Surveillance: Ford's Electric Future

As he likes to remind me that I like to say, Um, Scott, good to have you here. Uh, remarkable that we're kind of at the end of this year, after what a year it's been. What do you make though of Once again we continue to see like global equity records taken out one after another. Well, Carol, it has been a crazy year and these record highs. You know, the markets are definitely higher than were where we thought it was

going to be at the end of this year. But you know, Matt mentioned bets on economic recovery and whether you're looking at commodities, aluminum, um, you know what what the tenure yield is doing, what sectors are performing, industrials, you know, have been a good performer. So these economically sensitive sectors, these asset classes that are sensitive to a continuation of the economy have done well. And clearly the

market has has counted on additional stimulus from Congress. Who knows, you know, whether we get two thousand dollars or stick with the six I think it's safe to say probably you're going to see even more stimulus from Congress. Um, good virus news. You know, we keep getting good virus news. The markets anticipated that for a long time, so I think it should be no surprise that we have multiple good Wait, good virus news you mean in terms of

the vaccines and make good vaccine exactly. I'm sorry, Carol, Yeah, good vaccine news is. Certainly the virus news has has has not been good. But I think the market has a lot of confidence that there's a very very bright light at the end of the tunnel. Um. Certainly we feel there's a bright light at the end of the tunnel, and we're looking for let's say, eight percent return in the sp the course, absolutely, there are a lot of

good virus stories. Well here at least there are stories of countries looking at different viruses so they can add more to their arsenal countries speeding up the virus rollout so they can get herd immunity done faster. Of course, we had the nova vex story yesterday, so it looks like um more companies going to be offering are joining the fight offering a virus vaccine. Here, Scott, let me ask you what you think about consumers, because Larry Summers

wrote an interesting op ed for US yesterday. He's taking a lot of heat for saying he doesn't think consumers should get two thousand dollar checks. But I think, um, there are a lot of populist politicians out there that would disagree with him, and it's fairly likely. Do you think consumers are really gonna sit on that money, um and not go out and spend it? Or are they just waiting for a chance for restaurants to open, for airlines to be safe again, for the sun to come

out and make motorcycling more fun. I mean, I feel like if you gave me two thousand dollars, I would have an earmark for spending pretty quick. Man. I think if I had two thousand in my pocket, I probably would spend it. I can guarantee you that my twenty nine year old daughter would, So you know, whether you know, six doesn't seem like a lot to me. Now, clearly we're borrowing a lot of money, uh, and that is an issue. But it all comes down really to consumer spending.

And I think really this last round of stimulus that was out there, the direct payments to consumers, a lot of that money was saved. And so you know, what we want is people out there spending money. They need to be confident, they need to have jobs. But now you know, you see a picture of Times Square and there's not much going on there. But in most parts of the country, I mean, if you're driving around, I don't care if it's a Tuesday afternoon or Saturday afternoon. Uh,

there's a ton of traffic. It seems like it's back to about a dent. And you know, the only reason you would even know that there's anything going on in terms of a pandemic as you look over and somebody's riding in their car with a mask on. So I think people want to get out, they want to spend money, they want to go to restaurants and bars. Um, they're going to certainly spend whether it's six or two thousand dollars.

They're going to spend some of that money. But you know, we certainly need consumer spending to be strong to keep going, to keep this recovery moving ahead. So, okay, I'm listening to what you're saying, Scott, But there are millions of Americans who if they get two thousand dollars or if they get a few hundred dollars a week more, it's really about keeping a roof over their heads and food

on the table. And I do wonder when does the equity markets, the financial markets kind of catch up with what's going on, certainly in the United States, you know,

in a big swath of our country. Well, Carol, you're you're exactly right, because you know, while many people would use that six d or two thousand dollars for for discretionary things, not you know, just things they want, not things they need, there's a large number of people, as you pointed out, I mean, they're paying rent, they're making a car payment, you know, the essential uh types of things. So I think that the market is looking well down the road, not just as to what's going on here

in the US, but globally as well. Now, have stocks come far uh and fast. They certainly have. We all know that. But I think that you know, if we get some improving news, we're gonna keep going a little bit higher. Here. We've got a one seventy five number for the S and P five hundred at the end of next year. And if you look at the valuation, if you look at where interest rates are, if you look up the pent up type of demand that's out there,

those valuations don't look overly stretched. Certainly, They're nothing like March of two thousand. So I think I think the market is not meaningfully overvalued, but certainly anticipating quite a bit of good news. Uh, certainly on the consumer front and the vaccine front. All right, all right, Scott, thanks so much for joining us. Thanks guys, Thank Carol and

I both thank you. Scott's been a long time. Glad we could talk to you today, Scott, Wealth Bargo Investment, Happy New Year's Well, it's good to see you again. Thanks so much for joining us. Let's bring in Matt Born back. He's Morgan Stanley, head of Global macro Strategy,

joining us on this Tuesday. So Matt um, first of all, the Brexit news, we are seeing a play out there's enthusiasm around the globe, whether it's the Brexit news finally you know, getting resolved, whether it's another round of pandemic relief here in the United States, there's so much, it seems financial market enthusiasm. Does it make sense to you and does it carry over into twenty one in your view?

Thanks Carol. Yeah, I think it does, um, you know, at least for the first several months of the year. You know, I think, um, the amount of liquidity that central banks are providing to markets, not not just in the US, of course, but but outside of the US as well, UH is going to be pretty formidable, and I think markets are going to have a hard time

UH not incorporating this liquidity UH into their prices. So we we do think that risk on is the trade for them for the first couple of months of the year certainly, And then I think once the vaccine becomes more broadly distributed around the US, around the rest of the developed world kind of made year, um, then I think it becomes more difficult for markets in the second half. How difficult in the second half. So what do you are you expecting kind of official corrections at that point?

Because I do wonder about like, as you say, you know, there's a point where people say, wait, wait, wait, it's time for us to look at fundamentals again. Maybe this run up isn't justified. So what does the second half look like? Is it just a coming in the financial markets? There is an actually kind of okay, let's let's reprice everything. Well, I mean I would I would say consolidation, uh is is what it would be, you know, kind of front and center for for me. I think, um, you know,

correct corrections. You know, we have had a couple of ten percent corrections in in the SMP five hundred, uh, you know, over the past several months. But you know, they they just they didn't last. Um and and so it's really tough, I think to call corrections during a period of time when liquidity uh is so overwhelming. I mean, and you know, again I think bitcoin. You can kind of see it in the price of bitcoin as well. Um, there's so much money being dumped into markets by central banks.

UM investors have to find a place to put it um in either you know, you find a place that has some yield, and that's hard to do these days, or you're trying to find a place where prices just keep going up and up, and you can see that's that's happening in bitcoint these days. At what point is all of this optimism for a vaccine and a V

shaped recovery post COVID priced in, Matthew? And how do you you know when we see something like um, Airbnb going for a hundred billion dollars um during COVID, it was only worth thirty billion dollars before COVID, Isn't that the froth that tells you something? Uh, you know, assets are overpriced here? Well, I mean, you know, equity is really not my my value wick um. But what I

would say is two things. Number one, you know, markets typically priced things in uh you know, or almost entirely priced things in before they and so you know, if the market has its eye on the demand surge that should occur in services uh post vaccine distribution, i'd expect markets to to to to you know, to price that in by and large before the vaccine is completely distributed. So that would be the first way I to think about it. The second thing I would point to as

the bond market. Um, you know, one of the reasons I think that yields in the US have not risen more than they have over the past couple of months, is because of the liquidity that's being distributed around markets. Now, if all of a sudden you see yields starts to rise more quickly, that would that would suggest that liquidity is not as ample as it was earlier. Um, and that might put uh, you know, kind of risky assets

in more danger. But at this point, you know, you're not really seeing that the tenure treasury yield that's still below one per cent. So UM, I don't think we're there just yet. But those you the two things, the two ways I would think about it. So I gotta say, Matt, I love lists. I'm a list maker, and you've got a list of the top ten surprises. One that I thought that really stood out for me is you said immigration causes the northern lights to shine the brightest. You're

looking at Canada. Yeah, absolutely, Well, we we've been bullish on the Canadian dollar for a healthy portion of two thousand twenty one UM and in our discussions with investors, you know what we had found certainly in the middle of the year, you know, but it continued throughout the

course of two Uh. Is that people just are thinking that there are some structural issues with the Canadian economy, and so you know, we saw, gosh, wouldn't it be wouldn't it be a surprise if if these structural issues never really reared their heads UM, but some other issues like immigration actually carried the Canadian dollar even further higher UM. And so we decided to throw that into the mix for two one as as one of our top ten surprises.

You know, I look through m A go, the m A go function on the Bloomberg, I see that there's a bigger premium Matthew being paid for Developed Asia assets right now. And I see one of your surprises is that developed market liquidity avoids emerging markets and drives a d M asset bubble. Why do you think we're ignoring emerging markets? I mean, they clearly come through this less

scathed than everyone else. Yeah. Absolutely, Well, I mean the first thing to recognize is that, you know, the liquidity that's being provided by central banks UM is mostly occurring in developed markets. So it's the developed market central banks like the FED and the ECB and the Bank of Japan that are providing most of the liquidity that we've been talking about in our research, and so you have to recognize that the liquidity that's being provided, honestly, it

doesn't have to go into risk assets. They could stay in bank deposit accounts, or it could stay in money market funds earning nothing if it wanted to. But you know, we don't think it wants to do that. We think it wants to go out in search of yield. And so, you know, this particular surprise that we wrote about just recognizes the fact that, look that the liquidity that's being

produced in developed markets could in fact stay in developed markets. Um. And so we we started to think about, well, what would be a reason why the liquidity would not overflow the borders of developed markets into emerging markets, and ultimately, you know, it came down to the virus and um, the fact that you know, winter time for us in the northern hemisphere is not is not the same as

winter time in the southern hemisphere. And so we just put two and two together and thought, well, maybe if if the virus has a resurgence in the southern hemisphere, that might uh, that might redirect that liquidity or eat that liquidity in developed markets, and and ultimately caused an acid bubble. Matthew, thanks so much for joining us. Matthew hornback there, Morgan Stanley, Global head of macro Strategy. Let's talk a bit about markets, if we may. Let's get

to our guest, James Bevan is with us. You see c l A chief investment strategists joining us. Um James, how do you see it? How do you explain some of the trade? I do feel like we are in a market that reacts to headlines pretty quickly, whether they're negative or positive. You kind of get it out there pretty quickly. Indeed, right now, I would say that there is more appetite to perceive good news and statements made rather than worrying about bad news. And of course most

news stories come with a bit of faith. So if you take the breaks as and nights than, for example, is unambiguously good news that there is no no deal, but it's certainly not good news to the services company news that's still facing our ambiguous future, and in particular financial services. Right now, in markets focusing on the good news, why do you think the pound isn't rallying more? James?

I mean, I would have thought we heard so many forecasts that were bullush up to one, and especially on a day when the dollar is weaker once again, I would expect to see more than one thirty five in Sterling. Well, I certainly anticipate that we can see one forty five by the end of next year. But the plan still has really quite serious challenges ahead. So the Brexit deal is a step in the right direction, but it most certainly does not provide for the full resolution of the

problems that the UK faces. So we will like to receive real growth in the UK economy of perhaps up to seven percentage points this year, but the UK is still poorly placed in terms of global free trade agreements. It's simply not made the progress that it wished. People say it's game to be easy. Actually, if you look at the regulatory luggage that the UK has to take the past of the Brexit deal, this issue in terms of getting free trade of the US is going to

be really tricky. The Coordinator Chicken story isn't going away. And I think that these people concerned about the outlook the UK economy. What about the city James. You know, we've been talking a lot today about what happens to financial services there, and um there still hasn't been any kind of equivalency agreement. I don't know if that's gonna come even in Q one one. Do you see a lot of your h Do you see a lot of your colleagues moving back to Paris, moving back to Frankfurt,

