Examining The Supply Chain, Markets, And ETFs

at Bloomberg dot com slash podcast. We have been talking about the supply chain crisis ever since the ever Green got stuck sideways in the Suez Canal, at least since then, and um, it's just gotten worse and worse and worse. We have an expert in the studio now to discuss um what they're doing about it in the shipping sector. Greg Hewitt joins US chief executive Officer of d h L Express USA. Greg, how does it look to you? Well, first of all, thank you for coming into the studio.

Happy to be here. It's so great to have somebody in person in the studio rather than over zoom or over um face time, or however we over the phone often we use the phone. UM, so it's good to have you in here. Uh, We're glad you could get in here. Can you still get stuff around the world in a timely manner or does it just cost more. How does the supply chain crisis look to you right now?

I think if I look at what's happened through the pandemic, you've got first the capacity crunch in the aviation sector with commercial flights coming down, which creates a shortage, which in the early days I say, the early days of this pandemic meant the goods flowed to ocean into fixed

carriers like like my company. I think you mentioned the Suez challenges and what's happened in the ports, and all of a sudden capacity on the ocean this year has been constricted as business to business traffic came back, and so that's pushed an even more pressure on fixed networks

like ours to handle that additional flow. I think what we've been able to do is make sure we've been consistently investing in aviation capacity than an infrastructure like hubs and gateways to handle more pieces, and then of course hiring people couriers and terminal handling staff and CS people to manage that flow that I'm feeling competent that is peak comes in this year, We're going to be able

to handle our piece of the supply chain. But I think, yeah, what us Thanksgiving through till the end of the year, UH is peak season for US, and we'll see about a fifteen percent lifting volume, which isn't a crazy figure for US. We've seen years where it's been more. It's just the whole supply chain is backed up, and so I think if people could send more, they probably would. But because we've got capacity constraints in the air and through our hubs, were just what's a record for you?

And I think last year we were over thirty growth. It would have been one of the biggest that we saw last year. If you think of the first year of the pandemic, you saw personal protective equipment in e commercepoon this year it's a bit of a shift. E commerce is still strong, but we're seeing business to business come back. Semiconductor market, automotive sector is really booming, so a little bit heavier for itight and bigger product. We think of porters five forces. It's all about the pricing

power of companies. How is your pricing power with your clients and able to pass that onto the consumer? Are you able to do so? Our consumer is willing to absorb that well. I think that's what's been attractive. In fixed network like ours, we haven't kind of moved to

market bace pricing. We're in the ocean and in the air you've heard four x, five x pricing and some even ten x. Because we've got a fixed network, we've been able to acquire either our own aircraft, our own capacity, some commercial lift in charters, and we've been able to blend that in. So I think our price point, although it's gone up, hasn't gone up astronomically, and that's why people are trying to move more with us. But you're

maintaining margins. We are. Yeah, we're maintaining our margin because we've been able to get more of that air forward or traffic that probably didn't move with us before. So we take on that higher revenue shipment and that's helped balance out the higher cost and infrastructure. And in people, we are seeing the wage rates go up higher on more of an inflationary inflationary plath than it had historically, and we're having to do that battle for talent. Yeah.

I we often hear about the battle for talent in trucks and I've always for me my fallback career, and it really like I've always romanticized being a long haul truck driver, but it's not easy to get your commercial license, and it's not easy to operate those big rigs. You need experience. You can't just hire somebody off the street. He doesn't know what he or she is doing. What's the trucking situation look like for you guys, Well, for us,

we've got to My business is more small package. I tend to fly stuff to places and then handle line halls locally. We do have some long because you're faster, Because we're speed and we're small parcel delivery. More so, we've been able to secure the trucking network to connect our network where we need it for the larger pieces, either through our own network or through trusted vendors. I

think everybody's saying the same thing. There is a we need frontline people call them couriers, suckers, uh, clerical staff and customer service and clearance. We're all looking for those people, and how do you win them over. We do it by trying to build a culture that's a great place to work and combine that with the right wage rate, which is probably the harder or more dynamic thing to move as markets change, you need to stay with them. We've been able to continue to meet those We're gonna

hire about two thousand people for this period. We're about there, so we're doing a good job at getting them in. I've heard others might be struggling with that, but I'm confident we'll have the people. And that sort of leads the million dollar question of is it getting worse before it gets better or are we already on the path to getting better. I think what people have asked me is will it change dramatically soon? And I don't think so.

I think where we felt that aviation capacity and ocean capacity would be back by now, we're now saying I don't think in the first half of it's going to recover and be back. So we're bracing for the continued need for some of that larger product to move on our fixed network. We're thinking more around this time next year, maybe some of the capacity is back and it blends out. And I think that's my message. We we are carefully

managing with our customers how much we can take. I can take more than what you gave me, but I can't take fifty or a hundred. And I think some of what you would be hearing is the market there is more demand and so if if we could, people would want us to take more, but we can't, and that's why we're keeping our pricing I think reasonable, and we're making our service commitments allowing some growth, but not uh infinite growth that some might see it. What what

about market here? I mean, I'm just visiting here. I I normally I live in Berlin, so I get almost all my packages via d h L. As you can imagine, right FedEx they do some documents and ups. They work like two or three days a week, so it's my only choice pretty much. Here. It's a much more fragmented market, right.

What what's it look like in terms of competition, Well, I think all of it if you look at what comes out through the investor groups for all of us, um, I think all of us are growing, and so I think where we've taken market share is probably on the freight forward or side, the small forwarders who are struggling to get the capacity from commercial airlines. More of that product is moving to US. I tend not to know whether I'm taking it from the other guys or not.

We're growing, growing faster than we had in the five years prior. Alright, Greg, thanks so much for coming and really appreciate you joining it. Did you want to know? I think just one of the big key takeaways is we've heard a lot of companies say it will get better in the first half of two, and I think really smart points of this could be longer than we thought, and everyone should just sort of brace themselves. It's not going to be resolved in the first quarter right now.

I mean I talked to UM the auto maker CEOs all the time, and they Volkswagen, BMW, Daimler have all said it's gonna get better throughout two, but it's going to be incremental. It's not gonna be like all of a sudden, oh Q two is here and we have enough chips and chips and everything's cool. So it's it's gonna be along a drawn out process. Greg hugh Witt, thanks so much for coming in. Really appreciate your time. Fascinating topic in business. Greg he wod is the chief

executive officer of d h L Express USA. Let's get to the chip maker. I'm just excited because Kurt Sievers is here in studio with us, and because they deliver chips to some really important products. They deliver chips to Apple for example, which I think we all UH love and use. They deliver chips to Robert Bosch, which helps make the A B S and all the sensors that

I needed to run my motorcycles. UM, Kurt, talk to us about what what what the supply chain bottleneck looks like right now in terms of your industry, in terms of your company. Yeah, so, first of all, thanks for having me today. UM. I I love to speak about the supply chain because in the way we look at this from a two month perspective, which is all standing, so the supply chain is still watched that the demand is outstripping supply capability. So while we are growing this

year like year over here, we are still supply limited. UH. In our earning school last week we also informed more specifically that we continue to be limited from a supply perspective in Q four UH, and I think at least in parts of the business, this is going to continue probably through the most part of next year. It's interesting.

I know we want to get to some of the supply outlooks, but from a demand perspective as well, analysts are saying that You're revenue projections still look conservative just given the demand from automotive. Matt's a big fan of automotive industrial. Is that really the segments that you see

carrying us through this big demand cycle? Yeah? You you got to think about n XP in the such a way that about three quarters of our overall revenue, which is eleven billion dollars this year, is going into automotive and industrial. And it is borg Warner to Bosh the exactly BMW exactly all ending up in cars, but we are shipping to Tier one suppliers like the ones you you just mentioned. That business is just booming like I've never seen it before in the past twenty five years.

To give you a feel, our automotive revenue this year, which is half of n XP, we'll grow about forty five percent year over year. Now you will say, well, that's a that's a week compared because last year, because of the pandemic, everything was low anyway, but it's also thirty percent above So even if you're compared to a pre pandemic year from a car production perspective, we ship

thirty more and it's still indeed not enough. As you said, Now, why is that it's just an explosion of content increase. One reason is electric cars. I mean, we all see that there's really a sharp rise of of the of the rate of electric cars. We think it's going to be almost of the car production this year globally is going to be either hybrid or fully electric, which is a big number. I mean, it's becoming material and that matters to us, as they have about twice the semiconductor

content to a combustion engine car. So this is this is where the chip amount is coming from. I mean I was talking with Cloudio Dominicali recently, who's the CEO of Ducati, and he was telling me the chip content is increasing at such a rate that sometimes there are parts he's not even aware need chips. For example, the headlights in his motorcycles now need chips because they're controlling the led beams to turn in before you turn a corner. So it's amazing the amount of content that's going in.

When does that stop? What? What what's the what's the terminal rate there? I I don't I don't see a stop at all. Because all the big megatrends which are

driving innovation and automotive and those are electrification, autonomy. Think about the whole idea of the autonomous cars and safer cars, so all these assistance systems which are actually protecting you from from bad accidents, and the connected car, the whole idea that your car is actually getting software updates over the air, or that your car can be can get better performance through software updates. All of those innovation streams

rely uniquely on semiconductors. So no, I actually don't see that ending. I would actually say a car in the in the next ten fifteen years is just becoming more and more silicon on wheels. Talk to us about the supply side of the equation. I know here in the US, the Biden administration has talked a lot about um bringing more chips to being manufactured domestically, trying to protect that supply chain. But will it ramp up fast enough? How do you see that supply and if there is any

issues here in the US. I think the the entire government initiative is fantastic. So I've been part of this right from the start. I think we started in April with the White House Summit under the leadership of Joe Biden, and I really also from a global perspective, I like the fact that the US is very proactive to address this problem. I think the Chips Act with a fifty two billion dollar bill is going to make a difference. Now, is it fast enough, No, it just can't be fast enough.

It takes three years to build a chip factory. Ah. Yet if you don't start today, it's not going to be there in three years. So that's why. Since this is a structural move, as we just discussed, I mean, these are not like short term spikes from a demand perspective, but it's very sustainable. For that reason, I think it does make sense. We have three large facilities here in the US, so we have two big waver FAPs, so waivers are the course in in Austin, Texas and one

in Arizona. Uh. And we really think it's the right way to address the problem to look at domestic production and try to boost it as much as we can. Now, again, it's not going to be fast enough if you think about tomorrow mornings supply challenge, but it will be good for the supply challenges of the of the next five years. I think it's also interesting it has a lot about the competitiveness of those states that you put your wafer fabs there, but we don't have time to go into that. Kurt,

thanks so much for joining us. Kurt Sievers, chief executive officer of n XP Semiconductors. Let's talk about what's going on in these markets. Andrews Person joins US, chief investment Officer of Global fixed Income at New Veen and UM Andres. In terms of what we see in rates today, it's been pretty uh well, not just today, over the last few days, it's been pretty interesting. Does the US tenure one fifties six one seven make sense to you given um uh cp I at six point two percent year

over year? Yeah, thanks, thanks Matt um. Yeah, I would say I would say that makes a lot more sense now than at least earlier in the week or even last week. We think that the rally last week really was really overdone in online that he also kind of moving too lowly and too low and at this point kind of catching up a bit for the CPI and

even the thirty year options. So so generally our view is that you also are still going to be grinding higher, and we're expecting something like one five of the ten year later this year, so we still feel like there's room for yields to continue to move higher in the tenure. But I think there's a lot of technical factors that were impacting treasures more broadly, a lot of cross currents

going on. So so some of these near term moves that we've been seeing, it's just kind of the market having to digest a lot of the different data points coming through, and then the different technicals that they are playing in a factor as well. So I would expect still volatility here for for the next few months as

we're kind of shifting through all these cross times. And I'm glad that you brought up the technicals because I think a lot of market participants have been confused while we're still at a one fifty roughly on the tenure and below two percent on twenties and thirties, and a lot of this has been um As you say, technical factors, When do you expect those to um fall down a little bit and yields to rise reflecting more the fundamental data that you describe. Yeah, No, I think it's going

to take a little bit more time here. I think, you know, we're still very unprecedented times with central banks and obviously just that being incredibly involved in the markets and the tapering is is obviously top of mind from all investors, and that is going to be I think the key factor to start that normalization that you're kind of referring to my mind. So we're moving into the tapering kind of top pace over the next level months.

Um some of that you know, unprecedented kind of TI low levels that we've been seeing should be starting to online. So it's a little bit of that supply demand aspect of it. But um, I don't think it's going to happen, you know, overnight. We saw in the thirty year option earlier this this week that it's it's still a pretty

rocky environment. The Street had to take down a big portion of that and had the longest tails and two thousand and eleven, so it's really you can really still tell that there's a lot of movement parts and a lot of tactical factors that I think will take some time, probably several months before we kind of work through that. What are you expecting in terms of corporate issuance in this environment, I mean, does it do do you see

them still running out to raise as much as they can. Yeah, we were expecting still a very healthy corporate issuance, both from the investment rates side and the high side, perhaps not at the levels that we've seen here today because a lot of the company has naturally been able to take advantage of the lower rates, kind of locking in some nice coupons and and kicking that maturity wall out,

which we think is healthy. But as companies are now shifting towards a little bit more comfortable around expanding and spending capex and thinking through you know, the next phase, there's gonna be some some funding needs from that perspective as well. So I think we're gonna have a little bit better balance perhaps going into two thousand and twenty two, but generally we would expect still quite an active new

issuance um at pace going into next year. And when you take a look at the Bloomberg terminal, I'm just hooking taking a look at investment grade spreads over treasuries. I mean, you're still a really tight eight seven basis points high yield just two d and eighty basis points and spread over treasuries. Is that sound fundamentally strong to you? Or is a lot of this fomo and yield seeking because there's nowhere else to get yield in this market, I would say there there's a little bit of both.

We've kind of talked about the markets at these levels not being particularly exciting from a spread perspective, but we do think they're gonna be holding up. We talked about, you know, markets being sort of priced for a reality, not price for perfection. The reality is that we are seeing very strong fundamentals. Economic growth is healthy, the faults are expected to be record lows around one percent, perhaps

even lower. So I do think that we do have a lot of factors that are playing in are justifying where we are from from current levels. Um that being sad, I think just the fact that we have low yield environment across the globe continues to be the main driver

of investors reaching for yields. So our expectation is that this kind of carry trade will continue and being an attractive way to playing fixed income, and we continue to be more comfortable taking corporate credit risk over treasuries, and we're also comfortable kind of dipping down to the lower quality parts of the credit markets. Anders, thanks so much for joining us today, Honors person there, chief investment officer of Global fixed Income at Nouvene talking to US about

the rates situation and his inflation outlook as well. Let's get over right now to Frank's Frank Holmes joining us. As I had said before, he is the chief Investment Officer as well as the CEO US Global Investors, and we're gonna talk about some of the E t F, some of the hot products and the jets. E t F is one that I want to start with as we reopen um and get back to normal life again.

What do you think about travel and the consumer? Well, I think we're gonna have a huge surgeon and travel with November eight allowing Europeans to fly in without being stuck in Mexico City or Canada for two weeks. I recently flew to Sweden full flight, going over half empty coming back. I flew to Dubai last week and same thing, full flying over empty coming back. Now, I think it is wide open, especially coming into Thanksgiving and the Christmas season,

We're gonna have a huge inbound from Europe. Interesting though about the health of the consumer as well. In many cases they've said that the consumer is at least some of them more wealthy now than they were before the pandemic, and that pent up demand and that willingness to travel is in full force. How are you thinking about that as well? When you think about the consumer. Absolutely, just take a look at hotel rates in New York City. It's just amazing to see how the price tig has

gone up dramatically. And we look at Florida, we look at Southwest is flying from Phoenix to Cabo St. Lucas in Mexico for tourism. So there's no doubt tourism as robust in Las Vegas and right across the nation. So I think we're gonna see big travel everyone in the Northern States, particular the US being able to find new locations in the self, and the same thing I'm told

is hopping. In Europe. There's a couple of new airlines have been created like Breeze this year, and that's predominantly for the tourists and for the person wants to get out of cold weather imp myself. In fact, don't you. Telecom, the German incumbent, today said it expects a better full year profit than previously because European tourists are moving around country to country, roaming rates are going up and it's making bigger margins. There is still though a supply and

demand mismatch. I mean, on the good side, you see that. But Frank, you brought it up in terms of the flights coming back are empty and I know, Um, I just flew in here from Berlin on a on a half empty flight and um, the products that I need aren't quite there yet, the legs that I need, Um, how long do you think that's going to take to work out? Because we're almost at Thanksgiving. Yes, I think that,

I think totally. It was a target the other day and they said buying Christmas lights or anything you want to buy him. Now we have nothing to replace until the new year, so inventory is very tight. So it's interesting in all the for jets, we've had huge inflows this past week with this November eighth dight on the

expectations of bigger travel. Uh. And when I created the jets, it was because I noticed back six years ago that there was a huge pricing power of the airlines were raising their prices and they had all these inciliatory fees

and they did take off before COVID. Well, what I'm noticing now is the cargo cargo were the best performing airlines during the crisis and they've come out of it making huge increases in their fees for high blockchain, with some chair off getting equipment from Japan and as such as in China and South Korea flying over to Europe. It's it costs up tenfold. The CEO of d h L USA, he was telling us there forwarding margins are

making his business this year. Absolutely, So we're launching a new et F called c and see this guy and it's dry ships and airlines, just cargo. Because I believe we're going to live with this inflation for the next three years. It's just not going to quickly resolve itself, all right. So I'm going to steal the classic Matt Miller question. When we hear higher inflation, the recent narrative is said, oh, maybe bitcoin or cryptocurrencies or the new

inflationary hedge. Maybe they're replacing gold is the store of value. And then you see crypto and bitcoin fall a little bit today despite some of the higher inflationary figures that we've gotten. How are you thinking about crypto as a store of value as an inflationary hedge? Did you did you hear Frank just say blockchain? I thought I heard why I just cut up my next question. Well, yeah, I you know yours ago four years ago, I couldn't create an et F and it's still not been down.

It could buy bitcoin, etherorium. So I launched high Blockchain Technology, which is the first cryptal mining company. And what I did see and for the reason for that is because it's all over the world. Like Bloomberg television, Bloomberg radio is everywhere, well, investing in crypto is everywhere. Investing in stocks is not everywhere, sold out conferences in Miami, in Berlin, uh, in Paris, in London, England and Singapore. UM. So, I think that the crypto concept and bitcoin is a store value,

no doubt, has huge legs to it. Uh And it also has a huge demographic shift. In the next twenty five years, Baby boomers like myself will be transferring ten three in dollars to Generation X Y and millennials, and they're all used to digital digital money. I grew up with monopoly money. They grew up with digital money from gaming. So I do think there's a big shift, and I do think that bitcoin is becoming a store of value. But you really can't wear it unless it looks like gold.

So gold is an important part of a gold is gold jewelry and all demand for gold is for love and it's highly correlated to rising g D peper capital in India and China in the Middle East. So I think the gold is the big lagging trade here in the next couple of months. It's way undervalued on a relative basis, quite well over the last week. I mean, I think it came down a little bit today. Let

me just pull up X A U here. And the thing is gold is also you can have an e T f UM powered by the underlying with gold, and you can't have that yet with bitcoin, at least not in the US. You need electricity for your bitcoin to be functioning. Uh. For gold, Uh like when Dubai right at the airport, you can get care of gold jewelry and you pay by the graham, by the different designers, uh,

and you can convert it to cash. So I think that you know a big part of the world of the US gold has treated both as jewelry and love and money. Frank, great talking to you as always, UM, real pleasure getting your insight and also to talk about these products that you've created in the business that that you've created pretty impressive. Frank Home, CEO and ce IO at US Global Investors, talking to us about his et F products, as well as his take on the market

and inflation hedges. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller, three pt on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio.