Market Volatility, Supply Chain, And Electric Vehicles (Podcast)

much for joining us. I'm sure your phone is ringing off the hook with your Schwab clients saying what do I do in this market here? What are you telling Schwab clients? Good morning, Thanks for having me And um, you know we're we're telling clients to just take a deep breath and in a stay of the screen set a little bit. Um. It is is we have we have a market that went away from fundamentals to focus on mackero and right at this moment, it's really all

about sentiment. Um. You know, we clearly see significant amount of client anxiety, UM, which is very understandable. Um about you know, what's going on in the market, what's going on in the economy, Um, you know, as you just laid out what they see on their house and there are gas prices anytime they go to the pump, anytime that they go out to a restaurant. You know, they clearly see that inflation numbers hitting them on their real pockets and then at the time at the same time

they see everything that is going on overall. So you know, this is this is an area where we encourage clients to top three advisors to look at their strategy. And you know, there's a lot of strategies you can use to try to minimize any any inside is that you may have to do things that may not help you. So, UM. I heard Paul Tutor Jones the other day. I'm not sure if Critty will know who Paul Tutor Jones is, but to those of us who have been on the

street for a few decades, he is an absolute legend. Right. He was saying capital preservation is his number one concern right now, which kind of freaked me out a little bit. I wonder, are your investors reallocating right now or rebalancing um in eiver of capital preservation rather than looking for

any more games? Well where where where that you know, if you take a step back and you know, for any of the business and economic cycles that we have seen historically, we have clearly accelerated going through the last part of the cycle. A lot of that as a result of you know, the war in in Ukraine and also just the fact that the Federal Reserve has you know, probably been slow and reacting to what the inflation numbers

were going even in the last year. So when you put that into perspective, um, you know, this is the part where you need to become defensive. This is the part where you need to start figure out how you increase your duration in your bond portfolio. This is the part where you need to be very selective in the kind of issues that you have with cash flows, high

quality areas that will allow you to protect your balance sheet. Now, the fact that capital preservation it is really a risk profile, and the risk profile doesn't necessarily meet the investment objectives

of every investor. So when we encourage people to see is that well, if your objective it still is to grow, depending on what your situation is, you just need to figure out what is the right rebalancing strategy to maintain that risk profile that makes you feel comfortable for some people, you know, people that are close to retirement, people that are in retirement where capital preservation is their main objective. Clearly this is an opportunity to de risk, but it's

not necessarily for every investor. So omar one of the pieces of chatter I've picked up on the last maybe day or two, it's just kind of where's the bottom in this thing? In the selling phase here? Do you even try to catch the bottom? Do you think about identifying the bottom? And if you do, what are some of the metrics you look at? Yes, Well, we encourage clients to you know, try to speculate. You know, the chances that you're going to find the bottom and actually

be there are very very low. We always, um, you know, have these particular you encourage clients not to try to speculate. That's correct, not to try to speculate. We you know, market timing it's very very difficult, um And we have this phrase that we tell clients, you know, time in

the market is better that timing the market. And what that means is that is staying invested and stay consistent with invested risk profile and the long term objectives is more important than trying to find, you know, the dips and the bottoms of the market and trying to figure out where it is now. That being said, markets like these provide opportunities for you know, tactless harvesting. This is an opportunity to reallocate within the rest tolerance of every client.

And this is an opportunity just to find other opportunities that they may have not had in the past. All right, you know you know why sounds so smart man? You want to do PhD from Duke there and you can do it. Why, by the way, how much swab asset management? Just we got ten seconds here? What are you? What are you managing? What are the assets? We're close to

seven six hundred and ninety billion dollars? Alright, couple sucks in the market change that is, oh Mar Aguilar CEO and c i O schwab Asset Management PhD from Duke. I will add giving us his thoughts on these markets. Here again a little bit of bounced back. We're definitely off our highest put some green on the screen today. I want to get to our next guest right away. Uh Matt Faster our chief strategy obviously for XPO Logistics, it's a publicly traded company on the New York socka Change.

XPO is the ticker there. It's got about a six billion dollar market cap. Matt. One of the key issues that Matt Miller and I have been focused on keenly since the beginning of this pandemic from an economic perspective, has been the supply chain, the global supply chain challenges. And there's no company that I can think of that has a more broader view of the global supply chain than XPO Logistics. So, Matt, thanks so much for joining

us here. I'd love to get your expert opinion on how we got here, i e. Supply chain problems that are impacting everybody, and how we get out of this thing. Thanks for having me really happy to be here, and especially happy to be here on a day after we reported strong results and a strong outlook. On your question as to how we got here from the supply chain perspective,

think of it this way. First of all, in very early two thousand and twenty, we saw some initial disruption as the first round of COVID hit China and you had to slow down in UH import and export activity from China. We thought at the time that that was going to be the crux of the impact. Little did we know, obviously, in so many ways subsequent to that, uh, there was, as you know, virtually a halt in the global economy at a moment in time, after which you

had a resumption of demand. Uh, and you had a lot of goods making their way into the United States and around the United States with finite capacity. And even in a normal demand environment, it's sort of the pick of the Python situation. You try to get an enormous

amount of goods through a fixed amount of infrastructure. Now that infrastructure was even more constumed than it otherwise would have been, because during the pandemic, lots of providers of supply chain services pulled back on their orders of new equipment. Beyond that, obviously, you had fiscal stimulus, and there was a lot of money in people's hands. Moreover, they were spending a lot of that money on goods rather than services. So you had more goods than usual making their way

through less infrastructure than usual, all at once. And then finally, as you know, whether you call it a great resignation or simply a labor shortage, there are fewer people to help perform those tasks, so there was less infrastructure, Uh, there was less labor to get the job done, there was more demand. There was obviously in that sense, a perfect storm. Now our role has been and remains helped people are customers and ultimately their customers navigate through that.

And that's something that we've been able, thankfully to do. And obviously your services have been a huge demand. You just as you said, published results that beat estimates and you raised your outlook as well for the full year. Given that UM, you have a really good view of UM, the US economy, the global economy. How do you see UM, how do you see it developing right now? I mean, obviously for XPO the picture looks great because the industry that you're in, the area that you're in is in

is in huge demand. What about for the broader economy, do you see a slowdown this year? There are cross winds, for sure. There are a number of macro factors to consider and for them to keep their eye on. The said has obviously been has started the process of raising rates. That's been an in partner sponse to an inflationary environment. That's something we need to watch. There obviously is a war in Ukraine, and that's something that we need to watch.

The Our European business has actually performed quite well. We're primarily in the western part of Europe, UK, France, and Spain. Organic revenue growth in that part of the world accelerated for US in the first quarter versus the fourth quarter. And then in China, obviously there have been COVID related lockdowns that has led to UH some suspension or slow down in the amount of freight making its way to our shores from China. Obviously, something we're watching very carefully.

To our view is that once those lockdowns ease, you'll see a flood of freight and certainly nothing like what you saw in two thousand twenty that we spoke about a moment ago, but potentially some retightening of the truckload markets and other transportation markets. So definitely some cross winds

and things to watch. But if if our business is a gauge of what we're seeing in truck brokerage, where we were helped arrange truckload transportation UH for for many many of the largest shippers in the country and the world in the first In the first quarter, our load growth was our volume growth has the sixth consecutive quarter growth or more. And in April our volume growth was

quite strong. Our growth and revenue per day, and our less than truckload business in April a bit stronger than And you really focused the business, right, I mean you were for years, for a couple of decades at least at Goldman sachs Um and you came in to run XPO. Just give us the shorthand version of what you've done to to focus m this logistics business. Well, well, well, uh, my, my, my, my boss. Brad Jacobs is our chairman, CEO and founders,

so he runs XPO. I'm the chief strategy officer, So I want to put myself in my place, if you will, about what we've what we've done, what we've done collectively. I appreciate the motion, um, what we've done collectively of late to your point, we have refocused the business we used to operate within XPO, a supply chain or contract logistics business offering warehousing and distribution services also for many of the largest companies in the world. We spun that

company off as g XO last August. They've had a very good run. They reported their numbers last week. That was a very successful spin, and we are further focusing our business. We recently divested our intermodal operation. We sold

that in March. We've indicated that we planned to divest our European transportation operation, the business I spoke about a moment ago, and and then also in the fourth quarter, we plan on divesting our tech enabled brokera services platform into a separate public company, which will leave the remain COO if you will, XPO as an lt L enterprise and then the brokerage business as a separate public company.

And what what we what we found through g x O and what we expect to find when we complete the spin, is that these companies each will be better fit for their purposes of serving their customers and able to engage in many decisions that are precisely specified to their business missions, and we think will be quite successful. About thirty seconds left, I love to get your best guests as to when these supply chain issues will become more normalized. Uh. We think that it's gonna stay tight

for a while. We think that disruption will persist for a while. We think that things actually might tighten up a bit more. Again, as I said in the second half, if it has great flow resumes from China. Uh. We we are there to help our customers. Were there last Christmas to help people get their gifts under their trees. Were there to help our industrial customers I get their equipment out there, and and and I think next year

you could see some normalization. But I think the value of outsourced transportation advice answer this says, has been proven to show and that should endure. All Right, good stuff, Matt Fassler, chief strategy officer for XPO Logistics Logistics, giving us the latest on the supply chain issues still out there. If I were to choose a diesel, a big diesel engine, I would definitely go with the power stroke. Ford has a six point seven Leader power stroke. It's only available

in the super duty trucks. I wish they sold it in the half tons, but it puts out more than a thousand pound feet of torque pound feet unbelievable torque figures. Now. I know Greg Jarrett because he was stuck in some oil field fires during the First Persian UH, during the First Golf War. UM is allergic diesel. He's gonna be very happy when they start putting out electric pickup trucks for a long time we thought Teslas was going to make a cyber truck. I'm not sure if that's really

still happening. I've started to see some Rivyan's um on the street. Uh there, you know, a hundred thousand dollar vehicles, and they're not really what you think of that work truck, you know, although TfL did um use one on on on a farm for a little bit. Um. I think most people are waiting for Ford to put out the F one fifty Lightning. Obviously, the F one fifty or the series pickup truck is like the best selling nameplate of all not just trucks but cars in the US

and has been for at least forty years. I'm gonna say that's not a joke. Um. Americans by by their F Series trucks and absolutely love him. Jason Turnbull joins us right now. He is the marketing manager for the Lightning and he's been working at Forward for uh the better half of the better end of a decade, I should say a little more. I think what thirteen years? Jason, great to have you on the program. Tell us when

we're gonna actually see this truck. I'm so worried that it's gonna be like, um, you know, not until because the chip shortage and the supply chain issues are are making us wait for all these automotive products. Well, thank you, thank you for having me. Yeah. So that as the Lightning, It's are all electric, all electric basic pickup truck. And the greatest thing is we announced it two years ago, we revealed it a year ago, and starting this month,

we're actually starting customer deliveries. So it's a real product under UNDERT dollars and we're really excited about it this alright. So I knew, like Mike Lavine is a buddy of mine over at Forward and he gets to test the coolest all the new products, you know, and I see pictures of him taking the Lightning out to like Moab or on the Baja or whatever. But I didn't know that real people we're gonna start, So people are going

to start taking deliveries. What's the weight list? Though? If I put my order in today for a Lightning, when am I gonna be likely to go pick it up from my from my four dealer. Yeah. So when we revealed last May, we took reservations and last December we hit two hundred thousand reservations. We just had to shut off our reservation system because now our goal is to

fulfill and convert those all the orders. So if you don't have to have a have a resonance right now, you're really gonna wait probably about eighteen months before that you can place in order for a lightning because we're later focused on getting them out the door to the current customers that have ordered. Jason, I think you just answered my question because you know, it's one thing to

drive around a Tesla around Coupertino, California. It's another thing to go on my big ranch out in the middle of Arizona where I have to do some real work with a pickup truck and convert that to electric. Are Ford f one fifty buyers are are they ready to go electric? So this is a key benefit of definitely like me as we are attracting a broad range of customers. So from that traditional truck customer, it is gonna tow and haul just like your current gas du towes up

to ten thousand pounds, halls over two thousand pounds. It will have three range, so it will do the bill as well as it passed all their ability capability is built for tough and at the same time as we were attracting new to e V and new to Ford customers that really want that technology to do. So we have that hands free blue cruise highway driving. We have onboard scales that actually measures what's in your pickup bed. So this product can do all the work stuff and

then also is loaded with advanced technology. For me, the coolest thing is you can power your house. So here in the Northeast we have a lot of storms that knock out power. If you have this thing parked in your garage and it's charged, you can use it as as use it as a generator. UM. I still have range anxiety though, Jason, and I'm wondering, was there ever any thought, even you know, as a as a dealer add on to offer like a diesel generator to put in the bed so that I don't have to worry

about getting to a charging station. Yeah. So when we're developing the product, it was all about efficiency. So the way that we package the battery and kind of how it's within the frame rails and how it's a parallel system, it is the most efficient. UM And what we found is for customers, over of them charge at home. So for the most part, you know they can they drive less than that three miles rains a day when you go on a road trip. That's where EV infrastructure is critical.

And we really believe that as we grow the footprint, it will meet our customers needs. So how quickly can you grow the footprint? I mean, um, you know, I live in the great state of Ohio. I'm from there, thank God, and uh, but I live way out here in New York, and so I try and get back as much as possible. That's like a six mile trip. I would have to I probably realistically charge up twice on the way back. And I'm driving through like legit flyover country like I go when you when I go

through Pennsylvania. Yeah, exactly. Happy Valley is like the only sign of life for six hours. How am I going to charge this thing on the way home to Granville? Yeah. The key thing at Forward is we realize, you know, we're not the experts in basically e V basically charging.

So what we're doing is we're partnering with all the major UM charging station so Electry America EV go green lots, so to our customer is in our ford past app it just kind of looked like Ford foard charges for charging stations and you can be folly lead the driveway. You can plug in your address, your destination and it will automatically tell you what's the most efficient route and

here to charge. So our goal is to be, which we are right now, the largest EV network because we partner with all the charting stations, you know, instead of going alone. So Jason, as you you know, ramp up your manufacturing gis a sense of supply chain challenges that you guys are feeling. Here can you get all the chips you need for these evs and and plus the old ice. Yeah, So what I can say is, you know, a macro kind of impact in the industry is is

the tip short at Ford? You know, we're managing that as best we can. And lightning is a key product launched, so we're prioritizing. So we're laser focused on having a on time on track and a quality lawn for lightning Pacifically, dude, that's two laser focused, two times you've focus. This is an old phrase that Alan mollally brought to the Ford Motor Company back in the day. I like it. I like it. I'm sure you get points for it. Farley

Will Farley will allow it. By the way, Jim is a good friend of mine, and I'm sure he won't mind you sharing just with us, just with me and Paul, some of your secret plans. I've been driving the Broncho around for the last week and it is a ton of fun. I gotta say, I'm super impressed by the two point seven leader V six in there, and I hate V six is traditionally. I think it's the most boring if you're gonna choose an engine, obviously a V eight, right,

but at least an in line six. They went with a V on this and I thought, oh no. But it's so fast and it's so responsive, so I'm blown away. My question, though, is, Jason, when do you go electric? I don't know why you didn't introduce the Bronco as an electric vehicle in the first place. How long do we have to wait for, at the very least, a hybrid Bronco. Yeah, so I I can't count on that,

But what I can tell you is Ford strategies. We're not just saying we're going electric everything, because we know a sucy in in the oment. There's different usage cases, so someone's gonna tow heavyweight long distances frequently a dis or guest engine will work. Obviously, Bronco is a blasted drive currently, and we're always looking at kind of feature plans electrified, so stay tuned in the future. All right, Jason,

thanks so much for joining us. Jason Turnbull their marketing manager, clearly doing an excellent job talking about the F one fifty Lightning. We're pumped to see that come out. I'm also pumped to see an electric Broncho. It's got to happen. I heard the Broncos is awesome. Dude, It's so much fun. I've been driving it back and forth to Westchester. I dropped the top yesterday the sun was out. I'm like blasting bad religion flying up the west Side Highway. Super

super fun. Alright, good stuff. Jason Turbull F one fifty Lightning, marketing manager for the Ford Motor Company. I want to bring in John Author. She covers all this great economy market stuff for Bloomberg News and Bloomberg Opinion. John, you know we're looking at the markets here. We had to. Did you see the top of his colle I did not. I love it all right, let us I love it. Party over Oops, out of time. Oh, I got it. Look at him being so hip there, um passing quoting

a song from forty years ago. But yes, okay, twenty three years ago. No, wait, the song was. But it must have come out in the eighties, because I remember I had it was it was it was before Purple Rain. I think it was about eighty two or eighty three. Yeah, it was on the Little Red Corvette album. Uh, what a great record. I loved Prince. Not that we're all more interested in Prince than what's going on in the financial market, so on what is going on in the

financial markets from your perspective time. Yeah, the point is you're comparing this to two thousands, so it's rough and in some in something well, in some critical respect, it ease. I mean, bear in mind, what what's different? Um Or Until recently, I would have said this didn't have that much in common with two thousand, because that was very much an internally financially driven incidents, whereas this time around, we're you know, we have a war, we have in

writing inflation, we have the shock from the pandemic. There were all kinds of very obvious external reasons why why they're the markets are being shocked and having to react. But what is interesting the last few days, in particular, is how this has been about driven about, and the stock market has been driven all about valuation. It's the most overpriced stocks that have sold off the most period right the way through the markets that that that relatively

cheap stocks are barely down. Some of them are actually gaining a bit. If wal Mart or you Will Brands or whatever doing moderately well, and the names that have excited people are tanking very very somlicitus and maybe not maybe not enough yet, right John. I heard um Luke Kawa was on the Odd Lots podcast on Friday, and he said, you know, valuations have come in, um, but uh, you know, terminal rate expectations are up a hundred basis points,

so maybe it's not worth it yet. I would I would certainly say that there is no clarity over While there isn't clarity over the terminal rate, while there isn't clarity over how inflation comes under control, then there can't

be clarity over an appropriate valuation either. If you look, it's you know, I don't want to get too technical, but if you look at the cyclically adjusted pe, which is Robert Schiller's great invention at university, which has been very good at predicting medium term returns, like returns over the next ten years. Then it has come down sharply in the last a few months, but it's still almost exactly at the level it was at before the Great Crash.

So we've already been talking about Prince forty years ago, and we're about as expensive us we were almost a hundred years ago before that's crash. But by the way, in particular reason of evaluation for things to stop selling off now, and who knows what was on the charts, then yes I don't. By the way, I wonder what you how do you explain to a layman um like me why rising rates are bad for these you know,

growthy text docs, for these disruptive innovators? Why is why are rising rates necessarily bad for you know, a Netflix

or maybe even an Amazon? What's the relationship there? Okay, if your gross is in the future, if you if all your earnings are in the future, you're not turning out earnings regularly now, But all the hopes reasonably enough, but all the hopes are for growth in the future, then you need in any discounted cash flow analysis through to account for the time value of money and discount

those future flows by a reasonable interest rate. In Layman's terms, money in the future isn't worth as much as money is today. That's worth in the future declines as interest rates rise, So if all your value is in the future, higher rates will clover your valuation. Meanwhile, if you're mules brands making rubber made and sharpies and stuff, your valuation is centered in the here and now and rates don't

matter anything like so much. John, if I'm a glass half empty person, is it fair to say these markets aren't going to rebound until industrate stuff one up? Still we're confident in terms of are they going to make a firm rebounds and get above get above the levels they were at at the turn of the year. I don't see how that can happen until we have clarity about where interest rates are headed. No, I that doesn't mean that I doubt it. But it's possible that the

bottom is already in. But in terms of a really strong recovery to the levels that we've seen in the seen as recently as the turn of the year, we need to know how bad inflation and the interest rates are going to get. Yeah, you need to know what the Fed is going to do before you can price it in, right, and and and the fad itself doesn't know because the Fed itself doesn't know exactly how bad the inflation problem and how quickly it will come under control.

So I don't see a way. I'm sure there are plenty of ways I'm not thinking of where people can make money over the next few months. Um. In terms of a sustained clear buying opportunity taking us up to new levels, I don't see how that's possible in the next few months. Somebody clever up there is going to

make money in the next few months. They always do. Um. But in terms of a secular uplift to the stock market of the kind we've been become accustomed to, that that can't happen until we know what's happening with the with inflation in rates. Well, you've got to be able to see who lives through this if we have the kind of drops like we had in at the end of the Internet bubble. I remember a buddy of mine was working at bat Alex Brown and he said, I don't care. Um, if you think all these you know,

revenue churning tech companies are worthless. I think Amazon is still going to be a big behemoth someday. And I always think about that because I should have bought Amazon when he was telling me. But we still I mean, the cruel math part of this is bt Alex Brown that he is known to its friends of Deutsche Bank. Yeah. Yeah.

The poor math thing is we have to in order to get back to the turn of the year, we've got to climb so much further than we've fallen because the denominator is smaller now, right, Um, the Nasdaq has lost like, but it's got to go up to get back to where it was on January third, Math, Yes, uh and uh. At some point that probably will happen, but it's unlikely to happen this year unless inflation comes really rapidly under control without hurting growth. So to that end,

see how that can happen. So when we get the CPI did it, tomar John, what what? What do you think we should really be focusing on? You should be focusing on rents, which is the big element that most worries people that that um, that's a third of the index, and for one reason another it tends to show up in in the CPI with a leg uh. And it's been relatively under control and is now rising. So that

is a critical issue. Um. And beyond that, take a look at the trimmed mean of inflation, where you remove outliers in both directions. But by the way, it's lately Sorry, well, I was gonna say, we're we're about to have to listen to President Biden come out and talking to talk about inflation. I can see the background, um behind his podium. It says lowering costs and tackling inflation, which I'm sure

he wants voters to think that he's doing. Um. This brings very little he can do, certainly decide of the midsterms. There's more or less nothing he can do. But it's a It's a rule of politics, isn't it you If you're the one in charge when the economy goes sour, it's yours. It doesn't matter how much money the federal government was spending even before he came into office, exactly. John, I want to just finally ask you what your take is on the housing market and interest rates, because we

saw a mortgage rates climb to. I think at the end of last week it was already five point three percent, and at least anecdotally, I have heard first time buyers scared out of the market or people selling their homes say well, we better lower the price now. Um is it? Is it problematic because you know, we've seen this huge land grab and prices are unbelievable, there's no inventory, and now you've got mortgage rates rising. Yes, it's it's very problematic.

And this is the big difference, bad difference from two thousands. In the two thousand was an equity market bubble, a massive one, but it wasn't a housing market bubble as well. This time we have something that looks as though it might even be a bubble in American housing. Now. There's one huge advantage that the US has compared to almost the rest of the world, which is that America for

years have preferred fixed rate mortgages. I happen to be looking into piece of research, so something like from Deutsche Bank that shows that only about two percent of US mortgages are on variable rates. In the UK, it's more like forty In Australia, Italy, Germany, We're talking about more than are variable, so the impact of rising mortgages takes longer to affect house prices here than it does in

the other developed economies. But plainly, at this point it's uh, you know, this is overextended and people have been making their calculations on the assumption that money would stay phenomenally historically cheap and it isn't anymore. So, yes, it's very concerning. All right, John Authors, thank you so much. We appreciate that. John Author's covers global markets and investments and the Red so Thanks Bloomberg News and Bloinion. Rents really a year

for the right. He sounds like a soccer fan, I know, but he's a big Red Sox guy. I didn't know that. Yeah. Absolutely, 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 and on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio.