is a tax cut as far as the Republican Party
• 20:20
  Speaker 1: is concerned. And there are divisions within the Republican Party
• 20:24
  Speaker 1: about those who think that uh, any cuts have to
• 20:27
  Speaker 1: be offset, how are they going to be offset? Uh?
• 20:29
  Speaker 1: Is the Trump administration and the Congression leadership going to
• 20:32
  Speaker 1: propose tax increases on the very wealthy or no tax cut?
• 20:36
  Speaker 1: Uh for the wealthy? What are the thresholds going to be?
• 20:39
  Speaker 1: What's the size of the middle class tax cut? What's
• 20:42
  Speaker 1: more important? Middle class tax cuts or the corporate tax cut?
• 20:45
  Speaker 1: Can President Trump live with something that's uh, not a
• 20:48
  Speaker 1: fift cut, but something in the mid twenties. These are
• 20:51
  Speaker 1: all questions that the White House has not answered because
• 20:54
  Speaker 1: they haven't put details to paper, and that um converse
• 20:58
  Speaker 1: hasn't answered because they've been gone for several weeks. All
• 21:00
  Speaker 1: of this will come to the four in the next
• 21:01
  Speaker 1: couple of weeks as lawmakers come back. Margaret Tellivan, thank
• 21:05
  Speaker 1: you so much for joining us, and I really hope
• 21:06
  Speaker 1: that you can have some quality time off over this
• 21:09
  Speaker 1: long weekend. Shares of General Motors are up more than
• 21:25
  Speaker 1: two and a quarter percent, as other shares of Ford Motor.
• 21:28
  Speaker 1: Chrysler shares are up nearly five percent. What does this
• 21:31
  Speaker 1: tell us about the automobile industry and August auto sales?
• 21:34
  Speaker 1: We'll here to answer that question. Is Jessica Caldwell, executive
• 21:37
  Speaker 1: director of industry analysis for Edmunds dot Com, joining us
• 21:41
  Speaker 1: from Santa Monica, California. Jessica, thank you for being with us.
• 21:45
  Speaker 1: Give us your view of today's report for August automobile sales. Yeah,
• 21:51
  Speaker 1: I was looking a little disappointing, to be quite honest.
• 21:53
  Speaker 1: We thought August would be the first month in seen
• 21:56
  Speaker 1: that can possibly be a month in in but it
• 21:59
  Speaker 1: does look like that's going to be the case. I
• 22:02
  Speaker 1: think a lot of sales were hampered by the last
• 22:04
  Speaker 1: week with Hurricane Harvey, especially for brands like Ford, who
• 22:08
  Speaker 1: reported a decrease of two point one per cent um.
• 22:11
  Speaker 1: But I think overall it's it's a little all over
• 22:13
  Speaker 1: the place. But I would say I would sum it
• 22:15
  Speaker 1: up with the word disappointing, Jessica. You know, as PIM
• 22:19
  Speaker 1: was saying, shares her up and I'm wondering how much
• 22:21
  Speaker 1: investors are looking beyond the disappointing numbers, saying, you know what,
• 22:26
  Speaker 1: give them some slack because Texas is a huge market
• 22:29
  Speaker 1: and it was basically all but shut down in the
• 22:31
  Speaker 1: past in the last week of the month, and then
• 22:33
  Speaker 1: looking ahead, you're going to see all of these sales
• 22:36
  Speaker 1: to people who lost their cars. It's going to actually
• 22:39
  Speaker 1: end up being kind of a lifeline for some of
• 22:41
  Speaker 1: these companies. What do you say to that. Yeah, I
• 22:43
  Speaker 1: mean that's pretty much exactly right. And I would imagine
• 22:45
  Speaker 1: why there is a bit of a rally because we
• 22:47
  Speaker 1: would expect to see replacement demand really fulfill in the
• 22:52
  Speaker 1: rest of sen So I think that that is is
• 22:54
  Speaker 1: certainly going to happen. And it seems as if from
• 22:57
  Speaker 1: what I'm hearing in UM from Houston dealers is that
• 23:00
  Speaker 1: a lot of the inventory is not as effective as
• 23:02
  Speaker 1: people think it is. So those trucks and those cars
• 23:04
  Speaker 1: will be available for people who may have lost UM
• 23:08
  Speaker 1: during the hurricane. And we saw this with other storms
• 23:10
  Speaker 1: like Hurricanes Andy for instance, we saw a big boost
• 23:12
  Speaker 1: auto cells for the rest of the year. I'm wondering,
• 23:15
  Speaker 1: do you think this will also boost used car sale values? UM?
• 23:20
  Speaker 1: Probably so. UM. I would imagine Texas is a is
• 23:23
  Speaker 1: a pretty big used car state. They do a high
• 23:25
  Speaker 1: percentage of used vehicles and used it as a bit
• 23:28
  Speaker 1: tricky because there is a lot of demand for you know,
• 23:30
  Speaker 1: pickup trucks, and you know Texas has a lot of
• 23:32
  Speaker 1: pickup trucks. That they're selling UM, So I think that
• 23:35
  Speaker 1: that would probably put more pressure on US prices, particularly
• 23:38
  Speaker 1: for trucks and SUVs, because there is a bit of
• 23:41
  Speaker 1: a scarcity in those segments. What makes the Texas automobile
• 23:45
  Speaker 1: market different from perhaps the national market, Well, I think
• 23:51
  Speaker 1: that Texas, um, you know, it's it's a it's a
• 23:53
  Speaker 1: big open space. So these people are going to need
• 23:55
  Speaker 1: cars because not as if it's a disaster is hit
• 23:58
  Speaker 1: in a place where public trainsportation is something that people
• 24:01
  Speaker 1: could rely on in the interim. A lot of these
• 24:03
  Speaker 1: folks they're gonna need cars pretty much, you know, right away,
• 24:06
  Speaker 1: to to continue their lives. So I think that that's
• 24:09
  Speaker 1: probably makes it a little bit different. And they just
• 24:11
  Speaker 1: tend to they tend to buy more trucks, more SUVs,
• 24:15
  Speaker 1: so those profit rich vehicles for for automakers are gonna
• 24:19
  Speaker 1: make a lot more money selling the F one fifty
• 24:20
  Speaker 1: than they would a for Fiesta. So I think that
• 24:23
  Speaker 1: makes it a you know, right market for these these
• 24:25
  Speaker 1: auto companies. Jessica, do you have any sense of how
• 24:28
  Speaker 1: many cars, how many vehicles in general, were destroyed in
• 24:31
  Speaker 1: the flooding and what type of volumes that would mean
• 24:35
  Speaker 1: for companies like Forward. Yeah. I mean it's hard to say, um,
• 24:39
  Speaker 1: because it does seem as if, you know, we did
• 24:41
  Speaker 1: some estimates, Um, but some of the reports that we're
• 24:44
  Speaker 1: hearing is that, you know, the damage to cars was
• 24:46
  Speaker 1: perhaps not as great as as you know, it feared
• 24:48
  Speaker 1: in the beginning of the week or you know, the
• 24:50
  Speaker 1: beginning of the storm and we start to realize, wow,
• 24:52
  Speaker 1: this is getting really bad. But for someone like Floor,
• 24:55
  Speaker 1: Texas is their their number one market, so getting these uh,
• 24:58
  Speaker 1: you know, these vehicles to dealers is probably going to be,
• 25:02
  Speaker 1: you know, a top priority for the company moving forward.
• 25:04
  Speaker 1: It's you know, it's a it's a big money state
• 25:06
  Speaker 1: for them, Jessica. In today's non farm payroll report, we
• 25:09
  Speaker 1: learned that about thirty six thousand jobs were added to
• 25:12
  Speaker 1: the manufacturing sector, and more than ten thousand of those
• 25:16
  Speaker 1: jobs were in the automobile industry. Does that indicate that
• 25:20
  Speaker 1: the auto manufacturers will start ramping up production? M Um.
• 25:26
  Speaker 1: I think that's probably still tentative. I mean, inventory numbers
• 25:28
  Speaker 1: look really high, So not only our inventory numbers high,
• 25:31
  Speaker 1: but also the amount of time cars sit on dealership
• 25:34
  Speaker 1: lots that's been mounting all through seen. Um. I think
• 25:37
  Speaker 1: that there probably is pockets of inventor or of manufacturing
• 25:41
  Speaker 1: that needs to be addressed, especially as it relates to UM,
• 25:44
  Speaker 1: you know, new features like autonomous features, all, you know,
• 25:47
  Speaker 1: all of that sector. UM. But it seems as if
• 25:49
  Speaker 1: inventory for now is is doing okay. But there may
• 25:53
  Speaker 1: be pockets, you know, as we look to replace damaged
• 25:56
  Speaker 1: cars in Texas, Louisiana those areas, there maybe a bit
• 25:59
  Speaker 1: of a ramp up in production, but I'd say that
• 26:01
  Speaker 1: that's probably pretty tentative at this point. Jessica, I know
• 26:04
  Speaker 1: this may be a sideline, but I'm wondering if electric
• 26:07
  Speaker 1: and hybrid vehicles will be hurt by the publicity related
• 26:12
  Speaker 1: to Hurricane Harvey. Because clearly you might be able to start,
• 26:15
  Speaker 1: you know, a fossil fuel vehicle, but trying to get
• 26:18
  Speaker 1: an electric vehicle started when everything is wet, that's not
• 26:22
  Speaker 1: necessarily going to be an easy challenge. Yeah. Yeah, I
• 26:26
  Speaker 1: know what you're saying. Definitely, um, probably not. I mean,
• 26:29
  Speaker 1: I think when you look at the you know, the
• 26:31
  Speaker 1: electric vehicle like PEP, you look at pure electric vehicles
• 26:34
  Speaker 1: about her electric they make up blessed in one person
• 26:36
  Speaker 1: in the market about point six percent this year. So
• 26:38
  Speaker 1: I don't think you're necessarily going to see a big
• 26:40
  Speaker 1: hit a fallout from folks that are you know, saying
• 26:43
  Speaker 1: maybe not. Um. I think people that like electric they're
• 26:46
  Speaker 1: you know, they're fairly either you know, motivated by some
• 26:49
  Speaker 1: of the price or they're you know, they're they're die
• 26:51
  Speaker 1: hard in terms of, you know, that's what they want.
• 26:53
  Speaker 1: So I would imagine that any any effects would be
• 26:55
  Speaker 1: pretty pretty small. The effects of higher gasoline prices, we
• 27:00
  Speaker 1: know that they may be temporary because of the output
• 27:03
  Speaker 1: constraints from refineries in the Gulf region. What will that
• 27:07
  Speaker 1: do to drivers, uh, sort of driving on the and
• 27:11
  Speaker 1: the sales outlook, Yeah, it's gonna be a bit of
• 27:13
  Speaker 1: a shock for folks because I think that we've been
• 27:15
  Speaker 1: you so used to low gas prices for so long.
• 27:18
  Speaker 1: I don't think it's necessarily going to change the Uh,
• 27:21
  Speaker 1: people that need to buy a car that you know,
• 27:22
  Speaker 1: had planned to buy a car for the rest of
• 27:24
  Speaker 1: the year. Um, you could possibly see shifts and what
• 27:27
  Speaker 1: people buy, I would imagine, not just because of the
• 27:30
  Speaker 1: shift towards crossovers, but crossovers a lot more fuel efficient
• 27:33
  Speaker 1: than they were than the the SUVs of the past.
• 27:36
  Speaker 1: So I think people are willing to accept that difference
• 27:38
  Speaker 1: in in fuel economy changes. So I think that it
• 27:41
  Speaker 1: could put it, you know, in terms hamper or made
• 27:43
  Speaker 1: delay some purchases, um you know, depending on how long
• 27:46
  Speaker 1: really the gas price spikes um uh you know is
• 27:49
  Speaker 1: for I think when you see temporary, when people see
• 27:51
  Speaker 1: temporary expected spikes, it doesn't really change the purchasing behavior.
• 27:55
  Speaker 1: I think gas shock will start to change people's purposes
• 27:58
  Speaker 1: behavior after an extended period like six months. That's kind
• 28:01
  Speaker 1: of what we saw in two thousand and eight when
• 28:03
  Speaker 1: gas prices got you know, really out of control during
• 28:05
  Speaker 1: the spring and summertime. Well, other equipment makers see better
• 28:09
  Speaker 1: times ahead because of all the repairs that will need
• 28:12
  Speaker 1: to be made for these automobiles, likely especially um you know,
• 28:18
  Speaker 1: part suppliers. I think that there could be um you know,
• 28:20
  Speaker 1: for those vehicles that are able to be salvage. Of course,
• 28:22
  Speaker 1: that's a big question in terms of what can be
• 28:24
  Speaker 1: saved and what cannot be saved. Um. But I think
• 28:27
  Speaker 1: replacement parts um you know, trying to to fix some
• 28:30
  Speaker 1: of these cars, um is you know, could see a boost.
• 28:33
  Speaker 1: I think there's a lot of questions because of all
• 28:35
  Speaker 1: the electric componentry now in cars of how much can really,
• 28:38
  Speaker 1: you know, be saved and if they should be so.
• 28:40
  Speaker 1: I think there probably are a lot of questions around
• 28:43
  Speaker 1: that right now. Thank you very much. Jessica Caldwell's executive
• 28:46
  Speaker 1: director of industry analysis for Edmunds dot com, joining us
• 28:50
  Speaker 1: from Santa Monica. Thanks for listening to the Bloomberg P
• 28:55
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 28:58
  Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 29:03
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 29:06
  Speaker 1: on Twitter at Lisa Abramo wits one. Before the podcast,
• 29:10
  Speaker 1: you can always catch us worldwide on Bloomberg Radio