fleeing the city for the continent. Well, I would say that we have seen a general drift of both people and business activities to the Eurozone over the last four years, since the twenties sixteen Brexit vote. That was the main when the chief executives and boards of the major financial company said, Okay, guys, we've got to get ready. We know it's doing that happen. We don't know quite when,

but let's position know what inevitably will happen. So I don't think it's going to come as a major shot to anybody, but many businesses already relocated ivor to Paris or to frank First. Yeah, definitely that migration, that trend is definitely something we've seen and continues. Hey, James, we're gonna leave it there. Thank you so much. James Bevan u c c L A chief investment strategist, have a

good new year. We do want to talk about something that has definitely been kind of I've been obsessed with it a little bit since those Apple headlines about really aggressively again moving into the e V market. But we want to get some perspective because there's a lot going on. There has been a lot this past year, and a lot maybe in terms of expectations for the EV market. Mark Kaufman is with us Ford Motor Global Electrification Director and he joins us Uh, but a zoom on this

Tuesday market. It is so good to have you here with Matt and myself. Matt's a car guy, loves talking about all things car, but I am really interested too as well. So tell me about the Apple news. Let's start there. How significant is that in your view? And it's not something going to happen tomorrow but in a few years, well, Carol, anyone who works in a traditional manufacturer, we're essentially going to expect disruption now from anyone that

might be out there. Back I know a couple of years ago when Dyson was considering getting into the e V business. At that point you realize any consumer product company could come into the space besides a an you start up. So uh, it's it's very difficult. It's very expensive to the point where you know global um globally dominant companies like Ford and Folkswagen are getting together pooling resources. Can you tell us a little bit about your work

with the German carmakers over here in Wolfsburg. Sure, Matt skill is so important, especially in the auto business. UM. So in a case when we have a platform, you know, most platforms have a range of products that it can

be suited off of. Uh in Then in the case of our our partnership with VW, we had the the European market skews a little bit smaller than the US market, so we found there was an equal opportunity for both of us VW to get a bit more scale off off their platform, and for Ford it gave us an opportunity to have a product that's going to be slightly smaller than the product off of our dedicated platform that

we have within our company. I know, one of the big problems here Mark is there just aren't enough charging stations. And although we hear from you know, partnerships like IONI that they're building them as quick as they can, they're they're certainly not building them quick enough to be ready for the demand that's coming in the next few years. How do you think that issue gets solved. Man, that's

a great question. And we know a combination of both range anxiety and the ability to charge your electric vehicle when you're traveling our top of mind for consumers. We believe range anxiety as a as an example, are Mustang Maki as a range just over three hundred miles is

helping on range anxiety. At the same time that that charging infrastructure continues to get built out every year, especially for the high power DC fast chargers um and it depends where you're at in the world, though a lot of consumers we're finding are still charging at their residence that they have that opportunity to because that certainly adds

to the convenience of owning an EV. You know what's interesting too, though, is and I do wonder, you know, Mark safe to say, I think it's it's it's fair to kind of respect what test Lady lawn Musk did that kind of woke up the auto industry and so that you can, you know, maybe move faster than everybody anticipated when it came to the e V market. And I do wonder in terms of strategy and when you

look at maybe what happens next year. You know, how has kind of the timetable changed dramatically and could have changed even more so, meaning sooner rather than later. Yeah, I would say as I as I look back at I know for me the biggest surprise on the year is just how quickly the European market has moved to NEVY adoption. I would say that was a little bit

higher than what we had forecasted at this time last year. Uh. And part of that is you're seeing more products come out so as that EB offering is expanding from other manufacturers both RENA and VW having products in the market and the European markets. That has accelerated the growth. Uh. And at this point, um, you know, we're seeing in both Europe and China there there's a clear race for

leadership there in the e V space. Mark Kaufman is still with us for Motor Global Electrification Director, and Mark, I want to hear about some of the products. As you can tell, I'm very close to the Ford family. I've spent a lot of time um uh with your boss. Um. I've Alan Mollally is a very close personal friend of mine. UH. And I wonder what's next you know, you've got them, You've got the Mocke, and you've got this partnership with Volkswagen. What else can you come out with that's gonna blow

our minds? Well, first, coming late summer in twenty one, we've got the Mustang Maki GT so that is the performance version of that product. Um so we're super enthusiastic about that. You've just got fantastic fo horsepower, six hundred and thirty four foot pounds of instant torque in that

EV so that's gonna delight customers in that space. But even more importantly, with thirty five years of commercial vehicle leadership, we've got a transit full battery electric vehicle the in coming out UH and that comes in lots of configurations to meet a wide breadth of consumer needs. And that's

a that's also in one. In late twenty two, we're tapping into probably our most iconic nameplate with an F one fifty full battery electric vehicle launching and a lot of people know the F one fifty is probably my favorite vehicle of all time. I had the six point two Leader Raptor version, which was amazing. I love torque if you could deliver it to me with the battery, I honestly don't care if it comes from internal combustion

UM or electric. It sounds like it would work great in a transit as well, which has an amazing product. What about your partnership with Volkswagen though we talked a little bit about it in the past, Block and I'm wondering can you envision another model? Can you envision deepening that partnership because it's such an exciting transatlantic uh A joint venture? Yeah, Matt Ford Forward continues to be open

to strategic partnership, so where they make good sense. Uh. And clearly you know that that first relationship with VWS the start. We also have an equity interest in Ribbans, so we've shown that where it makes sense for Ford, we're certainly going to be open to those partnerships. Hey.

You know, Mark, I just want to follow up on what you said about the Machi and I do wonder if you guys are going to allocate more to Europe next year to meet um some of the and comply with some of the tougher COOT standards, because I and I'd love to also get your thoughts about e V and Europe. Does it kind of is it a breakthrough year next year? Yeah, let's start with uh. I mentioned

the growth in Europe this year, especially in markets. You've got your big three core markets between Germany, UK and France that have really accelerated this year. So when we start thinking about that technology adoption curve, you know, there's usually a breakpoint from two and a half percent is

usually where you start moving into early adopters. And as we're finishing up twenty one, all three of those markets now have tipped up to about five percent EV share of industry, So we're gonna expect continued growth in in those markets. Does that mean allocating more makis? So we're we're always we're always, we're always looking to to get product to customers. UH. And obviously having having demand for those products and pool is going to be fantastic for us.

So I once I one think I want to ask you too. And going back to Tesla for a moment, because they really, like I said, you know, I think everyone would agree that they really shook up the EV market, But I do wonder some of the problems that they've had quality issues. Does that provide openings? Do you think

for some of the established auto players. I don't think, you know, for anyone who's coming new into the auto space, I think you should underestimate the essentially the value of a good distribution network and the ability to take care of customers. So just maybe to give you some quick U S numbers, we have twenty one d e V certified dealers in the US UH, and we have ten thousand training service technicians who are capable of dropping batteries

off of cars. Unfortunately, accidents happen within the world, and you know, for the ability to get cars into our service base at forward and back out, we think is going to be a continued advantage for us. Yeah. I wonder about service bays. I mean, how necessary will they be when you have electric cars? UM, I assume if you do a better job than some rivals at quality, you're gonna need fewer repairs. You're also gonna need actually fewer people to build them. Right. Is it just going

to be a less people intensive business car making? Yeah, it gives us I think a little bit of room to to have more what we would call top hats or more product configurations off of a platform and a plant. So the line length for an electric vehicle, UH, is about thirty shorter than a traditional line, so it is a little bit more efficient. So in a case where before we might have, you know, just one product at a plant, we might be able to get two products

in off of the same platform. So there are some efficiencies that will have and while service patterns certainly change with that, we we still think there's there's going to be good ongoing throughput. As I said, unfortunately, accidents to happen, so getting customers in and out quickly, UH is going to be important for us. All Right, really fun discussion. Matt's all in on cars, but I just want for the record Mark, I also am into torque. I'm just gonna put it out there. Okay, Um, Mark, thank you

so much. Have a great new year. We look forward to talking to you next year. Mark Kaufman, he's Global Electrification director over at Ford Motor. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio