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Markets, Inflation, And Volkswagen (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast Mixed tape out there is.
• 0:22
  Speaker 1: Greg was just reporting we got the FED coming up.
• 0:25
  Speaker 1: I think it's gonna be kind of important this Wednesday
• 0:28
  Speaker 1: to hear we uh, you know, see where we're gonna
• 0:30
  Speaker 1: get from our federal reserve. In the markets is certainly
• 0:33
  Speaker 1: paying attention as they are to earnings as we get
• 0:35
  Speaker 1: into the real meat of earning season this week. Rebecca Felton,
• 0:38
  Speaker 1: senior market strategist for Riverfront Investment Group, Richmond, Virginia. She
• 0:42
  Speaker 1: is a like myself, an alumnus. Are alumni alumni from
• 0:47
  Speaker 1: the University of Richmond And Matt, do you know what
• 0:49
  Speaker 1: the University of Richmond mascot is? Sorry, University of Richmond mascot.
• 0:55
  Speaker 1: I don't know, like a like a uh Southern soldier
• 1:00
  Speaker 1: spider a spider. Oh yeah, I should have known that, right, Rebecca,
• 1:04
  Speaker 1: people out there, we don't have to share a mascot,
• 1:06
  Speaker 1: do we, Rebecca, No, do not? All right, Rebecca, what
• 1:10
  Speaker 1: are you telling your clients? Uh? You know, as we
• 1:14
  Speaker 1: kind of get into this earning season, get its more
• 1:17
  Speaker 1: color from the frontal reserve, what are you telling your
• 1:19
  Speaker 1: clients about these markets? We've had a little bit of
• 1:21
  Speaker 1: a lift off the bottom, but I'm not sure what
• 1:22
  Speaker 1: to make of it. Well, thank you all so much
• 1:26
  Speaker 1: for for having me this morning. We're a little more
• 1:28
  Speaker 1: cautious than the last time that I spoke with you all.
• 1:31
  Speaker 1: We've actually the only asset class that we are overweight
• 1:34
  Speaker 1: right now in our balance strategies is cash because we
• 1:36
  Speaker 1: are cautious. Um at this juncture, you know this, This
• 1:40
  Speaker 1: is a busy week with the f o MC Durable
• 1:42
  Speaker 1: Goods g d P and a hundred and seventy companies
• 1:45
  Speaker 1: or so or reporting earnings. So there's a lot to digest,
• 1:49
  Speaker 1: and we think it's going to be volatile and potentially
• 1:52
  Speaker 1: to the downside. It's interesting. Um, So this meeting, we
• 1:58
  Speaker 1: all expect seventy five, right, and the question is how
• 2:01
  Speaker 1: far does the FED go and when, if at any point,
• 2:04
  Speaker 1: do they turn around. I heard Stephen Englander on surveillance
• 2:07
  Speaker 1: this morning, say he thinks three percent is going to
• 2:11
  Speaker 1: be the terminal rate and then they'll hold for five
• 2:13
  Speaker 1: or six quarters, which is an outlier forecast obviously, but um.
• 2:17
  Speaker 1: We also quote Vince Reinhardt in our Bloomberg story he
• 2:20
  Speaker 1: thinks the Fed's gonna go over five percent UM and
• 2:24
  Speaker 1: then turn around at the end of what do you
• 2:27
  Speaker 1: think and how important is that, Rebecca Well, I think
• 2:31
  Speaker 1: those expectations are are very important as it relates to
• 2:35
  Speaker 1: folks forward, you know, projections for what the market should
• 2:38
  Speaker 1: be valued at. We believe that the Fed is going
• 2:41
  Speaker 1: to keep their foot on the accelerator given what their
• 2:44
  Speaker 1: inflation target is. UM. We know that they are looking
• 2:47
  Speaker 1: for a number of four or better in terms of
• 2:50
  Speaker 1: four or lower. And here our last uh you know,
• 2:53
  Speaker 1: the last print was nine percent, So there's a long
• 2:57
  Speaker 1: ways to go between nine and four, and we just
• 2:59
  Speaker 1: don't season letting up on the tightening anytime soon. Rebecca.
• 3:04
  Speaker 1: You mentioned that this is a busy, busy earnings week.
