Inflation, Supply Chain, And Wall Street (Podcast)

n y U and a former British trade official. Also, UM has been an advisory posts for a lot of very important bodies like the European Parliament. UH and Ed, I we got to talk first about well, maybe only about inflation, right, whether it's here or there. Um, what do you think about the numbers that we saw today? Um?

Eight point six percent is the headline number, and it makes me wonder can the FED really afford to still prefer core pc E or do they have to look at headline cp I the latter and quickly and immediately and fast, and like, I feel like I'm repeating myself on your show. So if I'm getting bored and kicked me out, but like, let's do this right, let's hike,

let's hike quickly. Um, but you mentioned Europe, and I feel like if the problem over here is a sort of traditional inflationary spiral, that a you know, that's a traditional way for a central bank to get past that, which is a recession. I think they've got other problems in Europe. As we were saying, right, yeah, so this is like yesterday the ECB meeting. I was watching it. Wait was it yesterday? Yeah? Yeah, okay, yesterday. It seems

like forever ago. I was watching it and thinking, Um, Leguard has no way to stop inflation if she wants to avoid what we're calling fragmentation. Now, by the way, that's a new term for me. I did not know that. But basically it means the peripheral bond spreads are blowing out. Um or if she wants to worry about that, inflation

is going to run buck wild. Let me stay here in America, right, So, Um, what happens either basically the whole system has to change, right, because they can't continue operating monetary policy for Europe as a whole and have each individual country run its own budget and lending and borrowing. Right, So, when you say that they're they're running monetary policy for Europe as a whole, that's right. And what they're thinking about is not just the nineteen member Eurozone economy, but

they're also thinking about the single currency itself. And you know, we were saying before, before I came on ten years ago, we were we were seriously talking about the Euro Area breaking apart, which is when Drag said he'll do whatever it takes, whatever it takes, baby, right, absolutely, Um, can they do whatever it takes now? And what is whatever

it takes? What? What would it be? So if you look at you know, CPO inflation in the euro Area eight point one, you look at their four point nine trillion euro balance sheet, it's sort of a bad cyclical story. And BTP spreads getting close to three, closer and closer to the danger zone. The danger zone exactly, which is spread. So that's Italian borrowing right now costs for ten years I think three hundred and fifty basis points and the

buns are at a hundred and change. So the spread is two and a half percent, okay, which is something that we saw. We used to call that the frayed rope. If you remember that the spread between the periphery and the center, and you're afraid. Not I'm afraid and not right, I'll go back and dig out some of my dusty lectures Highland do you have? But but basically, like this is one of the key risk indicators for the basically

the existence of the Euro itself. Right, if it becomes too expensive for your area countries on the periphery to borrow, and those countries, by the way, often need to borrow more than your average central European country, at some point somebody in their finance ministry says, you know what, maybe we should just leave this currency. Well, in fact, in two thousand and eleven, um, the concern was that that exactly that would happen, right, the whole up project i'll

still call it, would break up. Now I'm thinking post pandemic, especially after we had the I think seven fifty billion euro stimulus. Now I could go the other way. They could become the United States of Europe if the richer countries were willing to play along. Right, that's my central case. Now, um, not everyone will agree with that, but I think that that's the direction of travel. And I think there's two things to say. One, of course, that involves some sort

of German consent on the fiscal side. But I think the other thing is that if you look at the logic of any currency um the size and importance of the Euro, we're going to have to move the capital market situation in Europe in a sort of open, an open direction in order that they can create the sort of depth and liquidity that you see in the US

and the UK. So that's a bit of a contradiction because on the one hand you've got the German instinct, which is top down economic policy, and on the other hand you need what they would say is Anglo Saxon

market forces. What would prompt Germany to take a bigger role to allow that to happen, to allow the United States of Europe, Well, I think it would be some sort of shift and mat will know more about this having having been in Germany for so long, some sort of shift in the German mentality as to leadership, which is I think a word in German that you don't always want to use. Right, you could argue they were taking their changing their views leadership leadership. Right, you could

argue with their changing their views on the military. Here with they're changing their views didn't. Did they spend a lot to support the europe during the pandemic and things like that? Yeah, there's I think they are. I think there's like a hundred billion euro defense fund that the Germans have now agreed to and that they're of course going to meet the two they agree to it in

two thousand twelve. They're finally fulfilling that. They're finally fulfilling it, right, So there's there's an external pressure that's kind of pushing them in the right direction. But my question is what's the stick are going to be on those tanks? Is it going to be the German cross or is it going to be the European Union flag? Um, it has to be the European Unions because even you know, German voters won't allow on the iron cross to come back.

I want to just finally ask you about America. Get back to the u S. Here we had the University of Michigan consumer sentiment UM gauge come in at a record low. What the change has to happen? Here is Biden rewriting his speech furiously right now on the U S S Iowa. He may well be I don't know, I wish showing you um that those reads were terrible. I mean, that's really scary stuff. What's the opposite of Buck Wilde. I don't know, I don't know, but it's

not good, right, No, No, it's tough. So yeah, I mean the consumers out there are you know, that's inflations hitting them. But you know there's some We had Jonathan Goliban earlier from I believe he's where's it now, Chris. He says economy is still strong, got a strong labor market and so on. He's been a bull for twenty years, no offense. He's in my motorcycle gang to me, Jonathan gollub Lefkovich, Binky Chatta. We had a gang back in

the day. Alright, Ed Price, senior fellow in former trade official. He's at n y U now, but he comes up and sees us every once in a while. Well. Our next guest, Matt. She got her NBA from Darden that's the University of Virginia's business school, and I went down there to visit there. They said, we work harder than anybody else. It is the tough workload, but it makes you a better person. I said, that's the last thing

I'm looking for. Exactly. You're dressed in the in the UVA color, So I want to do instead the NBA folks they it darted and they worked way too hard. But Naeseta Henry joins us. She's a chief Innovation officer for Deloitte Consulting UM Nasheta. We're parting through here like a lot of investors are kind of this really hot inflation uh data point that we got today, and we're also paying attention to the Port of Los Angeles, where the President is going today, as we think about supply

chain issues and how they contribute to inflation. I love to get your thoughts because this is something you look at, your thoughts on the supply chain and kind of what you're hearing from your clients, what you're telling your clients. Absolutely, thanks for having me today. UM. You know, supply chain, it's an interesting thing. No one really thought about it before the pandemic, and then as they got disrupted and

you couldn't get what you needed on the store. Shehell of there, you had to wait months to order big equipment. It became a reality to everyday Americans, UM and everyday citizens around the globe. And what we're seeing more and more is that factories really haven't modernized and taken advantage of industry for auto technologies in a way that helps them better predict demand, better adjust in real time to disruptions like UM in availability of raw material or machines

going down or labor shortages UM. And we're all about helping the manufacturing industry UM embrace at scale those technologies that are going to enable them to create more efficient and predictive supply chains. So so you're the chief Innovation officer at Deloitte Consulting, but you're also working on the smart Factory at Wichita. What is that? Absolutely? Yeah. So as a chief Innovation officer, my role is to invest in, incubate, and test and scale new businesses for our firm UM.

And one of those things in involved the Smart Factory, which is a physical experience as well as a digital platform UM. The physical experiences in Whichita Kansas in conjunction with over twenty ecosystem partners that we've curated to come together to create a one of a kind industry for BATO Factory of the Future UM. And the exciting thing

there is it's a real working production facility. We are making smart Rover kits um that actually we will be providing into communities UM to impact over the next four years eight hundred thousand UM young people to get interested in STEM fields. So it is a dual purpose facility where we get to demonstrate new technology of the future for industry portat oh, we get to actually manufacture and in real time have the same challenges our clients do.

We get to implement a platform that connects all of the physical to the digital, and we get to impact young people and uh, you know, hopefully help with upcoming uh you know, labor challenges UM actually current labor challenges, but that we're breaking through through new techniques. Hey, Nishida is just in time inventory dead? I mean Matt Miller's gotta wait months to get a Chevy Silverado. I'm just not sure this pandemic didn't lay bare some of the

real real weaknesses of just in time inventory. Yeah. Absolutely, Well, what's interesting is, you know the just in time inventory either people plan to tightly UM, they can't predict demand well enough. So you know, just in time means that you've actually made plans um several months in advance in order to make sure that inventory gets there just in time. Um. And so it's not just just in time at the

end point, it's just in time all along the value chain. UM. And you know sometimes actually just listening to the morning news a few days ago, there's a lot of excess inventory. There's excess inventory of leisure clothes, right because we couldn't predict that people wouldn't want to wear leisure clothes after the pandemic. I know, I want to do many right UM. And so I think it works both ways that the incremental approaches have actually been just add more inventory, add

more capacity. And we're saying, actually, no, just in time can work. But you need better data, you need better connectivity um, and you need better insights in order to make that work. And this has been the issue for Walmart and Target and everything is out of whack. When do you think the supply chain comes back in order? Now, that's a great question. I wish I could predict the future, but I think in the next um three to six months.

You know, people have been UM working hard in order to get the front part of the chain working right, whether it's more raw materials, it's better core assemblies to create the end products. But I think it's going to take US, UM, you know, a couple of years to really be on this transformation journey to get to a point where disruptions like the pandemic won't cause these supply chain issues. Right, We're gonna come out of these supply chain issues because the world will be getting back to

semi more normal paces. Um, even if we have continued global you know, upheavals and around geo political issues, etcetera. But we have to be able to adjust to future disruptions for which we know there will be all right, Sheeta, good stuff. Thanks so much for joining us. Really appreciate

getting your insights there. No, Sheeta Henry, chief Innovation Officer at de Lloyd Consulting, so much for the quiet Friday here at the beginning of summer of the CPI data kind of you know, really coming in hotter than expected all the core. Maybe you could argue the core has peaked. We'll talk about that. The University of Michigan sentiment stuff that got my attention came in much weaker than expected. So some really negative data that we're seeing reflected in

the market. Of course, what do I do? I blame the economists and along chief US economists for Bloomberg's economics joints is and it's all your fault, no question about it. What do you take away from you know, the inflation data today, the University of Michigan data today. What are your takeaways? Yeah, So with inflation data, the upsides of prices UH so large that I think, uh it pushes the peak further out UM. And we could still see

inflation pushing up, possibly breaching nine percent in September. So that quhes any notion that the said will be pausing in September. As anything, there's probably put the seventy five bits back on the table. But for later this year, we um and we expect now in our baseline that uh fifty bits would be in the September meeting as well as in the November meeting and the consumer sentiment report. You know, America just really hates inflation um. But that

does not always translate into spending actions UM. And you know over sea from nine nationality in the inflationary sentiments and that people just feel like something is taken away from them if inflation rising, even though even if nominal wage were to uh, you know, rises on par with inflatiently, it's true because I feel that way too. Yep, absolutely, uh and uh. We were talking about the possibility of the FED raising at a quicker pace or maybe um

in bigger clips seventy five basis points. Somebody suggested that that Paul was talking about earlier. So I was thinking, what's the most the FED has ever raised rates by? And I looked back, um, in the data. I only got back to when I saw that Vulcar in February of that year raised five percent at one meeting. Yeah, um,

what do you expect from our Federal Reserve? Well, you know, um, Larry Summers put out a paper earlier this week showing that if you adjust to the pychnology of CPI, in fact, the amount of disinflation the FED has to do today is the same as what the Vulcar has to do.

But our own team number David Wilcox looked at that and UM argue that the said actually follows PCE deflators rather than c p I, and that in that you know that measure, the PPE A deflator would show that inflation problem is half as today is half as smart as back in the looker days, which means that the said probably has to do less than the vocer compared to the vocal years. And on top of that, inflation expectations measures show that the expectations have not an anchored yet.

So that also is another argument for what that does not need to do as much as Paul Boker that is and in reality and there's real tangible limits to what this feeder reserve can do visa the inflation because so much of the headline stuff was you know, energy and what I hear there's just not enough refining capacity out there in the world given the demand uh food, Um, there's not what you can do about the supply chain

and maybe the war Ukraine. So there's some things that are out of the FEDS kind of you know, kind of Bailey Wick here. So, um, what kind of message when we hear from Chairman Power when he answers questions next week? What do you think we're going to hear

from this FED? I think that Chairman Pow would would reiterate the lesson that they had learned last year from that mistake from not not raising rates early enough, which is that the FETs job is to affect price stability through demand channels, and they should just take all the fiscal policy and supply shocks as given, and what they could do is to keep their eyes on the wall of price stability and reduced demand in order to change uh,

you know, lower places. So you said, yeah, the Fed cannot do anything about gas prices or food prices, but they can do something about inflation expectations. And even if that means that unfortunately they have to lower demand in order to cool the prices, they will have to do that. Well,

the government definitely can do something about gas prices. My boss was just in the studio um telling us that he drove through Massachusetts to get to Connecticut before he filled up because they've cut the tax There any chance that this administration or state governments are gonna start doing that on mass cutting taxes. Yeah, you know, that's actually

really good point. So part of the stimulus um um went into state government government budgets, and it looks like that a lot of them have not used them up yet. That's why state budgets are are actually looking very good this year. Also partly because property taxes has has has been generating a lot more revenues given given the hot housing lots. From your mouth to God's ears and along, is there any chance that I'm going to get back the state and local tax deduction stolen from me back

in what was it, two thousand seventeen. I mean, I don't know how much longer I can live with these taxes. Well, you have student debts, Maybe you have students that would give you back some money. Sadly, I mean, I'm glad I don't have student debt. Um thanks to my mom, who is a professor at a Great Lakes College Association, I was granted free tuition at another Great Lakes College

Association school. Um, so I'm lucky in that sense. But there's no my student debt if I had, it wouldn't be as high as my annual property taxes in Scarsdale. It's insane. Well, I'm sure you your your income would be enough to to support your spending on other areas, all right. And so we've got this inflation print here. I'm wondering about the labor side of the equation. Are we going to see you or are we seeing wage inflation here? If so, is this spiral thing? Is that

a risk? Well, um, you know a lot of cost of index measures linked to nominal wage growth is index to c P I. So if the c p I is, you know, going out and continuing on upward trajectory, the kind of alarming bills that we should be looking at for For wage price FIRO is if you see wages being index two more and more, you know we wage wage contracts are index to c p i UM and uh yeah, I think, I think if if, if, if gas prices continue to be at this, at this this trajectory,

even reaching one seventy per barrel or two hundred later this year, we would have a risk of expectations on anchoring generating a wage price fire. All right, good stuff. Anna Wong, chief US economists from Bloomberg Economics, PhD from the University of Chicago, love Clinis out every time it is. It's really cool because those people are wicked smat and

they're very good with the numbers. And b A and Economics from Berkeley joining Sun our studios are a Wall Street reporters Shownalie Bassettionalie, I know you sat down with Goldman's sex CEO David Salomon recently. What did you two two kids talk about. Well, what's interesting is actually it's not just him. It was a Jane Fraser of City Group and David Siegel of two Sigma and Naz Dack CEO. Yeah, well,

it's so fascinating. They they did an exercise with me for the thirtieth anniversary of Markets magazine to look forward Markets Magazine exactly to look forward the next thirty years. And what they really thought of is, Okay, what is in the early stages of innovation like the Internet was in the early nineties. Crypto, well, none of only keep only. David Siegel of two Sigma mentioned crypto by name. The rest had talked about digital assets a lot. Jane Fraser,

the CEO of City Digital Assets. When you talk about digital assets, you're basically talking about crypto right there, talking about blockchain based assets. Blockchain based assets. Tokenization is what Jane Fraser talked about. She said this that we are moving towards a boundless virtual economy in which markets do not open or clothes and so one thing is certain, she said, will be virtual and it will be boundless. So actually, Adina Freeman of NASDAK said technology will exist

for every asset on the planet to be digitized. And David Solomon, he actually talked more about energies. We can talk about that in a second, but as it pertains to blockchain. The one thing you did say is that while the technology is good for many things, it really needs to be more scalable, and scalability is one of the big challenges moving forward to see if blockchain will really be one of the main technologies of the next I just want to quickly ask about how we get

hold of this. I mean, obviously, I know, being in this building, I can just grab a Bloomberg Markets magazine. But I also suspect there's an online component, because I know you have um audio at the very least of these interget I just read it on Bloomberg dot com or on the terminal. You know it's on. It's on the Bloomberg dot com. We get Marx magazine there. I never go on the website because obviously at the terminal in front of me, Yeah, these stories are online. It's

it's being very well read and shared right now. We also spoke to let me mention the energy thing, guys, because we did have three out of the six c o as we speak to talk about the climate transition. Again.

David Seagal, one of the greatest quantitative thinkers in the finance industry, really said that it was decarbonization technology that he was most excited about, and David Solomon with the barrel, I mean, I don't know, but decarbonization like um, getting carbon out of the atmosphere, like that kind of technology

the atmosphere out of corporate functions. I mean, David Solomon and David Siegel had talked about the need for more government intervention, really public private partnerships and really the government incentivizing a lot more of this. And so you just mean in general kind of clean energy you're not talking about like actually technology that removes carbon from the air,

well that too, because I think that's really cool. Yes, And and by the way, you know again David Segal, great quantitative technology thinker, also talked not just about energy, but technology that can change medicine. He had some really strong language, imagine the transformation to our civilization if we could develop treatments for some of the diseases that have plagued humanity forever. All right, I'm gonna switch yours just a little bit, because but it's right in your wheelhouse.

This week, I think I saw my first headline about Wall Street cutting head count because business is so bad, And it was just six months ago. Literally six months ago when you couldn't hire enough, didn't I tell you you could people They were raising to pay for these guys every couple of months. But I mean, markets are tough, and the first quarter and second quarter P and L

is not going to look good for these companies. However, people are hiring in technology because they need to keep up with the pace of innovation and thousands of people at City Group, for example, And when I actually that's good because there's a bunch of people who thought they were going to go work at coin Base and had their offers rescinded, So where can they go? City? Yeah? Seriously, But yeah, things are getting tougher out there, that is for sure. That's gonna be something to follow as we

come up with the second quarter numbers. What they're thinking about, what pay and headcount because literally six months ago there was no ceiling on either of those things. Now it's just so just amazing how quickly it turns. And having lived on the street for many years, I've experienced the interns that started this week, by the way, everywhere on wall everywhere, Wall Street, Okay, okay, with college kids, good good stuff, good stuff. It's a good uh cycle. There

Shanellie Basket, Wall Street porter for Bloomberg News. 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. Put on ball Sweeney. I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio