Surveillance: Still More Work To Do, GM's Barra Says

that hasn't happened yet. It's the assumption of many, many individuals that follow the politics much closer than you and I. I'm just trying to understand what would happen if that headline crossed the Bloomberg. How would the market respond to

that scenario. I don't think there's necessarily much that's gonna it's going to have to respond on too at this point, because that doesn't immediately start building the wall, doesn't do anything other than this will eventually get kicked to the Supreme Court, and I think there will be you know, however long that takes to play out, this may become a mechanism by which both sides get a win. Because if he is declared, if the President declares the national

state of emergency. He can do it, then there's no need to keep the government closed. So presumably, uh, that would then pave the way to passing some kind of budget agreements getting the departments reopened. But by the same token, the wall's not going to be begun to be built because there has there will have to be a test. Well, it's the Congress's job to determine the budget, so the president's diverting funds. Can he legally do it? He says he can, Congress says he can't. The Supreme Court has

to decide. Were used to volatility in Washington, d C. We're used to gridlock in the nation's capital. Is this different at all to what we've experienced in previous administrations for market participants where they look at this any differently to these situations we've seen in years gone by, No, and government shutdowns have never been a really big thing for the market. The question is what is the policy that needs to be resolved that drove the government to

a shut down. In the past, it might have been a fiscal cliff relating to tax increases. Um this is in a sense a much smaller economic issue, So you know, you know, I I think that Uh, after a while, maybe there's acumic damage. People maybe talk about a tenth to prevent sent off GDP. We're not talking huge numbers. It's much more about executive privilege and politics, I think, than it is about economics. We have had economic growth. You predicted this, You've always been an optimist in the

American experiment. Are we having these tensions because all the growth went to too few people? Well, look, just we cannot deny that distributional considerations are now very important politically. Um and that has been a theme in economics and a theme in politics. But I think but the question in the debts of the financial crisis and the Great Recession, if someone said, well, the economy is going to enjoy the longest expansion in US economic history coming out of this,

we would have taken growth over where we were. So, you know, the economy has delivered the lowest unemployment rate now in fifty years. More people are coming back to the labor for US. Inflation is relatively low. You know, those compare the situation to Europe, and the US is in a far, far stronger place despite all of the dysfunctionality inside of the Beltway. And John I would totally

agree with that as well. Looking at the economic data at the moment, there's been a big worry about what would happen with the global slow down and how it would spill over into the U S economy. Initial jobless claims, that's a real time indicator of this economy still really

really low, multi decade lows at the moment. John, any sign of weakness anywhere that you're concerned about at the moment, well, there is weakness in areas like housing, for example, and that's one area where the government shut down may exacerbate the weakness because of the role of the government in guaranteeing mortgages and so there maybe you know mortgage applications that get delayed and some disruption there. But the point is an economy at full employment can't keep crying on

all fronts. It's mathematically impossible. So interest rates are the mechanism that reallocates resources within the economy. So the Fed until recently has been on a path of steadily raising interest rates. When you raise interest rich, you're supposed to tighten financial conditions. When you type financial conditions, some hearts the economy are supposed to slow. There should be no surprises here, but John, for the first few years at

the tightening cycle, financial conditions actually loosened exactly. Gold prices are hired. And when the Fed first started raising interest rates, the dollar really hasn't done very much. The equity markets a lot higher. And again, people between where we were early October and where we got to wunt Christmas Eve, the drop in the equity market to a level that none of us would have imagined going back ten years ago, that the economy could have gotten to in this timeframe.

So here's the good news. The committee at the Federal Reserve seemed to be on the same page. Patients wait and see, and I think the inflation data gives them the capacity to do that. Inflation expectations have come in CPR. We get a little bit later, there is an urgency to raise interest rates. There is some space to be patient. The confusion is around the chairman, and the chairman continues to confuse and bewilder everyone in this market. I'm speaking

for a lot of people I know. I'll speak for myself. It's confusing me. In October said rates are a long way from neutral. In November, he said he emphasized the estimate the range of estimates for the neutral rate. He walked it back December, he talked about the balance sheet runoff on autopilot, followed it up a couple of weeks later by pledging flexibility and patients, and then he speaks yesterday and says the balance sheet is going to be

substantially smaller. John, Why is the chairman seemingly all over the place? Um? So, you know, you got on a bicycle for the first time, takes a little time before you can take the training wheels off. Um. I think that if you look through what he has said, and you take out the early October fireside chat with Judy

Woodruff and that that long way from neutral. I think he was trying to correct the impression for when the FED took away some language in the FED in in the statement that said, well is the FED no longer accommodative? Do they see themselves at neutral? And no, No, we're a long way from neutral. I think the message that he's on it conveys the following. I think he did a reasonably good job in his last two appearances doing it. We had a view the economy is going to grow

fairly stronger this year. Markets have created a range of uncertainty around that view. You said it right, inflations reasonably low. So now the Fed can afford to be patient. So they they're gonna say, we've race rates quite a bit. We're gonna sit aside and see which scenario when folds. Do you know that I've become a girl magnet here at Bloomberg because I have a Preston North End, Jersey over my chair women combined, they just stare at it

in awe, Preston North. Then what happened with is it? Doncaster? How do you pronounce it? Doncaster? Doncaster? What? How do you lose to a team like that? I mean yet the post I get that, But how did this happen? Injuries? Injuries? I did not. I just want to point this out to the listeners out there who were tired of hearing about my hometown love of Preston North Then no, um, but explain, can you explain to our listeners what you're

talking about? Talking about? Cup? The f A cup is different than Premier Lely against where the little guy can beat the big guy. Right, yeah, So what happens does it take the story for what happens this weekend in the f A Cup. I'm not sure who plays? Isn't it the league? The league games are back this weekend? Right, so the f A Cup round are done, tomp So the league games restart this weekend as far as I know. Okay, so like they're back to like the normal TV football. Yes,

so tomorrow, Preston, I think play Swansea. Is that right? We played back in the league tomorrow. Of course, Doncaster Rovers was the little team of the knocked out the bigger t can I just explain some of our listeners here and this is like, this is like good. UK. F A Cup is a is a football cup that goes back to the eighteen hundreds which pretty much any football team in the UK can participate in. It's cool,

It's very cool. So like minor league baseball could play the major leagues and basically if the minor league team got far enough, they could the Yankees and got to here. There we go. See I pulled it back to America. Rich congratulations, John Ridy, Thank you, John Ridy, thank you so much, but thank you for the Preston Northern Jersey. I just it just sits there on in Montreal Canadians Jersey and closes this is a joy. We have Peter Hooper on a Friday with Deutsche Bank. He's gonna publish

this weekend. He's got a team of people towards En Slock and the others, Matthew Lozetti killing it with smart research, young losing. What's it like, Peter Hooper to bring someone like Matthew Lozetti on. I mean it keeps you young, right? Uh? True, joy, I mean I would have retired years ago if it wasn't for people like uh, Matt and Torson to be working with wonderful guys, really right, fantastic research. They do,

detailed research. And again to the x y Z chart, you've gotten your new research note, which is way advanced stuff. And we don't do x y z charts Peter Hooper on radio, it doesn't work. Wait, charts don't work on a radio period. But but Peter Hooper, again, it comes down to model building and our confidence in what we're doing. Let's start with the Phillips curve theory. Uh in in all out of out of your Princeton, your Michigan as well.

Are we still using the Phillips curve within our analysis? Absolutely, it's it's it's Central still. Um. You know people are claiming it's dead. Uh. The fact that inflation has failed to respond to an unemployment rate which is approaching a percentage point, has been approaching a percentage point low neighru but below full employment, very tight labor market in the past, more distant past, this generated a lot of inflation. We've been there for a number of months now, um, and

it hasn't not really a budge yet. So things are changing. The reasons for the reasons why I think we're changing, but there are also reasons why they haven't changed permanently. And this will spring back to life eventually. Okay. I want to take this on two things. I knew what Dr Hooper's answer would be, folks, and it sets us up for an inflation discussion. And then I want to

go to the broader American landscape, Peter. If I look at service sector inflation and goods inflation, the answer is service sector has been remarkably flat positive a normal number that all our listeners know. We've had goods deflation, but then a goods inflation pick up out of deflation. Can we sustain stability and goods prices or in an age

of oversupply to goods prices roll over again. Well, you know, one of the factors that I think was sort of compressing inflation over several decades was was globalization, Um, increasing supply change, a lot of competition from abroad, huge increase in labor into the world, production in China, etcetera. That's that's changing now. I mean, I think I think you are.

You are seeing effects of trade restriction, etcetera, potential tariffy impacts. Uh. The the international compression on inflation beginning to shift and in a direction that means that prices eventually will be rising more in the good sector. Um. The dollar has strengthened on average over the last year, and that that's compressed import prices. But that won't go on and definitely the dollar will fall again at some point. Uh, And you will see eventually good inflation is going to come

back more sustainably in the positive territory. And I beg the differ a little bit. I think the underlying train and services inflation is word healthcare, etcetera. Even rental inflation. We've got some positives there today. Um so so I I do think that we are going to be moving at least modestly above the fed's goal of two not enough to cause major problems, but there are risks on

that side. Peter Hoover, can you or Vice Chairman Claire Hiss, a front rate macro economist D. S. G and all that, can you advise Chairman Powell in a gilded age if we have the inequality we have an income and wealth, if we have the apparent beneficial effects of technology so different for rich and poor. Can we use your knowledge in a gilded age? Or do we make it up as we go? Well, you're you're you're talking about an area that the FED unfortunately really does not have much

control over it. If you can deal with the macro economy, it cannot deal so much with the distribution effects. That's more in the realm of physical policy. That's uh, you know, tax and in transfer and and certainly a lot more is needed in terms of compensating those who lose jobs because of trade or technology, and there's a lot of that going on. We need more retraining, we need no more, you know, uh. To increase the flexibility of the US labor force to deal with these challenges is a major

should be a high priority. We need we need a better functioning government in Washington to get some of this done as well. What is the state of the American consumer? I guess I'm going over to touristen Slux area here give us an update on the Deutsche Bank feel on the American consumer, consumers consumers of the engine of growth here. Uh, I mean in in in the presence of all this

doom and gloom about slow down globally. And there's impressively we numbers on manufacturings are manufacturing around the world of late Uh, the U S consumer is really still the engine of growth. The strong labor market, strong income growth, even with the recent correction in the stock market. Household balance sheets are very strong. There's been a lot of deleveraging there. Uh and and uh we we we. Assuming we get the numbers before too long, I think you'll

see the consumers are continuing to do reasonably well. One final question, Dr Hooper, what should the Fed do January? I know we were data dependent. We've got a lot of data to go to get to January. It's easy to pause. Or should they shake things up with some drama. Well, what they should do and what they will do has been very clear in the speeches we got yesterday from the chair and vice chair. They're they're they're in wait

and see mode. A lot of uncertainty going on around here, a lot of risks that need to be resolved one way or another. I don't see them doing anything for quite a while. Peter Hooper, thank you so much with Deutsche Bank. Wonderful to have you for such an extended time this morning. Can't say enough about the Deutsche Bank research through the year from Matthew Lozettie, Torsten Slack, Brendan Maran and the rest of their Brenton Ryan and the rest of their team as well. If the New York

stock has changed. Mary Barra, and she is with our David Weston on Bloomberg Television and Radio. We now welcome Mary Barra. She is the chairman, the CEO and president of General Motors. Welcome to Bloomberg, Mary, So we've just heard the news about General Motors, both respected and I

think surprising the upside. What happened, well, I think this is a result of what we've been working on since the time frame, you know, really working to transform the business, both the core business and also the investments were making in the e V a V and connectivity and we see all that coming tom coming to fruition. We still have more work to do. That's why we made the difficult announcement we did last at the end of last year.

But we are focused on this transformation, make sure General Motors is strong and really demonstrating that even in a cyclical business, we can continue continue to deliver results. It's cyclical and all sorts requiring a lot of investment. Right now, as you go through the transformation to electric vehicles to also autonomous vehicles, will you be able to maintain the situation where you can get the money you need to invest by saving money elsewhere because you're earnings for share

are up actually despite all the investment. Well absolutely, and we are investing. And one of the things that we did in this transformation is we're remixing our our global

product development. We've indicated that over the next few years we will double the amount of that is spenting EVY and a by but that's not added to that's transitioning to and we've actually found a lot of synergies and not only how we engineer, but also from a capital perspective, you know, we've made a lot of investments in crossovers, full size trucks, our global family of vehicles, and so that's going to pay off, and that's investment that we

can continue to leverage as we go forward. So that's what's allowing us over the near term to take the billion and a half out of our capital spot. So, so talk about electric vehials for a while. And as I understand, you're gonna have I think it's twenty twenties three miles by twenties twenty Is that got it right? Uh? Cadillac, now we know it's gonna be your lead Why well,

Cadillac is our technology brand. And when we look at the technology in addition to ev that we're going to put on this vehicle, it's appropriate that Cadillac is our is our lead brand. And then you know, we'll we'll fill out the portfolio that makes sense and be customer driven. But it also is a very important part of rebuilding Catillac and demonstrating that Catillac is a true luxury brand again delighting customers with the technology and the and the

electric experience. How does this fit with what you're doing a cruise Because when we've talked to Dan Ammon, he said that by twenty and nineteen. This year, you will have some commercialized versions of autonomy. Le how does that fit with, for example, a Cadillac electric vehicle. Well, first of all, um, we believe that all avies, all autonomous vehicles should be electric vehicles, and so that's a leveraging

of the technology and the platform as well. We are working on the rate of iteration that we're demonstrating and we just posted a really cool video yesterday, so if you haven't seen it, for Cruise and demonstrating how we continue to learn UH new operations in the very dense and urban environment of San Francisco. So we will be gated by safety and I think we've demonstrated in the past that we will make decisions to make sure our

vehicles are safe, as we demonstrated with super Cruise. But based on that rate of iteration, we're going as fast as we can and we believe that we can take the driver out and right or a constrained environment and UH and and demonstrate our electric vehicle capability and anytime. Besides announcing that Cadillac is going to be your lead in electraveals, you also have announced a new architecture which would be for China and Brazil and Mexico's I understand it,

not the United States tell us about that. Why you're doing it? Well, if you look at really being customer driven, the customers in those markets, they want the latest technology and they want UH performance from safety, from connectivity, and so we step back and often those markets are served

by older architectures. So we looked and said, with the scale and the significant share we have in China, the strength that we have in South America and other markets like Mexico, let's do a dedicated UH new architecture where we can really deliver something special to the customer. And so are the feedback we've gotten again will be sharing some of those vehicles today or an early glimpse of

those vehicles. I think it's can be very significant, and we start that rollout UH later this year in China and then it will flow to South America, Mexico into over forty countries. As I said, this announcement is a bit of a surprise because it comes against a back job of some softness, at least perceived in the automobile marketplay. We've had some announcements for some competitors about cutting back.

We've had some announcements about some soft sales. How much of your projection in which is robust, how much of that is the overall size of the market and where the market is, and how much it is you taking market share and doing better well. I think again in the key markets, whether you look at China, the United States, South America, we think we're very well positioned. In the United States, we're going to have we we think the market will be in the low sevent teams. We have

the full year of our new light duty trucks. We have the Catillac XT four, we have the Chevrolet Blazer. Second half of the year, we're going to have our heavy duties. So we have an exceptionally strong product cames building on our crossovers in our full size trucks in North America. In China, we have twenty new or or brand new or refreshed models that will be rolling out this year, and we think the market will be about the same. There's I think, you know, positive news coming

out of the trade talks. There's talk in China about stimulus from a durable durbal goods perspective, so we see an opportunity there. And then South America we're starting to see recovery and in South America's where we have a very strong Chevallee franchise. So when you look at our key markets, we think we're well positioned not only with where we think the market is going to be, but also the strength of our product portfolio. You mentioned trade way back in Q two second quarter, you had to

take down some projections based on concerns about tariffs. As I recall, as you look into are your projections based on status quo, on things getting better, on things getting worse?

What are your projecting In order to come up with what your forecast is, we really looked at what we think, you know, the current macro environment um and what we're seeing and what you know, what outside analysts are are looking at from a from a macro perspective, and then looking and laying on where General Motors is position and that is all built into the guidance that we provided.

So you've had quite a year. This is your investor day if you go all the way back three and six five days ago, there's been a lot that's happened. I mean certainly with Cruise, with investments from soft Bank as well as from Honda, You've made some management changes where you took Dan Ammond from President GM, moved him over to Cruise, brought up Mark Royce. All so announced, as you said, a very fundamental restructuring which will be

difficult to implement. Is that the strategy and from now on is it execution or is there more to be done on the strategy. It's both. We have to remain agile because some of them are the transformation that we're talking about with Evies and Avies. You know, it's it's not like anyone knows exactly how that's going to play out. So we have to remain agile. We have to be quick, we have to be leaned. So we've got to do both.

We've got to execute exceptionally well, but we have to stay agile to to take twists and turns that are going to happen in cease opportunities. So we're respect to electric hdeals. We hear about it a lot, but if you actually look at how many people are acquiring evis, it's not that high. It's not that higher percentage. When is it coming? I mean, when are we there? Well? I believe the customers exceptionally rational. So if you look at China, you know this will be because of some

of the regulatory environment you'll see. I think it grow more quickly there. But one of the things we're focused on is if we can have a desirable, profitable, appropriate range ANXI from a range perspective, so we don't have range anxiety, we think we can start to create the man So for us, we're not only working on the electric vehicle technology itself and the learning all the learnings from VOLT, the cheval Vault and the Chevallet Voult, but

we're also working on the infrastructure. We made an announcement that will allow us to have the largest uh you know, charging infrastructure available to our customers. So it's if you can continue to solve customer perceived or real pain points with e V, we think that's really going to allow the growth to occur. If you look at the industry overall, would we be where we are today with electric vehicles if Tesla had never existed? The Tesla really spur this

or was it going to happen anyway? You know? Um, I think when I look at EV's we've been in e V since e V one and you know, in the Chevallet Vault and really driving uh because we knew that technology was important. So I think there's been many important players that have helped from an electric vehicle, and I think you know, there's even more coming now. So that's why we have to be quick. What's the biggest risk you see to your predictions for two nineteen as

you look forward? What is the thing that worries you if anything? Well, again, I said, our guidance is based on kind of the look of the current Macrock indum state, which is not it's not like it's it's a complete glass, you know, full or glass completely empty, but looking at that so something dramatically changes. If there's a you know,

a very sudden shift, then we'll have to reevaluate. But I'm also confident on our in our team and how we're able to seize opportunities and to really mitigate an offset some of the things we based in eighteen and what we've been able to demonstrate. Okay, Mary bar Chairman and CEO of General Motors, thank you so much for being here. David Weston with this UH this morning from the floor of the New York Stock Exchange with the

chairman and CEO of General Motors, Mary burt. I am one who does not do a lot of look back books. They look back in their history and all that. But every once in a while there's a enormous exception. That is true of the two pages of the FED in Lehman Brothers. Because it's not done by some crackpot. Lehman was wrong, the FED was wrong. Everybody's wrong, wrong, wrong, wrong, And you go, yeah, but what do they know? Unfortunately it's Lawrence Ball the Johns Hopkins University. He's a first

class economist. Gregg Manque among others up at Harvard raves about the FED in Lehman Brothers. Lawrence Ball, good morning. I found your two pages chilling and riveting. I want to cut right to the key chapter, which is that Lehman wasn't insolvent. How do you know that? Well, thank

you for having me on your show. Uh. The way we know Lehman's financial condition is there's actually a tremendous amount of evidence gathered primarily by investigations by the Bankruptcy Examiner for the Bankruptcy Court and also Congression Commission, which had subpoena power and got a lot of documents about Lehman's finances and real time and essentially Lehman had stated um in its financial statements what it's what its assets

were worth, and what its equity was. But we also have in real time estimates by other financial institutions or how much they overvalued their assets, and we can combine those to get us sense of how do you respond to someone who says, Okay, you're having a cup with a cup of coffee with Chairman Bernankey and someone collegial says that's great, Professor Ball, but hindsight, how do you

respond to that criticism of the great tenure look back? Well, I think I can answer that question on two levels. I think, um it is a little unfair with hindsight to say they should have done everything perfectly and measured everything perfectly at the time. Where I have more problem in a way with FED officials uh is not the fact that what they did then was not ideal. It's

what they've said over the last ten years. They've dug in their heels um with a story saying that they didn't make any mistake, that there were legal impediments that made it impossible to rescue Lehman brothers, whereas we know with hindsight that that was not true. Professor Ball. There are quotes that come from a variety of emails. I know that you have written about it, but I just want to offer a flavor of some of them, where a former Secretary the Treasury, Paulson told people, quote, I

can't do it again. I can't be Mr bailout. In addition, Secretary Paulson's chief of staff put the point as you described it bluntly. There was an email to Paulson's press secretary quote, I just can't stomach us bailing out Lehman will look horrible in the press. Don't you think is this the right way to go about thinking about these crises? Well, I think that is the right interpretation, that it was

a political decision made primarily by Treasury Secretary Paulson. I mean, certainly is not how the decision should have been made. That a decision should have been made by the Federal Reserve based on the costs Lehman bankruptcy was likely to do the to the economy. And it's very, very unfortunate that political pressure, um is what drove the decision, because didn't Lehman brothers have collateral that would have served as the backstop for a loan from the Federal Reserve. Absolutely.

That's really the central point of my book is that feede officials say there was no way we could legally lend the money because alone legally requires collaterally, they didn't have collateral, And to make a rather long story short, uh, there's detailed evidence that they did have plenty of collaterals. So it's at the collateral story is really just an excuse for what was actually a political decision. Lawrence Baul joining us to Johns Hopkins University, the Fed, and Lehman

Brothers setting the record straight on a financial disaster. Professor ball I interviewed John Charles roth Schave to lose with his wonderful monograph I'm gonna say, eight nine years ago, why are there so many banking crises? And he came back within a lot of Mathewinist folks to it's all about politics. What was the political calculus that good economists and treasury officials faced? What was the politics where they

were wrapped around? I think the politics are really based on a misunderstanding that there's the term bailouts, which is a very unpopular term, and people have the impression that what happened with a I g and bear Stearns, And what could have happened with Lehman was the government giving away taxpayer money. A lot of people resent the idea of giving away taxpayer money to Wall Street executives who get in trouble. That the reality is that these aren't giveaways.

We're talking about short term loans that are very likely to be paid back, that have good collateral. So so really the economics of it is that these this kind of assistance by the Federal Reserve does not really have costs to the taxpayer, and it has a tremendous benefit in dampening financial crises. So but unfortunately politically that that message doesn't get through. Has that message gotten through the current lawmakers in the sense that Dodd Frank places restrictions

on Federal Reserve lending. Yes, I'm afraid that because of the unpopularity of bailouts, uh, the Dodd Frank Act adds new restrictions um restricting what the Fed can do in lending money. So, actually, if an exact replica of the Lehman crisis were to happen today, it arguably would actually be illegal for the FED to rescue the new Lehman because of the new legal restrictions and whereas they could have done it legally during uh, the actual crisis, and

that's a big step in the wrong direction. I think, tying the Fed's hands in a crisis, you know the ballet here in academics, as we go back to Badget and lender of last resort, I mean Allen Meltzer, the lady Allen Meltzer, Carnegie Mellon went on and on about this within the history of the FED, the lender of

last resort just fail here in the crucible of crisis. Yes, I think it's really as simple as that that there was essentially version of a bank run on Lehman Brothers and going back to Badget in the nineteenth century, the central purpose of a central bank is to provide liquidity, provide cash during a run like that and prevent um an unnecessary calamity um. And unfortunately that just didn't do that. Again,

I think for political reasons and again the bankruptcy. They've tried to give explanations for why they couldn't do it, but those just don't hold water. This has been wonderful, Lawrence Paul, thank you so much. 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