• 3:07
  Speaker 1: We got some big tech companies as well as General
• 3:10
  Speaker 1: motors tomorrow that Matt pays close attention to because he's
• 3:14
  Speaker 1: still waiting for his Chevy, I don't pick up trust Silverado,
• 3:18
  Speaker 1: Silverado pickup truck. Whatever. What are you looking for, Rebecca
• 3:22
  Speaker 1: from earnings here? What do you and your team is
• 3:24
  Speaker 1: really focusing on. Well, the headwinds that we are particularly
• 3:29
  Speaker 1: looking at this week, you know, from big Tech with
• 3:32
  Speaker 1: almost six of their revenues coming from overseas, we expect
• 3:36
  Speaker 1: to hear a lot of worries about the strength of
• 3:39
  Speaker 1: the dollar and how that's going to hit earnings. Uh,
• 3:42
  Speaker 1: the inflationary pressures are still the big buzzwords. You're seeing
• 3:45
  Speaker 1: more and more companies talk about layoffs, hiring freezes, were
• 3:49
  Speaker 1: sending job offers. So there's a lot to be worried
• 3:51
  Speaker 1: about in terms of what the tone is now. Earnings
• 3:55
  Speaker 1: themselves have been coming in a little better than expected,
• 3:58
  Speaker 1: but the energy sectors is the one that seems to
• 4:01
  Speaker 1: be driving that poplin headline number for earnings growth year
• 4:04
  Speaker 1: over year. You have about six sectors in the SMPS.
• 4:07
  Speaker 1: There are forecasts to have lower year over year numbers
• 4:11
  Speaker 1: than last So that is problematic when you think about
• 4:14
  Speaker 1: the fact that net net earnings are still pretty much
• 4:18
  Speaker 1: where they were at the beginning of the year, in
• 4:20
  Speaker 1: that eight percent range for consensus and we think that
• 4:23
  Speaker 1: that is vulnerable at this point. Yeah, too high. What
• 4:26
  Speaker 1: what do you need to see to get less cautious, Rebecca,
• 4:29
  Speaker 1: I mean in terms of earnings outlooks, in terms of valuations,
• 4:34
  Speaker 1: in terms of the federal reserve. What what do you
• 4:36
  Speaker 1: what kind of picture do you need to have before
• 4:38
  Speaker 1: you can put more of that cash to use? Well,
• 4:42
  Speaker 1: we need um. The one thing that we need to
• 4:44
  Speaker 1: go down is inflation, right, But some of the other
• 4:46
  Speaker 1: economic indicators that have been following we'd like to season stabilize. Right.
• 4:50
  Speaker 1: You're seeing the housing numbers start to turn over, some
• 4:54
  Speaker 1: of the most recent employment week to week numbers. Even
• 4:57
  Speaker 1: though that unemployment rate has come down, we're seeing some
• 5:00
  Speaker 1: of those unemployment numbers continuing to pick up. Um. So
• 5:04
  Speaker 1: there's a lot that needs to stabilize to the good
• 5:07
  Speaker 1: before we're going to get more more positive on our
• 5:10
  Speaker 1: outlook for equities at this point. Hey, Rebecca, When you
• 5:13
  Speaker 1: and I were in the Robin School of Business at
• 5:15
  Speaker 1: the University of Richmond, doctor Earl did not teach us
• 5:17
  Speaker 1: that bonds could have double digit declines in the first
• 5:22
  Speaker 1: six months of a year. But here we are, is
• 5:25
  Speaker 1: that time to just say I just gotta buy credit here,
• 5:28
  Speaker 1: I gotta buy bonds. I gotta go along. Well, we
• 5:31
  Speaker 1: have actually, for the first time in a while, increased
• 5:35
  Speaker 1: our allocation two fixed income. We're more neutral there than
• 5:38
  Speaker 1: we were um and we've kind of spread out the allocations.
• 5:42
  Speaker 1: We've got some treasuries, We've obviously got some investment grade,
• 5:45
  Speaker 1: but we've added back some high yield because we think
• 5:48
  Speaker 1: that it sort of pays to wait here and we
• 5:50
  Speaker 1: are not concerned at this juncture about you know, credit
• 5:54
  Speaker 1: quality and that sort of thing in terms of defaults.
• 5:57
  Speaker 1: So we we've added back and were neutral, and it
• 6:00
  Speaker 1: is it is more tractive now than it's been in
• 6:02
  Speaker 1: quite some time. All right, Rebecca, good stuff is always
• 6:05
  Speaker 1: we always appreciate getting your perspective. Rebecca Felton, Senior market strategist.
• 6:10
  Speaker 1: River Front Investment Group And what river does it front?
• 6:13
  Speaker 1: The James River, The James River in Richmond, Virginia. And
• 6:17
  Speaker 1: if you haven't been to Richmond, I have noted down.
• 6:19
  Speaker 1: I would like to check that out. It's very cool,
• 6:21
  Speaker 1: lots of history, lots of really nice I've never been
• 6:25
  Speaker 1: to Richmond, I've never been to Charlotte, I've never Inville.
• 6:30
  Speaker 1: I've never been to Chapel Hill. No, I'm just thinking
• 6:32
  Speaker 1: of all these sort of southern supposedly beautiful places that
• 6:35
  Speaker 1: I still have to check it. I've never been to Savannah,
• 6:38
  Speaker 1: another good one, Charleston, all down there in our beautiful southeast.
• 6:41
  Speaker 1: Ho was Rebecca Felton from river Front Investment Group. Al Right,
• 6:48
  Speaker 1: I'm looking at i end go the index browser on
• 6:51
  Speaker 1: the Bloomberg terminal. Total corporate bond returns year to date
• 6:56
  Speaker 1: minus twelve percent, just extraord on the high yield side,
• 7:01
  Speaker 1: uh minus ten and a half percent in the US
• 7:03
  Speaker 1: corporate So a lot of work to be done there
• 7:05
  Speaker 1: from our fixing. Wait wait, wait, global high yield. I'm
• 7:10
  Speaker 1: looking I'm looking at US Okay, because I'm seeing bigger
• 7:14
  Speaker 1: drops globally right alright. Bloomber of Markets today is brought
• 7:16
  Speaker 1: to you by Commonwealth, supporting more than two thousand independent
• 7:19
  Speaker 1: financial advisors with the solutions they need to grow with
• 7:21
  Speaker 1: thriving business. Commonwealth Go where you grow. Visit Commonwealth dot
• 7:24
  Speaker 1: com to learn more. So again, tough tough sledding year
• 7:28
  Speaker 1: to date in the fixed income markets. What are those
• 7:30
  Speaker 1: folks doing here? How are they positioning themselves for the
• 7:33
  Speaker 1: second half? Stephen O Global head of fixed Income at
• 7:36
  Speaker 1: Pinebridge Investment, joins us Steven. Have you ever seen the
• 7:40
  Speaker 1: first six months of a year like we had this year. Well,
• 7:44
  Speaker 1: it's certainly been in an extraordinary year, not only in
• 7:46
  Speaker 1: fixed income, but I would say across all ethic class markets.
• 7:50
  Speaker 1: Although in many respects I don't know that it was
• 7:53
  Speaker 1: completely unanticipated, but I think the magnitude has been surprising
• 7:57
  Speaker 1: to everyone. And what's you think people expected this um
• 8:03
  Speaker 1: maybe got on the right side of the trade short
• 8:06
  Speaker 1: I think I think they expected. Component was the fact
• 8:09
  Speaker 1: that if you go back to prior several years post COVID,
• 8:12
  Speaker 1: I even pre COVID, you know, asset prices from the
• 8:16
  Speaker 1: risk asset standpoint have been buoyed by central bank liquidity
• 8:20
  Speaker 1: injection into financial markets. And so you know, unlike traditional
• 8:25
  Speaker 1: cycles where if the key driving impact of asset prices
• 8:30
  Speaker 1: is to push by central banks globally to add liquidity
• 8:34
  Speaker 1: into the system, at some point, if the conditions existed
• 8:39
  Speaker 1: were by they would withdraw that liquidity. Then you had
• 8:42
  Speaker 1: conditions set up entering this year whereby you would get
• 8:46
  Speaker 1: both a sell off in risk assets as well as
• 8:49
  Speaker 1: in risk free government bond assets overall, so you you
• 8:53
  Speaker 1: had synchronized to the downside as a reversal from what
• 8:56
  Speaker 1: we had seen, which was synchronized to the upside. All right,
• 9:00
  Speaker 1: even we're gonna hear from our federal reserve this Tuesday.
• 9:04
  Speaker 1: I'm sorry with this Wednesday, two pm Wall Street time,
• 9:07
  Speaker 1: we'll get a press conference at two thirty. What do
• 9:09
  Speaker 1: you expect to hear from your federal reserve? You know,
• 9:12
  Speaker 1: the Fed is not going to make any surprises, and
• 9:16
  Speaker 1: I think the market is not focused on what they're
• 9:18
  Speaker 1: going to do with respect to rate hike. I think
• 9:21
  Speaker 1: what the market is watching for is house or tone
• 9:25
  Speaker 1: potentially shifting in terms of the level of aggressiveness going forward.
• 9:30
  Speaker 1: Uh and in particularly whether there will be much in
• 9:33
  Speaker 1: the way of acknowledgement of recent data indications that appeared
• 9:37
  Speaker 1: to indicate that the impact of the rate hikes is
• 9:41
  Speaker 1: starting to filter through into a demand withdrawal and the
• 9:45
  Speaker 1: rising risk of a recessionary type of bus scenario which
• 9:49
  Speaker 1: would pull back their pace of rate hikes overall. And
• 9:53
  Speaker 1: and that's in part what's been driving the market to
• 9:55
  Speaker 1: rally recently. It's sort of this adage that slightly bad
• 9:59
  Speaker 1: news it's good news because that would result in the
• 10:02
  Speaker 1: FED slowing down. So where do you see the FED
• 10:06
  Speaker 1: um stopping and turning around? Because it seems like forecasts
• 10:10
  Speaker 1: are all over the map. Although the shape that's generally
• 10:14
  Speaker 1: expected is, you know, hitting the terminal rate at some
• 10:18
  Speaker 1: point next year or at the end of this year
• 10:20
  Speaker 1: and then coming down before you know, there's sort of
• 10:26
  Speaker 1: the near term. What do we think is the FED
• 10:28
  Speaker 1: is going to do in this cycle? And what do
• 10:30
  Speaker 1: we think is the longer term policy path that may
• 10:33
  Speaker 1: diverge from this cycle overall? And as you note that
• 10:37
  Speaker 1: there is a quite a divergent set of predictions forward
• 10:41
  Speaker 1: and I think you said that there's some strategies that
• 10:44
  Speaker 1: are talking about four or five type of level policy rates.
• 10:49
  Speaker 1: We think that is a such an incredibly unlikely scenario.
• 10:52
  Speaker 1: And in fact, if that scenario played out, you know,
• 10:55
  Speaker 1: I would say the tenure is going to trade below
• 10:57
  Speaker 1: two percent because I think there would be an expectation
• 11:01
  Speaker 1: of a very very hard landing, which we're not going
• 11:04
  Speaker 1: to get to. Overall. You know, our base case expectation
• 11:07
  Speaker 1: is that the FED is going to continue its path,
• 11:10
  Speaker 1: but after this rate hike, they are going to flattle down,
• 11:15
  Speaker 1: uh and toward a glide path towards somewhere in the
• 11:19
  Speaker 1: low three percent type of level. But that's for this cycle. Uh,
• 11:23
  Speaker 1: And I think longer term, the FED is not going
• 11:26
  Speaker 1: to be maintaining a average new tol rate with a
• 11:30
  Speaker 1: three handle on it. But we will be back into
• 11:32
  Speaker 1: the tubes. I will say, I was quoting vent tryinhard earlier.
• 11:36
  Speaker 1: He thinks that the FED is going to raise to
• 11:39
  Speaker 1: five percent or higher and that unemployment UM could rise
• 11:44
  Speaker 1: to six percent. So that's pretty worried s outlied to me. Yeah,
• 11:49
  Speaker 1: but that's nice to note though. Stephen Oh, global head
• 11:51
  Speaker 1: of fixed income at pine Bridge Investments joining us. We
• 11:54
  Speaker 1: appreciate that um that is undergrad from Wharton. That's pretty good,
• 11:59
  Speaker 1: NBA from Northwestern, everybody I know we got there in
• 12:01
  Speaker 1: Bay for Northwestern's pretty darn smart. And Stevenough it kind
• 12:04
  Speaker 1: of falls into a camp. Speaking of Volkswagen, this has
• 12:10
  Speaker 1: been a story that has been blowing my mind all
• 12:13
  Speaker 1: weekend long. Christoph ralpha Al joins us out of Frankfurt.
• 12:17
  Speaker 1: He's the bureau chief UM for that office, and he's
• 12:20
  Speaker 1: also my go to guy when it comes to Volkswagen
• 12:23
  Speaker 1: anything I want to know, my go to guys, So
• 12:25
  Speaker 1: he's your go to He's he's the top guy. Christoph
• 12:29
  Speaker 1: is the man, Um christop When when I saw this news,
• 12:32
  Speaker 1: I was on the subway heading heading downtown, and I
• 12:35
  Speaker 1: almost fell off the bench. Um. I know that there's
• 12:39
  Speaker 1: been a lot of uh friction between Die and the
• 12:44
  Speaker 1: workers unions and the state of Saxony, but that seems
• 12:48
  Speaker 1: like that's what that's what you're supposed to have in
• 12:51
  Speaker 1: that job, right. Um. What I didn't know was that
• 12:54
  Speaker 1: he was failing at execution in terms of delivering software
• 12:58
  Speaker 1: for important new product like the Porsche mccan, the electric
• 13:02
  Speaker 1: version of the mccan. Is that what finally drove them out? Yeah? Hi, Well, first,
• 13:08
  Speaker 1: first of all, thanks so much for the very kind
• 13:09
  Speaker 1: introduction that that's that's in crete, the kind of you
• 13:12
  Speaker 1: you're You're totally right that that story did come on
• 13:16
  Speaker 1: broke on Friday evening, pretty much out of the blue Friday,
• 13:20
  Speaker 1: even in European time. We knew there have been quite
• 13:24
  Speaker 1: a bit of friction about like how the how the
• 13:27
  Speaker 1: the way how he runs the company. They have been
• 13:30
  Speaker 1: facing software issues, uh for for for a number of
• 13:34
  Speaker 1: months or already, but we weren't quite aware that the
• 13:37
  Speaker 1: problems would create so much internal unease basically within the
• 13:42
  Speaker 1: group that would that he would actually be pushed out,
• 13:45
  Speaker 1: because that's essentially what happened. Basically, the keys takeholders decided
• 13:48
  Speaker 1: we need a fresh start under a new leadership, and
• 13:50
  Speaker 1: therefore Mr ds, who has been credited with Folkswagen strategic
• 13:54
  Speaker 1: realignment towards electric mobility with effectively UH yeah outs it.
• 13:59
  Speaker 1: So let's talk about what this means for the company,
• 14:01
  Speaker 1: because you have over the past few years done such
• 14:05
  Speaker 1: incredible reporting on what Herbert Deece was building. Their investments
• 14:11
  Speaker 1: planned of more than ninety billion dollars to change this
• 14:16
  Speaker 1: internal combustion car maker into an electric sort of software
• 14:21
  Speaker 1: engine um and battery maker. Is that going to continue?
• 14:25
  Speaker 1: Is that going to go forward? Or is his successor
• 14:29
  Speaker 1: Oliver Bloomer, going to have to put together a whole
• 14:31
  Speaker 1: new plan. No. I think we can definitely expect that
• 14:34
  Speaker 1: the strategic direction will continue. The will basically stick to
• 14:40
  Speaker 1: their goals to sell far more fully and partly electric
• 14:44
  Speaker 1: vehicles in incoming years. They're building six battery cell factories
• 14:49
  Speaker 1: in Europe alone, plus looking for a partner to build
• 14:52
  Speaker 1: a bettery sell factory for the US factory UH in Chattanooga,
• 14:56
  Speaker 1: Tennessee h and other projects in China. So it's it's
• 15:00
  Speaker 1: basically a pretty wide range of different initiatives and investment programs.
• 15:04
  Speaker 1: Those we can expect to remain unchanged. What will change, though,
• 15:08
  Speaker 1: I think, is that there's going to be a much
• 15:10
  Speaker 1: stronger focus and and and sort of like an improvement
• 15:14
  Speaker 1: in terms of like tracking the operational progress of these
• 15:17
  Speaker 1: individual efforts rather than saying we need to do this,
• 15:22
  Speaker 1: we decide on like the strategic direction, but then sort
• 15:25
  Speaker 1: of like not following up and making sure that these
• 15:28
  Speaker 1: that these projects actually come to life on the assembly
• 15:31
  Speaker 1: line or in the respect of factory. Is it basically
• 15:33
  Speaker 1: I'm I'm assuming that some Porsche and Peach family members
• 15:37
  Speaker 1: were like, damn it, he's not delivering the macan. All right,
• 15:40
  Speaker 1: Let's take the CEO of Porsche, Oliver Bloomer, and put
• 15:43
  Speaker 1: him in charge of the whole thing. Then he'll produce
• 15:45
  Speaker 1: an electric Macon. Is that the idea? Yeah? The problem
• 15:50
  Speaker 1: there was that basically under the new structure that these
• 15:53
  Speaker 1: has initiated, Porsche was sort of dependent on a centralized
• 15:58
  Speaker 1: initiative to the develop car software for all all different
• 16:03
  Speaker 1: brands within Volkswagen Group, which included and still includes portion,
• 16:08
  Speaker 1: and that I think was was one big point of
• 16:10
  Speaker 1: criticism that to sort of like take the autonomy to
• 16:14
  Speaker 1: develop their individual software away from the brands and expect
• 16:18
  Speaker 1: that one unified division within the company can serve all
• 16:22
  Speaker 1: the individual brands that did not work out. You mentioned
• 16:26
  Speaker 1: the fully electric Macan which is being delayed. Audikaras are delayed.
• 16:29
  Speaker 1: Folkswagon cars face delays and that's something that they can't
• 16:33
  Speaker 1: afford going forward, and I think that's basically why they
• 16:36
  Speaker 1: decided to make a change in the leadership position, Right Christoph,
• 16:39
  Speaker 1: I'm reading some of the reports coming out of Wall
• 16:41
  Speaker 1: Street on this news, Bernstein saying, and I think they're
• 16:44
  Speaker 1: kind of mixed generally speaking, Bernstein saying, Volkswagen is making
• 16:48
  Speaker 1: a bad governance situation even worse. What do they mean
• 16:51
  Speaker 1: by that? Yeah, they as as you know, Volkswagen has
• 16:55
  Speaker 1: been planning to do a an I p O apart
• 17:00
  Speaker 1: listing of the Porsche sports car brand on the frankfort
• 17:04
  Speaker 1: Stock Exchange in the fourth quarter this year. So the
• 17:08
  Speaker 1: goal to go ahead with this plan was basically to
• 17:11
  Speaker 1: give Porsche more autonomy within the Volkswagen group. Now that
• 17:16
  Speaker 1: that's a slightly different or complicated narrative to deliver when
• 17:21
  Speaker 1: in fact the guy who runs Porsche will going forward
• 17:23
  Speaker 1: also run the mothership. Uh, that that's probably needs some
• 17:28
  Speaker 1: more explaining to do so that all the analysts and
• 17:30
  Speaker 1: investors actually get on board and at the moment, because
• 17:33
  Speaker 1: I mean the development is still pretty fresh. It was
• 17:35
  Speaker 1: decided on Friday. Took many people by surprise, including some
• 17:39
  Speaker 1: of the Supervisor Revolt members. But that's definitely something that
• 17:42
  Speaker 1: they need to iron out and and explain to external
• 17:44
  Speaker 1: investors as well. Yeah, why would you want to buy
• 17:47
  Speaker 1: Porsche shares if the guy is going to be distracted
• 17:49
  Speaker 1: by also running Folkswagen, Bentley and Ducardi Gooda. Uh, you know,
• 17:58
  Speaker 1: it goes on and on and on. Um and they
• 18:00
  Speaker 1: have I thought we're a thousand employees. They have six
• 18:02
  Speaker 1: hundred and sixty eight thousand people working there. Kristof, that's
• 18:06
  Speaker 1: way too many. Can they reduce headcount? That has been
• 18:10
  Speaker 1: a traditionally very difficult for a company like folks bark
• 18:13
  Speaker 1: and they've actually added more headcount rather than cutting it down.
• 18:17
  Speaker 1: They've done more sort of components and parts in house
• 18:22
  Speaker 1: than some of the other car parts maker car makers
• 18:24
  Speaker 1: who have like outsource some of the manufacturing two car
• 18:27
  Speaker 1: parts suppliers. Folks One does a lot of a lot
• 18:30
  Speaker 1: of things and a lot of operations in the house.
• 18:32
  Speaker 1: But of course from a head compuspective, it's it's it's
• 18:35
  Speaker 1: a very very big company and they will definitely need
• 18:37
  Speaker 1: to streamline some of the operations, especially in the whole
• 18:40
  Speaker 1: like combustion engine world. All right, Chris, thank you. You're
• 18:44
  Speaker 1: the go to person on voltswanking socios Matt Miller and
• 18:47
  Speaker 1: I thought he was the go to person, so you
• 18:49
  Speaker 1: must really be the go to Personally appreciate gett your thoughts.
• 18:52
  Speaker 1: Kristof Rovald Bureau chief frankfort and Munich bringing Annawa, chief
• 19:00
  Speaker 1: US economists for Bloombrick Economics. And you've got an inflation
• 19:03
  Speaker 1: call you guys at Bloombrick Economics. I'm gonna blame you
• 19:05
  Speaker 1: as an entire group. Uh, you've got a high inflation outlook.
• 19:09
  Speaker 1: Talk to us about how you're thinking about inflation, right, so, um,
• 19:13
  Speaker 1: you know, And for for forecasts this year, we usually
• 19:17
  Speaker 1: use a bottom up approach where we're looking at the
• 19:20
  Speaker 1: price trajector of cars and uh clothes and housing rents
• 19:25
  Speaker 1: um and using that approach, it will tell us that
• 19:28
  Speaker 1: um inflation CPI headline will likely be hovering around eight
• 19:32
  Speaker 1: percent or or slightly more than that until October this year.
• 19:39
  Speaker 1: So UM, and then looking forward to next year, then
• 19:42
  Speaker 1: it's harder for everybody, right, because it's hard to know
• 19:46
  Speaker 1: what's gonna happen to oil price or even car prices
• 19:49
  Speaker 1: next year. And then we use a model based based approach.
• 19:52
  Speaker 1: Then UM. You know, one of the problems of inflation
• 19:56
  Speaker 1: forecasting is that there's a lot of uncertainty over it,
• 19:59
  Speaker 1: particular lea since the pandemic, and even the way that
• 20:02
  Speaker 1: the Fed look Fed looks at it, they consider this
• 20:06
  Speaker 1: risk to inflation. Right, So our model takes into account
• 20:10
  Speaker 1: this uncertainty and this risk, and we forecast basically the
• 20:14
  Speaker 1: entire distribution, like what is likely going to happen? Instead
• 20:19
  Speaker 1: of asking what is the inflation rate going to be
• 20:22
  Speaker 1: next year, we ask what is going to be the
• 20:24
  Speaker 1: likely distribution of inflation rate next year? And using as
• 20:28
  Speaker 1: input oil prices, on employment rate, federal funds rate, we
• 20:32
  Speaker 1: forecast the distribution, and that is telling us that the
• 20:36
  Speaker 1: chance of inflation falling below four percent is very very
• 20:39
  Speaker 1: splint slim to minimal. Get the most importantly because I
• 20:43
  Speaker 1: have a bet with Critty Gupta that last month's headline
• 20:47
  Speaker 1: cp I print was the peak. Am I going to
• 20:50
  Speaker 1: win that bet? Or will we see anything higher than
• 20:53
  Speaker 1: nine point in the next couple of months? Well, you know,
• 20:56
  Speaker 1: this is an interesting things. If you look at the
• 20:58
  Speaker 1: mean forecast right now for headline CPI, it looks like
• 21:02
  Speaker 1: that's the peak. You seem to have one. But if
• 21:05
  Speaker 1: you look at the distribution of risk and think about
• 21:08
  Speaker 1: the past year, we're half the surprises can to be,
• 21:11
  Speaker 1: is it? So what we see is that the monthly
• 21:15
  Speaker 1: inflation rate in the next two months has to be perfect,
• 21:18
  Speaker 1: meaning that I cannot be lower than where the consensus
• 21:21
  Speaker 1: is there cannot be more shocked supply shocks. If that's
• 21:25
  Speaker 1: the case, then you you are winning the bet. But
• 21:27
  Speaker 1: if not, we could easily see another peak around our
• 21:31
  Speaker 1: August or September. What do you expect from the Federal
• 21:35
  Speaker 1: Reserve this weekend? We expect seventy five fits. But um
• 21:40
  Speaker 1: if again in the Fed has switched to a risk
• 21:43
  Speaker 1: management way of looking at the world, and that's what
• 21:46
  Speaker 1: our inflation model of you know, modeling the entire distribution
• 21:50
  Speaker 1: of inflation, which suggests that yeah, it's likely that that
• 21:54
  Speaker 1: that the peak has arrived. But you just given the
• 21:58
  Speaker 1: kind of risk that and uncertain we have seen over
• 22:00
  Speaker 1: the past years, just not wise to assume that that
• 22:04
  Speaker 1: baseline would be the short thing. So will they give us?
• 22:07
  Speaker 1: Will J. Powell give us any hint as to what's coming?
• 22:11
  Speaker 1: I means is whatever he expects for this meeting, The
• 22:15
  Speaker 1: important thing is what happens at the next meeting he
• 22:18
  Speaker 1: will I think he will stay on the message, which
• 22:21
  Speaker 1: is that the said will be data and data dependent. Um.
• 22:25
  Speaker 1: And there seems to be some progress on inflation front.
• 22:29
  Speaker 1: We are seeing commodity price coming down, but we cannot
• 22:33
  Speaker 1: assume that that is for sure it's gonna happen, and
• 22:36
  Speaker 1: that the FED will continue to tighten until he sees
• 22:40
  Speaker 1: a string of inflation decelerating report. We do have at
• 22:44
  Speaker 1: least two months though, are about two months until the
• 22:47
  Speaker 1: meeting after right, because they skip August. The um that's intelligent,
• 22:52
  Speaker 1: by the way, everyone in the world should be that civilized.
• 22:54
  Speaker 1: And then they don't come back for a meeting until September.
• 22:57
  Speaker 1: I think, Um, will they have a clearer picture? By
• 23:02
  Speaker 1: the way, then then then they don't come back until November.
• 23:05
  Speaker 1: Will they have a clearer picture by September you think
• 23:07
  Speaker 1: of of the inflation risk. Yeah, so there will be
• 23:10
  Speaker 1: two CPI report before the September meeting. There will also
• 23:14
  Speaker 1: be two jobs report before that meeting, and one of
• 23:18
  Speaker 1: those CPI report will be weak because we know the
• 23:21
  Speaker 1: July print is going to be soft. So then it
• 23:24
  Speaker 1: depends on whether the August print would be um, you know, uh,
• 23:28
  Speaker 1: it would be soft as well. And it seems like
• 23:31
  Speaker 1: based on the behavior of commodity prices and where you know,
• 23:35
  Speaker 1: the the economy is cooling really rapidly, there's a good
• 23:39
  Speaker 1: chance that August would be you know, not like one
• 23:43
  Speaker 1: percent monthly run right, rather would be around points you know,
• 23:48
  Speaker 1: five or point four even um monthly rape. So I
• 23:52
  Speaker 1: think that that you have a good chance of winning
• 23:55
  Speaker 1: your bet. But but I still think that anything could happen.
• 24:00
  Speaker 1: And you know what if we have a hurricane again,
• 24:04
  Speaker 1: because assuming that the hurricane season usually begins late in
• 24:08
  Speaker 1: the summer in the US, and if you get a
• 24:11
  Speaker 1: refinery Sorry sorry, I was just well, the weather people
• 24:17
  Speaker 1: are actually expecting a very active season hurricane season this year,
• 24:21
  Speaker 1: and if you have a refinery point hit by another
• 24:24
  Speaker 1: hurricane in August, then I would say, yeah, all bets
• 24:27
  Speaker 1: are off on map. Go is when you need that map.
• 24:30
  Speaker 1: Go yeah, and see where the refineries are. You know,
• 24:33
  Speaker 1: coming hurricanes. All right, Anna Long, Chief US economist Bloomberg Economics.
• 24:39
  Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
• 24:42
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• 24:46
  Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 24:50
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• 24:56
  Speaker 1: catch us worldwide at Bloomberg Radio