Ford Sees $1 Billion in Added Costs

Bloomberg Business Weekend Itunes, soundcloud or Bloomberg Dot Com. You can also listen to our radio show at two PM eastern time on Bloomberg radio or watch us on Youtube. Search Bloomberg Glovel News. The next half hour focusing on US automakers. First Up, we want to take a look at Ford Shairs, tumbling today the most in seven months, at news after the closed yesterday that inflation is pushing supplier costs a billion dollars higher than expected in the

current quarter. Really joining the chorus of major corporations warning about challenges rippling through the economy. We're kind of starting to hear the same story. The twelve point four percent to the downside. The lowest were biggest one day drop, I should say, in seven months. Let's get into it with Keith non, auto reporter for Bloomberg News. He joins us this afternoon on the phone. Hey, Keith, good to have you with us. Um, give us an idea of

why this Cott investor so off guard here. I mean, what change for Ford that caused the company to come out and say inflation is costing us a billion dollars more than we expected. Yeah, I mean there's really two aspects of this. There's the inflation piece that's driving costs up, but they also have thousands and thousands is very profitable suvs and pickup trucks that they're stacking up unfinished because they still can't get the parts they need, things like semiconductors.

So investors had sort of felt like the supply shortage issue was over and we've moved on and this is a big proof point that that's still a problem. And then you can't finish your cars for lack of parts, then you can't book those sales and make those profits. So, as a result, you know Ford's third quarter, Um, you know income there's going to be less than half what it was in the second quarter. It's really a big bite and that and that took investors by surprise. So

it's not a demand falling story. It's just a case of we don't have all the things we need to finish up the trucks and Suvs and get them out there right and GM faced a similar situation earlier this year. I mean, you can catch up and we'll finish those trucks and they expect the fourth quarter to be stronger. So they didn't change their guidance for the full year.

But you know, when you have such a significant profit warning for the third quarter, it's just it's unexpected and investors don't like those downside sourprieties and, as I said, it underscores the negatives in this cyclical industry and investors are always wary about those, those issues inflation, demand, supply and and if those start rearing your head, they just fell off. Hey Keith Um, we had Mario Cordero, the executive director at the Port of Port of Long Beach,

on yesterday. He talked to us about how, at least done from his perspective, things seem to be easing a little bit. He gave the example of what eleven or twelve ships off the coast instead of more than a hundred that we saw last in January. Um, what do investors, though, when it comes to autos and sort of the higher tech components that these autos are waiting for, need to

understand about where we are in the supply chain? Because we have heard, you know, whether it's like Susquehanna or you know more about chip lead times coming down a little bit. They are absolutely coming down and and that situation is improving, but it's not fixed yet. And there's another wrinkle to it. You know, the automakers are making

this transition to electric vehicles. Well, electric vehicles require more chips, they're more high tech, they're more electronic, and so, you know, to finish an electric vehicle takes more chips than it does to finish an internal combustion engine vehicle. So even as as some of the shortages begin to ease on some of my conductors, and they're not gone, but they've begun to improve, you know, you have the vehicles that

demand more of them. so that creates a new bottom and and that's and that's going to be around for a while. Hey, Um Keith, I do wonder that these SUVs and trucks that they can't Ford, can't finish up and get them off the assembly lining out to h customers. Is there the chance, because they don't have the components they need to finish them up, that by the time they are done, that demand will have fallen? Or these cars that are already sold? You know, they feel like

pent up demand from the pandemic still is there. Um, they the supply of cars on dealer lot is still very scamp. So they really are selling these things as soon as they come off the delivery to us. Um, you know, will that continue forever? Hard to know, but the fact you still are not back up the full capacity and they still have a lot of demand for

the products. So they feel like as soon as they finish these things up and believe or not, they roll them off in the assembly line and they parked them and parking lots waiting to put these chips in. So that's that's the situation. But once they can chip them up to the dealers, they're confident they have buyers waiting. Yeah, I mean my dad's one of those buyers. His Mackie that he's been you know, he's ordered for more than a year ago, Keith, he got an email a few

weeks ago. It actually went into production yesterday and I emailed, I texted him, I said happy, you know, Macki Production Day, and he said we'll see. When, when it actually arrives? And what do you think? Is he going to get it in the next two weeks or is it gonna sit there and wait for a chip? Yeah, I um you know, I wouldn't take the over under on that one. Okay, I think it could be a while, and that's the people are waiting, you know, literally for a year to

get some of these high demands. You know, electric vehicles, the Ford Um F one, gift through lightning, the electric pick up truck, had two hundred thousand orders before it even rolled the first one off the assembly line. So you know on the waiting lists are fast. Great demand, good problem to have, but you want to and get them in to the hands of customers. Keith non, thank you so much. Busy Guy Finding time for us. Bloomberg News Auto reporter Keith Nton on the road doing another story.

This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg radio to leaders from around the world to sending a midtime Manhattan this week for the seventy seven session of the UN General Assembly. First Day of the High Level General Debate is today us. President Joe by now dresses the Assembly tomorrow and we certainly have a lot of presents there. Yeah, we've got including a Marie hordern. She's Wahington correspondent for Bloomberg News.

She's up in New York for this. She's live from the U N here in New York City. Follow her on twitter at Anne Marie emery. Good to have you with us this afternoon. It's been a really long day for you, so we appreciate you taking the time here. Um, what do we need to know? What does our audience need to know about what's happened thus far? And then what happens when the action goes you know, kicks off

tomorrow too. Yeah, well, we all know the UN General Assembly, the UN in general, really suffers from not being able to have jurisdiction over things like a war Ukraine. Russia is on the Security Council. They've used the veto card more than any other member, we should note, followed just

under the United States. But really what this is going to be facilitating is a number of bilateral meetings on the side where leaders can come together, and the two big topics right now are obviously Ukraine, especially as we might hear from President Vladimir Putin this evening, as he is talking about referendums in four regions of Ukraine that he will then absorb into the country. These are sham referendums,

sham votes. And then, of course, the energy crisis. Europe is about to enter a very bleak and dark winter and with Putin playing politics with natural gas and also Europe really cutting off their access or allowing countries to access exports from Russia of oil, this winter is going

to be incredibly challenging. So it's almost a meeting to talk about the future of Ukraine and what was going on on the ground right down that country, as well as an oil and gas sum it well, when it comes to Russia and the intentions with Ukraine, you earlier and we cut up with the native secretary general, Yain Staltenberg, from the UN Rose Garden. Let's listen to what he had to say to you. Such sham votes, referendums do not have any legitimacy and therefore they don't change the

nature of the conflict. This remains a war of aggression by rusha against the independent sovereign nation in Europe, Ukraine. Uh and UH. This will only uh further uh worsen the situation and therefore we need to provide more support to Ukraine. Very difficult situation. And talking about support, Native Secretary General Yan Stealtenberg, I mean and Marie, and your conversations you're having, you will have, I mean, what stood

that for you in that conversation specifically? Well, he's in line with I also quickly spoke to two Ukrainian officials after this news came out, and they were not surprised, because Putin has done this before in Crimea and most notably in on top of that, one Ukrainian official said to me, well, if I declare myself a prince, so what the world is going to recognize me as a prince? What they are saying is this is not change the actualities on the ground and what they are the Ukrainians

are here asking for is more weapons. What you hear from NATO Secretary General Yan Stoltenberg is that he wants to keep this unity within Europe, even though he's very well aware of how difficult, especially for our Europe and the Western allies. It is going to be this winter. He wants to keep this unity and he says that they will sustain the weapons and ammunition until the war

is over, but obviously there's no timeline on that. The concerns is that, of course, with Putin, annexing basically uh these regions, the Don Bass, as well as Hassan and also Zebarigia, would mean that he would use that and say to his people I have now a success, after

we saw that counter offensive from Ukraine. On top of that, he would consider the Kremlin as well would consider this their legal territory, meaning there are many individuals who are concerned about Putin escalating this into the nuclear territory or the chemical weapons territory. What is the discussion about how to prevent that from happening, not just in the United States, but from from world leaders who are here as part

of the UN General Assembly? They say, and that you saw the president say on sixty minutes, there would be quote, consequences uh and, but they will not tell you what those consequences would be. But I think what they were trying to make sure that they also use this too when they talk to their partners and their allies, as this is the reason why we also need to stick together, because for them, they feel as though, especially in Europe, on their doorstep. This isn't just a war in Ukraine.

This isn't just the war in eastern and South Ukraine. This could potentially inflict all of us and already is changing the landscape of Europe. And really, do you want to Asque? It's always key when we've got someone on the ground there. What is kind of the scene? The mood at the U N? I'm thinking this is it's been very different the U N after two years of the pandemic. It's much more normal, I guess you could say, although we are living in certainly very unusual times. Um

set the scene for us well. The topics are depressing, right. We're talking about a war, we're talking about energy crisis, we're talking about food security. I was at a panel discussion on the sidelines of the U N Talking About Food Security in Latin America, which most countries import all these fertilizers. They are dealing with almost deathly inflation in

Latin America and the Caribbean. But when you talk about the fact that all these leaders and their teams are able to gather together, as we have really not been able to do in terms of massive und gatherings because of Covid. It's quite jovial on the sidelines. You see individuals being able to come out of their security details that have a conversation with journalists or meeting each other.

So in that sense, uh, there is this expectation that they can get some work done on the sidelines of this meeting because it is in person and usually things get done a lot quicker than Hey Andrie, just in the thirty seconds that we have left with you, you've got a lot of big interviews coming up. Um, you've got another one coming up later today on BTV. Who

are you talking to? So I'M gonna be sitting down with a Foreign Minnesota of cutter, and really at a critical moment because we have sholtz of Germany, the German chancellor, heading over to Joha this weekend and we know that he is trying to secure LN G deals. Again. This UN General Assembly is basically coming down to an oil and gas conference, because you have European officials trying to secure supplies before they go into the den of winter. So that'll be one of the main topics we discussed

and to sit down. All Right, busy day. You're on it for us. We appreciate it our own and Marie horden, she covers the White House and so much more. She's joining us from outside the U. N. This is bluebird. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg radio. Well, we

mentioned the Ford News. Uh, and even though we're watching that in the Ford stock falling off among our most right on the Bloomberg today's one on General Motors and how GM wants to be the tortoise, not the hair, when it comes to the great ev race. Yeah, this excerpt is in the upcoming issue of Business Week magazine. You can read it now that it's on the Bloomberg Terminal and at Bloomberg Dot Com. Slash Business Week. It's adapted from David Welch's new book charging ahead. GM, Mary

Barra and the reinvention of an American icon. David Welch's Detroit Bureau chief for Bloomberg News. He joins us on the phone from Detroit. Also with us, as Joel Weber, the editor of Bloomberg Business Week. He's with us in the Bloomberg Interactive Broker Studio. Joel. When you think about evs, we of course think of Tesla, but increasingly we're talking about a company like Ford, with the Maki and the F one, fifty lightning. Where does GM fall into this? Well,

they were really right like that. What's interesting by this I mean they weren't as early as Tesla, but but GM was out early. Mary Borrow, like really was forward and telling everyone that GM was going to be big on big on EVs. And yet here we are and it's like wait, where is GM exactly? And and you know what was interesting when David and I started talking about his book was sort of that this was actually

the plan. Like that. Mary borrow said, WE'RE gonna go, we're gonna be a little bit slow, but it's all going to be worth it. Um So, so, David. What's the rational there? GM at its heart is a really pragmatic company and one thing people forget about Mary Barrow, because they see her as the first email CEO, is she's an engineer and her her sidekick, Mark Royce, is also an engineer. So for the first time since the sixties. The company is run by engineers. They don't go for buzz.

They don't try to jam a battery in an existing vehicle to get on the cover of business week, although lightning cover was really, really well done by Kelly. They you know, they decide, okay, we're gonna build a battery pack that can host everything from a little Chevy Equinox and actually even smaller. They're working on subcompacts for global markets all the way up to this huge nine thousand pound Hummer and everything in between. And they're gonna build

their battery plants. So, other than Tesla, GM has the only battery plant making battery packs and sells. It's in Radstown, Ohio. It's going right now. The second one is going to open in Spring Hill, Tennessee, near the old Saturn plant, next year. Again an engineering mindset. Get your building blocks in place, get your plants up, then you spawn this huge family of evs and and and that's really where they are. One could fault them for relying on the

Chevy bold, which has been around since two sixteen. It's a compact car. Americans Hay compax. I think they rode that a little too long before coming up with something else. But in a way this really was the plant. So it's you know, and just respond to your Zinger. Their easy data to to poke fun at at my forward cover with Ford tumbling up. Yeah, but but you know, the the great thing about Um, what your story really injes on, is this ultium, which is the battery platform.

So what did? What did GM UH? What is Gim hoping to accomplish there? And and you know, we'll talk a little bit more about where they've been with the vault, but like where does it? Where does this potentially allow them to go? So right now they've got too luxury electric vehicles in production. They've got the Big Hummer and they've got a cadillac lyric and this is sort of historic. GM goes back to Alfred's phone. Start off with your coolest stuff in your luxury brands and then's slowly got

down on the scale. And next year they'll have chevy silverado pickup, which a year behind, but we'll compete with the defince. Then they have a Chevy Blazer midsize, I should be family car for a lot of people. Not Super Cheap but pretty cheap. It's dollars which these days. This about what a new car cost. Then, about this time next year, the Chevy Equinox, the equinox, now that no one buys families and dams anymore, the equinox is

really Chevy's family car. And they're going to start this thing at thirty thousand which, other than the bolt, which again compact car Americans still like complex, will be the cheapest on the market. And it really to me that is it's two things. It's really the fruit of this whole all team thing. They believe they've got the scale and the platform where they can democratize electric vehicles by bringing mass market family car to people who don't have

three other four expensive vehicles in their garage. And the other thing is it really is a litmus test or how ready Middle America is to go with battery powered vehicles and charge up. And but to me it's what really alteam is all about, is if they can sell evs to everybody. Um, the secret sauce. Seems to be this alterum about it, and you write that it's really about changing the way cars are made. So what's different?

What's different in the process old teams? Basically it's a battery pack that makes up the floor of the vehicle and then you you you know this is way over simplification of the guys and the factories and you're not doing that because I'm a girl, are you? I am the daughter of an engineer. So you can you can go with it from doing it because simply board Um, but you're basically bolting whatever vehicle it is on top

of that skateboard kind of platform. It's not quite a skateboard, but close enough, so you can and it's also sort of a Lego set. So if you need to build it longer or wider or shorter or whatever, you can do that. The other thing they can do, and this is what they've done with the Hummer, you can actually stack them on top of each other. So if you have a big, heavy vehicle that has a thousand horse power, which the Hummer does, so you need a lot of

power on board. If you just add more battery, which we have, more electricity by stacking these cells on top of each other, she can have a big and wide and you can stack them up for more energy. Either's just it really is kind of like a Lego. Said, you know, they're not the only ones. Are gonna do this.

Volkswagen is starting something very similar right about now. But everybody else in the industry, Tesla, is kind of going where GM and Volkswagen are headed to get a lot of vehicles out quickly and both, and you look at a GM and volkswagon are the two who have earmarked billions of dollars and many, many vehicles coming. At least they the two did it first. Before it has caught up. Others are planning on it. But in terms of well,

what this really is? This is commercializing electrical the battery itself doesn't have any special chemistry or special sauce. It's a commercialization and an industrial plan and you know, it's interesting. Um, you know, in addition to these for the sport news that my colleagues broke, our colleagues broke today, we also had this hurts news that hurts is going to get into this so so clearly to have this scale and bring the cost down. Um, uh, you know, hurts is

liking what they see out of GM. But so how does how does that kind of fit into Bara's master plan here? So GM's plan is to sell a million evs in the US and I think really the only one who would be probably doing that by then. The Tesla and some manalist a GM could be ahead by then and could save the dog plate whatever its all forecasting. But it gives them, it gives gm a lot of different vehicles and a lot of potential, a lot of

production in there for potential sales line. So hurts likes what they see because they're saying they're gonna buy vehicles from five different GM brands. So you would cadillac, Chevroy, G M C and also bright drop, which is GM's commercial band business. That X has already ordered some some electric bands from this bright drop unit that that GM

has going. And and so clearly hurts seas enough that GM has got enough production in their plan where over the next five years they can buy a hundred and seventy five thousand E V s off. Then they pledged by a hundred thousand, a hundred thousands from Tesla. So they're they're gonna buy more from GM. So so the production is going to be there. All right. Well, all and so much more in a new book by our own David Well, she's Detroit Bureau chief Bloomberg News on

the phone from Detroit. His book charging ahead. G M Mary Barra and the reinvestion, reinvention of an American icon. It's also in the new issue of business week coming out our thanks to Joe Webber, editor of the magazine. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg radio. We've said this a lot and yet it really feels like it's ringing

true when it comes to tomorrow's fo MC decision. It is a big one in terms of tone, sentiment and outlook. So we've got the perfect guest to get to about it. Yeah, I've been looking forward to chatting with Stephen Skanky all week. He's chief economic advisor at Keel Point. He's also former US Treasury and White House National Security Council staff member. He joins us on the phone from Washington. D C. Dr Skanky, Stephen, how are you? I'm great, Jim. Thanks.

So it's great to be with you and Carol. Yeah, one of you know, one thing that we we love is having you join us ahead of these fed meetings. So Carol mentioned that tomorrow's is especially big. Um, we understand whether it's gonna be seventy basis points, but, but what else are you looking for in terms of commentary from the Fed Chair? Well, what's really going to be telling tomorrow is is there summary of economic projections which

comes out? The last one was in in June. Before that it was march, and you know, What's interesting is is the big changes from March to June and uh, it will be really interesting to see whether there's big changes from the June summary of economic projections to September. How often do they change? And I mean how reliable are they in terms of really figuring out what is the trajectory? And, Steve, I asked that because you know

are Lisa bramwentz early in surveillance. I was listening in this morning and she's like kind of hate the dot plot because it can change so quickly depending on the economic data points. The Fed can change it up. So I'm just wondering, you know, how much real visibility that we can rely on will we get with the projections? Are With the Fed Commentary? Well, Carol, it comes out every three months and it's a reflection of what the members of the F O m c are seeing, uh,

in the data that they're looking at. So the regional bank presidents are part of it. There, there chinnas would going on in their regions, and then, of course, the governors, and it can change, but it's a reflection of what they're thinking, and that's what they're thinking. That tells us a lot about what they're going to be doing next. How else can we get an idea into what they're thinking, apart from the dot plot, is Carol calls it. The

scatter plot. Is What you calling? Yeah, well, the scatter plot, but I mean what is there a question, and just building on what Tim saying, Steve, is there a question that you think is crucial be asked two or of j Powell that will give us some idea about what comes next? Yes, the question is how satisfied are there with the outlook for inflation? Uh, and it would be nice to know whether he thinks that what they're doing with the feds fund trade is Rus Making a difference.

You know, this is this inflation situation is different than what we've had before. It's not so much excess demand, although there is some of that, but the big issue with is getting supply up again. Uh and and the UH failure of folks to come back into the labor market. But we did see a little bit more coming back in in August, and just production has been been problematic, and so raising interest rates will help a little bit, but it also has the negative side effect of making

it more expensive. Is more expensive for businesses to get production and service up. Yeah, and you know, look what it's done to the housing market already, because that's been that's been you know, something that's happening with the yield

on the tenure moving higher. Mortgage rates six percent now, Steve Hey um, I'm wondering how long it takes for what the Fed does to actually show up in in the economy past what we've spoken about, and in a way that will actually you know, we talk about the strength of labor market over and over again and as much as the fedher doesn't want to say it that he wants, you know, people more people to you know, essentially be out of work. He wants it to weaken.

How long does that take? When do we start to see that in the labor market? Well, it uh the lag time. It could be a little bit funny. It's anywhere from six months to eighteen months. And what's different right now is that there is so much liquidity in the system you know, the Fed's balance sheet is uh is almost nine trillion dollars. Fourteen years ago it was eight dft billion, uh and UH. So with all of that liquidity in the system, raising the Fed funds rate

uh and UH. And even if they're trying to raise other rates, it doesn't have so much of an impact as it would before. Certainly in an adversion of the yeld curve will make a difference because banks will flow down their lending, but it's a little bit hard for some of their traditional policy tools to be effective. So, in terms of the conversation that the F O M C is having, they kicked off that two day meeting today. What do you think is top of mine right now?

Is it just the I don't and I don't mean to be a little by saying just the inflation numbers, but is that what it's all about? Ultimately, it is Carola, you know you. You remember the whose Song Song won't

get fooled again. Um J Powell got got fooled by inflation after his speech at Jackson Hole last year where there was a little bit of a head fache on inflation and the Fed didn't really step up some things so much and you know really, even back in March of this year, after summary of economic projections, they were talking about the Fed funds rate rate reaching one point nine percent this year, by the end of this year.

And then, of course, in June they had raised that to three point and now it looks like it's more likely to be about four and a half percent by the top, by the time they get to the end of the year. They don't want to be pooled again.

And Uh, add the rhetoric. Reflection. Well, the bondmark is certainly telling you are telling us what it thinks when it comes to fed policy, because we've seen, you know, a lot of treasury yields along the curve, just moving to multi year highs Steve Skankee, Doctor Steve Skankey, chief economic advisor of a killed point, former U s treasury and White House National Security Council staff member, joining us once again on the phone from Washington, D c. At

Fed decision to PM Wall Street time on Wednesday tomorrow, right here on Bloomberg. I'm Rom a journal now, but you let me drive. Oh No, no, no no, no, please, I'll do the bls. I want to drive. It's a good question. This is good drive to the clothes bird radio. All right, everybody, just about ten minutes left in today's trading session, about ten and a half. Bouncing around, man in a big way. We're off our highs and lows, but we've seen some buying come back into the market

in the last couple of hours. Of course, by this time tomorrow we will know the latest fed decision and Fed thinking about the outlook. Yeah, it's funny, carrol. Today is not like hurry up in a wait when it comes to the market. It's not funny. This is serious stuff talk, I know, but I'm just saying it's like, you know, funny in that interesting way. I want to clarify for everyone listening. Brent shooty is with us. He's chief investment officer at northwestern mutual wealth management. He joined

us on the phone from Milwaukee. Brent, great to have you with us. It's a really interesting seeing, you know, in the equity trade today. It's not at all investors kind of sitting back and waiting for what j Powell is going to do. It sort of seems like they've decided what he's gonna do. Yeah, I mean I think you've seen some more a negative sentiment come on the market in the past few days after the heightened CPI report.

I guess it's kind of moral back and forth, at least today, and I think there are some people like me who are thinking the said may decide to start saying the word. But so, Jerome Pale, hopefully we'll talk about all the things about inflation being high and apologize that and saying he wants to fight that in the future. But I think he needs to acknowledge that, despite that backward looking CPI number, that more forward indicators are pointing to lower inflation and that they will be coming uh

down the road. It's just how much patience does he actually have until he gets those? So you know, Brent, you've been investing for about a couple of decades or so on and watching these financial markets and and different cycles, and you think about what you have seen in that period, from the tech bubble, the run up the bubble, the financial crisis, real estate meltdown and then the pandemic and kind of here where we are today. How do you really figure out what this market cycle is? Are Are

we just kind of learning as we go? I think that's w more unique than any other one. I've never seen a shot down the economy, open it back up, have good spending surge and one year on a real basis. So think about that good spending up in one year, in one month. How that's stressed the supply chains and then caused the goods inflation. Uh. And so I've seen some really odd things this time that I think make it a bit different and a bit difficult to figure

out where we are in the business cycle. I think the key things that I see the Fed talks about slowing demand and I hear people talking about demand still holding up. I think people need to wake up that we're on our possibly third straight negative quarter of GDP. Overall consumption is growing at a two percent year over your pace. So it has slowed dramatically, especially on the good side. Leading Economic Indicators will be out tomorrow. They're going to be negative on a year of your basis.

There's been a few times they've been negative when we haven't had a recession, but they're pointing that way. The housing markets gone from boom to bust and you're seeing inventories rebuilt, and so if you put these things together in mosaic, it's logical to believe that inflation is set to fall. The one thing that is probably still sticking out is that labor market, which is key to decide where you're in the cycle, and that depends on if people come back or not Um, and so that's where

it really the rubber meets the road. So when does inflation start to fall? Well, I think it's already started to fall, but I think it's certainly a back and forth and the and then you have to pick your inflation number. Is it the eight point three percent headline CPI, or is the four point six percent core pc? That's where there's a huge difference right now and I'm sure you have people come on your show with a different with an outlook, and they kind of based their outlook

based upon what number they see. Look, inflation, I think, is set to fall. It's hard to imagine it holding up even though the labor market is doing well. You want to know in the University of Michigan what consumers said they expect her wages to be in the next year? One seven gain. And so I don't see evidence that inflation isn't better in the economy. I don't see evidence that Um, the spending splurs that we have is set to continue, and so I think inflation will come down.

It's just how, how quickly does it come down? And the set is so afraid, so afraid of the ghosts of the nineteen seventies, that they lose their credibility and that's why they're talking tough. But I think they need to back away now because they're starting to cause real economic damage. Uh, and I think inflation set to lower even without causing any more damage. Yeah, it's interesting. I mean it's just inflation has been so sticky for so

much longer than everybody anticipated that. Um, you can understand maybe the nervousness among the Fed withdrawing quickly. So do you think then, the Fed move tomorrow should be it

for a while or done with this cycle? No, I think what the market would look for, and what I look for, is that the the extraordinary high hikes that that seventy five basis point ones, the feds a trial balloon about Um, considering not having more of those in the future and see what happens to inflation expectations which, by the way, across the bond market, across the consumers,

are not elevated. In many cases they're back to where they were in two dozen fourteen, which is right before we had that period of time where we're worried about deflation, and so I'm not for sure they're done. We'll see. Um, I think it depends on how inflation comes down. And then that's where I think when people say it's sticky, it's sticky because the housing number is calculated on a lag. The said can keep tightening all they want, they can destroy the housing market and it won't show up in

the data probably for another six months to a year. Okay, so how much more do you want to do? That's a good point, because we keep questioning some of some of the housing statistics. Um, anyway, Tim I know you've got a good question. Yeah, I want to ask a little bit about cash and I'm wondering if, if we can consider cash in a portfolio, te bills, for example, really be considering its own asset class at this point

because rates are so high. Yeah, I think so, and I think I think that the important message here is that, and what I hear when I talk to retail clients and retail investors is that people don't want to own bonds any longer. Across the curve. I think the really interesting thing is that you've repriced the bond market, which is why the stock market has repriced, because those two

are connected. The girl stocks repriced the most and to me, bonds now actually provide once again, a hedge against an adverse outcome like a like a recession, and so, you know, I just think people should be not focused on what happened in the past and the reality of the bond markets down this year, but focus more on the future. H and at three and a half percent of the tenure treasury there's at least real yield. Or is it

really yield? I don't know how you say it. I'm depending upon what you think inflation is going to be. And so I would advise people to think of cash, to think of bonds again as something that can hedge against adverse impacts. All right, if you want to be in the equity market, my understanding is you want to own things that are cheaper. So you're looking at value

in small cap in particular. Yeah, and I mean that's where I've you know, if we've said consistently for the past year, year and a half, that you wanted to first head yourself by owning commodity so I was the person looking for inflation. We actually owned tips, Um, those that we have recommended getting rid of, but we still own commodities. We owned gold because we didn't think bonds provided, in many cases, an outcome, a great hedge. Um. We

want to be in things that are cheaper. I mean those tend to do better when rates are higher and they're they're quite a bit of protection against following earnings expectations, um, and that's where I do think. You know, people are worried that's coming. It might be, it probably is, but if you have cheaper stocks, allus being equal, you have a margin of safety. All right. Thank you so much, Brent.

I really appreciate it. Brent shooty. He is chief investment officer over at northwestern mutual wealth management, joining us on the phone from Milwaukee. Thanks for listening to Bloomberg Business Week. Download the podcast on Itunes, soundcloud or Bloomberg Dot Com, and you can also listen to our radio show at two PM Eastern on Bloomberg radio or watch us on Youtube. Search Bloomberg Global News.