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Month: April 2021

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QuickHit

Inflation: Buckle up, it may get worse (Part 1)

Nick Glinsman and Sam Rines are back in this QuickHit episode special Cage Match edition about inflation. Where are we in the inflation and what is the horizon? Both guests have different views and they explain exactly why they have such views. And what about China’s manipulation of CNY through hoarding metals and commodities? Is that a valid way of looking at inflation?

 

Part 2 of this discussion can be found here: https://www.completeintel.com/2021/05/06/quickhit-inflation-part-2/

 

Want the audio version? Play this on Spotify or find us in other podcast players. You can also find us in other podcast audio streaming services. Just search “QuickHit”.

 

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This QuickHit episode was recorded on April 28, 2021.

The views and opinions expressed in this nflation: Buckle up, it may get worse QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: Today we’re talking about inflation. It’s been on everyone’s mind for the last couple months and we’ve got two macro geniuses to talk to us about it today. We’ve got Nick Glinsman from EVO Capital and we’ve got Sam Rines from Avalon.

 

We look at copper. We look at a lot of these indicators of inflation and it’s been on everyone’s mind over the last few months. A year ago, people were worried about deflation. Now the worry is inflation. Obviously we’ve seen a lot of monetary and fiscal policy in the interim.

 

So, Nick, can you give us your view on where we are with inflation and what that looks like over what horizon? Is it months? Is it five years? Is it, you know, how does this play out?

 

NG: The horizon is a little bit tougher. But my my thesis is based on looking back at historical precedence and I focused on the LBJ Vietnam War spending, combined with his great society fiscal spend, which ultimately led in the early 70s Paul Volcker’s fame containing huge inflation there was at that period.

 

And I’m sitting here having spent the last year but actually building this thesis up for a couple of years thinking that the equivalent of the Vietnam expenditure is Covid and the relief spending that’s been has combined Trump and now Biden, and then the great society equivalent would be Biden’s green infrastructure spending which, I slightly tongue-in-cheek called the green ghost plan, which is enormous. Amazing.

 

When I find myself agreeing with Larry Summers on inflation. I think his odds of a third in terms of this creating inflation, I would suggest a higher. In terms of timeline, it took five to seven years for the inflation to really kick in during the 60’s leading to Volcker. I think this time around, it will be much quicker due to the differences, a lot of globalization and supply chain management.

 

TN: Sam, can you kind of give us your view of where we are in inflation and what’s the duration that you kind of expect this to play out?

 

SR: I have a very different view. If you look at the lumber market, copper, et cetera, these are things that tend to sort themselves out rather rapidly. Being in Houston, the best cure for high prices and energy is high prices. We will pump more if oil ever goes to 80. It’s very similar with lumber and copper. Most of the mills are becoming much more efficient in lumber, for instance.

 

So we will see that begin to roll over and that will roll over in a very meaningful way as we begin to work through these supply chain issues that we know are coming in the summer and we know are probably going to persist in the fall. But as we get into the fall and we get into early 2022, even if we have a couple trillion dollars infrastructure, it’s going to be spread over the better part of 10 years infrastructure.

 

It’s not a fast spend and it will not save us from the fiscal cliff. It will not save us from the lower employment numbers that we’ve been seeing on an overall basis. Yes, unemployment is moving lower, but employment is not keeping up with the employment figures.

 

Once the economy begins to have to stand on its own two legs, even if it has a touch of a tailwind from the government, it’s still going to be very difficult to continue to see consumption going through the roof, continue to see the types of disruptions that we’ll see for the next six to nine months in terms of supply chain that will have one-off price implications.

 

But that to me says we’re probably getting towards the peak of the sugar high as we get into the summer and the other side of the sugar high is going to be very painful in terms of going back to a one and a half to two and a half percent growth rate in the US inflation that will be very difficult to get higher simply because it’s difficult to have sustained disruptions in supply and demographics that aren’t changing anytime soon. So we will continue to have a number of those headwinds. And I think that’s what the US 10-years is telling you, US tenure at 1.5 is telling you that the market’s looking through this summer and saying the next decade doesn’t look as good as the last decade in a lot of ways.

 

It’s something to at least keep in the back of our minds that the Fed doesn’t have great control over the 10-year. The fed has great control over zero to two-year timeframe. But nothing beyond that.

 

TN: Okay, so let’s look at common areas. It seems to me that both of you see inflation continuing to rise maybe not in terms of the rate of rise but certainly continue to rise until, let’s say say Q3 Q4? Do we at least have comic around there?

 

SR: Yeah.

 

NG: Yes, absolutely.

 

TN: When we look at some of the the pressures in inflation, part of my assertion has been, and I’m sure you’re both going to tell me I’m wrong, but as we’ve seen the CNY strengthen, my hypothesis has been with a strong CNY, Chinese manufacturers are stocking up on industrial metals, food, other things because it’s in dollar terms. They can get it pretty cheaply and they’re waiting for CNY to devalue again when their buying power will decline.

 

What I’m hearing is that a lot of these things are really going to China to be hoarded and as a play on a potentially devaluing CNY. What do you think of that hypothesis aligned with a lot of the central bank easing? Is that a valid way of looking at inflation? Meaning this is stockpiling more than it is demand pull?

 

NG: My view on China is that, if you look at food firstly, there is a food shortage crisis. And we all know what the CCP are most scared of, which is society unrest. And we can take the examples of the Arab Spring, food is the key. But I also wonder whether the Chinese are stockpiling in anticipation of decoupling? I think of rare earths, of which they have a large control of the refining thereof being problematic. Semiconductors, there is an issue there.

 

So if I extrapolate further, my view is I think the supply chain issues are much longer standing now because of various geopolitical forces creating a decoupling with China for sure. And we have this Anglosphere grouping that’s clearly beginning to take shape, which now looks like that will include India because of the health crisis there.

 

If we look at that, then the question is what happens with Europe? Again, I think that’s part of the supply chain problem whilst they decide which site they go to. Is it china-centric or is it anglers-centric?

 

So I think the supply chain issue is much longer standing, hence I suspect that we’ve got China positioning, because nothing goes on which in China without the government knowing about it, quite frankly. In terms of anticipating a supply chain issue, because all the commodities they’re importing they’re short off.

 

TN: Okay, Sam, first of all, what do you think about my hypothesis and then Nick’s qualification around the supply chain issues being much longer term on the back of decoupling?

 

SR: I would take the argument that decoupling isn’t an action. It’s a process, and the process takes a very, very long time. And that creates in my mind a much longer time frame for the United States to build out its portion of the supply chain, for instance semiconductors, et cetera. So I would say I don’t disagree that there is a decoupling underway. In my opinion or my argument would be that it will take much longer than a few years to really get that process to move and it’ll be particularly under this administration a much more diplomatic and less blunt force tools than we’ve seen in the past being used. So I don’t disagree with the supply chain eventually being at least somewhat disentangled from China. I would just argue that it will take quite a while to really begin to become an issue unto itself.

 

On your point that China stockpiling, that does appear to be happening. It does appear to be a hedge against a weaker CNY to come including with lumber. One of the reasons that lumber prices are spiking is because China’s buying a lot of lumber in the US. That is a significant problem. And I would point to, when they stop stockpiling, that tends to have a significant effect on the price of commodities in the opposite direction. We’ve seen that with copper a couple of times during their infrastructure builds.

 

The interesting thing right now is you’ve actually seen a pullback from infrastructure spending. From the peak in China, they’ve begun to do their form of policy tightening on that front already. Suspected will continue at least on the margin and that will be a significant headwind for those commodities that have been stockpiled when less of them are being used on the margin as well. So that that does play into a 2022 disinflationary type environment versus 2021.

 

TN: Given that we have all these different pressures, whether it’s supply chains, whether it’s stockpiling, whatever it is, what the people in the middle, so that the manufacturers, what capacity do they have to absorb these price rises? What are you guys seeing when you talk to people, when you read? Are you seeing that manufacturers can absorb the lumber prices, the copper prices and other things? Or are they passing that directly along?

Categories
Visual (Videos)

Supply Chain Innovation, Transformation, and Sustainability

How can leaders and finance teams enable business growth, innovation, and resilience through supply chain management (SCM) and digital transformation? And, how does sustainability affect supply chains? To answer these questions, we spoke with Jon Chorley, Chief Sustainability Officer and Group Vice President of Oracle, and Tony Nash, CEO & Founder of Complete Intelligence.

 

This video interview first appeared and originally published at https://www.cxotalk.com/video/supply-chain-innovation-transformation-sustainability on April 17, 2021.

 

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The conversation includes these topics:

 

Jon Chorley is group vice president of product strategy for Oracle’s supply chain management (SCM) applications and leads the team responsible for driving the business requirements and product roadmaps for these applications. Chorley is also the chief sustainability officer for Oracle.

 

Tony Nash is the CEO and Founder of Complete Intelligence. Previously, Tony built and led the global research business for The Economist and the Asia consulting business for IHS (now IHS Markit).

 

 

Show Notes

 

Michael Krigsman: We’re discussing supply chain innovation and transformation and sustainability with Jon Chorley of Oracle and Tony Nash of Complete Intelligence. Jon, tell us about your role at Oracle.

 

Jon Chorley: I run the supply chain management strategy group at Oracle, responsible for our overall investment priorities and directions for our supply chain solutions. I also have the chief sustainability officer role at Oracle where I help coordinate all of our sustainability policies and practices for the Oracle Corporation and help drive some of those ideas and thoughts into the products and services we deliver to the market.

 

Michael Krigsman: Tony Nash, tell us about the focus of your work.

 

Tony Nash: Complete Intelligence, we’re a globally integrated and fully automated artificial intelligence platform for cost and revenue proactive planning. We do forecasting for enterprises and markets in areas like continuous cost budgeting, continuous revenue budgeting, automation of certain, say, forecasting tasks. We also offer agile budgeting and forecasting.

 

We measure our error rates, so that’s important that someone is planning, especially around supply chain. We’re trying to help people reduce the risks around their future costs.

 

Supply chains are very complex: time, cost, quality, all sorts of considerations. Our focus is on the cost element of it, and there are many other things and why we’re working with Oracle. They have so many other things to bring to the table that try to complement them on that side.

 

Michael Krigsman: You met Jon through the Oracle startup program. Just briefly tell us about that.

 

Tony Nash: Oracle for Startups program is a fantastic way for early-stage companies to integrate with the Oracle ecosystem. There is the Oracle technology product side of it, but there is also meeting people like Jon, meeting people like his colleagues, and the Oracle marketing team, Salesforce, and product teams. Amazing opportunities to understand how an organization like Oracle works and how a company like Complete Intelligence can come alongside them and enhance Oracle’s end customer experience for the better.

 

 

How did supply chains function during the disruptions of 2020?

 

Michael Krigsman: Jon, during the last year, supply chain became a household topic for pretty much everyone.

 

Jon Chorley: Yes.

 

Michael Krigsman: What did the last year tell us about the nature and the reality of supply chains?

 

Jon Chorley: Well, that they’re central to everything that makes the modern world. When you see an empty shelf and realize it’s an issue with the supply chain. Or you see a run on a product as some shortage or some challenge in some way. People now understand that the complicated infrastructure that brings those products to them is the supply chain.

 

As we’ve gotten into the more recent months where we’re looking at the vaccine distribution, people understand that yes, it’s a technical problem to produce the vaccine, but it’s also a supply chain problem to get it in people’s arms.

 

All of those things, I think, have helped take the supply chain from the back office, from the folks like Tony and I who work in it day-to-day, into the board room, which I think is very important. But also into the dining room. People now understand the importance and centrality to efficient supply chains.

 

Michael Krigsman: Jon, give us some insight into the kinds of weaknesses that this last year exposed in how we handle supply chains.

 

Jon Chorley: I think that there are a couple of areas there that I’d point out. One is we had a very uncharacteristic demand shock. There was a real change in short-term demand.

 

Some of that was upside. A lot of charcoal sold to power the grill. A lot of toilet paper.

 

Some of it was downside. Restaurants challenged, hospitality, and so on.

 

Those demand shocks forced people to look at different ways to look at their traditional forecasts. That is supportable by the kind of technology Tony and I can help deliver, but it does require people to look carefully at how they’re forecasting their demands. That’s one angle.

 

Another angle, I would say, is the overall concern about resiliency. A lot of folks looked at ways of single sourcing, for example. Maybe relying on goods out of Western China, for example.

 

All of those things had a lot of challenges, and that forced people to look at, was the single-sourcing strategy driven by cost only the right answer? Did they need to look at A) maybe simplifying their product lines a little bit, so they had more flexibility, and B) looking at alternate sources of supply? I think resiliency came a lot more to the fore.

 

Tony Nash: We’ve had even companies like semiconductor companies (who have been based in Asia) start to build facilities in the U.S. so that they can regionalize some of those supply chains and de-risk the downturn impacts of future shocks like this. Electronics manufacturers, other people who are assembling goods, or even some primary goods, are regionalizing their supply chains so that they don’t see huge impacts or any future issues like COVID or other shocks.

 

There’s at least a little bit of a buffer by region, which saves. It’s greener in terms of saving on the sea freight fuel and that sort of thing, but it also helps cushion any shocks on the supply side so consumers can get what they need when they need it.

 

 

Challenges associated with overseas manufacturing operations

 

Michael Krigsman: Jon, I’ve heard you talk in the past about the inherent challenge of manufacturing goods overseas (in China, for example) and the timeliness of getting them here in the U.S.

 

Jon Chorley: It has a lot of advantages in terms of costs, scale, and so on. But it does bake into your supply chain a certain fixed amount of time. That is fine if you have predictable demand. But if you have variable demand, it becomes a lot trickier to manage.

 

The same is true really of the innovation cycles. The speed with which you may want to innovate can be constrained by working those things from points of consumption (let’s say Europe, North America) and points of production (let’s say the East, China, Vietnam, and so on). Those are factors folks are considering.

 

I think, in some areas, certainly advances in things like automation and technologies like 3D printing, rapid prototyping, those things are changing the equation a little bit in terms of what constitutes the most cost-effective or the most efficient, or the most responsive approach to manufacturing. I think you’re going to see those factors gradually have more and more of a play as people develop new ways to balance those equations.

 

Tony Nash: Michael, that’s interesting because, as we look at how the history of supply chains have evolved from keeping POs on 3×5 notecards 30 years ago to the digitization of that, it started with EDI (electronic data interchange) from, say, the ocean lines and the airfreight firms so that you knew where your package was, all the way down to today where you have everything kept, let’s say, in a bill of material within an ERP system or a supply chain system.

 

What people have been doing for the past few years is really bill of material versioning, where you’re running scenarios on the same product configuration, of bill of materials for multiple locations, to understand where they should make a certain good. Those considerations are allowing people flexibility. They can make the time and cost tradeoffs to look at when they can have goods in a market, whether it’s seasonality or whether it’s some disruption or whether it’s some demand pop for some reason people may not know. Allowing people to run multiple bills of material or versions of bills of material allows them the flexibility to identify what they should produce where and what it should be made of.

 

Michael Krigsman: It sounds like this is a data and analytics problem.

 

Tony Nash: It is, and the way things have been done typically is, as a manufacturer, you sign a longer-term agreement for your raw materials with a vendor. They provide that for you to a certain point. You make it in factory A somewhere and then ship it out. Of course, there is not necessarily a single factory for any large company, but it’s a well-worn path.

 

We’ve had an atomization of that with mini manufacturing, or regional manufacturing, flexible manufacturing, so people can have localized versions or, like I said, seasonality. These sorts of things. Manufacturing and finance teams can only make those types of decisions with data and with automation. It’s a simpler way on how to make better business decisions.

 

 

Digital tansformation and sustainability in supply chain

 

Michael Krigsman: You need clarity around the goals and the strategy. You need the right kinds of data. Then you need the cultural willingness to innovate and do things differently. Is that an accurate way of summarizing?

 

Jon Chorley: I agree. I think you need to have some idea of where you’re going. Although, that probably is going to change. But you need to have that idea. You need to have the information, as Tony has discussed, that helps you navigate that path.

 

Then you need to be able to course-correct because we live in the real world, and nothing quite goes the way you expect it to. You need to be able to constantly course-correct.

 

Like I say, if you have a great set of headlights, you can see what’s coming. You’re coming to a cliff. If you have no brakes and no steering wheel, it’s a huge problem you’d rather not know.

 

The ability to course correct is like having brakes and a steering wheel. You need to be able to make those adjustments as things change around you. That means flexible systems, flexible processes, a willingness to look at new ways of doing things, cultural changes. All of those things become important.

 

Michael Krigsman: Tony, I have to imagine you spend a lot of time thinking about the sources of data as well as the machine learning models and other types of models that you create.

 

Tony Nash: I get excited about things like data governance, but most people don’t. I get excited about it because I understand that it helps to have much better forecasting applications and tools to make those decisions.

 

Yes, we’re thinking about the granularity, the frequency, the level of detail people have. Are they using the data that they have to make decisions today because it’s not just, let’s say, a cultural change of let’s rely on automation of things like forward-looking views or forecasting or proactive planning? It could also be a cultural change: are we looking at our data to make our decisions? How much of our data are we looking at? Are we looking at maybe the error rates of the way we plan? Are we looking back on that from time to time?

 

Although that may seem mundane and small, it’s actually very big for things like digital transformation because you have to take inventory of what you’re doing today so you can plan where you’re going tomorrow. As Jon said, it’s never going to go exactly to plan – never. I wish it would, but it never does. You have to understand yourself well today so that you can identify what’s possible.

 

Michael Krigsman: Jon, we’ve been talking about the complexities of supply chain. Let’s shift gears slightly and talk about the complexities of sustainability. How does sustainability intersect supply chain?

 

Jon Chorley: Most people would agree that supply chains are about making and moving physical goods around the world. That is a huge part of what’s impacting the environment. It’s a huge impact on sustainability.

 

The way we design those supply chains, historically, has been what I would call a linear supply chain. Which is we make a product, we sell a product, we forget the product. We then make another product, sell that product, and forget that product. It’s a fire and forget mentality, if you like – to some degree.

 

If we want to be sustainable, we need to think about the full lifecycle of those products and how they get recycled back into the forward supply chain. As we progress into the future and start thinking about these things more — and we’re required to by the markets, by regulations (potentially), and by what constitutes good business — we will increasingly move towards adjusting our supply chains to be more circular. That is, looking at the full lifecycle of the product.

 

That begins with how you design it. That’s going to be a fundamental change in the way we think about all supply chains.

 

Advice on supply chain transformation for business leaders

 

Michael Krigsman: As we finish up, Tony, can you offer advice to business leaders and finance teams who are listening to this who say, “Yes, we want to change, transform our supply chain, but where do we even begin? It’s such a daunting challenge.”

 

Tony Nash: I would say, really start with the easy stuff. Get some successes. Do a pilot. Then you can accelerate it very quickly.

 

Data scales very quickly. Technology scales very quickly. But your team may be uncomfortable with digital transformation, especially around supply chains. Help them see some quick wins and then push forward as quickly as possible after that.

 

Michael Krigsman: Jon, you discussed earlier the cultural dimensions of supply chain transformation. It’s really important, so just share some further thoughts on that and advice that you have for folks who are listening.

 

Jon Chorley: I think any change is at least as much cultural as it is technological, and the people who implement those changes are key to its success. I think part of what’s needed is a willingness to understand that the way you did things in the past may not be the way you need to do things in the future.

 

Quite often companies, for example, feel that they have a certain special way of doing a process that’s absolutely required, and they hold onto that even though there is really no business differentiation for them to do it that way. They’ll invest a lot of time and energy to duplicate that on a new platform.

 

We always encourage people to step back a little bit and leave behind some of those preconceptions. Not everything is your secret sauce. Your secret sauce is a little bit on the top. It’s not stuff on the bottom.

 

Leave behind those preconceptions. I think that’s probably the single biggest cultural shift.

 

Then the other point we mentioned earlier is board support. I think that’s top-down. Having that support from the upper levels of the business is critical to any large-scale transformation.

 

I think the great thing, if there is a great thing from 2020, is that boards are aware now of the criticality of supply chains in their business and are probably more open to those kinds of conversations. Those difficult conversations from supply chain professionals with their board. Now is the time. The folks that make the investments now are the folks who are going to benefit from the uptick that we all hope is coming.

 

Michael Krigsman: Jon Chorley and Tony Nash, thank you both for sharing your expertise with us today.

 

Jon Chorley: All right.

 

Tony Nash: Thanks, Michael.

 

Jon Chorley: Thank you so much. Great talking with you all.

 

Tony Nash: Thank you.

Categories
Podcasts

Big US Bank Earnings And The Future Of Global Automakers

The IMF has upgraded its GDP forecasts for developed economies but what is the outlook like for developing economies in South-East Asia? The Morning Run asks Tony Nash, CEO of Complete Intelligence. They also get into insights from the earnings out of JP Morgan and Goldman Sachs, as well as how traditional automakers will have to adapt in light of the EV boom.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/big-us-bank-earnings-and-the-future-of-global-automakers on April 15, 2021.

 

💁‍♀️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

🎯 Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

 

Show Notes

 

LM: The IMF has upgraded its GDP forecasts for developed economies, but what is the outlook like for developing economies in South East Asia?

 

TN: It’s actually not bad to look at this IMF report. We had such a pullback in economies in 2020 that we really have to look at the growth rates in 2019, 2020, and 2021. To understand it in context, Southeast Asia looks to be doing pretty well when we average those three years out. There’s growth in just about every country except Thailand, now with a slight pullback over that time. And so what that means is Thailand will not necessarily back up to the 2019 levels unfortunately, but Malaysia is 1.7%. In Asia, 2.4%. Singapore, 0.38%. So Southeast Asia is growing. Europe, on the other hand, there is only one country that shows growth over that period, which is the Netherlands within the Eurozone. So Europe has a bit of a problem. The US continues to grow, though around 1%.

 

NL: Meanwhile, is the sharp rise in March, U.S. CPI prices compared to February a good sign or something to be concerned about?

 

TN: We didn’t see long term inflation effects and a lot of kind of buzz about long term inflation affects or medium term inflation affects in the US. But our view is that this is two factors. One is the base effect, meaning we saw so much disinflation or deflation in 2020 that we’re seeing a base effect on that. The other one is supply constraint. So we’re seeing hold back in supply chains or we’re seeing supply chains catch up from closure.

 

There is a constrained supply which is driving up prices as supply chains continue to equalize and balance out. We should see those prices return to normal. If we go back to the IMF forecast, we don’t necessarily see rousing growth for 2021 compared to, say, 2019. So we have the manufacturing capacity in place. So I don’t necessarily see demand outstripping supply to create the inflation that many people are talking about.

 

NL: When do you expect the situation will normalize?

 

TN: It really all depends on when countries open up and and that sort of thing. I would do three of twenty one is when we start to see things more normal, I think it’ll work out in between now and then. Of course, currency dynamics have a lot to do with that, but we’ll have to see what happens with the dollar with CNY and the euro to really understand how that will shake out. But we think we’ll see normalization in Q3.

 

RK: The big Wall Street banks have kicked off earnings season with numbers from JP Morgan, Goldman Sachs and Wells Fargo. They beat estimates, but are these numbers sustainable or just a one off blip following a what was really a tough year?

 

TN: They both did really well in terms of return on equity. And that’s really one of the major requirements for banks. The real question is around loan. So we saw a spike in loans in the middle of 2020 in the US, largely on the back of small business loans and very low interest rates and government programs to push loans out. Loans are down in Q1 of ’21. There is an expectation that loans will perk up again in the second half of ’21. I’m not quite convinced we’ll see the loan growth that was talked about today with JP Morgan’s call. I think we’ll see loan growth in the second half of ’21, but I’m not necessarily sure that we’ll see the spike that we discussed on the call.

 

LM: So Tony, Legacy Cockburn’s and IT companies are both rushing into the electrical electric vehicle space out of these two, who’s likely to come out in front?

 

TN: I think it’s a combination. Car brands make really good hardware, but they’re really not great software makers. So I think there’s going to be a combination of the car brands relying on battery makers and relying on software to make great electric vehicles. There are a lot fewer parts in EVs. And so these supply chains that the car manufacturers had to have for internal combustion engines change pretty dramatically for EVs. They’re going to have to rely on battery makers and software makers.

 

I think the real question for the auto manufacturers is what is that business model going forward? I think they may learn from software makers with the recurring revenue model. So we may take a car and pay a monthly charge for that car, almost like combining finance and the car itself. So carmakers have a recurring revenue model with regular upgrades similar to the way maybe some mobile phone carriers operate, those sorts of things. I think it’s a stretch to have the one time payment. I think carmakers see that finance revenue go to other people and they may want to do that themselves with EV.

 

RK: Out of curiosity, do you have any thoughts on what will define whether a legacy car brand is going to succeed in the new car world? Because a lot of them have been hesitant to move. They’re going to have to make partnerships with the battery mate because they’re going to have to make partnerships with software makers is going to be the two defining parts who they’re putting on the battery and the software name.

 

TN: Yeah, I think it depends on, you know, the first mover is not necessarily the winner. So I think Tesla ultimately, they’re a great company. They make fine cars like every car company. They have problems. But I think they’re fine. It doesn’t necessarily mean they’re going to be the winner. I think with Volkswagen announcing, you know, big moves in the market a couple of weeks ago, say if Toyota really I mean, of course, they’re going after it already. But if there are real moves in that direction, I think the very, very large scale carmakers will ultimately win.

 

A lot of this has to do with regulatory and subsidy regimes within the consumption countries. So it is more expensive to buy an electric car. There is not the infrastructure necessarily to have electric cars to drive long distances. So the subsidies that national governments put out to push that market forward are going to have a major impact on the adoption of those cars.

 

The real danger, I think, is it’s going to take a long time to rollout that infrastructure and other things. So the real danger for the guys who invest in EVs in a big way is a different type of technological change that could come around. I don’t know what that could be. It could be a more efficient internal combustion engine. It could be, you know, I don’t know, a different type of fuel or something that’s a lot cheaper and a lot easier to use.

 

So there are a lot of question marks around the rise of EVs. I don’t necessarily think that it’s guaranteed that EVs will take over and the big car companies are going to go on a percent to electric vehicles.

 

RK: The large scale makers like Volkswagen, Toyota, they’ve got they’ve got essentially a conglomerate of other brands within them. Do you expect to see more consolidation, especially as this? Because the car industry hasn’t been doing well that great over the last few years and we’ve seen more M&A. We should we expect more consolidation, especially after last year?

 

TN: I don’t know how much more there is to consolidate. I think it may get specialized boutique. When you have technology changes in an industry, you always have specialized boutique companies that come around. We saw this in mobile phones, say, 10 or 15 years ago, and those ended up being purchased. So I think we’ll have an era where we’ll have even more TV companies, small ones that end up being bought by the larger guys. So, you know, a technological change really pulls a lot of innovation. Big companies are really not good at innovation, so they typically have to acquire it. Will it Tesla be acquired? Probably not, at least not at this valuation. But other small companies, early stages could potentially if they have very good tech. So I think that’s the way they leapfrog. I don’t think it’s the massive processes that they have internally, like a Volkswagen today. I don’t think that’s the way they leapfrog.

 

LM: Thanks so much for joining us this morning. Tony, that was Tony Nash, CEO of Complete Intelligence, giving us some insight into what’s happening in global markets.

 

RK: So we are talking about cars very quickly. I see this headline here that Jilly’s Lotus cars, miles, raising four billion ringgit.

 

And they’re only doing this to help the iconic British sports and racing automobile brand to expand into the IV market in China, according to people familiar with the matter. And this is a story from Bloomberg. So Geely is working with advisers to slander potential investors interested in funding the round. And that could see that would value good value lotus operations at about five billion U.S. dollars. This is going to be interesting because this is, of course, was formerly part of the Proton Group, which was then bought by Geely.

 

LM: And so so we’re going to be heading into some messages now and then. Up next, taking a look at Mithras financing with financial columnist Pankaj Kumar. Stay tuned. BFM eighty nine point nine.

 

Categories
QuickHit

QuickHit: The Anglosphere and the Multi-Speed Recovery

Macro specialist, geopolitics and history commentator Nick Glinsman joined us for the first time on QuickHit to discuss how the Anglosphere compares to the world in this multi-speed recovery in the wake of Covid.

 

Nick is based in Brazil and he brings decades of experience to macro, markets, and politics. His background is basically London and New York with a bit of Europe and, Australia and Hong Kong. He worked with the Salomon Brothers and Merrill Lynch. He’s doing a lot of advisory work and the ability to express views on the markets, geopolitics and macroeconomics in the market.

 

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This QuickHit episode was recorded on April 8, 2021.

 

The views and opinions expressed in this The Anglosphere and the Multi Speed Recovery? QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: Nick, for a while you’ve talked about this concept called the anglosphere. Can you help us understand what you mean by the anglosphere?

 

NG: I’ll dig into it. I like the fact that you’re talking about the link between geopolitics and economics because with Trump and Brexit, that’s where what was a very boring macro environment suddenly started to become differently exciting. The politics would start to drive some of the macro markets and actually what’s interesting is  Brexit and Trump, part of the anglosphere. Not the formative part of the anglosphere.

 

So what we mean by the anglosphere is looking at countries that are historically tied via culture but critically also via common law, legal system, because that defines how the economy and how commerce can run. If you go back in history, there is a big difference between common law countries and roman law countries. Common law countries think of European Union countries and that construct. So what we mean by the anglosphere is being, better start with the UK because it is the mother country, it’s still the mother country for where you are currently still. If the US were now part of the commonwealth. You’re looking at an anglosphere. Now typically when I refer to it, I’m talking about UK, US, Canada, Australia, New Zealand. Five Eyes.

 

You could loosely add two countries. One of which has an anglo-saxon common law — India. The other one works much closer as a defeated entity country in World War II — Japan. So you’re getting the quad, which I would maintain is part of an angular influence, at least, if not anglosphere entity.

 

Let’s stick with that grouping. You’re looking at countries that have a similar legal system, similar financial structure, they have banks, central banks that are lenders of last resort and traditional backups, concept. Remember the European Union doesn’t have banks.

 

Back to common law. Common law also in this environment. This is where it’s getting critical. So Five Eyes is I would posit it’s the ultimate defense alliance.

 

TN: Even New Zealand, still? Ah, you know. Long discussion. That’s so much sarcastically.

 

NG: I know what you’re saying. Although she has the relation in the State of Victoria in Australia, who is actually not known as Kim Yong Dan. But if you look at what they’ve just done with the central bank, there is still a similarity there. And of course the travel corridor that’s about to open on the 16th I think it is, is between Australian and New Zealand. So as much as she kowtows to the panda in Beijing, they are still part of that structure.

 

So back to the common law and the financial. So you’ve got countries with central banks that act as lenders of last resort with independent monetary policy, you have independent fiscal policy and I would include of course in both these, Bank of Japan, RBI in India and so on so you’ve got independent fiscal policy, independent monetary central bank, which you don’t have in Europe.

 

There’s been no Hamiltonian moment there. So you have that flexibility and you can see that flexibility. You also have much more, common law enables Schumpeter’s creative destruction and thus reconfiguration. Much easier chapter 11 in the US or bankruptcy and start again. Right. Not so easy to either stop or start on the roman law. So that when you think of where we are now, you’ve gone through a pandemic where inexplicably a lot of countries have remained closed, the reopening is going to need that reconfiguration.

 

You’ve also been the countries that are advancing with the vaccine quickest of those that took a very commercial view as governments in terms of getting them… so you had operation walk speed in the US and you had a vc person take over the procurement policy and the vaccine policy in the UK. Private Sector innovation. And in fact, in the UK, you have that triangle, Oxford, Cambridge, London, that’s without biotech and so on and so forth, very flexible. You even have a situation where the famous Astrazeneca factory in Holland was financed by the British. Not by the Dutch.

 

We can get into that on another episode of the great vaccine debacle. But I think that’s part of the precautionary Roman Law System that the EU runs versus the go get innovative system that comes with the anglo-ceric countries, the common law system and the structure of finance business so and so forth.

 

TN: Okay. So it sounds to me like when you talk about the anglosphere and you look at it kind of post pandemic or at least post first wave of disaster in the pandemic as we enter a recovery, it sounds like you see a widening divergence between those with say common law and relatively independent central banks versus the other law formed be it roman and in independent fiscal policy as well.

 

So help me understand the… so we just had this IMF report come out earlier this week about 5.1% growth or whatever this year and everything’s amazing and which we know, given, it’s all base effects and if you do a three-year average, it doesn’t look good at all. In Europe, the only one, over that three years, the only one with positive growth is The Netherlands. Not even the UK. But I would argue there, they lean toward you know more of a British style than other styles.

 

So if we’re having a two-speed or multi-speed recovery, would it be fair for me to say that you believe the anglosphere will recover faster than the other spheres?

 

NG: Absolutely. Absolutely. You’re better expert on sinosphere than I would be. But I think the growth is going to disappoint because they’ve pushed so hard on the string of debt. Okay.

 

In terms of the Euro, Europe, I think there’s a very simple way of looking at things. It’s extent of vaccination and compare those and what does that mean? It’s now being said out of UCL, University College of London. UK’s herd immunity on Monday, 73%.

 

You can see there’s data coming out of the UK that is explosive as there is in the US. People are looking at the European and thinking, okay let’s close until August or beyond because this vaccine debacle is even worse. Everybody’s going to take Astrazeneca in Europe even though for the young women of age below 30, the chance of getting a blood clot is 1 in 600,000. Where the child’s getting Covid is substantially greater.

 

Because Europe and the Roman legal system has this precautionary black bent. It’s clear that this whole debacle in Europe has delayed that coming out of meltdown. The European summer season as the Germans would say is kaput.

 

TN: If we have this kind of two-speed recovery or multi-speed recovery, and let’s say Japan is part of the anglosphere, would you say Japan would be leading Asia out instead of China? Now I’m talking about real data. I’m not talking about Chinese 8.1% growth numbers like fictional. I’m talking about actual real performance with actual real usable output and you know all this other stuff.

 

NG: I’ve got so that’s going to be the case actually. I really do have that sense and I also, given the belligerence of the Chinese regime right now. You’ve got vocal and slightly belligerent actions against Taiwan, of course, which I’m with Albert on that. They’d have already invaded if they were going to do it. And you’ve got what’s going on in the Philippine islands with all these ships tied together.

 

I remember a very famous situation where chief ancient China economist from HSBC came into the office and talking about China and then we asked coming into that particular office, name unmentioned, always an aggressive to and fro Q&A, and then we have one of us asked about China, how’s the recovery going after Fukushima. Blood was coming out of this chad’s mouth having to talk a bit about China.

 

And we know that there is a much more passionate… we have passion against Germany or France as a Brit or as an Englishman come soccer. But, we love each other.

 

TN: Maybe that’s a bit strong. But we’ll use that.

 

NG: Maybe strong for Germans but with the French, there is a deep passion there and somebody keeps reminding the agent. But in the Far East, there has been that, you see that tension with the South Koreans and Japanese. However, the Chinese are forcing people out away from some of this stuff.

 

Japan with Australia and India will enable a lot of these countries to look elsewhere. Isn’t it ironic going back to the anglo-sphere link and that publicly is United Arab Emirates who are being given credit for getting India, Pakistan talking together. I have no doubt behind the show, the English are very active there because you’ve got a cricketer in charge. She made this game… So there’s stuff going on that gives you signals as to what could be happening.

 

It was rather like a mutual friend of ours, we were discussing India in terms of trade and I was saying, the UK and India are going to have a free trade deal as soon as it’s possible once they’ve overcome some of the agricultural stuff. And that person said India will do a trade with the EU well before they do it with the UK. And I’m saying hold your horses. No way!

 

TN: It’s familiar.

 

NG: One, it’s familiar. Two, one of the problems that the EU’s have with trade deals with anglospheres countries is legal interpretation thereof. And you know, I think they’ve been discussing it for 8, 10 years, EU and India, they’ve got a sub agreement already in the UK after several months.

 

TN: Just coming back to this kind of overall topic of the anglosphere and the multi-speed recoveries, so it does sound like you almost have this triangulated recovery from your perspective from India, Japan and Australia that’s leading the way in Asia. You have the UK, which is leading the way for Europe and then you have the US that’s kind of leading the way for the Americas. Is that kind of how you see things?

 

NG: I tend to think that’s the case. But I wonder whether one can justify the idea of UK leading the way for Europe given the tensions between the UK and the EU.

 

TN: I think the EU will play through… The EU will feel pain until they get tired of it and then they’ll relent, I think.

 

NG: There’s one big problem and this came up yesterday there was a meeting of the EU commission about article 122 vaccine export ban. Belgium, Holland, Sweden and Ireland said no way. All the others were saying we’re okay with it. With Germany covering itself with a few conditions. The damage to Europe’s role in the global supply chain is irreparable. They will not be able to go back to this.

 

And there’s another little fact of it which makes me wonder what will happen with Ireland because there’s tension building up in Northern Ireland again. Article 122, that export ban is specifically aimed at UK, US, Canada, Australia. They’ve stopped shipping to Australia already. US, UK, they’re saying well you’re not exporting anything. Paid for everything but not exporting everything. Canada just gets lumped in with the US and the UK.  So I think that’s really shattered the role of Europe in the global supply chain.

 

You’ll have people producing goods for Europe from European input but how can you possibly? Now going to Ireland where the UK has already said we’ll give the Republic of Ireland 3.7 million vaccines because it’s secures Northern Ireland in the coming out of lockdown. That’s an interesting overthought process.

 

Because you have a situation where Ireland is under attack like the Netherlands and Switzerland from Joe Biden’s global tax. If they come out, I would not be funny.

 

TN: It seems to me that what you’re also saying is there’s likely some kind of regionalization or re-regionalization that may emerge from this. Am I putting words in your mouth or is that?

 

NG: I would go and say US and commonwealth EU for as long as it stays stable, which may be problematic and then as you say Asia.

 

TN: Okay. Yeah, I mean I think that we’re coming to a place and I’ve been talking about this since about 2015, where you have global supply chains for goods that are long-term commoditized goods and then you have regional supply chains for the higher value goods.

 

NG: And that’s consistent with the decoupling that’s got to take place against China. And then you have that floater which you and I touched on before we got online, which is Russia and I have a slightly different view of where I can go, which will be, you know.

 

Categories
Podcasts

IMF: Rich world recovering faster than expected

This podcast from BBC Business Matters discussed how rich countries are recovering faster than expected — and is it for real based on data? How about the world’s billionaires suggesting Americans to pay more taxes, is it fair? Also discussed are the NFTs or non-fungible tokens — do they have values or are these just a fad? Lastly, how the workplace changed since the 1980s in terms of safety and gender equality?

 

This podcast was published on April 7, 2021 and the original source can be found at https://www.bbc.co.uk/sounds/play/w172xvq88yhlfkj.

 

 

BBC Business Matters Description:

 

The IMF says that the rich world is recovering faster than expected from the downturn resulting from the pandemic. But what about the developing world? Jubilee USA campaigns for debt relief for developing countries – we speak to its executive director, Eric Le Compte.

 

And in a world struggling to pull itself out of a pandemic, lockdowns and recession, why are there quite so many billionaires? We hear from Kerry Dolan, Assistant Managing Editor of Wealth at Forbes about their latest rich list.

 

Credit Suisse replaced two key executives and cut bonuses amid the fallout from two major business relationships; Peter Hody from Finnews.com in Zurich analyses what went wrong. And we’re joined throughout the programme by Mehmal Sarfraz, journalist and co-founder The Current in Lahore, Pakistan; we’re also joined by Tony Nash, chief economist at Complete Intelligence in Houston Texas.

 

 

Show Notes

 

JR: OK, well, let’s get the picture from the economy, which is going to swell, it would seem, according to the IMF, over the next year or so Tony. How are things in Texas?

 

TN: You know what’s interesting about the about Pakistan to kind of follow on what I said? What I find interesting about these numbers is you really have to average out  2019, 2020 and 2021 to really see how a country is doing. And so if you average out Pakistan for 19, 20, 21, there’s a 1% average growth rate that’s better than almost every other OECD country. The only country in Europe that actually shows growth over that period is the Netherlands. Germany, France, U.K., Italy and so on, they’re all negative average for the last three years. So for the U.S., it’s just over 1% average for the last three or so. So this may look like stellar growth, but it’s not because it’s using what’s called a base effect, meaning the U.S. economy is estimated to decline 3.5% in 2020. So a 5.1% growth rate on top of a 3.4% decline really is not stellar. So we’re struggling to get back to 2019 levels. And the message I would take away from here is countries are struggling to get back to 2019. Much of Europe will not be back at 2019 levels by the end of 2021.

 

JR: Tony, is Credit Suisse a typical bank, do you think, or a typical bank in the circumstances?

 

TN: I think they’re in a typical bank that got caught doing things that banks do pretty regularly. We have to be aware that these banks have risk management teams who look at the investments and evaluate how much of their capital is at risk when they make investments. I don’t doubt that banks make very risky risk management decisions on a regular basis. Credit Suisse. This problem is they didn’t get out in time. There were other banks that had built capital who got out earlier. So they made similar bets, but they got out of the trade earlier than Credit Suisse did.

 

JR: Do you think even Mr. Bezos thinking perhaps he should be doing a bit more taxes at a bit of a relief to us?

 

TN: Well, it’s it’s interesting. Nothing is stopping billionaires from paying more money to the Internal Revenue Service in the U.S. So if they want to pay more money, if companies want to pay more money, they’re welcome at any time to pay more money. So if Bezos personally or through Amazon wants to pay more money to the U.S. Treasury, they’re welcome to do that. There’s nothing in law that stopping them from contributing more to the U.S. Treasury.

 

JR: So I suppose in many ways this story is a kind of a sort of reflection of our earlier story, which is really about sort of rich rich countries and poor countries and how they’re coming out of this pandemic and the problems of inequality and whether it causes resentment, which we talked about in that report. Do you see resentment over this, do you think, in the United States?

 

TN: Well, I do. Warren Buffett has said the same. Americans should pay more tax. Your average middle class or higher American who here, a billionaire, say that people should be paying more tax, people get really resentful about it because, again, everyone knows that if someone wants to pay more tax, they can just write the check or send the wire and do more. So I think it is the the resentment is growing. The gains in equity markets are strange. They’re at strange highs. Central banks are enabling that. And the people who gain disproportionately from that are the ultra wealthy, not just the wealthy, but the ultra wealthy.

 

JR: Tony, when I listen to that report, I kept on thinking of tulips for some reason or another, and I kept thinking of bubbles. Do you feel the same way or are you convinced?

 

TN: It really depends on what you want to do with it. So if you actually own that image and you can license it and make money off of that image, then fine. That’s really interesting. Or if you want to own that image for the inherent value of that of owning that image like, let’s say a digital Mona Lisa, that’s fine. But I’m not sure that the kind of demand for that is there, meaning my kids of 19 year old twins, they’ll go out and copy images or whatever and throw them into presentations. I’ll do the same. Actually, I don’t know that there is an appreciation of the value of a digital image. And this is really the problem, right? When you have physical artwork, there is limited supply. When you have a digital image that can just be copied and pasted and then you have infinite number of those images. It’s difficult because there’s never a tangible, supply constrained number of those images, if that makes sense. So I I’m like you when I hear it. I think this doesn’t really make sense unless you’re using it to license. Let’s say there’s a logo for a company like Amazon and somebody owns that intangible property. How much is that logo image worth that?

 

JR: OK, so it’s actually quite close to a currency really isn’t it, or it’s close to an intangible thing like sort of a money, a unit of money, a unit of cash.

 

TN: Well, there’s a difference between money and an asset, right. If you hold let’s say gold, gold is really an asset. You don’t go down to your corner shop and spend gold. In the crypto world, these things aren’t really currencies because you can’t really spend them freely. Of course, you can always barter gold for something. You can always barter a crypto asset for something, but it’s not readily accepted in many, many places. So these things are really assets that you hold onto and wait for a buyer who appreciates the asset more than you to buy it.

 

You’re not going out and buying your groceries or a new car or anything with that asset. You can’t do that with this artwork. You can’t spend it. So it’s questionable. I’m not saying it’s nothing, but it’s questionable. It’s not really the market fit. I don’t really understand it. Maybe this is genius, but it just doesn’t seem like it right now.

 

JR: Tony, thanks very much indeed. I still keep on thinking of tulips anyway. Tony, I was just going to ask you whether you had a lot of similar experience, but experience of unpleasantness, London.

 

TN: Sure. Absolutely. In my 20s, I was with a retailer in their headquarters and and then again later in my career. You know, this is it’s not anything that is rare. I don’t think. Well, maybe it is more rare now, but it’s terrible for everyone involved.

 

JR: And it doesn’t seem to go away even in the virtual world. That’s where we got time for on business matters. Thank you very much indeed for listening. And thank you, Tony. Thank you so much for being my guest on Business Matters. Goodbye.

 

Categories
Podcasts

Could This Be The Tail End Of The Bull Run?

In this BFM The Morning Run episode, Tony Nash explains what’s happening in the US markets, particularly the tail end of the bull run. Will value stocks improve now as compared to the growth stocks? How about stay-at-home stocks VS cyclicals? Also discussed are currencies, USD against the Japanese Yen and Chinese Yuan, and the labor market.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/could-this-be-the-tail-end-of-the-bull-run on April 1, 2021.

 

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Show Notes

 

WSN: Good morning, Tony. Now, is it likely that the U.S. indices will run out of steam for the moment? I mean, pausing to take stock of the earnings, are equity markets gravitating to what’s stay at home stocks or cyclicals?

 

TN: The problem with where we are now is that all value was stretched. Monetary policy and stimulus have really pushed money into equity markets as the remaining stimulus checks are distributed, meaning a lot of those stimulus checks are in the mail right now in the post going to homes in the US. So there’s a lot of investment expected and pushing against maybe the downdraft in equity markets. So I don’t think it’s really a question of stay at home versus cyclicals. It’s really a question of where is that value?

 

I don’t think it’s a sector question. It’s really an individual stock picking question. And that’s the problem. It’s not a sector market. It’s not a market wide phenomenon. We really have to understand where there is value because we’re in the very tail end of a bull market.

 

PS: Previously, it was the long and now five year Treasury treasuries are inching up. What impact will an upward shift of the whole yield curve have on equities?

 

TN: I think we’re seeing equities try to climb higher, but we’re not quite getting. The five year is up over five percent today on an incremental basis was up five point six percent. The 10 year is up two point three percent today. So, you know, there are a lot of risks out there. Ongoing Covid risk. France just closed down again today. There are geopolitical risks with the US and China and other geopolitical risks, of course, Syria and so on.

 

Iran, business supply chain risks. So, you know, with yields rising and the pressure on equity markets to rise as well, we believe that there’s going to come a point where equity markets break and we’re going to start to see see a decline in equity markets. So yields will rise in the U.S. and equity markets will inevitably decline, and that will likely bring some other global markets with it.

 

WSN: OK, Tony, let’s shift the conversation to currencies, because the U.S. dollar has really made some strident gains against both the Chinese yen and the Japanese yen. I just want to know, why are these two currencies taking such a beating in particular?

 

TN: Well, both currencies strengthened quite a bit in Q3 of twenty twenty and stayed strong until recently. CNY had been below seven and a bit well actually just above seven and it climbed to almost six point four versus the US dollar. So there’s been a lot of strength in both, as you say, Chinese and Japanese currencies. What’s happened while we’ve had those depreciated currencies is an accumulation of inventories of commodities like industrial metals. We’ve seen the copper price rise dramatically, for example.

 

And so as we see treasuries rise in the US, and that brings dollar strength, we’re seeing those manufacturers and those guys who’ve been building their commodity inventories in East Asia really slow down on those purchases and their future commitments. So we’ll likely see a lot of those currencies stabilize and weaken a bit more we don’t expect. A dramatic weakening from here, we don’t expect the US dollar to appreciate dramatically more, say, for the next few months. So we’re kind of in a range, we believe, for both.

 

We do see the CNY, for example, devaluing to say six point six to six point seven. And then, you know, we’ll kind of stabilize in that range unless there’s a dramatic impact.

 

PS: So a correction is in inventory levels readjust. Can I just shift your attention to oil? Because oil prices are at levels near the break even point for US shale producers. Are you expecting to see a resumption of shale activity this year?

 

TN: Well, yeah, we you know, living in Texas, we see a lot of shale activity here. So we do expect it to start slowly. But that business runs in a way where if we’re chasing price, more of those shale firms will come online pretty quickly, actually. So, you know, with the ability for shale to turn off and turn on so quickly, we believe that the prices will be range bound if there’s upward price pressure, you know, all things held equal.

 

If there’s you know, if there isn’t a major geopolitical issue in the Middle East or isn’t a major geopolitical issue in Asia or something, we think that will be fairly wrage range bound as those as those guys come back online. The shale producers.

 

WSN: Meanwhile, Tony, U.S. numbers, job numbers excuse me, are out on Friday. Are they expected to show a robust recovery in labor markets, in your opinion? Like what sectors grew the fastest in terms of employment?

 

TN: Well, you know, we’re starting to see quite a lot more capacity in airlines, although we don’t expect a lot of hiring there. The services around, say, travel and hospitality, they were devastated in twenty twenty. And we expect some of those jobs to come back online. We expect to see some restaurant jobs, some of those services jobs to come back online. That’s where we typically see these things come back first, relatively kind of lower wage, but more flexible workforces.

 

And so we’ll see activity there first. Tourism in the US obviously still isn’t up to what it was, but we have started to see some impact back in tourism. So I would expect to see some some interesting numbers there.

 

WSN: OK, thank you for your time. That was Tony Nash, CEO of Complete Intelligence, sadly reminding us that this is maybe the tail end of the bull run that we had been enjoying.

 

It was a very short one, is that it honestly, in March 2020 when markets collapsed and then because of the concerted, synchronized monetary policies that we saw around the world, central banks really pushing rates to ultra low equity markets rallied and rallied till now.

 

So he thinks we’re in the tail end and we should stop beginning to look at value stocks as opposed to growth stocks.

 

PS: And I think specific sector specific stocks, in fact, actually.

 

WSN: Yeah.

 

PS: It’s kind of very good.

 

Go for the jugular on specific things.

 

WSN: Yeah. I think you really do need to take a very bottom up approach as opposed from the top down approach. If you’re talking about the tail end of a bull cycle, what is also worrying is that he does say that with increasing yields in the U.S. and even on the shotted to bonds, which is the five year bonds, lightly equity markets, those are going to face another round of correction. And it’s not just going to be the U.S. it’s going to be other global markets as a result, because let’s face it, we take the cue from the U.S., right?

 

PS: Yeah.

 

WSN: If there is a shock there, there’s a shock around the world.

 

But what does it mean for Malaysia markets? Because yesterday we had a really terrible, terrible day.

 

And when I look at Bloomberg now and I’m trying to understand what caused the decline, it was really very much glove driven. Topcliffe hoteling, super Max, all coming under selling pressure as a result, took the index along with it, saying it was also the case for the telco sector. Zaatar was also down. Maxi’s was also down. There was actually no stock among the IBM, Kilsyth, the three component stocks, none were in the green. So clearly bad day.

 

We were down two point to two percent. And on original, on a year to day basis, we are actually down more than three percent.

 

PS: It’s incredible. I think also the conversation about currency is going to play. So we were talking to Tony about Japan and China. You heard and we saw disconsolately in Turkish I now emerging market currencies are going to all kind of a fall out in the short term.

 

WSN: Is there going to be a question of, you know, shift from emerging markets into developed markets? That’s the big question. But in about a few minutes, in light of April Fool’s Day, we’ll be speaking to resolve. Then Gizzle, comedian and the co-founder of Crack House Comedy Club. Stay tuned for that BFM eighty nine point nine.

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Why legacy car brands, IT giants are rushing to make electric cars

This article originally published at http://www.arirang.co.kr/News/News_View.asp?nseq=274827 on April 1, 2021.


Can Hyundai, Kia, Volkswagen, GM make better electric cars than Tesla? Last year, sales of electric cars surged 44.6% despite the general downturn of car sales in the global market. In early 2021, a number of automobile giants announced plans to go fully electric within the next ten years. Can they beat the likes of Tesla and offer innovative rides for consumers?

 

Show Notes

 

SO: Last year sales of electric cars surged 44.6 despite the general downturn of car sales in the global market and that trend looks set to accelerate in early 2021. A number of automobile giants including Volkswagen, General Motors and Volvo announced plans to go fully electric within the next 10 years but can they beat the likes of Tesla and offer innovative rides for their customers?

 

For insights on this we turn to Tony Nash, CEO and founder of Complete Intelligence based in Houston, Texas and Jason Salvucci, national manager of the Overseas Military Sales Group based in Seoul but currently in Okinawa. Well, a very warm welcome to you both and well Tony good to see you again.

 

I think it’s our first time connecting this year but well we’ve seen we’ve heard some very exciting news coming from these automakers and the likes of Volkswagen and General Motors. They’re going all electric they’re really moving away from this at the main business that they’ve been building over the decades based on combustion engines.

 

What’s led them to take this risk and do you think it’s the right move?

 

TN: I think, it’s a move that they have to make. Whether or not it’s a move that they want to make. I don’t think there’s really a lot of debate there but I think their equity market valuation they have to catch up well.

 

I don’t know that they will but they’ll try to catch up with say Tesla or something within terms of the equity market valuation but the customer perception they’re actually making viable EVs that they want is really critically important especially with younger customers. But from a balancing perspective at least in the US for example there are emission standards and the more electric vehicles they produce that also allows them produced to produce other larger vehicles SUVs and other high polluting vehicles. So as long as on an average basis they keep it down to the emission standards.

 

They can produce EVs to allow them to produce say the SUVs that other say consumers want. So, it’s both perception and equity market valuation as well as balancing out the regulatory aspects.

 

SO: So, they’re wearing the different sort of costs and risks here. Well, Jason, what’s your thoughts on this? I mean the world’s biggest legacy automakers scrapping their combustion engines. Do you think they’re making the right move?

 

JS: You know, I kind of got to agree with Tony that this is electric is the future. I mean, they have no choice. It’s not just the standards. Electric cars are easier to maintain. They’re quieter. They’re cleaner. They’re more efficient. I mean, the power is better it’s the way everything’s going. I mean, we don’t really have much choice in the matter. While it may not be 100 electric tomorrow. We’re getting there.

 

The big manufacturers if they want to, they want to play with you know companies like Tesla, they have no choice. That’s where the future is.

 

SO: And the force Tony, Tesla is without a doubt the world’s most iconic electric car company but do you think it’s leading the global market is going to last with all these other competitors now coming into the market these giant auto businesses? And are these car makers catching up quickly enough in terms of battery technology and other key technologies?

 

TN: Well obviously, they have a lead but will they be able to keep it as the real question. I think they may be able to keep it for a few years but I’m not sure that they can keep it say over the medium to long term.

 

So, Tesla has a lead but that gap is closing. And with technology they can use external, say sources to either acquire or develop the battery technology that they need to compete with Tesla. So, I think really at the end of the day it comes down to: can you produce a quality vehicle? Can it perform like consumers want and does it drive like consumers want?

 

So, the novelty of an EV is wearing off. And as it goes broad-based that first user advantage or first user interest wears off. And the broad market really just wants a functional car that is electric. And so, you have the segmentation and other things but I think Tesla is going to have a tougher job going forward to keep the lead that it’s got.

 

SO: Well, Jason is it as straightforward as one might think for these giant automakers to transition into all EV?

 

I mean, what are the major differences that traditional car makers are going to have to adapt to and really face as they transition into all electric?

 

JS: Well, the manufacturing process for one, you know, the number of components in a combustion engine vehicle, compared to an electric car, it’s night and day. I mean it goes beyond the manufacture of the vehicle. It’s the maintenance of the vehicle it’s really everything.

 

The shell may look the same but when you transition to, you know even a mild hybrid to a all-electric vehicle. It’s completely different. Not only will the way the cars are sold have to change but also because how the customers buy the cars. How they maintain. How they operate the cars everything changes. It’s not as simple as just shifting from one to the other.

 

So, I think that the manufacturers have quite a task ahead of them. They are really playing catch up, if they want to grow in this and be industry leaders as they have been for years like Volkswagen, Toyota, Ford. They were industry leaders for years and they’ve surrendered that position to a startup company like Tesla.

 

SO: Right and there was some news this week that Volkswagen might be changing its name in the US to Voltswagen. So, really goes to show. It’s not as easy or straightforward as simply changing the name and probably…

 

JS: That’s an April fool’s joke by the way. Yeah, it was April fool’s joke. I fell for it too. Voltswagen is their April fool’s joke.

 

SO: It was a bit too early for April fool’s day but well thankfully yes, they’re retaining the Volkswagen brand. And well Tony, internet companies like Apple and Google and apparently Xiaomi now and Huawei. They’re working on electric vehicles as well and it’s clearly not going to be such an easy ride. So, what’s really in it for them? And what kind of innovations do you think they’re going to bring to the market as tech companies?

 

TN: Well, that’s a great question. Jason brought up a great point about the business models and as you move into the more software-based business models that EVs are you move into a different ability. In a different way for consumers to pay for things. And you know, I think it’s possible for kind of that big expense of a car that a consumer would buy instead of it being financed. It could be a service fee that’s put over a period of time. I don’t really know what that model looks like but these software companies are companies that really balance out especially Apple. A hard asset like a phone plus monthly recurring software fees.

 

And so, these guys will come into the market. Understanding the risk associated with making hardware and balancing that out with software fees. Whereas automakers traditional automakers at least are accustomed to one big transaction that gets financed by a third party. So, it’s a fundamental change in the business model.

 

SO: And Jason, now South Korean car makers, Hyundai and Kia. They currently set fourth place in the global EV markets and of course Kia having unveiled its EB6 this week. And Honda continuing to expand this EB lineup, of course.

 

So, how competitive are these South Korean car makers products? And do you think they’re really going to have to step up the game? Now as market leaders global market leaders Volkswagen GM they’re going out all electric?

 

JS: I’ve been in South Korea 20 years and the way cars have improved in the last 20 years is phenomenal. When I first got to South Korea. Korean cars were far behind but now the fit, the finish, the quality is amazing.

 

I think the larger auto manufacturers are going to get a run for their money by the likes of Hyundai and Kia when it comes to electric vehicles. I really do.

 

SO: So, what kind of… I suppose, what kind of advantages or what kind of features do you think they offer Jason that might really help them really engage in the competition especially as all these car makers go electric?

 

JS: It seems to me the… not just the quality but the design of the Korean cars is a little more exciting than some of the other manufacturers. That’s what I’ve noticed over the last couple of years, is that they’re good-looking cars and they’re reliable. And the price points are, well, I mean they’ve significantly come up in cost in the last 20 years, that’s for sure but they’re nice. And I see a future of like a subscription type of service for electric cars because you know the United States every three years to 39 months. Americans are trading their vehicle up trading in one car for another car. And we have a traditional dealer manufacturer, dealer model that we have to require our customers to go through a subscription service in the future.

 

It is definitely, in the makes for electric cars because you’ll trade out of them much more frequently.

 

SO: So, it’s not just the hardware but also the software that’s going to bring about a lot of changes in how we consume electric vehicles, as well. And of course, everyone cares about the design too. And well Tony, it seems that EVs really are the future but it looks like for now the stock market is quite confused about the prospects they’ve been fluctuating. They’ve been declining over the last few weeks. And of course there was a boost on Wednesday after the Biden administration announced its plans to really ramp up green vehicles and infrastructure but what do you make of these market fluctuations? And how does Complete Intelligence really project the demand or market for electric vehicles in the near future?

 

TN: Sure, obviously there’s a healthy market ahead. I think the equity market fluctuations over the last few weeks are really just, that its markets searching for the right price. And there are so many different variables with bond prices. And currencies. And equity markets that are going into the calculations around the stock market prices for these companies but I do think that those companies that will not only crack the battery technology. And the value proposition for the market but also the business model, as Jason mentioned. Those companies are the ones that the equity analysts. And the investors will really want to follow.

 

So, Tesla is a high visibility leader, early leader in electric cars. And I think they’ll remain a leader but the volume of cars that they produce compared to say a Volkswagen on an annual basis is tiny. And so, the scale that a Volkswagen or a Hyundai or somebody can bring to this market can overwhelm almost an artisan car maker like a Tesla.

 

That’s I don’t mean that as an insult to Tesla at all they’ve done some amazing groundbreaking work but they just don’t have the scale that a Volkswagen or Hyundai has.

 

SO: Well, the likes of Volkswagen and Volvo. They’re going all electric Jason but Hyundai seems to be putting its eggs in multiple baskets. It’s been betting on hydrogen cars as well. Which right now are considered a bit less economical. And there’s also a lack of supportive infrastructure in most parts of the world.

 

Do you think this investment is going to pay off for the company?

 

JS: I think the future is multi-faceted. I don’t necessarily see the entire replacement of the combustion engine, anytime soon. I mean, they’ll definitely be hybrid vehicles, will be mild hybrid plug-in hybrids. There’ll be some hydrogen fuel cell vehicles. I think that there’s multiple avenues that manufacturers will have in the future.

 

So, that we can kind of have something for everybody. I don’t know that the investment in the infrastructure for hydrogen pays off because right now extracting the hydrogen requires fossil fuels. That’s a bit of a problem until they can crack the hydrogen extraction of via solar or something like. That it’s a bit of an… it’s not there yet. I don’t think.

 

SO: And Tony, before we go now there’s a massive EV market in China. And recently, Huawei technologies. They’ve come out and said they’re going to invest billions into that market.

 

How do you see the prospects and do you see China sort of leading the global market in terms of EVs just with the massive number of consumers they have?

 

TN: Sure, I think, Yes. I think China’s challenge is moving their vehicles beyond China and beyond Asia. There’s so much intense competition from Korea, Japan, the US, Germany and so on and so forth, that I think their challenge will be taking an electric domestic, electric vehicle market that will be massive. And moving that into other countries whether it’s safety standards or features or business models.

 

I think, there is something especially with technology that is specific to China that is very difficult to move beyond Asia. And so, if there is a Chinese EV maker, who can move beyond China and beyond Asia. I think they’ll do very very well.

 

SO: See, well, this is all we have time for today but that was Tony Nash, CEO and founder of Complete Intelligence and Jason Salvici, national manager of the Overseas Military Sales Group.

 

Thank you both so much for your insights today. And to our viewers, as always, thank you for watching.